Obligations

1786
To give his contribution
1788
Where a party becomes a debtor for interest

Rights
1810

1788

1804

1792
1804
1807
1808
1794

Not to convert firm money or property for his

own use
Duty to credit to the firm, payment made by a
debtor who owes him and the firm
Pay for damages caused by his fault
To account for and hold as trustee,
unauthorized personal profits
Not engage in unfair competition with his own
firm (capitalist partners)
To share with the other partners the share of
the partnership credit which he has received
from an insolvent firm debtor

Property Rights
1. rights in specific partnership property
2. interest in the partnership (share in the
profits and surplus)
3. right to participate in the management
(except limited partner)
Right to associate with another person in his
share
Right to inspect and copy partnership books

1805

1 Right to demand a formal account

1809
183031

Right to ask for the dissolution of the firm at

the proper time

1784
Different Relationships:
1.
2.
3.
4.

Relations
Relations
Relations
Relations

between
between
between
between

1786GENERAL DUTIES: Duties of every partner

A and B
A and B and partnership
A and B and third persons
the partnership and third persons

1.

When partnership begins

1.
2.

GenerallyFrom the moment of the execution of the

contract.
ExceptionWhen there is a contrary stipulation

There can be future be a future partnership which has

no juridical existence yet. Intent to create a future
partnershipthe agreement for a future partnership does
not of itself result in a partnership. The intent must later on
be actualized by the formation of the intended partnership.

2.

Rule if contributions have not been actually madethe

firm already exists, for partnership is a consensual contract
(all formalities must be present)
1785Duration of Partnership

Unlimited as to duration (no time limit fixed by law)

Duration may be agreed uponexpressly (definite
period) or impliedly (when a particular enterprise is
undertaken, the firm ends as soon as its purpose
ends)

Partnership at will (Kinds)

1.
2.

No term, express or implied

When it is continued by the habitual managers,
although the period has ended, or the purpose
has been accomplished ( This is a prima facie
evidence of firms continuation)
at will because its continued existence really
depends upon the will of the partners or even on the
will of any of them

3.

Duty to contribute what had been promised

a. Must be made ordinarily at the time the
partnership is entered into, unless a
different period is stipulated.
b. No demand needed to put partner in default
because in partnership, the obligation to
contribute is one where time is of the
essence
c. Must exercise due diligence in
preserving the property to be
contributed before actual contribution
otherwise he can be liable for loss and
deterioration.
d.
A partner who promises to contribute
becomes a promissory debtor.
Duty to deliver the fruits of what should have
been delivered
a. If property has been promised, the fruits
(from the time they should have been
delivered) should also be given. No demand
needed.
b. If money is promised, interest and
damages from the time he should have
complied with his obligation should be
given. No demand needed.
c. In both, the partner still owns the same
before delivery.
Duty to warrant
a. Refers to specific and determinate things
already contributed.
i. A thing is determinate or
specific when it is distinct from all
others of the same class. (1460)
b. Evictionwhenever by a final judgment
based on a right prior to the sale or an act
imputable to the partner, the partnership is
deprived of the whole or a part of the thing
purchased.
Page 1 of 6

c.

If a partner fails to contribute, the remedy

is not rescission but collection as well as
damages. Law on obligation does not
generally apply in partnership.

The benefits he obtains from other businesses can be

availed of by other persons
*even if there is no competition, it applies because his
industry is supposed to be given only to the partnership
3.

1787When contribution consists of goods

Appraisal of value is needed to determine how much has been
contributed

As to liability:
1.

How made?
1.
2.

Capitalistindustrial partnerone who contributes

both capital and industry.

2.

As prescribed by the contract

In default of first, by experts chosen by partners
and at current prices.

Generalone who is liable beyond the extent of his

contribution
Limitedone who is liable only to the extent of his
contribution (an industrial partner can only be a
general partner)

As to management:
Inventoryproof how much goods or money had been
contributed.

1.

Risk of lossafter goods have been contributed, the

partnership bears the risk of subsequent changes in the value

2.

1788OBLIGATION/DUTY: Rules of Failure to

Contribute and for conversion

3.
4.

Scope:
1.
2.

When money promised is not given on time

When partnership money is converted to the
personal use of the partner (conversion)

Miscellaneous
1.

