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Article 1767
Separate Article 1768 A partnership
Concept of Partnership Personality states that a being
partnership considered
- often called “co-partnership” from the has a juridical merely an
viewpoint of a contract. personality of extension of
its own, its members
1) Contract – two or more persons contracting distinct and
to do business and divide the profits from such. separate
from that of
2) Association – two or more persons to carry each of the
on as co-owners of a business for profit. partners
Taxes partnerships, Does not pay
3) Legal Relation – two or more persons unite except federal or
their property, labor, or skill in carrying on some general state income
lawful business. professional taxes
partnerships, (although for
4) Status – a status arising out of a contact are treated purposes of
for income information it
5) Organization – for the production of income tax purposes is required to
to which each partner contributes one or both as fi le a
the ingredients of income, which are capital or corporations partnership
service. and subject tax return).
to tax as
6) Entity – distinct and apart from the members such. (Sec. The
composing it. 20b, 24a, individual
NIRC). members of
7) Joint undertaking – sharing the profit and loss the
partnership
Civil law concept and American concept of severally pay
partnership distinguished their income
taxes, the
Civil Code American partnership
business
Concept Civil Code American
being
speaks of a concept of a
regarded
partnership partnership is
merely as
as a contract relation.
a source of
income.
Article 1767 Anglo-
states that American
partnership is idea is that
an partnership is Partnership as a Profession
agreement based on the
itself out of result of the Profession is a group of men pursuing a learned
which a contact or art as a common calling in the spirit of public
partnership is agreement of service — no less a public service because it
created. the parties may incidentally be a means of livelihood.
creating the
partnership. Practice of a profession is not a business or an
enterprise for profit. However, the law allows the
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joint pursuit thereof by two or more persons as
partners.
Individual partners, and not the partnership, who
engage in the practice of the profession and are
responsible for their own acts as such.
The law does not allow individuals to practice a
profession as a corporate entity. Personal
qualifications for such practice cannot be
possessed by a corporation.
Partnership for the practice of law
The use of a nom de plume, assumed, or trade
name in law practice is improper.
The practice of law is intimately and peculiarly
related to the administration of justice and
should not be considered like an ordinary
“money-making trade.’’
Primary characteristics of legal profession
1) Duty of public service
2) Officer of court
3) Relation to clients in the highest fiduciary
degree
4) Relation to colleagues at the bar
Characteristic elements of Partnership
C-N-B-0-C-P-P
1) Consensual – perfected by mere consent
2) Nominal – special name or designation in our
law
3) Bilateral – entered into by two or more
persons and the rights and obligation arising
therefrom are always reciprocal.
4) Onerous – aspires to procure for himself a
benefit through the giving of something.
5) Commutative – undertaking of each of the
partners is considered as the equivalent of that
of others.
6) Principal – does not depend for its existence
or validity upon other contracts.
7) Preparatory – entered into as a means to an
end.
Essential features of partnership V-L-M-O-P
1) Valid contract
2) Parties must have legal capacity to enter
contract
3) Mutual contribution of money, property, or
industry
4) Object must be lawful
5) Primary purpose must be to obtain profits and
to divide the same among the parties
Note: Partnership must not be kept secret
among the members. If so, the association shall
have no legal personality and is governed by the
provisions of the CC on co-ownership. (Article
1775)
Existence of a valid contract
Voluntary relation created by agreement of the
parties. It excludes from its concept all other
associations which do not have their origin in a
contract, express or implied.
Partnership relation is not the contract itself,
but the result of the contract.
1) Form – terms of the contract which may be
oral or written, express or implied from the acts
and declarations of the parties, subject to the
provisions of Articles 1771 to 1773 and to the
Statute of Frauds.
2) Article of Partnership - customary to embody
the terms of the association in a written
document known as “Articles of Partnership”
stating the name, nature or purpose and
location of the fi rm, and defining, among others,
the powers, rights, duties, and liabilities of the
partners among themselves, their contributions,
the manner by which the profits and losses are
to be shared, and the procedure for dissolving
the partnership.
3) Requisites - fundamentally contractual, all
the essentials of a valid contract must be
present:
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a) Consent and capacity of the
contracting parties;
b) Object which is the subject matter of
the contract; and
c) Cause which is established. (Article
1318)
Partnership relation is fiduciary in nature
Voluntary association entered into by the
associates. It is a personal relation in which the
element of delectus personae exists, involving
as it does trust and confidence between the
partners.
a) Right to choose co-partners - Unless
otherwise provided in the partnership
agreement, no one can become a
member of the partnership association
without the consent of all the other
associates.
b) Power to dissolve partnership -
doctrine of delectus personae allows
them to have the power, although not
necessarily the right, to dissolve the
partnership.
