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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)
Concept of Partnership

ingredients of income, which are capital or service.


(6) A partnership is an entity, distinct and apart from the
members composing it, and, for the purpose of which it was
created; it is a person having its own assets and liabilities
and any benefit or liability attaching to a member of the
partnership, results from the partnership relation.

Note: As a form of business organization, a partnership falls


The above articles gives the legal definition of between two extremes of organizational form - the single
partnership (often called co-partnership) from the viewpoint proprietorship and the corporation.
of a contract. There are, however, other definitions. Thus Partnership for the exercise of the profession
(1) A partnership is an association of two or more persons
A profession is a calling in the preparation for or
to carry on as co-owners a business for profit.
practice of which academic learning is required and which
(2) A partnership is a legal relation based upon the has for its prime purpose the rendering of public service. It
expressed or implied agreement of two or more competent may also refer to the whole body of persons or a group of
persons whereby they unite their property, labor or skill in persons engaged in a calling. Thus, it has been defined as
carrying on some lawful business as principals for their joint "a group of men pursuing a learned art as a common calling
profit.
in the spirit of public service - no less a public service
because it may incidentally be a means of livelihood.
(3) A partnership is a joint undertaking to share in the profit
and loss.
Paragraph 2 relates to a general professional
partnership or a partnership for the exercise of a profession.
(4) A partnership is the status arising out of a contract Strictly speaking, the practice of a profession is not a
entered into by two or more persons whereby they agree to business or an enterprise for profit. However, the law allows
share as common owners the profits of a business carried the joint pursuit thereof by two or more persons as partners
on by all or any of them on behalf of all of them.
(Art.1783). The law does not allow individuals to practice a
(5) A partnership is an organization for production of profession as a corporate entity. The reason is that personal
income to which each partner contributes one or both of the qualifications (e.g. age, good moral character, college
degree) for such practice cannot be possessed by a

corporation.

parties.
A partnership contract, in its essence, is a contract of
agency (Art.1818).

Characteristic elements of partnership


The contract of partnership is:

Essential features of partnership


Below are the five (5) essential features of a partnership
contract.

(1) Consensual, because it is perfected by mere consent, (1) There must be a valid contract;
that is, upon the expressed or implied agreement of two or
more persons;
(2) The parties must have legal capacity to enter into the
contract;
(2) Nominate, because it has a special name or designation
in our law;
(3) There must be a mutual contribution of money,
property, or industry to a common fund;
(3) Bilateral, because it is entered into by two or more
persons and the rights and obligations arising therefrom are (4) The object must be lawful; and
always reciprocal;
(5) The purpose or primary purpose must be to obtain
(4) Onerous, because each of the parties aspires to procure profits and to divide the same among the parties.
for himself a benefit through the giving of something;
It is also required that the articles of partnership must
(5) Commutative, because the undertaking of each of the not be kept secret among the members; otherwise, the
partner is considered as the equivalent of that of the association shall have no legal personality and shall be
others;
governed by the provisions of the Civil Code relating to coownership (Art. 1775).
(6) Principal, because it does not depend for its existence or
validity upon some other contract; and
Existence of a valid contract
(7) Preparatory, because it is entered into as a means to an (1) A form of voluntary and personal association. end, i.e., to engage in business for the realization of profits Partnership is a form of voluntary association entered into
with the view of dividing them among the contracting by the associates. It is a personal relation in which the

element of delectus personae exists. No one can become a under the law of entering into contractual relations.
member of the partnership association without the consent Consequently, any person who cannot legally give consent
of all the other associates.
to a contract cannot be a partner. Hence, the following
cannot give their consent to a contract of partnership:
(2) Creation and proof of existence. - It may be informally
created and its existence proved by the conduct or acts of
(a) Unemancipated minors;
the parties but it is customary to embody the terms of the
(b) Insane or demented persons;
association in a written document known as Articles of
Partnership. Obviously, a person cannot enter into a
(c) Deaf-mutes who do not know how to write;
contract of partnership solely with himself; there must be at
(d) Persons who are suffering from civil interdiction;
least two competent parties.
and
(3) Other forms of association excluded. - Partnership,
(e) Incompetents who are under guardianship
therefore, excludes from its concept all the other
associations which do not have their origin in a contract,
(2) Exceptions. - Under Article 1782, persons who are
express or implied. There is no such thing as a partnership
prohibited from giving each other any donation or
created by law or by operation or implication of law.
advantage cannot enter into a universal partnership. A
Religious societies, conjugal or community partnerships,
married woman may enter into a contract of partnership
and others of a similar nature are not, therefore, included
even without her husband's consent, but the later may
as they are not created by the expressed or implied
object under certain conditions.
contract of the parties.
(3) Capacity of partnership/corporation to be a partner. A limited partnership, however, as distinguished from
The typical partnership is composed of individual human
a general partnership (Art.1776), cannot be created by
beings. But these is no prohibition against a partnership
mere voluntary agreement alone (Art.1844).
being a partner in another partnership. Unless authorized
by law, a corporation is without capacity or power to enter
Legal capacity of parties to enter into the contract
into a contract of partnership. The reason for the limitation
(1) General rule. - Before there can be a valid contract of is that in a partnership, a corporation would be bound by
partnership, it is essential that the contracting parties have the acts of persons who are not its duly appointed and
the necessary legal capacity to enter into the contract. As a authorized officers and agents, and this is entirely
general rule, any person may be a partner who is capable

