Basic Requisites of Contract of Partnership

Essential Features of Contract of Partnership

Essential features of partnership. Below are the five (5) essential features of a partnership
contract.
(1) There must be a valid contract;
(2) The parties must have legal capacity to enter into the contract;
(3) There must be a mutual contribution of money, property, or industry to a common fund;
(4) The object must be lawful; and
(5) The purpose or primary purpose must be to obtain profits and to divide the same among
the parties.
It is also required that the articles of partnership must not be kept secret among the members;
otherwise, the association shall have no legal personality and shall be governed by the
provisions 'of the Civil Code relating to co-ownership. (Art. 1775.)
Other characteristics of Partnership
The contract of partnership is:
(1) Consensual, because it is perfected by mere consent, that is, upon the express or implied
agreement of two (2) or more persons;
(2) Nominate, because it has a special name or designation in our law;
(3) Bilateral, because it is entered into by two (2) or more persons and the rights and
obligations arising therefrom are always reciprocal;
(4) Onerous, because each of the parties aspires to procure for himself a benefit through the
giving of something;
(5) Commutative, because the undertaking of each of the partner is considered as the
equivalent of that of the others;
(6) Principal, because it does not depend for its existence or validity upon some other contract;
and
(7) Preparatory, because it is entered into as a means to an end, ie., to engage in business
for the realization of profits with the view of dividing them among the contracting parties. A
partnership contract, in its essence, is a contract of agency. (see Art. 1818.)

