Week No.

3
B. Obligations of the Partners (Art. 1784-1827)
1. Obligations of the partners among themselves (Art. 1784-1809)
CHAPTER 2
OBLIGATIONS OF THE PARTNERS
SECTION 1. - Obligations of the Partners Among Themselves
Art. 1784. A partnership begins from the moment of the execution of the contract, unless it is otherwise stipulated.
(1679)
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)
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,
without the need of any demand. (1681a)
Art. 1787. When the capital or a part thereof which a partner is bound to contribute consists of goods, their
appraisal must be made in the manner prescribed in the contract of partnership, and in the absence of stipulation,
it shall be made by experts chosen by the partners, and according to current prices, the subsequent changes
thereof being for account of the partnership. (n)
Art. 1788. A partner who has undertaken to contribute a sum of money and fails to do so becomes a debtor for the
interest and damages from the time he should have complied with his obligation.
The same rule applies to any amount he may have taken from the partnership coffers, and his liability shall begin
from the time he converted the amount to his own use. (1682)
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)
Art. 1790. Unless there is a stipulation to the contrary, the partners shall contribute equal shares to the capital of
the partnership. (n)
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 he obliged to sell his interest to the other partners. (n)
Art. 1792. If a partner authorized to manage collects a demandable sum which was owed to him in his own name,
from a person who owed the partnership another sum also demandable, the sum thus collected shall be applied to
the two credits in proportion to their amounts, even though he may have given a receipt for his own credit only; but
should he have given it for the account of the partnership credit, the amount shall be fully applied to the latter.
The provisions of this article are understood to be without prejudice to the right granted to the other debtor by
Article 1252, but only if the personal credit of the partner should be more onerous to him. (1684)
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)
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)
Art. 1795. The risk of specific and determinate things, which are not fungible, contributed to the partnership so that
only their use and fruits may be for the common benefit, shall be borne by the partner who owns them.

If the things contribute are fungible, or cannot be kept without deteriorating, or if they were contributed to be sold,
the risk shall be borne by the partnership. In the absence of stipulation, the risk of the things brought and appraised
in the inventory, shall also be borne by the partnership, and in such case the claim shall be limited to the value at
which they were appraised. (1687)
Art. 1796. The partnership shall be responsible to every partner for the amounts he may have disbursed on behalf
of the partnership and for the corresponding interest, from the time the expense 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 consequence of its management. (1688a)
Art. 1797. The losses and profits shall be distributed in conformity with the agreement. If only the share of each
partner in the profits has been agreed upon, the share of each in the losses shall be in the same proportion.
In the absence of stipulation, the share of each partner in the profits and losses shall be in proportion to what he
may have contributed, but the industrial partner shall not be liable for the losses. As for the profits, the industrial
partner shall receive such share as may be just and equitable under the circumstances. If besides his services he
has contributed capital, he shall also receive a share in the profits in proportion to his capital. (1689a)
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 partners. (1690)
Art. 1799. A stipulation which excludes one or more partners from any share in the profits or losses is void. (1691)
Art. 1800. The partner who has been appointed manager in the articles of partnership may execute all acts of
administration despite the opposition of his partners, unless he should act in bad faith; and his power is irrevocable
without just or lawful cause. The vote of the partners representing the controlling interest shall be necessary for
such revocation of power.
A power granted after the partnership has been constituted may be revoked at any time. (1692a)
Art. 1801. If two or more partners have been intrusted with the management of the partnership without
specification of their respective duties, or without a stipulation that one of them shall not act without the consent of
all the others, each one may separately execute all acts of administration, but if any of them should oppose the
acts of the others, the decision of the majority shall prevail. In case of a tie, the matter shall be decided by the
partners owning the controlling interest. (1693a)
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 or disability of
any one of them cannot be alleged, unless there is imminent danger of grave or irreparable injury to the
partnership. (1694)
Art. 1803. When the manner of management has not been agreed upon, the following rules shall be observed:
(1) All the partners shall be considered agents and whatever any one of them may do alone shall bind the
partnership, without prejudice to the provisions of Article 1801.
(2) None of the partners may, without the consent of the others, make any important alteration in the immovable
property of the partnership, even if it may be useful to the partnership. But if the refusal of consent by the other
partners is manifestly prejudicial to the interest of the partnership, the court's intervention may be sought. (1695a)
Art. 1804. Every partner may associate another person with him in his share, but the associate shall not be
admitted into the partnership without the consent of all the other partners, even if the partner having an associate
should be a manager. (1696)
Art. 1805. The partnership books shall be kept, subject to any agreement between the partners, at the principal
place of business of the partnership, and every partner shall at any reasonable hour have access to and may
inspect and copy any of them. (n)
Art. 1806. Partners shall render on demand true and full information of all things affecting the partnership to any
partner or the legal representative of any deceased partner or of any partner under legal disability. (n)
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)

