CHAPTER 2 – OBLIGATIONS OF THE PARTNERS

Section 1 – Obligations of the partners among themselves

1. What are the distinct juridical relations in a contract of partnership?
 The contract of parternship has 4 juridical relations;
(1) relations among the partner themselves
(2) relations of the partners with the partnership
(3) relations of the partners with thrd person with whom it contracts
(4) relations of the partners with such third persons

2. When is a partnership created?

 It is stated in Art. 1784. That a partnership begins from the moment of the
execution of the contract, unless it is otherwise stipulated.(1679) Generally,
to determine whether a partnership existed, a court will ask whether there
was a sharing of profits and losses, joint administration and control of the
business, a capital investment by each partner, and common ownership of
property. The court will also examine the intent of the parties.

3. Is the giving of each of the partners’ contributions an essential requisite to the creation of
partnership?
 Yes, the givinh of the partners contribution is an essential requisite of a
contract of partnership even when the partners have not yet actually given
their contributions.
4. What is a future partnership?
 Future partnership is when the partners may stipulate some other date for the
commencement of the partnership. Persons who have entered into a
contract to become partners at some future time or on the happening or
fulfillment of some condition or future contingency do not become partners
until or unless the agreed time has arrived or the condition has happened.
Hence, there can be a future partnership which at the moment has no
juridical existence yet.

5. What is a partnership with a fixed term?

 A partnership with a fixed term is one in which the term of its existence has
been agreed upon expressly (as when there is a definite period) or impliedly
(as when a particular enterprise or transaction is undertaken). The
expiration of the term thus fixed or the accomplishment of the particular
undertaking specified will cause the automatic dissolutiob of the
partnership.
6. X & Co. Partnership is created to sell goods for only 2 years. After 2 years, the partners
of the company wanted to continue the business due to its good returns. What happens
to X & Co. after 2 years when the partners decide to continue the partnership?
  According to Art. 1785 when X and Co. continued the partnership 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.

7. When there is no stipulation as to what kind of partnership the partners created, it is

presumed to be a partnership with a fixed term. Is this correct? Why?
 No. When there is no stipulation as to what kind of partnership the partners
created it is not directly presumed to be a partnership with a fixed term, it
can also be a partnership at will where no time is specified and is not
formed for a particular undertaking at which may be terminated anytime by
mutual agreement of the partners.

8. What are the obligations of every partner with respect to contribution of property?
 These are the obligations of every partner 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 may have promised to
contribute;
(2) To answer for eviction in cage tie partnership is deprived of the
determinate property contributed; and
(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.

In addition, the partner has the obligation:

(4) To preserve said property with the diligence of a good father of a
family pending delivery to the partnership (Art. 1163); and
(5) To indemnify the partnership for any damage caused to it by the
retention of the same or by the delay in its contribution (Arts. 1788, 1170)

9. What is the effect of failure to contribute property as promised by a partner?

 The failure to contribute is to make the partner automatically a debtor of the
partnership even in the absence of any demand. As for the remedy, the
other parties or the partnership is not recission ot cancelation of the
contract of partnership but an action for specific performance which is to
collect what is owing with damages and interest.
10. What is the liability of a partner in case of eviction of the partnership from the property
contributed by the partner?
 The partner is bound in the same cases and in the same manner as the
vendor is bound with respect to the vendee. This matter is, therefore,
governed by the law on sales. Under the law on sales, eviction shall take
place. whenever by a final judgment based on a Tight prior 10 the sale or an
act imputable to the vendor, the vendee is deprived of the whole or a part of
the thing purchased. (Art. 1548.3) This obligation of warranty in case of
eviction is in consequence of the character of the contract of partnership
which is an onerous contract. (seeArt. 1767.
11. Explain the liability of partner for fruits of property in case of delay.
 From the fact that the contribution which the partner was ought to deliver
does not pass to the common fund on time, the partnership then fails to
receive the benefits from the contribution ought to produce thus prejudicing
the purpose of obtaining from them the greatest possible profits through
some means of speculation or investment. The injury therefore, to the
partnership is constant.

