thus, he need not be a secret partner; if he - In a Universal Partnership of all Present
In the following
withdraws from the Partnership, he must
give notice to those persons who do
business with the firm to escape Liability
in the future
d. Dormant Partner: One who does not
take active part in the business and is not
known or held out as partner; (Ibid) he
would be both Silent and a Secret
Partner; the term is used as synonymous
with “sleeping partner”; he may retire
from the Partnership without giving
notice and cannot be held Liable for the
obligations of the firm subsequent to his
withdrawal; his only interest in joining
the Partnership would be the sharing of
the profits earned
e. Original Partner: One who is a member
of the Partnership from the time of its
organization
f. Incoming Partner: A person lately, or
about ot be, taken into a Partnership as a
member
g. Retiring Partner: One withdrawn from
the Partnership; a withdrawing partner;
(Articles 1840 and 1841)
- All partners in any of these six classes are
subject to Liability for all Partnership
obligations (Articles 1816, 1822 to 1824,
1826, 1835, 1844, and 1841)
Article 1777
- A Universal Partnership may refer to all the
Present Property or to all Profits
Article 1778
- A Partnership of all Present Property is that
in which the partners contribute all the
property which actually belongs to them to a
common fund, with the intention of dividing
the same among themselves, as well as all the
profits they may acquire therewith
Article 1779
Commented [168]: ARTICLE 1840.
Property, the property which belonged to
each of the partners at the time of the
constitution of the Partnership, becomes the
common property of all the partners, as well
as all the profits which they may acquire
therewith
- A stipulation for the common enjoyment of
any other profits may also be made; but the
property which the partners may acquire
subsequently by inheritance, legacy, or
donation cannot be included in such
stipulations, except the fruits thereof
Universal Partnership of all Present Property,
Explained
- A Universal Partnership of all Present
Property is one in which the partners
contribute all the properties which actually
belong to each of them at the time of the
constitution of the Partnership to a common
fund, with the intention of dividing the same
among themselves as well as the profits
which they may acquire therewith
- In this kind of Partnership, the following
become the common property of all the
partners:
1. Property which belonged to each of them
at the time of the constitution of the
Partnership
2. Profits which they may acquire from the
property contributed
3. Property acquired by each partner after
the formation of the Partnership, if
stipulated
4. Profits and fruits from property acquired
by each partner acquired from
inheritance, legacy, or donation after the
formation of Partnership, if stipulated
Contribution of Future Property
- General Rule: Future properties cannot be
contributed
cases creditors of the dissolved partnership are also
creditors of the person or partnership continuing the
business:
(1) When any new partner is admitted into an existing
partnership, or when any partner retires and assigns (or
the representative of the deceased partner assigns) his
rights in partnership property to two or more of the
partners, or to one or more of the partners and one or
more third persons, if the business is continued without
... [92]
Commented [169]: When the business of a partnership
after dissolution is continued under any conditions set
forth in this article the creditors of the dissolved
partnership, as against the separate creditors of the
retiring or deceased partner or the representative of the
deceased partner, have a prior right to any claim of the
retired partner or the representative of the deceased
partner against the person or partnership continuing the
... [93]
Commented [170]: ARTICLE 1816. All partners,
including industrial ones, shall be liable pro rata with all
their property and after all the partnership assets have
been exhausted, for the contracts which may be
entered into in the name and for the account of the
partnership, under its signature and by a person
authorized to act for the partnership. However, any
partner may enter into a separate obligation to perform... [94]
Commented [171]: ARTICLE 1822. Where, by any
wrongful act or omission of any partner acting in the
ordinary course of the business of the partnership or
with the authority of his co-partners, loss or injury is
caused to any person, not being a partner in the
partnership, or any penalty is incurred, the partnership
is liable therefor to the same extent as the partner so
acting or omitting to act. (n) ... [95]
Commented [172]: ARTICLE 1826. A person admitted
as a partner into an existing partnership is liable for all
the obligations of the partnership arising before his
admission as though he had been a partner when such
obligations were incurred, except that this liability shall
be satisfied only out of partnership property, unless
there is a stipulation to the contrary. (n)
... [96]
Commented [173]: ARTICLE 1844. Two or more
persons desiring to form a limited partnership shall:
(1) Sign and swear to a certificate, which shall state —
(a) The name of the partnership, adding thereto the
word "Limited";
... [97]
Commented [174]: ARTICLE 1841. When any partner
retires or dies, and the business is continued under any
of the conditions set forth in the preceding article, or in
article 1837, second paragraph, No. 2, without any
settlement of accounts as between him or his estate
and the person or partnership continuing the business,
unless otherwise agreed, he or his legal representative
as against such person or partnership may have the ... [98]
- The very essence of the Contract of
Partnership that the properties contributed be
included in the Partnership requires the
contribution of things determinate (fixed
time: present)
- The position of a partner is like that of a
donor, and donations cannot comprehend
future property
- Article 751: Thus, property subsequently
acquired by: inheritance, legacy, or donation
cannot be included by stipulation except the
fruits thereof
- Hence, any stipulation including property so
acquired is void
- Profits from other sources (not from the
properties contributed) will become common
property only if there is a stipulation
Article 1780
- A Universal Partnership of Profits comprises
all that the partners may acquire by their
industry or work during the existence of the
Partnership
- Movable or Immovable Property which each
of the partners possess at the time of the
celebration of the contract shall continue to
pertain exclusively to each, only the usufruct
(legal right given by an owner to someone
who is not the owner, to use the owner's
property for a certain period, usually for the
remainder of that person's life) passing to
Partnership
Universal Partnership of Profits, Explained
- Universal Partnership of Profits: One
which comprises all that the partners may
acquire by their industry or work during the
existence of the Partnership and the usufruct
of Movable or Immovable Property which
each of the partners possess at the time of the
celebration of the contract
1. Ownership of Present and Future Property
- It is to be noted that in this class of
Partnership, the partners retain their
ownership over their present and future
property
- What pass to the Partnership are the profits or
income and the usufruct or use of the same
- Consequently, upon the dissolution of the
Partnership, such property is returned to the
partners who own it
2. Profits Acquired through Chance
- Since the law speaks only to profits which the Commented [175]: Art. 751. Donations cannot
partners may acquire by their industry or comprehend future property.
work, it follows that profits acquired by the By future property is understood anything which the
partners through chance, such as lottery or by donor cannot dispose of at the time of the donation.
