Partnership
Onerous – contributions in the
Art. 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.
 Partnership is a contract whereby
two or more persons bind
themselves to contribute money,
property or industry to a common
fund with the intention of dividing
profits among themselves.
 Elements
1. Intention to form a contract of
partnership
2. Participation in both profits and
losses
3. Community of interests
 Basic Features
1. Voluntary agreement
2. Association for profit
3. Mutual contribution to a common
fund
4. Lawful purpose or object
5. Mutual agency of partners
6. Articles must not be kept secret
7. Separate juridical personality
 Characteristics
1. Consensual – perfected by mere
consent.
2. Bilateral – formed by two or more
persons creating reciprocal rights and
obligations.
3. Preparatory - entered into as a
means to an end.
4. Nominate – has a special name or
designation.
5.
form of either money, property
and/or industry must be made.
6. Commutative – the undertaking of
each partner is considered as the
equivalent of that of the others.
7. Principal – its existence or validity
does not depend on some other
contract.
 NOMINATE
- There is a name given by the law
- Contract of Partnership:
CONSENSUAL (meaning it is perfected by
both parties)
 PERSONS
- Includes not only natural persons
but also JURIDICAL persons. A corporation
may NOT be a partner but it may engage in
JOINT VENTURES.
 BIND THEMSELVES
- Must be capable and competent, meaning,
the following may are not included:
1. Minors
2. Emancipated Minors
3. Those under civil interdiction – accessory
penalty of being convicted of crimes
4. Insane persons
5. Incompetent persons (see oblicon notes)
- HOWEVER, if the person is only a SUSPECT,
he may still bind himself into a contract since
there is no final verdict yet.
 TO CONTRIBUTE MONEY, PROPERTY OR
INDUSTRY
 Makes the contract onerous since this is
MUTAL and ALL must give either one of the
above
- Examples:
1. A and B create a partnership with a
promise of contributing P10,000 each in cash.
A gave his share while B gave a check worth
P10,000. Is the issuance a contribution of
money? No, unless the check is encashed.
2. Considering the same information
above but with B contributing P10,000 in
equivalent dollars.
No, the contribution must be made
using the legal tender, in this case, Philippine
pesos.
- Property contributed may be
movable, immovable or intangible property.
(Ex: equipment, land, patents, etc.)
- If the partnership did not
contribute money or property, then industry
was contributed.
- Note: Contributions may differ for
each of the partners.
 TO A COMMON FUND TO DIVIDE PROFITS
AMONGST EACH OTHER
- The primary objective of
partnerships is to make profits. Sharing
profits need not be equal.
- Sharing ratios are determined by
the partner’s agreement, and if there was no
agreement, then the ratios will be based on
the ratio of the partners’ contributions.
- Sharing ratios for losses will be the
same as the sharing ratios for profits.
- The industrial partner shall NOT
share in losses.
- The industrial partner is exempt
only to the partners but not to 3rd parties
without prejudice to his right. A1816
 CONSENT (DELECTUS PERSONAE)
- You can’t join a partnership without the
consent of ALL partners. Why? Because the
partnership will need to be dissolved before
you are admitted and a new partnership will
be made in its place.
 Principle of Delectus Personae
(choice of persons) – a person has
the right to select persons with
whom he wants to be associated
with in 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)
Example:
 If A and B form a partnership with X
& Co., the property of X & Co. is not
A & B’s property and likewise, A & B’s
property is not X & Co.’s.
 -Since X & Co is a juridical entity, it
can acquire any property since the
partners are merely agents.
 Thus the obligations of X & Co are
not those of A & B’s.
 The partnership of X & Co can file
against A & B and be sued by A & B,
likewise, if a third party sues X & Co.,
A & B are not affected.
 The partnership will still be a juridical
entity even without compliance with
A1772.
 If X & Co. is exempted from certain
things, it does not follow that A & B
are included.

 Consequences of being a Juridical Person
 Can sue and be sued
 Acquire any kind of property
  Insolvency of a partnership does not
mean that the partners themselves
are insolvent
Partnership, a juridical person
 As an independent juridical person, a
partnership may enter into contracts,
acquire and possess property of all
kinds in its name, as well as incur
obligations and bring civil or criminal
actions.
