LAW ON PARTNERSHIP - GENERAL PROVISIONS

Articles 1767-1783 of the Civil Code of the Philippines

1767 - partnership definition
1768 - partnership has juridical personality
1769 - rules to determine whether a partnership exist
1770 - legality of object
1771 - form of partnership contract (immovable)
1772 - form of partnership contract (P3,000)
1773 - void if 1771 is not complued with
1774 - conveyance of title
1775 - secret partnerships
1776 - classification of partnership (as to object, liability)
1777 - universal partnership definition
1778 - up of all present properties
1779 - up of all present properties
1780 - up of profits
1781 - up silent = up of profits only
1782 - prohibited from giving any donation = cannot enter into up
1783 - particular partnership definition

PARTNERSHIP DEFINITION
-a contract between 2/more persons who bind themselves to contribute money, property, or
industry to a common fund, with the intention of dividing those profits among themselves
-2/more persons may also form a partnership for the exercise of a profession*
-both a contract and a business organization
-it is a juridical entity which has personality separate and distinct from that of each of the
partners
-for every contract there is an obligation, in partnership: to contribute something to the
common fund
-silent about losses, but it should also be divided among themselves

*PROFESSION DEFINITION
-is a calling in the preparation for or practice of which academic learning is required and
which has for its prime purpose the rendering of public service

CHARACTERISTIC ELEMENTS OF A PARTNERSHIP

(1) Consensual - bec it is perfected by mere consent (express/implied agreement of
2/more persons)
(2) Nominate - bec it has special name in our law
(3) Bilateral - bec it is entered into by 2/more whose rights & obligations are reciprocal
(4) Onerous - bec each of the partners contribute m, p, or i
(5) Commutative - bec the undertaking of each of the partners is considered as the
equivalent of that of the others
(6) Principal - bec it does not depend for its existence and validity upon some other
contract
(7) Preparatory - bec it is a means by which other contract will be entered into as the
partnership pursues its business

ESSENTIAL FEATURES OF PARTNERSHIP

 (1) There must be a valid contract
(2) The parties must have legal capacity to enter into the contract
(3) There must be a mutual contribution of m, p, or i to a common fund
(4) The object must be lawful
(5) The purpose or primary purpose must be to obtain profits and to divide the same
among the parties

ELEMENT OF DELECTUS PERSONAE

-a person is free to choose who he wants to be associated with in a partnership (fiduciary
relationship)
(1) Right to choose co-partners
(2) Power to dissolve partnership

EXISTENCE OF A VALID CONTRACT

(1) A form of voluntary and personal association
(2) Creation and proof of existence
(a) Customary to embody the association in Articles of Partnership (2/more
persons)
(b) COC
(3) Other forms of association excluded

WHO MAY BE A PARTNER

G - any person who is capable under the law of entering into contractual relations
Hence, the ff cannot give their consent:
(a) Unemancipated minors
(b) Insane or demented persons
(c) Deaf-mutes who do not know how to write
(d) Persons who are suffering from civil interdiction
(e) Incompetents who are under guardianship
X - persons who are prohibited from giving each other any donations or advantages cannot
enter into a universal partnership
- There is no prohibition against a partnership being a partner in another partnership
- Unless authorized by law, a corporation is without capacity to enter into a contract of
partnership

MUTUAL CONTRIBUTION TO A COMMON FUND

(1) The partners must have a proprietary or financial interest in the business
(2) Forms of contribution:
a. Money - currency which is legal tender in the Philippines (representatives =
no contribution until they have been cashed)
b. Property - real/personal, tangible/intangible
c. Industry - work/services, either manual efforts/intellectual

LEGALITY OF OBJECT
-if contrary to law, morals, good custom, public order, or public policy
Effects:
a. The contract is void ab initio
b. The profits shall be confiscated in favor of the gov’t
c. The instruments or tools and proceeds of the crime shall also be forfeited in favor of
the gov’t
 d. The contributions of the partners shall not be confiscated unless they fall under
Letter c
-for any purpose except it may not engage in an enterprise for which the law requires a
specific form of business organization

*A stipulation which excludes 1/more partners from any share in the profits or losses is void