Any one of the partners may, at his sole
pleasure, dictate a dissolution of the
partnership at will. However, act in good
faith, not that the attendance of bad faith
can prevent the dissolution of the
partnership but that it can result in a
liability for damages.
c) Application of principles of estoppel -
there is no actual or legal partnership
relation but merely a partnership liability
imposed by law in favor of third persons.
A partnership may be created without
any defi nite intention to create it.
In case there is no written agreement
between the parties, the existence or
non-existence of a partnership must be
determined from the conduct of the
parties, any documentary evidence
bearing thereon, and the testimony of the
parties
Legal capacity of the parties to enter into the
contract
1) Individuals - Any person may be a partner
who is capable of entering into contractual
relations.
Persons who cannot give consent to a
contract of partnership:
(a) Unemancipated minors;
(b) Insane or demented persons;
(c) Deaf-mutes who do not know how to
write;
(d) Persons who are suffering from civil
interdiction; and
(e) Incompetents who are under
guardianship.
In addition:
a) Article 1782, persons who are
prohibited from giving each other any
donation or advantage cannot enter into
a universal partnership.
Note: A married woman may enter into a
contract of partnership even without her
husband’s consent, but the latter may
object under certain conditions.
2) Partnerships - no prohibition against a
partnership being a partner in another
partnership.
3) Corporations - a corporation is without
capacity or power to enter into a contract of
partnership.
XPNs:
a) A corporation, however, may enter into
joint venture partnership with another
where the nature of the venture is in line
with the business authorized by its
charter.
b) Where the partnership agreement
provides that the two partners will
manage the partnership so that the
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management of corporate interest is not
surrendered.
c) entry of the foreign corporation as a
limited partner in a limited partnership is
merely for investment purposes.
Contribution of money, property, or industry
to a common fund
The element of mutual contribution to a common
fund there can be no partnership (see Art.
1784.), although its presence is not necessarily
a conclusive evidence of the existence of
partnership
In partnership, proof is necessary that there be
contribution of money, property, or industry to a
common fund with the intention of dividing the
income or profits obtained therefrom.
a) Money - Legal Tender. Checks, drafts,
promissory notes payable to order, and
other mercantile documents are not
money but only representatives of
money. there is no contribution of money
until they have been cashed.
b) Property - may be real or personal,
corporeal or incorporeal. Credit such as
promissory note or other evidence of
obligation or even a mere goodwill may
be contributed, as they are considered
property.
c) Industry - In the active cooperation, the
work of the party associated, which may
be either personal manual efforts or
intellectual.
A limited partner in a limited partnership,
however, cannot contribute mere
industry or services. (Article 1845)
Legality of the object
Object is unlawful when it is contrary to law,
morals, good customs, public order, or public
policy. The purpose of a partnership must be
lawful (Art. 1770.) otherwise, no partnership can
arise as the contract is inexistent and void ab
initio. (Art. 1409[1].)
(e.g. to create illegal monopolies or
combinations in restraint of trade (Art.
185, Revised Penal Code.); to carry on
gambling (Arbes vs. Polistico, 53 Phil.
489 [1929].); to engage in smuggling; to
lease furnished apartments to
prostitutes; to prevent competition in
bidding for government contracts; to
control the price of a commodity in the
interest of its members, etc.)
Purpose to obtain profits
The very reason for existence of partnership.
This element is what distinguishes the contract
of partnership from voluntary religious or social
organizations.
One without any right to participate in the profits,
cannot be deemed as partner since the essence
of partnership is that the partners share in the
profits and losses.
Need only be the principal, not exclusive aim. It
is sufficient that it is the principal purpose even
if there are, incidentally, moral, social, or
spiritual ends.
Sharing of profits
1. Not necessarily in equal shares, it is
necessary that there be an intention to divide
the profits among the members.
If excludes one or more partners from any
participation in the profits (or losses) is void.
2. Not conclusive evidence of partnership. The
division of profits is merely used as a guide to
determine the compensation due to one of the
parties, such one is not a partner.
Sharing of losses
1. Necessary corollary of sharing in profits - the
distribution of losses is but a “consequence of
the same.”
2. Agreement not necessary - not necessary for
the parties to agree upon a system of sharing
losses, for the obligation is implied from the
partnership relation but if only the share of each
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partner in the profi ts has been agreed upon, the
share of each in the losses shall be in the same
proportion.
Article 1768
Partnership, a juridical person
Partnership is sometimes referred to as a “firm’’
or a “company,’’ terms that connote an entity
separate from its aggregate individual partners.
Partnership duly formed under the law is a
juridical person to which the law grants a
juridical personality separate and distinct from
that of each of the partners.
It may enter into contracts and may sue and be
sued, it being sufficient that service of summons
or other process be served on any partner.
