Article 1769

 Rules to Determine existence of partnership

o To establish the existence of a partnership, all of its essential features
or characteristics must be shows as being present
o The issue as to whether a partnership exists or not is a factual matter
to be determined on the basis of all the facts and circumstances
presented in evidence to support a finding of the existence or non-
existence of the parties’ intentions to create a partnership
 PERSONS NOT PARTNERS AS TO EACH OTHER
o Persons who are partners as between themselves are partners as to
third persons… TO WIT… if they are not partners as between
themselves, they cannot be partners as to third persons
o Partnership is a matter of intention, each party giving a consent to
become a partner
 If parties expressly declare that they are not partners, this
settles the question as between themselves. But if a partnership
really exists, it is immaterial whether or not the parties call or
believe their relationship is a partnership
 “PERSONS WHO ARE PARTNERS IN FACT MAY NOT
AVOID THE CONSEQUENCES OF THE RELATION BY
MERE DENIAL THAT THEY ARE PARTNERS”
o A partnership never exists as to third persons if no contract of
partnership (express or implied) has been entered between the parties
themselves
 EXCEPTION: PARTNERSHIP BY ESTOPPEL
  Where persons (by their acts, consent, or representations)
misled third parties into believing that they are partners, so such
persons are subject to liabilities to those who deal with them in
good faith
 Co-Ownership or co-possession
o When ownership or possession of an undivided thing or right belongs
to different persons
o Co-ownership of a property does not of itself establish the existence
of a partnership, though “co-ownership” is an essential element of
partnership
 Sharing of gross returns
o The mere sharing of gross profits does not indicate a partnership… It
is not merely the sharing of profits, but the sharing of them as a co-
owner of the business that makes one a partner
o If one takes a share of the profits as payment of a debt, then he is not a
partner
 Receipt of share in the profits
o An agreement to share profits and losses tend strongly to establish the
existence of a partnership… CONVERSELY, the lack of such
agreement tends strongly to disprove the existence of a partnership
o 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:
 (A) AS A DEBT BY INSTALLMENTS
 (B) AS WAGES, OR RENT
 © AS ANNUITY TO A WIDOW OR REP TO A DECEASED
PARTNER
  (D) AS INTEREST ON A LOAN
 € AS CONSIDERATION FOR THE SALE OF GOODWILL
OR OTHER PROPERTY
 Tests and incidents of partnerships
 Only those terms of a contract upon which the parties have
reached an agreement may afford a test by which to ascertain
the existence of a partnership
 Typical incidents once existence is established:
 The partners share in profits and losses
 They have equal rights in management and conduct of
partnership business
 Every partner is an agent of the partnership, and entitled
to bind the others by his acts
 All partners are personally liable for the debts of the
partnership with their separate property except for limited
partners
 A fiduciary relation exists between the partners
 On dissolution, the partnership is not terminated, but
continues until the winding up of the partnership is
completed
 Partnership distinguished from co-ownership

PARTNERSHIP CO-OWNERSHIP
Created by contract Created by law (can exist without
contract)
has a juridical personality None
Purpose is realization of profits Purpose is common enjoyment of a
thing or right
Duration: no limitation Agreement to keep the thing undivided
 for more than 10 years is not allowed
May not dispose of his interests so as to May freely dispose his interests
make the assignee a partner unless
agreed upon by all partners
Partner may bind the partnership Co-owner cannot represent the co-
ownership
Death of a partner results in dissolution Death of co-ownership does not
necessarily dissolve the co-ownership

 PARTNERSHIP DISTINGUISHED FROM CONJUGAL PARTNERSHIP

OF GAINS
o CONJUGAL PARTNERSHIP OF GAINS – partnership formed by
the marriage of husband and wife in which they place in a common
fund the fruits and income from their separate properties and those
acquired through their efforts (unless otherwise agreed in marriage
settlements), and divide equally upon the dissolution of marriage
 Ordinary business partnership as distinguished from conjugal partnership

BUSINESS PARTNERSHIP CONJUGAL PARTNERSHIP

Created by the voluntary agreement of
2 or more belonging to either sex
(as a rule) governed by the stipulation
of the parties
Has a personality under the law
separate from the members composing
it
Begins from the moment of the
execution of the contract
Primary purpose is to obtain profits
Profit is divided according to the to the
agreement of the partners or in
proportion
Arises in case the future spouses (man
and woman) agree that it shall govern
their property relations during marriage
Governed by law
None
Commences precisely on the date of
the celebration of marriage (any
stipulation to the contrary is void)
To regulate the property relations of
husband and wife during marriage
Share of the spouses are divided
equally
Management is shared equally by all
the partners unless some of them are
appointed managers in the articles of
partnership
Whole interest may be disposed of w/o
the consent of other partners
Although administration belongs to
both spouses jointly, the husband’s
decision shall prevail
Share of each spouse cannot be
disposed of during the marriage even
with the consent of the other

