Chapter 1:

General Provisions
in Partnership
 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)
 Profession
“a group of men pursuing a learned art
as a common calling in the spirit of
public service, - no less a public service
because it may incidentally be a means
of livelihood.”
Essential requisites of a contract
of a partnership:

There must be a valid contract.

There must be a contribution of money, property or

industry to a common fund.

The partnership must be organized for gain and

profit

The partnership should have a lawful object or purpose,

and must be established for the common benefit or
interest of the partners.
Test to determine the existence of a
partnership

1st Determine whether or not there is a

st contribution of money, property or
Te
industry to a common fund

2n d Determine whether or not there is an

Te st intent of the contracting parties to
divide the profits among themselves.
 PARTNERSHIP - A JURIDICAL PERSON

To be considered a juridical personality, a partnership

must fulfill these requisites:

Two or more persons bind themselves to contribute

money, property, or industry to a common fund;

And intention on the part of the partners to

divide the profits among themselves.
 Characteristics of a contract
of partnership

1.Consensual – it is perfected by the mere consent of the parties.

2. Commutative –the contribution of each partner, whether money,

property, or industry, is considered as the equivalent of
the contribution of the other partners.
3. Principal – it is a contract that does not depend on the other contract for its
existence.

4. Bilateral – it is a contract entered into by two or more persons.

 Characteristics of a contract
of partnership

5. Onerous – each partner must contribute money, property, or

industry. Of course, a partner can contribute one, some, or
all of these.

6. Nominate – it is a contract which has a name in law.

7. Preparatory – it is a contract in preparation for another contract or

contract.
 PROBLEM
Sisters X and Y entered into a “Joint Venture Agreement (JVA)” with Z for
the development of a parcel of land into a subdivision. Pursuant to the
contract, they executed a Deed of Sale covering the said parcel of land in
favor of Z, who then had it registered in his name.

By mortgaging the property, Z obtained from Q bank a loan of P400,000

which, under the JVA, was to be used for the development of the
subdivision. All three of them also agreed to share the proceeds from the
sale of the subdivided lots. The project was not realized, and the land was
subsequently foreclosed by Q Bank.

Question: Is there partnership?

 ANSWER
A reading of the terms embodied in the Agreement indubitably shows the existence of a
partnership pursuant to Article 1767 of the Civil Code which provides:

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.

Under the above quoted Agreement, X and Y would contribute property to the partnership in the
form of land which was to be developed into a subdivision; while Z would give in addition to costs.
Furthermore, the income from the said project would be divided according to the stipulated
percentage. Clearly, the contract manifested the intention of the parties to form a partnership.
It should be stressed that the parties implemented the contract. Thus X and Y transferred the title
to the land to facilitate its use in the name of Z. On the other hand, Z caused the subject land to be
mortgaged,, the proceeds of which were used for the survey and the subdivision of the land. Z
developed the roads, the curbs, and the gutters of the subdivision.

Z’s action clearly belie X and Y’s intention that he made no contribution to the partnership. Under
Article 1767 of the Civil Code, a partner may contribute not only money or property, but also
industry.
 DOCTRINE OF DELECTUS
PERSONAE(PERSONARUM)

The right to choose with whom a person wishes to

associate himself.

The very foundation and essence of partnership.

Any one of the partners may, at his sole pleasure,

dictate a dissolution of the partnership at will. But
an unjustified dissolution can subject him to action
for damages.
 Article 1768
The partnership has a judicial
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.
 ARTIFICIAL/JURIDICAL PERSON

An entity, such as a corporation, created by law and given certain legal

rights and duties of a human being
Example: Christine, Melody, and Nelfa entered into a contract of partnership named
Trilliant Partnership.

There are four persons in this partnership, the normal persons(Melody,

Christine, and Nelfa) and the juridical person(Trilliant Partnership).
Rights of the Juridical Person(Trilliant Partnership):
Acquire and possess real and personal property

Incur obligations
Bring civil or criminal actions
 Article 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, 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;
 Article 1769
(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 installment 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.
 Rule #1 - Except as provided by Article 1825, persons who are not partners as to each
other are not partners as to third persons

Example: If A & B say PUBLICLY that they are not partners, then according to
Art.1825, if they told C that they are and Centers into a contract of partnership
with them, then A And B are in a PARTNERSHIP OF ESTOPPEL.
Rule #2 - Co-ownership, whether such co-owners or co-possessors do or do not share any
profits made by the use of the property

Example: 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.
 PARTNERSHIP VS. CO-OWNERSHIP

partnership co-ownership
Created by contract Created by contract and law.
Creation
Juridical It has legal or juridical personality . It has no juridical personality. Thus it cannot sue or
Thus it can sue and be sued be sued.
Personality

Purpose For profit

Common enjoyment of a thing or right. It is not
necessarily for profit.