inconsistent with the policy of the law that the corporation work or services of the party associated, which may be
shall manage its own affairs separately and exclusively.
either personal manual efforts or intellectual, and for which
he receives a share in the profits (not merely salary) of the
Mutual contribution to a common fund
business.
(1) Proprietory or financial interest. - The partners must
The law does not specify the kind of industry that a
have a proprietory or financial interest in the business. The partner may contribute. A limited partner in a limited
very definition of partnership in Article 1767 provides for partnership, however, cannot contribute mere industry or
this element. Without the element of mutual contribution to services. (Art. 1845)
a common fund, there can be no partnership. (Art. 1784)
Legality of object
(2) Form of contribution. - The partners must contribute
money, property, and/or industry or services to the (1) Effect of illegality. - The object is unlawful when it is
common business:
contrary to law, morals, good customs, public order, or
public policy. (Art.1306). As in other kinds of contract, the
(a) Money - The term is to be understood as referring purpose of a partnership must be lawful (Art. 1770);
to currency which is legal tender in the Philippines. It must otherwise, no partnership can arise as the contract is void
be pointed out that checks, drafts, promissory notes ab initio (Art. 1409), i.e., void or without force and effect
payable to order, and other mercantile documents are not from the beginning.
money but only representatives of money. Consequently,
there is no contribution of money until they have been (2) Business partnership not permitted to engage in. cashed. (Art. 1249)
Subject to this general limitation on contracts, a partnership
may be organized for any purpose except that it may not
(b) Property - The property contributed may be real or engage in an enterprise for which the law requires a specific
personal, tangible or intangible. Hence, credit such as form of business organization, such as banking which,
promissory note or other evidence of obligation or even a under the General Banking Law of 2000 (R.A. No. 8791, Sec.
mere goodwill may be contributed as it is considered 8.), only stock corporations may undertake.
property.
(c) Industry - In the absence of money or property, or
in concurrence with these two, the law permits the Intention to realize and divide profits
contribution of industry. The word "industry" means the

(1) Very reason for existence of partnership. - The idea of


obtaining pecuniary profit or gain directly as a result of the
business to carried on is the very reason for the existence
of a business partnership. As a matter of fact, this element
is what distinguished the contract of partnership from
voluntary religious or social organizations. Even an
unprofitable business can be a partnership provided its goal
is to obtain profits.

(2) Not conclusive evidence of partnership. - The sharing of


profits is merely presumptive and not conclusive, even if
cogent, evidence of partnership. There are numerous
instances of parties who have a common interest in the
profits and losses of an enterprise but who are not partners.
(Art. 1769) Thus, if the division of profits is merely used as a
guide to determine the compensation due to one of the
parties, such one is not a partner. (see Art. 1769[4].)

(2) Sufficient if obtaining profit principal purpose. - The


realization of pecuniary profit, however, need not to be the
exclusive aim of a partnership. It is sufficient that it is the
principal purpose even if there are, incidentally, moral,
social, or spiritual ends. In a partnership, the parties intend
to share the profits in certain proportions.

Sharing of losses

(1) Necessary corollary of sharing in profits. - Take note that


the definition of partnership under Article 1767 refers to
"profits" only and is silent as to "losses". The reason is that
the object of a partnership is primarily the sharing of
profits, while the distribution of losses is but a possible
Sharing of profits
"consequence of the same". Be that as it may, the right to
share in the profits carries with it the obligation to share
A partnership is essentially a business enterprise also in the losses, if any.
established for profit.
(2) Agreement not necessary. - It is not necessary for the
(1) Not necessarily in equal shares. - Since the partnership parties to agree upon a system of sharing. The essence of a
is for the common benefit or interest of the partners (Art. partnership is that the profits and losses arising from the
1770), it is necessary that there be an intention to divide undertaking will be shared between or among the partners.
the profits, among the members, although not necessarily However, where a partnership has been validly created, a
in equal shares. In other words of the Supreme Court "there subsequent stipulation which excludes one or more
must be a joint interest in the profits." Without this sharing partners from any share in the profits (or losses) will not
of profits, it cannot be said that an agreement of affect its existence. Only the stipulation is void. (Art. 1799).
partnership has been entered into and that it exists. (see
Art. 1799.) One without any right to participate in the ARTICLE 1768 - The partnership has a juridical
profits, cannot be deemed a partner.
personality separate and distinct from that of each

of the partners, even in case of failure to comply Effect


of
failure
to
comply
with
statutory
with the requirements of Article 1772, first requirements
paragraph. (n)
(1) Under Article 1772. - This article makes it clear that
Partnership, a juridical person
even in case of failure to comply with the requirements of
Article 1772, with reference to the execution of a public
Like the corporation, a partnership duly formed under instrument and registration of the same with the Securities
the law is a juridical person to which the law grants a and Exchange Commission in cases when the partnership
juridical personality separate and distinct from that of each exceeds P3,000.00, such partnership acquires juridical
of the partners. (Art. 44, par. 3.) As a juridical person, a personality. (see Art. 1784.) The law recognizes that in the
partnership may acquire and possess property of all kinds, Philippines, most partnerships are created with very small
as well as incur obligations and bring civil or criminal capital to engage in small businesses and it would be
actions in conformity with the laws and regulations of its impractical and inconvenient to require the parties to
organization. (Art. 46.)
comply with the requirements of Article 1772.
EXAMPLE:

(2) Under Articles 1773 and 1775. - However, in the case


In the partnership X & Co., in which A and B are contemplated in Article 1773, the partnership shall not
the partners, there are three distinct persons, namely, the acquire any juridical personality because the partnership
contract itself is void. This is also true regarding secret
partnership X & Co., A and B.
associations or societies which do not acquire juridical
As a consequence of the distinct legal personality under Article 1775.
personality possessed by X & Co., it may be declared
insolvent or bankrupt even if A and B are not; it may enter ARTICLE 1769 - In determining whether a partnership
into contracts and may sue and be sued; and the death of exists, these rules shall apply:
either A or B is not a ground for the dismissal of a pending (1) Except as provided by Article 1825, persons who
suit against X & Co.
are not partners as to each other are not partners as
Neither A nor B may sue on a cause of action
belonging to X & Co., in his own name and for his own
benefit. A and B cannot be held liable for the obligations of
X & Co., to creditors except as provided in Article 1816.

to third persons;
(2) Co-ownership or co-possession 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 a joint or common right or
interest in any property from which the returns are
derived;

establish the existence of a partnership all of its essential


features or characteristics must be shown as being present.
Sometimes, the contract between the persons engaged in a
business enterprises which is supposed to create a
partnership is unclear, or they have never executed a
formal contract. In case of doubt, Article 1769 shall apply.

It must be observed that this article seeks to exclude


(4) The receipt by a person of a share of the profits from the category of partnership certain features
of a business is prima faice evidence that he is a enumerated therein, which, by themselves, are not
partner in the business, but no such inference shall indicative of the existence of a partnership.
be drawn if such profits were received in payment:
(2) Where existence disputed. - The existence of a
(a) As a debt by installments or otherwise;
partnership may be disputed or questioned by an affected
(b) As wages of an employee or rent to a party. The issue as to whether a partnership exists or not is
a factual matter to be determined on the basis of all the
landlord;
facts and circumstances presented in evidence to support a
(c) As an annuity to a widow or representative finding of the existence or non-existence of the parties'
of a deceased partner;
intentions to create a partnership.
(d) As interest on a loan, though the amounts
of payment vary with the profits of business;

Persons not partners as to each other

(e) As the consideration for the sale of a


Persons who are partners as between themselves are
goodwill of a business or other property by
partners as to third persons. Generally, the converse is true,
installments or otherwise. (n)
to wit: if they are not partners as between themselves, they
Rules to determine existence of partnership
cannot be partners as to third persons.
Article 1769 lays down the rules for determining (1) Partnership, a matter of intention. - Partnership is a
whether or not an association is one of partnership.
matter of intention, each party giving his consent to
become a partner. Where the parties expressly declare they
(1) Where terms of contract not clear. - In general, to

are not partners, this, as a rule, settles the question as


There is co-ownership (or co-possession) whenever
between themselves. Where, however, a partnership exists, the ownership (or possession) of an undivided thing or right
it is immaterial whether or not the parties call or believe belongs to different persons. (Art. 484.)
their relationship a partnership.
Co-ownership of property does not of itself establish
Persons who are partners in fact may not avoid the the existence of a partnership, although "co-ownership" is
consequences of the relation by mere denial that they are an essential element of partnership. (see Art. 1811.) This is
partners.
true though the co-owners share in the profits derived
therefrom incident to the joint ownership of the property.
(2) Partnership by estoppel. - A partnership never exists as The profits must be derived from the operation of the
to third persons if no contract of partnership, express or business or undertaking by the members of the association
implied, has been entered between the parties themselves. and not merely form property ownership.
(see Art. 1834, last par.) The exception refers to partnership
by estoppel. Thus, where persons by their acts, consent, or
EXAMPLES:
representations have misled third persons or parties into
(1) A and B inherited from their father an apartment
believing that the former are partners in a non-existing
partnership, such persons become subject to liabilities of which is leased to third persons.
partners to all who, in good faith, deal with them in their
Are they partners? No, they are merely co-owners or
apparent relations.
co-possessors whether or not they share in the profits made
Their liability is predicated on the doctrine of estoppel by the lease of the property. They cannot be partners in the
abstract of contract.
provided for in Article 1825.
(2) A and B put up money to buy sweepstakes tickets
for the sole purpose of dividing equally the prize money
If A and B are not partners as to each other, which they may win. The parties in this case formed a
neither will they be partners with respect to C, a third partnership.
person. But if A, with the consent of B, represents to C that
they are partners, then A and B will be considered partners Sharing of gross returns
as to C, even if they are not really partners.
Mere sharing of gross returns alone does not indicate
EXAMPLE:

Co-ownership or co-possession

a partnership, since in a partnership, the partners share

profits after satisfying all of the partnership's liabilities. The presumption of partnership arising from such profit(Arts. 1812, 1839.) It is not merely the sharing of profits, sharing agreement may be contradicted by other
but the sharing of them as a co-owner of the business that circumstances.
makes one a partner.
Thus, under paragraph 4 of Article 1769, sharing of
The decisive test is this: Does the recipient of a share profits by a person is not a prima facie evidence that he is a
of the profits have an equal voice as proprietor in the partner in the business in the cases enumerated under
conduct and control of the business? Does he own a share subparagraphs (a), (b), (c), (d), and (e). In all of the said
of the profits as a proprietor of the business producing cases, the profits in the business but in some other respects
them? Thus, if one takes a share of the profits as payment or for some other purpose.
of a debt, he is not a partner.
EXAMPLES:
EXAMPLE:
In the following cases, Y is not a partner in
A, owner of a passenger jeepney, agrees with B, a partnership X:
driver, that he shall have full control and us of the jeepney
to carry passengers, pay for cost of repairs and other (1) Y, creditor of partnership X, is entrusted by the partners
expenses, and that the gross receipts are to be divided to manage the business, and X shall receive, in addition to
his compensation, a share in the net profits of the business
between them.
in settlement of his credit;
No partnership is established between A and B as no
(2) Y, an employee of partnership X, shall receive instead of
sharing of profits is contemplated.
a fixed salary, or being the owner of a building rented by
Receipt of share in the profits
the partnership, Y shall receive as rent, a certain
percentage of the monthly net profits of the business;
An agreement to share both profits and losses tends
strongly to establish the existence of a partnership, and (3) Y, the widow of a deceased partner in partnership X, in
conversely, the lack of such an agreement tends strongly to consideration of the continuation of the business without
disprove the existence of a partnership. But the mere fact liquidation and satisfaction of the deceased's interest, shall
of a right under the contract to participate in both profits receive an annuity for a period of five years based on a
and losses of a business does not of itself have the effect of certain percentage of the net profit;
establishing a partnership between those engaged therein.

(4) Y, creditor of partnership X, agreed that the payment of


(c) Every partner is an agent of the partnership, and
interest shall be taken from the net profits to be realized by entitled to bind the other partners by his acts, for the
the partnership; and
purpose of its business (Art. 1818);
(5) Y sold property to partnership X, and he agreed that the
(d) All partners are personally liable for the debts of
purchase price shall be paid out of the net profits of the the partnership with their separate property except that
business.
limited partners are not liable beyond their capital
investments;
In any of the above cases, Y shall not be entitled to
receive payment where there are no profits; nor shall he be
(e) A fiduciary relation exists between the partners
liable to share any losses incurred by the partnership.
(f) On dissolution, the partnership is not terminated,
Test and incidents of partnership
but continues until the winding up of the partnership is
completed.
In determining whether a partnership exists, it is
important to distinguish between tests or indicia and
Such incidents may, however, be modified by
incidents of partnership.
stipulation of the partners subject to the rights of third
persons dealing with the partnership.
(1) Only those terms of a contract upon which the parties
have reached an agreement may afford a test by which to Partnership distinguished from co-ownership
ascertain the existence of a partnership. Once such
There is a co-ownership whenever the ownership of
existence has been established, certain consequences or
incidents follow as a matter of law, even in the absence of an undivided thing or right belongs to different persons. The
any actual understanding between the parties as to such following are the distinctions between a partnership and coownership:
incidents.
(1) Creation. - Co-ownership is generally created by law. It
may exist even without a contract but partnership is always
(a) The partners share in profits and losses (Arts. created by a contract, either express or implied;
1767, 1797, 1798.);
(2) Juridical personality - A partnership has a juridical
(b) They have equal rights in the management and personality separate and distinct from that of each partner,
conduct of the partnership business (Art. 1803.);
while a co-ownership has none;
(2) Some of the typical incidents of a partnership are:

(3) Purpose.
- The purpose of a partnership is the
Issue: Did the parties enter into a contract of
realization of profits, while in co-ownership, it is the partnership?
common enjoyment of a thing or right;
Held: No. The transaction entered into between A and
(4) Duration. - Under the law, there is no limitation upon the B was the acquisition jointly by mutual agreement of the
duration of a partnership, while in co-ownership, an land in question not for the purpose of undertaking any
agreement to keep the thing undivided for more than ten business, nor for its cultivation in partnership, but solely to
years is not allowed;
divide it equally between them. Since the land was
undivided, A and B were co-owners of the said land, and the
(5) Disposal of interests. - A partner may not dispose of his partition or division of such property must, therefore, be
individual interest in the partnership so as to make the allowed in accordance with their agreement.
assignee a partner unless agreed upon by all of the
partners, while a co-owner may freely to do so;
Partnership distinguished from conjugal partnership
of gains
(6) Power to act with third persons. -In the absence of any
stipulation to the contrary, a partner may bind the
Conjugal partnership of gains is a partnership formed
partnership, while a co-owner cannot represent the co- by the marriage of husband and wife by virtue of which,
ownership; hence, a judgment secured against only one of they place in a common fund the fruits and income from
the co-owners will not bind the other co-owners; and
their separate properties and those acquired through their
efforts or by chance, and unless otherwise agreed in the
(7) Effect of death. - The death of a partner results in the marriage settlements, divide equally, upon the dissolution
dissolution of the partnership, but the death of a co-owner of the marriage or the partnership, the net gains or benefits
does not necessarily dissolve the co-ownership.
obtained by either or both of them during the marriage.
(Art. 106, Family Code.)
ILLUSTRATIVE CASE:
Facts: Under a verbal contract, A and B contributed
P1,000.00 each for the purpose of purchasing a piece of
land. It was agreed that upon its acquisition, the property
would be divided equally between them. A kept the land for
himself and refused to divide. B brought an action for
partition.

