Art. 1767. dictate a dissolution of a partnership.

He must, however, act in good faith, not that

By a contract of partnership, two or more persons bind themselves to contribute the attendance of bad faith can prevent the dissolution of the partnership but it can
money, property or industry to a common fund, with the intention of dividing result in liability for damages.
the profits among themselves.
Two or more persons may also form a partnership for the exercise of a profession. “PERSONS” – biological and legal sense. Thus, a partner may be a human being, a
partnership, a corporation, or a joint venture.
Characteristic Elements of Partnership CNBOCPP
1. Consensual – because it is perfected by mere consent; General Rule: Any person may be a partner who is capable of entering into
2. Nominate – because it has a special name or designation in our law; contractual relations.
3. Bilateral – because it is entered into by two or more persons and the rights Exceptions, the following cannot give their consent to a contract of partnership:
and obligations arising therefrom are always reciprocal; PUIDI
4. Onerous – because each of the parties aspires to procure for himself a 1. Persons suffering from civil interdiction;
benefit thru the giving of something; 2. Unemancipated minors;
5. Commutative – because the undertaking of each of the partners is 3. Insane or demented persons;
considered as the equivalent of that of the others; 4. Deaf-mutes who do not know how to write;
6. Principal – because it does not depend for its existence or validity upon some 5. Incompetents under guardianship.
other contracts;
7. Preparatory – because it is entered into as a means to an end. Under Art. 1782., persons who are prohibited from giving each other any donation or
advantage cannot enter into a universal partnership.
A partnership contract, in its essence, is a contract of agency.
Unless authorized by the statute or by its charter, a corporation is without capacity
ESSENTIAL FEATURES of Partnership: VLM-LP or power to enter into a contract of partnership.
1. There must be a Valid contract;
2. Legal capacity of parties to enter into a contract; A corporation, however, may enter into joint venture partnership with another
3. Mutual contribution of money, property or industry; where the nature of the venture is in line with the business authorized by its
4. Lawful object; charter.
5. Primary purpose is to carry on a business for profits and to divide the same
among the parties. Where the entry of the foreign corporation as a limited partner in a limited partnership
is merely for investment purposes and it shall not take part in the management and
It is also required that the articles of partnership must not be kept secret among the control of the business operation of the partnership, it shall not be deemed “doing
members; otherwise, the association shall have no legal personality and shall be business” in the Philippines, and hence, it is not required to obtain a license to do
governed by the provisions of the Civil Code relating to co-ownership. business in the Philippines.

No formality is required in setting up a general partnership unless it falls within the Form of Contribution:
Statue of Frauds. However, there are formal requirements for creating a limited 1. MONEY – currency which is the legal tender in the Philippines.
partnership.  Checks, drafts, promissory notes payable to order, and other mercantile
documents are not money but only representatives of money.
Unless otherwise provided in the partnership agreement, no one can become a member Consequently, there is no contribution of money until they have
of the partnership association without the consent of all the other associates. been cashed.

Among partners, mutual agency arises and the DOCTRINE OF DELECTUS 2. PROPERTY – real, personal, corporeal or incorporeal. Hence, credit such as
PERSONAE allows them to have the power, although not necessarily the right, to promissory note or other evidence of obligation or even a mere goodwill may
dissolve the partnership. Verily, any one of the partners may, at his sole pleasure, be contributed, as they are considered property.
 In the case contemplated in Art. 1773, the partnership shall not acquire any
3. INDUSTRY – means the active cooperation, the work of the party juridical personality because the contract itself is VOID. This is also true regarding
associated, which may be either personal manual efforts or intellectual, secret associations or societies which do not acquire juridical personality under Art.
and for which he receives a share in the profits of the business. 1775.
 Exception: A limited partner in a limited partnership cannot contribute
mere industry or services. Art. 1769.
In determining whether a partnership exists, the RULES shall apply: PCSR
Partner Contributing His Service v. Lessor of Services 1. Except as provided by art. 1825, Persons who are not partners to each
A partner contributing his service is independent of the other partners, that is, he other are not partners as to third persons.
is not subject to the supervision of the other partners. 2. Co-ownership or co-possession does not itself establish a partnership,
A lessor is under the supervision of the lessee or employer. whether such co-owners or co-possessors do or do not share any profits
made by the use of the property;
The OBJECT is unlawful when it is contrary to law, morals, good customs, public 3. The Sharing of gross returns do not of itself establish a partnership,
order, or public policy. whether or not the persons sharing them have a joint or common right or
interest in any property from which the returns are derived;
Even an unprofitable business can be a partnership provided that the goal of the 4. The Receipt by a person of a share of the profits of a business is prima
business is to generate profits and to return these profits to the partners as owners of facie evidence that he is a partner in the business, but no such inference shall
the business. be drawn if such profits were received in payment: DAWIC
a. As a Debt by installments or otherwise;
The sharing of profits may not be necessarily in equal shares. b. As an Annuity to a widow or representative of a deceased partner;
The sharing of profits is merely presumptive and not conclusive, even if cogent, c. As Wages of an employee or rent to a landlord;
evidence of partnership. d. As Interest on a loan, though the amount of payment vary with the
profits of the business;
The right to share in the profits carries with it the duty to contribute to the losses, if e. As the Consideration for the sale of a goodwill of a business or other
any. The object of a partnership is primarily the sharing of profits, while the distribution property by installments or otherwise.
of losses is but a “consequence of the same.”
Persons not partners as to each other
A stipulation which excludes one or more partners form any share in the  A partnership can never exist as to third persons if no contract of
profits or losses is VOID. partnership, express or implied, has been entered into between the
parties themselves. Exception: Partnership by estoppel. Where
Art. 1768. persons by their acts, consent, or representations have misled third
The partnership has a JURIDICAL PERSONALITY separate and distinct from persons or parties into believing that the former are partners in a non-
that of each of the partners even in case of failure to comply with the requirements existing partnership, such persons become subject to liabilities of partners
of article 1772, first paragraph. to all who, in good faith, deal with them in their apparent relations.

