Agency, Trust and Partnership Notes

A contract is a meeting of minds between two persons whereby one binds himself, with respect to
the other, to give something or to render some service.

Art. 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. 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.

Two or more persons may also form a partnership for the exercise of a profession.

A public instrument is a document that is notarized by a notary public or authorized official, making
it admissible in court without further proof of its authenticity. (sale of land/immovable property)

Why public instrument Matters:

 A public instrument proves the existence and terms of the contract.

 It can be used in court without needing to call the parties to testify.
 It helps protect parties by making the agreement official and public.

Essential Elements of a Partnership

According to Art. 1767, the essential elements are:

1. Two or more persons – There must be at least two parties.

2. Contribution – Each must contribute:
 Money (capital partnership)
 Property (property partnership)
 Industry (industrial partner)
3. Common fund – Their contributions are pooled together.
4. Purpose – To earn profit and divide it among themselves.
5. Intent to form a partnership – There must be mutual consent.

LEGAL COMMENTARY
The partnership is a consensual contract, perfected by mere agreement, except when involving real
property, in which case the law requires a public instrument.
A partnership can be formed verbally or in writing, express or implied, formal or informal,
depending on the nature of contributions and the laws governing them.

Characteristics of the Contract of Partnership:

1. Consensual – perfected by mere consent
Mere consent - those that are valid and binding the moment the parties agree on
the subject matter and the cause (or consideration), even without delivery or a
written form.

A contract is perfected when it has the essential requisites:

 1. Consent of the parties; (1. must have legal capacity; and 2. the
partners must consent to be associated with the other partners)
2. Object certain which is the subject matter; (must be lawful)
3. Cause of the obligation. (for the common benefit or the interest of all the
partners)

2. There must be a contribution of money, property, or industry to a common fund

3. The object is a lawful one
4. There must be an intention of dividing the profit among the partners for the common
benefit or the interest of all the partners
5. There must be the affectio societatis - the desire to formulate an Active Union
- means that the parties willingly and actively agree to work
together as co-owners of a business, with the shared goal of
earning profits and sharing losses.

Juridical personality is the legal capacity of an entity — not a natural person — to have
rights and obligations, to sue and be sued, and to enter into contracts, among others.

2 TESTS:

1. Is there an agreement or consent to make a mutual contribution of money, property or

industry to a common fund? (consent and object)
2. Is there an intention to obtain profits and divide those profits among themselves?
(cause)

Only after answering these questions, and the answer is in the affirmative, the contract is
perfected and a partnership with a separate juridical personality will be created. Unless
there is a condition.

Industrial partner – industry, labor

Capitalist partner – money or property based on their agreement; if none, equal sharing

Universal partnership of all present property – all current properties are contributed
Universal partnership of profits – contributing usufruct (less onerous as it imposes less
obligations by preserving the partners’ properties)

If land is to contribute – attach the inventory of real properties, or it will be void

Every partner is a debtor of the partnership; thus, each must contribute whatever they
promise:
Obligations – before delivery he has the duty to preserve the thing with a diligence of a good
father of a family (take care with utmost prudence and responsibility)

If the thing is lost before the delivery, the partnership will automatically be dissolved,
because it cannot exist without the promised contribution. But if the thing lost is generic,
then there will be no problem because the debtor partner can still deliver another thing of the
same kind or quality. Also, if the title over the determinate thing was transferred to the
partnership before delivery, the partnership now exists and shall bear the loss as owner
following the principle of res perit domino (the owners bear the loss).

Art. 1768 The 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.

Juridical personality is the legal capacity of an entity — not a natural person — to have
rights and obligations, to sue and be sued, and to enter into contracts, among others.

🔍Explanation:

This article establishes the separate juridical personality of a partnership, meaning:

 Once a partnership is created, it becomes a legal person distinct from the individual
partners.
 It can acquire property, enter into contracts, sue or be sued in its own name.

📌 Even if not registered?

Yes. Even if the partnership fails to comply with registration requirements under Article
1772, it still has a juridical personality. However, failure to register may affect the
partnership's ability to enforce certain rights or conduct business legally.

Art. 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.

📌 Two main requirements:

1. Public Instrument
o The contract of partnership must be written and notarized.
2. SEC Registration
o The partnership must be recorded with the Securities and Exchange
Commission (SEC) (now required regardless of capital under newer laws for
transparency, though the Civil Code still specifies ₱3,000 as a minimum).

