LAW ON PARTNERSHIP

Chapter II
Section I
OBLIGATIONS OF THE PARTNERS
AMONG THEMSELVES
CIVIL CODE OF THE PHILIPPINES
Art. 1784-1809

RELATIONS CREATED BY A CONTRACT OF PARTNERSHIP

1. Among the partners themselves
2. The partners with the partnership
3. The partnership with third persons
4. The partners with third persons

*The partnership relationship is essentially one of mutual trust and confidence, the law imposes
upon the partners highest standards of integrity and good faith in their dealings with each other.
*A partner is both principal and an agent in relation to his co−partners. In a limited partnership, it
does not involve the element of trust and confidence, as in the case of general partnership

Art. 1784.
A partnership begins from the moment of the execution of the contract, unless it is
otherwise stipulated. (1679)
A partnership is a consensual contract, it is executed/already existing upon the celebration of
the contract. Executory Contract and Executed Contract.
Executory Contract - it is not yet fulfilled or partially fulfilled.
Executed Contract - it is already executed and it has fulfilled its obligations.

COMMENCEMENT AND TERM OF PARTNERSHIP

− Consensual contract
− Its registration in the SEC is not essential to give it juridical personality
− The birth and life is predicated on the mutual desire and consent of the parties

FUTURE PARTNERSHIP (executory)

− Partners may stipulate some other date for the commencement of the partnership
− It can be in future time or based on happening of some future contingency
− It has no juridical personality at the moment

AGREEMENT TO CREATE PARTNERSHIP

− This is different from a partnership actually consummated
− This is still inchoate

Art. 1785.
When a partnership for a fixed term or particular undertaking is continued after the
termination of such term or particular undertaking without any express agreement, the
rights and duties of the partners remain the same as they were at such termination, so far
as is consistent with a partnership at will.
A continuation of the business by the partners or such of them as habitually acted
therein during the term, without any settlement or liquidation of the partnership affairs, is
prima facie evidence of a continuation of the partnership. (n)
It is allowable;
Partnership at will - it will be born to continue the partnership, it's not a particular undertaking
and fixed term. With that it will continue the rights and duties of the partnership it changed from
fixed term and particular undertaking to partnership at will.
Partnership at will - each dissolution upon the will of a partner; he is free to go.

PARTNERSHIP WITH A FIXED TERM

− One which the term of its existence has been agreed upon expressly or impliedly.
− The expiration of the term fixed or completion of the undertaking will automatically dissolve the
partnership

DISSOLUTION OF PARTNERSHIP
− One of the partners may dictate a dissolution at will but he must act in good faith
− A partnership with fixed term may be terminated prior to the expiration of the term

PARTNERSHIP FOR A TERM IMPLIEDLY FIXED

− An agreement of the parties may evidence an understanding that the relation should continue
until the accomplishment of a particular undertaking or certain things have been done or have
taken place

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. (1681a)
Warranty of eviction - it is a judicial cause wherein it has final judgment from that judicial. The
vendor(debtor) didn’t properly fulfill his obligation to the vendee(creditor) by means of onerous
contract.
Vendor - partner
Vendee - creditor
Warranty in case of eviction - there is a protection for the partnership if in case the
partner(vendor) didn’t fulfill properly its obligation to contribute to that partnership, common
fund. General Rule: there’s no need to demand

OBLIGATIONS WITH RESPECT TO CONTRIBUTION OF PROPERTY

1. To contribute at the beginning of the partnership or at the stipulated time the money, property
or industry which he promised to contribute (Art. 1786) debtor and creditor
2. To answer for eviction in case the partnership is deprived of the determinate property
contributed (Art. 1786)
3. To answer to the partnership for the fruits of the property the contribution of which he delayed
from the date they should have been contributed up to the time of actual delivery (Art. 1786)
4. To preserve said property with the diligence of a good father of a family pending delivery to
partnership. (Art. 1163)
5. To indemnify the partnership for any damage caused to it by the retention of the property or
by delay in its contribution (Art. 1788, 1170)

EFFECT OF FAILURE TO CONTRIBUTE PROPERTY PROMISED

− It will make the partner ipso jure(by the law) a debtor of the partnership even in the absence of
any demand (Art. 1169[1]) conform debtor
− The remedy is not rescission(cancellation of the contract) but an action for specific
performance with damages and interest from the defaulting partner (Art. 1788)

LIABILITY OF PARTNER IN CASE OF EVICTION

− Eviction shall takes place whenever by a final judgment based on a right prior to the sale or an
act imputable to the vendor, the vendee (partnership) is deprived of the whole or a part of the
thing purchased
− Governed by the law on sales (Art. 1547)

LIABILITY OF PARTNER FOR FRUITS OF PROPERTY IN CASE OF DELAY

− No demand is necessary
− From the time the partner ought to deliver up to the time of actual delivery

LIABILITY OF PARTNER FOR FAILURE TO PERFORM SERVICE STIPULATED

− Partners are not entitled to charge each other except when there is a stipulation providing
otherwise
− If a partner neglects or refuses to render service without justifiable cause, which caused loss
to the partnership, he may be held liable

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. (n)
Account the value of assets and liabilities of the partnership. The account has hierarchy; first is
the agreement or agreed values now in the absence of agreed value the basis will be the fair
values.

