Illanueva Gency Rusts Artnerships

VILLANUEVA AGENCY, TRUSTS, PARTNERSHIPS &
CHAPTER 6
CLASSES OF PARTNERS AND PARTNERSHIPS
In order to have a better understanding of the various legal

relationships created within the partnership arrangement, and the
consequent rights and obligations arising from such varied relationships, it
may be helpful to determine the classes of partners and partnerships
defined under the New Civil Code.
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 belonged 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)
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 posses 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
without specification of its nature, only constitute a universal
partnership of profits. (1676)
ART. 1782. Persons who are prohibited from giving each other
any donation or advantage cannot enter into universal partnership.
(1677)
ART. 1783. A particular partnership has for its object
determinate things, their use or fruits, or specific undertaking, orthe
exercise of a profession or vocation.
1. As to Object: Universal Partnership versus Particular Partnership

When it comes to the object or purpose, or the nature of the business
enterprise to be pursued, under Article 1776 of the New Civil Code, a
partnership is either:
(a) Universal Partnership; or

(b) Particular Partnership.
A universal partnership is one where the contract of partnership

encompasses either all the present properties of the partners or to all of the
profits.1
A universal partnership of all present property is one where "the
partners contribute all the property which actually belongs (sic) to them to a
common fund, with the intention of dividing the same among themselves, as
well as all the profits they may acquire therewith."2 This means that "the
property which belonged 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."3 The
New Civil Code further clarifies that "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 stipulations, except the fruits thereof."4
In a universal partnership of profits "all that the partners may acquire

by their industry or work during the existence of the partnership," as well as
the usufruct of all "[mjovable or immovable property which each of the
partner may possess at the time of the celebration of the contract" of
partnership, shall all pertain to the partnership.5
The default rule under Article 1781 of New Civil Code is that when the
"Articles of universal partnership [are] entered into without specification of
its nature, [it will] only constitute a universal partnership of profits."
now
On the other hand, Article 1783 of New Civil Code defines a particular
partnership to be one that "has for its object determinate things, their use or
fruits, or a specific undertaking, or the exercise of a profession or vocation."
There is no doubt then that every professional partnership and joint venture
arrangement would constitute a particular partnership.
The next question would then be: What is the practical and legal
importance of distinguishing between universal and particular partnerships?
Two points must be considered in answering the question:
Firstly, statutorily, the only critical usefulness of the distinction is that
persons who are disqualified from donating to one another (like spouses under
Article 187 of the Family Code), cannot enter into a universal partnership of
any sort. Is it therefore fair to conclude that spouses can validly enter into a
particular partnership between each other, when actually their property
relations are governed already by a legal property regime?
THE ANSWER IS FOUND In Commissioner of Internal Revenue v. Suter*
the Court held that the prohibition under now Article 1782 of the New Civil
Code does not apply when the partners entered into a limited partnership, the
man being the general partner and two women being the limited partners, and
a year later the man married one of the limited partners, and the spouse
bought out the interest of the limited partner.
Secondly, the rights and obligations that may arise from subsequent
ventures pursued by the partners would be determined on whether they are
bound under a universal or particular type of partnership. The resolution of the
issue is best exemplified in the decision in Lyons v. Rosentock.7
The conclusion we can draw from Lyons is that a universal partnership is

never presumed, not even from various transactions or ventures concluded
between the partners. The default rule therefore should be that unless the
parties so stipulate in their articles of partnership that they are entering into a
universal partnership, it would be presumed that they have existing between
them merely a particular partnership.
2. As to Duration
When it comes to the partnership term or life, the law distinguishes

between:
(a) Partnership with Fixed Term;
(b) Partnership for a Particular Undertaking; and

(c) Partnership at Will
Both partnerships with fixed term and for a particular undertaking are
automatically dissolved upon the expiration of the stipulated term or the
achievement of the particular undertaking stipulated in the contract of
partnership; whereas, in a partnership at will, the partnership has an
indefinite term and it would be dissolved only when an act or cause of
dissolution happens or arises. Nonetheless, under Article 1785 of New Civil
Code, when a partnership for a fix term or particular undertaking is
continued after it has terminated without any express agreement,
partnership then become one at will and "the rights and duties of the
partners remain the same as they were at such termination, so far as is
consistent with a partnership at will." The article also provides that "A
continuation of the business by the partners or such of them as habitually
acted therein during the term, without any settlement or liquidation of the
partnership affairs, is prima facie evidence of a continuation of the
partnership."
3. As to Extent of Partners' Liabilities
When it comes to the kinds of liabilities that the partners may be

exposed to for partnership debts and obligations, the New Civil Code
distinguishes between:
(a) General Partnership, where all the partners are unlimitedly

liable; and
(b) Limited Partnership, where there is one or more general
partners who are unlimitedly liable, with one or more
limited partners, who are liable for partnership debts only
to the extent of their stipulated contributions under the
articles of partnership.
In his concurring opinion in Lim Tong Lim v. Philippine Fishing Gear

Industries, Inc.,™ Justice Vitug summarized the nature of the liabilities of
general partners, thus:
. . . The liability of general partners (in a general partnership as so

opposed to a limited partnership) is laid down in Article 1816
which posits that all partners shall be liable pro rata beyond the
partnership assets for all the contracts which may have been
entered into in its name, under its signature, and by a person
authorized to act for the partnership. This rule is to be construed
along with other provisions of the Civil Code which postulate that
the partners can be held soidarily liable with the partnership
specifically in these instances — (1) where, by any wrongful act or
omission of any partner acting in the ordinary course of the
business of the partnership or with the authority of his co-‐
partners, loss or injury is caused to any person, not being a
partner in the partnership, or any penalty is incurred, the
partnership is liable therefor to the same extent as the partner so
acting or omitting to act; (2) where one partner acting within the
scope of his apparent authority receives money or property of a
third person and the money or property so received is
misapplied by any partner while it is in the custody of the
partnership — consistently with the rules on the nature of civil
liability in delicts and quasi-‐delicts

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VILLANUEVA AGENCY, TRUSTS, PARTNERSHIPS &

CLASSES OF PARTNERS AND PARTNERSHIPS

In order to have a better understanding of the various legal

ART. 1776. As to its object, a partnership is either universal or

As regards the liability of the partners, a partnership may be

ART. 1777. A universal partnership may refer to all the present

ART. 1778. A partnership of all present property is that in

ART. 1779. In a universal partnership of all present property,

1. As to Object: Universal Partnership versus Particular Partnership

(a) Universal Partnership; or

A universal partnership is one where the contract of partnership

In a universal partnership of profits "all that the partners may acquire

The conclusion we can draw from Lyons is that a universal partnership is

When it comes to the partnership term or life, the law distinguishes

(a) Partnership with Fixed Term;

(b) Partnership for a Particular Undertaking; and

3. As to Extent of Partners' Liabilities

When it comes to the kinds of liabilities that the partners may be

(a) General Partnership, where all the partners are unlimitedly

In his concurring opinion in Lim Tong Lim v. Philippine Fishing Gear

. . . The liability of general partners (in a general partnership as so

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