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PART I for the regulation of the relation called

partnership. Commercial partnerships


TITLE IX PARTNERSHIP (Arts. 1767- of that time were generally for single
1867) transactions or undertakings.
(b) Following the Babylonian period, we
INTRODUCTION find clear-cut references to partnerships
in Jewish law. In this connection,
however, it must be remembered that
Brief historical background. the ancient Jews were a pastoral
people, and, therefore, the partnership
(1) Development of partnership as a business organization under Jewish
- The earliest form of conducting law was concerned with the holding of
business was the single entrepreneur title to land by two or more persons.
ownership plan whereby one individual The Jewish word “shutolin” was used to
owned the business, had sole control of designate this joint ownership of land.
the same, reaped all the profits, and Subsequently, this same word was used
suffered all the losses. to denote the partnership relation.
- the growth of an individual business
(3) The relative newness of the law of
was limited, owing especially to the
partnership
limitation of capital and sometimes also
to the limitation of skill or knowledge. - For at least a century after the
- To permit combinations of capital, or partnership as a business organization
capital and experience, and to secure had been well and generally
economy by eliminating some of the established in British commerce, the
overhead costs of individual English courts of justice had scarcely
enterprises, the partnership plan of dealt with this subject. The fact is that
business association was developed. disputes between merchants were
considered and disposed of by special
(2) Ancient origin of partnership as a business
courts.
organization.
- These special courts were commonly
- Development, as distinguished from
known as Courts Staple, Admiralty
origin, of the partnership as a form of
Courts, and Courts of Piepoudre
business organization, is often credited
to the Romans. (a) The law of merchants.
- They found in this form of business - that merchants had a special
organization a means whereby the and peculiar kind of law that
capital, goods, talents, and credit of two was applicable to them and
or more individuals might best be their legal affairs.
combined to carry on a trade or
business - In fact, such was the case
during the Middle Ages. During
-(a) Historically, the partnership as a this time, there were numerous
business organization was used long periods of rather intense
before the Romans. As early as 2300 commercial activity. In England,
B.C., Hammurabi, the famous king of this activity was centered on so-
Babylon, in his compilation of the called fairs or staples at which
system of laws of that time, provided were gathered merchants from
many countries seeking to sell 1794, William Watson wrote a
their goods. Partnerships text on the subject of
flourished during these periods partnership.
of activity. During this same
period, the common law courts (c) Beginning of law of partnership.
of England were thought to be - These two sources, speaking
celebrated for their slowness most generally, may be said to
and their methodical exactness mark the beginningof printed
of form. The merchants moved precedents and the publication
more rapidly than the law and of the principles of law
they required that justice be applicable to partnerships. The
more speedy and that it be in increased use of the
general accord with their partnership as a business
customs. This background and organization, together with the
need gave rise to the special increase in the complexity of
courts mentioned above. business, generally has brought
(b) English law of partnership. forth a rapid succession of
decisions involving the law of
- In time, the use of these partnerships.
special courts was discontinued
and their functions were taken (4) American Uniform Acts.
over by the law courts. - The Uniform Partnership Act and the
- During his term as Chief Uniform Limited Partnership Act have
Justice, Lord Mansfield sought been of the utmost importance in
helping to achieve uniformity of
to establish a common law for
decisions in this particular fi eld of law.
commercial matters. His efforts
were directed toward The National Conference of
establishing and defining the Commissioners on Uniform State Laws fi
customs of merchants and rst commenced its work in the fi eld of
supplementing this body of law partnership in 1902. It was not until the
with the applicable principles of fall of 1914 that the Conference fi nally
the civil law. It was not until the agreed upon a draft of a Uniform
latter years of the 18th century Partnership Act that was recommended
that the law of partnership as to the legislative bodies of the several
we know it today began to states for adoption.
assume both form and - The Uniform Partnership Act that was
substance. approved for adoption by the several
- In 1778, Lord Mansfield states in October of 1914 has many
decided the case of Fox vs. points of similarity with the Partnership
Hanbury (2 Cowp. 445, 98 Eng. Act (English) of 1890. For this reason,
Rep. 1179 [1776].) which dealt the practical operation of the Uniform
with the relative rights of Partnership Act has a background of
partners as well as the rights of application in the workings of the
partnership and separate English Act.
creditors so far as partnership - To be sure, English settlers brought
property was concerned. In the partnership concept to their new
country as part of the common law. In
fine, modern partnership law may be
said to contain a combination of Chapter 1
principles and concepts developed from
three sources: the Roman law, the law GENERAL PROVISIONS
merchant and equity, and the common ARTICLE 1767. By the contract of partnership
law courts. two or more persons bind themselves to
contribute money, property, or industry to a
Governing law in our common fund, with the intention of dividing
jurisdiction the profits among themselves. Two or more
- Before the new Civil Code (R.A. No. persons may also form a partnership for the
386.) took effect on August 30, exercise of a profession. (1665a)
1950, commercial or mercantile
partnerships were governed by the
Code of Commerce (Arts. 116-238.) Concept of partnership.
and non-commercial or civil - The above article gives the legal
partnerships by the old Spanish Civil definition of partnership (often
Code. (Arts. 1665-1708.) called “co-partnership”) from the
- The new Civil Code superseded the viewpoint of a contract.
old Civil Code. It expressly repealed - “A partnership is a contract of two
in toto the provisions of the Code of or more competent persons to
Commerce relating to partnerships. place their money, effects, labor
- Consequently, the provisions of and skill, or some or all of them, in
Title IX, from Article 1767 to Article lawful commerce or business and to
1867, are intended to provide all divide the profits and bear the
the rules regarding partnerships, losses in certain proportions.”
supplemented by other provisions - “A partnership is an association of
of the Civil Code, insofar as they are two or more persons to carry on as
applicable, particularly those on co-owners of a business for profit.”
contracts and agency. - “A partnership is a legal relation
- There is no more distinction based upon the express or implied
between commercial and civil agreement of two or more
partnerships. The partnerships competent persons whereby they
contemplated are those formed for unite their property, labor or skill in
private interest or purpose. carrying on some lawful business as
principals for their joint profit.”
Sources of our law on partnership.
- “A partnership is the status arising
- The Civil Code provisions on out of a contract entered into by
partnership were mostly taken, two or more persons whereby they
with or without modifications, from agree to share as common owners
the old Civil Code and fromtwo the profits of a business carried on
American statutes, namely: by all orany of them on behalf of all
theUniform Partnership Act and of them.”
the Uniform Limited Partnership - “A partnership is an organization for
Act. production of income to which each
partner contributes one or both of
the ingredients of income, which separate from that of each of the
are capital or service partners.
- A partnership is an entity, distinct
and apart from the members - The American and English law
composing it, and, for the purpose does not recognize such separate
of which it was created, it is a juridical personality a partnership
person having its own assets and being considered merely an
liabilities and any benefit or liability extension of its members, although
attaching to a member of the some states of the Union classify
partnership, results from the the partnership as a legal entity.
partnership relation.
- A partnership is a joint undertaking - The Uniform Partnership Act has
to share in the profit and loss. in this respect codified the
- Partnership is a legal concept, but “aggregate theory” of partnership
the determination of the existence more than it has the “entity theory”
of a partnership may involve or Roman Law theory of
inferences drawn from an analysis partnership.
of all the circumstances attending
its creation and operation. - Unlike a corporation, a partnership
- As a form of business organization, is generally regarded as a
it falls between two extremes of conglomerate of individuals, “an
organizational form — the single association of two or more
proprietorship and the corporation. persons”2 and as such does not pay
federal or state income taxes
Civil law concept and American concept of (although for purposes of
partnership distinguished. information it is required to file a
(1) Basis of concept. partnership tax return).
- While the Civil Code speaks of a
partnership as a contract, the - The individual members of the
American concept of a partnership partnership severally pay their
is that of a relation. The difference, income taxes, the partnership
however, is more apparent than business being regarded merely as a
real, because Article 1767 considers source of income.
the term as the agreement itself out
of which a partnership is created, - In our jurisdiction, partnerships,
while the Anglo-American idea of except general professional
partnership is based on the result of partnerships, are treated for
the contract or agreement of the income tax purposes as
parties creating the partnership, corporations and subject to tax as
that is, the juridical relation growing such.
out from the express or implied
agreement of the parties to create a
partnership. General professional partnership.
(2) Possession of separate personality.
- It is a basic tenet of the Spanish - A profession has been defined as “a
and Philippine law that a group of men pursuing a learned art as
partnership has a juridical a common calling in the spirit of public
personality of its own, distinct and service — no less a public service
because it may incidentally be a means profession from business are
of livelihood the following:
- Strictly speaking, the practice of a (a) A duty of public service, of
profession is not a business or an which the emolument is a by-
enterprise for profit.However, the law product, and in which one may
allows the joint pursuit thereof by two attain the highest eminence
or more persons as partners. without making much money;
- In such case, it is the individual
partners, and not the partnership, who (b) A relation as an “officer of
engage in the practice of the profession court” to the administration of
and are responsible for their own acts justice involving thorough
as such. The law does not allow sincerity, integrity, and
individuals to practice a profession as a reliability;
corporate entity. Personal qualifications
for such practice cannot be possessed (c) A relation to clients in the
by a corporation. highest fiduciary degree; and