12. Explain the concept of appraisal of the goods or property contributed by the partner to the
partnership.
 When the capital or 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 the account of the partnership.
13. What are the obligations of the partners with respect to the contribution of money and
money converted in to personal use?
1. To contribute on the date due 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 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; and

4. To indemnify the partnership for the damages caused to it by the delay in

the contribution on the conversion of any sum for his personal benefit.
14. When is the guilty partner liable for both interest and damages in relation to the previous
number?
 1. Accrual liability – the guilty partner is liable for both interest and damages
not from the time judicial or extrajudicial demand is made but from the time
he should have complied with his obligation or from he time he converted
the amount to his own use, as the case may be.
2. Justification for double responsibility – this double responsibility of the
partner is an exception to the general rule in damages that in obligations
consisting the payment of a sum of money, the indemnity for damages
shall be only the payment of interest agreed upon or, in the absence of
stipulation, the legal interest of 6%. It is in harmony with the principle laid
down in article 1794 that every partner is responsible to the partnership for
damages suffered by it through his fault and is justified by the nature of the
contract of partnerships.

15. What is the legal interest rate?

 6% per annum is the legal interest rate(ART. 2209)

16. What are the prohibitions against the partners in engaging business?
a. Industrial partners - the prohibition is absolute and applies whether to
engage in the same business or in any kind of business.
b. Capitalist partners - the prohibition extends only to any operation which is
the same kind of business in which the partnership is engaged unless
there's a stipulation to the contrary.

17. What are the remedies granted to the capitalist and other industrial partners where one of
the industrial partners engages in business?
 If the industrial partners engages in business for himself without the express
permission, the capitalist partners have the right either to exclude him from
the firm or avail themselves of the benefits which he may have obtained.
Capitalist partners have a right to damages.

18. What is the presumption as to the extent of contribution to the partnership capital?
 In the absence of stipulation, the presumption is that their contribution shall
be in equal shares as to the general rule. But it is permissible to contribute
unequal shares of there is stipulation to the effect.

19. What is the obligation of a capitalist partner to contribute capital?

a. As a general rule - a capitalist partners is not bound to contribute to the
partnership more than what he agreed to contribute.
b. In case there is imminent loss - he is under obligation to contribute an
additional share to save the venture.
20. What are the requisites so that the concept used in item 19 (b) can be applied?
1. If there is imminent loss of partnership;
2. The majority of the capitalist partners are of the opinion that an additional
contribution to the common fund would save the business;
3. Refuses to contribute an additional share to the capital;
4. There is no agreement to the contrary or in case of an imminent loss are
not obliged to contribute.

21. X has demandable debts to ABC partnership and to B, the managing partner for the
amount of ₱4,000 and ₱1,000 respectively. X paid ₱1,000 to B as payment for his debt to
him. How much is the remaining debt of X to ABC partnership and to B respectively?
 3,500 ABC, 500 to B.

22. X has demandable debts to ABC partnership and to B, the managing partner for the
amount of ₱4,000 and ₱1,000 respectively. X paid ₱1,000 to B as payment for his debt to
the partnership. How much is the remaining debt of X to ABC partnership and to B
respectively?
 3,000 ABC , 1,000 to B.

23. X has a debt to ABC partnership and to B, the managing partner for the amount of
₱4,000 and ₱1,000 respectively. The debt to ABC company is still due next year. X paid
₱1,000 to B as payment for his debt to him. How much is the remaining debt of X to ABC
partnership and to B respectively?
 4,000 ABC, 0 B. ( Kay next yr pa demandable)

