Law on Partnership

Article 1774-1783
New Civil Code of the Philippines
 LAW ON PARTNERSHIP CONT.
 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.
 Example:
 A, B and C formed ABC Partnership. ABC Partnership
bought a parcel of land and registered the title in its name,
ABC Partnership. The partners decide to sell the parcel of
land, under Article 1774, the name of the Seller to be
written in the Deed of Sale must be ABC Partnership and
not the name of any of the partners.
 Question:

 Whatis the reason for Article

1774?
 Answer:

 Separate and distinct personality of

the Partnership and that of the
partners.
 LAW ON PARTNERSHIP CONT.
 Article 1775. Associations and societies, whose articles of
incorporation 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.
 PARTNERSHIP VS. ASSOCIATION
As to Partnership Association
JURIDICAL Has juridical personality NONE
PERSONALITY
PURPOSE For profit May or may not be profit
NAME OF THE They are called partners. They are called members.
INDIVIDUALS
COMPRISING IT
CONTRIBUTION Money, property or industry (MPI) Minimum contribution now of
SEC for members is P3,000
LIABILITY Partnership is primarily liable. The Members are the ones liable
partners are just secondary. because the association has no
personality.
 LAW ON PARTNERSHIP CONT.
 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.
 Classifications of Partnership:
I. According to object
a. Universal Partnership – generic
b. Particular Partnership – specific such as in the exercise of
profession i.e. Law Firm, Bookkeeping
Services
 Classifications of Partnership cont.:
II. According to liability
a. General Partnership – subsidiary liability of the partners apply
b. Limited Partnership – subsidiary liability of the partners does
not apply
- the company name must include the
words “Limited” or “Ltd.” or “Ltd. Co.”
 Reason for Allowing Limited Liability
 To allow investors or partners to invest or put up a
business without having to worry that their personal assets
or personal properties will be liable
 It encourages investors and businessmen to invest or start
a business
 The more business or companies means more jobs
 Disadvantages of a Limited Partnership
to the Public
 The third person or creditor can only go after Partnership Assets.
If the partnership assets are no longer sufficient, there is no more
option to collect because the liability of the partners here is
LIMITED.
 That is why it is required that the company name must include
the word LIMITED or LTD. so that the public is aware before it
will transact.
 Classifications of Partnership cont.:
III. According to duration:
a. Partnership at will – no fixed term
b. Partnership with a fixed term – there is a period stated in the
contract
c. Partnership for a particular undertaking – project-based
 Classifications of Partnership cont.:
IV. According to representation to third persons:
a. Ordinary partnership – Partnership as defined in Art. 1767
b. Partnership by estoppel – as defined in Article 1825
 Classifications of Partnership cont.:
V. According to the legality of existence:
a. De jure Partnership – complied with all legal requirements
b. De facto Partnership – there are lacking requirements such as contribution of
P3,000 or more capital which is not notarized and recorded with SEC under Art.
1772
c. Void Partnership – when the immovable property contributed has no inventory
signed by the partners and attached to the public instrument under Article 1773
 Article 1777
 A universal partnership may refer to all present property or to all profits.
 2 Kinds of Universal Partnership:
1. All Present Property
2. All Profits
 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.
Universal Partnership of All Present Property
 The contributions refer to:
1. All property belonging to the partners at the time they enter into the contract
which they contribute to the common fund
2. Profits from that property

All these become part of the Partnership Assets.

