Art. 1771.

A partnership may be constituted in any form, except where immovable property

or real rights are contributed thereto, in which case a public instrument shall be necessary.

General rule
No special form required for validity or existence of the contract of partnership. Contract
maybe made orally or in writing regardless of the value of the contributions.

Where immovable property or real rights are contributed

Execution of public instrument necessary for validity of contract of partnership. To affect 3rd
persons, the transfer of real property to the partnership must be duly registered in the
Registry of Property.

When partnership agreement covered by the Statute of Frauds

An agreement to enter in a partnership at a future time, which by its terms is not to be
performed w/in a year from the making thereof is covered by the Statute of Frauds.
Such agreement is unenforceable unless it is in writing or at least evidenced by some
note or memorandum.

Partnership implied from conduct

Binding effect
Existence of partnership 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.

Ascertainment of intention of parties

In determining whether a particular transaction constitutes a partnership, as between
the 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.

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.

Art. 1772. Every contract of partnership having a capital of three thousand pesos or
more, in money or property, shall appear in a public instrument, which must be
recorded in the Office of the Securities and Exchange Commission. Failure to comply
with the requirements of the preceding paragraph shall not affect the liability of the
partnership and the members thereof to third persons.

Registration of partnership

Partnership with capital of P3, 000 or more

Requirements:
1. The contract must appear in a public instrument;
2. It must be recorded or registered w/ the SEC. However, failure to comply w/ the
above requirements does not prevent the formation of the partnership or affect its
liability and that of the partners to 3rd persons. But any partner is granted the right
bylaw to compel each other to execute the contract in a public instrument.

Purpose of registration
Registration is necessary as a condition for the issuance of licenses to engage in business and
trade. In this way, the tax liabilities of big partnerships cannot be evaded and the public can
determine more accurately their membership and capital before dealing with them.

When partnership considered registered

The objective of the law is to make the recorded instrument open to all and to give notice
thereof to interested parties. This objective is achieved from the date the partnership papers
are presented to and left for record in the Commission. This is the effective date of
registration. If the certificate of recording is issued on a subsequent date, its effectively
retroacts to date of presentation.

Art. 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.

Partnership with contribution of immovable property.

Where immovable property contributed, failure to comply w/ the following requisites

will render the partnership contract void:
1. The contract must be in a public instrument;
2. An inventory of the property contributed must be made, signed by the parties, and
attached to the public instrument. Art. 1773 is intended primarily to protect 3rd persons.
W/ regard to 3rdpersons, a de facto partnership or partnership by estoppel may exist.
There is nothing to prevent the court from considering the partnership agreement an
ordinary contract from which the parties’ rights and obligations to each other may be
inferred and enforced.

When inventory is not required

An inventory is required only whenever immovable property is contributed. If not
contributed or if personal property, no inventory required.

Importance of making inventory of real property in a p a r t n e r s h i p

An inventory is very important in a partnership to know 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. The execution of a public instrument of a partnership would be useless
if there is no inventory of immovable property contributed because without it description
and designation, the instrument cannot be subject to inscription in the Registry of Property,
and the contribution cannot prejudice third persons.

Art. 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.

Acquisition or conveyance of property by partnership

Since partnership has juridical personality of its own, it may acquire immovable
property in its own name. Title so acquired can be conveyed only in the partnership
name.

Art. 1775. Associations and societies, whose articles are kept secret among the
members, and wherein any one of the members may contract in his own name with
third persons, shall have no juridical personality, and shall be governed by the
provisions relating to co-ownership.

Secret partnerships without juridical personality

Partnership relation is created only by the voluntary agreement of the partners. It is

essential that the partners are fully informed not only of the agreement but of all
matters affecting the partnership. Secret partnerships are not by nature partnerships.
Secret partnerships shall be governed by the provisions relating to co- ownership.

Importance of giving publicity to articles of partnership

It is essential that the acts of partnership be given publicity for the protection not only
of the members themselves but also 3rd persons from fraud and deceit. A member who
transacts business for the secret partnership in his own name becomes personally
bound to 3rd persons unaware of the existence of such association. Partnership liability
may still result, however, in cases of estoppel.

