STUDY GUIDE 1

Answer the following:

1. Define partnership.
- Article1767. 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
profits among themselves or in order to exercise a profession.
2. What are the characteristics of a contract of partnership?
- It is consensual, nominate, principal, bilateral or multilateral, onerous, and preparatory
- Money, property, and industry must be contributed to a common fund
- (credit and goodwill- economic goodwill or commercial credit- may be contributed but not
political credit)
- The object must be lawful
- There must be an intention to divide the profit among the partners since the firm is for the
common benefit or interest of the partners
- There must be affection societas- the desire to form active union with people among whom
there exist mutual confidence and trust (delectus personarum)
- A new personality must arise distinct from the separate personality of each of the members
3. What are the essential features of a 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 objective must be lawful.
- (5) The purpose or primary purpose must be to obtain profit and to divide the same among
the parties
4. What are the legal characteristics of partnership?
- Essentially contractual
- Separate juridical personality
- Delectus personae
- Mutual agency
- Personal liability of partners for partnership debts
5. Classify partnership (a) as to object, (b) as to liability, (c) as to term of existence
 As to the Object:
- (a) Universal Partnership of All Present Property – defined in Article 1778
- (b) Universal Partnership of All Profits – defined in Article 1780
- (c) Particular Partnerships – defined in Article 1783
 As to the Liability: LAW ON PARTNERSHIP
- (a) General – general partners are liable PRO-RATA and subsidiarily, sometimes solitarily,
with their own property/assets if the partnership is insolvent. (may include industrial
partners)
- (b) Limited – limited partners are liable only up to the extent of their contribution
 As to Legality of Existence:
- (a) De Jure – complied with ALL requirements
- (b) De Facto – failed to comply with ALL requirements
6. What are the kinds of partners?
 Under the Civil Code
 a. Capitalist partner –one who contributes money or property to common fund
b. Industrial partner –who contributes only his industry or personal service.
c. General partner –or one whose liability to third persons extends to his separate property; he
may either be capitalist or industrial partner.
d. Limited partner –or one whose liability to third persons is limited to his capital contribution.
He is also known as special partner. Unlike the general partner, he does not participate in
the management of business.
e. Managing partner –or one who manages the affair or business of the partnership; he may be
appointed either in the articles of partnership or after the constitution of the partnership.
He is also known as a general or real partner.
f. Liquidating partner –or one who takes charge of the winding up of partnership affairs upon
dissolution.
g. Partner by estoppels –or one who is not really a partner, not being a party to a partnership
agreement, but is liable as partner for the protection of innocent third person. He is one
who is represented as being, in fact, a partner, but who is not so as between the partners
themselves. He is also known as partner by implication or nominal partner.
h. Sub partner –or one who, not being a member of the partnership, contracts with a partner
with reference to the latter’s share in the partnership.

 Other classifications
a. Ostensible partner – or one who takes active part and known to the public as a partner in
the business, whether or not he has an actual interest in the firm.
b. Secret partner –or one who takes active part in the business but is not known to be a
partner by outside parties nor held out as a partner by the other partners.
c. Silent partner –one who does not take any active part in the business although he may be
known to be a partner.
d. Dormant partner –one who does not take active part in the business and is not known or
held out as partner.
e. Incoming partner –or a person lately, or about to be, taken into a partnership as member.
f. Retiring partner –or one withdrawn from the partnership; a withdrawing partner.

