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Those who take care of he winding

CHAPTER 2: -
up or liquidation of the partnership
affairs after dissolution. (ART. 1836)
SECTION I – OBLIGATIONS OF 4. As to third persons
a) Ostensible partners
THE PARTNERS - Those who take active part and
known to the public as a partner in
Kinds of Partners: the partnership, whether or not he
1. As to contribution has an actual interest in the firm; if
a) Capitalist partners he is not actually a partner, he is
- Those who contribute money or subject to liability by the doctrine of
estoppel (ART. 1825)
property to the common fund. (ART.
b) Secret partners
1767)
b) Industrial partners - Those whose connection with the
- Those who contribute only their partnership is not known to the
industry or labor to the common public; takes an active part in the
business but not held out as a
fund. (ART. 1789, 1767)
partner by the other partners; he
c) Capitalist-industrial partners
- Those who contribute money, participates in the profits and losses
property and industry to the of the partnership.
common fund. c) Dormant partners
2. As to liability - Those who do not take active part in
a) General partner the business and are not known to
- Those who can be held liable to third the public as partners. Thus, they
persons for partnership obligations are both secret and silent partners;
synonymous with “sleeping
even to those extent of their
separate property; he may either be partner”. He may retire from the
a capitalist or industrial partner. partnership without giving notice
(ART. 1843, 1816) and cannot be held liable for the
b) Limited partner obligations of the firm subsequent to
- Those who cannot be held liable to his withdrawal. His only interest in
third persons for partnership joining the partnership would be the
obligations; (ART. 1843) he is also sharing of profits earned.
known as special partner and unlike 5. As to membership
the general partner, he does not a) Real partners
- Those partners in an existing legal
participate in the management of the
partnership.
business.
b) Partners by Estoppel
3. As to management
- Those who are not really partners
a) Managing partners
- Those who manage actively the but represent them to anyone as
business or affairs of the partners in an existing partnership or
in one that is fictitious or apparent.
partnership; he may be appointed
either in the articles of the He is liable as a partner for the
partnership or after the constitution protection of innocent third persons.
(ART. 1285) Also known as a
of the partnership; also known as a
general or real partner. (ART. 1800) “partner by implication”, “quasi-
partner” or “nominal partner”. He is
b) Silent partners
- Those who do not take active part in liable for the debts of the firm to
the business or affairs of the those who in good faith believed him
partnership although he may be to be a partner.
6. As to continuation of the business affairs after
known to be a partner and share the
profits or losses; if he withdraws dissolution
from the partnership, he must give a) Continuing partners
notice to those persons who do - Those who continue the partnership
business with the firm to escape after the dissolution of the
partnership by the reason of the
liability in the future.
c) Liquidating partners admission of anew partner, or the
retirement, death, or expulsion of OBLIGATIONS OF RIGHTS OF PARTNERS:
one or more partners. (ART. 1840) PARTNERS:
b) Discontinuing partners 1. To give their 1. Right to associate with
- Those who do not continue the promised contribution another person in their
partnership business after the (ART. 1786) share (ART. 1804)
dissolution of the partnership. 2. Not to convert 2. Right to have access
7. As to the nature of the partnership partnership money to to and inspect and copy
a) Original partners their own use (ART. partnership books (ART.
- Those who are members of the 1788) 1805)
partnership from the time of its 3. To account and hold 3. Right to demand a
constitution. as trustee for any profits formal account (ART.
b) Incoming partners derived without the 1809)
- Those who became members of the consent of the other
partnership after its establishment. partners (ART. 1807)
(ART. 1826, 1841) 4. Not to engage in any 4. Right to ask for the
c) Retiring partners business which is of the dissolution of the
- Those who withdraw from the kind in which the partnership at the proper
partnership (ART. 1840, 1841) partnership is engaged time (ART. 1830-1831)
d) Subpartner (ART. 1808)
- One, who not being a member of the 5. Obligation of 5. Property rights of
partnership, contracts with a partner managing partners to partners (ART. 1810):
with reference to the latter’s share in credit to the partnership a. Rights in specific
the partnership. (ART. 1804) the payment made by partnership property
8. As to state of survivorship the debtor who owes b. Interest in the
a) Surviving partners them and partnership partnership
- Those who continue and remain in (ART. 1792) c. Right to participate in
the partnership after its dissolution the management
by reason of death of a partner. 6. Obligation to share NOTE:
(ART. 1842) with the other partners Limited partners have no
b) Deceased partners the share of the rights to participate in
- Those who died while being a partnership credit which the management.
member of the partnership (ART. they have received from
1840) an insolvent partnership
Legal relations created by a contract of partnership debtor (ART. 1793)
7. Pay for damages
Four distinct juridical relations: suffered by the
partnership through their
1. Relations among the partners themselves;
fault (ART. 1794)
2. Relations of the partners with the partnership;
3. Relations of the partnership with third persons
with whom it contracts; and
4. Relations of the partners with such third persons.
ART. 1784. A partnership begins from the moment of the
Example: execution of the contract, unless it is otherwise
If Sehun and Suho formed a partnership called stipulated. (1679)
Seho Co., and it transacts business with Lay, a third GENERAL RULE: A partnership begins from the moment
person, the relations created will be as follows: of the execution of contract.
1. Relations between Sehun and Suho; Due to the reason that a partnership is a consensual
2. Relations between Sehun and Suho on one hand, contract; it exists from the moment of the celebration of
and Seho Co., on the other hand; the contract by the partners. Where a partnership relation
3. Relations between Seho Co. and Lay; results, the law fixes itself into the incidents of this
4. Relations between Sehun and Suho, on the one relation if the parties fail to do so.
hand, and Lay, on the other hand.
EXCEPTION: The partners can agree on some other date
for the start of the partnership, making the rule not
absolute.
1. Future partnership. – Persons who have entered Example:
the contract to become partners in the future
time do not become partners until or unless the Chanyeol, Jongin and Sehun entered into a
agreed time has arrived, or the condition has contract of partnership for the manufacture of 1,485
happened. tables for the Exodus Boarding School. As a rule, after the
2. Agreement to create partnership. – Distinction 1,485 tables were manufactured, the partnership will be
between a partnership actually consummated dissolved. However, if after the 1,485 tables were
and an agreement to enter into a contract of manufactured, and the partnership of Chanyeol, Jongin
partnership at a future time; as long as the and Sehun continued the operations of their business
partnership remains executory, no partnership without any express agreement, then the rights and
can exist. obligations of Chanyeol and Jongin will remain the same.
3. Failure to agree on material items. – Failure of PARTNERSHIP AT WILL – A partnership that does not fix
the parties to agree on material terms may not its term is a partnership at will. The birth and the life of a
merely be evidence of the parties to be bound partnership at will is predicated on the mutual desire and
only in the future but may prevent any rights or consent of the partners.
obligations from arising on either side for lack of
complete contract. • The partnership may be extended or renewed by
express agreement, written or oral, or impliedly,
Example: by the mere continuation of the business after
Baekhyun and Chanyeol entered into a contract the termination of such term or particular
of partnership on November 29, 2018. However undertaking without any settlement or
Baekhyun and Chanyeol agreed that the commencement liquidation.
of their contract of partnership will be on May 6, 2019. • The rights and duties of the partners remain the
Here, the life of their partnership begins on May 6, 2019 same as they were at such termination but only
as agreed upon and not on November 29, 2018. insofar as it is consistent with a partnership at
will.
ART. 1785. When a partnership for a fixed term or • Continuation of the partnership for a fixed term
particular undertaking is continued after the termination or particular undertaking is dissolved and a new
of such term or particular undertaking without any one, a partnership at will, is created and
express agreement, the rights and duties of the continued existence will depend upon the will of
partners remain the same as they were at such the partners.
termination, so far as is consistent with a partnership at • Any one of the partner, for his sole pleasure,
will. dictate a dissolution of partnership at will due to
the reason that a partnership relationship is a
A continuation of the business by the partners or such
personal one, thus the law will not force any one
of them as habitually acted therein during the term,
to continue as a partner or to become a partner.
without any settlement or liquidation of the partnership
However, he must act in good faith because the
affairs, is prima facie evidence of a continuation of the
attendance of bad faith can result to incurring
partnership. (n)
liability for damages to the other partners. It must
PARTNERSHIP WITH A FIXED TERM – Where the life or not also be made in an improper or unreasonable
period of existence of the partnership has been agreed time.
upon by the partners. • There is no such thing as an indissoluble
partnership.
Example:
ART. 1786. Every partner is a debtor of the partnership
Jongdae and Minseok entered into a contract of for whatever he may have promised to contribute
partnership for a period of 7 years. As a rule, after the thereto.
expiration of 7 years the partnership of Jongdae and
Minseok will be dissolved. However, if after 7 years and He shall also be bound for warranty in case of eviction
the partnership of Jongdae and Minseok continued the with regard to specific and determinate things which he
operation of their partnership without any express may have contributed to the partnership, in the same
agreement, then the rights and obligations of Jongdae cases and in the same manner as the vendor is bound
and Minseok will remain the same. with respect to the vendee. He shall also be liable for
the fruits therefrom from the time they should have been
Jongdae, when assigned as the managing delivered, without the need of any demand. (1681a)
partner, he will still be the managing partner despite the
lapse of 7 years. Obligations with respect to the contribution of property

