PARTNERSHIP DEFINED

DEFINITION
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
The contract of partnership is:
(1) Consensual, because it is perfected by mere consent.
(2) Nominate, because it has a specific name.
(3) Bilateral or multilateral, because it is entered into between two or more persons.
(4) Principal, because its existence does not depend on another contract.
(5) Onerous, because money, property or industry are contributed by the parties.
(6) Preparatory, because it is entered into to carry out a business or specific venture.
(7) Commutative, because the undertaking of each is considered as equivalent of that
of the others.
ATTRIBUTES OF A PARTNERSHIP
ESSENTIAL FEATURES
A partnership contract has the following essential features:
(1) There must be a valid contract.
(2) The parties must have legal capacity.
(3) There must be a mutual contribution of money, property, or industry to a common
fund.
(4) The object must be lawful.
(5) The primary purpose must be to obtain profits and to divide the same among the
parties.
(6) The partnership has a juridical personality separate from individual partners [Article
1768].
As such, "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."
[Article 1774]
TESTS TO DETERMINE THE EXISTENCE OF PARTNERSHIP
ELEMENTS
There is a contract of partnership when:
(1) There is a meeting of the minds;
(2) To form a common fund;
(3) With intention that profits and losses will be divided among the contracting parties.
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DISTINCTIONS
(Attached as Annex A Haha)
PARTIES
PARTIES TO THE CONTRACT
General rule: Any person capacitated to contract may enter into a contract of
partnership.
As such, the following persons cannot enter into a contract of partnership:
(1) Those suffering from civil interdiction;
(2) Minors;
(3) Insane or demented persons;
(4) Deaf-mutes who do not know how to write;
(5) Incompetents who are under guardianship.

Exceptions: The capacity of the following persons to enter into a contract of partnership,
though capacitated to contract generally, are limited:
(1) Those who are prohibited from giving each other any donation or advantage cannot
enter into a universal partnership. [Article 1782]
(2) A corporation cannot enter into a partnership in the absence of express authorization
by statute or charter.
Ratio: Otherwise, as a result of the mutual agency between partners, a corporation
would be bound by the acts of persons other than its duly appointed or authorized
officers or agents. This is inconsistent with the policy of the law that a corporation should
manage its own affairs.
Also, the arrangement would allow corporate property to be subject to risks not
contemplated by the stockholders when they originally invested. [Mendiola v. CA (2006)]
Although a corporation cannot enter into a partnership contract, it may, however,
engage in a joint venture with others [Auerbach vs. Sanitary Wares Manufacturing Corp.
(1989)].
There is no prohibition against a partnership being a partner in another partnership. [De
Leon (2010)
CONSENT
OBJECT/ PURPOSE
OBJECT OF THE CONTRACT
OBJECT OF UNIVERSAL PARTNERSHIP
A universal partnership may refer to:

(1) All present property:

(a) The partners contribute all the property which belongs to them to a common fund,
with the intention of dividing the same among themselves, as well as the profits they
may acquire therewith. [Article 1778]
(b) The property contributed includes all those belonging to the partners at the time of
the constitution of the partnership.
(c) A stipulation for the common enjoyment of any other profits may also be made.
However, the property which the partners may acquire subsequently by inheritance,
legacy or donation cannot be included in such stipulation, except the fruits thereof.
[Article 1779]
(2) All the profits:
(a) It comprises all that the partners may acquire by their industry or work during the
existence of the partnership.
(b) Only the usufruct over the property of the partners passes to the partnership. [Article
1780]
When the articles of universal partnership does not specify its nature (all present
property or all the profits), the partnership will be considered as one only of all the
profits. [Article 1781]
OBJECT OF PARTICULAR PARTNERSHIP
A particular partnership has for its object determinate things, their use or fruits, or a
specific undertaking, or the exercise of a profession or vocation. [Article 1783]
CONSIDERATION OF THE CONTRACT
FORMALITIES
FORM OF THE CONTRACT
General rule: The contract may be constituted in any form. [Article 1771]
Exceptions:
(1) Where immovable property or real rights are contributed:
(a) The contract must appear in a public instrument; and
(b) Attached to such instrument must be an inventory, signed by the parties, of the
property contributed. [Articles 1771 and 1773]

(2) Where the capital is at least P3,000, in money or property:

(a) The contract must appear in a public instrument; and
(b) It must be recorded in the SEC. Failure to comply with these requirements, however,
does not affect the liability of the partnership and the partners to third persons. [Articles
1768 and 1772]

KINDS OF PARTNERSHIP
AS TO OBJECT
(1) Universal partnership:
(a) Of all present property;
(b) Of profits;
(2) Particular partnership.

AS TO LIABILITY OF PARTNERS
(1) General partnership, consisting of general partners only, who are liable pro rata for
partnership obligations with all their after exhaustion of partnership assets;
(2) Limited partnership, includes, aside from general partner/s, limited partners, who are
not personally liable for partnership obligations.

AS TO DURATION
(1) For a fixed term or particular undertaking;
(2) At will.

AS TO LEGALITY OF EXISTENCE
(1) Partnership de jure is one which has complied with all the requisites for its lawful
establishment.
(2) Partnership de facto is one which failed to so comply.

KINDS OF PARTNERS
(1) Capitalist, whose contribution is money or property;
(2) Industrial, whose contribution is only his industry;
(3) General, whose liability to third persons extends to his separate property;
(4) Limited, whose liability to third persons is limited to his capital contribution;
(5) Managing, designated to manage the affairs or business of the partnership;
(6) Liquidating, takes charge of the winding up of partnership affairs;
(7) By estoppel, who is not really a partner but is liable as such for the protection of
innocent third persons;
(8) Continuing, who continues the business after dissolution of the partnership by
admission of a new partner, or retirement, death or expulsion of existing partners.
(9) Surviving, who remains a partner after dissolution by death of any partner;
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(10)Subpartner, who is not a member of the partnership but contracts with a partner
with