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.!

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."?

Essential requisites of a contract of partnership

1. There must be a valid contract;
a
2. There must be a contribution of money, property, or industry to
common fund;
3. The partnership must be organized for gain or profit; and
be
4. The partnership should have a lawful object or purpose, and must
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

1 Heirs of Jose Lim vs. Juliet Villa Lim, G.R. No. 172690, March 3, 2010.
July 30, 1979.
2 In the matter of the Petition for Authority to Continue Use of the Firm Name “Sycip, et.al.,
1
CHAPTER 1 - GENERAL PROVISIONS

of the partners to divide the profits among er immovable i

in any form; a public instrument is necessary on A s thavsines atedt De
or real rights are contributed thereto. This imp es sechip ie vc Tact of
partnership is consensual, an oral contract of pa n nt see . ae as
written one. Where no immovable property or real rig . are Involved, what
matters is that the parties have complied with the requisites o¢ 5
partnership.3

Characteristics of a contract of partnership

1. Consensual
It is a contract that is perfected by mere consent because all of th |
e ||
partners had a meeting of minds to enter into a contract of partnership, |
2. Commutative
|
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 is a contract that does not depend on other contracts
for its _
existence.
4. Bilateral
It is a contract entered into by two
or more persons.
5. Onerous
Each partner must contribute mone
y, property, or industry. Of
course, a partner can contribute o ne,
some or all of these.
6. Nominate
It is a contract which ha Sana
me in law.
7. Preparatory
It is a contract in preparation for anothe
r contract or contracts. |

|
Example:

Any external thin

enjoyment are exercised5 g over Ww wh;
hich the rii ghts of Possessi i
on, use, ”
CHAPTER 1 - GENERAL PROVISIONS

Industry
Diligence in the performance of a task. A particular form or branch
of productive labor.®

Note:
The contribution to such fund need not be cash or fixed assets; it
could be an intangible like credit or industry.

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. By the contract of partnership two or more persons

common
bind themselves to contribute money, property, or industry to a
fund, with the intention of dividing the profits among themselves.

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

was to be
property to the partnership in the form of land which
on to his
developed into a subdivision; while Z would give, in additi
amount needed for general expenses and other
industry, the
t would be divided
costs. Furthermore, the income from the said projec
ct manifested
according to the stipulated percentage. Clearly, the contra
the j j ip.
the
It should be stressed that the parties implemented
facilitate its use
contract. Thus, X and Y transferred the title to the land to
t land to be
in the name of Z. On the other hand, Z caused the subjec
and the
mortgaged, the proceeds of which were used for the survey

.
6 see p. 1410, Black’s Law Dictionary, Tenth Edition
 RAL PROVISIONS
CHAPTER 1 - GENE

ad s, bs, and and the gutte,,

the curbs,
|
Z de ve lo pe d the ro
subdivision of the land.
of the subdivision. ion mag y
that he © made
ly inlie
; and Y's’ contention
XUnder
Z's actions clear Article 1767 of the Civil Code,
contribution to the partners ly money or property, but also industry 7
on
partner may contribute not
|
Partnership vs. Joint Venture
e persons agree to place thej;
A Oe nership exists when two or mor
or eae With the
money, effects, labor, and skill in lawful commerce and
sharing of the profits
understanding that there shall be a proportionate
is defined by the Civil Code
losses between them. A contract of partnership
themselves to contribute money,
as one where two or more persons bound
the intention of dividing the
property, or industry to a common fund with
profits among themselves.A joint venture, on the other hand, is hardly
from, and may be likened to, a partnership since their
distinguishable
g |
elements are similar, ie., community of interests in the business and sharin
of profits and losses. Being a form of partnership, a joint venture is generally
governed by the law on partnership.®

DOCTRINE OF DELECTUS PERSONAE

ith wl isl ‘at himself
The rigt
is the very foundation and essence of partnership. Its continued existence is, _
in turn, dependent on the constancy of that mutual resolve, along with each
partner’s capability to give it, and the absence of cause for dissolution |
provided by the law itself. Verily, any one of the partners may, at his sole |
pleasure, dictate a dissolution of the partnership at will. He must, however,
act in good faith, not that the attendance of bad faith can prevent the
dissolution of the partnership but that it can result in a liability for damages’

An unjustified dissolution by a partner can subject him to action for |

damages because by the mutual agency that arises in a partnership, the |
doctrine ofdelectus personaeallows the to have. |
. partners
the power, although not necessarily the right to dissolve the partnership.

mene partners, mutual agency arises and the doctrine of delectus

personae allows them to have the power, although not necessarily the right.
to dissolve the partnership. An unjustifie d di . y ‘
: . by the partner ¢4 | dissolution
subject him to a possible action for damag |
es.10

7 see Antonia Torres and Emeteria Baring vs, CA

8 Aurelio K Litonjua, Jr. vs. Eduardo K. Litonjua, §
9 Marjorie Tocao and William T. Belo vs. CA - etal, G.R
andar. Nenita A. re
No
166299-390, December 13, 2005.
10 Gregorio F. Ortega, et.al. vs. CA, G.R. No.
1

4
CHAPTER 1 - GENERAL PROVISIONS

ctus personae (“Choice

Delectus personarum (“choice of persons”) or Dele
of the person”)
rtant, a person cannot
The rule that when personal relations are impo e that
specifically, the principl
be compelled to associate with another person;
whom one might
one has the right to select the person or persons wi th one
form a partnership."