Article 1768 affirms that a partnership still acquires a juridical personality even if it fails to comply
with Article 1772 (e.g., no public instrument or SEC registration), the failure to register has practical
consequences that may affect the partnership’s legal effectiveness in several ways.

⚠️Legal Limitations of an Unregistered Partnership (Simplified):

🏛 Cannot sue in its own name

An unregistered partnership cannot file a case as a legal entity.

✔ The lawsuit must be filed by the partners themselves.
📌 Example: If someone violates a contract with the partnership, the partners—not the
partnership name—must go to court.

🧾 Contracts may not be enforceable

Contracts signed under the partnership name may not be valid, unless the other party
acknowledged the partnership.
✔ This is because there's no public record proving it legally exists.

💸 Cannot transact with banks or government offices

The partnership can’t open bank accounts, apply for loans, or deal with agencies like the
BIR, DTI, SEC, or LGU as a business.
✔ It also can’t get a TIN as a partnership.

👥 Partners may be personally liable

If the partnership isn’t registered, the individual partners can be sued directly.
✔ They may be held personally responsible for partnership debts or obligations.

📉 Harder to prove it exists

In legal disputes, the partners must prove that a valid partnership exists.
✔ Without registration or a notarized contract, it might be seen as a simple co-ownership or
informal group.

🏢 Can’t own property in its name

The partnership can’t register land or real estate under its name.
✔ The Register of Deeds will reject the registration without proof of legal personality.

Article 1769. 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;

If two people do not intend to be partners with each other, then they are not considered partners
even by outsiders.
EXCEPTION: Article 1825 (Partnership by estoppel) — If someone represents themselves as
a partner and a third party relies on it, then that person may be held liable as if they were a partner,
even if no real partnership exists.
Example: A and B act like business partners in front of a supplier, and the supplier gives credit
believing they’re partners. Even if they have no real agreement, they might still be liable as
partners under estoppel.

(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;
 Merely owning or possessing property together is not enough to prove a partnership.
 Even if they earn money from it, like rent or selling crops from jointly-owned land, that does
not automatically mean they are in a partnership.

(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;

Gross returns = total income before deducting expenses.

Just because two people share total sales or revenue, it does not mean they're partners.
A partnership requires sharing profits — what’s left after expenses — and an intention to
jointly run a business.

Example: If A and B agree to split all the income from selling fish but A does the work and B just
rents the boat, this doesn’t necessarily mean 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 installments or otherwise;

Receiving profits as payment for a debt, whether in installments or lump sum, does
not mean there’s a partnership.

(b) As wages of an employee or rent to a landlord;

An employee receiving a percentage of profits as bonus or commission, or a

landlord getting a share of profits as rent, is not a partner.

(c) As an annuity to a widow or representative of a deceased partner;

If the heir of a deceased partner receives profit share (annuity), it’s part of the
deceased’s rights — not a new partnership.

(d) As interest on a loan, though the amount of payment vary with the profits of
the business;
 A lender may agree to be repaid based on the business's profits, but that doesn't
make the lender a partner.

(e) As the consideration for the sale of a goodwill of a business or other property
by installments or otherwise. (n)

If someone sold their business or goodwill and is paid in shares of future profits,
they are not a partner — just a seller receiving deferred payment.

Article 1770. A partnership must have a lawful object or purpose, and must be established for
the common benefit or interest of the partners.

a. Lawful Object or Purpose

 The business or activity of the partnership must be legal, not contrary to law, morals, good customs,
public order, or public policy.
 If the object is illegal, the partnership is null and void from the beginning.
Example of unlawful partnerships:
 Drug trading
 Human trafficking
 Smuggling
 "Dummy" corporations formed to circumvent constitutional or legal limitations (e.g., foreign land
ownership)

b. Common Benefit or Interest

 The partnership must be created not for the sole benefit of one, but for the mutual benefit of all
partners.
 If only one party benefits while the others contribute with no return or participation, this mutual
element is lacking.
Example:
A and B agree to put up money to open a bar, but only A will get profits while B just helps without receiving
anything. This lacks common interest.

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)

The second paragraph provides the consequences when a partnership is declared illegal by the courts:
✅ "Profits shall be confiscated in favor of the State."