 Thus, a partnership may be declared
insolvent even if the partners are
not. It may enter into contracts and
may sue and be sued in its firm name
or by its duly authorized
representative. It is sufficient that
service of summons be served on any
partner. Partners cannot be held
liable for the obligations of the
partnership 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
 Under Art 1772 Partnership still
acquires personality despite failure
to comply with the requirements of
execution of public instrument and
registration of name in SEC.
 Under Arts 1773 and 1775
Partnership with immovable
property contributed, if without
requisite inventory, signed and
attached to public instrument, shall
not acquire any juridical personality
because the contract itself is void.
This is also true for secret
associations or societies. To organize
a partnership not an absolute right It
is but a privilege which may be
enjoyed only under such terms as the
State may deem necessary to
impose.
To organize a partnership not an absolute
right It is but a privilege which may be
enjoyed only under such terms as the State
may deem necessary to impose.
Art. 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-ownership or coprocessors 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 instalments 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.
In general, to establish the existence
of a partnership, all of its essential features
or characteristics must be shown as being
present. In case of doubt, art.1769 shall
apply. This article seeks to exclude from the
category of partnership certain features
enumerated herein which, by themselves,
are not indicative of the existence of a
partnership.
 Provides the rule in determining
partnerships
 Example for (1)
- If A & B say PUBLICLY that they are not
partners, then according to A1825, if they
told C that they are and C enters into a
contract of partnership with them, then A
and B are in a PARTNERSHIP OF ESTOPPEL.
 Example for (2)
- If A & B inherited land from their parents
and subsequently leased the land out for
P50,000/month, then it can be said that they
share profits, but are they in a partnership?
No, they are merely co-owners. The P50,000
profit is merely incidental and besides, it was
not derived from BUSINESS OPERATIONS.
- If they bought the land for P1,000,000 each
to build a house but instead opted to sell it
for P2,500,000 then they have a profit of
P500,000 but are they partners? No, because
even if there was a profit of P500,000, this is
merely incidental to the sale and not from
business operations of A&B.
- If the land was instead used to build an
apartment that is rented out? Yes, because A
& B share profits from RENTING, this can be
considered as ordinary business operations.
 Example for (3)
- If a person owns a big tract of land for
planting rice and entered into an agreement
with a farmer that they will divide the
harvest, is the farmer partners with the
owner of the land? No because of the
following reasons:
(1) The farmer had no contribution
(2) The farmer has no say in the disposition
of the land
(3) The farmer has no say in management
(4) In case of loss, the owner shall carry the
entire burden and the farmer need not pay
anything
 Example for (4)
- A partnership borrowed P50,000 and
instead of giving the creditor a specific
amount to be repaid, they agreed that the
creditor will receive 1% of the partnership’s
annual gross profit. Is the creditor a partner?
No because the receipt of share in net
income happens to be because of an existing
debt.
 Persons not partners as to each
other Persons who are partners as
between themselves are partners as
to third persons.
 Generally, the converse is true: if
they are not partners between
themselves, they cannot be partners
as to third persons. Partnership is a
matter of intention, each partner
giving his consent to become a
partner.
 However, whether a partnership
exists between the parties is a factual
matter. Where parties declare they
are not partners, this, as a rule,
settles the question between them.
But where a person misleads third
persons into believing that they are
partners in a non-existent
partnership, they become subject to
liabilities of partners (doctrine of
estoppel).
 Whether or not the parties call their
relationship or believe it to be a
partnership is immaterial. Thus, with
the exception of partnership by
estoppel, a partnership cannot exist
as to third persons if no contract of
 partnership has been entered into
between the parties themselves.
Co-ownership or co-possession
There is co-ownership whenever the
ownership of an undivided thing or right
belongs to different persons.
Clear intent to derive profits from operation
of business
Co-ownership does not of itself establish
the existence of a partnership, although
it is one of its essential elements. This is
true even if profits are derived from the
joint ownership. The profits must be
derived from the operation of business
by the members of the association and
not merely from property ownership. The
law does not imply a partnership
between co-owners because of the fact
that they develop or operate a common
property, since they may rightfully do this
by virtue of their respective titles. There
must be a clear intent to form a
partnership.
Existence of fiduciary relationship
Partners have a well-defined
fiduciary relationship between them. Co-
owners do not. Should there be dispute; the
remedy of partners is an action for
dissolution, termination and accounting.
