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CHAPTER 1 o because of this that the law gives wide authority

General Provisions to one partner to bind another by contract or

Article 1767. By the contract of partnership two or 1. Right to choose co-partners
more persons bind themselves to contribute money, 2. Power to dissolve partnership
property, or industry to a common fund, with the
intention of dividing the profits among themselves. Essential features of partnership
Two or more persons may also form a partnership for 1. There must be a valid contract.
the exercise of a profession. 2. The partners must have legal capacity to enter
into a contract
Concept of Partnership
3. There must be mutual contribution of money
1. association of two or more persons to carry on property or industry to a common fund
as co-owners a business for profit 4. The object must be lawful
2. legal relation upon the expressed or implied 5. The purpose or primary purpose must be to
agreement of two or more competent persons obtain profits and to divide the same among the
3. joint undertaking to share in the profit or loss parties
4. status arising out of a contract entered into by
two or more persons whereby they agree to share It is also required that the articles of partnership
as co-owners must not be kept a secret otherwise the
5. organization for production of income to which association shall have no legal personality and
each partner contributes one or both of the shall be governed by the provisions of the Civil
ingredients Code of co-ownership.
6. entity, distinct and apart from the members
composing it and for the purpose of which it was Existence of a valid contract
created 1. A form of voluntary and personal association
2. Creation and proof of existence – COC
Partnership for the exercise of a profession o Articles of Partnership – written
Profession – calling in the preparation for or practice of document
which academic learning is required and which has for its 3. Other forms of association
prime purpose of rendering of public service
Limited partnership – cannot be created by mere
voluntary agreement alone
General Professional Partnership – partnership for the
exercise of a profession Legal Capacity of Parties to enter into a contract

Characteristic element of Partnership 1. GENERAL RULE: Any person may be a partner who
1. Consensual – perfected by mere consent. is capable under the law of entering into contractual
2. Bilateral – formed by two or more persons relations.
creating reciprocal rights and obligations.
3. Preparatory - entered into as a means to an end. o Unemancipated minors
4. Nominate – has a special name or designation. o Insane or demented persons
o Deaf mutes who do not know how to write
5. Onerous – contributions in the form of either consent to
o Persons who are suffering from civil interdiction a contract
money, property and/or industry must be made. o Incompetents who are under guardianship
6. Commutative – the undertaking of each partner
is considered as the equivalent of that of the 2. EXCEPTIONS: Pre-nuptial Agreement. A married
others. woman may enter into a contract of partnership even
7. Principal – its existence or validity does not without her husband’s consent, but the latter may
depend on some other contract. object under certain conditions.
A partnership contract is a contract of agency.
3. Capacity of a partnership/corporation to be a
Partnership relation fiduciary in nature partner
o voluntary association entered by associates Mutual Contribution to a common fund.
o personal relation in which the element of 1. Proprietary or financial interest
delectus personae exists involving as it does 2. Form of contribution
trust and confidence between the partners a. Money – legal tender
b. Property – real or personal, tangible or
delectus personae – choice of the person or persons intangible
c. Industry – work or services 2. Partnership by estoppel
Limited partner – cannot contribute mere industry or
services Co-ownership or co-possession
- whenever the ownership of an undivided thing or
Legality of object right belongs to different persons
1. Effect of legality – object is unlawful when it is
contrary to law, morals, good customs, public Test and incidents of partnership
order or public policy 1. Terms of agreement control
2. Businesses partnership not permitted to engage 2. Typical incidents once existence established
in – may not engage in an enterprise for which the a. Partners share in P & L.
law requires a specific form of business b. Equal rights in management and conduct of
organization. partnership business
c. Every partner is an agent of partnership
Sharing of profits d. All partners are personally liable for debts
1. Not necessarily equal shares e. A fiduciary relation exists
2. Not conclusive evidence of partnership f. On dissolution, partnership is not terminated
but continues until the winding up is
Sharing of losses completed
1. Necessary corollary of sharing in profits
2. Agreement not necessary Partnership distinguished from co-ownership

