Partnership (Art 1767 – 1867)
capital or service
The earliest form of conducting
business was single entrepreneur
ownership
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
Concept of partnership
A partnership is a contract of two or
more competent persons to place
their money effects labor and skill or
some or all of the in lawful commerce
or business and to divide the profits
and bear the losses in certain
proportions
Partnership is a association of two or
more persons to carry on as co
owners of a business for profit
Partnership is a legal relation based
upon the express or implied
agreement of two or more competent
persons whereby they unite their
property labor skill in carrying on
some lawful business as principals for
their joint profit
A partnership is the status arising out
of a contract entered into by two or
more persons whereby they agree to
share as common owners the profits
of a business carried on by all or any
of them on behalf of all of them
A partnership is an organization for
production of income to which each
partner contributes one or both of the
ingredients of income, which are
Partnership is an entity distinct and
apart from the members composing it
and for the purpose of which it was
created it is a living persons having its
own assets and liabilities and any
benefit or liability attaching to a
member of the partnership results
from the partnership relation
A partnership is a joint undertaking to
share profit and loss
Characteristic elements of partnership
The contract of partnership is:
Consensual because it is perfected by
mere consent that is upon the express
or implied agreement of two or more
persons
Nominate because it has a special
name or designation in our law
Bilateral because two or more persons
and the rights and obligations enter it
into arising therefrom are always
reciprocal
Onerous because each of the parties
aspires to procure for himself a
benefit through the giving of
something
Commutative because the undertaking
of each of the partners is considered
as the equivalent of that of the others
Principal because it does not depend
for its existence or validity upon some
other contracts
Preparatory because it is entered into
as a means to and end
A partnership contract in its essence is
a contract of agency (see art 1818)
Essential features of partnership
- there must be a valid contract
- the parties two or more must
have legal capacity
- there must be a mutual
contribution of money
property or industry to a
common fund
- the object must be lawful and
- the primary purpose must be
to carry on a business for
profits and to divide the same
among the parties
The partnership must not be kept
secret among one another otherwise
the association shall have no legal
capacity and shall be governed by the
laws of co-ownership (art 1775)
Existence of a valid contract
Partnership relation fundamentally
contractual- partnership is a
voluntary relation created by
agreement of the parties. It excludes
from its concept all other associations
which do not have their origin in a
contract express or implied. There is
no such thing as a partnership created
by law or operation or implication of
law alone. Partnership relation is not
the contract itself but a result of the
contract.
Form- the relation is evidenced by the
terms of the contract which may be
oral or written express or implied
from the acts and declarations of the
parties subject to the provisions of Art
1771 to 1773 and statute of frauds.
In other words no formalities is
required in setting up a general
partnership unless it falls within the
statute of frauds Art 1403 however
there are formal requirements for
creating a limited partnership
Articles of partnership- while the
partnership relation may be
informally created and its existence
proved by the manifestation of the
parties it is customary to embody the
terms of the association in a written
document known as articles of
partnership stating:
- the name
- nature or purpose and location
of the firm
- defining among others the
powers rights duties and
liabilities of the partners
among themselves their
contributions
- the manner by which the
profits and losses are to be
shared
- the procedure for dissolving
the partnership
Requisites- Since partnership is
fundamentally contractual all the
essentials of a valid contract must be
present
- consent and capacity of the
contracting parties
- object which is the subject
matter of the contract
- cause which is established by
Art 1318 (essential requisites
of a contract) later
disagreements among the
 partners will not automatically
destroy the partnership. What
is important is the unanimous
assent of the parties at the time
of the agreement to associate
as partners at the creation of
the relationship
as in other cases of contract in order
to make an agreement for a
partnership valid there must be a
valid consideration existing as
between the partners. Each partner
surrenders to the partnership an
interest in his property labor skill or
energy in accordance with the express
or implied stipulations of their mutual
agreement.
Partnership relation fiduciary in
nature- Partnership is a form of
voluntary association entered into by
the associates it is a personal relation
in which the element of delectus
persona (choice of the person) exists
involving as it does trust and
confidence between the partners.
- right to choose co partners
unless otherwise provided in
the agreement no one can
become a member of the
partnership association
without the consent of all the
other associates.
