OBLIGATIONS OF

PARTNERS
Partnership produce at least four (4) distinct
relationship:
1. Relationship of partners among themselves;
2. The relationship of the partners with the
partnership;
3. The relationship of the partnership with
third persons with whom it transacts business;
and
4. The relations of the partners with third
persons.
 OBLIGATIONS OF PARTNERS ON
CONTRIBUTION
1. To contribute at the beginning of the partnership or at a stipulated time the
money, property or industry which he may have promised to contribute.

2) To answer for eviction in case the partnership is deprived of the determinate

property contributed.

3) To answer to the partnership for the fruits of the property the contribution of
which he delayed, from the date they should be contributed up to the time of
actual delivery.

4) To preserve such property with diligence of a good father of a family pending

delivery to the partnership. (Article 1163)

5) To indemnify the partnership for any damage caused to it by the retention of

the same or by the delay in its contribution. (Article 788, 1170)
CONTRIBUTION
 RIGHT TO CONTRIBUTION
The partnership has a right to the contribution
(or the partners are obliged to contribute). The
money or property contributed , or their use or
fruits, become the property of the partnership.

(UP agency and Partnership reviewer)

A. CONTRIBUTION OF
MONEY OR PROPERTY
 CONTRIBUTION OF MONEY OR
PROPERTY
a) To contribute what had been promised

b) To answer for eviction in case the

partnership is deprived of determinate property
contributed .
 CONTRIBUTION OF MONEY OR
PROPERTY
c) To answer to the partnership for
the fruits of the property the
contribution of which is delayed,
from the date they should have been
contributed to the time of actual
delivery.
 EXAMPLE
A promised to contribute his 3 units
apartment located in Manila to form ABC
Partnership on March 5, 2024.

On March 5, 2024 A did not deliver the

deed to the three units apartment.
 CONTRIBUTION OF MONEY OR
PROPERTY
d) To preserve the property with the diligence
of a good father of a family pending delivery
to the partnership

e) To indemnify the partners for any damages

caused to it by the retention of the same or by
delay in its contribution.
 EXAMPLE
A promised to contribute his 2023 Toyota
Avanza on February 14, 2024 to form ABC
Partnership.
On February 14, 2024, A failed to deliver
the 2023 Avanza vehicle because he used it
to date his girlfriend to Tagaytay.
II. OBLIGATIONS WITH RESPECT
TO CONTRIBUTION OF MONEY
CONVERTED TO PERSONAL USE.
 II. OBLIGATIONS WITH RESPECT TO
CONTRIBUTION OF MONEY CONVERTED TO
PERSONAL USE.
a) To contribute on the date due the amount he
has undertaken to contribute to the partnership.

b) To reimburse any amount he may have

taken from the partnership coffers and
converted to his own personal use.
 II. OBLIGATIONS WITH RESPECT TO
CONTRIBUTION OF MONEY CONVERTED TO
PERSONAL USE.
c) 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
converted to his own personal use
d) To indemnify the partnership for the
damages caused to it by the delay in the
contribution or the conversion of any sum for
his personal benefit.
 EXAMPLE
X,Y,Z formed XYZ Partnership on
December 2023. All the partners
contributed 100k each.
On February 14, 2024, X took 20K from
the partnership fund for his personal use.
III. OBLIGATION NOT TO ENGAGE IN
OTHER BUSINESS FOR HIMSELF
III. OBLIGATION NOT TO ENGAGE IN
OTHER BUSINESS FOR HIMSELF

1. Industrial partner-
cannot engage in any
business for himself.
III. OBLIGATION NOT TO ENGAGE IN
OTHER BUSINESS FOR HIMSELF

Industrial partner – is
one who contributes his
industry or labor in the
partnership.
III. OBLIGATION NOT TO ENGAGE IN
OTHER BUSINESS FOR HIMSELF