GR: Separate juridical personality possessed by
a partnership; the partners cannot be held liable
for the obligations of the partnership.
XPN: Unless it is shown that the legal fiction of
a different juridical personality is being used for
a fraudulent, unfair, or illegal purpose.
Effect of failure to comply with statutory
requirements
1. Article 1772 - In cases when the partnership
capital exceeds P3,000.00, such partnership
acquires juridical personality shall execute a
public instrument and registration of the same
with the Securities and Exchange Commission.
2. Articles 1773 and 1775 - partnership shall not
acquire any juridical personality because the
contract itself is void. Same with secret
associations or societies which do not acquire
juridical personality under Article 1775.
To organize a partnership not an absolute
right
Not a matter of absolute right but a privilege
which may be enjoyed only under such terms as
the State may deem necessary to impose.
Republic Act No. 1180 (Retail Trade
Nationalization Law) - only Filipinos may
engage in the retail business, cannot be
seriously doubted.
Article 1769
In determining whether a partnership exists,
these rules shall apply:
(1) Except as provided by article 1825, persons
who are not partners as to each other are not
partners as to third persons;
(2) Co-ownership or co-possession does not of
itself establish a partnership, whether such co-
owners or co-possessors do or do not share any
profits made by the use of the property;
(3) The sharing of gross returns does not of
itself establish a partnership, whether or not the
persons sharing them have a joint or common
right or interest in any property from which the
returns are derived;
(4) The receipt by a person of a share of the
profits of a business is prima facie evidence that
he is a partner in the business, but no such
inference shall be drawn if such profits were
received in payment:
(a) As a debt by installments or
otherwise;
(b) As wages of an employee or rent to
a landlord;
(c) As an annuity to a widow or
representative of a deceased partner;
(d) As interest on a loan, though the
amount of payment vary with the profits
of the business;
(e) As the consideration for the sale of a
goodwill of a business or other property
by installments or otherwise. (n)
Rules to determine existence of partnership.
All of its essential features or characteristics
must be shown as being present.
1. Terms of contact are not clear - In case of
doubt, Article 1769 shall apply.
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2. Where existence is disputed - The existence
of a partnership may be disputed by an
interested party.
Persons not partners as to each other
If they are not partners as between themselves,
they cannot be partners as to third persons.
1. Intention to create partnership - each party
giving his consent to become a partner.
2. Partnership by estoppel
GR: A partnership can never exist as to
third persons if no contract of
partnership, express or implied, has been
entered into between the parties
themselves.
XPN: partnership by estoppel -- where
persons by their acts, consent, or
representations have misled third
persons or parties into believing that the
former are partners in a non-existing
partnership, such persons become
subject to liabilities of partners to all who,
in good faith, deal with them in their
apparent relations.
Co-ownership or co-possession
Co-ownership (or co-possession) – There is
such whenever the ownership (or co-
possession) of an undivided thing or right
belongs to different persons.
(1) Clear intent to derive profits from operation
of business. - Coownership of property does not
of itself establish the existence of a partnership,
although “co-ownership” is an essential element
of partnership.
a) Two or more persons may become co-
owners without a contract (inheritance or
by law) the partners become co-owners,
not of the property, but of the right to use
such property.
b) Developed or operated a common
property, since they may rightfully do this
by virtue of their respective titles.
(2) Existence of fiduciary relationship. - There is
a well-defined fiduciary relationship between
them as partners. So, if the parties are merely
co-owners, there is no fiduciary relationship
between them.
If the parties are partners, the remedy for a
dispute or difference between them would be an
action for dissolution, termination, and
accounting. Where the relationship is that of co-
owner, the remedy would be an action (e.g. non-
performance of a contract).
(3) Persons living together without benefit of
marriage. - Article 147, the property acquired by
a man and a woman who live together as
husband and wife shall be governed by the rules
on co-ownership.
Sharing of Gross returns
Rule - not even presumptive evidence of
partnership. The mere sharing of gross returns
alone does not indicate a partnership.
Reason - Where the contract requires a given
portion of “gross returns” to be paid over, the
portion is paid over as commission, wages, rent,
interest on a loan, etc.
XPN: Where there is evidence of mutual
management. If there is further evidence of
mutual management and control, a partnership
may result, even though the agreement calls for
a portion of “gross returns.”
Receipt of share in the profits.
1. Strong presumptive evidence of partnership -
the mere fact of a right under the contract to
participate in both profits and losses of a
business does not of itself have the effect of
establishing a partnership between those
engaged therein.
Sharing of profits and losses is prima facie
evidence of an intention to form a partnership
but not a conclusive evidence.
2. When no such inference will be drawn. -
paragraph 4 of Article 1769, sharing of profits by
a person is not a prima facie evidence that he is
a partner in the business in the cases
enumerated under sub-paragraphs (a), (b), (c),
(d), and (e).
