Partnership
CHAPTER 1: General Provisions
Article 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.
ESSENTIAL REQUISITES OF A CONTRACT OF PARTNERSHIP
1. valid contract
2. Contribution of money, property, or industry to a common fund
3. Must be organized for gain or profit
4. Should have a lawful object or purpose, and must be established for the
common benefit or interest of the partners
TWO TEST TO DETERMINE THE EXISTENCE OF A PARTNERSHIP?
First test ― Determine whether or not there is an agreement to contribute money,
property or industry to a common fund
Second test ― Determine whether or not there is an intent of the contracting
parties to divide the profits among themselves
• Partnership exist when two or more
persons agree to place their money,
effects, labor, and skill in lawful
commerce or business, with the
understanding that there shall be a
proportionate sharing of the profits
and losses among them.
Profession ― "group of men pursuing a
learned art as a common calling in the
spirit of public service ―― no less a public
service because it may incidentally be a
means of livelihood."
Money ― the medium of exchange
authorized or adopted by a government as
part of its currency
Property ― any external things over
which the rights of possession, use, and
enjoyment are exercised
Industry ― diligence in the performance
of a task. A particular form or branch of
productive labor
PARTNERSHIP - A JURIDICAL PERSON
— To be considered a juridical personality, a partnership must fulfill these requisites:
(1) Two or more persons bind themselves to contribute money, property or industry to a common fund
(2) Intention on the part of the partners to divide the profits among themselves
— May be constituted in any form; a public instrument is necessary only where immovable property or real rights are contributed
- Since a contract of partnership is consensual, an oral contract of partnership is as good as a written one
- Where no immovable property or real rights are involved, what matters is that the parties have complied with the requisites
of a partnership
CHARACTERISTICS OF A CONTRACT OF PARTNERSHIP
1. Consensual ― perfected by mere consent because all of the partners had a meeting of minds to enter into a contract of
partnership
2. Commutative ― contribution of each partner, whether money, property or industry, is considered as the equivalent of the
contribution of the other partners
3. Principal ― does not depend on other contracts for its existence
4. Bilateral ― contract entered into by two or more persons
5. Onerous ― each partner must contribute money, property, or industry. (a partner can contribute one, some or all of these)
6. Nominate ― contract which has a name in law
7. Preparatory ― contract in preparation for another contract or contracts
Ex. A and B entered into a contract of partnership for the purpose of selling furniture. In this case, A and B initially entered
into a contract of partnership in preparation for a contract of sale.
Note: The contribution to such fund need not be cash or fixed assets; It could be an intangible like credit or
industry
Problem: Sisters X and Y, entered into a "Joint Venture Agreement (JVA)" with Z for the development of a parcel of land into a
subdivision. Pursuant to the contract, they executed a Deed of Sale covering the said parcel of land in favor of Z, who then had it
registered in his name. By mortgaging the property, Z obtained from Q Bank a loan of P400,000 which, under the JVA, was to be used
for the development of the subdivision. All three of them also agreed to share the proceeds from the sale of subdivided lots.
The project was not realized, and the land was subsequently foreclosed by Q Bank. Is there partnership?
Answer: A reading of the terms embodied in the Agreement indubitably shows the existence of a partnership pursuant to Article 1767 of
the Civil Code. X and Y would contribute property to the partnership in the form of land which was to be developed into a subdivision;
while Z would give, in addition to his industry, the amount needed for general expenses and other costs. Furthermore, the income from
the said project would be divided according to the stipulated percentage. Clearly, the contract manifested the intention of the parties to
form a partnership.
It should be stressed that the parties implemented the contract. Thus, X and Y transferred the title to the land to facilitate its use in the
name of Z. On the other hand, Z caused the subject land to be mortgaged, the proceeds of which were used for the survey and the
subdivision of the land. Z developed the roads, the burbs, and the gutters of the subdivision.
Z's actions clearly belie X and Y's contention that he made no contribution to the partnership. Under Article 1767 of the Civil Code, a
partner may contribute not only money or property, but also industry.
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Partnership vs. Joint Venture
Partnership
• Two or more persons agree to place their money, effects, labor, and skill in lawful commerce or business, with the understanding
that there shall be a proportionate sharing of the profits and losses between them.