APPRAISAL OF GOODS OR PROPERTY CONTRIBUTED

1. The appraisal of the value of the goods contributed is necessary to determine how much
has been contributed by the partner.
A. Absence of stipulation, share is Profit or Loss (P/L) is in proportion to what he
may have contributed (Original Beginning Capital)
B. Appraisal first as to what was agreed by the partners; second, experts chosen by
partners and according to current prices
C. After the goods have been contributed, the partnership bears the risk or benefit of
subsequent changes in value transfer of ownership has been made
2. In case of Immovable property, appraisal is made in the inventory of said property
(partners’ agreement). If wala, then current prices ulit as determined by experts (a.k.a.
FAIR VALUE)
− Appraisal is necessary to determine how much has been contributed by the partners
− The appraisal is made by:
1. Stipulation
2. If there is no stipulation − experts chosen by the partners and according to current prices

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 complied with his
obligation.
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. (1682)

OBLIGATIONS WITH RESPECT TO CONTRIBUTION OF MONEY (PAR. 1) AND MONEY

CONVERTED TO PERSONAL USE (PAR. 2)
1. To contribute on the date fixed the amount he has undertaken to contribute to the partnership
2. To reimburse any amount he may have taken from the partnership coffers and converted to
his own use
3. To pay for the agreed or legal interest, if he fails to pay his contribution on time or in case he
takes any amount from the common fund and converts it to his own use Delay of interest, in
order to compensate Accrual interest - from the date we start to have debt
4. To indemnify the partnership for the damages caused to it by delay in the contribution or
conversion of any sum for his personal benefits Obligation to pay on time

- Accrual Liability
- Justification for Double Responsibility (Exception) Putting too many obligations and
many responsibilities to one person.
LIABILITY OF GUILTY PARTNER FOR INTEREST AND DAMAGES
− It will start from the time when the partner should have made the contribution or the time he
converted the money to his own use and not to the time of the judicial or extra−judicial demand

LIABILITY OF PARTNER FOR FAILURE TO RETURN PARTNERSHIP MONEY RECEIVED

− Estafa (Art 315 of the RPC) − if he misappropriate partnership money or property received by
him for a specific purpose
− Mere failure to return is not an act under estafa

Art. 1789.
An industrial partner cannot engage in business for himself, unless the partnership
expressly permits him to do so; and if he should do so, the capitalist partners may either
exclude him from the firm or avail themselves of the benefits which he may have
obtained in violation of this provision, with a right to damages in either case. (n)
Industrial partners contribute to the partnership/ common fund is the industry which is its
service. By the very nature of that yung full attention sa partnership lang. Need permission to
other partnerships if he wants to venture to other businesses.

INDUSTRIAL PARTNER
− The one who contributes his industry, labor, or services to the partnership
− He becomes the debtor of the partnership for his work or services
− The partnership acquires an exclusive right to avail itself of his industry
− Action for specific performance is not available as a remedy because it will amount to
involuntary servitude

PROHIBITION AGAINST ENGAGING IN COMPETITIVE BUSINESS

1. Industrial Partner
- Cannot engage in business (with/not the same line of business with the partnership)
unless partnership expressly permits him to do so. (Art. 1789)
o Absolute prohibition
o Applies whether he would engage in the same business or not
o To prevent any conflict of interest
2. Capitalist Partner
- Cannot engage in business (with same kind of business with the partnership) for his own
account, unless there is a stipulation to the contrary. (Art. 1808)
o Prohibition only extends to any operation which is of the same kind of business in which the
partnership is engaged

CONSEQUENCES IF AN INDUSTRIAL PARTNER ENGAGES IN ANY BUSINESS: (Art. 1789)

1. He can be excluded from the partnership; or
2. The capitalist partners can avail of the benefit he obtained from the business.
In either case, the capitalist partners have the right to file an action for damages against the
industrial partner.
− Exclude him from the firm or avail themselves of the benefits which he may obtained
− Right to damages
− Mere toleration by the partnership will not exempt the industrial partner from liability

Art. 1790. Unless there is a stipulation to the contrary, the partners shall contribute equal
shares to the capital of the partnership. (n)

EXTENT OF CONTRIBUTION TO PARTNERSHIP CAPITAL

− Partner can stipulate the contribution of unequal shares to the common fund
− Absence of stipulation, there is a presumption that the contribution is in equal shares

Art. 1791.
If there is no agreement to the contrary, in case of an imminent loss of the business of
the partnership, any partner who refuses to contribute an additional share to the capital,
except an industrial partner, to save the venture, shall he obliged to sell his interest to
the other partners. (n)
Partners (capitalist) must contribute additional capital in case of imminent loss to the business of
the partnership and there is no stipulation otherwise; refusal to do so shall create an obligation
on his part to sell his interest to the other partners.

