PARTNERSHIP NOTES

CHAPTER 1
GENERAL PROVISIONS
Article 1767.

6.

By the contract of partnership two or more persons

bind themselves to contribute money, property, or
industry to a common fund, with the intention of
dividing the profits among themselves.
Two or more persons may also form a partnership for
the exercise of a profession.
CHARACTERISTICS OF THE CONTRACT
1. It is consensual, nominate, principal, bilateral
or multilateral, onerous, and preparatory
2. Money, property, and industry must be
contributed to a common fund
(credit and goodwill- economic goodwill or
commercial credit- may be contributed but not
political credit)
3. The object must be lawful
4. There must be an intention to divide the profit
among the partners since the firm is for the
common benefit or interest of the partners
5. There must be affection societas- the desire to
form active union with people among whom
there exist mutual confidence and trust
(delectus personarum)
6. A new personality must arise distinct from the
separate personality of each of the members
PARTNERSHIP V CORPORATION
1. How created
A partnership is created by agreement of the
parties.
A corporation is created by the state in the
form of a special character or a general
enabling law
2. How long it exists
P- no time limit, except agreement of the
parties
C- not more than 50 years, may be reduced
but never extended
3. Liability to strangers
P-may be liable with their private property
beyond their contribution to the firm
C- liable only for their payment of their
subscribed stock
4. Transferability of interest
P- the transfer of his interest to another does
not make the transferee a partner unless all
other partners consent
C- transfer of interest makes the transferee a
stockholder, even without the consent of the
others
5. Ability to bind firm

7.

8.

9.

P- generally, partners acting on behalf of the

partnership are agents thereof; consequently
they can bind the firm and the partners
C- generally the stockholders cannot bind the
corporation since they are not agents thereof
Mismanagement
P- a partner can sue a partner who
mismanages
C- a stockholder cannot sue the board of
director who mismanages: the action must be
in the name of the corporation
Nationality
P- national of the country it was created
C- national of the country under whose laws it
was incorporated, except for wartime purposes
or for the acquisition of land, natural resources
and the operation of public utilities
Attainment of legal personality
P- firm becomes a juridical personality from
the time the contract begins
C- firm becomes a juridical person from the
time it is registered with the SEC and all
requisites have been complied with
Dissolution
P- death, retirement, insolvency, civil
interdiction, or insanity of partner dissolves
the firm
C- such cause do not dissolve the firm

PARTNERSHIP V CPG
1. How created
2. Law that governs
3. Legal personality
4. Commencement of the partnership
5. Purpose
6. Division of profits
7. Management
8. Dissolution
9. Liquidation of profits
PARTNERSHIP V CO- OWNERSHIP
1. CREATION
2. Juridical
3. Purpose
4. Agency or representation
5. Transfer of interest
6. Length of existence if created by contract
7. Profits
8. Dissolution
9. Form
PARTNERSHIP V JOINT STOCK COMPANY
1. Composition
2. Division of capital
3. Management
4. Liability
5. Effect of transfer of interest
PARTNERSHIP V SOCIAL ORGANIZATION
1. Contribution

2. Liability for debts

3. Purpose or objectives
4. Personality
5.
PARTNERSHIP V BUSINESS TRUST
Business trust is created when certain person entrust
their property or money to other who will manage the
same for the former.
Investors are bound only to the extent of their
contribution.
PARTNERSHIP V TENANCY
1. Agency
2. Personality
PARTNERSHIP V AGENCY
PARTNERSHIP V JOINT ADVENTURE/ JOINT ACCOUNTS
PARTNERSHIP V SYNDICATE
CAPACITY TO BECOME A PARTNER
1. Generally, person capacitated to enter into
contract relations may become a partner
2. Unemancipated minor cannot contract without
the consent of his parents
3. A married woman cannot contribute conjugal
funds without her husbands consent
4. A partnership can form another partnership
5. A majority view is that a corporation cannot
become a partner o the grounds of public
policy, otherwise people other than its officer,
may be able to bind it
Sevilla v, CA
A partnership presupposes generally a parityof
standing between partners, in which each party
has an equal proprietary interest in the capital or
property contributed, and where each party
exercises equal rights in the conduct of business.

