Article 1769.

In determining whether a partnership exists,

these rules shall apply:
(1)Except as provided by article 1825, persons who b. Co-ownership or co-possession does not for itself
are not partners as to each other are not partners establish a partnership
as to third persons; - There is coownership whenever the ownership of an
undivided thing or right belongs to different person.
(2) Co-ownership or co-possession does not of itself - Is an essential element of partnership but does not of itself
establish a partnership, whether such-co-owners or establish the existence of a partnership. The partners may
co-possessors do or do not share any profits made by not own a single tangible asset of the partnership, yet they
the use of the property; co-own the business itself as tangible asset.

(3) The sharing of gross returns does not of itself Co-ownership Partnership
establish a partnership, whether or not the persons Created by law Created by contract
sharing them have a joint or common right or interest No fiduciary relationship There is a well-defined fiduciary
relationship
in any property from which the returns are derived;
Remedy when dispute arises: Remedy when dispute arises:
action for non-performance of dissolution, termination
(4) The receipt by a person of a share of the profits of contract accounting,
a business is prima facie evidence that he is a partner
in the business, but no such inference shall be drawn
if such profits were received in payment: Instances when partnership exists

(a) As a debt by installments or otherwise; 1. Heirs agreed, after partition, to use common
(b) As wages of an employee or rent to a landlord; properties and income therefrom as a common fund
(c) As an annuity to a widow or representative of a with the intention of making profit for them in
deceased partner; proportion to their shares in the inheritance
2. Two persons contributed money to buy a
(d) As interest on a loan, though the amount of sweepstakes ticket with the intention to divide the
payment vary with the profits of the business; prize when they may win
(e) As the consideration for the sale of a goodwill of a
business or other property by installments or Instances when no partnership exists
otherwise. (Civil Code; Republic Act No. 386)
1. Children sold lots given by their father and divided
Applicability of Article 1769 the proceeds ( Obillos vs CIR)
2. Persons living together without the benefit of
- lays down the rules for determining whether or not an marriage
association is one of partnership

- Sometimes the contract between the person engaged in a

business enterprise which is supposed to create a
partnership is uncertain in terms, or they have never
executed a formal expression of their relation. In case of c. Sharing of gross returns
doubt, Article 1769 shall apply. General Rule:
o it is not a presumptive evidence of
- The existence of a partnership may be disputed by an partnership
interested party o Mere sharing of gross return alone does not
indicate a partnership, since in partnership, the
- Partnership is a matter of intention, each party giving his partners share net profits after satisfying all of
consent to become a partner. However, whether a the partnership’s liabilities.
partnership exists between parties is a factual matter.
Exception:
o Where there is evidence of mutual control and
management, even though the agreement calls
a. Partners not partners as to each other for a portion of “gross returns, a partnership
may result.
GR: A partnership cannot exist as to third person if no contract
of partnership, express or implied, has been entered into
between the parties themselves. If they are not partners as
between themselves, they cannot be partners as to third Example:
persons. A the owner of a passenger jeepney, agrees with B, a
driver that B shall have full control and use of the jeepney
XPN: Partnership by Estoppel (Article 1825) Art. 1825. to carry passengers, pay for gasoline and oil, and
shoulder the cost of repairs, and that the gross receipts
When a person, by their acts consent, or representations have are to be divided between them.
misled third person or parties into believing that the former are
parties in a non-existing partnership, such person becomes In this case, no partnership is established between A and
subject to liabilities of partner to all who, in good faith, deal with B as sharing of profits is contemplated.
them in their apparent relations.
 d. Receipt of share in profits
Test and incidents of partnership
General Rule: A strong presumptive evidence of
partnership
a.) The partners share in profits and losses ( Art. 1767)
o An agreement to share BOTH profits and losses
is a strong presumptive evidence of an b.) The partners have equal rights or voice in the
management and conduct of the partnership business
Partnership vs Trust (Art. 1803)
- A trust is a fiduciary
relationship with respect to c.) Every partner is deemed an agent of the partnership, and
property which involves the entitled to bind the other partners by his acts, for the
existence of equitable duties purpose of its business (art. 1818)
imposed upon the holder of the
title to the property to deal with d.) All partners are personally liable for the debts of the
it for the benefit of another partnership with their separate property (Art 1843)
All of the members are principals A trustee is a principal and is not
and agents for each other. an agent. e.) The books of the partnership shall be kept, at the principal
A partner is a co-owner with his place of the partnership (subject to any agreement
partners of specific partnership between parties (Art. 1805)
property
intention to form a partnership but not a f.) Fiduciary relation exists between the partners (Art. 1807)