Art. 1808. The capitalist partners cannot engage for their own account in any operation which is of the kind of
business in which the partnership is engaged, unless there is a stipulation to the contrary.
Any capitalist partner violating this prohibition shall bring to the common funds any profits accruing to him from his
transactions, and shall personally bear all the losses. (n)
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)
a)

Distribution of profits and losses of partnership

i.
With agreement
ii.
Without agreement

Art. 1797. The losses and profits shall be distributed in conformity with the agreement. If only the share of each
partner in the profits has been agreed upon, the share of each in the losses shall be in the same proportion.
In the absence of stipulation, the share of each partner in the profits and losses shall be in proportion to what he
may have contributed, but the industrial partner shall not be liable for the losses. As for the profits, the industrial
partner shall receive such share as may be just and equitable under the circumstances. If besides his services he
has contributed capital, he shall also receive a share in the profits in proportion to his capital. (1689a)
b)

Principle of Delectus Personae (Art. 1804)

[Latin, Choice of the person.] By this term is understood the right of partners to exercise their choice and preference
as to the admission of any new members to the partnership, and as to the persons to be so admitted, if any. The
doctrine is equally applicable to close and family corporations and is exemplified in the use of restrictions for the
transfer of shares of stock.
Art. 1804. Every partner may associate another person with him in his share, but the associate shall not be
admitted into the partnership without the consent of all the other partners, even if the partner having an associate
should be a manager. (1696)
-Ortega, et al. v. CA, et al., 245 SCRA 529
Gregorio Ortega, Tomas del Castillo, Jr. and Benjamin Bacorro v. CA, SEC and Joaquin Misa
G.R. No. 109248 July 3, 1995
Vitug, J.
Facts:

Ortega, then a senior partner in the law firm Bito, Misa, and Lozada withdrew in said firm.

He filed with SEC a petition for dissolution and liquidation of partnership.

SEC en banc ruled that withdrawal of Misa from the firm had dissolved the partnership.Reason: since it is
partnership at will, the law firm could be dissolved by any partner atanytime, such as by withdrawal therefrom,
regardless of good faith or bad faith, since nopartner can be forced to continue in the partnership against his will.
Issue:
1. WON the partnership of Bito, Misa & Lozada (now Bito, Lozada, Ortega & Castillo)is a partnership at will; 2. WON
the withdrawal of Misa dissolved the partnership regardlessof his good or bad faith;
Held:
1. Yes. The partnership agreement of the firm provides that [t]he partnership shallcontinue so long as mutually
satisfactory and upon the death or legal incapacity of one of the partners, shall be continued by the surviving
partners.2. Yes. Any one of the partners may, at his sole pleasure, dictate a dissolution of thepartnership at will
(e.g. by way of withdrawal of a partner). He must, however, act in goodfaith, not that the attendance of bad faith
can prevent the dissolution of the partnership butthat it can result in a liability for damages.
-Tocao, et al. v. CA, 342 SCRA 20
TOCAO V. COURT OF APPEALS
342 SCRA 20 (2000)

