Partnerships

1
GENERAL PROVISIONS
Art. 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.

3. No prohibition against partnership being a partner. Corporation

is without capacity to enter into a contract of partnership
Mutual Contribution to common fun
1. Without mutual contribution to common fund, no partnership
2. Contribute money, property, and/or industry
a. Money - legal tender. No contribution of money until encashed

Profession 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.
* General Professional Partnership
Characteristic Elements of Partnership
1. Consensual perfected by mere consent
2. Nominate special name in law
3. Bilateral entered into by two or more persons, and the rights
and obligations are always reciprocal
4. Onerous each parties aspires to procure a benefit through
giving something
5. Commutative undertaking of each partner is considered
equivalent to that of others
6. Principal does not depend on another contract to exist
7. Preparatory entered into as a means to an end
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 money, property or
industry to a common fund
4. The object must be lawful
5. The purpose or primary purpose must be to obtain profits and
divide the same among the parties

Articles of partnership must not be kept secret among the

members; otherwise, the association shall be governed by the
provisions of the Civil Code relating to co-ownership

Existence of a valid contract

1. No one can become a member of the partnership without the
consent of all the other members
2. Articles of partnership, at least 2 competent parties
3. Originates from a contract

Limited partnership as distinguished from a general

partnership, cannot be created by mere voluntary agreement

Legal capacity to enter into the contract

1. Necessary legal capacity
2. Exceptions persons prohibited from giving donation to each
other cannot enter into a universal partnership. Married
woman may enter into partnership even w/o husbands
consent

b. Property personal, tangible or intangible (ex. Promissory)

c. Industry work or services

Limited partner cannot contribute mere industry or services

Legality of Object
1. Object must be lawful
2. Partnership may be organized for any purpose except for
those which the law requires a specific form of business org
Intention to realize and divide profit
1. Very reason for existence of partnership. Distinguishes
partnership from voluntary religious/social orgs. Unprofitable
business is still partnership as long as profit is its goal
2. Obtaining profit is principal purpose, even if there are
incidental moral, etc ends
Sharing of Profits
1. Not necessarily in equal shares. One without a right to
participate in the profits is not a partner.
2. Not conclusive evidence of partnership
Sharing of Losses
1. Necessary corollary of sharing in profits (possible consequence)
2. Agreement not necessary

Stipulation which excludes partner/s from share in profits or

losses will be void, but partnership still exists

Art. 1768. The partnership has a juridical personality separate and

distinct from that of each of the partners, even in case of failure to
comply with the requirements of Art 1772.
If partnership capital exceeds P3,000, execute public
instrument with SEC. But even with failure to comply, still
partnership.
Art. 1769. In determining whether a partnership exists, these rules
shall apply:
(1) Except as provided by Article 1825, persons who are not
partners as to each other are not partners as 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;
(4) The receipt by a person of a share of the profits of a business
is prima facie evidence that he is a partner in the business,

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but no such inference shall be drawn if such profits were
received in payment:
(a) As a debt by installments or otherwise;
(b) As wages of an employee or rent to a landlord;
(c) As an annuity to a widow or representative of a
deceased partner;
(d) As interest on a loan, though the amount of payment
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.

When in doubt, where parties expressly declare they are not

partners, then they are not partners.

Partners who are partners in fact may not avoid the

consequences of the relation by mere denial

If third persons are misled to believe there is a partnership,

then they are partners as to the misled persons.

Co-ownership (Co-possession) ownership (or possession)

of an undivided thing or rights belonging to different persons.
Not allowed to keep thing undivided for more than 10 years.
May dispose of his interest (assign it to someone else). Does
not dissolve with death.

Sharing of profits, not merely gross returns

Conjugal Partnership of Gains partnership formed by the

marriage of husband and wife by virtue of which, they place in
a common fund the fruits and income from their separate
properties and those acquired through their efforts or by
chance, and unless otherwise agreed in the marriage
settlements, divide equally, upon the dissolution of the
marriage or the partnership, the net gains or benefits obtained
by either or both of them during the marriage.