Partnership for the practice of law. (d) A relation to colleagues at


(1) A mere association for non-business the bar characterized by
purpose. candor, fairness, and
- The right to practice law is not a unwillingness to resort to
natural or constitutional right but is current business methods of
in the nature of a privilege or advertising and encroachment
franchise. A partnership for the on their practice, or dealing
practice of law cannot be likened to directly with their clients.
partnerships formed by other
professionals or for business. Characteristic elements of partnership.

- It is not a partnership formed for (1) Consensual


the purpose of carrying ontrade or - because it is perfected by mere
business or of holding property. consent, that is, upon the express
Thus, the use of a nom de plume, or implied agreement of two or
assumed, or trade name in law more persons;
practice is improper.
(2) Nominate
- because it has a special name
or designation in our law;
(2) Distinguished from business. (3) Bilateral
-The practice of law is
intimately and peculiarly - because itis entered into by
related to the administration of two or more persons and the
justice and should not be rights and obligations arising
considered like an ordinary therefrom are always
“money-making trade.’’ reciprocal;
-The primary characteristics (4) Onerous
which distinguish the legal
- because each of the parties the association shall have no legal
aspires to procure for himself personality and shall be governed
a benefit through the giving by the provisions of the Civil Code
of something; relating to co-ownership.
(5) Commutative Existence of a valid contract
- because the undertaking of (1) Partnership relation fundamentally
each of the partners is contractual
considered as the equivalent - Partnership is a voluntary relation
of that of the others; created by agreement of the
parties.
(6) Principal - It excludes from its concept all
- because it does not depend other associations which do not
for its existence or validity have their origin in a contract,
upon some other contracts; express or implied.
- There is no such thing as a
(7) Preparatory partnership created by law or by
- because it is entered into as operation or implication of law
a means to an end, i.e., to alone. Religious societies, conjugal
engage in business or partnerships,and others of a similar
specific venture for the nature are not, therefore, included
realization of profits with the as they are not created by the
view of dividing them among express or implied contract of the
the contracting parties. parties.
- Actually, the partnership relation is
A partnership contract, in its not the contract itself, but the
essence, is a contract of result of the contract.
agency.

(a) Form
Essential features of partnership. - The relation is evidenced by the
terms of the contract which may be:
(1) There must be a valid contract; 1. oral or written
(2) The parties (two or more persons) must have 2. express or implied
legal capacity to enter into the contract; - from the acts and declarations
of the parties, subject to the
(3) There must be a mutual contribution of provisions of Articles 1771 to
money, property, or industry to a common 1773 and to the Statute of
fund; Frauds.
(4) The object must be lawful; and - Thus, an election to become a
member of a partnership was
(5) The primary purpose must be to obtain
held sufficient to render a
profits and to divide the same among the
member a “partner,” there
parties.
being no necessity that the
- It is also required that the articles of member should sign any articles
partnership must not be kept secret of partnership.
among the members; otherwise,
(b) Articles of Partnership -Each partner surrenders to the
partnership an interest in his property,
- While the partnership relation labor, skill, or energy, in accordance
may be informally created and with the express or implied
its existence proved by stipulations of their mutual
manifestations of the parties, it agreement.
is customary to embody the
terms of the association in a (2) Partnership relation fiduciary in
written document known as nature
“Articles of Partnership.” - Partnership is a form of voluntary
association entered into by the
- stating the name, nature or associates. It is a personal relation
purpose and location of the in which the element of delectus
firm, and defining, among personae exists, involving as it does
others, the powers, rights, trust and confidence between the
duties, and liabilities of the partners.
partners among themselves,
their contributions, the (a) Right to choose co-partners.
manner by which the profits
and losses are to be shared, -Unless otherwise provided in
and the procedure for the partnership agreement, no
dissolving the partnership. one can become a member of
the partnership association
(c) Requisites. without the consent of all the
other associates.
-Since partnership is
fundamentally contractual, all (b) Power to dissolve partnership.
the essentials of a valid contract
must be present. - Neither would the presence of
a period for its specific duration
Under the law, the following requisites must or the statement of a particular
concur: purpose for its creation prevent
the dissolution of any
1) Consent and capacity of the contracting partnership by an act or will of
parties; a partner
2) Object which is the subject matter of the - Verily, any one of the partners
contract; and may, at his sole pleasure,
3) Cause which is established. dictate a dissolution of the
partnership at will.
- a person cannot enter into a contract
of partnership solely with himself; - He must, however, act in good
there must be at least two competent faith, not that the attendance
parties. of bad faith can prevent the
dissolution of the partnership
- in order to make an agreement for a but that it can result in a
partnership valid, there must be a valid liability for damages.
consideration existing as between the
partners. (c) Application of principles of estoppel.
- A partnership liability may be (d) Persons who are suffering from civil
imposed upon a person under interdiction; and
principles of estoppel where he
holds himself out, or permits (e) Incompetents who are under
himself to be held out, as a guardianship.
partner in an enterprise.
- In such cases, there is no - Under Article 1782, persons who are
actual or legal partnership prohibited from giving each other any
relation but merely a donation or advantage cannot enter into a
partnership liability imposed by universal partnership.
law in favor of third persons.
- A married woman may enter into a contract
- In case there is no written of partnership even without her husband’s
agreement between the consent, but the latter may object under
parties, the existence or non- certain conditions
existence of a partnership must
be determined from the (2) Individuals.
conduct of the parties, any - There is no prohibition against a
documentary evidence bearing partnership being a partner in
thereon, and the testimony of another partnership
the parties. (3) Corporations
-unless authorized by statute or by
Legal capacity of the parties to enter into the itscharter, a corporation is without
contract. capacity or power to enter into a
contract of partnershipis without
(1) Individuals. capacity or power to enter into a
contract of partnership

GENERAL RULE: NOTES:

