Part I

PARTNERSHIP

CHAPTER I –GENERAL PROVISIONS

Art. 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. (1665a)

Contract by definition is a written or spoken agreement that is intended to be enforceable by

law. It is important to note that a contract usually signifies intention to make the agreement
legally binding, whether written or spoken initially.

The Civil Code Article specifically mentioned persons, and not artificial beings. Meaning,
partners must simply be persons and not anything else.

The Civil Code article enumerated what partners may contribute, these are money, property, and
industry. These are basically everything what a partner can contribute. Anything can fall under
those enumerated.

Money may be physical cash, cash in banks, or any other things that can be considered as legal
tender.

Properties can be sub-classified further: Real and Personal. Real properties are land and
buildings, and any other immovable properties that you can think of. Personal properties are any
movable properties. It could be a thing, animal, or anything that can be considered as a property.

Industry is hard work. A person can contribute his or her skills to be a partner. Any work such
as accounting, auditing, marketing, advertising, drawing, clerical work, other specialized skills
depending on the business being formed by the partnership, anything.

All these money, properties, and industries of each and every partner who contributed, must be
gathered to a common fund. Intentions must be there that these must be used by the partnership
in order to earn. These money, properties, and industries must be dedicated for partnership use.

The intention of a partnership must be to earn, and to maximize profit. Lastly, the earnings must
be divided among partners by the end of every operating cycle of the partnership, usually
yearend.
To end, the following must be present before a contract can be considered as a partnership:
 Two or more persons must form the partnership
 Partners must contribute money, properties, or industries
 Contributions must be gathered to a common fund
 There must be intention to earn
 There must be intention to divide the earnings among partners

Business Laws and Regulations

Charish Dane V. Boniel, CPA
Two or more persons may also form a partnership for the exercise of a profession
Example: a group of CPAs formed a partnership to form an accounting/auditing firm

Characteristic elements of partnership

The contract of partnership is:

1. Consensual – the contract of partnership is perfected by mere consent
2. Nominate- it has a designated name in our law
3. Bilateral- entered into by two or more persons and the rights and obligations arising therefrom
are always reciprocal.
4. Onerous – involves consideration; each of the parties aspires to procure for himself benefit
through giving of something.
5. Commutative- the undertaking of each of the partner is considered as the equivalent of that of
the other.
6. Principal- it can stand alone; it does not depend for its existence or validity upon some other
contract
7. Peparatory- its information is followed by other contracts to carry out its purpose
A partnership contract, in its essence, is a contract of agency

Essential features of partnership

Below are the five (5) essential features of a partnership contract:
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 object must be lawful.
5. The primary purpose must be to obtain profits and to divide the same among the parties.
It is also required that the articles of partnership must not be kept secret among the members

1) Existence of a Valid Contract

1. A form of voluntary and personal association - Partnership is fiduciary in nature.
Partnership is a form of voluntary association entered into by the association. It is a
personal relation in which the element of delectus personae exists. What does Delectus
personae mean? It involves trust and confidence between partners.

“No one can become a member of the partnership association without the consent of all
the other associate. The three essential requisites of a contract must be complied with:
consent, object and cause. Each partner must surrender to the partnership an interest in
his property, labor, skill, or energy, in accordance with the express or implied stipulations
of their mutual agreement.

2. Creation and proof of existence - The contract can be entered into orally or written. It
may be informally created and its existence proved by the conduct or acts of the parties
but it is customary to embody the terms of the association in a written document known
as Article of Partnership; a person cannot enter into a contract of partnership solely
with himself; there must be atleast two competent parties.

Business Laws and Regulations

Charish Dane V. Boniel, CPA
 3. Other forms of association excluded- Partnership excludes all other association which
do not have their origin in a contract , expressed or implied. “No partnership is created by
law or by operation or implication of law” example: religious societies, conjugal, or
community partnership
Limited partnership cannot be created by mere voluntary agreement alone as
distinguished to general partnership.