(635)
lucrative title without employment of any
physical or intellectual efforts are not
included
3. Fruits of Property Subsequently Acquired
- In view of paragraph 2 Article 1780, fruits of Commented [176]: ARTICLE 1780. Movable or
property subsequently acquired by the immovable property which each of the partners may
possess at the time of the celebration of the contract
partners do not belong to the Partnership shall continue to pertain exclusively to each, only the
- Such profits, may, however, be included by usufruct passing to the partnership. (1675)
express stipulation
- But profits which the partners may acquire by
their industry or work during the existence of
the Partnership as well as the usufruct of their
present properties belong to the Partnership
as a matter of right
- An express stipulation is necessary to
exclude any of them
Included
- Profits obtained by the partners by their work
or industry during the existence of the
Partnership
- The usufruct or use of the property belonging
to each partner at the time of the constitution
of the Partnership
- The profits and fruits from the properties
mentioned in letter a and b
- The profits and fruits, if stipulated, of the
property acquired by each partner after the
constitution of the Partnership
Article 1781
- Articles of Universal Partnership, entered
into without specification of its nature, only
constitute a Universal Partnership of Profits
Presumption in Favor of Universal Partnership of
Profits
- Where the Article of Partnership do not
specify the nature of the Partnership, whether
it is one of the “present property” or of
“profits” only, it will be presumed that the
parties intended merely a Partnership of
Profits
- Reason: A Universal Partnership of Profits
imposes less obligations on the partners
(Article 1378), since they preserve the
ownership of their separate property
- It is to be noted that this article applies only
when a Universal Partnership has been
organized
Article 1782
- Persons who are prohibited from giving each
other any donation or advantage cannot enter
into a Universal Partnership
Limitations upon the Right to Form a Universal
Partnership but can enter into a Particular
Partnership
- Persons who are prohibited by law to give
donations cannot enter into a Universal
Partnership for the reason that each of the
partners virtually makes a donation
- To allow persons who are prohibited to give
each other any donation or advantage to form
a Universal Partnership will be like
permitting them to do indirectly what the law
expressly prohibits
- A Partnership formed in violation of this
article is null and void (Article 1409 [7])
- Consequently, no legal personality is
acquired
- A husband and his wife, however, may enter
into a Particular Partnership or be members
thereof
Pertinent Legal Provisions
- In connection with Article 1782, the
following legal provisions must be noted:
1. Article 87, Family Code: Every donation or
grant of gratuitous advantage, direct or
indirect, between the spouses during the
marriage shall be void, except moderate gifts,
which the spouses may give to each other on
the occasion of any family rejoicing. The
prohibition shall also apply to persons living
together as husband and wife without a valid
marriage
2. Article 739: The following donations are Commented [177]: Article 1378. When it is absolutely
void: impossible to settle doubts by the rules established in
the preceding articles, and the doubts refer to incidental
a. Those made between persons who were circumstances of a gratuitous contract, the least
guilty of adultery or concubinage at the time transmission of rights and interests shall prevail. If the
contract is onerous, the doubt shall be settled in favor of
of the donation the greatest reciprocity of interests.
- Civil Code: The action for declaration of
nullity may be brought by the spouse of the If the doubts are cast upon the principal object of the
contract in such a way that it cannot be known what
donor or donee; and the guilt of the donor and may have been the intention or will of the parties, the
the donee may be proved by preponderance contract shall be null and void. (1289)
of evidence in the same action
b. Those made between persons found guilty of
the same criminal offense, in consideration
thereof
c. Those made to a public officer or his wife,
descendants and ascendants, by reason of his
office
- In order that Article 739 may apply, it is not
required that there be a previous conviction
for adultery or concubanage
- The Insular Life Assurance Co., Ltd.
vs Ebrado: This can be inferred from the
clause that “the guilt of the donor and the
donee may be proved by preponderance
of evidence”
Commented [178]: Article 1409. The following contracts
Article 1783 are inexistent and void from the beginning:
(7) Those expressly prohibited or declared void by law.
- A Particular Partnership has for its object
Determinate things, their use or fruits, or a These contracts cannot be ratified. Neither can the right
to set up the defense of illegality be waived
 specific undertaking, or the exercise of a
profession or vocation
Particular Partnership, Explained
- Particular Partnership: Is a Partnership
which is neither a Universal Partnership of
Present Property nor a Universal Partnership
of Profits
FROM THE PDF
- The fundamental difference between a
Universal Partnership and a Particular
Partnership lies in the scope of their subject
matter or object
- Universal Partnership: The object is
vague and indefinite, contemplating a
general business with some degree of
continuity
- Particular Partnership: Object is
limited and well-defined, being confined
to an undertaking of a single, temporary,
or ad hoc (for this purpose only) nature
- Example: Those formed for the
acquisition of an immovable
property for the purpose of reselling
it at a profit or for the common
enjoyment of its use and the benefits
derived therefrom, or those
established for the purpose of
carrying out a specific enterprise
such as the construction of a
building, or those formed for the
practice of a profession or vocation
Business of Partnership Need Not be Continuing
in Nature
- A Partnership is ordinarily formed for the
transaction of a General Business of a
particular kind
- It may be inferred from Article 1767 and
1783, that the carrying on of a business of a
continuing nature is not essential to constitute
a Partnership
- An agreement to undertake a particular piece
of work or a single transaction or a limited
number of transactions and immediately
divide the existing profits would seem to fall
within the meaning of the term “Partnership”
as used in the law
- The above conclusion is not true under the
US Uniform Partnership Act which defines a
Partnership as “an association of two or more
persons to carry on as co-owners of a
business for profits” (Sec. 6 thereof) and
takes that “business includes every trade,
occupation or profession” (Sec. 2 thereof)
- The word “business” as used in the Uniform
Partnership Act clearly means business in the
commercial sense only, not merely a “joint
venture” which exists for carrying on a single
or isolated transaction or limited number of
transaction
- However, the rights and liabilities of the
joint ventures and partners are the same
in all other important aspects
FROM THE PDF
Business of Partnership Need Not be Continuing
in Nature
- It may be inferred from Articles 1767 and
1783 that the carrying on of a business of a
continuing nature is not essential to constitute
a Partnership
- An agreement to undertake a particular piece
of work or a single transaction or a limited
number of transactions and immediately
divide the resulting profits would seem to fall
within the meaning of the term “Partnership”
as used in the law
1. Rule under American law
- The above is not true under the Uniform
Partnership Act which defines a Partnership
as “an association of two or more persons to
carry on as co-owners a business for profit” Commented [179]: ARTICLE 1767. By the contract of
(Sec. 6 thereof) and states that “business partnership two or more persons bind themselves to
includes every trade, occupation, or contribute money, property, or industry to a common
fund, with the intention of dividing the profits among
profession” (Sec. 2 thereof.) themselves.
