OBLIGATIONS

OF THE
PARTNERS
SECTION 1 - Obligations of the Partners among Themsleves
 RELATIONS CREATED BY A
CONTRACT OF PARTNERSHIP

1 Relations among the partners themselves;

2 Relations of the partners with the partnership;

3 Relations of the partnership with third

persons with whom it contracts;

4 Relations of the partners with such third persons

 EXAMPLE :
Danny and Jr formed a partnership called O&A, and it
transacts business with Leo, a third person.

RELATIONS
DANNY LEO BETWEEN:
P
A
R 1. Danny and JR
T
N O&A THIRD PERSON
2. Dann y and JR
E
with O&A
R
S
JR 3. O&A and Leo

4. Danny, Leo,
and JR
ARTICLE 1784.
A partnership begins from the
moment of the execution of the
contract, unless it is otherwise
stipulated. (1679)
 Commencement of partnership.

A partnership is a consensual contract, hence, it exist from the moment of

the celebration of the contract by the partners. What is necessary is that the
essential requisites of a contract of partnership are present even when the
partners have not yet actually given their contributions, or even though its
conditions or details, such as the participation of the partners in the profits
and losses and the nature of the partnership have not yet been fixed, as
they pertain to the accidental and not to the essential parts of the contract.

Where a partnership relations results, the law itself fixes the incidents of this
relation if the parties fail to do so.
EXECUTORY AGREEMENT OF
PARTNERSHIP
(1) FUTURE PARTNERSHIP
The partners may stipulate some other date for the
commencement of the partnership. Persons who
have entered into a contract to become partners at
some future time or on the happening or fulfillment
of some condition or future contingency do not
become partners until or unless the agreed time
has arrived or the condition has happened. Hence,
there can be a future partnership which at the
moment has no juridical existence yet.
(2)
AGREEMENT TO CREATE
PARTNERSHIP
A distinction must be made between a partnership
actually consummated and an agreement to enter
into a contract of partnership at a future time. So
long as the agreement remains executory, no
partnership can be said to exist.
(3)
FAILURE TO AGREE ON
MATERIAL TERMS
A failure of the parties to agree on material terms
may not merely be evidence of the intent 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.
A general partnership, as distinguished from a limited
partnership (see Art. 1843), may result from an oral contract
except those partnerships by the terms of the agreement are
to be formed by the parties for more than one year from the
making thereof, in which the partnership agreement must be
in existing as required by the Statute of Frauds.
 ARTICLE 1785.
When a partnership for a fix 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)
 Continuation of partnership
beyond fixed term

A partnership with a fixed term is one in which the term of

its existence has been agreed upon expressly (as when there

is a definite period) or impliedly (as when a particular

enterprise or transaction is undertaken). The expiration of the

term thus fixed or the accomplishment of the particular

undertaking specified will cause the automatic dissolution of

the partnership.
 (1) Rights and duties of partners
in a partnership at will
The partnership, however, may be extended or renewed by the
partners 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
remain the same as they were at such termination but only
liquidation. In such case, the rights and duties of the partners
insofar as it is consistent with a partnership at will.
 (2) Dissolution/termination of
the partnership
In other words, with such continuation, the partnership for a fixed
term or particular undertaking is dissolved and a new one, a
partnership at will, is created the continued existence of which will
depend upon the will of the partners. Unless otherwise provided by
the partners, a partnership is "at will" (Art. 1776), meaning that a
partner may terminate the partnership whenever he wishes. The
reason is 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.
 (3) Power/right of a partner to
terminate partnership
Verily, any one of the partners may, at his sole pleasure, dictate a dissolution of a
partnership at will. He must, however, act in good faith not that the attendance of
bad faith can prevent the dissolution of the partnership (Art. 1830) but that can
result in his incurring liability for damages to the other partners. Implicit in good
faith is the requirement that the dissolution must not be made at an improper or
unreasonable time.
Even a partnership for a fixed term may likewise be terminated
by the express will of any partner before the time mentioned.
There is no such thing as an indissoluble partnership.
 ARTICLE 1786.
Every partner is a debtor of the partnership for whatever he may
have promised to contribute thereto.