For co-owners it would be one, for
instance, for non-performance of contract.
People can become co-owners without a
contract but they cannot become partners
without one.
Persons living together without benefit of
marriage
Property acquired governed by rules
on co-ownership.
Sharing of gross returns not even
presumptive evidence of partnership
The mere sharing of gross returns
alone does not even constitute prima facie
evidence of partnership, since in a
partnership, the partners share profits after
satisfying all of the partnership’s liabilities.
Reason for the rule
Partner interested in both failures
and successes; it is the chance of loss or gain
that characterizes a business. Where the
contract requires a given portion of gross
returns to be paid over, the portion is paid
over as commission, wages, rent, etc.
Where there is evidence of mutual
management
Where there is further evidence of
mutual management and control,
partnership may result.
Receipt of share in the profits strong
presumptive evidence of partnership
An agreement to share both profits
and losses tends strongly to establish the
existence of a partnership. It is not
conclusive, however, just prima facie and
may be rebutted by other circumstances.
When no such inference will be drawn
Under par. 4 of art. 1769, sharing of
profits is not prima facie evidence of
partnership in the cases enumerated under
subsections (a) – (e). In these cases, the
profits are not shared as partner but in some
other respects or purpose. The basic test of
partnership is whether the business is carried
on in behalf of the person sought to be held
liable.
Sharing of profits as owner
It is not merely the sharing of profits,
but the sharing of them as co-owner of the
business or undertaking that makes one
partner.
Test: Does the recipient 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?
One must have an interest with
another in the profits of a business as profits.
Burden of proof and presumption
The burden of proving the existence
of a partnership rests on the party having the
affirmative of that issue. The existence of a
partnership must be proved and will not be
presumed. The law presumes that those
acting as partners have entered into a
contract of partnership. Where the law
presumes the existence of partnership, the
burden of proof is on the party denying its
existence. When a partnership is shown to
exist, the presumption is that it continues
and the burden of proof is on the person
asserting its termination.
One who alleges partnership cannot
prove it merely by evidence of an agreement
using the term “partner”. Non-use of the
term, however, is entitled to weight. The
question of whether a partnership exists is
not always dependent upon the personal
arrangement or understanding of the parties.
Parties intending to do a thing which in law
constitutes partnership are partners.
Legal intention is the crux of
partnership. Parties may call themselves
partners but their contract may be adjudged
something quite different. Conversely,
parties may expressly state that theirs in not
a partnership yet the law may determine
otherwise on the basis of legal intent.
However, courts will be influenced to some
extent by what the parties call their contract.
Tests and incidents of partnership
In determining whether a a law authorizing is organization;
partnership exists, it is important to
distinguish between tests or indicia and
incidents of partnership. Only those terms of
a contract upon which the parties have
reached an actual understanding, either
expressly or impliedly, may afford a test by
which to ascertain the legal nature of the
contract. Some of the typical incidents of a
partnership are:
1. The partners share in profits and
losses.
2. They have equal rights in the mgt
and conduct of the partnership business.
3. Every partner is an agent of the
partnership, and entitled to bind the others
by his acts. He may also be liable for the
entire partnership obligations.
4. All partners are personally liable
for the debts of the partnership with their
separate property except that limited
partners are not bound beyond the amount
of their investment.
5. A fiduciary relation exists between
the partners.
6. On dissolution, the partnership is
not terminated, but continues until the
winding up of partnership is completed. Such
incidents may be modified by stipulation of
the partners.
Similarities between a partnership and a
corporation
1. Both have juridical personality separate
and distinct from that of the individuals
composing it;
2. Both can only act through its agents;
3. Both are organizations composed of an
aggregate of individuals;
4. Both distribute profits to those who
contribute capital to the business;
5. Both can only be organized where there is
6. Partnerships are taxable as corporations
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)
The provision of the 1st paragraph
reiterates 2 essential elements of a contract
of partnership:
1. Legality of the object; and
2. Community of benefit or interest
of the partners. The parties possess absolute
freedom to choose the transaction or
transactions they must engage in. The only
limitation is that the object must be lawful
and for the common benefit of the members.
The illegality of the object will not be
presumed; it must appear to be of the
essence of the relationship.
