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CHAPTER 2: -
SECTION I – OBLIGATIONS OF
THE PARTNERS
Kinds of Partners:
1. As to contribution
a) Capitalist partners
- Those who contribute money or
property to the common fund. (ART.
1767)
b) Industrial partners
- Those who contribute only their
industry or labor to the common
fund. (ART. 1789, 1767)
c) Capitalist-industrial partners
- Those who contribute money,
property and industry to the
common fund.
2. As to liability
a) General partner
- Those who can be held liable to third
persons for partnership obligations
even to those extent of their
separate property; he may either be
a capitalist or industrial partner.
(ART. 1843, 1816)
b) Limited partner
- Those who cannot be held liable to
third persons for partnership
obligations; (ART. 1843) he is also
known as special partner and unlike
the general partner, he does not
participate in the management of the
business.
3. As to management
a) Managing partners
- Those who manage actively the
business or affairs of the
partnership; he may be appointed
either in the articles of the
partnership or after the constitution
of the partnership; also known as a
general or real partner. (ART. 1800)
b) Silent partners
- Those who do not take active part in
the business or affairs of the
partnership although he may be
known to be a partner and share the
profits or losses; if he withdraws
from the partnership, he must give
notice to those persons who do
business with the firm to escape
liability in the future.
c) Liquidating partners
up or liquidation of the partnership
affairs after dissolution. (ART. 1836)
4. As to third persons
a) Ostensible partners
- Those who take active part and
known to the public as a partner in
the partnership, whether or not he
has an actual interest in the firm; if
he is not actually a partner, he is
subject to liability by the doctrine of
estoppel (ART. 1825)
b) Secret partners
- Those whose connection with the
partnership is not known to the
public; takes an active part in the
business but not held out as a
partner by the other partners; he
participates in the profits and losses
of the partnership.
c) Dormant partners
- Those who do not take active part in
the business and are not known to
the public as partners. Thus, they
are both secret and silent partners;
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 profits earned.
5. As to membership
a) Real partners
- Those partners in an existing legal
partnership.
b) Partners by Estoppel
- Those who are not really partners
but represent them to anyone as
partners in an existing partnership or
in one that is fictitious or apparent.
He is liable as a partner for the
protection of innocent third persons.
(ART. 1285) Also known as a
“partner by implication”, “quasi-
partner” or “nominal partner”. He is
liable for the debts of the firm to
those who in good faith believed him
to be a partner.
6. As to continuation of the business affairs after
dissolution
a) Continuing partners
- Those who continue the partnership
after the dissolution of the
partnership by the reason of the
admission of anew partner, or the
 retirement, death, or expulsion of OBLIGATIONS OF RIGHTS OF PARTNERS:
one or more partners. (ART. 1840) PARTNERS:
b) Discontinuing partners 1. To give their 1. Right to associate with
- Those who do not continue the promised contribution another person in their
partnership business after the (ART. 1786) share (ART. 1804)
dissolution of the partnership. 2. Not to convert 2. Right to have access
7. As to the nature of the partnership partnership money to to and inspect and copy
a) Original partners their own use (ART. partnership books (ART.
- Those who are members of the 1788) 1805)
partnership from the time of its 3. To account and hold 3. Right to demand a
constitution. as trustee for any profits formal account (ART.
b) Incoming partners derived without the 1809)
- Those who became members of the consent of the other
partnership after its establishment. partners (ART. 1807)
(ART. 1826, 1841) 4. Not to engage in any 4. Right to ask for the
c) Retiring partners business which is of the dissolution of the
- Those who withdraw from the kind in which the partnership at the proper
partnership (ART. 1840, 1841) partnership is engaged time (ART. 1830-1831)
d) Subpartner (ART. 1808)
- One, who not being a member of the 5. Obligation of 5. Property rights of
partnership, contracts with a partner managing partners to partners (ART. 1810):
with reference to the latter’s share in credit to the partnership a. Rights in specific
the partnership. (ART. 1804) the payment made by partnership property
8. As to state of survivorship the debtor who owes b. Interest in the
a) Surviving partners them and partnership partnership
- Those who continue and remain in (ART. 1792) c. Right to participate in
the partnership after its dissolution the management
by reason of death of a partner. 6. Obligation to share NOTE:
(ART. 1842) with the other partners Limited partners have no
b) Deceased partners the share of the rights to participate in
- Those who died while being a partnership credit which the management.
member of the partnership (ART. they have received from
1840) an insolvent partnership
Legal relations created by a contract of partnership debtor (ART. 1793)
7. Pay for damages
Four distinct juridical relations: suffered by the
partnership through their
1. Relations among the partners themselves;
fault (ART. 1794)
2. Relations of the partners with the partnership;
3. Relations of the partnership with third persons
with whom it contracts; and
4. Relations of the partners with such third persons.
ART. 1784. A partnership begins from the moment of the
Example: execution of the contract, unless it is otherwise
If Sehun and Suho formed a partnership called stipulated. (1679)
Seho Co., and it transacts business with Lay, a third GENERAL RULE: A partnership begins from the moment
person, the relations created will be as follows: of the execution of contract.
1. Relations between Sehun and Suho; Due to the reason that a partnership is a consensual
2. Relations between Sehun and Suho on one hand, contract; it exists from the moment of the celebration of
and Seho Co., on the other hand; the contract by the partners. Where a partnership relation
3. Relations between Seho Co. and Lay; results, the law fixes itself into the incidents of this
4. Relations between Sehun and Suho, on the one relation if the parties fail to do so.
hand, and Lay, on the other hand.
EXCEPTION: The partners can agree on some other date
for the start of the partnership, making the rule not
absolute.
 1. Future partnership. – Persons who have entered
the contract to become partners in the future
time do not become partners until or unless the
agreed time has arrived, or the condition has
happened.
2. Agreement to create partnership. – Distinction
between a partnership actually consummated
and an agreement to enter into a contract of
partnership at a future time; as long as the
partnership remains executory, no partnership
can exist.
3. Failure to agree on material items. – Failure of
the parties to agree on material terms may not
merely be evidence of the parties to be bound
only in the future but may prevent any rights or
obligations from arising on either side for lack of
complete contract.
Example:
Baekhyun and Chanyeol entered into a contract
of partnership on November 29, 2018. However
Baekhyun and Chanyeol agreed that the commencement
of their contract of partnership will be on May 6, 2019.
Here, the life of their partnership begins on May 6, 2019