- Power to dissolve partnership
neither would the presence of a
period for its specific duration
or the statement of an
particular purpose for its
creation prevent the
dissolution of any partnership
by an act or will of a
partner(causes for dissolution
art 1830)
- Application of principles of
estoppel a partnership liability
may be imposed upon a person
under principles of estoppel
where he hold himself out or
permits himself to be held out
as a partner in an enterprise in
such cases there is no actual or
legal partnership relation but
merely a partnership liability
imposed by law in favor of
third persons.
Legal capacity of the parties to
enter into the contract
The word persons as used in art 1767
may be interpreted to mean persons
in the biological sense or persons in
the legal sense (juridical entitites)
thus a partner may be a person a
partnership a corporation or a joint
venture
Before there can be a valid contract of
partnership it is essential that the
contracting parties have the necessary
legal capacity to enter into the
contract
GR- any person is capable of entering
into contractual relation
XPN- those who cannot give their
consent to a contract of partnership
- unemancipated minors
- insane or demented persons
- deaf mutes who do not know
how to write
- persons who are suffering from
civil interdiction
- Incompetents who are under
guardianship
Under Art 1782 persons who are
prohibited from giving each other any
donation or advantage cannot enter
into a universal partnership
A married woman may enter into a
contract of partnership even with her
husband’s consent but the latter may
object under certain conditions.(art
73)
Partnerships there is no prohibition
against a partnership being a partner
in another partnership when two or
more partnerships combine with each
other creating a distinct partnership.
Corporations the doctrine adopted
by our supreme court is that unless
authorized by statute or by its charter
a corporation is without capacity of
power to enter into a contract of
partnership. The limitation is based
on 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 which would be entirely
inconsistent with the policy of the law
that the corporation shall manage its
own affairs separately and exclusively.
XPN
1. a corporation however my
enter into a joint venture
partnership with another
where the nature of the
venture is in line with the
business authorized by its
charter.
2. Where the partnership
agreements provides that the
two partners will manage the
partnership so that the
management of corporate
interest is not surrendered the
partnership may be allowed.
3. Where the entry of the foreign
corporation as a limited
partner in a limited
partnership is merely for
investment purposes and it
shall not take part in the
management and control of the
business operation of the
partnership it shall not be
deemed doing business in the
Philippines and hance it is not
required to obtain a license to
do business in the Philippines
as required by section 123-126
of the corporation code. Such
investment is allowed under
RA 7042
Contribution of money property or
industry to a common fund
Existence of proprietary interest- the
partners must have a proprietary
interest in the business or
undertaking that is they must
contribute capital which may be
money or property or their services or
both to the common business.
Form of contribution- the contribution
of a partner may be in the 3 forms of
money property and industry or any
two or one of them.
- money is the legal tender in the
Philippines
- property may be real or
personal corporeal or
incorporeal hence credit such
as promissory note or other
evidence of obligation or even
a mere goodwill may be
contributed as they are
considered property. License to
construct and operate a cockpit
may be given as a contribution
to a partnership
- industry in the absence of
money or property or in
concurrence with these two the
 law permits contribution of
industry. The word industry
has been interpreted to mean
the 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 of the
business (not a salary)
A partnership may therefore exist
even if it is shown that the partners
have not contributed any capital for
the contribution may be in the form of
credit or industry.
XPN- a limited partner in a limited
partnership cannot contribute mere
industry or services.
Proof of contribution- in partnership
proof is necessary that there be
contribution of money property or
industry to a common fund with the
intention of dividing the income or
profits obtained therefrom
Legality of the object
Effect of illegality – the object is
unlawful when it is contrary to law
moral good customs public order or
public policy no partnership may arise
as the contract is inexistent and void
ab initio
Businesses partnership may not
engage in – subject to this general
limitation on contracts a partnership
may be organized for any purpose
except that it may not engage in an
enterprise for which the law requires
a specific form of business
organization such as banking.
Purpose to obtain profits
The very existence of partnership- a
partnership is form to carry on a
business for profit. A short term
business may qualify as a partnership
eg. Joint venture the goal must be to
generate profit
Need only be the principal not
exclusive aim- the realization of
pecuniary profit however by engaging
in some business activity through
their joint venture need not be the
exclusive aim of partnership it is
sufficient that it is the principal
purpose. In partnership the parties
intend to share the profits in certain
proportions.
Sharing of profits
Not necessarily in equal shares- there
must be a joint interest in the profits
without the sharing of the profits it
cannot be said that an agreement of
partnership has been enter into and
exist.
