CHAPTER 2
OBLIGATIONS OF THE PARNTERS AMONG THEMSELVES
Art. 1784. A partnership begins from the moment of
the execution of the contract, unless it is otherwise
stipulated. (1679)
1. Commencement and term of partnership
(a) From the time of execution of contract- partnership is
a consensual contract hence, it generally exist from
the very moment of the celebration of the contract by
the partnership
(b) No time limit to life of partnership- the birth and life of
a partnership is predicated on the mutual desire and
consent of the parties (Ortega vs CA). Unlike
corporation, partners may fix in their contract any term
and they shall be bound to remain under such relation
for the duration of the term barring the occurrence of
any of the events causing dissolution of the
partnership before its expiration.
2. Executory agreement of partnership
(a) Future partnership- the partners may stipulate some
other date for the commencement of the partnership.
Therefore, partners do not become partners until or
unless the agreed time has arrived or the contingency
has happened. As long as the agreement for a
partnership remains inchoate or unperformed, the
partnership is not consummated.
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.
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. (n)
1. Partnership with a fixed term
- Is one in which the term of its existence has been
agreed upon expressly or impliedly.The expiration of the
term thus fixed or the accomplishment of the particular
undertaking specified will the automatic dissolution of the
partnership.
-
(a) Rights and duties of partners
The partnership may be extended or continued by the
expiration of the agreement, written or oral, or
impliedly, or by mere continuation.
(b) Dissolution/ termination of partnership
If the partnership with a fixed term is continued after
the expiration of the term, the partnership becomes a
partnership at will.
(c) Power/right of a partner to terminate partnership
Any one of the partners may, at his sole pleasure,
dictate dissolution of a partnership at will, provided
that it is done in good faith. However, the attendance
of bad faith will not prevent the dissolution of the
partnership, but that can result in a liability for
damages to the other partners. (Ortega vs CA)
Even partnership for a fixed term may likewise be
terminated by the express will of any partner before
the time mentioned (Art. 1830[2]). There is no such
thing as an indissoluble partnership.
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.
(1681a)
1. 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 (art. 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. (Art. 1788, 1170)
2. Effect of failure to contribute property promised
(1) Liability as debtor of partnership
(2) Remedy of other partners or the partnership
An action for specific performance with damages and
interests from the defaulting partner from the time he
should have complied with his obligation. Article 1191
is not applicable and Article 1786 and 1788 is
applicable.
Article 1838, however allows rescission or annulment
of a partnership contract on the ground of fraud or
misrepresentation committed by one of the parties
thereto.
 CHAPTER 2
OBLIGATIONS OF THE PARNTERS AMONG THEMSELVES

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 account of the
partnership. (n)
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. (n)

1. Obligations of industrial partner.

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. (1682)
- 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.
(a) A debtor of partnership for his work or service
(b) Action for Specific performance not available as a
remedy since this will amount to involuntary servitude,
which as a rule is prohibited by the Constitution.

1. Obligations of a partner with respect to the 2. Prohibition against engaging in business.

partnership capital under article 1788:
Industrial partners Capitalist Partners
a) To contribute on the date due the amount he has
undertaken to contribute to the partnership - Prohibition is absolute - Not absolute
b) To reimburse any amount he may have taken from - It applies whether the - It applies only when
the partnership coffers and converted to his own use industrial partners is to business is of the same
engage in the same business kind of business in which
c) To pay the agreed or legal interest, if he fails to pay in which the partnership is to the partnership is engaged
his contribution on time or in case he takes any engage or in any kind of unless there is a stipulation
amount from the common fund and converts it to his business. to the contrary.
own use; and
- Reason is to prevent conflict
d) To indemnify the partnership for the damages of interest and to insure
caused to it by the delay in the contribution or the faithful compliance
conversion of any sum for his personal benefit.

