CHAPTER 2 a.

Majority partners - Those whose contribution to the

OBLIGATIONS OF THE PARTNERS
KINDS OF PARTNERS
1. As to contribution
a. Capitalist partners - Those who contribute money or
property or both money and property to the common
fund.
b. Industrial partners - Those who contribute only their
industry or labor to the common fund.
c. Capitalist-industrial partners - Those who contribute
money or property and industry or both money, property
and industry to the common fund.
partnership represents the majority or controlling
interest.
b. Nominal partners - Those whose contribution to the
partnership represents the minority interest.
Legal relations created by a contract of partnership
1. Relations between partners;
2. Relations between the partners on one hand and the
partnership on the other hand;
3. Relations between the partners on one hand and third persons
on the other hand; and
4. Relations between the partnership and the third persons.

2. As to liability Example:
a. General partners - Those who can be held liable to third A and B entered into a partnership named AB Partnership. A and B
persons for partnership obligations even to the extent of are both managing partners who at one time entered into a contract with C
and D. The relations created are the following:
their separate property.
1. Relations between A and B
b. Limited partners - Those who cannot be held liable to 2. Relations between A and B on one hand and AB Partnership on the
third persons for partnership obligations. other hand;
3. Relations between A and B on one hand and C and D on the other
3. As to management hand; and
a. Managing partners - Those who manage actively the 4. Relations between AB Partnership and C and D.
business or affairs of the partnership.
b. Silent partners - Those who do not take active part in the
business or affairs of the partnership though they share in
the profits or losses.
c. Liquidating partners - Those who take charge of the
winding up or liquidation of the partnership affairs after
dissolution.
Examples of obligations and rights of a partner
4. As to third persons Obligations of partners Rights of partners
a. Ostensible partners - Those who take active part and 1. To give their promised 1. Right to associate with
known to the public as a partner in the partnership. contribution another person in their share
b. Secret partners - Those whose connection with the 2. Not to convert partnership 2, Right to have access to and
partnership is be known to the public. money to their own use. inspect and copy partnership
c. Dormant partners - Those who do not take active part in books.
the business and are not known to the public as partners. 3. To account and hold as 3, Right to demand a formal
Thus, they are bot secret and silent partners. trustee for any profits account
derived without the consent
5. As to membership of the other partners.
a. Real partners - Those partners in an existing legal 4. Not to engage in any 4, Right to ask for the dissolution
partnership. business which is of the of the partnership at the proper
b. Partners by Estoppel - Those who are not really partners kind in which the time.
but represent themselves, or consent to another or others partnership is engaged.
representing them to anyone as partners in an existing 5. Obligation of managing 5, Property rights of partnership
partnership or in one that fictitious or apparent. partners to credit to the a. Rights in specific
partnership the payment partnership property
6. As to continuation of the business affairs after dissolution made by a debtor who owes b. Interest in the
a. Continuing partners - Those who continue the them and the partnership. partnership
partnership business after the dissolution of the c. Right to participate in
partnership. the management
b. Discontinuing partners - Those who do not continue the 6. Obligation to share with the Note:
partnership business after the dissolution of the other partners the share of Limited partners have no right to
partnership. the partnership credit which participate in the management.
they have received from an
7. As to the nature of membership insolvent partnership debtor
a. Original partners - Those who are members of the 7. Pay for damages suffered
partnership from the time of its constitution. by the partnership through
b. Incoming partners - Those who became members of the their fault,
partnership after its establishment.
c. Retiring partners - Those who withdraw from the Art. 1784. A partnership begins from the moment of the execution of
partnership. the contract, unless it is otherwise stipulated. (1679)
General Rule:
8. As to state of survivorship A partnership begins from the moment of the execution of the
a. Surviving partners - Those who continue the partnership contract.
after its dissolution by reason of death of a partner. Example:
b. Deceased partners - Those who died while being a X and Y entered into a contract of partnership on July 2, 2020.
member of the partnership. Here, the life of their partnership begins on July 2, 2020, when the
parties executed their contract of partnership.
9. As to the effect of expulsion Exception:
a. Expelled partners - Those who are expelled from the The partners can agree on some other date for the start of the
partnership by the other partners for a valid cause. partnership.
b. Expelling partners - Those who caused the expulsion of a Example:
partner for a valid cause. X and Y entered into a contract of partnership on July 2, 2020.
However, X and Y agreed that the commencement of their contract
of partnership will be on September 1, 2020. Here, the life of their
10. As to the value of the contribution partnership begins on September 1, 2020 as agreed upon and not on
July 2,2020.