Note: The prohibition is absolute and

applies whether the industrial partner is to
engage in the same business in which the
partnership is engaged or in any kind of
business. It is clear that the reason for the
prohibition exists in both cases, which
is to prevent any
III. OBLIGATION NOT TO ENGAGE IN
OTHER BUSINESS FOR HIMSELF

conflict of interest between the

industrial partner and the partnership
and to insure faithful compliance by
said partner with his prestation
(Evangelista & Co. vs. Abad Santos,
51 SCRA 416, 1973)
 EXAMPLE

A is an industrial partner in ABC

Partnership.
Unknown to the partnership, he put
up his own business.
What is the remedy of the
partnership?
III. OBLIGATION NOT TO ENGAGE IN
OTHER BUSINESS FOR HIMSELF

2. Capitalist partner- The prohibition

extends only to any operation which
is of the same kind of business in
which the partnership is engaged
unless there is a stipulation to the
contrary.
 EXAMPLE

X,Y AND Z are partners. They

put up a construction business. X
and Y are the capitalist partners
and Z, an architect, is the
industrial partner.
IV. OBLIGATION TO CONTRIBUTE
ADDITIONAL CAPITAL
IV. OBLIGATION TO CONTRIBUTE
ADDITIONAL CAPITAL
As a general rule, a capitalist partner
is not bound to contribute to the
partnership more than what he agreed
to contribute but in case of an
imminent loss of the business, and
there is no agreement to
IV. OBLIGATION TO CONTRIBUTE
ADDITIONAL CAPITAL
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 in the partnership to other
partners.
 EXAMPLE
W,X,Y,Z are partners. W, X and Z are the
capitalist partners. Y is an industrial
partner.
The partnership incurred losses and W
and X contributed additional capital to
save the partnership. Y and Z on the other
hand refuse to give additional
contribution.
 V. OBLIGATION OF MANAGING
PARTNER WHO COLLECTS DEBTS
 V. OBLIGATION OF MANAGING
PARTNER WHO COLLECTS DEBTS
Where a person is separately
indebted to the partnership and to the
managing partner at the same time,
any sum received by the managing
partner shall be applied to the two
credits in proportion to their
amounts, except where he
 V. OBLIGATION OF MANAGING
PARTNER WHO COLLECTS DEBTS

received it entirely for the

account of the partnership, in
which case the whole sum
shall be applied to the
partnership credit only.
REQUISITES FOR THE APPLICATION
OF THE RULE
1) There exists two debts, one where the
collecting partner is creditor, the other, where
the partnership is creditor.
2) Both debts are demandable
3) The partner who collects is authorized to
manage and actually manages the partnership.
 EXAMPLE
X,Y and Z are partners. X is the
managing partner who is authorize to
collect.
A owes X 50K.
A also owes XYZ Partnership 50K
Both debts are overdue, hence,
demandable.
 EXAMPLE
Suppose A pays X 50K
1. without specifying where the
payment will be applied.
2. as payment to the partnership
As proof of the payment X gave his
receipt for A’s payment.
Where will the payment be applied?
VI. OBLIGATION OF PARTNER
WHO RECEIVES SHARE IN
PARTNERSHIP CREDIT
 VI. OBLIGATION OF PARTNER WHO
RECEIVES SHARE IN PARTNERSHIP CREDIT

A partner who receives, in whole or in part, his

share in the partnership, when the others 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.
 VI. OBLIGATION OF PARTNER WHO
RECEIVES SHARE IN PARTNERSHIP CREDIT

Requisites for application of rule:

1) A partner has received, in whole or in part,
his share in the partnership credit
2) The other partners have not collected their
shares.
3) The partnership debtor has become
insolvent.
 EXAMPLE
A, B, C, and D are partners in a construction
firm where they agreed that profit sharing
would be 25% each for every transaction.
E owed the partnership 20M for the
construction of E’s building. Each partner is
entitled to 5M each.
A sent a final demand letter to E demanding
payment of his debt.
E paid A 5M and inform A that he will be
closing his business because he is bankrupt.
VII. OBLIGATION OF PARTNERS
FOR DAMAGE TO PARTNERSHIP
VII. Obligation of Partner for Damages
to Partnership
Every partner is responsible to the
partnership for damages suffered by
it through his fault. He cannot
compensate them with the profits and
benefits which he may have earned
for the partnership by his industry.
VII. DUTY TO RENDER
INFORMATION
VII. DUTY TO RENDER INFORMATION

