PARTNERSHIP

AGENCY
AND
TRUSTS

Topic:

PARTNERS

PARTNERSHIP

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 (Article 1767)

CHARACTERISTICS OF
PARTNERSHIP
(P2C2BON)
1.
2.
3.
4.
5.
6.
7.
8.
9.

Consensual
Nominate
Bilateral
Onerous
Commutative
Principal
Preparatory
Legal Personality (capable of suit)
Profit oriented

SSENTIAL REQUISITES

OP-G)
1. There must be a valid contract;
a) The partnership relation is fundamentally contractual.
b) It is fiduciary in nature
c) The principle of estoppel applies.
Note: The partnership relation is not the contract itself, but
the result of the contract.
No required form is necessary but the contract is subject to
the provisions of Articles 1771 & 1773 and the Statute of
Frauds
The Articles of Co-Partnership is the written document
stating the name, nature of purpose and location of the
firm, and defining, among members, the powers, rights,
duties, and liabilities of the partners among themselves,
their contributions, the manner by which the profits and

SSENTIAL REQUISITES

OP-G)
2. The parties must have legal capacity to enter into
the contract;
Note: The essential elements (Cause. Object, &
Consideration) of a contract are still required.

Note: Although a corporation cannot enter into a

partnership contract, it may however engage in a
joint venture (Aurbach v. Sanitary Wares
Manufacturing Corporation, GR No. 75875,
December 15, 1989).

There is no prohibition against a partnership being a

partner in another partnership. (De Leon, Comments
and Cases on Partnership, Agency, and Trusts, p. 17

SSENTIAL REQUISITES

OP-G)
3. There must be a mutual contribution of money,
property, or industry to a common fund;
a. Money must be in legal tender. Checks, drafts,
promissory notes and other mercantile documents are
not money. There is no contribution of money until they
have been cashed.
b. Property may be a real, personal, corporeal or
incorporeal property. Thus, credit and goodwill may be
contributed.
c. Industry - means the active cooperation, the work of
the party associated, which may be either personal
manual efforts or intellectual, and for which he receives
a share in the profits (not merely salary) of the
business.

SSENTIAL REQUISITES

OP-G)
4. The object or purpose must be lawful. (Art.
1770);
5. The primary purpose must be to obtain
profits to divide the same among parties; and
6. There must be at least one general partner.
It is also required that the articles of partnership
must not be kept secret among the members;
otherwise, the association shall have no legal
personality and shall be governed by the
provisions of the Civil Code relating to coownership. (Art. 1775)

COMMON FUND
A partnership may deemed to exist among parties
who agree to borrow money to pursue a business and
to divide the profits or losses that may arise
therefrom, even it is shown that they have not
contributed any capital of their own to a common
fund, as their contribution to such fund could be an
intangible like credit or industry (Lim Tong Lim v. Phil.
Fishing Gear Industries, Inc. GR No. 136448,
November 3, 1999).

MERCANTILE VIEW OF
THE NATURE OF A
PARTNERSHIP
(Art. 1768)
A 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
(1).

Article 1768 provides that the partnership retains its

juridical personality even if it fails to register, so long as
the contract has the essential requisites (Sunga-Chan v.
Chua, GR No. 143340, August 15, 2001)

PARTNERSHIP FOR
THE PRACTICE OF
LAW
The right to practice law is not a natural or
constitutional right but a privilege or franchise.
The use of nom de plume, assumed, or trade
name in law practice is improper.

RULES TO
DETERMINE
EXISTENCE OF A
PARTNERSHIP (Art.
1769)

Example: If Atoy and Joey are not partners as to each

General
Rule:will
Persons
are not
partners
asto
to
other, neither
they bewho
partners
with
respect
each
are
not partners
as towith
thirdconsent
persons.
Cath, other
a third
person.
But if Atoy,
of
Exception:
Partnership
estoppel
Joey, represents
to Cath by
that
they are partners, then
Atoy and Joey will be considered partners as to Cath
even if they are not really partners (See De Leon,
Comments and Cases on Partnership, Agency and
Trusts, p. 20 [2010]).