Note:
As of July 2, 2020, the partnership to be formed by X and Y is a
future partnership which has no juridical existence yet.
Consequently. there is no partnership yet from July 2, 2020 to
August 30, 2020. Therefore, there is no obligation nor right to speak
of.
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
continuation of the partnership. (n)
Partnership with a fixed term
It is one where the life or period of existence of the partnership has
been agreed upon by the partners,
Example of partnership for a fixed term
A and B entered into a contract of partnership for a period of 10
years. As a rule, after the expiration of 10 years the partnership of A
and B will be dissolved. However, if after 10 years and the
partnership of A and B continued the operation of their partnership
without any express agreement, then the rights and obligations of A
and B will remain the same.
For example, the right to participate in the management.
Hence, if A is the managing partner then he will still be the
managing partner despite the lapse of 10 years.
Partnership for a particular undertaking
It is one where it will exist until the purpose is accomplished.
Example of a partnership for a particular undertaking
A, B, and C entered into a contract of partnership for the
manufacture of 1,000 tables for a certain school. As a rule, after the
1,000 tables were manufactured, the partnership will be dissolved.
However, if after the 1,000 tables were manufactured, and the
partnership of A, B, and C continued the operations of their
business without any express agreement, then the rights and
obligations of A, B and C will remain the same.
For example, the right to participate in the management. Hence, if A
is the managing partner then he will still be the managing partner
despite the termination of the initial particular undertaking, that is,
the manufacture of 1,000 tables.
Partnership at will
A partnership that does not fix its term is a partnership at will. The
birth and life of a partnership at will is predicated on the mutual desire
and consent of the partners. The right to choose with whom a person
wishes to associate himself is the very foundation and essence of that
partnership.
Art. 1786. Every partner is a debtor of the partnership for
whatever h 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)
Obligation of every partner
1. The obligation to contribute what had been promised;
The mutual contribution to a common fund is the first test in
order to have a contract of partnership.
The failure to contribute is to make the partner a debtor of the
partnership even if there is no demand. This is an exception to the
general rule that there is no delay when there is no demand.
Consequently, in case of failure to deliver the promised
contribution, the remedy is specific performance with interest and
damages occasioned thereby and not rescission.
2. The obligation to deliver the fruits thereof; and
If property has been promised, the fruits thereof should also
be given. The fruits referred to are those arising from the time
they should have been delivered, without the need of any demand.
If the partner is in bad faith, he is liable not only for the fruits
actually produced, but also for those that could have been
produced.
If money has been promised and that partner failed to do so,
he becomes a debtor for the interest and damages from the time he
should have complied with his obligation.
3. The obligation to warrant
The warranty in case of eviction refers only to specific or
determinate things which a partner contributed to the partnership.
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)
Rationale:
In order to know the monetary value of the contribution of that partner as
of the date of contribution. This is useful in the future operation of the
partnership just like in the accounting of the share of profit or loss of
every partner. Under the law, 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.
Manner of appraisal:
1. By stipulation; or
2. In the absence of stipulation, by experts chosen by the partner
according to current prices.
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 b converted the amount to his own use. (1682)
Essence of Partnership
It is a settled rule that when a partner who has undertaken contribute a
sum of money fails to do so, he becomes a debtor of the partnership
for whatever he may have promised to contribute and f interests and
damages from the time he should have complied with h obligation.
Being a contract of partnership, each partner must share in the profits
and losses of the venture. That is the essence of a partnership.
Cases covered of the liability for damages and interest
1. Money promised by a partner is not given on time; and
2. Money of the partnership is converted to partners' own use.
Demand is not necessary
This case is an exception to the general principle in the law obligation
which states: "there is no default, if there is no demand."
1. In the case of contribution, because time is of the essence,
partnership is formed precisely to make use of the contributions,
and this use should start from its formation, unless a different
period has been set; otherwise, the firm is necessarily deprived of
the benefit thereof. Thus, injury is constant.
2. In the case of conversion, demand is also not necessary, even if
actual injury results, the liability exists, because the Article
absolute 32
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 it violation of this provision, with a right to
damages in either case. (n)
Capitalist partners - Those who contribute money or property or both
money and property to the common fund.
Industrial partners - Those who contribute only their industry or
labor to the common fund.
Capitalist-industrial partners - Those who contribute money or
property and industry or both money, property and industry to the
common fund.