- The word “business,” as used in the Act,
ARTICLE 1783. A particular partnership has for its
clearly means business in the commercial object determinate things, their use or fruits, or a
sense only, not merely “a joint venture’’ specific undertaking, or the exercise of a profession or
vocation. (1678)
 which exists for carrying on a single act or
isolated transaction or a limited number of
transactions
- Thus, a distinction exists between a joint
venture, a legal concept of common law
origin, on which the members are
interested only in a single transaction and
is thus of a temporary nature although the
business of conducting it may continue
for a number of years, and a Partnership
in which the members (partners) are
interested in carrying on together of a
general and continuing business of a
particular kind
2. Joint venture
- Sometimes called “joint adventure’’ or “joint
enterprise’’ in American law, it is essentially
a Partnership created for a limited purpose
- While a joint venture is not a formal
Partnership in the legal or technical sense,
both are governed, subject to certain
qualifications, practically by the same rules
or principles of Partnership
- This is logical since in a joint venture, like in
a Partnership, there is a Community of
Interest in the business and a mutual right of
control and an agreement to share jointly in
profits and losses resulting from the
enterprise
- The usual rules as regards the construction
and operation of contracts generally apply to
a contract of a joint venture (Aurbach vs.
Sanitary Wares Manufacturing Corp., 180
SCRA 130 [1989]; Litonjua, Jr. vs. Litonjua,
Sr., 477 SCRA 576 [2005]; Philex Mining
Corp. vs. Comm. of Internal Revenue, 551
SCRA 428 [2008])
3. Corporation as a Partner
- While under the Philippine Civil Code, a
joint venture is a form of Partnership with a
legal personality separate and distinct from
the parties composing it, and should thus be
governed by the Law of Partnership, the
Supreme Court has, however, recognized a
distinction between these two business
forms, and has held that although a
Corporation cannot enter into a Partnership
contract, it may, however, engage in a joint
venture with others (Tuazon vs. Bolanos, 95
Phil. 906 [1954]) through a contract or
agreement if the nature of the venture is
authorized by its charter (SEC Opinion, April
29, 1985)
CHAPTER 2: Obligations of the Partners
SECTION 1: Obligations of the Partners among
themselves
Relations Created by a Contract of Partnership
- A Contract of Partnership gives rise to at least
four distinct Juridical Relations
a. Relations among the partners themselves
b. Relations of the partners with the
Partnership
c. Relations of the Partnership with third
persons with whom it contracts
d. Relations to partners with such third
persons
FROM THE PDF
Rights and Obligations, in general, of Partners
inter se (among or between themselves)
1. Partnership Relationship essentially one of
mutual trust and confidence
- The Partnership Relationship is essentially
one of mutual trust and confidence, and the
law imposes upon the partners highest
standards of integrity and good faith in their
dealings with each other for the benefit of the
Partnership
a. Each partner is, in one sense, a Trustee
and at the same time, a cestui que trust Commented [180]: A cestui que trust is the person
(person entitled to an equitable trust in entitled to an equitable, rather than legal, trust in the
estate assets. The concept is used in modern life and
the assets) health insurance policies, where cestui que vie is an
- He is a Trustee to the extent that his individual whose life measures the duration of the
insurance contract
duties bind him with respect to his co-
partners and the Partnership, and a cestui
que trust as far as the duties that rest on
his co-partners
 requirement that the dissolution must not be
made at an improper or unreasonable time
- Even a Partnership for a Fixed Term may
likewise be terminated by the express will of
any partner before the time mentioned
- Article 1830 [2]: 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
a. When a partner advances a sum of money to
a Partnership with the understanding that the
amount contributed is to be loaned to the
Partnership and is to be repaid as soon as
feasible from the prospective profits of the
business, the Partnership is for the term
reasonably required to repay the loan
- The partners may impliedly agree to
continue in business until a certain sum
of money is earned, or one or more
partners recoup their investment, or until
certain debts are paid, or until certain
property could be disposed of on
favorable terms
- In each of these cases, however, the
implied agreement must be proved
b. In each of the following cases the court
properly held that the partners’ implied
promise was to continue the Partnership for a
term reasonably required to allow the
Partnership to earn sufficient money to
accomplish the understood objective:
1. Where the partners borrowed substantial
amounts of money to launch an
enterprise and there was an
understanding that the loans would be
repaid from Partnership profits (Owen
vs. Owen, 119 P. 2d 713)
2. Where one partner loaned his co-partner
money to invest in the Partnership with
the understanding that the money would
be repaid from Partnership profits
(Vangel vs. Vangel, 254 P. 2d 919)
3. Where one partner contributed all the
capital, the other contributed his services,
and it was understood that upon the
repayment of the contributed capital
from Partnership profits the partner who
contributed his services would receive a
one-third interest in the Partnership
assets (Mervyn Investment Co. vs.
Beber, 194 P 1037)
4. Where the parties entered into a Joint
Venture to build and operate a motel until
it could be sold upon favorable and
mutually satisfactory terms (Shannon vs.
Hudson, 325 P. 2d 1022)
2. Partnership with mere expectation that
business will be profitable
- Where the understanding to which defendant
(the partner who contended that the
Partnership created was for a term) testified
was no more than a common hope that the
Partnership earnings would pay for all the
necessary expenses, such a hope does not
establish even by implication a “Fixed Term
or particular undertaking” as required by
Article 1785 Commented [197]: ARTICLE 1785. When a partnership
- The mere expectation that the business would for a fixed term or particular undertaking is continued
after the termination of such term or particular
be successful and that the partners would be undertaking without any express agreement, the rights
able to recoup their investment is not and duties of the partners remain the same as they
were at such termination, so far as is consistent with a
sufficient to create a Partnership for a term partnership at will.