Basic Test of Partnership
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Whether the business is carried on in behalf of
the person sought to be held liable. And persons
who are partners in fact may not avoid the
consequences of the relation by mere word of
denial.
3. Sharing of Profits as owner. - not merely the
sharing of profits, but the sharing of them as co-
owner of the business or undertaking, that
makes one a partner.
Test: Does the recipient of a share of the profits
have an equal voice as proprietor in the conduct
and control of the business? Does he own a
share of the profits as proprietor of the business
producing them?”
In other words, to be a partner, one must have
an interest with another in the profits of a
business as profits.
Burden of proof and presumption
Burden of proving the existence of a partnership
rests on the party having the affirmative of that
issue.
1.The existence of a partnership must be proved
and will not be presumed.
2. Where the law presumes the existence of a
partnership (supra.), the burden of proof is on
the party denying its existence.
3.Presumption is that it continues in the
absence of evidence to the contrary, and the
burden of proof is on the person asserting its
termination.
4. One who alleges a partnership cannot prove
it merely by evidence of an agreement wherein
the parties call themselves partners, since use
of the term “partner” will not necessarily import
an intention that a legal partnership should
result.
5. “associate” means “partner,” but a mere
employee may also be an “associate.” “We” and
“us,” when used in an editorial sense, are not
conclusive.
6. Parties intending to do a thing which in law
constitutes partnership are partners, whether
their purpose was to create or avoid the relation.
Legal intention is the crux of partnership.
Tests and incidents of partnership.
In determining whether a partnership exists, it is
important to distinguish between tests or indicia
and incidents of partnership.
1. Terms of a contract. - test by which to
ascertain the legal nature of the contract.
“whether or not the parties intended that
relationship to be called partnership or believed
it to be a partnership”
2. Typical incidents:
a) The partners share in profits and
losses.
b) They have equal rights in the
management and conduct of the
partnership.
c) Every partner is an agent of the
partnership, and entitled to bind the other
partners by his acts, for the purpose of its
business. (Art. 1818.)
d) All partners are personally liable for
the debts of the partnership with their
separate property (Arts. 1816, 1822-
1824.) except that limited partners are
not bound beyond the amount of their
investment (Art. 1843.)
e) fiduciary relation exists between the
partners.
f) The partnership is not terminated, but
continues until the winding up of
partnership is completed.
Partnership distinguished from a labor
union
A labor union is any association of employees
which exists in whole or in part for the purpose
of collective bargaining or of dealing with
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employers concerning terms and conditions of more that 10
employment. years is not
allowed.
The purpose of partnership is essentially to
Disposal of A partner may May freely
enable its members, as principals, to conduct a
Interest note dispose of do so.
lawful business, trade, or profession for
his individual
pecuniary gain of partners, and no one may
interest in the
become a partner without consent of all
partnership.
partners.
Power to A partner may Cannot
Partnership distinguished from a business act with bind the represent the
trust third partnership co-
persons ownership.
A trust is the legal relationship between one Effect of The death of a Does not
person (beneficiary) having the equitable death partner results necessarily
ownership in property and another (trustee) in the dissolve the
owning the legal title to such property, the dissolution of co-
equitable ownership of the former entitling him the partnership. ownership.
to the performance of certain duties and the
exercise of certain powers by the latter.
Partnership distinguished from conjugal
Distinction between partnership and trust
partnership of gains
relation. - in the partnership, all of the members
are principals and are agents for each other. Conjugal partnership of gains is a partnership
While, trustee is only a principal and is not an formed by the marriage of husband and wife by
agent. virtue of which they place in a common fund the
fruits and income of their separate properties
Partnership distinguished from co-
and those acquired through their efforts or by
ownership.
chance.
Partnership Co-
Partnership Conjugal
ownership
Partnership
Creation Always created Generally of Gains
by a contract created y
Parties voluntary future
(Art. 1767) law. It may
agreement of two spouses — a
either exist even
or more partners man and a
expressed or without a
(Art. 1767.) woman —
implied. contract.
belonging to agree that it
Judicial Juridical None. either sex shall govern
personality personality their
separate and property
distinct from relations
that of each during the
partner. marriage
Purpose Realization of Common Laws stipulation of the Law (Arts.
profits. enjoyment of which parties 105-133)
a thing or govern
right.