General Rule: The parties cannot be held liable for obligations of the partnership.  If A and B are not partners as to each other, neither will they be partners
Exceptions: with respect to C, a third person. But if A, with the consent of B,
1. If it is shown that the legal fiction of a different juridical personality is being represents to C that they are partners, then A and B will be considered as
used for a fraudulent, unfair, or illegal purpose. partners as to C even if they are not really partners.
2. As provided in Art. 1816 (partner assumes separate undertaking in his name
or makes himself solidarily liable on a partnership contract).
Co-ownership or Co-possession
  Two or more persons may become co-owners without a contract, but they 2. Y, an employee of partnership X, shall receive instead a fixed salary, or
cannot be partners in the absence of a contract. being the owner of a building rented by the partnership, Y shall receive as
Partners Co-owners rent a certain percentage of the monthly net profits of the business;
There is a well-defined fiduciary No fiduciary relationship 3. Y, the widow of a deceased partner in a partnership, in consideration of
relationship between them as the business and without liquidation and satisfaction of the deceased’s
partners. interest, shall receive an annuity for a period of 5 years based on a
Remedy for dispute: action for Remedy for dispute: action for non- certain percentage of the net profits;
Dissolution, Termination and performance of a contract. (there are 4. Y, creditor of partnership X, agreed that the payment of interest shall be
Accounting. DTA also other remedies not mentioned) taken from the net profits to be realized by the partnership; and
5. Y sold property to partnership X, and he agreed that the purchase price
 A and B put up money to buy lottery tickets for the sole purpose of dividing shall be paid out of the net profits of the business.
equally the prize money which they may win. The parties in this case formed a
partnership. In any of the above cases, Y shall not be entitled to receive payment where
 Children sold lots given by their father and divided the proceeds. They are co- there are no profits; nor shall he be liable to share any losses incurred by the
owners pure and simple. The original purpose was to divide the lots for partnership.
residential purposes. If later on they found it not feasible to do so because of
the high cost of construction, then they had no choice but to resell the same Burden of Proof and Presumption
to dissolve the co-ownership. The division of profits was merely 1. The existence of a partnership must be proved and will not be presumed.
incidental to the dissolution of the co-ownership which was, in the 2. The law presumes that persons who are acting as partners have
nature of things, a temporary state. It has to be terminated sooner or entered into a contract of partnership. Where the law presumes the
later. existence of a partnership, the burden of proof is on the party denying its
existence.
Sharing of Gross Returns 3. When a partnership is shown to exist, the presumption is that it continues
 Mere sharing of gross returns alone does not indicate a partnership, since in the absence of evidence to the contrary, and the burden of proof is on the
in a partnership, the partners share net profits after satisfying all of the person asserting its termination.
partnership’s liabilities. 4. One who alleges a partnership cannot prove it merely by evidence of an
agreement wherein the parties call themselves partners.
 The sharing of gross returns has been held NOT TO CONSTITUTE even 5. “Associate” means “partner,” but a mere employee may also be an
PRIMA FACIE evidence of the relation. “associate.” “We” and “us,” when used in an editorial sense, are not conclusive
evidence of either partnership or employment.
Receipt of share in the profits 6. Partners intending to do a thing which in law constitutes partnership are
 The sharing of profits and losses is PRIMA FACIE evidence of an partners, whether their purpose was to create or avoid the relation, or even
intention to form a partnership but not a conclusive evidence. The expressly stipulated in their agreement that they were not to become partners.
presumption of partnership arising from such profit-sharing agreement may be
rebutted and outweighed by other circumstances. Art. 1770. Two Essential Elements of a Contract of Partnership.
A partnership (1) must have a lawful purpose; and (2) must be established for
 Examples of Exceptions: the common benefit or interest of the partners.
In the following cases, Y is not a partner in partnership X:
1. Y, creditor of partnership X, is entrusted by the partners to manage the When an UNLAWFUL partnership is dissolved by a judicial decree, the profits
business, and Y shall receive, in addition to his compensation, a share in shall be confiscated in favor of the State, without prejudice to the provisions of the
the net profits of the business in settlement of his credit. Penal Code governing the confiscation of the instruments and effects of a crime.
The illegality of the object will not be presumed; it must appear to be of the essence of Every contract of partnership having a capital of P3,000 or more, in money or property,
the relationship. shall:
1. Appear in a public instrument; and
Consequences of a Partnership Formed for an Unlawful Purpose: 2. Recorded in the Office of the Securities and Exchange Commission.
1. Void ab initio contract, partnership never existed in the eyes of the law; Failure to comply with the requirements of the preceding paragraph shall not affect
2. Profits confiscated in favor of the government; the liability of the partnership and the members thereof to third persons.
3. Instruments or tools and proceeds of the crime also forfeited in favor of
government; Art. 1774.
4. Contributions of partners shall not be confiscated unless they fall under No. 3 An immovable property or an interest therein may be acquired in the partnership
name. Title so acquired can be conveyed only in the partnership name.
The happening of an event subsequent to the making of a valid partnership contract
which would render illegal the business of the partnership as planned, will not nullify - Since a partnership has juridical personality separate from and independent
the contract. Where the business for which the partnership is formed is legal when the of that of the persons or members composing it, it is but logical and natural
partnership is entered into, but afterward becomes illegal, an accounting may be that immovable property may be acquired in the partnership name.
had as to the business transacted prior to such time.
Art. 1775.
Art. 1771. Associations and Societies, whose articles are kept secret among the members,
A partnership may be constituted in any form, except where immovable and wherein any one of the members may contract in his own name with third persons,
property or real rights are contributed thereto, in which case a public shall have NO JURIDICAL PERSONALITY, and shall be governed by the provisions
instrument shall be necessary. relating to co-ownership.