- All Partnerships are ordinarily entered into
with the hope or expectation that they will be A continuation of the business by the partners or such
of them as habitually acted therein during the term,
profitable, but that alone does not make them without any settlement or liquidation of the partnership
all Partnerships for a term and obligate the affairs, is prima facie evidence of a continuation of the
partnership. (n)
partners to continue in the Partnership until
all the losses over a period of many years may
have been recovered

Article 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
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 Contributions
- The above article deals with the obligations
of the partners among themselves and to the
Partnership with respect to contribution of
property. They are as follows:
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
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
In addition, the partner has the obligation:
4. To preserve said property with the 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 (Articles 1788
and 1170)
- The money or property contributed by a
partner becomes the property of the
Partnership
- It necessarily follows that the same cannot be
withdrawn or disposed of by the contributing
partner without the consent or approval of the
Partnership or of the other partners
Effect of Failure to Contribute Property Promised
1. Liability as Debtor to Partnership
- The mutual contribution to a Common Fund
is of the essence of the Contract of
Partnership (Article 1767), for without the
contributions, the Partnership is useless
- It is but logical that the failure to contribute
is to make the partner automatically a debtor
of the Partnership even in the absence of any
demand
2. Remedy of other partners
- Under this article, the remedy of other
partners or the Partnership is not rescission or
cancellation of the Contract of Partnership
but an action for specific performance (to
collect what is owing) with damages and
interest from the defaulting partner who is
made a debtor of the Partnership for what he
has promised to contribute to the Partnership,
from the time he should have complied with
his obligation
- 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
Liability of Partner in case of Eviction
- The partner is bound in the same cases and in
the same manner as the vendor is bound with
respect to the vendee with regard to specific
and determinate things which he may have
contributed to the Partnership
- This matter is, therefore, governed by the
Law on Sales
- 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
- Article 1548: This obligation of warranty in
case of eviction is in consequence of the
Commented [200]: ARTICLE 1838. Where a partnership
contract is rescinded on the ground of the fraud or
misrepresentation of one of the parties thereto, the
party entitled to rescind is, without prejudice to any
other right, entitled:
(1) To a lien on, or right of retention of, the surplus of
the partnership property after satisfying the partnership
liabilities to third persons for any sum of money paid by
him for the purchase of an interest in the partnership
and for any capital or advances contributed by him;
(2) To stand, after all liabilities to third persons have
been satisfied, in the place of the creditors of the
partnership for any payments made by him in respect of
the partnership liabilities; and
(3) To be indemnified by the person guilty of the fraud
or making the representation against all debts and
liabilities of the partnership. (n)
Commented [198]: Art. 1163. Every person obliged to
give something is also obliged to take care of it with the
proper diligence of a good father of a family, unless the
law or the stipulation of the parties requires another
standard of care. (1094a)
Commented [199]: ARTICLE 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)
Art. 1170. Those who in the performance of their
obligations are guilty of fraud, negligence, or delay, and
those who in any manner contravene the tenor thereof,
are liable for damages. (1101)
 character of the Contract of Partnership
which is an onerous contract
- Article 1767
Liability of Partner for Fruits of Property in case
of Delay
- Here, again, no demand is necessary to put
the partner in default
- From the mere fact that the property which a
partner ought to deliver does not pass to the
Common Fund on time, the Partnership fails
to receive the fruits or benefits which the said
contribution produced as well as those it
ought to produce, thus prejudicing the
common purpose of obtaining from them the
greatest possible profits through some means
of speculation or investment
- The injury, therefore, to the Partnership is
constant
FROM THE PDF
Effect of Failure to Contribute Property Promised
- The mutual contribution to a Common Fund
being of the essence of the Contract of
Partnership (Article 1767), for without the
contributions the Partnership is useless, it is
but logical that the failure to contribute is to
make the partner ipso jure (by the law itself)
a debtor of the Partnership even in the
absence of any demand
- Article 1169 [1]
- Under this article, the remedy of the other
partner or the Partnership is not rescission but
an action for specific performance (to collect
what is owing) with damages and interest
from the defaulting partner from the time he
should have complied with his obligation
- Article 1191: Which refers to resolution of
reciprocal obligations in general, is not
applicable
- Article 1786 and 1788: Specifically refer to
the Contract of Partnership in particular; and
it is a well-known principle that special
provisions prevail over general provisions
- 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
Liability of Partner for Failure to Perform Service
Stipulated
- Is a partner who fails to perform the personal
services which he has stipulated to render to
the Partnership, Liable to the other partners
for the value of the services?
1. Partner generally not Liable
- Unless there is a special agreement to that
effect, the partners are not entitled to charge
each other, or the Partnership of which they
are members, for their services in the firm
business
- 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 co-partners, however unequal
in value or amount, and to require a partner
to account for the value of his services would
be, in effect, allowing compensation to the
other members of the Partnership for the
services they rendered
2. Exception
- General Rule: That partners are not entitled
to compensation for their services
- Inapplicable where the reason of it fails
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, no good reason can
be suggested why the erring (having failed to
adhere to the proper or accepted standards;
having done wrong) partner should not be
just as responsible for the breach of his
agreement to render personal service to the
Partnership as for the breach of any other
stipulation in the Partnership Contract
(Marsh’s Appeal, 69 Pa. St. 30)
b. If the partner is compelled to make good the
loss, each member of the firm, including
Commented [201]: Art. 1169. Those obliged to deliver or
to do something incur in delay from the time the obligee
judicially or extrajudicially demands from them the
fulfillment of their obligation.
However, the demand by the creditor shall not be
necessary in order that delay may exist:
(1) When the obligation or the law expressly so declare;
Commented [202]: Art. 1191. The power to rescind
obligations is implied in reciprocal ones, in case one of
the obligors should not comply with what is incumbent
upon him.
The injured party may choose between the fulfillment
and the rescission of the obligation, with the payment of
damages in either case. He may also seek rescission,
even after he has chosen fulfillment, if the latter should
become impossible.