PARTNERSHIP FOR A PARTICULAR UNDERTAKING – 1. To contribute at the beginning of the partnership


Where it will exist until the purpose is accomplished. or at the stipulated time the money, property or
industry which he may have promised to • The injury therefore, to the partnership is
contribute; constant.
2. To answer for eviction in case the partnership is
deprived of the determinate property ART. 1787. When the capital or a part thereof which a
contributed; partner is bound to contribute consists of goods, their
3. To answer to the partnership for the fruits of the appraisal must be made in the manner prescribed in the
property the contribution of which he delayed, contract of partnership, and in the absence of
from the date they should have been contributed stipulation, it shall be made by experts chosen by the
up to the time of actual delivery. partners, and according to current prices, the
4. To preserve said property with the diligence of a subsequent changes thereof being for the account of
good father of a family pending delivery to the the partnership. (n)
partnership (ART. 1163); Appraisal of goods or property contributed
5. To indemnify the partnership for any damage
caused to it by retention of the same or by delay 1. Need for appraisal. – The appraisal of the value
in its contribution. (ART (1788. 1170) of the goods contributed is necessary to
• The money or property contributed by a partner determine how much has been contributed by
becomes the property of the partnership. It the partners.
cannot be withdrawn or disposed of by the a. In the absence of stipulation, the share
contributing partner without the consent or the of each partner in the profits and losses
approval of the partnership or other partners. is in proportion to what he may have
contributed. (ART.1797)
Effect of failure to contribute property promised b. The appraisal is made firstly, in the
1. Liability as debtor to partnership. – Mutual manner prescribed by the contract of
contribution is the essence of the contract of partnership; secondly, in the absence of
partnership (ART. 1767). It is logical that the stipulation, by experts chosen by the
failure to contribute is to make the partner partners and according to the current
automatically a debtor of the partnership even in prices.
the absence of demand. c. After the goods have been contributed,
2. Remedy of other partners. – The remedy under the partnership bears the risk or gets the
this article is not rescission or cancellation of the benefit of subsequent changes in their
partnership but an action for specific value.
performance (to collect what is owing) with 2. Property subject to appraisal. – In the case of
damages and interest from the defaulting partner immovable property, the appraisal is made in the
from the time he should have complied with the inventory of said property (ART. 1773, 1795);
obligation. otherwise, it may be provided in ART. 1787. It
EXCEPTION: ART. 1838 allows rescission or can also be applied with respect to other kinds of
annulment of a partnership contract on the property.
ground of fraud or misrepresentation committed ART. 1788. A partner who has undertaken to contribute
by one of the parties thereto. a sum of money fails to do so becomes a debtor for the
interest and damages from the time he should have
Liability of partner in case of eviction complied with his obligation.
• This is governed by the law of sales in where the
partner is bound in the same cases and in the The same rule applies to any amount he may have taken
same manner as the vendor bound with the same from the partnership coffers, and his liability shall begin
respect to the vendee from the time he converted the amount to his own use.
• ART. 1548 says that Eviction shall take place (1682)
whenever by a final judgment based on a right This article contemplates two distinct cases. The first
prior to the sale or an act imputable to the paragraph refers to money promised but not given on
vendor, the vendee is deprived of the whole or a time and the second, to partnership money converted to
part of thing purchased. the personal use of the partner.
• The obligation of warranty in case of eviction is
in consequence of the character of the contract Obligations of the partners with respect to the
of partnership which is an onerous contract partnership capital under ART. 1788
(ART. 1767)
1. To contribute on the date due the amount he has
Liability of partner for fruits and property delayed undertaken to contribute to the partnership;