Note:
or mutual
Although a partnership is based on delectus personae
the partnership in
agency, whereby any partner can generally represent
[ L (pt
its business affairs, itt
it_ It must be
L
that has a distinct and
remembered that a partnership is a juridical entity
separate personality from the persons composing it.
had a cause of
In Aguila v. Court of Appeals, the complainant
partnership. Nevertheless, it was the partners
action against the
Court dismissed the
themselves that were impleaded in the complaint. The
complaint and held that i b p
eade q quse action again
y
d not be held
itself The Court added that the partners coul
s it was shown that the
liable for the obligations of the partnership unles for
legal fiction of a diffe rent juridical personality was being used
fraudulent, unfair, or illegal purposes.’

Note:
In the spirit of fair play, it is a betteder rule that a partner must first
— fe Lu 40 C c
eqded pejore Ne ou ld
pe prejudic
trial to avoid
ip. A partner may raise sever I defenses during the
liability. Necessarily, before
or mitigate his obligation to the partnership
first be impleaded and
he could present evidence during the trial, he must
ht of injustice to rob
informed of the case against him. It would be the heig
ngings without giving
an innocent partner of his hard-earned personal belo
him an opportunity to be heard.13

Partnership at will
nership at will. The
A partnership that does not fix its term is a part
birth and life of a partnership at wi ll is predic
ated on the mutual desire and
with who m a person wishes to
consent of the partners. The right to choose
partnership.1*
associate himself is the very foundation and essence of that

11 see p. 518, Black’s Law Dictionary, Tenth Edition.

206147, January 13, 2016.
12 Michael C. Guy vs. Atty. Glenn C. Gacott, G.R. No.
G.R. No. 206147 , January 13, 2016.
13 Michael C. Guy vs. Atty. Glenn C. Gacott,
, July 3, 1995.
14 Gregorio F. Ortega, et.al. vs. CA, G.R. No. 109248

5
CHAPTER 1 - GENERAL PROVISIONS

Problem:
A contract of partnership of a law firm has the following
provisions, among others:

1." The purpose for which the partnership is formed, is to act as legal
adviser and representative of any individual, firm, and corporation
engaged in commercial, industrial or other lawful businesses and
occupations; to counsel and advise such persons and entities with respect
to their legal and other affairs; and to appear for and represent their
principals and client in all courts of justice and government departments
and offices in the Philippines, and elsewhere when legally authorized to do
so." and
2. "The partnership shall continue so long as mutually satisfactory and
upon the death or legal incapacity of one of the partners, shall be continued
by the surviving partners.”

Is the purpose of the partnership, as stated in its Articles of

partnership, the sole determinant if it is a partnership for a particular
undertaking?
Answer:
The "purpose" of the partnership is not the specific undertaking
referred to in the law. Otherwise, all partnerships, which necessarily
must have a purpose, would all be considered as partnerships
for a
definite undertaking. There would, therefore, be no need to provide for
articles on partnership at will as none would so exist. Apparently what
the law contemplates, is a specific undertaking or "project" which has 4
te : ao

Problem: .
On behalf of "Q Corp.," X and Y entered into
a contract, for the
purchase of fishing nets of various sizes from G, Inc. They clai
med that

the Corporation.

The buyers,
floats; hence, however,
G, Inc. filed failed to pay for the fishing nets and the
a collection suit against X, Y and ; The es suit
aie was
brought against the three in their Capacities as Sonera 7
allegation that "Q Corp." was a nonexistent cor or. pa ane ae
Certification from the Securities and Exchange ie a i show
Instead of answering the Co :
m ; ‘ n
admitting his liability. Y and z filed
their aes ey

15 see Gregorio F. Ortega, et.al. vs. CA, G.R. No.

109248 July 3, 1995

6
 a —e eaten

L CHAPTER 1 - GENERAL PROVISIONS

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

Moreover, it is clear that the partnership extended not only to the

purchase of the boat, but also to that of the 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.‘

Best Evidence of The Existence of a Partnership

In Idos v. Court of Appeals, the Supreme Court said:

The best evidence of the existence of the 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
the petitioner and private complainant
remained as co-partners. x x x.17

Note:
A partnership may be deemed to exist among parties who agree
to borrow money to pursue a business and to divide the profits or losses
that may arise therefrom, even if it is shown that they have not contributed
any capital of their own may be in
toa "common fund." " Their contribution
Being
partner, they are all liable for debts incurred by or on behalf of the
partnership. The liability for a contract entered into on behalf of an

16 see Lim Tong Lim vs. Philippine Fishing Gear Industries, Inc., G.R. No. 136448, November 3, 1999.
17 cited in Marjorie Tocao and William T. Belo vs. CA and Nenita A. Anay, G.R. No. 127405, October 4, 2000.

7
 1 - G E N E R A L PROVISIONS
CHAPTE R

ible corpo ration may lie in a person

ensible c o r p
or ost cted on its b ehalf, but reaped benefits
’
S. ociation
ass
unincorpora ted
ctly transa
who may not have dire
from that contract.18
s a ju di ci al pe rs on al it y separate ang
ha
Art. 1768, The partnership tners, even etn(n) to
distinct from that of each of the parcle 1772, first paragraph.
com ply wit h the req uir eme nts of arti
a partnership "has a juridical
1768 of the Civi ] Code,
Under Art.
dis tin ct fro m tha t of eac h of the partners." The
personality separate and
tions of the partnership unless it.
partners cannot be held liable for the obliga
juridical personality is being used
is shown that the legal fiction of a different
udu len t, unf air , or ill ega l pur pos es. Hen ce, it is the partnership, notits |
for fra
eaded in any litigation involving |
officers or agents, which should be impl |
property registered in its name.!?
|
Article 1772 of the New Civil Code (NCC) states:
and |
Art. 1772. Every contract of partnership having a capital of three thous
pesos or more, in money or property, shall appear in a public instrument,
which must be recorded in the Office of the Securities and Exchange |
Commission.