Profit It may be stipulated upon.

Profits must always depend on the proportionate
shares. Any stipulation to the contrary is VOID.

Dissolution It is dissolved by death or incapacity of

a partner.
It is not dissolved by the death or incapacity of co-
owner.

It may appear in any form. However,

No public instrument is needed even if real
Form when real property is contributed, a
property is the object of co-ownership.
public instrument is required.
 Rule #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.

Sharing of net profit - a contract of partnership is presumed.

Sharing of gross returns - no presumption of a contract of partnership.

Rule #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.
Exceptions to Rule #4
a. As a debt by installments or otherwise
Example: A partnership named Lylia Co. earned a net profit of 100,000 for its first year of
operation. Nana is a creditor of Lylia Co. in the amount of 5,000. Later, Lylia Co. paid the
5,000 to Nana and this amount was taken from its net profit for the year. Is Nana a partner
in Lylia Co.?
Answer: No, even though Nana received 5,000 which came from the net profit of Lylia Co., he
is not a partner because this is in payment of its debt to Nana.
b. As wages of an employee or rent to a landlord
Example: Christine, Nelfa, and Melody formed CNM partnership. Estes is the accountant of
the partnership. In the contract of employment between CNM partnership and Estes, it was
stipulated that the latter will receive 15% of the net profit of the partnership. Is Estes a
partner?
Answer: No, Estes is an employee even though his salary will come from the net profit of the
partnership. Their agreement is a contract of employment.

c. As an annuity to a widow or representative of a deceased partner

Example: Hanabi, Bane, Diggie formed HBD partnership. Subsequently, Hanabi died survived
by her widower, Haya. It was agreed between Haya, Bane, and Diggie that Haya will receive
5% of the annual net income of the partnership pending liquidation. Haya will not become a
partner.
d. As interest on a loan
Example: Ixia, Ling, and Yve formed the ILY partnership.One of its creditors is T. The credit
is 100,000 with a stipulation as to interest of 6% per annum. It was agreed between ILY
partnership and T that the payment of interest will come from the annual profit of ILY
partnership. Still, T is not a partner in ILY partnership.

e. As the consideration for the sale of a goodwill of a business or other property by installments or
otherwise.
Example: A, B and C formed ABC partnership. D sold his only parcel of land to ABC
partnership. In their contract of sale, it was agreed that the payment will come from the
annual profit of ABC partnership. D is not a partner in ABC partnership.
 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)
 LAWFUL OBJECT OR PURPOSE

The object or purpose of a partnership must be within the commerce of man,not

impossible, and it must not be contrary to law, morals, good customs, public order,
and public policy.
EXAMPLES OF UNLAWFUL PARTNERSHIP:
A partnership formed for gambling purposes.
A partnership formed to furnish houses for prostitution purposes.
A partnership formed to create illegal monopolies or combinations in restraint of trade.
Effects of an unlawful partnership:
The instruments or tools and proceeds of the
The contract is void from the very crime shall be forfeited in favor of the
beginning. government.

The profits shall be confiscated in favor The contributions of the partners shall not be
of the government; confiscated unless they fall under no.3.
 Article 1771
A partnership may be
constituted in any form, except
when immovable property or
real rights are contributed
thereto, in which case a public
instrument shall be necessary.
(1667a)
 Form of Contract of
Partnership

General Rule: No form is required. Thus, the contract may be oral or in writing.

If real properties or real rights in real properties are contributed

Exception: regardless of the value. A public instrument is needed; otherwise, the
contract of partnership is void.
Example:
A and B agreed to form a partnership where A promised to contribute his only parcel of land while B undertook to contribute P100,000.
In this case, since A will contribute his only parcel of land, a real property, their contract must be executed in a public instrument.
Otherwise, it is void.

What if A will contribute his only car while B will contribute P100,000?
The contract may be oral or in writing whether private or public instrument and the contract of partnership is valid.
 Article 1772
Every contract of partnership having a
capital of three thousand pesos or more,
in money or property, shall appear in a
public instrument, which must be
recorded in the Office of the Securities
and Exchange Commission.