as agreed upon and not on November 29, 2018.
ART. 1785. When a partnership for a fixed term or
particular undertaking is continued after the termination
of such term or particular undertaking without any
express agreement, the rights and duties of the
partners remain the same as they were at such
termination, so far as is consistent with a partnership at
will.
A continuation of the business by the partners or such
of them as habitually acted therein during the term,
without any settlement or liquidation of the partnership
affairs, is prima facie evidence of a continuation of the
partnership. (n)
PARTNERSHIP WITH A FIXED TERM – Where the life or
period of existence of the partnership has been agreed
upon by the partners.
Example:
Jongdae and Minseok entered into a contract of
partnership for a period of 7 years. As a rule, after the
expiration of 7 years the partnership of Jongdae and
Minseok will be dissolved. However, if after 7 years and
the partnership of Jongdae and Minseok continued the
operation of their partnership without any express
agreement, then the rights and obligations of Jongdae
and Minseok will remain the same.
Jongdae, when assigned as the managing
partner, he will still be the managing partner despite the
lapse of 7 years.
PARTNERSHIP FOR A PARTICULAR UNDERTAKING –
Where it will exist until the purpose is accomplished.
Example:
Chanyeol, Jongin and Sehun entered into a
contract of partnership for the manufacture of 1,485
tables for the Exodus Boarding School. As a rule, after the
1,485 tables were manufactured, the partnership will be
dissolved. However, if after the 1,485 tables were
manufactured, and the partnership of Chanyeol, Jongin
and Sehun continued the operations of their business
without any express agreement, then the rights and
obligations of Chanyeol and Jongin will remain the same.
PARTNERSHIP AT WILL – A partnership that does not fix
its term is a partnership at will. The birth and the life of a
partnership at will is predicated on the mutual desire and
consent of the partners.
• The partnership may be extended or renewed by
express agreement, written or oral, or impliedly,
by the mere continuation of the business after
the termination of such term or particular
undertaking without any settlement or
liquidation.
• The rights and duties of the partners remain the
same as they were at such termination but only
insofar as it is consistent with a partnership at
will.
• Continuation of the partnership for a fixed term
or particular undertaking is dissolved and a new
one, a partnership at will, is created and
continued existence will depend upon the will of
the partners.
• Any one of the partner, for his sole pleasure,
dictate a dissolution of partnership at will due to
the reason that a partnership relationship is a
personal one, thus the law will not force any one
to continue as a partner or to become a partner.
However, he must act in good faith because the
attendance of bad faith can result to incurring
liability for damages to the other partners. It must
not also be made in an improper or unreasonable
time.
• There is no such thing as an indissoluble
partnership.
ART. 1786. Every partner is a debtor of the partnership
for whatever he may have promised to contribute
thereto.
He shall also be bound for warranty in case of eviction
with regard to specific and determinate things which he
may have contributed to the partnership, in the same
cases and in the same manner as the vendor is bound
with respect to the vendee. He shall also be liable for
the fruits therefrom from the time they should have been
delivered, without the need of any demand. (1681a)
Obligations with respect to the contribution of property
1. To contribute at the beginning of the partnership
or at the stipulated time the money, property or
 industry which he may have promised to
contribute;
2. To answer for eviction in case the partnership is
deprived of the determinate property
contributed;
3. To answer to the partnership for the fruits of the
property the contribution of which he delayed,
from the date they should have been contributed
up to the time of actual delivery.
4. To preserve said property with the diligence of a
good father of a family pending delivery to the
partnership (ART. 1163);
5. To indemnify the partnership for any damage
caused to it by retention of the same or by delay
in its contribution. (ART (1788. 1170)
• The money or property contributed by a partner
becomes the property of the partnership. It
cannot be withdrawn or disposed of by the
contributing partner without the consent or the
approval of the partnership or other partners.
Effect of failure to contribute property promised
1. Liability as debtor to partnership. – Mutual
contribution is the essence of the contract of
partnership (ART. 1767). It is logical that the
failure to contribute is to make the partner
automatically a debtor of the partnership even in
the absence of demand.
2. Remedy of other partners. – The remedy under
this article is not rescission or cancellation of the
partnership 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 the
obligation.
EXCEPTION: ART. 1838 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
• This is governed by the law of sales in where the
partner is bound in the same cases and in the
same manner as the vendor bound with the same
respect to the vendee
• ART. 1548 says that 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 thing purchased.
• The obligation of warranty in case of eviction is
in consequence of the character of the contract
of partnership which is an onerous contract
(ART. 1767)
Liability of partner for fruits and property delayed
• No demand is necessary to put the partner in
default.
• The injury therefore, to the partnership is
constant.
ART. 1787. When the capital or a part thereof which a
partner is bound to contribute consists of goods, their
appraisal must be made in the manner prescribed in the
contract of partnership, and in the absence of
stipulation, it shall be made by experts chosen by the
partners, and according to current prices, the
subsequent changes thereof being for the account of
the partnership. (n)
Appraisal of goods or property contributed
1. Need for appraisal. – The appraisal of the value
of the goods contributed is necessary to
determine how much has been contributed by
the partners.
a. In the absence of stipulation, the share
of each partner in the profits and losses
is in proportion to what he may have
contributed. (ART.1797)
b. The appraisal is made firstly, in the
manner prescribed by the contract of
partnership; secondly, in the absence of
stipulation, by experts chosen by the
partners and according to the current
prices.
c. After the goods have been contributed,
the partnership bears the risk or gets the
benefit of subsequent changes in their
value.
2. Property subject to appraisal. – In the case of
immovable property, the appraisal is made in the
inventory of said property (ART. 1773, 1795);
otherwise, it may be provided in ART. 1787. It
can also be applied with respect to other kinds of
property.
ART. 1788. A partner who has undertaken to contribute
a sum of money 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)
This article contemplates two distinct cases. The first
paragraph refers to money promised but not given on
time and the second, to partnership money converted to
the personal use of the partner.
Obligations of the partners with respect to the
partnership capital under ART. 1788
1. To contribute on the date due the amount he has