Juridical Has Juridical None
Duration No limitation An Personal Personality
upon duration agreement to ity
keep the
Commen Begins from the Date of the
thing
cement moment of the celebration
undivided for
execution of the of the
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contract. Unless marriage Purpose always organized objective is
otherwise and any for pecuniary lacking
stipulated. stipulation to profit
the contrary Contribu contribution of social
is void. tions of capital, either in purposes,
Purpose Obtain profits Regulate the member the form of although
property s money, property, fees are
relations of or services usually
husband and collected
wife during from the
the members to
marriage. maintain
Distribut profits are divided shares of the the
ion of according to the spouses organization,
profits agreement of the in the profits there is no
partners or in are divided contribution
proportion to their equally of capita
respective capital Liability one liable in the the members
contributions of first place for the are
Manage shared equally by although the member debts of the firm individually
ment all the partners administratio s liable for
unless one or n belongs to the debts of
more of them are both the
appointed spouses association,
managers in the jointly the authorized
articles of husband’s by them
partnership decision either
shall prevail expressly
in case of or impliedly,
disagreeme or
nt subsequentl
Dispositi whole interest of a share of y ratified by
on of partner may be each spouse them
shares disposed of cannot
without the be disposed
Partnership distinguished from a
consent of the of during the
corporation
other partners marriage
even with the Partnership Corporation
consent of
the Manner of mere created by
other. Creation agreement of law or by
the parties operation of
law
Partnership distinguished from a voluntary Number of may be (except a
association. incorporators organized by corporation
only two sole)
Partnership Voluntary
persons requires at
Association
least five
Judicial Has J.P. None incorporators
Personal
ity
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Commencement From the Date of liable shares
of juridical moment of issuance of personally subscribed
personality the the and by them
execution of certificate of subsidiarily
the contract incorporation (sometimes
of by the solidarily) for
partnership Securities partnership
and debts to third
Exchange persons
Commission Transferability a partner a
Powers exercise any can exercise of interest cannot stockholder
power only the transfer his has
authorized powers interest in generally the
by the expressly the right to
partners granted by partnership transfer his
provided it is law or so as to shares
not contrary implied from make the without the
to law, those transferee a prior consent
morals, good granted or partner of the other
customs, incident to its without the stockholders
public order, existence consent of all because a
or public the other corporation
policy existing is not based
Management management the power to partners on this
is not agreed do business because the principle
upon, every and partnership
partner is an manage its is based on
agent of the affairs is the principle
partnership vested in the of
board of delectus
directors or personarum
trustees Term of partnership may not be
Effect of a partner as the suit existence may be formed for a
mismanagement such can sue against a established term in
a co-partner member of for any excess of 50
who the period of years
mismanages board of time extendible to
directors or stipulated by not more
trustees who the partners than 50
mismanages years in any
must be in one instance
the Firm name limited may adopt
name of the partnership any fi rm
corporation is required name
Right of no right of Has right by the provided it is
succession succession law to add not the
Extent of liability partners stockholders the word same as or
to third persons (except are liable “Ltd.” to its similar to any
limited only to the name registered fi
partners) are extent of the rm name

Dissolution may be can only be
dissolved at dissolved
any with
time by the consent
will of any or the
all of the State
partners
Governing Law Civil Code Corporation
Code
Similarities between a partnership and a
corporation
1. Juridical personality separate and distinct
from that of the individuals composing it;
2. Can act only through agents;
3. (Except a corporation sole) is an organization
composed of an aggregate of individuals;
4. Like a (stock) corporation, a partnership
distributes its profits to those who contribute
capital to the business (although an industrial
partner also shares in partnership profits);
5. Can be organized only where there is a law
authorizing its organization;
6. No matter how created or organized (except
a general professional partnership) is taxable as
a corporation, subject to income tax.
ARTICLE 1770
Object or purpose of partnership
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The illegality of the object will not be presumed;
it must appear to be of the essence of the
the relationship. Certain businesses (e.g., banking)
of may be engaged in only by corporations.
Effects of an unlawful partnership
1.The contract is void ab initio and the
partnership never existed in the eyes of the law.
2. The profits shall be confiscated in favor of the
government;
3. The instruments or tools and proceeds of the
crime shall also be forfeited in favor of the
government; and
4. The contributions of the partners shall not be
confiscated unless they fall under No. 3.
Partnership is dissolved by operation of law
upon the happening of an event which makes it
unlawful for the business of the partnership to
be carried on, or for the members to carry it on
in partnership.
Judicial decree is not necessary to dissolve an
unlawful partnership. However, it may
sometimes be advisable that a judicial decree of
dissolution be secured for the convenience and
peace of mind of the parties.
Right to return of contribution where
partnership is unlawful
1. Article 1770 does not state whether upon the
dissolution of the unlawful partnership, the
amounts contributed are to be returned to the
partners. Hence, the partners must be
reimbursed the amount of their respective
contributions.

Two essential elements of a contract of
partnership:
1. Legality of the object; and
2. Community of benefit or interest of the
partners.
The parties possess absolute freedom to
choose the transaction or transactions they
must engage in. The only limitation is that the
object must be lawful and for the common
benefit of the members.
