PARTNERSHIP

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 partnership for the exercise of a profession.
(1665a)

ESSENTIAL REQUISITES OF A CONTRACT OF PARTNERSHIP

1. There must be a valid contract
2. There must be a contribution of money, property, or industry to a common fund.
3. The partnership must organise for grain or profit; and
4. The partnership should have a lawful object or purpose, and must be established for
the common benefit or interest of the partners.

Art. 1768. The Partnership has a judicial personality separate and distinct from that of each
of the partners, even in the case of failure to comply with the requirements of Article 1772,
first paragraph. (n)

Definition of terms:
1. Natural Person - living human being, with certain rights and obligations under the
law. (example: the partners in a partnership)
2. Juridical Person - is a legal person that is not a natural person but an organisation
recognised by law as a fictitious person. (Example: Corporation, Government
Agency, Non-Governmental Org.)

Art. 1769. In determining whether a partnership exist, 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 not share any profits
made by the use of 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 derived;
4. The receipt by a person of a share of 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 debt by instalments or otherwise;
b. As wage 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 the other
property by instalments or otherwise. (n)

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 favour of the State, without prejudice to the provisions of the Penal Code
governing the confiscation of the instruments and effects of a crime. (1666a)

Lawful object or purpose - 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.

Example of unlawful Partnership:

1. A partnership formed for gambling business
2. A partnership formed to furnish houses for prostitution purposes.
3. A partnership formed to create an illegal monopoly and combination in restraint of
trade.

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)

General Rule: There is no form required. Thus, the contract may be in oral or written.

Exception: If the real property or real rights in real properties are contributed, regardless of
the value, it should be written in a public instrument to be valid, otherwise void.
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 Security 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 person. (n)

Note: A personal property amounting to three thousand (3,000) or more shall be in a public
instrument and recorded in SEC. Failure to comply will not make the contract void.
While the real property less than three thousand (3,000) does not require a form.
Hence, it may be verbal.

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)

Conclusion - if an immovable property is contributed, the inventory of the said property

must be made, signed, and attached to the public instrument. Failure to comply with that will
result in a void partnership contract.
Inventory in an immovable property is information about the property such as owner
of the said property, description of property, survey or mappings of property, etc. that must
be included in the public instrument to make the partnership valid.

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)

Conclusion - A partnership has a distinct and separate personality (fictitious) from their
owners (partners), so any transaction of immovable property whether it is sale or donation
involving the partnership should be accounted to the partnerships’ name only and not in the
name of one or any partners of the partnership.

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 the co-
ownership. (1669)

Conclusion - in contrast to the partnership, Associations and Societies do not have juridical
personality, may not be for profit, there are no contribution of capital though some fees are
collected to form or maintain an organisation, and as for liability, members are individually
liable for the debts of the association.

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)

Definition of terms:
1. Universal Partnership of all present property - all the property of a partner is
contributed to the common fund, with the intention of dividing the same among
themselves, as well as all profits which may they acquire therewith.
2. Universal Partnership of all profits - it comprises all that the partners may acquire
by their industry or work during the existence of the partnership.
3. Particular Partnership - a particular partnership has for its object determinate
things, their use or fruits, or specific undertaking, or the exercise of a profession or
vocation.
4. According to Liability:
a. General Partnership - it is a partnership where partners are all general
partners .General partners are liable to the extent of their separate properties
after all the assets of partnership have been exhausted.
b. Limited Partnership - a partnership where at least one general partner and
one limited partner. Here, the limited partner is only liable to the extent of
his/her contribution to the partnership after all the assets of partnership have
been exhausted.

Art.1777. A universal partnership may refer to all the present property or to all the profits.
(1672)

Kinds of Universal Partnerships:

1. Partnership of all present property
2. Partnership of all profits

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 ll the profits which the may acquire therewith. (1673)
Contributions of the partners here are the following:
1. All the properties belonging to the partners; and
2. The profits acquired with the said property
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 acquire subsequently by inheritance, legacy, or donation
cannot be included in such stipulation, except the fruits thereof. (1674a)

Conclusion - Future property cannot be included in the partnership because of these rules:
1. 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 donation, and it is well-known that generally, future
property cannot be donated.

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)

Conclusion - here, only the usufructs will be the common property of the partners. Meaning,
all the partners will retain their ownership to each property, but its use and fruits will be their
common property.

Art. 1781. Articles of universal partnership, entered into without specification of its nature,
only constitute a universal partnership of profits. (1676)

Conclusion - if the universal partnership did not state its specification of its nature when
entering a contract, it is assumed that it is a universal partnership of all profits. Why?
Because it imposes a less obligation for the reason that the owners still retain the ownership
of each property.

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, or the exercise of a profession or vocation. (1678)

Note: If the partnership is a universal partnership, a husband and wife cannot enter into
such a contract. However, if the partnership is a particular partnership, they can.

Art. 1784. A partnership begins from the moment of the execution of the contract, unless it is
otherwise stipulated.

Conclusion - article 1784 states that the partnership begins from the moment of the
execution of the contract. However, if the partners stated that the contract will start on the
future date, even if they enter in the contract today, the life of their partnership will start on
the future date.

Art. 1785. When a partnership for a fixed term or particular undertaking is continued after
the termination of such term or particular undertaking without express agreement, 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.
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 partnership. (n)

Definition of terms:
1. Partnership with fixed term - a partnership where partners agreed a period of
existence of partnership.
2. Partnership for a particular undertaking - a partnership where it will exist until its
purpose is accomplished.
3. Partnership at will - It is a partnership without term. The birth of this kind of
partnership is predicated on the mutual desire and consent of the partners.

Art. 1786. Every partner is a debtor of the partnership for whatever he may have promised
to contribute thereto.
He shall also be bound for warranty in case of eviction with regard to specific and
determinate things which he may have contributed to the partnership, in the same cases and
in the same manner as the vendor is bound with the respect to the vendee. He shall also be
liable for the fruits thereof from the time they should have been delivered, without the need
of any demand. (1681a)