2) Legal Capacity of parties to enter into the contract

1. Only those person with legal capacity to give consent may enter into a contract of
partnership. Question: Who cannot give consent to a contract of partnership?
They are:
1)Unemancipated Minors
2)Insane or demented persons
3)Deaf mutes who do not know how to write
4)persons who are suffering from civil interdiction
5)incompetents who are under guardianship (Art. 1327, 1329 of the NCC)

Question: May a juridical person enter into a contract of partnership?

Yes, in Mervyn v. Bieber, (184 CA 637) corporations which are expressly authorized by
statute, or there is an express grant of such authority in the charter, a corporation has
authority to enter into a contract of partnership. Also, there is no prohibition against a
partnership being a partner in another partnership. When two or more partnerships
combine with each (or with natural person or persons) other creating a distinct
partnership.

3) Mutual contribution to a common fund

There must be mutual Contribution of money, property or industry. Both real and personal
property can be contributed.

Money-Legal Tender of the Philippines not checks, drafts or other representatives of

money.(they must be cashed first)

Property-License to construct and operate a cock pit may be given as a contribution to a

partnership.

Industry-active cooperation, the work of the party associated, which may be either personal,
manual efforts or intellectual, and for which he receives share in the profits of the business, not
just salary. However, a limited partner in a limited partnership cannot contribute mere industry
or services (Art 1845)

4) Legality of object

A partnership cannot be formed for an illegal purpose and where the thing to be done is illegal,
the contract of partnership for the purpose of doing such is equally illegal. Art. 1770 of the New

Business Laws and Regulations

Charish Dane V. Boniel, CPA
Civil Code states, “When an unlawful partnership is dissolved by judicial decree, the profits shall
be confiscated in favor of the State.” Art. 1770 of the New Civil Code states, “When an unlawful
partnership is dissolved by judicial decree, the profits shall be confiscated in favor of the State.”

Effect of unlawful purpose of partnership

The Court will refuse to recognize its existance and will not lend their aid to assist either of the
parties thereto in an action against the other. The profits shall be confiscated in favor of the
State. The instruments and effects of the crime, if the purpose is a criminal act, may be
confiscated under the provisions of the RPC. The contributions of the partners shall not be
confiscated.

5) Intention to realize and divide profits

The purpose must be to obtain profits etc. The purpose must be to obtain profits and to divide the
same among the partners and that it is necessary that such profits or benefits shall be common to
all partners.

A partnership is essentially a business enterprise established for profits.

Sharing of gross profits is not partnership when the agreement is to divide the gross earning or
receipts of a venture, will not for itself constitute a partnership as to third persons. It does not
amount to an agreement to share profits and losses. Sharing of profits is a prima facie evidence
of partnership because it is an essential element of the relationship.

When sharing profits not prima facie evidence of partnership?

One who merely makes a loan or money or credit to the owner of a business in consideration of
a share of its profits in repayment of such loan or in lieu of, or in addition to interest for its use
does not thereby become a partner in the business.

Where an employee receives 35% of the net profits, instead, of a salary, there is no partnership in
the absence of any contract showing the same.

Art. 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 requirements of Article 1772, first
paragraph. (n)
Like the corporation, a partnership duly formed under the law is a juridical person to which the
law grants a juridical personality separate and distinct from that of each of the partners. As a
juridical person, a partnership may acquire and possess property of all kinds, as well as incur
obligations and bring civil or criminal

Question: If A and B decide to form a partnership. How many persons are involved?

A, B and the Partnership of A and B.

Business Laws and Regulations

Charish Dane V. Boniel, CPA
 Art. 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.

What is referred to in Art. 1772?

What is referred to here is that registration in SEC is not necessary for the acquisition of
juridical personality. The contract of partnership is a consensual contract. Hence it is
perfected from the moment of consent, and its juridical personality begins therefrom.
Partnerships like corporations are subject to absolute jurisdiction, supervision and control
of the SEC

Art. 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 derived;
(4) The receipt by a person of a share of the profits of 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:

(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. (n)

(1) Persons not partners as to each other

If Juan and Pedro are merely co-owners but Juan represents to Padring that he and Pedro
are partners, can they be partners as to Padring, a third person?

The general rule is, no, they cannot be partners as to Padring, who is a third person if they
are not partners as to each other. The exception is, where there is estoppel in Art. 1825 of
the Code. So, as to Padring, Juan and Pedro are partners even if they are not real partners.

