Business Law and Regulations seller (partner) guarantees that the thing
(capital contributed to the partnership) is
Law on Partnerships
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.
 GR: Partnership begins upon execution of
contract; consensual = meeting of the minds
 XPT: Capital exceed P3,000 or there is
contribution of real properties, etc.,
formalities need to be observed.
(preparation of public instrument, writing of
inventory)
 This provision is made to know when the
partners’ obligation starts and the
exemption to its rule.
ARTICLE 1785 – When a partnership for a
fixed term or a 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.
 Fixed Term – partnership will only last on a
fixed term specified by the partners
 Particular undertaking – life of partnership
will coincide with the project; finished
project = partnership dissolution
If partnership is continued after fixed term or
completion of particular undertaking, it will
remain the same and will transition to a
partnership at will.
If no settlement or liquidation happens after
fixed term or completion of particular
undertaking, it is presumed as continuation of
partnership (prima facie).
Even if the fixed term or particular undertaking
is still not completed, a partner can still
withdraw from the partnership. Other partners
cannot hold a partner in the partnership against
their will as it is fiduciary in nature (built on
trust and confidence). The withdrawing partner
can still be liable for damages if the reason is
unjustified.
ARTICLE 1786 – 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.
 1st Paragraph: Debtor-Creditor Relationship;
partner to partnership. A partner will be a
debtor to the partnership with the capital he
promised to contribute thereto.
 2nd Paragraph: Seller-Buyer Relationship. It
will only apply if the partner contributed
specific and determinate thing; the partner is
bound for warranty in case of eviction. The
 Refusal to contribute results in the loss of
fiduciary characteristics (other partners do
peaceful (implied warranty) and no hidden
defect.
 The accrual of fruits would still continue
even if no demand is issued.
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 pieces, the subsequent
changes thereof being for account of the
partnership.
 If a partner contributes a non-cash thing
(goods), it must be appraised based on the
manner agreed in the contract of partnership
(valuation made by the other partners). If no
stipulation has been made, it shall be made
by experts and according to current prices.
(to know how much is the partner’s allocated
capital)
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.
 Delay of delivery of cash (as contributed
capital) to the partnership results in the
partner being a debtor of the partnership and
will be liable for interest and damages.
 Any money taken from the partnership
coffers is also liable for interests and
damages from the time of conversion of
amount to personal use.
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 in
violation of this provisions, with a right to
damages in either case.
 Industrial partner cannot engage in business
for himself whether it will be in competition
of the partnership or not, unless the
partnership permits him to do so.
 In case of engagement of business, the
capitalist partners can have the industrial
partner excluded from the firm, or they will
get the benefits (profit) of the said business.
With both have a right to damages in either
case.
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 be obliged to sell his interest to
the other partners.
 In case of imminent loss (risk of
bankruptcy), partners will contribute
additional capital to save the business. Any
capitalist partner who refuses will be obliged
to sell his interest to the other partners.
their best to save the partnership). It can be
presumed that the partner that refused is not
interested in continuing the business
anymore.
 Industrial partner, in case of imminent loss,
are presumed to have acquired loss.
Rendered service = no profit. Those
rendered service without compensation are
assumed to be the industrial partner’s loss,
thus not needing to contribute additional
capital.
 Article 1791 will not apply if there is an
agreement in the articles of partnership
which refusal to contribution will not make a
partner obliged to sell his interest to other
partners.
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 was 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.
 Example: In XYZ partnership, X is the
managing partner. A has a personal
debt/payable to X and at the same time, A
also has debt to the XYZ partnership. If A
paid a sum that is not enough to cover both
the personal debt to X and the debt to the
partnership, the paid sum will be allocated
based on the given receipt of X.
 Even if the receipt is named after X’s
receivable only, the sum is still allocated
pro-rata. But if X gave a receipt named after
the partnership, the paid sum will be applied
fully to the partnership credit.
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 the
partnership capital what he received even
though he may have given receipt for his share
only.
 Example: A(debtor) paid a debt to the XYZ
partnership. X received the entirety of the
paid money and gave receipt named after his
share only. If A becomes insolvent to not pay
Y and Z’s share, X shall be obliged to bring
the partnership capital (received money) and
share it equally between the partners.
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.
 If a partner missed a responsibility because
of negligence and partnership suffered
damages (e.g., penalty to a loan) through the
partner’s fault, the partner will be obliged to
 pay the damages and it will be his personal
debt. He cannot compensate it with the
profits and benefits he earned from the
partnership.
 The court may lessen the responsibility if
the partner has shown extraordinary efforts
thus bringing profits to the business.
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 contributed 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 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 are appraised.