• No demand is necessary to put the partner in


default.
2. To reimburse any amount he may have taken partner is to engage in the same business in
from the partnership coffers and converted to his which the partnership is engaged or in any kind
own use; of business.
3. To pay the agreed or legal interest, if he fails to REASON: Is to prevent any conflict of interest
pay his contribution on time or in case he takes between the industrial partner and the
any amount from the common fund and converts partnership and to insure faithful compliance by
it to his own use; and said partner with his obligation.
4. To indemnify the partnership for the damages 2. As regards capitalist partners. – Prohibition
caused to it by delay in the contribution or the extends only to any operation which is of the
conversion of any sum for his personal benefit. same kind of business in which the partnership
is engaged unless there is a stipulation to the
Liability of the guilty partner for interest and damages contrary. (ART. 1808)
1. Accrual of liability. – The guilty partner is liable
Remedies where industrial partner engages in business
for both interest and damages not from the time
judicial (i.e. filing of action or complaint in court) If the industrial partner engages in business to himself,
or extrajudicial demand is made but from the without the express permission of the partnership, the
time he converted the amount to his own use, as capitalist partners have the right either to exclude him
the case may be. from the firm or to avail themselves of the benefits which
2. Justification for double responsibility. – It is an he may have obtained.
exception to the general rule in damages that
obligations consisting in the payment of a sum of 1. The capitalist partners have a right to damages.
money, the indemnity for damages shall only be The permission must be express to exempt him
the payment of interest agreed upon or, in the from liability.
absence of stipulation, the legal interest of 6% 2. Not only the capitalist partner but also industrial
(but 12% by virtue of Central Bank Circular No. partners are also entitled to remedy granted
416) since they are equally prejudiced by the act of
their co-partner engaging in business for himself.
It is in harmony with the principle in this article ART. 1790. Unless there is a stipulation to the contrary,
that every partner is responsible to the the partners shall contribute equal shares to the capital
partnership for damages suffered by it through of the partnership. (n)
his fault and is justified by the nature of the
contract of partnership The partners can stipulate the contribution of unequal
shares to the common fund, but in the absence of such
ART. 1789. An industrial partner cannot engage in stipulation, the presumption is that their contribution shall
business for himself, unless the partnership expressly be in equal shares.
permits him to do so; and if he should do so, the
The rule is not applicable to an industrial partner unless,
capitalist partners may either exclude him from the firm besides his services, he has contributed capital pursuant
or avail themselves of the benefits which he may have
to an agreement to that effect. (ART. 1797)
obtained in violation of this provision, with a right to
damages in either case. (n) Example:

An industrial partner is one who contributes his industry, Kyungsoo and Jongin formed a partnership to
labor or services to the partnership. He is considered the engage in the selling of fried chicken. Kyungsoo
owner of his services, which are his contribution to the contributed P148,500.00 while Jongin contributed his
common fund. services. Adjacent the stall of the fried chicken shop,
Kyungsoo opened a spa. At the other side, Jongin opened
Unless the contrary is stipulated, he becomes a debtor of a fries and chicken shop. May Kyungsoo and Jongin
the partnership for his work or services from the moment engage in separate businesses?
of the commencement of partnership. The partnership Kyungsoo may engaged in the spa business as it
acquires an exclusive right to avail itself of his industry. is not of the same kind as the business of the partnership.
While Jongin, may not engage in any kind of business,
Consequently, if he engages in business for himself, such without the consent of Kyungsoo, because as an
act is considered prejudicial to the interest of the other industrial partner he must devote his full time to the
partners. partnership.

Prohibition against engaging in business ART. 1791. If there is no agreement to the contrary, in
1. As regards an industrial partner. – Prohibition is case of an imminent loss of the business of the
absolute and applies whether the industrial partnership, any partner who refuses to contribute an
additional share to the capital, except an industrial The provisions of this article are understood to be
partner, to save the venture, shall be obliged to sell his without the prejudice to the right granted to the debtor
interest to the partners (n) by ART. 1252, but only if the personal credit of the
partner should be more onerous to him. (1684)
GENERAL RULE: A capitalist partner is not bound to
contribute to the partnership more than what he agreed RATIONALE: To prevent furtherance of the partner’s
to contribute. personal interest to the detriment of the partnership. The
above-stated article is not applicable to a manager who is
IN CASE, of an imminent loss of the business, and there not a managing partner because there is no basis for the
is no agreement to the contrary, he is under obligation to
suspicion that the partner is in bad faith.
contribute an additional share to save the venture. If he
refuses to contribute, he shall be obliged to sell his Requisites for the application of article
interest to the other partners.
1. There exist at lease two debts, one where the
Requisites before a capitalist partner may be obliged to collecting partner is creditor, and the other,
sell his interest to the others: where the partnership is the creditor;
2. Both debts are demandable; and
1. There is an imminent loss of the business of the 3. The partner who collects is authorized to manage
partnership;
and actually manages the partnership.
2. The majority of the capitalist partners are of the
opinion that an additional contribution to the
common fund would save the business;
3. The capitalist partner refuses (not because of Example:
financial inability to do so) to contribute an Minseok and Baekhyun are partners in CBX Co.,
additional share to the capital; and with Minseok as the managing partner. Jongdae is
4. There is no agreement that even in case of an indebted to Minseok in the sum of P7,000.00. Jongdae is
imminent loss of the business the partners are also indebted to the partnership in the sum of
not obliged to contribute. P13,000.00. Both debts are demandable and Minseok
NOTE: The industrial partner is exempted from the collects the amount of P1,485.00 from Jongdae.
requirement to contribute an additional share. Having 7,000 + 13,000 = 20,000
contributed his entire industry, he can do nothing further.
7000/20,000 * 1,485 = 965.75
Reason for sanction
If Minseok issues a receipt to the effect that it is
It reflects his lack of interest in the continuance of the in payment of his credit, P519.75 will be applied only in
partnership. It would be unjust for him to remain and reap his credit, the partnership being entitled to a
the benefits of the efforts of the others while he himself proportionate amount of P965.75 in the payment by
refuses to help. Jongdae.
The law provides a remedy is just to both parties since But if Minseok gives a receipt for the account
the partner who refuses to contribute is paid the value of only of the partnership credit, the amount of P1,485.00
the interest while the other partners are thereby relieved will be fully applied to the latter.
from the burden of continuing their association with him
in the business. Reason for applying payment to partnership credit

