Sources : OCC, Uniform Partnership Act, Uniform Limited

Partnership Act

must be the principal aim it can have other ends like social,
moral, spiritual.

1767

The sharing is merely presumptive and not conclusive

evidence of partnership.

Partnership
-It is also a status and a fiduciary relation subsisting between
persons carrying on a business in common with a view on
profit. (Paras)
Characteristics
1. Consensualperfected by mere consent, although such
consent must be manifested in certain cases by proper
formalities
2. Bilateral/ Multilateralentered into between two or more
persons
3. Nominatedesignated by a specific name
4. Principalits existence does not depend on the life of
another contract
5. Onerouscertain contributions have to be made
6. Preparatoryafter it has been entered into, other contracts
essential in the carrying out of its purposes can be entered
into
Elements
A. Valid contract (Consent and capacity, Object which is the
subject matter of the contract, cause which is established)
Articles of Partnershipembodies the terms of association
which contain the name, nature or purpose and location of the
firm and defining the powers, rights, liabilities and duties of
ther partners, their contributions, the manner by which profits
and losses are to be shared and procedure for dissolving the
partnership.
B. There must be a contribution of money, property or
industry (intellectual or physical) to a common fund (credit,
commercial or economic and goodwill may be contributed as
it is considered as property)

Moneylegal tender in the Philippines

Propertyreal, personal, corporeal or incorporeal.
Even goodwill may be contributed. A license may be
contributed.
Industrymeans an active cooperation, the work of
the party associated, which may be either personal
manual efforts or intellectual, and for which he
receives a share in the profits (not merely salary).
It can be credit or industry not necessarily cash or
fixed assets.

C. The object must be lawful.

D. There must be an intention of dividing the profit among the
partners since it is for the common benefit or interest of the
partners.
*object must be for profit not for common enjoyment,
otherwise only a co-ownership is formed. Pecuniary aim

A stipulation excluding one partner from sharing of losses is

void.
E. There must be the affectio societatisthe desire to
formulate an ACTIVE union with people among whom there
exist mutual confidence and trust.
Fiduciary in nature: It is a personal relation in which the
element of delectus personae (choice of the person/s) exists.
It is because of this that one partner has authority to bind the
other, or the right to dissolve the partnership provided in good
faith.
*In the same vein, just because partners appear in the
contract, does not necessarily mean that a partnership
existed. There must be a new personality that will be formed
separate and distinct from each of the members.
History (Roman Law)
1.
2.

3.
4.

5.

6.

There was no limit to the number of partners.

A partner was not considered the implied agent of
the others. A partner had to obtain an express
mandate from each.
The partners were liable jointly, not solidarily.
The partners had the right to the beneficium
competentiae, that is, they were held financially
;liable only insofar as they would not be reduced to
destitution.
The heirs of a deceased partner could not succeed to
the rights of the deceased, even by express
stipulation.
A roman partner could not retire in order to enjoy
alone a gain which he knew was awaiting him.

Before the NCC became effective, there were two kinds of

partnership: civil and commercial or mercantile. The
difference lies in the ends desired not the manner of the
organization. In the absence of a clear showing, the form was
held indicative of its nature. Code of Commerce governs the
latter. The NCC repealed this and now governs all transactions
in partnership, whether civil or mercantile.
Trustlegal relationship between one person having the
equitable ownership in property and another owning the legal
title to such property the equitable ownership of the former
entitling him to the performance of certain duties and the
exercise of certain powers by the latter. Agencyagent acts
for his principal. A partner is both a principal (for his own
interest) and an agent (for the firm and the others).
Joint Adventure or Joint Accountsis a sort of informal
partnership, with no firm name, and no legal personality. In
joint account, the participating merchants can transact
business under their own name, and can be individually liable
therefor.
It is limited to a single transaction, although the business of
pursuing it to a successful termination may continue for a
number of years; a partnership generally relates to a
continuing business of various transactions of a certain kind.