Art. 1773.  it is essential that the articles of partnership be given publicity for the
A contract of partnership is void, whenever immovable property is contributed protection not only of the members themselves but also third persons from
thereto, of an inventory of said property is not made, signed by the parties, and fraud and deceit to which otherwise they would be easy victims. But a person
attached to the public instrument. may be held liable as a partner or partnership liability may result in favor of
third persons by reason of estoppel.
Requisites for Partnership with Contribution of Immovable Property:
Failure to comply with the following requirements will render the contract VOID: Art. 1776.
1. Contract must be in a Public Instrument. A. As to its Object:
2. An Inventory of the property contributed must be made, signed by the 1. Universal – refers to all the present property or to all profits.
parties, and attached to the public instrument. a. Universal partnership of all present property (Art. 1778).
b. Universal partnership of profits (Art. 1780).
Inventory is not required when immovable property is not contributed by any of the 2. Particular – has for its object determinate things, their use or fruits, or a
partners. specific undertaking, or the exercise of a profession or vocation.

An inventory is very important in a partnership to show how much is due from each B. As regards the Liability of Partners:
partner to complete his share in the common fund and how much is due to each of 1. General – one consisting of general partners who are liable pro rata and
them in case of liquidation. subsidiarily and sometimes solidarily with their separate property for
partnership debts.
As to third persons, a de facto partnership or partnership by estoppel may exist. Art. 2. Limited – one formed by two or more persons having as members one
1773 is intended to primarily protect third persons. or more general partners and one or more limited partners, the latter not
being personally liable for the obligations of the partnership.
Art. 1772. Partnership with a Capital of P3,000 or more.
 C. As to its Duration: A. Under the Civil Code:
1. Partnership at Will – one in which no time is specified and is not 1. Capitalist Partner – one who contributes money or property to the
formed for a particular undertaking or venture which may be common fund.
terminated at any time by mutual agreement of the partners, or by 2. Industrial Partner – one who contributes only his industry or personal
will of any one partner alone. service.
o or one for a fixed term or particular undertaking which is 3. General Partner – also known as real partner; one whose liability to
continued by the partners after the termination of such term third persons extends to his separate property; he may be either a
or particular undertaking without express agreement. capitalist or industrial partner.
2. Partnership With a Fixed Term – one in which the term for which the 4. Limited Partner – also known as special partner; one whose liability
partnership is to exist is fixed or agreed upon or one formed for a to third persons is limited to his capital contribution.
particular undertaking, and upon the expiration of the term or 5. Managing Partner – also known as general or real partner; one who
completion of the particular enterprise, the partnership is dissolved, manages the affairs or business of the partnership.
unless continued by the partners. 6. Liquidating Partner – one who takes charge of the winding up of
partnership affairs upon dissolution.
D. As to the Legality of its Existence: 7. Partner by Estoppel – also known as partner by implication or
1. De Jure Partnership – one which has complied with all the legal nominal partner; one who is not really a partner, not being a party to a
requirements for its establishment. partnership agreement, but is liable as a partner for the protection of
2. De Facto Partnership – one which has failed to comply with all the innocent third persons; one who is represented as being in fact a partner,
legal requirements for its establishment. but who is not so as between the partners themselves.
8. Continuing Partner – one who continues the business of a partnership
E. As to Representation to Others: after it has been dissolved by reason of the admission of a new partner,
1. Ordinary or Real Partnership – one which actually exists among the or the retirement, death, or expulsion of one or more partners.
partners and also as to third persons; 9. Surviving Partner – one who remains after a partnership has been
2. Ostensible Partnership or Partnership by Estoppel – one which in dissolved by the death of any partner.
reality is not a partnership, but is considered a partnership only in relation 10. Subpartner – one who, not being a member of the partnership,
to those who, by their conduct or admission, are precluded to deny or contracts with a partner with reference to the latter’s share in the
disprove its existence. partnership.