OBLIGATION OF CAPITALIST PARTNER TO CONTRIBUTE ADDITIONAL CAPITAL

GR: capitalist partner is not bound to contribute more than what he agreed to contribute
EXPN: imminent loss of the business
− He is under obligation to contribute an additional share to save the venture
− If he refuses, he shall be obliged to sell his interest to the other partners

Requisites for the rule to apply:

1. There is an Imminent loss of the business of 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
The capitalist partner refuses deliberately to contribute (not due to financial inability)
4. There is no agreement to the contrary
*Industrial partner is exempted

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. (1684)

OBLIGATION OF MANAGING PARTNER WHO COLLECTS DEBT FROM PERSON WHO

ALSO OWNED THE PARTNERSHIP (Art. 1792)
GR: If there is debt to the partnership and to the managing partner, payment shall be applied to
both credits proportionately (Apply sum collected to 2 credits in proportion to their amounts)
EXPN: it was received for the account of the partnership only, the whole sum shall be applied to
partnership credit
REQUISITE FOR THE APPLICATION OF THE RULE
1. There are at least 2 debts; one from the partners and the other to the partnership
2. Both debts are demandable
3. The partner who collects is authorized to manage and actually manages the partnership

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. (1685a)

OBLIGATIONS OF PARTNER WHO RECEIVES SHARE OF PARTNERSHIP CREDIT

− There is only one credit, the credit in favor of the partnership REQUISITES FOR
APPLICATION OF THE RULE
1. A partner has received, whole or in part, his share of the partnership cred
2. The other partners have not collected their shares
3. The partnership debtor has become insolvent

CREDIT COLLECTED AFTER THE DISSOLUTION OF THE PARTNERSHIP

Q: would the obligation under art. 1793 for the partner who has collected his share in the
partnership credit to share it with the others who have not collected theirs when the debtor
becomes insolvent apply after the dissolution of the partnership?

There are commentators who said YES because of the COMMUNITY OF INTEREST AND
EQUALITY among partners But Manresa and Ricci held otherwise. e.g. After the dissolution of
the partnership, the partnership credit will be divided among partners who assume
the obligation to COLLECT THEIR RESPECTIVE SHARES

1. It would be unfair and unjust for the MORE DILIGENT partner who has already collected his
credit to bear the NEGLIGENCE of the other partners who were unable to collect. It would be
unfair for his to suffer their DEFAULT
2. When the partnership is DISSOLVED, the tie that unites the partnership ceases, hence, the
obligation under Art. 1793 has no foundation anymore.

Art. 1793 presupposes the existence of a PARTNERSHIP CAPITAL. After dissolution, the
shares of each principal partners are returned and hence, there is no more common property or
partnership capital.

If at all there remains a COMMON CREDIT among them (credit owned in common) but NOT a
partnership capital

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. (1686a)

OBLIGATION OF PARTNER FOR DAMAGES TO PARTNERSHIP

GR: Every partner is responsible to the partnership for damages suffered by it thru his FAULT
and he cannot compensate it with the PROFITS AND BENEFITS which he may have earned for
the partnership by his industry

REMEDY OF THE PARTNER HELD LIABLE

− The courts may EQUITABLY LESSEN THIS RESPONSIBILITY if thru the EXTRAORDINARY
EFFORTS of the partner in OTHER ACTIVITIES of the partnership, UNUSUAL PROFITS may
have been realized

COMPENSATION OF DAMAGES WITH PROFITS EARNED FOR PARTNERSHIP BY GUILTY

PARTNER
GR: There shall be no compensation Reason: There are 2 reasons given:
1. The partner is responsible to SECURE BENEFITS for the partnership. Hence, all the profits
earned shall pertain as a matter of law or right to the partnership
2. Compensation takes place when the negligent partner is both a creditor and debtor of the
partnership.
A partner however is a DEBTOR of the partnership for his industry and he shall be liable for the
injury suffered by it caused by his fault. Hence, there cannot be any compensation
EXPN: When UNUSUAL PROFITS may have been realized by the partnership thru the
extraordinary efforts of the partner, the courts may MITIGATE OR LESSEN the liability for
damages

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 the absence of
stipulation, the risk of the things brought and appraised in the inventory, shall also be
borne by the partnership, and in such case the claim shall be limited to the value at
which they were appraised. (1687)

GR: the risk of SPECIFIC AND DETERMINATE THINGS, which are NOT FUNGIBLE,
contributed to the partnership so that only their USE AND FRUITS are for the common benefit
shall be borne by the PARTNER who owns it
GR: The following shall be borne by the partnership:
1. When the thing contributed is FUNGIBLE
2. Thing which cannot be kept without deteriorating
3. Contributed to be sold EXPN:
1. When the thing promised has NOT YET BEEN DELIVERED to the partnership
2. When the loss is due to the fault of any of the partners, in which case, the said partner shall
be liable for damages to the partnership in accordance with Art. 1794

GR: When the thing brought is appraised in the inventory, the STIPULATION of the parties will
govern EXPN:
When there is no stipulation, then the risk shall be borne by the PARTNERSHIP and in which
case, the value appraised shall be the limit of the claim

RISK OF LOSS OF THINGS CONTRIBUTED

1. Risk of SPECIFIC AND DETERMINATE THINGS which are NOT FUNGIBLE where THE
USE is the only thing contributed
− Risk of loss: The OWNER of the thing because he remains to be the owner

2. Risk of SPECIFIC AND DETERMINATE THINGS which are NOT FUNGIBLE where THERE
IS A TRANSFER OF OWNERSHIP
− Risk of loss: shall be borne by the PARTNERSHIP
− Reason: because the ownership is transferred to the partnership (res perit domino)