No juridical personality

Commences on the date of the celebration of marriage

Husbands decision shall prevail in case of disagreement

Voluntary associations
o

No juridical personality

No contribution of capital, although there are fees collected

Members are individually liable for the debts

Art. 1770. A partnership must have a lawful object or purpose, and

must be established for the common benefit or interest of the
partners.
When an unlawful partnership is dissolved by a judicial decree,
the profits shall be confiscated in favor of the State, without
prejudice to the provisions of the Penal Code governing the
confiscation of the instruments and effects of a crime.

Contract is void ab initio

Profits confiscated in favor of the government

Instruments and proceeds of the crime forfeited in favor of govt

Contributions of partners not confiscated unless ^

Judicial decree not necessary to dissolve

Art. 1771. A partnership may be constituted in any form, except

where immovable property or real rights are contributed thereto, in
which case a public instrument shall be necessary.

To affect third persons, transfer of real property to partnership

must be registered in the Registry of Property

Art. 1772. Every contract of partnership having a capital of 3000

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.
Failure to comply with the requirements of the preceding
paragraph shall not affect the liability of the partnership and the
members thereof to third persons.

Registration of partnership is necessary as a condition for the

issuance of licenses to engage in business or trade (not for the
purpose of giving it a juridical personality)

Art. 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)
Art. 1774. Any immovable property or an interest therein may be
acquired in the partnership name. Title so acquired can be
conveyed only in the partnership name.
Art. 1775. Associations and societies, whose articles are kept
secret among the members, and wherein any one of the members
may contract in his own name with third persons, shall have no
juridical personality, and shall be governed by the provisions
relating to co-ownership.
Art. 1776. As to its object, a partnership is either universal or
particular.As regards the liability of the partners, a partnership may
be general or limited.
Classifications of Partnership
1. As to the extent of its subject matter
a. Universal Partnership
i.

Of all present property the partners contribute all the

properties which actually belong to them at the time of
constitution. Property and profits belong to the partnership

ii.

Of profits comprises all that the partners may acquire

by their industry or work during the existence of the
partnership. Property belongs to partners; profits and
usufruct belong to partnership. Property is returned upon
dissolution
b. Particular Partnership

2. As to liability of the partners

a. General Partnership consisting of general partners who
are liable pro rata and subsidiarily, sometimes solidarily, with
their separate property for partnership debts

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b. Limited Partnership formed by two or more persons
having as members one or more general partners and one
or more limited partners
3. As to its duration
a. Partnership at will may be terminated at anytime by the
mutual agreement of the partners, or by the will of any one
partner alone, or one for a fixed terms or particular
undertaking which is continued by the partners after the
termination of such term or undertaking w/o express
agreement
b. Partnership with a fixed term term is fixed or formed for
a particular undertaking, to be dissolved after the
completion, except when continued
4. As to the legality of its existence
a. De jure partnership complied with all legal requirements
for establishment
b. De facto partnership failed to comply with all the legal
requirements
5. As to representation to others
a. Ordinary or real partnership actually exists among
partners and as to third persons
b. Ostensible partnership or partnership by estoppel not
really a partnership, but is considered as one in relation to
those who are precluded to deny or disprove its existence
6. As to publicity
a. Secret partnership existence of certain persons as
partners is not made known to public by the members
b. Open or notorious partnership existence is made known
to public by the members
7. As to purpose
a. Commercial or trading partnership One formed for the
transaction of business
b. Professional or non-trading partnership one formed for
the exercise of a profession
Kinds of Partners
1. Under the Civil Code
a. Capitalist partner contributes money or property
b. Industrial partner contributes only industry
c. General partner liability to third persons extends to his
separate property
d. Limited partner liability to third persons is limited to his
capital contribution (Special partner). Does not participate
in the management of the business
e. Managing partner manages the affairs of the partnership
(General or real partner)

f.

Liquidating partner takes charge of the winding up of

partnership affairs upon dissolution

g. Partner by estoppel not really a partner, but liable as a

partner to protect third persons (Partner by implication or
nominal partner or quasi-partner).
h. Continuing partner continues the business of a
partnership after dissolution
i.