The ordinary of business partnership may


distinguished from a conjugal partnership as follows:

be

(1) Parties. - A business partnership is created by the


voluntary agreement of two or more partners (Art. 1767.)
belonging to either sex, while a conjugal partnership arises
in case the future spouses - a man and a woman - agree

that it shall govern their property relations during marriage;

husband's decision shall prevail in case of disagreement;


and

(2) Laws which govern. - The ordinary partnerships are, as a


rule, governed by the stipulation of the parties, whereas a (8) Disposition of shares. - In the ordinary partnership, the
conjugal partnership is governed by law;
whole interest of a partner may be disposed of without the
consent of the other partners, while in a conjugal
(3) Juridical personality. - A partnership has a personality partnership, the share of each spouse cannot be disposed
under the law separate from the members composing it, of during the marriage even with the consent of the other.
while a conjugal partnership of gains has none;
Partnership
distinguished
from
voluntary
(4) Commencement. - A partnership begins from the associations
moment of the execution of the contract, unless it is
otherwise stipulated, while a conjugal partnership of gains
A partnership is distinguished from voluntary
commences precisely on the date of the celebration of the associations organized for social purposes (such as social
marriage, and any stipulation to the contrary is void;
clubs, committees, lodges, fraternal societies, etc.) as
follows:
(5) Purpose. - The primary purpose of the ordinary
partnership is to obtain profits, while that of a conjugal (1) Juridical personality. - A partnership has a juridical
partnership is to regulate the property relations of husband personality, while a voluntary association has none;
and wife during the marriage;
(2) Purpose. - A partnership is always organized for
(6) Distribution of profits. - In the ordinary partnership, the pecuniary profit, while in a voluntary association, this
profits are divided according to the agreement of the objective is lacking;
partners or in proportion to their respective capital
contributions, while in a conjugal partnership, the shares of (3) Contribution of members. - In a partnership, there is a
contribution of capital, either in the form of money,
the spouses in the profits are divided equally;
property, or services, while in a voluntary association for
(7) Management. - In the ordinary partnership, the social purposes, although fees are usually collected from
management is shared equally by all the partners unless the members to maintain the organization, there is no
one or more of them are appointed managers in the articles contribution of capital; and
of partnership, while in a conjugal partnership, although the
administration belongs to both spouses jointly, the (4) Liability of members. - The partnership, as a rule, is the

one liable in the first place for the debts of the firm while in common benefit of the members. This limitation arises not
voluntary association, the members are individually liable only from the express provisions of the law, but from the
for the debts of the association, authorized by them, either general principles of morality and justice.
expressly or impliedly, or subsequently ratified by them.
Pursuant to applicable law, certain business (e.g.,banking)
The members of such associations, societies, or clubs may be engaged in only by corporations.
are not strictly partners, though the organization may
possess business features and be conducted partly for Effects of an unlawful partnership
pecuniary gain. The property rights and the legal liabilities
The following are the consequences of a partnership
of the members depend, as between themselves, on the formed for an unlawful purpose:
constitution and rules of the association or club.
(1) The contract is void ab initio and the partnership never
ARTICLE 1770 - A partnership must have a lawful existed in the eyes of the law;
object or purpose, and must be established for the
(2) The profits shall be confiscated in favor of the
common benefit or interest of the partners.
government;
When an unlawful partnership is dissolved by a
judicial decree, the profits shall be confiscated in favor of (3) The instruments or tools and proceeds of the crime shall
the State, without prejudice to the provisions of the Penal also be forfeited in favor of the government; and
Code governing the confiscation of the instruments and
(4) The contributions of the partners shall not be
effects of a crime. (1666a)
confiscated unless they fall under No. 3.
Object or purpose of partnership
Dissolution of unlawful partnership
The provision of the first paragraph og the above
Instances of unlawful object are those to create illegal
article reiterates two essential elements of a contract of
monopolies or combinations in restraint of trade, or to carry
partnership: legality of the object and community of benefit
on gambling, or for smuggling purposes, or for leasing
or interest of the partners. (see Art. 1767.)
furnished apartments to prostitutes, or to prevent
The parties possess absolute freedom to choose the competition in bidding for government contracts.
transaction or transactions they must engage in. The only
A judicial decree is not necessary to dissolve an
limitation is that the object must be lawful and for the
unlawful partnership. However, it may sometimes be

advisable that a judicial decree of dissolution be secured for Partnership with capital of P3,000.00 or more
the convenience and peace of mind of the parties.
There are two requirements where the capital of the
ARTICLE 1771 - A partnership may be constituted in partnership is P3,000.00 or more, in money or property,
any form, except where immovable property or real namely:
rights are contributed thereto, in which case a public
(1) The contract must appear in a public instrument; and
instrument shall be necessary. (1667a)
Form of partnership contract

(2) It must be recorded or registered with the Securities and


Exchange Commission.

As a general rule, no special form is required for the


validity or existence of the contract of partnership. The
contract may be made orally or in writing regardless of the
value of the contributions unless immovable property or
real rights are contributed, in which case, Article 1773
requires the execution of a public instrument.

However, failure to comply with above requirements does


not prevent the formation of the partnership (Art. 1768.) or
affect its liability and that of the partners to third persons.
But any of the partners is granted the right by the law to
compel each other to execute the contract in a public
instrument. Of course, this right cannot be availed of if the
To affect third persons, the transfer of real property to partnership is void under Article 1773.
the partnership must be duly registered in the Registry of
Property of the province or city where the property Registration of partnership
contributed is located.
Registration is necessary as "a condition for the
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.

issuance of licenses to engage in business or trade. In this


way, the tax liabilities of big partnerships cannot be evaded
and the public can also determine more accurately their
membership and capital before dealing with them."

The recording or registration of the articles or


Failure to comply with the requirements of the contract of partnership is not for the purpose of giving the
preceding paragraph shall not affect the liability of the partnership a juridical personality. The only objective of the
law is to make the recorded instrument open to all and to
partnership and the members thereof to third persons. (n)
give notice thereof to interested parties.

