Notes in Partnership
 The partner does not
OBLIGATIONS OF THE PARTNERS
Art. 1784. A partnership begins from the
moment of the execution of the contract,
unless it is otherwise stipulated.
 So long as an agreement remains
executory the partnership is
inchoate.
 The existence of partnership begins
upon the execution of the contract,
and not on the moment when the
parties agreed to enter into
partnership at a future day.
Art. 1786. Every partner is a debtor of
the partnership for whatever he may have
promised to contribute thereto.
He shall also be bound for warranty in
case of eviction with regard to specific
and determinate things which he may have
contributed to the partnership, in the
same cases and in the same manner as the
vendor is bound with respect to the
vendee. He shall also be liable for the
fruits thereof from the time they should
have been delivered, without the need of
any demand.
 Warranties of Partners:
o Regardless whether there is
transfer of ownership or use
of the thing to
partnership: (Specific
determinate things only)
 Warranty against
eviction – The
partnership’s loss
danger of losing the
whole or part of the
thing sold because of a
third person’s right
that existed at the time
the property
contributed to
partnership.
 Warranty against hidden
defects -
o When the contribution consists
of credit:
warrant the solvency of
the debtor unless
expressly so provided.
o The partner is also liable for
the fruits of the determinate
thing promised to the
partnership from the time to
deliver the thing arises,
without demand.
 Remedy for Breach:
o Dissolution of partnership in
case the other partners can
prove that they would have not
entered into the partnership
contract had it not been for
the contribution which has
been lost through the
eviction.
o Indemnity for damages, in
ordinary cases.
Art. 1787. When the capital or a part
thereof which a partner is bound to
contribute consists of goods, their
appraisal must be made in the manner
prescribed in the contract of partnership,
and in the absence of stipulation, it
shall be made by experts chosen by the
partners, and according to current prices,
the subsequent changes thereof being for
account of the partnership.
 When goods are contributed, the
the value of such shall be:
or o Based on the appraisal of the
partners; or if none,
o Based on the experts chosen by
partners, and according to
current prices.
or
Art. 1788. A partner who has undertaken to
contribute a sum of money and fails to do
so becomes a debtor for the interest and
damages from the time he should have
is complied with his obligation.
the
The same rule applies to any amount he may
have taken from the partnership coffers,
and his liability shall begin from the
time he converted the amount to his own
use.
Notes in Partnership
 Effect of failure to pay the o Not to engage exploit his
contribution: services for his own profit
o The partner in default shall without the express permission
be liable for: from the partnership.
 Interests; o Reasons:
 Damages, both computed  To prevent any conflict
from the time the of interest;
partner should have  To ensure faithful
complied with his compliance with his
obligation. prestation.
 However, it does not o Remedy of partnership in case
entitle the partners to the industrial partner engage
ask for the rescission in business for himself
of the partnership without permission:
contract.  Other partners may
o The above liability is also exclude him from the
applicable when a partner have partnership; or
taken any amount from  Avail themselves (other
partnership coffers and partners) of the
converted it in his own use. benefits which he may
In this case, the computation have obtained;
interests and damages shall  With right to damages in
start from the time he either case.
converted the same to his own
use. Art. 1790. Unless there is a stipulation
o Without authority, the partner to the contrary, the partners shall
purchased property which re contribute equal shares to the capital of
registered in his own name the partnership.
will be required, in a suit
for dissolution, to account to  Without agreement, the partners
his partners for the money shall contribute equal shares to the
which he used in such capital of the partnership.
purchase. (Teague vs. Martin)
Art. 1791. If there is no agreement to the
Art. 1789. An industrial partner cannot contrary, in case of an imminent loss of
engage in business for himself, unless the the business of the partnership, any
partnership expressly permits him to do partner who refuses to contribute an
so; and if he should do so, the capitalist additional share to the capital, except an
partners may either exclude him from the industrial partner, to save the venture,
firm or avail themselves of the benefits shall he obliged to sell his interest to
which he may have obtained in violation of the other partners.
this provision, with a right to damages in
either case.