If there is a stipulation which excludes
one or more partners from any
participation in the profit or losses is
void since the essence of partnership
is that the partners share in the profit
and losses
not conclusive evidence of
partnership- the sharing of profits is
merely presumptive and not
conclusive even if cogent evidence of
partnership. (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.
Sharing of losses
Necessary corollary of sharing in
profits- the definition of partnership
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 consequence of the same. The
right to share in the profits carries
with it the duty to contribute to the
losses if any
Agreement not necessary- it is not
necessary for the parties to agree
upon a system of sharing of losses for
the obligation is implied from the
partnership relation. Same proportion
of profit and loss
Article 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 if
artivle 1772 first paragraph
Partnership a juridical person- a
partnership is sometimes referred to
as a firm or a company it connote an
entity separate from its aggregate
individual partners
As a juridical person a partnership
may enter in to contracts acquire and
possess property of all kinds in its
name as well as incur obligations and
bring civil or criminal action in the
conformity with the laws and
regulation of its organization.
Effects of failure to comply with
statutory requirements
Statutory requirements are to wit:
- every contract of partnership
having a capital of 3000 or
more in money or property
shall appear in a public
instrument which must be
recorded in the office of the
SEC
Such failure shall not affect the
liability of the partnership and
members thereof to third persons
With regards to article 1773 and 1775
1773 the partnership shall be void
whenever an immovable property is
contributed thereto if an inventory of
said property is not made signed by
the parties and attached to the public
instrument
1775- when articles are kept secret
among the members and wherein any
one of the member may contract in his
own name with third persons shall
have no juridical capacity and shall be
governed by the law on co-ownership.
To organize a partnership not an
absolute right
To organize a cororation or a
partnership that could claim a
juridical personality of its own and
transact business as such is not a
matter of absolute right but a privilege
which may be enjoyed only under
such terms as the state may deem
necessary to impose.
Article 1769 (in case of ambiguity)
it lays down the rules for determining
whether an association is one of
partnership. To establish the existence
of partnership all of its essential
features or characteristics be present
Persons not partners as to each
other
Persons who are partners as between
themselves are partners as to third
persons with whom the partnership[
transacts business if they are not
partners with each other then they
cannot be partners to third persons
There must be intention to create
partnership
A partnership can never exist as to
third persons if no contract of
partnership exist however they are
estopped where persons by their act
consent or representations have
misled third persons or parties into
believing that the former are partners
in a non existent partnership such
persons become subject to liabilities
of partners to all who in good faith
deal with them in their apparent
relations
Co ownership or co possession
Co ownership of property does not if
itself establish the existence of a
partner although co-ownership. Two
or more persons can be co owners or
co-posserors without contract. Eg.
Inheritance or law.
There must be an existence of
fiduciary relationship if there would
be a dispute among partners the
remedy would be dissolution
termination and accounting.
The sharing of gross returns does
not of it self establish a partnership
whether or not the persons sharing
them having a joint or coomon right
or interest in any property from
which the returns are derived
There is no presumption of
partnership with the sharing of gross
returns. Art 1812 a partners interest
in the partnership is his share of
profits and surplus.
Receipts of share in the profits
Strong presumption of partnership.
An agreement to share both the
profits and the losses tends strongly
to establish the existence of
partnership and vice versa.
Such presumption is not a conclusive
proof of partnership.