Article 1768.
The partnership has a juridical personality separate
and distinct from that of each of the partners, even in
case of failure to comply with the requirements of
article 1772, first paragraph.
(Article 1772. Every contract of partnership having a
capital of three thousand pesos or more, in money or
property, shall appear in a public instrument, which
must be recorded in the Office of the Securities and
Exchange Commission.)
The partnership in general can:
1. Acquire and possess property of all kinds
2. Incur obligations
3. Bring civil and criminal actions

4.

Be adjudged insolvent even if the individual

member are financially solvent

Unless he is personally sued, a partner has no right to

make a separate appearance in court, if the
partnership being sued in already represented.
If an association is not lawfully organized as a
partnership, it possesses no legal personality therefore
, it cannot sue as such.
One who enters into a contract with a partnership as
such cannot when sued later on for recovery of the
debt allege the lack of legal personality on the part of
the firm, even if indeed it has no personality. (borrower
as the case may be is in estoppel)
From the viewpoint of private international law,
whether the partnership has juridical personality or not
depends on its personal law. The personal law of the
partnership is the law of the place where the
partnership was recognized.
Article 1769.
In determining whether a partnership exists, these
rules shall apply:
(1) Except as provided by article 1825, persons who
are not partners as to each other are not partners as
to third persons;
(2) Co-ownership or co-possession does not of itself
establish a partnership, whether such-co-owners or copossessors do or do not share any profits made by the
use of the property;
(3) The sharing of gross returns does not of itself
establish a partnership, whether or not the persons
sharing them have a joint or common right or interest
in any property from which the returns are derived;
(4) The receipt by a person of a share of the profits of
a business is prima facie evidence that he is a partner
in the business, but no such inference shall be drawn if
such profits were received in payment:
(a) As a debt by installments or otherwise;
(b) As wages of an employee or rent to a landlord;
(c) As an annuity to a widow or representative of a
deceased partner;

(d) As interest on a loan, though the amount of

payment vary with the profits of the business;
(e) As the consideration for the sale of a goodwill
of a business or other property by installments or
otherwise.

(3) The power to administer property, or any other

power which has for its object an act appearing or
which should appear in a public document, or should
prejudice a third person;
(4) The cession of actions or rights proceeding from an
act appearing in a public document.

PROOF NEEDED TO ESTABLISH A PARTNERSHIP

No definite criterion can be set up except that all
the characteristics of the contract must be proved
as being present.

All other contracts where the amount involved exceeds

five hundred pesos must appear in writing, even a
private one. But sales of goods, chattels or things in
action are governed by articles, 1403, No. 2 and
1405.)

Article 1770.
A partnership must have a lawful object or purpose,
and must be established for the common benefit or
interest of the partners.
When an unlawful partnership is dissolved by a judicial
decree, the profits shall be confiscated in favor of the
State, without prejudice to the provisions of the Penal
Code governing the confiscation of the instruments and
effects of a crime.
Unlawful object- void ab initio
Article 1771.
A partnership may be constituted in any form, except
where immovable property or real rights are
contributed thereto, in which case a public instrument
shall be necessary.
(Article 1357. If the law requires a document or other
special form, as in the acts and contracts enumerated
in the following article, the contracting parties may
compel each other to observe that form, once the
contract has been perfected. This right may be
exercised simultaneously with the action upon the
contract.
Article 1358. The following must appear in a public
document:
(1) Acts and contracts which have for their object the
creation, transmission, modification or extinguishment
of real rights over immovable property; sales of real
property or of an interest therein are governed by
articles 1403, No. 2, and 1405;
(2) The cession, repudiation or renunciation of
hereditary rights or of those of the conjugal
partnership of gains;

