TITLE IX: PARTNERSHIP The object must be for profit and not merely for common enjoyment, otherwise,
for profit and not merely for common enjoyment, otherwise, only a co-ownership
CHAPTER 1: GENERAL PROVISIONS
ART. 1767. PARTNERSHIP, DEFINED; GENERAL PROFESSIONAL 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. (1665a)
two or more persons bind themselves
The must be the affection societis, the desire to formulate an ACTIVE union with people among
whom there exist mutual confidence and trust (delectus personarum)
Just because the terms partnership and partners appear in a contract between certain persons
does not necessarily mean that a partnership has been entered into. (Paterson v. Eppler, 67 N.Y.S.
{2nd} 498)
CAPACITY TO BECOME A PARTNER
In general, a person capacitated to enter into contractual relations may become a partner
An unemancipated minor cannot become a partner unless his parent or guardian consents. Without
such consent, the partnership contract is voidable, unless other partners are in the same situation, in
which case the contract is unenforceable
A married woman, even if already of age, cannnot contribute conjugal funds as her contribution to
the partnership, unless she is permitted to do so by her husband (See Art. 125, Family Code), or
unless she is the administrator of the conjugal partnership, in which latter case, the court must give
its consent/authority. (See Art. 124, Family Code).
A partnership, may form another partnership wither with private individuals or with other
partnerships, there being no prohibition on the matter
The majority view is that a corporation cannot become a partner on grounds of public policy;
otherwise, people other than its offi cers may be able to bind it. However, it may enter into a joint
venture with another where the nature of the venture is in line with the business authorized in its
charter.
to contribute money, property & industry to a common fund
credit, such as that evidenced by a promissory note, or even mere goodwill economic goodwill or
commercial credit, which is the sheer ability to obtain funds on credit may be contributed for both
credit and goodwill are considered properties but not mere political credit or personal influence,
since this may be contrary to good customs
A license to construct and operate a cockpit can be given as contribution to a partnership.) (Baron v.
Pajarillo, et al., C.A., 146-R, Nov. 29, 1956).
The industry contributed may be intellectual or physical. (11 Manresa 273)
A Limited partner cannot contribute mere industry (Art. 1845, Civil Code)
intention of dividing profits among themselves
There must be an intention of dividing the profit among the partners since the firm is for the common
benefit or interest of the partners
In the case of Evangelista, et al. v. Coll. of Int. Rev., L-9996, Oct. 15, 1957, it was held by the Supreme
Court that where two people jointly borrowed from their father a sum of money which, together with
their own personal funds, was used by them in buying real properties for lease to third parties, such
investment consisting of a series of transactions and the management thereof being under one
person for more than 10 years, the legal entity created by them is a partnership.
has been formed.
However, pecuniary profit need not be the only aim; it is enough that it is the principal purpose. Thus,
other ends like social, moral, or spiritual objectives may also properly exist.
PARTNERSHIP
It is a contract whereby 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, or in order
to exercise a profession.
It is also a status and a fiduciary relation subsisting between persons carrying on a business in
common with a view on profit.
While strictly speaking the exercise of a profession is not a business undertaking nor an enterprise for
profit, the law considers the joint pursuit thereof, for mutual help, as a partnership.
ELEMENTS
1. There is a meeting of the minds;
2. To form a common fund;
3. With the intention that profits and losses will be divided among the contracting parties
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].
7. 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]
CHARACTERISTICS OF THE CONTRACT
A) Consensual because it is perfected by mere consent
B) Bilateral or Multi-lateral entered into between two or more persons
C) Nominate designated by a specific name
D) Principal its existence does not depend on the life of another contract
E) Onerous certain contributions have to be made
F) Preparatory in the sense that after it has been entered into, other contracts essential in the carrying
out of its purposes can be entered into.
G) Commutative the undertaking of each is considered as equivalent of that of the others
HISTORICAL NOTES
a) Under Roman Law, partnerships existed, their features:
1. There was no limit as to the number of partners.
2. In the Roman partnership (societas) one partner was not considered the implied agent of the
others. Thus, to bind others, a partner had to obtain an express mandate (mandatum or
authorization) from each of the others.