Coverage of Liability:
2.
1.
2.

Interest at agreed rate or at legal rate of 6% per

annum
Damages suffered by partnership

3.

why no demand is needed to put partner in default

1.

2.

In case of contribution, because contribution is

needed to form or start the partnership. The injury is
constant.
In case of conversion, because the firm is deprived
of the benefits of the money. Even if there is no
injury, the liability exists.

1789Prohibition on industrial partner

Classification of Partners

2.

Capitalistone who furnishes capital; not exempted

from losses; he CAN engage in other business
provided there is no competition between the
partner and his business (1808)
Industrialone who furnishes industry or labor;
exempted from losses; he CANNOT engage in any
other business without the express consent of
the partners, otherwise
He can be excluded from the firm, plus damages OR

Secretone whose connection with the firm is

concealed or kept a secret.
Dormantone who is both a secret and silent (not
managing) partner
Nominalone who is not really a partner but who
may become liable as such insofar as third persons
are concerned.

As to contribution
As to prohibition to engage
in other business

As to profits

As to losses

As to contribution
1.

Managingone who manages actively the firms

affairs
Silentone who does not participate in the
management (though he shares in the profits or
losses)
Liquidating partnerone who liquidates or winds
up the affairs of the firm after it has been dissolved
Ostensibleone whose connection with the firm is
public and open (that is, not hidden). Usually his
name is included in the firm.

Capitalist
Contributes money or property
Cannot generally engage in the same or
similar enterprise as that of his firm
(the test is the possibility of unfair
competition)
Shares in the profits according to
agreement, in none, pro rata to
contribution
First, the stipulation as to losses
If none, the agreement as to profits
If none, pro rata to contribution

1790Amount of Contribution
1.
2.

It is permissible to contribute unequal shares, if

there is a stipulation to this effect.
In the absence of proof, the shares are presumed
equal.
Page 2 of 6

Applicability: capitalist partners, industrial partner whose

worth is more than the entire capital contributed

Effect of Death of the negligent partner: suit may be had

against the estate

1791When capitalist partner is obliged to sell his

interest to the other partners

1795Risk of Loss
1.

1.
2.

3.

If there is imminent loss of the business of the

partnership;
And he refuses (deliberately and not because of
poverty) to contribute and additional share to the
capital
And provided further that there is no agreement to
the contrary

Reason: because of his apparent lack of interest, and

granting that he sincerely believes that efforts to save
the firm would be futile, the capitalist partner referred to
should get out of the firm
Industrial partner is exempted because he is already
giving his entire industry.
1792Rule if Manaing Partner Collects Credit
1.

The existence of at least 2 debts (one where the

firm is the creditor and the other, where the
partner is the creditor)
2. Both sums are demandable.
3. The collecting partner is a managing partner.
*Subject to application of payment in 1262, but only
if the personal credit is more onerous to the debtor.
*Does not apply if the partner collecting is a
managing partner.
Reason: to prevent furtherance of the partners
personal interest to the detriment of the firm

2.

3.

4.

Specific and determinate thingswhose usufruct

is enjoyed by a firml partner who owns it bears loss
for ownership was never transferred to the firm
Fungible or DeteriorableFirm bears the loss for
evidently, ownership was being transferred,
otherwise use is impossible
Things contributed to be Soldfirm bears the loss
for firm was intended to be the owner, otherwise a
sale could not be made
Contributed under Appraisalfirm bears loss
because this has the effect of an implied sale.

1796Responsibility of the firm

To refund amounts disbursed on behalf of the firm plus
interest from the time expenses were made and NOT from
demand. (Rule on agency) *does not refer to original capital
To answer to each partner for obligations, he may have
entered into in good faith and in the interest of the
partnership, as well as for risks in consequence of
management
1797How profits are distributed
1.
2.

Agreement
If none, according to amount of contribution

How losses are distributed

1793Where a partner receives his share of a
partnership credit

1792two debts, applies only to managing partner

1793one debt only (firm credit), applies to any
partner

1793 does not apply if the collection is done after the

dissolution of the partnership.
1794Why general damages cannot be offset by
benefits

the partner has the duty to secure benefits for the

partnership; on the other hand, he has the duty also
not to be at fault
Since both are duties, compensation should not take
place, the partner being the debtor in both
instances. Compensation requires 2 persons who are
reciprocally debtors and creditors of each other.