Partnership vs labor union g.) On dissolution, the partnership is not terminated, but
By the contract of partnership An association of employees continues until the winding up of partnership is completed
two or more persons bind which exists in whole or in part (Art. 1828)
themselves to contribute money, for the purpose of collective
property, or industry to a bargaining or of dealing with h.) A capitalist partner cannot carry on any competing
common fund, with the intention employers concerning terms and business venture unless there is a stipulation to the
of dividing the profits among conditions of employment contrary (Art 1808), while an industrial partner is
themselves. absolutely prohibited from engaging in any kind of
Its purpose is essentially to for the purpose of collective business.
conduct a lwful business, trade bargaining or of dealing with
or profession for pecuniary gain employers concerning terms and Note: such incidents may be modified by stipulation of the partners
of partners, and no one may conditions of employment subject to the rights of third persons dealing with the partnership
become a partner without the
consent of all partners. (delictus
personae)
conclusive evidence, since it may be rebutted
and outweighed by other circumstances.
Partnership Co-ownership
Exceptions: definition by the contract of There is coownership
o Sharing of profits is not a prima facie evidence if partnership two or more whenever the ownership
such profit were received in payment persons bind themselves of an undivided thing or
(a) As a debt by installments or otherwise; to contribute money, right belongs to different
(b) As wages of an employee or rent to a property, or industry to a person.
landlord; common fund, with the
(c) As an annuity to a widow or representative intention of dividing the
of a deceased partner; profits among
(d) As interest on a loan, though the amount of themselves.
payment vary with the profits of the business; creation Always created by a Created by law, may exist
(e) As the consideration for the sale of a contract, either without a contract
goodwill of a business or other property by expressed or implied
installments or otherwise Juridical Has a juridical Has no juridical
o The basic test of partnership, whether inter se personalit personality separate and personality
or as third persons, is whether the business is y distinct from that of each
carried on in behalf of the person sought to be partner
held liable. And persons who are partners in Purpose Realization of profit Common enjoyment of
fact may avoid the consequences of the relation the thing or right
by mere word of denial. Duration Under the law, there is It is limited to maximum of
Others: no limitation upon the 10 years (may be
o It is not merely the sharing of profits, but it must duration of the extended by new
be established that the sharing of them is as a partnership agreement)
co-owner of the business or undertaking, that
makes one a partner. Disposal A partner may not Co-owner may freely
o To be a partner, on must have an interest with of dispose of his individual dispose of his individual
another in the profits of a business as profits. interests interest unless agreed interest
upon by all the partners
Basic Test of partnership: Power to In the absence of Co-owner cannot
o Is the recipient of a share of profits have an act with 3rd stipulation to contrary, a represent the co-
equal voice as a proprietor in the conduct and persons partner may bind ownership , hence a
control of the business? partnership. Each judgment secured against
o Does he own a share of the profits as proprietor partner is agent of one co-owner will not bind
of the business producing them? partnership. the co-owners.
NOTE: Except as
provided by Art. 1825,
persons who are not
Burden of proof an presumption partners as to each other
 are not partners as to
third persons [NCC, Art.
1769(1); Albano, 201].

