Law Malalalalala

CHAPTER 1-GENERAL PROVISIONS
PARTNERSHIP
CHAPTER 1
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)
A partnership exists when two or more persons agree to place their money, effects,
labor, and skill in lawful commerce or business, with the understanding that there shall be
a proportionate sharing of the profits and losses among them.1
Meaning of profession
Profession 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."2
Essential requisites ofa contract ofpartnership

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 be organized for gain 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.
What are the two tests to determine the existence of a partnership?

1.First test
Determine whether or not there is an agreement to contribute money,
property or industry to a common fund.
2.Second test
Determine whether or not there is an intent of the contracting parties to
divide the profits among themselves.
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.3 Characteristics of a contract of partnership
1.Consensual
It means that it is a contract that is perfected by mere consent because all of
the partners had a meeting of the minds to enter into a contract of
partnership. 2.Commutative
It means that the contribution of each partner, whether money,property or
industry, is considered as the equivalent of the contribution of the other
partners. 3.Principal
It means that it is a contract that does not depend on other contracts for its
existence. 4.Bilateral
It means that it is a contract entered into by two or more persons.
5.Onerous
It means that each partner must contribute money, property, or industry. Of
course, a partner can contribute one,some or all of these.
6.Nominate
It means that it is a contract which has a name in law.
7.Preparatory
It means that it is a contract in preparation for another contract or contracts.
Example:
A and Bentered into a contract ofpartnership for the purpose of selling
furniture. In this case, A and Binitially entered into a contract of partnership in
preparation for contract ofsale.
Money
The medium of exchange authorized or adopted by a government as
part of its currency.4
Property
Any external thing over which the rights of possession, use, and
enjoyment are exercised.5
Marjorie Tocao and Wiliam T. Belo vs. CA and Nenita A. Anay,G.R. No.127405,October 4,2000.
'see p. 1158, Black's Law Dictionary,Tenth Edition.
Ssee p.1410,Black's Law Dictionary,Tenth Edition.

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Industry
Diligence in the performance of a task. A particular form or branch of
productive labor.6 Problem:
Sisters X and Y, entered into a "Joint Venture Agreement (JVA)" with Z for the
development of a parcel of land into a subdivision. Pursuant to the contract, they executed
a Deed of Sale covering the said parcel of land in favor of Z, who then had it registered in
his name. By mortgaging the property, Z obtained from Q Bank a loan of P400,000 which,
under the JVA, was to be used for the development of the subdivision. All three of them
also agreed to share the proceeds from the sale of the subdivided lots.
The project was not realized, and the land was subsequently
foreclosed by Q bank.
Is there partnership?
Answer:
A reading of the terms embodied in the Agreement indubitably shows the
existence of a partnership pursuant to Article 1767 of the Civil Code, which
provides:
ART. 1767. Bythe contract ofpartnership 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.
Under the above-quoted Agreement, X and Y would contribute property

to
the partnership in the form of land which was to be developed into a subdivision;
while Z would give, in addition to his industry, the amount needed for general
expenses and other costs. Furthermore, the income from the said project would be
divided according to the stipulated percentage. Clearly, the contract manifested
the intention of the parties to form a partnership.
It should be stressed that the parties implemented the contract. Thus, X

and Y transferred the title to the land to facilitate its use in the name of Z. On the
other hand, Z caused the subject land to be mortgaged, the proceeds of which
were used for the survey and the subdivision of the land. Z developed the roads,
the curbs and the gutters of the subdivision.
Z's actions clearly belie X and Y's contention that he made no

contribution
to the partnership. Under Article 1767 of the Civil Code, a partner may contribute
not only money or property, but also industry.?
see p.1410,Black's Law Dictionary,Tenth Edition.
see Antonia Torres and Emeteria Baring vs.CA and Manuel Torres,G.R.No.134559,December 9,1999.
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signatory to the agreement. The total price of the nets amounted to P532,045.400
pieces of floats worth P68,000 were also sold to the Corp.
The buyers, however, failed to pay for the fishing nets and the
floats;hence,G,Inc.filed a collection suit against X, Y and Z. The suit was brought
against the three in their capacities as general partners, on the allegation that "Q
Corp." was a nonexistent corporation as shown by a Certification from the
Securities and Exchange Commission.
Instead of answering the Complaint, X filed a Manifestation

admitting his liability. Y and Z filed their Answer.
The trial court ordered the sale of the fishing nets at a public auction. G,
Inc.
won the bidding and deposited with the said court the sales proceeds of P900,000.
Are the acts of X, Y and Z deemed to have entered into a partnership? Answer:
It is clear that X, Y and Z had decided to engage in a fishing business, which they
started by buying boats. In their Compromise Agreement, X, Y and Z subsequently
revealed their intention to pay the loan with the proceeds of the sale of the boats, and to
divide equally among them the excess or loss. These boats, the purchase and the repair of
which were financed with borrowed money, fell under the term "common fund" under Article
1767. The contribution to such fund need not be cash or fixed assets; it could be an
intangible like credit or industry. That the parties agreed that any loss or profit from the sale
and operation of the boats would be divided equally among them also shows that they had
indeed formed a partnership.
Moreover, it is clear that the partnership extended not onlyto the purchase
of the boat, butalso to that ofthe nets and the floats. The fishing nets and the floats,
both essential to fishing, were obviously acquired in furtherance of their business. It
would have been inconceivable for Z to involve himself so much in buying the boat
but not in the acquisition of the aforesaid equipment, without which the business
could not have proceeded.14
BEST EVIDENCE OF THE EXISTENCE OF A PARTNERSHIP
In Idos v. Court ofAppeals, this Court said:
The best evidence of the existence ofthe partnership, which was not yet
terminated (though in the winding up stage),were the unsold goods and uncollected
receivables,which were presented to the trial court. Since the partnership has not
been terminated, the petitioner and private complainant remained as co-partners.
xxx.15
"see Llm Tong Lim vs.Phllippine Fishing Gear Industries,Inc.,G.R.No.136448,November 3, 1999.

cited in Marjorie Tocao and William T. Belo vs. CA and Nenita A. Anay,G.R. No.127405,October 4,2000.
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Art. 1768. The partnership has a judicial personality separate and distinct from
that of each of the partners, even in case of failure to complywith the
requirements of Article 1772, first paragraph. (n)
Article 1772 of the New Civil Code (NCC) states:
Art. 1772. Every contract of partnership having a capital of three thousand
pesos or more, in moneyor 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 thereofto third
persons.
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 more or less as a human being.16 Example:
A, B, and C entered into a contract of partnership named ABC
Partnership.In here, there are four persons, that is three natural persons (A,B,
and C) and one juridical person (ABC Partnership).
Thus, ABC Partnership can:

1. acquire and possess real and personal property;
2. incur obligations;and
3. bring civil or criminal actions.17
Problem:
X introduced Z to Y, who conveyed her desire to enter into a joint venture with
her for the importation and local distribution of kitchen cookwares. X volunteered to
finance the joint venture and assigned to Z the job of marketing the product considering
her experience and established relationship with W Co., a manufacturer of kitchen wares
in the U.S.A. Under the joint venture, Xacted as capitalist, Y as president and general
manager, and Z as vice-president for sales. Z organized the administrative staff and
sales force while Y hired and fired employees, determined commissions and/or salaries
of the employees, and assigned them to different branches. The parties agreed that X's
name should not appear in any documents relating to their transactions with W
" see p. 1325, Black's Law Dictionary,Tenth edition.
Art.46,New Civil Code(NCC).