 Fungible – replaceable by another identical
item. (e.g., currency, oil, harvest)
1st Paragraph: If the things contributed are NOT
fungible things (e.g., equipment), the risk of loss
shall be borne by the partner who owns them.
The is no transfer of ownership since the partner
only contributed its use or fruits.
2nd Paragraph: If the things contributed are
fungible, or they are contributed to be sold, any
risk of loss shall be borne by the partnership.
There is a transfer of ownership as its purpose is
to be sold or exhausted by the partnership.
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 expenses 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.
 Partnership’s obligation to the partners; any
expense + its corresponding interest that the
partners incurred in behalf of the partnership
shall be reimbursed by the partnership
 Any obligation that partners have contracted
in good faith and in interest of the
partnership shall also be undertaken by the
partnership.
“No person shall be enriched at the expense of
another person” – Partnership is a juridical
person so it shall not be enriched at the expense
of its partners. (unjust enrichment)
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 beside his
services he has contributed capital, he shall also
receive a share in the profits in proportion to his
capital.
 Order of Priority (Division of Profits/Losses)
o Stipulation/Agreement of the Partners -
(Can have different ways of divisions on
profits and losses based on the agreement)
o Contributed Capital
 The industrial partner is not liable for losses
(in absence of stipulations). The industrial
partner shall receive his share on profits in a
just and equitable compensation based on his
rendered service.
ARTICLE 1798 – If the partners have agreed to
intrust to a third person the designation of the
shar e 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.
 Impugned – can be questioned/cancelled
 A partnership can designate the division of
profits or losses to a third person. The third
person’s decision is binding to the partnership
but the designation can be impugned when it is
unjustifiable. If a partner began to execute the
decision or if the partner does not complain
within a period of three months, the partner
can no longer impugn the validity of the
designation of third person.
ARTICLE 1799 – A stipulation which excludes
one or more partners from any share in the
profits or losses is void.
 No partner left behind.
ARTICLE 1800 – The partner who has been
appointed manager in the articles of the
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.
 Managing partner appointed during the
establishment of articles of partnership
makes the managing partner an integral part
of the contract of partnership itself.
 Managing partner appointed in the articles
of partnership my execute all acts of
administration (e.g., leasing an equipment)
and management of the business (no transfer
of ownership for assets = act of
ownership/beyond authority of MP).
 If he (MP) acted in bad faith and act in a
way that is unjust and unlawful, his power as
MP can be revocable depending on the vote
of the other partners (vote is based in the
interest of partners – 30%, 30%, 40%;
example)
ALL BULLETS ABOVE PERTAIN TO
MANAGING PARTNER APPOINTED IN THE
ARTICLES OF PARTNERSHIP
 Any managing partner appointed after
partnership is constituted can have his
power revoked at any time.
ARTICLE 1801 – If two or more partners have
been instrusted 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 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.
 If there is two or more MPs and there is no
specification of their duties or without
stipulation that one cannot act without
consent of the others, each one of them can
execute all acts of administration.
 If there is opposition to an act of an MP, the
decision of majority of the MPs shall
prevail.
 In case of a tie, the partner with the
controlling interest (even if not a managing
partner) shall decide.
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.
 There is a stipulation that an MP cannot act
on his own. The approval of ALL MPs shall
be necessary for any act take in behalf of
the partnership. Consent of an absent or
disable MP shall still be needed unless there
is an imminent danger to the partnership.
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.
 No appointed responsibilities and
managing partners.
 Partner cannot make any important
alterations in any immovable property
without the consent of other partners.
 But if there is refusal on purpose
(sinasadya) and can’t provide
justification on said refusal, the partner
can go to court and ask for a remedy.
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.
 A partner cannot admit an associate to the
partnership without the consent of all the
other partners, even if that partner is a
managing partner.
 A partner’s associate is allowed, he just
cannot be admitted without consent.
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.
 The partnership book shall be kept at the
principal place of business indicated in the
articles of partnership and every partner
 shall have access to it anytime unless
stipulated otherwise.

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.

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 information,
conduct, or liquidation of the partnership or
from any use by him of its property.

 Every partner is obliged to report any profit

or benefit derived from the formation,
operation, or liquidation of the partnership
to the other partners.

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 engage, 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 transaction, and shall
personally bear all the losses.

 Capitalist partners are not allowed to engage

in businesses in competition with the
partnership’s business.
 Violating this prohibition shall require the
partner to bring any profits or benefits to
the common fund and he shall bear any
losses.

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; (there is no
ground from exclusion)
(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.