Any person may be a partner who is (a) A corporation, however, may


capable of entering into contractual enter into joint venture
relations. partnership with another where
the nature of the venture is in line
EXCEPTION: with the business authorized by
its charter.
Any person who cannot give consent to (b) Where the partnership
a contract cannot be a partner.
agreement provides that the two
The following cannot give their consent partners will manage the
to a contract of partnership: partnership so that the
management of corporate
(a) Unemancipated minors; interest is not surrendered, the
(b) Insane or demented persons; partnership may be allowed.
(c) Where the entry of the foreign
(c) Deaf-mutes who do not know how corporation as a limited partner in
to write; a limited partnership (Chap. 4.) is
merely for investment purposes
and it shall not take part in the permits the contribution of
management and control of the industry.
business operation of the
partnership, it shall not be - has been interpreted to mean
deemed “doing business’’ in the the active cooperation, the
Philippines work of the party associated,
which may be either personal
Contribution of money, property, or industry manual efforts or intellectual,
to a common fund. and for which he receives a
share in the profits (not
(1) Existence of proprietary interest merely salary) of the business
- The partners must have a proprietary NOTE:
interest in the business or undertaking,
that is, they must contribute capital which A limited partner in a limited
may be money or property, or their partnership, however, cannot
services, or both, to the common contribute mere industry or services.
business.
(2) Proof of contribution.
(a) Money - proof is necessary that there be
contribution of money, property, or
- The term is to be understood as industry to a common fund with the
referring to currency which is legal intention of dividing the income or
tender in the Philippines profits obtained therefrom
- It must be pointed out that checks,
drafts, promissory notes payable to
order, and other mercantile documents
are not money but only representatives
of money. Consequently, there is no Legality of the object.
contribution of money until they have
been cashed. - The object is unlawful when it is
contrary to law, morals, good customs,
(b) Property. public order, or public policyotherwise,
no partnership can arise as the contract
- The property contributed may is inexistent and void ab initio.
be:
Instances of unlawful object are:
1. real or personal;
1. to create illegal monopolies or
2. corporeal or incorporeal. combinations in restraint of trade
- credit such as promissory note (Art. 185, Revised Penal Code.);
or other evidence of obligation 2. to carry on gambling
or even a mere goodwill may be 3. to engage in smuggling;
contributed 4. to lease furnished apartments to
prostitutes;
(c) Industry. 5. to prevent competition in bidding
- In the absence of money or for government contracts;
property, or in concurrence 6. to control the price of a commodity
with these two, the law in the interest of its members, etc.
Purpose to obtain profits
1. The very reason for existence of - Thus, if the division of profits is
partnership. merely used as a guide to determine
- A partnership is formed to the compensation due to one of the
carry on a business. The idea of parties, such one is not a partner.
obtaining pecuniary profit or
gain directly through or as a Sharing of losses.
result of the business to be (1) Necessary corollary of sharing in profits
carried on is the very reason for
the existence of a partnership - The definition of partnership under
- One without any right to Article 1767 refers to “profits” only
participate in the profits, and is silent as to “losses.” The reason
cannot be deemed as partner is that the object of a partnership is
since the essence of partnership primarily the sharing of profits, while
is that the partners share in the the distribution of losses is but a
profits and losses. “consequence of the same

(2) Need only be the principal, not exclusive - Be that as it may, the right to share in
aim. the profits carries with it the duty to
contribute to the losses, if any.
- It is sufficient that it is the
principal purpose even if there (2) Agreement not necessary.
are, incidentally, moral, social, - It is not necessary for the parties to
or spiritual ends. In a agree upon a system of sharing losses,
partnership, the parties intend for the obligation is implied from the
to share the profits in certain partnership relation but if only the
proportions. share of each partner in the profits has
Sharing of profits. been agreed upon, the share of each in
the losses shall be in the same
-A partnership is essentially a business proportion.
enterprise established for profit.
Note:
(1) Not necessarily in equal shares.
Generally, a stipulation which excludes
- it is necessary that there be an one or more partners from any share in
intention to divide the profits among the profits or losses is void.
the members, although not
necessarily in equal shares. ART. 1768. The partnership has a juridical
personality separate and distinct from that of
- If all the other elements create a each of the partners even in case of failure to
partnership, a stipulation which comply with the requirements of Article 1772,
excludes one or more partners from first paragraph. (n)
any participation in the profits (or
losses) is void
(2) Not conclusive evidence of partnership Partnership, a juridical person.

-The sharing in profits is merely - A partnership is sometimes referred


presumptive and not conclusive, to as a “firm’’ or a “company,’’
even if cogent, evidence of terms that connote an entity
partnership separate from its aggregate
individual partners
- a partnership duly formed under parties, and attached to the public
the law is a juridical person to instrument. (1668a)
which the law grants a juridical - However, in the case contemplated
personality separate and distinct in Article 1773, the partnership shall
from that of each of the partners. not acquire any juridical personality
- As an independent juridical person, because the contract itself is void.
a partnership may enter into This is also true regarding secret
contracts, acquire and possess associations or societies which do
property of all kinds in its name, as not acquire juridical personality
well as incur obligations and bring under Article 1775.
civil or criminal actions in
conformity with the laws and
regulations of its organizations.
- It may enter into contracts and may To organize a partnership not an absolute
sue and be sued, it being sufficient right.
that service of summons or other
process be served on any partner - To organize a corporation or a
- In view of the separate juridical partnership that could claim a
personality possessed by a juridical personality of its own and
partnership, the partners cannot be transact business as such, is not a
held liable for the obligations of the matter of absolute right but a
partnership unless it is shown that privilege which may be enjoyed
the legal fiction of a different only under such terms as the State
juridical personality is being used may deem necessary to impose.
for a fraudulent, unfair, or illegal ART. 1769. In determining whether a
purpose partnership exists, these rules shall apply:
Effect of failure to comply with statutory (1) Except as provided by article 1825, persons
requirements. who are not partners as to each other are
(1) Under Article 1772 not partners as to third persons;
- This article makes it clear that even (2) Co-ownership or co-possession does not of
in case of failure to comply with the itself establish a partnership, whether such
requirements of Article 1772, with co-owners or copossessors do or do not
reference to the execution of a share any profits made by the use of the
public instrument and registration property;
of the same with the Securities and
Exchange Commission in cases (3) The sharing of gross returns does not of
when the partnership capital itself establish a partnership, whether or
exceedsP3,000.00, such partnership not the persons sharing them have a joint
acquires juridical personality. or common right or interest in any
property from which the returns are
(2) Under Articles 1773 and 1775. derived;
ART. 1773. A contract of
(4) The receipt by a person of a share of the
partnership is void, whenever
profits of a business is prima facie evidence
immovable property is contributed
that he is a partner in the business, but no
thereto, if an inventory of said
such inference shall be drawn if such
property is not made, signed by the
profits were received in payment:
(a) As a debt by installments or otherwise; - Partnership is a matter of intention,
each party giving his consent to become
(b) As wages of an employee or rent to a a partner.
landlord;
- Where the parties expressly declare
(c) As an annuity to a widow or they are not partners, this, as a rule,
representative of a deceased partner; settles the question as between
(d) As interest on a loan, though the themselves
amount of payment vary with the (2) Partnership by estoppel.
profits of the business;
GENERAL RULE:
(e) As the consideration for the sale of a
goodwill of a business or other property by A partnership can never exist as to third
installments or otherwise. (n) persons if no contract of partnership,
express or implied, has been entered
into between the parties themselves.
Rules to determine existence of partnership. EXCEPTION:
GENERAL RULE:
PARTNERSHIP BY ESTOPPEL
to establish the existence of a - where persons by their acts,
partnership, all of its essential features consent, or representations have
or characteristics must be shown as misled third persons or parties into
being present. believing that the former are
(1) Where terms of contract not clear. partners in a non-existing
partnership, such persons become
- In the typical contract of partnership, subject to liabilities of partners to
the parties expressly agree to unite all who, in good faith, deal with
their propertyand services as co- them in their apparent relations.
proprietors to carry on a business for
profit, and to share the profits in stated
proportions.
(2) Where existence disputed
- The existence of a partnership may be Co-ownership or co-possession.
disputed by an interested party. The - There is co-ownership (or co-
issue as to whether a partnership exists possession) whenever the
is a factual matter to be decided on the ownership (or co-possession) of an
basis of all circumstances. undivided thing or right belongs to
Persons not partners as to each other. different persons.