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)
Partnership with contribution of immovable property
Where immovable property, regardless of its value, is
contributed by any of the partners, the failure to comply
with the following requirements will render the partnership
contract void in so far as the contracting parties are
concerned:

Since a partnership has juridical personality separate


from and independent of that of the persons or members
composing it (Art. 1768.), it is but logical and natural that
immovable property may be acquired in the partnership
name. Title so acquired can, therefore, be conveyed only in
the partnership name.
The legal effects of conveyance or sale of real
property standing in the name of the partnership executed
by a partner in the partnership name or in his own name
are governed by Article 1819, paragraphs one and two.

ARTICLE 1775 - Associations and societies, whose


articles are kept secret among the members, and
(1) The contract must be in a public instrument; and
wherein anyone of the members may contract in his
(2) An inventory of the property contributed must be made, own name with third persons, shall have no juridical
signed by the parties, and attached to the public personality, and shall be governed by the provisions
relating to co-ownership. (1669)
instrument.
If personal property, aside from real property,
contributed, the inventory need not include the former.

is Secret partnerships without juridical personality

ARTICLE 1774 - Any immovable property or an


interest therein may be acquired in the partnership
name. Title so required can be conveyed only in the
partnership name. (n)

The 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. Likewise, a partner is
considered the agent of his co-partners and o the
partnership in respect of all partnership transactions. Every
partnership must have a firm name under which it shall
conduct its business and to distinguish it from the partners
and other partnerships. (Art. 1768)

Acquisition of conveyance of property by partnership

In view of the above, associations whose articles or

Article 1773 is intended primarily to protect third


persons. With regard to them, a de facto partnership or
partnership by estoppel may exist. (see Art. 1825.)

agreements are kept secret among the members and (1) As to the extent of its subject matter. - A partnership
wherein anyone of them may contract in his own name with may be:
third persons are, by this article, deprived of juridical
(a) Universal partnership or one which refers to all
personality for evidently such associations are not
partnerships. As among themselves, they shall be governed the present property or to all profits. (Art. 1777.)
by the provisions relating to co-ownership.
Thus, there are two kinds of universal partnership, to
wit:
Importance of giving publicity to articles of
partnership

1) Universal partnership of all present property.


It is essential that the articles of partnership be given This is defined in Article 1778; and
publicity for the protection not only of the members
2) Universal partnership of profits. This is
themselves but also third persons. A member who transacts defined in Article 1780; or
business for the secret parnership in his own name
(b) Particular partnership. - This is defined in Article
becomes personally bound to third persons unaware of the
existence of such association, in the same way and for the 1783.
same reason that an agent who acts in his own name when
(2) As to liability of the partners. - It may be:
dealing with third persons is directly bound in favor of such
persons who may only sue or be sued by the agent and not
(a) General partnership or one consisting of general
his principal.
partners who are liable pro rata and subsidiary (Art. 1816.),
sometimes solidarily (Arts. 1822-1824), with their separate
But a person may be held liable as a partner, or
property for partnership debts; or
partnership liability may result in favor of third persons, by
reason of estoppel.
(b) Limited partnership or one formed by two or more
persons having as members one or more general partners
ARTICLE 1776 - As to its object, a partnership is
and one or more limited partners, the latter not being
either universal or particular. As regards the liability
personally liable for the obligations of the partnership. (Art.
of the partners, a partnership may be general or
1843.)
limited. (1671a)
Classifications of partnership

(3) As to its duration. - It is either:


(a) Partnership at will or one in which no time is

specified and is not formed for a particular undertaking or


venture and which may be terminated anytime by mutual
agreement of the partners, or by the will of any one partner
alone, or one for a fixed term or particular undertaking
which is continued by the partners after the termination of
such term or particular undertaking without express
agreement; or

disprove its existence. (Art. 1825.)

(b) Partnership with a fixed term or one in which the


term for which the partnership is to exist is fixed or agreed
upon or one formed for a particular undertaking, and upon
the expiration of the term or completion of the particular
enterprise, the partnership is dissolved, unless continued by
the partners.

As against A and B, A,B, and C constitute a


partnership by estoppel. But as against C, there is no
partnership and X cannot hold him liable as a partner. When
the debt matures, X is entitled to collect only from A and B
who are liable as partners although not actually partners.

(4) As to legality of its existence. - It may be:

EXAMPLE:
Suppose A, B, and C are not really partners, but
A told X that he (A), B, and C are partners. X believing the
representation made by A and consented to by B, extended
credit to A.

(6) As to publicity. - It may be:

(a) Secret partnership or one wherein the existence of


(a) De jure partnership or one which has complied certain persons as partners is not avowed or made known
with all the legal requirements for its establishment; or
to the public by any of the partners; or
(b) De facto partnership or one which has failed to
(b) Open or notorious partnership or one whose
comply with all the legal requirements for its establishment. existence is avowed or made known to the public by the
members of the firm.
(5) As to representation to others. - It may be:
(a) Ordinary or real partnership or one which actually (7) As to purpose. - It may be:
exists among the partners and also as to third persons; or
(a) Commercial or trading partnership or one formed
(b) Ostensible partnership or partnership by estoppel for the transaction of business (see Art. 1767.); or
or one which in reality is not a partnership, but is
(b) Professional or non-trading partnership or one
considered a partnership only in relation to those who, by formed for the exercise of a profession.
their conduct or admission, are precluded to deny or
Kinds of partners

