PARTNERSHIP (LECTURE)

ARTICLE 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.

DISCUSSION:

ELEMENTS OF PARTNERSHIP:
1. Two or more persons bound themselves to contribute MONEY, PROPERTY, or
INDUSTRY to a common fund
2. They INTEND to divide the profits among themselves.

ESSENTIAL FEATURES OF PARTNERSHIP:

1. A VALID CONTRACT - since it requires a valid contract, the following requisites

must be present: a) Consent and Capacity of the contracting parties, b) Object
which is the subject matter of the contract, and c) Cause which is established.
2. The parties must have LEGAL CAPACITY - the ff cannot give 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 - by reason of law or judgment
as a penalty, a person cannot exercise his civil rights such as donation inter vivos,
parental authority, etc.
e. Incompetents under guardianship
3. MUTUAL CONTRIBUTION of money, property, or industry to a common fund. The
equal contribution is not required. Ex. A partner may contribute money and the other
may contribute industry.
4. LAWFUL OBJECT- if unlawful, then it is void ab initio.
5. The primary purpose must be to OBTAIN PROFITS and to DIVIDE the same
among the parties. - if no intention to profit, then there is no partnership. Mere
MOTIVE is enough even if the partnership does not obtain any profit.

Generally, a stipulation which excludes one or more partners from any share in the
profits or losses is VOID.
NATURE OF PARTNERSHIP:

It is a CONTRACT between two or more persons with the intention of earning profits
and diving them among themselves.

CHARACTERISTICS OF PARTNERSHIP

1. CONSENSUAL- perfected by mere CONSENT. Expressed or Implied.

2. NOMINATE- because it has a special name or designation in our law.
3. BILATERAL- because it is entered into by two re 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 partners 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 contracts.
7. PREPARATORY- because it is entered into as a means to an end.

GENERAL PROFESSION PARTNERSHIP

Paragraph 2 related to the exercise of profession. Strictly speaking, the practice of a

profession is not a business or enterprise for profit. However, the law allows the joint
pursuit thereof by two or more persons as partners. In this case, the individual partners,
and not the partnership, who engage in the practice of the profession and are
responsible for their own acts as such.

The law does not allow individuals to practice a profession as a corporate entity.
Personal qualification for such practice cannot be possessed by a corporation.

ARTICLE 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. (n)

DISCUSSION:

A partnership duly formed under the law is a JURIDICAL PERSON to which the law
grants a juridical personality separate and distinct fro that of each of the partners. Thus,
a partnership may do the ff acts:
1. Enter into Contracts
2. Acqure and possess property
3. May sue and be sued

Because partnership has a separate juridical entity, the partners themselves cannot be
held liable for the obligations of the partnership unless it is shown and proven that said
separate juridical personality is being used for FRAUDULENT, UNFAIR, or ILLEGAL
PURPOSE.

ARTICLE 1769. In determining whether a partnership exists, these rules shall apply:
(1) Except as provided by article 1825, persons who are not partners as to each other
are not partners as to third persons;
(2) Co-ownership or co-possession does not of itself establish a partnership, whether
such co-owners or co-possessors do or do not share any profits made by the use of the
property;
(3) The sharing of gross returns does not of itself establish a partnership, whether or not
the persons sharing them have a joint or common right or interest in any property from
which the returns are derived;
(4) The receipt by a person of a share of the profits of a business is prima facie
evidence that he is a partner in the business, but no such inference shall be drawn if
such profits were received in payment:

(a) As a debt by installments or otherwise;

(b) As wages of an employee or rent to a landlord;
(c) As an annuity to a widow or representative of a deceased partner;
(d) As interest on a loan, though the amount of payment vary with the profits of the
business;
(e) As the consideration for the sale of a goodwill of a business or other property by
installments or otherwise.

Partnership distinguished from co-ownership.

There is a co-ownership whenever the ownership of an undivided thing or right belongs

to different persons. It is the right of common dominion which two or more persons have
in a spiritual part of a thing which is not physically divided.

