CHAPTER 2, SECTION 1

OBLIGATIONS OF THE PARTNERS

1) ARTICLE 1784 – COMMENCEMENT OF PARTNERSHIP

- Begins from signing of the contract, unless another date is stated in
the contract.
- Even before the actual delivery of the contributions

2) ARTICLE 1785 – FIXED TERM PARTNERSHIP

- In a fixed term partnership, the term is agreed upon either expressly
(definite period i.e. 5 years) or impliedly (particular transaction i.e.
construction of a house)
- Expiration of the term causes the automatic dissolution.
- If continued after the expiration of the term, the fixed term
partnership becomes a partnership at will with the same rights and
duties.
- There is a prima facie evidence of continuation when no settlement
or liquidation of the partnership affairs.
- Partnership at will can be terminated anytime as the partners wish.

3) ARTICLE 1786 & 1787 – OBLIGATION OF THE PARTNER RE: PROMISED

CONTRIBUTION OF PROPERTY
- A partner is considered a debtor for his promised contribution; if
partner fails, cancellation or rescission of the contract is not the
remedy but a case for Specific Performance or the partner is
compelled to deliver the promised contribution.

WHAT ARE THE OBLIGATIONS OF THE PARTNERS TO THE

PARTNERSHIP?
- To deliver the promised contribution
- To answer for eviction in case promised contribution is owned and
taken away by 3rd parties
- To deliver the fruits of the promised contribution which he delayed
to deliver
- To preserve the promised contribution before delivery (diligence
required is good father of a family or ordinary diligence)
- To indemnify the partnership for any damage due to the delay in the
delivery of the promised contribution
 - The promised contribution cannot be withdrawn without the consent
or approval of the partners
- Appraisal is made for the contribution of property (1787)

4) ARTICLE 1788 – OBLIGATION OF THE PARTNER RE: CONTRIBUTION OF

MONEY ; PARTNER IS CONSIDERED A DEBTOR OF MONEY

2 CASES
a) Delayed delivery of contribution of money – liable for interest and
damages from agreed date of delivery to actual date of delivery
b) Conversion of partnership money to personal use – liable for
interest and damages from date of conversion of money until
actual return to partnership coffers

5) ARTICLE 1789 – OBLIGATION OF THE PARTNER RE: INDUSTRY; PARTNER IS

CONSIDERED A DEBTOR OF HIS WORK OR SERVICES

CAN THE PARTNERS ENGAGE IN OTHER BUSINESSES ASIDE FROM THE

PARTNERSHIP BUSINESS?

For Industrial partners, they are prohibited to engage in any kind of

business to avoid conflict of interest (Absolute prohibition); if violated,
may be excluded from the business or other partners may avail of the
benefits obtained or income earned from the business of the industrial
partner shall be brought to the partnerships.

For Capitalist partners, they are prohibited to engage in the same kind
of business to avoid conflict of interest (relative prohibition), unless
otherwise stipulated.

6) ARTICLE 1790 – EXTENT OF CONTRIBUTION

- Equal shares unless otherwise agreed; not applicable to industrial
partner unless he also contributed capital.
7) ARTICLE 1791 – OBLIGATION TO CONTRIBUTE ADDITIONAL CAPITAL

WHAT IS THE OBLIGATION OF THE PARTNERS IN CASE THE BUSINESS OF

THE PARTNERSHIP IS LOSING?
- In case of imminent loss and no contrary agreement, the partners
shall contribute additional capital.
- If a capitalist partner refuses, he is oblige to sell his interest to the
other partners (shows disinterest to continue the partnership
business).
- Industrial partner not included in the contribution of additional
capital as he contributed already his entire industry.

8) ARTICLE 1792 – OBLIGATION OF MANAGING PARTNER WHO COLLECTS

PERSONAL CREDIT AND PARTNERSHIP CREDIT

Scenario contemplated:
a) A third person is indebted to a managing partner
b) The same third person is indebted to the partnership
c) Both debts are demandable
d) Managing partner collects from the third person

- The amount collected is applied to the two credits in proportion to

their amounts even if receipt is partner’s credit.
- If receipt is partnership’s credit, the whole amount is applied to the
partnership credit.
- Exceptions to this rule, when debt to a managing partner is more
onerous.

9) ARTICLE 1793 – OBLIGATION OF A PARTNER WHO COLLECTS

PARTNERSHIP DEBT
- If debtor becomes insolvent, the collecting partner must bring to the
partnership capital what he received even though the receipt is for
his share only.
- Reason for this rule is community of interest.