Partners are classified according to their interests in partner, but who is not so as between the partners
the business or their obligations to the partnership or their themselves. He is also known as partner by implication or
liabilities to third persons.
nominal partner. The term "quasi-partner" is sometimes
used. He is liable for the debts of the firm to those who in
(1) Under the Civil Code. - They are classified into:
good faith believed in him to be a partner; and
(a) Capitalist partner or one who contributes money
(h) Continuing partner or one who continues the
or property to the common fund
business of a partnership after it has been dissolved by
(b) Industrial partner or one who contributes only his reason of the admission of a new partner, or the retirement,
death, or expulsion of one or more partners;
industry or personal service
(i) Surviving partner or one who remains after a
(c) General partner or one whose liability to third
persons extends to his separate property; he may either be partnership has been dissolved by the death of any partner;
and
a capitalist or industrial partner;
(j) Subpartner or one who, not being a member of the
(d) Limited partner or one whose liability to third
persons is limited to his capital contribution. He is also partnership, contracts with a partner with reference to the
known as special partner. Unlike the general partner, he latter's share in the partnership.
does not participate in the management of the business;
(2) Other classifications. - They have also been classified
(e) Managing partner or one who manages the affairs into:
or business of the partnership; he may be appointed either
(a) Ostensible partner or one who takes active part
in the articles of partnership or after the constitution of the and known to the public as a partner in the business,
partnership. He is also known as a general or real partner;
whether or not he has an actual interest in the firm. If he is
(f) Liquidating partner or one who takes charge of the not actually a partner, he is subject to liability by the
doctrine of estoppel;
winding up of the partnership affairs upon dissolution;
(b) Secret partner or one who takes active part in the
(g) Partner by estoppel or one who is not really a
partner, not being a party to a partnership agreement, but business but is not known to be a partner by outside parties
is liable as a partner for the protection of innocent third nor held out as a partner by the other partners, although he
persons. He is one who is represented as being, in fact, a participated in the profits and losses of the partnership;

(c) Silent partner or one who does not take any active
part in the business although he may be known to be a
partner. Thus, he need not to be a secret partner. If he
withdraws from the partnership, he must give notice to
those persons who do business with the firm to escape
liability in the future;

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.
ARTICLE 1779 - In a universal partnership of all
present property, the property which belonged 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.

(d) Dormant partner or one who does not take active


part in the business and is not known or held out as partner.
He would be both a silent and a secret partner. The term
used as synonymous with "sleeping partner". He may retire
from the partnership without giving notice and cannot be
held liable for the obligations of the firm subsequent to his
A stipulation for the common enjoyment of any other
withdrawal. His only interest in joining the partnership
profits
may also be made; but the property which the
would be the sharing of the profits earned;
partners may acquire subsequently by inheritance, legacy,
(e) Original partner or one who is a member of the or donation cannot be included in such stipulations, except
partnership from the time of its organization;
the fruits thereof.
(f) Incoming partner or a person lately, or about to Universal partnership
be, taken into a partnership as a member; and
explained.

of

all

present

property,

(g) Retiring partner or one withdrawn from the


A universal partnership of all present property is one
partnership; a withdrawing partner.
in which the partners contribute all the properties which
actually belong to each of them at the time of the
All partners in any of these six classes are subject to constitution of the partnership to a common fund, with the
liability for all partnership obligations.
intention of dividing the same among themselves as well as
ARTICLE 1777 - A universal partnership may refer to the profits which they may acquire therewith.
all the present property or to all the profits.

In this kind of partnership, the following become the


ARTICLE 1778 - A partnership of all present property common property of all the partners:

(1) Property which belonged to each of them at the time of legacy; or (3) donation cannot be included by stipulation
the constitution of the partnership; and
except the fruits thereof. Hence, any stipulation including
property so acquired is void.
(2) Profits which they may acquire from the property
contributed.
Profits from other sources (not from the properties
contributed) will become common property only if there is a
stipulation.
ARTICLE 1780 - A universal partnership of profits
comprises all that the partners may acquire by their
EXAMPLE:
industry or work during the existence of the
A and B are partners in a partnership known as X & partnership.
Co. They agreed that they would contribute all their
Movable or immovable property which each of
properties to a common fund for the purpose of dividing the
same between themselves, as well as the profits to be the partners may possess at the time of the
derived therefrom. A contributed all his properties celebration of the contract shall continue to pertain
consisting of two big parcels of agricultural land and a exclusively to each, only the usufruct passing to the
tractor. B contributed also his properties consisting of partnership. (1675)
P400,000 cash and farm implements.
Universal partnership of profits explained
The partnership formed by the contract of A and B is
a universal partnership of all present property.