3. FUNGIBLE THINGS (right term should be consumable) or THINGS WHICH CANNOT BE

KEPT WITHOUT DETERIORATING even if ONLY THE USE is contributed
− Risk of loss: PARTNERSHIP
− Reason: because the ownership is intended to be transferred because USE IS IMPOSSIBLE
without such transfer because the thing is CONSUMED OR IMPAIRED
− E.G. Oil, rice, wine

4. WHERE THE THING CONTRIBUTED IS TO BE SOLD

− Risk of loss: Partnership
− Reason: because the partnership cannot sell it without it being the owner

5. THINGS BROUGHT AND APPRAISED IN THE INVENTORY

− Risk of loss: Partnership
− Reason: because it is to be presumed that the parties intended the PRICE to be contributed to
the partnership for the thing appraised. Hence, the PRICE is deemed as the appraised value
There is in effect an IMPLIED SALE
− The parties contributed the PRICE to buy the land (appraised) belonging to the partner

*this article presupposes actual or constructive delivery

Art. 1796.
The partnership shall be responsible to every partner for the amounts he may have
disbursed on behalf of the partnership and for the corresponding interest, from the time
the expense are made; it shall also answer to each partner for the obligations he may
have contracted in good faith in the interest of the partnership business, and for risks in
consequence of its management. (1688a)

GR: Every partner is AN AGENT of the partnership for purposes of its business EXPN: when
there is a stipulation to the contrary

RESPONSIBILITY OF HE PARTNERSHIP TO THE PARTNERS

1. Obligation to REFUND THE AMOUNT disbursed by the partner in behalf of the partnership
PLUS interest from the time the expenses WERE CONTRACTED (and not from the time of
DEMAND) o Here, the law contemplates A LOAN OR ADVANCES MADE by partner AND not
the capital contributed by him
2. To answer for the OBLIGATIONS contracted by the partner in GOOD FAITH in the interest of
the partnership business
3. Answer for the risks in consequence of its management

Art. 1797.
The losses and profits shall be distributed in conformity with the agreement. If only the
share of each partner in the profits has been agreed upon, the share of each in the losses
shall be in the same proportion.
In the absence of stipulation, the share of each partner in the profits and losses shall be
in proportion to what he may have contributed, but the industrial partner shall not be
liable for the losses. As for the profits, the industrial partner shall receive such share as
may be just and equitable under the circumstances. If besides his services he has
contributed capital, he shall also receive a share in the profits in proportion to his
capital.(1689a)

GR: The profits and losses shall be distributed in conformity with the agreement (PROFITS AND
LOSSES AGREED
UPON)
EXPN:
1. If only the share in the profits are agreed upon, the share in the losses shall also be in the
same proportion

2. If there is no agreement as to the share in the losses and profits, then, each partner shall
have a share in the same in proportion to what he may have contributed BUT:
Exception to the exception:
1. The INDUSTRIAL PARTNER shall not be liable for the losses
2. The industrial partner shall be entitled to a share in the profits as may be JUST AND
EQUITABLE under the circumstances
3. If the industrial partner, ASIDE FROM HIS SERVICES, contributed capital, he shall also
receive a share in the profits in proportion to his capital
THE RULES IN DISTRIBUTION OF PROFITS
a. If there is an agreement
− The share of the partners in the profits shall be in accordance with their agreement
− So if they agreed that it shall be 50−50, so be it
− Subject to Art. 1799 which provides that a STIPULATION which excludes any partner from the
share in the profits and losses shall be void

b. If there is no agreement

o CAPITALIST PARTNERS

− The share of the capitalist partners shall be in proportion to their CAPITAL CONTRIBUTION
− So it depends on HOW MUCH they have given in the partnership (if A contributed P3000 and
B contributed only P1000, then, A should receive twice as much)
− BASIS: Presumed WILL of the parties

2. INDUSTRIAL PARTNERS

− Their share must be that which is JUST AND EQUITABLE under the circumstances
− Their share must be satisfied first before the CAPITALIST PARTNERS divide the profits
− Their share, LIKE THAT PERTAINING TO THE CAPITALIST PARTNERS, is not fixed
because it is very hard to ascertain the value of one’s services

NB: Art. 140 of the Code of Commerce: The industrial partner is placed in the same position as
that of a capitalist partner in the distribution (the industrial partner having the SMALLEST
INTEREST”

THE RULES IN DISTRIBUTION OF LOSSES

1. If there is an AGREEMENT OR STIPULATION, then, the distribution of the losses shall be in
accordance with the agreement subject to Art. 1799
2. If there is NO AGREEMENT BUT THERE IS A STIPULATION AS TO THE PROFITS, then,
the distribution of the losses shall also be in accordance with the PROFIT−SHARING RATIO

− Note that the INDUSTRIAL PARTNER shall not be liable for any losses

Q: WHAT ARE THE TRANSACTIONS THAT MUST BE TAKEN INTO ACCOUNT TO

DETERMINE THE PROFITS AND LOSSES?

