Chapter 2
in the case of a general partnership.
Obligations of the Partners
SECTION 1. Obligations of the Partners
Among Themselves.
A contract of partnership gives rise to at least 4
distinct juridical relations:
1. relations among the partners
2. relations of the partners with the partnership
3. relationship of the partnership with third
persons with whom it contracts
4. relationship of the partners with such third
persons
Rights and obligations, in general,
of partners inter se.
(1) Partnership relationship essentially one of
mutual trust and confidence.
(2) Fiduciary relationship remains until
partnership terminated.- when a partnership
is dissolved, the assets of the partnership must
still be managed in accordance with this
fiduciary principle.
(3) Relationship in a limited partnership. - the
relationship between a limited partner and the
other partners in a limited partnership does not
involve the element of trust and confidence, as
ART. 1784. A partnership begins from the
moment of the execution of the contract, unless
it is otherwise stipulated.
- A partnership is a consensual contract; hence,
it exists from the moment of the celebration of
the contract by the partners.
- The birth and life of a partnership is predicated
on the mutual desire and consent of the parties.
- Unlike a corporation, no time limit is
prescribed by law for the life of partnership.
Executory agreement of partnership
(1) Future partnership. The partners may
stipulate some other date for the
commencement of the partnership. As long as
the agreement for a partnership remains
inchoate or unperformed, the partnership is not
consummated.
Incidentally, the Statute of Frauds provides that
an agreement that by its terms is not to be
performed within a year from the making
thereof, must be in writing and signed by the
party charged in order to be enforceable.
(2) Agreement to create partnership. So long as
the agreement remains executory the
partnership is inchoate, not having called into
being by the concerted action necessary under
the partnership agreement.
The death of either party to an executory
agreement of partnership prevents the
formation of a firm, since such agreement is
based on the continuance of the life of each.
(3) Failure to agree on material terms. A
failure of the parties to agree on material terms
may not merely be evidence of the intent of the
parties to be bound only in the future, but may
prevent any rights or obligations from arising on
either side for lack of complete contract.
ART. 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.
A partnership with a fi xed term is one
in which the term of its existence has
been agreed upon expressly (as when
there is a definite period) or impliedly
(as when a particular enterprise or
transaction is undertaken).
(1) Rights and duties of partners.
the partnership for a fixed term or
particular undertaking is dissolved and
a new one, a partnership at will, is
created by implied agreement, the
continued existence of which will
depend upon the mutual desire and
consent of the partners.
(2) Dissolution of partnership.
Verily, any one of the partners may, at
his sole pleasure, dictate a dissolution
of a partnership at will.
He must, however, act in good faith
not that the attendance of bad faith
can prevent the dissolution of the
partnership but that can result in a
liability for damages to the other
partners.
There is no such thing as an
indissoluble partnership.
Continuation of partnership for an
indefinite term.
(1) Partnership for a term impliedly
fixed. Although the term of a
partnership is not expressly fixed, an
agreement of the parties may
evidence an understanding that the
relation should continue until the
accomplishment of a particular
undertaking or certain things have
been done or have taken place.
(2) Partnership with mere expectation
that business will be profitable. The
mere
expectation that the business would
be successful and that the partners
would be able to recoup their
investment is not sufficient to create a
partnership for a term.
ART. 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.
Obligations with respect to
contribution
of property
(1) 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;
(2) To answer for eviction in case the
partnership is deprived of the
determinate property contributed; and
(3) 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.
(4) To preserve said property with the
diligence of a good father of a family
pending delivery to the partnership
(5) To indemnify the partnership for
any damage caused to it by the
retention of the same or by the delay
in its contribution.
The money or property contributed by
a partner becomes the property of the
partnership.
Effect of failure to contribute
property
promised.
the failure to contribute is to make the
partner ipso jure a debtor of the
partnership even in the absence of
any demand
the remedy of the other partner or the
partnership is not rescission but an
action for specific performance with
damages and interest from the
defaulting partner
Liability of partner in case of
eviction
Under the law on sales, eviction shall
take place whenever by a final
judgment based on a right prior to the
sale or an act imputable to the vendor,
the vendee is deprived of the whole or
a part of the thing purchased
This obligation of warranty in case of
eviction is in consequence of the
character of the contract of
partnership which is an onerous
contract
Liability of partner for fruits of
property
in case of delay.
no demand is necessary to put the
partner in
default.
it prejudices the common purpose of
obtaining from them the greatest
possible profits through some means
of speculation or investment.
Liability of partner for failure to
perform
service stipulated.
(1) Partner generally not liable. Unless
there is a special agreement to that
effect.
The doctrine seems to be that every
partner is bound to work to the extent
of his ability for the benefit of the
whole, without regard to the services
of his copartners
(2) Exception.
(a) If a partner neglects or refuses,
without reasonable cause, to render
the service which he agreed to
perform by reason of which the
partnership suffered loss
The proper measure of damages in
such case is the value of the services
wrongfully withheld.
If the defendant had made profit by
engaging in other business in violation
of the contract, he is liable to account
for the same.
ART. 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 the account of
the partnership.
(1) The appraisal of the value of the
goods contributed is necessary to
determine how much has been
contributed by the partners.
The appraisal is made, firstly, in the
manner prescribed by the contract of
partnership;
secondly, in the absence of stipulation,
by
experts chosen by the partners and
according to current prices.
(2) In the case of immovable property,
the appraisal is made in the inventory
of said property
ART. 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.
The first paragraph refers to money
promised but not given on time and
the second, to partnership money
converted to the personal use of the
partner.
Obligations of the partners with
respect
to the partnership capital
(1) To contribute on the date due the
amount he has undertaken to
contribute to the partnership
(2) To reimburse any amount he may
have taken from the partnership
coffers and converted to his own use
(3) 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 converts it
to his own use;
(4) 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
Liability of guilty partner for
interest
and damages.