The court shall decree the rescission claimed, unless
there be just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights
of third persons who have acquired the thing, in
accordance with Articles 1385 and 1388 and the
Mortgage Law. (1124)
Commented [203]: ARTICLE 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)
Commented [204]: ARTICLE 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)
- 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
Obligation of Managing Partner who Collects
Debt
- A person may be 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
- Exception: Where the Managing Partner
received the sum for the account of the
Partnership, in which case, the whole sum
shall be applied to the Partnership credit only
Requisites for Application of Rule
- The following are the requisites for the
application of this article:
1. There exist at least two debts, one where the
collecting partner is creditor, and the other,
where the Partnership is the creditor
2. Both debts are demandable
3. The partner who collects is authorized to
manage and actually manages the Partnership
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
- Good Faith: Demands that the partner vested
with the management of the Partnership
attend more to the interest of the Partnership
than to his own and he should not
intentionally fail to effect the collection of the
credit of the Partnership in order to effect the
collection of his own
- The article does not apply where the partner
who collects for his own credit only is not
authorized to manage, for there can be no
ground for suspicion that he may have acted
improperly to create an undue advantage to
himself
- However, where the manner of management
has not been agreed upon and all the partners
participate in the management of the
Partnership (Article 1803), then every partner
shall be considered a Managing Partner for
purposes of Article 1792
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
- Article 1252
Article 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
Obligation of Partner who receives Share of
Partnership Credit
- The case contemplated under this article is
different from that referred to in Article 1792,
which treats of two distinct credits, one in
favor of the Partnership and another in favor
of the Managing Partner
- 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
Commented [217]: Art. 1252. He who has various debts
of the same kind in favor of one and the same creditor,
may declare at the time of making the payment, to
which of them the same must be applied. Unless the
parties so stipulate, or when the application of payment
is made by the party for whose benefit the term has
been constituted, application shall not be made as to
debts which are not yet due.
If the debtor accepts from the creditor a receipt in which
an application of the payment is made, the former
cannot complain of the same, unless there is a cause
for invalidating the contract. (1172a)
Commented [218]: ARTICLE 1803. When the manner of
management has not been agreed upon, the following
rules shall be observed:
(1) All the partners shall be considered agents and
whatever any one of them may do alone shall bind the
partnership, without prejudice to the provisions of article
1801.
(2) None of the partners may, without the consent of the
others, make any important alteration in the immovable
property of the partnership, even if it may be useful to
the partnership. But if the refusal of consent by the
other partners is manifestly prejudicial to the interest of
the partnership, the court's intervention may be sought.
(1695a)
Commented [219]: Art. 1252. He who has various debts
of the same kind in favor of one and the same creditor,
may declare at the time of making the payment, to
which of them the same must be applied. Unless the
parties so stipulate, or when the application of payment
is made by the party for whose benefit the term has
been constituted, application shall not be made as to
debts which are not yet due.
If the debtor accepts from the creditor a receipt in which
an application of the payment is made, the former
cannot complain of the same, unless there is a cause
for invalidating the contract. (1172a)
Commented [220]: ARTICLE 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)
Requisites for Application of Rule
- The requisites for the application of this
article are as follows:
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
3. The Partnership debtor has become insolvent
Reason for Imposing Obligation to return
- The debt becomes a Bad Debt
- It would be unjust or unfair to the partner who
received payment not to share in the loss with
the other partners or for that partner to obtain
more and the other partners, 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
FROM THE PDF
Credit Collected after Dissolution of the
Partnership
- Does the obligation of the partner to bring to
the Partnership capital what he has collected
refer only to that collected during the
existence of the Partnership, or does it also
refer to that collected after the dissolution of
the same?
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 affirmative, basing
their answer in the community and
equality which ought to exist among
all the partners
2. Contrary View
- Manresa and Ricci believed otherwise
- Their reasons are:
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, thus making him responsible for
the default of the latter
b. Upon the dissolution of the Partnership, the
tie that unites the Partnership ceases
- This being the case, the reason for the
obligation disappears
- Article 1793 presupposes that there
exists a Partnership capital
- Upon the dissolution of the Partnership
and the return to each principal of what
he contributed, the Community of
Interest between them disappears
altogether and it cannot be said that there
is still a Partnership capital or common
property
- If a common credit remains among the
partners after the dissolution of the
Partnership, there would be among them
a mere simple credit owned in common
but not a Partnership credit
Article 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
Obligation of Partner for Damages to Partnership
- This article follows the general rule
applicable to all contracts that any person
guilty of negligence or fault in the fulfillment
of his obligation shall be Liable for damages
- Article 1770: The partner’s fault, however,
must be determined in accordance with the
nature of the obligation and the
circumstances of the person, the time, and the
place
- Article 1773
Compensation of Damages with Profits Earned
for Partnership by Guilty Partner
1. Damages not generally subject to set-off
- 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
- Hence, the profits which he may have earned
pertain as a matter of law or right, to the
Partnership
b. He has also the obligation to exercise
diligence in the performance of his obligation
as a partner
- Consequently, inasmuch as a partner is a
debtor to the Partnership for his industry, and
at the same time is obliged to repair the injury
which he might have occasioned through his
fault, there can not be any compensation
- Compensation requires that the negligent
partner be both a creditor and a debtor of the
Partnership
- Article 1278
- Of course, the amount of insurance, if any,
received by the Partnership shall be deducted
from the Liability of the erring 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
- NOTE: Even in this case, the partner at fault
is not allowed to compensate such damages
with the profits earned
- The law does not specify as to when
profits may be considered “unusual” Commented [221]: Art. 1170. Those who in the
- The question depends upon the performance of their obligations are guilty of fraud,
negligence, or delay, and those who in any manner
circumstances of the particular case contravene the tenor thereof, are liable for damages.