1. Co-ownership or property does not of itself

establish a partnership, whether such co-owners or
co-possessors do or do not share ay profits made by
the use of the property.
Reason: The law does not imply a partnership
between co-owners or co-possessors because of the
fact that they develop or operate a common
property, since they may rightfully do this by virtue of
their respective titles or common dominion over the
property. (De Leon, Comments and Cases on
Partnership, Agency and Trusts, p. 31 [2010])

Example: Atoy and Joey inherited from their father an

apartment which is leased to third persons. They are
merely co-owners and not partners.

Note: The property of a man and a woman who live

together as husband and wife shall be governed by

2. Sharing of gross returns alone does not indicate 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.
Reason: When a business is carried on in behalf of a given person
as a partner, he is conceived as being interested, in its failures as
we as its successes; it is the chance of gain or loss which
characterizes a business. Take not that in a partnership, the
partners share profits AFTER satisfying all of the partnerships
liabilities. (De Leon, Comments and Cases on Partnership, Agency
and Trusts, p. 35 [2010])

Example: Atoy, owner of a passenger jeepney agrees with Jerick,

a driver, that the latter shall have full control and use of the
jeepney to carry passengers, pay for gasoline and oil, and
shoulder the cost of repairs and that the gross receipts are to be
divided between them. No partnership is established as no
sharing of profits is contemplated.

Note: To regard the petitioners as having formed an

unregistered partnership would result in oppressive taxation.
Their original purpose was to divide the lots for residential

Receipt of share in the profits is a prima facie

evidence that he is a partner in the business.
(Sharing in the NET profits presupposes sharing in the
losses.)

HOWEVER, NO such inference will be drawn if such

profits were received in payment:
(WADIC)
As a debt by installments or otherwise;
As wages of an employee or rent to a landlord;
As an annuity to a widow or representative if a
deceased partner.
As interest on a load, through the amount of payment
vary with the profits of the business; and
As the consideration for the sale of a goodwill of a
business or other property by installments or
otherwise.

TEST OF PARTNERSHIP
EXISTENCE

1. Whether or not there is an agreement to contribute money,

property, or industry to a common fund; and
2. Whether or not there is intent of the contracting parties to divide
the profits among themselves.

Burden of Proof

The burden of proving the existence of partnership rests on the

party having the affirmative of that issue.

INCIDENTS OF A
PARTNERSHIP
1. The partners share in profits and losses;
2. They have equal rights in the management and
conduct of the partnership business.
3. Every partner is an agent of the partnership, and
entitled to bind the other partners by his acts, for the
purpose of its business;
4. All partners are personally liable for the debts of the
partnership with their separate property EXCEPT that
limited partners are not bound beyond the amount of
their investment;
5. A fiduciary relation exists between the partners; and
6. On dissolution, the partnership is not terminated, but
continues until the winding up of partnership is

OBJECT OR PURPOSE
A partnership shall 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. (Art. 1770)
Note: The illegality of the object will not be presumed; it
must appear to be of the essence of the relationship

EFFECTS OF UNLAWFUL
PARTNERSHIP
1. The contract is void ab initio
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; and
4. The contributions of the partners shall not be confiscated unless they
fall under No. 3.
Note:
A partnership is dissolved by operation of law upon the happening of
an event which makes it unlawful for the business of the partnership
to be carried on, or for the members to carry it on in partnership.
A judicial decree is not necessary to dissolve an unlawful partnership.
However, it may sometimes be advisable that a judicial decree of
dissolution be secured for the convenience of the parties.
Where a part of the business of a partnership is legal and part illegal,
an account of that which is legal may be had.
The partners must be reimbursed the amount of their respective
contributions. (De Leon, Comments and Cases on Partnership, agency
and Trusts, p. 59 [2010])
Where, without knowledge of participation of the partners, the firms

Salient Features of
Ordinary Partnership
1. Community of interest in profits and losses.
2. Community of interest in the capital employed.
3. Community of power in administration

FORMS OF PARTNERSHIP
CONTRACT
General Rule: a partnership may be constituted in any form
(for VALIDITY and ENFORCEABLITY of the contract among the
parties, regardless of the value of the contribution).
Exceptions:
1. If real property or real right is contributed
2. If it is covered by the Statute of Frauds.
Problem:
Today, Atoy and Joey orally agreed to form a partnership one
and one half years from today, each one to contribute P1K. If at
the arrival of the period, Joey refuses to go ahead with the
agreement, can Atoy enforce the agreement?