Classification of Partnership
(1) As to the extent of its subject matter. - A partnership may
 (a) Universal partnership or one which refers to all the present property or to all profits.
(Art. 1777.) wit:
Thus, there are two (2) kinds of universal partnership, to
1) Universal partnership of all present property. This is defined in Article 1778; and
2) Universal partnership of profits. This is defined in Article 1780; or
(b) Particular partnership. This is defined in Article 1783.
(2) As to liability of the partners." It may be:
(a) General partnership or one consisting of general partners who are liable pro rata and
subsidiarily (Art. 1816.), sometimes solidarily (Arts. 1822-1824.), with their separate
property for partnership debts; or
(b) Limited partnership or one formed by two (2) or more persons having as members
one or more general partners and one (1) or more limited partners, the latter not being
personally liable for the obligations of the partnership. (Art. 1843.)
(3) As to its duration. - It is either.
(a) Partnership at will or one in which no time is specified and is not formed for a
particular undertaking or venture and which may be terminated anytime by mutual
agreement of the partners, or by the will of any one partner alone, or one for a fixed term
or particular undertaking which is continued by the partners after the termination of such
term or particu- lar undertaking without express agreement (see Art. 1785.); or
(b) Partnership with a fixed term or one in which the term for which the partnership is to
exist is fixed or agreed upon or one formed for a particular undertaking, and upon the
expiration of the term or completion of the particular enterprise, the partnership is
dissolved, unless continued by the partners. (Ibid.)
(4) As to the legality of its existence. - It may be:
(a) De jure partnership or one which has complied with all the legal requirements for its
establishment (see Arts. 1772, par. 2; 1773.); or
(b) De facto partnership or one which has failed to comply with all the legal requirements
for its establishment. (Ibid.)
(5) As to representation to others. It may be:
(a) Ordinary or real partnership or one which actually the exists among the partners and
also as to third persons; or
(b) Ostensible partnership or partnership by estoppel or one which in reality is not a
partnership, but is considered a partnership only in relation to those who, by their
conduct or admission, are precluded to deny or disprove its existence. (Art. 1825.)
(6) As to publicity. - It may be:
(a) Secret partnership or one wherein the existence of certain persons as partners is not
avowed or made known to the public by any of the partners; or
 (b) Open or notorious partnership or one whose existence is avowed or made known to
the public by the members of the firm. (68 C.J.S. 400.)
(7) As to purpose. - It may be:
(a) Commercial or trading partnership or one formed for the transaction of business
(see Art. 1767.); or
(b) Professional or non-trading partnership or one formed for the exercise of a
profession. (Ibid.)
Kinds of Partners
Partners are classified according to their interests in the business or their obligations to the
partnership or their liabilities to third persons.
(1) Under the Civil Code. They are classified into:
(a) Capitalist partner or one who contributes money or property to the common fund (see
Art. 1767.);
(b) Industrial partner or one who contributes only his industry or personal service (Arts.
1782, 1767),
(c) General partner or one whose liability to third persons extends to his separate
property; he may either be a capitalist or industrial partner (see Arts. 1843, 1816.);
(d) Limited partner or one whose liability to third persons is limited to his capital
contribution. (see Art. 1843.) He is also known as special partner. Unlike the general
partner, he does not participate in the management of the business;
(e) Managing partner or one who manages the affairs or business of the partnership; he
may be appointed either in the articles of partnership or after the constitution of the
partnership. (see Art. 1800.) He is also known as a general or real partner;
(f) Liquidating partner or one who takes charge of the winding up of partnership affairs
upon dissolution (see Art 1836.)
(g) Partner by estoppel or one who is not really a partner, not being a party to a
partnership agreement, but is liable as a partner for the protection of innocent third
persons. (see Art. 1825.) He is one who is represented as being, in fact, a partner, but
who is not so as between the partners themselves. He is also known as partner by
implication or nominal partner. The term "quasi-partner" is sometimes used. He is liable
for the debts of the firm to those who in good faith believed him to be a partner; and,
(h) Continuing partner or one who continues the business of a partnership after it has
been dissolved by reason of the admission of a new partner, or the retirement, death, or
expulsion of one or more partners (see Art. 1840.);
(i) Surviving partner or one who remains after a partnership has been dissolved by the
death of any partner (see Art. 1842.); and
(j) Subpartner or one who, not being a member of the partnership, contracts with a
partner with reference to the latter's share in the partnership. (see Art. 1804.)
(2) Other classifications. They have also been classified into:
 (a) Ostensible partner or one who takes active part and known to the public as a partner
in the business (see Art. 1834, par. 2.), whether or not he has an actual interest in the
firm. If he is not actually a partner, he is subject to liability by the doctrine of estoppel (Art.
1825.);
(b) Secret partner or one who takes active part in the business but is not known to be a
partner by outside parties nor held out as a partner by the other partners (Ibid.), although
he participates in the profits and losses of the partnership;
(c) Silent partner or one who does not take any active part in the business although he
may be known to be a partner. (Ibid.) Thus, he need not be a secret partner. If he
withdraws from the partnership, he must give notice to those persons who do business
with the firm to escape liability in the future;
(d) Dormant partner or one who does not take active part in the business and is not
known or held out as partner. (Ibid.) He would be both a silent and a secret partner. The
term is used as synonymous with "sleeping partner." (68 C.J.S. 404.) He may retire from
the partnership without giving notice and cannot be held liable for the obligations of the
firm subsequent to his withdrawal. His only interest in joining the partnership would be
the sharing of the profits earned;
(e) Original partner or one who is a member of the partnership from the time of its
organization;
(f) Incoming partner or a person lately, or about to be, taken into a partnership as a
member (68 C.J.S. 404; see Arts. 1826, 1828.); and
(g) Retiring partner or one withdrawn from the partner- ship; a withdrawing partner. (68
C.J.S. 404-405; see Arts. 1840, and 1841.) All partners in any of these six classes are
subject to liability for all partnership obligations. (see Arts. 1816, 1822- 1824, 1826, 1835,
1844, and 1841.)
What are the 3 Requisites when contribution to the Capital is in form of Real Property?
1773. A contract of partnership is void,whenever immovable property is contributedthereto,
if an inventory of said property is notmade, signed by the parties, and attached to thepublic
instrument.
(1) Requirements. Where immovable property, regardless of its value, is contributed by any of
the partners, the failure to comply with the following requirements will render the partnership
contract void in so far as the contracting parties are concerned:
(a) The contract must be in a public instrument (Art. 1771.); and
(b) An inventory of the property contributed must be made, signed by the parties, and
attached to the public instrument.
(2) Importance of making inventory of real property. 1773 complements Article 1771. Article
(a) An inventory is very important in a partnership to show how much is due from each
partner to complete his share in the common fund and how much is due to each of them
in case of liquidation. If personal property, aside from real property, is contributed, the
inventory need not include the former.
 (b) The execution of a public instrument of partnership would be useless if there is no
inventory of immovable property contributed because without its description and
designation, the instrument cannot be subject to inscription in the Registry of Property,
and the contribution cannot prejudice third persons. This will result in fraud to those who
contract with the partnership in the belief of the efficacy of the guaranty in which the
immovables may consist. Thus, the contract is declared void by law when no such
inventory is made. (11 Manresa 278-279; Republic Engineering Works and
Manufacturing Co. vs. Alcantara, et al., 13 C.A. Rep. 221; Torres vs. Court of Appeals,
320 SCRA 428 [1999].)
(c) Article 1773 is intended primarily to protect third persons. With regard to them, a de
facto partnership or partnership by estoppel may exist. (see Art. 1825.)
How is Partnership created
Persons who cannot give consent to a contract of partnership
(1) General rule. Before there can be a valid contract of partnership, it is essential that the
contracting parties have the necessary legal capacity to enter into the contract. As a general
rule, any person may be a partner who is capable under the law of entering into contractual
relations. Consequently, any person who cannot legally give consent to a contract cannot be a
partner.
Hence, the following cannot give their consent to a contract of partnership:
(a) Unemancipated minors;
(b) Insane or demented persons;
(c) Deaf-mutes who do not know how to write;
(d) Persons who are suffering from civil interdiction; and
(e) Incompetents who are under guardianship. (see Arts. 1327, 1329; Art. 34, Revised
Penal Code; Rules 93-94, new Rules of Court.)