F. As to Publicity: B. Other Classifications:

1. Secret Partnership – one wherein the existence of certain persons 1. Ostensible Partner – he may be an actual partner or a nominal partner;
as partners is not avowed or made known to the public by any of the one who takes active part and known to the public as a partner in the
partners. business, whether or not he has an actual interest in the firm. If he is not
2. Open or Notorious Partnership – one whose existence is avowed or actually a partner, he is subject to liability by the doctrine of estoppel.
made known to the public by the members of the firm. 2. Secret Partner – one who takes active part in the business but is not
known to be a partner by outside parties nor held out as a partner by the
G. As to Purpose: other partners, although he participates in the profits and losses of the
1. Commercial or Trading Partnership – one formed for the transaction partnership. He is an actual partner. He is also an active partner in
of business. the sense that he participates in the management of the partnership
2. Professional or Non-Trading Partnership – one formed for the affairs.
exercise of a profession. 3. Silent Partner – one who does not take any active part in the business
although he may be known to be a partner. Thus, he need not be a secret
KINDS OF PARTNERS partner. If he withdraws from the partnership – he must give notice
to those who do business with the firm to escape liability in the future.
 4. Dormant Partner – one who does not take active part in the business Universal Partnership of Profits – comprises all that the partners may acquire by
and is not known or held out as partner. He would be both a SECRET their industry or work during the existence of the partnership and the usufruct
and SILENT partner. He may retire from the partnership without giving of movable or immovable property which each of the partners may possess at the
notice and cannot be held liable for obligations of the firm subsequent to time of the celebration of the contract.
his withdrawal. His only interest in joining the partnership would be the
sharing of the profits earned.  The partners retain their ownership over their present and future property.
5. Original Partner – a member of the partnership from the time of its What passes to the partnership are the profits or income and the use or
organization. usufruct of the same.
6. Incoming Partner – a person lately, or about to be, taken into an
existing partnership as a member.  Consequently, upon the dissolution of the partnership, such property is
7. Retiring Partner – withdrawing partner; one withdrawn from the returned to the partners who own it.
partnership.
 Profits acquired by the partners thru chance, such as lottery or by lucrative
Art. 1777. title without employment of any physical or intellectual efforts, are not
A universal partnership may refer to (1) all the present property or (2) to all the included.
profits.
 Fruits of property subsequently acquired by the partners do not belong to
Art. 1778 and Art. 1779. the partnership. Such profits may, however, be included by express
Universal Partnership of All Present Property – that in which the partners stipulation. But profits which the partners may acquire by their industry or
contribute all the property which actually belongs to them to a common fund, with the work during the existence of the partnership as well as the usufruct of their
intention of dividing the same among themselves, as well as all the profits they may present properties belong to the partnership as a matter of right. An
acquire therewith. express stipulation is necessary to exclude any of them.

In this kind of partnership, the following become the common property of all the
partners: Art. 1871.
1. Property which belonged to each of them at the time of the constitution of the Articles of universal partnership, entered into without specification of its
partnership; nature, only constitute a universal partnership of profits.
2. Profits which they may acquire from the property contributed.
 Reason: A universal partnership of profits imposes less obligations on the
General Rule: Future properties cannot be contributed. partners, since they preserve the ownership of their separate property.
Property subsequently acquired by (1) inheritance, (2) legacy, or (3) donation cannot
be included by stipulation, except the fruits thereof.  This article applies only when a universal partnership has been organized.

Profits from other sources (not from the properties contributed) will become common
Art. 1872.
property only if there is a stipulation.
Person who are prohibited from giving each other any donation or advantage
cannot enter into a universal partnership.
Art. 1870.
A universal partnership of profits comprises all that the partners may acquire by
 A partnership formed in violation of this article is null and void.
their industry or work during the existence of the partnership.
Consequently, no legal personality is acquired.
Movable or immovable property which each of the partners may possess at the
time of the celebration of the contract shall continue to pertain exclusively to
 A husband and his wife, however, may enter into a particular partnership
each, only the usufruct passing to the partnership.
or be members thereof.
 4. The Exercise of a profession or vocation.
In a particular partnership composed of three members, two of the partners got
married and the third partner sold, for a nominal amount, his share to them. UNIVERSAL PARTNERSHIP PARTICULAR PARTNERSHIP
The object is vague and indefinite, The object is limited and well-defined,
Held: contemplating a general business with being confined to an undertaking of a
(1) Partners retained their separate interests – the spouses’ capital contributions were some degree of continuity. single, temporary, or ad hoc nature.
separately owned and contributed by them before their marriage; and after they were
joined in wedlock, such contributions remained in their respective separate property.  Business of partnership need not be continuing in nature. An agreement to
Thus, the individual interest of A and B did not become common property of both after undertake a particular piece of work or a single transaction or a limited
their marriage. The change in membership of the firm is no ground for withdrawing the number of transactions and immediately divide the resulting profits would
partnership from the coverage of Sec. 24 of the NIRC requiring it to pay income tax. seem to fall within the meaning of the term “partnership” as used in the law.

