1767-

Intention

“Partners” - member
“Firm” or “company” - association

Sources of our law on partnership

1. Old Civil Law
2. Two American Statutes
a. Uniform Partnership Act
b. Uniform Limited Partnership Act

GENERAL PROVISION

CONCEPT OF PARTNERSHIP
The above article gives the legal definition of partnership (often called “co-partnership”) from
the viewpoint of a contract. There are, however, other defi nitions. Thus:
(1) “A partnership is a contract of two or more competent persons to place their money,
effects, labor and skill, or some or all of them, in lawful commerce or business and to
divide the profi ts and bear the losses in certain proportions.” (40 Am. Jur. 126, 474; 68
C.J.S. 398.)
(2) “A partnership is an association of two or more persons to carry on as co-owners of a
business for profit.” (Uniform Partnership Act, Sec. 6.)
(3) “A partnership is a legal relation based upon the express or implied agreement of two
or more competent persons whereby they unite their property, labor or skill in carrying on
some lawful business as principals for their joint profit.” (Mechem, Elements of the Law
of Partnership [1923], p. 1.)
(4) “A partnership is the status arising out of a contract entered into by two or more
persons whereby they agree to share as common owners the profits of a business
carried on by all or any of them on behalf of all of them.” (31 Words and Phrases [1957
ed.], p. 291.)
(5) “A partnership is an organization for production of income to which each partner
contributes one or both of the ingredients of income, which are capital or service.” (Ibid.,
p. 292.)
(6) “A partnership is an entity, distinct and apart from the members composing it, and, for
the purpose of which it was created, it is a person having its own assets and liabilities
and any benefit or liability attaching to a member of the partnership, results from the
partnership relation.” (Ibid., p. 293.)
(7) “A partnership is a joint undertaking to share in the profi t and loss.” (Eastman vs.
Clark, 53 N.H. 276, 16 Am. Rep. 192.)
Partnership - a form of business organization that falls between two extremes of organizational
form - the single proprietorship and the corporation.
ARTICLE 1767. By the contract of partnership two or more persons bind themselves to
contribute money, property, or industry to a common fund, with the intention of dividing the
profits among themselves.

Two or more persons may also form a partnership for the exercise of a profession. (1665a)
General Professional Partnership - business not for profit, exercise of profession

(1) Basis of Concept

(a) Civil - contract
(b) American - relationship
(2) Possession of separate personality
(a) Spanish and Ph - separate legal entity “entity theory”
(b) American and English law - merely an extension of its members “aggregate
theory”
General Professional Partnership is exempted from corp tax, rather
subject to individual income tax.

Characteristic elements of partnership

The contract of partnership is:
(1) Consensual, because it is perfected by mere consent, that is, upon the express or
implied agreement of two or more persons;
(2) Nominate, because it has a special name or designation in our law;
(3) Bilateral, because it is entered into by two or more persons and the rights and
obligations arising therefrom are always reciprocal;
(4) Onerous, because each of the parties aspires to procure for himself a benefit
through the giving of something;
(5) Commutative, because the undertaking of each of the partners is considered as the
equivalent of that of the others;
(6) Principal, because it does not depend for its existence or validity upon some other
contracts; and stands on its own
(7) Preparatory, because it is entered into as a means to an end, i.e., to engage in
business or specific venture for the realization of profits with the view of dividing
them among the contracting parties.

Essential features of partnership.

The following are the essential features of a partnership contract:
(1) There must be a valid contract;
Expressed (verbal or written)
Implied (
(a) Partnership relation fundamentally contractual
(i) Form - evidenced through oral or written
(ii) Articles of Partnership - written document
 (iii) Requisites -
1) Consent and capacity of the contracting parties;
2) Object which is the subject matter of the contract; and
3) Cause which is established
(b) Partnership relation fiduciary in nature
(i) Right to choose co-partners - each person have a right to choose who will
be associated in the firm
(ii) Power to dissolve partnership -
(c) Application of principles of estoppel
Note: partnership relation is not the contract itself but the result of contract