Effect of Results to the dissolution Does not necessarily

death of the partnership dissolve the co-ownership
Differences Partnership Corporation
Governing law Civil code Corporation Code
Manner of Contract or By law or operation of
creation agreement of parties law
Partnership Conjugal partnership Number of By two or more May have any
of gains organizers persons numbers of
definition by the contract of A partnership formed incorporators not to
partnership two or by the marriage of exceed 15 in number
more persons bind husband and wife by Commencemen From the moment of Only from the date of
themselves to virtue of which they t of juridical the execution of the issuance of the
contribute money, place in a common personality contract of certificate of
property, or industry fund the fruits and partnership incorporation by the
to a common fund, income of their SEC
with the intention of separate properties and Powers A partnership may Only the powers
dividing the profits those acquired through exercise any power expressly granted by
among themselves. their efforts or by authorized by the law or implied from
chance, and unless partners provided it is those granted or
otherwise agreed upon not contrary to law, incidental to its
I the marriage morals, good existence
settlements, divide customs, public order,
equally, upon the or public policy
dissolution of the Management Management is Vested upon the board
marriage or the shared equally by all of directors or trustees
partnership, the net the partners unless
gains or benefits one or more of them
obtained by either or are appointed
both of them during the managers in the
marriage. articles of the
creation By the voluntary When the husband and partnership
agreement of two or wife agree that shall Effect of A partner can sue a The suit against a
more partners govern their property – mismanagemen co-partner who member of the board
relations during the t mismanages of directors or trustees
marriage who mismanages must
Governing laws Ordinary partnership Governed by laws be in the name of the
is governed by the corporation
stipulation of the Right of Has no right of Has such right of
parties (contract) succession succession succession
Juridical Has a juridical Has no juridical Extent of liablity The partners (except Liable only to the
personality personality separate personality to 3rd persons limited partners) are extent of the shares
and distinct of that of liable personally and subscribed by them
each partner1 subsidiarily
commencemen Begins from the On the date of the (sometimes solidary)
t moment of the celebration of the for partnership debts
execution of the marriage and any to third persons
contract, unless stipulation to the Transferability Cannot transfer his Stockholder has
otherwise stipulated contrary is void of interest interest in the generally the right to
Purpose To obtain profit and To regulatethe property partnership so as to transfer his shares
relations of the make a transferee a without the prior
husband and wife partner without the consent of the other
Distribution of Divided according to Shares of each are consent of all the stockholders because
profits the agreement of the divided equally other existing partners a corporation is not
partners or in because partnership based on this principle
proportion to their is based on the
respective capital principle of delectus
contributions personae
Management Management is The administration Term of May be established Shall have the
shared equally by all belongs to both existence for any period of time perpetual existence
the partners unless spouses jointly, but the stipulated by the unless its articles of
one or more of them husbands decision partners incorporation provides
are appointed shall prevail in case of otherwise
managers in the disagreement Firm name Limited partnership is May adopt any
articles of the required by law to corporate name
partnership add the word Ltd. it its provided that it is not
Disposition of The whole interest of The share of each name the same or similar to
shares a partner may be spouse cannot be any registered firm
disposed of without disposed of during the name
the consent of the marriage even with the Dissolution At any time by the will Can be dissolved
other partners consent of the other of any or all of the voluntarily or
partners involuntarily with the
consent of the state
 Article 1770. A partnership must have a lawful object or
Death Death of a partner Death of a stockholder purpose, and must be established for the common benefit
resuts in dissolution of does not dissolve the or interest of the partners
partnership corporation
When an unlawful partnership is dissolved, the profits hall
be confiscated in favor of the State, without prejudice toe
the provisions of the Penal code governing the
confiscation of the instrument and effects of a crime.

Similarities of Partnership and Corporation 1. Object or Purpose of partnership

Both has a juridical personality separate and distinct from that of the
individuals composing it The illegality of the object will not be presumed; it must appear to be
of the essence of the relation.
Can act only through agents
Two essential elements of a contract
Organization usually composed of an aggregate of individuals
Like a stock corporation, partnership distributes its profits to those
who contribute capital to the business a. Object or purpose must be lawful
Like corporation, partnership can be organized only where there is a b. Object and purpose must be for the common benefit of the
law authorizing its organization members
A partnership is taxable as a corporation, subject to income tax
2. Effects of unlawful partnership
a. Contract is void ab initio, as if the contract of
partnership never existed
b. Neither party has the right to require the division of
the profits
c. The profits shall be confiscated in favor of the state
d. The instruments or tools of crime will be forfeited in
favor of the government.
e. By general law, contributions of the partners shall be
reimbursed according to the partner’s contribution.