Facts:
Petitioner
William
T.
Bello
introduced
private
respondent Nenita Anay to petitioner Tocao, who conveyed her desire to enter into a joint venture with her for the
importation and local distribution of kitchen cook wares. Belo acted the capitalist, Tocao as president and general
manager, and Anay as head of the marketing department (considering her experience and established relationship
with West Bend Company, a manufacturer of kitchen wares in Wisconsin, U.S.A) and later, vice-president for sales.
The parties agreed further that Anay would be entitled to:(1) ten percent (10%) of the annual net profits of
the business; (2) overriding commission of six percent (6%) of the overall weekly production; (3) thirty percent
(30%) of the sales she would make; and (4) two percent (2%) for her demonstration services. The same was not
reduced to writing on the strength of Belos assurances. Later, Anay was able to secure the distributorship of
cookware products from the West Bend Company. They operated underthe name of Geminesse Enterprise, a sole
proprietorship registered in Marjorie Tocaos name. Anay attended distributor/dealer meetings with West Bend
Company with the consent of Tocao. Due to Anays excellent job performance she was given a plaque of
appreciation. Also, in a memo signed by Belo, Anay was given 37% commission for her personal sales "up
Dec31/87, apart from the 10% share in profits. On October 9, 1987, Anay learned that Marjorie Tocao terminated
her as vice-president of Geminesse Enterprise. Anay attempted to contact Belo. She wrote him twice to demand her
overriding commission for the period of January8, 1988 to February 5, 1988 and the audit of the company to
determine her share in the net profits. Belo did not answer. Anay still received her five percent (5%) overriding
commission up to December 1987. The following year, 1988, she did not receive the same commission although the
company netted a gross sales of P13,300,360.00.On April 5, 1988, Nenita A. Anay filed a complaint for sum of
money with damages against Tocao and Belo before the RTCof Makati. She prayed that she be paid (1) P32,00.00 as
unpaid overriding commission from January 8, 1988 to February 5,1988; (2) P100,000.00 as moral damages, and (3)
P100,000.00as exemplary damages. The plaintiff also prayed for an audit of the finances of Geminesse Enterprise
from the inception of its business operation until she was illegally dismissed to determine her ten percent (10%)
share in the net profits. She further prayed that she be paid the five percent (5%)overriding commission on the
remaining 150 West Bend cookware sets before her dismissal.However, Tocao and Belo asserted that the alleged
agreement was not reduced to writing nor ratified, hence, unenforceable, void, or nonexistent. Also, they denied the
existence of a partnership because, as Anay herself admitted, GeminesseEnterprise was the sole proprietorship of
Marjorie Tocao. Belo also contended that he merely acted as a guarantor of Tocao and denied contributing capital.
Tocao, on the other hand, denied that they agreed on a ten percent (10%) commission on the net profits. Both trial
court and court of appeals ruled that a business partnership existed and ordered the defendants to pay.
Issue:
Whether or not a partnership existed.
YES
Ratio:
To be considered a juridical personality, a partnership must fulfill these requisites: (1) two or more persons bind
themselves to contribute money, property or industry to a common fund; and (2) intention on the part of the
partners to divide the profits among themselves. It may be constituted in any form; a public instrument is
necessary only where immovable property or real rights are contributed thereto. This implies that since a contract
of partnership is consensual, an oral contract of partnership is as good as a written one. Private respondent Anay
contributed her expertise in the business of distributorship of cookware to the partnership andhence, under the law,
she was the industrial or managing partner. Petitioner Belo had an proprietary interest. He presided over meetings
regarding matters affecting the operation of the business. Moreover, his having authorized in writing givingAnay
37% of the proceeds of her personal sales, could not be interpreted otherwise than that he had a proprietary
interest in the business. This is inconsistent with his claim that he merely acted as a guarantor. If indeed he was, he
should have presented documentary evidence. Also, Art. 2055 requires that a guaranty must be express and the
Statute of Frauds requires that it must be in writing. Petitioner Tocao was also a capitalist in the partnership. She
claimed that she herself financed the business. The business venture operated under Geminesse Enterprise did not
result
in
an
employer-employee
relationship
between petitioners and private respondent. First, Anay had a voice inthe management of the affairs of the
cookware distributorship and second, Tocao admitted that Anay, like her, received only commissions and
transportation and representation allowances and not a fixed salary. If Anay was an employee, it is difficult to
believe that they receive the same income. Also, the fact that they operated under the name of Geminesse
Enterprise,
a
sole
proprietorship,
is
of
no
moment.
Said business name was used only for practical reasons - it wasutilized as the common name for petitioner Tocaos
various business activities, which included the distributorship ofcookware.The partnership exists until dissolved
under the law. Since the partnership created by petitioners and private respondent hasno fixed term and is
therefore a partnership at will predicated on their mutual desire and consent, it may be dissolved by the will of a
partner. Petitioners Tocaos unilateral exclusion of private respondent from the partnership is shown by her memo to
the Cubao office plainly stating that private respondent was, as of October 9, 1987, no longer the vice-president for
sales of Geminesse Enterprise. By that memo, petitioner Tocao effected her own withdrawal from the partnership
and
considered
herself
as
having
ceased
to
be
associated
with
the partnership in the carrying on of the business. Nevertheless,the partnership was not terminated thereby; it
continues until the winding up of the business. The partnership among petitioners and private respondent is
ordered dissolved, and the parties are ordered to effect the winding up and liquidation of the partnership pursuant