undertaken to contribute to the partnership;
 2. To reimburse any amount he may have taken
from the partnership coffers and converted to his
own use;
3. To pay the agreed or legal interest, if he fails to
pay his contribution on time or in case he takes
any amount from the common fund and converts
it to his own use; and
4. To indemnify the partnership for the damages
caused to it by delay in the contribution or the
conversion of any sum for his personal benefit.
Liability of the guilty partner for interest and damages
1. Accrual of liability. – The guilty partner is liable
for both interest and damages not from the time
judicial (i.e. filing of action or complaint in court)
or extrajudicial demand is made but from the
time he converted the amount to his own use, as
the case may be.
2. Justification for double responsibility. – It is an
exception to the general rule in damages that
obligations consisting in the payment of a sum of
money, the indemnity for damages shall only be
the payment of interest agreed upon or, in the
absence of stipulation, the legal interest of 6%
(but 12% by virtue of Central Bank Circular No.
416)
It is in harmony with the principle in this article
that every partner is responsible to the
partnership for damages suffered by it through
his fault and is justified by the nature of the
contract of partnership
ART. 1789. An industrial partner cannot engage in
business for himself, unless the partnership expressly
permits him to do so; and if he should do so, the
capitalist partners may either exclude him from the firm
or avail themselves of the benefits which he may have
obtained in violation of this provision, with a right to
damages in either case. (n)
An industrial partner is one who contributes his industry,
labor or services to the partnership. He is considered the
owner of his services, which are his contribution to the
common fund.
Unless the contrary is stipulated, he becomes a debtor of
the partnership for his work or services from the moment
of the commencement of partnership. The partnership
acquires an exclusive right to avail itself of his industry.
Consequently, if he engages in business for himself, such
act is considered prejudicial to the interest of the other
partners.
Prohibition against engaging in business
1. As regards an industrial partner. – Prohibition is
absolute and applies whether the industrial
partner is to engage in the same business in
which the partnership is engaged or in any kind
of business.
REASON: Is to prevent any conflict of interest
between the industrial partner and the
partnership and to insure faithful compliance by
said partner with his obligation.
2. As regards capitalist partners. – Prohibition
extends only to any operation which is of the
same kind of business in which the partnership
is engaged unless there is a stipulation to the
contrary. (ART. 1808)
Remedies where industrial partner engages in business
If the industrial partner engages in business to himself,
without the express permission of the partnership, the
capitalist partners have the right either to exclude him
from the firm or to avail themselves of the benefits which
he may have obtained.
1. The capitalist partners have a right to damages.
The permission must be express to exempt him
from liability.
2. Not only the capitalist partner but also industrial
partners are also entitled to remedy granted
since they are equally prejudiced by the act of
their co-partner engaging in business for himself.
ART. 1790. Unless there is a stipulation to the contrary,
the partners shall contribute equal shares to the capital
of the partnership. (n)
The partners can stipulate the contribution of unequal
shares to the common fund, but in the absence of such
stipulation, the presumption is that their contribution shall
be in equal shares.
The rule is not applicable to an industrial partner unless,
besides his services, he has contributed capital pursuant
to an agreement to that effect. (ART. 1797)
Example:
Kyungsoo and Jongin formed a partnership to
engage in the selling of fried chicken. Kyungsoo
contributed P148,500.00 while Jongin contributed his
services. Adjacent the stall of the fried chicken shop,
Kyungsoo opened a spa. At the other side, Jongin opened
a fries and chicken shop. May Kyungsoo and Jongin
engage in separate businesses?
Kyungsoo may engaged in the spa business as it
is not of the same kind as the business of the partnership.
While Jongin, may not engage in any kind of business,
without the consent of Kyungsoo, because as an
industrial partner he must devote his full time to the
partnership.
ART. 1791. If there is no agreement to the contrary, in
case of an imminent loss of the business of the
partnership, any partner who refuses to contribute an
additional share to the capital, except an industrial
partner, to save the venture, shall be obliged to sell his
interest to the partners (n)
GENERAL RULE: A capitalist partner is not bound to
contribute to the partnership more than what he agreed
to contribute.
IN CASE, of an imminent loss of the business, and there
is no agreement to the contrary, he is under obligation to
contribute an additional share to save the venture. If he
refuses to contribute, he shall be obliged to sell his
interest to the other partners.
Requisites before a capitalist partner may be obliged to
sell his interest to the others:
1. There is an imminent loss of the business of the
partnership;
2. The majority of the capitalist partners are of the
opinion that an additional contribution to the
common fund would save the business;
3. The capitalist partner refuses (not because of
financial inability to do so) to contribute an
additional share to the capital; and
4. There is no agreement that even in case of an
imminent loss of the business the partners are
not obliged to contribute.
NOTE: The industrial partner is exempted from the
requirement to contribute an additional share. Having
contributed his entire industry, he can do nothing further.
Reason for sanction
It reflects his lack of interest in the continuance of the
partnership. It would be unjust for him to remain and reap
the benefits of the efforts of the others while he himself
refuses to help.
The law provides a remedy is just to both parties since
the partner who refuses to contribute is paid the value of
the interest while the other partners are thereby relieved
from the burden of continuing their association with him
in the business.
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 fiduciary
relationship to speak of. Of course, the above-article
presumes that the capitalist partners are solvent.
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 the prejudice to the right granted to the debtor
by ART. 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 manager who is
not a managing partner because there is no basis for the
suspicion that the partner is in bad faith.
Requisites for the application of article
1. There exist at lease two debts, one where the
collecting partner is creditor, and the other,
where the partnership is the creditor;
2. Both debts are demandable; and
3. The partner who collects is authorized to manage
and actually manages the partnership.
Example:
Minseok and Baekhyun are partners in CBX Co.,
with Minseok as the managing partner. Jongdae is
indebted to Minseok in the sum of P7,000.00. Jongdae is
also indebted to the partnership in the sum of
P13,000.00. Both debts are demandable and Minseok
collects the amount of P1,485.00 from Jongdae.
7,000 + 13,000 = 20,000
7000/20,000 * 1,485 = 965.75