(Article 1403. The following contracts are

unenforceable, unless they are ratified:
(1) Those entered into in the name of another person
by one who has been given no authority or legal
representation, or who has acted beyond his powers;
(2) Those that do not comply with the Statute of
Frauds as set forth in this number. In the following
cases an agreement hereafter made shall be
unenforceable by action, unless the same, or some
note or memorandum, thereof, be in writing, and
subscribed by the party charged, or by his agent;
evidence, therefore, of the agreement cannot be
received without the writing, or a secondary evidence
of its contents:
(a) An agreement that by its terms is not to be
performed within a year from the making thereof;
(b) A special promise to answer for the debt, default,
or miscarriage of another;
(c) An agreement made in consideration of marriage,
other than a mutual promise to marry;
(d) An agreement for the sale of goods, chattels or
things in action, at a price not less than five hundred
pesos, unless the buyer accept and receive part of
such goods and chattels, or the evidences, or some of
them, of such things in action or pay at the time some
part of the purchase money; but when a sale is made
by auction and entry is made by the auctioneer in his
sales book, at the time of the sale, of the amount and
kind of property sold, terms of sale, price, names of
the purchasers and person on whose account the sale
is made, it is a sufficient memorandum;
(e) An agreement for the leasing for a longer period
than one year, or for the sale of real property or of an
interest therein;

( f ) A representation as to the credit of a third person.

(3) Those where both parties are incapable of giving
consent to a contract.
Article 1405. Contracts infringing the Statute of
Frauds, referred to in No. 2 of article 1403, are ratified
by the failure to object to the presentation of oral
evidence to prove the same, or by the acceptance of
benefit under them.)
Article 1772.
Every contract of partnership having a capital of three
thousand pesos or more, in money or property, shall
appear in a public instrument, which must be recorded
in the Office of the Securities and Exchange
Commission.

ALIENS CANNOT OWN LANDS, WHETHER PUBLIC OR

PRIVATE, EXCEPT THROUGH HEREDITAY SUCCESSION.
LIMITATION IN ACQUISITION:
A partnership cannot:
1. acquire, lease or hold public agriculutural lands
in excess of 1024 hectares
2. lease public lands adapted for grazing in excess
of 2000 hectares
Article 1775.
Associations and societies, whose articles are kept
secret among the members, and wherein any one of
the members may contract in his own name with third
persons, shall have no juridical personality, and shall
be governed by the provisions relating to coownership.

EFFECT OF NON-REGISTRATIONpartnership is still a valid one, and therefore

has legal personality
if registration is needed or desired, any of the
partners of a valid partnership can compel he
others to execute the needed public instrument
and subsequently cause its registration

Article 1776.

Article 1773.

Article 1777.

A contract of partnership is void, whenever immovable

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

A universal partnership may refer to all the present

property or to all the profits.

REQUIREMENT WHERE IMMOVABLEPROPERTY IS

CONTRIBUTED

A partnership of all present property is that in which

the partners contribute all the property which actually
belongs to them to a common fund, with the intention
of dividing the same among themselves, as well as all
the profits which they may acquire therewith.

1.
2.

there must be a public instrument regarding

the partnership
the inventory of the realty must be made,
signed by the parties, and attached to the
public instrument

The transfer of the land to the partnership must be

duly recoded in the Registry of Property to make the
transfer effective insofar as the third person is
concerned.
Article 1774.

As to its object, a partnership is either universal or

particular.
As regards the liability of the partners, a partnership
may be general or limited.

Article 1778.

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.

Any immovable property or an interest therein may be

acquired in the partnership name. Title so acquired can
be conveyed only in the partnership name.

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.

SAME CAN APPLY ALSO TO PERSONALTY.

Article 1780.

A universal partnership of profits comprises all that the

partners may acquire by their industry or work during
the existence of the partnership.
Movable or immovable property which each of the
partners may possess at the time of the celebration of
the contract shall continue to pertain exclusively to
each, only the usufruct passing to the partnership.
DISTINCTION BEWEEN THE TWO KINDS OF
UNIVERSAL PARTNERSHIP
ALL PROFITS
Only the usufruct of the
properties of the partners
becomes COMMON
PROPERTY (owned by
them and the
partnership); naked
ownership is retained by
each of the partners
All profits acquired by the
industry or work of the
partners become common
property (regardless of
whether or not said
profits were obtained
through the usufruct
contributed)

ALL PRESENT PROPERTY

All the property actually
belonging to the partners
are CONTRIBUTED and
said properties become
COMMON PROPERTY
(owned by all the
partners and by the
partnership
As a rule aside from the
contributed properties
only the profits of said
contributed COMMON
PROPERTY (not other
profits)

REASONS WHY FUTURE PROPERTIES CANNOTBE

MADE:
1.
2.
3.

contracts regarding successional rights cannot

be made
a partnership demands that the contributed
things be determinate, known and certain
universal partnership of all present properties
really implies a donation, and it is well known
that generally future property cannot be
donated

Article 1781.
Articles of universal partnership, entered into without
specification of its nature, only constitute a universal
partnership of profits.
Article 1782.
Persons who are prohibited from giving each other any
donation or advantage cannot enter into universal
partnership.