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Company.Instead, they agreed to use Z's name in securing distributorship of

cookware from that company. The parties agreed further that Z would be entitled to:
(1) 10% of the annual net profits of the business; (2) commission of 6% of the
overall weekly production;(3) 30% of the sales she would make; and (4) 2% for her
demonstration services.The agreement was not reduced to writing on the strength
of x assurances that he was sincere, dependable and honest when it came to
financial commitments.
Z having secured the distributorship of cookware products from W Co. and
organized the administrative staff and the sales force, the cookware business took off
successfully. They operated under the name of Y Enterprise, a sole proprietorship
registered in Y's name. X made good his monetary commitments to Z.
Subsequently, Z learned that Y had signed a letter addressed to the Cubao sales
office to the effect that she was no longer the vice-president of Y Enterprise. The following
day, she received a note that Y had barred her from holding office and conducting
demonstrations in both Makati and Cubao offices. Consequently, Z filed a complaint
against X and Y.
Does partnership exist?
Answer:
The fact that there appears to be no record in the Securities and Exchange
Commission ofa public instrument embodying the partnership agreement pursuant to
Article 1772 of the Civil Code did not cause the nullification of the partnership. The
pertinent provision of the Civil Code on the matter states:
Art. 1768. The partnership has a juridical personality separate and distinct from that
ofeach ofthe partners, even in case offailure to complywith the requirements ofarticle
1772, first paragraph.
Xand Y admit that Z had the expertise to engage in the business of distributorship
of cookware. Z contributed such expertise to the partnership and hence, under the law, she
was the industrial or managing partner. It was through her reputation with W Co. that the
partnership was able to open the business of distributorship of that company's cookware
products; it was through the same efforts that the business was propelled to financial
success.
The business venture operated under Y Enterprise did not result in an employer-
employee relationship between Xand Y and Z. While it is true that the receipt of a
percentage of net profits constitutes only prima facie evidence that the recipient is a
partner in the business, the evidence in the case at bar controverts an employer-employee
relationship between the parties. In the first place, Z had a voice in the management
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of the affairs of the cookware distributorship, including selection of people

who would constitute the administrative staff and the sales force. Secondly,
Y's admissions militate against an employer-employee relationship. She
admitted that Z received only commissions and transportation and
representation allowances and not a fixed salary.
Undoubtedly, Y unilaterally excluded Z from the partnership to reap for herself
and/or for X financial gains resulting from Z's efforts to make the business venture a
success. Her instruction to the marketing manager, not to allow Z to hold office in both
the Makati and Cubao sales offices concretely spoke of her perception that Z was no
longer necessary in the business operation, and resulted in a falling out between the two.
However, a mere falling out or misunderstanding between partners does not convert the
partnership into a sham organization. The partnership exists until dissolved under the
law. Since the partnership created by X and Y and Z has no fixed term and is therefore a
partnership at will predicated on their mutual desire and consent, it may be dissolved by
the will of a partner.18
Problem:
X filed a complaint against V and Y, daughter and wife,
respectively of the deceased Z, for Winding Up of Partnership Affairs
and Accounting.
Xalleged that he verbally entered into a partnership with Z in the distribution
ofLPG in Manila. For business convenience, Xand Zallegedly agreed to register the
business name of their partnership, Shellite, under the name of Z as a sole
proprietorship. The partnership allegedly had Zas manager. As compensation, Z would
receive a manager's fee of 10% of the gross profit.
Allegedly, from the time that Shellite opened for business, its
business operation was profitable.
Upon Z's death, his surviving wife, Y and particularly his daughter, V, took
over the operations and management of Shellite without X's consent. Despite X's
repeated demands upon Y and V for accounting and winding up of the
partnership, Y and V failed to comply. Did X and Z enter into a contract of
partnership?
Answer:
The action for accounting filed by X 3 years after Z's death was well within the
prescribed period. The Civil Code provides that an action to enforce an oral contract
prescribes in 6 years while the right to demand an accounting for a partner's interest as
against the person continuing the business accrues at the date of dissolution, in the
absence of any contrary agreement. Considering that the death of apartner
"see Marjorie Tocao and William T.Belo vs. CA and Nenita A.Anay,G.R.No.127405, October 4, 2000.
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C lution of the partnership, in this case, it was Z's death that X as the surviving H
partner had the right to an account of his interest as against Vand Y.
A In a desperate bid to cast doubt on the validity of the oral P partnership
between Xand Z,Y and V maintain that said partnership T that had initial
capital of P200,000 should have been registered with E the Securities and
Exchange Commission (SEC) since registration is R mandated by the Civil
Code,True,Article 1772 of the Civil Code
1 requires that partnerships with a capital of P3,000.00 or more must
- register with the SEC,however, this registration requirement is not G
mandatory. Article 1768 of the Civil Code explicitly provides that the E
partnership retains its juridical personality even if it fails to register. The N
failure to register the contract of partnership does not invalidate the E same
as among the partners, so long as the contract has the essential R requisites,
because the main purpose ofregistration is to give notice to A third parties,
and it can be assumed that the members themselves
L knew of the contents of their contract. In the case at bar, nonP compliance
with this directory provision of the law will not invalidate
R the partnership considering that the totality of the evidence proves that
O X and Z indeed forged the partnership in question.19
V
I Art. 1769. In determining whether a partnership exists, these rules shall S
apply:
I
(1) Except as provided by Article 1825, persons who are not partners
O
as to each other are not partners as to third persons;
N
S (2) Co-ownership or co-possession does not of itself establish a
partnership, whether such-co-owners or co-possessors do or do not
r shareany profits made by the use of the property;
e (3) The sharing of gross returns does not of itself establish a s
partnership, whether or not the persons sharing them have a joint or u
common right or interest in any property from which the returns are
B l derived;
t (4) The receipt by a person ofa share of the profits of a business is s
prima facie evidence that he is a partner in the business, but no such i
inference shall be drawn if such profits were received in payment:
n (a) As a debt by installments or otherwise;
t
(b) As wages of an employee or rent to a landlord;
h
e (c) As an annuity to a widow or representative of a deceased partner;
d (d) As interest on a loan, though the amount of payment vary with the
A i profits of the business; s

13 see Lilibeth Sungas -Chan and Cecilia Sunga vs. Lamberto T.Chua,G.R.No.143340,August
15,2001 o
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(e) As the consideration for the sale ofa goodwill ofa business or
other property by installments or otherwise.(n)
Rule 1: Persons who are not partners as to each other are not partners as to
third persons
Example:
Xand Yare not partners as to each other. Thus, as to Z, a third person, it
follows that theyare not also partners.
The exception is that ifX misrepresents to Z that theyare partners with Y and the
latter consented or Y did not object; then, as to Z, X and Y will be considered as partners
byoperation oflaw. This is the concept of partnership byestoppel.
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.20
Rule 2: Co-ownership or co-possession does not of itself establish a partnership

Example:
Xand Yare recipients ofa gift consisting ofan undivided parcel ofland
from Z. In this case, Xand Yare co-owners and not partners.
Partnership vs. Co-ownership
Partnership Co-ownership
Creation
Created by contract Created by contract and law
Juridical Personality
It has legal or juridical It has no juridical personality.
personality. Thus it can sue Thus it cannot sue or be sued.
and be sued.
Purpose
For profit Common enjoyment of a thing or
right. It is not necessarily for
profit.
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20 see Paul MacDonal,et.al.,vs.The National City Bank of New York,G.R.No.L-7991,May 21,1956.
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Profit
It may be stipulated upon. Profits must always depend on the
proportionate shares. Any

stipulation to the contrary
is VOID.
Dissolution
It is dissolved by death or It is not dissolved by the
incapacity ofa partner. death or incapacity of
co-owner.
Form
It may appear in any form. No public instrument is needed
However when real property even if real property is the
is object of
contributed, a public co-ownership.

instrument is required.
Rule 3: The sharing of gross returns does not of itself establish a partnership
Note: There is a disputable presumption of establishing a contract of
partnership if what is being share by two or more persons are net profit
However, if what is being shared by two or more persons are gross
returns or gross profit, then there is no presumption ofpartnership.
Example: In a merchandising business, we have a basic formula for net

profit, to wit:
Gross Sales
Less:Cost ofSales Pxx
Gross Profit [xx)
Less:Expenses
XX
Net Profit or Net Loss
(xx)
xxor(xx)
Note:
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It can be observed from the illustration that even if there is a positive amount
or figure for Gross Profit, you cannot still ascertain ifit will arrive at Net Profit because it
may still turn out to be Net Loss as the expenses are controlling factor.
For example, if the Gross Profit isP50,000 and the Expenses is P20,000,then there is
a Net Profit of P30,000. However, if the Gross Profit remains at P50,000 and the Expenses
amounts to P60,000 then there is a Net Loss of P10,000. Hence, the sharing of gross returns
does not of itself establish a partnership.
Rule 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
12
12
Prima facie
Sufficient to establish a fact or raise a presumption unless disproved or
rebutted; based on what seems to be true on first examination, even though it
may later be proved to be untrue. 21
Example:
X received from Y P50,000 as his share in the net profit oftheir business amounting to
P100,000. In this case, there is a disputable presumption that X and Y are partners in a
contract ofpartnership. Note:
From the above it appears that the fact that those who agree to form a co-
ownership share or do not share anyprofits made bythe use of the property held in
common does not convert their venture into a partnership. Or the sharing ofthe gross
returns does not ofitselfestablish a partnership whether or not the persons sharing therein
have a joint or common right or interest in the property. This onlymeans that, aside from
the circumstance ofprofit, the presence ofother elements constituting partnership is
necessary, such as the clear intent to form a partnership, the existence ofa juridical
personality different from that ofthe individual partners, and the freedom to transfer or
assign anyinterest in the property byone with the consent ofthe others.
It is evident that an isolated transaction whereby two or more persons contribute funds
to buy certain real estate for profit in the absence of other circumstances showing a contrary
intention cannot be considered a partnership.
Persons who contribute property or funds for a common enterprise