The guilty partner is liable for interest
and damages not from the time
judicial or extrajudicial demand is
made but from the time he should
have complied with his obligation or
from the time he converted the
amount to his own use, as the case
may be.
Liability of partner for failure to
return
partnership money received.
(1) Where fraudulent misappropriation
committed- A partner is guilty of
estafa if he
misappropriates partnership money or
property received by him for a specific
purpose of the partnership.
(2) Where there was mere failure to
return. The money having been
received by the partnership, the
business commenced and profits
accrued, the action that lies with the
partner who furnished capital for the
recovery of his money is a civil one
arising from the partnership contract
for a liquidation of the partnership and
a levy on its assets if there should be
any.
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 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.
An industrial partner is one who
contributes his industry, labor, or
services to the partnership.
An action for specific performance to
compel the partner to perform the
promised work or service is not
available as a remedy because this
will amount to involuntary servitude
which, as a rule, is prohibited by the
Constitution.
Prohibition against engaging in
business.
(1) As regards an industrial partner.
The prohibition is absolute to prevent
any conflict of interest between the
industrial partner and the partnership
and to insure faithful compliance by
said partner with his prestation
(2) As regards capitalist partners.
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.
Remedies where industrial
partner
engages in business.
If the industrial partner engages in
business for himself, without the
express permission of the partnership,
1. the capitalist partners have the
right either to exclude him from the
firm or
2. to avail themselves of the benefits
which he may have obtained.
- permission given must be express
- either case, the capitalist partners
have a right to damages
ART. 1790. Unless there is a
stipulation to the contrary, the
partners shall contribute equal
shares to the capital of the
partnership.
above rule is not applicable to an
industrial partner unless, besides his
services, he has contributed capital
pursuant to an agreement to that
effect.
ART. 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.
Obligation of capitalist partner to
contribute additional capital.
(1) Requisites for application of rule.
(a) There is an imminent loss of the
business of the partnership;
(b) The majority of the capitalist
partners are of the opinion that an
additional contribution to the common
fund would save the business;
(c) The capitalist partner refuses
deliberately (not because of his
financial inability to do so), to
contribute an additional share to the
capital;
(d) There is no agreement that even in
case of an imminent loss of the
business the partners are not obliged
to contribute.
(2) Reason for the sanction. The
refusal of the partner to contribute his
additional share reflects his lack of
interest in the continuance of the
partnership.
ART. 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 debtor by Article 1252, but
only if the personal credit of the
partner should be more onerous
to him.
(1) Requisites for application of rule.
(a) There exist at least two debts, one
where the collecting partner is
creditor, and the other, where the
partnership is the creditor;
(b) Both debts are demandable
(c) The partner who collects is
authorized to manage and actually
manages the partnership.
(2) 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.
(3) Right of debtor to application of
payment. Under the second
paragraph, 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.
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.
Obligation of partner who
receives
share of partnership credit.
only one credit credit in favor of the
partnership.
(1) Requisites for application of rule.
(a) A partner has received, in whole or
in part, his share of the partnership
credit;
(b) The other partners have not
collected their shares; and
(c) The partnership debtor has become
insolvent.
(2) Reason for imposing obligation to
return. based on the community of
interest among the partners
Credit collected after dissolution
of the partnership.
(2) Contrary view.
(a) It would not be just that he who
has been diligent and collected his
quota should suffer the consequence
of the negligence of his associates
(a) It would not be just that he who
has been diligent and collected his
quota should suffer the consequence
of the negligence of his associates
ART. 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 partners
extraordinary efforts in other
activities of the partnership,
unusual profits have been
realized.
Compensation of damages with