FORMS OF A PARTNERSHIP CONTRACT

G - may be constituted in any form, i.e. oral or written
X:
(1) Where immovable property or real rights are contributed:
(a) The contract must be in a public instrument
(b) An inventory of the said property must be made, signed by the parties, and
attached to the public instrument
Effects if not complied w/:
(a) Void
(b) Will not have any juridical personality
(2) Where the capital of the partnership is P3,000 or more, in money or property
(a) The contract must be in a public instrument
(b) Registered with the SEC
Effects if not complied w/:
(a) Still valid and still acquires juridical personality
(b) Liability of the partnership and members thereof to 3rd persons are not
affected
(3) If the partnership is a limited liability partnership*
(a) A certificate signed under oath by the partners
(b) Recorded with the SEC
Effects if not complied w/:
(a) Considered a general partnership
*Not from the gen prov

RULES TO DETERMINE WHETHER A PARTNERSHIP EXISTS

(1) Persons who are not partners as to each other are not partners as to 3rd persons
(2) Co-ownership or co-possessions does not of itself establish a partnership, 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 e joint/common interest/right in any property form
which the properties are derived
(4) The receipt by a person of a share of the profits of a business is a prima facie
evidence that he is a partner in the business, except when payment 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 annuity to a widow/representative of a deceased partner
(d) As interest on a loan, though the amount 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

TESTS AND INCIDENTS OF PARTNERSHIP

-in determining whether a partnership exists, it is important to distinguish between tests or
indicia and incidents of partnership
 (1) Terms of agreement control - only those terms of a contract may afford a test by
which to ascertain the existence of a partnership; once existence is established,
certain incidents follow as a matter of law
(2) Typical incidents once existence established:
(a) Partners share in p&l
(b) They have equal rights in the mgmt and conduct of the business
(c) Every partner is an agent of the partnership
(d) All partners are personally liable for the debts of the partnership with their
separate property
(e) Fiduciary relation exists between the partners
(f) On dissolution, partnership is not terminated, but continues until the winding
up is completed

PARTNERSHIP VS CO-OWNERSHIP
-the ownership of an undivided thing or right belongs to different persons
(1) Creation - may exist without a contract; p is always created by contract
(2) Juridical personality - none; p has
(3) Purpose - common enjoyment of a thing; p is the realization of profits
(4) Duration - keep things undivided for 10 yrs is not allowed; p has no limitation
(5) Disposal of interest - co-owner may dispose of his interest; partner may not dispose
of his individual interest in the partnership so as to make the asignee a partner
(unless agreed upon by ALL partners)
(6) Power to act with 3rd person - co-owner cannot represent the co-ownership; partner
may bind the partnership
(7) Effect of death - death does not necessarily dissolve the co-o; death dissolves a p

PARTNERSHIP VS CONJUGAL PARTNERSHIP OF GAINS

-partnership formed by marriage, they place fruits and income from separate properties
acquired by either or both or them during marriage
(1) Parties - arises in case the future spouses agree that it shall govern their property
relations during marriage;created by voluntary agreement by 2/more partners
(2) Laws which govern - by law; by stipulation of the parties
(3) Juridical personality - none; has
(4) Commencement - date of celebration of marriage; execution unless otherwise
stipulated
(5) Purpose - regulate property relations; obtain profits
(6) Distribution of profits - equally; agreement
(7) Management - both but husbands prevail; equally unless one or more are appointed
as managers
(8) Disposition of shares - cannot dispose even with consent; may be disposed of w/o
the consent of the other partners

PARTNERSHIP VS VOLUNTARY ASSOCIATION

-organized for social purposes (such as social clubs, committees, lodges, fraternal societies,
etc.)
(1) Juridical personality - none; has
(2) Purpose - lacking; pecuniary profits
(3) Contribution of members - no contribution of capital; contribution of capital in form of
m,p or i
(4) Liability of members - individually liable; partnership is the one liable in the first place

ACQUISITION OR CONVEYANCE OF PROPERTY BY PARTNERSHIP

- Immovable property may be acquired in the partnership name
 - Title acquired can be conveyed only in the partnership name