A universal partnership of profits is one which


comprises all that the partners may acquire by their
industry or work during the existence of the partnership
Contribution of future property
and the usufruct of movable or immovable property which
As a general rule, future properties cannot be each of the partners may possess at the time of the
contributed. The very essence of the contract of partnership celebration of the contract.
that the properties contributed be included in the
partnership requires the contribution of things determinate. (1) Ownership of present and future property. - It is to be
The position of a partner is like that of a donor, and noted that in this class of partnership, the partners retain
donations cannot comprehend future property. Thus, their ownership over their present and future property.
property subsequently acquired by: (1) inheritance; (2) What pass to the partnership are the profits or income and

the usufruct or use of the same. Consequently, upon the their industry or work during the existence of the
dissolution of the partnership, such property is returned to partnership as well as the usufruct of their present
the partners who own it.
properties belong to the partnership as a matter of right. An
express stipulation is necessary to exclude any of them.
EXAMPLE:
ARTICLE 1781 -Articles of universal partnership, entered
In the preceding example, if the agreement of into without specification of its nature, only constitute a
A and B is that they would retain the ownership over their universal partnership of profits. (1676)
respective properties, only their usufruct being transferred
to partnership X & Co., and that they would divide equally Presumption in favor of universal partnership of
the net profits realized during the existence of the profits
partnership, then the partnership formed is a universal
Where the articles of partnership do not specify the
partnership of profits.
nature of the partnership, whether it is one of "present
Upon the dissolution of the partnership, the property" or of "profits" only, it will be presumed that the
properties shall be returned to the respective owners. The parties intended merely a partnership of profits. The reason
amount of P400,000 contributed by B shall be paid to him for this presumption is that a universal partnership of profits
as a loan to the partnership.
imposes less obligations on the partners, since they
preserve the ownership of their separate property.
(2) Profits acquired through chance. - Since the law speaks
only of profits which the partners may acquire by their
It is to be noted that this article applies only when a
industry or work, it follows that profits acquired by the universal partnership has been organized.
partners through chance, such as lottery or by lucrative title
without employment of any physical or intellectual efforts, ARTICLE 1782 - Persons who are prohibited from
giving each other any donation or advantage cannot
are not included.
enter into a universal partnership.
(3) Fruits of property subsequently acquired. - In view of
paragraph 2 of Article 1780, fruits of property subsequently Limitations upon the right to form a universal
partnership
acquired by the partners do not belong to the partnership.
Persons who are prohibited by law to give donations
Such profits may, however, be included by express
stipulation. But profits which the partners may acquire by cannot enter into a universal partnership for the reason that

each of the partners virtually makes a donation. To allow


persons who are prohibited to give each other any donation
or advantage to form a universal partnership will be like
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.

partnership entered into by A, B and C was a universal


partnership, the marriage between A and B necessarily
brings about its dissolution in view of the prohibition of
Article 1782.
Pertinent legal provisions
In connection with Article 1782, the following legal
provisions must be noted:

A husband and his wife, however, may enter into a


(1) "Art. 87. Every donation or grant of gratuitous
particular partnership or be members thereof.
advantage, direct or indirect, between the spouses during
ILLUSTRATIVE CASE:
the marriage shall be void except moderate gifts which the
spouses may give each other on the occasion of any family
Facts: A,B, and C formed a limited partnership to rejoicing. The prohibition shall also apply to persons living
engage, among others activities, in the importation, together as husband and wife without a valid marriage."
marketing, and operation of automatic phonographs, radios,
television sets, amusement machines and their parts (2) "Art. 739. The following donations shall be void:
accessories, with B and C as limited partners.
(1) Those made between persons who were guilty of
Subsequently, A and B got married and thereafter, C sold
adultery
or concubinage at the time of the donation;
his share to A and B for a nominal amount.
(2) Those who made between persons found guilty of
Issue: Was the partnership dissolved after the
marriage of A and B and the subsequent sale to them by C the same-criminal offense, in consideration thereof;
of the latter's participation?
(3) Those made to a public officer or his wife,
Held: No. The firm was not a universal partnership descendants and ascendants by reason of his office.
but a particular one. It follows that the partnership was not
one that A and B were forbidden to enter under Article
1782. Nor could the subsequent marriage of the partners
operate to dissolve it, such marriage not being one of the
causes provided for the purpose by law. Note: If the

In the case referred to in No. 1, the action for


declaration of nullity may be brought by the spouse of the
donor or donee; and the guilt of the donor and the donee
may be proved by preponderance of evidence in the same
action."

In order that Article 739 may apply, it is not required


that there be a previous conviction for adultery or
concubinage. This can be inferred from the clause that "the
guilt of the donor and the donee may be proved by
preponderance of evidence."

A partnership is ordinarily formed for the transaction


of a general business of a particular kind. It may be inferred
from Articles 1767 and 1783, that 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
ARTICLE 1783 - A particular partnership has for its transactions and immediately divide the existing profits
object determinate things, their use or fruits, or would seem to fall within the meaning of the term
specific undertaking, or the exercise of a profession "partnership" as used in the law.
or vocation.
The above conclusion is not true under the U.S.
Particular partnership explained
Uniform Partnership Act which defines a partnership as "an
The above article defines a particular partnership. In association of two or more persons to carry on as co-owners
other words, it is a partnership which is neither a universal a business for profits" and states that "business includes
partnership of present property nor a universal partnership every trade, occupation or profession." The word
"business", as used in the Act clearly means business in the
of profits.
commercial sense only, not merely a "joint venture" which
Examples of particular partnerships are those formed exists for carrying on a single or isolated transaction or
for the acquisition of an immovable property for the limited number of transactions. However, the rights and
purpose of reselling it at a profit or for the common liabilities of the joint ventures and partners are the same in
enjoyment of its use and the benefits derived therefrom, or all other important aspects.
those established for the purpose of carrying out a specific
enterprise such as construction of a building, or those
formed for the practice of a profession or vocation. Hence,
two or more persons as accountants associating themselves
in the practice of accountancy or two or more lawyers in the
practice of law form a particular partnership.
Business of partnership need not be continuing in
nature