PARTNERS OBLIGATIONS INTER SE

A. TO BRING TO COLLATION
ART. 1793. A partner who has received, in whole or in part, his share of a
partnership, 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)
In the present article, there is only one credit credit in favor of the
partnership. Furthermore, the present article applies whether the
partner who receives his share of the partnership credit is authorized to
manage or not
Requisites for application of rule. The requisites for the application of this
article are as follows: (a) A partner has received, in whole or in part, his share of
the partnership credit; (b) The other partners have not collected their share; and
(c) The partnership debtor has become insolvent
Reason for imposing obligation to return. The debt of D becomes a bad debt. It
would be unjust or unfair for A not to share in the loss with B and C or for him to
obtain more and B and C, less. The above provision is based on the community
of interest among the partners, which is one of the underlying principles of the
contract of partnership. (11 Manresa 353; Art. 1770, par. 1.)
Obligation to bring amount collected to the partnership fund. For example,
upon the dissolution of the partnership, a partnership credit is divided among the
partners in such a manner that each partner assumes the responsibility of
collecting the portion pertaining to him. One of them who is more diligent
collects the share corresponding to him before the debtor becomes insolvent.
May the other partners demand that he bring to the partnership fund what he
had been able to collect and that said amount so collected be divided among the
partners in proportion to their respective shares? Some commentators answer
this question in the afrmative, basing their answer in the community and
equality which ought to exist among all the partners MANRESA AND RICCI
BELIEVE OTHERWISE

B. TO SHARE IN THE PROFITS/LOSSES

ART. 1797. The losses and prots shall be distributed in conformity with the
agreement. If only the share of each partner in the prots 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 prots 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 prots,
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 prots in proportion to
his capital. (1689a)
This article and the two succeeding ones regulate the distribution of pro ts and losses
among the partners. They do not refer to the liability of the partners to third persons
which is governed by Article 1816
DISTRIBUTION OF PROFITS
The partners share the prots according to their agreement subject to Article
1799
If there is no such agreement:
The share of each capitalist partner shall be in proportion to his capital
contribution. This rule is based on the presumed will of the partners
The industrial partner shall receive such share, which must be satised
rst before the capitalist partners shall divide the prots, as may be just
and equitable under the circumstances. The share of an industrial partner
in the prots is not xed, as in the case of the capitalist partners, as it is
 very dif cult to ascertain the value of the services of a person. Under the
Code of Commerce (Art. 140 thereof.), the industrial partner was placed
in the distribution in the same position as the capitalist partner having the
smallest interest.
A partner is entitled to receive only his share of the prots actually realized by the
venture. Even when an assurance was made by a partner that they would earn a huge
amount of prots, in the absence of fraud, the other partner cannot claim a right to
recover the prots promised where the business was highly speculative and turned out
to be a failure. Hidden risks in any business venture have to be considered. (Moran, Jr.
vs. Court of Appeals, 133 SCRA 88 [1984].)
DISTRIBUTION OF LOSSES
The losses shall be distributed according to their agreement subject to
Article 1799.
If there is no such agreement, but the contract provides for the share of the
partners in the prots, the share of each in the losses shall be in accordance with
the prot-sharing ratio, but the industrial partner shall not be liable for losses.
The prots or losses of the partnership cannot be determined by taking into
account the result of one particular transaction but of all the transactions had.
If there is also no prot-sharing stipulated in the contract, then losses shall be
borne by the partners in proportion to their capital contributions, but the purely
industrial partner shall not be liable for the losses.

ART. 1798. If the partners have agreed to entrust to a third person the
designation of the share of each one in the prots 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 prots cannot be intrusted to one of the
partners. (1690)
Delegation to a third person. The designation of the share in the prots and
losses may be delegated to a third person by common consent. This article
speaks of a third person, not a partner, following the general rule in contracts
that the ful llment of a contract cannot be left to the will of one of the
contracting parties alone. (Arts. 1308, 1309.) The prohibition in the second
paragraph (Art. 1798.) is necessary to guarantee the utmost impartiality in the
distribution of shares in the pro ts and losses
Binding force of designation by third person. The designation by the third
person would generally be binding unless manifestly inequitable. Even then, a
partner who has begun to execute the decision of the third person or who fails to
impugn the same within three months from the time he had knowledge of it can
no longer complain. In such case, the partner is guilty of estoppel or is deemed
to have given his consent or ratication to the designation. The reason behind
the comparatively short period of three months within which to impugn the
designation is to forestall any paralyzation in the operations of the partnership.