• Two or more persons bound themselves to contribute money, property, or industry to a common fund with the intention of
dividing the profits among themselves ― Civil Code
Joint Venture
• Similar to Partnership, i.e. community of interests in the business and sharing of profits and losses
• Generally governed by the law of partnership
DOCTRINE OF DELECTUS PERSONAE
— The right to choose with whom a person wishes to associate himself is the very foundation and essence of partnership.
Its continued existence is, in turn, dependent on the constancy of that mutual resolve, along with each partner's capability to give
it, and the absence of the cause for dissolution provided by the law itself. Verify, any one of the partners may, at his sole pleasure,
dictate a dissolution of the partnership at will. He must, however, act in good faith, not that the attendance of bad faith can
prevent the dissolution of the partnership but that is can result in a liability for damages
• Allows the partners to have the power, although not necessarily the right to dissolve the partnership
• An unjustified dissolution by a partner can subject him to action for damages because by the mutual agency that arises in a
partnership
Delectus personarum "choice of persons"
Delectus personae "Choice of the person"
— The rule that when personal relations are important, a person cannot be compelled to associate with another person; specifically,
the principle that one has the right to select the person or persons with one whom one might form a partnership
Note: Although a partnership is based on delectus personae or mutual agency, whereby any partner can generally represent the
partnership in its business affairs, it is non sequitur that a suit against the partnership is necessarily a suit impleading each and
every partner. It must be remembered that a partnership is a juridical entity that has a distinct and separate personality from the
persons composing it.
- Partners could not be held liable for the obligations of the partnership unless it was shown that the legal fiction of a
different juridical personality was being used for fraudulent, unfair, or illegal purposes
Note: It is a better rule that a partner must first be impleaded before he could be prejudiced by the judgment against the
partnership.
- A partner may raise several defenses during the trial to avoid or mitigate his obligation to the partnership liability
- I would be the height of injustice to rob an innocent partner of his hard-earned personal belongings without giving him an
opportunity to be heard.
Partnership at will
— A partnership that does not fix its term
- The birth and life of a partnership at will is predicated on the mutual desire and consent of the partners. The right to
choose with whom a person wishes to associate himself is the very foundation and essence of that partnerhsip.
Problem pp.6
The "purpose" of the partnership is not the specific undertaking referred to in the law. Otherwise, all partnerships, which necessarily
must have a purpose, would all be considered as partnerships for a definite undertaking. There would, therefore, be no need to provide
for articles on partnership at will as none would so exist. Apparently what the law contemplates, is a specific undertaking or
"project" which has a definite or definable period of completion.
Best Evidence of The Existence of a Partnership
— The best evidence of the existence of the partnership, which was not yet terminated (though in the winding up stage), were the
unsold goods and uncollected receivables, which were presented to the trial court. Since the partnership has not been terminated,
the petitioner and private complainant remained as co-partners
Note: A partnership may be deemed to exist among parties who agree to borrow money to pursue a business and to divide the
profits or losses that may rise therefrom, even if it is that they have not contributed any capital of their own to a "common fund."
Their contribution may be in the form of credit or industry, not necessarily cash or fixed assets. Being partner, they are all liable
for debts incurred by or on behalf of the partnership. The liability for a contract entered into on behalf of an unincorporated
association or ostensible corporation may lie in a person who may not have directly transacted on its behalf, but reaped benefits
from that contract.
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Article 1768. The partnership has a judicial 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 of the New Civil Code (NCC) states:
Every contract of partnership having a capital of three thousand pesos or more,
in money or property, shall appear in public instrument, which must be recorded
in the Office of 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.
Under Art. 1768, a partnership "has a
juridical personality separate and distinct
from each of the partners." The partners
cannot be held liable for the obligations of
the partnership unless it is shown that the
legal fiction of a diff. juridical personality is
being used for fraudulent, unfair, or illegal
purposes. Hence, it is the partnership, not its
officers or agents, which should be impleaded
in any litigation involving property
registered in its name.