The following are the distinctions between a partnership and a co-ownership:

(1) Creation. — Co-ownership is generally created by law. It may exist even without a
contract, but partnership is always created by a contract, either express or implied;

(2) Juridical personality. — A partnership has a juridical personality separate and distinct
from that of each partner while a co-ownership has none;

(3) Purpose. — The purpose of a partnership is the realization of profits while in co-
ownership, it is the common enjoyment of a thing or rightwhich does not necessarily
involve the sharing of profits;

(4) Duration. — Under the law, there is no limitation upon the duration of a partnership
while in co- ownership, an agreement to keep the thing undivided for more than ten
years is not allowed;
(5) Disposal of interests. — A partner may not dispose of his individual interest in the
partnership so as to make the assignee a partner unless agreed upon by all of the
partners, while a co-owner may freely do so;

(6) Power to act with third persons. — In the absence of any stipulation to the contrary ,
a partner may bind the partnership, while a co-owner cannot represent the co-
ownership; hence, a judgment secured against only one of the co-owners will not bind
the other co-owners; and

(7) Effect of death. — The death of a partner results in the dissolution of the partnership,
but the death of a co-owner does not necessarily dissolve the co-ownership.

Partnership distinguished from a corporation.

The following are the distinctions:

(1) Manner of creation. — A partnership is created by mere agreement of the parties,

while a corporation is created by law or by operation of law.

(2) Number of incorporators. — A partnership may be organized by only two persons,

while a corporation (except a corporation sole) requires at least five incorporators
(NOW TWO (2).

(3) Commencement of juridical personality. — A partnership commences to acquire

juridical personality from the moment of the execution of the contract of partnership
(Art. 1784.), while a corporation begins to have juridical personality only from the
date of issuance of the certificate of incorporation by the Securities and Exchange
Commission.

(4) Powers. — A partnership may exercise any power authorized by the partners
provided it is not contrary to law, morals, good customs, public order, or public policy
(Art. 1306.), while a corporation can exercise only the powers expressly granted by law
or implied from those granted or incident to its existence.

(5) Management. — In a partnership, when the management is not agreed upon, every
partner is an agent of the partnership, while in a corporation, the power to do business
and manage its affairs is vested in the board of directors or trustees.

(6) Effect of mismanagement. — In a partnership, a partner as such can sue a co-

partner who mismanages, while in a corporation, the suit against a member of the board
of directors or trustees who mismanages must be in the name of the corporation;

(7) Right of succession. — A partnership has no right of succession, while a corporation

has such right;
(8) Extent of liability to third persons. — In a partnership, the partners (except limited
partners) are liable personally and subsidiarily (sometimes solidarily) for partnership
debts to third persons, while in a corporation, the stockholders are liable only to the
extent of the shares subscribed by them;

(8) Extent of liability to third persons. — In a partnership, the partners (except limited
partners) are liable personally and subsidiarily (sometimes solidarily) for partnership
debts to third persons, while in a corporation, the stockholders are liable only to the
extent of the shares subscribed by them;

(9) Transferability of interest. — In a partnership, a partner cannot transfer his interest in

the partnership so as to make the transferee a partner without the consent of all the
other existing partners because the partnership is based on the principle of delectus
personarum, while in a corporation, a stockholder has generally the right to transfer his
shares without the prior consent of the other stockholders because a corporation is not
based on this principle;

(10) Term of existence. — A partnership may be established for any period of time
stipulated by the partners, while a corporation may not be formed for a term in excess of
50 years extendible to not more than 50 years in any one instance;

(11) Firm name. — A limited partnership is required by the law to add the word “Ltd.” to
its name (Art. 1844[1, a].), while a corporation may adopt any firm name provided it is
not the same as or similar to any registered firm name (see Sec. 18, Ibid.);

(12) Dissolution. — A partnership may be dissolved at any time by the will of any or all
of the partners (Art. 1830[1, 2].), while a corporation can only be dissolved with the
consent of the State (Secs. 117-122, Ibid.); and

(13) Governing law. — A partnership is governed by the Civil Code, while a corporation
is governed by the Corporation Code.

ARTICLE 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.

ARTICLE 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.
ARTICLE 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.

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.