(2) Co-ownership or co-possession

Juan and Pedro agree to buy a piece of land under the condition that each should pay one-
half of the price thereof, and that the property should be divided between them. Is there
partnership in the case? (Gallemit v. Tagbiliran, 20 Phil 241)

Business Laws and Regulations

Charish Dane V. Boniel, CPA
No. Co-ownership of property does not of itself establish the existence of partnership

(3) Sharing of gross returns

The mere sharing of gross returns alone does not indicate a partnership, since in a
partnership, the partners share profits, after satisfying all of the partnership’s liabilities.

The decisive test is this : Does the recipient of the share of the profits have an equal voice
as proprietor in the conduct and control of the business? Does he own a share of the
profits as a proprietor of the business producing them? Thus, if one takes a share of the
profits a s a payment of debt, he is not a partner

Example: A, owner of a passenger jeepney, agrees with B, a driver, that he shall have full
control and use of the jeepney to carry passengers, pay for the cost of repairs and other
expenses, and that the gross receipts are to be divided between them.

No partnership is established between A and B as no sharing of profits is contemplated

(4) Receipt of share in the profits – Sharing of profits by a person is not a prima facie
evidence that he is a partner in the business in the case enumerated under sub paragraphs
a, b, c, d and e.

Example: In the following cases, Y is not a partner in partnership X

a. Y, creditor of partnership X, is entrusted by the partners to manage the

business, and Y shall receive, in addition to his compensation, a share in the net profits of
the business in settlement of his credit

b. Y, an employee of partnership X, shall receive instead of a fixed salary, or

being the owner of the building rented by the partnership, Y shall receive as rent, a
certain percentage of the monthly net profits of the business.

c. Y, the widow of a deceased partner in partnership X in consideration of the

continuation of the business without liquidation and satisfaction of the deceased’ interest,
shall rceive an annuity for a period of five years based on a certain percentage of the net
profits.

d. Y, creditor of partnership X, agreed that the payment of interest shall be

taken form the net profits to be realized by the partnership.

e. Y sold a property to partnership X, and he agreed that the purchase price

shall be paid out of the net profits of the business.

In any of the above cases, Y shall not be entitled to receive the payment where there are
no profits; nor shall he be liable to share any losses incurred by the partnership

Business Laws and Regulations

Charish Dane V. Boniel, CPA
Partnership v. Co-ownership
As a general rule, an agreement between joint-owners of property to carry common trade
or business and to share the profits and losses thereof will constitute a partnership.
A mere community if interest, such as exists between tenants in common or joint tenants
of real or personal property, does not make such owners partners or raise a presumption
that partnership exists.

Partnership, once established, has juridical personality, while a co-ownership as none.

A Partnership is created always by contract, while co-ownership may exist by operation
of law.
A co-owner may dispose of his individual interest in the common property as an incident
inherent in ownership, a partner has no such power.

The object of partnership is gain, a co-ownership does not necessarily exist for profit.
The right of a co-owner descent to his heir; those of a partner (as partner in partnership)
do not, unless expressly stipulated in the contract of partnership.

Partnership V. Joint Venture

Joint account exists when one person (called silent partner) contributes capital to another
who is in business (called ostensible partner) who acts in his own name.

A partnership has a firm name, while a joint account has none and it is conducted in the
name of the ostensible partner; A partnership has a juridical personality. While a joint
account has no juridical personality, and that action must be brought against the
ostensible partner only;
A partnership is a common fund, while a joint account has no common fund;
Liquidation of a partnership may be entrusted to other persons, the ostensible partner
always liquidates the joint account.

Partnership V. Conjugal Partnership

An ordinary partnership is created by the will of the parties whereas a conjugal

partnership arises from the mere celebration of marriage, that is, by operation of law
In an ordinary partnership, it is the agreement of the parties that determines its object,
duration, etc. whereas in a conjugal partnership, it is the law that regulates such matters.