10) ARTICLE 1794 – OBLIGATION OF THE PARTNER FOR DAMAGES TO

PARTNERSHIP
- Because of a partner’s act, the partnership incurred damages.
- The partner shall be liable to pay the partnership for the
damage done. The basis of liability is quasi-delict.
 - The partner cannot ask that his liability be compensated or offset by
the profits or benefits he obtained for the partnership. This is
because it is his obligation to secure profits and benefits and to
exercise diligence.
- Exception is if extraordinary profits are obtained by the partner, the
courts may equitably lessen responsibility of the partner for the
damage done to the partnership.

11) ARTICLE 1795 – RISK OF LOSS OF THINGS CONTRIBUTED

- If the partner is still the owner, he bears the loss
- If the partnership is already the owner, it bears the loss
- Note that ownership is transferred upon actual or constructive
delivery.

12) ARTICLE 1796 – OBLIGATION OF THE PARTNERSHIP TO THE PARTNERS

- To refund amounts plus interest disbursed by a partner for
the partnership
- To answer for the obligation contracted in good faith by the partner
- To answer for risk in consequence of its management (loss
of property belonging to a partner)

13) ARTICLE 1797 & 1798 – RULES FOR DISTRIBUTION OF PROFITS AND LOSS

a) Agreement i.e 60-40, or 70-30, etc.

b) If no agreement, in proportion to capital contribution; industrial
partner receives a just and equitable share and not liable for the
losses. If industrial partner also contributed capital, he shall also
receive a proportionate share of the profits and losses.
c) If entrusted to a third person, sharing shall be based on the
determination by the third person unless manifestly inequitable.
The determination can be impugned within 3 months from
knowledge and before execution.
d) Determination of sharing cannot be entrusted to one partner.

14) ARTICLE 1799 – STIPULATION EXCLUDING A PARTNER FROM SHARING IN

THE PROFIT & LOSS IS VOID
- Only the stipulation is void; partnerships continues and PROFITS &
LOSS shall be divided as if no such stipulation (go back to 1797 or
1798)
 - Industrial partner may be excluded from losses but without prejudice
to 3rd persons. Reason: labored in vain.
- Unequal sharing can be stipulated unless it is a simulated form or
attempt to exclude a partner in the Profit & Loss, hence VOID.

15) ARTICLE 1800 – RIGHTS AND OBLIGATION OF MANAGING PARTNERS

General Rule: Each partner has a right to manage the affairs of the
partnership except when a partner(s) are appointed as managing
partners.

TWO CASES OF APPOINTMENT OF MANAGING PARTNER

1) Appointed in the articles of partnership OR name is stated in the

contract
- Execute all acts of administration (acts of ownership not
included) notwithstanding the opposition of the other partners
unless he acted in bad faith
- If in bad faith, may be revoke upon just and lawful causes with
a vote of the controlling interest
- Articles of partnership shall be revised to change the managing
partner.
2) Appointed after the constitution of the partnership OR in a
separate document.
- Power may be revoked at any time for any cause with a vote of
the controlling interest.
- Articles of partnership need not be revised.
- Simply a contract of agency.

ARE MANAGING PARTNERS ENTITLED TO COMPENSATION?

No, managing partners are not entitled to compensation.

16) ARTICLE 1801 – POWERS OF 2 OR MORE MANAGING PARTNERS WITH

UNSPECIFIED DUTIES
- Each may separately perform acts of administration EXCEPT if the
other managing partners oppose and the decision of the majority
prevails.

EXAMPLE: If there are 4 managing partners and 3 are in favor and 1

against, the decision of the 3 managing partner prevails.
 - In case of tie (2 in favor and 2 against), it will be decided by the
controlling interest (more than 50% of capital investment). If 2
partners in favor has an interest of 60%, then their decision prevails.

- Partners who are not managing partners cannot oppose.

17) ARTICLE 1802 – WHEN UNANIMITY IS REQUIRED OF THE MANAGING

PARTNERS WITH UNSPECIFIED DUTIES

- Unanimity is required when stipulated or agreed. If one partner is

against, then the decision of the other managing partners cannot be
done.
- Absence or disability of one managing partner is not an excuse or
justification not to have a unanimous decision.
- Exception: imminent danger of grave or irreparable injury to the
partnership; routine transactions such as buying of goods for sale in
the regular course of business.

18) ARTICLE 1803 – NO MANAGING PARTNERS ARE APPOINTED

- All partners are considered managing partners. Anyone can bind the
partnership. Same rule in 1801 in case of opposition.
- For any important alteration in the immovable property of
the partnership, unanimity is required.
- If there is opposition which is prejudicial to the interest of the
partnership, the other partners may ask the court’s intervention.

19) ARTICLE 1804 – RIGHT TO ASSOCIATE WITH A SUBPARTNER (SUB-

PARTNERSHIP)
- With respect only to a partner’s share (Profit & Loss and property
rights at dissolution)
- Subpartner does not become a partner and does not acquire
the rights of a partner (management) nor is liable for its debts.
- Reason: based on trust and confidence; other partners may not
trust the subpartner.