DISCUSSION:

2 Requisites if the Capital is 3,000 or more:

a. The contract must appear in a public instrument
b. It must be recorded or registered with the SEC - for TAX purposes and to protect
THIRD PERSONS.

ARTICLE 1773. A contract of partnership is void, whenever immovable property is

CONTRIBUTED thereto, if an inventory of said property is not made, signed by the
parties, and attached to the public instrument.

DISCUSSION: this article speaks of CONTRIBUTION ONLY. Any immovable property

owned by the partnership itself is not covered by this requirement.

ARTICLE 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.

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

ARTICLE 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)

DISCUSSION:

KINDS OF PARTNERSHIP:

(1) As to the extent of its subject matter. — A partnership may be:

(a) Universal partnership or one which refers to all the present property or to all profits.
(Art. 1777.)

There are thus two kinds of universal partnership, to wit:

(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;

(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.) and sometimes solidarily (Arts. 1822-1824.) with their separate
property for partnership debts; or

(b) Limited partnership or one formed by two or more persons having as members one
or more general partners and one 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 at 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 particular 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.

(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; or

(b) De facto partnership or one which has failed to comply with all the legal
requirements for its establishment.

(5) As to representation to others. — It may be:

(a) Ordinary or real partnership or one which actually 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(Art.
1767.); or

(b) Professional or non-trading partnership or one formed for the exercise of a

profession.

KINDS OF PARTNERS:

1. CAPITALIST PARTNER - one who contributes money or property to a common

fund.
2. INDUSTRIAL PARTNER - one who contributes only his industry or personal
service.
3. GENERAL PARTNER - one whose liability to third persons extends to his separate
property. (Also called REAL PARTNER)
4. LIMITED PARTNER - one whose liability to third persons is limited to his capital
contribution. (Also called SPECIAL PARTNER)
5. MANAGING PARTNER - one who manages the affairs or business of the
partnership; he may be appointed in the Articles of Partnership.
6. LIQUIDATING PARTNER - one who take charge of the winding up of partnership
affairs upon dissolution.
7. PARTNER BY ESTOPPEL - one who is not really a partner but is liable as a partner
for the protection of innocent third persons.
8. ASSOCIATE or SUB-PARTNER - he is not a real partner but he is the one with who
a partner shares his profits in a partnership.

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

ARTICLE 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)

ARTICLE 1779. In a universal partnership of all present property, the property which
belonged to each of the partners at the time of the constitution of the partnership,
becomes the common property of all the partners, as well as all the profits which they
may acquire therewith.
A stipulation for the common enjoyment of any other profits may also be made; but the
property which the partners may acquire subsequently by inheritance, legacy, or
donation cannot be included in such stipulation, except the fruits thereof. (1674a)

DISCUSSION:

In this kind of partnership, the following become the common property of all the
partners:
1. Property which belonged to each of them at the time of the constitution of the
partnership.
2. Profits which they may acquire from the property contributed.

Future properties cannot be contributed because the object or properties to be

contributed needs to be determinate and present at the time of the partnership
agreement. Any stipulation of such is void.

Profits from other sources (not contributed) will become common property only if there
is a stipulation.

ARTICLE 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)

ARTICLE 1781. Articles of universal partnership, entered into without specification of its
nature, only constitute a universal partnership of profits.

DISCUSSION:

Where the articles of partnership do not specify the nature of the partnership, whether it
is one of “PRESENT PROPERTY” or “FOR PROFITS” only, it will be presumed that the
parties intended merely a partnership of profits. This is because this kind of partnership
imposes less obligations on the partners, since they preserve the ownership of their
separate property.

ARTICLE 1782. Persons who are prohibited from giving each other any donation or
advantage cannot enter into universal partnership.

DISCUSSIONS:

These persons are prohibited from becoming a partner in a Universal Partnership:

ARTICLE 739 of the Civil Code.
1. Those made between persons who were guilty of adultery or concubinage at the
time of the donation.
2. Those made between persons found guilty of the same criminal offense, in
consideration thereof;
3. Those made to a public officer or his wife, descendants and ascendants, by reason
of his office.

ARTICLE 1783. A particular partnership has for its object determinate things, their use
or fruits, or a specific undertaking, or the exercise of a profession or vocation.