 Without any agreement, in case there
is imminent loss of business of the
 Industrial partner does not partnership, the partners shall
contribute money or property, but contribute additional shares to the
only services. capital of the partnership. (main
 The partnership is the owner of the obligation if there is no agreement)
services of the industrial partner.  In case of refusal of a partner, he
 The industrial partner shall: shall sell his interests to other
o Devote his full time to the partners.
partnership;
Notes in Partnership
Art. 1792. If a partner authorized to
manage collects a demandable sum which was
owed to him in his own name, from a person
who owed the partnership another sum also
demandable, the sum thus collected shall
be applied to the two credits in
proportion to their amounts, even though
he may have given a receipt for his own
credit only; but should he have given it
for the account of the partnership credit,
the amount shall be fully applied to the
latter.
The provisions of this article are
understood to be without prejudice to the
right granted to the other debtor by
Article 1252, but only if the personal
credit of the partner should be more
onerous to him.
 Obligation of partner authorized to
collects demandable sum;
o In this case, there are two
demandable sum, one on the
account of partnership, and
another on the account of the
partner authorized.
o The rule is that:
 (1)The amount collected
shall be proportion to
the amount of credits,
even though a receipt
for the credit of such
partner was issued
 (2) The amount collected
shall be paid
partnership when
receipt issued is in the
name of the partnership.
 This rule shall not
prejudice the right of
debtor in application of
payment.
Art. 1793. A partner who has received, in
whole or in part, his share of a
partnership credit, when the other
partners have not collected theirs, shall
be obliged, if the debtor should
thereafter become insolvent, to bring to
the partnership capital what he received
even though he may have given receipt for
his share only.
 Obligation of partner who receives
share of partnership credit:
o To bring to the partnership
capital what he has received
even if he has given receipt
for his own share.
o Reason for the Rule:
 When a debtor becomes
insolvent, the debt in
favour of the
partnership becomes a
bad debt (loss) which
must be borne by all the
partners.
Art. 1794. Every partner is responsible to
the partnership for damages suffered by it
through his fault, and he cannot
compensate them with the profits and
benefits which he may have earned for the
partnership by his industry. However, the
courts may equitably lessen this
responsibility if through the partner's
extraordinary efforts in other activities
of the partnership, unusual profits have
been realized.
 The partner is liable for damages
which the partnership suffered
through his fault.
 The rule is that:
o He cannot compensate them with
the profits he earned for the
partnership by his industry;
o However, it may be lessen by
a the court if there is
extraordinary effort of the
partner which resulted to the
realization of unusual
profits.
Art. 1795. The risk of specific and
determinate things, which are not
fungible, contributed to the partnership
so that only their use and fruits may be
for the common benefit, shall be borne by
the partner who owns them.
If the things contribute are fungible, or
cannot be kept without deteriorating, or
if they were contributed to be sold, the
risk shall be borne by the partnership. In
Notes in Partnership
the absence of stipulation, the risk of shall be in proportion to what he may have
the things brought and appraised in the contributed, but the industrial partner
inventory, shall also be borne by the shall not be liable for the losses. As for
partnership, and in such case the claim the profits, the industrial partner shall
shall be limited to the value at which receive such share as may be just and
they were appraised. equitable under the circumstances. If
besides his services he has contributed
 Who bears the loss or deterioration? capital, he shall also receive a share in
o Specific/determinate non- the profits in proportion to his capital.
fungible things, only the use
is contributed:  Rules on sharing of profits and
 Res perit domino, the losses of the partners:
owner (the partner) 1. Agreement or Stipulations
shall bear the risks. shall prevail, (valid as long
o Fungible things contributed to as no one is excluded in the
be sold and become part of the sharing of losses and
partnership inventory: profits);
 Borne by the  If only the sharing in
partnership. profits has been agreed
upon, the sharing in
Art. 1796. The partnership shall be losses shall be in the
responsible to every partner for the same proportion;
amounts he may have disbursed on behalf of 2. In the absence of stipulation,
the partnership and for the corresponding profits and losses shall be
interest, from the time the expense are shared as follows:
made; it shall also answer to each partner  Losses
for the obligations he may have contracted  capital partner –
in good faith in the interest of the same proportion to
partnership business, and for risks in the capital
consequence of its management. contributions.