 The courts cannot help parties to enforce rights arising from an illegal agreement.
 All profits earned by the illegal partnership will be forfeited to the government.
This follows the principle:
🧷 “Ex turpi causa non oritur actio” — No action arises from an immoral or illegal cause.

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. (1667a)

 As a general rule, a partnership contract can be oral or written.

 However, if any partner contributes immovable property (like land, buildings) or real rights (like
usufruct or mortgage), then:
o The partnership agreement must be in a public instrument (i.e., notarized).
o This is to comply with formalities for transactions involving real property, which require
public documents for validity.

✅ Example:
  If A and B agree to form a partnership orally to sell cupcakes, it is valid even if unwritten.
 But if A contributes a parcel of land to the partnership, the contract must be in a notarized public
document.

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.

This article deals with partnerships with a capital of ₱3,000 or more (a very low threshold today, but still law).

🔹 Legal Requirements:

1. Must be in a public instrument (notarized document).

2. Must be registered with the Securities and Exchange Commission (SEC).

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)

This means:
 Even if the partnership was not notarized or not registered with the SEC, it is still liable to third
persons who deal with it in good faith.
 The law protects third parties relying on the existence of a partnership that appears to be operating as
such.
✅ Example:
 A, B, and C form a business with ₱10,000 capital but don’t notarize or register it.
 They borrow money from X under the partnership name.
 X can still sue the partnership and the partners even if the formal requirements were not followed.

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. (1668a)

This provision adds a strict formal requirement for the validity of a partnership where immovable property
(e.g., land, buildings) is contributed.

Three Mandatory Requirements:

If any real property or real rights are contributed to a partnership, the following are required for
validity:

1. An inventory of the real property must be:

2. Signed by all the parties to the partnership, and
3. Attached to the public instrument (the notarized partnership agreement).
📌**If even one of these is missing, the partnership is considered void ab initio (from the beginning) — not
merely unenforceable or irregular, but completely without legal effect.

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. (n)

1. Partnerships can acquire immovable property in their own name

 A partnership, as a juridical person, can buy, own, and register real property (like land or
buildings) under its own name.
 This means the certificate of title (e.g., TCT or OCT) can be issued in the partnership’s name, not
necessarily in the name of its individual partners.
✅ Example:
ABC Construction Partnership purchases a lot in Manila. The title may be issued to "ABC Construction
Partnership" — just like a corporation.
🔹 2. Property titled in the partnership name can only be sold or conveyed in the same name
  If the land is titled in the name of the partnership, it can only be sold, mortgaged, or transferred
by the partnership acting through its authorized partners.
 Individual partners cannot convey the property in their personal capacity, even if they are managing
partners, unless they are expressly authorized.
✅ Correct:
ABC Partnership (through Partner A authorized by a resolution) sells the land to Buyer X.
❌ Invalid:
Partner A personally signs a deed selling the land (without proper authority or without acting in the partnership
name). This has no legal effect unless ratified.

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.
(1669)

This provision addresses secret associations or societies that try to operate like partnerships without
complying with of partnership the legal requirements law.

✅ Two Key Characteristics of These Groups:

1. Secret Articles – Their agreement or rules (like a contract of partnership) are not made public, or are
kept secret even among some members.
2. Individual Dealings – Any member can individually contract with third parties in his own name,
instead of in the name of the group.

Legal Effect: No Juridical Personality

 Because these groups lack transparency and joint representation, they are not recognized by law as
having juridical personality.
 This means the law does not consider them a separate legal entity — unlike partnerships or
corporations.
🧷 Juridical Personality = The legal capacity to:
 Own property,
 Sue and be sued,
 Enter into contracts in the group’s name.
⛔ These "secret associations" cannot do that because the law treats them as a mere collection of individuals
— not an organized legal body.

🧾 Governed by Rules on Co-Ownership

Instead of partnership law, these associations will be governed by the rules on co-ownership (Articles 484 to
501 of the Civil Code).
Under co-ownership:
 Each member owns a proportionate share of the group’s property,
 They act independently, not jointly unless agreed otherwise,
 There's no common fund or juridical entity.

📌 Practical Example:
Imagine five friends agree to put up a shared online shop, but:
 They keep their agreement secret (no public contract or SEC registration),
 Each one sells items and contracts with customers under their own name, not in the group's name.
➡️In this case, they do not form a valid partnership.
 Legally, they are just co-owners, and the group has no legal personality.
 The shop cannot enter contracts in the “group name,” only in each individual’s name.