Failure to comply with the requirements of the preceding

paragraph shall not affect the liability of the partnership and the members
thereof to third persons.

ARTIFICIAL PERSON / JURIDICAL PERSON |

An entity, such
:
as a corporation, , created by | aw and i given certallin _
i
legal rights and duties of a human being; a being, oi or OO nary who for |
the purpose of legal reasoning is treated more or less as a human being 20

Example:
A, B, and C entered into a con
tract of partnershi C
ae In here, there are four persons, that is three ne atteperson
one
natural
(A, B, and C) and one juridical person (ABC Partners s :
Pp).
Thus, ABC Partnership can:
1. acquire and possess real and pers |
onal property;
2. incur obligations; and
3. bring civil or criminal actions,
21
CHAPTER 1 - GENERAL PROVISIONS

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, X acted 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
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 of a 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 of each of the partners, even in case of failure to comply with the
requirements of article 1772, first paragraph.
 S
CHAPTER 1 - GENERAL PROVISION

d ngage in the
X and Y admitted that Z had the peraci Pertise ty
e oe
business of distributorship of cookware. Z contribut
the partnership and hence, under the law, she wes . ibs or
managing partner. It was through her eae ab of " at the
of distribu ip of that
partnership was able to open the business
company’s cookware products; it was through the same efforts that the
met |
business was propelled to financial success.
The business venture operated under Y Enterprise did not result |
in an employer-employee relationship between X and Y and Z. While it jg |
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
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
i
and Y_ and _Z has no fixed term and
is therefor € a partnership at will
predicated on their mutual desire and consent, i
will of a partne r.22 t may be dissolved by the

Problem:
|
|
X filed a complaint against V and
respectively of the deceased Z, fo Windin ifed |
r a . nd. .
Accounting. § Up of couete
Partne rship
eseAffairs an |
 ——— es
—————

CHAPTER 1 - GENERAL PROVISIONS

for business, its

Allegedly, from the time that Shellite opened
business operation was profitable.
cularly his
Upon Z's death, his surviving wife, Y and parti
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:
h was
The action for accounting filed by X 3 years after Z's deat
that an action
well within the prescribed period. The Civil Code provides
the right to
to enforce an oral contract prescribes in 6 years while
st the person
demand an accounting for a partner's interest as again
the absence
continuing the business accrues at the date of dissolution, in
a partner
of any contrary agreement. Considering that the death of
h
results in the dissolution of the partnership, in this case, it was Z's deat
his interest
that X as the surviving partner had the right to an account of
as against V and Y.
In a desperate bid to cast doubt on the validity of the oral
hip that
partnership between X and Z, Y and V maintain that said partners
with the
had initial capital of P200,000 should have been registered
on is
Securities and Exchange Commission (SEC) since registrati
requires
mandated by the Civil Code. True, Article 1772 of the Civil Code
the
that partnerships with a capital of P3,000 or more must register with
y. Article
SEC, however, this registration requirement is not mandator
p retains its
1768 of the Civil Code explicitly provides that the partnershi
i The failure to register the
the
contract of partnership does not invalidate the same as among
the
partners, so long as the contract has the essential requisites, because
can
main purpose of registration is to give notice to third parties, and it
be assumed that the members themselves knew of the contents of their
ion
contract. In the case at bar, non-compliance with this directory provis
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.?3

Art. 1769. In determining whether a partnership exists, these rules shall

apply:
(1) Except as provided by Article 182 5, persons who are not
partners as to each other are not partners as to third persons;
(2) Co-ownership or co-possession does not of itself establish a
partnership, whether such-co-owners or Co-possessors do or do
not share any profits made by the use of the property;

23 see Lilibeth Sunga-Chan and Cecilia Sunga vs. Lamberto T. Chua, G.R. No. 143340, August 15, 2001

11
CHAPTER 1 - GENERAL PROVISIONS

,
(3) The sharing of gross returns does not of itself establis
sharing them have
partnership, whether or not the persons
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 ofa busines, is
prima facie evidence that he is a partner In the business, hy; hy
such inference shall be drawn if such profits were receiveq in
payment:
e;
(a) As a debt by installments or otherwis
a landlord;
(b) As wages of an employee or rent to
se;
(c) As an annuity to a widow or representative of a decea
|
partner;
(d) As interest on a loan, though the amount of payment vary
with the profits of the business;
(e) As the consideration for the sale of a goodwill of a business
or other property by installments or otherwise. (n)

Rule 1: Persons who are not partners as to each other are not partners
as to third persons

Example:
X and Y are not partners as to each other. Thus, as to Z, a third
person, it follows that they are not also partners.

The exception is that ifX misrepresents to Z that they are partners

with Y and the latter consented or Y did not object; then, as to Z, X andY
will be considered as partners by operation of law. This is the concept of
partnership by estoppel.

Partnership by Estoppel
d
Where a partnership not duly organized has been recognize as such
l be considered as “partnership by
in its dealings with certain persons, it shal opped from denying its
estoppel” and the persons dealing with it are est
partnership existence.24
establish * |
Rule 2: Co-ownership or co-possession does not of itself
partnership

Example:
Xand Yare recipients of a gift consisting of an undivided parcel of
land from Z. In this case, X and Y are co-owners and not partners.

24 see Paul MacDonal, et.al., vs. The National City Bank of New York, G.R.N L-7991, May 21 1956
v mts 0. L- , May 21,

12 )
CHAPTER 1 - GENERAL PROVISIONS

_ Partnership vs . Co-ownership |
o-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.
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 death or
incapacity of a partner. incapacity of co-owner.
Form
It may appear in any form. No public instrument is needed
However, when real property is even if real property is the 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 partnership if
what is being shared 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 of establishing a partnership.