He shall also be bound for warranty in case of eviction with

regard to specific and determinate things which he may have
contributed to the partnership, in the same cases and in the
same manner as the vendor is bound with respect to the vendee.
He shall should have been delivered, without the need of any
also be liable for the fruits thereof from the time they demand.
 Obligations with respect to 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; and
(3) To answer to the partnership for the fruits of the property the contribution of
which he delayed, from the date they should have been contributed up to the
time of actual delivery.
In addition, the partner has the obligation:
(4) To preserve said property with the diligence of a good father of a family
pending delivery to the partnership (Art. 1163.);
and
(5) To indemnify the partnership for any damage caused to it by the retention of
the same or by the delay in its contribution. (Arts. 1788, 1170.)
 Effects of failure to contribute property promised.
(1) Liability as debtor to partnership – the mutual contribution to a common
fund is of the essence of the contract of partnership (Art. 1767.), for without
the contributions, the partnership is useless. It is but logical that the failure to
contribute is to make the partner automatically a debtor of the partnership
even in the absence of any demand
(2) Remedy of other partners. - Under this article, the remedy of the other
partners or the partnership is not rescission or cancellation of the contract of
partnership but an action for specific performance (to collect what is owing)
with damages and interest from the defaulting partner who is made a debtor
of the partnership for what he has promised to contribute to the partnership,
from the time he should have complied with his obligation.
 Liability of partner in case of eviction.

The partner is bound in the same cases and in the same manner as the
vendor is bound with respect to the vendee. This matter is, therefore,
governed by the law on sales.

Under the law on sales, eviction shall take place whenever by a final
judgment based on a right prior to the sale or an act imputable to the
vendor, the vendee is deprived of the whole or a part of the thing purchased.
(Art. 1548.) This obligation of warranty in case of eviction is in consequence
of the character of the contract of partnership which is an onerous contract.
(see Art. 1767.)
 As a general rule, a demand by the creditor is necessary before a debtor will be
bound to comply with his obligation. (see Art. 1169.)
 Art. 1548. 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 of a part of the thing purchased.
 The vendor shall answer for the eviction even though nothing has been said in the
contract on the subject.
 The contracting parties, however, may increase, diminish, or suppress this legal
obligation of the vendor
 Art. 1557. The warranty cannot be enforced until a final judgment has been
rendered. whereby the vendee loses the thing acquired or a part thereof. (1480)
 Art. 1558. The vendor shall not be obliged to make good the proper warranty,
unless he is summoned in the suit for eviction at the instance of the vendee.
(1481a)
 Liability of partner for fruits of property in case
of delay

Here, again, no demand is necessary to put the partner in default.

From the mere fact that the contribution which a partner ought to deliver
does not pass to the common fund on time, the partnership fails to
receive the benefits which the said contribution ought to produce thus
prejudicing the common purpose of obtaining from them the greatest
possible profits through some means of speculation or investment. The
injury, therefore, to the partnership is constant. (11 Manresa 332-335.)
 ARTICLE 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 and 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 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 (see Arts. 1773, 1795.);
otherwise, it may be made as provided in Article 1787. There is no reason why
the rule in Article 1787 should not also apply with respect to other kinds of
property.
ARTICLE 1788.
A partner who has undertaken to contribute a sum of
money and fails to do so becomes a debtor for the
interest and damages from the time he should have
complied with his obligation.

The same rule applies to any amount he may have

taken from the partnership coffers, and his liability
shall begin from the time he converted the amount to
his own use. (1682)
 Obligations with respect to contribution of
money and money converted to personal use.

(1) To contribute on the date due the amount he has under- taken 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;

(4) To indemnify the partnership for the damages caused to it by the delay
in the contribution or the conversion of any sum for his personal benefit.
 Liability of guilty partner for interest
and damages.
(1)Accruals 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) extrajudicial demand is made or from the time he converted the
amount to his own use, as the but from the time he should have
complied with his obligation case may be.