 Partnership distinguished from voluntary associations

PARTNERSHIP VOLUNTARY ASSOCIATIONS

Has a juridical personality
Organized for pecuniary profit
There is contribution of capital
The partnership is the one liable in the
1st place for the debts of the firm
NONE
NONE
Although fees are usually collected
from members to maintain the org,
there is no collection of capital
Members are individually liable for the
debts of the association (expressly or
impliedly)

ARTICLE 1770

 Partnership must have a lawful object or purpose, and for the common
benefit or interest of the partners
 Unlawful partnership dissolved by a judicial decree = profits confiscated in
favor of State
 OBJECT OR PURPOSE OF PARTNERSHIP
o (TWO) essential elements of a contract of partnership
 LEGALITY OF OBJECT
 COMMUNITY OF BENEFIT OR INTEREST OF THE
PARTNERS
 Effects of unlawful partnership
 o (1) Void ab initio and partnership never existed in the eyes of the law
o (2) Profits shall be confiscated in favor of the government
o (3) Instruments/tools and proceeds of the crime shall be forfeited in
favor of the government
o (4) contributions of partners shall not be confiscated unless they fall
under 3
 Dissolution of unlawful partnership
o Unlawful object:
 Illegal monopolies or combinations in restraint of trade
 Gambling
 Smuggling
 Leasing furnished apartments to prostitutes
 Prevent competition in bidding for government contracts
o Judicial decree is not necessary to dissolve an unlawful partnership
 ADVISABLE for convenience and peace of mind

ARTICLE 1771

 Partnership may be constituted in any form except where immovable

property or real rights are contributed… here, a public instrument shall be
necessary
 Form of partnership contract
o No special form is required for the validity or existence of the contract
of partnership
 Orally
 In writing
 o If immovable property or real rights are contributed, article 1773
requires the execution of public instrument
o Transfer of real property to the partnership must be duly registered in
the Registry of Property

Article 1772

 Partnership having capital of 3,000 or more shall appear in a public

instrument, which must be recorded in the Securities and Exchange
Commission
 Partnership with capital of 3,000 or more
o (2) REQUIREMENTS:
 Contract must appear in a public instrument
 Must be recorded or registered with the SEC
o Failure to comply with the requirements does not prevent the
formation and the partnership’s liability with 3rd persons
o HOWEVER, any of the partners is granted the right by the law to
compel each other to execute the contract in a public instrument
 Registration of partnership
o The registration of the articles/contract of partnership IS NOT for the
purpose of giving the partnership a juridical personality
o OBJECTIVE IS: to make the recorded instrument open to all and to
give notice to interested parties

ARTICLE 1773
  Contract of partnership is vid whenever immovable property is contributed,
and 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
o Requirements when there is a contribution of immovable property
 Contract must be in a public instrument
 Inventory of the property contributed must be MADE, SIGNED
BY THE PARTIES, and ATTACHED TO THE PUBLIC
INSTRUMENT
 Intended primarily to protect third persons

ARTICLE 1774

 Acquisition or conveyance of property by partnership

o Immovable property or interest may be acquired in the partnership
name… title acquired can be conveyed only in the partnership name

ARTICLE 1775

 SECRET PARTNERSHIPS WITHOUT JURIDICAL PPERSONALITY

o Partnership relation is made by voluntary agreement of partners
o Essential that partners are fully informed not only of the agreement
but on ALL MATTERS affecting the partnership
o THOSE WHO KEEP ARTICLES/AGREEMENTS A SECRET
among the members and wherein anyone of them may contract in his
own name with 3rd persons are
  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
o For the protection of not only the members themselves but also 3rd
persons
 A member who transacts business for the secret partnership in
his own name becomes personally bound to 3rd persons
o BUT, a person may be held liable as a partner, or partnership liability
may result in favor of 3rd persons, BY REASON OF ESTOPPEL

ARTICLE 1776

 CLASSIFICATIONS OF PARTNERSHIPS
 As to its object a partnership may be:
o UNIVERSAL
 Universal partnership of all present property
 Universal partnership of profits
o PARTICULAR
 The establishment of a partnership is for a specific and
particular purpose
 AS REGARDS TO THE LIABILITY OF PARTNERS:
o GENERAL
 Consisting of general partners who are liable PRO RATA and
subsidiarily sometimes solidarily, with their separate property
for partnership debts
 o LIMITED
 formed by (2) or more persons having as members (1) or more
general partners and (1) or more limited partners – not
personally liable for the obligations of the partnership
 as to the duration
o PARTNERSHIP AT WILL
 No time is specified
 not formed for a particular undertaking
 may be terminated anytime by mutual agreement or by will of
one partner alone
o PARTNERSHIP WITH A FIXED TERM
 Partnership to exist is fixed or agreed upon
 Formed for a particular undertaking
 Upon completion of term, partnership is dissolved UNLESS
continued
 As to the legality of its existence
o (1) De Jure Partnership
 Complied with all legal requirements for its establishment
o (2) De facto partnership
 Failed to comply with all the legal requirements for its
establishment
 As to representation to others
o (1) Ordinary or real partnership
 Actually exists among the partners and also as to 3rd persons
o (2) Ostensible partnership or partnership by estoppel
  In reality is not a partnership, but considered a partnership only
in relation to those who are precluded to deny its existence
 As to publicity
o Secret Partnership
 Existence of certain persons as partners is not made known to
the public
o Open or notorious partnership
 Existence is made known to the public by the members of the
firm
 As to purpose
o Commercial or Trading partnership
 Formed for the transaction of business
o Professional or Non-trading partnership
 For the exercise of a profession
 KINDS OF PARTNERS

