BUSLAW Chapter 1 Notes

Article 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.
Profession
1. is "a group of men pursuing a learned art as a common calling in the spirit of
public service, no less a public service because it may incidentally be a
means of livelihood.
Partnership - A Juridical person.
 To be considered a juridical personality, a partnership must fulfill these
requisites: (1) two or more persons bind themselves to contribute money,
property or industry to a common fund; and (2) intention on the part of the
partners to divide the profits among themselves. It may be constituted in any
form; a public instrument is necessary only where immovable property or real
rights are contributed thereto. This implies that since a contract of
partnership is consensual, an oral contract of partnership is as good as a
written one. Where no immovable property or real rights are involved, what
matters is that the parties have complied with the requisites of a partnership.
Characteristics of a contract of partnership
1. Consensual
o It is a contract that is perfected by mere consent because all the
partners had a meeting of minds to enter a contract of partnership.
2. Commutative

o The contribution of each partner, whether money, property or industry,

is considered as the equivalent of the contribution of the other
partners.
3. Principal

o It is a contract that does not depend on other contracts for its

existence.
4. Bilateral

o It is a contract enter into by two or more persons

5. Onerous

o Each partner must contribute money, property, or industry. Of course,

a partner can contribute one, some or all of these.
6. Preparatory
 o It is a contract in preparation for another contract of contracts.

Doctrine of Delectus Personae

 The right to choose with whom a person wishes to associate himself.
Partnership at will
 A partnership that does not fix its term is a partnership at will.

Article 1768. The partnership has a judicial personality separate and distinct from
that of each of the partners, even in case of failure to comply with the requirement
of Article 1772, first paragraph.

Artificial Person / Juridical Person

 An entity, such as a corporation, created by law and given certain legal rights
and duties of a human being; a being real or imaginary, who for the purpose
of legal reasoning is treated as a human being.

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 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 deprived;
(4) The receipt by a persons of a share of the profits of a business is prima facie
evidence that he is a partner in the business, but not 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.
Partnership by Estoppel
 Where a partnership not duly organized has been recognized as such in its
dealings with certain persons, it shall be considered as “partnership by
estoppel” and the persons dealing with it are estopped from denying its
partnership existence.

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.

Lawful Object or Purpose

 The object or purpose of a partnership must be within the commerce of man,
not impossible, and it must not be contrary to law, morals, good customs,
public order or public policy.
Effects of an Unlawful Partnership
1. The contract is void from the very beginning
2. The profits shall be confiscated in favor of the government
3. The instruments or tools and proceeds of the crime shall be forfeited in favor
of the government, and
4. The contributions of the partners shall not be confiscated unless they fall
under no.3

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.

General Rule
 No form is required. Thus, the contract may be oral or in writing.
Exception
 If real properties or real rights in real properties are contributed regardless of
the value. A public instrument is needed; otherwise, the contract of
partnership is void.
Real rights
  A right that is connected with a thing rather than a person. Real rights include
ownership, use, habitation, usufruct, predial servitude, pledge, and real
mortgage.

Public Instrument
 A document prepared by a notary public in the presence of the parties who
sign it before witnesses.

Article 1772. Every contract of partnership having a capital of three thousand

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.

Purpose of the Registration

 The registration is to set “a condition for the issuance of licenses to engage in
business or trade. In this way, the tax liabilities of big partnerships cannot be
evaded, and the public can also determine more accurately their membership
and capital before dealing with them.”

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.

What is the Intention of Article 1773?

 Article 1773 was intended primarily to protect third persons.

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.
 The reason for the above-stated provisions is that a partnership has a judicial
personality separate and distinct from that of each of the partners; hence,
immovable property to be acquired must be in the name of the partnership
and if conveyed must also be in the partnership name.
Article 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.

Article 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.
CLASSIFICATION OF PARTNERSHIP
1. According to Object
 Universal Partnership
a. Universal Partnership of all present property – 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.
b. Universal partnership of all profits – It comprises all that
the partners may acquire by their industry or work during
the existence of the partnership.
2. According to liability
 General Partnership
a. It is one where all the partners are general partners. All
general partners here are liable up to the extent of their
separate properties after the assets of the partnership
have been exhausted.
 Limited Partnership
a. It is one where there is at least one general partner and
one limited partner. A general partner is liable beyond his
contribution while a limited partner is liable only to the
extent of his contribution.
3. According to duration
 Partnership at will
a. It is one where there is no fixed term or it is not formed
for a particular undertaking, or it is one for a fixed term or
particular undertaking which is continued after the
termination of such term or particular undertaking without
any express agreement.
 Partnership with a fixed term
a. It is one where the life or period of existence of the
partnership has been agreed upon by the partners.
 Partnership for a particular undertaking
a. It is one where it will exist until the purpose is
accomplished.
4. According to representation to others
 Ordinary partnership
 a. It is one where 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.
 Partnership by estoppel
a. It is one where persons, by words spoken or written or by
conduct, represent themselves, or consent to another
representing them to anyone, as partners in an existing
partnership or with one or more persons not actual
partners.
5. According to the legality of its existence
 De jure partnership
a. It is one which has complied with all the legal
requirements for its creation.
 De facto partnership
a. It is one which has not complied with all the legal
requirements for its creation.
Article 1777. A universal partnership may refer to all the present property or to all
the profits.

Article 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.

The contributions of the partners here are the following:

1. All the properties actually belonging to the partners; and
2. The profits acquired with said properties

Article 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.

Future property (Inheritance, legacy, or Donation)

Future properties cannot be included because:
 1. As a rule, contracts regarding successional rights cannot be made;
2. A partnership demands that the contributed things be determinate, known,
and certain;
3. A universal partnership of all present properties really implies a donation, and
it is well-known that generally, future property cannot be donated.

Article 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.
 Partners retain their ownership over their present and future property. What
passes to the partnership are the profits and the use of the same.

Article 1781. 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.

 The universal partnership of profits imposes less obligation because their real
and personal properties are retained by them in naked ownership.

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

Effect of Violation of Art. 1782.

 The partnership is null and void, and its nullity may be raised anytime. No
legal personality was ever acquired.

Article 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.
 The above stated defines a particular partnership