Mitigation of liability: extraordinary efforts, unusual profits

Need for liquidation: before a partner sues for alleged
fraudulent management and damages, a liquidation must first
be effected to know the extent of the damage.

1.
2.
3.

Agreement as to losses
If none, according to agreement as to profits
If none, according to amount of contribution

Industrial partners
1.

2.

Profitsjust and equitable share (under the old law,

it is the share equivalent to that of the capitalist
partner with the least capital)
Lossesexempted from losses. But he may be liable
to third persons without prejudice to recovery from
the capitalist partners

1798designation by third person of shares in profits

and losses
Ratio: to avoid partiality
When designation by 3rd party may be impugnedwhen it is
manifestly inequitable
When cannot be impugned even if manifestly inequitable:
1.
2.

If the aggrieved partner has already begun to

execute the decision
Or if he has not impugned the same within a period
of three months from the time he had knowledge
thereof (not from time of making)
Page 3 of 6


1799Stipulation excluding a partner from profits or
losses
GR: void, because partnership is for common benefit
Exception: industrial partner where the law itself excludes
him from losses

Each may separately execute all acts of

administration
Except if any managers should oppose. The decision
of majority of the managers shall prevail.
If there is a tie, the partners owning the controlling
interest prevail.
The right to oppose is not given to non-managers
because in appointing their managers, they have
stripped their right to participate in the
administration.

Ratio: While capitalist partners can withdraw their capital,

the industrial partner cannot withdraw any labor or industry
he already exerted. In a sense, he already has shared in the
losses, if the partnership shows no profit, this means that he
has labored in vain.

When can other managers oppose? Before the acts

produce legal effects insofar as third persons are concerned.

1800appointment of manager

1802When unanimity is required

Appointment in articles of partnership

Duty of third persons: they are not obliged to inquire into

the propriety of the act of a manager, for the presumption is
that he acts with due authority and can bind the
partnership.

1.

2.

Power is irrevocable without just or lawful

cause
a. To remove him for just cause, and the
controlling partners should vote to oust him
b. To remove him without cause or for
unjust cause, there must by unanimity
(including his own vote)
i. This represents change in the
will of parties, a change in the
terms of contract
Extent of power
a. If he acts in good faith, he may do all acts
of administration despite opposition by
partners
b. If he acts in bad faith, he CANNOT.

Appointment other than in the Articles of Partnership

1.

2.

Power to act may be revoked at any time, with

or without just cause.
a. Such appointment is a mere delegation of
power, revocable at any time. It should be
done by controlling interest provided
done not to abuse the right.
Extent of Power: as long as he remains manager,
he can perform all acts of administration, if others
oppose and he persists, he can be removed.

Scope of Powers of Managerpowers of a general agent

as well as incidental powers needed to carry out the
objectives of the partnership

1801Rule when there are two or more managers

1.
2.
3.

Two or more managers

There is NO specification of respective duties
There is NO stipulation requiring unanimity

1803When Manager has not been agreed upon

If there is opposition, majority shall prevail (presumption in
this case is that all the partners can manage)

The rule does NOT apply if somebody else had been given
authority to manage in the articles of organization or thru
some other means.
Alterations require unanimity. (Othersadmitting new
partners, substantial change in the business,transactions with
third persons)
Rule on Alterations
1.

2.

3.

important alterations in immovable property

because they are more important than personalty
and they should be returned in the same condition to
the contributing partner in proper cases
Alterationscontemplates useful expenses not
necessary ones
a. Useful expenses-- which increases the
value or augments the income of the
property, as contrasted to a
b. necessary expense which is incurred for
the preservation of the thing.]
Consent to alterations may be express or implied
(knowledge with no objection)

1804Associate of Partner
1.

Specific Rules

GR: partner acts in his own name, he cannot bind

the firm.
Exp: Act may be ratified if the proceeds redound to
the benefit of the firm

2.

For a partner to have an associate in his share,

consent of other partners is NOT required.
For the associate to become a partner, ALL must
consent.
Page 4 of 6

a.