NOTE: Contract of partnership is governed by the The law safeguards the interests of the partnership by
principle of fiduciary relationship, that is trust and preventing the possibility of their being subordinated by
confidence, so that if a capitalist partner is not willing to the managing partner to his own interest to the prejudice
make additional contribution, then there is no fiduciary of the other partners. The managing partner must attend
relationship to speak of. Of course, the above-article more to the interest of the partnership than to his own
presumes that the capitalist partners are solvent. and he should not intentionally fail to effect the collection
of his own. (11 MANRESA 351).
ART. 1792. If a partner authorized to manage collects a
demandable sum, which was owed to him in his own If the partners participate in the management of the
name, from a person who owed the partnership another partnership (ART. 1803) then every partner shall be
sum also demandable, the sum thus collected shall be considered a managing partner for purposes of ART.
applied to the two credits in proportion to their 1792.
amounts, even though he may have given a receipt for
Right of debtor to application of payment
his own credit only; but should he have given it for the
account of the partnership credit, the amount shall be Under the second paragraph, the debtor is given the right
fully applied to the latter. to prefer payment of the credit of the partner if it should
be more onerous to him in accordance with his right to lessen this responsibility if through the partner’s
application of payment. (ART. 1252) extraordinary efforts in other activities of the
partnership, unusual profits have been realized.
Example: (1686a)
If the obligation in favor of Minseok bears 14% This article follows the general rule to all contracts that
interest per annum while that in favor of the partnership
any person guilty of negligence or fault in the fulfillment
is 13% per annum, the credit of Minseok being more
of his obligation, shall be liable for damages. (ART. 1170)
onerous or burdensome, the law allows Jongdae to prefer
the payment of Minseok’s credit in case he so desires. The partner’s fault, however, must be determined in
accordance with the nature of the obligation and the
ART. 1793. A partner who has received, in whole or in circumstances of the person, the time, and the place.
part, his share of a partnership credit, when the other (ART. 1173)
partners have not collected theirs, shall be obliged, if
the debtor should thereafter become insolvent, to bring Compensation of damages with profits earned for
to the partnership capital what he received even though partnership by guilty partner
he may have given receipt for his share only. (1685a)
1. Damages generally not subject to set-off. – As
The difference between the ART. 1792 and this article is a general rule, the damages caused by a
that it treats two cases, one in favor of the partnership partner to the partnership cannot be
and another in favor of the managing partner, whereas compensated or offset by the profits or
this article has only one credit – credit in favor of the benefits which he may have earned for the
partnership. partnership by his industry.
a. The partner has the obligation to
This article applies whether the partner who receives the secure benefits for the partnership.
share of the partnership credit is authorized to manage or The profits which he ma have earned
not. pertain as a matter of law or right to
Requisites for application of rule the partnership.
b. He has also the obligation to exercise
1. A partner has received, in whole, or in part, his diligence in the performance of his
share of partnership credit; obligation as a partner. There cannot
2. The other partners have not collected their be any compensation even if the
shares; and partner is a debtor in the partnership
3. The partnership debtor has become insolvent. for his industry and at the same time
obliged to repair the injury which he
Example:
might have occasioned through his
Baekhyun owes partnership SKY Co. P6,000.00. fault.
Chanyeol, a partner receives share of P1,485.00 ahead of 2. Exception. – If unusual profits are realized
Jongin and Sehun, the two other partners. When Jongin through the extraordinary efforts of the
and Sehun were collecting from Baekhyun, the latter was partners at fault, the courts are authorized by
already insolvent. the law to equitably mitigate or lessen his
liability for damages. This rule rests in equity.
In this case, even if Chanyeol had given receipt
for his share only, he can be required to share the ART. 1795. The risk of specific and determinate things
P1,485.00 with Jongin and Sehun. which are not fungible, contributed to the partnership
so that only their use and fruit may be for the common
Reason for imposing obligation to return benefit, shall be borne by the partner who owns them.
The debt of Baekhyun becomes a bad debt. It would be If the things contributed are fungible, or cannot be kept
unjust and unfair for Chanyeol not to share in the loss to without deteriorating, or if they were contributed to be
Jongin and Sehun or for him to obtain more and Sehun sold, their risk shall be borne by the partnership. In the
and Jongin, less. The above provision is based on the absence of stipulation, the risk of things brought and
community of interest among the partners which is one appraised in the inventory, shall also be borne by the
of the underlying principles of the contract of partnership. partnership, and in such case the claim shall be limited
(11 MANRESA 353: ART. 1770, PAR. 1) to the value at which they were appraised. (1687)
ART. 1794. Every partner is responsible to the There are five cases contemplated by the present article
partnership for damages suffered by it through his fault, for the determination of the risk of things contributed to
and he cannot compensate them with the profits and the partnership, namely:
benefits which he may have earned for the partnership
by his industry. However, the courts may equitably
1. Specific and determinate things which are not expenses are made (not from date of demand).
fungible where only the use is contributed. – Here the law refers to loans or advances made
The risk is borne by the partner because he by the partner to the partnership other than
remains the owner of the things (e.g. car or capital contributed by him;
truck); Example:
2. Specific and determinate things the Sehun and Suho formed the Seho
ownership of which is transferred to the partnership. Subsequently, Suho purchased
partnership. – The risk is for the account of office supplies on the amount of P13,000.00
the partnership, being the owner; out of his own money with the consent of
3. Fungible things or things which cannot be Sehun on April 6, 2018.
kept without deteriorating even if they are In this case, Seho partnership must
contributed only for the use of partnership. – reimburse the amount of P13,000.00.
The risk of loss is borne by the partnership for If Seho partnership reimbursed Suho
evidently the ownership was being transferred only on May 6, 2018, the partnership will be
since use is impossible without the things liable for legal interest for one month.
being consumed or impaired. 2. To answer for the obligation (e.g., purchase
*FUNGIBLE THINGS are things or goods of price of supplies needed by the partnership) he
which any unit is, from its nature or mercantile may contracted in good faith in interest of the
usage, treated as the equivalent of any other partnership business; and
unit such as oil, wine, rice and etc. Example:
4. Things contributed to be sold. – The Chanyeol and Baekhyun formed
partnership bears risk of loss for there cannot Chanbaek partnership to engage in car repair
be any doubt that the partnership was intended shop. Subsequently, Chanyeol purchased on
to be the owner; otherwise, the partnership credit car accessories from KLT Corp. in the
could not effect the sale; and amount of P140,000.00. In this case, Chanbaek
5. Things bought and appraised in the partnership is answerable to KLT Corp. for
inventory. – The partnership bears the risk of payable of P140,000.00
loss because the intention of the parties was to 3. To answer for risks (eg., loss of his property
contribute to the partnership the price of the accidents) in consequence of its management.
things contributed with an appraisal in the Being a mere agent, the partner is not
inventory. There is thus an implied sale making personally liable, provided, however. That he is
the partnership owner of the said things. free from all fault (ART. 1912) and he acted
within the scope of his authority. (ART 1897,
This article presupposes that the things contributed have 1898, 1910, PAR. 2)
been delivered actually or constructively to the Example:
partnership. Before the delivery, the risk of loss is borne The articles of Partnership CBX
by the partner. (ART. 712, 1164, 1262, 1263). composed of Jongdae, Baekhyun and Minseok
If the loss is due to the fault of any of the partners, he provides that any purchase in excess of
shall be liable for damages, to the partnership in P50,000.00 must first be approved by the
accordance with the provision of preceding article. partners. Minseok made a purchase of goods
out of his personal funds for P70,000.00
ART. 1796. The partnership shall also be responsible to without the knowledge and the approval of
every partner for the amounts he may have disbursed Jongdae and Baekhyun. The partnership
on the behalf of the partnership and for the incurred a loss.
corresponding interest, from the time the expenses are In this case, Minseok is not entitled to be
made; it shall also answer to each partner for the reimbursed for the purchase.
obligations he may have contracted in good faith in the
interest of the partnership business, and for risks in ART. 1797. The losses and the profits shall be
consequences of its management. (1688a) distributed in conformity with the agreement.
In the absence of any stipulation to the contrary, every If only the share of each partner in the profits
partner is an agent of the partnership for the purpose of has been agreed upon, the share of each in
its business. (ART. 1818) Hence the obligation of the the losses shall be in the same proportion.
partnership to every partner:
In the absence of stipulation, the share of
1. To refund amounts disbursed by him in behalf each partner in the profits and losses shall be
of the partnership (e.g., advances for in proportion to what he may have
partnership debts and payables) plus the contributed, but the industrial partner shall
corresponding interest from the time the not be liable for losses. As for the profits, the
industrial partner shall receive such share as Total ………………… P 60,000.00
may be just and equitable under the
circumstances. If, beside his services he has In the absence of stipulation, the
contributed capital, he shall also receive a share of each partners shall be in
share in the profits in proportion to his proportion to his contribution, that is:
capital. (1689a) Kyungsoo ………………………. 3/6