(2)Justification for double responsibility - this double responsibility of

the partner is an exception to the general rule in damages that in
obligations consisting in the payment of a sum money, the indemnity for
damages shall be only the payment of interest agreed upon or, in the
absence of stipulation, the legal interest of 6%.' (Art. 2209.) It is in
harmony with the principle laid down in Article 1794 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.
ARTICLE 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)
Obligations of industrial partner.
● 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 the partnership.

● In effect, 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 – the 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. It is clear
that the reason for the prohibition exists in both cases, which 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 - the 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 for 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) In either case, the capitalist partners have a right to damages. Note that the
permission given to the industrial partner must be express to exempt him
from liability.

(2) Although the law mentions only the capitalist partners, it is believed that
industrial partners are also entitled to the remedy granted since they are equally
prejudiced by the act of their co-partner engaging in business for himself.
ARTICLE 1790.
Unless there is a stipulation to the
contrary, the partners shall
contribute equal shares to the
capital of the partnership. (n)
 Extent of contribution to a partnership

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. This principle is just and
reasonable and is consistent with the rule presumption is that their
contribution shall be in equal shares. that partners are deemed to have
equal rights and obligations.

Obviously, the above rule is not applicable to an industrial partner unless,

besides his services, he has contributed capital pursuant to an agreement
to that effect. (See Art. 1797, par. 2.)
ARTICLE 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 other
partners. (n)
 Obligation of capitalist partner to contribute
additional capital.

As a general rule, a capitalist partner is not bound to contribute to

the partnership more than what he agreed to contribute.

In case however, 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 for application of rule.
(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 (deliberately not because of his

financial inability to do so) to contribute an additional share to
the capital;

(4) There is no agreement that even in case of an imminent loss

of the business the partners are not obliged to contribute.

NOTE: Industrial partner is exempted from the requirements to

contribute an additional share. Having contributed his entire industry, he
can do nothing further.
Reason for the sanction.
The refusal of the partner to contribute his additional share
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. Hence, the
law provides a remedy which, incidentally, is just to both parties
since the partner who refuses to contribute is paid the value of
his interest while the other partners are thereby relieved from
the burden of continuing their association with him in the
ARTICLE 1792.
If a partner authorized to manage collects a
demandable sum, which was owed to him in his own
name, from a person who owed the partnership
another sum also demandable, the sum thus collected
shall be applied to the two credits in proportion to
their amounts, even though he may have given a
receipt for his own credit only; but should he have
given it for the account of the partnership credit, the
amount shall be fully applied to the latter.

The provisions of this article are understood to be

without prejudice to the right granted to the debtor by
Article 1252, but only if the personal credit of the
partner should be more onerous to him. (1684)
 Obligation of managing partner who
collects debt.

A person may be separately indebted to the partnership and to the

managing partner at the same time. Any sum received by the
managing partner shall be applied to the two (2) credits in
proportion to their amounts.

The exception is where the managing partner received the sum for
the account of the partnership, in which case, the whole sum shall
be applied to the partnership credit only.
 Requisites for application of rule.

(1) There exist at least two (2) debts, one where the collecting
partner is creditor, and the other, where the partnership is the
creditor;

(2) Both debts are demandable;

(3) The partner who collects is authorized to manage and actually

manages the partnership.
 Reasons for applying payment to
partnership credit
The law safeguards the interests of the partnership by preventing the
possibility of their being subordinated by the managing partner to his
own interest to the prejudice of the other partners. Good faith
demands that the partner vested with the management of the
partnership attend more to the interest of the partnership than to his
own and he should not intentionally fail to effect the collection of the
credit of the partnership in order to effect the collection of his own.
(11 Manresa 351.)

The article does not apply where the partner who collects for his own
credit only is not authorized to manage for there can be no ground for
suspicion that he may have acted improperly to create an undue
advantage to himself. However, where the manner of management
has not been agreed upon and all the partners participate in the
management of the partnership (Art. 1803.), then every partner shall
be considered a managing partner for purposes of Article 1792.
ARTICLE 1793.
A partner who has received, in whole or in part,
his share of a partnership credit, when the other
partners have not collected theirs, shall be
obliged, if the debtor should thereafter become
insolvent, to bring to the partnership capital what
he received even though he may have given
receipt for his share only. (1685a)