(2) The parties (two or more persons) must have legal capacity to enter into the
contract;
(a) Individuals except
(i) Unemancipated minors - under supervision of parents
(ii) Insane or demented persons
(iii) Deaf-mutes who do not know how to write
(iv) Person who are suffering from civil interdiction
(v) Incompetents who are under guardianship
(b) Partnerships - no prohibition to enter partnership SURE
(c) Corporation - unless authorized, a corporation does not have the capacity to
enter contract of partnership but it allows to become partners

(3) There must be a mutual contribution of money, property, or industry to a

common fund;
(a) Existence or proprietary interest - must contribute capital, money or property, or
service, or both
(i) Money - actual cash not mercantile documents
(ii) Property - real or personal; tangible or intangible including credits
(iii) Industry - active cooperation (mutual efforts, intellectual)
Note: The contribution of a partner may be in the three forms of
money, property and industry, or any two or one of them.
(b) Proof of contribution

(4) The object must be lawful; and - partnership must be lawful - LEGALITY OF
OBJECT
(a) Effect of illegality
(i) Must be LaMoCPuP otherwise void ex: drugs, illegal drug, black market
(b) Business partnership not permitted to engage (dapat allowed na iengage ng
isang partnership)

(5) The primary purpose must be to obtain profits and to divide the same among the
parties
 (a) The very reason for existence of partnership - all if profit motive , a share in
profits and losses
(b) Need only be the principal purpose, not exclusive aim - share the profits in
certain proportions
(c) Sharing profits
(1) Not necessarily in equal shares
(2) Not conclusive evidence of partnership - you can only presume not
conclude na kahit sila nagsha-share ng profit, it doesn't mean a
partnership
(d) Sharing losses
(1) Necessary corollary of sharing in profits - if silent sa loss, then consider
na nature na magincur ng loss
(2) Agreement not necessary , stick to partnership of contract

ARTICLE 1768.
Partnership, a juridical person - may sariling identity ang partnership
- like corporation, law grants juridical personality separate and distinct from that of each of the
partners
-kahit may defects sa requirements, it is still separate from its partners

Effect of failure to comply with statutory requirements

(1) Article 1772 - capital exceeds P3M acquires juridical personality
(2) Article 1773 and 1775 - shall not acquire any juridical personality because contract is
void

To organize a partnership is not an absolute right. It is a PRIVILEGE

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-owners or co-possessors do or do not share any profits made by the use of the
property;
(3) The sharing of gross returns does not of itself establish a partnership, whether or not
the persons sharing them have a joint or common right or interest in any property from
which the returns are derived;
(4) The receipt by a person of a share of the profits of a business is prima facie
evidence that he is a partner in the business, but no such inference shall be drawn if
such profits were received in payment, then he is not a partner:
(a) As a debt by installments or otherwise;
(b) As wages of an employee or rent to a landlord;
(c) As an annuity to a widow or representative of a deceased partner;
(d) As interest on a loan, though the amount of payment vary with the profits of
the business;
 (e) As the consideration for the sale of a goodwill of a business or other property
by installments or otherwise.

Rules to determine existence of partnership

(1) Where terms of contract not clear
Generally, all essential features and characteristics must be shown as being present
In case of doubt, Article 1769 shall apply. It must be observed that this article seeks to
exclude from the category of partnership certain features enumerated therein which, by
themselves, are not indicative of the existence of a partnership.
(2) Where existence disputed
Mar be disputed or questioned by an affected party
Factual matter - court decisions

SUBSTANCE OVER FORM

1. Persons not partners as to each other
(1) Intention to create partnership - partnership a matter of intention - partners in
fact, intention not formality
(2) Partnership by estoppel - kahit ndi partners si A at B, since nagbigay si A ng
consent na sumali si C sa partnership nila, kahit there is no partnership, IT IS
PARTNERSHIP BY ESTOPPEL and they will be held liable to C! Due to misled
info.

