Supplementary Lecture Notes

Partnership
Chapter 1

Art. 1767
Characteristics of the Contract
(a) The contract is consensual, because it is perfected by mere consent
(b) bilateral or multilateral, because it is entered into between two or more persons
(c) nominate, because it is designated by a specific name
(d) principal, because its existence does not depend on the life of another contract
(e) onerous, because certain contributions have to be made
(f) preparatory, in the sense that after it has been entered into, other contracts essential in the
carrying out of its purposes can be entered into
(g) There must be a contribution of money, property or industry to a common fund
(Commutative)
(h) The object must be a lawful one. (Art. 1770, Civil Code)
(i) There must be an intention of dividing the profit among the partners (Art. 1767) since the
firm is for the common benefit or interest of the partners. (Art. 1770, Civil Code)

NOTE: The object must be for profit and not merely for common enjoyment; otherwise, only a
co-ownership has been formed. However, pecuniary profit need not be the only aim; it is enough
that it is the principal purpose.
There must be the affectio societatis — the desire to formulate an ACTIVE union with people
among whom there exists mutual confidence and trust (delectus personarum).
Art. 1768
Effect on Non-Compliance with Art. 1772, 1st Paragraph (Registration with the Securities
and Exchange Commission)
Partnership is still a juridical person, assuming that all other requisites are present.

Consequences of the Partnership Being a Juridical Entity

(a) Its juridical personality is SEPARATE and DISTINCT from that of each of the partners.
Example:
Aborje, Amasi, Antiporda, and Atmosfera entered into a contract of partnership named “A4
Partnership”.
There are five persons in this example: Aborje, Amasi, Antiporda, and Atmosfera - are four
natural persons; A4 Partnership - one juridical person

(b) The partnership can, in general:

1) acquire and possess property of all kinds (Art. 46, Civil Code);
2) incur obligations (Art. 46, Civil Code);
3) bring civil or criminal actions (Art. 46, Civil Code);
4) can be adjudged INSOLVENT even if the individual members be each financially solvent.

Art. 1769
Rules for Determining Existence of Partnerships
Requisites for Existence of Partnership
In general, to show the existence of a partnership, all of its essential characteristics (See
comments under Art. 1767) must be proved; in particular, it must be proved that:
(a) there was an intention to create a partnership
(b) there was a common fund obtained from contributions
(c) there was a joint interest in the profits.

Sharing of Net Profits

D, to carry on a business, borrowed money from C.
It was agreed that D would return the money in installments and that said installments would
come from D’s profits in the business. Is a partnership created between D and C?
ANS.: No. A difference must be made between LENDING money to a business proprietor, and
contributing money and INVESTING it as CAPITAL in the business.

Partnership by Estoppel
If two persons not partners represent themselves as partners to strangers, a partnership by
estoppel results. Similarly when 2 persons, who are partners, in connivance with a friend (who is
not a partner), inform a stranger that said friend is their partner, a partnership by estoppel may
also result to the end that the stranger should not be prejudiced. (See Art. 1769 [No. 1] and Art.
1825, Civil Code).

Art. 1770
Lawful Object or Purpose
The object or purpose must be LAWFUL, i.e., it must be within the commerce of man, possible,
and not contrary to law, morals, good customs, public order or public policy (See also Arts.
1347 and 1348, Civil Code). Otherwise, the partnership contract is VOID AB INITIO. (Art. 1409,
Civil Code).

NOTE: If a partnership has several purposes, one of which is unlawful, the partnership can still
validly exist so long as the illegal purpose can be separated from the legal purposes.

Art. 1771
Formalities Needed
(a) For VALIDITY of the contract (among the parties) as well as for ENFORCEABILITY, NO
FORM is required as a general rule, regardless of the value of the contributions. Therefore, the
contract may even be ORAL.

