Eloise
(see: Jo Chung Cang vs. Pacific Commercial Co., 45 Phil. 142 [1923].)
ART. 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.
Q: What is the general rule on the form of a partnership contract?
A: As a general rule, no special form is required for the validity or existence of
the contract of partnership (see: Art. 1356). The contract may be made orally or
in writing regardless of the value of the contributions.
Q: What is the rule when immovable property or real rights are
contributed to the partnership?
A: According to Article 1771, “a public instrument shall be necessary,” where
immovable property or real rights are contributed to the partnership. To affect
third persons, the transfer of real property to the partnership must be duly
registered in the Registry of Property of the province or city where the property
contributed is located.
Q: When is a partnership agreement covered by Statute of Frauds?
A: An agreement to enter in a partnership at a future time, which “by its terms is
not to be performed within a year from the making thereof” is covered by the
Statute of Frauds. Such agreement is unenforceable unless the same be in
writing or at least evidenced by some note or memorandum thereof subscribed
by the parties (see: Art. 1403, par. 2, a).
When may partnership be implied?
A: A partnership may exist and often exists in the absence of express agreement,
written or verbal, between the parties. Its existence may be implied from the
acts or conduct of the parties, as well as from other declarations, and such
implied contract would be as binding as a written and express contract.
A partnership may likewise be implied from intention, when such intention is
disclosed by the entire transaction as between the parties and as gathered from
the facts and from the language employed by the parties as well as their
conduct. A partnership may even be created without any definite intention; the
intention of the parties being inferred from their conduct and dealings with
each other (see: Kiel vs. Estate of Sabert, 46 Phil. 198; 1924)
Also, if the parties intend a general partnership, they are general partners
although their purpose is to avoid the creation of such a relation. Thus, in a case,
the Supreme Court declared an association as a general partnership it appearing
that the inclusion of “Ltd.” (limited) in the firm name was only a subterfuge
resorted to by the partners in order to evade liability for possible losses, while
assuming their enjoyment of the advantages to be derived from the relation.
ART. 1773. 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.
Q: What are the requisites in a partnership with contribution of
immovable property?
A: Where immovable property, regardless of its value, is contributed, the failure
to comply with the following requirements will render the partnership contract
void in so far as the contracting parties are concerned:
1. The contract must be in a public instrument (see: Art. 1771); and
2. An inventory of the property contributed must be made, signed by the
parties, and attached to the public instrument.
The absence of either formality renders the contract void. Although Article 1771
does not expressly state that without the public instrument the contract is void,
Article 1773 is very clear that the contract is void if the formalities specifcally
provided therein are not observed, implying that compliance therewith is
absolute and indispensable for validity.
Article 1773 is intended primarily to protect third persons. With regard to
them, a de facto partnership or partnership by estoppel may exist. (see: Art.
1825). There is nothing to prevent the court from considering the partnership
agreement an ordinary contract from which the parties’ rights and obligations
to each other may be inferred and enforced (see: Torres vs. Court of Appeals, 320
SCRA 428; 1999).
Q: When is inventory not required?
A: An inventory is required only “whenever immovable property is
contributed.” Hence, Article 1773 does not apply in the case of immovable
property which may be possessed or even owned by the partnership but not
contributed by any of the partners. Thus, it has been held that a partnership
contract which states that the partnership is established “to operate a fishpond”
(not “to engage in a fishpond business”) is not rendered void because no
inventory of the fishpond was made where it did not clearly and positively
appear in the articles of partnership that the real property had been contributed
by anyone of the partners. (Agad vs. Mabolo and Agad & Co., 23 SCRA 1223;
1968)
Q: What is the importance of making inventory of real property in a
partnership?
A: Article 1773 complements Article 1771. An inventory is very important in a
partnership 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 case of liquidation.
(see: Tablason vs. Bollozas, C.A. 51 O.G. 1966.)

The execution of a public instrument of partnership would be useless if there is

no inventory of immovable property contributed because without its
description and designation, the instrument cannot be subject to inscription in
the Registry of Property, and the contribution cannot prejudice third persons.
This will result in fraud to those who contract with the partnership in the belief
of the efficacy of the guaranty in which the immovables may consist. Thus, the
contract is declared void by law when no such inventory is made. (see: Torres
vs. Court of Appeals, 320 SCRA 428; 1999)