7. What are the requisites of a contract of partnership with a capital of P3,000.00 or more in
money or property?
- Article 1772 Every contract of partnership having a capital of P3,000.00 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. If the partnership’s capital is P3, 000.00 or more (in any form), it
must be in a public instrument, recorded with the SEC and note that property referred to
here is movable since immovable property is covered by Article 1771.
8. Will the partnership be void if it is not registered with the Securities and Exchange Commission,
having a capital of P3,000.00 or more?
- Effect of failure to register: Partnership with a capital of less than P3,000 because the article
requires only those with capital of P3,000 or more to register with the SEC. but the mere
failure to register the contract of partnership does not invalidate the same as among the
partners, so long as the contract has the essential requisites, because the main purpose of
 registration is to give notice to the third parties, and it can be assumed that the members
know the contents of the contract.
9. When shall a partnership be considered void?
- Article 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) Refers specifically where one or both of the parties
contribute immovable property. The requirements are: (1) The contract must be in a public
instrument (2) An inventory of the immovable property must be made, signed by BOTH
parties and attached to the public instrument, otherwise the partnership is VOIDED.
10. What are the rules in determining the existence of a partnership?
- Article 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 odes 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 in the profits of a business is prima facie evidence that
he is partner in the business, but no such inference shall be drawn if such profits were
received in payment:
o (a) As a debt by installments or otherwise;
o (b) As wages of an employee or rent to a landlord
o (c) As an annuity to a widow or representative of a deceased partner
o (d) As interest on a loan, though the amounts of payment vary with the profits of the
business
o (e) As consideration for the sale of a goodwill of a business or other property by
installments or otherwise. (n)
11. A sold his entire business including its goodwill to B on terms providing that A shall receive for a
period of five years 30% of the net profits of the business conducted by B. Does this constitute a
partnership between A and B?
- Yes, although A sold his/her business including its goodwill to B, there is still a period that A
can still share profit with B from the business that is sold to B , this can be considered as
business operation.
12. Distinguish partnership from co-ownership.
- PARTNERSHIP vs CO-OWNERSHIP
As to creation or establishment:
Partnership: Created or established by contract only whether expressly or impliedly by
conduct
Co-ownership: It may be created without contract such as by law, other generating incidents
like confusion (Arts. 472, 473, 2170) and succession (Art. 1078)
As to Juridical personality:
Partnership: It has a legal or juridical personality from the time of establishment
Co-ownership: It has no legal or juridical personality
As to lifetime:
Partnership: The law does not fix a time limit
 Co-ownership: Term of co-ownership must not exceed 10 years
As to effect of transfer of interest:
Partnership: Transferee cannot be a partner without the consent of all the partners
Co-ownership: Co-owner can dispose of his share in the property and the transferee
becomes a co-owner without need of the consent of the others
As to purpose:
Partnership: Intended for profit
Co-ownership: Intended for collective enjoyment
As to power to represent:
Partnership: GR: There is mutual power to represent one another
Co-ownership: GR: There is no mutual power to represent the co-owners except in
ejectment cases as plaintiffs
As to effect of death:
Partnership: It dissolves the partnership
Co-ownership: It does not dissolve the partnership
13. Distinguish partnership from joint stock company.
- Partnership- The liability of each partner is unlimited if it is not specified in the agreement.
- Joint stock company- Shareholders liability is limited only to the value of the shares.
- Partnership-- Generally partners contribute the fund.
- Joint stock company : It issues ordinary paid up shares to collect the capital
14. What must be object or purpose of a partnership?
- Article 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. (1666a)
o The partnership must have a lawful object or purpose
- lawful object refers to capital
- lawful purpose refers to the business itself
15. In case an unlawful partnership is dissolved by judicial decree, how shall the profits be
appropriated?
- Article 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. (1666a) Article 1770
authorizes only the confiscation of profits but not the contributions of the partners
which constitute the capital of the partnership (Pineda, 2006). Only the fruits of an
unlawful partnership are confiscated. The partners may recover the capital
contributed by them because the action for that purpose does not have to be based
on the existence of the partnership.
- EFFECTS OF AN UNLAWFUL PARTNERSHIP:
- 1. The contract is void ab initio and the partnership never existed in the eyes of the
law. (Art. 1409[1])
- 2. The profits shall be confiscated in favor of the government. (Art. 1770)
 - 3. The instruments or tools and proceeds of the crime shall also be forfeited in favor
of the government. (Art. 1770, Art. 45-RPC)
- 4. The contributions of the partners shall not be confiscated unless they fall under
no. 3. (See Arts. 1411 and 1412) Judicial decree is not necessary to dissolve an
unlawful partnership.
16. Give at least two (2) examples of unlawful partnerships?
- A partnership formed for gambling purposes
- A partnership formed to create illegal monopolies or combinations in restraint of
trade.
17. In what form shall a partnership be constituted?
- Article 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 (1667a). A partnership may be constituted in any form (as stated
in Article 1771) Partnerships are not covered by the Statute of Fraud since these are
not necessarily required to be in writing (contract of partnership can be in any form)
If immovable property and/or real rights are contributed to the partnership, then
the contract must be in a public instrument (notarized documents) in order to bind
third persons, the transfer of ownership of immovable property must be registered
with the registry of property in the province or city where the property is located
the article shows that partnerships can be perfected by mere consent.
18. Can a partnership acquire immovable property?
- Article 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.
(n) Being a juridical entity, a partnership can acquire property and subsequently
become its owner.
19. Define universal partnership of all present property.
- Universal partnership of all present property is one in which the partners contribute
all the properties which actually belong to each of them at a time of the constitution
of the partnership to a common fund, with the intention of dividing the same
among themselves as well as the profits which they may acquire therewith.
20. In a universal partnership of all present property which property becomes the common property
of all the partners?
- Property owned at the time of contribution will become common property of the
partnership eventually because only the profits acquired through the contribution
will become common property, unless there was a stipulation that says otherwise.