Moreover if such profits were
received in payment of debts wages of
employees or payment to a landlord
or annuity to a widow or legal
representative of a deceased partner
or interest on a loan etc. There can be
no partnership
Burden of proof
The law presumes that person who
are acting as partners have entered
into a contract of partnership where
the law presumes the existence of a
partnership the burden of proof is on
the party denying its existence
Test and incidents of partnership
The partners share in profits and
losses
They have equal rights or voice in the
management and conduct of the
partnership
Every partner is deemed an agent of thing or right
the partnership and entitled to bind which does not
the other partners by his act for the necessarily
purpose of its business involve the
sharing of profits
All partners are personally liable for Can only keep the No limitation
the debts of the partnership with their thing not more imposed upon the
separate property except limited than 10 years duration of a
partners are not bound beyond the partnership
amount of their investment May freely May not dispose
dispose of his individual
The books of the partnership shall be interest unless
kept subject to any agreement agreed upon by
between the partners at the principal all the partners
place of business of the partnership Cannot represent In the absence of
the co-ownership any stipulation a
A fiduciary relation exist between the hence a judgment partner may bind
partners againt only one of the partnership
the co-owners with a third
A capitalist partner cannot carry on will not bind the person
any competing business venture other co-oweners
unless there is a stipulation to the The death of a co- The death of a
contrary while an industrial partners owner will not partner results in
is absolutely prohibited from engaging dissolve the co- the dissolution of
in any kind of business ownership the partnership

On dissolution the partnership is not Partnership distinguished from a

terminated but continues until the corporation
winding up of the partnership is
completed Partnership Corporation
Is created by Created by law or
Partnership distinguished from the mere agreement operation of law
co-ownership of the parties
Is organized by Required at least
Co-ownership Partnership two or more 5 incorporators
Is created by law Always created by persons xpn corporation
and may exist a contract either sole
without a express or Juridical capacity Capacity begins
contract implied starts from the only from the
No juridical Has juridical start of the date of issuance
capacity capacity separate contract of of the certificate
and distinct from partnership of incorporation
the partners by sec
Common The realization of May exercise any May only exercise
enjoyment of the profits power authorized powers expressly
by the partners granted by law or A limited partner May adopt any
provided not implied from is required by law firm name
contrary to law those granted or to add LTD to its provided it is not
morals good incident to its name the same as or
customs etc existence similar to any
Every partner is The power to do registered firm
an agent of the business and name
partnership manage its affairs May be dissolved Can only be
is vested on the at any time by the dissolved with
board of directors will of any or all the consent of the
or trustees the partners state
A partner may The sit against a Governed by the Governed the
sue its co-partner member of the civil code corporation code
who mismanages board of directors
or trustees who Similarities of partnership and
mismanages must corporation
be in the name of
the corporation - both have juridical capacity
No right to Has right to - can act only through agents
succession succession - is composed of an aggregate of
Liability to third The stockholders individuals
persons are shall be liable - profits are distributed to those
personal and only up to the who contribute capital to the
subsidiary extent of the business
shares subscribed - can be organized only where
A partner cannot A stockholder has there is a law authorizing its
transfer his generally the organization
interest in the right to transfer - taxable as a corporation
partnership his shares
without the without the prior Art 1770
consent of all the consent of the the
other existing other Effects of an unlawful partnership
partners stockholders
because a - the contract is void ab initio
corporation is not and the partnership never
based on the existed in the eyes of the law
same principle - profits shall be confiscated in
Can exist for any May not be favor of the government
period of time formed for a term - instruments or tools and
stipulated by the in excess of 50 proceeds of the crime shall alse
partners years not be forfeited in favor of the
extendible to not government
more than 50 - contributions of the partners
years in any shall not be confiscated unless
instance
 they fall under in the preceding
paragraph
A partnership is dissolved by
operation of law upon the happening
of an event which makes it unlawful
for the business of the partnership to
be carried on or for the members to
carry it on in partnership art 1830
Judicial decree not necessary to
dissolve partnership. Third parties are
the protected ones in case of
dissolution as long as they are
unaware of its illegal character
Partial illegality of partnership
effect
The part of the business of the
partnership which is legal may
continue
When without the knowledge or
participation of the partners the firm’s
profits in a lawful business have been
increased by wrongful acts the
innocent partners are not precluded
from receiving their share of the
profits
If the partnership is planned as a legal
business and entered into as a legal
business the illegality of the
partnership will not nullify the
contract and the parties may ask for
the accounting of the partnership
Art 1771
GR: no special form is required for the
validity of the contract may be made
orally or in writing
XPN: when immovable property or
real rights are contributed a public
instrument shall be necessary
Art 1772
GR: a partnership does not need to be
registed with the SEC
XPN: unless the capital of the
partnership has three thousand or
more in money or property shal
appear in a public document which
must be recorded in the SEC
Failure to comply with the
requirements shall not affect the
liability of the partnership and the
members thereof to third persons
Art 1773
A contract of partnership is void when
ever immovable property is
contributed thereto if an inventory of
said property is not made signed by
the parties and attached to the public
document
An inventory is required whenever
immovable property is contributed.
Does not apply when said property is
possessed or even owned by the
partner but not contributed.
Art 1774