Surviving partner remains after dissolution by death

j.

Subpartner not a partner, but contracts with a partner with

reference to latters share in the partnership

2. Other classifications
a. Ostensible partner takes active part and known to the
public as a partner, whether or not he has actual interest
b. Secret partner takes active part but not known by outside
parties nor held out as a partner by the other partners,
although he participates in the profits and losses
c. Silent partner does not take any active part although
known to be a partner. Must give notice if withdrawing
d. Dormant partner does not take active part and is not
known or held out as a partner (Sleeping: silent and secret).
No need to give notice if withdrawing
e. Original partner member from organization
f.

Incoming partner lately or about to the a member

g. Retiring partner withdrawn from the partnership

Art. 1777. A universal partnership may refer to all the present
property or to all the profits. (1672)
Art. 1778. A partnership of all present property 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 which they may acquire
therewith. (1673)
Art. 1779. In a universal partnership of all present property, the
property which belongs 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.
A stipulation for the common enjoyment of any other profits
may also be made; but the property which the partners may
acquire subsequently by inheritance, legacy, or donation cannot be
included in such stipulation, except the fruits thereof.
Art. 1780. A universal partnership of profits comprises all that the
partners may acquire by their industry or work during the existence
of the partnership.
Movable or immovable property which each of the partners
may possess at the time of the celebration of the contract shall
continue to pertain exclusively to each, only the usufruct passing to
the partnership. (1675)

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Profits acquired through chance do not belong to partnership

Fruits of property subsequently acquired do not belong to

partnership. May be included by express stipulation.

Profits acquired by industry or usufruct of present properties

belong to the partnership. Express stipulation is needed to
exclude them

Art. 1781. Articles of universal partnership, entered into without

specification of its nature, only constitute a universal partnership of
profits.

Less obligations. Applies only when universal is organized

Art. 1782. Persons who are prohibited from giving each other any
donation or advantage cannot enter into universal partnership.

Husband and wife may enter into a particular partnership

He shall also be bound for warranty in case of eviction with

regard to specific and determinate things which he may have
contributed to the partnership, in the same cases and in the same
manner as the vendor is bound with respect to the vendee. He
shall also be liable for the fruits thereof from the time they should
have been delivered, without the need of any demand.
Art. 1787. When the capital or a part thereof which a partner is
bound to contribute consists of goods, their appraisal must be
made in the manner prescribed in the contract of partnership, and
in the absence of stipulation, it shall be made by experts chosen by
the partners, and according to current prices, the subsequent
changes thereof being for account of the partnership. (n)
Art. 1788. A partner who has undertaken to contribute a sum of
money and fails to do so becomes a debtor for the interest and
damages from the time he should have complied with his
obligation.

Pertinent Legal Provisions

1. Every donation or grant between spouses during the marriage
shall be void except moderate gifts

The same rule applies to any amount he may have taken from the
partnership coffers, and his liability shall begin from the time he
converted the amount to his own use. (1682)

2. Void are donations made between persons guilty of adultery or

concubinage at the time of donation, made between persons
found guilty of the same criminal offense, made to a public
officer or his wife, descendants and ascendants by reason of
his office.

Art. 1789. An industrial partner cannot engage in business for

himself, unless the partnership expressly permits him to do so; and
if he should do so, the capitalist partners may either exclude him
from the firm or avail themselves of the benefits which he may
have obtained in violation of this provision, with a right to damages
in either case. (n)

Art. 1783. A particular partnership has for its object determinate

things, their use or fruits, or specific undertaking, or the exercise of
a profession or vocation. (1678)
OBLIGATIONS OF THE PARTNERS
Relations created by a contract of partnership
1. Among the partners themselves
2. Of the partners with the partnership
3. Of the partnership with third persons
4. Of the partners with third persons
Art. 1784. A partnership begins from the moment of the execution
of the contract, unless it is otherwise stipulated.