Exception: Whenever real properties or real rights in real properties are contributed —
regardless of the value — a PUBLIC INSTRUMENT is needed. (The contract itself must be in
the public instrument; moreover, there must be an INVENTORY of the immovables. This
INVENTORY must be signed by the parties and attached to the public instrument.) (See Art.
1773, Civil Code).

NOTE: Without the public instrument, the partnership is VOID. (Art. 1773, Civil Code).
The inventory is important to show how much is due from each partner to complete his share in
the common fund and how much is due to each of them in the event of liquidation. Without such
inventory, the contract is void.
The rules for limited partnerships are different.

For EFFECTIVITY of the partnership contract insofar as innocent third persons are concerned,
the same must

Example:
A partnership was formed orally though more than PhP500 was contributed in cash. Now then,
under the last paragraph of Art. 1358, contracts “where the amount involved exceeds PhP500
[such contract] must appear in writing, even a private one.” Should the oral partnership formed
be considered valid?
ANS.: Yes, because Art. 1358 applies only for the purpose of convenience and not for validity or
enforceability. Being valid, the contract can be put in writing upon the demand of any of the
parties. (Art. 1357, Civil Code

NOTE: Had real property been contributed, the oral partnership would be void; and therefore
not one of the partners can compel the others to execute the public instrument. (See Art. 1773,
Civil Code)

Art. 1772
Purpose of the Registration with the Office of the Securities and Exchange Commission
The registration is to set “a condition for the issuance of licenses to engage in business or trade.

Effect of Non-Registration
(a) Even if not registered, the partnership having a capital of P3,000 or more is still a valid one,
and therefore has legal personality. (Art. 1768, Civil Code).

NOTE: Of course if real properties had been contributed, regardless of value, a public
instrument is needed for the attainment of legal personality.)

(b) If registration is needed or desired, any of the partners of a valid partnership can compel the
others to execute the needed public instrument, and to subsequently cause its registration. (Art.
1357, Civil Code).

NOTE: This right cannot be availed of if the partnership is void. (Art. 1356 and Art. 1357, Civil
Code).

Art. 1773
Requirements Where Immovable Property is Contributed
(a) There must be a public instrument regarding the partnership. (See Art. 1773).
(b) The inventory of the realty must be made, signed by the parties, and attached to the public
instrument. (Art. 1773).

Registration in the Register of Property

The transfer of the land to the partnership must be duly recorded in the Register of Property to
make the transfer effective insofar as third persons are concerned.

Art. 1774
Acquisition of Property Under the Partnership Name
Alien partners cannot own lands, except thru hereditary succession

Limitations on Acquisition
A partnership, even if entirely of Filipino capital may not:
(a) acquire, lease, or hold public agricultural lands in excess of 1,024 hectares.
(b) lease public lands adapted to grazing in excess of 2,000 hectares.

Art. 1775
If Articles Are Kept Secret
The association here is certainly not a partnership and therefore not a legal person, because
“anyone of the members may contract in his own name with third persons” and not in the name
of the firm.
Although not a juridical entity, it may be sued by third persons under the “common name” it
uses; otherwise, said innocent third parties may be prejudiced.
Therefore, insofar as innocent third parties are concerned, the partners can be considered as
members of a partnership; but as between themselves, or insofar as third persons are prejudiced,
only the rules on co-ownership must apply. (See Art. 1775). The same rule applies in the case of
a partnership by estoppel. (See Art. 1825, Civil Code).

Art. 1776
Classification of Partnerships
(a) According to manner of creation:
1) orally constituted
2) constituted in a private instrument
3) constituted in a public instrument
4) registered in the Office of the Securities and Exchange Commission

(b) According to object:

1) universal
a) with all present property
b) with all profits (the individual properties here continue to be owned by the partners, but the
usufruct thereof passes to the firm)
2) particular — here the object are determinate things, their use or fruits; a specific undertaking,
or the exercise of a profession or occupation (Art. 1783, Civil Code).