CAPITALIST PARTNER VS. INDUSTRIAL PARTNER
Capitalist Partner Industrial Partner
Contribution
Contributes money or property. Contribute his industry.
Prohibition to engage in other business
General Rule: cannot engage in General Rule: cannot engage in
the same kind of business in business for himself
which partnership is engaged. Exception: If the partnership
Exception: stipulation expressly permits him to do so.
authorizing him.
Profits
Shares in the profits according Shares in the profits according to
to agreement, if there is no agreement, if there is no
agreement, in proportion to his agreement, he shall receive such
contribution share as may be just and equitable
under the circumstances.
Losses
General Rule: the agreement as General Rule: the agreement as
to losses, if any, However, if to losses, if any.
there is no agreement, then the Exception: in the absence of
agreement as to profits. agreement, the industrial partner
Exception: In the absence of shall not be liable for losses.
agreement as to profits and
losses, in proportion to his
contribution.
Remedies of capitalist partners against an industrial partner who
engaged in business for himself
1. The capitalist partners may exclude the industrial partner from the
partnership plus damages; or
2. The capitalist partners may avail themselves of the benefits which
the industrial partner may have obtained plus damages.
Note:
An action for specific performance to compel the partner to perform the
promised industry is not available as a remedy because this will lead to
the prohibition on involuntary servitude under the Philippine
Constitution.
Example:
A and B formed a partnership to engage in the repair of computers
Partner A contributed P100,000 while B contributed his industry.
Adjacent the stall of the repair shop, A opened a coffee shop. At the
other side, B opened a store for selling computer parts. May A and B
engage in separate businesses?
A may engage in the coffee shop business as it is not of the same
kind as the business of the partnership. While B, may not engage in any
kind of business, without the consent of A. because as an industrial
partner he must devote his full time to the partnership.
Art. 1790. Unless there is a stipulation to the contrary, the partner
shall contribute equal shares to the capital of the partnership. (n)
Example:
A and B entered into a contract of partnership having an initial
capital of P300,000. How much is the contribution of B?
Obviously, the facts of the case did not mention the separate
contribution of partners A and B. Hence, using the disputable
presumption mentioned in the above-stated article, B contributed
P150,000 (P300,000/2 = P150,000).
Art. 1791. If there is no agreement to the contrary, in case of
imminent loss of the business of the partnership, any partner who
refuses to contribute an additional share to the capital, except at
industrial partner, to save the venture, shall be obliged to sell b
interest to the other partners. (n)
Obligation of capitalist partners to contribute additional capital
General rule:
Capitalist partners are not bound to contribute additional capital.
Exceptions:
1. Stipulation; and
2. In case of imminent loss of the business of the partnership to
save the venture. If the capitalist partners refuse to contribute
additional capital, they shall be obliged to sell their interest to
the other capitalist partners who are willing to contribute
additional capital.
Note:
Contract of partnership is governed by the principle of fiduciary
relationship, that is trust and confidence, so that if a capitalist partner is
not willing to make additional contribution, then there is no more
fiduciary relationship to speak of. Of course, the above-article presumes
that the capitalist partners are solvent.
Additionally, the above-stated article is not applicable to industrial
partners because they are already giving their entire industry.
Art. 1792. If a partner authorized to manage collects a
demandable sum which was owed to him in his own name, from a
person who owed the partnership another sum also demandable,
the sum thus collected shall be applied to the two credits in
proportion to their amounts, even though he may have given a
receipt for his own credit only; but should he have given it for the
account of the partnership credit, the amount shall be fully
applied to the latter.
The provisions of this article are understood to be without
prejudice to the right granted to the debtor by Article 1252, but
only if the personal credit of the partner should be more onerous
to him. (1684)
Rationale:
To prevent furtherance of the partner's personal interest to the detriment
of the partnership. The above-stated article is not applicable to a
partner who is not a managing partner because there is no basis for the
suspicion that the partner is in bad faith.
Example:
A and B entered into a contract of partnership. Who is the manager?
Clearly, the facts of the case did not state who is the manager so that the
law provides that if there is no partner designated as a manager in a
contract of partnership, then all (A and B) the partners are managers
Obligation of a managing partner who collects debt Requisites:
1) The existence of at least 2 debts (one where the managing partner
is the creditor and the other where the partnership is the creditor);
and
2) Both sums are demandable.
Example:
A and B formed AB partnership. They agreed that partner A will be the
manager. Subsequently, in a contract, partner A had a receivable against
X in the amount of P100,000 due on August 1, 2020. In another
transaction, AB partnership had a receivable against X in the amount of
P300.000 due also on August 1, 2020. On September 1, 2020. X paid A
the amount of P80,000. Should A collect the entire amount? It depends
a. If A issued a receipt for his own credit, then the P80.000 should be
applied proportionately, that is, P 20,000 (100,000/400,000 x
P80,000) will be applied to his own credit and the balance of
P60,000 (300,000/400,000 x P80,000) will be applied to the credit
of the partnership.
b. If A issued a receipt for the credit of the partnership, then the entire
P80,000 will be applied to the credit of the partnership. What if in
the above problem, the debt of X to A has an interest or that X
delivered a car as a security in the form of pledge or chattel
mortgage? In this case, the law allows partner A to apply the entire
payment of P80,000 to his credit as this is more onerous to X.
Art. 1793. A partner who has received, in whole or in part, his
shared 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 ever though he may have given receipt for his share only.
(1685a)
Rationale:
Equity demands proportionate share in the benefits and losses.
Article 1792 vs. Article 1793
Article 1792 Article 1793
As to the number of credits
There are two distinct credits, There is only one credit, that
that is, one in favor of the is, in favor of the partnership
partnership and another in
favor of the managing partner
Applicability
Applies only if the partner is a Applies to any partner
managing partner
As to debtor’s insolvency
The debtor is not insolvent The debtor has become
insolvent
Example:
 A and B entered into a contract of partnership. Subsequently, X owed the
partnership the amount of P500,000. Thereafter, partner A collected
P200,000 from X. Later, X turned insolvent so that B could not collect
from X.
In this case, the law provides that partner A should give the share of
B in the amount of P100,000.
Note:
The above-stated article applies whether the partner has received his
share in whole or in part.
2.
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)
A and B formed AB partnership. Subsequently B purchased office
supplies in the amount of P20,000 out of his own money with the consent
of A on August 1, 2020. In this case, AB partnership must reimburse the
amount of P20,000. What if AB partnership reimbursed B only on
October 1, 2020?
In this case, AB partnership must also be liable for legal interest for two
months (from August 1, 2020 to October 1, 2020).
To answer to each partner for obligations, he may have contracted
into in good faith in the interest of the partnership, and for the
risks in consequence of its management.
Example:
A and B formed AB partnership to engage in car repair shop.
Subsequently B purchased, on credit, car accessories from X Corp. in the
amount of P400,000. In this case, AB partnership is answerable to X
Corp. for its accounts payable amounting to P400,000.