Reason: (1) mutual trust is the basis of

partnership; (2) change in the membership
is a modification or novation of contract

1805Right to inspect Partnership Books

1.
2.

3.

Right granted to obtain true and full information of

the partnership affairs.
Reasonable hourbusiness days throughout the
year and not merely some capricious or arbitrary
period selected by managers (Supreme Court)
Value of Partnership Books as evidence: They
constitute admission of facts stated therein and can
be used as against the maker or keeper, unless fraud
or mistake is proven as defense.

1806Duty of Partners to give information

Reason: There must be no concealment between partners in
all matters affecting the firms interest
Who can demand information?
1.
2.
3.

Any partner
Legal representative of a dead partner
Legal representative of any partner under legal
disability

1.
2.
3.
4.
5.

Estoppelan accounting made cannot be questioned

anymore if it was accepted without objection for this would
now be a case of estoppels.
1810Property Rights of a Partner
interest in the partnershipthe partners shares of the
profits and losses
Right to participate in the managementproperty right
1811Co-ownership in Specific Partnership Property
Rights of a Partner in Specific Partnership Property
1.

2.

1807Duty to Account
Reason: The fiduciary relations between partners must not be
abused.
Hold as trustee for the partnershipmeans that the
partnership can claim as own any property or money from
transactions using partnership funds, even without the
knowledge and consent of other partners.
1808Business prohibition on capitalist partners
When there is no prohibition:
1.
2.
3.
4.
5.

When it is expressly stipulated that the capitalist

partner can engage.
When the other partners expressly allow him to do
so.
When the other partners impliedly allow him to do
so.
When the company ceases to be engaged in
business.
When the general-capitalist partner becomes merely
a limited partner in a competitive enterprise, (no
management right)

Effect of Violation
1.
2.
3.

Shall bring to the partnership all the profits illegally

obtained
Personally bear all the losses
Violator can be ousted from the firm on ground of
loss of trust and confidence.

3.
4.

has an equal right with his partners to possess but

only for partnership purposes (not for other
purposes)
he cannot assign his right except if all the other
partners assign their rights in the same property;
violation of this rule renders the assignment is void.
His right is not subject to attachment or execution
(except on a claim against the partnership)
His right is not subject to legal support

1812Partners Interest in the Partnership

A partners interest in the partnership (his share in the profits
and surplus) can in general be assigned, be attached and be
subject to legal support.
Transferee cannot interfere or participate in the management
or administration but he can receive the net profits to which
the partner would have been entitled.
1813Effects of Conveyance By Partner of His interest
in the Partnership
1.

2.

3.
4.

If a partner conveys (assigns, sells, donates) his

whole interest, either two things may happen
a. The partnership may still remain
b. The partnership may be dissolved
The assignee does not necessarily become a partner.
The assignor is still the partner, with a right to
demand accounting and settlement.
The assignee cannot even interfere in the
management or administration.
The assignee cannot demand: information,
accounting and inspection of partnership books.

Rights of Assignee
1.
2.

1809Right to Demand Formal Account

GR: No formal accounting is demandable till after

dissolution.
he may have access to the books
There is no express stipulation
It is unfair if other partners can take undue
advantage funds or partnership transactions
When one partner has been travelling for a long
period of time on a business involving the firm

To get whatever profits the assignor-partner would

have obtained
To avail himself of the usual remedies in case of
fraud in the management
Page 5 of 6

3.

4.

To ask for annulment of the contract of assignment if

he was induced to enter into thru any vices of
consent or he himself was incapacitated to give
consent.
To demand accounting

Redemption of interest charged:

1814Charging of Interst of a partner

GR: While a partners interest in the partnership may be
charged or levied upon, his interest in a specific firm property
cannot as a rule be attached.

Redemptionmeans the extinguishment of the

charge or attachment on the partners interest in the
profits.
How made?
o
The charge may be redeemed or bought
at anytime BEFORE foreclosure.
o
AFTER foreclosure, it may still be bought
with separate property or with
partnership property

Preferential Rights of Partnership Creditors:

Partnership creditors are entitled to priority over
partnership assets, that is, the separate creditors will
get only after the firm creditors have been satisfied.
Separate or individual creditors have
preference in separate or individual properties.

Page 6 of 6