Example:
Ina merchandising business, the basic formula for net profit is:
Gross Sales P xx
Less: Cost of Sales (xx)
Gross Profit XX
Less: Expenses (xx)
Net Profit or Net Loss xx Or (xx)

Note:
It can be observed from the illustration that even if there is a
positive amount or figure for Gross Profit, you cannot still ascertain if

13
CHAPTER 1 - GENERAL PROVISIONS >

it will arrive at Net Profit because it may still turn out to be Net Log.
as the expenses are controlling factor.

For example, if the Gross Profit is P50,000 and the Expenses js

P20,000, then there is a Net Profit of P30,000. However, if the Gross
Profit remains at PS0,000 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

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.25

Example:
X received from Y P50,000 as his share in the net profit of their
business amounting to P100,000. In this case, there is a disputable
presumption that X and Y are partners in a contract of partnership.

Note:
From the above, it appears that the fact that those who agree to
form a co-ownership share or do not share any profits made by the use of
the property held in common does not convert their venture into a
partnership. Or the sharing of the gross returns does not of itself establish
a partnership whether or not the persons sharing therein have a joint or
common right or interest in the property. This only means that, aside from
the circumstance of profit, the presence of other elements constituting
partnership is necessary, such as the clear intent to form a partnership, the
existence of a juridical personality different from that of the individual
partners, and the freedom to transfer or assign any interest in the property
by one with the consent of the others.

It is evident that an j ion whereby two or mo!

persons contribute funds to buy certain real estate for profit in the absen
of other circumstances showing a contrary intention cannot be considere??
partnership.
;
Persons who contribute property or funds for a common enterP™ ise
and agree to share the gross returns of that enterprise in proportion to ye
contribution, but who severally retain the title to their respe“

25 see p. 1382, Black’s Law Dictionary, Tenth Edition.

14
 CHAPTER 1 - GENERAL PROVISIONS

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 of land, 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 it, the brother and the other not being entitled to share in
plaintiffs’ commission, no partnership existed as between the three parties,
whatever their relation may have been as to third parties.

In 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. x XX.

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.?°

Exceptions to Rule 4:
a. As a debt by installments or otherwise

Example:
A partnership named ABC Co. earned a net profit of P100,000 for
its first year of operation. X is a creditor of ABC Co. in the amount of P5,000.
Later, ABC Co. paid the P5,000 to X and 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 of ABC Co., he is not a
partner because this is in payment of its debt to X.

b. As wages of an employee or rent to a landlord

Example:
X, Yand Z formed XYZ partnership. Vis the accountant of the
partnership. In the contract of employment between XYZ partnership
and V, it was stipulated that the latter will receive 15% of the net profit

26 Federico Jarantilla, |r. vs. Antonieta Jarantilla, G.R. No. 154486, December 1, 2010.

15
CHAPTER 1 - GENERAL PROVISIONS

of the partnership. Is Va partner? No, Vis an employee even though

his salary will come from the net profit of the partnership. Thei,
agreement is a contract of employment.

c. As an annuity to a widow or representative of a deceased Partne,

Example:
H, I, and J formed HIJ partnership. Subsequently, H dieq
survived by his widow, W. It was agreed between I, J, and W that W
will receive 5% of the annual net income of the partnership pending
liquidation. W will not become a partner.

d. As an interest on a loan

Example:
X, Y, and Z formed XYZ partnership. One of its creditors is W.
The credit is P100,000 with a stipulation as to interest
of 6% per
annum. It was agreed between XYZ partnership and
W that the
payment of interest will come from the annual net
profit of XYZ
partnership. W is not a partner in XYZ partnership.

e. As the consideration for the sale of a

goodwill of a business or |
other property

Example:
X, Y, and Z formed XYZ partners
hip. Q sold his only parcel of
land to XYZ partnership. In their
contra ct of sale, it was agreed that
the payment will come from the ann
ual profit of XYZ partnership.
not a partner in XYZ partnership. Qis

Problem:

children A, and B filed a Com

who was the eldest son of X
and Y.
Y,AandB alleged that
So metime
his friends U and V, formed a Partnership int 1980, Xx, together with —
; king
business. Initially, with a Pp ro engage in the truc
T
2
=>
CHAPTER 1 - GENERAL PROVISIONS

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?
Answer:
Applying Article 1769 of the Civil Code to the facts of this
case, the following circumstances tend to prove that H was himself
partner
the 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, A and 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 of a partnership.?”

Art. 1770. A partnership must have a lawful object or purpose, and must
be established for the common benefit or interest of the partners.
When an unlawful partnership is dissolved by a judicial decree,
the profits shall be confiscated in favor of the State, without prejudice
to the provisions of the Penal Code governing the confiscation of the
instruments and effects of a crime. (1666a)

Lawful object or purpose

The object or purpose of a 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 of Unlawful Partnership

1. A partnership formed for gambling purposes.
2. A partnership formed to furnish houses for prostitution purposes.

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

17
CHAPTER 1 - GENERAL PROVISIONS

3. A partnership formed to create illegal monopolies or combinations jp

restraint of trade.

Effects of an unlawful partnership

1. The contract is void from the very beginning;”°

Note:
A void contract is as if it never existed from the very
beginning. Thus, it has no legal personality.

