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Partnership Characteristics of a contract of
partnership
According to Art.1767, a
partnership is two or more 1. Consensual – consent
persons who bind themselves 2. Commutative – contributions
to contribute money, of each partner are equal to
property, or industry to a the others.
common fund with the 3. Principal – existence does not
intention of dividing the depend to other contracts.
profits among themselves. 4. Bilateral – a contract entered
by two or more persons.
Profession
5. Onerous – each partner must
Is simply the occupation or contribute money, property,
the field of work where an or industry.
individual chose to practice 6. Nominate – a contract which
his expertise. has a name in law.
7. Preparatory – a contract in
Essential requisites of a
preparation of another
contract of partnership
contract.
1. Existence of a valid contract.
Money – medium of exchange.
2. There must be a contribution
of money, property, or Property – external thing where
industry to a common fund; rights of possession, use and
3. Must be organized for gain or enjoyment are exercised.
profit; and
Industry – diligence in performing
4. Must have a lawful object or
a task or simply means, effort. It is
purpose.
also known as an intangible
Two tests to determine the contribution in organizing a
existence of a partnership partnership.
First Test – whether there is an Joint Venture vs. Partnership
agreement to contribute money,
Joint Venture – formed for a single
property, or industry to a common
project, and often temporary or
fund.
done in a short period of time.
Second Test – whether or not there
Partnership – formed with the
is an intent to divide the profits
intentions of continual business.
among the parties.
Juridical Person/Entity
Non-human legal entity that
is governed by the law.
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Doctrine of Delectus Personae distinct from that of each of
the partners.
The right to choose with
Under article 1768, partners
whom a person wishes to
are not liable for the
associate himself.
obligations of the partnership
“choice of the person”
unless the partnership is
Is the very foundation and
being used for fraudulent,
essence of a partnership.
unfair or illegal purposes.
It allows the partners to have
The article explicitly provides
the power, although not
that a partnership retains its
necessarily the right, to
juridical personality even if it
dissolve the partnership.
fails to register.
An unjustified dissolution by
the partner can subject him Artificial Person/Juridical
to a possible action for Person
damages. is able to:
Delectus personarum 1. Acquire properties
2. Incur obligations
“choice of persons”
3. Bring civil or criminal actions
Partnership at will
A partnership registered under the
A partnership that does not law can only be dissolved under
fix its term. the law. While a partnership at will
The birth and life of the may be dissolved by the will of a
partnership at will is partner.
predicated on the mutual
Art. 1769 of the Civil Code
desire and consent of the
In determining whether a
partners.
partnership exists, these rules shall
A partnership’s purpose must be a apply:
specific undertaking or
Rule 1: Persons who are not
“project” which has a definite or
partners as to each other are
definable period of completion.
not partners as to third persons.
Contribution of the partners may
Partnership by Estoppel
be in the form of credit or industry,
not necessarily cash or fixed Is a person who gives an
assets. impression to others that
he/she is a partner of the
Art. 1768 of the Civil Code
firm through his/her own
A partnership has a juridical initiative, conduct or
personality separate and behavior.
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Rule 2: Co-ownership or co- There is a disputable
possession does not of itself a presumption of
partnership. establishing a partnership
Example: X and Y are if what is being shared by
recipients of a gift two or more persons are
consisting of an undivided net profit. However, if
parcel of land from Z. In what is being shared by
this case, X and Y are co- two or more persons are
owners and not partners. gross returns or gross
profit, then there is no
Partnership Co-ownership
Creation presumption of
Created by contract Created by contract establishing partnership.
and law Rule 4: The receipt by a person
Juridical Personality of a share of the profits of the
It has legal or It has no juridical
juridical personality. personality. Thus, it business is prima facie evidence
Thus, it can sue and cannot sue or be that he is a partner in the
be sued. sued. business.
Purpose Prima Facie - Sufficient
For profit. Common enjoyment to establish a fact or raise
of a thing or right. It
is not necessarily for presumption unless
profit. disproved or rebutted.
Profit The common ownership of
It may be stipulated Profits must always property does not itself
upon. depend on the
proportionate shares. create a partnership
Any stipulation to the between the owners.
contrary is VOID.
Dissolution
Exceptions to Rule 4:
It is dissolved by It is not dissolved by a. As a debt by installments
death or incapacity of the death or
a partner. incapacity of co- or otherwise
owner. Paying debts to creditors
Form using the money from the
It may appear in any No public instrument net profit does not mean a
form. However, when is needed even if real
real property is property is the object
partnership to the creditor
contributed, a public of co-ownership. exists.
instrument is b. As wages of an employee
required.
or rent to a landlord
Payment of salaries to
Rule 3: The sharing of gross employees using the
returns does not of itself money from the net profit
establish a partnership. does not mean a
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partnership to the morals, good customs, public
employee exists. order or public policy.
c. As an annuity to a widow
or representative of a
deceased partner
Giving a portion of the
annual net income to a
relative of a deceased Examples of Unlawful
partner does not mean a Partnership
partnership to the relative
exists. 1. For gambling purposes
d. As an interest on loan 2. To furnish houses for
Payment of interest using prostitution purposes.
the money from the net 3. To create illegal monopolies
profit does not mean a or combinations in restraint
partnership to the creditor of trade.
exists. Effects of an Unlawful
e. As the consideration for Partnership
the sale of a goodwill of a
business or other 1. The contract is void from the
property very beginning.