3. Dissolution of an unlawful partnership

a. by operation of law- upon the happening of an event
which makes it unlawful for the business of the
partnership (art 1830)

*****Effect of subsequent illegality- it will not nullify the

contract. An accounting may be had as to the transactions
made before it became unlawful.

b. by judicial decree- generally, not necessary, but

advisable for the convenience and peace of mind of the
parties

4. Right to return contribution where partnership is unlawful

- Article 1770 is silent on the matter of the return of the
contribution when the unlawful partnership is dissolved.
- The partners must be reimbursed the amount of their
respective contributions. The contributions of the partners
have not ceased to belong to them, not being able to
become partnership property.
- The manager or administrator must return the contribution,
since it will be immoral to refuse the return of the
contribution ( Arbes vs Polistico).
-
5. Right to receive profits where partnership is unlawful
a. Article 1770 permits no action for the purpose of
obtaining the earning made by an unlawful
partnership, thus the partner will have to base his
action upon the partnership contract.
b. Profits do not represent partner’s contribution but are
the result of the industry, business, or speculation
which is the object of the partnership.
c. Profit from industry is prohibited by law since it will be
immoral to permit such.
 d. Parties in pari delicto- the court will not lend their aid of said property is not made, signed by the parties, and
to assist either party in pare delicto in an action attached to the public instrument. (1668a)
against each other. (Pari delicto- it refers to two persons
or entities who are equally at fault) 1. Partnership with contribution of immovable
property
6. Effect of partial illegality of partnership business (1) Requirements- where immovable property,
(1) Where a part of the business of a partnership is legal regardless of its value is contributed, the failure
and part illegal, an account of that which is legal may to comply with the following requirements will
be had. render the partnership contract void in so far as
(2) Where without the knowledge or participation of the the contracting parties are concerned:
partners, the firm’s profits in a lawful business have (1) The contract must be in public instrument;
been increased by wrongful acts, the innocent and
partners are not precluded as against the guilty (2) An inventory of the property contributed
must be made, signed by the parties, and
partners from recovering their share of the profits.
attached to the public instrument

(2) As to contracting parties

Article 1771. A partnership must be constituted in any - Absence of either formality renders the
form, except where immovable property or real rights are contract void.
contributed thereto, in which case a public instrument
shall be necessary. (3) As to third persons
- A de facto partnership or partnership by
1. Form of partnership contract estoppel may exist.
a. General Rule:
- No special form is required. Contract may be 2. When inventory is not required
made orally or in writing regardless of the value of (1) Immovable property is not contributed (e.g.
the contributions immovable property which may be possessed or
b. Exceptions: owned by the partnership but not contributed by any
- Where immovable property or real rights are of the partners)
contributed. In such a case, a public instrument is
necessary
(2) Property contributed is personal
- To affect or bind third persons, the transfer of real
property must be duly registered in the Registry of
Property of the province or city where the property 3. Importance of making inventory of real property
contributed is located. in partnership
(1) To determine how much share in common fund
Art. 1772. Every contract of partnership having a capital of and in case of liquidation
three thousand pesos or more, in money or property, shall (2) To be subject to inscription in the Registry of
appear in a public instrument, which must be recorded in Property
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 Art. 1774. Any immovable property or an interest therein
and the members thereof to third persons. (n) may be acquired in the partnership name. Title so
acquired can be conveyed only in the partnership name.
1. Registration of partnership (n)
(1) Partnership with capital of P3000 or more requires
(a) The contract must appear in a public Art. 1775. Associations and societies, whose articles are
instrument; and kept secret among the members, and wherein any one of
(b) It must be recorded or registered with the SEC the members may contract in his own name with third
(2) Purpose of registration persons, shall have no juridical personality, and shall be
- Registration is necessary as “ a condition for the governed by the provisions relating to co-ownership.
issuance of licenses to engage in business or (1669)
trade. However, failure to comply with the 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 public
instrument.

