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The Legal Framework of
Partnerships in the Philippines
Partnership
CHAPTER 1: General Provision
Art. 1767. Essential Requisites of a Partnership
There must be a valid contract. There must be a contribution of money, property, or industry to a common fund. The partnership must be organized for gain or profit. The partnership should have a lawful object or purpose, and must be established for the common benefit or interest of the partners.
Two Tests for Determining the Existence of a Partnership
First Test: Agreement - The agreement between the parties must show their intention to form a partnership. Second Test: Intent - The parties must have the intention to form a partnership, regardless of the name or form given to the agreement.
Characteristics of a Partnership
Consensual - Perfected by mere consent. Commutative - The undertaking of each partner is considered as the equivalent of that of the others. Principal - Its existence or validity does not depend on some other contract. Bilateral - Formed by two or more persons creating reciprocal rights and obligations. Onerous - Contributions in the form of either money, property, and/or industry must be made. Nominate - Has a special name or designation. Preparatory - Entered into as a preparation for other contracts.
Principle of Delectus Personae
A person has the right to select persons with whom he wants to be associated with in partnership. Allows the partners to have the power, although not necessarily the right, to dissolve the partnership. An unjustified dissolution by the partners can subject him to a possible action for damages.
Art. 1768. Juridical Personality of a Partnership
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, first paragraph. A partnership can acquire and possess real and personal property, incur obligations, and bring civil or criminal actions.
Effect of Failure to Comply with Statutory Requirements
Under Art. 1772, a partnership still acquires personality despite failure to comply with the requirements of execution of public instrument and registration of name in SEC. Under Arts. 1773 and 1775, a partnership with immovable property contributed, if without requisite inventory, signed and attached to public instrument, shall not acquire any juridical personality because the contract itself is void. This is also true for secret associations or societies.
Art. 1769. Determining the Existence of a Partnership
Persons who are not partners as to each other are not partners as to third persons, except as provided by Article 1825. Co-ownership or co-possession does not of itself establish a partnership, whether such co-ownership or co-possessors do or do not share any profits made by the use of the property. 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. 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 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; and e) As the consideration for the sale of a goodwill of a business or other property by installments or otherwise.
Art. 1770. Lawful Object or Purpose of a Partnership
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.
Art. 1777. Universal Partnership
A universal partnership may refer to all the present property or to all the profits.
Art. 1778. Universal Partnership of All Present Property
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 they may acquire therewith.
Universal Partnership of All Present Property
In a universal partnership of all present property, the property that 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. However, the property which the partners may acquire subsequently by inheritance, legacy, or donation cannot be included in such stipulation, except the fruits thereof.
Reasons Why Future Property Cannot be Included
As a rule, contracts regarding successional rights cannot be made. A partnership demands that the contributed things be determinate, known, and certain. A universal partnership of all present properties really implies a donation, and it is well-known that generally, future property cannot be donated.
Universal Partnership of Profits
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.
Presumption in Favor of Universal Partnership of Profits
Articles of universal partnership, entered into without specification of its nature, only constitute a universal partnership of profits. This presumption exists because a universal partnership of profits imposes less obligations on the partners, as they preserve the ownership of their separate property.
Persons Prohibited from Entering into a
Universal Partnership
Persons who are prohibited from giving each other any donation or advantage cannot enter into a universal partnership. This is because 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.
Examples of Persons Who Cannot Enter into a Universal
Partnership
Legally married spouses (however, spouses may enter into a particular partnership like the exercise of a profession or vocation). Persons living together as husband and wife 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.
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. The fundamental difference between a universal partnership and a particular partnership lies in the scope of their subject matter or object. In the former, the object is vague and indefinite, contemplating a general business with some degree of continuity, while in the latter, it is limited and well-defined, being confined to an undertaking of a single, temporary, or ad hoc nature.