Rules for distribution of profits and losses Baekhyun ………………………… 2/6


1. Distribution of profits:
Jongdae …………………………. 1/6
a. The partners share the profits
according to their agreement subject If Junmyeon is an industrial
to ART. 1799. partner, he shall receive such share as
b. If there is no such agreement: may be just and equitable under the
1) The share of each capitalist circumstances. Assuming that the
partner shall be in proportion partnership makes a profit of
to his capital contribution. P17,000.00, the partners may determine
This rule is based on the considering all the circumstances, that
presumed will of the Suho, an industrial partner, is entitled to
partners. P2,000.00. The balance of P15,000.00
2) The industrial partner shall will be divided among Kyungsoo,
receive such share, which Baekhyun and Jongdae in proportion to
must be satisfied first before their capital contributions.
the capitalist partners shall
divide the profits, as may be Now if Junmyeon, aside from
just and equitable under the his services, contributed P4,000.00,
circumstances. The share of then, he will also share in the balance of
an industrial partner in the P15,000.00 in proportion to his
profits is not fixed as in the contribution which is 1/16 (4000/64,000)
case of the capitalist partners or P937.50. Kyungsoo, Baekhyun and
as it is very difficult to Jongdae will share P7,031.25, P4,687.50
ascertain the value of the and P2,343.75, respectively.
services of a person. 2. Distribution of losses:
Example: a. The losses shall be distributed
according to their agreement subject
Kyungsoo, Baekhyun and to ART. 1799.
Jongdae formed a partnership, whereby b. If there is no such agreement, but the
each of them contributed P40,000.00. contract provides for the share of the
They agreed that should the partnership partners in the profits, the share of
realize profits, the same shall be each losses shall be in accordance
distributed in the following proportions: with profit-sharing ratio, but the
industrial partner shall not be liable for
Kyungsoo as managing partner … 40% losses. The profits or losses of the
Baekhyun ……………………….. 30% partnership cannot be determined by
taking into account the result of one
Jongdae ………………………… 30% particular transaction but of all the
In this case, the partners shall transactions had.
share the profits in conformity with their c. If there is also no profit-sharing
agreement. If there is no agreement with stipulated in the contract, then losses
shall be borne by the partners in
respect to the share of each partner,
then, they shall share the profits equally. proportion to their capital
contributions, but the purely industrial
Suppose, the contributions of the partner shall not be liable for the
partners are as follows: losses.
Kyungsoo ……………… P30,000.00 Example:
Baekhyun …………….... P 20,000.00 In the same example, the partners will
share in the losses in conformity with their
Jongdae ……………….. P 10,000.00 agreement. If they failed to agree as to the
sharing of losses, the share of each partner in ART. 1799. A stipulation which excludes one or more
the losses shall be in the same proportion partners from any share in the profits or losses is void.
stipulated with regard to the share of each (1691)
profits, to wit:
Stipulation excluding partner from any share in the
Kyungsoo ………………………….. 40% profits or losses
Baekhyun ………………………….. 30%
1. Stipulation generally void, but the
Jongdae …………………………… 30% partnership subsists. – As a general rule, the
If there is also no profit-sharing ratio law does not allow a stipulation excluding one
stipulated, then the losses shall be divided in or more partners from any share in the profits
proportion to their capital contributions. or losses. The partnership exists for the
common benefit of the partners (ART. 1770).
Junmyeon, however, being an industrial partner,
shall not be liable for losses but the same shall However, although the stipulation is void, the
be borne by Kyungsoo, Baekhyun and Jongdae, partnership, if otherwise valid, subsists and the
the capitalist partners. However, if Junmyeon is profits or losses shall be apportioned if there
also a capitalist partner, then he shall share in the were no stipulation of the same (ART. 1797,
PAR .2).
losses in proportion to his contribution.
2. Stipulation, a factor to show no partnership
ART. 1798. If the partners have agreed to intrust to a exists. – Where the parties expressly stipulate
third person the designation of the share of each one in that there shall be no liability for losses, or
the profits and losses, such designation may be where from the nature of the contract, it is
impugned only when it is manifestly inequitable. In no clear that a party did not intend to share in the
case may a partner who has begun to execute the losses, such fact that may be a factor in
decision of the third person, or who has not impugned determining that no partnership exists.
the same within a period of three months from the time 3. Where partner is excluded is industrial
he had knowledge thereof, complain of such decision. partner. – A stipulation exempting him from
the losses is naturally valid. This is without
The designation of losses and profits cannot be prejudice, however, to the rights of the third
intrusted to one of the members. (1690) persons. (ART. 1817) He will not be liable for
• The designation of the share of profits and losses losses unless he waived his right.
may be delegated to a third person by common REASON: An industrial partner cannot
consent. withdraw any labor or industry he had already
• It speaks of third person, not a partner, following exerted, he already has shared in the losses in
the general rule in contracts that the fulfillment that, if a partnership shows no profit, this
of a contract cannot be left to the will of one of means he labored in vain. (11 MANRESA 377)
the contracting parties alone. (ART. 1308, 1309) 4. Where stipulation provides for unequal
• The prohibition in the second paragraph against shares. – This does not mean that the partners
intrusting the designation of losses and profits to cannot stipulate for unequal shares in the
one of the partners is necessary to guarantee the profits or losses even if their respective
outmost impartiality in the distribution of shares contributions are equal, unless the inequality is
in the profits and losses (11 MANRESA 375) so gross that it is, in effect, simulated form or
• The designation of the third person would attempt to exclude a partner from any share in
generally be binding unless manifestly the profits or losses. (11 MANRESA, 377)
inequitable. ART. 1800. The partner who has been appointed
• Even if the partner has begun to execute the manager in the articles of partnership may execute all
decision of the third person or who fails to acts of administration despite the opposition of his
impugn the same within three months from the partners, unless he should act in bad faith; and his
time he had knowledge of it cannot no longer power is irrevocable without just or unlawful cause. The
complain. In this case, the partner is deemed vote of the partners representing the controlling