Syndicateparticular undertaking for some temporary

objective

Creation

Partnership
Voluntary

Existence

No time limit

Liability

May be liable
with their
private
property

Transferability
of interest

Ability to bind

Mismanageme
nt

Nationality
Legal
personality

Dissolution

The transferee
does not
become a
partner unless
all consent
Generally, a
partner acts on
behalf of the
partnership as
agents,
consequently
they can bind
both firm and
the partners
Partner can sue
a partner

Country of
creation
Vested from the
time of
contract

Corporation
Special charter
or general law
Not more than
50 years
Liable only for
payment of
their
subscribed
capital stock
A transfer
makes the
transferee a
stockholder
Stockholders
cannot bind
corporation
since they are
not agents

A stockholder
cannot sue a
member of the
board, must be
in the name of
the corporation
Country of
incorporation
From
registration in
SEC and all
requisites have
been complied
with

Death,
retirement,
insolvency, civil
interdiction,
insanity

CAPACITY TO BECOME A PARTNER

Incapacitated: Unemancipated minors, insane or demented
persons, deaf-mutes who dont know how to read and write,
persons suffering from civil interdiction, incompetents who are
under guardianship
Capacitated persons:
>minor, unless parent or guardian consents otherwise
partnership is voidable, unless other partners are in the same
situation, in which case the contract is unenforceable.
>a married woman with regard to conjugal funds, or who is an
administrator of the partnership, the court must give its
consent/authority.
>a partnership can be a partner either with a private
individual or with other partnerships, there is no
prohibition

>a corporation unless authorized by statute, charter, it

has no capacity to enter into a partnership. It cannot
become a partner on grounds of public policy, since in a
partnership the corporation would be bound by the acts of
persons who are not its duly appointed and authorized agents
and officers. However, a corporation can enter into a joint
venture with another where the nature of that venture is
in line with the business authorized in its charter. A
corporation may act as a managing partner in line with the
corporate businesses of the corporations concerned.
Can a corporation and an individual form a general
partnership?
GR: No, because a corporation may not be bound by persons
who are neither directors nor officers of the corporation.
However, a corporation may form a general partnership
with another corporation or an individual provided:
(1) the articles of incorporation expressly allows the
corporation to enter into partnerships
(2) the articles of partnership must provide that all partners
will manage the partnership (managing partners) and they
shall all be jointly and severally liable.
1768-juridical personality
If requisites are not complied with, the partnership maintains
its juridical personality. ART 1772 is only intended to be
prerequisites for the issuance of licenses (tax purposes
and for accountability/information to persons dealing
with the partnership) to engage in the business or
trade NOT for the acquisition of a juridical personality by the
partnership.
Failure to register does not invalidate the contract of
partnership so long as the contract has essential requisites,
because the main purpose of registration is to give notice to
third persons, and it can be assumed that members
themselves knew the contents of the contract
Consequences of being a juridical entity
1.
2.
3.
4.
5.

Separate and distinct

Can acquire and possess property of all kinds (Art 46)
Bring civil or criminal actions
Can be adjudged insolvent even if the members are
solvent
Unless sued, a partner has no right to appear in
court, if the partnership is already represented

Not lawfully organized

1.
2.

It possesses no legal personality, it cannot sue.

Partners can sue in their individual capacity.
Partnership by estoppel applies.

1769Rules in Determining Partnerships

Requisites
1.
2.
3.

Intention to createthe designation may be

indicative of their intention
Common fund obtained from contributions
Joint interest in the profits

It is the substance and not the name of the

arrangement that determines the legal relationship. It
can be determined from the conduct of the parties,
documentary evidence and testimony of parties.
-Sharing of gross returns alone does not indicate a
partnership, since in a partnership; the partners share net
profits after satisfying all of the partnerships liabilities.

5.
6.
7.

1771FORMALITIES

-Sharing of net profits is prima facie evidence that one is a

partner except the enumerations.

1.

Creditors are not partners for their interest is the receipt or

payment of their credits only.

2.

-Co-ownership exists whenever the ownership of an

undivided thing or right belongs to different persons. A
fiduciary relationship does not necessarily exist in coownership unlike in partnership.
-Burden of proof and presumption
1.
2.
3.

The existence of a partnership must be proved and

will not be presumed.
The law presumes that persons who are acting as
partners have entered into a contract of partnership.
Burden is proof is on the person asserting
termination, if the partnership is shown to exist.

-Incidents of partnership
1.
2.
3.

4.

5.

6.
7.

The partners share in profits and losses.

They have equal rights in the management and
conduct of the partnership business.
Every partner is an agent of the partnership, and
entitled to bind the other partners by his acts, for the
purpose of its business.
Every partner is an agent of partnership and entitled
to bind the other partners by his acts, for the
purpose of its purposes.
All partners are personally liable for the debts of the
partnership with their separate property except that
limited partners are not bound beyond the amount of
their investment.
A fiduciary relation exists between the partners.
On dissolution, the partnership is not terminated, but
continues until the winding up of partnership is
completed.

3.

4.

Is a judicial decree needed to dissolve an unlawful

partnership?
No, because the contract is void from the very beginning.
Consequences of Unlawful Parnership
1.
2.

3.
4.