2. The profits shall be confiscated in favor of the government;

3. The instruments or tools and proceeds of the crime shall be forfeiteg
in favor of the government??; 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)

FORM OF CONTRACT OF PARTNERSHIP

General Rule:
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. Red!
rights include ownership, use, habitation, usufruct, predial servitude, pledg*
and real mortgage.*°

PUBLIC INSTRUMENT
A docu ment prep ared by a notary public in the presence of tM
parties who sign it before witnesses.31

28 Art. 1409, NCC.

29 Art. 45, Revised Penal Code
% see p. 1519, Black's Law Dictionary, Tenth Edition.
31 see p. 1427, Black’s Law Dictionary, Tenth Edition.

18 )
CHAPTER 1 - GENERAL PROVISIONS

Example:
A and B agreed to form a partnership where A promised to contribute
his only parcel of land while B undertook to contribute P100,000. In this case
since A will contribute his only parcel of land, a real property, their contract
must be executed in a public instrument. Otherwise, it is void.

What if A will contribute his only car while B will contribute P1 00,0007
The contract may be oral or in writing whether private or public instrument
and the contract of partnership is valid.

A partnership may be constituted in any form

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 P950,000 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 counter to 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. j i
partnership when they bound themselves to contribute money to a
common fund with the intention of dividing the profits among
themselves. The sole dealership by X and the issuance of all government
permits and licenses in the name of X was in compliance with the afore-

19
CHAPTER 1 - GENERAL PROVISIONS

aving
oO f the p parties of hay;
understandini g
stated policy of SHELL and the
only one dealer of the SHELL products.”

Art. 1772. Every contract of partnership aha joueire pa

thousand pesos or more, in money or property, of the Securities ic
instrument, which must be recorded in the Office and

"tS pulhdie YS cae with the requirements of a precedin

paragraph shall not affect the liability of the partnership and the
members thereof to third persons. (n)

Partnership having a capital of P3,000 or more (personal property only)

The contract of partne
rship must appear in a public Instrument and
must be recorded in the office of the 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 (per

sonal 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
S way, the tax liabilities of big
cannot be evaded, and the public partnerships
membership and capital before
dealing with them.”33
Problem:
X filed a complaint V and against
respectively of the deceased Z, for Winding U Y daughter and wife
Accounting.
X alleged that in 19
77, he
with Z in the distribution of LPG in ve rb
Manilaall, For ree into a partaersy
and Z allegedly agreed to register the b ness convenie
Shellite, under the name of
Z as a so}
allegedly had Z as manager, As com ne Prietorship. The partnership
manager's fee of 10% of the gross hots Pensation, 7 would receive 4
Allegedly, from the ti
8, 1977, its busi :
ness Operation
w 4S
Upon 2's death
in the Jater
Profitable.
hter, V, took rect 1989, his surviving wife, Y am
|
8

eee
ete
rs,
© gee Bigs Extamsien.
lw
© Dean Capdetrane. IV ¢ ned * CA etal Cp
Combe of
thePhoil
m We. |,
ippines
pe
CHAPTER 1 - GENERAL PROVISIONS

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 X and Z, Y and V maintain that said partnership had
initial capital of P200,000 which should have been registered with the
SEC since registration is mandated by the Civil Code, True, Article 1772
of the Civil Code i i

not atory, Article 1768 of the Civil Code explicitly provides that
ismand
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 i j ion i i j
an Dea med tia ne Mempe nemseive eV
ra pal ADC

co
of the nten contract. In the case at bar,
of theirts on-compliance with
this directory provision of the law will not invalidate the partnership
i
considering that
forged t} hip i som 3 i

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 if aside 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 least P3,000, 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.35

Lest it be overlooked, the contract-validating inventory requirement

under Article 1773 of the Civil Code applies as long as real property or real
rights are initially brought into the partnership. In short, it is really of no
moment which of the partners, contributed immovables. In context, the more
co
important consideration is that real nt
proper ty was d,
in which
ribute case

August 15, 2001.

34 see Lilibeth Sunga-Chan and Cecilia Sunga vs. Lamberto T. Chua, G.R. No. 143340,
00, December 13, 2005.
35 Aurelio K. Litonjua, Jr. vs. Eduardo K. Litonjua, Sr. et.al., G.R. Nos. 166299-3

21
 P T E R 1 - G E N E R AL PROVISIONS
CHA

: |
TION OF ARTICLE 1773?
ed el pr im ar il y to pr ot ec t third Flaniitnae the
Se a asee recited provision Which
nt in o sta tes tha t un de r the afo
eminent Arturo M. Tole would
le me nt of Art icl e 177 1, the ex ecution of a public ae
is a comp erty contribute 5 because
if the re is no in ve nt or y of the pr op
be useless on
ion, they cannot be subject to inscripti
without its designation and descript ejudice third
their contribution cannot pr
in the Registry of Property, and p
e who contract with the partnershi
persons. This will result in fraud to thos ovables may
in which the imm
in the belief in the efficacy of the guaranty
consist. Thus,
not involve third parties who may be
is made. The case at bar does
prejudiced.37

be
Art. 1774. Any immovable property or an interest therein may
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, if ABC partnership will
be a donee or a buyer of a specific real property then it shall be registered
in its name and not in the name of one or some or all of the partners.
Consequently, if this will be conveyed, like sale or donation, the seller or
donor must only be in the name of the partnership.

Art. 1775. Associations and societies, whose articles are kept secret
contract
among the members, and wherein any one of the members may
in his own name with third persons, shall have no juridical personality
and shall be governed by the provisions relating to co-ownershiP-
(1669)

ua, Jr. vs. Eduardo K. Litonjua, Sr. et.al., G.R. Nos. 166299-300,
December 13, 2005.
36 Aurelio K. Litonj Emeteria Baring vs. CA and Manuel Torres, G.R. No. 134559, December 9, 1999.
Torres an d
37 see Antonia
22 J
CHAPTER 1 - GENERAL PROVISIONS

Partnershi iation

Juridical Personality
It has juridical personality. It has no juridical personality.
Purpose
It is for profit. It may not be for profit.
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
combination of these. from the members to maintain the
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 personality as 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.38

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 OF PARTNERSHIP
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.