 Article 1779
 In a universal partnership of all present property, the property which belongs to
each of the partners at the time of the constitution of the partnership, becomes
the common property of all partners, as well as all profits which they may
acquire therewith.
 A stipulation for the common enjoyment of any other profit can also be made,
but the property which the partners may acquire subsequently by inheritance,
legacy or donation cannot be included, except the fruits thereof.
 Present Property
 Property of the partners at the time they entered into the contract that is
contributed to the common fund and now becomes part of the Partnership Assets
 If one of the partners acquire additional or future property that is also used in the
business, the property is not considered part of the Partnership Assets, therefore,
the profits from that additional property do not automatically become part of the
profits to be shared by the partners. Except if they will make another contract that
the additional property and its profits will also be shared by them.
 Present Property cont.
 But if the additional property is obtained by the partner from inheritance or
donation, it cannot form part of the Partnership Assets even if they stipulate it in
the contract because Article 1779 par. 2 clearly states that it is NOT allowed.
 But if the additional property will have some PROFITS and they make a
contract that the PROFITS of that additional property acquired through
inheritance or donation shall be shared by the partners, then that is ALLOWED.
Only the PROFITS is ALLOWED.
 Example 1:
 A, B and C are partners. They form a company called ABC Partnership. Their
contract of partnership states that they are a Universal Partnership of All Present
Property.
 Partner B obtained a house and lot which is now being used by the company to
house its employees but the employees pay a rental of P2,000 per month.
 The additional property of Partner B is not part of the present property, so it is not
part of the Partnership Assets. But if they make another contract that the house and
lot will now be added to the Partnership Assets then it can be done.
 Example 2:
 A, B and C are partners. They form a company called ABC Partnership. Their contract of
partnership states that they are a Universal Partnership of All Present Property.
 Partner B who is an only child inherited a house and lot from his mother who died.
 The house and lot is now being used by the company to house its employees but the
employees pay a rental of P2,000 per month.
 The additional property of Partner B is not part of the present property, so it is not part of
the Partnership Assets. If they make another contract that the house and lot will now be
added to the Partnership Assets that CANNOT BE DONE. Because Art. 1779 par. 2
clearly states that if the additional property was from inheritance, it cannot be part of the
common assets.
 Follow-up question to Example 2:
 Can the partners make a contract that the RENTALS from the house
and lot inherited by Partner B and is now used by the company to
house its employees form part of the common fund which shall be
shared later on by the partners?
 Answer:
 YES. Because under Article 1779 paragraph 2, although the
property was obtained from inheritance, the law allows that
the PROFITS be for the common enjoyment of the partners
hence that is a valid stipulation in the contract.
 Article 1780
 A universal partnership of all 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.
Universal Partnership of All Profits (Only)
 The property of the partner does not become part of the Partnership Assets.
 The income from that property used in the business is the only thing that
becomes part of the common fund and which will be shared among the
partners.
 The property only becomes subsidiarily liable for partnership obligations
(SUBSIDIARY LIABILITY OF THE PERSONAL PROPERTY OF THE
PARTNERS)
 Example:
 A, B and C are partners. They formed a law firm called ABC Law Firm. They
stipulated in the contract that ABC Law Firm is a Universal Partnership of All
Profits.
 A owns the building and the lot where the law office is located.
 B owns the furniture and appliances used in the law office.
 C owns the computers used in the law office.
 The building, the lot, the furniture, appliances and computers continue be under the
ownership name of A, B and C respectively. These are not owned by ABC Law
Firm. ABC Law Firm is just using them under “usufruct.”
 Continued..
 But the income from the Law Office forms part of the Partnership
Assets of ABC Law Firm. The income forms part of the common
fund which will be shared later on by the partners.
 Example for Subsidiary Liability:
 ABC Law Firm decided to close because the partners will now have their separate
and individual law offices.
 Upon dissolution and winding up, all the properties mentioned (the building, lot,
furniture, appliances and computers) will NOT form part of the PARTNERSHIP
ASSETS.
 So if ABC Law Firm has an obligation to a third person i.e. Bond paper Supplier,
these properties will only be SUBSIDIARILY LIABLE.
 Subsidiary liability cont.:
 ABC Law Firm Obligation to Bond paper Supplier : P1,000,000.00
 ABC Law Firm Partnership Assets (Law Office Income or
property acquired by the Law Firm from its income) : P 800,000.00

So here Partnership Assets is not sufficient to pay the obligation to the Bondpaper
Supplier, this is now where the SUBSIDIARY LIABILITY of the partners apply. The
personal property of each partner now becomes liable for the deficiency (-P200,000.00)
because Partnership Assets is not enough. So the building, the lot, the furniture,
appliances and computers can now be SUBSIDIARILY LIABLE for the Partnership
Obligation.
 Reason for Subsidiary Liability
 To protect third persons
 Because the partners could just simply say their company is bankrupt
and the third persons will suffer greatly from the loss so to protect
these third persons, the law provides for the subsidiary liability of the
personal property of the partners in the event that the Partnership
Assets is not enough
 Exception: LIMITED PARTNERSHIP
 Article 1781
 Articles of universal partnership entered into without
specification as to its nature shall constitute a
universal partnership of profits.
 Article 1782
 Persons who are prohibited from giving each other donation cannot enter
into a universal partnership.
 Who are these persons?
1. Legally married spouses
2. Persons living together as husband and wife but not married (live-in
partners/common law spouses)
3. Persons guilty of adultery or concubinage
4. Persons guilty of the same criminal offense
5. Public officers receiving donation by reason of his office
 Article 1783
 A particular partnership has for its object determinate
things, their use or fruits, or specific undertaking, or
the exercise of a profession or vocation.