Problem:
Today, Atoy and Joey orally agreed to form a
partnership one and one half years from today, each
one to contribute P1K. If at the arrival of the period,
Joey refuses to go ahead with the agreement, can
Atoy enforce the agreement?

No. Since the agreement is to be forced after one

year from the making thereof, the same should be in
writing under the Statute of Frauds. (5 Paras 564)

3. A limited partnership, however, cannot be constituted orally.

The requirements of the statue must be followed; otherwise, the
liability of the limited partners becomes the same as that of
general partners (De Leon, Comments and Cases on
Partnership, agency and Trusts, p. 303 [2010])
Note: Partnerships existence may be implied from the acts or
conducts of the parties, as well as other declarations. In
determining whether or not a particular transaction constitutes
partnership, as between the parties, the intention should be
ascertained. (De Leon, Comments and Cases on Partnership,
agency and Trusts, p. 63 [2010])

A.Personal Property
If capital is Less than P3,000 No special form is required
for its validity or existence. (Art. 1772).
Where the contract or partnership has a capital of 3,000
pesos or more in money or property it shall appear in
public instrument and 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. [ Art. 1772
(2)]
Purpose of Registration: To set a condition for the
issuance of licenses to engage in business or trade and
to give notice to third parties. It can be assumed that the
members themselves knew of the contents of their
contract. (5 Tolentino, p.326). Registration is effective

B. Real Property
Where immovable property or real rights are contributed,
regardless of the value thereof:
a. The CONTRACT ITSELF must be in writing in a public
instrument
b. An inventory of the property contributed, signed by the
parties is attached to the public instrument (Article 1773). If
there is no inventory contract of partnership is void and no
juridical personality. Moreover, to be effective against third
parties, the partnership must also be registered in the
Registry of Property of the province where the real property
contributed is found.
Reason:
1. To show how much is due form each partner to complete his
share and how much is due to each of them in case of
liquidation.
2. The execution of a public instrument would be useless if there
is no inventory of the property contributed because without its

Note: the more important consideration is that the

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, or else there is legally no partnership
to speak of (Litonjua, Jr. v. Litonjua, Sr., et al., G.R.
Nos. 166299-300, December 13, 2005).
Art. 1773 applies also if aside from real property,
cash or personal property is contributed. The
inventory, however, need not include the
personality. (5 Paras 566)
c. Must be recorded with the Register of Deeds
where the immovable is located to bind third
persons.

Partnership vs. Voluntary Association

Partnership
Voluntary Association
Juridical Personality
Has juridical
Has no juridical
personality
personality
Purpose
Always for profit
Not always for profit
Contribution of Members
There is contribution There is no
of capital
contribution of
capital although fees
are usually collected
from the members to
maintain the
organization.
Liability of Members
The partnership is
Members are
the one liable.
individually liable for

Partnership and Co-ownership Distinguished

(CJP3-D2AFT)
Partnership

Co-Ownership

Creation
Always created by a
Generally created by law but
contract, either express or may exist even without a
implied
contract
Juridical Personality
Has a juridical personality
Has no juridical personality
separate and distinct from
that of each partner
Purpose
Realization of profits
Common enjoyment of a thing
or right
Power to act with third persons
In general a partner may
A co-owner cannot represent
bind the partnership
the co-ownership

Partnership and Co-ownership Distinguished

(CJP3-D2AFT)
Partnership

Co-Ownership

Profits
May be stipulated upon
Must always depend upon
proportionate shares and any
stipulation to the contrary is
VOID
Duration
No limitation upon duration An agreement to keep the thing
is set by law
undivided for more than 10
years is not allowed
Dissolution
Death or incapacity of a
Death or incapacity of a copartnership dissolves the
owner does not necessarily
partnership
dissolve the co-ownership

