PART I: PARTNERSHIP

Chapter 1: General Provision

Article 1767. By the contract of partnership two or 7. Preparatory - entered into as a means to an end to
more persons bind themselves to contribute money, engage in business for the realization of profit with the
property, or industry to a common fund with the view of dividing it.
intention of dividing the profits among themselves.
NOTE: A partnership contract is a contract of agency
Two or more persons may form a partnership for the
exercise of a profession. Essential features of partnership
1. There must be a valid contract
Concept of partnership 2. The parties must have legal capacity to enter into the
Other definitions: contract
1. Association - 2 or more persons carry on as co-owners 3. There must be a mutual contribution of money,
a business profit. property, or industry to a common fund
2. Legal relation – based upon expressed or implied 4. The object must be lawful; and
agreement of 2 or more persons whereby they unite 5. The purpose or primary purpose must be to obtain
their property, labor or skill in carrying out lawful profits and to divide the same among the parties
business.
3. Joint undertaking – is to share in profit and loss NOTE: It is required that the articles of partnership must not be
4. Status - arising out of contract entered into by 2 or kept secret among the members; otherwise, the association shall
more persons whereby they agree to share as common have no legal personality and shall be governed by Civil Code
owners.
5. Organization - for production of income which
Existence of a valid contract
partners agreed to contribute one or both ingredients
- A form of voluntary association – it is a personal
of income: capital or service
relation in which the element of delectus personae
6. Entity - distinct and apart from its members and for
the purpose of which it was created. (choice of the person) exists; No one can become a
member of the partnership without the consent of all
the other associates
NOTE: As a form of business organization, a partnership falls
- May be informally created, but then customary to
between two extremes of organizational form (single
proprietorship and corporation) embody the terms of the association in a written
document, Articles of Partnership. A person cannot
enter into a contract of partnership solely with
Partnership for the exercise of a profession
himself; there must be at least two competent parties.
- Profession is a calling in the preparation for or practice
- Partnership excludes associations which do not have
of which academic learning is required
their origin in a contract, express or implied. There is
- Strictly speaking, the practice of a profession is not a
no such thing as a partnership created by law or by
business or an enterprise for profit; however, the law operation or implication of law.
allows joint pursuit by two or more partners
- The law does not allow individuals to practice a Not considered partnership because not created by expressed
profession as a corporate entity or implied contract:
- Religious societies, Conjugal or Community
REASON: It defeats the characteristic of a corporation that
partnership
should not have personal qualifications such as age, good moral
character, and college degree NOTE: A limited partnership cannot be created by mere
voluntary agreement alone.
Characteristic elements of partnership
1. Consensual - perfected by mere consent (upon express Legal capacity of parties to enter into a contract
or implied agreement)
- Before there can be a valid contract, it is essential that
2. Nominate - it has a special name in the law
the parties have the legal capacity to enter into contract.
3. Bilateral – where in the rights and obligations between
- General Rule: Any person may be a partner who is
the parties are reciprocal
capable under the law of entering into contractual
4. Onerous – when parties aspires to procure for himself
relations.
a benefit by giving something
- Any person who cannot legally give consent to a
5. Commutative - undertakings of the partners are the
contract cannot be a partner
considered same of the others
6. Principal – is not an accessory or does not depend on
another contract for existence and validity Persons who cannot give consent:
1. Unemancipated minors
2. Insane or demented persons
 PART I: PARTNERSHIP
Chapter 1: General Provision
3. Deaf-mutes who do not know how to write - A partnership may be organized for any purpose
4. Persons who are suffering from civil interdiction except that it may not engage in an enterprise for
5. Incompetents who are under guardianship which the law requires a specific form of business
organization (banking should only be corporation)
- Persons who are prohibited from giving each other any
donation or advantage cannot enter into a universal Intention to realize and divide profits
partnership - The idea of obtaining pecuniary profit or gain directly
- A married woman may enter into a contract of as a result of the business to be carried on is the very
partnership even without her husband’s consent, but reason for the existence of a business partnership
the latter may object under certain conditions - Intention to realize and divide profit is the element that
- There is no prohibition against a partnership being a distinguishes the contract of partnership from
partner in another partnership voluntary religious or social organization
- Unless authorized by law, a corporation is without - Even an unprofitable business can be a partnership
capacity or power to enter into a contract of provided its goal is to obtain profits
partnership - Sharing of profits (principal purpose) need not be the
exclusive aim of a partnership
REASON: In a partnership, a corporation would be bound by
the acts of persons who are not its duly appointed and Sharing of profits
authorized officer and agents, and this is entirely inconsistent - It is necessary that there be an intention to divide