38 11 Manresa 289-290.

23
CHAPTER 1 - GENERAL PROVISIONS 7

b. Particular partnership
A particular partnership has for its object deter Minate
things, their use or fruits, or specific undertaking, or the exe
a profession or vocation.

2. According to liability
a. General partnership
It is one where all the partners are general partners, 4)
general partners here are liable up to the extent of their Separate
properties after the assets of the partnership have been exhausteq

b. Limited partnership
Itis 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:
Limited partnership 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
of P500,000. For B, computers valued at P200,000 and CG, his only
truck valued at P300,000. In here, there is no fixed term agreed
upon nor it is 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 whereA contributed cash
of P500,000. 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 of 15 years.

24
CHAPTER 1 - GENERAL PROVISIONS

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 of 300
tables for a particular school where A contributed cash of P150,000,
B contributed lumber valued at P200,000 and C, the use of his truck.
In here, the partnership will be dissolved after the completion of the
300 tables.

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 among themselves.

Example:
A, B, and C established a partnership where A contributed
cash of P50,000, 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 Care 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 if X is one of their partner, A, B, and C
answered in the affirmative. In here A, B, C and X are partners by
estoppel and there is also a partnership by estoppel so that if Y
suffered damages because of that misrepresentation, the net assets
of ABC partnership is liable together with the separate property of
Xx.

5. According to the legality of its existence

a. De jure partnership
It is one which has complied with all the legal
requirements for its creation.

25
 NS
A P T E R 1 - G E N ERAL PROVISIO
CH

rtnership where A contribut e

Example: d A B C Pa w i
e
A, B, and C fo ri[buted his only parcel of land andwhCichwiijs
r m |
B cont tnership
j 0,000,
ry d u r i n g th e term of the par
ee hs indust ; itten in a publi
Se artnership was Written I”) @ Public
10 years. The contract of ae aiso an inventory Which they aij
' s ma contract of
instrument. The reapartne rs ; ed
attach it to their
:
signed and the fter they
e a de jure partner: ship.
partnership. In here, we hav
b ;
b. De facto partnership
not complied with all the legal
R ie one which has
requirements for its creation.

Example: } .
A contributed
A, B, and C formed ABC Partnership where
car and C will contribute
cash of P1,000,000, B contributed his only
hip. Their agreement is
his industry during the term of the partners
o partnership as it was
verbal. In here, the partnership is a de fact in the
not written in a public instrument and it was not registered
SEC.

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

Kinds of Universal Partnerships

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

Art. 1778. A partnership of all present property is that in which the

partners contribute all the property which actually belongs to them t
a common fund, with the intention of dividing the same among
me as well as all the profits which they may acquire therewith
1

The contributions of the partners here are

the following:
1. All the properties actually belonging to the partners: a i
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 of the
constitution of the partnership, becomes the vontanon property ofall the
partners, as well as all the profits which they may acquire therewith.
A stipulation for the common
e njoyment of any other profits
may also be made; but the property w
hich the partners may acquilt
26
CHAPTER 1 - GENERAL PROVISIONS

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 arule, 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 property cannot
be donated.39

Example:
A, B, and C entered into a partnership named ABC
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 of all 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.*0

Example:
A, B, and C entered into a partnership named ABC
Partnership. A contributed the use of his of two parcels of land. B
contributed also the use of his specific car for purposes of delivery of
goods. C contributed his house and lot to be used by the partnership as
warehouse. The contract of partnership formed by A, B, and C is a
universal partnership of all profits.

39 11 Manresa 304-314; Art. 751, NCC.

40 11 Manresa 303.

27
 7 }
VISIONS |
CHAPTER 1 - GENERAL PR

jon of the
_, muits) of
the present “property actually | Only the Se
“All Laos a rie
to the partners are the properue al the
belonging p : ak
ed to the par tne rsh ip which | becomes common
contribut partnership.
become common proper ty of all the partners and the
partners and the partnership through the
General Rule:
All profits acquired
“industry” or “work” of the partners
Only the profits of said contributed ty.
become common proper
property become common property
but not profits arising from other
property of the partners.
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 of universal partnership of profits

The universal partnership of profits imposes less obligation becaus¢
their real and personal properties are retained by them in naked ownership:

who are prohibited from giving each other any |

ae a 82. Persons
donation or advantage cannot enter into universal partnership. (1677) ||
Rationale:
A universal partnership is virtual] y a donati the
, :
part ner' s prop erti es (or at least , their usuf ruct) ; Therefore vi7 ie are |
prohi bited to donat e to each other, they sh
y should not be allowed to do indirect
|

what the law forbids directly.*1

|
|
4111 Manresa 317.
|
28
|
CHAPTER 1 - GENERAL PROVISIONS

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.*?

Examples of persons who cannot enter into a universal partnership

1. Legally married spouses;*#

Note:
However spouses may enter into a particular partnership like
the exercise of a profession or vocation.#

2. Persons living together as husband and wife without a valid marriage;*

the
3. Persons who were guilty of adultery or concubinage at the time of
donation;#6
4. Persons found guilty of the same criminal offense, in consideration
thereof;*”
and
5. A person or persons and a public officer or his wife, descendants
ascendants, by reason of his office.