24. X has a debt to ABC partnership and to B, the managing partner for the amount of
₱4,000 and ₱1,000 respectively. The debt to B which is interest bearing. X paid ₱1,000 to
B as payment for his debt to him. How much is the remaining debt of X to ABC
partnership and to B respectively?
25. X has an existing debt to ABC partnership amounting to P6,000. X paid the partnership
P2,000. Since the partners share equally the profits of the partnership, they agreed that A
receive his share of P2,000 first. Two days later, X was declared insolvent. Based on the
facts, what can B and C do since they did not receive their share?
 In this case that when the debtor becomes insolvent, the partner who has
received his share which is A has to bring back the partnership capital that
he received which is the P2,000 by that they have to divide it equally for the
3 of them so that B and C can have their share as well.
26. Explain the general rule and exception for compensation in the partner’s share in the
profits in case a partner causes damage to the partnership.
1. Damages not generally subject to set-of- As a general rule, the damages
caused by a partner to the partnership cannot be compensated or offset by
the profits or benefits which he may have earned for the partnership by his
industry.
(a) The partner has the obligation to secure benefits for the partnership.
Hence, the profits which he may have earned pertain as a matter of law or
right to the partnership.
(b) He has also the obligation to exercise diligence in the performance of
his obligation as a partner. Con sequently, inasmuch as a partner is a
debtor to the part nership for his industry, and at the same time is obliged
to repair the injury which he might have occasioned through his fault, there
cannot be any compensation. Compensation requires that the negligent
partner be both a creditor and a debtor of the partnership. (Art. 1278; 11
Manresa 356-357.)
2. Exception- if unusual profits are realized through the extraordinary efforts of the
partner at fault, the courts are authorized by the law to equitably mitigate or lessen
his liability for damages. This rule resets on equity. Note that even in this case the
partner at fault is not allowed to compensate the damages suffered by the profits
earned.

27. Who bears the risk of loss of the thing contributed by the partner to the partnership:
a. Specific, and ownership is transferred to the partnership - The risk is for the
account of the partnership, being the owner;
b. Specific, non-fungible and only the use is contributed - The risk is borne by the
partner because he remains the owner of the things (like car);
c. Fungible things - The risk of loss is borne by the partnership for evidently
the ownership was being transferred since use is impossible without the
things being consumed or impaired. Fungible things are things or goods of
which any unit is, from its nature or by mercantile usage, treated as the
equivalent of any other unit (U.S. Uniform Sales Act, Sec. 76.), such as oil,
wine, rice, etc.;
d. Thing contributed to be sold - The partnership bears risk of loss for there
cannot be any doubt that the partnership was intended to be the owner,
otherwise, the partnership could not effect the sale;
e. Things brought and appraised in the inventory - The partnership bears the risk
of loss because the intention of the parties was to contribute to the
partnership the price of the things contributed with an appraisal in the
inventory. There is thus an implied sale making the partnership owner of
the said things.
28. What are the responsibilities of the partnership mentioned in Article 1796?
 The partnership shall be responsible to every partner for the amount he may
have disbursed on behalf of the partnership and for the corresponding
interest, from the time the expenses are made; it shall also answer to each
partner for the obligations he may have contracted in good faith in the
interest of partnership business, and for risks in consequence of its
management.