ARTIFICIAL PERSON/JURIDICAL PERSON
— An entity, such as a corporation, created by law and given certain legal rights and duties of a human being; a being, real or
imaginary, who for the purpose of legal reasoning is treated more or less as a human being
Example:
A, B, and C entered into a contract of partnership named ABC Partnership. In here, there are four persons, that is, three natural
persons (A,B,C) and one juridical person (ABC Partnership)
Thus, ABC Partnership can:
1. Acquire and possess real and personal property
2. Incur obligations
3. Bring civil or criminal actions
Problem pp. 9
The fact that there appears to be no record in the Securities and Exchange Commission of a public instrument embodying the
partnership agreement pursuant to Art. 1772 of the Civil Code did not cause the nullification of the partnership.
The partnership exists until dissolved under the law. Since the partnership created by X and Y and Z has no fixed term and is therefore a
partnership at will predicated on their mutual desire and consent, it may be dissolved by the will of a partner.
Problem pp. 10
The Civil Code provides that an action to enforce an oral contract prescribes in 6 years while the right to demand an accounting for a
partner's interest as against the person continuing the business accrues at the date of dissolution, in the absence of any contrary
agreement. Considering that the death of a partner results in the dissolution of the partnership, in this case, it was Z's death that X as
the surviving partner has the right to an account of his interest as against V and Y.
Article 1772 registration requirement is not mandatory. Art. 1768 of the Civil Code provides that the partnership retains its juridical
personality even if it fails to register. The failure to register the contract of partnership does not invalidate the same as among the
partners, so long as the contract has the essential requisites, because the main purpose of registration is to give notice to third parties,
and it can be assumed that the members themselves knew the contents of their contract.
Non-compliance with this directory provision of the law will not invalidate the partnership considering that the totality of the evidence
proves that X and Z indeed forged the partnership in question.
Article 1769. In determining whether a partnership exist, 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;
Ex. X and Y are not partners as to each other. Thus, as to Z, a third person, it follows that they are not also partners.
The exception is that if X misrepresents to Z that they are partners with Y and the latter consented or Y did not object; then, as to Z,
X and Y will be considered as partners by operation of law. This is the concept of partnership by estoppel.
Partnership by Estoppel ― where a partnership not duly organized has been recognized as such in its dealings with
certain persons, it shall be considered as "partnership by estoppel" and the persons dealing with it are estopped from
denying its partnership existence
(2) Co-ownership or co-possession does not of itself establish a partnership, whether such co-owners or co-possessors do
or do not share any profits made by the use of the property;
Ex. X and Y are recipients of a gift consisting of an undivided parcel of land from Z. In this case, X and Y are co-owners and not
partners.
Partnership
Co-ownership
Creation
Created by contract
Created by contract and law
Juridical
Personality
It has legal or juridical personality. Thus it can sue
and be sued
It has no juridical personality. Thus is cannot sur
or be sued
Purpose
For profit
Common enjoyment of a thing or right. It is not
necessarily for profit
Profit
It may be stipulated upon
Profits must always depend on the proportionate
shares. Any stipulation to the contrary is VOID.
Dissolution
It is dissolved by death or incapacity of a partner
It is not dissolved by the death or incapacity of coowner
Form
It may appear in any form. However, when real
property is contributed, a public instrument is
required.
No public instrument is needed even if real
property is the object of co-ownership.
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(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;
Note: There is a disputable presumption of establishing a partnership if what is being shared by two or more persons are net profit.
However, if what is being shared by two or more persons are gross returns or gross profits, then there is no presumption of
establishing a partnership.
Example:
In a merchandising business, the basic formula for net profit is:
Gross Sales
Note: It can be observed from the illustration that even if
there is a positive amount or figure for Gross Profit, you
cannot still ascertain if it will arrive at Net Profit because it
may still turn out to be Net Loss as the expenses are
controlling factor.
Less: Cost of Sales
Gross Profit
Less: Expenses
Net Profit or Net Loss
If the Gross Profit is P50,000 and the Expenses is P20,000, then there is a Net Profit of P30,000. However, if the Gross Profit
remains at P50,000 and the Expenses amounts to P60,000 then there is a Net Loss of P10,000. Hence, the sharing of gross
returns does not itself establish a partnership
(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 installment 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.
PRIMA FACIE ― sufficient to establish a fact or raise a presumption unless disproved or rebutted; based on what seems to be
true on first examination, even though it may later be proved to be untrue.