and agree to share the gross returns of that enterprise in proportion to their
contribution, but who severally retain the title to their respective contribution,
are not thereby rendered partners. They have no common stock or capital, and
no community of interest as principal proprietors in the
business itself which the proceeds derived.
A joint purchase ofland, by two, does not constitute a co-partnership in respect
thereto; nor does an agreement to share the profits and losses on the sale of land
create a partnership; the parties are only tenants in common.
Where plaintiff, his brother, and another agreed to become owners of a single
tract of realty, holding as tenants in common, and to divide the profits of disposing of it,
the brother and the other not being entitled to share in
21 see p.1382, Black's Law Dictionary,Tenth Edition.
13
plaintiffs commission,no partmership existed as between the three parties,

whatever their relation may have been as to third parties.
n order to constitute a partnership inter se there must be: (a) An intent to form
the same; (b)generally participating in both profits and losses;(c)and such a
community of interest, as far as third persons are concerned as enables each
party to make contract, manage the business, and dispose of the whole
property.xx x.
The common ownership of property does not itself create a partnership between
the owners, though they may use it for the purpose of making gains; and they may,
without becoming partners, agree among themselves as to the management, and use of
such property and the application of the proceeds therefrom.22 Exceptions to Rule 4:
a. As a debt by installments or otherwise
Example:
A partnership named ABC Co. earned a net profit ofP100,000 for its firstyear
ofoperation. Xis a creditor ofABC Co. in the amount ofP5,000. Later,ABC Co.paid the
P5,000 to Xand this amount was taken from its net profit for the year. Is X a partner in
the ABC Co.? No, even though X received P5,000 which came from the net profit ofABC
Co., he is not a partner because this is in payment ofits debt to X.
b. As wages ofan employee or rent to a landlord
Example:
X, Y and Z formed XYZ partnership. V is the accountant of the partnership. In
the contract ofemployment between XYZ partnership and V, it was stipulated that the
latter will receive 15% ofthe net profit of the partnership. Is Va partner? No, Vis an
employee even though his salary will come from the net profit of the partnership. Their
agreement is a contract ofemployment
c. As an annuity to a widow or representative ofa deceased partner

Example:
H,I, J formed HIJ partnership. Subsequently, H died survived by his widow,W.It
was agreed between I, J,and W that Wwill receive 5% of the net income of the
partnership pending liquidation. W will not become a partner.
22 Federico Jarantilla,Jr.vs.Antonieta Jarantilla,G.R.No.154486,December 1,2010.

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a. As an interest on a loan
Example:
X, Y, and Z formed XYZ partnership. One ofits creditors is W. The credit is
P100,000 with a stipulation as to interest of6% perannum. It was agreed between
XYZ partnership and W that the payment ofinterest will come from the annual net
profit ofXYZ partnership. Wis not a partner in XYZ partnership.
b. As the consideration for the sale of a goodwill of a business or other

property
Example:
X, Y, and Z formed XYZ partnership. Q sold his onlyparcel ofland to XYZ
partnership. In their contract ofsale, it was agreed that the payment will come from the
annual profit ofXYZ partnership. Q is not a partner in XYZ partnership.
Problem:
The heirs of the late X, namely: X's widow Y; and their children A,
and B filed a Complaint against W, widow of the late H, who was the eldest
son of X and Y.
Y, A and B alleged that sometime in 1980, X, together with his friends U
and V, formed a partnership to engage in the trucking business. Initially, with a
contribution ofP50,000 each, they purchased a truck to be used in the hauling and
transport of lumber of the sawmill. X managed the operations of this trucking business
until his death on August 15, 1981. Thereafter, X's heirs, including H, and partners
agreed to continue the business under the management of H.
On May 18, 1995, H died, leaving W as his sole surviving heir.

Y, A and B claimed that W took over the administration of the
aforementioned properties, which belonged to the estate of X, without
their consent and approval.
W claimed that H was himself a partner of U and V. W also claimed that per
testimony of Y, sometime in 1980, X gave H P50,000 as the latter's capital in an
informal partnership with U and V. When H and W got married in 1981, the
partnership only had one truck; but through the efforts of H, the business flourished.
W also alleged that when X died in 1981, he left no known assets, and
the partnership with U and V ceased upon his demise.W also stressed that X
left no properties that H could have held in trust.
Who is the partner in the trucking business, X or H?

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Answer:
Applying Article 1769 of the Civil Code to the facts of this case,the following
circumstances tend to prove that H was himself the partner of U and V: 1) Y testified that
X gave H P50,000, as share in the partnership, on a date that coincided with the payment
of the initial capital in the partnership;(2) H ran the affairs of the partnership, wielding
absolute control, power and authority,without any intervention or opposition whatsoever
from any of Y,Aand B;(3) all of the properties, particularly the nine trucks of the
partnership, were registered in the name of H; (4) U testified that H did not receive wages
or salaries from the partnership, indicating that what he actually received were shares of
the profits of the business; and (5) none of Y, A and B, as heirs of X, the alleged partner,
demanded periodic accounting from H during his lifetime.A demand for periodic
accounting is evidence ofa partnership. 23
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 bya judicial decree, the proñits
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 ofa crime.
(1666a)
Lawful object or purpose

The object or purpose ofa 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.
Examples ofUnlawful Partnership
1.A partnership formed for gambling purposes.
2. A partnership formed to furnish houses for prostitution purposes.
3.A partnership formed to create illegal monopolies or combinations in restraint
oftrade.
Effects of an unlawful partnership

1. The contract is void from the very beginning;24 Note:
A void contract is as ifit never existed from the very beginning. Thus, it has no
legal personality.
2. The profits shall be confiscated in favor of the government;
2"see Heirs of Jose Lim vs.Juliet Villa Lim,G.R.No.172690,March 3,2010.
16
2*Art.1409,NCC.
16
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3. The instruments or tools and proceeds of the crime shall be forfeited in

favor of the government25; and
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)
General Rule: Form of contract of partnership

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.26
PUBLIC INSTRUMENT
A document prepared by a notary public in the presence of the parties
who sign it before witnesses.27
Example:
A and Bagreed to form a partnership where A promised to contribute his
onlyparcel ofland while B undertook to contribute P100,000. In this case since A will
contribute his only parcel ofland, a real property, their contract must be executed in a
public instrument. Otherwise, it is void.
What ifA will contribute his onlycar while B will contribute P100,000? The
contract may be oral or in writing whether private or public instrument and the
contract ofpartnership is valid.
16
25 Art.45,Revised Penal Code
26 see p. 1519, Black's Law Dictionary,Tenth Edition.
27 see p. 1427,Black's Law Dictionary,Tenth Edition.
17
17
A partnership may be constituted in anyform
Problem:
X, Y, and Z, are brother and sisters, who are co-owners of certain lots which
were then being leased to SHELL Co.They agreed to open and operate a gas station
thereat to be known as XYZ Shell Service Station with an initial investment of P 950,000
to be taken from the advance rentals due to them from SHELL for the occupancy of the
said lots owned in common by them. A joint affidavit was executed by them which was
prepared by Atty.W.
Y and Z agreed to help their brother X by allowing him to operate and

manage the gasoline service station of the family. They negotiated with SHELL.
For practical purposes and in order not to run counterto the company's policy of
appointing only one dealer, it was agreed that X would apply for the dealership. Y
helped in managing the business.
For some time, X submitted financial statements regarding the operation
of the business to Y and Z, but thereafter X failed to render subsequent
accounting. Hence, a demand was made on X to render an accounting of the
profits. Thereafter, Y and Z filed a complaint.
Does a partnership exist between members of the same family
arising from their joint ownership of certain properties?
Answer:
Let it be noted that it is against the policy of SHELL that the business of
the dealer is a partnership. It should be a sole proprietorship.
Evidence in the record shows that there was in fact such partnership
agreement between the parties. This is attested by the testimonies of Y and Atty.
W. X submitted to Y and Z periodic accounting of the business. X gave a written
authority to Y, his sister, to examine and audit the books of their "common
business". Y assisted in the running of the business. There is no doubt that the
parties hereto formed a partnership when they bound themselves to contribute
money to a common fund with the intentionof dividing the profits among
themselves. The sole dealership by X and the issuance ofall government permits
and licenses in the name of X was in compliance with the afore-stated policy of
SHELL and the understanding of the parties of having only one dealer of the
SHELL products.28
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.
28 see Eligio Estanislao,Jr.vs.CA,et.al.,G.R.No.L-49982,April 27, 1988.
18
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)
Partnership having a capital ofP3,000 or more (personal property only)