Partnership and Co-ownership Distinguished

(CJP3-D2AFT)
Partnership
Co-Ownership
Agency or Representation
As a rule, there is mutual
As a rule, there is no mutual
agency
representation
Form
In general, there is no
No public instrument is needed
required form (See
even if real property is the
exceptions)
object of the co-ownership
Transfer of Interests
A partner may not dispose
A co-owner can dispose of his
of his individual interest in share without the consent of the
the partnership so as to
others.
make the assignee a
partner without unanimous
consent

Partnership and Corporation

Distinguished (CNJ-PMERET2FDG)
Partnership

Corporation

Creation
Created by more
Created by law or operation
agreement
of law
Number of Incorporators
At least two persons
Requires at least five
incorporators (except a
corporation sole)
Commencement of Juridical Personality
From the moment of
From the date of issuance of
execution of the contract the certificate of
or partnership
incorporation by the SEC
Powers
May exercise any power
Can exercise only the powers
authorized by the
expressly granted by law or
partners
implied from those granted or
incident to its existence

Partnership and Corporation

Distinguished (CNJ-PMERET2Corporation
FDG)Partnership
Management
When management is not Vested in the board of
agreed upon, every
directors or trustees
partner is an agent of the
partnership
Effect of Mismanagement
A partner as such can
The suit against a member of
sue a co-partner who
the board of directors or
mismanages
trustees who mismanages
must be in the name of the
corporation.
Right of Succession
No such right
Has such right
Extent of liability to third persons
Partners are generally
Stockholders are liable only
liable for partnership
to the extent of the share

Partnership and Corporation

Distinguished (CNJ-PMERET2FDG)

Partnership
Corporation
Transferability of Interest
Partner cannot transfer
Stockholder has generally the
his interest in the
right to transfer his shares
partnership so as to make without prior consent of the
the transferee a partner other stockholders
without the unanimous
consent of all the existing
partners
Partnership may be
Corporation may not be
Term of Existence
established for any
formed for a term of
period of time stipulated
by the partners

excess of 50 years
extendible to not more
than 50 years in any one
instance
Firm name
Limited partnership is
Corporation may adopt any

Partnership and Corporation

Distinguished (CNJ-PMERET2FDG)
Partnership

Corporation

Dissolution
May be dissolved at any Can only be dissolved with
time by any or all of the the consent of the State
partners
Governing Law
Governed by the
Governed by the
contract and the Civil
Corporation Code
Code

Partnership and Conjugal Partnership of

Gains distinguished
Partnership

Conjugal Partnership of Gains

Parties
Created by voluntary
Only between a man and a
agreement of two or more
woman
persons belonging to either
sex
Governing Laws
Governed by the stipulation Governed by law
of the parties
Juridical Personality
Has juridical personality
Has no juridical personality
Commencement
Partnership begins from the Commences precisely on the
moment of the execution of date of celebration of the
the contract, unless
marriage, any stipulation to the
otherwise stipulated
contrary is void
Purpose

Partnership and Conjugal Partnership of

Gains distinguished
Partnership
Conjugal Partnership of Gains
Distribution of Profits
According to agreement of
Shares of spouses are divided
partners or in proportion to equally
their respective capital
contributions
Management
It is shared equally by all
Although the administration
partners unless one or more belongs to both spouses jointly,
of them are appointed
the husbands decision shall
managers in the articles or
prevail in case of disagreement.
partnership
Disposition of Shares
The whole interest of a
The share of each spouse cannot
partner may be disposed of
be disposed of during the
without the consent of all
marriage even with the consent

JOINT VENTURE
An association of persons or companies jointly
undertaking some commercial enterprise; generally all
contribute assets and share risks (Kilosbayan,
Incorporated v. Guingona, Jr. GR. No. 118910 November
16, 1995).

Requisites:
1. A community of interest in the performance of the
subject matter;
2. A right to direct and govern the policy in connection
therewith;
3. Duty to share profits and losses.

