GENERAL PROVISIONS ON PARTNERSHIP

GOVERNING LAW ON PARTNERSHIP

Civil Code of the Philippines
Articles 1767 to 1867

These are the provisions of law which govern all aspects of partnership – from
their creation, formation, existence, operation, dissolution and liquidation.
Including the obligation of the partnership and the partners towards themselves and
the public or third persons.

PARTNERSHIP
Within the context of our law,
Partnership is treated as an artificial being created by operation of law with a
legal personality separate and distinct from the partners thereof.

Partnership operates under the concept of unlimited liability and unless otherwise
agreed upon by the partners, each one of them acts as manager and agent of the
partnership and consequently, their acts bind the partnership.

NCC, 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.

Elements or Requisites of a Partnership

There must be a VALID contract;

There must be mutual contribution of MONEY, PROPERTY or INDUSTRY to a common fund;

The object or purpose must be LAWFUL;

It must have been established for the common benefit of the partners, which is to
obtain profit and divide the same among themselves.

Doctrine of Delectus Personae

Literally means “Choice of the Person”
It is the right to choose with whom a person wishes to associate himself.
It is the very foundation and essence of partnership.
It allows the partners to have the power, although not necessarily the right to
dissolve the partnership.

Characteristics of a Contract of Partnership

Consensual – It is perfected by mere consent.

Nominate – It has a special name given to it by law.
Bilateral – It is entered into by two or more persons whose rights and obligations
are reciprocal.
Onerous – The partners contribute money, property or industry to common fund.
Commutative - the undertaking of each partner is considered as the equivalent of
that of the others.
Principal – It does not depend upon any other contract for its validity or
existence.
Preparatory – It is a means by which other contracts will be entered into as the
partnership pursues its business.
JURIDICAL PERSONALITY OF PARTNERSHIP
NCC, Art. 1768. The partnership has a judicial personality SEPARATE and DISTINCT
from that of each partners, even in case of failure to comply with the requirements
of Article 1772, first paragraph.

TWO KINDS OF PERSON #UNDER OUR LAW

NATURAL PERSON - Human beings that has rights and obligations from the moment they
were conceived.

JURIDICAL PERSON – Pertains to artificial persons. Those that are created by law
and by such granted with rights and obligations. Generally treated just like a
human.

Partnership is an artificial being, created by the provisions of the Civil Code and
was granted with rights and duties.

Partnership is a separate and distinct HUMAN BEING from that of the partners. At
least in the legal perspective.

EXAMPLE:
A and B decided to form and establish a partnership as they did validly form AB
Partnership for the purpose of selling cars.

In this case, there were THREE separate and distinct personalities, namely:
A – a partner, a natural person,
B – a partner, also a natural person, and
AB PARTNERSHIP – an artificial being created by law.

What is the SIGNIFICANCE of having a Separate and Distinct Personality?

Generally, rights, duties and liabilities are personal in nature, meaning, only
those granted with the right and duty may exercise or perform the same, likewise,
liabilities may be incurred by a person and may only be enforced against him.

Having it said, Partnership who has separate and distinct personality is granted
with rights and duties or obligations, which only it may exercise validly, through
the partners.
Liabilities incurred by the partnership, GENERALLY, may only be enforced against it
and not to the partners.

EXAMPLE:
A and B are partners, they have established and validly created AB Partnership.

AB Partnership, mainly engages itself to buying and selling cars.

The partnership entered into an agreement with X for the acquisition of cars, on
installment basis. It is agreed upon that X will deliver 10 units of cars and AB
Partnership will pay it in 5 equal monthly installments.

In the given set of facts, the agreement was binding and entered into by X (the car
seller) and AB Partnership (through the partners).

The obligation to pay the Monthly installments is with AB Partnership and not with
the partners.

Generally, in the event of non compliance with the obligation to pay, the
partnership is liable for such non compliance and such liability will not extend to
the partners. (assuming that the partnership has sufficient assets to cover its
liability)

How to determine the existence of a partnership?

NCC, Art. 1769. In determining whether a partnership exists, these rules shall
apply:
Except as provided by Art. 1825, persons who are not partners as to each other are
not partners as to third persons;
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;

Continuation of Art. 1769

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 for:
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 goodwill of a business or
other property by installment or otherwise.

NCC, 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 prejudiced to the provisions of the
RPC governing the confiscation of the instruments and effects of the crime.

NCC, Art. 1771 – A partnership must be constituted in any form, except where
immovable property or real rights are contributed thereto, in which case a public
instrument SHALL be necessary.

NCC, Art. 1772 – Every partnership having a capital of three thousand pesos or
more, in money or property, shall appear in public instrument which must be
recorded in 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

Art. 1771 vs. Art. 1772

Art. 1771
Art. 1772
Object
Immovable/Real Properties and Real Rights
Movable/Personal Properties
Formality
Must be in a public instrument
Must be in a public instrument
Registration requirement with SEC
Not required
Required to be registered
Effect of non-compliance
Contract of partnership is VOID. As if no partnership was ever formed from the
beginning
Not void, therefore VALID
Effects as to third persons
Being VOID, no liability attaches to the Partnership
Liability may still be incurred by the Partnership

NCC, 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.

Formalities as to Object contributed

Real/ Immovable Property
Personal/Movable Property
Must be in Public Instrument
Must be in Public Instrument
Need not be registered in the SEC to be valid
Must be Registered with the SEC. None compliance however, will not make the
contract VOID
Inventory of the Properties contributed must appear in an inventory signed by ALL
of the partners
No Inventory is necessary
Inventory must be attached in the public instrument
N/A

NCC, 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

Art. 1774 is one of the effect of having a separate and distinct Juridical
personality of a partnership.
All rights and duties that pertains to the Partnership may ONLY be exercised and
enforced in the name of the partnership

NCC, Art. 1775 – Associations and societies, whose articles are kept among the
members, and wherein any one of the members may contract in their own name with
third persons, shall have n juridical personality, and shall be governed by the
provisions relating to co-ownership.

NCC, Art. 1776 – As to object, a partnership is either Universal or Particular. As

regards the liability of the partners, a partnership may be general or Limited.

As to OBJECT (ART. 1779 -1780)

Universal(ART. 1779 -1780)
Particular (Art. 1783)
All present property
Profit
Composition
All the property which actually belongs to the partners at the time of constitution
of the partnership shall become common property of all the partners and the
partnership.
Future properties may also be included except those acquired by Inheritance, legacy
or donation, except the fruits thereof
All that a partner may acquire by his industry or work during the existence of the
partnership
Has a specific or determinate things, the use or fruits, or specific undertaking,
or the exercise of a profession or vocation
Ownership
Ownership is transferred to the partnership, therefore it is owned by the partners
in common
Ownership shall continue to pertain exclusively to each partner, only the usufruct
passes to the partnership

NCC, Art. 1781 – Articles of universal partnership, entered into WITHOUT

specification of its nature, only constitute a universal partnership of profits.

***Rationale for the rule

Universal partnership of profits imposes less obligation as the properties are
retained by the naked owner.

NCC, Art. 1782 – Persons who are prohibited from giving each other any donation or
advantage cannot enter into universal partnership.

*** Rationale for the rule

A universal partnership is virtually a donation. Therefore, persons prohibited from
donating to each other, should not be allowed to do indirectly what the law
prohibits directly.

Example of Persons who cannot enter into a universal partnership

Legally married spouses (art. 87, FCP). They may only enter into a GPP for the
exercise of a profession;
Persons living together as husband and wife without a valid marriage. (art. 87,
FCP);
Persons guilty of adultery or concubinage at the time of donation. (art. 739, NCC)