The contract of partnership must appear in a public instrument and must be recorded
in the office ofthe SEC. Take note that non-compliance with the requirement of execution in a
public instrument will not make the contract void. Hence, it is still valid.
Partnership having a capital of below P3,000 (personal property only) No

form is required. Thus, it may be verbal.
Purpose of 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 be determine more accurately their membership and capital before dealing with them."29
Problem:
X filed a complaint against V and Y, daughter and wife, respectively of the
deceased Z, for Winding Up of Partnership Affairs and Accounting.
X alleged that in 1977, he verbally entered into a partnership with Z in the

distribution of LPG in Manila. For business convenience, X and Z allegedlyagreed
to register the business name of their partnership, Shellite, under the name of Z as
a sole proprietorship.The partnership allegedly had Z as manager. As
compensation, Z would receive a manager's fee of 10% of the gross profit.
Allegedly, from the time that Shellite opened for business on July 8, 1977,
its business operation was profitable.
Upon Z's death in the later part of 1989, his surviving wife, Y and particularly his
daughter, V, took over the operations and management of Shellite without X's consent.
Despite X's repeated demands upon Y and V for accounting and winding up of the
partnership, Y and V failed to comply. Did X and Y form a partnership?
Answer:
In a desperate bid to cast doubt on the validity of the oral partnership
between Xand Z, Y and V maintain that said partnership had initial capital of
P200,000 should have been registered with the SEC since registration is mandated
by the Civil Code, True, Article 1772 ofthe Civil Code requires that partnerships with
a capital of P3,000 or more
2”Dean Capistrano, IV Civll Code of the Philippines,p.260.
19
must register with the SEC, however, this registration requirement is not
mandatory. Article 1768 of the Civil Code explicitly provides that the
partnership retains its juridical personality even if it fails to register. The
failure to register the contract of partnership does not invalidate the same as
among the partners, so long as the contract has the essential requisites,
because the main purpose of registration is to give notice to third parties,
and it can be assumed that the members themselves knew of the contents
of their contract. In the case at bar, non-compliance with this directory
provision of the law will not invalidate the partnership considering that the
totality of the evidence proves that X and Z indeed forged the partnership in
question.30
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)
Note:
An inventory is still required ifaside from real property, personal
property is contributed. However, the inventory need not include the
personal property.
A partnership may be constituted in any form, save when immovable property

or real rights are contributed thereto or when the partnership has a capital of at
leastP3,000, in which case a public instrument shall be necessary. And an inventory to
be signed by the parties and attached to the public instrument is also indispensable to
the validity of the partnership whenever immovable property is contributed to it.31
Lest it be overlooked, the contract-validating inventory requirement under

Article 1773 of the Civil Code applies as long real property or real rights are initially
brought into the partnership. In short, it is really ofno moment which ofthe partners,
contributed immovables. In context, the more important consideration is that real
property was contributed, in which case an inventory of the contributed property duly
signed by the parties should be attached to the public instrument, else there is legally
no partnership to speak of.32
WHAT IS THE INTENTION OF ARTICLE 1773?

Article 1773 was intended primarily to protect third persons.Thus,the eminent
Arturo M.Tolentino states that under the aforecited provision which
see Lilibeth Sunga-Chan and Cecilia Sunga vs.Lamberto T.Chua,G.R.No.143340,August 15,2001
31 Aurelio K Litonjua,Jr.vs.Eduardo K.Litonjua,Sr.et.al.,G.R.Nos.166299-300,December 13,2005. 32 Aurelio K Litonjua, Jr.vs.

Eduardo K.Litonjua, Sr.et.al., G.R. Nos.166299-300,December 13,2005.
20
is a complement of Article 1771, the execution of a public instrument would be

useless if there is no inventory of the property contributed, because without its
designation and description, they cannot be subject to inscription in the Registry
of Property, and their contribution cannot prejudice third persons. This will result
in fraud to those who contract with the partnership in the belief in the efficacy of
the guaranty in which the immovables may consist. Thus, the contract is
declared void bythe law when no such inventory is made.The case at bar does
not involve third parties who may be prejudiced.33
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)
The reason for the above-stated provision 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.
Example:
A, B, and C formed ABC partnership. Thus, ifABC partnership will be a donee or
a buyer ofa specific real property then it shall be registered in its name and not in the
name ofone or some or all ofthe partners. Consequently, ifthis will be conveyed, like sale
or donation, the seller or donor must onlybe in the name ofthe partnership.
Art. 1775. Associations and societies, whose articles are kept secret
among the members, and wherein anyone of the members maycontract in
his own name with third persons, shall have no juridical personality, and
shall be governed by the provisions relating to co-ownership. (1669)
Partnership vs. Association
Partnership Association
Juridical Personality
It has juridical It has no juridical
personality. personality.
Pur ose
It is for profit. It may not be for profit.
M see Antonia Torres and Emeteria Baring vs.CA and Manuel Torres,G.R.No.134559,December 9, 1999.
21
Contribution of Members
There is a contribution of money, There is no contribution of capital
property, or industry or a although fees are usually collected
from the members to maintain the
combination of these.
organization.
Liability
The partnership is the one liable. Members are individually liable for
the debts of the association.
The associations or societies here cannot sue because it has no legal personality.
However, the fact that it has no legal personalityas a partnership cannot be invoked by the
“partners” for the purpose of evading compliance with obligations contracted by them,
because they who caused the nullity of a contract are prohibited from availing of its benefits.34
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)
Classification ofPartnership
1. According to object
a.Universal partnership
Two Kinds
(1) 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.
(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.
b. Particular partnership
A particular partnership has for its object determinate things, their use or fruits, or
specific undertaking, or the exercise ofa profession or vocation.
2.According to liability
a. General partnership
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.
22
4 11 Manresa 289-290.
22
22
b.Limited partnership
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.
Note: This will be discussed in chapter 4. 3.
According to duration
a.Partnership at will
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.
Example:
A, B, and C formed a partnership where A contributed cash
ofP500,000. For B, computers valued at P200,000 and C, his only truck valued
at P300,000. In here, there is no fix term agreed upon nor it is a for a particular
undertaking so that it can be dissolved anytime.
b.Partnership with a fixed term

It is one where the life or period of existence of the partnership has
been agreed upon by the partners.
Example:
A, B, and C formed a partnership where A contributed cash
ofP500,000. For B, computers valued at P200,000 and C, his only truck valued
at P300,000. The partners agreed that the life of the partnership will be 15
years. In here, the partnership, as a rule, can be dissolved after the lapse of15
years.
c. Partnership for a particular undertaking

It is one where it will exist until the purpose is accomplished.
Example:
A,B, and C formed a partnership for the manufacture of300 tables for
a particular school where A contributed cash ofP150,000, B contributed lumber
valued at P200,000 and C, the use ofhis truck. In here, the partnership will be
dissolved after the completion ofthe 300 tables.
23
4.According to representation to others

a. Ordinary partnership
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 amnong themselves.
Example:
A, B, and C established a partnership where A contributed cash
ofP50,000, B contributed a specific car worth P200,000 and C,his industry.
b. Partnership by estoppel
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.
Example:
A, B, and C are partners in ABC partnership. Subsequently, X
misrepresented to Y that he is a partner in ABC partnership. When Y inquired
from A, B and C ifX is one oftheir partner, A, B, and C answered in the
affirmative. In here A, B, C and X are partners by estoppel so that if Y
suffered damages because of that misrepresentation, the net assets of ABC
partnership is liable together with the separate propertyofX.
5.According to the legality of its existence