(2) The firm was not a universal partnership, but a particular one. It follows that the A contract of partnership gives rise to at least 4 Distinct Judicial Relations:
partnership was not one that A and B were forbidden to enter under Art. 1677. 1. Relations among the partners themselves;
2. Relations of the partners with the partnership;
Art. 87. 3. Relations of the partnership with third persons with whom it contracts;
Every donation or grant of gratuitous advantage, direct or indirect, between the 4. Relations of the partners with such third persons.
spouses during the marriage shall be VOID, except moderate gifts, which the
spouses may give to each other on the occasion of any family rejoicing. The prohibition Each partner is, in one sense, a trustee and at the same time, a cestui que trust. He
shall also apply to persons living together as husband and wife without a valid is a trustee to the extent that his duties bind him with respect to his co-partners and
marriage. the partnership, and a cestui que trust as fat as the duties that rest on his co-
partners.
Art. 739.
The following donations shall be void: The fiduciary obligation of a partner remains until the relationship is terminated
1. Those made between persons who were guilty of adultery or concubinage and the equities between the partners adjusted and satisfied.
at the time of the donation;
2. Those made between persons found guilty of the same criminal offense, But the relationship between a limited partner and the other partners in a limited
in consideration thereof; partnership does not involve the element of trust and confidence, as in the case of a
3. Those made to a public officer or his wife, descendants and general partnership.
ascendants, by reason of his office.
Art. 1784.
In the case referred to in No. 1, the action for declaration of nullity may be brought by A partnership begins from the moment of the execution of the contract, unless
the spouse of the donor or donee; and the guilt of the donor and the donee may be it is otherwise stipulated.
proved by preponderance of evidence in the same action.
 Its registration in the SEC is not essential to give it juridical personality.

 The birth and life of a partnership is predicated on the mutual desire and
consent of the parties.
Art. 1783.
A PARTICULAR PARTNERSHIP has for its object: D-USE  The above rule on the commencement of a partnership is not absolute. The
1. Determinate things; or parties may stipulate some other date for the commencement of the
2. The Use or fruits of determinate things; or partnership. The Statute of Frauds provides that an agreement that by its
3. A Specific undertaking; or
 terms is not to be performed within a year from the making thereof, must be 1. To Contribute at the beginning of the partnership or at the stipulated time the
in writing and signed by the party charged in order to be enforceable. 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
 The death of either party to an executory agreement of partnership property contributed;
prevents the formation of a firm, since such agreement is based on the 3. To Answer to the partnership for the fruits of the property the contribution of
continuance of the life of each. which he delayed, from the date they should have been contributed up to the
time of actual delivery;
 Failure of the parties to agree on material terms may not merely be evidence In addition, the partner has the obligation:
of the intent of the parties to be bound only in the future, but may prevent 4. To Preserve said property with the diligence of a good father of a family
any rights or obligations from arising on either side for lack of complete pending delivery to the partnership (Art. 1163).
contract. 5. To Indemnify the partnership for any damage caused to it by the retention of
the same or by the delay in its contribution (Art. 1788, 1170).
Art. 1785.
When a partnership for a fixed term or particular undertaking is CONTINUED The FAILURE TO CONTRIBUTE is to make the partner ipso jure a debtor of the
after the termination of such term or particular undertaking WITHOUT ANY partnership even in the absence of any demand.
EXPRESS AGREEMENT, the rights and duties of the partners remain the same as
they were at such termination, so fat as consistent with a partnership at will. The remedy of the other partners or the partnership is an action for specific
performance with damages and interests from the defaulting partner from
A continuation of the business by the partners or such of them as habitually acted the time he should have complied with his obligation.
therein during the term, without any settlement or liquidation of the
partnership affairs, is prima facie evidence of a continuation of the partnership. Eviction shall take place whenever by 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
 Partnership with a fixed term – one in which the term of its existence has part of the thing purchased. This is governed by the law on sales.
been agreed upon expressly or impliedly. The expiration of the term thus fixed
or the accomplishment of the particular undertaking specified will cause the Art. 1787.
automatic dissolution of the partnership. 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
 The partnership, however, may be extended or renewed by the partners by of partnership, and in the absence of stipulation, it shall be made by experts
express agreement, written or oral, or impliedly, by the mere continuation chosen by the partners, and according to current prices, the subsequent
of the business after the termination of such term or particular undertaking changes thereof being for the account of the partnership.
without any settlement or liquidation.
 The appraisal of the value of the goods contributed is necessary to
 With such continuation, the partnership for a fixed term or particular determine how much has been contributed by the partners.
undertaking is dissolved, and a new one, a partnership at will, is
created by implied agreement the continued existence of which will depend a. In the absence of a stipulation, the share of each partner in the profits and
upon the mutual desire and consent of the partners. losses is in proportion to what he may have contributed.
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
Art 1786. the benefit of subsequent changes in their value.
OBLIGATIONS WITH RESPECT TO CONTRIBUTION OF PROPERTY: CAAPI
Art. 1788.
A partner who has undertaken to contribute a sum of money and fails to do PROHIBITION AGAINST ENGAGING IN BUSINESS
so becomes a debtor for the interest and damages from the time he should have 1. As regards an INDUSTRIAL PARTNER – the prohibition is absolute and
complied with his obligation. applies whether the industrial partner is to engage (1) in the same business in
which the partnership is engaged in or (2) in any kind of business.
The same rule applies to any amount he may have taken from the partnership Reason: To prevent any conflict of interest between the industrial partner and
coffers, and his liability shall begin from the time he converted the amount to the partnership and to insure faithful compliance by said partner with his
his own use. prestation.