If Minseok issues a receipt to the effect that it is
in payment of his credit, P519.75 will be applied only in
his credit, the partnership being entitled to a
proportionate amount of P965.75 in the payment by
Jongdae.
But if Minseok gives a receipt for the account
only of the partnership credit, the amount of P1,485.00
will be fully applied to the latter.
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. The managing partner must attend
more to the interest of the partnership than to his own
and he should not intentionally fail to effect the collection
of his own. (11 MANRESA 351).
If the partners participate in the management of the
partnership (ART. 1803) then every partner shall be
considered a managing partner for purposes of ART.
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. (ART. 1252)
Example:
If the obligation in favor of Minseok bears 14%
interest per annum while that in favor of the partnership
is 13% per annum, the credit of Minseok being more
onerous or burdensome, the law allows Jongdae to prefer
the payment of Minseok’s credit in case he so desires.
ART. 1793. A partner who has received, in whole or in
part, his share of a partnership credit, when the other
partners have not collected theirs, shall be obliged, if
the debtor should thereafter become insolvent, to bring
to the partnership capital what he received even though
he may have given receipt for his share only. (1685a)
The difference between the ART. 1792 and this article is
that it treats two cases, one in favor of the partnership
and another in favor of the managing partner, whereas
this article has only one credit – credit in favor of the
partnership.
This article applies whether the partner who receives the
share of the partnership credit is authorized to manage or
not.
Requisites for application of rule
1. A partner has received, in whole, or in part, his
share of partnership credit;
2. The other partners have not collected their
shares; and
3. The partnership debtor has become insolvent.
Example:
Baekhyun owes partnership SKY Co. P6,000.00.
Chanyeol, a partner receives share of P1,485.00 ahead of
Jongin and Sehun, the two other partners. When Jongin
and Sehun were collecting from Baekhyun, the latter was
already insolvent.
In this case, even if Chanyeol had given receipt
for his share only, he can be required to share the
P1,485.00 with Jongin and Sehun.
Reason for imposing obligation to return
The debt of Baekhyun becomes a bad debt. It would be
unjust and unfair for Chanyeol not to share in the loss to
Jongin and Sehun or for him to obtain more and Sehun
and Jongin, 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.
(11 MANRESA 353: ART. 1770, PAR. 1)
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)
This article follows the general rule to all contracts that
any person guilty of negligence or fault in the fulfillment
of his obligation, shall be liable for damages. (ART. 1170)
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.
(ART. 1173)
Compensation of damages with profits earned for
partnership by guilty partner
1. Damages generally not subject to set-off. – As
a general rule, the damages caused by a
partner to the partnership cannot be
compensated or 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.
The profits which he ma 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. There cannot
be any compensation even if the
partner is a debtor in the partnership
for his industry and at the same time
obliged to repair the injury which he
might have occasioned through his
fault.
2. Exception. – If unusual profits are realized
through the extraordinary efforts of the
partners at fault, the courts are authorized by
the law to equitably mitigate or lessen his
liability for damages. This rule rests in equity.
ART. 1795. The risk of specific and determinate things
which are not fungible, contributed to the partnership
so that only their use and fruit 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, their 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. (1687)
There are five cases contemplated by the present article
for the determination of the risk of things contributed to
the partnership, namely:
 1. Specific and determinate things which are not
fungible where only the use is contributed. –
The risk is borne by the partner because he
remains the owner of the things (e.g. car or
truck);
2. Specific and determinate things the
ownership of which is transferred to the
partnership. – The risk is for the account of
the partnership, being the owner;
3. Fungible things or things which cannot be
kept without deteriorating even if they are
contributed only for the use of partnership. –
The risk of loss is borne by the partnership for
evidently the ownership was being transferred
since use is impossible without the things
being consumed or impaired.
*FUNGIBLE THINGS are things or goods of
which any unit is, from its nature or mercantile
usage, treated as the equivalent of any other
unit such as oil, wine, rice and etc.
4. Things contributed to be sold. – The
partnership bears risk of loss for there cannot
be any doubt that the partnership was intended
to be the owner; otherwise, the partnership
could not effect the sale; and
5. Things bought and appraised in the
inventory. – The partnership bears the risk of
loss because the intention of the parties was to
contribute to the partnership the price of the
things contributed with an appraisal in the
inventory. There is thus an implied sale making
the partnership owner of the said things.
This article presupposes that the things contributed have
been delivered actually or constructively to the
partnership. Before the delivery, the risk of loss is borne
by the partner. (ART. 712, 1164, 1262, 1263).
If the loss is due to the fault of any of the partners, he
shall be liable for damages, to the partnership in
accordance with the provision of preceding article.
ART. 1796. The partnership shall also be responsible to
every partner for the amounts he may have disbursed
on the behalf of the partnership and for the
corresponding interest, from the time the expenses are
made; it shall also answer to each partner for the
obligations he may have contracted in good faith in the
interest of the partnership business, and for risks in
consequences of its management. (1688a)
In the absence of any stipulation to the contrary, every
partner is an agent of the partnership for the purpose of
its business. (ART. 1818) Hence the obligation of the
partnership to every partner:
1. To refund amounts disbursed by him in behalf
of the partnership (e.g., advances for
partnership debts and payables) plus the
corresponding interest from the time the
expenses are made (not from date of demand).
Here the law refers to loans or advances made
by the partner to the partnership other than
capital contributed by him;
Example:
Sehun and Suho formed the Seho
partnership. Subsequently, Suho purchased
office supplies on the amount of P13,000.00
out of his own money with the consent of
Sehun on April 6, 2018.
In this case, Seho partnership must
reimburse the amount of P13,000.00.
If Seho partnership reimbursed Suho
only on May 6, 2018, the partnership will be
liable for legal interest for one month.
2. To answer for the obligation (e.g., purchase
price of supplies needed by the partnership) he
may contracted in good faith in interest of the
partnership business; and
Example:
Chanyeol and Baekhyun formed
Chanbaek partnership to engage in car repair
shop. Subsequently, Chanyeol purchased on
credit car accessories from KLT Corp. in the