with the policy of the law that the corporation shall manage its profits although not necessarily in equal shares
own affairs separately and exclusively - One without any right to participate in the profits,
cannot be deemed a partner
Mutual contribution to a common fund - The sharing of profits is merely presumptive and not
- Partners must have a proprietary of financial interest conclusive, even if cogent, evidence of partnership
in the business - There are numerous instances of parties who have a
- Without the element of mutual contribution, there can common interest in the profits and losses of an
be no partnership enterprise but who are not partners
- Forms of contribution can be either of money, property, - If the division of profits is merely used as a guide to
or industry determine the compensation due to one of the parties,
such one is not a partner
Not money, but only representatives of money:
• Checks Sharing of losses
• Drafts - The right to share in the profits carries with it the
• Promissory notes payable to order obligation to share also in the losses
• Other mercantile documents - It is not necessary for the parties to agree upon a
- There is no contribution of money until they have been system of sharing
cashed - Where a partnership has been validly created, a
- Property contributed may be real or personal, tangible subsequent stipulation which excludes one or more
or intangible partners from any share in the profits (or losses) will
- Credit such as promissory note or other evidence of not affect its existence. Only the stipulation is void
obligation or even a mere goodwill may be contributed
as it is considered property Article 1768. The partnership has a juridical
- Industry means the work or services associated personality separate and distinct from that of each of
- Share in the profits by the industrial partner is not the partners even in case of failure to comply with the
salary requirements of Article 1772, first paragraph
- The law does not specify the kind of industry that a
partner may contribute Partnership, a juridical person
- A limited partner cannot contribute mere industry or
services REASON: The law grants a juridical personality separate and
distinct from that of each of the partners
Legality of Object - A partnership may acquire and possess property of all
- The object is unlawful when it is contrary to law, kinds, as well as incur obligations and bring civil or
morals, good customs, public order, or public policy criminal actions in conformity with the laws and
- The effect of unlawful object to the contract is void ab regulations of its organization
initio (void or without force and effect from the
beginning)
 PART I: PARTNERSHIP
Chapter 1: General Provision
- Death of a partner is not a ground for the dismissal of
a pending suit against the partnership Co-ownership or co-possession
- Co-ownership of property does not of itself establish
Effect of failure to comply with statutory the existence of a partnership, although co-ownership
requirements is an essential element of partnership
➢ In case of failure to comply with statutory requirement when
the capital exceeds P3,000.00, such partnership still acquires Sharing of gross returns
juridical personality Reason: Most partnerships are created with - The mere sharing of gross returns alone does not
very small capital to engage in small business and it would be indicate a partnership; must satisfy first its liabilities
impractical and inconvenient to require the parties to comply or expenses
with the requirements - If one takes a share as payment of a debt, he is not a
partner
Article 1769. Rules in determining whether partnership exists:
1. Except Partnership of Estoppel, persons who are not Receipts of share in the profits
partners as to each other are not partners as to third - The mere fact of a right under the contract to
persons participate in both profits and losses of a business does
2. Co-ownership or co-possession does not of itself not of itself have the effect of establishing a
establish a partnership, whether they do or do not share partnership between those engaged therein: where the
any profits made by the use of the property recipient is a creditor, employee, widow, or seller. The
3. Sharing of gross returns does not of itself establish a recipient is not entitled to receive payment where there
partnership, whether or not there is coownership are no profits; nor be liable to share any losses
4. Receipt by a person of a share of the profits of a
business is prima facie evidence that he is a partner in Test and incidents of partnership
the business, except profits received: Typical incidents of partnership:
a. As a debt by installments or otherwise 1. Parties share in P/L
b. As wages of an employee or rent to a landlord 2. Equal rights in management and conduct of business
c. As an annuity to a widow or representative of 3. Every partner is an agent of partnership • Unlimited
a deceased partner liability (except limited)
d. As interest on a loan--amounts of payment 4. A fiduciary relation exists between the partners
vary with the profits of the business 5. On dissolution, partnership is not terminated until
e. As the consideration for the sale of a goodwill winding up is completed
of a business or other property by
installments or otherwise NOTE: Incidents may be modified by stipulation of the
partners subject to the right so third persons dealing with the
NOTE: The receiving partner shall not be entitled to receive partnership
payment where there are no profits; nor shall he be liable to
share any losses incurred but the partnership Partnership distinguished from co-ownership
- There is a co-ownership whenever the ownership of an
Rules to determine existence of partnership undivided thing or right belongs to different persons
- In general, to establish the existence of a partnership - Co-ownership is generally created by law
all of its essential features or characteristics must be
present Distinguished: Partnership Co-ownership