a. De jure partnership
It is one which has complied with all thelegal requirements for its
creation.
Example:
A,B, and C formed ABC Partnership where A contributed cash
ofP1,000,000, B contributed his only parcel ofland and C will contribute his
industry during the term ofthe partnership which is 10 years. The contract of
partnership was written in a public instrument The partners made also an
inventory which they all signed and thereafter they attached it to their
contract of partnership. In here, we have a de jure partnership.
b. De facto partnership
24
It is one which has not complied with all the legal requirements for its
creation.
24
24
Example:
A, B, and C formed ABC Partnership where A contributed cash
ofP1,000,000, B contributed his onlycar and C will contribute his
industryduring the term ofthe partnership. Their agreement is verbal. In
here, the partnership is a de facto partnership as it was not written in a
public instrument and it was not registered in the SEC.
Art. 1777. A universal partnership mayrefer to all the present property or to all
the profits. (1672)
Kinds of Universal Partnerships
1. Partnership of all present property
2. Partnership ofall 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 all the
profits which they may acquire therewith. (1673)
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.
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 ofthe partnership,
becomes the common property ofall 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)
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 propertycannot be donated.35
35 11 Manresa 304-314;Art.751,NCC.
25
Example:
A,B, and C entered into a partnership named A,B,and C partnership. A contributed
all his present properties comprising two parcels of land. B contributed his only property
which is a specific car. C contributed his house and lot which is his only property.The
contract of partnership formed by A,B, and C is a universal partnership ofall present
property.
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)
Partners retain their ownership over their present and future property. What passes
to the partnership are the profits and the use of the same.36
Example:
A, B, and C entered into a partnership named A, B, and C partnership. A
contributed the use ofhis oftwo parcels ofland. B contributed also the use of his specific
car for purposes ofdelivery ofgoods. C contributed his house and lot to be used by the
partnership as warehouse. The contract ofpartnership formed byA, B, and C is a universal
partnership ofall profits.
Universal Partnership of all Universal Partnership of profits
present Property (During the existence of the
partnership)
(At the time of constitution of the
partnership)
All thepresent property actually Only the usufruct [use and fruits)
of
belonging to the partners are
the properties of the partnership
contributed to the partnership becomes common property of all the
which become common property of all partners and the partnership.
the partners and the partnership
26
General Rule: All profits acquired through the
Only the profits of said contributed “industry” or “work”of the
property become common property but
not profts arising from other partners
property of the partners.
become common property.
36 11 Manresa 303.
26
Exception:
If stipulated, the profits from
other
property of the partners may
become common.
Note:
The properties subsequently
acquired by inheritance, legacy or
donation, cannot be included in the
stipulation, but the fruits thereof
can be included in the stipulation.
Art. 1781. Articles of universal partnership, entered into without specification of

its nature, only constitute a universal partnership of profits. (1676)
Presumption in favor ofuniversal partnership ofprofits

The universal partnership of profits imposes less obligation because their real
and personal properties are retained by them in naked ownership.
Art. 1782. Persons who are prohibited from giving each other any donation or
advantage cannot enter into universal partnership. (1677)
Rationale:
A universal partnership is virtually a donation to each other of the partner's
properties (or at least, their usufruct). Therefore, if persons are prohibited to donate to
each other, theyshould not be allowed to do indirectly what the law forbids directly.37
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.38
Examples ofpersons who cannot enter into a universal partnership
1. Legally married spouses;39
Note: However spouses may enter into a particular partnership like the
exercise ofa profession or vocation. 40
2. Persons living together as husband and wife without a valid
marriage;41
27
3. Persons who were guilty ofadultery or concubinage at the time of
the donation;42
37 11 Manresa 317.
# 11 Manresa 317.
39 Art.87,Family Code of the Philippines.
40 Commissioner of Internal Revenue vs. William J.Suter and CA,G.R.No.L-25532,February 28, 1969.
41 Art.87,Family Code of the Philippines.
42 Art.739,NCC
27
4. Persons who were guilty ofthe same criminal offense;43

5.Persons found guilty of the same criminal offense, in consideration
thereof;44
6.A person or persons and a public officer or his wife, descendants and
ascendants, byreason ofhis office.
Problem:
A limited partnership, named "WJG Ltd.," was formed by Was
the general partner, and J and G, as the limited partners. The partners
contributed, respectively, P20,000,P18,000 and P2,0000 to the
partnership.
Subsequently, general partner W and limited partner J got
married and, thereafter, limited partner G sold his share in the
partnership to them.
Was the partnership dissolved after the marriage of the
partners, W and Jand the subsequent sale to them by G of his share?
Answer:
The thesis that the limited partnership, WJG Ltd., has been
dissolved byoperation oflaw because of the marriage of the only
general partner, W to the originally limited partner, J one year after
the partnership was organized is rested upon the theory that:
A husband and a wife may not enter into a contract ofgeneral
copartnership, because under the Civil Code, which applies in the absence
ofexpress provision in the Code ofCommerce,persons prohibited from making
donations to each other are prohibited from entering into universal
partnerships. It follows that the marriage of partners necessarily brings about
the dissolution ofa pre-existing partnership.
WJG, Ltd. was not a universal partnership, but a particular one. Auniversal
partnership requires either that the object of the association be all the present
property of the partners, as contributed by them to the common fund, or else "all
that the partners may acquire by their industry or work during the existence of the
partnership".WJG Ltd. was not such a universal partnership, since the
contributions of the partners were fixed sums ofmoney, P20,000.00 by W and
P18,000.00 by J and neither one of them was an industrial partner. It follows that
WJG, Ltd. was not a partnership that spouses were forbidden to enter.
Nor could the subsequent marriage of the partners operate to dissolve

it, such marriage not being one of the causes provided for that purpose.45
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) The above-stated article defines a particular partnership.
Examples:
1. A and B formed AB partnership where A contributed P1,000,000 and B
contributed his only parcel ofland. Theyagreed to engage in buyand sell
ofmotor vehicles.
2.A and B formed AB partnership where A contributed P10,000,000 while
B contributed P3,000,000 and his industry, being an engineer, for the
construction ofa building as they will engage in the business ofleasing
apartment units.
3. A and B, both certified public accountants, entered into a contract of
partnership to engage in accounting, audit, and tax consultancy.
Note:
Ifthe partnership is a universal partnership, a husband and wife cannot
enter into such contract. However, if the partnership is a particular partnership,
theycan.
29
45 see Commlssioner of Internal Revenue vs.William J.Suter and CA,G.R.No.L-25532,February 28,1969.
29
29
CHAPTER 2-OBLIGATIONS OF THE PARTNERS
CHAPTER 2
OBLIGATIONS OF THE PARTNERS
Kinds of partners
1. As to contribution
a. Capitalist partners
Those who contribute money or property or both moneyand
property to the common fund.1
b. Industrial partners
Those who contribute only their industry or labor to the
common fund.2
C. Capitalist-industrial partners
Those who contribute money or property and industry or both
money, property and industry to the common fund.
2.As to liability
a. General partners
Those who can be held liable to third persons for partnership
obligations even to the extent of their separate property.3
b. Limited partners
Those who cannot be held liable to third persons for
partnership obligations.4
4. As to management
a. Managing partners
Those who manage actively the business or affairs of the
partnership.5
b. Silent partners
Those who do not take active part in the business or affairs of
the partnership though they share in the profits or losses.
c. Liquidating partners
Those who take charge of the winding up or liquidation ofthe
partnership affairs after dissolution.6
5. As to third persons
36
a. Ostensible partners
Those who take active part and known to the public as a
partner in the partnership.
1 Art.1767,NCC.
2 Art. 1767,NCC.
3Art.1816,NCC.
Art.1843,NCC.
5 Art.1800,NCC.
6Art.1836,NCC.
36
b. Secret partners
Those whose connection with the partnership is not known to
the public.
c. Dormant partners
Those who do not take active part in the business and are not
known to the public as partners. Thus, they are both secret and silent
partners.
5. As to membership
a. Real partners
Those partners in an existing legal partnership.
b. Partners by Estoppel
Those who are not really partners but represent themselves,
or consent to another or others representing them to anyone as
partners in an existing partnership or in one that is fictitious or
apparent.
6. As to continuation of the business affairs after dissolution
a. Continuing partners
Those who continue the partnership business after the
dissolution of the partnership.7
b. Discontinuing partners
Those who do not continue the partnership business after
the dissolution of the partnership.
7. As to the nature of membership
a. Original partners
Those who are members of the partnership from the time of its
constitution.
b. Incoming partners
Those who became members of the partnership after its
establishment.8
C. Retiring partners
Those who withdraw from the partnership.9
8.As to state of survivorship
a. Surviving partners
37
Those who continue the partnership after its dissolution
by reason of death of a partner.
b. Deceased partners
Those who died while being a member of the partnership.10
7Art.1840,NCC.
Art.1826,NCC.
Art 1840-1841,NCC.
10 Art 1840,NCC.
37
9. As to the effect of expulsion