All the transactions must be taken into consideration NOT JUST one transaction to determine
the profits and losses

3. If there is NO AGREEMENT AND THERE IS NO AGREEMENT AS TO THE SHARING OF

THE PROFITS
− The sharing of the losses shall be in proportion to their CAPITAL CONTRIBUTION
− Note also that the INDUSTRIAL PARTNER shall not be liable for any losses
− SHARING OF LOSSES: If there is an AGREEMENT as to the distribution of the losses, then,
that will govern

− If there is no agreement AS TO THE DISTRIBUTION OF THE LOSSES, then, they shall

share the losses BASED ON THE STIPULATED PROFIT−SHARING RATIO (share in the
losses = stipulated sharing in the profits)
− If there is NO AGREEMENT ALSO AS TO THE PROFIT−SHARING RATION, then, the losses
shall be in PROPORTION to their CAPITAL CONTRIBUTION
− But the industrial partner shall not be liable for the losses. A, B and C shall bear the losses
(being capitalist partners)
− But, if D, an industrial partner, is also a capitalist partner, then, he shall share in the losses in
proportion to his contribution

NB: Whether or not there is a stipulation, the INDUSTRIAL PARTNER shall not be liable for the
losses

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. (1690)

DESIGNATION BY A THIRD PERSON OF SHARE IN PROFITS AND LOSSES

GR: if the partner has entrusted to a 3rd person the DESIGNATION OF THE SHARE OF EACH
PARTNER IN the profits and losses, the same may be impugned only IF IT IS MANIFESTLY
INEQUITABLE
EXPN: In no case may such decision be impugned if:
1. The partner has BEGUN the execution of the designation
2. He did not impugn the designation in the sharing of the profits within a period of 3 months
from the time he had knowledge thereof
NB: The designation of the profits and losses cannot be left to any of the partners

BINDING EFFECT OF THE DECISION OF THE 3RD PERSON

GR: The designation by the 3rd person of the sharing in the profits and losses among partners
is BINDING EXPN:
When the designation is MANIFESTLY INEQUITABLE
Exception to the exception: But even if the designation is MANIFESTLY INEQUITABLE in the
following cases, the designation cannot anymore be impugned:
1. When the partner has begun the execution of the designation
2. When the partner fails to impugn the designation within a period of 3 months
Basis for the exception to the exception: Because the partner is guilty of ESTOPPEL, or may be
deemed to have given his consent or ratification
NB: Remedy of partners: Have it changed or if there is no more recourse, go to court and have
the decision stricken out − my opinion

Art. 1799.
A stipulation which excludes one or more partners from any share in the profits or losses
is void. (1691)

STIPULATIONS EXCLUDING A PARTNER FROM ANY SHARE IN PROFITS OR LOSSES

− The stipulation is generally void but the partnership will subsist
− The parties expressly stipulate that there shall be no liability for losses, or were fro the nature
of the contract, it is clear that a party did not intend to share in the losses, such fact may be a
factor in determining that no partnership exist
− The one excluded from any share in the profits or losses is not intended by the parties to
become a partner
− It is valid to stipulate that an industrial partner is excluded from losses
− Parties can stipulate unequal shares

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.
(1692a)

RIGHTS AND OBLIGATIONS WITH RESPECT TO MANAGEMENT

GR: A partner who has been appointed a MANAGER in the ARTICLES OF PARTNERSHIP may
EXECUTE ALL ACTS of administration despite the opposition of his co−partners (provided he is
in GF)
EXPN: But if he acts in BAD FAITH and there is an opposition, he may not execute such acts

Gen rule on revocation: The power (to execute all acts of admin) may not be revoked UNLESS:
1. There is JUST OR LAWFUL CAUSE and
2. The vote of the partners representing the CONTROLLING INTEREST is had
Exception: Powers granted AFTER THE CONSTITUTION OF THE PARTNERSHIP may be
revoked at any time

TWO DISTINCT CASES OF APPOINTMENTS UNDER ART 1800

1. Appointment as manager in the ARTICLES OF PARNTERSHIP
− Here, the partner appointed as managing partner by common agreement in the Articles of
Partnership
may execute all acts of administration (and not acts of strict of ownership under Art. 1818 par. 3)
− He may execute such acts of admin EVEN WITH the opposition of the other partners
Exception: Unless he acted in bad faith
− His appointment as manger may be REVOKED ONLY IF:
o There is just and lawful cause
o The vote of the partners constituting the controlling interest is had
Because the revocation is deemed to be a CHANGE IN THE TERMS OF THE CONTRACT. The
appointment made is considered as one of the conditions of the contract and can therefore be
changed only with the consent of ALL the partners including the appointee.

2. Appointment as manager AFTER the constitution of the partnership

− If a partner is designated as a MANAGER after the articles of partnership is constituted, then,
the appointment may be revoked at ANY TIME, FOR ANY CAUSE
− Reason: Because in this case, the appointment is not a condition of the contract and
therefore, the revocation is not founded on a CHANGE OF THE WILL OF THE PARTNERS.
There is merely a CONTRACT OF AGENCY which may be revoked anytime
− But, for there to be revocation, there should be a vote of a majority of the partners, having the
CONTROLLING INTEREST

SCOPE OF THE POWER OF THE MANAGING PARTNER

GR: the managing partner has ALL THE POWERS OF A GENERAL AGENT and those
INCIDENTAL POWERS necessary to carry out the object of the partnership
EXPN: When the power of the managing partner is restricted