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 of any partner
under legal disability.
 EXAMPLE
X,Y, and Z are partners in XYZ Partnership.
X entered into business transaction in behalf of
the partnership for the purchase of rice in
Thailand.
When Y learns about the purchase of rice he
asks X about the said transaction.
Can X refuse to give information?
VIII. OBLIGATION TO ACCOUNT FOR
ANY BENEFITS AND HOLD AS TRUSTEE
FOR UNAUTHORIZED PERSONAL
PROFITS
VIII. OBLIGATION TO ACCOUNT FOR ANY
BENEFITS AND HOLD AS TRUSTEE
UNAUTHORIZED PERSONAL PROFITS
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, liquidation of the
partnership or form any use by him of its
property.
 EXAMPLE
X and Y are partners in the operation of
fishpond. They mortgage the lot where the
fishpond is located. However, they were not
able to pay the mortgage debt so the property
was foreclosed.
X in his own name redeemed the property and
filed a petition to cancel the title of the
partnership and issued another in his own
name.
 EXAMPLE

Does X have the right to have the

property transferred in his name?
 EXAMPLE
the SC did not award the property to X
because every partner becomes the trustee for
his co-partner with regards to any benefits or
profits derive from his act as a partner.

When X redeemed the property he became a

trustee and held the property in trust for his co-
partner.
 EXAMPLE

X of course has the right to

demand from Y his
contribution to the amount the
property was redeemed by X
 PROPERTY
RIGHTS OF PARTNER
 PROPERTY
RIGHTS OF PARTNER
In general the, property rights of a partner
are the ff:
a) His rights in the specific partnership
property
b) His interest in the partnership
c) His right to participate in the
management .
a. RIGHTS IN SPECIFIC PROPERTY

1. Equal rights to posses.

2. Partners rights not assignable.
3. Not subject to attachment or
execution.
4. Partners right not subject to legal
support.
 EXAMPLE
PARTNERS RIGHTS NOT SUBJECT TO LEGAL
SUPPORT

X and Y are partners. X has

children to support. X right in
specific property shall not be
answerable for the support of
his children.
 b. PARTNERS INTEREST IN
PARTNERSHIP
A partners interest in the partnership is
his share of the profits and surplus.

Surplus referred to the remaining assets

of the partnership after satisfying all the
debts and liabilities of the partnership.
 EXAMPLE 10
PARTNERS INTEREST IN PARTNERSHIP

X and Y are partners. They decided to dissolve

the partnership so all partnership assets have
been accounted for and debts settled.

There remains 10M after all debts and

liabilities of the partnership were paid.
 ASSIGNMENT OF INTEREST IN
PARTNERSHIP
A partner may assign his interest in the
partnership.
The assignment does not dissolve the
partnership.
The assignee is entitled to receive the
profits the assigning partner was entitled
to.
PARTNER’S RIGHT TO PARTICIPATE IN
MANAGEMENT
 c. PARTNERS RIGHT TO PARTICIPATE IN
MANAGEMENT

General Rule:
The partner designated as managers in the
articles may execute all acts of
administration despite opposition from the
other partners.
Exception:
He cannot do so when he acts in bad faith.
STIPULATION OF UNANIMITY
In case there is a stipulation that none of the
managing partners shall act without the
consent of the others, the concurrence of all
is necessary for the validity of the acts, and
the absence or disability of one cannot be
alleged, unless there is imminent danger of
grave or irreparable injury to the
partnership.
 ILLUSTRATION 1
STIPULATION OF UNANIMITY
There are ten partners in A to J Partnership.
They agreed that their partnership adopt a
stipulation of unanimity for transactions
affecting the partnership.