CLASSIFICATIONS OF PARTNERSHIP
I. AS TO THE EXTENT OF SUBJECT MATTER
A. Universal partnership
1. Of all present property
a. Properties at the time of the constitution of the partnership
b. Profits that may be acquired from properties contributed
c. Profits from other sources, if stipulated
d. Future properties acquired by inheritance, legacy, or donation
CANNOT be included by stipulation be except the fruits
2. Of profits
a. Profits obtained by partners by their work or industry during the
existence of the partnership
b. Usufruct of the property belonging to each of partner at the
time of constitution of the partnership
c. Profits and fruits from a & b
d. Profits of future property if stipulated
e. Profits acquired by chance NOT
*Universal partnership w/o specification of its nature constitute a UP of profits
(less rights transmitted)
*Persons who are prohibited from giving each other any donation or
advantage cannot enter into a UP
*Donations between spouses are void except moderate gifts on the occasion
of family rejoicing (also applies to persons living as husband and wife without
a valid marriage)
*The ff donations are void:
- Who were guilty of adultery or concubinage at the time of the donation
(by spouse of donee/or and guilt may be proved by preponderance of
the evidence
- Found guilty of same criminal offense
- Made to a public officer or his wife, descendants, ascendants by
reason of office
B. Particular partnership - has for its object determinate things, their use or fruits,
or a specific undertaking, or the exercise of a profession or vocation
II. AS TO LIABILITY OF THE PARTNERS
A. General partnership - all partners are general partners
B. Limited partnership - there is atleast 1 general partner and atleast 1 limited
partner
III. AS TO DURATION
A. Partnership at will - no time is specified and is not formed for particular
undertaking/venture and may be terminated anytime by mutual agreement
B. Partnership with a fixed term - the term is fixed or formed for a particular
undertaking
IV. AS TO LEGALITY OF ITS EXISTENCE
A. De jure partnership - has complied with all the legal requirements for its
establishment
B. De facto partnership - has failed to comply with all the legal requirements for
its establishment
V. AS TO REPRESENTATION TO OTHERS
A. Ordinary or real - which actually exist among the partners and as to 3rd
person
B. Ostensible or partnership by estoppel - one which in reality is not a
 partnership but is considered as one only in relation to those who, by their
their conduct or admission, are precluded to deny or dispose its existence
1. When a person represents himself as a partner in an existing
partnership
a. If all consented, partnership liability results; then partners and
person will be liable with separate properties pro rata
b. If not all, only the partners who consented and the person will
be liable with their separate properties
2. When a person represents himself as a partner in a non-existing
partnership
VI. AS TO PUBLICITY
A. Secret - the existence of certain persons as partners is not made known to
the public
B. Open or notorious - whose existence is made known to the public by the
members of the firm
VII. AS TO PURPOSE
A. Commercial or trading - one formed for the transaction of business
B. Professional or non-trading - one formed for the exercise of a profession

KINDS OF PARTNERS
I. UNDER THE CIVIL CODE
A. Capitalist - who contributes money or property to the common fund
B. Industrial partner - who contributes only his industry or personal services
(Capitalist-Industrial - m/p AND industry)
C. General partner - whose liability to 3rd persons extends to his separate
properties (either A or B)
D. Limited partner - whose liability is limited to his capital contribution; does not
participate in the mgmt
E. Managing partner - manages the affairs or business of the p; appointed either
in the articles of partnership or after the constitution of the p
F. Liquidating partner - takes charge in the winding up of the partnership affairs
upon dissolution
G. Partner by estoppel - not really a partner but is liable as a partner to for the
protection of innocent 3rd persons
H. Continuing partner - who continues the business after it has been dissolved
by reason of the admission of a new partner, retirement, death, or expulsion
of one or more partners
I. Surviving partner - remains after a partnership is dissolved by the death of
any partner
J. Subpartner - not being a member of a partnership, contracts with a partner
with reference to the latter's share in the partnership
II. OTHER CLASSIFICATIONS
A. Ostensible partner - takes active part and known to the public as a partner in
the business (can be not an actual partner)
B. Secret partner - takes active part in the business but not known to be a
partner by outside parties
C. Silent partner - does not take any part in the business although he may be
known to be a partner
D. Dormant partner - one who does not take active part in the business and is
not known or held out as a partner
E. Original partner - a member of the partnership from the time of its
organization
F. Incoming partner - person lately, or about to be, taken into a partnership as a
member
 G. Retiring partner - one withdrawn from the partnership; a withdrawing partner

*Business of partnership need not be continuing in nature