Unit Partnership

Module Partnership
AE2-BLR Business Law and Regulation Units: 3 Page |1

INFORMATION SHEET 8.1.1

“Partnership”

Art. 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. (1696)

The right of a partner to associate another in his share in the partnership

Every partner may, with or without the consent of the other partners, transfer the whole
or part of his interest in the partnership to a third person. However, the person associated will not
be a partner in the partnership unless consented by the other partners because of the following
reasons:

a. Mutual trust as the basis of partnership.

b. Change in membership is a modification or novation of the contract (11 Manresa 395)

Illustrative Case

A, B, and C are partners. Later, C assigned one-half of his interest in the partnership to X,
without the consent of A and B.

a. Is the assignment valid?

Yes, because a partner may assign his interest even without the consent of the
other partners.

b. Is the person associated considered a partner in the partnership?

No, unless consented to by all the remaining partners. He is called in legal
parlance, a sub-partner or associate of a partner.
PREPARED BY: APPROVED BY:
1ST – 2ND
WEEK
MIDTERM MEETIN MR. WILBERT A. MAÑUSCA
3 G MS. CHITA S. CABANZA School Administrator
AE2-BLR- Instructor
 Unit Partnership
Module Partnership
AE2-BLR Business Law and Regulation Units: 3 Page |2

Art. 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.

Depository of partnership book

Unless agreed otherwise, the books of the partnership shall be kept 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. This right is granted to a partner to enable him to obtain true
and full information of the partnership affairs for after all; he is a co-owner of the properties.

Application is to “on-going partnership”.

The rule applies to “on-going partnership”, no one pending dissolution for her the rights
depend on the discretion of the court. Likewise, the inspection must be within a reasonable hour,
and our Supreme Court has held that the reasonable hour should be on a business day throughout
the year, and not merely during some capricious or arbitrary period selected by the managers.
(Pardo vs. Hercules Lumber Co. and Ferrer, 47 Phil. 964)

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.
Partners are required to give information.

Partners are not only required not to make any false concealment to his partner but also
that he should abstain from all concealment.

PREPARED BY: APPROVED BY:

1ST – 2ND
WEEK
MIDTERM MEETIN MR. WILBERT A. MAÑUSCA
3 G MS. CHITA S. CABANZA School Administrator
AE2-BLR- Instructor
 Unit Partnership
Module Partnership
AE2-BLR Business Law and Regulation Units: 3 Page |3

Who can demand information?

a. Any partner.
b. Legal representative of a dead partner.
c. Legal representative of any partner under legal disability.

Be it noted that the duty to give information is distinct from the duty to render an
accounting as provided for in Article 1807.

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

Nature of relationship between partners

The relationship established in a partnership is fiduciary in character. Hence, partners

assuming control and management of business, while so controlling it, are to manage the
business in the interest of all partners. His duties, by analogy, are a trustee, and he is not allowed
to derive personal advantage from the use of partnership assets or business, or goodwill.
(Citation: B. Paulino, Partnership and Cooperation Law)

Partner’s obligation to render an account:

a. Any benefit derived by him without the consent of the other partners from any transaction
connected with the formation, conduct or liquidation of the partnership or from any use
by him of its property.

PREPARED BY: APPROVED BY:

1ST – 2ND
WEEK
MIDTERM MEETIN MR. WILBERT A. MAÑUSCA
3 G MS. CHITA S. CABANZA School Administrator
AE2-BLR- Instructor
 Unit Partnership
Module Partnership
AE2-BLR Business Law and Regulation Units: 3 Page |4

b. Any profits derived by him without the consent of the other partners from any transaction
connected with the formation, conduct or liquidation of the partnership or from any use
by him of its property.

Illustrative Cases
a. A, B, and C are partners engaged in a real estate business. C, without the knowledge of A
and B, bought a parcel of land in his daughter’s name and subsequently sold the same at a
profit.

Question:
Should A and B share in the profits?

Answer:
Yes, because this transaction can be considered an affair of the partnership since the firm
being engaged in real estate business.

b. A and B are partners in real estate business. A with his own funds purchased a parcel of
land, and legal title was issued in his name, and from that moment A exercised all acts of
ownership over it. Later, A, because of financial reverses, offered for sale to B one-half
of the property, but B refused the offer. Seven years after the partnership was dissolved,
B sued A for the transfer to his name the title of one-half of the property on the ground
that A is considered only as a trustee of the property because the partnership is engaged
in real estate business.