3. The partners were liable jointly, not solidarily
4. The partners had the right to the beneficium competentiae, that is, they were held financially
liable only insofar as they would not be reduced to destitution.
5. The heirs (heres) of a deceased partner could not succeed to the rights of the deceased, even by
express stipulation.
6. A Roman partner could not retire in order to enjoy alone a gain which he knew was awaiting
him
b) Before the new Civil Code became effective on Aug. 30, 1950 there were two kinds of partnerships in
the Philippines:
 1. Civil Partnership engaged in civil purposes
2. Commercial or Mercantile Partnership object was to deal in mercantile transactions Delectus Personae (LATIN, Choice of Person)
- Whether it was registered or not was not important for the difference lay in the ends desired, - The rule that when personal relations are important, a person cannot be compelled to associate with
not the manner of organization although, in the absence of a clear showing as to whether the another person. Based on this principle, a partner has the right to accept or reject a candidate proposed as
object was civil or commercial, the form of organization, that is, registration in the mercantile a new partner.
registry, was held indicative of its nature as a commercial partnership.
- While the civil partnership was governed by the old Civil Code, the Code of Commerce ORDINARY PARTNERSHIP CONJUGAL PARTNERSHIP
controlled the mercantile variety How Created
- With the advent of the new Civil Code, the provisions of the Code of Commerce relating to by will or consent of the parties created by operation of law upon the celebration
mercantile partnerships, and the provisions of the old Civil Code concerning civil partnerships of the marriage (b) in general,
have been repealed Law that governs
in general, it is the will of the partners that in general, it is the law that governs
PARTNERSHIP CORPORATIONS governs matters like object, length of existence,
How Created etc.; the law is only subsidiary
VOLUNTARY agreement of parties Created by the state in the form of a special Legal Personality
charter or by a general enabling law (The possesses a legal personality (Art. 1768, Civil Code) does not possess any legal personality distinct
Corporation Code) from that of the husband or wife; hence, it cannot
How Long it Exists sue or be sued as such
no time limit except agreement of parties not more than 50 years; (Sec. 11, Corp. Code), may Commencement of the Partnership
be reduced, but never extended begins from the moment of the execution of the commences precisely on the date of the
Liability to Strangers contract but a contrary stipulation is allowed (Art. celebration of the marriage no contrary
may be liable with their private property beyond liable only for payment of their subscribed capital 1784, Civil Code) stipulation is allowed
their contribution to the firm stock Purpose
Transferability pf Interest formed for profit not formed particularly for profit
even if a partner transfers his interest to another, a transfer of interest makes the transferee a Division of Profit
the transferee does not become a partner unless stockholder, even without the consent of the as a rule, profits are divided according to previous as a rule, profits are divided equally (but
all other partners consent (This is due to the others agreement; and if there is no agreement, in settlement can provide otherwise) (Art. 106,
principle of mutual trust proportion to the amount contributed (Art. 1797, Family Code)
and confidence the delectus personarum.) Civil Code)
Ability to Bind the Firm Management
generally, partners acting on behalf of the generally, the stockholders cannot bind as a rule, management is conferred upon the as a rule, the administration and enjoyment of the
partnership are agents thereof; consequently they corporation since they are not agents thereof partners so appointed by the others; otherwise, all conjugal partnershiip property belong to both
can bind both the firm and the partners are equally considered agents of the firm (Art. spouses jointly (Art. 124, Family Code)
Mismanagement 1803, Civil Code)
a partner can sue a partner who mismanages a stockholder cannot sue a member of the board Dissolution
of directors who mismanages: the action must be there are many grounds for dissolution there are few grounds for dissolution
in the name of the corporation Liquidation of Profits
Nationality there may be division of profits even without there will be no liquidation or giving of profi ts till
a partnership is a national of the country it was a corporation is a national of the country under dissolution after dissolution
created whose laws it was incorporated, except for
wartime purposes or for the acquisition of land,
natural resources and the operation of public PARTNERSHIP JOINT-STOCK COMPANY