Failure to comply with the requirements

of the preceding paragraph shall not
affect the liability of the partnership and
the members thereof to third persons. (n)
 PROBLEM
X filed a complaint against V and Y, daughter and wife respectively of the deceased Z, for
Winding Up of Partnership Affairs and Accounting. X alleged that in 2005, he verbally entered
into a partnership with Z in the distribution of LPG in Manila. For business convenience, X and
Z allegedly agreed to register the business name of their partnership Shellite, under the
name of Z as a sole proprietorship. The partnership allegedly had Z as manager.

As compensation, Z would receive a manager's fee of 10% of the gross profit. Allegedly, from
the time that Shellite opened for business on Jul 8, 2005, its business operation was
profitable. Upon Z's death in the latter part of 2022, his surviving wife, Y, and particularly his
daughter, V, took over the operations and management of Shellite without X's consent.
Despite X's repeated demands upon Y and V for accounting and winding up the partnership, Y
and V failed to comply.

Question: Did X and Y form a partnership?

 ANSWER
In a desperate bid to cast doubt on the validity of the oral partnership between X and Z, Y and V
maintain that said partnership had an initial capital of P200,000 which should have been
registered with the SEC since registration is mandated by the Civil Code, True, Article 1772 of the
Civil Code requires that partnerships with a capital of P3,000 or more must register with the
SEC. However, this registration requirement is not mandatory.

Article 1768 of the Civil Code explicitly provides that the partnership retains its juridical
personality even if it fails to register. The failure to register the contract of partnership does
not invalidate the same as among the partners, so long as the contract has the essential
requisites, because the main purpose of registration is to give notice to third parties, and it can
be assumed that the members themselves knew of the contents of their contract.

In the case at bar, non-compliance with this directory provision of the law will not invalidate the
partnership considering that the totality of the evidence proves that X and Z indeed forged the
partnership in question.
 Article 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. (1668a)

Intention of this Article:

To protect third 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)

Reason:
A partnership has a judicial personality separate and
distinct from that of each of the partners; hence,
immovable property to be acquired must be in the
name of the partnership and if conveyed must also
be in the partnership name.
 Article 1775
Associations and societies, whose
articles are kept secret among the
members, and wherein any one of
the members may contract in his
own name with third persons, shall
have no juridical personality and
shall be governed by the provisions
relating to co-ownership. (1669)
 PARTNERSHIP VS. association

partnership association
Juridical
It has juridical personality. It has no juridical personality.
Personality

It is for profit. It may not be for profit.

Purpose

There is no contribution of capital although

There is a contribution of money, property, or
fees are usually collected from the members
Creation industry or a combination of these.
to maintain the organization.

Members are individually liable for the debts of

liability The partnership is the one liable.
the association.
 classification of Partnership
1. According to object

A. Universal partnership
a. Universal partnership of all -partners contribute all the property which actually
present property belongs to them to a common fund, with the
intention of dividing the same among themselves,
as well as all the profits which they may acquire
therewith.
b. Universal partnership of all -comprises all that the partners may acquire by
profits their industry or work during the existence of the
partnership.

B. Particular partnership -has for its object determinate things, their use or fruits,
or specific undertaking, or the exercise of a profession or
vocation.
 classification of Partnership

2. According to LIABILITY

A. General partnership -where all the partners are general partners. All general
partners here are liable up to the extent of their
separate properties after the assets of the partnership
have been exhausted.

B. Limited partnership -where there is at least one general partner and one
limited partner. A general partner is liable beyond his
contribution while a limited partner is liable only to the
extent of his contribution.
 classification of Partnership

3. According to DURATION

A. Partnership at will -has no fixed term or it is not formed for a particular undertaking,
or it is one for a fixed term or particular undertaking which is
continued after the termination of such term or particular
undertaking without any express agreement.

Example: A, B, and C formed a partnership where A contributed cash of P500,000. For B, computers valued at
P200,000, and C, his only truck valued at P300,000.

In here, there is no fixed term agreed upon nor it is for a particular undertaking so that it can be
dissolved anytime.

