Art. 1785.
When a partnership for a fixed term or
Arvin D. Andaya
OBLIGATIONS OF THE PARTNERS
SECTION 1: Obligations of the Partners among
Themselves
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 person
*The partnership relationship is essentially on
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.
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
- 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
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)
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 there to. 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)
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
hepromised
2. To answer for eviction in case the
partnership is deprived of the determinate
property contributed
3. To answer to the partnership for the fruits of the
property the contribution of which he delayed
4. To preserve the property with diligence of a
good father of a family pending delivery
5. To indemnify the partnership for any damage caused
to it by the retention of the property or by delay in its
contribution
EFFECT OF FAILURE TO CONTRIBUTE PROPERTY
PROMISED
- It will make the partner ipso jure a debtor of the
partnership even in the absence of any demand
- The remedy is not rescission but an action for specific
performance with damages and interest from the
defaulting partner
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)
APPRAISAL OF GOODS OR PROPERTY
CONTRIBUTED
- 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
TOPERSONAL USE (PAR. 2)
1. To contribute on the date due
2. To reimburse any amount he may have taken for
his own use
3. To pay the agreed or legal interest, if he fails
to pay on time
4. To indemnify the partnership for the damages
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 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
BUSINESS
1. Industrial Partner
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
3.
O Prohibition only extends to any operation
which is of the same kind of business in which the
partnership is engaged
REMEDIES WHERE INDUSTRIAL PARTNER
ENGAGES IN BUSINESS
- 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)
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 application of rule
1. Imminent loss of the business
2. Majority of the capitalist partners are of the
opinion that an additional contribution to the
common fund would save the business
3. The partner refuses deliberately
4. There is no agreement
*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 Article1252, but only if the personal credit
of the partner should be more onerous to him.
(1684)
OBLIGATION OF MANAGING PARTNER WHO
COLLECTS DEBT
GR: If there is debt to the partnership and to the
managing partner, payment shall be applied to both
credits proportionately.
EXPN: it was received for the account of the
partnership only
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 credit
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 OTHERACTIVITIES of the partnership,
UNUSUAL PROFITS may have been
realized COMPENSATION OF DAMAGES WITH
PROFITS EARNED FOR PARTNERSHIP BY
GUILTY PARTNERGR: 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 USEAND 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 thepartnership 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 CONSUMMED OR IMPAIRED-
E.G. Oil, rice, wine4.
4. WHERE THE THING CONTRIBUTED IS TO BE
SOLD
Risk of loss: Partnership
Reason: because the partnership cannot sell
it without it being the owner5.
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 thingappraised. 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
LOSSESAGREED 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
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 inproportion 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
1. 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 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 THEPROFITS

- 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
THESTIPULATED 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