 The partnership must have a lawful object
or purpose
- Lawful object refers to CAPITAL
- Lawful purpose refers to the
BUSINESS itself
 There must be common interest
and benefit
 Unlawfulness of the partnership
will cause it to be dissolved and profits shall
be confiscated
 Example of unlawful purpose:
- GAMBLING A & B are partners
where A contributed P100,000 in cash and B
contributes gambling paraphernalia. They
were raided and the gambling paraphernalia
was confiscated. Can the P100,000 also be
confiscated? No because the P100,000 was
not the reason for the crime in anyway. The
state is therefore required to return this
amount to A.
 Legal effects of a Judicial Dissolution
- Partnership is considered void from
the beginning
- Profit and instrument of the crime is
confiscated
- The only returnable items are those
that were never related to or connected with
the crime committed.
Effects of an unlawful partnership
1. The contract is void and the partnership
never existed in the eyes of the law;
2. The profits shall be confiscated in favor of
the government;
3. The instruments or tools and proceeds of
the crime shall also be forfeited in favor of
the government;
4. The contributions of the partners shall not
be confiscated unless they fall under #3.
A partnership is dissolved by operation of law
upon the happening of an event which makes
it unlawful.
A judicial decree is not necessary to dissolve
an unlawful partnership. However, advisable
that judicial decree be secured. 3rd persons
who deal with partnership without
knowledge of illegal purpose are protected.
Right to return of contribution where
partnership is unlawful
Partners must be reimbursed the
amount of their respective contributions. 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.
Since the purpose for which the
contribution was made has not come into
existence, the manager or administrator
must return it, and he who has paid his share
is entitled to recover it
Right to receive profits where partnership is
unlawful
 Law does not permit action for
obtaining earnings from an unlawful
partnership because for that purpose, the
partner will have to base his action upon the
partnership contract, which is null and
without legal existence by reason of its
unlawful object; and it is self-evident that
what does not exist cannot be a cause of
action.
Profits earned do not constitute or
represent the partner’s contribution. He
must base his claim on the contract which is
void. It would be immoral and unjust for the
law to permit a profit from an industry
prohibited by it.
The courts will refuse to recognize its
existence, and will not lend their aid to assist
either of the parties thereto in an action
against each other. Therefore, there cannot
be no accounting demanded of a partner for
the profits which may be in his hands, nor
can recovery be had.
Effect of partial illegality of partnership
business
Where a part of the business is legal
and part illegal, a n account of that which is
legal may be had. Where, w/o the knowledge
or participation of the partners, the firm’s
profits in a lawful business has 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
Contract will not be nullified. Where
the business for which the partnership is
formed is legal when the partnership is
entered into, but afterward becomes illegal,
an accounting may be had as to the business
transacted prior to such time.
Community of interest between the
partners for business purposes
The salient features of an ordinary
partnership are a community of interest in
profits and losses, a community of interest in
the capital employed, and a community of
power in administration. This community of
interest is the basis of the partnership
relation.
However, although every partnership
is founded on a community of interest, e very
community of interest does not necessarily
constitute a partnership. Property used in the
business may belong to one or more
partners, so that there is no joint property,
other than joint earnings.
To state that partners are co-owners
of a business is to state that they have the
power if ultimate control. But partners may
agree upon concentration of management,
leaving some of their members entirely
inactive or dormant.
Only one of these features, profit-
sharing, seems to be absolutely essential. But
a mere sharing of profits of itself does not of
necessity constitute a partnership. The court
must consider all the essential elements in
light of the facts of the particular case before
deciding whether a partnership exists.
Article 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 (1667a)
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.
 Can a partnership be created orally?
Yes. A partnership may be
constituted in any form (as stated in Article
1771)
 Partnerships are not covered by the Statute
of Fraud since these are not necessarily
required to be in writing (contract of
partnership can be in any form)
 If immovable property and/or real rights
are contributed to the partnership, then the
contract must be in a public instrument
(notarized documents)
 In order to bind 3rd persons, the transfer of
OWNERSHIP of immovable property MUST
BE REGISTERED with the REGISTRY OF
PROPERTY in the province or city where the
property is located
 The article shows that partnerships can be
perfected by MERE CONSENT.
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 within 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.