Thus, A’s proposal to expand business needs

the unanimous approval of the partners to be
valid and binding.
 RIGHTS OF PARTNER

2. Right to reimbursement for

amounts advanced to the
partnership and to
indemnification for risks in
consequence of management .
 EXAMPLE 11
RIGHT TO REIMBURSEMENT
X, Y and Z are partners. Due to business
losses they are not able to pay their debt
to A.

If X paid the debt to A amounting to 2M,

X has a right to be reimbursed by Y and Z
for the amount X paid to A.
 RIGHTS OF PARTNER
3. Right to associate with another person
in his share
4. Right of access and inspection of
partnership books
5. Right to true and full information of all
things affecting the partnership
 3. RIGHT TO ASSOCIATE WITH
ANOTHER PERSON IN HIS SHARE
Every partner may associate another
person with him in his share. This
arrangement refers to a contract of
sub-partnership.
 3. RIGHT TO ASSOCIATE WITH
ANOTHER PERSON IN HIS SHARE
Contract of sub-partnership is a
partnership within a partnership which is
distinct and separate from the main
partnership.
The admission of the associate requires
the consent of all partners even if the
partner having an associate is a managing
partner.
 EXAMPLE 12
RIGHT TO ASSOCIATE WITH ANOTHER PERSON
IN HIS SHARE
X, Y and Z are partners. Z who is old
wanted his son A to be his associate in the
partnership.

In this situation, X and Y must consent

for A to be an associate of Z in the
partnership of X,Y and Z
 4. RIGHT OF ACCESS AND INSPECTION OF
PARTNERSHIP BOOKS

Every partner shall, at any reasonable hours,

have access to and may inspect and copy any
of them.

Any reasonable hour mean any reasonable

hours on business day throughout the year.
4. RIGHT OF ACCESS AND INSPECTION OF
PARTNERSHIP BOOKS

The partnership books shall be

kept at a place agreed upon by the
partners. In the absence of an
agreement it should be kept at the
principal place of the business.
 EXAMPLE 13
4. RIGHT OF ACCESS AND INSPECTION OF
PARTNERSHIP BOOKS
X, Y and Z are partners. Z is the
custodian of the partnership books.

On March 30, 2018, at 1:30 in the

morning X called Z and requested to
inspect the books of the partnership.
 EXAMPLE 13
4. RIGHT OF ACCESS AND INSPECTION OF
PARTNERSHIP BOOKS
Z refuse X request. X told Z that as partner he
has the right to access and inspection of the
partnership books.

Can Z validly refuse X request? Can X validly

assert his right to inspect the books of the
partnerhsip?
 RIGHTS OF PARTNER
6. Right to a formal account of partnership
affairs under certain circumstances
NOTE: The ten year period to demand an
accounting by a partner begins at the
dissolution of the partnership.
7. Right to have partnership dissolved
under certain conditions.
OBLIGATIONS OF PARTNERS
TO THIRD PERSON
 PARTNERSHIP BEGINS FROM
EXECUTION OF CONTRACT
Firm Name also known as company
refers to the name of the partnership. The
firm name distinguished the partnership
from other entities. By acquiring a name,
the legal personality of the partnership is
also determined.
PERSONS INCLUDING NAME IN THE
FIRM NAME
A person who include his/her
name in the firm name shall incur
liability of partner. This is to
protect the customers from being
misled as to the person they deal
with.
USE OF DECEASED PERSONS NAME
IN A LAW FIRM
Rule 3.02 - In the choice of a firm name,
no false, misleading or assumed name
shall be used. The continued use of the
name of a deceased partner is permissible
provided that the firm indicates in all its
communications that said partner is
deceased. (Code of Professional
Responsibility)
RULES FOR DISTRIBUTION
OF PROFITS AND LOSSES
 RULES FOR DISTRIBUTION OF
PROFITS AND LOSSES