COMPENSATION FOR SERVICES RENDERED

GR: He is NOT entitled to an additional compensation BEYOND his share in the profits of the
business
Reason: because EACH PARTNER (in the absence of an agreement) assumes the duty to give
his TIME,
ATTENTION and SKILL to manage the affairs of the partnership. In his managing the
partnership, he in effect is taking care of his own interest and property. Thus, even if his services
is greater in proportion than the rest because he is the managing partner; or because his
co−partners are ill, his only compensation is his share in the
PROFITS
EXPN:
1. The law may IMPLY a contract for compensation
a. When the partner is made to do something NOT in the fulfillment of his duties in the
partnership or not related to the partnership business
b. When the partner employs his co−partner for him to do something for him OUTSIDE OF AND
INDEPENDENT of the partnership business
c. When the partner is guilty of EXTRAORDINARY NEGLIGENCE in which case, the burden
of management is shifted to the other partner (the latter shall be entitled to compensation)
d. Where the partner is EXEMPT from rendering services in which case, he may demand
payment for services he rendered OR WHERE THE SERVICES rendered were
EXTRAORDINARY

e. When the managing partner is OVERBURDENED with work because he devotes all his time
and attention to the partnership while his co−partners are busy with their individual business in
which case, an UNUSUAL CONDITION presents itself and he may thus demand compensation
f. Where there is WILFUL failure on the part of the managing partner to fulfill his duty in which
case the other partners are burdened to perform such
2. The parties may agree that there would be payment of compensation

* If there is no PROHIBITION AS THIS REGARD in the Articles of Partnership, then,

compensation may be agreed to be given to a GENERAL PARTNER
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 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. (1693a)

GR: If 2 or more partners were instructed with the management of the partnership BUT there
was no SPECIFICATION of their duties or WITHOUT stipulation that ONE OF THEM shall not
act WITHOUT THE CONSENT of the others, then they may SEPARATELY execute all acts of
administration

EXPN: However if any of them (other managing partners) should oppose the acts of the others:

1. The decision of a majority shall prevail

2. In case of tie, the decision of the partners owning the controlling interest shall prevail

Q; WHAT DECISION WILL PREVAIL IN CASE OF OPPOSITION?

1. First, the matter shall be decided by the MAJORITY of the managing partners
2. In case of a tie, the matter shall be decided by the partners having the controlling interest
(more than 50% of the capital investment)

THE REQUISITES FOR THE APPLICATION OF THE RULE

1. 2 OR MORE partners have been appointed as managing partners
2. There is no specification of their respective duties
3. There is no stipulation that one may not act without the consent of the others

*If there is no specification as re the respective duties of the partners, then, one may not have
MORE POWERS than the other managing partners in the conduct and management of the
partnership
*But if there is a SPECIFICATION OF DUTIES, then, the partner’s (in charged) decision will
prevail over the others

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. (1694)

GR: In case where there is a stipulation that no MANAGING PARTNER may act without the
consent of ALL the partners, the CONCURRENCE OF ALL shall be necessary for the validity of
their acts
Gen rule 2: And the ABSENCE or DISABILITY of the partner may not be alleged as an excuse
or justification Exception:

1. The same may be an excuse or justification if there is an IMMINENT DANGER OF GRAVE

OR IRREPARABLE INJURY to the partnership

2. Where the partnership is engaged in the BUY AND SELL BUSINESS where it is USUAL AND
CUSTOMARY TO BUY AND SELL ON CREDIT − Smith, Bell and Co. v. Aznar

NB:

1. The partners may stipulate in their ARTICLES OF PARTNERSHIP that no managing partner
may act without the consent of all the other managing partners

Q; WHAT THEN IS REQUIRED IN SUCH CASE?

The UNANIMOUS consent of all the managing partners is necessary for the validity of their acts

Q; WHAT IS THE EFFECT OF SUCH REQUIREMENT OF UNANIMITY OF CONSENT?

The consent of ALL THE MANAGING PARTNERS are so INDISPENSABLE such that the
absence or disability of the partners may not be interposed as an excuse or justification to
dispense with such a requirement Exception: Where there is IMMINENT DANGER of GRAVE
OR IRREPARABLE INJURY TO THE PARNTERSHIP then one managing partner may act
EVEN without the consent of the ABSENT OR DISABLED without prejudice to his liability under
Art. 1794

2. The EXCEPTION under Art. 1802 will not apply where there is an OPPOSITION on the part
of the other managing partners Reason: One of the essential conditions of the authority
conferred on the managing partner is that the MANAGEMENT should be with the consent of
ALL THE PARTNERS

Q; WHAT IF SUCH CONSENT IS WANTING?

If such unanimous consent is wanting, then, the proposed act is OUTISIDE HIS AUTHORITY

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. (1695a)

The standing of the partners in case they failed to indicate the manner of management
− In case of their failure to indicate either in the Articles of Partnership or subsequent contract
WHO SHALL MANAGE the affairs of the partnership, then ALL THE PARTNERS shall have
EQUAL RIGHTS in the conduct and management of the partnership affairs. ALL OF THEM shall
be MANAGERS AND AGENTS and any act done by them alone shall BIND THE
PARTNERSHIP subject, however to the provision of Art. 1801 in case of TIMELY
OPPOSITION on the part of any partner in which case, the MAJORITY VOTE shall be had for
the PRESUMED INTENT OF THE PARTIES is that they shall all manage REGARDLESS of
their capital contribution. In case of a tie, then, the CONTROLLING INTEREST’S decision will
prevail

Q: HOW MANY PARTNERS SHOULD CONCEDE AS RE THE IMPORTANT ALTERATION OF

IMMOVABLE PROPERTY?
Unanimous consent is necessary so that ANY IMPORTANT ALTERATION to the immovable
property may be made.