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Article 1776. As to its object, a partnership is either universal or particular.

A universal partnership may refer to all the present property or to all the profits.

As regards the liability of the partners, a partnership may be general or limited. (1671a)

a. MANNER OF CREATION
-orally constituted
-constituted in a private instrument
-constituted in a public instrument
-registered in the Office of the Securities and Exchange Commission

B. ACCORDING TO OBJECT

1. UNIVERSAL with all present property

Definition:

 Partners contribute all the property they currently own (not future acquisitions) to the partnership.
 Ownership of such properties transfers to the partnership.
 Partners share all the income or fruits from the properties.

❌ Excluded:

 Property acquired after the partnership is formed

 Property for personal and exclusive use, unless agreed otherwise

✅ Example:

 A and B agree to form a universal partnership of all present property.

 A owns a farm and a car dealership; B owns a bakery.
 Upon formation, all these assets become part of the partnership — the farm, the bakery, the
dealership.
 All income, expenses, and liabilities from those assets are now shared.

🔐 Characteristics:

 Requires public instrument (notarized document)

 Not allowed between spouses (Article 1782), to avoid conflict with marriage property regimes

2. Universal with ALL PROFITS

🔹 Definition:

 Partners agree to contribute only the income or profits they earn during the partnership (not the assets
themselves).
 The partnership does not own the properties, only the fruits/income.

**Usufruct - right to enjoy the property of another with the obligation of preserving its form and substance,
unless the title constituting it or the law otherwise provides.

✅ Example:

 A is a freelance graphic designer, B is a software developer.

 They form a universal partnership of profits, agreeing to pool their monthly earnings and share
equally.
  A continues to own her computer; B owns his own equipment — the tools of their trade are not
transferred to the partnership.

🔐 Characteristics:

 More flexible than universal partnership of all present property

 Still requires public instrument if capital is ₱3,000 or more (Art. 1772)

3. Particular Partnership

🔹 Definition:

A partnership established for a specific undertaking, purpose, or type of property — not all-encompassing
like a universal partnership.
This is the most common and practical form of partnership today.

Examples:

Buy-and-Sell of Specific Goods

 Juan and Pedro agree to import and sell one shipment of Korean cosmetics, sharing
the profit. A particular partnership for a single transaction.

 Partnership to operate a water refilling station

 Partnership for a one-time construction project
 Law partnership, audit firm, medical partnership
 Partners contribute only a specific car or machine for a business, not their whole estate

✅ Key Features:

 Narrow scope: only covers specific assets or business

 Allows flexibility and limits risk
 Still subject to other Civil Code requirements (like those in Articles 1771–1774)

[Link] TO LIABILITY

2. General partnership

🔹 Definition:

A general partnership is one in which all partners are general partners — meaning they:
 Participate in the management of the business, and
 Liable beyond his contribution. Have unlimited personal liability for the debts and obligations of the
partnership.
🔍 Implications:
 If the partnership cannot pay its debts, creditors can go after the personal assets of the partners (after
exhausting partnership assets).
 Each general partner is an agent of the partnership, so their acts (within the scope of authority) bind
the partnership.

✅ Example:

A, B, and C form a general partnership to run a restaurant.

 The business owes ₱1 million but has only ₱600,000 in assets.
  Creditors can collect the remaining ₱400,000 from the partners personally.

3. Limited Partnership

🔹 Definition:
A limited partnership is one in which there is: (liable only to the extent of his contribution)
 At least one general partner (with unlimited liability), and
 One or more limited partners, whose liability is limited only to their capital contribution.
📖 This is governed by Articles 1843 to 1866 of the Civil Code.