2. The partner who limits himself to demanding
only the amount contributed by him need not
resort to the partnership contract on which to
base his claim or action.
3. Any other solution would be immoral, and the
law will not consent to the contribution
remaining in the possession of the manager or
administrator who has refused to return them by
denying to the partners the action to demand
them.
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Right to receive profits where partnership is
unlawful
1. Article 1770 permits no action for the purpose
of obtaining the earnings made by an unlawful
partnership.
2. Profits earned in the course of the partnership
do not constitute or represent the partner’s
contribution but are the result of the industry,
business, or speculation which is the object of
the partnership.
3. It would be immoral and unjust for the law to
permit a profit from an industry prohibited by it.
4. There can be no accounting demanded of a
partner for the profits which may be in his hands,
nor can a recovery be had.
Effect of partial illegality of partnership
business
1. An account of that which is legal may be had;
2. Where, without the knowledge or participation
of the partners, the firm’s profits in a lawful
business have been increased by wrongful acts,
the innocent partners are not precluded as
against the guilty partners from recovering their
share of the profits.
Effect of subsequent illegality of partnership
business
Dissolution of partnership. - “Any event which
makes it unlawful for the business of the
partnership to be carried on or for the members
to carry it on in partnership.” (Article 1830)
An event subsequent to the making of a valid
partnership contract which would render illegal
the business of the partnership as planned, will
not nullify the contract. And, an accounting may
be had as to the business transacted prior to
such time.
Community of interest between the partners
for business purposes.
Salient features of an ordinary partnership
1. A community of interest in profits and losses.
2. A community of interest in the capital
employed.
3. A community of power in administration.
The partners must be co-owners of the
business.
Property used in the business may belong to
one or more partners, so that there is no joint
property, other than joint earnings. Partners
may agree upon concentration of management,
leaving some of their members entirely inactive
or dormant.
The mere sharing of profits of itself does not of
necessity constitute a partnership or the
members partners inter se.
The court must consider all the essential
elements of a partnership in the light of the facts
of the particular case before deciding whether or
not a partnership exists.
ARTICLE 1771
Form of partnership contract
1. General rule. - no special form is required for
the validity or existence of the contract of
partnership.
2. Where immovable property or real rights are
contributed. - a public instrument shall be
necessary, without stating, unlike Article 1773,
that without the public instrument, the contract
is void. They require the execution of a public
instrument for the validity of a contract of
partnership whenever immovable property is
contributed thereto.
The transfer of real property to the partnership
must be duly registered in the Registry of
Property of the province or city where the
property contributed is located.
3. When partnership agreement covered by
Statute of Frauds. - An agreement to enter in a
partnership at a future time, which “by its terms
is not to be performed within a year from the
making thereof” is covered by the Statute of
Frauds. Thus, unenforceable unless in writing or
evidenced by some note or memorandum.
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Partnership implied from conduct
1. Binding effect. - Partnership may exist and
often exists in the absence of express
agreement, written or verbal, between the
parties.
Its existence may be implied from the acts or
conduct of the parties, as well as from other
declarations, and such implied contract would
be as binding as a written and express contract.
2. Ascertainment of intention of parties. - the
intention as disclosed by the entire transaction,
and as gathered from the facts and from the
language employed by the parties as well as
their conduct, should be ascertained.
3. Conflict between intention and terms of
contract. – if the parties intend a general
partnership, they are general partners although
their purpose is to avoid the creation of such a
relation.
An association as a general partnership it
appearing that the inclusion of “Ltd.”
ARTICLE 1772
Registration of partnership
1. Partnership with capital of P3,000.00 or more.
(a) The contract must appear in a public
instrument; and
(b) It must be recorded or registered with
the Securities and Exchange
Commission
Failure to comply with the above requirements
does not prevent the formation of the
partnership or affect its liability and that of the
partners to third persons.
2. Purpose of registration - a condition for the
issuance of licenses to engage in business or
trade. In this way, the tax liabilities of big
partnerships cannot be evaded and the public
can also determine more accurately their
membership and capital before dealing with
them.
3. When partnership considered registered. -
from the date the partnership papers are
presented to and left for record in the
Commission.
ARTICLE 1773
Partnership with contribution of immovable
property
1. Requirements:
(a) The contract must be in a public
instrument (Art. 1771.); and
(b) An inventory of the property
contributed must be made, signed by the
parties, and attached to the public
instrument.
2. As to contracting parties. - Article 1773 is very
clear that the contract is void if the formalities
specifically provided therein are not observed,
implying that compliance therewith is absolute
and indispensable for validity.
3. As to third persons. - Article 1773 is intended
primarily to protect third persons. With regard to
them, a de facto partnership or partnership by
estoppel may exist.
When inventory is not required
An inventory is required only “whenever
immovable property is contributed.”