-Persons who are partners as between (1) Clear intent to derive profits from operation
themselves are partners as to third of business.
persons. Generally, the converse is true, a. The profits must be derived from the
to wit: if they are not partners as operation of the business or
between themselves, they cannot be undertaking by the members of the
partners as to third persons. association and not merely from
(1) Intention to create partnership property ownership.
- A partner may transfer to the Ruling:
partnership, as his contribution, The co-ownership is
merely the use or enjoyment of a automatically converted into a
specifi c thing, retaining the partnership. From the moment
ownership thereof. of partition, A and B, as heirs,
are entitled already to their
(b) The law does not imply a partnership respective defi nite shares of
between co-owners or co-possessors the estate and the income
because of the fact that they develop thereof, for each of them to
or operate a common property, since manage and dispose of as
they may rightfully do this by virtue of exclusively his own without the
their respective titles. Thus, in a case, intervention of the other heirs,
it was held that two isolated and, accordingly, he becomes
transactions whereby two persons liable individually for all taxes in
purchased two (2) parcels of land and connection therewith. If, after
then another three (3) parcels of land such partition, an heir allows his
and sold the same a few years shares to be held in common
thereafter, did not thereby make with his co-heirs under a single
them partners. management to be used with
(2) Existence of fiduciary relationship. the intent of making profi t
thereby in proportion to his
- If the parties are partners in the share, there can be no doubt
business undertaking, there is a well- that, even if no document or
defined fiduciary relationship instrument were executed for
between them as partners. the purpose, for tax purposes,
- On the other hand, if the parties are at least, an unregistered17
merely co-owners, there is no partnership is formed.
fiduciary relationship between them.
2. Two persons contributed money to
- If the parties are partners, the remedy buy a sweepstakes ticket with the
for a dispute or difference between intention to divide the prize which
them would be an action for they may win.
dissolution, termination, and
accounting. Ruling:
A, B, etc. formed a partnership.
- Where the relationship is that of co-
The partnership was not only
owner, the remedy would be an action,
formed, but upon the
as for instance, for non-performance of
organization thereof and the
a contract.
winning of the prize, it
LLUSTRATIVE CASES: appeared that B personally
appeared in the offi ce of the
1. Heirs agreed, after partition, to use Philippine Charity Sweepstakes,
common properties and income in his capacity as co-partner,
therefrom as a common fund with the and as such collected the prize.
intention of making profit for them in All these circumstances repel
proportion to their shares in the the idea that A, B, etc.
inheritance. organized and formed a
community of property only.
them have a joint or common right
or interest in any property from
3. Children sold lots given by their father which the returns are derived.”
and divided the proceeds There must be an unmistakable
intention to form a partnership or
Facts: O, after completing payment to joint venture
S on two lots, transferred his rights to
his four children, C, etc. to enable
them to build their residences. S sold (3) Persons living together without benefi t of
the two lots for P178,708.12 to C, etc. marriage.
who resold them more than a year
later to T for P313,050, treating the - This doctrine is no longer applicable
profit of P134,341.88 as capital gains under the Family Code in view of the
an paying an income tax on one-half following provisions:
of their respective shares (or P33,584) “Art. 147. When a man and a woman
of the profit. who are capacitated to marry each
other, live exclusively with each other
Issue: Did C, etc. form a partnership as husband and wife without the
under Article 1767? benefit of marriage or under a void
marriage, their wages and salaries shall
Held: No. (1) Division of profits was be owned by them in equal shares and
merely incidental. — They were co- the property acquired by both of them
owners pure and simple. To consider through their work or industry shall be
them as partners would obliterate the governed by the rules on co-ownership
distinction between a co-ownership x x x.” U
and a partnership. C, etc. were not
engaged in any joint venture by - Under Article 147, the property
reason of that isolated transaction.18 acquired by a man and a woman
The original purpose was to divide the who live together as husband and
lots for residential purposes. If later wife shall be governed by the rules
on they found it not feasible to do so on co-ownership.
because of the high cost of Sharing of gross returns.
construction, then they had no choice
but to resell the same to dissolve the (1) Not even presumptive evidence of
co-ownership. The division of the partnership.
profits was merely incidental to the - As distinguished from the general
dissolution of the co-ownership which rule recognizing sharing of profits as
was, in the nature of things, a presumptive evidence of
temporary state. It has to be partnership (infra.), the sharing of
terminated sooner or later gross returns has been held not to
constitute even prima facie
(3) There must be an unmistakable evidence of the relation.
intention to form a partnership. —
(2) Reason for rule. —
Article 1769(3) provides that “the - The reason behind the rule is a
sharing of gross returns does not of sound and practical one, for when a
itself establish a partnership business is carried on in behalf of a
whether or not the persons sharing given person as partner, he is
conceived as being interested in its the conduct and control of the
failures as well as its successes business? Does he own a share of
the profits as proprietor of the
- it is the chance of gain or loss which business producing them?” Thus, if
characterizes a business, whether in one takes a share of the profits as
the form of a partnership or payment of a debt, he is not a
otherwise partner.
- In other words, to be a partner, one
(3) Where there is evidence of mutual must have an interest with another
management. — in the profits of a business as
- Where, however, there is further profits.
evidence of mutual management
and control, a partnership may Burden of proof and presumption.
result, even though the agreement In accordance with the general rule of
calls for a portion of “gross evidence, the burden of proving the
returns.” existence of a partnership rests on the
Receipt of share in the profits party having the affirmative of that
issue
(1) Strong presumptive evidence of
partnership. (1) The existence of a
- the sharing of profits and losses is partnership must be
prima facie evidence of an intention proved and will not be
to form a partnership but not a presumed.
conclusive evidence. The (2) The law presumes that
presumption of partnership arising persons who are acting as
from such profitsharing agreement partners have entered
may be rebutted and outweighed into a contract of
by other circumstances. partnership. Where the
law presumes the
(2) When no such inference will be drawn. existence of a partnership
- The basic test of partnership, (supra.), the burden of
whether inter se or as to third proof is on the party
persons, is whether the business is denying its existence.
carried on in behalf of the person (3) When a partnership is
sought to be held liable. shown to exist, the
- And persons who are partners in presumption is that it
fact may not avoid the continues in the absence
of evidence to the
consequences of the relation by
mere word of denial. contrary, and the burden
(3) Sharing of profits as owner. of proof is on the person
- It is not merely the sharing of asserting its termination.
profits, but the sharing of them as (68 C.J.S. 466.)
co-owner of the business or (4) One who alleges a
undertaking, that makes one a partnership cannot prove
partner. it merely by evidence of an
- A test given is this: “Does the agreement wherein the
recipient of a share of the profits parties call themselves
have an equal voice as proprietor in partners, since use of the
term “partner” in popular call themselves partners in
sense, or as a matter of no uncertain terms, yet
business convenience, will their contract may be
not necessarily import an adjudged something quite
intention that a legal different. Conversely,
partnership should result. parties may expressly
(31 Words and Phrases stipulate that their
274.) But while use of contract is not a
“partnership” or partnership yet the law
“partners” in an alleged may determine otherwise
oral agreement claimed to on the basis of legal intent.
have constituted It is true, however, that
partnership is not courts will be influenced to
conclusive that some extent by what the
partnership did not exist, parties call their contract.
non-use of such terms is
entitled to weight. Tests and incidents of partnership.
(5) Among other meanings, (1) Only those terms of a contract upon
“associate” means which the parties have reached an
“partner,” but a mere actual understanding, either
employee may also be an expressly or impliedly, may afford a
“associate.” “We” and test by which to ascertain the legal
“us,” when used in an nature of the contract.
editorial sense, are not
conclusive of either Some of the typical incidents of a
partnership or partnership are:
employment. (Ibid., 274.) (a) The partners share in profits
(6) The question of whether or and losses. (Arts. 1767, 1797,
not a partnership exists is 1798.) This community of
not always dependent interest in profits is not
upon the personal incidental to the ordinary
arrangement or agency;
understanding of the
parties. Parties intending (b) They have equal rights in the
to do a thing which in law management and conduct of
constitutes partnership are the partnership business
partners, whether their
(c) Every partner is an agent of the
purpose was to create or
partnership, and entitled to
avoid the relation (Ibid.,
bind the other partners by his
278.), or even expressly
acts, for the purpose of its
stipulated in their
business. (Art. 1818.) He may
agreement that they were
also be liable for the entire
not to become partners.
partnership obligations;
We, therefore, arrive at (d) All partners are personally
the rule that legal liable for the debts of the
intention is the crux of partnership with their separate
partnership. Parties may property except that limited
partners are not bound bind themselves to between one person
beyond the amount of their contribute money, (beneficiary) having
investment property, or industry the equitable
to a common fund, ownership in property
(e) A fiduciary relation exists
with the intention of and another (trustee)
between the partners (Art.
dividing the profits owning the legal title
1807.); and
among themselves. to such property, the
(f) On dissolution, the partnership equitable ownership
is not terminated, but of the former entitling
continues until the winding up him to the
of partnership is completed. performance of
(Art. 1828.) certain duties and the
exercise of certain
powers by the latter.
Partnership distinguished from Labor Union. all of the members are the trustee is only a
principals and are principal and is not an
PARTNERSHIP LABOR UNION agents for each other agent.
Two or more persons Any association of a partner is a “co- Only the trustee and
bind themselves to employees which owner” with his not the benefi ciaries
contribute money, exists in whole or in partners of specifi c is empowered to make
property, or industry part for the purpose of partnership property. contracts to carry on
to a common fund, collective bargaining the business affairs
with the intention of or of dealing with and the only one who
dividing the profits employers concerning has legal title to the
among themselves. terms and conditions property.
of employment