Note:
Under the Civil code, a partnership may be particular or
universal, and a particular partnership may have for its
object a specific undertaking. Hence, a joint venture may
be treated like any other contract, innominate in nature
to be regulated and governed primarily by the
stipulations of the parties thereto and suppletorily by the
general provisions of the Civil Code on obligations and
contracts, by rules governing the most analogous
contracts and by the customs of the place.
The main distinction in common law jurisdiction is that
partnership contemplates a general business with some
degree of continuity, while joint venture is formed for the
execution of a single transaction and is thus of
temporary nature.

CLASSIFICATIONS OF PARTNERSHIP:
(OLDER-P2)
1. As to Object:
a. Universal Partnership
i. Of all present property
ii. Of profits
b. Particular Partnership
2. As to Liability of partners:
a. General Partnership
b. Limited Partnership
3. As to Duration:
a. Partnership at will
Note: A partnership that does not fix its term is a partnership at
will is predicated on the mutual desire and consent of the
partners. Verify, any one of the partners may, at his sole pleasure,
dictate the dissolution of the partnership but that it can result in a
liability for damages (Ortega, et al. v. CA, et al., SCRA 529).
b. Partnership with a fixed period

CLASSIFICATIONS OF
PARTNERSHIP:
2
(OLDER-P
4.
As to legality of)Existence:
a.
b.
5.
c.
d.
6.
e.
f.
7.
g.
h.

De jure partnership
De facto partnership
As to Representation to others:
Ordinary or real partnership
Ostensible or partnership by estoppel
As to Publicity:
Secret Partnership
Notorious or open partnership
As to Purpose:
Commercial or trading
Professional or non-trading

UNIVERSAL PARTNERSHIP
A. Universal Partnership of all Present Property One
wherein the partners contribute all the property which actually
belong to them to a common fund, with the intention of dividing
the same among themselves, as well as the profits which they may
acquire therewith (Art. 1778).
The following become the common property of all partners:
1. Property which belonged to each of them at the time of the
constitution of the partnership
2. Profits which they may acquire from the property contributed.
. As a rule, aside from the contributed properties only the PRFOITS
of the contributed COMMON PROPERTY (no other profits) are
included. Thus, should a partner SUBSEQUENTLY acquire a
property as remuneration for his work, such property and its
fruits are not to be enjoyed by the universal partnership of all
PRESENT property. (5 Paras, p. 573)
. However, profits from other sources may become COMMON, only
if there is a stipulation to such effect. (5 Paras, p. 573)
. Unless otherwise stipulated in the articles of universal
partnership it will be presumed to be a partnership of profits.
. Future properties cannot be contributed. Thus, property

B. Universal Partnership of Profits One which comprises all that

the partners may acquire by their industry or work during the existence
of the partnership and the usufruct of movable or immovable property
which each of the partners may possess at the time of the celebration of
the contract (Art. 1780).
Articles of Universal Partnership entered into without specification of
its nature, only constitute a Universal Partnership of Profits (Art.
1781).
Reason: A universal partnership of profits imposes less obligations on
the partners, since they preserve the ownership of their separate
property.
The following persons cannot enter into universal partnership:
1. Legally married spouses. However, spouses may enter into a
particular partnership like the exercise of a profession or vocation.
2. Common law spouses.
3. Parties guilty of adultery or concubinage.
4. Criminals convicted for the same offense in consideration of the
same.
5. A person and a public officer (or his wife, descendants, ascendants)
by reason of his office.
Reason: To allow them will be like permitting them to do indirectly what
the law expressly prohibits. While the spouses cannot enter into a
universal partnership, they can enter into a PRTICULAR partnership or be

Universal Partnership of all Present

Property and of all Profits distinguished
Of all Present Property
Of all Profits
Coverage
All present property
Property which the partners
actually belonging to the
owned at the time of the
partners are contributed to contract shall continue to pertain
the partnership which
to them. Only the usufruct (use
become common property
and fruits) shall become
of all the partners and the common property.
partnership
Profits
Only profits derived from
All profits acquired through the
the property contributed
industry or work of the
become common property
partners become common
but not profits arising from property.
other property of the
partners. The latter profits,
however may by stipulation