2. Liability of partner for failure to return

3. Remedies where industrial partner engages in
partnership money received.
business
(a) Where fraudulent misappropriation committed - capitalist partners have the right either to exclude him
- if he misappropriate partnership money or from the firm or to avail themselves of the benefits which
property, he is guilty of estafa. h may have obtained

(b) Where there was mere failure on the part of an

industrial partner to return
- The action lies with the partner who furnished
capital for recovery of his money is civil one
arising from the partnership.
 CHAPTER 2
OBLIGATIONS OF THE PARNTERS AMONG THEMSELVES
Art. 1790. Unless there is a stipulation to the contrary,
the partners shall contribute equal shares to the
capital of the partnership. (n)
1. Presumption of equal shares in contribution
Partners can stipulate their share in the contribution,
but in the absence of such stipulation, the
presumption is that their contribution shall be in equal
shares.
2. Above rule does not apply to industrial partners
unless he has contributed capital pursuant to an
agreement ( article 1797 [2])
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 he obliged to sell his
interest to the other partners. (n)
1. Obligation of capitalist partner to contribute
additional capital
- This article is the exemption to the general rule
that capitalist partner is not bound to contribute to
the partnership more than what he agreed to
contribute.
- and to the managing partner at the same time, any sum
2. Requisites before a capitalist partner may be
obliged to sell his interest to the others:
(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 to
contribute and 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.
3. Industrial partner is exempted from the
requirement, having contributed his entire
industry, he can no nothing further.
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 other
debtor by Article 1252, but only if the personal credit
of the partner should be more onerous to him. (1684)
1. Requisites for the application of this article:
1) There exist at least two (2) debts, one where the
collecting partner is creditor, and the other, where the
partnership is the creditor
2) Both debts are demandable; and
3) The partner who collects is authorized to manage and
actually manages the partnership
2. Effect when all requisites are present
- Where a person is separately indebted to the partnership
received by the managing partner shall be applied to the
two (2) credits in proportion to their amounts, except
where he received it for the account of the partnership, in
which case the whole sum shall be applied to the
partnership credit only.
3. Non-applicability
-article does not apply where the partner who collects is not
authorized to manage and actually manages the
partnership.
4.
 CHAPTER 2
OBLIGATIONS OF THE PARNTERS AMONG THEMSELVES
Art. 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 to the partnership capital what he received even
though he may have given receipt for his share only.
(1685a)
1. Requisites for application of rule:
1) A partner has received, in whole or in part, his
share of the partnership credit;
2) The other partners have not collected their shares;
and
3) The partnership debtor has become insolvent.
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
partner's extraordinary efforts in other activities of
the partnership, unusual profits have been realized.
(1686a)
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 contribute 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 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 were
appraised. (1687)
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 expense 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. (1688a)
1. Responsibility of partnership to partners:
1) Refund amounts disbursed by the partner in behalf of
the partnership plus the corresponding interest from the
time expenses are made (loans or advances made by the
partners to the partnership)
2) Answer for the obligations the partner may have
contracted in good faith in the interest of the partnership
business
3) Answer for risks in consequence
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. (1689a)
Distribution of profits Distribution of Losses
Generally, profits are distributed Generally, profits are distributed
according to their agreement according to their agreement
subject to Art. 1799. subject to Art. 1799.
If only the share in profits has
been agreed upon, the share in
the losses shall be in the same
proportion.
If there is not such agreement: If there is no such agreement:
1) The share of each capitalist 1) The share of each capitalist
partner shall be in proportion to partner shall be in proportion to
his capital contribution his capital contribution, but the
2) The industrial partner shall purely industrial partner shall not
receive such share, which must be liable.
be satisfied first before the
capitalist partner
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OBLIGATIONS OF THE PARNTERS AMONG THEMSELVES

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. (1690)

Art. 1799. A stipulation which excludes one or more

partners from any share in the profits or losses is void.
(1691)

1. Stipulation excluding a partner from any share

in profits or losses.

(1) Stipulation generally void, but partnership

subsists.
- Generally, the law does not allow stipulation
excluding one or more partners from any share in
the profits and losses. The partnership must exist
for the common benefit and interest of the
partners. Hence such agreement would
contravene the very purpose of a partnership
contract, that is, profit-sharing among the
partners.

- Although the stipulation is void, the partnership, if

otherwise is valid, subsists and the profits or
losses shall be apportioned as if there were no
stipulation on the same (see Art. 1797, par 2)