ART. 1799. A stipulation which excludes one or more partners from any
share in the prots or losses is void. (1691)
Stipulation generally void, but partnership subsists. The law does not, as a general
rule, allow a stipulation excluding one or more partners from any share in the prots
and losses. The partnership must exist for the common bene t and interest of the
partners. (Art. 1770.) Hence, such an agreement would contravene the very purpose of
a partnership contract, that is, prot-sharing among the partners. However, although
the stipulation is void, the partnership, if otherwise valid, subsists and the prots or
losses shall be apportioned as if there were no stipulation on the same. (see Art. 1797,
par. 2.)
 Stipulation, a factor to show no partnership exists. Where the parties expressly
stipulate that there shall be no liability for losses, or where from the nature of the
contract, it is clear that a party did not intend to share in the losses, such fact may be a
factor in determining that no partnership exists. Thus, in a case, it was held that where
one party sells personalty to another for use in a business, and agrees in payment to
take one-half of the prots that might be made, he does not thereby agree to share in
the losses. (Danills vs. Fitch, 8 Pa. 495, cited in Teller, p. 17.)
Where person excluded not intended by parties to become a partner. Where the one
excluded from any share in the prots or losses is not intended by the parties to
become a partner, the stipulation is, of course, valid. Thus, where one of several
persons engaged in an enterprise agreed to assist by advancing money, and to share in
the losses, if any, but not to receive any part of the prots, which are to be divided
among the others exclusively, such one is not to be deemed a partner as between the
others and himself. However, if he holds himself out, or allows himself to be held, as a
partner to a third person who, under the belief that he is such, enters into a contract
with them, he is liable on such contract. (31 Words and Phrases 282; see Art. 1825.)
Where person excluded not intended by parties to become a partner. Where the one
excluded from any share in the prots or losses is not intended by the parties to
become a partner, the stipulation is, of course, valid. Thus, where one of several
persons engaged in an enterprise agreed to assist by advancing money, and to share in
the losses, if any, but not to receive any part of the prots, which are to be divided
among the others exclusively, such one is not to be deemed a partner as between the
others and himself. However, if he holds himself out, or allows himself to be held, as a
partner to a third person who, under the belief that he is such, enters into a contract
with them, he is liable on such contract. (31 Words and Phrases 282; see Art. 1825.)
Where stipulation provides for unequal shares. The limitation does not mean that the
partners cannot stipulate for unequal shares in the pro ts or losses even if their
respective contributions are equal, unless the inequality is so gross that it is, in effect, a
simulated form or attempt to exclude a partner from any share in the pro ts or losses.
(see Espiritu and Sibal, op. cit., p. 113, citing 11 Manresa 377.)

C. TO RENDER TRUE AND FULL INFORMATION

ART. 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)
Under the same principle of mutual trust and con dence among partners, there
must be no concealment between them in all matters affecting the partnership.
Hence, the duty to render true and full information of all things affecting the
same upon request or demand. The information, to be sure, must be used only
for a partnership purpose.
The use of the words on demand does not mean that a partner is under no
obligation to make a voluntary disclosure of information affecting the
partnership. Not only is a partner bound to give information on demand but in
certain circumstances, he is under the duty of voluntary disclosure of material
facts (Crane, op. cit., pp. 359-360.) within his knowledge relating to or affecting
partnership affairs. (see Art. 1821.) But the duty to render information does not
arise with respect to matters appearing in the partnership books since each
partner has the right to inspect the books.
Good faith not only requires that a partner should not make any false statement
but also that he should abstain from any concealment.

D. NOT TO ENGAGE IN ANOTHER BUSINESS

ART. 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 rm or avail
 themselves of the benets which he may have obtained in violation of this
provision, with a right to damages in either case. (n)
An industrial partner is one who contributes his industry, labor, or services to the
partnership. He is considered the owner of his services, which is his contribution to the
common fund. (Limuco vs. Calina, [C.A.] No. 10099-R, Sept. 9, 1953, citing Padillas
Civil Code, pp. 225-226, Vol. 3, 1951 ed.)
Unless the contrary is stipulated, he becomes a debtor of the partnership for his work
or services from the moment the partnership relation begins. In effect, the partnership
acquires an exclusive right to avail itself of his industry. Consequently, if he engages in
business for himself, such act is considered prejudicial to the interest of the other
partners.
PROHIBITION AGAINST ENGAGING IN BUSINESS: 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 conict 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].)
REMEDIES WHERE INDUSTRIAL PARTNER ENGAGES IN BUSINESS: If the industrial
partner engages in business for himself, without the express permission of the
partnership, the capitalist partners have the right either to exclude him from the rm
or to avail themselves of the benets which he may have obtained
In either case, the capitalist partners have a right to damages.
Note that the permission given must be express; hence, mere toleration by the
partnership will not exempt the industrial partner from liability.

ART. 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 prots accruing to him from his transactions, and
shall personally bear all the losses. (n)
The prohibition against the capitalist partner to engage in business is relative, unlike
the industrial partner who is absolutely prohibited from engaging in any business for
himself. (Art. 1789.)
The capitalist partner is only prohibited from engaging for his own account in any
operation which is the same as or similar to the business in which the
partnership is engaged and which is competitive with said business. Any
capitalist partner violating this prohibition shall be under obligation to bring to
the common fund any pro ts derived by him from his transactions and, in case
of losses, he shall bear them alone. The partners, however, by stipulation may
permit the capitalist partner to engage in the same kind of business.
The law does not prohibit a partner from engaging in enterprises in his own
behalf during the period that he is a member of a rm but permits him to carry
on a business activity not connected or competing with that of the partnership,
so long as the partnership agreement does not prohibit such activity. Any other
rule, it is said, would prevent a member of a partnership from investing his
private funds.
The law is silent on whether a capitalist partner can engage in the same line of
business for the account of another. It would seem that the prohibition still
applies. A partner occupies a duciary position with respect to his co-partners
imposing duties of utmost good faith, and he may not carry on any other
business in rivalry with the business of the partnership whether in his own name
or for the account of another at the expense of the partnership.
REASON FOR THE PROHIBITION: Since the relationship of partners is duciary and
imposes upon them the obligation of the utmost good faith in their dealings with one
another with respect to partnership affairs, one partner will not be permitted to retain
for himself alone as against his co-partners benets from the partnership relation. The
rule prevents a partner from availing himself personally of information obtained by him
in the course of the transaction of the partnership business or by reason of his
connection with the rm regarding the business secrets and clientele of the rm to its
prejudice.