Art. 1776. As to its object, a partnership is either universal or particular. As regards the
liability of the partners, a partnership may be general or limited.

Classifications of partnership

As to extent of its subject matter

1. Universal partnership. (Art. 1777)
a. Universal partnership of all present property. (Art. 1778)
b. Universal partnership of profits. (Art. 1780)
2. Particular partnership. (Art. 1783)

As to liability of the partners

General partnership: one consisting of general partners who are liable pro rata and
subsidiary and sometimes solidarily w/ their separate property for partnership debts.

Limited partnership: 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.

As to duration

Partnership at will: one in w/c no time is specified and is not formed for a particular
undertaking or venture and w/c may be terminated at any time by mutual agreement of the
partners, or by the will of any one partner alone; or one for a fixed term or particular
undertaking w/c is continued after the end of the term or undertaking w/o express
agreement.

Partnership with a fixed term: one w/c the term for w/c the partnership is to exist is fixed
or agreed upon or one formed for a particular undertaking.

As to the legality of its existence

De jure partnership: one w/c has complied w/ all the legal requirements for its
establishment.
De facto partnership: one w/c has failed to comply w/ all the legal requirements for its
establishment.

As to representation to others

Ordinary or real partnership: one w/c actually exists among the partners and also as to 3rd
persons.
Ostensible partnership or partnership or partnership by estoppel: one w/c 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.

As to publicity
Secret partnership: one wherein the existence of certain persons as partners is not
avowed or made known to the public by any of the partners.
Open or notorious partnership: one whose existence is avowed or made known to the
public by the members of the firm.
 As to purpose
Commercial or trading partnership: one formed or the transaction of business.

Professional or non-trading partnership: one formed for the exercise of a profession.

KINDS OF PARTNERS
Under the Civil Code
1. Capitalist partner: one who contributes money or property to the common fund.
2. Industrial partner: one who contributes only his industry or personal service.
3. General partner: one whose liability to 3rd persons extends to his separate property.
4. Limited partner: one whose liability to 3rd persons is limited to his capital
contribution.
5. Managing partner: one who manages the entity.
6. Liquidating partner: one who takes charge of the winding up of partnership affairs
upon dissolution.
7. Partner by estoppel: one who is not really a partner but is liable as a partner for the
protection of innocent 3rd persons. He is one represented as being a partner but
who is not so between the partners themselves.
8. Continuing partner: 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.
9. Surviving partner: one who remains after a partnership has been dissolved by the
death of any partner.
10. Subpartner: one who, not being a member of the partnership, contracts w/
a partner w/reference to the latter’s share in the partnership.

Other classifications
1. Ostensible partner: one who takes active part and known to the public as a partner.
Secret partner: 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. He is an actual partner.
2. Silent partner: one who does not take any active part in the business although he may be
known to be a partner.
3. Dormant partner: one who does not take active part in the business and is not known or
held out as a partner. He would be both a silent and a secret partner.
4. Original partner: one who is a member of the partnership from the time of its
organization.
5. Incoming partner: a person lately, or about to be, taken into an existing partnership as a
member.
6. Retiring partner: one withdrawn from the partnership; a withdrawing partner. Art. 1777.
A universal partnership may refer to all the present property or to all the profits.

Art. 1778. A partnership of all present property is that in which the partners contribute all the
property which actually belongs to them to a common fund, with the intention of dividing the
same among themselves, as well as all the profits they may acquire therewith.

Art. 1779. In a universal partnership of all present property, the property which belongs to each
of the partners at the time of the constitution of the partnership becomes the common property
of all the partners, as well as all the profits which they may acquire there with. A stipulation for
the common enjoyment of any other profits may also be made; but the property which the
partners may acquire subsequently by inheritance, legacy or donation cannot be included in such
stipulation, except the fruits thereof.
Universal partnership of all present property explained
A universal partnership of profits is one w/c 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 w/c 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:

Property w/c belonged to each of them at the time of the constitution of the partnership;
Profits w/c they may acquire from the property contributed.

Contribution of future property

General rule: future properties cannot be contributed. The very essence of the contract of
partnership that the properties contributed be included in the partnership requires the
contribution of things determinate. The position of a partner is like that of a donor, and
donations cannot comprehend future property. 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 properties contributed) will become common property only is there’s a
stipulation.