Rule:
Damages suffered by the partnership through the fault or negligence of
a partner are not generally subject to set-off with the profits and
benefits which that partner may have earned for the partnership by his
industry.
Rationale:
It is the obligation of a partner to earn benefits and profits for the
partnership and it is also his obligation not to cause damages through
negligence for the partnership. These are two distinct obligations that
cannot be set-off. Moreover, in the law on obligation, only a right and an
obligation are required to be compensated or set-off.
Mitigation of liability by the courts
In case of a partner's extraordinary efforts in other activities of the
partnership, unusual profits have been realized. This principle rests
equity.
Art. 1795. The risk of specific and determinate things, which are n
fungible, contributed to the partnership so that only their use and
fruits may be for the common benefit, shall be borne by the
partner who owns them.
If the things contributed are fungible, or cannot be kept without
deteriorating, or if they were contributed to be sold, the risk shall
be borne by the partnership. In the absence of stipulation, the 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)
Risk of loss
1. Specific and determinate things which are not fungible - What
was contributed here is only the use of the object.
For example, a partner contributes only the use of his delivery truck
Hence, it is the partner who bears the risk of loss because the
partner did not transfer the ownership to the partnership.
2. Fungible things - It is the partnership who bears the risk of loss
as there was transfer of ownership after delivery of the fungible
things.
3. Things contributed to be sold - It is the partnership who bears
the risk of loss as there was transfer of ownership after delivery of
the things that were contribute to be sold.
4. Things brought and appraised in the inventory - It is the
partnership who bears the risk of loss as there was transfer of
ownership after delivery of the things brought and appraise in the
inventory.
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)
Being a contract of partnership, each partner must share in the profits
and losses of the venture. That is the essence of a partnership.
RULES FOR DISTRIBUTION OF PROFITS AND LOSSES OF
A PARTNERSHIP
1. DISTRIBUTION OF PROFITS
A. According to agreement
The profits shall be distributed in conformity with the agreement
B. If there ls no agreement
1. Capitalist partners - in proportion for what he may have
contributed to the common fund
2. Industrial partners - that which is just and equitable under the
circumstances.
Example:
A, B, C and D entered into a contract of partnership. A contributed P5,
000.000 in cash while B contributed his only car with a market value of P1,
000,000. C also contributed his only parcel of land with a market value of P2,
000,000 while D his industry as a managing partner. They agreed to share in
the profit as follows:
A= 40%; B= 10%; C» 309%; and D 209%.
After their first year of operation, the partnership realized a net profit of
P200, 000. How much is the share of every partner in the profit?
Since there is an agreement, their profit sharing will be follows:
1. A will receive P80, 000 (P200, 000 x 409%}
2. B will receive P20, 000 (P200, 000x 109%);
3. C will receive P60, 000 (P200, 000 x 30%); and
4. D will receive P40, 000 (P200, 000 x 20%).
What if there is no agreement? The sharing of the profit will be based on
capital contribution. However, in the present case, there is an industrial
partner so that his just and equitable share must first be given. For example. if
it was agreed upon by all of the partners that the just and equitable share of
D, the industrial partner, is P20,000 then the capitalist partners will share in
the remaining P180,000 (P200,000-P20,000).

