THE LAW ON

PARTNERSHIPS
Arts. 1767-1867
PART 1
ASSIGNED READING: To be
summarized
1. Kinds of persons under the law
2. Kinds of business organizations
3. Partnership: definition
4. Characteristic elements of partnership
5. Essential elements of partnership
6. Rules in determining existence of partnership
7. Kinds of partnership
8. Classifications of businesses
9. Kinds of partners
10. Comparison between general and limited
partners
INTRODUCTION
KINDS OF PERSONS UNDER THE CIVIL CODE
1. NATURAL/INDIVIDUAL
2. ARTIFICIAL/JURIDICAL
A. Partnership
B. Corporation
C. Cooperatives
KINDS OF BUSINESS ORGANIZATIONS
A. Sole proprietorship
B. Partnership
C. Corporation
D. Cooperatives

PARTNERSHIP
ART 1767
By a 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.
CHARACTERISTIC ELEMENTS OF PARTNERSHIP
1. Consensual 5. Commutative
2. Nominate 6. Principal
3. Bilateral 7. Preparatory
4. Onerous 8. Fiduciary

ESSENTIAL FEATURES OF
PARTNERSHIP
1. There must be a valid contract (delectus
personae Choice of the person)
2. Legal capacity of the parties (Art 1327-1329)
3. Mutual contribution of money, property and
industry
MONEY currency (medium of exchange) w/c is
legal tender in the Philippines
PROPERTY tangible/intangible, real/personal,
movables/immovables, res alicujus
INDUSTRY physical or mental
ESSENTIAL FEATURES OF
PARTNERSHIP
4. Lawful purpose/object subject to the Freedom to
contract clause
ART 1770 par 2 Effects of an unlawful partnership
Contract is void ab initio
Profits will be confiscated in favor of the government
Instruments/proceeds/tools of the crime shall be forfeited in
favor of the govt unless belonging to a 3
rd
person who did not
participate but those not within the commerce of man will be
destroyed.
4. Lawful purpose/object subject to the Freedom to contract
clause
5. Primary purpose is to divide profits; carries with it
the obligation to share in loss except for industrial
partners but NOT in liabilities (Art 1769 vs Art 1816)


FORMAT OF PARTNERSHIP
CONTRACT
GEN RULE: Art 1771: Partnership contracts
are valid in whatever form.
Art 1768: Partnership has juridical personality
even if there is no compliance with Art 1772 (de
facto) w/c requires that a partnership with
capital of more than P3K must be in a public
instrument and recorded with the SEC
Art 1773: If immovable is contributed, an
inventory signed by the parties should be
attached to the public instrument.
WHEN DOES A
PARTNERSHIP EXIST?
GEN RULE: Intention of the parties prevail
Art. 1769 Rules to determine whether a
partnership exists or not
1. Persons who are not partners to each
other are not partners as to third persons
except those in estoppel (Art 1825)
2. Co-ownership/co-possession does not by
itself establish partnership
3. Sharing of gross returns does not by itself
establish partnership

WHEN DOES A
PARTNERSHIP EXIST?
4. Receipt of a person of share in the profits is
PRIMA FACIE evidence of partnership,
except if such share is for:
a. payment of debt
b. Wages
c. Annuity
d. Interest of loan
e. Consideration for sale of goodwill or
property
KINDS OF PARTNERSHIP
UNIVERSAL PARTNERSHIP OF ALL
PRESENT PROPERTY all properties of the
partners before, during and after constitution of
the partnership belong to the partnership
UNIVERSAL PARTNERSHIP OF PROFITS
only those acquired after the constitution of the
partnership belong to the partnership
Note: husband and wife cannot enter into
universal partnerships
KINDS OF PARTNERSHIP
PARTICULAR PARTNERSHIP object is
determinate; for a specific undertaking or for the
exercise of a profession
GENERAL PARTNERSHIP all partners are
general partners who are liable even with their
own properties
LIMITED PARTNERSHIP at least has one
general partner with other limited partners who
are only liable to the extent of their
contributions.
KINDS OF PARTNERSHIP
PARTNERSHIP AT WILL has no specified
term for its existence
DE J URE PARTNERSHIP one which exists in
fact and in law
DE FACTO PARTNERSHIP one which has no
complete documents
ORDINARY/REAL PARTNERSHIP one which
exists among themselves and as to 3
rd
persons
SECRET PARTNERSHIP one where the
partners are not publicly known