If guilty of crime, the instruments or tools are

forfeited in favor of the government
The partners forfeit the proceeds or profits, but NOT
their contributions, provided no criminal prosecution
has been instituted.
Partnership has no legal personality
Partners must be returned of their contribution.

GR: No form is required for VALIDITY or

ENFORCEABILITY, regardless of the value. The
contract may be ORAL.
Exception: Whenever real properties or real rights are
contributedregardless of value
a. public instrument is needed, otherwise it
is VOID.
b. there must be an inventory of immovables
which must be signed by the parties and
attached to the public instrument. (It is
important to show how much is due from
each partner to complete his share in the
common fund and how much is due to each
of them in the event of liquidation. Without
inventory, it is VOID.)
c. Must be registered for effectivity
An agreement to form a partnership does not itself
create one. So long as it remains executory, it is
inchoate.
An agreement to enter into partnership in future time
is covered by Statute of Frauds and unenforceable
unless reduced in writing.

1772REGISTRATION IN SEC
Registration is a condition for the issuance of licenses to
engage in a business or trade.
Effect of non-registration
1.

2.

Still valid and has legal personality

*if real prop is contributed, a public instrument is
needed
One can compel the other to register

1773-IMMOVABLE PROPERTY IS CONTRIBUTED

1.
2.

1770lawful object or purpose

Lawfulmust be within the commerce of man, possible, and
not contrary to law, morals, good customs, public order or
public policy. Otherwise, it is VOID AB INITIO.

In cases of partial illegality, an accounting may be

had on the legal transactions.
Innocent partners may go against guilty partners for
their share in the profits.
Subsequent illegality does not nullify the contract. An
accounting may be had as to the business transacted
prior to such time.

There must be a public instrument.

The inventory must be made, signed by parties and
attached to the public instrument.

Compliance is absolute and indispensible for validity.

Applicability: only to property contributed by partners,
not to property possessed or owned by the partnership
1.
2.
3.

Applies regardless of the value of RP

Applies even if only real rights over real properties
are contributed
Also if, aside from real property, cash or personal
property is contributed.

Registration in the Register of Property to make transfer

effective as far as third persons are concerned. With regard to
them, a de facto partnership exists.
Inventory shows the description and designation of
immovable or real property. It shows much is due from each

partner to complete his share in the common fund and who

much is due to each of them in case of liquidation.
1774 ACQUISITION OF PROPERTY UNDER PARTNERSHIP
NAME

F.

Applies to both real and personal property

See article 46
Limitations
1.
2.

3.

An alien cannot own lands, except thru hereditary

succession.
Even if entirely owned by a Filipino, a partnership
may not acquire, lease, or hold public agricultural
lands in excess of 1,024 has.
Cannot lease lands adapted to grazing in excess of
2,000 has.

1775IF ARTICLES ARE KEPT SECRET

1.
2.
3.
4.

5.

Not considered a juridical entity.

It may be sued by third persons under a common
name it uses.
It cannot sue.
AS to third parties, they are partnership, but as
between themselves, only the rules on co-ownership
apply.
A partner may be sued in his individual capacity,
notwithstanding the absence of partnership.

RATIO: for the protection of the members and third persons

from fraud and deceit
1776CLASSIFICATIONS
A.

B.

C.
D.

E.

Manner of Creation
a. Orally constituted
b. Private instrument
c. Public instrument
d. Registered in SEC
Object
a. Universal
i. With all present property
ii. With all profits (the individual
properties are owned by partners,
but the usufruct passes to the firm)
b. Particularthe object are determinate
things, their use or fruits, specific
undertaking, or the exercise of a profession
or occupation
Liability
a. Limited
b. General
Legality
a. Lawful
b. Unlawful
c. De jureone which has complied with all
the legal requirements
d. De Factofailed to comply
Duration
a. Partnership with fixed termFor a specific
period or till the purpose is accomplished
b. Partnership at willone in which no time is
specified and is not formed for a particular
undertaking and which may be terminated
at anytime by mutual agreement or by will

G.

H.

of any partner alone; or one which has a

fixed term and continued by the partners
after termination of such term
Representation to others
a. Ordinaryactually exists among the
partners and also as to third persons
b. Partnership by estoppelone which in
reality is not a partnership, but considered
as such only in relation to those who, by
their conduct or admission, are precluded to
deny or disprove its existence.
Publicity
a. Secretone wherein the existence of
certain persons as partners is not avowed or
made known
b. Open or notorious
Purpose
a. Commercialone formed for business
b. Professionalformed for exercise of
profession

General Partnershipis one where all the partners are

general partners who are liable even with respect to their
individual properties, after the assets of the partnership have
been exhausted
Limited Partnershipone where at least one partner is a
general partner and the others are limited partners.
A limited partner is one whose liability is limited only up to
the extent of his contribution.
If all partners are limited, it cannot be registered. It will be
considered general partnership instead.
Partnership de factowhen the managing partner continues
to act for the benefit of all the partners without causing their
rights to be recorded in the RD
Partnership by Estoppel
Ex. When two or more persons attempt to create a
partnership but fail to comply with the legal formalities
essential to juridical personality.
KINDS OF PARTNERS
1.