Co-ownership or co-possession - undivided thing or right belongs to different persons

- Co-ownership of property does not itself establish the existence of partnership
- PEro, co-ownership is an essential element of partnership
- Profits must be derived from business operation or undertaking para maconsider
na partnership

(1) Clear intent to derive profits from operation of business

(a) Two or more persons may become co-owners without a contract but they cannot
be partners in the absence of contract - ang partners ay co-owners lang but the
right of use of such property
(b) The law does not imply a partnership between co-owners or co-possessors
because of the fact that they develop or operate a common property, since they
may rightfully do this by virtue of their respective titles - if ever ibenta nila ang
land it will not make them partners
(2) Existence of fiduciary relationship katiwala- kung saan nagtitiwala ang isang party sa
isang tao na may duty in behalf of him.

ILLUSTRATIVE CASES
1. Heirs agreed, after partition, to use common properties and income therefrom
as a common fund with the intention of making profit for them in proportion to
their shares in the inheritance. Co-ownership converted into a partnership
 2. Two persons contributed money to buy a sweepstakes ticket with the intention
to divide the prize which they may win.
They formed a partnership

3. Children sold lots given by their father and divided the proceeds.
No partnership was formed

(3) Persons living together without benefit of marriage - it shall be governed by the rules
of co-ownership

“Art. 147. When a man and a woman who are capacitated to marry each other, live
exclusively with each other as husband and wife without the benefi t of marriage or
under Art. 1769 35 a void marriage, their wages and salaries shall be owned by them in
equal shares and the property acquired by both of them through their work or industry
shall be governed by the rules on co-ownership x x x.”

Under Article 147, the property acquired by a man and a woman who live together as
husband and wife shall be governed by the rules on co-ownership.19

Partnership distinguished from co-ownership

(1) Creation - created by operation of law
Partnership; created by contract
(2) Juridical personality- wala
Partnership; separate juridical personality from the partner
(3) Purpose - common enjoyment of a thing or right
Partnership; realization of profit
(4) Duration - no agreement for more than 10 years - co-owner of property
Partnership; no limitation
(5) Disposal of interest - pwede freely
Partnership; partner can only dispose to an assignee to make him a partner with the
agreement from other partners
(6) Power to act with third persons - it only binds the co-owner, not the owners
Partnership; unless to the contrary, a partner may bind the partnership
(7) Effect of death - not necessarily dissolve
Partnership; death of partner will dissolve the partnership

ILLUSTRATIVE CASES:
1. Land purchased with funds contributed by the parties would be divided equally
between them. No contract of partnership, it is only by mutual agreement

2. Cascoes were acquired for a transportation business with the intention to share in the
profits but the parties were unable to draw up the written articles of partnership because
 of disagreement as to its terms. Yes, there was mutual contribution and joint interest
in profits

Partnership distinguished from conjugal partnership of gains.

(1) Parties - arises in case the future spouses agree that it shall govern thor property
relations during the marriage
PARTNER; created by voluntary agreement of two or more parties
(2) Laws which govern - governed by law
PARTNER; governed by stipulation of parties
(3) Juridical personality - none
PARTNER; has a juridical personality
(4) Commencement - commences at the celebration of marriage
PARTNER; starts at execution of contract
(5) Purpose - to regulate the property relations during marriage
PARTNER; obtain profits
(6) Distribution of profits - shares of the spouses in the profits are divided equally
PARTNER; divided according to the agreement of partners or in proportion to ther
respective capital contribution
(7) Management - the husband’s decision shall prevail in case of disagreement
PARTNER; management is equally shared unless there is appointed manager in
articles of partnership
(8) Disposition of shares - share of spouse cannot be disposed suring marriage even with
the consent of other
PARTNER; interest of a partner may be disposed of without the consent of other
partners