amount of P140,000.00. In this case, Chanbaek
partnership is answerable to KLT Corp. for
payable of P140,000.00
3. To answer for risks (eg., loss of his property
accidents) in consequence of its management.
Being a mere agent, the partner is not
personally liable, provided, however. That he is
free from all fault (ART. 1912) and he acted
within the scope of his authority. (ART 1897,
1898, 1910, PAR. 2)
Example:
The articles of Partnership CBX
composed of Jongdae, Baekhyun and Minseok
provides that any purchase in excess of
P50,000.00 must first be approved by the
partners. Minseok made a purchase of goods
out of his personal funds for P70,000.00
without the knowledge and the approval of
Jongdae and Baekhyun. The partnership
incurred a loss.
In this case, Minseok is not entitled to be
reimbursed for the purchase.
ART. 1797. The losses and the 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 losses. As for the profits, the
 industrial partner shall receive such share as
may be just and equitable under the
circumstances. If, beside his services he has
contributed capital, he shall also receive a
share in the profits in proportion to his
capital. (1689a)
Rules for distribution of profits and losses
1. Distribution of profits:
a. The partners share the profits
according to their agreement subject
to ART. 1799.
b. If there is no such agreement:
1) The share of each capitalist
partner shall be in proportion
to his capital contribution.
This rule is based on the
presumed will of the
partners.
2) The industrial partner shall
receive such share, which
must be satisfied first before
the capitalist partners shall
divide the profits, as may be
just and equitable under the
circumstances. The share of
an industrial partner in the
profits is not fixed as in the
case of the capitalist partners
as it is very difficult to
ascertain the value of the
services of a person.
Example:
Kyungsoo, Baekhyun and
Jongdae formed a partnership, whereby
each of them contributed P40,000.00.
They agreed that should the partnership
realize profits, the same shall be
distributed in the following proportions:
Kyungsoo as managing partner … 40%
Baekhyun ……………………….. 30%
Jongdae ………………………… 30%
In this case, the partners shall
share the profits in conformity with their
agreement. If there is no agreement with
respect to the share of each partner,
then, they shall share the profits equally.
Suppose, the contributions of the
partners are as follows:
Kyungsoo ……………… P30,000.00
Baekhyun …………….... P 20,000.00
Jongdae ……………….. P 10,000.00
Total ………………… P 60,000.00
In the absence of stipulation, the
share of each partners shall be in
proportion to his contribution, that is:
Kyungsoo ………………………. 3/6
Baekhyun ………………………… 2/6
Jongdae …………………………. 1/6
If Junmyeon is an industrial
partner, he shall receive such share as
may be just and equitable under the
circumstances. Assuming that the
partnership makes a profit of
P17,000.00, the partners may determine
considering all the circumstances, that
Suho, an industrial partner, is entitled to
P2,000.00. The balance of P15,000.00
will be divided among Kyungsoo,
Baekhyun and Jongdae in proportion to
their capital contributions.
Now if Junmyeon, aside from
his services, contributed P4,000.00,
then, he will also share in the balance of
P15,000.00 in proportion to his
contribution which is 1/16 (4000/64,000)
or P937.50. Kyungsoo, Baekhyun and
Jongdae will share P7,031.25, P4,687.50
and P2,343.75, respectively.
2. Distribution of losses:
a. The losses shall be distributed
according to their agreement subject
to ART. 1799.
b. If there is no such agreement, but the
contract provides for the share of the
partners in the profits, the share of
each losses shall be in accordance
with profit-sharing ratio, but the
industrial partner shall not be liable for
losses. The profits or losses of the
partnership cannot be determined by
taking into account the result of one
particular transaction but of all the
transactions had.
c. If there is also no profit-sharing
stipulated in the contract, then losses
shall be borne by the partners in
proportion to their capital
contributions, but the purely industrial
partner shall not be liable for the
losses.
Example:
In the same example, the partners will
share in the losses in conformity with their
agreement. If they failed to agree as to the
 sharing of losses, the share of each partner in
the losses shall be in the same proportion
stipulated with regard to the share of each
profits, to wit:
Kyungsoo ………………………….. 40%
Baekhyun ………………………….. 30%
Jongdae …………………………… 30%
If there is also no profit-sharing ratio
stipulated, then the losses shall be divided in
proportion to their capital contributions.
Junmyeon, however, being an industrial partner,
shall not be liable for losses but the same shall
be borne by Kyungsoo, Baekhyun and Jongdae,
the capitalist partners. However, if Junmyeon is
also a capitalist partner, then he shall share in the
losses in proportion to his contribution.
ART. 1798. If the partners have agreed to intrust to a
third person the designation of the share of each one in
the profits and losses, such designation may be
impugned only when it is manifestly inequitable. In no
case may a partner who has begun to execute the
decision of the third person, or who has not impugned
the same within a period of three months from the time
he had knowledge thereof, complain of such decision.
The designation of losses and profits cannot be
intrusted to one of the members. (1690)
• The designation of the share of profits and losses
may be delegated to a third person by common
consent.
• It speaks of third person, not a partner, following
the general rule in contracts that the fulfillment
of a contract cannot be left to the will of one of
the contracting parties alone. (ART. 1308, 1309)
• The prohibition in the second paragraph against
intrusting the designation of losses and profits to
one of the partners is necessary to guarantee the
outmost impartiality in the distribution of shares
in the profits and losses (11 MANRESA 375)
• The designation of the third person would
generally be binding unless manifestly
inequitable.
• Even if the partner has begun to execute the
decision of the third person or who fails to
impugn the same within three months from the
time he had knowledge of it cannot no longer
complain. In this case, the partner is deemed
guilty of estoppel or to hace given his consent or
ratification to the designation.
• REASON: The comparatively short period of
three months within which to impugn the
designation is to forestall any paralyzation in the
operations of partnership.
ART. 1799. A stipulation which excludes one or more
partners from any share in the profits or losses is void.
(1691)
Stipulation excluding partner from any share in the
profits or losses
1. Stipulation generally void, but the
partnership subsists. – As a general rule, the
law does not allow a stipulation excluding one
or more partners from any share in the profits
or losses. The partnership exists for the
common benefit of the partners (ART. 1770).
However, although the stipulation is void, the
partnership, if otherwise valid, subsists and the
profits or losses shall be apportioned if there
were no stipulation of the same (ART. 1797,
PAR .2).
2. Stipulation, a factor to show no partnership
exists. – Where the parties expressly stipulate
that there shall be no liability for losses, or
where from the nature of the contract, it is
clear that a party did not intend to share in the
losses, such fact that may be a factor in
