RULES TO DETERMINE EXISTENCE OF EXCEPTION:

PARTNERSHIP Partnership by Estoppel under

Article 1825
In determining whether a partnership exists,
these rules shall apply: (Art. 1769) Who is a partner by estoppel?
One who, by words or conduct does
(1) Except as provided by article 1825, any of the following:
persons who are not partners as to each 1. Directly represents himself to
other are not partners as to third persons; anyone as a partner in an existing
partnership or in a non- existing partnership.
(2) Co-ownership or co-possession does not 2. Indirectly represents himself by
of itself establish a partnership, whether consenting to another representing him as a
such-co-owners or co-possessors do or do partner in an existing partnership or in a
not share any profits made by the use of the non-existing partnership.
property;

(3) The sharing of gross returns does not of

itself establish a partnership, whether or not
the persons sharing them have a joint or
common right or interest in any property
from which the returns are derived;

(4) The receipt by a person of a share of the

profits of a business is prima facie evidence
that he is a partner in the business, but no
such inference shall be drawn if such profits
were received in payment:
(a) As a debt by installments or otherwise; LIABILITY OF PARTNERSHIP
(b) As wages of an employee or rent to a IN CASE OF ESTOPPEL
landlord;
(c) As an annuity to a widow or When Partnership is Liable. If all actual
representative of a deceased partner; partners consented to the representation,
(d) As interest on a loan, though the amount then the liability of the person who
of payment vary with the profits of the represented himself to be a partner or who
business; consented to such representation and the
(e) As the consideration for the sale of a actual partner is considered a partnership
goodwill of a business or other property by liability.
installments or otherwise. (n)
LIABILITIES IN CASE OF ESTOPPEL
RULE NUMBER 1
Persons who are NOT partners as 1. PRO RATA LIABILITY
between themselves, CANNOT be When Liability is PRO RATA. When there is
partners as to third persons. (Art. no existing partnership and all those
1769(1)) represented as partners consented to the
representation, then the liability of the Co-ownership or co-possession does not of
person who represented himself to be a itself establish a partnership.
partner and all who made and consented to
such representation, is pro-rata.

RULE NUMBER 3

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
SEPARATE LIABILITY from which the returns are derived
When Liability is SEPARATE. When there is
no existing partnership and not all but only RULE NUMBER 4
some of those represented as partners 4. The receipt by a person of a share of the
consented to the representation, or none of profits of a business is prima facie
the partnership in an existing partnership evidence that he is a partner in the
consented to such representation, then the business, UNLESS such were received in
liability will be separate. payment: a. As debt by installments or
otherwise;
b. As wages or rent;
c. As annuity; (a fix amount paid
each year)
d. As interest on loan;
e. As consideration for sale of
goodwill of
business/other property by installments

Example
ABC Partnership earn 1M in 2017.
Out of the profit they paid X, P200K for
partnership debt, 100K for salaries of Y and
Z, 50K for yearly insurance to DEF Co, 50K
for interest on loan to GHI Bank and 50K as
commission to J.
The receipt of X,Y,Z, DEF Co., GHI
Bank and J even if it comes from the
partnership profit does not make them
partners.
WHO MAY BE PARTNER
RULE NUMBER 2
 1.As to extent of its subject matter
EXCEPTION a.UNIVERSAL
1. Persons who are prohibited from giving PARTNERSHIP
each other any donation or advantage i. UNIVERSAL
cannot enter into a universal partnership. PARTNERSHIP OF ALL PRESENT
(Art. 1782) PROPERTY – comprises the following:
a)Property which belonged to each of the
The following donations shall be void: partners at the time of the constitution of the
partnership.
Art. 739. The following donations shall be b)Profits which they may acquire from all
void: property contributed.
(1) Those made between persons who were ii. UNIVERSAL
guilty of adultery or concubinage at the time PARTNERSHIP OF PROFITS -
of the donation; comprises all that the partners may
(2) Those made between persons acquire by their industry or work during the
found guilty of the same criminal offense, in existence of the partnership.
consideration thereof;
(3) Those made to a public officer or UNIVERSAL PARTNERSHIP OF ALL
his wife, descendants and ascendants, by PRESENT PROPERTY
reason of his office. In a universal partnership of all
present property, the property which
belongs to each of the partners at the time
2. Persons suffering from civil of the constitution of the partnership,
interdiction. becomes the common property of all the
partners, as well as the profits which they
A legal restraint upon a person may acquire therewith.
incapable of managing his estate, because Ex.
of mental incapacity, from signing any deed A, B and C contributed all their
or doing any act to his own prejudice, present property to form ABC Partnership.
without the consent of his curator or The contributions will make A,B, and C as
interdictor. well as ABC Partnership owners of the
property.

3. Persons who cannot give consent to a UNIVERSAL PARTNERSHIP OF PROFITS

contract 2. A universal partnership of profits
is one which comprises all that the partners
3. Persons who cannot give consent may acquire by their industry or work during
to a contract: the existence of the partnership and the
a. Minors usufruct of movable or immovable property
b. insane persons which each of the partners may posses at
c. deaf-mutes who do not the time of the celebration of the contract.
know how to write.