Article 1772 Every contract of
partnership having a capital of P3,000.00 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. (n)
 If the partnership’s capital is P3, 000.00 or
more (in any form), it must be in a public
instrument, recorded with the SEC and note
that property referred to here is MOVABLE
since immovable property is covered by
Article 1771.
 Failure to comply with the requirements of
Article 1772 will not affect the liability of the
partnership to 3rd persons. But any partner is
granted the right bylaw to compel each other
to execute the contract in a public
instrument.
Isn’t this inconsistent with Article
1358? No, remember that in Article 1358, if
the contract terms exceed P500.00 then the
contract must be in writing. This is merely for
purposes of convenience and not validity or
enforceability of the law. Also note that
according to Article 1768, the partnership
will still be valid and have a juridical entity.
 How do we reconcile this with
Article 1358 and 1357? Article 1358 is for
purposes of convenience and not for validity
or enforceability of the law. Article 1357
states that contracting parties have the right
to compel each other to place the contract
into writing.
 Purpose of Registration:
(1) Condition for obtaining a license
to engage in business and in trade
(2) 3rd persons want proof that the
partnership is existent, who the partners are
and what the capitalization is before they
enter into contracts/engage in business.
(3) The government requires this so
that tax liabilities may not be avoided (BIR)
 Failure to comply with the Article’s
requirements will not prevent the formation
of the partnership
 The Statute of Fraud will only apply if
there was an agreement made by the
contracting parties
 Example: A and B promise to contribute to
their partnership money worth P10,000.00
each within one year from their agreement.
A contributes early but when the time comes
for B to contribute his share, he refuses to do
so. Can A compel B to give his contribution?
No, A cannot compel B to pay his
contribution to the partnership. Why?
Because the contract/agreement
between the two parties was purely ORAL
and never really written, and it has already
been one year since they agreed to their
contract terms.
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 with 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.
With 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 partnership
An inventory is very important in a
partnership to 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 partnership would be useless if there is no
inventory of immovable property contributed
because w/o its description and designation,
the instrument cannot be subject to
inscription in the Registry of Property, and
the contribution cannot prejudice 3rd
persons.
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. (n)
 Being a juridical entity, a partnership can
acquire property and subsequently become
its owner.
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.
Article 1775 Associations and societies
whose articles are kept secret among
members, and wherein anyone 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. (1669)
 There is no juridical entity since the
members can contract with 3rd persons in
their own name without binding others.
 In a partnership:
(1) The partners are merely agents
who cannot act alone
(2) Articles of Partnership are known
to ALL partners AND to the GENERAL PUBLIC.
 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 arts 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 with
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 3
rd persons extends to his separate property.
4. Limited partner: one whose liability to 3 rd
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. Sub partner: 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.
2. 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.
3. Silent partner: one who does not take any
active part in the business although he may
be known to be a partner.
4. 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.
5. Original partner: one who is a member of
the partnership from the time of its
organization.
6. Incoming partner: a person lately, or
about to be, taken into an existing
partnership as a member.
7. 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.
Article 1777 A universal partnership may
refer to all the present property or to all the
profits. (1672)
Article 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 the profits which they
may acquire therewith. (1673)
Article 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 therewith. 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. (1674a)
 Why is the universal partnership of all
present property not popular in the
Philippines?
 Property owned at the time of contribution
will become common property of the
partnership eventually because only the
profits acquired through the contribution will
become common property, unless there was
a stipulation that says otherwise.
 Example: A and B form a Universal
Partnership of All Present Property and
stipulate that property and profits that are
acquired during business operations will
become common property even if these were
not due to their contributions and that if
anyone inherits property, it will become
common property as well.
A acquires land as part of his
compensation package from AyalaLand and B
inherits land from his parents. Whose
property will become common property?
Only A’s land will become common property
because it was essentially PAYMENT while B’s
was inherited. The article prohibits donations
to become common property, only fruits of
such can become common property.
 In a partnership, contributions must be
determinate/certain and partners are akin to
donors. Donations cannot comprehend
future property but profits can be stipulated.
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.
Article 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. (1675)
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 w/c 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
 Example:
Suppose A and B form a Universal
Partnership of All Profits and A wins in the
lotto, P100,000.00. B tries to share in 50%
citing the existence of their partnership and
that A used the partnership’s money to
purchase the lottery ticket. Can B really share
in the lotto winnings? No, B cannot since it
came from CHANCE, not WORK. If the
P100,000.00 instead came from A’s work in
DLSU, can B share in the profits of A? Yes,
because it came from WORK.