 industrial partner
 When a partner disbursed an amount – no share.
on behalf of the partnership, the  Profits
latter shall reimburse the former  Capital partner –
the: same proportion to
o The amount disbursed; and the capital
o The interest from the time the contributions
expenses are made.  Industrial partner
 The partnership shall also be liable – shall receive a
for obligations contracted in good just and equitable
faith by the partner under the name share + profits in
of the partnership, and for risks in proportion to his
consequence of its management. capital
contribution if
Art. 1797. The losses and profits shall be there is any.
distributed in conformity with the 3. Note: Although the industrial
agreement. If only the share of each partner is not liable for
partner in the profits has been agreed losses under this provision,
upon, the share of each in the losses the partners may stipulate
shall be in the same proportion. that the industrial partner
may still be liable in case of
In the absence of stipulation, the share there is loss.
of each partner in the profits and losses
Notes in Partnership
Art. 1798. If the partners have agreed to
intrust to a third person the designation
of the share of each one in the profits
and losses, such designation may be
impugned only when it is manifestly
inequitable. In no case may a partner who
has begun to execute the decision of the
third person, or who has not impugned the
same within a period of three months from
the time he had knowledge thereof,
complain of such decision.
The designation of losses and profits
cannot be intrusted to one of the
partners.
 The partners may agree to intrust
the designation of the profits and
losses.
o When may be impugned?
 When it is manifestly
inequitable; and
 Within 3 months from the
time a partner had
knowledge thereof.
o When may not be impugned:
 When the partner started
to execute such
designation; or
 The lapse of 3 months
from the time the
partner had the
knowledge thereof.
 However, if the designation of
profits and losses cannot be
intrusted to one of the partners.
Art. 1799. A stipulation which excludes
one or more partners from any share in the
profits or losses is void.
 It is the essence of partnership –
to share in profits and losses.
 When this article is violated, the
effects are:
o That there is no stipulation
as to the sharing in profits
and losses; and
o The profit sharing shall be in
accordance with Art. 1797(2).
 However, a stipulation that an
industrial partner will not share in
the loss is not void.
Art. 1800. The partner who has been
appointed manager in the articles of
partnership may execute all acts of
administration despite the opposition of
his partners, unless he should act in bad
faith; and his power is irrevocable
without just or lawful cause. The vote of
the partners representing the controlling
interest shall be necessary for such
revocation of power.
A power granted after the partnership has
been constituted may be revoked at any
time.
 Powers of Managing Partner:
o May execute all acts of
administration despite
opposition of partners, unless
he acted in bad faith.
o If there are no specific
restrictions as to his powers,
he has the power of a General
Agent – to exercise all the
powers necessary for the
attainment of the object of
the partnership. (Ng Ya vs.
Sugbu Commercial Co.)
 Revocation of appointment of
Managing Partner:
o When appointment is in the
articles of partnership, his
power cannot be revoked:
 Without just or lawful
cause; and
 Votes of partners
representing the
controlling interest.
o When appointment is after the
partnership has been
constitutes, his power may be
revoked at any time with or
without lawful or just cause.
Art. 1801. If two or more partners have
been intrusted with the management of the
partnership without specification of their
respective duties, or without a
stipulation that one of them shall not act
without the consent of all the others,
each one may separately execute all acts
of administration, but if any of them
Notes in Partnership
should oppose the acts of the others, the
decision of the majority shall prevail. In
case of a tie, the matter shall be decided
by the partners owning the controlling
interest.
 This is SOLIDARY MANAGEMENT.
o General rule: each manager may
execute any act of
administration without asking
for the consent of the other
managers.
o However, each manager may
object to any act or operation
before its celebration.