In an ordinary partnership, the profits are distributed in accordance with the agreement of
the the parties, and in the absence thereof, in accordance with the provisions of law,
whereas in a conjugal partnership, the profits are always divided equally between the
spouses.
In an ordinary partnership, all partners are, in the absence of an express agreement vested
with the rights of management, whereas in a conjugal partnership it is almost always the
husband who manages the same

Joint Venture, A form of Partnership

Business Laws and Regulations

Charish Dane V. Boniel, CPA
 The legal concept of a join venture is of common law origin. It is no precise legal
definition, but it has been generally understood to mean an organization formed for some
temporary purpose.

The main distinction cited by most opinions in common law jurisdictions is that the
partnership contemplates a general business with some degree of continuity, while the
joint venture is formed for the execution of a single transaction, and thus of a temporary
nature. A corporation though cannot enter into a partnership contract, may enter into a
joint venture with others.

Art. 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)

Objects or purpose of partnership – the first paragraph of the above article reiterates two
essential elements of a contract of partnership: legality of the object and community of benefit or
interest of the partners. The partners can freely choose the business they want to engage in
except that the object must be lawful and for the common benefit of the partners.
 Example of unlawful purpose:
- GAMBLING
A & B are partners where A contributed P100,000 in cash and B contributes gambling
paraphernalia. They were raided and the gambling paraphernalia was confiscated. Can the
P100,000 also be confiscated?
No because the P100,000 was not the reason for the crime in anyway. The state is therefore
required to return this amount to A.

Effects of unlawful partnership

(1) The contract is void ab initio ; the partnership never existed in the eyes of the law
(2) The profits shall be confiscated in favir if the government
(3) The instruments/tools & proceeds of the crime shall also be forfeited in favor of the
government
(4) The contributions of the partners shall not be confiscated unless they fall under no. 3

Art. 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)
No special form is required for the validity or existence of the contract of partnership, it can be
made orally or in writing regardless of the value of the contributions unless there is an
immovable property or real right contributed, in which case art 1773 requires the execution of a

Business Laws and Regulations

Charish Dane V. Boniel, CPA
public instrument, meaning the transfer of real property to the partnership must be duly
registered in the Registry of Property of the province/city where the property is located.

 The article shows that partnerships can be perfected by MERE CONSENT.

Art. 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. (n)
 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.
 Failure to comply with the requirements of Article 1772 will not affect the liability of the
partnership to 3rd persons.
 Isn’t this inconsistent with Article 1358?
No, remember that in Article 1358, if the contract terms exceed P500.00 then the contract
must be in writing. This is merely for purposes of convenience and not validity or
enforceability of the law. Also note that according to Article 1768, the partnership will still
be valid and have a juridical entity.
 How do we reconcile this with Article 1358 and 1357?
Article 1358 is for purposes of convenience and not for validity or enforceability of the
law.
Article 1357 states that contracting parties have the right to compel each other to place the
contract into writing.
 Purpose of Registration:
(1) Condition for obtaining a license to engage in business and in trade
(2) 3rd persons want proof that the partnership is existent, who the partners are and what the
capitalization is before they enter into contracts/engage in business.
(3) The government requires this so that tax liabilities may not be avoided (BIR)
 Failure to comply with the Article’s requirements will not prevent the formation of the
partnership
 The Statute of Fraud will only apply if there was an agreement made by the contracting parties
 Example:
A and B promise to contribute to their partnership money worth P10,000.00 each within one
year from their agreement. A contributes early but when the time comes for B to contribute his
share, he refuses to do so. Can A compel B to give his contribution?
No, A cannot compel B to pay his contribution to the partnership.
Why?
Because the contract/agreement between the two parties was purely ORAL and never really
written, and it has already been one year since they agreed to their contract terms.

