CONTRACT OF PARTNERSHIP

MANAGEMENT OF THE PARTNERSHIP

Modes of appointment of a manager

Appointment through the Articles of Partnership Appointment other than in the articles
Power is irrevocable without just or lawful cause. Power to act is revocable anytime, with or
without cause (should be done by the
NOTE: Vote required for removal of manager: controlling interest).
For just cause – Vote of the controlling partners
(controlling financial interest).
Without cause or for unjust cause – Unanimous vote.
Extent of Power
If he acts in good faith, he may do all acts of As long as he is a manager, he can perform all
administration (despite opposition of his partners); acts of administration (if others oppose, he can
be removed).
If he acts in bad faith, he cannot.

Rule where there are two or more managers

Without specification of their respective duties and without stipulation requiring unanimity of action
GR: Each may separately execute all acts of administration (unlimited power to administer).

XPN: If any of the managers opposes, decision of the majority prevails.

NOTE: In case of tie– Decision of the controlling interest (who are also managers) shall prevail.

With stipulation that none of the managing partners shall act without the consent of the others

GR: Unanimous consent of all the managing partners shall be necessary for the validity of the acts and
absence or inability of any managing partner cannot be alleged.

XPN: Where there is an imminent danger of grave or irreparable injury to the partnership.

Rule when the manner of management has not been agreed upon

1. All partners shall be considered agents and whatever any one of them may do alone shall bind the
partnership, without prejudice to the provisions of Art. 1801 of the NCC. This right is not dependent
on the amount or size of the partner’s capital contribution or services to the business.

NOTE: If two or more partners have been entrusted 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 (NCC, Art. 1801). (1992
Bar)

2. None of the partners may, without the consent of the others, make any important alteration in the
immovable property even if it may be useful to the partnership (NCC, Art. 1802-Art. 1803).

NOTE: If refusal of partner is manifestly prejudicial to the interest of partnership, the court’s intervention
may be sought.

COMPENSATION

GR: In the absence of an agreement to the contrary, each member of the partnership assumes the duty to
give his time, attention, and skill to the management of its affairs, so far, at least, as may be reasonably
necessary to the success of the common enterprise; and for this service a share of the profits is his only
compensation.
XPN:
1. A partner engaged by his co-partners to perform services not required of him in fulfillment of the
duties which the partnership relation imposes and in a capacity other than that of a partner;
2. A contract for compensation may be implied if there is extraordinary neglect on the part of one
partner to perform his duties toward the firm’s business, thereby imposing the entire burden on
the remaining partner;
3. One partner may employ his co-partner to do work for him outside of and independent of the co-
partnership, and become personally liable therefor;
4. Where the services rendered are extra- ordinary;
5. Where one partner is entrusted with the management of the partnership business and devotes his
whole time and attention thereto, at the instance of the other partners who are attending to their
individual business and giving no time or attention to the business of the firm (De Leon, 2010).

RIGHTS AND OBLIGATIONS OF PARTNERSHIP

1. Refund the amounts disbursed by partner in behalf of the partnership plus corresponding interest
from the time the expenses are made, not from the date of demand (e.g. loans and advances made by
a partner to the partnership aside from capital contribution);
2. Answer for obligations the partner may have contracted in good faith in the interest of the
partnership business;
3. Answer for risks in consequence of its management (NCC, Art. 1796).

RIGHTS AND OBLIGATIONS OF PARTNERS AMONG THEMSELVES

Obligations of partners among themselves

1. Contribution of property (NCC, Art. 1786)

2. Contribution of money and money converted to personal use (NCC, Art. 1788)
3. Prohibition in engaging in business for himself (NCC, Art. 1789)
4. Contribute additional capital (NCC, Art. 1791)
5. Managing partner who collects debt (NCC, Art. 1792)
6. Partner who receives share of partnership credit (NCC, Art. 1793)
7. Damages to partnership (NCC, Art. 1794)
8. Keep the partnership books (NCC, Art. 1805)
9. Render information (NCC, Art. 1806)
10. Accountable as fiduciary (NCC, Art. 1807)

Withdrawal or disposal of money or property by a contributing partner

Money or property contributed by a partner cannot be withdrawn or disposed of by the contributing partner
without the consent or approval of the partnership or of the other partners because the money or property
contributed by a partner becomes the property of the partnership (De Leon, 2010).

