WC_Aranas

GENERAL PROVISIONS

Chapter 1

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Partnership defined
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. [Article 1767]
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Partnership defined
1. two or more persons
2. contribute money, property, or
industry to a common fund
3. intention of dividing the profits
among themselves.

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Article 1767 defines partnership from the
viewpoint of a CONTRACT. From the
contract arises the partnership relation.

As a form of business organization,

partnership falls between two extremes –
SINGLE PROPRIETORSHIP and
CORPORATION. [De Leon, Comments and Cases on
Partnership, Agency and Trusts (2010), hereinafter
referred to as "De Leon (2010)"]
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ELEMENTS
There is a contract of partnership
when:
(1) There is a meeting of the minds;
(2) To form a common fund;
(3) With intention that profits and
losses will be divided among the
contracting parties.
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ESSENTIAL FEATURES
A partnership contract has the
following essential features:
(1) There must be a valid contract.
(2) The parties must have legal
capacity.
(3) There must be a mutual
contribution of money, property, or
industry to a common fund.
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ESSENTIAL FEATURES
A partnership contract has the
following essential features:
(4) The object must be lawful.
(5) The primary purpose must be
to obtain profits and to divide the
same among the parties.

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ESSENTIAL FEATURES
A partnership contract has the following
essential features:
(6) The partnership has a juridical
personality separate from individual
partners [Article 1768].

As such, "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." [Article 1774]
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EFFECT OF UNLAWFUL OBJECT
If the partnership has an unlawful object or purpose:
(1) The contract is void ab initio. [Article 1409(1)]
(2) Once dissolved by judicial decree:
(a) The profits shall be confiscated by favor of the
State;
(b) The instruments or tools and proceeds of the
crime shall also be forfeited in favor of the State.
[Article 1770]
(c) The contributions of partners shall not be
confiscated unless they are instruments or tools of the
crime. [De Leon (2010)]
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Note: A partnership is dissolved by
operation of law (even without
judicial decree) when the business
becomes unlawful.

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ASSOCIATIONS WITHOUT LEGAL PERSONALITY
Associations and societies with the following
characteristics has no legal personality and is
governed by the provisions of co-ownership:
(1) The articles are kept secret among the
members; and
(2) Any one of the members may contract in his
own name with third persons. [Article 1775] It
may, however, be sued by third persons under
the common name it uses. [Section 15, Rule 3,
Rules of Court]
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CHARACTERISTICS

The contract of partnership

is:

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CHARACTERISTICS

Consensual, because it is
perfected by mere consent.

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CHARACTERISTICS

Nominate, because it has a

specific name.

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CHARACTERISTICS

Bilateral or multilateral,
because it is entered into
between two or more
persons.
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CHARACTERISTICS

Principal, because its

existence does not depend
on another contract.

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CHARACTERISTICS

Onerous, because money,

property or industry are
contributed by the parties.

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CHARACTERISTICS

Preparatory, because it is
entered into to carry out a
business or specific venture.

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CHARACTERISTICS

Commutative, because the

undertaking of each is
considered as equivalent of
that of the others.
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 PARTIES TO THE CONTRACT
General rule: Any person capacitated to contract
may enter into a contract of partnership. As
such, the following persons cannot enter into a
contract of partnership:
(1) Those suffering from civil interdiction;
(2) Minors;
(3) Insane or demented persons;
(4) Deaf-mutes who do not know how to write;
(5) Incompetents who are under guardianship.
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PARTIES TO THE CONTRACT
Exceptions: The capacity of the following
persons to enter into a contract of
partnership, though capacitated to
contract generally, are limited:
(1) Those who are prohibited from giving
each other any donation or advantage
cannot enter into a universal partnership.
[Article 1782]
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PARTIES TO THE CONTRACT
(2) A corporation cannot enter into a
partnership in the absence of express
authorization by statute or charter.