🔐 Key Features of a Limited Partner:

 No personal liability for partnership debts beyond their contribution
 Cannot take part in management or control of the business
 Must be named in the certificate of limited partnership, which must be registered with the SEC

⚠️If a limited partner starts managing the business, he may be treated as a general partner and
lose his limited liability.
✅ Example:
 X, Y, and Z form "XYZ Limited Partnership"
o X and Y are general partners (liable with their personal assets)
o Z is a limited partner who invested ₱500,000
 The business fails and owes ₱2 million
o Z loses only ₱500,000 (his contribution)
o X and Y are personally liable for the rest

D. ACCORDING TO LEGALITY

1️LAWFUL PARTNERSHIP

🔹 Definition:

A lawful partnership is one that:

 Has a legal object or purpose (not contrary to law, morals, good customs, public order, or public
policy), and
 Is established for the common benefit of the partners.
📖 Refer to Article 1770, 1st paragraph:
"A partnership must have a lawful object or purpose, and must be established for the common benefit or interest
of the partners."
✅ Examples of Lawful Partnerships:
 A partnership to operate a bakery
 A partnership among lawyers or accountants
 A joint venture to build a residential condominium

2️UNLAWFUL (OR ILLEGAL) PARTNERSHIP

🔹 Definition:

An unlawful or illegal partnership is one where:

 The object or business purpose is illegal, or
 The formation or operation of the partnership violates law or public policy
📖 Refer to Article 1770, 2nd paragraph:
"When an unlawful partnership is dissolved by a judicial decree, the profits shall be confiscated in favor of the
State..."
⚠️Legal Consequences:

 The partnership is void ab initio (void from the beginning).

 The parties cannot sue each other for enforcement of rights or profits.
 Profits are forfeited in favor of the State.
 Instruments used in the crime may be confiscated under the Penal Code.
✅ Examples of Unlawful Partnerships:
 A partnership to smuggle goods
 A partnership to sell illegal drugs
 A partnership formed to act as a “dummy” corporation in violation of the Anti-Dummy Law (e.g., to
circumvent foreign ownership restrictions)

E. ACCORDING TO DURATION

1. For a specific period or till the purpose is accomplished

A partnership created for a specific period of time or duration as agreed upon by the partners.

✅ Example:

 A, B, and C form a partnership to run a food stall for 5 years.

 After the 5-year period, the partnership will automatically be dissolved, unless renewed or extended.
🔐 The period must be:
 Clearly stated in the partnership agreement,
 Followed unless the partners agree to an early dissolution or extension.

2. Partnership at will

A partnership with no fixed term or specific undertaking — it continues indefinitely until:

 The partners mutually agree to dissolve, or
 One partner decides to withdraw.
📖 Supported by Article 1830 (par. 1, no. 2):
"Dissolution is caused... by the express will of any partner, who must act in good faith, when no definite term or
particular undertaking is specified..."

✅ Example:

 X and Y agree to operate a sari-sari store without setting a time limit or end date.
 Either of them can end the partnership at any time with proper notice and good faith.

F. ACCORDING TO REPRESENTATION TO OTHERS

1️Ordinary (Actual) Partnership

🔹 Definition:

An ordinary partnership is one that is real and actually existing, whether formally constituted or not. It
complies with the essential requisites under Article 1767 of the Civil Code:
 Valid consent,
 Lawful object,
 Mutual contributions.
It may be:
 Formally registered (de jure), or
 Unregistered but real (de facto).
✅ It is known to the public as a partnership, and its existence is not merely apparent.
✅ Example:

 A, B, and C enter into a written partnership agreement to operate a printing shop, contribute capital,
and share profits. They operate under the name “ABC Prints.”
Whether or not they register with the SEC, as long as the requisites are present, this is an actual partnership.

2️Partnership by Estoppel

📖 Based on Article 1825 of the Civil Code

🔹 Definition:

A partnership by estoppel exists only in the eyes of third persons who are misled into believing that a
partnership exists — even though there is no actual partnership among the alleged partners.
This happens when:
 A person represents himself to be a partner when he is not, or
 A person allows another to represent him as a partner.
As a result:
 Third persons rely on that representation and give credit or transact with the group as if it were a
partnership.
 The law estops (prevents) the "partners" from denying the partnership to protect third parties.

⚠️Legal Effect:

 The law treats the persons as if they were partners, but only insofar as third parties are
concerned.
 There is no real partnership among them internally, but they can still be held liable as partners to
those who were misled.

✅ Example:

 X and Y are friends. X falsely claims to be Y’s business partner and signs a contract with a supplier.
 Y knows about this but does nothing to correct it.
 The supplier delivers goods based on the belief that Y is a partner.
➡️Under partnership by estoppel, Y can be held liable as a partner, even if no real partnership exists.