Problem:
the
A limited partnership, named "WJG Ltd.," was formed by W as
partners
general partner, and J and G, as the limited partners. The
respectively, P20,000, P18,000 and P20,000 to the
contributed,
partnership.
Subsequently, general partner W and limited partner J got
thereafter, limited partner G sold his share in the
married and,
partnership to them.
Was the partnership dissolved after the marriage of the partners,
W and J and the subsequent sale to them by G of his share?
Answer:
The thesis that the limited partnership, WJG Ltd., has been
only general
dissolved by operation of law because of the marriage of the
W to the originally limited partner, J one year after the
partner,
that:
partnership was organized is rested upon the theory

A husband and a wife may not enter into a contract of general co-
s in the absence of
partnership, because under the Civil Code, which applie
s prohibited from
express provision in the Code of Commerce, person
donations to each other are prohibited from entering
making

42 11 Manresa 317.
43 Art. 87, Family Code of the Philippines.
CA, G.R. No. L-25532, February 28, 1969.
#4 Commissioner of Internal Revenue vs. William J. Suter and
45 Art. 87, Family Code of the Philippines.
46 Art. 739, NCC.
47 Art. 739, NCC.

29
 |
PROVISIONS
CHAPTER 1 - GENERAL |
|

Sec a Parte,
into universal partnerships. It follows oftnaa pre g partnership,
brin gs abo ut the diss olut ion
necessarily

WJG, Ltd. was notat ‘ther that the object of th

A universal partnership requires =
iatio n be all the prese nt prope rty of the partners, as contributed by
assoc partners may acquire by
that the
them to the common fund, or else "all
ust ry or wor k dur ing the exi ste nce of the partnership". WIG Lg,
their ind
ip, since the contributions of the
was not such a universal partnersh
,000 by W and P18,000 by J ang
partners were fixed sums of money, P20 lows that WIG. Ltd
ustrial partner. It fol
neither one of them was an ind

coul d the sub seq uen partne

t marriageFt of the ses prorsvidoper
ed ate # ig
for
gies Noraed bei
purpose.*
its object determinate things,
Art. 1783. A particular partnership has for
ng, or the exercise of a
their use or fruits, or specific undertaki
profession or vocation. (1678)

The above-stated article defines a particular partnership.

Examples:
1. Aand B formed AB Partnership where A contributed P1,000,000 and
B contributed his only parcel of land. They agreed to engage in buy
and sell of motor 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 of a building as they will engage in the business of
leasing 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:
partnership is a universal partnership, a husband and wifé
is
cannot enter into such contract. However, if the partnership is a particular
pisap
partnership, they can.

J. Sute rand CA, G.R. No. L

48 see Commissioner of Internal Revenue vs. William : » G.R No. L-25532, February 28, 196?
30
Ea__SS—~<COr”t—t*” we ee =

CHAPTER 1 - GENERAL PROVISIONS

TRUE OR FALSE
1. A partnership may be constituted in any form.
vable
2. A partnership may be constituted in any form, save when immo
hip
property or real rights are contributed thereto or when the partners
nt shall
has a capital of below P3,000, in which case a public instrume
be necessary.
and societies, whose articles are kept secret among the
3. Associations
members, and wherein any one of the members may contract in his
own name with third persons, shall also have juridical personality.
of the
4.Immovable property to be acquired must be in the name
the
partnership but if conveyed, it is not necessary that it be in
partnership name.
onal
5. An inventory is still required if aside from real property, pers
property is contributed.
hip,
6. The sharing of gross returns does not of itself establish a partners
or
except when the persons sharing them have a joint or common right
interest in any property from which the returns are derived.
a facie
7. Ifa person receives a share in the profits of a business, he is a prim
presumed to be a partner in business.
hip
8. In partnership, there is co-ownership and co-possession of partners
property.
the
9, Partnerships with a capital of P3,000.00 or more must register with
SEC. Registration requirement is mandatory.
ness is
10. The receipt by a person of a share of the profits of a busi
conclusive evidence that he is a partner in the business.
while a
11. A general partner is liable only to the extent of his contribution
limited partner is liable beyond his contribution.
en one.
12. An oral contract of partnership is as good as a writt
13. The right to choose with whom a person wishes to associate himself is
the very foundation and essence of that partnership.
n for
14. An unjustified dissolution by a partner can subject him to actio
damages.
15. When an unlawful partnership is dissolved by a judicial decree, the
profits shall not be confiscated in favor of the State.
16. A partnership must have a lawful object or purpose, and must be
established for the common benefit or interest of the partners.
17. Where an immovable property is contributed in a partnership a private
instrument shall be necessary.
18. Articles of universal partnership, entered into without specification of
its nature, only constitute a universal partnership of all present
property.
19. Persons who are prohibited from giving each other any donation or
advantage cannot enter into universal partnership.

31
CHAPTER 1 - GEN
ERAL PROVISIONS

20. Co-ownership Or
co-possession does
Partnership, €xcept when not in itself establish
such co-owners or CO-pos |
Profits made by the use of se ss ion Share inth
the property.
Multiple Choice
Part |
1. Itmeans that itis a co
ntract which has a name
a. Consensual in law.
b. Nominate
CG. Preparatory {
d. Onerous

2. It means that each

partner must contri
Of course, a partner bute money, proper
can contribute one, ty, or industry
a. Consensual so me or all of th ese.
Nominate
Cc. Onerous
d. Preparatory

3. Any external thin

g over which the
enjoyment are exer rights of Possession,
cised. use, and
a. Money
b. Property
c. Industry
d. None ofthe above

4. The latin Phrase “delec

tus personae” me
a. Choice of the person ans
b. Choice of the people
c. Choice of the public
d. None ofthe above

S. The birth and life of a Pa

rtnership at will is Predic
desire and consent of
the partners. ated on the mutual
a. Partnership at will
b. Partnership for a
Particular undertak |
c. Partnership for a fixe ing
d term |
d. None of the above

6. An entity created by law

and given ce
human being or a being, rtain legal rights and duties
reasoning is
real or imagi
treated mor Corless nary, who for of |
leg?!
as q hum the purpose 0 |
Natural person an being.
Juridical
aoof

person |
Normal person |
None of the above

32
CHAPTER 1 - GENERAL PROVISIONS

Where a partnership not duly organized has been recognized as such in

its dealings with certain persons.
a. Ordinary partnership
b. Dejure partnership
c. De facto partnership
d. Partnership by estoppel

The following are the effects of unlawful partnership, except:

a. The contract is voidable from the very beginning.
b. The profits shall be confiscated in favor of the government.
c. The instruments or tools and proceeds of the crime shall be
forfeited in favor of the government.
d. The contributions of the partners shall not be confiscated.