Ex. X received from Y P50,000 as his share in the net profit of their business amounting to P100,000. In this case, there is a
disputable presumption that X and Y are partners in a contract of partnership
Note: it appears that the fact that those who agree to form a co-ownership share or do not share any profits made by the use of the
property held in common does not convert their venture into a partnership. Or the sharing of gross returns does not itself establish
a partnership whether or not the persons sharing therein have a joint or common right or interest in the property.
Aside from the circumstance of profit, the presence of other elements constituting partnership is necessary, such as:
• Clear intent to form a partnership
• The existence of a juridical personality different from that of the individual partners
• Freedom to transfer or assign any interest in the property by one with the consent of the others
• An isolated transaction whereby two or more persons contribute funds to but certain real estate for profit in the absence of other
circumstances showing a contrary intention cannot be considered a partnership.
• Persons who contribute property or funds for a common enterprise and agree to share the gross returns of that enterprise in
proportion to their contribution, but who severally retain the title to their respective contribution, are not thereby rendered
partners. They have no common stock or capital, and no community of interest as principal proprietors in the business itself
which the proceeds derived.
• A joint purchase of land, by two, does not constitute a co-partnership in respect thereto; nor does an agreement to share the
profits and losses on the sale of land create a partnership; the parties are only tenants in common.
In order to constitute a partnership inter se, there must be:
(a) An intent to form the same
(b) Generally participating in both profits and losses
(c) And such a community of interest, as far as third persons are concerned as enables each party to make contract, manage
business, and dispose of the whole property
• The common ownership of property does not itself create a partnership between the owners, though they may use it for the
purpose of making gains; and they may, without becoming partners, agree among themselves as to the management, and use of
such property and the application of the proceeds therefrom.
**Exception to Rule 4 with examples pp.35**
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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 juridical 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.
Lawful object or purpose ― the object or
purpose of a partnership must be within the
commerce of man, not impossible, and it must
not be contrary to law, morals, good customs,
public order or public policy.
Examples of Unlawful Partnership
1. A partnership formed for gambling purposes.
2. A partnership formed to furnish houses for prostitution purposes.
3. A partnership formed to create illegal monopolies or combinations in restraint of trade.
EFFECTS OF AN UNLAWFUL PARTNERSHIP
Note: A void contract is as if it never existed from the
1. The contract is void from the very beginning
very beginning. Thus, it has no legal personality.
2. The profits shall be confiscated in favor of the government
3. The instruments or tools and proceeds of the crime shall be forfeited in favor of the government
4. The contributions of the partners shall not be confiscated unless they fall under no. 3
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.
FORM OF CONTRACT OF PARTNERSHIP
Real Rights ― a right that is connected with a
thing rather than a person. Real rights include
ownership, use, habitation, usufruct, predial
servitude, pledge, and real mortgage.
Public Instrument ― a document prepared by
a notary public in the presence of the parties
who sign it before witnesses.
General Rule: No form is required. Thus, the contract may be oral or in writing.
Exception: If real properties or real rights in real properties are contributed
regardless of the value. A public instrument is needed; otherwise, the contract of
partnership is void.
Example: A and B agreed to form a partnership where A promised to contribute his only parcel of land while B undertook to
contribute P100,000. In this case since A will contribute his only parcel of land, a real property, their contract must be executed in a
public instrument. Otherwise, it is void.
What if A will contribute his only car while B will contribute P100,000? The contract may be oral or in writing whether private or
public instrument and the contract of partnership is valid.
• A partnership may be constituted in any form
Problem: X, Y and Z, are brothers and sisters, who are co-owners of certain lots which were then being leased to SHELL Co. The
agreed to open and operate a gas station thereat to be known as XYZ Shell Service Station with an initial investment of P950,000
to be taken from the advance rentals due to them from SHELL for the occupancy of the said lots owned in common by them A joint
affidavit was executed by them which was prepared by Atty. W…
Answer: There is no doubt that the parties hereto formed a partnership when they bound themselves to contribute money to a
common fund with the intention of dividing the profits among themselves. The sole dealership of X and the issuance of all
government permits and licenses in the name of X was in compliance with the afore-stated policy of SHELL and the
understanding of the parties of having only one dealer of the SHELL products.
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.
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.
PURPOSE OF REGISTRATION
The registration is to set "a condition for the issuance of licenses to engage in
business or trade. In this way, the tax liabilities of big partnerships cannot be
evaded, and the public can also determine more accurately their membership
and capital before dealing with them."