Partnership distinguished from a corporation

(1) Manner of creation - created by law or operation of law
PARTNER; mere agreement of parties
(2) Number of incorporators - at least two incorporators - requires at least five
incorporators
PARTNER; maybe organized by only 2 persons
(3) Commencement of juridical personality - begins to have personality only front he date fo
issuance of the certificate of incorporation by the SEC
PARTNER; from the moment of the execution of the contract of partnership
(4) Powers - exercise powers granted by law or incident to its existence
PARTNER; may exercise any power authorized by law LaMoCPup
(5) Management - vested in BOD oro trustees
PARTNER; every partner is an agent of partnership
(6) Effect of mismanagement - BOD or trustees mismanagement is in the name of the
corporation
PARTNER; a partner can sue a co-partner who mismanages
(7) Right of succession - has a right to succession
PARTNER; no right to succession
 (8) Extent of liability to third persons - stockholders are liable only to extent of the shares
subscribed by them
PARTNER; partners are liable to third person (except limited partners)
(9) Transferability of interest - has a transferability without consent from others
PARTNER; partner cannot transfer interest “delectus personarum”
(10) Term of existence - may not be formed for a term excess fo 50 years extendible
to not more than 50 years in any once stance
PARTNER; for any period stipulated by partners
(11) Firm name - may adopt any firm name provided that it is not similar to any
existing name
PARTNER; Ltd. fro limited partnership added at the end
(12) Dissolution - may be dissolve with the consent of the State
PARTNER; dissolve at any time by the will of any or all partners
(13) Governing law - Corporation Code
PARTNER; Civil Code

Similarities between a partnership and a coprotation

They are as follows:
(1) Like a corporation, a partnership has a juridical personality separate and distinct
from that of the individuals composing it;
(2) Like a corporation, a partnership can act only through agents;
(3) Like a corporation, a partnership (except a corporation sole) is an organization
composed of an aggregate of individuals;
(4) Like a (stock) corporation, a partnership distributes its profits to those who
contribute capital to the business (although an industrial partner also shares in
partnership profits);
(5) Like a corporation, a partnership can be organized only where there is a law
authorizing its organization; and
(6) A partnership, no matter how created or organized (except a general professional
partnership)21 is taxable as a corporation, subject to income tax)

ARTICLE 1770
Two points from the first paragraph
1. Legality of objects
2. Community of benefit or interest of the partner

Effects of an unlawful partnership

1. The contract is void ab initio (from the beginning) and the partnership never existed in
the eyes of the law
2. The profits shall be confiscated in favor of the government
3. The instrument or tools and proceeds of the crime shall also be forfeited in favor of the
government
4. The contribution of the partners shall not be confiscated unless fall under No. 3
ARTICLE 1771
“A partnership may be constituted in any form, except where immovable property ro real
rights are contributed thereto, in which case a public instrument shall be necessary.”

Form a partnership contract

(1) General rule - no special form required for the validity or existence of the contract of
partnership. Orally or in writing, regardless of value of the contribution
(2) Where immovable property or real rights are contributed - they require the execution of
a public instrument for the validity of a contract of partnership whenever immovable
property is contributed thereto. To affect third persons, the transfer of real property to the
partnership must be duly registered in the Registry of Property of the province or city
where the property contributed is located
(3) When partnership agreement covered by Statute of Frauds. — An agreement to enter in
a partnership at a future time, which “by its terms is not to be performed within a year
from the making thereof” is covered by the Statute of Frauds. Such agreement is
unenforceable unless the same be in writing or at least evidenced by some note or
memorandum thereof subscribed by the parties.

PArtnership implied from conduct

(1) Binding effect
(2) Ascertainment of intention of parties
(3) Conflict between intention and terms of contract.

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 Offi ce 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. “

(1) Two requirements where the capital P3,000 or more (money or property)
1. Contract must appear in public instruments
2. Must be recorded or registered with the SEC
Non compliance of such does not prevent partnership formation or affect liabilities to 3rd parties.
(2) Purpose of registration - tax liability, “a condition for the issuance of licenses to engage
in business or trade
(3) When partnership considered registered - the only objective of the law is to make the
recorded instrument open to all and to give notice thereof to interested parties.

What’s the point of registering?