determining that no partnership exists.
3. Where partner is excluded is industrial
partner. – A stipulation exempting him from
the losses is naturally valid. This is without
prejudice, however, to the rights of the third
persons. (ART. 1817) He will not be liable for
losses unless he waived his right.
REASON: An industrial partner cannot
withdraw any labor or industry he had already
exerted, he already has shared in the losses in
that, if a partnership shows no profit, this
means he labored in vain. (11 MANRESA 377)
4. Where stipulation provides for unequal
shares. – This does not mean that the partners
cannot stipulate for unequal shares in the
profits or losses even if their respective
contributions are equal, unless the inequality is
so gross that it is, in effect, simulated form or
attempt to exclude a partner from any share in
the profits or losses. (11 MANRESA, 377)
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 unlawful 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)
• Unless the partnership agreement provides
otherwise, each partner in a general partnership
 has a right to an equal voice in the conduct and
the 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
a partnership. They can also select a managing
partner or allocate the functions as the needs of
the business dictates especially in a large
partnership.
• Speaks of two distinct cases of appointment:
1) A managing partner appointed by the
common agreement in the articles of
partnership may execute all acts of
administration including the right to sue
debtors of partnership in case of failure
to pay their obligations when it becomes
due and demandable. His power is
revocable only upon just and lawful
cause and upon the vote of the partners
representing the controlling interest.
REASON: The revocation represents a
change in the terms of the contract; a
novation. It is only logical that such
appointment should not be revoked
without the consent of all partners
including the partner thus appointed. It is
an elementary rule that no party to a
contract can violate the law of the
contract without the consent of others.
(11 MANRESA, 380)
2) Appointment as manager after
constitution of the partnership can be
revoked at any time for any cause or
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 any time (ART.
1920). It is believed that the vote for
revocation must also represent the
controlling interest.
Compensation for services rendered
• In this article, it refers to a partner, not a
stranger, who has been appointed as manager.
As a rule, a partner is not entitled to
compensation for his services other than his
shares of profits.
Scope of power as a managing partner
1. GENERAL RULE: A partner appointed as
manager has all the necessary and incidental
powers to carry out the object of the
partnership in the transaction of the business.
Hence, unless expressly withheld:
a. The minor power to issue a receipt is
included in the general powers of the
manager as this is in keeping with
present day business dealings.
b. The manager of a partnership engaged
in buying and selling is clothed with
sufficient authority even without the
approval of the other partners to
purchase on credit as it is usual or
customary to buy and sell on credit.
c. The managing partner has authority to
dismiss an employee particularly when
there is justifiable cause for dismissal,
after complying with the requirements
prescribed by law of terminating
employment.
2. EXCEPTIONS: When the powers of the
managers are specifically restricted or
expressly withheld. A managing partner cannot
also exercise powers which are neither
necessary nor incidental to carry out the object
of the partnership.
Hence, unless expressly granted:
a. A partner designated as one of the
managers to take charge of “selling
fish in Manila and the purchase of
supplies” has no authority to purchase
for the partnership a “barge, a truck,
and an adding machine,” inasmuch as
neither these properties can be
considered as “supplies for the
partnership business.”
b. Neither can the managing partner of a
partnership formed for the purpose of
operating a tailoring shop, sell or
convey the tailoring shop which is
partnership property without the
consent o f all the partners.
c. A managing partner may not bind the
partnership by a contract wholly
foreign to its 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.
1. Partner not generally 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.
REASON: In helping to manage the partnership
affairs, he is practically taking care of his own
interest or managing his own business.
2. EXCEPTION: In proper cases, it can be implied
from the circumstances that the parties
intended a partner to receive 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 expense) or in a capacity other than
that of a partner (e.g., performing clerical
services of a resigned employee).
ART. 1801. If two or more partners have been intrusted
with the management of the partnership without
specification of their respective duties, or without
stipulation that one of them shall not act without the
consent of 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 tie, the matter shall be decided by
the partners controlling interest. (1693a)
• RULE: Each one of may separately perform acts
of administration.
a. If one or more of the managing partners
shall oppose of the acts of the others,
then the decision of the majority shall
prevail. Only those entrusted with the
management of the partnership have the
right to oppose, not by any partner.
b. In case of tie, the matter shall be decided
by the vote of the partners owning the
controlling interest, that is, more than
50% of the capital investment. (ART.
492)
• If there is specification of the respective duties of
the managing partners, the decision of each
partner concerned shall prevail subject only to
the limitation that he should act in good faith.
Rule of application:
1. Two or more partners have been appointed as
managers;
2. There is no specification of their respective
duties; and
3. There is no stipulation that one of them shall
not act without the consent of all the others.
Example:
The respective interests of the
partnership are as follows: D.O. – 5%, Kai – 10%,
Chanyeol - 15%, Baekhyun – 15%, Chen – 20%.,
and Suho – 35%.
1) D.O., Kai, and Chen were appointed as
managing partners without specification
of their respective duties. A contract
entered into by D.O., if with the
conformity of Kai although against the
objection of Chen is valid.
2) If the managing partners are D.O., Kai.
Chanyeol and Chen, and Chanyeol sided
with Chen so that there was a tie and
when the matter was put to a vote of all
the partners, D.O., Kai, and Baekhyun
were in favor, with Chanyeol, Chen and
Suho against, the contract is not valid; if
D.O. and Chen were the ones who
originally vote in favor of the contract
and subsequently, Suho sided with
them, the transaction is deemed ratified
by the controlling interest in the
partnership.
3) Suppose after a tie, the voting is as
follows: D.O., Kai and Suho in favor, and
Chanyeol, Baekhyun and Chen – against,
both sides representing of 50% of the
interest, with neither side willing to give
way to the other, what should be the
rule? The law is silent on this point. It is
believed that in such case the contract
should be considered as having been
entered into without authority. In other
words, when the partners re equally
divided, those who vote against the
contract or who resist must prevail.
The best solution is for the partners to
dissolve the partnership. D.O. shall be