utilities in the Philippines, in which case the veil of Company
corporate identity is pierced and we go to the Essentially, an association of persons Essentially, an association of capital (See Figueras
nationality of the controlling stockholders v. Rocha and Co., 13 Phil. 504)
Attainment of Legal Personality Division of Capital
the firm becomes a juridical person from the time the firm becomes a juridical person from the time capital is NOT divided into shares although a special form of partnership, its capital
the contracts begins it is registered in the Securities and Exchange is divided into shares, like in a corporation
Commission, and all requisites have been
Management
complied with
generally, in all the partners generally, in a board of directors
Dissolution
Liability
death, retirement, insolvency, civil interdiction, or such causes do not dissolve a corporation
partners may be liable with their individual liability of the members is only up to the extent of
insanity of a partner dissolves the firm
properties after exhaustion of the partnership their shares if such is what the statute provides
assets (See Hibbs vs. Brown, 190 N.Y. 167) ART. 1768. JURIDICAL PERSONALITY OF PARTNERSHIP
Effect of Transfer of Interest
transferee of partners share does not become a transferee of members shares himself becomes a The partnership has a judicial personality separate and distinct from that of each of the partners, even in case
partner unless all the other partners consent member without any necessity of consent from of failure to comply with the requirements of Article 1772, first paragraph. (n)
the other members
Effect on Non-Compliance With Art. 1772, 1st Paragraph
(Registration With the Securities and Exchange Commission)
PARTNERSHIP SOCIAL ORGANIZATION The partnership is still a juridical person, assuming all other requisites are present
Contribution According to Dean Capistrano, member of the Code Commission, par. 1 of Art. 1772 is not intended
capital is given in money, property, or services no capital is given although, of course, fees are as a prerequisite for the acquisition of juridical personality by the partnership, but merely as a
usually collected condition for the issuance of license to engage in business or trade.
So that the tax liabilities of big partnerships cannot be evaded, and the public can also determine
Liability for Debts
more accurately their membership and capital before dealing with them.
partners are liable only after the partnership members are the ones individually liable for the
assets are exhausted debts of the organization, debts authorized or
Lilibeth Sunga-Chan & Cecilia Sunga
ratified by said members
v. Lamberto T. Chua
Purpose or Objective
GR 143340, Aug. 15, 2001
organized for gain, principally financial organized usually only for social or civic objectives
Personality Art. 1768 explicitly provides that the partnership retains its juridical personality even if it fails to register. Failure
a legal person Npt a legal person to register the contract of partnership does not invalidate the same as among partners, so long as the contract
has the essential requisites, because the main purpose of registration, it to give notice to third persons; and it
PARTNERSHIP v. BUSINESS TRUSTS can be assumed that the members themselves knew of the content of their contract.
When certain persons entrust their property or money to others who will manage the same for the former,
a business trust is created. In the case at bar, non-compliance with this directory provision of the law will not invalidate the partnership
The investors are called cestui que trust; the managers are the trustees. considering that the total of the evidence proves that respondent and Jacinto indeed forged the partnership in
In a true business trust, the cestui que trust (beneficiaries) do not at all participate in the management; question.
hence, they are exempted from personal liability, in that they can be bound only to the extent of their
contribution.
Limitations on Alien Partnerships
PARTNERSHIP v. TENANCY (a) If at least 60% of the capital of a partnership is not owned by Filipinos (or by Americans, for the duration of
A partner acts as agent for the partnership whom he represents; the tenant does not represent the the Parity Act), the firm cannot acquire by purchase or otherwise agricultural Philippine lands. (Sec. 5, Art.
landlord. (This is true even if the rent is measured by the amount of the tenants profi ts while conducting a XIII, 1935 Const.)
business on the premises, particularly if there is no agreement as to the sharing in losses.) - If the land was purchased during the Japanese occupation, at a time when the Constitution,
A partnership is a legal person; no such person is created in the relationship between landlord and tenant being political in nature, was suspended, the prohibition would not apply.