 As long as it is PROFIT, the profit becomes
common property to the partners UNLESS
there was a stipulation in their agreement
 If A and B form a Universal Partnership of
All Profits for a Taxi-Cab business and both
contribute vehicles that will serve as the taxi,
what they were actually contributing is the
USE or the RIGHT TO USE their vehicles. Upon
dissolution, the vehicles will be returned to
them since there was never a transfer of
ownership.
 Unique feature of the Universal Partnership
of All Profits:
- The partners retain the title of
ownership.
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:
(a)Those made between persons who
are guilty of adultery or concubinage at the
time of the donation (no need for conviction;
preponderance of evidence only required);
(b)Those made between persons
found guilty of the same criminal offense,
inconsideration thereof;
c.) Those made to a public officer or
his wife, descendants and ascendants, by
reason of his office.
 A husband and wife cannot join a universal
partnership.
- They are not allowed to donate to
each other and a universal partnership
essentially requires that the partners donate
to each other.
- They can join a particular
partnership instead.
 A partnership formed in violation of this
article shall be null and void. It shall not have
any legal personality either.
 Illustrative Case: A, B and C form a
partnership to engage in the importation,
marketing and operation of automatic
phonographs, radios, television sets,
amusement machines and their parts
accessories, with B and C as limited partners.
Subsequently, A and B got married and
thereafter, C sold his share to A and B for a
nominal amount.
Was the partnership dissolved after
the marriage of A and B and C’s sale to them
of his share in the partnership?
No, the firm was not a universal
partnership but a particular one.
Article 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 (1678)
 Defines what a particular partnership is
 Particular partnerships are those that are:
- Neither a universal partnership for
all present property nor a universal
partnership for all profits
- Example: Those that are formed for
the acquisition and sale of property,
Accounting Firms, Law Firms, etc.
- Popular because it is easy to join
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 seemt o fall w/in the
meaning of the term “partnership” as used in
the law.
Rule under American law
The above is not true under the
Uniform Partnership Act w/c does not
include joint ventures w/c exists for a single
transaction or a limited number of
transactions.
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. (1679)
 A partnership is a consensual
contract; hence it exist from the
moment of the celebration of the
contract of the partners.
 When we say consensual contract,
partnership can form by mere
‘consent’ as long as all the necessary
requisites are present in the contract
of partnership.
 Let say for example, Song Kang
courted Din. By saying yes to the
proposal of Song Kang, officially they
are both dating already. By mere
consent of Din, they formed a
relationship already. But the
question is, are the necessary
requisites present? What are the
requisites when you are dating? First
of all, we all know there should be
love with each other because a
relationship won’t work without
authentic love and many more.
 But the question is, when is the
dating started? From the moment
Song Kang asked Din for a date? Or
When Din finally said Yes to Song
Kang? Of course, when Din said yes
or by the moment when Din give
consent.
Executory Agreement of Partnership
Future Partnership- The partners may
stipulate some other date for the
commencement of the partnership.
Based on the previous sample, Din give
consent but after he graduated in college.
Hence, what created was a future
partnership. They are not totally dating from
the time Din gave consent. The question is,
after Din’s graduation, automatically they are
dating? Yes!
Agreement to create partnership- A
distinction must be made between
partnership actually consummated and an
agreement to enter into a contract of
partnership at a future time.
- So long as the agreement
remains executory, no
partnership said to exist.
For example. Song Kang confess to Din about
his true feelings and he is wiling to court Din
if he already have something to be proud of.
Din agreed to him and since they both love
each other he is willing to wait for him. The
question is, is there a partnership? The
answer is none. What created was an
agreement to create partnership.
TAKE NOTE: It’s true that a partnership may
form by mere consent but always remember
the general rules. Partnership is a contract
and in contract, when the execution of the
contract is more than one year, it should be
in writing. Otherwise, the contract is
unenforceable.
Another thing, when immovable
property is involved, the contract must also
be in writing.
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
2. . Shall answer for eviction, in case the
partnership is deprived of the
ownership of any specific property
he contributed;
3. 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. 4. Shall preserve said properties with
the diligence of a good father of a
family pending their delivery to the
partnership;
 5. 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.