PREPARED BY: APPROVED BY:

1ST – 2ND
WEEK
MIDTERM MEETIN MR. WILBERT A. MAÑUSCA
3 G MS. CHITA S. CABANZA School Administrator
AE2-BLR- Instructor
 Unit Partnership
Module Partnership
AE2-BLR Business Law and Regulation Units: 3 Page |5

Question:
Is the contention of B correct?

Answer:
No, A is not considered as a trustee, but instead a sole owner of the property. This
conclusion is premised on the fact that A even offered for sale to B one-half of the property
implying that he no intention of consolidating the full owner ship in his name. Besides, B is
guilty of laches (long delay in bringing the action) such delay being strongly persuasive of a lack
of merit in the claim. “Time” inevitably tends to obliterate occurrences from the memory of
witnesses, and where the recollection appears entirely clear; the true cause to the solution of a
case may be hopelessly lost”. (Buenaventura vs. David, 37 Phil. 425)

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 profits accruing to him from his transactions, and shall personally bear all the losses.

Prohibition imposed on capitalist partner

While an industrial partner is prohibited to engage in any kind of business, the capitalist
partner is prohibited from engaging for his own account in any operation “which is of the kind of
the business in which the partnership is engaged”, because this may result in competition, and he
is supposed to know the firm’s business secrets.

PREPARED BY: APPROVED BY:

1ST – 2ND
WEEK
MIDTERM MEETIN MR. WILBERT A. MAÑUSCA
3 G MS. CHITA S. CABANZA School Administrator
AE2-BLR- Instructor
 Unit Partnership
Module Partnership
AE2-BLR Business Law and Regulation Units: 3 Page |6

Effects of violation:

a. The violating capitalist partners shall bring to the partnership all the profits obtained.
b. While if there are losses, he must personally bear all the losses Capitalist partners,
although not expressly mentioned by law, can be ousted from the firm on the ground of
loss of trust and confidence, particularly if the violation is repeated after due warning.

Instances when there is no violation:

a. When expressly stipulated that he can engage in the same kind of business.
b. When he is expressly or impliedly allowed to do so.
c. When the partnership ceases to engaged in business.

Distinctions between a capitalist and an industrial partner:

CAPITALIST INDUSTRIAL
PARTNER
1. Contribution Money or property Industry
2. Prohibition to Cannot engage in the same or similar Cannot engage in any kind of
engage in other kind of business unless permitted by business unless permitted to
business. the other partner. do so.
3. Profit According to the agreement; if none, Just and equitable share.
pro-rata to his contribution.
4. Losses Stipulation Profit sharing Pro-rata to Industrial partner is exempted
contribution from losses as between
partners. Liable to third
persons, with the right to ask
for reimbursement from the
capitalist partner.

PREPARED BY: APPROVED BY:

1ST – 2ND
WEEK
MIDTERM MEETIN MR. WILBERT A. MAÑUSCA
3 G MS. CHITA S. CABANZA School Administrator
AE2-BLR- Instructor
 Unit Partnership
Module Partnership
AE2-BLR Business Law and Regulation Units: 3 Page |7

Art. 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;
(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.

Right to demand formal accounting

As a rule, a partner cannot demand a formal accounting on the business of the partnership
because under Article 1805 he has access to and may inspect and copy the books of the
partnership.

According to Justice Hugo Gutierrez, Jr., the right to demand an accounting for as long as
the partnership exists. Prescription begins to run only dissolution of the partnership when the
final accounting is done.

Principle of estoppel

If an accounting was already made, it cannot be questioned anymore if it was accepted

without objection for this would now be a case of estoppel, unless of course fraud or error is
alleged and proved. (Ornum vs. Lasala, 74 Phil. 242

PREPARED BY: APPROVED BY:

1ST – 2ND
WEEK
MIDTERM MEETIN MR. WILBERT A. MAÑUSCA
3 G MS. CHITA S. CABANZA School Administrator
AE2-BLR- Instructor
 Unit Partnership
Module Partnership
AE2-BLR Business Law and Regulation Units: 3 Page |8

SELF CHECK 3.1.1

“Partnership”

STUDENT NAME: ______________________________ SECTION: _____________

Answer the following question and explain.

1. What is the right of a partner to associate another in his share in the partnership?
2. What does “Depository of partnership book” mean?
3. What does Application is to “on-going partnership” mean?
4. What is the nature of relationship between partners?
5. What is Principle of estoppel?

PREPARED BY: APPROVED BY:

1ST – 2ND
WEEK
MIDTERM MEETIN MR. WILBERT A. MAÑUSCA
3 G MS. CHITA S. CABANZA School Administrator
AE2-BLR- Instructor