(3) When partnership considered registered

- The recording of parnteship is not for the
purpose of giving the parnteship juridical
personality, but to make the recorded instrument
open to all and to give notice thereof to interested
parties.

(4) De facto partnership

- One which has failed to comply with all the legal
requirements for its establishment
Art. 1773. A contract of partnership is void, whenever
immovable property is contributed thereto, if an inventory
 property cannot be chance, such as lottery or
contributed except what lucrative title are not
the law calls “profits” or included, since the law
gains that may be speaks only of profits which
derived therefrom. Thus, the partners may acquire in
property subsequently their industry or work.
Art. 1776. As to its object, a partnership is either universal acquired by inheritance,
or particular. As regards the liability of the partners, a legacy or donation
partnership may be general or limited. (1671a) cannot be included by
stipulation except their
Art. 1777. A universal partnership may refer to all the fruits thereof.
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 PARTICULAR PARTNERSHIP
intention of dividing the same among themselves, as well (Article 1783)
as all the profits which they may acquire therewith. (1673) - It is a partnership which is neither a universal partnership
of present property not a universal partnership of profits
Art. 1779. In a universal partnership of all present - Difference between a universal partnership and a
property, the property which belongs to each of the particular partnership
partners at the time of the constitution of the partnership,
becomes the common property of all the partners, as well Universal Partnership Particular Partnership
as all the profits which they may acquire therewith. Object is vague and Object is limited and well-
indefinite, contemplating a defined, being confined to
A stipulation for the common enjoyment of any other general business with an undertaking of a
profits may also be made; but the property which the some degree of continuity single, temporary, or ad
partners may acquire subsequently by inheritance, legacy, hoc nature
or donation cannot be included in such stipulation, except
the fruits thereof. (1674a) Ex. A firm engaged , among
other activities, in the
importation, marketing
distribution and operation of
Art. 1780. A universal partnership of profits comprises all automatic phonographs,
that the partners may acquire by their industry or work radios, television sets and
during the existence of the partnership. amusement machines, their
parts and accessories is a
Movable or immovable property which each of the particular partnership (CIR vs
Suter)
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)

Art. 1781. Articles of universal partnership, entered into

1. Classification of partnership (Art. 1776)
without specification of its nature, only constitute a
(1) As to the extent of its subject matter
(a) Universal Partnership (Article 1777) universal partnership of profits. (1676)

There are two (2) kinds of universal partnership 1. Presumption in favor of universal partnership and
(1) Universal partnership of all present profits
property (Art. 1778) - Where the articles of partnership do ot
(2) Universal partnership of profits (Art. specify the nature of the partnership, whether
1780) it is one of “present property” or “profits” only,
(b) Particular partnership (Article 1783)
it will be presumed that the parties intended
UNIVERSAL PARTNERSHIP merely a partnership of profits
(Article 1777) - Reason: Universal partnership of profits
Universal partnership of all Universal partnership of imposes less obligations
present property (Art. 1778- profits ( Article 1780)
1779)
The following become the (1) This comprises all that the
common property of all the partners may acquire by
partners: their industry or work during
(1) Property which the existence of the
belonged to each of partnership; and
them at the time of the (2) The usufruct of movable or
constitution of the immovable property which
partnership each of the partners may
(2) Profits which they may possess at the time of the
acquire from the celebration of the contract
property contributed
- Contribution of future - Profits acquired through
Art. 1782. Persons who are prohibited from giving each
other any donation or advantage cannot enter into
universal partnership. (1677)

1. Limitations upon the right to form a universal

partnership
(1) Persons prohibited by law to give donations
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.
- Partnership formed in violation of this article is null and
void (art. 1409[7])

(2) Pertinent provisions

 Art. 87. Every donation or grant of
gratuitous advantage direct or indirect,
between spouses.
 Art. 739. The following donations shall be
void:
(1) Those made between persons who
were guilty of adultery or concubinage
at the time of the donation
(2) Those made between persons found
guilty of the same criminal offense, in
consideration thereof;
(3) Those made to a public officer or his
wife, descendants and ascendants, by
reason of his office.

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)