• Partnership having a capital of P3,000
or more (personal property only)
The contract of partnership must appear in
a public instrument and must be recorded in
the office of the SEC. Take note that noncompliance with the req. of execution in a
public instrument will not make the
contract void. Hence, it is still valid.
• Partnership having a capital of below
P3,000 (personal property only)
No form is required. Thus, it may be verbal.
• The main purpose of registration is to give notice to third parties, and it can be assumed that the members themselves knew of the
contents of their contract
Article 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.
Note: An inventory is still required if aside from real
property, personal property is contributed. However,
the inventory need not include the personal property.
Contract-validating inventory requirement under Art. 1773 of the Civil Code applies as long as real property or real rights are initially
brought into the partnership. In short, it is really of no moment which the partners, contributed immovables. In context, the more
important consideration is that real property was contributed, in which case an inventory of the contributed property duly signed by the
parties should be attached to the public instrument, else there is legally no partnership to speak of.
• Intended primarily to protect third persons.
- Complement of Art. 1771, the execution of a public instrument would be useless if there is no inventory of the property
contributed, because without its designation and description, they cannot be subject to inscription in the Registry of Property,
and their contribution cannot prejudice third persons. This will result in fraud to those who contract with the partnership in
the belief in the efficacy of the guaranty in which the immovables may consist. Thus, the contract is declared void by the law
when no such inventory is made. The case at bar does not involve third parties who may be prejudiced.
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Article 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.
Ex. A, B, and C formed ABC partnership. Thus, if ABC partnership will be a donee or a
buyer of a specific real property then it shall be registered in its name and not in the name
of one or some or all of the partners. Consequently, if this will be conveyed, like sale or
donation, the seller or donor must only be in the name of the partnership.
• Partnership has a juridical personality
separate and distinct form that of each
of the partners; hence, immovable
property to be acquired must be in the
name of the partnership and if
conveyed must also be in the
partnership name.
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 co-ownership.
Partnership
Association
Juridical
Personality
It has juridical personality
It has no juridical personality
Purpose
It is for profit
It may not be for profit
Contribution of
Members
There is a contribution of money, property,
or industry or a combination of these
There is no contribution of capital although fees are usually
collected from the members to maintain the organization
Liability
The partnership is the one liable
Members are individually liable for the debts of the
association
• The associations or societies here cannot sue because it has no legal personality. However, the fact that it has no legal
personality as a partnership cannot be invoked by the "partners" for the purpose of evading compliance with obligations
contracted by them, because they who cause the nullity of a contract are prohibited from availing of its benefits.
Article 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 PARTNERSHIP
1. According to object
a. Universal partnership
(1) Universal partnership of all present property ― 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.
(2) Universal partnership of all profits ― It comprises all that the partners may acquire by their industry or
work during the existence of the partnership.
b. Particular partnership
has for its object determinate things, their use or fruits, or specific undertaking, or the exercise of a profession or
vocation.
2. According to liability
a. General partnership
It is one where all the partners are general partners. All general partners here are liable up to the extent of their
separate properties after the assets of the partnership have been exhausted.
b. Limited partnership
At least one general partner and one limited partner. A general partner is liable beyond his contribution while a
limited partner is liable only to the extent of his contribution.
3. According to duration
a. Partnership at will
There is no fixed term or it is not formed for a particular undertaking, or it is one for a fixed term or particular
undertaking which is continued after the termination of such term or particular undertaking without any express
agreement.
b. Partnership with a fixed term
Life or period of existence of the partnership has been agreed upon by the partners.
c. Partnership for a particular undertaking
It will exist until the purpose is accomplished.
4. According to representation to others
a. Ordinary partnership
It is 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.
b. Partnership by estoppel
It is one where persons, by words spoken or written or by conduct, represent themselves, or consent to another
representing them to anyone, as partners in an existing partnership or with one or more persons not actual partners.
5. According to the legality of its existence
a. De jure partnership
It is one which has complied with all the legal requirements for its creation
b. De facto partnership
It is one which has not complied with all the legal requirements for its creation
**examples pp. 43**
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Articles 1777. A universal partnership may refer to all the present property or to all the profits
KINDS OF UNIVERSAL PARTNERSHIPS
1. Partnership of all present property
2. Partnership of all profits
Article 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.