responsible for damages if it is found
that he was at fault. (ART. 1794)
If the contract is merely proposed, it may
or may not be entered into depending
upon the decision of the majority of the
managing partners or of the controlling
interest, as the case may be.
ART. 1802. In case it should have been stipulated that
none of the managing partners shall act without the
consent of the others, the concurrence of all shall be
necessary for the validity of the acts, and the absence
of disability or any one of them cannot be alleged,
unless there is imminent danger or grave or irreparable
injury to the partnership. (1694)
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 imminent danger of grave or
irreparable injury to the partnership, a partner may act
alone without the consent of the partner who is absent or
under disability without prejudice to the former’s liability
for damages under ART. 1794.
The consent of the managing partners are also not
necessary in routine transactions.
ILLUSTRATIVE CASE:
Facts: Luhan sold to Kris, one of the managing partners
of Partnership EXO-M, the other being Tao, a certain
number of mining claims without the consent of Tao. In
an action by Luhan to recover the unpaid balance of the
purchase price against Partnership EXO-M, Tao claims
that the contract is not binding upon the partnership for
the reason that under the articles of partnership, there is
a stipulation that one of the partners cannot bind the firm
by a written contract without the consent of others.
Issue: Is the transaction made by Kris binding upon the
partnership?
Held: Yes. The stipulation 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 a partnership.
A third person may and has a right to presume the
managing partner with whom he contracts has, in the
ordinary and usual course of business, the consent of his
co-partner or otherwise he would not enter into the
contract.
REASON: To protect a third person who contracts with
one of the managing partners from fraud or deceit to
which he can be an easy victim.
ART. 1803. When the manner of management has not
been agreed, the following rules shall be observed:
1) All of 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 ART. 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 parties is
manifestly prejudicial to the interest of the
partnership, the court’s intercession is sought.
Rules when the manner of management has not been
agreed upon:
1) All partners considered managers. – All of them
shall be considered managers and agents and
whatever any one of them may do alone shall
bind the partnership subject. However, under this
article’s provision, in case of timely opposition of
any partner, the matter shall first be decided by
the majority vote for the presumed intent is for
all the partners to manage. If there is a tie, the
matter shall be decided by the vote of the
partners representing the controlling interest.
Example:
Thus, in the example given in ART. 1801,
if D.O., Kai, Chanyeol and Baekhyun are in favor
of a particular transaction, their decision shall
prevail although they do not represent the
controlling interest. In case of tie, the controlling
interest shall govern.
2) Unanimous consent required for any important
alteration in immovable property of
partnership. – Under the second paragraph, it is
necessary for any important alteration of
immovable property of the partnership. The
consent need not to be express. It may be
presumed from the fact of knowledge of the
alteration without imposing any objection.
a. This prohibition applies only to
immovable property because pf the
greater importance of this kind of
property as compared to movable
property (11 MANRESA 391-391). An act
of strict dominion is observed when an
important alteration has been made in
the immovable property of the
partnership.
b. If the refusal to give consent by the other
partners is manifestly prejudicial to the
interest of the partnership, the
intervention by the court may be sought
for authority to make the necessary
alteration.
c. Under the second paragraph, if the
alteration of the immovable property is
necessary for its preservation, not
merely useful to the partnership, the
consent of the partners is not required.
ILLUSTRATIVE CASE:
Facts: Kai, Sehun and Chanyeol organized a partnership
for the purpose of engaging in the transportation
business. Without a previous express authority, Kai
contracted an indebtedness for automobile supplies and
accessories.
Issue: Are the partnership and the partners are liable for
said indebtedness?
Held: Yes. There being no agreement with regards to the
manner of management, all the partners are considered
agents of the partnership. Kai must be deemed to have
authority to contract the indebtedness in question
inasmuch as it was incurred in the prosecution of the
partnership business.
ART. 1804. Every partner may associate another with
him in his share, but the associate shall not be admitted
to the partnership without the consent of all the other
partners, even if the partner having an associate should
be the manager. (1696)
Contract of sub-partnership
1. Nature. – A partner can associate another
person with him in his share without the
consent of the other partners which is referred
to as sub-partner.
 The partnership formed between a member of
partnership and a third person for a division of
profits coming to him from the partnership
enterprise is termed subpartnership.
A subpartnership is a partnership within a
partnership but is separate and distinct from
the latter.
2. Division of profits. – How profits between the
members of the subpartnership are to be
divided is immaterial, and the mere fact that the
one who is not a partner of the original
partnership is to receive the entire profits of
the business will not prevent the formation of
a subpartnership.
Right of person associated with partner’s share
• Subpartnership agreements do not in any way
affect the composition, existence, or operations
of the firm.
• Not being a member of the partnership, he does
not acquire the rights of a partner nor he is liable
for the debts.
Example:
Kyungsoo, Jongin and Sehun are
partners. Kyungsoo may contract with Baekhyun,
whereby the latter will participate in his
(Kyungoo’s) share in the profits of the
partnership. This Kyungsoo can do
independently of the partnership and in
accordance with the principle of freedom to
contract. The original contract of partnership
between Kyungsoo, Jongin and Sehun is not in
any manner altered.
Baekhyun is considered merely a
creditor of Kyungsoo who associated him in his
share. Consequently, Baekhyun has no right to
intervene in the partnership to which he is a mere
stranger. Like an assignee, Baekhyun cannot
interfere in the management or administration of
the partnership business, require information or
account, or inspect partnership books. (ART.
1813) Kyungsoo continues in the enjoyment of
the rights and remains subject to liabilities of a
partner though no contract has been made by
him with Baekhyun.
Baekhyun does not become a partner
nor he is liable for the partnership debts even if
the agreement between Kyungsoo and Baekhyun
is with knowledge and assent of Jongin and
Sehun. Baekhyun is an investor.
• REASON: For a subpartner to become a partner,
all the other partners must consent even if the
partner who associated the subpartner should be
the manager because a partnership Is based on
mutual trust and confidence among the partners.
ART. 1805. The partnership books shall be kept, subject
to any agreement between the partners, at the principal