Business Laws and Regulations

Charish Dane V. Boniel, CPA
Art. 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.
 Actual Case in Applying Article 1773:
A and B agree to form a partnership engaging in a fish pond business where both partners will
contribute cash; the cash is later used to buy land that is converted into a fish pond. C comes
along and points out that the partnership is void because no inventory of the land was made. Is
the partnership really void?
No, the partnership is not void because according to the Supreme Court, Article 1773 need not
apply since the land was BOUGHT from the CASH CONTRIBUTION.
Suppose a partnership contributes immovable property but does not conduct an inventory and
enters into a contract with A. The partnership does not fulfill its obligation to A and A sues the
partnership. Was A right in suing the partnership?
No, since the partnership was void from the beginning. A should instead file against the
“partners” themselves. They will be sued under the legal basis of them being partners by
estoppels, as stated in Article 1825.
If A wishes to be in a partnership with B and promises to contribute land but subsequently sells
the same plot to C, who immediately registers the transfer, who owns the land?
C owns the land because A never registered the transfer.
 Estafa: when the owner of a property sells the same to two or more different persons.

Art. 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)
Since a partnership has juridical personality separate from its members, it is natural that
immovable property may be acquired in the partnership name and the title so acquired, be
conveyed only in the partnership name.
Art. 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.
(1669)
It is essential that the partners are fully informed not only of the agreement but of all matters
affecting the partnership.
Every partnership must ah a firm name under which it shall conduct its business and to
distinguish it form the partners and other partnership.
In view of the above, 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.

Business Laws and Regulations

Charish Dane V. Boniel, CPA
Art. 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. (1671a)
Art. 1777. A universal partnership may refer to all the 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 intention of dividing the
same among themselves, as well as all the profits which they may acquire therewith. (1673)
Art. 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. (1674a)

CLASSIFICATIONS OF PARTNERSHIP

AS TO EXTENT OF ITS SUBJECT MATTER

1. UNIVERSAL PARTNERSHIP
a. UNIVERSAL PARTNERSHIP OF ALL PRESENT PROPERTY (Article 1777) comprises the
ff.
i. Property which belonged to each of them at the time of the constitution of the partnership; and
ii. Profits which they may acquire from the property contributed

b. UNIVERSAL PARTNERSHIP OF PROFITS (Article 1780)

Comprises all that the partners may acquire by their industry or 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

*Article 562 Usufruct gives a right to enjoy the property of another with the obligation of
preserving its form and substance, unless the title constituting it or the law otherwise provides

2. PARTICULAR PARTNERSHIP (Article 1783)

Has for its objects:
a. Determinate things
b. Their use of fruits
c. Specific undertaking
d. Exercise of profession or vocation

AS TO LIABILITY OF PARTNERS
1. GENERAL PARTNERSHIP consists of general partners who are liable pro rata
and subsidiarily (Article 1816) sometimes solidarily (Article 1822-1824), with their
separate property for partnership debts

Business Laws and Regulations

Charish Dane V. Boniel, CPA
2. LIMIITED PARTNERSHIP one formed by 2 or more persons having as members one or more
general partners, the latter not being personally liable for the obligations of the partnership
(Article 1843)

AS TO ITS DURATION
1. PARTNERSHIP AT WILL one in which no time is specified and is not formed for a particular
undertaking or venture which may be terminated anytime by mutual agreement

2. PARTNERSHIP WITH A FIXED TERM the term for which the partnership is to exist is fixed
or agreed upon or one formed for a particular undertaking

AS TO LEGALITY OF ITS EXISTENCE

1. DE JURE PARTNERSHIP complied with all the legal requirements for its establishment
2. DE FACTO PARTNERSHIP failed to comply with all the legal requirements for
its establishment

AS TO REPRESENTATION TO OTHERS
1. ORDINARY OR REAL PARTNERSHIP which actually exists among the partners and also as
to third persons
2. OSTENSIBLE PARTNERSHIP OR PARTNERSHIP BY ESTOPPEL which in reality is not
a partnership, but is considered a partnership only in relation to those who, by their conduct or
admission are precluded to deny or disprove its existence (Article 1825)

AS TO PUBLICITY
1. SECRET PARTNERSHIP wherein the existence of certain persons as partners is no avowed
or made known to the public by any of the partners
2. OPEN OR NOTORIOUS PARTNERSHIP whose existence is avowed or made known to the
public by the members of the firm

AS TO PURPOSE
1. COMMERCIAL OR TRADING PARTNERSHIP one formed for the transaction of business
2. PROFESSIONAL OR NON-TRADING PARTNERSHIP one formed for the
exercise of a profession