CLASSIFICATION OF PARTNERSHIP USUFRUCT

 Art. 562. Usufruct gives a right to In case their properties earns income from
enjoy the property of another with the use thereof, the income will become income
obligation of preserving its form and of ABC Partnership and not of the
substance, unless the title constituting it or respective owners of the property.
the law otherwise provides. (467)
Example 2
UNIVERSAL PARTNERSHIP B and C cannot compel A to
Ex. contribute the P5M property which he will
A, in behalf of ABC Partnership inherit from his parents because future
(whose business is events organizer) property cannot be contributed.
entered into business transaction to D. A
allowed his yatch to carry the passenger to Can everyone enter into a universal
the exclusive island. If the transaction with partnership?
D earns 2M, the earnings will be considered
as income of ABC Partnership not A. A Not all person can enter into a
merely give the usufruct to ABC Partnership universal partnership.
for the use of the yatch in the transaction to
D. Persons who are prohibited from
giving each other any donation or
PRESUMPTION FAVOR UNIVERSAL advantage cannot enter into a universal
PARTNERSHIP OF PROFITS partnership. (Art. 739, Art. 87, Family Code
Where the articles of partnership do discussed above) because the donation
not specify the nature of the universal given by them to the partnership will be
partnership, whether it is one of “present considered void.
property” or of “profits” only, it will be
presumed that the parties intended merely a Article 739. The following donations shall
partnership of profits. be void:
Future properties cannot be (1) Those made between persons who were
contributed such as property subsequently guilty of adultery or concubinage at the time
acquired by (1) inheritance, (2) of the donation;
legacy or (3) donation cannot be included (2) Those made between persons found
by stipulation except the fruits thereof. guilty of the same criminal offense, in
consideration thereof;
Example 1 (3) Those made to a public officer or his
A, B and C decided to contribute to wife, descendants and ascendants, by
form ABC Partnership. reason of his office.
In case their agreement did not specify if it
is a universal partnership of all present Article 87
property or profits, the presumption is they Executive Order No. 209
entered into a universal partnership of Family Code of the Philippines
profits. So ownership of the respective
properties donated remains with A,B and C Art. 87. Every donation or grant of
and not ABC Partnership. gratuitous advantage, direct or indirect,
between the spouses during the marriage
shall be void, except moderate gifts which 3.As to duration
the spouses may give each other on the a. PARTNERSHIP AT WILL
occasion of any family rejoicing. The - one in which no time is specified
prohibition shall also apply to persons living and is not formed for a particular
together as husband and wife without a undertaking or venture which may be
valid marriage. (133a) terminated anytime by mutual agreement.
b. PARTNERSHIP WITH A FIXED
Are all profits of partners included TERM
in universal partnership of profits? - the term for which the partnership
is to exist is fixed or agreed upon or one
Not all profits included in universal formed for a particular undertaking
partnership of profits.
4.As to legality of existence
Profits acquired by their partners a. DE JURE PARTNERSHIP
through chance (i.e. lottery) without one which has complied with all the
employment of any physical or intellectual legal requirements for its establishment
efforts are not included. b. DE FACTO
one which has failed to comply with
CLASSIFICATION OF PARTNERSHIP all the legal requirements for its
b. PARTICULAR PARTNERSHIP establishment
has for its objects:
i. Determinate things 5.As to representation to others
ii. Their use or fruits a. ORDINARY OR REAL
iii. Specific undertaking PARTNERSHIP
iv. Exercise of profession or vocation - one which actually exists among
the partners and also as to 3rd persons
PARTICULAR PARTNERSHIP b. OSTENSIBLE OR
Particular partnership is formed only to carry PARTNERSHIP BY ESTOPPEL
out one business venture or to complete - one which in reality is not a
one undertaking. partnership but is considered a partnership
only in relation to those who, by their
2.As to liability of partners conduct or omission, are precluded to deny
a. GENERAL PARTNERSHIP or disprove its existence.
- consists of general partners who
are liable prorata and subsidiarily and 6.As to publicity
sometimes solidarily with their separate a. SECRET PARTNERSHIP
property for partnership debts. - one wherein the existence of
certain persons as partners is not avowed
b. LIMITED PARTNERSHIP or made known to the public by any of the
-one formed by 2 or more persons partners.
having as members one or more general b. OPEN OR NOTORIOUS
partners and one or more limited partners, PARTNERSHIP
the latter not being personally liable for the
obligations of the partnership.
 - one whose existence is avowed or - one who takes charge of the
made known to the public by the members winding up of partnership affairs upon
of the firm. dissolution
7. PARTNERS BY ESTOPPEL
7.As to purpose - one who is not really a partner but
a. COMMERCIAL OR TRADING is liable as a partner for the protection of
PARTNERSHIP innocent 3rd persons
- one formed for the transaction of 8. CONTINUING PARTNER
business. - one who continues the business of
b. PROFESSIONAL OR NON a partnership after it has been dissolved by
TRADING reason of the admission of a new partner,
PARTNERSHIP retirement, death or expulsion of one of the
- one formed for the exercise of a partners
profession.
9. SURVIVING PARTNER
Kinds of Partners - one who remains after a
partnership has been dissolved by death of
1. CAPITALIST any partner
- one who contributes money or 10. SUBPARTNER
property to the common fund - one who is not a member of the
2. INDUSTRIAL partnership who contracts with a partner
- one who contributes only his with reference to the latter's share in the
industry or personal service partnership
3. GENERAL 11. OSTENSIBLE
- one whose liability to 3rd persons - one who takes active part and
extends to his separate property known to the public as partner in the
4. LIMITED business
- one whose liability to 3rd persons 12. SECRET
is limited to his capital contribution - one who takes active part in the
business but is not known to be a partner by
outside parties

13. SILENT
- one who does not take any active
part in the business although he maybe
known to be a partner
14. DORMANT
- one who does not take active part
in the business and is not known or held out
as a partner

5. MANAGING
- one who manages the affairs or
business of the partnership
6. LIQUIDATING