 This article contemplates 2 distinct cases: 2. As regards CAPITALIST PARTNERS – prohibition extends only to any
1. Money promised but not given on time; and operation which is of the same kind of business which the partnership is
2. Partnership money converted to the personal use of the partner. engaged in unless there is a stipulation to the contrary.

 The following are the obligations of the partners with respect to the Art. 1790.
partnership capital under Article 1788: Unless there is a stipulation to the contrary, the partners shall contribute equal
1. To Contribute on the date due the amount he has undertaken to shares to the capital of the partnership.
contribute to the partnership;
2. To Reimburse any amount he may have taken from the partnership  The rule above is not applicable to an industrial partner, unless, besides his
coffers and converted to his own use; services, he has contributed capital pursuant to an agreement to that effect.
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 Art. 1791.
it to his own use; If there is no agreement to the contrary, in case of an imminent loss of the
4. To Indemnify the partnership for the damages caused by the delay in business of the partnership, any partner who refuses to contribute an
the contribution or the conversion of any sum for his personal benefit. additional share to the capital, except an industrial partner, to save the venture,
shall be obliged to sell his interest to the other partners.
 A partner is guilty of estafa if he misappropriates partnership money or
property received by him for a specific purpose of the partnership. Requisites for the application of the Rule:
1. Imminent loss of the business of the partnership;
Art. 1789. 2. Majority of the capitalist partners are of the opinion that an additional
An INDUSTRIAL PARTNER cannot engage in business for himself unless the contribution to the common fund would save the business;
partnership EXPRESSLY PERMITS him to do so; and if he should do so, the 3. Capitalist partner refuses deliberately to contribute an additional share to the
capitalist partners may either (1) exclude him from the firm or (2) avail themselves of capital;
the benefits which he may have obtained in violation of this provision, with a right to 4. No agreement that even in case of an imminent loss of the business the
damages in either case. partners are not obliged to contribute.

Industrial partner – one who contributes his industry, labor, or services to the Reason for the sanction: The refusal of the partner to contribute his additional share
partnership. reflects his lack of interest in the continuance of the partnership.
 Unless the contrary is stipulated, he becomes a debtor of the partnership for
his work or services from the moment the partnership relation begins. In
effect, the partnership acquires an exclusive right to avail of his Art. 1792.
industry. Consequently, if he engages in business for himself, such act Where a person is separately indebted to the partnership and to the managing
is considered prejudicial to the interest of the other partners. partner at the same time, any sum received by the managing partner shall be applied
to the two credits in proportion to their amounts, except where he received it for
the account of the partnership, in which case the whole sum shall be applied to the Example:
partnership credit only. D owes partnership X and Co. P4,500.00. A, a partner, received a share of P1,500.00
ahead of B and C, the two other partners. When B and C were collecting from D, the
Requisites for application of rule: ADA latter was already insolvent.
(a) There exist At least two debts, one where the collecting partner is creditor, and In this case, even if A had given a receipt for his share only, he can be required to
the other, where the partnership is the creditor; share the P1,500.00 with B and C.
(b) Both debts are Demandable; and
Reason for imposing obligation to return: Debt of D becomes a bad debt. It would be
(c) The partner who collects it is Authorized to manage and actually manages
unjust or unfair for A not to share in the loss with B and C. The provision is based on
the partnership.
the community of interest among the partners.

Example: Art. 1794.