Business Laws and Regulations

Charish Dane V. Boniel, CPA
 KINDS OF PARTNERS

1. UNDER THE CIVIL CODE

a. CAPITALIST one who contributes money or property to the common fund
b. INDUSTRIAL one who contributes only his industry or personal service
c. GENERAL one whose liability to 3rd persons extends to his separate property
d. LIMITED one whose liability to 3rd persons is limited to his capital contribution
e. MANAGING one who manages the affairs or business of the partnership
f. LIQUIDATING one who takes charge of the winding up of partnership affairs upon
dissolution
g. PARTNER BY ESTOPPLE one who is not really a partners but is liable as a partner for the
protection of innocent 3rd persons
h. CONTINUING PARTNER one who continues the business of a partnership after it has been
dissolved by reason of the admission of a new partner, retirement, death or expulsion of one of
the partners
i. SURVIVING PARTNER one who remains after a partnership has been dissolved by death of
any partner
j. SUBPARTNER one who is not a member of a partnership who contracts with a partner with
reference to the latter’s share in the partnership

2. OTHER CLASSIFICATIONS
a. OSTENSIBLE one who takes active part and known to the public as partner in the business
b. SECRET one who takes active part in the business but is not known to be partner by outside
parties
c. SILENT one who does not take any active part in the business although he may be known to
be partner
d. DORMANT one who does not take active part in the business and is not known or held out as
partner. “Sleeping partner” may retire from the partnership without giving notice and cannot be
held liable for the obligations of the firm subsequent to his withdrawal. Only interest in joining
the partnership would be sharing of the profits earned
e. ORIGINAL one who is a member of the partnership fro the time of its organization f.
INCOMING person lately or about to be taken into a partnership as a member
g. RETIRING one who withdrawn from the partnership

Art. 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. (1675)

 Example:
Suppose A and B form a Universal Partnership of All Profits and A wins in the lotto,
P100,000.00. B tries to share in 50% citing the existence of their partnership and that A used
the partnership’s money to purchase the lottery ticket. Can B really share in the lotto winnings?
No, B cannot since it came from CHANCE, not WORK.

Business Laws and Regulations

Charish Dane V. Boniel, CPA
 If the P100,000.00 instead came from A’s work in DLSU, can B share in the profits of A?
Yes, because it came from WORK.
 As long as it is PROFIT, the profit becomes common property to the partners UNLESS there
was a stipulation in their agreement
 If A and B form a Universal Partnership of All Profits for a Taxi-Cab business and both
contribute vehicles that will serve as the taxi, what they were actually contributing is the USE
or the RIGHT TO USE their vehicles. Upon dissolution, the vehicles will be returned to them
since there was never a transfer of ownership.
 Unique feature of the Universal Partnership of All Profits:
- The partners retain the title of ownership.

Art. 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.

 Art. 1782. Persons who are prohibited from giving each other any donation or advantage
cannot enter into universal partnership. (1677) – A husband and wife cannot join a universal
partnership.
- They are not allowed to donate to each other and a universal partnership essentially
requires that the partners donate to each other.
- They can join a particular partnership instead.
 A partnership formed in violation of this article shall be null and void. It shall not have any
legal personality either.
 Illustrative Case:
A, B and C form a partnership to engage in the importation, marketing and operation of
automatic phonographs, radios, television sets, amusement machines and their parts
accessories, with B and C as limited partners. Subsequently, A and B got married and
thereafter, C sold his share to A and B for a nominal amount. Was the partnership dissolved
after the marriage of A and B and C’s sale to them of his share in the partnership?
No, the firm was not a universal partnership but a particular one.
 Pertinent Legal Provisions
(1) 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.
(2) 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

Business Laws and Regulations

Charish Dane V. Boniel, CPA
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)
 Defines what a particular partnership is
 Particular partnerships are those that are:
- Neither a universal partnership for all present property nor a universal partnership for all
profits
- Example: Those that are formed for the acquisition and sale of property, Accounting Firms,
Law Firms, etc.
- Popular because it is easy to join

Resources:
The Law on Partnerships and Private Corporations by Hector S. De Leon

Business Laws and Regulations

Charish Dane V. Boniel, CPA