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partnership.
Article 1767
Concept of Partnership Separate Article 1768 A partnership
Personality states that a being
- often called “co-partnership” from the partnership considered
viewpoint of a contract. has a merely an
juridical extension of
1) Contract – two or more persons contracting personality of its members
to do business and divide the profits from such. its own,
distinct and
2) Association – two or more persons to carry separate
on as co-owners of a business for profit. from that of
each of the
3) Legal Relation – two or more persons unite partners
their property, labor, or skill in carrying on Taxes partnerships, Does not pay
some lawful business. except federal or
general state income
4) Status – a status arising out of a contact professional taxes
partnerships, (although for
5) Organization – for the production of income are treated purposes of
to which each partner contributes one or both for income information it
the ingredients of income, which are capital or tax purposes is required to
service. as fi le a
corporations partnership
6) Entity – distinct and apart from the members and subject tax return).
composing it. to tax as
such. (Sec. The
7) Joint undertaking – sharing the profit and 20b, 24a, individual
loss NIRC). members of
the
Civil law concept and American concept of partnership
partnership distinguished severally pay
their income
Civil Code American taxes, the
partnership
Concept Civil Code American
business
speaks of a concept of a
being
partnership partnership is
regarded
as a contract relation.
merely as
a source of
Article 1767 Anglo-
income.
states that American
partnership is idea is that
an partnership is
agreement based on the Partnership as a Profession
itself out of result of the
which a contact or Profession is a group of men pursuing a
partnership is agreement of learned art as a common calling in the spirit of
created. the parties public service — no less a public service
creating the because it may incidentally be a means of
livelihood.
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Practice of a profession is not a business or an
enterprise for profit. However, the law allows
the 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.
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3) Requisites - fundamentally contractual, all
the essentials of a valid contract must be
present:
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.
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b) Where the partnership agreement
provides that the two partners will
manage the partnership so that the
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
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sharing losses, for the obligation is implied
from the partnership relation but if only the
share of each 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)
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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.
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.
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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
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.)
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e) fiduciary relation exists between the distinct from
partners. that of each
partner.
f) The partnership is not terminated, but
Purpose Realization of Common
continues until the winding up of
profits. enjoyment of
partnership is completed.
a thing or
Partnership distinguished from a labor right.
union Duration No limitation An
upon duration agreement
A labor union is any association of employees to keep the
which exists in whole or in part for the purpose thing
of collective bargaining or of dealing with undivided for
employers concerning terms and conditions of more that 10
employment. years is not
The purpose of partnership is essentially to allowed.
enable its members, as principals, to conduct a Disposal A partner may May freely
lawful business, trade, or profession for of Interest note dispose of do so.
pecuniary gain of partners, and no one may his individual
become a partner without consent of all interest in the
partners. partnership.
Power to A partner may Cannot
Partnership distinguished from a business act with bind the represent
trust third partnership the co-
A trust is the legal relationship between one persons ownership.
person (beneficiary) having the equitable Effect of The death of a Does not
ownership in property and another (trustee) death partner results necessarily
owning the legal title to such property, the in the dissolve the
equitable ownership of the former entitling him dissolution of co-
to the performance of certain duties and the the partnership. ownership.
exercise of certain powers by the latter.
Distinction between partnership and trust Partnership distinguished from conjugal
relation. - in the partnership, all of the members partnership of gains
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
Partnership distinguished from co- the fruits and income of their separate
ownership. properties and those acquired through their
efforts or by chance.
Partnership Co-
ownership Partnership Conjugal
Creation Always created Generally Partnership
by a contract created y of Gains
(Art. 1767) law. It may Parties voluntary future
either exist even agreement of two spouses —
expressed or without a or more partners a man and a
implied. contract. (Art. 1767.) woman —
Judicial Juridical None. belonging to agree that it
personalit personality either sex shall govern
y separate and their
property
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relations the consent
during the of the
marriage other.
Laws stipulation of the Law (Arts.
which parties 105-133)
govern Partnership distinguished from a voluntary
association.
Juridical Has Juridical None
Personal Personality Partnership Voluntary
ity Association
Commen Begins from the Date of the Judicial Has J.P. None
cement moment of the celebration Personal
execution of the of the ity
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 collected
and wife from the
during the members to
marriage. maintain
Distribut profits are divided shares of the
ion of according to the 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
consent of the of during the Partnership distinguished from a
other partners marriage corporation
even with Partnership Corporation
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Manner of mere created by mismanages
Creation agreement law or by must be in
of the parties operation of the
law name of the
Number of may be (except a corporation
incorporators organized by corporation Right of no right of Has right
only two sole) succession succession
persons requires at Extent of partners stockholders
least five liability to third (except are liable
incorporator persons limited only to the
s partners) are extent of the
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 without the stockholders
public order, its consent of because a
or public existence all the other corporation
policy existing is not based
Management managemen the power to partners on this
t do business because the principle
is not agreed
and partnership
upon, every
manage its is based on
partner is an
affairs is the principle
agent of the
vested in the of
partnership
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
mismanagemen such can against a established term in
t sue a co- member of for any excess of 50
partner who the period of years
mismanages board of time extendible to
directors or stipulated by not more
trustees who the partners than 50
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years in any Two essential elements of a contract of
one instance partnership:
Firm name limited may adopt
1. Legality of the object; and
partnership any fi rm
is required name 2. Community of benefit or interest of the
by the provided it is partners.
law to add not the
the word same as or The parties possess absolute freedom to
“Ltd.” to its similar to choose the transaction or transactions they
name any must engage in. The only limitation is that the
registered fi object must be lawful and for the common
rm name benefit of the members.
Dissolution may be can only be The illegality of the object will not be
dissolved at dissolved presumed; it must appear to be of the essence
any with the of the relationship. Certain businesses (e.g.,
time by the consent of banking) may be engaged in only by
will of any or the corporations.
all of the State
partners Effects of an unlawful partnership
Governing Law Civil Code Corporation 1.The contract is void ab initio and the
Code partnership never existed in the eyes of the
law.
Similarities between a partnership and a 2. The profits shall be confiscated in favor of
corporation the government;
1. Juridical personality separate and distinct 3. The instruments or tools and proceeds of the
from that of the individuals composing it; crime shall also be forfeited in favor of the
2. Can act only through agents; government; and

