PARTNERSHIP

An artificial being like a

corporation, may be a partner in
a partnership.
A limited partner may contribute
money and/or property to a
partnership but not services.
A partnership has a personality
separate and distinct from each
of the partners.
 Two or more persons may also
form a partnership
for the exercise of a profession.
 An artificial being like a
corporation, may be a partner in
a partnership.
Art. 1767. 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
 The contract is consensual.
 There must be a contribution of money, property or industry to a
common fund.
 The object must be a lawful one.
 There must be an intention of dividing the profit among the
partners.
 There must be the affectio societatis — the desire to formulate
an ACTIVE union
Art. 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.
Consequences of the Partnership
Being a Juridical Entity
 Its juridical personality is SEPARATE and DISTINCT from that
of each of the partners.
 The partnership can, in general: acquire and possess property
of all kinds, incur obligations, bring civil or criminal actions,
can be adjudged INSOLVENT even if the individual members
be each financially solvent.
 Unless he is personally sued, a partner has no right to make a
separate appearance in court, if the partnership being sued is
already represented.
Art. 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 itself establish a
partnership, whether such co-owners
or co-possessors do or do not share
any profits made by the use of the
(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;
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
 Fortis v. Gutierrez
Hermanos
6 Phil. 100
FACTS:

Fortis was a bookkeeper in a partnership named

“Gutierrez Hermanos”, with a yearly salary
amounting to 5% of the net profits for each year.
Fortis, however, had no vote at all in the
management of the business. Was he a partner?
 Bastida v. Menzi and Co.
58 Phil. 188
FACTS:
Bastida worked for Menzi and Co., as procurer of contracts for
fertilizers to be manufactured by the fi rm, and as supervisor
of the mixing of the fertilizers. However, he had no voice in the
management of the business except in his task of supervising
the mixing of said fertilizers.
For his services, he was entitled to 35% of the net profits in
the fertilizer business. Aside from this, he sued the fi rm for
35% of the value of its goodwill on the ground that he had
become a partner thereof. Decide.
Art. 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.
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.

Is a Judicial Decree Needed to Dissolve

an Unlawful Partnership?
ANS.: No, for the contract is void from the very
beginning, and therefore never existed from the
viewpoint of the law. (See Art. 1409, Civil Code; see
also People v. Mendoza).

However, there would be nothing wrong in having the

court dissolve the partnership. This will be good and
convenient for everybody; moreover, there may be a
question as to whether or not the partnership is
indeed unlawful. This is particularly true when the
object was lawful at the beginning but has later on
become unlawful.
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.
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).]

[NOTE: 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. (Tablason v.
Bollozos, et al., C.A., 51 O.G. 1966). Without such inventory, the
contract is void. (11 Manresa 278-279 and Art. 1773)].
A partnership was formed orally though more
than P500 was contributed in cash. Now then,
under the last paragraph of Art. 1358, contracts
“where the amount involved exceeds P500 [such
contract] must appear in writing, even a private
one.” Should the oral partnership formed be
considered valid?
 Agad v. Mabato
L-24193, Jun. 28, 1968
FACTS: On Aug. 29, 1952, a partnership was entered
into between Mauricio Agad and Severino Mabato “to operate
a fishpond.” Neither partner contributed a fishpond or a
real right to any fishpond. Their contributions were limited
to the sum of P1,000 each. The partnership contract was in
a public instrument, but an inventory of the fishpond to be
operated was not attached to said instrument.

ISSUE: Is the contract of partnership valid?

Art. 1772. Every contract of
partnership having a capital of three
thousand pesos or more, money or
property, shall appear in a public
instrument, which must be recorded
in the Office of the Securities and
Exchange Commission.

Failure to comply with the

requirements of the preceding
paragraph shall not affect the liability
of the partnership and the members
thereof to third persons.
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.)
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).]
DRILL
1. The object of the partnership must be for profit
and not merely for common enjoyment.

2. Partners were liable jointly, not solidarily.

3. In general, it is the law that governs matters like

object, length of existence, etc.; the will of the
partners is only subsidiary.

4. An unemancipated minor may become a partner

even his parent or guardian does not consent.
5. Its juridical personality is SEPARATE and
DISTINCT from that of each of the partners. (Thus,
in the partnership “Sundiang and Castillo,” there are
three persons: Sundiang, Castillo, and the firm
“Sundiang and Castillo”.)

6. 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?
7. Every contract of partnership having a capital of
more than three thousand pesos, money or property,
shall appear in a public instrument, which must be
recorded in the Office of the Securities and Exchange
Commission.

8. Had real property been contributed, the oral

partnership would be voidable.

9. If two persons agree to form a partnership in the

future, does the partnership immediately arise from
the moment of said agreement? Yes or No.
10.
Arbes v. Polistico, et al. 53 Phil. 489
FACTS: An organization, “Turnuhan Polistico and Co.,”
was engaged in conducting a lottery among its partners-
members every weekend. The members contributed a
weekly amount, all of which except a certain amount
were distributed in turn to the lottery winners.

Obviously, the court had no alternative except to declare

the partnership an unlawful one. Issue: Can the
partners get back their capital? their profits?
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.
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. 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.
Art. 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 co-ownership.
Art. 1776. 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.
 Classification of
Partnerships
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
Classification of
Partnerships
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 fi rm)
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).
 Classification of
Partnerships
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.
 Classification of
Partnerships
According to legality:
1) lawful or legal
2) illegal or unlawful
 Classification of
Partnerships
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).
 Classification of
Partnerships
According to representation to others:
1) ordinary partnership
2) partnership by estoppel
Example of Partnership by
Estoppel
When two or more persons attempt to create a
partnership but fail to comply with the legal
formalities essential for juridical personality, the
law considers them as partners, and the
association is a partnership insofar as it is
favorable to third persons, by reason of the
equitable principle of estoppel.
General Partnership

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).
Limited Partnership
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.)
Art. 1777. A universal partnership
may refer to all the present property
or to all the profits.
Art. 1778. 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.
Art. 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
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
partnership.
Art. 1781. Articles of universal
partnership, entered into without
specification of its nature, only
constitute a universal partnership of
profits.
Art. 1782. Persons who are prohibited
from giving each other any donation
or advantage cannot enter into
universal partnership.
 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).
Commissioner of Internal Revenue v.
William J. Suter & the Court of Tax Appeals
L-25532, Feb. 28, 1969

FACTS: A limited partnership named “William J.

Suter ‘Morcoin’ Co., Ltd.” was formed on 30 Sept.
1947 by William J. Suter as general partner (one
liable even beyond his contribution), and Julia Spirig
and Gustav Carlson, as limited partners (those liable
only to the extent of their contribution).
In 1948, Suter and Spirig got married, and sometime
later, Carlson sold his share in the partnership to
Suter and his wife. Issue: Did the marriage dissolve
or put an end to the partnership?
Commissioner of Internal Revenue v.
William J. Suter & the Court of Tax Appeals
L-25532, Feb. 28, 1969

HELD: No, the marriage did not dissolve the

partnership. While spouses cannot enter into a
universal partnership, they can enter into a
particular partnership or be members thereof. The
partnership was not, therefore, ended.
 Reason for the Article

A universal partnership is virtually a donation to

each other of the partner’s properties (or at least,
their usufruct). Therefore, if persons are prohibited
to donate to each other, they should not be allowed
to do indirectly what the law forbids directly. (See 11
Manresa 317).
 Effect of Violation

The partnership violating Art. 1782 is null and void,

and its nullity may be raised anytime. No legal
personality was ever acquired. (11 Manresa 317).