A and B are partners in X and Co., with A as the managing partner. C is indebted to A General rule: Damages caused by a partner to the partnership cannot be offset by
in the sum of P2,000.00. C is also indebted to the partnership in the sum of P4,000.00. the profits or benefits which he may have earned for the partnership by his industry.
Both debts are demandable. A collects the amount of P1,500.00 from C.
If A issues a receipt to the effect that it is in payment of his (A’s) credit, P500.00 will be Exception: If unusual profits are realized through the extraordinary efforts of the
applied only to his credit, the partnership being entitled to a proportionate amount of partner at fault, the courts may equitably mitigate or lessen his liability for damages.
P1,000.00 in the payment made by C. But if A gives a receipt for the account only of Even in this case, the partner at fault is not allowed to compensate such damages with
the partnership credit, the amount of P1,500.00 will be fully applied to the latter. the profits earned.

This Article does not apply where the partner who collects for his own credit only is Art. 1795.
not authorized to manage. However, where the manner of management has Determination of the risk of the things contributed to the partnership:
not been agreed upon and all the partners participate in the management of (1) Specific and determinate things which are not fungible where only the
the partnership, then every partner shall be considered a managing partner. use is contributed – Risk of loss is borne by the partner, being the owner (e.g.,
car);
The debtor is given the right to prefer payment of the credit of the partner if it (2) Specific and determinate things the ownership of which is transferred to
should be more onerous to him in accordance with his right to application of the partnership – Risk of loss is for the account of the partnership, being the
payment. owner;
(3) Fungible things or things which cannot be kept without deteriorating
 Example: even if they are contributed only for the use of the partnership – Risk of
In the example given above, if the obligation in favor of A bears 18% interest per loss is borne by the partnership for evidently the ownership was being transferred
annum while that in favor of the partnership is 16% interest per annum, the credit since use is impossible without the things (e.g., oil, wine) being consumed or
of A being more onerous or burdensome, the law allows C to prefer the payment of impaired;
A’s credit in case he so desires. (4) Things contributed to be sold – Partnership bears risk of loss as it was
intended to be the owner; and
Art. 1793. Obligation of partner who receives share of partnership credit (5) Things brought and appraised in the inventory – Partnership bears risk of
Requisites for application of rule: POD loss because the intention of the parties was to contribute to the partnership the
(a) A Partner has received, in whole or in part, his share of the partnership price of the things contributed with an appraisal in the inventory.
credit;
(b) The Other partners have not collected their shares; and The above presupposes that the things contributed have been delivered actually or
(c) The partnership Debtor has become insolvent. constructively to the partnership. Before delivery, the risk of loss is borne by the
partner.
In this Article, there is only one credit – in favor of the partnership. This also applies
whether the partner who receives his share of the partnership credit is authorized to
manage or not.
Art. 1796. Responsibility of the Partnership to the Partners RAA
(1) Refund amounts disbursed by the partner in behalf of the partnership plus
interest from the time the expenses are made. The law refers to loans or advances Suppose, the contributions of the partners are as follows:
made by a partner to the partnership other than capital contributed by him; A ........................................................... P 72,000.00
(2) Answer for the obligations the partner may have contracted in good faith in the B ........................................................... 48,000.00
interest of the partnership business; and C ........................................................... 24,000.00
(3) Answer for risks in consequence of its management. Total .................................................. P144,000.00

Being a mere agent, the partner is not personally liable, provided, however, that he is In the absence of stipulation, the share of each of the partners shall be in
free from all fault and he acted within the scope of his authority . But unlike an ordinary proportion to his contribution, that is:
agent, he is not given the right of retention if he is not reimbursed or indemnified. A ........................................................................... 3/6
B ............................................................................ 2/6
No partner is entitled to compensation for his services to the partnership without the C ........................................................................... 1/6
consent of all the partners unless it can be implied from the circumstances that the
parties intended a partner to receive additional compensation where the partner’s work If D is an industrial partner, he shall receive such share as may be just and
was beyond normal partnership functions. equitable under the circumstances. Assuming that the partnership makes a profit of
P51,000.00, the partners may determine considering all the circumstances, that D,
 Example: as industrial partner, is entitled to P6,000.00. The balance of P45,000.00 will be
The articles of a trading partnership composed of A, B, and C provides that any divided among A, B and C in proportion to their respective capital contributions:
purchase in excess of P5,000.00 must first be approved by all the partners. This P22,500.00, P15,000.00 and P7,500.00, respectively.
rule was strictly observed in all transactions of the partnership. C made a purchase Now, if D aside from his services, contributed P36,000, then he will also share in
of goods out of his personal funds for P7,000 without the knowledge of A and B. the balance of P45,000.00 in proportion to his contribution, which is 3/15
The partnership incurred a loss. C is not entitled to be reimbursed for the (P36,000.00/P180,000.00) or P9,000.00, while A, B, and C will share P18,000.00,
purchase. P12,000.00 and P6,000.00, respectively.