PARTICULAR PARTNERSHIP (D-FUSE)

One which has for its object determinate things, their use or
fruits, or a specific undertaking, or the exercise of a profession
or vocation. (Art. 1783)
In a universal partnership, the object is vague and indefinite,
contemplating a general business with some degree of
continuity. In particular partnership, the object is well defined
and limited, being confined to an undertaking of a single,
temporary or ad hoc nature. (De Leon p. 87)

PROFESSIONAL PARTNERSHIP
Under Art. 1767, two or more persons may also from a
partnership for the exercise of A PROFESSION. A profession
has been defined as a group of men pursuing a learned art as a
common calling in the spirit of public service. (De Leon p. 10)
A partnership that has for its object the exercise of A
PROFESSION is a particular partnership (Art. 1783). This is one
case where a Partnership is composed entirely of industrial
partners. (See 4 Tolentino, p. 239)

NDS OF PARTNERS
1. As to the NATURE of contribution:
a. Capitalist partner contributes money or property.
b. Industrial partner contributes only his industry or personal
service.
2. As to LIABILTY:
c. General partner liability to third persons extends to his
separate property.
d. Limited partner liability to third persons is limited y=to his
capital contribution.
3. As to MANAGEMENT:
e. Managing partner - manages the business or affairs of the
partnership
f. Silent partner does not take any active part in the business
although he may be known to be a partner.
g. Liquidating partner takes charge of the winding up of the
partnership affairs upon dissolution.
4. As to EXPOSURE to public perception:
h. Ostensible partner one who takes active part and known to
the public as a partner by in the business, whether or not he
has actual interest in the firm.

NDS OF PARTNERS
5. As to MEMBERSHIP:
a. Real partner one who is really a contributing member of an
existing legal partnership.
b. Partnership by Estoppel or quasi-partner. One who is not really
a partner but represents himself as one.
6. As to CONTINUATION of the business affair after dissolution:
c. Continuing partner one who continues the partnership
business after the dissolution of the partnership due to the
reasons stated in Article 1840.
d. Discontinuing partner one who does not participate in the
partnership business after its dissolution.
7. As to the VALUE of contribution:
e. Majority partner one whose contribution represent the
majority or controlling interest;
f. Nominal partner one whose contribution represents only a
minority interest.
8. As to the NATURE OF MEMBERSHIP:
g. Original partner one who is a member of the partnership from
the time its commencement as a juridical person.
h. Incoming partner one who becomes a member subsequent to

INDS OF PARTNERS
9. As to the state of SURVIVORSHIP:
a. Surviving partner one who remains alive while one
of the partners dies or one who continues to be in
the partnership after its dissolution by reason of
death of a partner.
b. Deceased partner one who died while being a
member of the partnership
10. As to the effect of EXPULSION:
c. Expelled partner one who is expelled from the
partnership by the other partner/s for a valid cause.
d. Expelling partner partner who caused the expulsion
of a partner for a valid cause.

Capitalist and Industrial Partner

Distinguished (CP2L)
Capitalist Partner

Industrial Partner
Contribution
Contributes his industry

Contributes money or
property
Prohibition to engage in other business
Cannot general engage in the Cannot engage in in any business
same or similar enterprise as for himself
that of his firm.
Profits
Shares in the profits
Receives a just and equitable
according to agreement
share
thereon, if none, pro rate to
his contribution
Losses
1. First, the stipulation as to Exempted as to losses as
losses;
between partners; but is liable to
2. If none, the agreement as third persons, without prejudice
to profits;
to reimbursement from the

Capitalist and Industrial Partner

Distinguished (CP2L)
Capitalist Partner

Industrial Partner
Note: Only in the
difference representing
the net profits
Does the industrial
partner share. But if, on
the contrary, the losses
exceeded the income, the
industrial partner does not
share in the losses.
(Santos v. Sps. Reyes,
G.R. No. 135813, October
25, 2001)