PARTNERSHIP

Section 1

OBLIGATIONS OF THE
PARTNERS
AMONG THEMSELVES
 OBLIGATIONS OF A PARTNER

• (a) To give his contribution. (Arts. 1786, 1788, Civil

Code).
• (b) Not to convert firm money or property for his
own use. (Art. 1788, Civil Code).
• (c) Not to engage in unfair competition with his
own firm. (Art. 1808, Civil Code).
• (d) To account for and hold as trustee, unauthorized
personal profits. (Art. 1807, Civil Code).
 OBLIGATIONS OF A PARTNER

• (e) Pay for damages caused by his fault. (Art.

1794, Civil Code).
• (f) Duty to credit to the fi rm, payment made by a
debtor who owes him and the fi rm. (Art. 1792,
Civil Code).
• (g) To share with the other partners the share of
the partnership credit which he has received from
an insolvent firm debtor. (Art. 1743, Civil Code).
Art. 1784. A partnership begins
from the moment of the execution
of the contract, unless it is
otherwise stipulated.
When a Partnership Begins

(a) Generally, from the moment of the

execution of the contract.
(b) Exception — When there is a contrary
stipulation.
Intent to Create a Future Partnership
The Article presupposes that there can be a
future partnership which at the moment has
no juridical existence yet.

The agreement for a future partnership does

not of itself
result in a partnership. The intent must later
on be actualized by the formation of the
intended partnership. (See Limuco v. Calinao,
C.A., L-10099-R, Sept. 30, 1953).
Rule if Contributions Have Not Yet Been
Actually
Made

Generally, even if contributions have not yet

been made,
the firm already exists, for partnership is a
consensual contract (of course all the
requisite formalities for such consent must be
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
Duration of a Partnership

A partnership is unlimited as to its duration

in the sense that no time limit is fixed by law.
The duration may be agreed upon —
expressly (as when there is a definite period)
or impliedly (as when a particular enterprise
is undertaken — it being understood that the
fi rm ends as soon as its purpose has been
achieved).
There are two kinds of a partnership “at
will.”

(a) 1st kind — when there is no term,

express or implied
(b) 2nd kind — when it is continued by
the habitual managers — although the
period has ended, or the purpose has
been accomplished. (NOTE: This is
“prima facie” evidence of the fi rm’s
Art. 1786. Every partner is a debtor of the
partnership for whatever he may have
promised to contribute thereto.
He shall also be bound for warranty in case of
eviction with regard to specific and
determinate things which he may have
contributed to the partnership, in the same
cases and in the same manner as the vendor
is bound with respect to the vendee. He shall
also be liable for the fruits thereof from the
time they should have been delivered,
Three Important Duties of Every
Partner

The Article speaks of three things:

(a) the duty to contribute what had been
promised;
(b) the duty to deliver the fruits of what
should have been delivered; and
(c) the duty to warrant.
The Duty to Contribute

(a)The contribution must be made

ordinarily at the time the partnership is
entered into, unless a different period
is stipulated.

Is demand necessary?
In either case, no demand is needed to
put the
partner in default, because in a
partnership the obligation to contribute is
one where time is of the essence (for
without the contribution, the partnership
is useless).
The Duty to Contribute

(b) The partner must exercise due

diligence in preserving the property to be
contributed, before he actually
contributes the same; otherwise, he can
be held liable for losses and deterioration.
The Duty to Deliver the Fruits
(a) 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
need of any demand.

(b) If money has been promised, “interest and

damages from the time he should have
The Duty to Warrant
(a) The warranty in case of eviction refers to
“specific and
determinate things” already contributed. (See
Art. 1786,
Civil Code).

(b) There is “eviction” whenever by a final

judgment based
on a right prior to the sale or an act imputable
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
(1) When Contribution Consists of Goods
Appraisal of value is needed to determine
how much has been contributed.