Art. 1780. A universal partnership of profits comprises all that the partners may acquire by
their industry or work during the existence of the partnership. Movable or
immovable property which each of the partners may possess at the time of the celebration
of the contract shall continue to pertain exclusively to each, only the usufruct passing to the
partnership.

Universal partnership of profits explained A universal partnership of profits is one w/c

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.

Ownership of present and future property The partners retain their ownership over their
present and future property. What passes to the partnership are the profits or income and
the use or usufruct of the same. Consequently, upon dissolution, such property is returned
to the partners who own it.

Profits acquired through chance

Since the law only speaks of profits w/c the partners may acquire by their industry or
work, profits acquired purely by chance are not included.

Fruits of property subsequently acquired Fruits of property subsequently acquired by the

partners do not belong to the partnership. Such profits, however, may be
included by express stipulation.

Art. 1781. Articles of universal partnership, entered into without specification of its nature,
only constitute a universal partnership of profits.

Presumption in favor of universal partnership of profits

Reason for presumption: universal partnership of profits imposes less obligations on the
partners, since they preserve the ownership of their separate property.

Art. 1782. Persons who are prohibited from giving each other any donation or advantage
cannot enter into a universal partnership.

Limitations upon the right to form a 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. To allow it
would be permitting them to do indirectly what the law expressly prohibits. A partnership
formed in violation of this article is null and void. Consequently, no legal personality is
acquired. A husband and wife, however, may enter into a particular partnership or be
members thereof.

Relevant provisions:

Art. 87: Donations between spouses during marriage void, except moderate gifts on occasion
of family rejoicing. Also applies to those living together as husband and wife w/o valid
marriage.

Art. 739: The following donations are void: Those made between persons who are guilty of
adultery or concubinage at the time of the donation (no need for conviction; preponderance
of evidence is only required)
Those made between persons found guilty of the same criminal offense, inconsideration
thereof;
Those made to a public officer or his wife, descendants and ascendants, by reason of his
office.

Art. 1783. A particular partnership has for its object determinate things, their use or fruits,
or a specific undertaking, or the exercise of a profession or vocation.

Particular partnership explained

A particular partnership is one w/c is neither a universal partnership of present property nor a
universal partnership of profits. The fundamental difference between a universal partnership and
a particular partnership lies in the scope of their subject matter or object. In the former, the object
is vague and indefinite, contemplating a general business w/ some degree of continuity, while
in the latter, it is limited and well-defined, being confined to an undertaking of a single,
temporary, or ad hoc nature.

Business of partnership need not be continuing in nature

The carrying on of a business of a continuing nature is not essential to constitute a partnership.
An agreement to undertake a particular piece of work or a single transaction or a limited number
of transactions and immediately divide the resulting profits would seem to fall w/in the meaning
of the term “partnership” as used in the law.

Joint venture
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. This is
logical since in a joint venture, like in a partnership, there is a community of interest in the
business and a mutual right of control and an agreement to share jointly in profits and losses.

Corporation as a partner
While under the Philippine Civil Code, a joint venture is a form of partnership w/ a legal
personality separate and distinct from the parties composing it, and should thus be governed by
the law of partnership, the Supreme Court has recognized the distinction between these two
business forms, and has held that although a corporation cannot enter into a partnership contract,
it may, however, engage in a joint venture if the nature of the venture is authorized by its charter.

Art. 1784. A partnership begins from the moment of the execution of the contract, unless it is
otherwise stipulated.

Art. 1785. When a contract for a fixed term or particular undertaking is continued after the
termination of such term or particular undertaking without any express agreement, the rights
and duties of the partners remains the same as they were at such termination, so far as is
consistent with a partnership at will.

A continuation of the business by the partners or such of them as habitually acted therein during
the term, without any settlement or liquidation of the partnership affairs, is prima facie evidence
of a continuation of the partnership.

Partnership at will is one in which no term of existence has been fixed and which may be
terminated at the will of any partners.

Art. 1786. Every partner is a debtor of the partnership for whatever he may have promised to
contribute thereto.