profits earned for partnership by
guilty partner.
(1) Damages not generally subject to
set-off. As a general rule, the
damages caused by a partner to the
partnership cannot be offset by the
profits or benefits which he may have
earned for the partnership by his
industry.
(a) The partner has the obligation to
secure benefits for the partnership.
(b) He has also the obligation to
exercise diligence in the performance
of his obligation as a partner.
(2) Exception. If unusual profits are
realized through the extraordinary
efforts of the partner at fault, the
courts may equitably mitigate or
lessen his liability for damages. This
rule rests on equity
ART. 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 the absence of
stipulation, the risks of 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.
Risk of loss of things contributed.
(1) Specific and determinate things
which are not fungible where only the
use is contributed. The risk of loss is
borne by the partner because he
remains the owner of the things
(2) Specific and determinate things
the ownership of which is transferred
to the partnership. The risk of loss is
for the account of the partnership,
being the owner
(3) Fungible7 things or things which
cannot be kept without deteriorating
even if they are contributed only for
the use of the partnership. The risk
of loss is borne by the partnership for
evidently the ownership was being
transferred since use is impossible
without the things (e.g., oil, wine)
being consumed or impaired;
(4) Things contributed to be sold.
The partnership bears risk of loss for
there cannot be any doubt that the
partnership was intended to be the
owner; otherwise, the partnership
could not effect the sale; and
(5) Things brought and appraised in
the inventory. The partnership
bears the risk of loss because the
intention of the parties was to
contribute to the partnership the price
of the things contributed with an
appraisal in the inventory.
ART. 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.
Responsibility of the partnership
to the partners.
(1) refund amounts disbursed by the
partner in behalf of the partnership
plus the corresponding interest from
the time the expenses are made (not
from the date of demand).
(2) answer for the obligations the
partner may have contracted in good
faith in the interest of the partnership
business; and
(3) answer for risks in consequence of
its management.
ART. 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.
Rules for distribution of profits
and losses.
(1) Distribution of profits:
(a) The partners share the profits
according to their agreement subject
to Article 1799.
(b) If there is no such agreement
1) 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.
2) The industrial partner shall receive
such share, which must be satisfied
first before the capitalist partners shall
divide the profits, as may be just and
equitable under the circumstances.
(2) Distribution of losses:
(a) The losses shall be distributed
according to their agreement subject
to Article 1799.
(b) If there is no such agreement, but
the contract provides for the share of
the partners in the profits, the share of
each in the losses shall be in
accordance with the profit-sharing
ratio, but the industrial partner shall
not be liable for losses.
(c) If there is also no profit-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 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.
Designation by a third person of
share
in profits and losses.
(1) Delegation to a third person.
The designation of the share in the
profits and losses may be delegated to
a third person by common consent.
(2) Binding force of designation by
third person. The designation by the
third person would generally be
binding unless manifestly inequitable.
ART. 1799. A stipulation which
excludes one or more partners
from any share in the profits or
losses is void.
(1) Stipulation generally void, but
partnership subsists. The partnership
must exist for the common benefit and
interest of the partners.

However, although the stipulation is

void, the partnership, if otherwise
valid, subsists and the profits or losses
shall be apportioned as if there were
no stipulation on the same.

(2) Stipulation, a factor to show no

partnership exists.
(3) Where person excluded not
intended by parties to become a
partner. Where the one excluded
from any share in the profits or losses
is not intended by the parties to
become a partner, the stipulation is, of
course, valid.

(4) Where person excluded from

losses is industrial partner. valid
because the law excludes industrial
partner from losses.

The industrial partner is not liable for

losses because he cannot withdraw
the work or labor already done by him,
unlike the capitalist partners who can
withdraw their capital.

(5) Where stipulation provides for

unequal shares. valid unless the
inequality is so gross