Persons not partners as to each other Creation Contract needed No contract

- Persons who are partners as between themselves are needed
partners as to third persons; if they are not partners as Juridical Has Has none
between themselves, they cannot be partners as to Personality
third persons Purpose Realization of Common
- Persons who are partners in fact may not avoid the profits enjoyment of the
consequences of the relation by mere denial that they thing or right
are partners Duration No limitation More than 10
- Where persons misled third persons or parties into years is not
believing that the former are partners in a non-existing allowed
partnership, such persons become subject to liabilities Disposal of May not dispose May freely do so
of partners to all who, in good faith, deal with them in Interest individual interest
their apparent relations
 PART I: PARTNERSHIP
Chapter 1: General Provision
for assignee Article 1770. A partnership must have a lawful object or
(unless agreed) purpose, and must be established for the common benefit or
Power to act Partners bind the Co-owner will interest of the partners.
with third partnership not bind other co- When an unlawful partnership is dissolved by a
persons owners judicial decree, the profits shall be confiscated in favor of
Effect of Death Dissolution Not dissolved the State, without prejudice to Penal Code governing the
confiscation of the instruments and effects of a crime.
Partnership distinguished from conjugal partnership Effects of an unlawful partnership
of gains 1. The contract is void ab initio and the partnership never
- Unless otherwise agreed in the marriage settlements, existed in the eyes of the law
the net gains or benefits obtained by either or both of 2. The profits shall be confiscated in favor of the
them during the marriage should be divided equally government
upon dissolution of marriage or partnership 3. The instruments or tools and proceeds of the crime
shall also be forfeited in favor of the government
Partnership CPOG 4. The contributions of the partners shall not be
Parties Either sex Future spouses confiscated unless they fall under No. 3
NOTE: Such proceeds and/or instruments or tools shall be
Laws which Stipulation of the Governed by law
confiscated and forfeited in favor of the Government (unless
govern partners
property of a third person not liable) but those articles which
Juridical Has Has none are not subject of lawful commerce shall be destroyed
Personality
Commencement Moment of Date of the
Dissolution of unlawful partnership
execution of celebration of
Instances of unlawful object:
contract (unless marriage (any
stipulated) stipulation is • Creates illegal monopolies or combinations in restraint
void) of trade
Purpose Obtain profits Regulate the • Carry on gambling
property relations • Smuggling purposes
Distribution of According to Shares are • Leasing furnished apartments to prostitutes
profits agreement divided equally • Prevent competition in bidding for government
Management Shares equally Administration contract
(unless there is belongs to both,
appointment) husband’s NOTE: Judicial decree is not necessary to dissolve an unlawful
decision shall partnership
prevail
Distribution of Interest may be Cannot be Article 1771. A partnership may be constituted in any form,
Shares disposed without disposed during except where immovable property or real rights are
consent of others marriage even contributed thereto, in which case a public instrument shall
with the consent be necessary

Partnership distinguished from voluntary associations Form of partnership contract

Partnership Voluntary General Rule: No special form is required for the validity or
Association existence of the contract of partnership; the contract may be
Juridical Has Has none made orally or in writing regardless of the value of
Personality contributions
Purpose For pecuniary Objective is Explanation: Unless immovable property or real rights are
profits lacking contributed, in which case, requires the execution of a public
Contributions of Capital Fees collected, no instrument.
members contribution of
capital NOTE: To affect third persons, the transfer of real property to
Liability of Partnership is Individually the partnership must be duly registered in the Registry of
members liable in the first liable for the Property of the province or city where the property contributed
is located
place debts
Article 1772. Every contract of partnership having a capital
of Three thousand pesos or more, in money or property,
 PART I: PARTNERSHIP
Chapter 1: General Provision
shall appear in a public instrument, which must be recorded shall have no juridical personality, and shall be governed by
in the Office of the Securities and Exchange Commission the provisions relating to coownership
Failure to comply shall not affect the liability of the
partnership and the members thereof to third persons Secret partnerships without juridical personality
- Associations whose articles or agreements are kept
Partnership with capital of P3,000.00 or more secret among the members and wherein anyone of
Requirements where capital is 3000 or more them may contract in his own name with third persons
1. The contract must appear in a public instrument are deprived of juridical personality; not partnerships
2. It must be recorded or registered with SEC - Governed by provisions of co-ownership