3. (Except a corporation sole) is an 4. The contributions of the partners shall not be

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);
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.

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.
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

ARTICLE 1770 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
Object or purpose of partnership
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reimbursed the amount of their respective
contributions.
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.
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
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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.
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
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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.
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
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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.
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.
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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
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
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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.
Persons who are prohibited by law to give
donations cannot enter into a universal
partnership for the reason that each of the
partners virtually makes a donation.
A partnership formed in violation of this article
is null and void. (Art. 1409[7].) Consequently,
no legal personality is acquired.
A husband and his wife, however, may enter
into a particular partnership or be members
thereof.
In connection with Article 1782, Art. 87 and
Article 739 of the Civil Code must be noted.
ARTICLE 1783
Particular partnership explained

Such profits may, however, be included by A partnership which is neither a universal

express stipulation. But profits which the partnership of present property nor a universal
partners may acquire by their industry or work partnership of profits.
during the existence of the partnership as well
as the usufruct of their present properties
belong to the partnership as a matter of right.

ARTICLE 1781
Fundamental difference between a
universal partnership and a particular
Presumption in favor of universal partnership
partnership of profits U.P. P.P.
Where the articles of partnership do not specify SCOPE The object is It is limited
the nature of the partnership, whether it is one vague and and well-defi
of “present property” or of “profits” only, it will indefinite, ned, being
be presumed that the parties intended merely a contemplating confi ned to
partnership of profits. a general an
business with undertaking
It is to be noted that this article applies only some degree of a single,
when a universal partnership has been of continuity temporary, or
organized. ad hoc
nature.

ARTICLE 1782 Examples of Particular Partnerships

Limitations upon the right to form a 1. Formed for the acquisition of an immovable
partnership property for the purpose of reselling it at a
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profit or for the common enjoyment of its use
and the benefits derived therefrom.
2. Established for the purpose of carrying out a
specific enterprise such as the construction of
a building, or those formed for the practice of a
profession or vocation.
3. Two or more persons as accountants
associating themselves in the practice of
accountancy or two or more lawyers in the
practice of law.
Business of partnership need not be
continuing in nature.
Articles 1767 and 1783 state that the carrying
on of a business of a continuing nature is not
essential to constitute a partnership.
Uniform Partnership Act negates such and
states that “an association of two or more
persons to carry on as co-owners a business
for profit” (Sec. 6 thereof.) and states that
“business includes every trade, occupation, or
profession.”
Joint venture
“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.