Article 1768. The partnership has a juridical PARTNERSHIP CO-OWNERSHIP

1. Creation Always with a contract May exist without a
personality separate and distinct from that of each of contract
the partners, even in case of failure to comply with 2. Juridical Art. 1768 None
the requirements of article 1772, first paragraph. personality
3.Purpose Realization of profits Common
enjoyment of a
Article 1769. In determining whether a partnership thing or right
exists, these rules shall apply: 4.Duration No limitations Agreement to keep
the thing or right
(1) Except as provided by article 1825, undivided for more
persons who are not partners as to each other are not than 10 years is not
partners as to third persons; allowed
5. Disposal of May not dispose of Freely do so
(2) Co-ownership or co-possession does not interest his individual interest
of itself establish a partnership, whether such-co- 6.Power to act A partner may bind Co-owner cannot
owners or co-possessors do or do not share any with third the partnership represent the co-
persons ownership
profits made by the use of the property; 7. Effect of Dissolution of the Does not
(3) The sharing of gross returns does not of death partnership necessarily
itself establish a partnership, whether or not the dissolve
persons sharing them have a joint or common right
Partnership distinguished from conjugal partnership
or interest in any property from which the returns are
of gains
Conjugal partnership of gains – partnership formed by
(4) The receipt by a person of a share of the
the marriage of husband and wife by virtue of which, they
profits of a business is prima facie evidence that he
place in a common fund the fruits and income from their
is a partner in the business, but no such inference
separate properties and those acquired through their
shall be drawn if such profits were received in
(a) As a debt by installments or otherwise;
(b) As wages of an employee or rent to a PARTNERSHIP PARTNERSHIP
landlord; 1.Parties Created by Arises in future
(c) As an annuity to a widow or representative voluntary spouses – man
agreement of two and woman
of a deceased partner; or more persons
(d) As interest on a loan, though the amount belonging to either
of payment vary with the profits of the business;
2.Laws which Governed by Governed by law
(e) As the consideration for the sale of a governs stipulation of the
goodwill of a business or other property by parties
installments or otherwise. 3.Juridical Has personality None
personality under the law
4.Commencement Begins from the Commences
Persons not partner as to each other moment of the precisely on the
1. Partnership, a matter of intention date of the
execution of the celebration of the rights are contributed thereto, in which case a public
contract marriage
instrument shall be necessary.
5.Purpose Obtain profits Regulate the
property relations
of husband and Form of partnership
6.Distribution of Divided based on Spouses share in
GENERAL RULE: No special form is required for the
profits the agreement of profits are divided validity or existence of the contract of partnership
the partners equally
7.Management Shared equally by The husband’s
all partners unless decision prevail in
Article 1772. Every contract of partnership having a
one or more of case of capital of three thousand pesos or more, in money
them are appointed disagreement or property, shall appear in a public instrument,
8. Disposition of Whole interest of Share of each
shares partner may be spouse cannot be
which must be recorded in the Office of the
disposed of without disposed of Securities and Exchange Commission.
the consent of the during the Failure to comply with the requirements of the
other marriage even
with the consent preceding paragraph shall not affect the liability of
of the other the partnership and the members thereof to third
Partnership distinguished from voluntary
associations Partnership with capital of P3, 000 or more
1. Juridical Has juridical None
1. The contract must appear in a public instrument;
personality personality 2. It must be recorded or registered w/ the SEC.
2.Purpose Always organized for This objective is
pecuniary profit lacking
However, failure to comply w/ the above
3.Contribution Contribution of capital No contribution of
of members either in form of capital requirements does not prevent the formation of the
money, property or partnership
4.Liability of One is liable for the Members are
members debts of the firm individually liable Purpose of registration
for the debts of the Registration is necessary as a condition for the
issuance of licenses to engage in business and trade.
Article 1770. A partnership must have a lawful object
Article 1773. A contract of partnership is void,
or purpose, and must be established for the common
whenever immovable property is contributed
benefit or interest of the partners.
thereto, if an inventory of said property is not made,
When an unlawful partnership is dissolved by
signed by the parties, and attached to the public
a judicial decree, the profits shall be confiscated in
favor of the State, without prejudice to the
provisions of the Penal Code governing the
Where immovable property contributed, failure to comply
confiscation of the instruments and effects of a
w/ the following requisites will render the partnership
contract void:
1. The contract must be in a public instrument;
The provision of the 1st paragraph reiterates 2 essential
2. An inventory of the property contributed must be
elements of a contract of partnership:
made, signed by the parties, and attached to the
1. Legality of the object; and
public instrument.
2. Community of benefit or interest of the partners.
Art. 1774. Any immovable property or an interest
Effects of an unlawful partnership
therein may be acquired in the partnership name.
1. The contract is void and the partnership never Title so acquired can be conveyed only in the
existed in the eyes of the law;
partnership name. Acquisition or conveyance of
2. The profits shall be confiscated in favor of the property by partnership
3. The instruments or tools and proceeds of the
Art. 1775. Associations and societies, whose articles
crime shall also be forfeited in favor of the are kept secret among the members, and wherein
any one of the members may contract in his own
4. The contributions of the partners shall not be name with third persons, shall have no juridical
confiscated unless they fall under No. 3.
personality, and shall be governed by the provisions
relating to co-ownership.
Article 1771. A partnership may be constituted in any
form, except where immovable property or real
Art. 1776. As to its object, a partnership is either 2. Open or notorious partnership: one whose
universal or particular. As regards the liability of the existence is avowed or made known to the public
partners, a partnership may be general or limited. by the members of the firm.