guilty of estoppel or to hace given his consent or interest shall be necessary for such revocation of
ratification to the designation. power.
• REASON: The comparatively short period of
three months within which to impugn the A power granted after the partnership has been
designation is to forestall any paralyzation in the constituted may be revoked at any time. (1692a)
operations of partnership.
• Unless the partnership agreement provides
otherwise, each partner in a general partnership
has a right to an equal voice in the conduct and b. The manager of a partnership engaged
the management of the partnership business and in buying and selling is clothed with
this right is not dependent on the amount or size sufficient authority even without the
of the partner’s capital contribution or services to approval of the other partners to
a partnership. They can also select a managing purchase on credit as it is usual or
partner or allocate the functions as the needs of customary to buy and sell on credit.
the business dictates especially in a large c. The managing partner has authority to
partnership. dismiss an employee particularly when
• Speaks of two distinct cases of appointment: there is justifiable cause for dismissal,
1) A managing partner appointed by the after complying with the requirements
common agreement in the articles of prescribed by law of terminating
partnership may execute all acts of employment.
administration including the right to sue 2. EXCEPTIONS: When the powers of the
debtors of partnership in case of failure managers are specifically restricted or
to pay their obligations when it becomes expressly withheld. A managing partner cannot
due and demandable. His power is also exercise powers which are neither
revocable only upon just and lawful necessary nor incidental to carry out the object
cause and upon the vote of the partners of the partnership.
representing the controlling interest. Hence, unless expressly granted:
REASON: The revocation represents a a. A partner designated as one of the
change in the terms of the contract; a managers to take charge of “selling
novation. It is only logical that such fish in Manila and the purchase of
appointment should not be revoked supplies” has no authority to purchase
without the consent of all partners for the partnership a “barge, a truck,
including the partner thus appointed. It is and an adding machine,” inasmuch as
an elementary rule that no party to a neither these properties can be
contract can violate the law of the considered as “supplies for the
contract without the consent of others. partnership business.”
(11 MANRESA, 380) b. Neither can the managing partner of a
2) Appointment as manager after partnership formed for the purpose of
constitution of the partnership can be operating a tailoring shop, sell or
revoked at any time for any cause or convey the tailoring shop which is
whatsoever. partnership property without the
REASON: In such case, the revocation is consent o f all the partners.
not founded on a change of will on the c. A managing partner may not bind the
part of the partners, the appointment not partnership by a contract wholly
being a condition of the contract. It is foreign to its business. Thus, he has
merely a simple contract of agency, no authority to execute a mortgage on
which may be revoked any time (ART. the firm’s property to secure the debt
1920). It is believed that the vote for of a third person for which the firm is
revocation must also represent the not liable.
controlling interest.
Compensation for services rendered
• In this article, it refers to a partner, not a
stranger, who has been appointed as manager. 1. Partner not generally entitled to
As a rule, a partner is not entitled to compensation. – In the absence of an
compensation for his services other than his agreement to the contrary, no partner is
shares of profits. entitled to compensation for his services to the
partnership without the consent of all the
Scope of power as a managing partner partners.
1. GENERAL RULE: A partner appointed as REASON: In helping to manage the partnership
manager has all the necessary and incidental affairs, he is practically taking care of his own
powers to carry out the object of the interest or managing his own business.
partnership in the transaction of the business. 2. EXCEPTION: In proper cases, it can be implied
Hence, unless expressly withheld: from the circumstances that the parties
a. The minor power to issue a receipt is intended a partner to receive additional
included in the general powers of the compensation as where the partner’s work was
manager as this is in keeping with beyond normal partnership functions (e.g.,
present day business dealings. saving partnership property from a flood for
which a partner spent much time and effort and were in favor, with Chanyeol, Chen and
incurred expense) or in a capacity other than Suho against, the contract is not valid; if
that of a partner (e.g., performing clerical D.O. and Chen were the ones who
services of a resigned employee). originally vote in favor of the contract
and subsequently, Suho sided with
ART. 1801. If two or more partners have been intrusted them, the transaction is deemed ratified
with the management of the partnership without by the controlling interest in the
specification of their respective duties, or without partnership.
stipulation that one of them shall not act without the 3) Suppose after a tie, the voting is as
consent of others, each one may separately execute all follows: D.O., Kai and Suho in favor, and
acts of administration, but if any of them should oppose Chanyeol, Baekhyun and Chen – against,
the acts of the others, the decision of the majority shall both sides representing of 50% of the
prevail. In case of tie, the matter shall be decided by interest, with neither side willing to give
the partners controlling interest. (1693a) way to the other, what should be the
rule? The law is silent on this point. It is
• RULE: Each one of may separately perform acts believed that in such case the contract
of administration. should be considered as having been
a. If one or more of the managing partners entered into without authority. In other
shall oppose of the acts of the others, words, when the partners re equally
then the decision of the majority shall divided, those who vote against the
prevail. Only those entrusted with the contract or who resist must prevail.
management of the partnership have the
right to oppose, not by any partner. The best solution is for the partners to
b. In case of tie, the matter shall be decided dissolve the partnership. D.O. shall be
by the vote of the partners owning the responsible for damages if it is found
controlling interest, that is, more than that he was at fault. (ART. 1794)
50% of the capital investment. (ART.
492) If the contract is merely proposed, it may
• If there is specification of the respective duties of or may not be entered into depending
the managing partners, the decision of each upon the decision of the majority of the
partner concerned shall prevail subject only to managing partners or of the controlling
the limitation that he should act in good faith. interest, as the case may be.