Partnership distinguished from co-ownership.


NOTE:
Partnership
Partnerships and labor unions have some
characteristics in common, but the purpose of - Two or more persons bind
partnership is essentially to enable its members, themselves to contribute money,
as principals, to conduct a lawful business, property, or industry to a common
trade, or profession for pecuniary gain of fund, with the intention of dividing
partners, and no one may become a partner the profits among themselves
without consent of all partners.
Co-ownership
- There is a co-ownership whenever
the ownership of an undivided thing
or right belongs to different
persons. (Art. 484.) It is the right of
common dominion which two or
Partnership distinguished from a business more persons have in a spiritual
trust. part of a thing which is not
physically divided.
PARTNERSHIP BUSINESS TRUST
Two or more persons legal relationship
PARTNESHIP CO-OWNERSHIP only one of the
Creation Partnership is Co-ownership is co-owners will
always created generally not bind the
by a contract created by law. other co-owners
(Art. 1767.), Effect of The death of a the death of a
either express or It may exist death partner results in co-owner does
implied; even without a the dissolution of not necessarily
contract the partnership dissolve the co-
Juridical A partnership has a co-ownership ownership.
personality. a juridical has none
personality
separate and Partnership distinguished from conjugal
distinct from that partnership of gains.
of each partner Conjugal partnership of gains is a partnership
Purpose The purpose of a in co-ownership, formed by the marriage of husband and wife by
partnership is the it is the common virtue of which they place in a common fund
realization of enjoyment of a the fruits and income of their separate
profits thing or right properties and those acquired through their
which does not efforts or by chance, and unless otherwise
necessarily agreed upon in the marriage settlements, divide
involve the equally, upon the dissolution of the marriage or
sharing of the partnership, the net gains or benefi ts
profits; obtained by either or both of them during the
Duration there is no an agreement to marriage.
limitation upon keep the thing
the duration of a undivided for PARTNERSHIP CONJUGAL
partnership more than ten PARTNERSHIP
years is not OF GAINS
allowed Parties created by the arises in case
Disposal of A partner may a co-owner may voluntary the future
interests not dispose of his freely do so agreement of spouses — a
individual two or more man and a
interest in the partners woman —
partnership so as belonging to agree that it
to make the either sex shall govern
assignee a their property
partner unless relations
agreed upon by during the
all of the marriage
partners Laws which governed by governed by
Power to In the absence of a co-owner govern. the stipulation law
act with any stipulation to cannot of the parties
third the contrary (Art. represent the Juridical A partnership a conjugal
persons. 1803.), a partner co-ownership personality has a juridical partnership of
may bind the hence, a personality gains has
partnership judgment none
secured against Commencement begins from commences
the moment precisely on
of the the date of Partnership distinguished from a voluntary
execution of the association
the contract, celebration of
unless it is the marriage PARTNERSHIP VOLUNTARY
otherwise and any ASSOCIATION
stipulated stipulation to Juridical has a juridical has none
the contrary is personality personality
void Purpose always this objective
Purpose to obtain to regulate organized for is lacking
profits the property pecuniary
relations of profit,
husband and Contributions there is a although fees
wife during of members contribution of are usually
the marriage capital, either collected from
Distributionof the profits are the shares of in the form of the members
profits divided the spouses in money, to maintain
according to the profits are property, or the
the divided services, organization,
agreement of equally there is no
the partners contribution
or in of capital
proportion to Liability of The the members
their members partnership, as are
respective a rule, is the individually
capital one liable in the liable for the
contributions first place for debts of the
Management the although the the debts of the association,
management administration firm authorized by
is shared belongs to them either
equally by all both spouses expressly or
the partners jointly, the impliedly, or
unless one or husband’s subsequently
more of them decision shall ratified by
are appointed prevail in case them
managers in of
the articles of disagreement
partnership
Disposition of the whole the share of
shares interest of a each spouse
partner may cannot be PARTNERSHIP CORPORATIO
be disposed of disposed of N
without the during the Manner of created by created by
consent of the marriage even creation mere law or by
other partners with the agreement of operation of
consent of the the parties law
other. Number of may be (except a
incorporators organized by corporation
only two sole) requires Right of A partnership has such right
persons at least five succession has no right
incorporators of succession
Commenceme commences a corporation Extent of the partners the
nt of juridical to acquire begins to liability to (except stockholders
personality juridical have juridical third persons limited are liable only
personality personality partners) are to the extent
from the only from the liable of the shares
moment of date of personally subscribed by
the execution issuance of and them
of the the certifi subsidiarily
contract of cate of (sometimes
partnership incorporation solidarily) for
by the partnership
Securities and debts to third
Exchange persons
Commission Transferability a partner a stockholder
Powers may exercise can exercise of interest. cannot has generally
any power only the transfer his the right to
authorized by powers interest in the transfer his
the partners expressly partnership shares
provided it is granted by so as to make without the
not contrary law or the prior consent
to law, implied from transferee a of the other
morals, good those granted partner stockholders
customs, or incident to without the because a
public order, its existence consent of all corporation is
or public the other not based on
policy existing this principle
Management when the the power to partners
management do business because the
is not agreed and manage partnership is
upon, every its affairs is based on the
partner is an vested in the principle of
agent of the board of delectus
partnership directors or personarum
trustees Term of A partnership may not be
Effect of a partner as he suit existence may beformed for a
mismanageme such can sue against a established term in
nt a co-partner member of for any period excess of 50
who the board of of timeyears
mismanages directors or stipulated by extendible to
trustees who the partners not more
mismanages than 50 years
must be in in any one
the name of instance
the Firm name A limited may adopt
corporation partnership is any fi rm
required by name the common benefit or interest of the
the law to provided it is partners. When an unlawful partnership is
add the word not the same dissolved by a judicial decree, the profits shall
“Ltd.” to its as or similar be confiscated in favor of the State, without
name to any prejudice to the provisions of the Penal Code
registered fi governing the confiscation of the instruments
rm name and effects of a crime.
Dissolution. may be can only be
dissolved at dissolved
any time by with the Object or purpose of partnership.
the will of any consent of
or all of the the State Two essential elements of a contract of
partners partnership:
Governing A partnership governed by 1. Legality of the object
law. is governed the 2. Community of benefit or interest of the
by the Civil Corporation partners
Code Code
GENERAL RULE:

Similarities between a partnership and a The parties possess absolute freedom


corporation. to choose the transaction or
transactions they must engage in.
They are as follows:
EXCEPTION:
(1) Like a corporation, a partnership has a
juridical personality separate and distinct from the object must be lawful and for the
that of the individuals composing it; common benefit of the members

