BUSINESS LAW AND REGULATIONS
LAW ON PARTNERSHIPs
Chapter ii:
obligations of the partners
Section 1 - Obligations of the partners among
themselves
Article 1784
“A partnership begins from the moment of the execution
of the contract, unless it is otherwise stipulated. (1679)”
Article 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)”
Article 1785
“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)”
Article 1786 (eksplanasyon)
Obligations with respect to contribution of property:
• 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 (Art. 1786)
• To answer for eviction in case the partnership is
deprived of the determinate property contributed
(Art. 1786)
• 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)
• To preserve said property with the diligence of a
good father of a family pending delivery to
partnership (Art. 1163)
• To indemnify partnership for any damage caused
to it by the retention of the same or by the delay
in its contribution (Arts. 1788, 1170)
Article 1786 (eksplanasyon)
Effect of failure to contribute property promised:
• Partners becomes ipso jure a debtor of the
partnership even in the absence of any demand
(See Art. 1169[1])
• Remedy of the other partner is not rescission but
specific performance with damages from
defaulting partner (Art. 1788)
Article 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)”
Article 1787 (eksplanasyon)
Appraisal of goods and or property contributed:
• The appraisal of the value of the goods contributed
is necessary to determine how much has been
contributed by the partner.
• Absence of stipulation, share is P/L is in
proportion to what he may have
contributed (Orig. Beginning Capital)
• Appraisal first as to what was agreed by
the partners; second, experts chosen by
partners and according to current prices
• After the goods have been contributed, the
partnership bears the risk or benefit of
subsequent changes in value
• 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 expert (a.k.a. FAIR VALUE)
Article 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)”
Article 1788 (eksplanasyon)
Obligations with respect to contribution of money
and money converted to personal use:
• To contribute on the date fixed the
amount he has undertaken to contribute
to the partnership
 • To reimburse any amount he may have
taken from the partnership coffers and
converted to his own use
• 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
• To indemnify the partnership for the
damages caused to it by delay in the
contribution or conversion of any sum
for his personal benefits
• Accrual Liability
• Justification for Double Responsibility
Article 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)”
Article 1789 (eksplanasyon)
PROHIBITION AGAINST ENGAGING IN
COMPETITIVE BUSINESS
CONSEQUENCES IF AN INDUSTRIAL PARTNER
ENGAGES IN ANY BUSINESS: (Art. 1789)
• He can be excluded from the partnership; or
• 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,
Article 1790
“Unless there is a stipulation to the contrary, the
partners shall contribute equal shares to the capital of
the partnership”
Article 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)”
Article 1791 (eksplanasyon)
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.
Requisites for the rule to apply:
• There is an imminent loss of the
business of the partnership
• 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)
• There is no agreement to the contrary
Article 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)”
Article 1792 (eksplanasyon)
Obligation of managing partners who collects debt
from person who also owed the partnership (Art.
1792)
• Apply sum collected to 2 credits in proportion to
their amounts
• If he received it for the account of partnership,
the whole sum shall be applied to partnership
credit
Requisites:
 • There exists at least 2 debts, one where
the collecting partner is creditor and the
other, where the partnership is the
creditor
• Both debts are demandable
• The partner who collects is authorized to
manage and actually manages the
partnership
Article 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)”
Article 1793 (eksplanasyon)
Obligation of partner who receives share of
partnership credit
• Obliged to bring to the partnership capital what he
has received even though he may have given receipt
for his share only (Art. 1793)
Requisites for application of rule:
• A partner has received in whole or in
part, his share of the partnership credit
• The other partners have not collected
their shares
• The partnership debtor has become
insolvent
Article 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)”
Article 1794 (eksplanasyon)
General Rule: Any person guilty of negligence or fault in
the fulfillment of his obligation, shall be liable for
damages (Art 1170)
Compensation of damages with profits earned for
partnership by guilty partner.
• Damages not generally subject to set-
off
• Obligation to secure benefits to the
partnership
• Should have exercise due diligence
• Exception – if unusual profits are
realized through the extraordinary
efforts of the partner at fault, the courts
are authorized by law to mitigate or
lessen his liability (rule on equity)
Article 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)”
• Article 1795 (eksplanasyon)
BEARING THE RISK OF LOSS OF THINGS
CONTRIBUTED (Art. 1795)
Article 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)”
Article 1796 (eksplanasyon)
In the absence of any stipulation, every partner is an
agent of the partnership for the purpose of its business.
RESPONSIBILITY OF PARTNERSHIP TO
PARTNERS
• To refund the amounts disbursed by partner in
behalf of the partnership + corresponding
interest from the time the expenses are made
(loans and advances made by a partner to the
partnership aside from capital contribution)
• To answer for obligations partner may have
contracted in good faith in the interest of the
partnership business
• To answer for risks in consequence of its
management
Article 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)”
Article 1797 (eksplanasyon)
RULES FOR DISTRIBUTION OF PROFITS
ANDLOSSES
Article 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)”
Article 1799
“A stipulation which excludes one or more partners
from any share in the profits or losses is void. (1691)”
Article 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)”
Article 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)”
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.
(1694)”
Article 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)”
Article 1800 1 2 3 (eksplanasyon)
RIGHTS AND OBLIGATIONS WITH RESPECT
TO MANAGEMENT
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 the other
partners, even if the partner having an associate should
be a manager. (1696)”
Article 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)”
Article 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)”
Article 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)”
Article 1807 (eksplanasyon)
Partner accountable as fiduciary
• Duty to act for common benefit
• Duty to account for secret and similar profits
• Duty to make full disclosure of information
affecting partnership
Article 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)”
Article 1808 (eksplanasyon)
CONSEQUENCES IF THE CAPITALIST
PARTNER ENGAGES IN A BUSINESS (which
competes with the business of the partnership):
• he may be required to bring to the common fund
the profits he derived from the other business;
(Art. 1808)
• he shall personally bear the losses; (Art. 1808)
• he may be ousted form the partnership,
especially if there was a warning.
Article 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 co-partners;
(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)”
sSArticle 1809 (eksplanasyon)
A formal account is a necessary incident to the
dissolution of a partnership.
Right of partner to formal account
• General Rule: During the existence of the
partnership, a partner is not entitle to formal
account of partnership affair. Reasons, Art 1805
and 1806, plus it is inconvenient and waste of
time
• Exception na pwedeng magformal accounting
kahit di pa dissolution is Art 1809

END FOR THE TOPIC for Section 1

• Reference:
• De Leon, H. S., Jr., & De Leon, H. M., Jr.
(2013). THE LAW ON PARTNERSHIPS AND
PRIVATE CORPORATIONS (2013 ed.). Quezon
City, Philippines: REX PRINTING COMPANY.