(1101)
Article 1795
- The risk of specific and determinate things, Commented [222]: ARTICLE 1773. A contract of
which are not fungible (able to replace or be partnership is void, whenever immovable property is
contributed thereto, if an inventory of said property is
replaced by another identical item; mutually not made, signed by the parties, and attached to the
interchangeable), contributed to the public instrument. (1668a)
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 risk 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
- There are five cases contemplated by the
present article for the determination of the
risk of the things contributed to the
Partnership, namely:
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 Commented [223]: Art. 1278. Compensation shall take
(like car) place when two persons, in their own right, are creditors
and debtors of each other. (1195)
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
 is so gross that it is, in effect, a simulated
form or attempt to exclude a partner from any
share in the profits or losses
Stipulation Exempting a Partner from Losses
Should be Allowed
- “The provision of Article 1799 which
declares void an agreement excluding one or
more partners from sharing in the losses of
the partnership is difficult to explain. To
declare also void an agreement which merely
exempts or tends to exempt one or more
partners from sharing or contributing in the
Partnership losses as far as it affects the
partners alone, is without any foundation
either on reason or justice; because if, in
order to induce a person to become a member
of the firm, it becomes necessary to guaranty
him against his suffering any financial losses
thereby, without which guaranty such person
may not be willing to become a member of
the Partnership and yet his connection thereto
is considered as absolutely necessary by the
other partners willing to guaranty him against
losses, such Partnership may never
materialize on account of the provision of
said Article 1799
- It seems, therefore, that if a person can make
a gift to another, there is no sound reason why
a person cannot also agree to bear all the
losses that a Partnership may suffer, in order
to exempt his co-partners from sharing in the
said losses
- Of course, as far as third persons are
concerned, any agreement which tends to
excuse or exclude one or more partners from
satisfying the Partnership Liability caused
through Partnership losses may be properly
declared void”
Article 1800
- The Partner who has been appointed manager
in the Articles of Partnership may execute all
acts of administration despite the opposition
of his partners, unless he should act in bad
faith; and his power is irrevocable without
just or lawful cause. The vote of the partners
representing the controlling interest shall be
necessary for such revocation of power
- A power granted after the Partnership has
been constituted may be revoked at any time
Rights and Obligations With Respect to
Management
- Unless the Partnership Agreement provides
otherwise, each partner in a General
Partnership has a right to an equal voice in the
conduct and management of the Partnership
Business and this right is not dependent on
the amount or size of the partner’s capital
contribution or services to the business
- Of course, the partners may select a
Managing Partner or make such allocation of
functions as the needs of the business dictate
especially in a large Partnership
Appointment as Manager in the Articles of
Commented [239]: ARTICLE 1818. Except when
Partnership
authorized by the other partners or unless they have
- The partner appointed by Common abandoned the business, one or more but less than all
Agreement in the Articles of Partnership may the partners have no authority to:
execute all acts of administration (not those (1) Assign the partnership property in trust for creditors
of strict ownership such as those enumerated or on the assignee's promise to pay the debts of the
partnership;
in Article 1818, par. 3) notwithstanding the
opposition of the other partners, unless he (2) Dispose of the good-will of the business;
should act in bad faith
(3) Do any other act which would make it impossible to
- His power is revocable only upon just and carry on the ordinary business of a partnership;
lawful cause (Article 1920) and upon the vote
(4) Confess a judgment;
of the partners representing the controlling
interest (5) Enter into a compromise concerning a partnership
- Reason: The revocation represents a change claim or liability;
in the terms of the contract (6) Submit a partnership claim or liability to arbitration;
- The law presumes that the appointment thus
(7) Renounce a claim of the partnership.
constituted is, in effect, one of the conditions
of the contract and it is only logical that such No act of a partner in contravention of a restriction on
appointment should not be revoked without authority shall bind the partnership to persons having
knowledge of the restriction. (n)
the consent of all the partners, including the
Commented [240]: Art. 1920. The principal may revoke
partner thus appointed the agency at will, and compel the agent to return the
document evidencing the agency. Such revocation may
be express or implied. (1733a)
- Elementary Rule: No party to a contract can
violate the law of the contract without the
consent of the others
- In case of mismanagement, the other partners
may avail of the usual remedies allowed by
law, including an application for dissolution
of the Partnership by a Judicial Decree
- Article 1831
Appointment as Manager After the Constitution
of the Partnership
- But the management granted by the partners
after the Partnership has been constituted
independently of the Articles of Partnership
may be revoked at any time for any cause
whatsoever
- Reason: In such case, the revocation is not
founded on a change of will on the part of the
partners, the appointment not being a
condition of the contract
- It is merely a simple Contract of Agency,
which may be revoked at any time
- Article 1920: It is believed that the vote for
revocation must also represent the controlling
interest
- It should be noted that Article 1800 refers to
a partner, not a stranger, who has been
appointed manager
- As a rule, a partner is not entitled to
compensation for his services other than his
share of the profits
Scope of Power of a Managing Partner
1. General Rule: A partner appointed as
manager has all the powers of a General
Agent as well as all the incidental powers
necessary to carry out the object of the
Partnership in the transaction of its business
Hence, unless expressly granted:
a. The minor power to issue receipts is included
in the general powers of the manager, as this
is in keeping with present day business
dealings
b. The Management of a Partnership engaged in
buying and selling is clothed with sufficient
authority even without approval of the other
partners to purchase on credit, as it is
customary to buy and sell on credit
c. The Managing Partner has authority to
dismiss an employee particularly when there
is a justifiable cause for dismissal, after Commented [241]: ARTICLE 1831. On application by or
complying with the requirements prescribed for a partner the court shall decree a dissolution
whenever:
by law for terminating employment
2. Exceptions: The exception is when the (1) A partner has been declared insane in any judicial
proceeding or is shown to be of unsound mind;
powers of the manager are specifically
restricted. A Managing Partner cannot also (2) A partner becomes in any other way incapable of
exercise powers which are neither necessary performing his part of the partnership contract;
nor incidental to carry out the object of the (3) A partner has been guilty of such conduct as tends
Partnership to affect prejudicially the carrying on of the business;
Hence, unless expressly granted: (4) A partner wilfully or persistently commits a breach of
a. A partner designated as one of the managers the partnership agreement, or otherwise so conducts
to take charge of “selling fish in Manila and himself in matters relating to the partnership business
that it is not reasonably practicable to carry on the
the purchase of supplies” has no authority to business in partnership with him;
purchase for the partnership a “barge, a truck
(5) The business of the partnership can only be carried
and an adding machine,” inasmuch as neither on at a loss;
of these properties could be considered as
(6) Other circumstances render a dissolution equitable.