29. The partners of ABC partnership agreed to share the profits in 3:2:1 ratio. They had
capital contributions of P2,000, P3,000, and P1,000 respectively. If the profit is P12,000
what is the share of each partners?
a. If all are capitalist partners
b. If all are capitalist partners except for C who is a purely industrial partner.
c. If all are capitalist partners except for C who is a capitalist-industrial partner.
d. How about when there was no agreement as to the sharing of profits and all are
capitalist partners?
e. How about when there was no agreement as to the sharing of profits and all are
capitalist partners except for C who is a purely industrial partner?
f. How about when there was no agreement as to the sharing of profits and all are
purely capitalist partners except for C who is a capitalist-industrial partner?
30. The partners of ABC partnership agreed to share the profits in 3:2:1 ratio and for losses is
3:2:1. They had capital contributions of P2,000, P3,000, and P1,000 respectively. If the
loss is P12,000 what is the share of each partners?
a. If all are capitalist partners
b. If all are capitalist partners except for C who is a purely industrial partner.
c. If all are capitalist partners except for C who is a capitalist-industrial partner.
d. How about when there was no agreement as to the sharing of losses and all are
capitalist partners?
e. How about when there was no agreement as to the sharing of losses and all are
capitalist partners except for C who is a purely industrial partner?
f. How about when there was no agreement as to the sharing of losses and all are
purely capitalist partners except for C who is a capitalist-industrial partner?
g. How about when there was no agreement as to the sharing of profits & losses
and all are capitalist partners?
h. How about when there was no agreement as to the sharing of profits & losses
and all are capitalist partners except for C who is a purely industrial partner?
i. How about when there was no agreement as to the sharing of profits & losses
and all are purely capitalist partners except for C who is a capitalist-industrial
partner?
31. The partners of partnership ABC are so lazy and cannot agree among themselves as to
their profit sharing. They assigned X instead to decide the profit sharing among
themselves.
a. Is this a valid agreement?
b. When can the partners impugn(question) the decision of X?
c. If after X made their profit-sharing agreement and after the partnership had
profits, C claimed his share in accordance with X’s profit-sharing ratio. Can C for
the next time there is profit Impugn X’s profit ratio?
32. The partners of ABC partnership agreed that partner B will not share in the losses of the
partnership. Is this valid? When is It valid?
33. Can the appointed managing partner in the articles of partnership execute all acts of
administration of the partnership? What are the exceptions?
 The exceptions is when the powers of the manager are specifically
restricted or expressly withheld. A managing partner cannot also exercise
powers which are neither necessary nor incidental to carry out the object of
the partnership.

(a) A partner designated as one of the managers to take charge of "selling

fish in Manila and the purchase of supplies" has no authority to purchase
for the partnership a "barge, a truck and an adding machine," inasmuch as
neither of these properties can be considered as "supplies for the
partnership business"

(b) Neither can be managing partner of a partnership formed for the purpose
of operating a tailoring shop, sell or convey the tailoring shop which is
partnership property without the consent of all the partners.

(c) A managing partner may not bind the partnership by the contract wholly
foreign to its business. Thus, he has no authority to execute a mortgage on
the firm's property to secure the debt of a third person for which the firm is
not liable.

34. Is the power of a managing partner appointed in the articles of partnership irrevocable?
 No.

a. When is it not?
o His power is revocable only upon just and lawful cause and upon the
vote of the partners representing the controlling interest.
b. How about if the power of the managing partner has not been constituted in the
articles of partnership?
o A power granted after the partnership has been constituted
independently of the articles may be revoked at any time for any
 cause whatsoever. And it is believed that the vote for revocation
must also represent the controlling interest.

35. XYZ & Co. has X, Y and Z as their managing partners without specification of their
respective duties or that there was no stipulation that one of them shall not act without the
consent of all of the others:
a. Can either X, Y and Z execute any acts of administration of the partnership?
o According to Article 1801. If two or more partners have been
intrusted with the management of the partnership without
specification of their respective duties, or without stipulation that one
of them shall not act without the consent of all the others, each one
may separately execute all acts of administration.
b. What happens if Z opposes the act of X, and Y sides with X?
o If Z opposes the acts of X, then the decision of the majority (per
head) of the managing partners shall prevail. The right to oppose can
be exercised only by those entrusted with the management of the
partnership and not by any partner.
c. What happens if Z opposes the act of X, and Y did not side in any of them?
o The matter shall have to be decided by the vote of the partners
owning the controlling interest, that is, more than 50% of the capital
investment.
36. What are the requisites for the application of the rule set forth in the previous item (Art.
1801)?
1. Two or more partners have been appointed as managers;
2.There is no specification of their respective duties; and.
3. There is no stipulation that one of them shall not act without the consent of all
the others.

37. XYZ & Co. has X, Y and Z as their managing partners with specification that none of the
managing partners shall act without the consent of the others.
a. Can either X, Y and Z execute any acts of administration of the partnership?
o Under Article 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.

b. Based on the facts given when can any of the managing partners execute any
act of administration?
 o Based on Article 1801, the managing partners can only execute any
acts of administration when there is no specification of their duties or
stipulation that one of then shall not act without the consent of the
others.

38. What are the rules when the manner of management of the partnership has not been
agreed upon?
1. All of the partners shall be considered agents and whatever any one of them
do alone shall bind the partnership, without prejudice to the provision 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.