NOTE: However, failure to comply with requirements does not Importance of giving publicity to articles of
prevent the formation of the partnership or affect liability to partnership
third persons (you cannot make it an excuse/defense against - It is essential that the articles of partnership be given
third persons). Any partner is granted the right by the law to publicity for the protection not only of the members
compel each other to execute the contract in a public instrument themselves but also third persons
Registration of partnership Article 1776. As to its object, a partnership is either
- The recording or registration of the articles or contract universal or particular
of partnership is not for the purpose of giving the As regards the liability of the partners, a
partnership a juridical personality. partnership may be general or limited
- The only objective of the law is to make the recorded
instrument open to all and to give notice thereof to Classifications of partnership
interested parties 1. As to subject matter
a. Universal partnership – refers to all the
Article 1773. A contract of partnership is void, whenever present property or to all profits.
immovable property is contributed thereto, if an inventory i. Universal partnership of all present
of said property is not made, signed by the parties, and property
attached to the public instrument ii. Universal partnership of profits
b. Particular partnership
Partnership with contribution of immovable property 2. As to liability
- Contract of partnership is void if it will not comply a. General partnership – one consisting of
with requirement general partners who are liable pro rata and
subsidiarily, sometimes solidarily.
Requirements for contribution of immovable property: b. Limited partnership – one formed by 2 or
1. The contract must be in a public instrument more person having as members one or more
2. An inventory of the property contributed must be general partners and 1 or more limited
made, signed by the parties, and attached to the public partners.
instrument 3. As to duration
a. Partnership at will – one which no time is
NOTE: If personal property, aside from real property, is specifies and is not formed for a particular
contributed, the inventory need not include the public undertaking or venture.
instrument b. Partnership with a fixed term – one which the
term for which the partnership is to exist is
Article 1774. Any immovable property or an interest therein fixed or agreed upon or one formed for a
may be acquired in the partnership name. Title so acquired particular undertaking.
can be conveyed only in the partnership name. 4. As to legality of existence
a. De jure partnership – one which has complied
Acquisition or conveyance of property by partnership with all the legal requirements
- Immovable property may be acquired in the b. De facto partnership – one which has failed
partnership name. Title so acquired can be conveyed to comply with all the legal requirements
only in the partnership name 5. As to representation to others
a. Ordinary or real partnership – one which
Article 1775. Associations and societies, whose articles are actually exists among the partners and also as
kept secret among the members, and wherein any one of the to 3 rd person
members may contract in his own name with third persons, b. Ostensible partnership or partnership by
estoppel – one which in reality is not a
 PART I: PARTNERSHIP
Chapter 1: General Provision
partnership, but sonsidered only in relation f. Incoming partner – one who is about to be a
by their conduct or admission, are precluded partner
to deny. g. Retiring/withdrawing partner - one
6. As to publicity withdrawing to the partnership.
a. Secret partnership – one wherein the
existence of certain persons as partners is not NOTE: All partners in any of these classes are subject to
vowed or made known to the public liability for all partnership obligations
b. Open or notorious partnership – one whose - If an ostensible partner is not actually a partner, he is
existence avowed or made known to the subject to liability by doctrine of estoppel
public by the members of the firm. - Silent partner need not be a secret partner; if he
7. As to purpose withdraws, he must give notice to persons who do
a. Commercial or trading partnership – one business with the firm to escape liability in the future
formed for the transaction - Dormant partner may retire without giving notice and
b. Professional or non-trading partnership – one cannot be held liable for the obligations of the firm
formed for the exercise of profession. subsequently; only interest in joining is the sharing of
profits
Kinds of Partners
1. Under the Civil Code Article 1777. A universal partnership may refer to all the
a. Capitalist partner – one who contributes present property or to all the profits
money or property to the common fund.
b. Industrial partner – one who contributes only Article 1778. A partnership of all present property is that in
his industry or personal service. which the partners contribute all the property which
c. General partner - one whose liability to third actually belongs to them to a common fund, with the
person extends to his separate property: may intention of dividing the same among themselves, as well as
be capitalist or industrial all the profits which they may acquire therewith
d. Limited partner/ special partner – one whose
liability to 3 rd person is limited to his capital Article 1779. In a universal partnership of all present
contribution. property, the property which belongs to each of the
e. Managing partner/ general or real partner – partners at the time of the constitution of the partnership,
one who manage affairs becomes the common property of all the partners, as well as
f. Liquidating partner – one who take charge of all the profits which they may acquire therewith
the winding up of partnership affairs. A stipulation for the common enjoyment of any
g. Partner by estoppel/ partner by implication or other profits may also be made; but the property which the
nominal partner/ quasi-partner - one who is partners may acquire subsequently by inheritance, legacy,
not really a partner or not a party, but liable or donation cannot be included in such stipulation, except
as a party for the protection of the innocent the fruits thereof
3 rd person
h. Continuing partner – one who continues the Universal partnership of all present property
business of the partnership after it has been Common property of all the partners:
dissolved by reason of admission of a new - Property which belonged to each of them at the time
partner, retirement, death or expulsion. of constitution of partnership
i. Surviving partner – one who remains after - Profits they may acquire from the contribution
dissolution due to death of a partner.
j. Sub partner – one not being a member, Contribution of Future Property
contracts with the partner with the reference General Rule: Future properties cannot be contributed
of latter share. - Properties contributed included in the partnership
2. Other Classifications requires the contribution of things determinate
a. Ostensible partner - active; known to the
public Property subsequently acquired by:
b. Secret partner - active; not known to the
• Inheritance
public
• Legacy
c. Silent partner - not active; may be known
d. Dormant/sleeping partner - not active; not • Donation
known: silent and secret partner
e. Original partner – one who is the member of - Cannot be included by stipulation, except the fruits;
the partnership any stipulation including property acquired is void
 PART I: PARTNERSHIP
Chapter 1: General Provision
- Profits from other sources (not from properties - A husband and wife may enter into a particular
contributed) will become common property only if partnership or be members there (cannot enter into
there is stipulation universal)
- If there is subsequent marriage between partners, it is
ART. 1780. A universal partnership of profits comprises all viewed as dissolution
that the partners may acquire by their industry or work
during the existence of the partnership Pertinent Legal Provisions
Movable or immovable property which each of the - Every donation or grant of gratuitous advantage, direct
partners may possess at the time of the celebration of the or indirect, between spouses (or live-in partners
contract shall continue to pertain exclusively to each, only without valid marriage) during marriage shall be void
the usufruct passing to the partnership except moderate gifts for family rejoicing