Classifications of partnership As to purpose

As to extent of its subject matter 1. Commercial or trading partnership: one formed or
1. Universal partnership. (Art. 1777) the transaction of business.
a. Universal partnership of all present property.
(Art. 1778) 2. Professional or non-trading partnership: one
b. Universal partnership of profits. (Art. 1780) formed for the exercise of a profession.
2. Particular partnership. (Art. 1783)
As to liability of the partners 1. CAPITALIST—one who contributes money or
1. General partnership: one consisting of general property to the common fund
partners who are liable pro rata and subsidiary and
sometimes solidarily w/ their separate property for 2. INDUSTRIAL—one who contributes only his
partnership debts. industry or personal service

2. Limited partnership: one formed by two or more 3. GENERAL—one whose liability to 3rd persons
persons having as members one or more general extends to his separate property
partners and one or more limited partners, the latter
not being personally liable for the obligations of the 4. LIMITED—one whose liability to 3rd persons is
partnership. limited to his capital contribution

As to duration 5. MANAGING—one who manages the affairs or

1. Partnership at will: one in w/c no time is specified business of the partnership
and is not formed for a particular undertaking or
venture and w/c may be terminated at any time by 6. LIQUIDATING—one who takes charge of the
mutual agreement of the partners winding up of partnership affairs upon dissolution

2. Partnership with a fixed term: one w/c the term for 7. PARTNERS BY ESTOPPEL—one who is not really
w/c the partnership is to exist is fixed or agreed a partner but is liable as a partner for the protection
upon or one formed for a particular undertaking. of innocent 3rd persons

As to the legality of its existence 8. CONTINUING PARTNER—one who continues the

1. De jure partnership: one w/c has complied w/ all the business of a partnership after it has been dissolved
legal requirements for its establishment. by reason of the admission of a new partner,
retirement, death or expulsion of one of the partners
2. De facto partnership: one w/c has failed to comply
w/ all the legal requirements for its establishment. 9. SURVIVING PARTNER—one who remains after a
partnership has been dissolved by death of any
As to representation to others partner
1. Ordinary or real partnership: one w/c actually exists
among the partners and also as to 3rd persons. 10. SUBPARTNER—one who is not a member of the
partnership who contracts with a partner with
2. Ostensible partnership or partnership or reference to the latter's share in the partnership
partnership by estoppel: one w/c in reality is not a
partnership, but is considered a partnership only in 11. OSTENSIBLE—one who takes active part and
relation to those who, by their conduct or known to the public as partner in the business
admission, are precluded to deny or disprove its
existence 12. SECRET—one who takes active part in the business
but is not known to be a partner by outside parties
As to publicity
1. Secret partnership: one wherein the existence of 13. SILENT—one who does not take any active part in
certain persons as partners is not avowed or made the business although he may be known to be a
known to the public by any of the partners. partner
14. DORMANT—one who does not take active part in Art. 1782. Persons who are prohibited from giving
the business and is not known or held out as a partner each other any donation or advantage cannot enter
into a universal partnership.
Article 1777. A universal partnership may refer to all
the present property or to all the profits. Art. 1783. A particular partnership has for its object
determinate things, their use or fruits, or a specific
Article 1778. A partnership of all present property is undertaking, or the exercise of a profession or
that in which the partners contribute all the property vocation.
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.

Article 1779. In a universal partnership of all present

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

Universal partnership of all present property


Universal partnership of profits - one w/c comprises

all that the partners may acquire by their industry or work
during the existence of the partnership and the usufruct
of movable or immovable property w/c each of the
partners may possess at the time of the celebration of
the contract.

Art. 1780. A universal partnership of profits

comprises all that the partners may acquire by their
industry or work during the existence of the
partnership. Movable or immovable property which
each of the partners may possess at the time of the
celebration of the contract shall continue to pertain
exclusively to each, only the usufruct passing to the

Universal partnership of profits explained

Universal partnership of profits - one w/c comprises
all that the partners may acquire by their industry or work
during the existence of the partnership and the usufruct
of movable or immovable property w/c each of the
partners may possess at the time of the celebration of
the contract.

Art. 1781. Articles of universal partnership, entered

into without specification of its nature, only
constitute a universal partnership of profits.