a. Expelled partners
Those who are expelled from the partnership by the other
partners for a valid cause.
b. Expelling partners
Those who caused the expulsion of a partner for a valid
cause.
10. As to the value of the contribution
a. Majority partners
Those whose contribution to the partnership represents the
majority or controlling interest.
b. Nominal partners
Those whose contribution to the partnership represents the
minority interest.
SECTION 1.-
Obligations of the Partners Among Themselves
Problem:
Y Co.,a general partnership duly registered under the laws of the Philippines,
purchased from X Inc. a motor vehicle on installment basis and for this purpose
executed a promissory note for P9,440, payable in 12 equal monthly installments of
P786.63, the first installment payable on or before May 22, 1961 and the subsequent
installments on the 22nd day of every month thereafter, until fully paid, with the
condition that failure to pay any of said installments as they fall due would render the
whole unpaid balance immediately due and demandable.
Having failed to receive the installment due, X Inc. sued Y Co. for the unpaid
balance amounting to P7,119. A, B, C, D, and E were included as co-defendants in
their capacityas general partners.
Subsequently, on motion of X Inc., the complaint was dismissed

insofar as partner E is concerned.
B and C claimed that since there are 5 general partners, the joint and
subsidiary liability of each partner should not exceed one-fifth (1/ 5) of the obligations
ofY Co.
38
Is the dismissal of the complaint in favor of partner E increases the joint and
subsidiary liability of each of the remaining partners for the obligations of the partnership.
Answer:
In the instant case,there were 5 general partners when the promissory note in
question was executed for and in behalf of the partnership. Since the liability of the
partners is pro rata, the liability of partner C shall be limited to only one-fifth (1/ 5 ) of
the obligationsofY Co.The fact that the complaint against partner E was dismissed
does not
38
unmake E as a general partner in Y Co. In so moving to dismiss the

complaint, X Inc. merely condoned E's individual liability.11
Legal relations created bya contract of partnership
1. Relations between partners;
2. Relations between the partners on one hand and the partnership
on the other hand;
3. Relations between the partners on one hand and third persons on
the other hand; and
4. Relations between the partnership and the third persons.

Example:
A and Bentered into a partnership named AB partnership. A and Bare both
managing partners who at one time entered into a contract with C and D. The relations
created are the following:
1. Relations between A and B;

2. Relations between A and B on one hand and AB partnership on the other hand;
3. Relations between A and B on one hand and C and D on the other hand; and 4.
Relations between AB partnership and C and D.
Examples of obligations and rights of partners

Obligations of partners Rights of partners
1.To give their promised 1. Right to associate with
contribution12 another
person in their share13
2. Not to convert partnership money 2. Right to have access to and
to their own use14 inspect and copy partnership
books15
3. To account and hold as trustee 3. Right to demand a formal

for anyprofits derived withoutaccount17
the consent of the other
partners.16
4. Not to engage in any business 4. Right to ask for the

dissolution of
39
which is of the kind in which the partnership at the proper
the
partnership is engaged.18 time19
11see Island Sales Inc,vs.United Pioneers General Construction

Company,et.al.,G.R.No.L-22493,July 31, 1975.
12 Art.1786,NCC.
13 Art.1804,NCC.
14 Art.1788,NCC.
15 Art 1805,NCC.
16 Art.1807,NCC.
17 Art.1809,NCC.
18 Art.1808,NCC.
1"Art.1830-1831,NCC.
39
5. Obligation of managing partners to 5. Property rights of

credit to the partnership partners21
the
a. Rights in specific
payment made by a debtor who partnership
owes them and the property
partnership.20 b. Interest in the
partnership
c. Right to participate in the
management
6. Obligation to share with the Note:
other partners the share of Limited partners have no
the partnership credit which right to
they have received from an participate in the
insolvent management.
partnership debtor.22
7. Pay for damages suffered by

the partnership through their
fault.23
Art. 1784. A partnership begins from the moment of the execution ofthe
contract, unless it is otherwise stipulated.(1679)
General Rule:
A partnership begins from the moment of the execution of the
contract.
Example:
Xand Yentered into a contract ofpartnership on July2, 2016.Here,the life oftheir
partnership begins on July2, 2016, when the parties executed their contract ofpartnership.
Exception:
The partners can agree on some other date for the start of the
partnership.
Example:
40
Xand Yentered into a contract ofpartnership on July2, 2016. However, Xand Y
agreed that the commencement of their contract of partnership will be on September 1,
2016. Here, the life of their partnership begins on September 1, 2016 as agreed upon
and not on July2, 2016.
Note: As of July 2, 2016 the partnership to be formed by X and Y is a

future partnership which has no juridical existence yet. Consequently,
there is no partnership yet fromJuly 2, 2016 to August 30, 2016.
Therefore, there is no obligation nor right to speak of.
20 Art 1792,NCC.
21 Art.1810,NCC.
22 Art.1793,NCC.
23 Art.1794,NCC.
40
Art. 1785. When a partnership for a fixed term or particular undertaking is

continued after the termination of such term or particular undertaking without any
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 the
partnership.
(n)
Partnership with a fixed term

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
It is one where it will exist until the purpose is accomplished.
Partnership at will
A partnership that does not fix its term is a partnership at will. The birth and life of a
partnership at will is predicated on the mutual desire and consent of the partners. The right to
choose with whom a person wishes to associate himself is the very foundation and essence of
that partnership.24
Example ofpartnership for a fixed term

A and B entered into a contract ofpartnership for a period of10 years. As a
rule,after the expiration of10 years the partnership ofA and Bwill be dissolved. However,
ifafter 10 years and the partnership of A and B continued the operation of their partnership
without any express agreement, then the rights and obligations ofA and B will remain the
same.
For example, the right to participate in the management. Hence,ifA is the managing
partner then he will still be the managing partner despite the lapse of10 years.
Example ofa partnership for a particular undertaking

A,B, and C entered into a contract ofpartnership for the manufacture of1,000
tables for a certain school. As a rule, after the 1,000 tables were manufactured, the
partnership will be dissolved. However, ifafter the 1,000 tables were manufactured, and the
partnership ofA, B, and C continued the operations oftheir business without anyexpress
agreement, then the rights and obligations ofA and B will remain the same.
24 Gregorio F.Ortega,etal.vs.CA,G.R.No.109248,July 3,1995.
41
HAPTER 2-OBLIGATIONS OF THE PARTNERS
For example, the right to participate in the management. Hence, ifA is the
managing partner then he will still be the managing partner despite the termination of
the initial particular undertaking, that is, the manufacture of 1,000 chairs.
Problem:
Sometime in March 1946, V and T together with F entered intoa partnership
for the purpose of engaging in the printing business.Later, V obtained a personal loan
from F in the amount of P1,100.Upon the request of V, T paid the said amount to F
and this time V used his share in the partnership as guarantee for T's payment. On
June 3, 1946, F sold his share of the partnership to T and who by virtue thereof
became 2/3 owner of the business. Subsequently, T asked V to settle his account,but
due to his failure to do so, T assumed full ownership of the business. T allegedly never
rendered any accounting of the business operations, or paid the share of V in the
profits.
It is an incontrovertible fact that V had filed this action against T on February

10, 1961, nearly ten years after the expiration of the contract of partnership.
T, in defense, alleged that the whole business of the partnership became his
alone in 1947 after he had acquired by purchase the share of F and had taken over
the share of V, since the latter failed to pay the P1,100 V had requested T to pay to F,
as security for the payment of which, he had pledge his said share to T. Since 1947, T
had always been operating openly and publicly the said printing business from 1947
without any intervention or participation ofV and without said V making any claim of
any kind in connection therewith until the filing of the complaint on February 10, 1961,
hence, all the claims and causes ofaction of V had already prescribed.
Is Article 1785 applicable in the present case?

Answer:
Under these circumstances, it would be giving premium to inaction and
indifference to still hold that V could sue T only a little short of ten years after the
expiration of the stipulated term of partnership. His claims for salaries accrued after
each month they were unpaid.Whether we assume that these claims lost basis in 1947
when T took over the businesses of the printing press, byall standards, these claims
had already prescribed when the present suit was filed. Again, inasmuch as the
longest period in the chapter on prescription of the Civil Code is ten years, it is evident
that V's action for accounting is already barred.
The provisions of Article 1785 to the effect that:
When a partnership for a fixed term or particular undertaking is

continued after the termination of such term or particular
42
undertaking without anyexpress 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 ofthe business by the partners or such ofthem as
habituallyacted therein during the term, without anysettlement or liquidation of the
partnership affairs, is prima facie evidence of a continuation ofthe partnership.
and Article 1829 thus:

On dissolution the partnership is not terminated, but continues
until the winding up ofpartnership affairs is completed.
are clearly inapplicable here, for the simple reason that those articles are
premised on a continuation of the partnership as such, which is not our case,
because here T repudiated the partnership as early as 1947 with either actual
or presumed knowledge of V. By analogy, at least, with the rule as to a
coownership, which a partnership essentially is, prescription does not run in
favor ofany ofthe co-owners only as long as the co-owner claiming against the
others "expressly or impliedly recognizes the co-ownership," a circumstance
irreconcilably inconsistent with T's conduct of transferring the place of
business, changing its name and not paying V any of the salaries agreed
upon in the articles of partnership.25
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 respect to the vendee. He
shall also be liable for the fruits thereof from the time they should have been
delivered,without the need ofany demand. (1681a)
Obligation of every partner