Universal partnership of profits explained Donations Void:

- Partners retain their ownership over their present and 1. Made between persons guilty of adultery or
future property concubinage at the time of the donation
- What pass to the partnership are the profits and the 2. Made between persons found guilty of the same
usufruct of the property criminal offense
- Upon dissolution, such property is returned to partners 3. Made to a public offer or his wife, descendants, and
who own it ascendants by reason of his office
- Profits acquired by the partners through chance
(lottery or by lucrative title) without the employment NOTE: In 1, declaration of nullity may be brought by the
of any physical or intellectual efforts, are not included spouse of the donor or donee; the guilt may be proved by
- Fruits of property subsequently acquired by the preponderance of evidence
partners do not belong to the partnership
- But those fruits of property subsequently acquired may Article 1783. A particular partnership has for its object
be included in profits by express stipulation determinate things, their use or fruits, or specific
- Profits acquired by the use of industry or work and undertaking, or the exercise of a profession or vocation
usufruct belong to the partnership as a matter of right
- An express stipulation is necessary to exclude any of Particular partnership explained
them - Particular partnership is neither a universal partnership
of present property nor a universal partnership of
Article 1781. Articles of universal partnership, entered into profits
without specification of its nature, only constitute a
universal partnership of profits Examples of particular partnerships are those formed for:
• The acquisition of an immovable property for the
Presumption in favor of universal partnership of purpose of reselling it at a profit or for the common
profits enjoyment of its use and the benefits derived therefrom
- Applies only when universal (not particular) • The purpose of carrying out a specific enterprise such
partnership has been organized as the construction of a building
- When the articles of partnership do not specify its • The practice of a profession or vocation
nature, it is presumed to be partnership of profits
Business of Partnership need not be continuing in
REASON: Less obligations on the partners nature
Article 1782. Persons who are prohibited from giving each - A partnership is ordinarily formed for the transaction
other any donation or advantage cannot enter into universal of a general business of a particular kind
partnership - The carrying on of a business of a continuing nature is
not essential to constitute a partnership
Limitations upon the right to form a universal
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.
- Partnership formed in violation of this article is null
and void; no legal personality acquired
 PART I: PARTNERSHIP
Chapter 1: General Provision