PERSONS WHO TOGETHER CANNOT FORM A

PARTNERSHIP
1.

2.
3.

husband and wife (spouses however can enter

into particular partnership and be members
therof)
those guilty of the crime of concubinage and
adultery
those guilty of the same criminal offense, if the
partnership was entered into in consideration
of the same

A partnership violating this article is null and void. No

legal personality is acquired.
Article 1783.
A particular partnership has for its object determinate
things, their use or fruits, or a specific undertaking, or
the exercise of a profession or vocation.
OBJECTOF PARTICULAR PARTNERSHIP
1.
2.
3.
4.

determinate things
their use or fruits
specific undertaking
exercise of profession or vocation
CHAPTER 2
OBLIGATIONS OF THE PARTNERS

SECTION 1
OBLIGATIONS OF THE PARTNERS AMONG
THEMSELVES

SOME OBLIGATIONS OF A PARTNER

1. to give his contribution
2. not to convert firm money or property for his
own use
3. not to engage in unfair competition with his
own firm
4. to account for and hold as trustee
unauthorized personal profits
5. pay for damages caused by his fault
6. duty to credit to the firm payment made by a
debtor who owes him and the firm
7. to share with the other partners the share of
the partnership credit which he has received
from and insolvent debtor
SOME RIGHTS OF A PARTNER
1. property rights
a. rights in specific partnership property
b. interest in the partnership
c. right to participate in the management

2.
3.
4.
5.

right to associate with another person in his

share
right to inspect and copy partnership books
right to command formal account
right to ask for the dissolution of the firm at
the proper time

Article 1784.
A partnership begins from the moment of the
execution of the contract, unless it is otherwise
stipulated.
Article 1785.
When a partnership for a fixed term or particular
undertaking is continued after the termination of such
term or particular undertaking without any express
agreement, the rights and duties of the partners
remain the same as they were at such termination, so
far as is consistent with a partnership at will.
A continuation of the business by the partners or such
of them as habitually acted therein during the term,
without any settlement or liquidation of the partnership
affairs, is prima facie evidence of a continuation of the
partnership.
Article 1786.
Every partner is a debtor of the partnership for
whatever he may have promised to contribute thereto.
He shall also be bound for warranty in case of eviction
with regard to specific and determinate things which
he may have contributed to the partnership, in the
same cases and in the same manner as the vendor is
bound with respect to the vendee. He shall also be
liable for the fruits thereof from the time they should
have been delivered, without the need of any demand.
3 IMPORTANT DUTIES OF A PARTNER
1. to contribute what he had promised
2. to warrant against eviction
3. to deliver the fruits of what should have been
delivered

THERE IS EVICTION WHENEVER by final judgement

based on a right prior to the sale or an act imputable
to the partner, the partnership is deprived of the whole
or the part of the thing purchased

Article 1787.
When the capital or a part thereof which a partner is
bound to contribute consists of goods, their appraisal
must be made in the manner prescribed in the contract
of partnership, and in the absence of stipulation, it
shall be made by experts chosen by the partners, and
according to current prices, the subsequent changes
thereof being for account of the partnership.
Article 1788.
A partner who has undertaken to contribute a sum of
money and fails to do so becomes a debtor for the
interest and damages from the time he should have
complied with his obligation.
The same rule applies to any amount he may have
taken from the partnership coffers, and his liability
shall begin from the time he converted the amount to
his own use.
Article 1789.
An industrial partner cannot engage in business for
himself, unless the partnership expressly permits him
to do so; and if he should do so, the capitalist partners
may either exclude him from the firm or avail
themselves of the benefits which he may have
obtained in violation of this provision, with a right to
damages in either case.
Article 1790.
Unless there is a stipulation to the contrary, the
partners shall contribute equal shares to the capital of
the partnership.