Article 1773 does not apply in the case of
immovable property which may be possessed or
even owned by the partnership but not
contributed by any of the partners.
If personal property, aside from real property, is
contributed, the inventory need not include the
former.
Importance of making inventory of real
property in a partnership
1. To show how much is due from each partner
to complete his share in the common fund and
how much is due to each of them in case of
liquidation.
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2. Execution of a public instrument of
partnership would be useless if there is no
inventory of immovable property contributed
because without its description and designation,
the instrument cannot be subject to inscription
in the Registry of Property, and the contribution
cannot prejudice third persons. Thus, the
contract is declared void by law when no such
inventory is made.
ARTICLE 1774
Acquisition or conveyance of property by
partnership.
Given its juridical personality, partnership may
acquire the immovable property.
The right of a partnership to deal in real as well
as personal property is subject to limitations and
restrictions prescribed by the Constitution (see
Art. XIV, Secs. 3, 5, 8, 9, 11 thereof.) and special
laws. A partnership is an “association” within the
meaning of the word as used in the Constitution.
ARTICLE 1775
Secret partnerships without juridical
personality
Partnership relation is created only by the
voluntary agreement of the partners. (Art. 1767.)
It is essential that the partners are fully informed
not only of the agreement but of all matters
affecting the partnership. (Art. 1806.) Likewise,
a partner is considered the agent of his co-
partners and of the partnership in respect of all
partnership transactions.
Associations whose articles or agreements are
kept secret among the members (i.e., known to
some members only but withheld from the rest)
and wherein anyone of them may contract in his
own name with third persons are, by this article,
deprived of juridical personality for evidently
such associations are not partnerships. As
among themselves, they shall be governed by
the provisions relating to co-ownership.
Importance of giving publicity to articles of
partnership
It is essential that the articles of partnership be
given publicity for the protection not only of the
members themselves but also third persons
from fraud and deceit to which otherwise they
would be easy victims.
But a person may be held liable as a partner or
partnership liability may result in favor of third
persons by reason of estoppel.
ARTICLE 1776
Classifications of partnership
1) As to the extent of its subject matter
a) Universal partnership - refers to all the
present property or to all profits.
i) Universal partnership of all
present property
ii) Universal partnership of profits.
b) Particular partnership
2) As to liability of the partners
a) General partnership or one consisting
of general partners who are liable pro
rata and subsidiarily and sometimes
solidarily with their separate property for
partnership debts.
b) Limited partnership or one formed by
two or more persons having as members
one or more general partners and one or
more limited partners, the latter not being
personally liable for the obligations of the
partnership.
3) As to its duration.
a) Partnership at will or one in which no
time is specified and is not formed for a
particular undertaking or venture and
which may be terminated at any time.
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b) Partnership with a fixed term -
expiration of the term or completion of the
particular enterprise, the partnership is
dissolved, unless continued by the
partners.
4) As to the legality of its existence.
a) De jure partnership or one which has
complied with all the legal requirements
for its establishment.
b) De facto partnership or one which has
failed to comply with all the legal
requirements for its establishment.
5) As to representation to others
a) Ordinary or real partnership or one
which actually exists among the partners
and also as to third persons.
b) Ostensible partnership or partnership
by estoppel or one which in reality is not
a partnership, but is considered a
partnership only in relation to those who,
by their conduct or admission, are
precluded to deny or disprove its
existence.
6) As to publicity
a) Secret partnership or one wherein the
existence of certain persons as partners
is not avowed or made known to the
public by any of the partners;
b) Open or notorious partnership or one
whose existence is avowed or made
known to the public by the members of
the firm.
7) As to purpose
a) Commercial or trading partnership or
one formed for the transaction of
business
b) Professional or non-trading
partnership or one formed for the
exercise of a profession.
Kinds of partners
1. Under the Civil Code
a) Capitalist partner or one who
contributes money or property to the
common fund
b) Industrial partner or one who
contributes only his industry or personal
service
c) General partner (real partner) or one
whose liability to third persons extends to
his separate property; he may be either a
capitalist or industrial partner.
d) Limited partner or one whose liability
to third persons is limited to his capital
contribution. (see Art. 1843.) He is also
known as special partner. The terms
“general partner” and “limited partner”
have relevance only in a limited
partnership;
e) Managing partner or one who
manages the affairs or business of the
partnership; he may be appointed either
in the articles of partnership or after the
constitution of the partnership. (see Art.
1800.) He is also known as general or
real partner;
f) Liquidating partner or one who takes
charge of the winding up of partnership
affairs upon dissolution
g) Partner by estoppel or one who is not
really a partner, not being a party to a
partnership agreement, but is liable as a
partner for the protection of innocent third
persons. He is also known as partner by
implication or nominal partner.