- Neither would the prohibition apply with reference to lands purchased before the effectivity
PARTNERSHIP v. AGENCY date of the Constitution, or to those acquired by the exercise of the right of conventional
Agency may in one sense be considered the broader term because partnership is only a form of redemption even if the redemption took place after the Constitution took effect as long as
agency. the sale a retro had been made before said Constitution. To hold otherwise would be to impair
An agent never acts for himself but only for his principal; a partner is both a principal (for his own a vested right. (See Secs. 2, 7, 10 & 11, Art. XII, The 1987 Phil. Const.).
interests) and an agent (for the firm and the others). (b) Foreign partnerships may lease lands provided the period does not exceed 99 years, there being no
prohibition regarding lease.
PARTNERSHIP v. JOINT ADVENTURE (JOINT ACCOUNTS) (c) Foreign partnerships may be the mortgagees of the land, the mortgage to last for 5 years renewable for
A joint adventure (an American concept similar to our joint accounts) is a sort of informal partnership, another 5 years. However, they cannot purchase the same at the foreclosure sale. (RA 133)
with no firm name and no legal personality. In a joint account, the participating merchants can
transact business under their own name, and can be individually liable therefor. Rules in Case of Associations Not Lawfully Organized as Partnerships
Usually, but not necessarily, a joint adventure is limited to a SINGLE TRANSACTION, although the If an association is not lawfully organized as partnership, though it apparently carries on the business as a
business of pursuing it to a successful termination may continue for a number of years; a partnership partnership, it possesses no legal personality.
generally relates to a continuing business of various transactions of a certain kind. (See 33 C.J., pp. Thus, it cannot sue as such, but the partners in their individual capacity, can.
341-342). One who enters into contract with a partnership as such (as when he borrows money therefrom) cannot,
when sued later on for recovery of the debt, allege the lack of legal personality on the part of the firm,
PARTNERSHIP v. SYNDICATE even if indeed it had no personality. The reason is that the borrower is in estoppel
A syndicate (of American origin) is usually a particular partnership, that is, it may have been
organized to carry out a particular undertaking or for some temporary objective
Distinction Between Partnerships in the Philippines and Those in America
While Philippine partnerships have a juridical personality, those formed in America generally do not have
(except for the purpose of insolvency proceedings).
Presently, two divergent legal theories as to the nature of a partnership have been developed by United
States Courts, one adhering to the old common law conception that a partnership is simply an aggregate of
individuals, and the other building up the newer conception that a partnership exists as an entity distinct
from the partners.
Partnership From the Viewpoint of Private International Law
whether a partnership has juridical personality or not depends on its personal law
The personal law of a partnership is the law of the place where the partnership was organized
ART, 1769. RULES FOR DETERMINING EXISTENCE OF PARTNERSHIP
In determining whether a partnership exists, 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;
(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;
(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;
(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 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;
e. As the consideration for the sale of a goodwill of a business or other property by installments or
otherwise. (n)
Requisites for Existence of Partnership
1. there was an intention to create a partnership
2. there was a common fund obtained from contributions
3. there was a joint interest in the profits. (See Fernandez v. De la Rosa, 1 Phil. 669)
THEREFORE:
(a) mere co-ownership or co-possession (even with profi tsharing)
(b) mere sharing of GROSS returns (even with joint ownership of the properties involved) do not establish a
partnership.
Sharing of Net Profits
Sharing of NET profits is prima facie evidence that one is a partner except in the five instances enumerated
under Art. 1769 (No. 4).
People v. Juan A. Alegre, Jr., (CA) L-7244-R, Sept. 16, 1952,
the Court of Appeals observed that the payment of a commission on sales made by a partner does not
preclude (exclude) the existence of a partnership. In fact, such a practice is oftentimes adopted in business
circles as an added impetus among partners in the sale and disposition of goods that make up their
common assets and property
Dinkelspeed v. Lewis, 50 Wyo. 380
A difference must be made between LENDING money to a business proprietor, and contributing money
and INVESTING it as CAPITAL in the business.