“supplies for the partnership business”
b. Neither can the Managing Partner of a On the application of the purchaser of a partner's
Partnership formed for the purpose of interest under article 1813 or 1814:
operating a tailoring shop, sell or convey the (1) After the termination of the specified term or
tailoring shop which is Partnership property particular undertaking;
without the consent of all the partners (2) At any time if the partnership was a partnership at
c. A Managing Partner may not bind the will when the interest was assigned or when the
partnership by a contract wholly foreign to its charging order was issued. (n)
business
- Thus, he has no authority to execute a
mortgage on the firm’s property to secure the
debt of a third person for which the firm is
not Liable
FROM THE PDF
Additional Scope of Power of a Managing
Partner
1. It has also been held that the Managing
Partner has authority to secure loans to
complete the construction of a “casco” for
use in the business and necessary to carry out
the express object of the Partnership (Agustin
 vs. Inocencio, 9 Phil. 135); or to dismiss an
employee, particularly, when there is a
justifiable cause for dismissal as when the
employee hurled at the manager abusive and
unsavory remarks in the presence of the
customers of the firm (Matela vs. Chua
Sintek, [C.A.] No. 12165-R, April 6, 1965);
or to employ a bookkeeper although the
contract made was not in writing
2. A Partnership may sue or be sued in its name
or by its duly authorized representative.
Thus, the Managing Partner may execute all
acts of administration, including the right to
sue debtors of the Partnership
FROM THE BOOK
Compensation for Services Rendered
1. Partner generally not entitled to
compensation
- In the absence of an agreement to the
contrary, no partner is entitled to
compensation for his services to the
Partnership without the consent of all the
partners
- Each member of the Partnership assumes the
duty to give his time, attention, and skill in
the managements of its affairs, and for this
service, a share in the profits is his only
compensation
- Reason: In helping managing the
Partnerships affairs, he is practically taking
care of his own interest or managing his own
business
2. Exceptions
- In proper cases, however, it can be implied
from the circumstances that the parties
intended a partner to receive in additional
compensation as where the partner's work
was beyond normal Partnership functions
(e.g., saving Partnership property from a
flood for which a partner spent much time
and effort and incurred expenses) or in a
capacity other than that of a partner (e.g.,
performing clerical services of a resigned
employee)
FROM THE PDF
Compensation for Services Rendered
1. Partner generally not entitled to
compensation
- In the absence of an agreement to the
contrary, each member of the Partnership
assumes the duty to give his time, attention,
and skill to the management of its affairs, so
far, at least, as may be reasonably necessary
to the success of the common enterprise; and
for this service a share of the profits is his
only compensation
- Each partner in taking care of the joint
property, managing the Partnership affairs,
and directing the Partnership business is
practically taking care of his own interest or
managing his own business
- He is not, in the absence of a contract, express
or implied, entitled to compensation beyond
his share of the profits for services rendered
by him to the Partnership Business, although
the services rendered by him may be greater
in proportion than the services rendered by
other members of the Partnership, by reason
of having assumed the position of Managing
Partner, or even by reason of extra services
necessitated by his partner’s illness and
consequent inability to render his own just
share of the services
- In the absence of any prohibition in the
Articles of Partnership for the payment of
salaries to General Partners, there is nothing
to prevent the partners to enter into a
collateral verbal agreement to that effect
2. Exceptions
- In proper cases, however, the law may imply
a contract for compensation. Thus:
a. A partner engaged by his co-partners to
perform services not required of him in
fulfillment of the duties which the
Partnership relation imposes and in a
capacity other than that of a partner (e.g., to
perform clerical services in carrying on the
- It would seem that the prohibition applies
even if the person associated is already a
partner
Article 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
Duty to Keep partnership Books
- The duty to keep true and correct books
showing the firm’s accounts, such books
being at all times open to inspection of all
members of the firm, primarily rests on the
Managing or Active Partner (40 Am. Jur.
356) or the particular partner given record-
keeping duties
- It is presumed that the partners have
knowledge of the contents of the Partnership
books and that said books state accurately the
state of accounts, but errors can be corrected
Rights With Respect to Partnership Books
- A partner is a co-owner of the Partnership
properties (Article 1811), which include the
books of the Partnership, and has a right to
participate equally in the management of its
affairs
- Subject to any agreement to the contrary, the
Partnership books should be kept at the
principal place of business as each partner
has a right to free access to them and to
inspect or copy any of them at any reasonable
time, even after dissolution
- This right is granted to enable the partners to
have true and full information of all things
affecting the Partnership (Article 1806)
Access to Partnership Books at any Reasonable
Hour
- Article 1805: Declares that the rights of the
partners with respect to Partnership books
can be exercised at “any reasonable hour”
- This phrase has been interpreted to mean
reasonable hours on business days
throughout the year and not merely during
some arbitrary period of a few days chosen
by the Managing Partners, e.g., from
December 1 to 15 of every year
- The partner’s inspection rights are not
absolute
- He can be restrained from using the
information gathered for other than
Partnership purpose
Article 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
Duty to Render Information
- Under the same principle of mutual trust and
confidence 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 or
duty 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 the Partnership affairs
- Article 1821: But the duty to render
information does not arise with respect to
Commented [248]: ARTICLE 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. (n)
Commented [246]: ARTICLE 1811. A partner is co-
owner with his partners of specific partnership property.