Sometimes, the term “quasi-partner” is
used.
h) Continuing partner or one who
continues the business of a partnership
after it has been dissolved by reason of
the admission of a new partner, or the
retirement, death, or expulsion of one or
more partners
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i) Surviving partner or one who remains
after a partnership has been dissolved by
the death of any partner
j) Subpartner or one who, not being a
member of the partnership, contracts
with a partner with reference to the
latter’s share in the partnership.
2. Other classifications
a) Ostensible partner or one who takes
active part and known to the public as a
partner in the business.
b) Secret partner or one who takes active
part in the business but is not known to
be a partner by outside parties nor held
out as a partner by the other partners.
c) Silent partner or one who does not take
any active part in the business although
he may be known to be a partner.
d) Dormant partner or one who does not
take active part in the business and is not
known or held out as partner
e) Original partner or one who is a
member of the partnership from the time
of its organization;
f) Incoming partner or a person lately, or
about to be, taken into an existing
partnership as a member
g) Retiring partner or one withdrawn from
the partnership; a withdrawing partner.
ARTICLE 1777, 1778, 1779
Universal partnership of all present property
explained.
Universal partnership of profits is one which
comprises all that the partners may acquire by
their industry or work during the existence of the
partnership and the usufruct29 of movable or
immovable property which each of the partners
may possess at the time of the celebration of the
contract.
In this kind of partnership, the following become
the common property of all the partners:
1) Property which belonged to each of them at
the time of the constitution of the partnership;
2) Profits which they may acquire from the
property contributed.
Contribution of future property
Future properties cannot be contributed. Thus,
property subsequently acquired by (1)
inheritance, (2) legacy, or (3) donation cannot
be included by stipulation except the fruits
thereof. Hence, any stipulation including
property so acquired is void.
Profits from other sources (not from the
properties contributed) will become common
property only if there is a stipulation.
ARTICLE 1780
Universal partnership of profits explained
A universal partnership of profits is one which
comprises all that the partners may acquire by
their industry or work during the existence of the
partnership and the usufruct of movable or
immovable property which each of the partners
may possess at the time of the celebration of the
contract.
1. Ownership of present and future property. -
partners retain their ownership over their
present and future property. Consequently,
upon the dissolution of the partnership, such
property is returned to the partners who own it.
2. Profits acquired through chance. - fruits of
property subsequently acquired by the partners
do not belong to the partnership.
Such profits may, however, be included by
express stipulation. But profits which the
partners may acquire by their industry or work
during the existence of the partnership as well
as the usufruct of their present properties
belong to the partnership as a matter of right.
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ARTICLE 1781 Fundamental difference between a universal
partnership and a particular partnership
U.P. P.P.
Presumption in favor of universal SCOPE The object is It is limited
partnership of profits vague and and well-defi
indefinite, ned, being
Where the articles of partnership do not specify contemplating confi ned to
the nature of the partnership, whether it is one a general an
of “present property” or of “profits” only, it will be business with undertaking
presumed that the parties intended merely a some degree of a single,
partnership of profits. of continuity temporary, or
It is to be noted that this article applies only ad hoc
when a universal partnership has been nature.
organized.
Examples of Particular Partnerships
1. Formed for the acquisition of an immovable
ARTICLE 1782 property for the purpose of reselling it at a profit
or for the common enjoyment of its use and the
Limitations upon the right to form a benefits derived therefrom.
partnership
2. Established for the purpose of carrying out a
Persons who are prohibited by law to give specific enterprise such as the construction of a
donations cannot enter into a universal building, or those formed for the practice of a
partnership for the reason that each of the profession or vocation.
partners virtually makes a donation.
3. Two or more persons as accountants
A partnership formed in violation of this article is associating themselves in the practice of
null and void. (Art. 1409[7].) Consequently, no accountancy or two or more lawyers in the
legal personality is acquired. practice of law.
A husband and his wife, however, may enter Business of partnership need not be
into a particular partnership or be members continuing in nature.
thereof.
Articles 1767 and 1783 state that the carrying
In connection with Article 1782, Art. 87 and on of a business of a continuing nature is not
Article 739 of the Civil Code must be noted. essential to constitute a partnership.
Uniform Partnership Act negates such and
states that “an association of two or more
ARTICLE 1783 persons to carry on as co-owners a business for
Particular partnership explained profit” (Sec. 6 thereof.) and states that “business
includes every trade, occupation, or profession.”
A partnership which is neither a universal
partnership of present property nor a universal Joint venture
partnership of profits. “Joint adventure’’ or “joint enterprise’’ in
American law, it is essentially a partnership
created for a limited purpose. While a joint
venture is not a formal partnership in the legal
or technical sense, both are governed, subject
to certain qualifications, practically by the same
rules or principles of partnership.