Bar
Valderrama and Co., a general merchandise partnership, has become insolvent for maladministration of the
business and entered into an agreement with its creditors to the effect that the business should be continued
for the time being under the direction and management of an experienced businessman appointed by the
creditors, an arrangement to be carried out until the claims of the creditors are fully satisfied. Can you consider
the creditors who are parties to the agreement partners? Reasons.
ANS.: The creditors are not partners, for their only interest in the sharing of profits is the receipt or payment of
their credits. (Art. 1769). Moreover, in a partnership, the partners are supposed to trust and have confidence in
all the partners this element is not present in the instant case.
Proof Needed to Establish the Existence of a Partnership
No definite criterion can be set up except that all the characteristics of the contract must be proved
as being present
there was no firm name, no firm accounts, no firm letterheads, no certificate of partnership, no
agreement as to profits and losses, no time fixed for the expiration of the alleged partnership. The
Court correctly ruled that a partnership did not exist. (Morrison v. Meister, 180 N.W. 395)
the testimony of the witnesses regarding the existence of the partnership as well as documentary
evidence (letters) thereon resulted in the courts finding that indeed a partnership existed. (Kiel v.
Estate of P.S. Sobert, 46 Phil. 193)
An attempt to prove the existence of a partnership concerning the operation of a cinema house upon
a 60-40 basis proved fruitless because of insuffi cient and contradictory evidences. There was no
written agreement. Of course, this was not essential. But its absence, together with other
circumstances and the fact that there was not even an attempt to submit an accounting for the whole
period, negates the assumption that a partnership existed. (Salada v. Salazar, et al., C.A., L-5258, Jun.
28, 1956).
The court held that it is hard to believe that a partnership has been formed without any book, any
single written account, or any memorandum concerning it. Moreover, if the business licenses have
been issued separately in favor of private individuals, how can we say that a partnership exists?
(Padilla v. Tomas Lim Hon, et al., C.A., L-163-R, Feb. 14, 1947).
Partnership by Estoppel
If two persons not partners represent themselves as partners to strangers, a partnership by estoppel
results.
when 2 persons, who are partners, in connivance with a friend (who is not a partner), inform a stranger
that said friend is their partner, a partnership by estoppel may also result to the end that the stranger
should not be prejudiced. (See Art. 1769 [No. 1] and Art. 1825, Civil Code).
ART. 1770. LAWFUL OBJECT
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. (1666a)
Lawful Object or Purpose
it must be within the commerce of man, possible, and not contrary to law, morals, good customs, public
order or public policy (See also Arts. 1347 and 1348, Civil Code).
Otherwise, the partnership contract is VOID AB INITIO. (Art. 1409, Civil Code).
If a partnership has several purposes, one of which is unlawful, the partnership can still validly exist so long
as the illegal purpose can be separated from the legal purposes. (See 40 Am. Jur., pp. 144-145).
Judicial Decree is NOT Needed to Dissolve an Unlawful Partnership
Since the contract is void from the very beginning, and therefore never existed from the viewpoint of the
law.
However, there would be nothing wrong in having the court dissolve the partnership. This will be good and
convenient for everybody; moreover, there may be a question as to whether or not the partnership is
indeed unlawful. This is particularly true when the object was lawful at the beginning but has later on
become unlawful.
Under Art. 1830 of the Civil Code, one of the causes for the dissolution of a partnership is any 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.
Instances When a Partnership Is Unlawful
(a) A partnership formed to furnish apartment houses which would be used for prostitution. (Chateau v.
Singla, 114 Cal. 1015).
(b) A partnership formed to create illegal monopolies or combinations in restraint of trade. (See Art. 186,
Rev. Penal Code).
(c) A partnership for gambling purposes. (See Arbes, et al. v. Polistico, et al., 53 Phil. 489).
(d) A partnership formed for the purpose of acquiring parcels of land much in excess of the maximum
allowed by the Friar Lands Act. (Torres v. Puzon, et al., C.A., L-4474, Sept. 28, 1950).