Their profit sharing will be as follows

Art. 1796. The partnership shall be responsible to every partner
for the amounts he may have disbursed on behalf of the
partnership and for the corresponding interest, from the time the
expenses are made; 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)
Obligation of the partnership to every partner
1. To refund the amounts a partner may have disbursed on behalf of
the partnership plus the interest from the time the expenses were
made.
Example:
1. A will receive P112, 500 (P5, 000,000/P8, 000,000xP180, 000)
2. B will receive P22, 500 (P1, 000,000/P8, 000,000 x P180.000)
3. C will receive P46, 000(P2, 000, 000/P8, 000,000 x P180, 000); and
4. D, will receive P20, 000 (agreed upon by the partners as his Just and
equitable share)
What if aside from the fact that D is an industrial partner, he also contributed
cash in the amount of P2, 000,000? This is a case where D is a capitalist-
industrial partner. Based on the same assumption that the just and equitable
share of D as an industrial partner is P20, 000. Their profit sharing will be as
follows:
1. A will receive P90, 000 (P5, 000, 000/P10, 000, 000 x P180, 000);
2. B will receive P18, 000 (P1, 000, 000/P10, 000, 000 x P180, 000;
3. C will receive P36, 000 (P2, 000, 000/P10, 000. 000 x P180, 000); and
4. D will receive P 36,000 (P2, 000, 000/P10, 000, 000 x P180, 000 plus Art. 1799. A stipulation which excludes one or more partners from
P20, 000 (agreed upon by the partners as his just and equitable share) any share in the profits or losses is void. (1691)