A document prepared by a notary public in the presence of the parties

who sign it before witnesses.
a. Private instrument
b. Public instrument
c. Commercial instrument
d. None of the above
10. When 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.
a. Corporation
b. Partnership
c. Sole proprietorship
d. Cooperative

11. A group of men pursuing a learned art as a common calling in the spirit
of public service.
a. Business
b. Service
c. Profession
d. Artists

12. The following are requisites of partnership, except:

a. There must be a valid contract;
b. There must be a contribution of money, property, and industry to a
common fund;
c. The partnership must be organized for gain or profit; and
d. The partnership should have a lawful object or purpose, and must
be established for the common benefit or interest of the partners.

13. There are two tests to determine the existence of a partnership:

I. First test: Determine whether or not there is an agreement to
contribute money, property or industry to a common fund.

33
CHAPTER 1 - GENERAL PROVISIONS a

II. Second test: Determine whether or not there is an intent

contracting parties to divide the profits among themselve, °F th
a. Only lis true
b. Only Il is true
c. Both are true
d. Both are false

14. It means that it is a contract that is perfected by

mere consent decay
all the partners had a meeting of the minds to enter into a Contract ‘
partnership.
a. Consensual
b. Principal
c. Preparatory
d. Commutative

15. It means that the contribution of each partner, whether money, property
or industry, is considered as the equivalent of the contribution of th:
other partners.
a. Consensual
b. Principal
c. Preparatory
d. Commutative

Multiple Choice Part Il

1. It is one where persons, by words spoken or written or by conduc,
represents themselves, or consents to another representing them
anyone, as partners in an existing partnership or with one or more
persons not actual partners.
Partnership by estoppel
Partnership by prescription
Boop

Closed partnership
Partnership sole
a]
for |
2. Itis one which has not complied with all the legal requirements
creation.
a. De facto partnership
b. De jure partnership
c. Real partnership
d. Ordinary partnership
ing |
arly salary arn
J, Q was an accountant in a partnership, with a ye
he is a partner in the
to 10% of the net profits for the year. Thus, . i,
partnership.
fits of a business
II. The receipt by a person of a share of the pro
conclusive evidence that he is a partner in the business
a. Only/is true
b. Only Il is true
34 .
CHAPTER 1 - GENERAL PROVISIONS

c. Bothare true
d. Both are false

4. May contribute money, property or industry to a common fund.

a. Limited partner
b. General partner
c. Both limited and general partner
d. Both limited and industrial partner

5. The following are disqualified to form a universal partnership, except

one:
a. Brother and sister
b. Husband and wife
c. Those guilty of adultery or concubinage
d. Those guilty of the same offense, if the partnership is entered into
in consideration of the same

6. Xand Y verbally entered into a partnership with each of them

contributing P2,000 each and some personal properties in the amount
of P500 each. The partnership contract is:
Unenforceable because the amount involved exceeds P500.00.
Void because it is not in public instrument.
aoo8

Valid
Void, because it is not registered with the SEC.

7. The following are instances, except one, when a partnership is

unlawful. Which is the exception?
a. Apartnership formed for the purpose of selling illegal drugs.
b. Apartnership formed for the purpose of buying lands.
c. Apartnership formed to create illegal gambling.
d. Apartnership formed for selling smuggled cars.

8. Xand Y orally agreed to form a partnership. Each contributed cash

the
worth P15, 000 to common fund. But they did not register
partnership with the Securities and Exchange Commission.
The partnership is void
The partnership is voidable
aoop

The partnership is still valid

The partnership is valid and unenforceable

9. 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.
a. Universal partnership of all profits
b. Universal partnership of all present property
c. Particular partnership
d. None of the above
35
CHAPTER 1 - GENERAL PROVISIONS

10. It comprises all that the par

tners may ac quire by their industry
during the existe 0 T Wo
nce of the partnership.
a. Universal partnership of all profit
s
b. Universal partnership of all present property
Cc. Particular partnership
d. None of the above

11. A particular partnership has for its object determinat

‘
e thin
.
or fruits, or specific undertaking, ; 8S, their
or the exercise of a Professio Use
vocation.
7
Universal partnership of all profits
aoop

Universal partnership of all present property

Particular partnership
None of the above

12. It is one where all the partners are general partners.

a. De jure partnership
b. De facto partnership
c. Limited partnership
d. General partnership

13. It is one where there is at least one general partner and one limited
partner.
a. Dejure partnership
b. De facto partnership
c. Limited partnership
d. General partnership

14. It is one where the life or period of existence of the partnership has beer
agreed upon by the partners.
a. Partnership with a fixed term
b. Partnership for a particular undertaking
|
c. Partnership at will
d. De facto partnership

15. Itis one where it will exist until the purpose is accomplished.
Partnership with a fixed term |
Partnership for a particular undertaking |
oP

|
Partnership at will
De facto partnership
ao

ee