Capitalist Partner Contributes money or property to

the common fund
Industrial Partner Contributes only his industry or
personal service
General partner Liability to 3rd persons extends to
his separate property
May be capitalist or industrial
Limited Partner Liability to 3rd persons is limited to
his capital contribution
SPECIAL PARTNER
DOES NOT PARTICIPATE in the
management of the business
Managing Partner Manages the affairs or business
GENERAL or REAL PARTNER
Liquidating Partner Takes charge of the winding up of
partnership affairs upon dissolution
Partner by Estoppel Not really a partner
Liable as a partner for the
protection of innocent 3rd persons
PARTNER BY IMPLICATION or
NOMINAL PARTNER
QUASI-PARTNER
Liable for the debts of the firm to
those who in good faith believed
him to be a partner
Continuing partner Continues the business after it has
been dissolved because of
admission, retirement, death,
expulsion
Surviving partner Remains after a partnership has
been dissolved by death
Subpartner Not a member of the partnership,
contracts with a partner with
reference to partner’s share in the
partnership

Ostensible Partner Takes active part and known to the

public as a partner whether or not
he has an actual interest in the firm
(if not actually a partner, then he is
subject to liability by doctrine of
estoppel)
Secret partner Takes active part in the business but
is not known to be a partner by
outside parties NOR held out as
partners by other partners
(BUT he takes part in the profits
and losses of the partnership)
Silent partner DOES NOT TAKE AN ACTIVE
PART in the business although he
may be known to be a partner
NEEED NOT BE A SECRET
PARTNER
If he withdraws, he must give notice
 to those who do business for the
firm in order to escape liability in
the future
Dormant partner DOES NOT TAKE AN ACTIVE
PART in the business and is not
known to be held out as a partner
SLEEPING PARTNERI
may retire without giving notice and
cannot be liable for the obligations
of the firm subsequent his
withdrawal
Original partner Member of the partnership at the
time of its organization
Incoming partner Lately or about to be taken into the
partnership as a member
Retiring partner Withdrawn from the partnership,
withdrawing partner

All partners are subject to liability for all partnership obligations

Article 1777

 Universal partnership
o For all present property
o To all the profits

Article 1778

 Partnership of all present property

o All partners contribute all the property which belongs to them to a
common fund
o With the intention of dividing them among themselves as well as the
profits that they may acquire therewith

Article 1779
  Universal partnership of all present property
o The property which belonged to each of the partners at the time the
constitution of the partnership, becomes common property of all
partners, as well as profits
o The property the partners may acquire subsequently BY
INHERITANCE, LEGACY, or DONATION CANNOT BE
INCLUDED in stipulations of common enjoyment
 The following becomes common property of all the partners:
o Property which belonged to them at the time of the constitution of the
partnership
o Profits which they may acquire from the property contributed
 Contribution of future property
o Future properties cannot be contributed
o Position of a partner is that like of a donor and donations cannot
comprehend future
o Property subsequently acquired by Inheritance, Legacy, Donation
cannot be included by stipulation except the fruits thereof
o Profits from other sources will become property only if there is
stipulation

ARTICLE 1780

 Partners retain ownership over their present and future property

 What passes to the partnership are the profits or income and the usufruct of
their present and future property
o DISSOLUTION: property is returned to the partner who owns it
 Profits acquired through chance
 o Lottery or those without employment of any physical or intellectual
efforts are not included
 Fruits of property subsequently acquired
o DO NOT belong to the partnership
o Be included by express stipulation
o Profits partners acquire by their industry or work during the existence
of partnership and usufruct of their present properties belong to the
partnership as a matter of RIGHT

ARTICLE 1781

 UNIVERSAL PARTNERSHIP OF PROFITS = If articles of universal

partnership entered into without specification of nature
o Because this imposes less obligations of the partners

ARTICLE 1782

 Persons who are prohibited from giving each other any donation or
advantage CANNOT enter into a universal partnership
o Otherwise, NULL and VOID
o A husband and wife may enter into a particular partnership or be
members thereof

ARTICLE 1783

 PARTICULAR PARTNERSHIP
o Neither universal partnership of property NOR universal partnership
of profits
o Those having a particular purpose (those established for purpose of
carrying out a specific enterprise as construction of a building)
 Business of partnership need not be continuing in nature