2. DISTRIBUTION OF LOSSES General rule:

A. According to agreement
The losses shall be distributed in conformity with the agreement. If the
only agreement pertains to the share of each partner in the profits, the
share of each in the losses shall be in the same proportion. However,
the industrial partner shall not be liable for the losses.
B. If there is no agreement
1. Capitalist partners - in proportion to what they may have
contributed to the common fund.
2. Industrial partners - not liable for losses.
Example:
A B, C and D entered into a contract of partnership. A contributed P5,
000,000 in cash while B contributed his only car with a market value of P1,
000.000. C also contributed his only parcel of land with a market value of P2,
000,000 while D his industry as a managing partner. They agreed to share in
the profit as well as losses as follows:
A = 40%% B = 10%; C= 30%; and D 20%.
After their first year of operation, the partnership incurred a net loss of P100,
000. How much is the share of every partner in the loss?
Since there is an agreement, their loss sharing will be as follows:
1. A will share P40, 000 P100, 000 x 406);
2. B will share P10, 000 {P100, 000 x 10%);
3. C will share P30, 000 (P100, 000 x 30%); and
4. D will share P20, 000 (P100, 000 x 20%).
Note:
As a rule, an industrial partner is not liable for lasses; however, in the instant
case, D agreed to shoulder 209% in case of loss. Such kind of agreement is
valid. It is a waiver of right on the part of partner D.
What if there is no agreement? The sharing of the losses will be based on
capital contribution. In the present case, there is an industrial partner so that
as a rule an Industrial is not liable for losses. Their loss sharing will be as
follows:
1. A will share P62, 500 (P5, 000, 000/P8, 000, 000 x P100, 000);
2. B will share P12, 500 (P1, 000, 000/P8, 000, 000 x P100, 000);
3. C will share P25, 000 (P2, 000, 000/P8, 000, 000 x P100, 000); and
4. D, an industrial partner, is not liable.
What if aside from the fact that D is an industrial partner, he also contributed
cash in the amount of P2, 000, 000? This is a case where D is a capitalist-
industrial partner. Their loss sharing will be as follows:
1. A will share P50, 000 (P5, 000, 000/P10, 000, 000 x P100, 000);
2. B will share P10, 000 (P1, 000, 000/P10, 000, 000 x P100, 000)
3. C will share P20, 000 (P2, 000, 000/P10, 000, 000 x P100, 000); and
4. D, will share P20, 000 [P2, 000, 000/P10,000,000 x P100, 000).
A stipulation excluding one or more partners from any share in the
profits and losses is void. Take note that what is void is the stipulation
only and not the contract of partnership. Hence, the profits and losses
shall be distributed as if there was no agreement as discussed in the
preceding article.
Also, let it be noted that one of the tests in order to have a
partnership is the intent of the contracting parties to divide the profits
among themselves.
Exception:
An industrial partner is not liable for losses unless he waived this right.
Rationale: Why an Industrial Partner is not liable for losses?
While capitalist partners can withdraw their capital, the industrial partner
cannot
withdraw any labor or industry he had already exerted moreover, in a
certain sense, he already has shared in the losses in that, if the
partnership shows no profit, this means that he has labored in vain.
Art. 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.
(1692a)
Example of an act of administration.
A managing partner of a partnership may execute all acts of
administration including the right to sue debtors of the partnership in
case of their failure to pay their obligation when it became due and
demandable.
Who shall manage the partnership?
Either one, some or all of the partners designated as managing
partner/s either in the articles of partnership or after the contract of
partnership had already been constituted. If there is no agreement,
management is vested in all of the partners.
TWO MODES OF APPOINTMENT
1. Appointment as manager in the articles of partnership; or
2. Appointment as manager made in an instrument other than the
articles of partnership