39. Can a partner associate another person with him in his share?
 Under Article 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 other partners, even if the partner having an
associate should be a manager.

40. Is such an associate of a partner admitted to the partnership by the time the partner
assigns him his share? In other words, does the associate become a partner?
 The person associated with partner's share is called subpartner. The
subpartners are partners inter se, but the in the absence of the mutual
assent of all the parties, a subpartner does not become a member of the
partnership, even if the agreement is known to the other members of the
firm. Not being the member of the partnership, he does not aquire the rights
of a partner nor is he liable for its debt.

41. Can you explain Article 1805 of the Civil Code in relation to the partnership books?
a. Who has the duty to keep true and correct books showing the firm’s accounts?
o The managing or active or the particular partner given record-
keeping duties has the duty to keep it.
b. Where is it kept?
o The partnership books should be kept at the principal place of
business.
c. When can a partner access such partnership books?
 o Article 1805 declares that the rights of the partners with respect to
the partnership books can be exercised at "any reasonable hour."
Thus means reasonable hours on business days throughout the year
and not merely during some arbitrary period of a few days chosen by
the managing partners.
d. Upon access of a partner, what can he/she do to the partnership books?
o Upon access he/she can inspect or copy any of them. It is noteworthy
that the partner's inspection rights are not absolute. He/she can be
restrained from using the information gathered for other than
partnership purpose.

42. Under Article 1806 of the CC, what is the duty of a partner when he knows an information
affecting the partnership?
 Under Article 1806, the partner 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.

43. ABC Co. is formed as a taxi transportation business and has 10 units of taxis to be rented
by taxi drivers. One day, only 9 taxis were used by the taxi drivers leaving 1 unused taxi
that day. A, a partner knew about this information, and instead of finding a taxi driver to
rent it, he drove the taxi himself and earned money from it. What is the duty of A to the
partnership?
 Under Article 1807, A must account to the partnership for any benefit, and
hold as trustee for any profits derived by him without the consent of the
other partners from driving the taxi himself.
44. What are the transactions connected to the duty of a partner as mentioned in Article 1807
of the CC?
(1) Duty to act for the common benefit.
(2) Duty to account for secret and similar profits.
(3) Duty to account for earnings accruing even after termination of
partnership
(4) Duty to make full disclosure of information affecting partnership.

45. ABC Co. is formed as a taxi transportation business. A, a partner since his share to the
partnership is only 5%, wants to increase his personal income since he is planning to get
married. So, he decided to make another partnership called KAR Co. which is also a taxi
transportation business but his share to the profit is 45%.
a. What is the effect of the acts of A assuming bot ABC and KAR earned profits?
 o Any capitalist partner who engaged himself with similar business in
which the partnership is engaged shall be under obligation to bring
to the common fund any profits derived by him form his transactions.
b. What is the effect of the acts of A assuming bot ABC incurred losses and KAR
earned profits?
o B. He shares in the losses incurred by ABC and he is obliged to bring
to the common fund the profits he earned from KAR Co. partnership.
c. What if according to the articles of partnership of ABC Co. any partner may
conduct a business of the same nature as ABC Co.’s, would your answer to (a)
and (b) be the same?
o No. It will not be the same, because the partners by stipution permits
any partner to engaged in the same kind of business.

46. As a general rule, is a partner entitled to have a formal accounting as to the partnership
affairs? Why?
 In general, during the existence it the partnership, a partner is not entitled
5o a formal account of partnership affairs. The reason is that the rights of a
partner to know the partnership affairs are amply protected in Articles 1805
and 1806. Furthermore, to entitle any partner to the right to constantly
demand for a formal accounting will cause much inconvenience and
unnecessary waste of time.

47. When can a partner have the right to a formal account as to the partnership affairs?
(1) if he is wrongfully excluded from the partnership business or
possession of its property by his co-partners;
(2) if the right exist under the terms of any agreement;
(3) as provided by Article 1807; and
(4) whenever other circumstances render it just and reasonable