Q: Who bears the risk of loss of things contributed?

A:
KIND OF PROPERTY / THING WHO BEARS THE RISK?

Specific and determinate things which are not fungible Partners

where only the use is contributed
Specific and determinate things the ownership of which is
transferred to the partnership
Fungible things (Consumable) Partnership
Things brought and appraised in the inventory

Effect if a partner fails to contribute the property which he promised to deliver to the partnership

1. Partner becomes ipso jure a debtor of the partnership even in the absence of any demand (NCC, Art.
1786);
2. Remedy of the other partner is not rescission but specific performance with damages and interest
from defaulting partner from the time he should have complied with his obligation.

When the capital or a part hereof 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 current prices, the subsequent changes thereof being for the account of the partnership (NCC, Art.
1787).

Rules regarding contribution of money to the partnership

1. To contribute on the date fixed the amount the partner has undertaken to contribute to the
partnership;
2. To reimburse any amount the partner may have taken from the partnership coffers and converted to
his own use;
3. To indemnify the partnership for the damages caused to it by delay in the contribution or conversion
of any sum for the partner’s personal benefit;
4. To pay the agreed or legal interest, if the partner fails to pay his contribution on time or in case he
takes any amount from the common fund and converts it tohis own use.

Rule regarding obligation to contribute to partnership capital

Unless there is a stipulation to the contrary, the partners shall contribute equal shares to the capital of the
partnership (NCC, Art. 1790). It is not applicable to an industrial partner unless, besides his services, he has
contributed capital pursuant to an agreement.

Liability of a capitalist partner to contribute additional capital

GR: A capitalist partner is not bound to contribute to the partnership more than what he agreed to contribute.

XPNs:
1. In case of imminent loss of the business; and
2. There is no agreement to the contrary.

He is under obligation to contribute an additional share to save the venture. If he refuses to contribute,
he shall be obliged to sell his interest to the other partners.

Requisites before capitalist partners are compelled to contribute additional capital

1. Imminent loss of the business of the partnership;

2. Majority of the capitalist partners are of the opinion that an additional contribution to the
common fund would save the business;
3. Capitalist partner refuses deliberately to contribute (not due to financial inability);
4. There is no agreement to the contrary.

NOTE: The refusal of the partner to contribute his additional share reflects his lack of interest in the
continuance of the partnership (De Leon, 2010). It shall be obliged to sell his interest to the other
partners except if there is an agreement to the contrary (NCC, Art. 1791).

It is to be noted that the industrial partner is exempted from the requirement to contribute an
additional share. Having contributed his entire industry, he can do nothing further (De Leon, 2010).

Obligations of managing partners who collect his personal receivable from a person who also
owes the partnership

1. Apply sum collected to 2 credits in proportion to their amounts

2. If he received it for the account of partnership, the whole sum shall be applied to partnership
credit

REQUISITES:

At least 2 debts, one where the collecting partner is creditor and the other, where the partnership is the
creditor:
1. Both debts are demandable;
2. Partner who collects is authorized to manage and actually manages the partnership.

NOTE: The debtor is given the right to prefer payment of the credit of the partner if it should be more
onerous to him in accordance with his right to application of payment (NCC, Art. 1252; De Leon, 2014).

Reason for applying payment to partnership credit

The law safeguards the interests of the partnership by preventing the possibility of their being subordinated
by the managing partner to his own interest to the prejudice of the other partners (De Leon, 2010).
Obligation of a partner who receives share of partnership credit

To bring to the partnership capital what he has received even though he may have given receipt for his share
only.

REQUISITES:
1. A partner has received in whole or in part, his share of the partnership credit;
2. Other partners have not collected their shares;
3. Partnership debtor has become insolvent.

Liability of a person who has not directly transacted in behalf of an unincorporated association for a
contract entered into by such association

The liability for a contract entered into on behalf of an unincorporated association or ostensible corporation
may lie in a person who may not have directly transacted on its behalf, but reaped benefits from that contract
(Lim Tong Lim v. Philippine Fishing Gear Industries Inc., G.R. No. 136448, November 3, 1999).

Sources:

UST_Golden Notes_2019 Bar