Payment of a property 2. Profits shall be confiscated in
purchased using the favor of the government.
money from the annua net 3. Instruments or tools and
profit does not mean a proceeds of the crime shall
partnership to the seller be forfeited in favor of the
exists. government.
4. The contributions of the
A demand for periodic accounting partners shall not be
is evidence of a partnership. confiscated unless they fall
under no. 3.
Art. 1770 of the Civil Code
Art. 1771 of the Civil Code
A partnership must have a
lawful object or purpose, and A partnership may be
must be established for the constituted in any form,
common benefit or interest of except for immovable
the partners. property or real rights are
contributed thereto, in which
Lawful object or purpose
case a public instrument
Must be within the commerce shall be necessary.
of man, not impossible, and it
Form of Contract of Partnership
must not be contrary to law,
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General Rule: Every contact of partnership
No form is required. Thus, having a capital of 3,000php
the contract may be oral or more, in money or
or in writing. property, shall appear in a
Exception: public instrument, which
If real properties or real must be recorded in the
rights in real properties Office of the Securities and
are contributed regardless Exchange Commission.
of the value. A public Failure to comply with the
instrument is needed; requirements of the
otherwise, the contract of preceding paragraph shall
partnership is void. not affect the liability of the
Real Properties partnership and the
The term “real estate” or members thereof to third
“real property” means the persons.
land plus anything
Art. 1772 of the Civil Code
growing on it, attached to
it or erected on it, Requires that partnerships
including man-made with the capital of P3,000 or
objects, such as buildings, more must register with the
structures, roads, sewers, SEC, however, this
and fences, but excluding registration requirement is
anything that may be not mandatory.
removed from the land Non-compliance with this
without injury to the land. directory provision of the law
Real Rights will not invalidate the
A right that is connected partnership considering that
with a thing rather than a the totality of the evidence
person. Real rights include proves that partners forged
ownership, use, the partnership in question.
habitation, usufruct,
Partnership having a capital of
predial servitude, pledge
3,000php or more (personal
and real mortgage.
property only)
Public Instrument
A document prepared by a Take note that non-
notary public in the compliance with the
presence of the parties requirement of execution in a
who signed it before public instrument will not
witness. make the contract void.
Hence, it is still valid.
Art. 1772 of the Civil Code
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Partnership having a capital of name. Title so acquired can
below 3,000php (personal be conveyed only in the
property only) partnership name.
When acquiring, buying,
No form is required. Thus, it
donating, selling a property,
may be verbal.
the property must only be in
the name of the partnership.
Purpose of Registration Art. 1775 of the Civil Code
Issuance of licenses to Associations and societies,
engage in business or trade. whose articles are kept
To avoid tax evasions secret among the members,
Public can determine their and wherein any one of the
membership and capital members may contract in its
before dealing with them. own name with third persons,
shall have no juridical
Art. 1773 of the Civil Code
personality, and shall be
A contract of partnership is governed by the provisions
void, whenever immovable relating to co-ownership.
property is contributed
Partnership Association
thereto, if an inventory of Juridical Personality
said property is not made, It has juridical It has no juridical
signed by the parties, and personality. personality.
attached to the public Purpose
It is for profit. It may not be for
instrument. profit.
Contribution of Members
Note: An inventory is still required There is a There is no
if aside from real property, contribution of contribution of
personal property is contributed. money, property, or capital although fees
industry or a are usually collected
However, the inventory did not
combination of from the members to
include the personal property. these. maintain
organization.
This article was intended Liability
primarily to protect third The partnership is Members are
persons. the one liable. individually liable for
the debts of the
Art. 1774 of the Civil Code association.
Any immovable property or
an interest therein may be
acquired in the partnership
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The associations or societies the exercise of a
here cannot sue because it profession or vocation.
has no legal personality. 2. According to liability
a. General Partnership
Art. 1776 of the Civil Code
All partners are general
As to its object, a partnership partners.
is either universal or All general partners are
particular. As regards the liable up to the extent
liability of the partners, a of their separate
partnership may be general properties after the
or limited. assets of the
partnership have been
exhausted.
Classification of Partnership b. Limited Partnership
There is at least one
1. According to object
general partner and
a. Universal Partnership
one limited partner.