(2) Like a corporation, a partnership can act only - The illegality of the object will not
through agents; be presumed; it must appear to be
of the essence of the relationship.
(3) Like a corporation, a partnership (except a
corporation sole) is an organization composed Effects of an unlawful partnership
of an aggregate of individuals;
1. The contract is void ab initio and the
(4) Like a (stock) corporation, a partnership partnership never existed in the eyes of
distributes its profits to those who contribute the law
capital to the business (although an industrial 2. The profits shall be confiscated in favor
partner also shares in partnership profits); of the government
3. The instruments or tools and proceeds
(5) Like a corporation, a partnership can be of the crime shall also be forfeited in
organized only where there is a law authorizing favor of the government
its organization; and 4. The contributions of the partners shall
(6) A partnership, no matter how created or not be confiscated unless they fall
organized (except a general professional under No. 3.
partnership) is taxable as a corporation, subject NOTE:
to income tax.
- A partnership is dissolved by
ART. 1770. A partnership must have a lawful operation of law upon the
object or purpose, and must be established for happening of an event which makes
it unlawful for the business of the Right to receive profits where partnership is
partnership to be carried on, or for unlawful
the members to carry it on in
partnership - Article 1770 permits no action for
- A judicial decree is not necessary to the purpose of obtaining the
dissolve an unlawful partnership. earnings made by an unlawful
However, it may sometimes be partnership, during its existence as
advisable that a judicial decree of a result of the business in which it
dissolution be secured for the was engaged, because for that
convenience and peace of mind of purpose, the partner will have to
the parties. base his action upon the
- Third persons who deal with the partnership contract, which is null
partnership without being aware of and without legal existence by
its illegal purpose or character are reason of its unlawful object; and it
protected unless such knowledge is self-evident that what does not
can be presumed as where the exist cannot be a cause of action
transaction is plainly unlawful. - The profi ts earned in the course of
the partnership do not constitute or
represent the partner’s
Right to return of contribution where contribution but are the result of
partnership is unlawful. the industry, business, or
speculation which is the object of
- the partners must be reimbursed
the partnership;
the amount of their respective - in order to demand the
contributions proportional part of said profi ts,
- The partner who limits himself to the partner would have to base his
demanding only the amount action on the contract, which is null
contributed by him need not resort and void since the partition or
to the partnership contract on distribution of profi ts is one of the
which to base his claim or action. juridical effects thereof
Since the purpose for which the - it would be immoral and unjust for
contribution was made has not
the law to permit a profit from an
come into existence, the manager industry prohibited by it
or administrator of the partnership - Therefore, there can be no
holding said contribution retains accounting demanded of a partner
what belongs to others, without any for the profits which may be in his
consideration, for which reason he hands, nor can a recovery be had
is bound to return it, and he who
has paid in his share is entitled to
recover it Effect of partial illegality of partnership
- Any other solution would be business.
immoral, and the law will not
consent to the contribution - Where a part of the business of a
remaining in the possession of the partnership is legal and a part
manager or administrator who has illegal, an account of that which is
refused to return them by denying legal may be had.
to the partners the action to - Where, without the knowledge or
demand them. (Arbes vs. Polistico, participation of the partners, the
53 Phil. 489 [1929] firm’s profits in a lawful business
have been increased by wrongful partnership or the members
acts, the innocent partners are not partners inter se.
precluded as against the guilty - the court must consider all the
partners from recovering their essential elements of a partnership
share of the profits in the light of the facts of the
particular case before deciding
Effect of subsequent illegality of partnership whether or not a partnership exists.
business.
- The happening of an event ART. 1771. A partnership may be constituted in
subsequent to the making of a valid any form, except where immovable property
partnership contract which would or real rights are contributed thereto, in which
render illegal the business of the case a public instrument shall be necessary.
partnership as planned, will not (1667a)
nullify the contract.
- an accounting may be had as to the
business transacted prior to such
time

Community of interest between the partners


for business purposes. Form of partnership contract.
The salient features of an ordinary partnership: GENERAL RULE
1. community of interest in profits and - no special form is required for the
losses validity or existence of the contract
2. community of interest in the capital of partnership. The contract may be
employed made orally or in writing regardless
3. community of power in of the value of the contributions.
administration
EXCEPTION (1)
- This community of interest- the Where immovable property or real
partners must be co-owners of the rights are contributed
business — is the basis of the
partnership relation. - In such case, according to Article
- Property used in the business may 1771, “a public instrument shall be
belong to one or more partners, so necessary,” without stating, unlike
that there is no joint property, Article 1773, that without the public
other than joint earnings. instrument, the contract is void
- Only one of these features, profit- - they require the execution of a
sharing, seems to be absolutely public instrument for the validity of
essential. No doubt, in every a contract of partnership whenever
partnership, profits are to be immovable property is contributed
divided among the partners. But the thereto. To affect third persons, the
mere sharing of profits of itself does transfer of real property to the
not of necessity constitute a partnership must be duly registered
in the Registry of Property of the
province or city where the property (3) Conflict between intention and terms of
contributed is located. contract.
EXCEPTION (2) - Also, if the parties intend a general
partnership, they are general partners
When partnership agreement covered although their purpose is to avoid the
by Statute of Frauds. creation of such a relation.
- An agreement to enter in a
ART. 1772. Every contract of partnership
partnership at a future time, which having a capital of three thousand pesos or
“by its terms is not to be performed more, in money or property, shall appear in a
within a year from the making public instrument, which must be recorded in
thereof” is covered by the Statute the Office of the Securities and Exchange
of Frauds. Commission. Failure to comply with the
- Such agreement is unenforceable requirements of the preceding paragraph shall
unless the same be in writing or at not affect the liability of the partnership and
least evidenced by some note or the members thereof to third persons. (n)
memorandum thereof subscribed
by the parties.
-
Registration of partnership.
Partnership implied from conduct.
(1) Partnership with capital of P3,000.00 or
(1) Binding effect more.
- A partnership may exist and often Two requirements where the capital of
exists in the absence of express the partnership is P3,000.00 or more,25
agreement, written or verbal, between in money or property:
the parties.
(a) The contract must appear in a public
- Its existence may be implied from the instrument; and
acts or conduct of the parties, as well as
from other declarations, and such (b) It must be recorded or registered
implied contract would be as binding as with the Securities and Exchange
a written and express contract Commission.