Consequences of Unlawful Partnership
If the firm is also guilty of a crime, the Revised Penal Code governs both the criminal liability and the
forfeiture of the proceeds of the crime and the instruments or tools with which it was committed
o Such proceeds and instruments or tools shall be confi scated and forfeited in favor of the
Government, unless they be the property of a third person not liable for the offense, but those
articles which are not subject of lawful commerce shall be destroyed. (Art. 45, Rev. Penal Code).
The partners forfeit the proceeds or profits, but NOT their contributions, provided no criminal prosecution
has been instituted
o If the contributions have already been made, they can be RETURNED; if the contributions have not
yet been made, the partners cannot be made to make the contributions (See 1 Manresa 279).
An unlawful partnership has no legal personality.
ART. 1771. FORM OF PARTNERSHIP CONTRACT
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. (1667a)
Formalities Needed
GENERAL RULE: No form is required regardless of the value of the contributions. The contract may even be
ORAL (NB: Partnership contract is not one of those covered by the Statute of Frauds)
EXCEPTION: Whenever real properties or real rights in real properties are contributed- regardless of the value- a
PUBLIC INSTRUMENT is needed.
The contract itself must be in the public instrument; moreover, there must be an INVENTORY of the
immovables. This INVENTORY must be signed by the parties and attached to the public instrument.)
Without the public instrument, the partnership is VOID
The inventory is important to show how much is due from each partner to complete his share in the
common fund and how much is due to each of them in the event of liquidation. Without such
inventory, the contract is VOID.
NB: The rules for limited partnerships are different
For EFFECTIVITY of the partnership contract insofar as innocent third persons are concerned, the same must be
REGISTERED if REAL PROPERTIES are involved.
Problems
I.
A partnership was formed orally though more than P500 was contributed in cash. Now then, under the last
paragraph of Art. 1358, contracts where the amount involved exceeds P500 [such contract] must appear in
writing, even a private one. Should the oral partnership formed be considered valid?
ANS.: Yes, because Art. 1358 applies only for the purpose of convenience and not for validity or enforceability.
Being valid, the contract can be put in writing upon the demand of any of the parties. (Art. 1357, Civil Code; see
also Thunga Chui v. Que Bentec, 2 Phil. 661; see also Magalona v. Pesayco, 59 Phil. 453).
NOTE: Had real property been contributed, the oral partnership would be void; and therefore not one of the
partners can compel the others to execute the public instrument. (See Art. 1773, Civil Code).]
II.
If two persons agree to form a partnership in the future, does the partnership immediately arise from the
moment of said agreement?
ANS.: No. An agreement to form a partnership does not of itself create a partnership. When there are conditions
to be fulfilled or when a certain period is to elapse, first, the partnership is not created till after the fulfillment of
the conditions or the arrival of the term, and this is true even if one of the parties has already advanced his
agreed share of the capital.
Moreover, there is a marked distinction between a partnership actually consummated and an
agreement to enter into a partnership at a future time. So long as an agreement remains executory, the
partnership is inchoate, not having been called into being by the concerted action necessary under the
partnership agreement. (Limuco v.Calinao, L-10099-R, prom. Sept. 30, 1953, citing 40 Am. Jur. 142, Sec. 27).
III.
A and B today orally agreed to form a partnership one and a half years from today, each one to contribute
P1,000. If at the arrival of the period, one refuses to go ahead with the agreement, can the other enforce the
agreement?
ANS.: No, because the agreement was merely oral and executory. It is true that a partnership contract is not
governed by the Statute of Frauds but here, there is merely an agreement to form a partnership in the future.
Since therefore the agreement is to be enforced after one year from the making thereof, the same should be in
writing to be enforceable under the Statute of Frauds. (Art. 1403, No. [2][a]).
[NOTE: In one case our Supreme Court ruled that even if there was a prior agreement to form in the future a
partnership, still if one of those who had so agreed refuses to carry the agreement and to execute the necessary
partnership papers, he cannot be obliged to do so. For here, his obligation is one to DO, not to GIVE. This is,
therefore, a very personal act (acto personalisimo) of courts may not compel compliance, as it is an act of
violence to do so. (Woodhouse v. Halili, L-4811, Jul. 31, 1953).]