20) ARTICLE 1805 - RIGHT TO ACCESS PARTNERSHIP BOOKS

- Kept at the principal place of business
- Access at reasonable hours
- Inspect and copy
21) ARTICLE 1806 – RIGHT TO BE INFORM OF ALL THINGS AFFECTING THE
PARTNERSHIP
- Available to any partner, legal representative of a deceased
partner or disabled partner.
- Any information i.e. possible business ventures.

22) ARTICLE 1807 – RIGHT TO AN ACCOUNTING OF PROFITS AND BENEFITS

- Relating to all profits and benefits
- Act as trustee with regards to the profits and benefits in behalf of
all the partners.

23) ARTICLE 1808 – RIGHT OF CAPITALIST PARTNERS TO ENGAGE IN

BUSINESS OTHER THAN THE PARTNERSHIP BUSINESS
- Relative prohibition only. Cannot engage in the same business as the
partnership unless otherwise stipulated. This is to avoid conflict of
interest. If violated, bring to the common fund the profits earned.
- No prohibition for any other business.

24) ARTICLE 1809 – RIGHT TO A FORMAL ACCOUNTING OF PARTNERSHIP

AFFAIRS
- If wrongfully excluded from business or possession of its property
- If stipulated or agreed in the contract
- As provided in Art. 1807
- Just and reasonable
- Leads to a dissolution of the partnership.
 CHAPTER 2, SECTION 2
PROPERTY RIGHTS OF A PARTNER

1) ARTICLE 1810 – PROPERTY RIGHTS OF PARTNERS (SIM)

A) Specific partnership property (SPP)
B) Interest
C) Management

2) Art. 1811 - SPECIFIC PARTNERSHIP PROPERTY

WHAT ARE SPECIFIC PARTNERSHIP PROPERTIES?

This are properties, real or personal, acquired by the partnership or
contributed by the partners.

- Partners are co-owners as to SPP

- Equal right of possession for partnership purposes only
- Not assignable (impossible to determine extent of his beneficial interest)
- Not subject to execution or attachment (except claims against the
partnership)
- Not subject of legal support

3) Art. 1812,1813 - INTEREST

- Interest means the share of a partner in the profits (during the life of
the partnership) and surplus (after dissolution).

CAN A PARTNER ASSIGN HIS INTEREST IN THE PARTNERSHIP TO A 3RD

PARTY?

Yes, the interest of partner is assignable in absence of a contrary agreement.

WHAT IS THE EFFECT OF THE ASSIGNMENT OF A PARTNER’S INTEREST?

- Effect of assignment, assignee has no right to

a) Management
b) Information and account
c) Inspection of partnership books
 - Rights of assignee of partner’s interest
a) To receive the share of the profits of the assigning partner
b) To avail of the usual remedies in the event of fraud in the
management
c) To receive the assignor’s interest in case of dissolution.
d) To require an accounting in case of dissolution

4) ART. 1814 – REMEDIES OF A SEPARATE JUDGMENT CREDITOR OF A

PARTNER

WHO IS A SEPARATE JUDGMENT CREDITOR OF A PARTNER?

A creditor of a partner who filed and won a case against the latter over
transactions personal to the partner or does not involve the partnership.

EXAMPLE: A partner borrowed money from a bank to finance the

construction of his family home. If the partner fails to pay the loan and the
bank filed and won a case for collection against the partner, the bank is
considered a separate judgment creditor of a partner.

WHAT ARE THE RIGHTS OF A SEPARATE JUDGMENT CREDITOR?

- Separate creditor of a partner cannot attach or levy SPP, however, he
can apply to the court for a charging order subjecting the INTEREST of
the partner for the payment of his credit.
- Without prejudice to Art. 1827 or preferred rights of partnership
creditors who are paid first before separate creditors.
- INTEREST of the partner charged by a separate creditor can be redeemed
with the (1) separate property of anyone of the partners or (2) with
partnership property with consent of all partners whose interest is not
charged.
 CHAPTER 2, SECTION 3
OBLIGATIONS OF PARTNERS TO THIRD PERSONS

1) Article 1815 – FIRM NAME

- May or may not include the name of one or more partners

- Those who include their names but are not partners are liable as
partners (based on the principle estoppel)
- Used of name of deceased partner is permissible provided it is indicated
that the partner is deceased.

2) Art. 1816 – LIABILITY FOR CONTRACTUAL OBLIGATIONS

- A partner has the right to make all partners liable for contracts he
makes for the partnership in the name and account of the partnership
(PARTNERSHIP LIABILITY)

- A separate undertaking by a partner (INDIVIDUAL LIABILITY)

WHAT IS THE EFFECT OF A PARTNERSHIP LIABILITY TO THE PARTNERS?

The partners are pro rata liable (joint liability) and subsidiarily liable
(personally liable after partnership assets are exhausted).