KINDS OF PARTNERSHIP
OSTENSIBLE/APPARENT/EVIDENT/IN
ESTOPPEL (Art 1825)
OPEN/NOTORIOUS PARTNERSHIP one
where the partners are publicly avowed
COMMERCIAL/TRADING one whose primary
purpose is for profits
PROFESSIONAL/NON-TRADING one for the
exercise of a profession or vocation
KINDS OF PARTNERS
CAPITALIST one who contributes money and/or
property; answerable for loss and liabilities; prohibited
from engaging in similar kind of business (Art 1808)
INDUSTRIALIST one who contributes services,
mental or physical; not liable for partnership loss (Art
1769) but will answer for partnership liabilities or
contractual obligations to 3
rd
persons subject to
reimbursement from capitalists (Art 1816); prohibited
from engaging in any kind of business (Art 1769)
QUERY: Are the businesses of selling banana que
and selling banana only classified the same?
KINDS OF PARTNERS
LIMITED/SPECIAL PARTNER mere
contributor/investor; cannot contribute industry
MANAGING PARTNER one who has been
tasked to manage the affairs of the partnership;
may nor may not have been appointed in the
articles of partnership
LIQUIDATING PARTNER one who is tasked
to take charge of the affairs of the partnership on
dissolution
KINDS OF PARTNERS
PARTNER BY ESTOPPEL/NOMINAL
PARTNER a partner by implication
OSTENSIBLE PARTNER one known to the
public as partner and participates actively
SECRET PARTNER one who takes active part
in the partnerships affairs but is now publicly
known as a partner
SILENT PARTNER one who does not take
active part in partnership business


KINDS OF PARTNERS
DORMANT PARTNER/ SLEEPING PARTNER
one who is both silent and does not participate
INCOMING PARTNER one belatedly
accepted in the partnership
RETIRING PARTNER one who has withdrawn
from the partnership
SUBPARTNER technically not a
partner/member of the partnership but shares in
a partners shares in the partnership
KINDS OF PARTNERS
GENERAL BASIS LIMITED
Personally liable PARTNERSHIP
OBLIGATIONS
Capital contribution
Equal rights MANAGEMENT RIGHTS No rights
Proper party PARTICIPATION IN
LAWSUITS
Not a party
Not assignable unless with
consent of other partners
ASSIGNABILITY OF
PARTNERSHIP
INTEREST
Freely assignable
Cannot engage in similar
business if capitalist; in any
business if industrialist
PROHIBITION No prohibition
Dissolution of partnership EFFECT OF DEATH,
INSANITY, INSOLVENCY
OF PARTNER
No effect
Money, property, industry CONTRIBUTION Money, property
REFERENCES
De Leon, H.S. (2010), The Negotiable Instruments Law, Quezon City: REX Printing
Company, Inc.
De Leon, H.S. (2010), The Law on Partnerships and Corporation Code, Quezon City: REX
Printing Press

REFERENCES

Black's law dictionary (8th ed) (2007). St. Paul, MN. : West Pub.
Commercial laws of the Philippines.]. (2009). Manila: Rex,
Decasa, Lucila M. (2009). Handbook on private corporations: domestic and foreign. Manila:
Rex.
De Leon, Hector S. (2010). (10th ed).The Corporate code of the Philippines: annotated.
Manila: Rex,
De Leon, Hector S. (2010). (2010 ed.).The Philippine negotiable instruments law and allied
laws annotated Manila: Rex,
Torress, Justo P. (2008). The law on business organizations (partnerships and
corporation). Manila: Rex,
Villanueva, Cesar L. (2010).Philippine Corporate law. Manila: Rex,