Chapter 1

• Partnership


  Contract where 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
• Concepts related to partnerships

  • Association
  • Legal relation
  • Joint undertaking
  • Firm
  • Organization
• Profession


  A calling in the preparation for or practice of which academic learning is required
• General Professional Partnerships (GPP)


  Formed by persons for the sole purpose of exercising their common professions, no income derived from engaging in any trade or business
• The law does not allow individual practice of professions as a corporate entity due to personal qualifications
• Characteristics of partnerships

  • Consensual
  • Nominate
  • Bilateral
  • Commutative
  • Onerous
  • Principal
  • Preparatory
• Fiduciary in nature


  Form of voluntary association, choice of the persons (intuitu personae)
• Essential features of a valid partnership contract

  • Valid contract
  • Legal capacity
  • Mutual contribution
  • Lawful object
  • Intention to obtain profit and divide it among themselves
• Articles of partnership must not be kept secret among members
• Associations excluded from being considered partnerships

  • Religious societies
  • Conjugal or community partnerships
• Legal capacity of parties to enter into a partnership contract


  Any person capable under the law may be a partner, except for those who cannot give consent (e.g. minors, insane persons, deaf-mutes, persons under civil interdiction, incompetent spouses)
• Married women can enter into a partnership contract without their husband's consent, but the latter may object under certain conditions</b>
• Forms of mutual contribution

  • Money
  • Property
  • Industry
• Limited partners cannot contribute more industry or service
• Legality of object


  Unlawful if contrary to law, morals, good customs, public order or policy
• Intention to realize and divide profits


  The idea of obtaining profit or gain directly resulting from the business to be carried on is the very reason for the existence of the partnership, even if it is not the exclusive purpose
• Rules on sharing of profits

  • Intention to divide profits is not necessary, equal sharing is presumptive but not conclusive
  • Parties may have a common interest in the division of profits but not be partners
  • Subsequent stipulation excluding one or more partners from the share of profits or losses does not affect the partnership
• Sharing of losses is the same as sharing of profits, it is not necessary for the parties to agree on the system of sharing
• Partnership as a juridical person


  The partnership has a juridical personality separate and distinct from that of its partners, even in the failure to comply with statutory requirements
• The death of a partner is not a ground for the dismissal of a suit against the partnership
• Failure to comply with statutory requirements does not prevent the partnership from acquiring juridical personality, as most partnerships engage in small businesses and compliance would be impractical and inconvenient
• Rules in determining whether a partnership exists

  • Except for partnership by estoppel, persons who are not partners as to each other are not partners as to third persons
  • Co-ownership or co-possession does not establish a partnership, whether or not there is a sharing of profits
  • Sharing of gross returns does not establish a partnership, whether or not there is co-ownership
  • Receipt by a person of a share of the profits of a business is prima facie evidence that he is a partner, except as a debt, wages, annuity, interest, or consideration for the sale of goodwill
• All the essential features or characteristics of a partnership must be present in order for a partnership to exist
• Partnership by estoppel


  A person who by his conduct or representation has led others to believe that he is a partner in a non-existing partnership becomes subject to the liabilities of partners to all who deal with them in good faith
• Co-ownership or co-possession does not establish a partnership, although co-ownership is an essential element of partnerships
• Distinctions between partnerships and co-ownerships

  • Creation (contract vs no contract)
  • Juridical personality (partnership has it, co-ownership does not)
  • Purpose (realization of profits vs common enjoyment of thing or right)
  • Duration (no limitation vs max 10 years unless agreed)
  • Disposal of interest (allowed unless agreed vs may freely dispose)
• Sharing of gross returns alone does not indicate a partnership, it only makes the parties co-owners of the business
• The mere fact of a right to participate in both profits and losses does not establish a partnership between the parties, as the recipient may be a creditor, employee, or other person with a share in the profits
• Tests and incidents of partnerships

  • Parties share in profits and losses
  • Equal rights and participation in the management and conduct of the business
  • Every partner is an agent of the partnership
  • Unanimous decision-making
  • Fiduciary relation exists between partners
• Unlawful partnerships


  • Create illegal monopolies or combinations in restraint of trade
  • Carry on gaming or gambling
  • Smuggle on purpose
  • Lease furniture for prostitution
  • Prevent competition of bidding for government contracts
• Judicial decree is not necessary to dissolve unlawful partnership, only advisable for convenience and peace of mind of parties
• Article 1771


  • No special form is required for validity or existence of contract of partnership, whether oral or written, regardless of value of contribution
  • Exception: If immovable property or real right is contributed, execution of public instrument is required
• Article 1772


  • For a partnership with capital of 3,000 or more: 1) Contract must appear on public document, 2) Must be recorded or registered with deed
  • Failure to comply does not prevent the formation of partnership or affect liability to 3rd person
  • Any partner has the right to compel each other to execute contract in public instruments
• Registration of partnership


  The recording is not the purpose of giving the partnership juridical personality

  Objectives: 1) Make recorded instrument open to all, 2) Give notice to interested parties
• Article 1773

  For a partnership with contribution of immovable property: 1) Contract must be in public instrument, 2) Inventory of property must be signed by parties and attached to public instrument

  If personal property is contributed along with real property, it is not included in public instrument
• Article 1774


  Immovable property may be acquired in the partnership's name, and can only be conveyed in the partnership's name
• Article 1776


  Secret partnership without juridical personality: Association whose articles or agreement are kept secret among the members and where any one of them may contract in his own name with 3rd person are deprived of juridical personality, governed by co-ownerships
• Importance of giving publicity to articles of partnership: It not only protects the members themselves but also 3rd persons
• Classification of partnerships

  • As to subject matter: 1) Universal partnerships (of all present property, of all profits), 2) Particular partnerships

  As to liability of partners: 1) General partnership, 2) Limited partnership

  As to duration: 1) Partnership at will, 2) Partnership for a fixed term

  As to legality of existence: 1) De jure partnership, 2) De facto partnership

  As to representation to others: 1) Ordinary real partnership, 2) Ostensible partnership (partnership by estoppel)

  As to publicity: 1) Secret partnership, 2) Open known partnership

  As to purpose: 1) Commercial trading partnership, 2) Professional non-trading partnership
• Types of partners


  • Capitalist partner
  • Industrial partner
  • General partner
  • Limited partner
  • Managing partner (real partner)
  • Liquidating partner
  • Partner by estoppel
  • Continuing partner
  • Surviving partner

  Subpartner (not a member but contracts with a partner)

  Ostensible partner

  • Secret partner
  • Silent partner
  • Dormant partner

  Original partner

  • Incoming partner
  • Retiring partner