Q: HOW SHOULD THE CONSENT BE GIVEN?

The consent need not be express. It may be implied from the fact that ACTUAL KNOWLEDGE
was acquired and no opposition from the other partners was made

Q: DOES THE PROHIBITION APPLY TO MOVABLE PROPERTY?

No, it only applies to immovable property because of the greater importance of this kind of
property

Q: IS ANY ALTERATION CONTEMPLATED?

No, it must be an IMPORTANT ALTERATION in immovable property. Any important alteration
constitutes an act of STRICT DOMINION.

Q: MAY THE MANAGING PARTNER MAKE ANY IMPORTANT ALTERATION IN THE

IMMOVABLE PROPERTY?
No, even the managing partner may not make any important alteration in the immovable
property WITHOUT THE CONSENT of the other partners
Exception: If the refusal of consent by any partner is MANIFESTLY PREJUDICIAL to the
interest of the partnership, then, the intervention of the court may be sought so that important
alterations to the immovable property may be made.
NB: The consent may be presumed from the failure to make any opposition Q: WHAT IF THE
ALTERATION IS NECESSARY FOR THE PRESERVATION?
The law speaks of alteration that is useful to the partnership. Hence, when the alteration is
necessary for its preservation, then, the consent of the other partners is not necessary

Q: A, B AND C FORMED A PARTNERSHIP FOR A TRANSPORTATION BUSINESS. THERE

WAS NO AGREEMENT AS RE THE MANNER OF MANAGEMENT. A CONTRACTED A DEBT
FOR SUPPLIES. ARE THE PARTNERSHIP AND THE PARTNERS LIABLE FOR THE
INDEBTEDNESS?
Yes. Where there was no agreement was re the manner of management, each partner is
considered as an AGENT of the partnership. A must be deemed to have an authority to contract
the debt in as much as he incurred the same in the prosecution of the partnership business −
Bachrach v. La Protectora

Q: IN THE ARTICLES OF PARTNERSHIP, THE PARTNERS ARE NOT GIVEN THE

AUTHORITY TO ENTER INTO CONTRACTS. IT IS THE DEPARTMENT THRU A RESO OF 6
MEMBERS THAT COULD SO ENTER INTO SUCH CONTRACT. A 3RD PERSON SEEKS
ENFORCEMENT OF A CONTRACT ENTERED INTO BY ONE OF THE PARTNERS. IS THE
PARTNERSHIP BOUND?
No. The partners may be empowered to contract in the name of the partnership ONLY if there is
no provision as re the management of the partnership. In this case, the articles did so provide.
The partners are not empowered to enter into contracts. Hence, the department cannot be
bound without a resolution adopted by it in a meeting
− Council of Red Men v. Veterans Army

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. (1696)

GR: Every partner may ASSOCIATE another person with him in his share BUT such associate
shall NOT be admitted into the partnership without the consent of ALL THE OTHER
PARTNERS, even if the partner having an associate may be the MANAGER

Q: WHAT IS THE RULE PROVIDED FOR UNDER ART. 1804?

That every partner may associate with another person, known as the SUBPARTNER, as re his
share (partner’s share) even without the consent of the other partners
Q: WHAT IS THE PARTNERSHIP FORMED BETWEEN A MEMBER OF A PARTNERSHIP
AND A 3RD PERSON? A SUBPARTNERSHIP. The manner by which the profits are to be
divided between the members of the subpartnership or that one of the members shall receive
the entire profits is immaterial as re the formation of the subparntership

Q: IS THE SUBPARTNERSHIP = MAIN PARTNERSHIP?

No. it could be said that it is a partnership within a partnership. It is a distinct and separate
partnership from that of the main partnership

Q: DOES A SUBPARTNER AUTOMATICALLY BECOME A MEMBER OF THE

PARTNERSHIP?
No. A subpartnership agreement does not in any wise AFFECT the composition, existence and
operations of the firm. But the subpartners are partners INTER SE but the subpartner does not
become a member of the firm WITHOUT the mutual assent of all the partners EVEN if they
know of the existence of the subpartnership agreement
Q: DOES THE SUBPARTNER ACQUIRE THE RIGHTS OF A PARNTER AS WELL AS THEIR
OBLIGATONS?
NO. Not being a member of the partnership, then, he does not acquire the rights of the partners
and neither does he become indebted for the partnership’s debts

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 partner shall at any
reasonable hour have access to and may inspect and copy any of them. (n)

GR: The partnership books shall be kept

1. In the place agreed upon by the partners
2. In the absence of agreement, at the PRINCIPAL PLACE of business of the partnership
GR: Every partner shall have AT A REASONABLE HOUR access to and may INSPECT AND
COPY any of them Q:
WHO HAS THE OBLIGATION OF KEEPING THE BOOKS OF THE PARTNERSHIP?
The managing or the active partner has the obligation to keep a TRUE AND CORRECT books
of accounts and such books shall at all times be open for inspection by the other partners

Q; WHAT COULD BE PRESUMED AS RE THE BOOKS?