 Effects if despite opposition, a
managing partner executed the act:
o The act shall be void between
the partners and to third
persons (who had knowledge of
the opposition).
o The act shall be valid and
will bind the partnership to
third persons who were not
informed of such opposition.
 Exclusive and Sole Manager.
o This is when separate duties
of the managers are specified.
Art. 1802. In case it should have been
stipulated that none of the managing
partners shall act without the consent of
the others, the concurrence of all shall
be necessary for the validity of the acts,
and the absence or disability of any one
of them cannot be alleged, unless there is
imminent danger of grave or irreparable
injury to the partnership.
 This is JOINT MANAGEMENT.
o Under this, the obligation to
secure the consent of other
partners rests upon the
partner entering into a not
contract with third persons.
 As to third persons, consent of the
partners to the act of partner
entering into a contract is
presumed, unless contrary is proven.
 A third person in good faith whom
the partner contracted with is valid
and cannot be annulled, even if the
partner did not secure the consent
of the other partners. The reason is
to protect third persons from fraud
and deceit.
Art. 1803. When the manner of management
has not been agreed upon, the following
rules shall be observed:
(1) All the partners shall be considered
agents and whatever any one of them may do
alone shall bind the partnership, without
prejudice to the provisions of Article
1801.
(2) None of the partners may, without the
consent of the others, make any important
alteration in the immovable property of
the partnership, even if it may be useful
to the partnership. But if the refusal of
consent by the other partners is
manifestly prejudicial to the interest of
the partnership, the court's intervention
may be sought.
 Partners are Partnership Agents.
 Acts requiring UNANIMITY (all
partners must concur):
o Disposition or any
modification of the
partnership articles.
Art. 1804. Every partner may associate
another person with him in his share, but
the associate shall not be admitted into
the partnership without the consent of all
the other partners, even if the partner
having an associate should be a manager.
 This is the CONTRACT OF
SUBPARTNERSHIP.
o A partner may associate third
person in his share to an
existing partnership.
o However, such third person is
admitted to the
partnership by virtue of his
share in the share of a
partner in an existing
partnership.
Art. 1805. The partnership books shall be
kept, subject to any agreement between the
partners, at the principal place of
business of the partnership, and every
Notes in Partnership
partner shall at any reasonable hour have  This is article refers to
access to and may inspect and copy any of Prohibition against partner engaging
them. in business.
 However, there is no prohibition
 Each partner has right to inspect that an active partner cannot
the partnership books. acquire real properties in his own
 Reasonable hours means reasonable name and such acquisition does not
hours during business days give the other partners interest
throughout the year and not merely therein.
during some arbitrary period of a
few days chosen by managing partner. Art. 1809. Any partner shall have the
(Pardo vs. Hercules Lumber Co.) right to a formal account as to
partnership affairs:
Art. 1806. Partners shall render on demand
true and full information of all things (1) If he is wrongfully excluded from the
affecting the partnership to any partner partnership business or possession of its
or the legal representative of any property by his co-partners;
deceased partner or of any partner under (2) If the right exists under the terms of
legal disability. any agreement;

Art. 1807. Every partner must account to (3) As provided by article 1807;
the partnership for any benefit, and hold
as trustee for it any profits derived by (4) Whenever other circumstances render it
him without the consent of the other just and reasonable.
partners from any transaction connected
with the formation, conduct, or  General rule: A partner is not
liquidation of the partnership or from any entitled to a formal account.
use by him of its property.  Exceptions:
o Dissolution of partnership;
 Duty to make disclosures (Arts. o Circumstances laid down above.
1806-07)
o Co-partners are accountable
between themselves as
FIDUCIARY under all
circumstances it is duty of
each of them to render true
and full information to
others.

Art. 1808. The capitalist partners cannot

engage for their own account in any
operation which is of the kind of business
in which the partnership is engaged,
unless there is a stipulation to the
contrary.

Any capitalist partner violating this

prohibition shall bring to the common
funds any profits accruing to him from his
transactions, and shall personally bear
all the losses.