B. Partnership with a fixed term -the life or period of existence of the partnership has
been agreed upon by the partners.
 classification of Partnership

3. According to DURATION

Example: A, B, and C formed a partnership where A contributed cash of P500,000. For B, computers valued at
P200,000, and C, his only truck valued at P300,000. The partners agreed that the life of the partnership
will be 15 years.

In here, the partnership, as a rule, can be dissolved after the lapse of 15 years.

C.Partnership for a particular -it will exist until the purpose is accomplished.
undertaking
Example: A, B, and C formed a partnership for the manufacture of 300 tables for a particular school where A
contributed cash of P150,000, B contributed lumber valued at P200,000 and C, the use of his truck.

In here, the partnership will be dissolved after the completion of the 300 tables.
 classification of Partnership
4. According to REPRESENTATION TO OTHERS
A. Ordinary 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.
Example: A, B, and C established a partnership where A contributed cash of P50,000, B contributed a specific
car worth P200,000 and C, his industry.
B. Partnership by estoppel-persons, by words spoken or written or by conduct, represent themselves, or
consent to another representing them to anyone, as partners in an existing
partnership or with one or more persons, not actual partners.

Example: A, B, and C are partners in ABC partnership. Subsequently, X misrepresented to Y that he is a partner in ABC
partnership. When Y inquired from A, B and C if X is one of their partner, A, B, and C answered in the affirmative.

In here A, B, C and X are partners by estoppel and there is also a partnership by estoppel so that if Y suffered
damages because of that misrepresentation, the net assets of ABC partnership are liable together with the
separate property of X.
 classification of Partnership
5. according to the legality of its existence
A. De jure partnership -has complied with all the legal requirements for its
creation.
Example: A, B, and C formed ABC Partnership where A contributed cash of P1,000,000, B contributed his only parcel of
land and C will contribute his industry during the term of the partnership which is 10 years. The contract of
partnership was written in a public instrument. The partners made also an inventory which they all signed and
thereafter they attached it to their contract of partnership. In here, we have a de jure partnership.

B. De facto partnership -has not complied with all the legal requirements for its creation.

Example: A, B, and C formed an ABC Partnership where A contributed cash of P1,000,000, B contributed his only car and
C will contribute his industry during the term of the partnership. Their agreement is verbal.

In here, the partnership is a de facto partnership as it was not written in a public instrument and it was not
registered in the SEC.
 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 all the profits which
they may acquire therewith.
Contributions to Partners:
1. All properties actually belonging to the
partners
2. Profits acquired with said properties
 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 the profits of 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.
 Article 1779
Future Property (Inheritance, legacy, or Donation)
Such cannot be included because:

1. As a rule, contracts regarding successional

rights cannot be made
2. A partnership demands that the contributed
things be determinate, known, and certain
3. A universal partnership of all present
properties really implies a donation, and it is
well-known that generally, future property
cannot be donated
 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.

Universal Partnership of Profits :

Partners retain ownership over their present
and future property
Only the use of the asset and the profits are
passed to the partnership
UP of all present Property(At the time of UP of Profits(During the
the constitution of the partnership) existence of the partnership)

Only the usufruct (use and fruits) of

All present property belonging to partners
the properties of the partners becomes
that were contributed become the common
common property of all the partners
property of all partners and the partnership
and the partnership

General Rule: Only the profits of said contributed

property become common property, but not profits
arising from the other property of owners.

Exception: If stipulated, the profits from other All profits acquired through the
property of the partners may become common. “industry” or “work” of the partners
become common property
Note: The properties subsequently acquired by
inheritance, legacy, or donation cannot be included
in the stipulation, but the fruits thereof can be
included in the stipulation.
 Article 1781
Articles of universal partnership,
entered into without specification
of its nature, only constitute a
universal partnership of profits.
Presumption in favor of UP of Profits:
Less obligation is imposed because
the real and personal properties are
retained by them in naked
ownership.
 Article 1782
Persons who are prohibited from
giving each other any donation or
advantage cannot enter into
universal partnership. (1677)

Effect of Violation:

The partnership becomes null and

void, and may be raised anytime.
 Article 1782
Persons who cannot enter into a universal
partnership:
1. Legally married spouses
a. However, particular partnership for the exercise
of a profession or vocation is allowed.
2. Persons living together as husband and wife
without valid marriage
3. Persons guilty of adultery or concubinage at the
time of the donation.
4. Persons guilty of the same criminal offense.
5. Person/s and a public officer or his wife,
descendants and ascendants, by reason of his office.
END.