General rule- a stipulation

excluding a partner from
any share in the profits or
losses is VOID (Article
1799)
 RULES FOR DISTRIBUTION OF
PROFITS AND LOSSES
EXCEPTION - Article 1797(2)
excludes an industrial partner
from losses. Thus, a stipulation
excluding an industrial partner
from losses is VALID.
1. DISTRIBUTION OF PROFITS
a) According to their agreement (but
not iniquitously (unfair) to defeat
Art.1799 Article 1799. A stipulation
which excludes one or more partners
from any share in the profits or losses
is void. )
1. DISTRIBUTION OF PROFITS
b) If none,
1) Share of capitalist partner shall be in
proportion to his capital contribution
2) Industrial partner shall receive such
share as may be just and equitable under
the circumstances
2. DISTRIBUTION OF LOSSES

a) According to their
agreement as to losses (but
not iniquitously (unfair) to
defeat Art.1799).
 2. DISTRIBUTION OF LOSSES

b) If none, according to their

agreement as to profits
c) If none, in proportion to his
capital contribution, but the
purely industrial partner shall not
be liable for the losses
 EXAMPLE 14
DISTRIBUTION OF PROFITS AND LOSSES
X,Y, and Z formed XYZ partnership.
Total partnership fund is 5M.
X contributed 3M. Y contributed 1M each.
They agreed that if the partnership realize
profits it will be distributed as follows;
X-40%, Y-30% and Z-30%.
There was no agreement as to losses.
1. Suppose the partnership realized
profit of 3M, how much is the share of
each partner?
2. In case the partnership suffer loss of
500,000.00, how much is the share of
each partner?
3. If there is totally no agreement as to
losses and profits, how is the profits or
losses be distributed?
LIABILITY OF PARTNERS FOR
PARTNERSHIP CONTRACTS
PARTNERSHIP CONTRACTS
The partnership is primarily liable for
contracts entered into:
1. In its name and for its account;
2. under its signature; and
3. By a person authorized to act for and in
behalf of the partnership.
 LIABILITY OF PARTNERS
General Rule:
The partners are liable subsidiary.
This only arises upon exhaustion of
partnership assets.
Upon exhaustion of all partnership
property all partners are liable pro rata with
all their properties.
LIABILITY OF INDUSTRIAL PARTNER

An industrial partner is not liable for

losses but is not exempt from liability.
However, he can recover the amount he
has paid from the capitalist partner,
unless there is a stipulation to the
contrary.
 LIABILITY FOR ACTS FOR THE
CARRYING OF THE USUAL BUSINESS
LIABILITY FOR ACTS FOR THE CARRYING
OF THE USUAL BUSINESS

General Rule:
Any act of the partner which is for
the carrying of the usual business of
the partnership including the
execution of any documents in the
name of the partnership binds the
partnership
LIABILITY FOR ACTS FOR THE CARRYING
OF THE USUAL BUSINESS

Exceptions:
The partnership is not bound when the
following concur:
1. The partner has in fact no authority
to act; and
2. The person with whom he deals has
knowledge of such fact.
 ILLUSTRATION
XYZ are partners in XYZ Corp.
X entered into an agreement with ABC
Corp. without the approval of the
partners.
Should a liability arise, partnership will
not be liable because X was not authorize
to act for XYZ Corp.
 LIABILITY FOR ACTS NOT FOR THE
CARRYING OF THE USUAL BUSINESS
LIABILITY FOR ACTS FOR THE CARRYING
OF THE USUAL BUSINESS
General Rule:
Acts of partner done not for the carrying of the
business does not bind the partnership.

Exception:
The partnership is bound if the other partners
authorized him to do the act.
ACTS OF STRICT DOMINION
General Rule:
One or some of the partner has no authority to do the
following acts of strict dominion:
1. Assign the partnership property in trust for
creditors or for assignee’s promise to pay the debts of
the partnership;
2. Dispose of the goodwill of the partnership;
3. Do any act which make it impossible to carry on
the ordinary business of the partnership;
 References
UP Bar Reviewer in Civil Law

San Beda Memory Aid in Civil Law.

Torres, Justo The Law on Business

Organization.

Civil Code of the Philippines.