Article 1777. A universal partnership may refer to all the present property or to all the profits.
(1672)

1️Universal Partnership of All Present Property

📖 (Defined in Article 1778)

🔹 What it covers:

 All existing properties of each partner at the time of the constitution of the partnership.
 These properties become common property of the partnership.
 The fruits, income, and use of these properties also belong to the partnership.

❌ Not included:

 Properties acquired after the partnership is formed

 Properties for personal and exclusive use (e.g., clothes, personal gadgets)
✅ Example:

 A and B contribute everything they own today — house, car, savings — into the partnership.
 The partnership owns all those assets, and their fruits (e.g., rental income from the house) belong to the
partnership.

2️ Universal Partnership of Profits

📖 (Defined in Article 1780)

🔹 What it covers:

 Only the profits or income that partners may acquire by their work, business, or industry during the
existence of the partnership.
 The properties or assets producing the profits remain individually owned by the partners.

✅ Example:

 C is a freelance architect, D is a tutor.

 They form a universal partnership of profits — they agree to pool and share all income earned from
their professions, but not the tools or property they use.

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. (1673)

This provision defines the first type of universal partnership — the universal partnership of all present
property.

🔹 It has 3 essential elements:

1. Contribution of all present property

– Each partner contributes everything they currently own at the time the partnership is formed
(except personal-use property).
2. Formation of a common fund
– These properties become co-owned by the partnership, and no longer belong individually to each
partner.
3. Sharing of both capital and profits
– The partners agree to share:
o The properties themselves (the capital), and
o The profits generated from those properties.

🧠 Important Clarifications:

✅ “All present property” means:

 Only those properties that the partners actually own at the time of constitution.
 Future acquisitions are not automatically included (unless agreed upon — see Article 1780 for
profits).
❌ Exclusions:

 Properties for personal and exclusive use (e.g., clothing, personal items) are excluded unless
expressly included by agreement. (See Article 1779)

🧾 Example:

 Ana and Bea decide to enter into a universal partnership of all present property.
 Ana owns:
o A house and lot
o ₱500,000 in savings
 Bea owns:
o A delivery van
o ₱300,000 in stocks
All these properties are pooled into the partnership’s common fund. From that point on:
 The partnership owns the house, van, savings, and stocks.
 Any income derived from those assets (e.g., rent from the house or dividends from the stocks) belongs
to the partnership, not the individual partners.
 When the partnership dissolves, the properties and profits are divided among the partners according to
their agreement.

⚖️Legal Effects:

 The partnership becomes the owner of the contributed property.

 Each partner’s interest becomes a share in the partnership, not direct ownership of their former
assets.
 This kind of partnership requires a high level of trust because it involves surrendering ownership of
all assets.

🔐 Formality Requirement (Reminder):

If any immovable property is contributed, the law requires:

 A public instrument, and
 An inventory attached to the public instrument, signed by the parties (Article 1773).
Failure to comply with these formalities may render the partnership void.

Article 1779. In a universal partnership of all present property, the property which belonged 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.

This article reinforces and elaborates on Article 1778. It confirms what happens to the properties and profits in
a universal partnership of all present property:

🔹 1. Effect on Existing Property:

All the property owned by each partner at the time the partnership is formed becomes partnership
property — it now belongs to the partnership as a whole, not to the individual partner anymore.
This includes:
 Real property (e.g., house, land)
 Personal property (e.g., vehicles, cash, equipment)
 Rights or interests (e.g., shares, receivables)

🔹 2. Effect on Profits:
All the profits or income derived from those contributed properties also belong to the partnership.
📌 This includes:
 Rent from real estate
 Dividends from stocks
 Interest from bank accounts or loans
 Revenue from business operations using the assets

🧾 Example:

Let’s say:
 Partner A owns a farm, and Partner B owns a delivery truck and ₱200,000 cash.
 They enter into a universal partnership of all present property.
Upon formation:
 The farm, truck, and cash all become property of the partnership.
 If the farm earns ₱100,000 from produce sales and the truck is used for deliveries that earn ₱50,000 —
those earnings also belong to the partnership.
 Neither A nor B can claim exclusive ownership of their former assets or profits from them — they now
co-own everything through the partnership.

🛑 Important Note:

This does not include properties acquired after the partnership was formed — those are not automatically part
of the partnership unless agreed upon separately.
Future properties fall under a universal partnership of profits (See Article 1780), not of all present property.

⚖️Legal Implication:

 The individual identity of property ownership is lost upon partnership formation.