(2) How Appraisal Is Made

(a) Firstly, as prescribed by the contract.
(b) Secondly, in default of the fi rst, by
EXPERTS chosen by the partners, and at
CURRENT prices.
Necessity of the Inventory-Appraisal

Proof is needed to determine how much

goods or money had been contributed. An
inventory is therefore useful. (See Tablason v.
Bollozos, C.A., 51 O.G. 1966).
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
(1) Rules of Failure to Contribute and for
Conversion
Cases covered by the Article:
(a) when money promised is not given on time;
(b) when partnership money is converted to the
personal use of the partner.

(2) Coverage of Liability

Liability covers ALSO interest and damages:
(a) Interest at the agreed rate; if none, at the legal
rate of 6% per annum.
(b) Damages that may be suffered by the
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.
Definitions and Some Characteristics

(a) Capitalist partner — one who furnishes

capital. (He is not exempted from losses; he
can engage in other business provided there
is NO COMPETITION between the partner and
his business.) (See Art. 1808, Civil Code).
(b) Industrial partner — one who furnishes
industry or labor. [He is exempted from losses as
between the partner; he cannot engage in any
other business without the express
consent of the other partners; otherwise:

1) he can be EXCLUDED from the firm (PLUS

DAMAGES);
2) OR the benefi ts he obtains from the other
businesses
can be availed of by the other partners (PLUS
[NOTE: The rule remains true whether or not
there is COMPETITION. Reason: All his industry
is supposed to be given only to the
partnership. (Limuco v. Calinao, C.A., L-10099-
R, Sept. 30, 1953).]
(f) Managing partner — one who manages
actively the fi rm’s affairs.

(g) Silent partner — one who does not

participate in the management (though he
shares in the profits or losses).

(h) Liquidating partner — one who liquidates

or winds up the affairs of the fi rm after it has
been dissolved.
(i) Ostensible partner — one whose connection
with the
firm is public and open (that is, not hidden).
(Usually his name is included in the fi rm name.)

(j) Secret partner — one whose connection with

the firm is concealed or kept a secret.

(k) Dormant partner — one who is both a secret

(hidden) and silent (not managing) partner.

(l) Nominal partner — one who is not really a

partner but who may become liable as such insofar
Distinctions Between a ‘Capitalist’
and an ‘Industrial Partner’

(a) As to contribution:
1) the capitalist partner contributes
money or property
2) the industrial partner contributes his
industry (mental or physical)
Distinctions Between a ‘Capitalist’ and an
‘Industrial Partner’

(b) As to prohibition to engage in other business:

1) the capitalist partner cannot generally
engage in the same or similar enterprise as
that of his firm (the test is the possibility of
unfair competition). (Art. 1808, Civil Code).
2) the industrial partner cannot engage in any
business for himself (Reason: all his industry is
supposed to be contributed to the fi rm). (Art.
1789, Civil Code).
Distinctions Between a ‘Capitalist’
and an ‘Industrial Partner’

(c)As to profits:
1) the capitalist partner shares in the
profi ts according to the agreement
thereon; if none, pro rata to his
contribution. (Art. 1797, Civil Code).
2) the industrial partner receives a just
and equitable share. (Art. 1797, Civil
(d) As to losses:
1) capitalist
a) first, the stipulation as to losses
b) if none, the agreement as to profits
c) if none, pro rata to contribution
2) the industrial partner is exempted as to
losses (as between the partners). But is
liable to strangers, without prejudice to
reimbursement from the capitalist partners.
(Art. 1816, Civil Code).
Art. 1790. Unless there is a stipulation to the
contrary
the partners shall contribute equal shares to
the capital of the partnership.
Amount of Contribution
(a) It is permissible to contribute unequal
shares, if there is a stipulation to this effect.
(b) In the absence of proof, the shares are
presumed equal.
To Whom Applicable

The rule applies to capitalist partners

apparently; however, the share of the
industrial partner is undoubtedly also
available, for his industry may be worth even
more than the entire capital contributed.