Art. 1797. A partner is entitled to receive only his share of the profits actually realized by the
Distribution of profits: venture.
(a) The partners share the profits according to their agreement
(b) If there is no agreement: Distribution of losses:
(1) The share of each capitalist partner shall be in proportion to his capital (a) According to the agreement of the partners
contribution. (b) If there is no such agreement, but the contract provides for the share of the
(2) The industrial partner shall receive such share, which must be satisfied first partners in the profits, the share of each in the losses shall be in accordance
before the capitalist partners shall divide the profits, as may be just and with the profit-sharing ratio, but the industrial partner shall not be liable
equitable under the circumstances. for losses.
(c) If there is also no profit-sharing stipulated, losses shall be borne by the
Example: partners in proportion to their capital contributions, but the purely
A, B, and C formed a partnership, whereby each of them contributed P30,000.00. industrial partner shall not be liable for the losses.
They agreed that should the partnership realize profits, the same shall be
distributed in the following proportions:  Example:
In the same example, the partners will share in the losses in conformity with their
A, as managing partner .................................... 40% agreement. If they failed to agree as to the sharing of losses, the share of each
B ............................................................................ 30% partner in the losses shall be in the same proportion stipulated with regard to the
C ........................................................................... 30% share of each in the profits, to wit:

In this case, the partners shall share the profits in conformity with their agreement. A ........................................................................... 40%
If there is no agreement with respect to the share of each partner, then, they shall B ............................................................................ 30%
share the profits equally. C ........................................................................... 30%
 If there is also no profit-sharing ratio stipulated, then the losses shall be divided in
proportion to their capital contributions. D, however, being an industrial partner,
shall not be liable for losses but the same shall be borne by A, B, and C, the Appointment as manager after the constitution of the partnership
capitalist partners. However, if D is also a capitalist partner, then he shall share in The management granted by the partners after the partnership has been constituted
the losses in proportion to his contribution. independently of the article of partnership may be revoked at any time for any
cause whatsoever. The vote for revocation must also represent the controlling interest.
Art. 1798.
The designation of the share in the profits and losses may be delegated to a third General rule: Partner appointed as manager has all the powers of a general agent as
person, not a partner, by common consent. well as all the incidental powers necessary to carry out the object of the partnership.

Said designation would generally be binding unless manifestly inequitable. Even then, Exception: When the powers of the manager are specifically restricted.
a partner who (1) has begun to execute the decision of the third person or who
(2) fails to impugn the same within 3 months from the time he had Examples:
knowledge of it can no longer complain. In such case, the party is guilty of estoppel (1) The minor power to issue receipts is included in the general powers of the
or is deemed to have given his consent or ratification to the designation. manager.
(2) The manager of a partnership engaged in buying and selling is clothed with
Art. 1799. sufficient authority even without approval of the other partners to purchase on
General rule: A stipulation which excludes one or more partners from any share in credit.
the profits or losses is void. However, although the stipulation is void, the (3) The managing partner has authority to secure loans for use in the business and
partnership, if otherwise valid, subsists and the profits or losses shall be apportioned as necessary to carry out the express object of the partnership; or to dismiss an
if there were no stipulation on the same. employee when there is a justifiable cause for dismissal; or to employ a
bookkeeper although the contract made was not in writing.
Exception: If person excluded from losses is industrial partner, the stipulation is (4) The managing partner has the right to sue debtors of the partnership.
valid. (5) But 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
Factors in determining that no partnership exists: partnership a “barge, a truck and an adding machine,” as neither of these could be
(a) Parties expressly stipulate that there shall be no liability for losses considered as ”supplies for the partnership business.”
(b) From the nature of the contract, it is clear that a party did not intend to share in (6) A managing partner may not bind the partnership by a contract wholly foreign to
the losses its business.

Where the one excluded from any share in the profits or losses is not intended by General rule: A partner is generally not entitled to compensation beyond his
the parties to become a partner, the stipulation is valid. share of the profits for services rendered by him to the partnership business,
although the services rendered by him may be greater in proportion than those of other
Art. 1800. members of the partnership (e.g. when the former assumes the position of managing
Appointment as manager in the articles of partnership partner)
The partner appointed by common agreement in the articles of partnership may
execute all acts of administration (not those of strict ownership) notwithstanding the Exceptions (where the law may imply a contract for compensation):
opposition of the other partners, unless he should act in bad faith. (a) A partner engaged by his co-partners to perform services not required of him in
fulfillment of the duties which the partnership relation imposes and in a capacity
His power is generally irrevocable, and may be revoked only upon (1) just and other than that of a partner.
lawful cause and (2) upon the vote of the partners representing the (b) Where there is extraordinary neglect on the part of one partner to perform his
controlling interest. duties toward the firm’s business, thereby imposing the entire burden on the
remaining partner.
In case of mismanagement, the other partners may avail of the usual remedies, (c) One partner may employ his co-partner to do work for him outside of and
including an application for dissolution of the partnership by a judicial decree. independent of the co-partnership and become personally liable therefor.
(d) Partners exempted by the terms of partnership from rendering services to the firm
may demand payment for services rendered.
(e) Where one partner is entrusted with management of the partnership business and
devotes his whole time and attention thereto, at the instance of the other partners
who are attending to their individual business.
(f) Where services rendered are extraordinary.