ARE INDUSTRIAL PARTNERS LIABLE TO THIRD PERSONS?

Yes, an Industrial partner is liable to third persons but he/she can recover
the amount from the capitalist partners. (IP is not liable only for losses)

3) ART. 1817 – STIPULATION AGAINST LIABILITY

CAN THE PARTNERS AGREE THAT ONE OF THEM IS NOT LIABLE TO THIRD
PERSON?
No, such agreement is VOID as to third persons but VALID among the
partners.

4) ART. 1818 – PARTNER AS AGENT OF THE PARTNERSHIP

- A partner acting alone can bind the partnership for acts for the purpose
of its business.
 WHAT ACTS REQUIRE THE CONSENT OF ALL PARTNERS?

The following acts require consent of all the partners:

(1) Assign SPP

(2) Dispose of goodwill
(3) Making impossible to carry the business of the partnership
(4) Confess a judgment
(5) Enter into a compromise
(6) Submit to arbitration
(7) Renounce a claim of the partnership

ARE THERE INSTANCES THAT THE ABOVEMENTIONED ACTS CAN BE

PERFORMED BY NOT ALL THE PARTNERS?
Yes, when a partner is authorized by the other partners or other partners
abandoned the business.

WHAT IS THE EFFECT IF THE ABOVEMENTIONED ACTS WERE PERFORMED

WITHOUT THE CONSENT OF ALL THE PARTNERS?
There will be no PARTNERSHIP LIABILITY. The partners acting without the
consent of the other partners will be liable.

WHAT OTHER ACTS REQUIRE THE CONSENT OF ALL THE PARTNERS?

1) For the usual business of the partnership when:

(a) No authority is given to the acting partner
(b) Third person knows the acting partner has no authority
2) Acts of strict dominion
3) Acts in contravention of a restriction on authority

5) ART. 1819 – CONVEYANCE OF PARTNERSHIP’S REAL PROPERTY

Partnership real property may be registered or owned, as follows:

a) Under the name of the Partnership

b) Under the name of one or more partners but not all
c) Under the name of One or more or all, or in a third person in trust for the
partnership
d) Under the name of all the partners
6) ART. 1820 – AN ADMISSION OR REPRESENTATION BY A PARTNER
CONCERNING PARTNERSHIP AFFAIRS WITHIN THE SCOPE OF HIS
AUTHORITY IS EVIDENCE AGAINST THE PARTNERSHIP

7) ART. 1821 – NOTICE OR KNOWLEDGE OF A PARTNER OF MATTER

AFFECTING THE PARTNERSHIP OPERATES AS A NOTICE OR KNOWLEDGE
OF THE PARTNERSHIP.

8) ART. 1822, 1823, 1824 – SOLIDARY LIABILITY ARISING FROM PARTNER’S

WRONGFUL ACT OR OMISSION, OR BREACH OF TRUST

WHAT ARE THE INSTANCES WHEN THE PARTNERS AND THE PARTNERSHIP
ARE SOLIDARILY LIABLE TO THIRD PERSON?
They are solidarily liable:
a) For wrongful act or omission (Art. 1822) example: a partner accidentally
bumped and killed a bystander with the partnership vehicle
b) For misappropriation of money or property of a third person (Art.
1823) example: a partner took away the money of a third person who
bought partnership goods.

WHAT IS THE REMEDY OF THE INNOCENT PARTNERS?

They can recover from the guilty partner.

9) ART. 1825 – PARTNERSHIP BY ESTOPPEL

TWO SCENARIOS CONTEMPLATED

a) By directly representing to anyone to be a partner (even if not true) to an

existing or non-existing partnership.
b) By indirectly representing himself by consenting to another’s representation
that he is a partner (even if not true).

WHAT IS THE EFFECT OF A PARTNERSHIP BY ESTOPPEL?

The effects are:

a) No partnership as between alleged partners
b) The Law considers them partners to protect third persons.
WHAT IS THE LIABILITY IN CASE OF PARTNERSHIP BY ESTOPPEL?

- If all partners consented, there is a PARTNERSHIP LIABILITY.

- If there is no existing partnership and all consented to the
misrepresentation, their liability is PRO RATA (jointly).
- If there is no existing partnership and not all consented to the
misrepresentation, the liability of all who consented is SEPARATE
LIABILITY.

10) ART. 1826 – LIABILITY OF INCOMING PARTNER

1) For exiting obligations of the partnership – limited to the share of the

incoming partner.
2) For subsequent obligations of the partnership – extends to the separate
property of the incoming partner.

11) ART. 1827 – PREFERENCE OF PARTNERSHIPS CREDITORS IN PARTNERSHIP

PROPERTY.

The remedy of the separate creditors of the partners is to attach the INTEREST
(share of the profits) of the partner.