(2) Ascertainment of intention of parties - failure to comply with the above


requirements does not prevent the
- as between the parties, the intention formation of the partnership or affect
as disclosed by the entire transaction, its liability and that of the partners to
and as gathered from the facts and third persons
from the language employed by the
parties as well as their conduct, should - But any of the partners is granted the
be ascertained. right by the law to compel each other to
execute the contract in a public
- A partnership may even be created instrument. Of course, this right cannot
without any definite intention; the be availed of if the partnership is void
intention of the parties being inferred under Article 1773.
from their conduct and dealings with
each other. (2) Purpose of registration.
- The requirement of public instrument
is imposed as a prerequisite to
registration, and registration is - Where immovable property,
necessary as “a condition for the regardless of its value, is
issuance of licenses to engage in contributed, the failure to comply
business or trade. with the following requirements will
render the partnership contract
- In this way, the tax liabilities of big VOID in so far as the contracting
partnerships cannot be evaded and the parties are concerned:
public can also determine more (a) The contract must be in a
accurately their membership and PUBLIC INSTRUMENT;
capital before dealing with them.
(b) An INVENTORY of the property
contributed must be made,
(2) When partnership considered signed by the parties, and
registered. attached to the public
instrument.
- The Securities and Exchange
Commission performs the works of (2) As to contracting parties.
a mercantile registrar insofar as the - The absence of either formality
recording of articles of partnership renders the contract void.
is concerned. - Article 1773 is very clear that the
- Since the recording of articles of contract is void if the formalities
partnership is not for the purpose specifically provided therein are not
of giving the partnership juridical observed, implying that compliance
personality (see Art. 1784.), the therewith is absolute and
only objective of the law is to make indispensable for validity.
the recorded instrument open to all (3) As to third persons.
and to give notice thereof to - Article 1773 is intended primarily to
interested parties. protect third persons. With regard
- This objective is achieved from the to them, a de facto partnership or
date the partnership papers are partnership by estoppel may exist.
presented to and left for record in
the Commission When inventory is not required.
- The date the partnership papers are - An inventory is required only
presented to and left for record in “whenever immovable property is
the Commission is considered the contributed.”
effective date of registration of the - Article 1773 does not apply in the
articles of partnership. case of immovable property which
ART. 1773. A contract of partnership is void, may be possessed or even owned
whenever immovable property is contributed by the partnership but not
thereto, if an inventory of said property is not contributed by any of the partners.
made, signed by the parties, and attached to - If personal property, aside from real
the public instrument. (1668a) property, is contributed, the
inventory need not include the
former.
Partnership with contribution of immovable Importance of making inventory of real
property. property in a partnership.
(1) Requirements
- An inventory is very important in a governed by the provisions relating to
partnership to show how much is coownership. (1669)
due from each partner to complete
his share in the common fund and Secret partnerships without juridical
how much is due to each of them in personality
case of liquidation - The partnership relation is created
- The execution of a public only by the voluntary agreement of
instrument of partnership would be the partners.
useless if there is no inventory of - It is essential that the partners are
immovable property contributed fully informed not only of the
because without its description and agreement but of all matters
designation, the instrument cannot affecting the partnership
be subject to inscription in the - Likewise, a partner is considered
Registry of Property, and the the agent of his co-partners and of
contribution cannot prejudice third the partnership in respect of all
persons. partnership transactions.
- Thus, the contract is declared void - Every partnership must have a fi rm
by law when no such inventory is name under which it shall conduct
made. its business and to distinguish it
ART. 1774. Any immovable property or an from the partners and other
partnerships.
interest therein may be acquired in the
- The partners have equal rights and
partnership name. Title so acquired can be
conveyed only in the partnership name. (n) interests in the partnership which
must be established for the
Acquisition or conveyance of property by common benefit or interest of the
partnership. partners.
- associations whose articles or
- Since a partnership has juridical agreements are kept secret among
personality separate from and the members (i.e., known to some
independent of that of the persons members only but withheld from
or members composing it, it is but the rest) and wherein anyone of
logical and natural that immovable them may contract in his own name
property may be acquired in the with third persons are, by this
partnership name. article, deprived of juridical
- The right of a partnership to deal in personality for evidently such
real as well as personal property is associations are not partnerships.
subject to limitations and As among themselves, they shall be
restrictions prescribed by the
governed by the provisions relating
Constitution and special laws. A to co-ownership.
partnership is an “association”
within the meaning of the word as Importance of giving publicity to articles of
used in the Constitution. partnership
ART. 1775. Associations and societies, whose - It is essential that the articles of
articles are kept secret among the members, partnership be given publicity for
and wherein any one of the members may the protection not only of the
contract in his own name with third persons, members themselves but also third
shall have no juridical personality, and shall be persons from fraud and deceit to
which otherwise they would be rata and subsidiarily and
easy victims. sometimes solidarily with
- A member who transacts business their separate property for
for the secret partnership in his partnership debts
own name becomes personally
bound to third persons unaware of (b) Limited partnership
the existence of such association, in - one formed by two or more
the same way and for the same persons having as members
reason that an agent who acts in his one or more general
own name when dealing with third partners and one or more
persons is directly bound in favor of limited partners, the latter
such persons who may only sue or not being personally liable
be sued by the agent and not his for the obligations of the
principal. partnership.
ART. 1776. As to its object, a partnership is (3) As to its duration.
either universal or particular. As regards the
liability of the partners, a partnership may be (a) Partnership at will
general or limited. (1671a) - one in which no time is
Classifications of partnership. specified and is not formed
for a particular undertaking
(1) As to the extent of its subject or venture and which may be
matter. terminated at anytime by
mutual agreement of the
(a) Universal partnership partners, or by the will of
- one which refers to all the any one partner alone
present property or to all
profits. - one for a fixed term or
particular undertaking which
2 kinds of universal is continued by the partners
partnership after the termination of such
term or particular
1. Universal partnership of all undertaking without express
present property agreement
2. Universal partnership of (b) Partnership with a fixed
profits term
(b) Particular partnership.
- 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
2) As to liability of the partners. expiration of the term or
completion of the particular
(a) General partnership enterprise, the partnership is
dissolved, unless continued
- one consisting of general by the partners
partners who are liable pro
(4) As to the legality of its existence. b) Professional or non-trading
partnership
(a) De jure partnership
- one formed for the exercise of
- one which has complied with a profession
all the legal requirements for
its establishment
(b) De facto partnership Kinds of partners.
- one which has failed to comply (1) Under the Civil Code.
with all the legal requirements
for its establishment. (a) Capitalist partner

(5) As to representation to others. - one who contributes money or


property to the common fund
(a) Ordinary or real partnership
(b) Industrial partner
- one which actually exists
among the partners and also as - one who contributes only his
to third persons industry or personal service

(b) Ostensible partnership or (c) General partner


partnership by estoppel - one whose liability to third
- one which in reality is not a persons extends to his separate
partnership, but is considered a property; he may be either a
partnership only in relation to capitalist or industrial partner.
those who, by their conduct or - He is also known as real partner
admission, are precluded to (d) Limited partner
deny or disprove its existence.
- one whose liability to third
(6) As to publicity. persons is limited to his capital
(a) Secret partnership contribution.
- He is also known as special
- one wherein the existence of partner. The terms “general
certain persons as partners is not partner” and “limited partner”
avowed or made known to the have relevance only in a limited
public by any of the partners partnership
(e) Managing partner
(b) Open or notorious partnership - one who manages the affairs
or business of the partnership;
- one whose existence is avowed he may be appointed either in
or made known to the public by the articles of partnership or
the members of the fi rm. after the constitution of the
(7) As to purpose. partnership. He is also known as
general or real partner.
(a) Commercial or trading partnership
- one formed for the
transaction of business
(f) Liquidating partner
- one who takes charge of the (2) Other classifications.
winding up of partnership
affairs upon dissolution (a) Ostensible partner
- one who takes active part and
(g) Partner by estoppel known to the public as a
- one who is not really a partner in the business
partner, not being a party to - whether or not he has an actual
a partnership agreement, interest in the firm. Thus, he
but is liable as a partner for may be an actual partner or a
the protection of innocent nominal partner. If he is not
third persons. (see Art. actually a partner, he is subject
1825.) He is one who is to liability by the doctrine of
represented as being in fact estoppel
a partner but who is not so
as between the partners (b) Secret partner
themselves. He is also known
as partner by implication or - one who takes active part in the
nominal partner business but is not known to be
a partner by outside parties nor
- The term “quasi-partner” is held out as a partner by the
sometimes used other partners although he
(h) Continuing partner participates in the profits and
losses of the partnership.
- one who continues the - He is an actual partner. He is
business of a partnership also an active partner in the
after it has been dissolved sense that he participates in the
by reason of the admission management of the partnership
of a new partner, or the affairs
retirement, death, or
expulsion of one or more (c) Silent partner
partners - one who does not take any
(i) Surviving partner active part in the business
although he may be known to
- one who remains after a be a partner.
partnership has been - If he withdraws from the
dissolved by the death of any partnership, he must give
partner notice to those persons who do
(j) Subpartner business with the firm to
escape liability in the future
- one who, not being a member
of the partnership, contracts (d) Dormant partner
with a partner with - one who does not take active
reference to the latter’s part in the business and is not
share in the partnership. known or held out as partner.
- He would be both a silent and a
secret partner. He would be
both a secret and a silent constitution of the partnership, becomes the
partner. He may retire from the common property of all the partners, as well as
partnership without giving all the profits which they may acquire
notice and cannot be held liable therewith. A stipulation for the common
for obligations of the firm enjoyment of any other profits may also be
subsequent to his withdrawal. made; but the property which the partners
His only interest in joining the may acquire subsequently by inheritance,
partnership would be the legacy or donation cannot be included in such
sharing of the profits earned. stipulation, except the fruits thereof. (1674a)
- The term is used as
synonymous with “sleeping
partner” Universal partnership of all present property
(e) Original partner explained.