Partnership exists when the essential requisites of contract are

present, even when contributions have not been given yet

Art. 1790. Unless there is a stipulation to the contrary, the partners

shall contribute equal shares to the capital of the partnership. (n)
Art. 1791. If there is no agreement to the contrary, in case of an
imminent loss of the business of the partnership, any partner who
refuses to contribute an additional share to the capital, except an
industrial partner, to save the venture, shall he obliged to sell his
interest to the other partners. (n)
Art. 1792. If a partner authorized to manage collects a demandable
sum which was owed to him in his own name, from a person who
owed the partnership another sum also demandable, the sum thus
collected shall be applied to the two credits in proportion to their
amounts, even though he may have given a receipt for his own
credit only; but should he have given it for the account of the
partnership credit, the amount shall be fully applied to the latter.

Art. 1785. When a partnership for a fixed term or particular

undertaking is continued after the termination of such term or
particular undertaking without any express agreement, the rights
and duties of the partners remain the same as they were at such
termination, so far as is consistent with a partnership at will.
A continuation of the business by the partners or such of them
as habitually acted therein during the term, without any settlement
or liquidation of the partnership affairs, is prima facie evidence of a
continuation of the partnership.

The provisions of this article are understood to be without prejudice

to the right granted to the other debtor by Article 1252, but only if
the personal credit of the partner should be more onerous to him.
(1684)

Art. 1786. Every partner is a debtor of the partnership for whatever

he may have promised to contribute thereto.

Art. 1794. Every partner is responsible to the partnership for

damages suffered by it through his fault, and he cannot
compensate them with the profits and benefits which he may have

Art. 1793. A partner who has received, in whole or in part, his

share of a partnership credit, when the other partners have not
collected theirs, shall be obliged, if the debtor should thereafter
become insolvent, to bring to the partnership capital what he
received even though he may have given receipt for his share only.
(1685a)

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earned for the partnership by his industry. However, the courts may
equitably lessen this responsibility if through the partner's
extraordinary efforts in other activities of the partnership, unusual
profits have been realized. (1686a)
Art. 1795. The risk of specific and determinate things, which are
not fungible, contributed to the partnership so that only their use
and fruits may be for the common benefit, shall be borne by the
partner who owns them.
If the things contribute are fungible, or cannot be kept without
deteriorating, or if they were contributed to be sold, the risk shall be
borne by the partnership. In the absence of stipulation, the risk of
the things brought and appraised in the inventory, shall also be
borne by the partnership, and in such case the claim shall be
limited to the value at which they were appraised. (1687)
Art. 1796. The partnership shall be responsible to every partner for
the amounts he may have disbursed on behalf of the partnership
and for the corresponding interest, from the time the expense are
made; it shall also answer to each partner for the obligations he
may have contracted in good faith in the interest of the partnership
business, and for risks in consequence of its management. (1688a)
Art. 1797. The losses and profits shall be distributed in conformity
with the agreement. If only the share of each partner in the profits
has been agreed upon, the share of each in the losses shall be in
the same proportion.
In the absence of stipulation, the share of each partner in the
profits and losses shall be in proportion to what he may have

contributed, but the industrial partner shall not be liable for the
losses. As for the profits, the industrial partner shall receive such
share as may be just and equitable under the circumstances. If
besides his services he has contributed capital, he shall also
receive a share in the profits in proportion to his capital. (1689a)
Art. 1798. If the partners have agreed to intrust to a third person
the designation of the share of each one in the profits and losses,
such designation may be impugned only when it is manifestly
inequitable. In no case may a partner who has begun to execute
the decision of the third person, or who has not impugned the
same within a period of three months from the time he had
knowledge thereof, complain of such decision.
The designation of losses and profits cannot be intrusted to one of
the partners. (1690)
Art. 1799. A stipulation which excludes one or more partners from
any share in the profits or losses is void. (1691)
Art. 1800. The partner who has been appointed manager in the
articles of partnership may execute all acts of administration
despite the opposition of his partners, unless he should act in bad
faith; and his power is irrevocable without just or lawful cause. The
vote of the partners representing the controlling interest shall be
necessary for such revocation of power.
A power granted after the partnership has been constituted may be
revoked at any time. (1692a)