The incidents of this co-ownership are such that:
(1) A partner, subject to the provisions of this Title and
to any agreement between the partners, has an equal
right with his partners to possess specific partnership
property for partnership purposes; but he has no right to
possess such property for any other purpose without
the consent of his partners;
(2) A partner's right in specific partnership property is
not assignable except in connection with the
assignment of rights of all the partners in the same
property;
(3) A partner's right in specific partnership property is
not subject to attachment or execution, except on a
claim against the partnership. When partnership
property is attached for a partnership debt the partners,
or any of them, or the representatives of a deceased
partner, cannot claim any right under the homestead or
exemption laws;
(4) A partner's right in specific partnership property is
not subject to legal support under article 291. (n)
Commented [247]: ARTICLE 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)
Commented [249]: ARTICLE 1821. Notice to any partner
of any matter relating to partnership affairs, and the
knowledge of the partner acting in the particular matter,
acquired while a partner or then present to his mind,
and the knowledge of any other partner who reasonably
could and should have communicated it to the acting
partner, operate as notice to or knowledge of the
partnership, except in the case of fraud on the
partnership, committed by or with the consent of that
partner. (n)
 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
Article 1807
- Every partner must account to the Partnership
for any benefit, and hold as Trustee for if 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
Partner Accountable as Fiduciary
- The relation between the partners is
essentially fiduciary involving trust and
confidence, each partner being considered in
law, as he is, in fact, the confidential Agent
of the others
- The duties of a partner are analogous to those
of a Trustee
1. Duty to act for common benefit
- It is, the obligation of a partner to act for the
common benefit of all in all transactions
relating to the Partnership business or affairs
- He cannot, at the expense or to the detriment
of the other partners, use or apply exclusively
to his own individual benefit Partnership
assets or the results of the knowledge and
information gained by him in the character of
partner
2. Duty to account for secret and similar profits
- A partner, therefore, who makes a secret
profit out of the operation of the Partnership,
or who accepts a secret commission from a
third person dealing with the Partnership, is
duty bound to account such profit or
commission with his co-partners
3. Duty to account for earnings and accruing
even after termination of Partnership
- The duty of a former partner to share profits
with his former associates may extend to
earnings accruing after the termination of the
Partnership
- The true rule, according to a case, is: “when
a partner wrongfully snatches a seed of
opportunity from the granary of his firm, he
cannot thereafter excuse himself from
sharing with his co-partners the fruits of its
planting, even though the harvest occur after
they have terminated the association”
4. Duty to make full disclosure of information
affecting Partnership
- The duties of a partner are analogous to those
of a Trustee
- It is, therefore, his obligation to act for the
common benefit in all transactions relating to
the Partnership Business or affairs
- He cannot, to the detriment of the other
partners, apply exclusively to his own benefit
the results of the knowledge and formation
gained in the character of partner
FROM THE PDF
Partner Accountable as Fiduciary
1. Duty begins during the formation of
Partnership
- The principle of utmost good faith covers not
only dealings and transactions occurring
during the Partnership but also those taking
place during the negotiations leading to the
formation of the Partnership Commented [250]: ARTICLE 1838. Where a partnership
- Hence, where one partner procures the other contract is rescinded on the ground of the fraud or
misrepresentation of one of the parties thereto, the
to sign an agreement, which is manifestly party entitled to rescind is, without prejudice to any
unjust and unfair, the agreement will not be other right, entitled:
upheld (Article 1838) if it be made to appear
(1) To a lien on, or right of retention of, the surplus of
that the injured party’s signature was the partnership property after satisfying the partnership
obtained by a promise which was never, and liabilities to third persons for any sum of money paid by
him for the purchase of an interest in the partnership
could not be, carried into effect and for any capital or advances contributed by him;
(2) To stand, after all liabilities to third persons have
been satisfied, in the place of the creditors of the
2. Duty continues even after dissolution of partnership for any payments made by him in respect of
Partnership the partnership liabilities; and
- The duty of a partner to act with utmost good (3) To be indemnified by the person guilty of the fraud
faith towards his co-partners continues or making the representation against all debts and
liabilities of the partnership. (n)
 throughout the entire life of the Partnership
even after dissolution for whatever reason or
whatever means, until the relationship is
terminated, i.e., the winding up of
Partnership affairs is completed
- Article 1829: In dealings affecting the
winding up of the Partnership and the proper
preservation of Partnership assets during that
time, “the good faith and full disclosure
exacted of partners continues”
3. Duty to account for secret and similar profits
- The duty of a partner to account as a fiduciary
operates to prevent from making a secret
profit out of the operation of the Partnership
(Article 1807) and from carrying on the
business of the Partnership for his private
advantage or a business in competition or
rivalry with the business of his firm without
the consent of the other partners
- Article 1808: The violation of this duty may
be a ground for a petition for judicial
dissolution of the Partnership
4. Duty to account for earnings accruing even
after termination of Partnership
- The duty of a former partner to share profits
with his former associates may extend to
earnings accruing after the termination of the
Partnership
- The true rule, according to a case, is: “when
a partner wrongfully snatches a seed of
opportunity from the granary of his firm, he
cannot thereafter excuse himself from
sharing with his co-partners the fruits of its
planting, even though the harvest occur after
they have terminated the association”
- Or to put it otherwise: “if a member of a
Partnership avails himself of information
obtained by him in the course of the
transaction of Partnership business which is
within the scope of the firm’s business, and
thereafter applies it to his own account
without the consent or knowledge of his co-
partners, he is Liable to account to the
Partnership for any benefit he may obtain
from the use of such information”
5. Duty to make full disclosure of information
belonging to Partnership
- A partner is also subject to the fiduciary duty
of undivided loyalty and complete disclosure Commented [251]: ARTICLE 1829. On dissolution the
of information of all things affecting the partnership is not terminated, but continues until the
winding up of partnership affairs is completed. (n)
Partnership
- Article 1806 Commented [253]: ARTICLE 1806. Partners shall render
- By information is meant information which on demand true and full information of all things
affecting the partnership to any partner or the legal
can be used for the purposes of the representative of any deceased partner or of any
Partnership partner under legal disability. (n)
- Information belongs to the Partnership in
the sense of property in which it has a
valuable right, if it is of the character
which might be employed to the
Partnership’s advantage
- Such information cannot be used by one
partner for his private gain
- This is true no matter when his wrongful Commented [252]: ARTICLE 1808. The capitalist
enterprise springs into profitable partners cannot engage for their own account in any
operation which is of the kind of business in which the
operation, even though it happens after partnership is engaged, unless there is a stipulation to
the termination of the Partnership from the contrary.
whence he obtained it Any capitalist partner violating this prohibition shall bring
6. Duty not to acquire interest or right adverse to the common funds any profits accruing to him from
Partnership his transactions, and shall personally bear all the
losses. (n)
- A partner may not purchase, for his own
benefit, property of any kind in which the
Partnership is interested, or lease property
when the firm is entitled to the benefit of such
lease, or secure a valuable contract for
himself which is his duty to secure for the
firm, or obtain secretly any right that should
belong to the Partnership, and put it to his
own individual profit
- If he does, he holds in trust for the benefit of
the Partnership the property so purchased, or
leased, or the contract he has obtained, and
must account to the firm for the profits of the
transaction, unless it appears that the co-
partner consented to the transaction
- The same result will follow any attempt by
one partner to appropriate firm property or
funds to his individual benefit (such as