- one who is a member of the


partnership from the time of its Universal partnership of profits
organization;
- one which comprises all that the
(f) Incoming partner or partners may acquire by their
- a person lately, or about to be, industry or work during the
taken into an existing existence of the partnership and
partnership as a member the usufruct of movable or
immovable property which each of
(g) Retiring partner the partners may possess at the
time of the celebration of the
- one withdrawn from the contract.
partnership; a withdrawing
partner.
Note: The following become the common property of
all the partners:
All partners in any of these six
classes are subject to liability (1) Property which belonged to each of them at
for all partnership obligations. the time of the constitution of the partnership;
and
ART. 1777. A universal partnership may refer
to all the present property or to all the profits. (2) Profits which they may acquire from the
(1672) property contributed.
ART. 1778. A partnership of all present
property is that in which the partners
contribute all the property which actually Contribution of future property
belongs to them to a common fund, with the GENERAL RULE:
intention of dividing the same among
themselves, as well as all the profits they may Future properties cannot be
acquire therewith. (1673) contributed.

ART. 1779. In a universal partnership of all REASON:


present property, the property which belongs The very essence of the
to each of the partners at the time of the contract of partnership that the
properties contributed be (1) Ownership of present and future
included in the partnership property
requires the contribution of - the partners retain their ownership
things DETERMINATE. over their present and future
property.
- Thus, property subsequently - What passes to the partnership are
acquired by the profits or income and the use or
(1) inheritance usufruct of the same.
(2) legacy - Consequently, upon the dissolution
(3) donation of the partnership, such property is
returned to the partners who own
- cannot be included by it.
stipulation except the fruits
thereof. (2) Profits acquired through chance. —
- Since the law speaks only of profits
- Hence, any stipulation including which the partners may acquire by
property so acquired is void. their industry or work, it follows
Profits from other sources (not that profits acquired by the
from the properties partners through chance, such as
contributed) will become lottery or by lucrative title without
common property only if there employment of any physical or
is a stipulation intellectual efforts, are not included

(3) Fruits of property subsequently


ART. 1780. A universal partnership of profits acquired.
comprises all that the partners may acquire by - fruits of property subsequently
their industry or work during the existence of acquired by the partners do not
the partnership. Movable or immovable belong to the partnership. Such
property which each of the partners may profits may, however, be included
possess at the time of the celebration of the by express stipulation. But profits
contract shall continue to pertain exclusively which the partners may acquire by
to each, only the usufruct passing to the their industry or work during the
partnership. (1675) existence of the partnership as well
as the usufruct of their present
properties belong to the
Universal partnership of profits explained. partnership as a matter of right.
- An express stipulation is necessary
Universal partnership of profits
to exclude any of them.
- one which comprises all that the
ART. 1781. Articles of universal partnership,
partners may acquire by their
entered into without specification of its
industry or work during the
nature, only constitute a universal partnership
existence of the partnership and
of profits. (1676)
the usufruct of movable or
immovable property which each of Presumption in favor of universal partnership
the partners may possess at the of profits.
time of the celebration of the
contract - Where the articles of partnership
do not specify the nature of the
partnership, whether it is one of NOTE:
“present property” or of “profits”
only, it will be presumed that the In connection with Article 1782, the following
parties intended merely a provisions must be noted:
partnership of profits “Art. 87. Every donation or grant of
REASON: gratuitous advantage, direct or
indirect, between the spouses during
The reason for this presumption the marriage shall be void, except
is that a universal partnership moderate gifts, which the spouses may
of profits imposes less give to each other on the occasion of
obligations on the partners,30 any family rejoicing. The prohibition
since they preserve the shall also apply to persons living
ownership of their separate together as husband and wife without
property. a valid marriage.”
Note: “Art. 739. The following donations
shall be void:
It is to be noted that this article
applies only when a universal (1) Those made between persons who
partnership has been organized. were guilty of adultery or concubinage
at the time of the donation;
ART. 1782. Persons who are prohibited from
giving each other any donation or advantage (2) Those made between persons
cannot enter into a universal partnership. found guilty of the same criminal
(1677) offense, in consideration thereof;
(3) Those made to a public officer or
his wife, descendants and ascendants,
Limitations upon the right to form a
by reason of his office.
partnership.
In the case referred to in No. 1, the
- Persons who are prohibited by law action for declaration of nullity may be
to give donations cannot enter into brought by the spouse of the donor or
a universal partnership donee; and the guilt of the donor and
- To allow persons who are the donee may be proved by
prohibited to give each other any preponderance of evidence in the
donation or advantage to form a same action.”
universal partnership will be like
permitting them to do indirectly In order that Article 739 may apply, it
what the law expressly prohibits is not required that there be a
- A partnership formed in violation of previous conviction for adultery or
this article is null and void. concubinage. This can be inferred from
Consequently, no legal personality the clause that “the guilt of the donor
is acquired. and the donee may be proved by
- A husband and his wife, however, preponderance of evidence.’’
may enter into a particular
partnership or be members thereof.
ART. 1783. A particular partnership has “an association of two or more
for its object determinate things, their use persons to carry on as co-
or fruits, or a specific undertaking, or the owners a business for profi t”
exercise of a profession or vocation. (Sec. 6 thereof.) and states
(1678) that “business includes every
trade, occupation, or
profession.” (Sec. 2 thereof.)
Particular partnership explained. The word “business,” as used
in the Act, clearly means
- In other words, it is a business in the commercial
partnership which is neither a sense only, not merely “a joint
universal partnership of venture’’ which exists for
present property nor a carrying on a single act or
universal partnership of profits isolated transaction or a
Universal Partnership limited number of
transactions. Thus, a
- the object is vague and distinction exists between a
indefinite, contemplating a joint venture, a legal concept
general business with some of common law origin, on
degree of continuity which the members are
interested only in a single
Particular Partnership
transaction and is thus of a
- it is limited and well-defined, temporary nature although the
being confined to an business of conducting it may
undertaking of a single, continue for a number of
temporary, or ad hoc nature years, and a partnership in
- Examples of particular which the members (partners)
partnerships are those formed are interested in carrying on
for the acquisition of an together of a general and
immovable property for the continuing business of a
purpose of reselling it at a particular kind
profit or for the common
enjoyment of its use and the (2) Joint venture.
benefits derived therefrom - Sometimes called “joint
- those established for the adventure’’ or “joint
purpose of carrying out a enterprise’’ in American law, it
specifi c enterprise such as the is essentially a partnership
construction of a building, or created for a limited purpose.
those formed for the practice - While a joint venture is not a
of a profession or vocation formal partnership in the legal
or technical sense, both are
Business of partnership need not be governed, subject to certain
continuing in nature. qualifi cations, practically by
(1) Rule under American law. — the same rules or principles of
- The above is not true under partnership.33 This is logical
the Uniform Partnership Act since in a joint venture, like in
which defines a partnership as a partnership, there is a
community of interest in the
business and a mutual right of
control and an agreement to
share jointly in profits and
losses resulting from the
enterprise. The usual rules as
regards the construction and
operation of contracts
generally apply to a contract of
a joint venture.

(3) Corporation as a partner. —


- While under the Philippine
Civil Code, a joint venture is a
form of partnership with a
legal personality separate and
distinct from the parties
composing it, and should thus
be governed by the law of
partnership, the Supreme
Court has, however,
recognized a distinction
between these two business
forms, and has held that
although a corporation cannot
enter into a partnership
contract, it may, however,
engage in a joint venture with
others (Tuazon vs. Bolanos, 95
Phil. 906 [1954].) through a
contract or agreement if the
nature of the venture is
authorized by its charter