Note: I. APPOINTMENT AS MANAGER IN THE ARTICLES OF

The above-stated article excludes an industrial partner from losses but he is PARTNERSHIP
not exempted from liability insofar as third persons are concerned. He may,  General Rule:
however, recover what he has given to third persons from the other partners Power is irrevocable without just or lawful cause.
because as to him and his partners, that will now be treated as a loss.  Exception:
1. To remove him for just cause, vote of partners having controlling
Consequently, liability refers to the obligation towards third persons and interest is necessary;
losses refers to obligation as among the partners.
2. To remove him without Just cause, there must be unanimity
Art. 1798. If the partners have agreed to entrust to a third person including his own vote.
Reason:
the designation of the share of each one in the profits and losses, This represents a change in the will of the parties; a change in the terms
such designation may be impugned only when it is manifestly of the contract; a novation; so to speak requiring unanimity.
inequitable. In no case may a partner who has begun to execute  Extent of power:
the decision of the third person, or who has not impugned the 1. If he acts in good faith, he may do all acts of administration
same within a period of three months from the time he had despite the opposition of his partners.
knowledge thereof, complain of such decision. 2. If he acts in and faith, he cannot do any act of administration. It
The designation of losses and profits cannot be in trusted must be noted that the presumption in law is in favor of good
to one of the partners. (1690) faith.
Third Person Designating the Share of Partners in the Profits and II. APPOINTMENT AS MANAGER MADE IN AN
Losses INSTRUMENT OTHER THAN THE ARTICLES OF
General rule: PARTNERSHIP
It is valid.  Rule:
Exception: The power to act may be revoked at any time, with or without just
It is not valid and It may be questioned if It is manifestly inequitable; cause by the partners owning the controlling interest.
unless: Reason:
1. A partner began to execute the decision of the third person; or Such appointment is a mere delegation of power; revocable at any
2. A partner has not questioned the said decision of the third person time.
within a period of 3 months from the time he had knowledge
 Extent of power:
thereof,
The manager can do all acts of administration.