He shall also be bound for warranty in case of eviction with regard to specific and determinate
things which he may have contributed to the partnership, in the same cases and in the same
manner as the vendor is bound with respect to the vendee. He shall also be liable for the fruits
thereof from the time they should have been delivered, without the need of any demand.

Obligations of partners to contribute:

1. Shall deliver at the beginning of the partnership or, if a different date has been agreed
upon, at the stipulated time the properties he agreed to contribute;
2. Shall answer for eviction, in case the partnership is deprived of the ownership of any
specific property he contributed;
3. Shall answer to the partnership for the fruits of the properties whose delivery he delayed
from the date he should
have contributed it up to actual delivery without necessity of any demand;
4. Shall preserve said properties with the diligence of a good father of a family
pending their delivery to the partnership;
5. And shall indemnify the partnership for any damage caused it by the retention of
said properties or by the delay in their contribution.

Art. 1787. When the capital or part thereof which a partner is bound to contribute consists of
goods, their appraisal must be made in the manner prescribed in the contract of partnership, and
in the absence of stipulation, it shall be made by experts chosen by the partners, and according to
current prices, the subsequent changes thereof being for the account of the partnership.

Art. 1788. A partner who has undertaken to contribute a sum of money and fails to do so becomes
a debtor for the interest and damages from the time he should have complied with his obligation.

The same rule applies to any amount he may have taken from the partnership coffers, and his
liability shall begin from the time he converted the amount to is own use.

Liability of partner for estafa

Failure to return the money taken, there is the element of fraudulent appropriation of the money
delivered to a partner with specific instructions for the use of the partnership, then estafa is
committed under the Revised Penal Code.

Art. 1789. An industrial partner cannot engage in any business for himself, UNLESS the
partnership expressly permits him to do so; and if he should do so, the capitalist partners may
either exclude him from the firm or avail themselves of the benefits which he may have obtained
in violation of this provision, with a right to damages in either case.

Industrial partner is one who contributes his industry or labor in the partnership.

Industrial partner barred from engaging in business

To prevent any conflict of interest between the industrial and the partnership, and to insure
faithful compliance by said partner with his prestation.

Art. 1790. Unless there is a stipulation to the contrary, the partners shall contribute equal shares
to the capital of the partnership.

Art. 1791. If there is no agreement to the contrary, in case of an imminent loss of the business of
the partnership, any partner who refuses to contribute an additional share to the capital, except
an industrial partner, to save the venture, shall be obliged to sell his interest to the other partners.

Art. 1792. If a partner authorized to manage collects a demandable sum, which was owed to him
in his own name, from a person who owned the partnership another sum also demandable, the
sum thus collected shall be applied to the two credits in proportion to their amounts, even though
he may have given a receipt for his own credit only; but should he have given it for the account
of the partnership credit, the amount shall be fully applied to the latter.

The provisions of this article are understood to be without prejudice to the right granted to the
debtor by Art. 1252, but only if the personal credit of the partner should be more onerous to him.

Requisites:
1. Two existing debts
2. Both debts must be demandable
3. The one who collected the debt is a partner who is authorized to manage and is actually
managing the partnership

Art. 1793. A partner who has received, in whole or in part, his share of a partnership credit, when
the other partners have not collected theirs, shall be obliged, if the debtor should thereafter
become insolvent, to bring to the partnership capital what he received even though he may have
given receipt for his share only.

Art. 1794. Every partner is responsible to the partnership for damages suffered by it through his
fault, and he cannot compensate them with the profits and benefits which he may have earned
for the partnership by his industry. However, the courts may equitably lessen this responsibility
if through the partner’s extraordinary efforts in other activities of the partnership, unusual profits
have been realized.

ACTIVITY 2
1. Differentiate universal partnership from particular partnership.
2. What are the effects of a partnership formed for an unlawful purpose?
3. A donated a commercial building to B, C, and D who agreed among themselves to lease
it to Q and share in the rentals. Are B, C, and D considered partners?
4. Why is giving publicity to the articles of partnership important?
5. A, B, and C formed a partnership where they contributed a total capital of Php 40,000.
The partnership is not registered with the Securities and Exchange Commission. Does the
partnership have a juridical personality?