The Laws on

Partnership
(ARTICLE 1767-ARTICLE 1867)
General Provisions
(Article 1767-1783)

For this topic we will be discussing about the Concept of Partnership.

The characteristics of Partners and Partnership

Legal capacity and more that talks about the Partnership.

So let’s start and have fun.

Article 1767
By the contract of Partnership two or more persons bind themselves to contribute money,
property, or industry to a common fund, with the intention of dividing the profits among
themselves.

Two or more person may also form a partnership for the exercise of profession (1665a)
Elements of a Partnership
1. Consensual – perfected by mere consent.

2. Bilateral – it is formed or entered by two or more persons creating reciprocal rights and
obligations.

3. Preparatory – it is entered as a means to an end.

4. Nominate – has a special name of designation in our law.

5. Onerous – contributions in the form of either money, property and/or industry must be made.

6. Commutative – the undertaking of which is considered as the equivalent of that of the others.

7. Principal – its existence or validity does not depend on some other contract.
Essential Features of Partnership
1. Voluntary Agreement

2. Association for Profit

3. Mutual Contribution to a common fund

4. Lawful Purpose or object

5. Mutual Agency of Partners (Art 1775)

6. Articles must not be kept secret (Art 1775)

7. Separate Juridical Personality (Article 1775)

 Legal Capacity to enter in Partnership
General Rule: Any person may be a partner who is capable under the law of entering into contractual
relations. Consequently, any person who cannot legally give consent to a contract cannot be a partner

(a) Unemancipated minor

(b) Insane or demented person

(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

.
Legal capacity cont.
2. Exemptions : Under Article 1782, person who are prohibited from giving each other any
donation or advantage cannot enter into a universal partnership.

3. Capacity of partnership/ corporation to be a partner – the typical partnership is composed of

individual human beings. But there is no prohibition against a partnership.
Principle of Delectus Personae
(Choice of Person)

A person has the right to select person with whom he wants to be associated with in a partnership.
Article 1768
The partnership has a juridical personality separate and distinct from that of each of the partners,
even in case of failure to comply with the requirements of Article 1772 first paragraph (n)

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Under 1772 – execution of a public instrument and registration of the same with the Security on
Exchange Commission (SEC) in cases when the partnership capital exceeds Php. 3,000.00, such
partnership acquires juridical personality.

Under 1773 and 1775 – the partnership does not require any juridical personality because the
partnership contract itself is void. (1773) also true regarding secret association or societies which
do not acquire juridical necessity (1775)
Example
In the partnership E & Co., in which A and B are the partners, there are three distinct persons,
namely, The partnership E & Co., A, and B.
Always Remember
“To organize a partnership is not an absolute right”

It is a privilege which may be enjoyed only under such terms as the State may deem necessary to
impose.
Article 1769
In determining where 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
partner as to third person.

(2) Co-ownership or co-possession does not of itself a partnership, whether such co-owners or co-
possessors do or do not share any profit 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 rights or interests in any property from which the
returns are derived;
Art. 1769 cont.
(4) the receipt by a person of a share of the profits of the business is prima facie evidence that he
is a partner in the business, but no such interference shall be drawn it such profits were received
in payment.
(a) as a debt by installments or otherwise
(b) as a wages of an employee or rent to a landlord
(c.) as an annuity to a widow or representative of a deceased partner.
(d) as an interest on a loan, though the amounts of payment vary within the profits of the busines
(e) as the consideration for the sale of a goodwill of a business or other property by installment or
otherwise.
Why do we need to determine whether or
not an association is one of partnership?
➢Where terms of contract not clear.

➢Where existence disputed.

Article 1770
A partnership must have a lawful object or purpose, and must be established for the common
benefit or interest of the partners.

When an unlawful partnership is dissolved by a judicial decree, the profits shall be confiscated in
favor of the State, without prejudice to the provisions of the Penal code governing the confiscation
of the instruments and effects of a crime (1666a)

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Unlawful when it is contrary to laws, morals, good customs, public order, or public policy (Art 1306)
Effects of an Unlawful Partnership
1. the contract is void ab initio and the partnership never existed in the eyes of the law

(Article 1409[1])

2. the profits shall be confiscated in favor of the government;

3.the instrument or tools and proceeds of the crime shall also be forfeited in favor of the
government.

4. the contribution of the partners shall not be confiscated unless they fall under No.3
Article 1771
A partnership may be constituted in any form, except immovable property or real rights are
contributed thereto, in which case a public instrument shall be necessary. (1667a)

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As a general rule, no special form is required for the validity or existence of the contract of
partnership. The contract may be made orally or in writing regardless of the value of the
contribution unless immovable property or real rights are contributed, in which case Article 1773
requires the execution of a public instrument.
Article 1772
Every contract of partnership having a capital of Three thousand pesos or more, in money
or property, shall appear in public instruments, which must be recorded in the Office of the
Securities and Exchange Commission.
Failure to comply with the requirements or the preceding paragraphs shall not affect the
liability of the partnership and the members thereof to third persons.
Requirements
There are two requirements where the capital of the partnership is Php. 3,000.00 or more, in
money or property, namely:
(1) The contract must appear in Public Instruments
(2) It must be recorded or registered with the Securities and Exchange Commission.

However, failure to comply with the requirements does not prevent partnership or affect its liability
and that of the partners to the third persons.
Article 1773
A contract of partnership is void, whenever immovable property is contributed thereto, if an
inventory of said property is not made, signed by the parties and attached to the public instrument.

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A public instrument is one which is acknowledged before a notary public or any official authorized to administer oath,
by the person who executed the same. The party making the acknowledgment formally declares that the instrument is his free
act and deed, while the officer taking the same attests and certifies that such party is known to him and that he is the same
person who executed the instrument and acknowledged the instrument in his free act and deed. Any other instrument is
private.
Article 1774
Any immovable property or an interest therein may be acquired in the partnership name. Title so
acquired can be conveyed only in the partnership name.
Article 1775
Association and societies, whose articles are being kept among the members, and wherein anyone
of the members may contract in his own name with the third persons, shall have no juridical
personality and shall be governed by the provisions relating to co-partnership
Importance
It is essential that the articles of partnership be given publicity for the protection not only of the
members themselves but also third persons. A member who transacts business in his own name
for the secret partnership in his own name becomes personally bound to third persons unaware of
the existence of such association, in the same way and for the same reason that an agent who acts
in his own name when dealing with third persons is directly bound in favor of such persons who
may only sue by the agent and not his principal.

But a person may be held liable as a partner, or partnership liability may result in favor of third
persons , by reason of estoppel.
Open Forum
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