However, under RCC Sec 35 (h) Every

corporation incorporated under this Code (RCC)
has the power and capacity to enter into a
partnership, joint venture, merger,
consolidation, or any other commercial
agreement with natural and juridical persons;
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 FORM OF THE CONTRACT
General rule: The contract may be
constituted in any form. [Article
1771]

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Exceptions: (1) Where immovable property or
real rights are contributed:
(a) The contract must appear in a public
instrument; and
(b) Attached to such instrument must be an
inventory, signed by the parties, of the property
contributed. [Articles 1771 and 1773]
EFFECT OF ABSENCE OF FORMAL
REQUIREMENTS: Contact of partnership is void
(some other contracts i.e. co-ownership is
made); it can be sued but it cannot sue (Rules
of Court Rule 3 Sections 1 and 15)
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Exceptions: (2) Where the capital is at least
P3,000, in money or property:
(a) The contract must appear in a public
instrument; and
(b) It must be recorded in the SEC

EFFECT OF ABSENCE OF FORMAL

REQUIREMENTS: Partnership still exist and the
liability of the partnership and its members to
third person are not affected (this is despite
non-registration with the SEC) [Articles 1768
and 1772] WC_Aranas
 KINDS OF PARTNERSHIP
• As to object
• As to duration
• As to liability of partners
• As to publicity
• As to purpose

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 AS TO OBJECT

• UNIVERSAL PARTNERSHIP
• PARTICULAR PARTNERSHIP

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A UNIVERSAL PARTNERSHIP
may refer to:
(1) All present property;
(2) All the profits:

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 UNIVERSAL PARTNERSHIP
(1) All present property:
(a) The partners contribute all the
property which belongs to them to a
common fund, with the intention of
dividing the same among themselves,
as well as the profits they may
acquire therewith. [Article 1778]
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 UNIVERSAL PARTNERSHIP

(1) All present property:

(b) The property contributed
includes all those belonging to the
partners at the time of the
constitution of the partnership.
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 UNIVERSAL PARTNERSHIP
(1) All present property:
(c) A stipulation for the common
enjoyment of any other profits may also
be made. However, the property which
the partners may acquire subsequently by
inheritance, legacy or donation cannot be
included in such stipulation, except the
fruits thereof. [Article 1779]
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 UNIVERSAL PARTNERSHIP
(2) All the profits:
(a) It comprises all that the partners
may acquire by their industry or work
during the existence of the
partnership.

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 UNIVERSAL PARTNERSHIP
(2) All the profits:
(b) Only the usufruct over the property
of the partners passes to the
partnership. [Article1780]

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When the articles of
universal partnership does
not specify its nature (all
present property or all the
profits), the partnership will
be considered as one only of
all the profits. [Article 1781]
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UNIVERSAL PARTNERSHIP OF ALL PRESENT PROPERTY
• All present property and their
profits.
• After-acquired property and their
profits (provided it is stipulated and
not arising from lucrative title or by
chance)

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 UNIVERSAL PARTNERSHIP OF PROFITS
• The USE of all present property
• Profits of all present property
• Profits acquired during the existence
of partnership (except those arising
from lucrative title or by chance)
• After-acquired property and their
profits (provided it is stipulated and
not arising from lucrative title or by
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X and Y formed a universal partnership of
profits. Which of the following properties
belong to the partnership?
A. Coconut plantation inherited by X before the
formation of the partnership.
B. Salary received by Y as professor of a college in
Manila during the first year of the partnership
C. Lotto prize won by X during the first year of the
partnership
D. Agricultural lot donated to Y during the first year
of the partnership.
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A and B entered into a universal
partnership of all present property. At the
time of execution of the partnership, A has
a farmland. After the constitution of the
partnership, A inherited a building,
purchased a car and obtained fruits from
the farmland. After a year, the building and
car also produced rent income. B on the
other hand has only cash when the
partnership is constituted. Which asset/s
belong/s to the partnership?
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Using the same facts except
that there is a stipulation that
properties acquired after the
formation of the partnership
will belong to the common
fund. Which asset/s belong/s
to the partnership?
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A and B entered into a universal
partnership of profits. At the time of
execution of the partnership, A has a
farmland. After the constitution of the
partnership, A inherited a building,
purchased a car and obtained fruits from
the farmland. After a year, the building and
car also produced rent income. B on the
other hand has only cash when the
partnership is constituted. Which asset/s
belong/s to the partnership?
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Persons who are prohibited
from giving each other any
donation or advantage cannot
enter into universal
partnership. [Art. 1782]