(c) According to liability:

1) limited partnership — that where at least one partner is a general partner, and the rest are
limited partners. (NOTE: A general partner is liable beyond his contribution; a limited partner is
liable only to the extent of his contribution.)
2) general partnership — that where all the partners are general partners.
(d) According to legality:
1) lawful or legal
2) illegal or unlawful

(e) According to duration:

1) for a specific period or till the purpose is accomplished
2) partnership at will
a) here, no period, express or implied, is given and so its duration depends on the will of the
partners;
b) if the period has expired, but the partnership continued, without liquidation, by the partners
who habitually acted as such during the term. (Art. 1785, Civil Code).

(f) According to representation to others:

1) ordinary partnership
2) partnership by estoppel

Classification Into General and Limited

(a) A general partnership is one where all the partners are general partners (that is, they are
liable even with respect to their individual properties, after the assets of the partnership have
been exhausted).
(b) A limited partnership is one where at least one partner is a general partner and the others are
limited partners.
(A limited partner is one whose liability is limited only up to the extent of his contribution.)

NOTE: A partnership where all the partners are “limited partners” cannot exist as a limited
partnership; it will even be refused registration. If at all it continues, it will be a general
partnership, and all the partners will be general partners.

Formalities Needed for the Creation of a Partnership

(a) Personal property
1) less than P3,000 (total) — may be oral
2) P3,000 or more — must be in a public instrument and registered in the Securities and
Exchange Commission.
But even if this is not complied with, the partnership is still valid and possesses a distinct
personality. (Arts. 1772, 1768, Civil Code). Evidently, the requirement is merely for
administrative and licensing purposes.

(b) Real property — Regardless of the value contributed, a public instrument is needed, with an
attached inventory;
otherwise the partnership is VOID and has NO juridical personality even as between the parties.
(Art. 1773, Civil
Code). Moreover, to be effective against third parties, the partnership must also be registered in
the Registry of Property of the province where the real property contributed is found. After all,
there is an alienation here of a real right on real property.
(c) Limited partnership — must be registered AS SUCH in the Office of the Securities and
Exchange Commission;
otherwise, it is not valid as a limited partnership. (NOTE: However, even without such
registration, it may still be considered a general partnership, and as such, possesses juridical
personality). (See Arts. 1843, 1844, Civil Code).

Art. 1777
Kinds of Universal Partnerships
(a) Partnership of all present property
(b) Partnership of all profits

Art. 1778
The contribution here consists of:
(a) All the properties actually belonging to the partners
(b) The profits acquired with said properties.

Art. 1779 and 1780.

Universal Partnership of Profits
Examples:
In a universal partnership of profits, A contributed the use of his car. At the end of the
partnership, should the car be returned to him?
ANS.: Yes, because the naked ownership had always been with him, and upon the end of the
usufruct, full ownership reverts to him. Remember that only its use had been previously
contributed.

A and B entered into a universal partnership of profits. Subsequently, A won 1st prize in the
sweepstakes. Will the money belong to the partnership?
ANS.: No, because it was not acquired by “industry or work.” (Art. 1780, par. 1, Civil Code).

Art. 1781.
Applies only when a universal partnership has been entered into.
Less obligation is imposed in the universal partnership of profits because their real and personal
properties are retained by them in naked ownership.
If however a universal partnership of all present properties is desired, REFORMATION is the
proper remedy.
(See Arts. 1359, et seq., Civil Code).

Art. 1782.
Persons Who Together Cannot Form a Universal Partnership
Examples of people prohibited:
(a) Husband and wife — as a rule. (Art. 133, Civil Code).
(b) Those guilty of adultery or concubinage. (Art. 739, Civil Code).
(c) Those guilty of the same criminal offense, if the partnership was entered into in consideration
of the same. (Art. 739, Civil Code).

Art. 1783.
Particular Partnership

Examples
To construct a building; to buy and sell real estate; to practice the law profession. Here in a
sense, it is as if all the members are industrial partners.

NOTE: A husband and his wife may enter into a particular partnership.