Capitalistone who contributes money or property

to common fund
2. Industrialone who contributes only his industry or
personal service
3. Generalone whose liability to third persons
extends to his separate property
4. Limitedone whose liability to third persons is
limited to his capital contribution
5. Managingone who manages the affairs who may
be appointed in the articles or after constitution
6. Liquidatingone who takes charge of the winding
up of partnership affairs upon dissolution
7. Partner by estoppelone who is not really a
partner, but liable for the protection of third persons.
8. Continuingone who continues the business of a
partnership after it has been dissolved by reasons of
admission, retirement, death or expulsion
9. Survivingone who remains after partnership has
been dissolved by death of any partner
10. Subpartnerone who, not being a member,
contracts with a partner with reference to the latters
share.

FORMALITIES NEEDED FOR CREATION

A.

B.

Personal Property
a. Less than 3,000may be oral
b. 3,000 or moremust be in a public
instrument and registered in SEC. Even if
not complied, the partnership is still valid
Real Propertyregardless value
a. Public instrument
b. Attached inventory
c. Registered* in the Registry of Property
where the property is located (to be
effective against third parties)
*Otherwise, it is VOID and has no juridical personality

C.

Limited Partnershipmust be registered indicating

that it is limited in the SEC, otherwise it is not valid
as limited but a general one.

1777-78UNIVERSAL PARTNERSHIP
A.

B.

of all present property: one which comprises all

that the partners may acquire by their industry or
work during the existence of the partnership and the
usufruct of movable or immovable property which
each of the partners may possess at the time of the
celebration of the contract. The contribution here
consists of
a. all the properties actually belonging to
partners
b. The profits acquired with said properties
Of all profitsone which comprises all that the
partners may acquire by their industry or work during
the existence of the partnership and the usufruct of
movable or immovable property which each of the
partners may possess at the time of the celebration
of the contract.

ALL PROFITS
a)Only the usufruct of
the properties of
partners becomes
common property
*refers only to
property possessed
by the partner at the
time of the
celebration of the
contract. If acquired
after, it does not belong
to the firm as a matter of
right.
Naked ownership is
retained by partners
b) All profits acquired by
industry or work of the
partners become
common (as a matter of
right)
Stipulation as to
exclusion is valid

ALL PRESENT
PROPERTY
All property actually
contributed belonging to
the partners are
common property

by inheritance,
legacy, donation
cannot be included,
but the FRUITS
thereof can be
included in the
stipulation.

FUTURE PROPERTY (why prohibited to be included?)

1.
2.
3.

Contracts re: succession rights cannot be made

A partnership demands that things be determinate,
known and certain.
A universal partnership of all present properties
implies a donation, and a future property cannot be
donated.

1781presumption in favor of partnership of profits

1.
2.

3.

Applies only when a universal partnership has been

entered into
Ratio: Less obligation is imposed in the universal
partnership of profits because their real and personal
properties are retained by them in naked ownership.
Reformation of the contract is the remedy in case a
universal partnership of all present properties is
desired.

1782persons who together cannot form a universal

partnership--VOID
1.
2.
3.

Husband and wife, as a rule

Those guilty of adultery and concubinage (739)
Those guilty of the same criminal offense, if the
partnership was entered into in consideration of the
same

*While spouses cannot enter into a universal partnership, they

can enter into particular partnership or be members thereof.
RATIO: It is virtually a donation to each other of the partners
properties. If persons are prohibited to donate to each other,
they should not be allowed to do indirectly what the law
forbids.
1783PARTICULAR PARTNERSHIP
Ex. Construct a building, buy and sell real estate, practice law,
a firm engaged in importation, marketing, distribution and
operation of radios, amusement machines etc

Owned by all partners

and by partnership
Only the profits of
contributed common
property (not other
profits)

In the universal partnership, the scope is vague and indefinite

contemplating a general business with some degree of
continuity, while particular partnership is limted and welldefined, being confined to an undertaking of a single,
temporary or ad hoc in nature.

Profits from other

sources may become
common if there is a
stipulation
Properties acquired