 The partners share ownership and profits according to their partnership agreement (or equally if no
agreement).
 This structure is very broad and requires deep mutual trust, since partners surrender ownership of all
their existing assets to a common fund.

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. (1674a)

This paragraph clarifies the limitations on what can be included in a universal partnership of all present
property, particularly regarding future acquisitions and gratuitous acquisitions (things received for free).

🔹 1. Additional Profits by Agreement

The law allows partners to agree (stipulate) to include in the common fund any other profits or income they
may earn later on — even if those profits come from outside the original contributed property.
✅ Example:
 If the partners agree, the partnership can also include:
o Income from future freelance work,
o Business income unrelated to the originally contributed assets.
This is a flexible clause allowing partners to expand the scope of their partnership by mutual consent.

🔹 2. BUT — Gratuitous Acquisitions Are Excluded

The law prohibits the inclusion of property acquired gratuitously in the future, even if the partners try to
include it in their agreement.
🔴 These are:
 Inheritance (e.g., from parents)
 Legacy (gift in a will)
 Donation (gift while the donor is alive)
📌 Exception: Only the fruits or income from those gratuitously acquired properties can be included in the
partnership.

✅ Example Breakdown:

Let’s say:
 Partner A inherits a rice field from her father after the partnership is formed.
 That rice field cannot be made part of the partnership property.
 But if she leases it out and earns ₱50,000 in rent, that ₱50,000 (the fruits) may be included in the
partnership if there is a stipulation to that effect.

⚖️Reason for the Rule:

 The law protects family and personal interests by disallowing automatic pooling of assets a person
acquires without effort.
 Inheritance and donations are personal in nature, and the State does not favor including them in
business risk arrangements.

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.

Article 1780 defines the second type of universal partnership: the Universal Partnership of Profits.

🔹 Key Elements of this Partnership:

1. Scope of Contribution:
o Only the income, earnings, and profits that the partners acquire through their personal
effort, business, or professional work during the life of the partnership are included.
o This does not include the actual properties or assets used to generate that income.
2. Timing:
o Only profits earned during the existence of the partnership are included.
o Income earned before its constitution, or after dissolution, is excluded.
3. Industry or Work-Based:
o Contributions come from the partners’ industry, labor, or profession, not from mere
ownership of property.

🧾 Example:

 A is a software developer, and B is a freelance graphic designer.

 They form a universal partnership of profits.
 They agree to pool all the income they earn from their jobs while the partnership exists.
➡ Even though A uses his own laptop and B rents a studio, the partnership does not own the laptop or studio
— it only owns the money earned from their work.
❌ Excluded from Partnership Property:

 Capital or property owned before or during the partnership.

 Income from inherited or donated properties (unless the fruits are included by stipulation — see Art.
1779).
 Tools or equipment used in the profession (unless voluntarily contributed).

⚖️Legal Effect:

 Partners retain ownership of their personal property and tools.

 Only the earnings (like salaries, fees, commissions, or business income) go into the partnership.
 The profits are then divided among partners according to their agreement or equally if no ratio is
specified.

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. (1675)

This clause clarifies what happens to the existing properties of the partners (both movable and immovable) in
a universal partnership of profits.

🔹 Key Concepts:

1. Ownership is Retained:
o Any property that a partner already owns before the partnership is formed — whether
movable (e.g., cash, cars, tools) or immovable (e.g., land, buildings) — continues to belong
exclusively to the individual partner.
2. Usufruct Passes to the Partnership:
o While ownership stays with the partner, the usufruct (the right to use, enjoy, and benefit
from the property) belongs to the partnership during its existence.
🧠 Usufruct means the right to enjoy the use and fruits of something without owning it.

🧾 Example:

 Partner A owns an apartment building before forming the partnership.

 They form a universal partnership of profits with Partner B.
✅ Result:
 A remains the sole owner of the apartment.
 But the rental income (the fruit) from the apartment now belongs to the partnership, as long as it
exists.
Likewise:
  If B owns a van used for deliveries, the van remains B’s personal property, but the delivery fees
earned from it go to the partnership.

Article 1781. Articles of universal partnership, entered into without specification of its nature,
only constitute a universal partnership of profits. (1676)

Article 1782. Persons who are prohibited from giving each other any donation or advantage
cannot enter into universal partnership. (1677)

Article 1783. 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. (1678)