21. May the partners contribute future properties to a universal partnership of all present property?
- No, REASONS WHY FUTURE PROPERTIES CANNOTBE MADE:
i. contracts regarding successional rights cannot be made
ii. a partnership demands that the contributed things be determinate, known and
certain
 iii. universal partnership of all present properties really implies a donation, and it is
well known that generally future property cannot be donated
22. Define universal partnership of profits?
- A universal partnership of profits is one which comprises all that the partners may
acquire by their industry of 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
23. If a partner in a universal partnership of profits wins the first prize in the lotto draw during the
existence of the partnership, is the partner required to turn over the winnings to the
partnership?
- A universal partnership of profits comprises all that the partners may acquire by
their industry or work during the existence of the partnership. And no, the other
partner cannot share with prize since it came from chance not work.
24. To whom shall movable or immovable property which each of the partners may possess at the
time of the celebration of the contract of universal partnership of profits pertain?
- 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.
25. If such movable or immovable property shall pertain exclusively to the partner who owns it at
the time of the celebration of the contract, what then shall pass to the partnership?
- It might happen in partnerships that no one of the partners would have any private
property, and that if they did, the usufruct would be inconsiderable. If they have,
such continues to be his private property, only the usufruct passing to the
partnership.
26. Will the usufruct of properties subsequently acquired by the partners in a universal partnership
of profits belong to the partnership?
- Only the usufruct of the properties of the partners becomes common property of all
the partners and the partnership. It might happen in partnerships that no one of the
partners would have any private property, and that if they did, the usufruct would
be inconsiderable. If they have, such continues to be his private property, only the
usufruct passing to the partnership.
27. How shall the partnership be treated in case the articles of partnership fail to specify its nature
whether it is one of “present property” or of “profits”?
- Article 1781 Articles of Universal Partnership, entered into without specification of
its nature, only constitute a universal partnership of profits (1676) If the articles of
universal partnership are doubtful or unclear then the presumption is that it is a
universal partnership of all profits. Because a universal partnership of all profits
require less obligations and is less onerous since the partners get to retain
ownership over the property that they contribute.

28. Who are the persons prohibited from entering into a universal partnership?
- Legally married spouses (however, spouses may enter into a particular partnership
like the exercise of a profession or vocation
- Common law spouses
- Parties guilty of adultery or concubinage
 - Criminals convicted for the same offense in consideration of the same
- A person and a public officer (or his wife, descemdants, ascendants) by reason of his
office
29. When are donations considered void and therefore prohibited?
- Article 87: Every donation or grant of gratuitous advantage, direct or indirect,
between spouses during their marriage, valid or not, shall be void except moderate
gifts which the spouses may give each other on the occasion of any family rejoicing.
- Article 739: The following donations shall be void:
- (a) Those made between persons who were guilty of adultery or concubinage at the
time of the donation
- (b) Those made between persons found guilty of the same criminal offense, in
consideration thereof
- (c) Those made to a public officer or his wife, descendants and ascendants by reason
of his office
30. Define particular partnership.
- A particular partnership has for its object determinate things, their use of fruits, or a
specific undertaking, or the exercise of a profession or vocation. It is a partnership
which is neither universal partnership of present property nor a universal
partnership of profits
31. Can husband and wife enter into a particular partnership?
- Persons who are prohibited by law to give donations cannot enter into a universal
partnership for the reason that each of the partners virtually makes a donation. A
husband and wife, however, may enter into a particular partnership or members
thereof.
32. What is the fundamental difference between a universal partnership and a particular
partnership?
- A universal partnership involves:
- partners contributing all their property or all their profits to the partnership;
- Usually for an open-ended period of time; &
- For wide ranging purposes;
- With a commensurate sharing of the profits of their enterprises .
- Particular Partnerships are:
- Usually a more temporary and focused arrangement;
- Where partners contribute their resources for a particular defined purpose only; &
- Share only in profits from that particular project together.