1. The obligation to contribute what had been promised;
The mutual contribution to a common fund is the first test in order to
have a contract of partnership.
The failure to contribute is to make the partner a debtor of the partnership
even
if there is no demand. This is an exception to the general rule that there is no delay
when there is no demand.
25 see Vicente Dira vs.Pablo D.Tañega,G.R.No. L-13232, June 17, 1970.
43
Consequently, in case of failure to deliver the promised contribution,

the remedy is specific performance with interest and damages occasioned
thereby and not rescission.26
2. The obligation to deliver the fruits thereof;and
If property has been promised, the fruits thereof should also be given. The
fruits referred to are those arising from the time they should have been
delivered,without the need of any demand. If the partner is in bad faith, he is liable
not only for the fruits actually produced, but also for those that could have been
produced.27
If money has been promised and that partner failed to do so, he becomes a
debtor for the interest and damages from the time he should have complied with
his obligation.28
3.The obligation to warrant

The warranty in case of eviction refers only to specific or determinate
things which a partner contributed to the partnership.
Art. 1787. When the capital or a part thereof which a partner is bound to
contribute consists of goods, their appraisal must be made in the manner
prescribed in the contract ofpartnership, and in the absence of stipulation, it
shall be made by experts chosen by the partners, and according to current
prices, the subsequent changes thereof being for account of the partnership.
(n)
Rationale:
In order to know the monetary value of the contribution of that partner as of
the date of contribution. This is useful in the future operation of the partnership just
like in the accounting of the share of profit or loss of every partner. Under the law,
in the absence of stipulation, the share of each partner in the profits and losses
shall be in proportion to what he may have contributed.29
Manner of appraisal:
1. By stipulation;or
2.In the absence of stipulation, by experts chosen by the partners
according to current prices.
Art. 1788.A partner who has undertaken to contribute a sum of money and
fails to do so becomes a debtor for the interest and damages from the time
he should have complied with his obligation.
44
26 Maximiliano Sancho vs.Severiano LIzarraga,G.R.No.L-33580,February
6,1931.
27 11 Manresa 344. 28 Art 1788,NCC.
29 Art.1797,NCC.
44
The same rule applies to any amount he may have taken from the
partnership coffers, and his liability shall begin from the time he converted the
amount to his own use. (1682)
Essence of Partnership
It is a settled rule that when a partner who has undertaken to contribute a sum
of money fails to do so, he becomes a debtor of the partnership for whatever he may
have promised to contribute and for interests and damages from the time he should
have complied with his obligation. Being a contract of partnership, each partner must
share in the profits and losses of the venture. That is the essence of a partnership.30
Cases covered of the liability for damages and interest

1. Money promised by a partner is not given on time; and
2. Money of the partnership is converted the amount to partners' own use.
Demand is not necessary
This case is an exception to the general principle in the law on obligation
which states: “there is no default, if there is no demand.”
1. In the case of contribution, because time is of the essence, a
partnership is formed precisely to make use of the contributions, and this
use should start from its formation, unless a different period has been set;
otherwise the firm is necessarily deprived of the benefits thereof. Thus,
injury is constant.31
2. In the case of conversion, demand is also not necessary, even if no
actual injury results, the liability exists, because the Article is absolute.32
Art. 1789. An industrial partner cannot engage in business for himself, unless the
partnership expressly permits him to do so; and if he should do so, the capitalist
partners may either exclude him from the firm or avail themselves of the benefits
which he mayhave obtained in violation of this provision, with a right to damages
in either case. (n)
Capitalist partners
Those who contribute money or property or both money and
property
to the common fund.
Industrial partners
Those who contribute only their industry or labor to the common fund.
30 Eufracio D.Rojas vs.Constancio B.Maglana,G.R.No.30616,December 10,1990.
31 11 Manresa 332-335. IUMAS P.ABELLO LIBRARY

32 11 Manresa 335-336. TOMAS DEL ROSARIO COLLEGF
BALANGA CNY.BAIAAN
Capitalist-industrial partners
Those who contribute money or property and industry or both
money, property and industry to the common fund.
Capitalist partner vs. Industrial partner

Capitalist partner Industrial partner
Contribution
Contributes money or property33 Contributes his industry34
Prohibition to enga ge in other business
General rule: cannot engage in General rule: cannot engage in
thesame kind of business in which business for
thepartnership is engagedException: himself
stipulation authorizinghim35 Exception: If the partnership
expressly permits him to do so36
Profits
Shares in the profits according to Shares in the profits according to
agreement; ifthere is no agreement, agreement; if there is no agreement,
in proportion to his contribution37 he shall receive such share as may
be just and equitable under the
circumstances.
Losses
General rule: the agreement as to
losses; in any. However, if there is
no agreement, then the agreement General rule: the agreement as
tolosses; ifany.Exception: in the
as to profits absence ofagreement, the industrial
Exception: in the absence of partnershall not be liable for
agreement as to profits and losses, losses.
in proportion to his contribution.
Remedies of capitalist partners against an industrial partner who engaged

in business for himself
1. The capitalist partners may exclude the industrial partner from the
partnership plus damages; or
2. The capitalist partners may avail themselves of the benefits which
the industrial partner may have obtained plus damages.
Note:
An action for specific performance to compel thepartner to perform the promised

industryis not available as a remedybecause this will
33 Art.1767,NCC.
34 Art.1767,NCC.
35 Art.1808,NCC.
36 Art.1789,NCC.
37 Art 1797,NCC.-180J30A 4 CAMOI
209JE046AM0T
BALANGA CI1Y,BA1AA
lead to the prohibition on involuntary servitude under the Philippine

Constitution.
Example:
A and B formed a partnership to engage in the repair ofcomputers. Partner A
contributed P100,000 while Bcontributed his industry. Adjacent the stall ofthe repair
shop, A opened a coffee shop. At the other side, B opened a store for selling
computer parts. May A and Bengage in separate businesses?
A mayengage in the coffee shop business as it is not ofthe same kind as the
business of the partnership. While B, may not engage in any kind of business, without
the consent ofA, because as an industrial partner he must devote his full time to the
partnership.
Art. 1790. Unless there is a stipulation to the contrary, the partners shall
contribute equal shares to the capital of the partnership.(n)
Example:
A and Bentered into a contract ofpartnership having an initial capital
ofP300,000. How much is the contribution ofB?
Obviously, the facts of the case did not mention the separate contribution
ofpartners A and B. Hence, using the disputable presumption mentioned in the
abovestated article, B contributed P150,000 (P300,000/2 = P150,000).
Art. 1791. If there is no agreement to the contrary, in case of an

imminent loss of the business of the partnership, any partner who
refuses to contribute an additional share to the capital, except an
industrial partner, to save the venture, shall be obliged to sell his
interest to the other partners. (n)
Obligation of capitalist partners to contribute additional capital
General rule:
Capitalist partners are not bound to contribute additional capital.
Exceptions:
1.Stipulation
2. In case of imminent loss of the business of the partnership to save
the venture. If the capitalist partners refuse to contribute additional
capital they shall be obliged to sell their interest to the other capitalist
partners who are willing to contribute additional capital.
47
CHAPTER 2 - OBLIGATIONS OF THE PARTNERS
Note:
Contract of partnership is governed by the principle of fiduciary relationship, that is
trust and confidence, so that ifa capitalist partner is not willing to make additional
contribution, then there is no more fiduciary relationship to speak of. Of course, the above-
article presumes that the capitalist partners are solvent.
Additionally,the above-stated article is not applicable to industrial

partners because they are already giving their entire industry.
Art. 1792. Ifa partner authorized to manage collects a demandable sum

which was owed to him in his own name, from a person who owed the
partnership another sum also demandable, the sum thus collected shall be
applied to the two credits in proportion to their amounts, even though he
may have given a receipt for his own credit only; but should he have given
it for the account of the partnership credit, the amount shall be fully applied
to the latter.
The provisions of this article are understood to be without prejudice to the
right granted to the debtor by Article 1252, but only if the personal credit of the
partner should be more onerous to him. (1684) Rationale:
To prevent furtherance of the partner's personal interest to the detriment of the
partnership. The above-stated article is not applicable to a partner who is not a
managing partner because there is no basis for the suspicion that the partner is in bad
faith,38
Example:
A and B entered into a contract ofpartnership. Who is the manager? Clearly, the
facts ofthe case did not state who is the manager so that the law provides that ifthere is no
partner designated as a manager in a contract of partnership, then all (A and B) the partners
are managers.39
Obligation of a managing partner who collects debt Requisites:

1. The existence of at least 2 debts (one where the managing partner is
the creditor and the other where the partnership is the creditor); and
2. Both sums are demandable.
3 11 Manresa 351.
48
2Art.1803.NCC
48
48
Example:
A and B formed AB partnership. Theyagreed that partner A will be
the manager. Subsequently, in a contract, partner A had a receivable against
Xin the amount ofP100,000 due on August 1,2016. In another transaction,
AB partnership had a receivable against X in the amount ofP300,000 due
also on August 1, 2016. On September 1, 2016 X paid A the amount of
P80,000. Should A collect the entire amount? It depends.
a. IfA issued a receipt for his own credit, then the P80,000 should
be applied proportionately, that is, P 20,000
(100,000/400,000xP80,000) will be applied to his own credit and the
balance of P60,000 (300,000/400,000 xP80,000) will be applied to the
credit of the partnership.
b. IfA issued a receipt for the credit of the partnership, then the
entire P80,000 will be applied to the credit of the partnership.
What ifin the above problem, the debt of X to A has an interest or

thatXdelivered a car as a securityin the form ofpledge or chattel mortgage? In this
case, the law allows X to apply the entire payment ofP80,000 to his credit with
partner A.
Art. 1793. A partner who has received, in whole or in part, his share ofa
partnership credit, when the other partners have not collected theirs,
shall be obliged, if the debtor should thereafter become insolvent, to
bring to the partnership capital what he received even though he may
have given receipt for his share only. (1685a)
Rationale:
Equity demands proportionate share in the benefits and losses.40
Article 1792 vs. Article 1793
Article 1792 Article 1793
As to the number of credits
There are two distinct There is only one credit,
credits, that is,
that is, one in favor of the in favor of the partnership
partnership and another in
favor of the managing
partner
As to app licability
49
Applies only if the partner Applies to any partner
is a
managing partner
As to debtor' s insolvency
The debtor is not insolvent The debtor has become
insolvent
40 11 Manresa 353.
49
Example:
A and Bentered into a contract ofpartnership. Subsequently, Xowed the
partnership the amount ofP500,000. Thereafter, partner A collected P200,000 from X.
Later, X turned insolvent so that B could not collect from X.
In this case, the law provides that partner A should give the share ofB in
the amount ofP100,000.
Note:
The above-stated article applies whether the partner has received
his share in whole or in part.
Art. 1794. Every partner is responsible to the partnership for damages suffered
by it through his fault, and he cannot compensate them with the profits and
benefits which he may have earned for the partnership by his industry. However,
the courts may equitably lessen this responsibility if through the partner's
extraordinary efforts in other activities of the partnership, unusual profits have
been realized. (1686a)
Rule:
Damages suffered by the partnership through the fault or negligence of a
partner are not generally subject to set-off with the profits and benefits which that
partner may have earned for the partnership by his industry. Rationale:
It is the obligation of a partner to earn benefits and profits for the partnership
and it is also his obligation not to cause damages through negligence for the
partnership. These are two distinct obligations that cannot be set-off. Moreover, in the
law on obligation, only a right and an obligation are required to be compensated or set-
off.
Mitigation of liability by the courts

In case ofa partner's extraordinary efforts in other activities of the
partnership, unusual profts have been realized. This principle rests on equity.
Art. 1795. The risk of specific and determinate things, which are not fungible,
contributed to the partnership so that only their use and fruits may be for the
common benefit, shall be borne by the partner who owns them.
If the things contributed are fungible, or cannot be kept without
deteriorating, or if they were contributed to be sold, the risk shall be borne by the
partnership. In the absence of stipulation, the risk of the things brought and
appraised in the inventory, shall also be borne by
50
the partnership, and in such case the claim shall be limited to the
value at which they were appraised.(1687)
Risk of loss
1. Specific and determinate things which are not fungible
What was contributed here is only the use of the object. For example, a partner
contributes only the use of his delivery truck. Hence, it is the partner who bears the risk
of loss because the partner did not transfer the ownership to the partnership.
2.Fungible things
It is the partnership who bears the risk of loss as there was
transfer of ownership.
3.Things contributed to be sold
4. Things brought and appraised in the inventory
Art. 1796. The partnership shall be responsible to every partner for the
amounts he may have disbursed on behalfof the partnership and for the
corresponding interest, from the time the expenses are made; it shall
also answer to each partner for the obligations he may have contracted
in good faith in the interest of the partnership business, and for risks in
consequence ofits management. (1688a)
Obligation of the partnership to every partner

1. To refund the amounts a partner may have disbursed on behalf of
the partnership plus the interest from the time the expenses were
made.
Example:
A and B formed AB partnership. Subsequently B purchased office supplies in
the amount ofP20,000 out ofhis own moneywith the consent of A on August 1, 2016.
In this case, AB partnership must reimburse the amount ofP20,000.

51
What ifAB partnership reimbursed B onlyon October 1, 2016? In this case, AB

partnership must also be liable for legal interest for two months (from August 1, 2016 to
October 1, 2016).
2. To answer to each partner for obligations, he may have

contracted into in good faith in the interest of the partnership, and for
the risks in consequence of its management.
51

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CHAPTER 1-GENERAL PROVISIONS

Essential requisites ofa contract ofpartnership

What are the two tests to determine the existence of a partnership?

of the partners to divide the profits among themselves. It may be constituted

'see p. 1158, Black's Law Dictionary,Tenth Edition.

Ssee p.1410,Black's Law Dictionary,Tenth Edition.

ART. 1767. Bythe contract ofpartnership two or more persons bind

Under the above-quoted Agreement, X and Y would contribute property

It should be stressed that the parties implemented the contract. Thus, X

Z's actions clearly belie X and Y's contention that he made no

Instead of answering the Complaint, X filed a Manifestation

BEST EVIDENCE OF THE EXISTENCE OF A PARTNERSHIP

In Idos v. Court ofAppeals, this Court said:

"see Llm Tong Lim vs.Phllippine Fishing Gear Industries,Inc.,G.R.No.136448,November 3, 1999.

Thus, ABC Partnership can:

" see p. 1325, Black's Law Dictionary,Tenth edition.

Art.46,New Civil Code(NCC).

Company.Instead, they agreed to use Z's name in securing distributorship of

Does partnership exist?

of the affairs of the cookware distributorship, including selection of people

A i profits of the business; s

Rule 2: Co-ownership or co-possession does not of itself establish a partnership

proportionate shares. Any

contributed, a public co-ownership.

Example: In a merchandising business, we have a basic formula for net

Rule 4: The receipt by a person of a share of the profits of a business is prima

Persons who contribute property or funds for a common enterprise

plaintiffs commission,no partmership existed as between the three parties,

a. As a debt by installments or otherwise

b. As wages ofan employee or rent to a landlord

c. As an annuity to a widow or representative ofa deceased partner

22 Federico Jarantilla,Jr.vs.Antonieta Jarantilla,G.R.No.154486,December 1,2010.

b. As the consideration for the sale of a goodwill of a business or other

On May 18, 1995, H died, leaving W as his sole surviving heir.

Who is the partner in the trucking business, X or H?

Lawful object or purpose

Effects of an unlawful partnership

2"see Heirs of Jose Lim vs.Juliet Villa Lim,G.R.No.172690,March 3,2010.

3. The instruments or tools and proceeds of the crime shall be forfeited in

Art. 1771. A partnership may be constituted in any form, except where

General Rule: Form of contract of partnership

26 see p. 1519, Black's Law Dictionary,Tenth Edition.

27 see p. 1427,Black's Law Dictionary,Tenth Edition.

A partnership may be constituted in anyform

Y and Z agreed to help their brother X by allowing him to operate and

Art.1772. Every contract of partnership having a capital of three thousand pesos or

Failure to comply with the requirements of the preceding paragraph shall

Partnership having a capital ofP3,000 or more (personal property only)

Partnership having a capital of below P3,000 (personal property only) No

X alleged that in 1977, he verbally entered into a partnership with Z in the

A partnership may be constituted in any form, save when immovable property

Lest it be overlooked, the contract-validating inventory requirement under

WHAT IS THE INTENTION OF ARTICLE 1773?

31 Aurelio K Litonjua,Jr.vs.Eduardo K.Litonjua,Sr.et.al.,G.R.Nos.166299-300,December 13,2005. 32 Aurelio K Litonjua, Jr.vs.

is a complement of Article 1771, the execution of a public instrument would be

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

b.Partnership with a fixed term