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• Donations between spouses
during the marriage, except
moderate gifts given on the
occasion of family rejoicing.
The prohibition applies to
live-in partners (Art. 87
Family Code)
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• Those made between
persons who were guilty of
adultery or concubinage at
the time of the donation.
(Art. 789 NCC)

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• Those made between two
persons found guilty of the
same criminal offense, in
consideration thereof (Art.
789 NCC)

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• Those made to a public
officer or his wife,
descendants or ascendants,
by reason of his office (Art.
789 NCC)

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PARTICULAR PARTNERSHIP
• 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. [Article 1783]
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 AS TO DURATION

• For a fixed term or particular

undertaking;
• At will.

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 AS TO LIABILITY OF PARTNERS
• General partnership, consisting of
general partners only, who are liable pro
rata for partnership obligations with all
their after exhaustion of partnership
assets;
• Limited partnership, includes, aside from
general partner/s, limited partners, who
are not personally liable for partnership
obligations. WC_Aranas
 AS TO PUBLICITY
• Secret partnership, where the
existence of certain persons as
partners is not made known by the
partners;
• Open or notorious partnership, the
existence of which is made known to
the public by the partners.
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 AS TO PURPOSE
• Commercial or trading partnership,
for transaction of business;
• Professional or non-trading, for
exercise of a profession. (A
professional partnership is a
particular partnership. [Article 1783])

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 KINDS OF PARTNERS
• (1) Capitalist, • (11) Ostensible,;
• 2) Industrial, • (12)Secret,
• (3) General, • (13) Silent,
• (4) Limited,; • (14)Dormant,
• (5) Managing, • (15)Original,;
• (6) Liquidating, • (16)Incoming,
• (7) By estoppel, • (17) Retiring,
• (8) Continuing
• (9) Surviving,
• (10)Subpartner, WC_Aranas
• Capitalist, whose
contribution is money or
property;
• Industrial, whose
contribution is only his
industry;
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• General, whose liability to
third persons extends to
his separate property;
• Limited, whose liability to
third persons is limited to
his capital contribution;
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• Managing, designated to
manage the affairs or
business of the partnership;
• Liquidating, takes charge of
the winding up of partnership
affairs;

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• By estoppel, who is not really a
partner but is liable as such for
the protection of innocent third
persons;
• Continuing, who continues the
business after dissolution of the
partnership by admission of a
new partner, or retirement, death
or expulsion of existing partners.
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• Surviving, who remains a
partner after dissolution by
death of any partner;
• Subpartner, who is not a
member of the partnership
but contracts with a partner
with regard to the share of
the latter in the partnership;
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• Ostensible, who takes active
part in the business of the
partnership and is known by
the public;
• Secret, who takes active part
in the business, but is
unknown to the third persons
as a partner;
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• Silent, who does not take
active part in the business,
but may be known to be a
partner by third persons;
• Dormant, who does not take
active part in the business
and is not known or held out
as a partner;
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• Original, who has been a
partner since the constitution
of the partnership;
• Incoming, who is about to be
taken as a member into an
existing partnership;
• Retiring, who is withdrawing
from the partnership.
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PARTNERSHIP BY ESTOPPEL
A person, not a partner, may become a partner
by estoppel, and be liable as a partner, when, by
words, spoken or written, or conduct, he:
(1) Directly represents himself to anyone as a
partner in an existing or non-existing
partnership; or
(2) Indirectly represents himself by consenting
to another representing him as such
partner. [Article 1825]
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PARTNERSHIP VERSUS
OTHER FORM OF
CONTRACTS

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DELECTUS PERSONAE
This phrase, which literally signifies the
choice of a person, is applied to show t
hat partners have the right to select th
eir copartners; and that no set of partn
ers can take another person into the pa
rtnership, without the consent of each
of the partner.
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END

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