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.