Universal partnership of
A general partner is
all present property –
liable beyond his
The partners contribute contribution well a
all the property which limited partner is liable
actually belongs to only to the extent of his
them to a common contribution.
fund, with the intention 3. According to duration
of dividing the same a. Partnership at will
among themselves, as It is one where there is
well as all the profits no fixed term or it is
which they may acquire not form for a
therewith. particular undertaking,
Universal partnership of it is one for a fixed
all profits – It comprises term or particular
all that the partners undertaking which is
may acquire by their continued after the
industry or work during termination of such
the existence of the term or particular
partnership. undertaking without
b. Particular Partnership any express
A particular partnership agreement.
has for its object b. Partnership with a
determinate things, fixed term
their use or fruits, or
specific undertaking, or
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It is one where the life legal requirements for
or period of existence its creation.
of the partnership has b. De facto partnership
been agreed upon by It is one which has not
the partners. complied with all the
c. Partnership for a legal requirements for
particular undertaking its creation.
It is one where it will
Art. 1777 of the Civil Code
exist until the purpose
is accomplished. A universal partnership may
4. According to refer to all the present
representation to others property or to all the profits.
a. Ordinary Partnership
Kinds of Universal Partnership
It is one where two or
more persons bind 1. Partnership of all present
themselves to property
contribute money, 2. Partnership of all profits
property, or industry to
a common fund, with
intention of dividing the Art. 1778 of the Civil Code
profits among A partnership of all present
themselves. property is that in which the
b. Partnership by partners contribute all the
Estoppel property which actually
It is one where persons, belongs to them to a
by words spoken or common fund, with the
written or by conduct, intention of dividing the
represent themselves, same among themselves, as
or consent to another well as all the profits which
representing them to they may acquire therewith.
anyone, as partners in
an existing partnership The contributions of the
or with one or more partners here are the
persons not actual following:
partners 1. All the properties actually
5. According to the legality belonging to the partner; and
of its existence 2. The profits acquired with said
a. De jure partnership properties.
It is one which has
complied with all the Art. 1779 of the Civil Code
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In a universal partnership of partners may acquire by their
all present property the industry or work during the
property which belongs to existence of the partnership.
each of the partners at the Movable or immovable
time of the constitution of the property which each of the
partnership, becomes the partners may possess at the
common property of all the time of the celebration of the
partners, as well as all the contract shall continue to
profits which they may pertain exclusively to each,
acquire therewith. only the usufruct passing to
A stipulation for the common the partnership.
enjoyment of any other
profits may also be made; Partners retain their ownership
but the property which the over their present and future
partners may acquire property. What passes the
subsequently by inheritance, partnership are the profits and the
legacy, or donation cannot be use of the same.
included in such stipulation,
except the fruits thereof.
Future Property (Inheritance, Universal Universal
Partnership of all Partnership of
Legacy, or Donation) Present Property Profits (During
(At the time of the existence
Future properties cannot be constitution of the of the
included because: partnership) partnership)
All the present Only the
1. As a rule, contracts regarding property actually usufruct (use
successional rights cannot be belong to the and fruits) of the
made; partners are properties of the
contributed to the partners
2. A partnership demands that partnership which becomes
the contributed things be become common common
determinate, known, and property of all the property of all
partners and the the partners and
certain; partnership. the partnership.
3. Universal partnership of all General Rule: All profits
present properties really Only the profits of acquired
implies a donation, and it is said contributed through the
property become “industry” or
well-known that generally, common property “work” of the
future property cannot be but not profits arising partners become
donated. from other property common
of the partners. property.
Art. 1780 of the Civil Code Exception:
If stipulated, the
A universal partnership of profits from other
property of the
profits comprises all that the
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partners may properties (or at least, their
become common. usufruct). Therefore, if
Note: persons are prohibited to
The properties donate to each other, they
subsequently should not be allowed to do
acquired by
inheritance, agency, indirectly what the law
or donation, cannot forbids directly.
be included in the
circulation, but the Effects of Violation of Art. 1782
fruits thereof can be
included in the The partnership is null and
stipulation. void come and its nullity may
be least anytime. No legal
Art. 1781 of the Civil Code personality was ever
acquired.
Articles of universal
partnership, entered into
without specification of its
nature, only constitute a
universal partnership of
profits.
Presumption in favor of
universal partnership of profits Examples of persons who
cannot enter into a universal
The universal partnership of
partnership
profits imposes less
obligation because their real 1. Legally married spouses;
and personal properties are
retained by them in naked Note: However, spouses may enter
ownership. into a particular partnership like
the exercise of a profession or
Art. 1782 of the Civil Code vocation.
Persons who are prohibited 2. Persons living together as
from using each other any husband and wife without a
donation or advantage do not valid marriage;
enter into a universal 3. Persons who were guilty of
partnership. adultery or concubinage at
the time of the donation;
Rationale:
4. Persons found guilty of the
A universal partnership is same criminal offense, in
virtually automation to each consideration thereof;
other of the partners
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5. A person or persons and a
public officer or his wife,
descendants and ascendant,
by reason of his office.
Art. 1783 of the Civil Code
A particular partnership has
for its object determinate
things, their use or fruits, or
specific undertaking, or the
exercise of a profession or
vocation.
The above-stated article
defines a particular
partnership.
Note: If the partnership is a
universal partnership, a husband
and wife cannot enter into such
contract. However, if the
partnership is a particular
partnership, they can.