To make the recorded instrument open to all and to give notice thereof to interested
parties (TAX COMPLIANCE too)
Classification of partnership
(1) As to the extent of its subject matter
(a) Universal partnership
(i) Universal partnership of all present property
1) Inheritance
2) Legacy
3) Donation
(ii) Universal partnership of profits
1) Ownership of present and future property- after ibabalik din ang
contributed property nila, retained ownership kahit all property ay
ibinigay
2) Profits acquired through chance - not included as profit like lottery
3) Fruits of property subsequently acquired - it does not belong to
partnership
(b) Particular partnership - If the partnership is formed only to carry out one
business venture or to complete one undertaking such a partnership is
known as a particular partnership.
(2) As to liability of the partners
(a) General partnership - liable to pro rata and subsidiary (with separate property
for partnership debts)
(b) Limited partnership - (1 or more GP and 1 or more LP) not personally liable for
the obligations of the partnership
(3) As to its duration
(a) Partnership at will (mutual agreement)
(b) Partnership with a fixed term (existence is fixed and agreed upon formation
until expiration unless continued by partners
(4) As to the legality of its existence
(a) De jure partnership (complied all requirements)
(b) De facto partnership (failed to comply legal requirements)
(5) As to representation to others
(a) Ordinary or real partnership - exist to partners and 3rd persons
(b) Ostensible partnership or partnership by estoppel - not a partnership but
considered partnership in their own conduct an admission
(6) As to publicity
(a) Secret partnership (partner is not known to public by any of the partners)
(b) Open or notorious partnership (existence is avowed or known)
(7) As to purpose
(a) Commercial or trading partnership - transaction of business
(b) Professional or non-trading partnership - exercise fo profession

ARTICLE 1776
Kinds of Partners
(1) Under Civil Code
(a) Capitalist partner - contributes money or property to the common fund
 (b) Industrial partner -contributes his industry or personal service
(c) General partner (real partner) - liability to third person extend to his separate
property can be capital or industrial partner
(d) Limited partner (special partner)- limited to capital contribution
(e) Managing partner (general or real partner) - managed affairs or business
(f) Liquidating partner - in charge of the winding up affairs upon dissolution
(g) Partner by estoppel (partner b implication or nominal partner) - not really a
partner, liable as a partner for the protection of innocent third persons
(h) Continuing partner - continued business after dissolution due to admission
of new partner, retirement , death or expulsion
(i) Surviving partner - one who remains after a partnership has been dissolved by
the death of any partner
(j) Subpartner - not being a member of the partnership, contracts with a partner with
reference to the latter’s share in the partnership
(2) Other Classifications
(a) Ostensible partner - one who takes active part and known to the public as a
partner in the business. Actual partner or nominal partner
(b) 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
(Ibid.), although he participates in the profits and losses of the partnership. Actual
partner
(c) Silent PArtner - not active partner, known as a partner. Secret Partner
(d) Dormant PArtner “sleeping partner” - one who does not take active part in the
business and is not known or held out as partner. Silent or secret partner
(e) Original partner - one who is a member of the partnership from the time of its
organization. Original members
(f) Incoming partner - person lately, or about to be, taken into an existing
partnership as a member
(g) Retiring partner - one withdrawn from the partnership; a withdrawing partner
There is an endless song For I know my Savior lives

Echoes in my soul And I will walk with You

I hear the music ring Knowing You'll see me through

And though the storms may come Sing the songs You give

I am holding on

To the rock I cling How can I keep from singing Your praise

How can I ever say enough

How can I keep from singing Your praise How amazing is Your love

How can I ever say enough How can I keep from shouting Your name

How amazing is Your love I know I am loved by the King

How can I keep from shouting Your name And it makes my heart want to sing

I know I am loved by the King

And it makes my heart want to sing I can sing in the troubled times
Sing when I win
I can sing when I lose my step
I will lift my eyes And fall down again
I can sing 'cause You pick me up
In the darkest night
Sing 'cause You're there
I can sing 'cause You hear me, Lord How amazing is Your love
When I call to You in prayer
How can I keep from shouting Your name
I can sing with my last breath
Sing for I know I know I am loved by the King
That I'll sing with the angels
And it makes my heart want to sing
And the saints around the throne
And it makes my heart want to sing
How can I keep from singing Your praise
want to sing
How can I ever say enough
To sing!