The contributions of the partners here are the following:
1. All the properties actually belonging to the partners
2. The profits acquired with said properties
Article 1779. In a universal partnership of all present property, the property which belongs 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 thereof.
FUTURE PROPERTY (Inheritance, Legacy, Donation)
Future properties cannot be included because:
1. As a rule, contracts regarding successional rights cannot be made;
2. A partnership demands that the contributed things be determinate, known, and certain;
3. A universal partnership of all present properties really implies a donation, and it is well-known that generally, future
property cannot be donated.
Ex. A, B, and C entered into a partnership named ABC Partnership. A contributed all his present properties comprising two parcels
of land. B contributed his only property which is a specific car. C contributed his house and lot which is his only property. The
contract of partnership formed by A, B, and C is a universal partnership of all present property.
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.
• Partners retain their ownership over their present and future property. What passes to the partnership are the profits and
the use of the same.
Universal Partnership of all present Property (At the
time of constitution of the partnership)
Universal Partnership of profits (During the
existence of the partnership)
All the present property actually belonging to the partners are
contributed to the partnership which become common property
of all the partners and the partnership.
Only the usufruct (use and fruits) of the properties of the
partners becomes common property of all the partners and
the partnership.
General Rule: Only the profits of said contributed property
become common property but not profits arising from other
property of the partners.
All profits acquired through the "industry" or "work" of the
partners become common property.
Exception: If stipulated, the profits from other property of the
partners may become common
Note: The properties subsequently acquire by inheritance,
legacy or donation cannot be included in the stipulation,
but the fruits thereof can be included in the stipulation.
Article 1781. Articles of universal partnership, entered into without specification of its nature, only constitute a universal
partnership of profits
PRESUMPTION IN FAVOR OF UNIVERSAL PARTNERSHIP OF PROFITS
The universal partnership of profits imposes less obligation because their real and personal properties are retained by them in
naked ownership.
Article 1782. Persons who are prohibited from giving each other any donation or advantage cannot enter into universal
partnership.
Rationale: 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.
Effect of Violation of Art. 1782
- Partnership is null and void, and its nullity may be raised anytime. No legal personality was ever acquired.
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Examples of persons who cannot enter into a universal partnership:
1.
2.
3.
4.
5.
Legally married spouses;
Persons living together as husband and wide without a valid marriage;
Persons who were guilty of adultery or concubinage at the time of the donation;
Persons found guilty of the same criminal offense, in consideration thereof;
A person or persons and a public officer or his wife, descendants and ascendants, by reason of his office.
Problem pp. 49
The limited partnership has been dissolved by law because of the marriage of the only general partner, W to the originally limited
partner, J one year after the partnership was organized is rested upon the theory that:
A husband and a wife may not enter into a contract of general co-partnership, because under the Civil Code, which applies in the
absence of express provision in the Code of Commerce, persons prohibited from making donations to each other are prohibited from
entering into universal partnerships. If follows that the marriage of partners necessarily brings about the dissolution of a preexisting partnership.
WJG, Ltd. was not a universal partnership, but a particular one.
- Contributions of the partners were fixed sums of money, and neither one of them was an industrial partner
- Not a partnership that spouses were forbidden to enter
- Nor could the subsequent marriage of the partners operate to dissolve it, such marriage not being one of the causes provided for
that purpose.
Universal partnership
- Requires either that the object of the association be all the present property of the partners, as contributed by them to the
common fund, or else "all that the partners may acquire by their industry or work during the existence of the partnership"
Article 1783. A particular partnership has for its object determinate things, their use or fruits, or specific undertaking, or
the exercise of a profession or vocation.
• The above-stated article defines a particular partnership
Examples:
1. A and B formed AB partnership where A contributed P1,000,000 and B contributed his only parcel of land. They agreed to
engage in buy and sell of motor vehicles.
2. A and B formed AB partnership were A contributed P10,000,000 while B contributed P3,000,000 and his industry, being an
engineer, for the construction of a building as they will engage in the business of leasing apartment units.
3. A and B, both certified public accountants, entered into a contract of partnership to engage in accounting, audit, and tax
consultancy.
Note: If the partnership is a universal partnership, a husband and wide cannot enter into such contract. However, if the
partnership is a particular partnership, they can.
Business Laws and Regulations Page 8