BURDEN OF PROOF AND PRESUMPTION

• 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 INCIDENCE OF PARTNERSHIP

• In determining whether a 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.
 TEST AND INCIDENCE OF
PARTNERSHIP
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.
PARTNERSHIP DISTINGUISHED
FROM LABOR UNION
PARTNERSHIP DISTINGUISHED
FROM BUSINESS TRUST
PARTNERSHIP DISTINGUISHED
FROM CO-OWNERSHIP
PARTNERSHIP DISTINGUISHED
FROM CO-OWNERSHIP
PARTNERSHIP DISTINGUISHED FROM CONJUGAL PARTNERSHIP
OF GAINS
 PARTNERSHIP DISTINGUISHED
FROM CONJUGAL PARTNERSHIP
OF GAINS
 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 a law
authorizing is organization;
• 6.) Partnerships are taxable as corporations.
 OBJECT OR PURPOSE
• Art. 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.
 OBJECT OR PURPOSE

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.
 EFFECT OF AN UNLAWFUL PARTNERSHIP

• 1.) The contract is void ab initio 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 w/ partnership w/o knowledge of illegal
purpose are protected.
 RIGHT TO RETURN CONTRIBUTION
WHEN 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 mgr 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 can 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, an
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 have 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.
 PARTNERSHIP IN ANY FORM
EXCEPT

Art. 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.
Form of partnership contract
General rule – No special form required for validity or existence of
the contract of partnership. Contract may be made orally or in
writing regardless of the value of the contributions.
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.
 PARTNERSHIP COVERED BY
STATUTE OF FRAUDS
• 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
w/in 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.
 IMPLIED CONDUCT
• 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.
 REGISTRATION OF PARTNERSHIP

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 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.
 REGISTRATION OF PARTNERSHIP
• Registration of partnership
• Partnership with capital of P3,000 or more – 2
requirements:
• 1.) The contract must appear in a public instrument;
• 2.) It must be recorded or registered w/ the SEC.

• However, failure to comply w/ the above requirements

does not prevent the formation of the partnership or
affect its liability and that of the partners to 3rd persons.
But any partner is granted the right by law to compel
each other to execute the contract in a public instrument.
 PURPOSE OF REGISTRATION
• 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
effectivity retroacts to date of presentation.
 PARTNERSHIP WITH IMMOVABLE
PROPERTY

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 w/ 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.
 PARTNERSHIP WITH IMMOVABLE
PROPERTY
• Art. 1773 is intended primarily to protect 3rd persons.
• W/ regard to 3rd persons, 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.
 INVENTORY OF REAL PROPERTY
• Importance of making inventory of real property in a
partnership
• An inventory is very important in a partnership to show
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.
 ACQUISITION OF PROPERTY BY
PARTNERSHIP

Art. 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.
Acquisition or conveyance of property by partnership
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.
 ASSOCIATIONS AND SOCIETIES
• Art. 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.
• Secret partnerships without juridical personality
• 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.
 CLASSIFICATIONS OF
PARTNERSHIP

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)
 CLASSIFICATIONS
• As to liability of the partners –
• 1.) General partnership: one consisting of general
partners who are liable pro rata and subsidiarily and
sometimes solidarily w/ their separate property for
partnership debts.
• 2.) 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.
 CLASSIFICATIONS
• As to duration –
• 1.) 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.
• 2.) 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.
 CLASSIFICATIONS

As to the legality of its existence –

1.) De jure partnership: one w/c has complied w/ all the legal
requirements for its establishment.
2.) De facto partnership: one w/c has failed to comply w/ all the
legal requirements for its establishment.
As to representation to others –
1.) Ordinary or real partnership: one w/c actually exists among
the partners and also as to 3rd persons.
2.) 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.
 CLASSIFICATIONS
• As to publicity –
• 1.) 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.
• 2.) Open or notorious partnership: one whose existence
is avowed or made known to the public by the members
of the firm.
• As to purpose –
• 1.) Commercial or trading partnership: one formed for
the transaction of business.
• 2.) 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: (a.k.a. “real partner”) one whose liability to 3rd
persons extends to his separate property.
• 4.) Limited partner: (a.k.a. “special partner”) one whose liability to 3rd
persons is limited to his capital contribution.
• 5.) Managing partner: (a.k.a. “general” or “real” partner – how
confusing!) one who manages the affairs or business of the partnership.
• 6.) Liquidating partner: one who takes charge of the winding up of
partnership affairs upon dissolution.
 KINDS OF PARTNERS
7.) Partner by estoppel: (a.k.a. “partner by implication” or
“nominal partner” or even “quasi-partner”) 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.) Subpartner: 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
• 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.
 OTHER CLASSIFICATIONS
• 4.) Dormant partner: (a.k.a. “sleeping 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.
 UNIVERSAL PARTNERSHIP

Art. 1777. A universal partnership may refer to all the

present property or to all the profits.
Art. 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 they may acquire therewith.
 UNIVERSAL PARTNERSHIP
• Art. 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.
 UNIVERSAL PARTNERSHIP
• A universal partnership of all present property 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.
• In this kind of partnership, the following become the
common property of all the partners:
• 1.) Property w/c belonged to each of them at the time of
the constitution of the partnership;
• 2.) Profits w/c they may acquire from the property
contributed.
 UNIVERSAL PARTNERSHIP

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.
 UNIVERSAL PARTNERSHIP
• Art. 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
• 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.
 UNIVERSAL PARTNERSHIP

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.
 UNIVERSAL PARTNERSHIP
• 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 pf profits

• Reason for presumption: universal partnership of profits
imposes less obligations on the partners, since they
preserve the ownership of their separate property.
 PERSONS PROHIBITED FROM DONATING
WITH EACH OTHER

• 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.
 PERSONS PROHIBITED FROM
DONATING WITH EACH OTHER
Relevant provisions:
1.) 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.
2.) 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, in consideration thereof;
c.) Those made to a public officer or his wife, descendants and
ascendants, by reason of his office.
 PARTICULAR PARTNERSHIP
• Art. 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.
• 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.
 PARTICULAR PARTNERSHIP
• 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 seem to 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.
 PARTICULAR PARTNERSHIP
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.
 RIGHTS AND OBLIGATIONS, IN GENERAL,
OR PARTNERS INTER SE

• Partnership relationship essentially one of mutual trust

and confidence – Each partner is a trustee and a cestui que
trust at the same time. He is a trustee to the extent that
his duties bind him, a cestui que trust as far as the duties
that rest on his co-partners.
• The many particular rights and duties are but aspects of
the broad fiduciary relation.
 RIGHTS AND OBLIGATIONS, IN
GENERAL, OR PARTNERS INTER
SE

Fiduciary relationship remains until partnership terminated –

The relation of trust applies also to matters concerned with
the formation of the partnership and when a partnership is
dissolved, the assets of the partnership must still be managed
in accordance with this fiduciary principle. The fiduciary
obligation of a partner remains until the relationship is
terminated and the equities between the partners adjusted
and satisfied.
 RIGHTS AND OBLIGATIONS, IN
GENERAL, OR PARTNERS INTER SE
• Relationship in a limited partnership – The rights and
obligations of the partners as to each other are provided
on the theory that a partner is both a principal and an
agent in relation to his co-partners. But the relationship
between a limited partner and the other partners in a
limited partnership does not involve the element of trust
and confidence, as in the case of a general partnership.