1. The partners have knowledge of the contents of the books
2. The books state accurately the state of accounts of the partnership

Q: WHAT ARE THE RIGHTS OF THE PARTNERS AS RE THE PARTNERSHIP BOOKS?

Generally, the partnership books should be kept at the principal place of business (subject to an
agreement to the contrary) so that the partners may:
1. Access
2. Inspect
3. Copy any of them
Q: WHY ARE THEY GIVEN SUCH RIGHT?
1. Each partner has a right to a TRUE AND FULL INFORMATION of the partnership accounts
and activities
2. Each partner is a CO−OWNER of the partnership properties, including the partnership books,
and they also have EQUAL RIGHTS in the management of the partnership affairs so that the
books should not be kept under the sole control and custody of just one partner
NB: The books should not be transferred without the consent of the other partners Q: IS THE
RIGHT TO THE BOOKS OF THE PARTNERSHIP ABSOLUTE?
No. It may be restrained. Hence, it may be used only for partnership purposes

Q; MAY THE PARTNERS ACCESS THE BOOKS AT ANY HOUR

No. they may access it at any REASONABLE HOUR ONLY. This phrase has been interpreted to
mean that it may be accessed at any REASONABLE HOUR ON ANY BUSINESS DAY
THROUGHOUT THE YEAR and not merely on ARBITRARY DAYS chosen by the managing
partners

Art. 1806.
Partners shall render on demand true and full information of all things affecting the
partnership to any partner or the legal representative of any deceased partner or of any
partner under legal disability. (n)

DUTY TO RENDER INFORMATION

GR: The partners shall render ON DEMAND TRUE AND FULL INFORMATION of all things
affecting the partnership to any PARTNER, OR THE LEGAL REPRESENTATIVE of a deceased
partner or of a partner under LEGAL DISABILITY

Q: MAY THERE BE A DUTY TO RENDER INFORMATION ONLY WHERE THERE IS DEMAND

No. It does not mean that there may not be an obligation to render VOLUNTARY DISCLOSURE
of material facts affecting or relating to the partnership affairs.

Q; WHEN WILL THERE BE NO DUTY TO RENDER INFORMATION?

Where the information already appears in the partnership books because it is open to inspection

NB: good faith not only requires that there be no FALSE STATEMENT. It also requires that there
be no concealment among partners − Poss v. Gottlieb

Art. 1807.
Every partner must account to the partnership for any benefit, and hold as trustee for it
any profits derived by him without the consent of the other partners from any transaction
connected with the formation, conduct, or liquidation of the partnership or from any use
by him of its property. (n)

GR:
1. Every partner must account to the partnership FOR ANY BENEFIT
2. And hold as TRUSTEE for the partnership any PROFITS derived by him in any transaction
connected with the FORMATION, CONDUCT or LIQUIDATION OF THE PARTNERSHIP or
FROM ANY USE BY HIM of his property

Q: WHAT IS THE NATURE OF THE RELATIONSHIP BETWEEN AND AMONGST

PARTNERS?
Fiduciary relationship, that is, of trust and confidence. Each partner is considered in law to be
the CONFIDENTIAL AGENT of the others

Q: NATURE OF THE DUTY OF THE PARTNERS?

Analogous to the duties of the TRUSTEE

Q: WHAT IS THE DUTY OF EACH PARTNER WHEN HE TRANSACTS ANY PARTNERSHIP

BUSINESS?
He should always act for the COMMON BENEFIT in all transactions affecting the partnership
affairs. He cannot use or apply exclusively for his own benefit the PARTNERSHIP ASSETS and
the results of the knowledge gained for his individual benefit
NB: The managing partner has the fiduciary duty to inactive partners Q: TRANSACTION?
Doing or performing something. It was given a broad meaning − more of the justice of the case
demanded rather than

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. (n)

Q: When is capitalist partner PROHIBITED from engaging in other business?

When he is engaged in any business which is the same or similar to the business in which the
partnership is engaged

Q: What is the obligation of the partner that violates this prohibition?

1. Bring to the common fund any profits he derived from his transactions
2. If there are losses, the partner should bear it alone

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 copartners;
(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)

GR: During the existence of the partnership, a partner is NOT entitled to a formal account of
partnership affairs
Reason:
1. This right is already protected by Art. 1805 and Art. 1806
2. This may cause much inconvenience and unnecessary waste of time

EXPN:
1. He is wrongfully excluded from the partnership
2. If it exist under any agreement
3. Provided under Art. 1807
4. Whenever circumstances render it just and reasonable
Q: To whom does the obligation to account rests?
MANAGING OR ACTIVE PARTNER and a special task of the SURVIVING PARTNER

Q: When does prescription begins to run?

It will run from the time of the DISSOLUTION OF THE PARTNERSHIP when the final
accounting is done

Q: What kind of action is an action for accounting?

It is an ACTION IN PERSONAM because it is an action against a person for the performance of
a personal duty on his part. It is only incidental that part of the assets of the partnership subject
to accounting or under liquidation happen to be real property.