Rule of application: ART. 1802. In case it should have been stipulated that
1. Two or more partners have been appointed as none of the managing partners shall act without the
managers; consent of the others, the concurrence of all shall be
2. There is no specification of their respective necessary for the validity of the acts, and the absence
duties; and of disability or any one of them cannot be alleged,
3. There is no stipulation that one of them shall unless there is imminent danger or grave or irreparable
not act without the consent of all the others. injury to the partnership. (1694)

Example: GENERAL RULE: Unanimous consent of all the managing


partners (even if one of the managers is absent or
The respective interests of the
incapacitated) shall be necessary for the validity of the
partnership are as follows: D.O. – 5%, Kai – 10%,
acts and absence or disability of any managing partner
Chanyeol - 15%, Baekhyun – 15%, Chen – 20%.,
cannot be alleged.
and Suho – 35%.
1) D.O., Kai, and Chen were appointed as EXCEPTION: When there is imminent danger of grave or
managing partners without specification irreparable injury to the partnership, a partner may act
of their respective duties. A contract alone without the consent of the partner who is absent or
entered into by D.O., if with the under disability without prejudice to the former’s liability
conformity of Kai although against the for damages under ART. 1794.
objection of Chen is valid.
2) If the managing partners are D.O., Kai. The consent of the managing partners are also not
Chanyeol and Chen, and Chanyeol sided necessary in routine transactions.
with Chen so that there was a tie and
when the matter was put to a vote of all
the partners, D.O., Kai, and Baekhyun
ILLUSTRATIVE CASE: controlling interest. In case of tie, the controlling
Facts: Luhan sold to Kris, one of the managing partners interest shall govern.
of Partnership EXO-M, the other being Tao, a certain 2) Unanimous consent required for any important
number of mining claims without the consent of Tao. In alteration in immovable property of
an action by Luhan to recover the unpaid balance of the partnership. – Under the second paragraph, it is
purchase price against Partnership EXO-M, Tao claims necessary for any important alteration of
that the contract is not binding upon the partnership for immovable property of the partnership. The
the reason that under the articles of partnership, there is consent need not to be express. It may be
a stipulation that one of the partners cannot bind the firm presumed from the fact of knowledge of the
by a written contract without the consent of others. alteration without imposing any objection.
Issue: Is the transaction made by Kris binding upon the a. This prohibition applies only to
partnership? immovable property because pf the
Held: Yes. The stipulation undoubtedly creates an greater importance of this kind of
obligation between the two partners, which consists in property as compared to movable
asking the other’s consent before contracting for the property (11 MANRESA 391-391). An act
partnership. This obligation, of course, is not imposed of strict dominion is observed when an
upon a third person who contracts with a partnership. important alteration has been made in
the immovable property of the
A third person may and has a right to presume the partnership.
managing partner with whom he contracts has, in the b. If the refusal to give consent by the other
ordinary and usual course of business, the consent of his partners is manifestly prejudicial to the
co-partner or otherwise he would not enter into the interest of the partnership, the
contract. intervention by the court may be sought
REASON: To protect a third person who contracts with for authority to make the necessary
one of the managing partners from fraud or deceit to alteration.
which he can be an easy victim. c. Under the second paragraph, if the
alteration of the immovable property is
ART. 1803. When the manner of management has not necessary for its preservation, not
been agreed, the following rules shall be observed: merely useful to the partnership, the
1) All of the partners shall be considered agents consent of the partners is not required.
and whatever any one of them may do alone
shall bind the partnership, without prejudice to ILLUSTRATIVE CASE:
the provisions of ART. 1801. Facts: Kai, Sehun and Chanyeol organized a partnership
2) None of the partners may, without the consent for the purpose of engaging in the transportation
of the others, make any important alteration in business. Without a previous express authority, Kai
the immovable property of the partnership, contracted an indebtedness for automobile supplies and
even if it may be useful to the partnership. But accessories.
if the refusal of consent by the other parties is
manifestly prejudicial to the interest of the Issue: Are the partnership and the partners are liable for
partnership, the court’s intercession is sought. said indebtedness?

