AGENCY & PARTNERSHIP OUTLINE

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

Litonjua v. Litonjua, G.R. Nos. 166299-300, December 13, 2005.

Article 1773 of the Civil Code requires that if immovable property is contributed to the partnership an inventory shall be
had and attached to the contract.

Elements: Article 1767

Evangelista v. CIR; AFISCO v.CA, G.R. No. 112675, January 25, 1999.
“The essential elements of a partnership are two, namely: (a) an agreement to contribute money, property or industry to
a common fund; and (b) intent to divide the profits amount the contracting parties.

Section 24 covered these unregistered partnerships and even associations or joint accounts, which had no legal
personalities apart from their individual members.”

Common fund: Lim Tong Lim v. Philippine Fishing Gear, G.R. No. 136448, November 3, 1999.
“The contribution to such fund need not be cash or fixed assets; it could be an intangible like credit or industry.”

AFISCO v. CA, G.R. No. 112675, January 25, 1999.

“An insurance pool is an informal partnership taxable as a corporation under the NIRC. The pool is a taxable entity
distinct from the individual corporate entities of the ceding companies. The tax on its income is different from the tax on
the dividends received by the said companies.”

Profits: Gatchalian v. CIR, G.R. No. 45425, April 29, 1939.

“A partnership of a civil nature was organized because Gatchalian and company put up money to buy a lotto ticket for
the sole purpose of dividing equally the prize which they may win, as they in fact, did. Having organized a partnership, it
is the latter which is bound to pay the income tax and not the individual partners pro rata.”

Characteristics

Lawful Purpose and Common Benefit

Art. 1770. 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)

Art. 1409. The following contracts are inexistent and void from the beginning: (1) Those whose cause, object or purpose
is contrary to law, morals, good customs, public order or public policy;

October 17, 1989 SEC Opinion to Ms. C.A. Reyes Santos

“This Commission is of the view that the registration of the proposed business should be denied on the following
grounds: a) If they shall form a partnership, it shall be a violation of Article 1770 of the Civil Code which provides as
follows: "A partnership must have a lawful object or purpose and must be established for common benefit or interest of
the partners".”

Arbes v. Polistico, G.R. No. 31057, September 7, 1929”: Unlawful partnership.

- A partnership must have a lawful object and must be established for the common benefit of the partners. When the
dissolution of an unlawful partnership is decreed, the profits shall be given to charitable institutions…
(1) As to profits: To be able to receive the profits, the partners to an unlawful partnership would have to base his action
on the contract which is VOID and NON EXISTENT. It would be immoral and unjust for the law to permit a profit from an
industry prohibited by it.
(2) As to contributions: Since the contract is void, there is no reason for the administrator of the Partnership to retain the
contribution of the others without any consideration because there is NO CONTRACT; for which reason he is bound to
return it, and he who has paid his contribution is bound to recover it.
- Court applied concept of unjust enrichment

BAUTISTA ON ARBES CASE: “Thus the contributions should not have been returned to the contributors, but should have
been confiscated in favor of the State. The contributors must be presumed to have known the criminal nature of the
object of the partnership they agreed to form, and should have thus been prosecuted and convicted for running a
gambling joint. (Bautista, p. 19)”
 Separate Juridical Personality

When it exists: Oña v. CIR, G.R. No. L-19342, May 25, 1972.
For purposes of the tax on corporations, our National Internal Revenue Code includes these partnerships — The term
“partnership” includes a syndicate, group, pool, joint venture or other unincorporated organization, through or by means
of which any business, financial operation, or venture is carried on… with the exception only of duly registered general
co-partnerships — within the purview of the term “corporation.”

Receipt of profits prima facie evidence of being a partner

Article 1769 (4)

Bautista, p. 39-40
Heirs of Jose Lim v. Juliet Lim, G.R. No. 172690, March 3, 2010.

I. FORMING THE PARTNERSHIP

A. Formal Requirements

1. In General
Article 1771
Lilibeth Sunga-Chan, G.R. No. 143340, August 15, 2001.

2. When Notarized Agreement and Inventory Required

Articles 1771, 1773
Litonjua v. Litonjua , G.R. Nos. 166299-300, December 13, 2005.

3. Notarized and Recorded

Articles 1772, 1768

B. Corporations as Partners
February 29, 1980 SEC Opinion to Antonio Librea
September 3, 1984 SEC Opinion to Romeo Orsolino
December 1, 1993 SEC Opinion to Val Antonio Suarez

C. Partnership Term
Article 1784

D. Partnership Purpose
December 8, 2003 SEC Opinion to Ms. Arlyn Solitario

E. Firm Name
Article 1815
SEC Memorandum Circular No. 5 Series of 2008, as amended
19 October 1984 SEC Opinion to Renato Santiago
8 July 1987 SEC Opinion to Ministry of Trade and Industry
Article 1846
25 April 1984 SEC Opinion to Milton Christopher