ART. 1772. SEC REQUIREMENT
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. (n)
Purpose of the Registration
The registration is to set a condition for the issuance of licences 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. (Dean Capistrano, IV Civil Code of the
Philippines, p. 260).
Effect of Non-Registration
Even if not registered, the partnership having a capital of P3,000 or more is still a valid one, and therefore
has legal personality. (Art. 1768, Civil Code).
Of course if real properties had been contributed, regardless of value, a public instrument is needed for the
attainment of legal personality
If registration is needed or desired, any of the partners of a valid partnership can compel the others to
execute the needed public instrument, and to subsequently cause its registration. (Art. 1357, Civil Code).
(This right cannot be availed of if the partnership is VOID)
ART. 1773. WHEN VOID, IF IMMOVABLE PROPERTY IS CONTRIBUTED
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. (1668a)
Requirements Where Immovable Property is Contributed
a) There must be a public instrument regarding the partnership. (See Art. 1773).
b) The inventory of the realty must be made, signed by the parties, and attached to the public instrument.
(Art. 1773).
Applicability of the Article
applies regardless of the value of the real property.
applies even if only real rights over real properties are contributed.
applies also if, aside from real property, cash or personal property is contributed. (But here, the inventory
need not include the personality.)
Registration in the Register of Property
The transfer of the land to the partnership must be duly recorded in the Register of Property to make the
transfer effective insofar as third persons are concerned.
ART. 1774. ACQUISITION OF IMMOVABLE PROPERTY BY PARTNERSHIP
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. (n)
Acquisition of Property Under the Partnership Name
Though the Article speaks only of immovable, same can apply also to personalty because the partnership is a
juridical entity, capable of owning and possessing property. (Art. 46).
Alien Partners
If the partnership has aliens, it cannot own lands, whether public or private, or whether agricultural or
commercial, except:
thru hereditary succession (by the partners who in turn convey the same to the partnership) or
when 60% of the capital is owned by Filipinos (or Americans during the duration of the Parity Amendment).
(Art. XIII, Secs. 1 and 5, 1935 Constitution; Krivenko v. Reg. of Deeds, 79 Phil. 461 and Art. XII, Sec. 7, 1987
Constitution).
The same rule applies to the development, exploitation, or utilization of public agricultural, timber or mineral
lands (See 1935 and 1987 Constitutions).
Limitations on Acquisition
A partnership, even if entirely of Filipino capital may not:
(a) acquire, lease, or hold public agricultural lands in excess of 1,024 hectares.
(b) lease public lands adapted to grazing in excess of 2,000 hectares.
ART. 1775. IF ARTICLES ARE KEPT SECRET
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. (1669)
If Articles Are Kept Secret
The association here is certainly not a partnership and therefore not a legal person, because anyone of
the members may contract in his own name with third persons and not in the name of the firm.
Although not a juridical entity, it may be sued by third persons under the common name it uses;
otherwise, said innocent third parties may be prejudiced. (Rule 3, Sec. 15, Rules of Court).
However, it cannot sue as such, because it has no legal personality and, therefore, cannot ordinarily be a
party to a civil action. (Rule 3, Sec. 1, Rules of Court).
o 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
o They who caused the nullity of a contract are prohibited from availing of its benefits
Therefore, insofar as innocent third parties are concerned, the partners can be considered as members of a
partnership; but as between themselves, or insofar as third persons are prejudiced, only the rules on co-
ownership must apply. (See Art. 1775). The same rule applies in the case of a partnership by estoppel. (See
Art. 1825, Civil Code).
Effect of Certain Transactions
contracts entered into by a partner in his own name may be sued upon still by him in his individual
capacity, notwithstanding the absence of a partnership
when two or more individuals having a common interest in a business bring a court action, it should be
presumed that they prosecute the same in their individual capacity as co-owners, and not in behalf of a
partnership which does not exist in legal contemplation.