Art 1801. If two or more partners have been entrusted with the
management of the partnership without specification of their
respective duties, or without a stipulation that one of them shall
not act without the consent of all the others, each one may
separately execute all acts of administration, but if any of them
should oppose the acts of the others, the decision of the majority
shall prevail. In case of a tie, the matter shall be decided by the
partners owning the controlling interest. (1693a)
When Two or More Managing Partners have been entrusted with
the Management
Requisites:
1. two more partners are managers;
2. there is no specification of respective duties; and
3. There is no stipulation requiring unanimity, that is, that one of
them shall not act without the consent of all the others.
General rule:
Each one may separately execute all acts of administration.
Exceptions: If any of the managers should oppose:
1. The decision of the majority (per head) of the managing partners
shall prevail.
2. In case of a tie, the decision of the managing partners owning the
controlling interest (more than 50%) shall prevail.
Note:
The right to oppose is not given to non-managers because in appointing
their other partners as managers, they have stripped themselves of all
participation in the administration.
Example:
A (15%), B (10%), C (35%), D (20), E (10%) and F (10%) are partners
in AF partnership. It was agreed upon that the managers are A, B, C,
and D. Afterwards, an issue arose on whether or not to enter into a
contract of tease with X Corp. Managers A, B, and C agreed to enter into
a contract with X Corp. but D opposed the offer. In this case majority
(per head) prevails, that is, AF partnership will enter into a contract with
X Corp.
What if A and B want to enter into a contract with X Corp. but C and D
do not want to enter into a contract?
Since we have a tie per head count the next rule is to go to their
controlling interest so that A and B have a total of 25% (15% + 10%)
interest while C and D have a total of 55% (35% + 206) interest, the
latter shall prevail, that is AF partnership will not enter into a contract
with X Corp.
*Take note that partners B and F do not participate in management
being non-managers: thus, as a rule, they have no power or authority in
all acts of administration.
Stipulation Requiring Unanimity of Action
General Rule:
Unanimous consent of all the managing partners (even if one of the
managers is absent or incapacitated) shall be necessary for the validity
of the acts and absence or disability of any managing partner cannot be
alleged.
Exception: When there is an imminent danger of grave or irreparable
injury to the partnership.
Art. 1802 NOT applicable to third person
The stipulation in the articles of partnership that any of the two
managing partners may contract and sign in the name of the
partnership with the consent of the other, undoubtedly creates an
obligation between the two partners, which consists in asking the
other's consent before contracting for the partnership. This obligation
of course is not imposed upon a third person who contracts with the
partnership, neither it is necessary for the third person to ascertain if
the managing partner with whom he contracts has previously obtained
the consent of the other. A third person may and has a right to presume
that the partner with whom he contracts has in the ordinary and natural
course of business the consent of his co-partner: for otherwise he
would not enter into the contract. The third person would naturally not
presume that the partner with whom he enters into the transaction is
violating the articles of partnership, but on the contrary is acting in
accordance therewith. And this finds support in the legal presumption
that the ordinary course of business has been followed, and that the
law has been obeyed. This last presumption is equally applicable to
contracts which have the force of law between the parties.
Art. 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)
Rules When Manner of Management Has Not Been Agreed Upon
1. All the partners shall be considered as managers. Consequently;
all partners can do all acts of administration. If the acts of a
partner are opposed by the other partners, the majority (per head)
shall prevail. In case of tie (per head). Then the vote of the
partners representing the controlling interest shall prevail.
Example:
A, B, C and D formed ABCD partnership. In this case, it is
presumed that all of the partners are managers Therefore, in case of
opposition in decision-making of one or some of the partners, we
follow the rules stated in Article 1801, that is, majority wins (per
head) and incase of tie, then it will be decided by the vote of the
partners representing the controlling interest
2. For important alterations in immovable property, unanimity is
required.
Note:
Paragraph 2 deals only with immovable property:
a. First, because of their comparative greater importance than
personality.
b. Second, because, in a proper case, they should be returned to the
partners in the same condition as when they were delivered to the
partnership.
Consent of the others may be expressed or Implied (as when the partners
had knowledge of the alteration and no opposition was made by them).
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 above stated article refers to Contract of Sub-partnership. In a
contract of sub-partnership, the consent of the other partners is not
required. Hence, all partners can have an associate in his share or sub
partner.
It is a rule that no one can become a partner. In a partnership without
the consent of all of the partners. Consequently, an associate or sub-
partner shall not be admitted into the partnership without the consent
of all the other partners based on the following reasons.
a. Mutual trust is the basis of partnership; and
b. A change in membership 1s a modification or novation of the
contract
Example:
A, B, C, and D entered into a contract of partnership. By virtue of a
contract of loan, D borrowed P50, 000 from * and one of their
stipulations is that 50% of the share of partner D in the partnership
income will be applied or deducted from the obligation of D to X In the
first year of operation of the partnership, it earned a net income of P100,
000 and it was agreed that the share of D will be P25, 000. Therefore,
P12, 500 (25,000 x 50%] will be applied or deducted from the obligation
of D to X.
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. (n)
A partner is given by law the right to have access to, inspect and copy
the partnership books for the purpose of enabling that partner to obtain
true and full information of all things affecting the partnership.
Partnership books is an example of partnership property and every
partner is a co-owner of specific partnership property.
What is reasonable hour?
The Supreme Court held that reasonable hour should be on business days
throughout the year, and not merely during some arbitrary period of a few
days chosen by the directors (or managers as regards partnership)
Art. 1806. Partners shall render on demand true and full
information of all things affecting the partnership to any partner
or the legal representative of any deceased partner or of any
partner under legal disability. (n)
 Violation of the above stated article is called concealment.

Who can demand true and full information?

1. Any partner;
2. Legal representative of any deceased partner; and
3. Legal representative of any partner under legal disability.

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. (n)
Rationale:
The partners are governed by fiduciary relationship, that is, mutual trust
and confidence.
Note:
The above article refers only to any profits derived by a partner without
the consent of the other partners.

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. (n)
Rationale:
The capitalist partner has already acquired knowledge of the business
secrets of the partnership; hence, it is unfair for him to engage in a
business which is of the kind of business in which the partnership is
engaged.

Effects of violation
1. The capitalist partner shall bring to the common fund any profits
accruing to him; and
2. The capitalist partner shall personally bear all the losses.

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; and
4) Whenever other circumstances render it just and
reasonable. (n)

General Rule:
No formal accounting is demandable until after the dissolution of the
partnership.

Exceptions:
1. If a partner is wrongfully excluded from the partnership business
or possession of its property by his co-partners;
2. If the right to demand for accounting exists under the terms of any
agreement;
3. As provided by article 1807; and
4. Whenever other circumstances render it just and reasonable.