place of a business of the partnership, and every
partner shall at any reasonable hour have access to and
may inspect and copy any of them. (n)
• 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
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.
• A partner is a co-owner of the partnership
properties (ART. 1811) which include the books
of partnership.
• Subject to any agreement in the contrary, the
partnership books should be kept at the principal
place of business as each partner has a 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. (ART. 1806)
• Declares the rights of the partners with respect
to partnership books can be exercised at “any
reasonable hour”.
• Means that reasonable hours on business days
throughout the year and not merely during an
arbitrary period of a few days chosen by the
managing partners (e.g., December 1 to 15 of
every year).
• The partner’s rights are not absolute. He can be
restrained from using the information gathered
for other partnership purpose.
ART. 1806. Partners shall render on demand true and
full information of all things affecting the partnership to
any partner or legal representative of any deceased
partner or of any partner under legal disability. (n)
• There must be no concealment between them in
all maters affecting the partnership. Hence, the
duty to render true and full information of all
things affecting the same upon request or
demand and must be used only for a partnership
purpose.
• “On demand” does not mean that a partner is
under no duty to make voluntary disclosure of
information affecting the partnership. He is also
under the duty of voluntary disclosure of material
facts within his exclusive knowledge relating to
or affecting the partnership affairs. (ART. 1821).
• The duty to render information does not arise
with respect to matters appearing on the
partnership books since each partner has the
right to inspect the books.
 Example:
1. Lay and Xiumin are partners engaged in the
real estate business. Lay learned that Suho
was interested in buying a certain parcel
owned by the partnership, even for a high
price. Without informing Xiumin, Lay was
able to make Xiumin sell to him (Lay) his
(Xiumin’s) share in the partnership. Then,
Lay sold the land at a big profit.
In this case, Lay is liable to Xiumin for the
latter’s share in the profits. When Lay
purchased Xiumin’s interests, Lay was under
the duty to make disclosure of facts bearing
on the value of such interests which were not
known to Xiumin.
2. If Lay discovered a valuable mine on a land
of the partnership, he is under a duty to
disclose such information before purchasing
the interest of Xiumin.
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)
• The relation between the partners is essentially
fiduciary, that is, involving trust and confidence,
each partner being considered in law, as he is in
fact, the confidential agent of the others.
1. Duty to act for common benefit. – It is
obligation of a partner to act for the common
benefit of all in all transactions relating to the
partnership business or affairs.
2. Duty to account for secret and similar profits.
– A partner, therefore, who makes a secret
profit out of the operation of the partnership, o
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 accruing even
after termination of partnership. – The duty of
the former partner to share profits with his
former associates may extend to earnings
accruing after the termination of the
partnership.
“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 his
obligation to act for the common benefit of all
transactions relating to the partnership
business or affairs.
Example:
Chen and Baekhyun are partners
engaged in the real estate business. Chen
bought a parcel of land with partnership funds
in his own name and subsequently sold the
same at a profit. Baekhyun has a right to share
in the profit and Chen holds as trustee the
profit derived by him from the transaction.
ILLUSTRATIVE CASE:
Facts: Suho and Kris were partners in the
operation of a cinema business. The theatre
was mortgaged to Lay who foreclosed the
mortgaged debt. Suho, in his own behalf,
redeemed the property with his own private
funds. Subsequently, Suho filed a petition for
the cancellation of the old title of the
partnership and the issuance of another title in
his name alone.
Issue: Did Suho become absolute owner of the
property?
Held: No. In this case, when Suho redeemed
the property in question, he become a trustee
for the benefit of his co-partner, Kris, subject
to his right to demand from the latter his
contribution to the price of redemption plus
legal interest.
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 fund any profits accruing to him
from his transactions and shall personally bear all the
losses. (n)
• The prohibition against the capitalist partner to
engage in business is relative unlike the industrial
partner who is absolutely prohibited from
engaging in any business for himself. (ART.
1789)
• He is only prohibited from engaging for his own
account in any operation which is the same as or
similar to the business in which the partnership
is engaged. The partners, however, by
stipulation, may permit the capitalist partner to
engage in the same kind of business.
• The law does not prohibit a partner from
engaging in enterprises in his own behalf during
the period that he is a member of the firm but
permits him to carry on a business or activity not
connected or competing with that of the
 partnership, as long as the partnership
agreement does not prohibit such activity.
• The law is silent on whether a capitalist partner
can engage in the same line of business for the
account of another. Without the prohibition, the
partner may sacrifice the interest of the
partnership to favor his employer.
• REASON: It is universal that a capitalist partner,
without the consent of his co-partners, cannot
carry on a business of the same nature and in
competition with that of the firm.
• This principle prevents a partner from availing
himself personally of information obtained by
him in the course of the transaction of the
partnership business or by reason of his
connection with the firm regarding the business
secrets and clientele of the firm to its prejudice.

ART. 1809. Any partner shall have the right to a formal

account as to partnership affairs:

1) If he is wrongfully excluded from the

partnership business or possession of its
property by his co-partners;
2) If the right exists under the terms of any
agreement;
3) As provided by Article 1807;
4) Whenever other circumstances render it just
and reasonable. (n)

GENERAL RULE: In general, during the existence of the

partnership, a partner is not entitled to a formal account
of partnership affairs.

REASON: The rights of the partner to know partnership

affairs are amply protected in ART. 1805 and 1806.
Furthermore, to entitle any partner to the right to
constantly demand or ask for a formal accounting will
cause much inconvenience and unnecessary waste of
time.

EXCEPTIONS: However, in the special and unusual

situations enumerated under ART. 1809, the justification
for a formal accounting even before dissolution of the
partnership cannot be doubted.

• A formal account is necessary incident to the

dissolution of a partnership.

Example:

Under the No. 4 of ART. 1809, is where a partner

has been assigned abroad for a long period of time in
connection with the partnership business and the
partnership books during such period being in
possession of the other partners.