Rules when the manner of management has not been Held: Yes. There being no agreement with regards to the
agreed upon: manner of management, all the partners are considered
agents of the partnership. Kai must be deemed to have
1) All partners considered managers. – All of them authority to contract the indebtedness in question
shall be considered managers and agents and inasmuch as it was incurred in the prosecution of the
whatever any one of them may do alone shall partnership business.
bind the partnership subject. However, under this
article’s provision, in case of timely opposition of ART. 1804. Every partner may associate another with
any partner, the matter shall first be decided by him in his share, but the associate shall not be admitted
the majority vote for the presumed intent is for to the partnership without the consent of all the other
all the partners to manage. If there is a tie, the partners, even if the partner having an associate should
matter shall be decided by the vote of the be the manager. (1696)
partners representing the controlling interest. Contract of sub-partnership
Example:
Thus, in the example given in ART. 1801, 1. Nature. – A partner can associate another
if D.O., Kai, Chanyeol and Baekhyun are in favor person with him in his share without the
of a particular transaction, their decision shall consent of the other partners which is referred
prevail although they do not represent the to as sub-partner.
The partnership formed between a member of ART. 1805. The partnership books shall be kept, subject
partnership and a third person for a division of to any agreement between the partners, at the principal
profits coming to him from the partnership place of a business of the partnership, and every
enterprise is termed subpartnership. partner shall at any reasonable hour have access to and
A subpartnership is a partnership within a may inspect and copy any of them. (n)
partnership but is separate and distinct from
the latter. • The duty to keep true and correct books showing
2. Division of profits. – How profits between the the firm’s accounts, such books being at all times
members of the subpartnership are to be open to inspection of all members of the firm
divided is immaterial, and the mere fact that the primarily rests on the managing or active partner
one who is not a partner of the original or the particular partner given record-keeping
partnership is to receive the entire profits of duties.
the business will not prevent the formation of • It is presumed that the partners have knowledge
a subpartnership. of the contents of the partnership books and that
said books state accurately the state of accounts.
Right of person associated with partner’s share • A partner is a co-owner of the partnership
• Subpartnership agreements do not in any way properties (ART. 1811) which include the books
affect the composition, existence, or operations of partnership.
of the firm. • Subject to any agreement in the contrary, the
• Not being a member of the partnership, he does partnership books should be kept at the principal
not acquire the rights of a partner nor he is liable place of business as each partner has a free
for the debts. access to them and to inspect or copy any of
them at any reasonable time even after
Example: dissolution. This right is granted to enable the
Kyungsoo, Jongin and Sehun are partners to have true and full information of all
partners. Kyungsoo may contract with Baekhyun, things affecting the partnership. (ART. 1806)
whereby the latter will participate in his • Declares the rights of the partners with respect
(Kyungoo’s) share in the profits of the to partnership books can be exercised at “any
partnership. This Kyungsoo can do reasonable hour”.
independently of the partnership and in • Means that reasonable hours on business days
accordance with the principle of freedom to throughout the year and not merely during an
contract. The original contract of partnership arbitrary period of a few days chosen by the
between Kyungsoo, Jongin and Sehun is not in managing partners (e.g., December 1 to 15 of
any manner altered. every year).
• The partner’s rights are not absolute. He can be
Baekhyun is considered merely a restrained from using the information gathered
creditor of Kyungsoo who associated him in his for other partnership purpose.
share. Consequently, Baekhyun has no right to
intervene in the partnership to which he is a mere ART. 1806. Partners shall render on demand true and
stranger. Like an assignee, Baekhyun cannot full information of all things affecting the partnership to
interfere in the management or administration of any partner or legal representative of any deceased
the partnership business, require information or partner or of any partner under legal disability. (n)
account, or inspect partnership books. (ART.
• There must be no concealment between them in
1813) Kyungsoo continues in the enjoyment of
all maters affecting the partnership. Hence, the
the rights and remains subject to liabilities of a
duty to render true and full information of all
partner though no contract has been made by
things affecting the same upon request or
him with Baekhyun.
demand and must be used only for a partnership
Baekhyun does not become a partner purpose.
nor he is liable for the partnership debts even if • “On demand” does not mean that a partner is
the agreement between Kyungsoo and Baekhyun under no duty to make voluntary disclosure of
is with knowledge and assent of Jongin and information affecting the partnership. He is also
Sehun. Baekhyun is an investor. under the duty of voluntary disclosure of material
facts within his exclusive knowledge relating to
• REASON: For a subpartner to become a partner, or affecting the partnership affairs. (ART. 1821).
all the other partners must consent even if the • The duty to render information does not arise
partner who associated the subpartner should be with respect to matters appearing on the
the manager because a partnership Is based on partnership books since each partner has the
mutual trust and confidence among the partners. right to inspect the books.
Example: are analogous to those of a trustee. It is his
1. Lay and Xiumin are partners engaged in the obligation to act for the common benefit of all
real estate business. Lay learned that Suho transactions relating to the partnership
was interested in buying a certain parcel business or affairs.
owned by the partnership, even for a high Example:
price. Without informing Xiumin, Lay was Chen and Baekhyun are partners
able to make Xiumin sell to him (Lay) his engaged in the real estate business. Chen
(Xiumin’s) share in the partnership. Then, bought a parcel of land with partnership funds
Lay sold the land at a big profit. in his own name and subsequently sold the
same at a profit. Baekhyun has a right to share
In this case, Lay is liable to Xiumin for the in the profit and Chen holds as trustee the
latter’s share in the profits. When Lay profit derived by him from the transaction.
purchased Xiumin’s interests, Lay was under
the duty to make disclosure of facts bearing ILLUSTRATIVE CASE:
on the value of such interests which were not Facts: Suho and Kris were partners in the
known to Xiumin. operation of a cinema business. The theatre
was mortgaged to Lay who foreclosed the
2. If Lay discovered a valuable mine on a land mortgaged debt. Suho, in his own behalf,
of the partnership, he is under a duty to redeemed the property with his own private
disclose such information before purchasing funds. Subsequently, Suho filed a petition for
the interest of Xiumin. the cancellation of the old title of the
partnership and the issuance of another title in
ART. 1807. Every partner must account to the his name alone.
partnership for any benefit and hold as trustee for it any Issue: Did Suho become absolute owner of the
profits derived by him without the consent of the other property?
partners from any transaction connected with the Held: No. In this case, when Suho redeemed
formation, conduct or liquidation of the partnership or the property in question, he become a trustee
from any use by him of its property. (n) for the benefit of his co-partner, Kris, subject
to his right to demand from the latter his
• The relation between the partners is essentially contribution to the price of redemption plus
fiduciary, that is, involving trust and confidence, legal interest.
each partner being considered in law, as he is in
fact, the confidential agent of the others. ART. 1808. The capitalist partners cannot engage for
1. Duty to act for common benefit. – It is their own account in any operation which is of the kind
obligation of a partner to act for the common of business in which the partnership is engaged. Unless
benefit of all in all transactions relating to the there is a stipulation to the contrary.
partnership business or affairs.
2. Duty to account for secret and similar profits. Any capitalist partner violating this prohibition shall
– A partner, therefore, who makes a secret bring to the common fund any profits accruing to him
profit out of the operation of the partnership, o from his transactions and shall personally bear all the
who accepts a secret commission from a third losses. (n)
person dealing with the partnership, is duty
bound to account such profit or commission • The prohibition against the capitalist partner to
with his co-partners. engage in business is relative unlike the industrial
3. Duty to account for earnings accruing even partner who is absolutely prohibited from
after termination of partnership. – The duty of engaging in any business for himself. (ART.
the former partner to share profits with his 1789)
former associates may extend to earnings • He is only prohibited from engaging for his own
accruing after the termination of the account in any operation which is the same as or
partnership. similar to the business in which the partnership
“When a partner wrongfully snatches a seed is engaged. The partners, however, by
of opportunity from the granary of his firm, he stipulation, may permit the capitalist partner to
cannot thereafter excuse himself from engage in the same kind of business.
sharing with his co-partners the fruits of its • The law does not prohibit a partner from
planting, even though the harvest occur after engaging in enterprises in his own behalf during
they have terminated the association.” the period that he is a member of the firm but
4. Duty to make full disclosure of information permits him to carry on a business or activity not
affecting partnership. – The duties of a partner connected or competing with that of the
partnership, as long as the partnership
agreement does not prohibit such activity.
• The law is silent on whether a capitalist partner
can engage in the same line of business for the
account of another. Without the prohibition, the
partner may sacrifice the interest of the
partnership to favor his employer.
• REASON: It is universal that a capitalist partner,
without the consent of his co-partners, cannot
carry on a business of the same nature and in
competition with that of the firm.
• This principle prevents a partner from availing
himself personally of information obtained by
him in the course of the transaction of the
partnership business or by reason of his
connection with the firm regarding the business
secrets and clientele of the firm to its prejudice.

ART. 1809. Any partner shall have the right to a formal


account as to partnership affairs:

1) If he is wrongfully excluded from the


partnership business or possession of its
property by his co-partners;
2) If the right exists under the terms of any
agreement;
3) As provided by Article 1807;
4) Whenever other circumstances render it just
and reasonable. (n)

GENERAL RULE: In general, during the existence of the


partnership, a partner is not entitled to a formal account
of partnership affairs.

REASON: The rights of the partner to know partnership


affairs are amply protected in ART. 1805 and 1806.
Furthermore, to entitle any partner to the right to
constantly demand or ask for a formal accounting will
cause much inconvenience and unnecessary waste of
time.

EXCEPTIONS: However, in the special and unusual


situations enumerated under ART. 1809, the justification
for a formal accounting even before dissolution of the
partnership cannot be doubted.

• A formal account is necessary incident to the


dissolution of a partnership.

Example:

Under the No. 4 of ART. 1809, is where a partner


has been assigned abroad for a long period of time in
connection with the partnership business and the
partnership books during such period being in
possession of the other partners.