to the pertinent provisions of the Civil Code. Petitioners are orderedto pay Anays 10% share in the profits, after
accounting, 5%overriding commission for the 150 cookware sets available for disposition since the time private
respondent was wrongfully excluded from the partnership by petitioner, overriding commission on the total
production, as well as moral and exemplary damages, and attorneys fees.
-JG Summit Holdings v. CA, Sept. 24, 2003, G.R. No. 124293
FACTS:
The National Investment and Development Corporation (NIDC), a government corporation, entered into a Joint
Venture Agreement (JVA) with Kawasaki Heavy Industries, Ltd. for the construction, operation and management of
the Subic National Shipyard, Inc., later became the Philippine Shipyard and Engineering Corporation (PHILSECO).
Under the JVA, NIDC and Kawasaki would maintain a shareholding proportion of 60%-40% and that the parties have
the right of first refusal in case of a sale.
Through a series of transfers, NIDCs rights, title and interest in PHILSECO eventually went to the National
Government. In the interest of national economy, it was decided that PHILSECO should be privatized by selling
87.67% of its total outstanding capital stock to private entities. After negotiations, it was agreed that Kawasakis
right of first refusal under the JVA be exchanged for the right to top by five percent the highest bid for said
shares. Kawasaki that Philyards Holdings, Inc. (PHI), in which it was a stockholder, would exercise this right in its
stead.
During bidding, Kawasaki/PHI Consortium is the losing bidder. Even so, because of the right to top by 5%
percent the highest bid, it was able to top JG Summits bid. JG Summit protested, contending that PHILSECO, as
a shipyard is a public utility and, hence, must observe the 60%-40% Filipino-foreign capitalization. By buying
87.67% of PHILSECOs capital stock at bidding, Kawasaki/PHI in effect now owns more than 40% of the stock.
ISSUE:

Whether or not PHILSECO is a public utility

Whether or not Kawasaki/PHI can purchase beyond 40% of PHILSECOs stocks

HELD:
In arguing that PHILSECO, as a shipyard, was a public utility, JG Summit relied on sec. 13, CA No. 146. On the other
hand, Kawasaki/PHI argued that PD No. 666 explicitly stated that a shipyard was not a public utility. But the SC
stated that sec. 1 of PD No. 666 was expressly repealed by sec. 20, BP Blg. 391 and when BP Blg. 391 was
subsequently repealed by EO 226, the latter law did not revive sec. 1 of PD No. 666. Therefore, the law that states
that a shipyard is a public utility still stands.
A shipyard such as PHILSECO being a public utility as provided by law is therefore required to comply with the 60%40% capitalization under the Constitution. Likewise, the JVA between NIDC and Kawasaki manifests an intention of
the parties to abide by this constitutional mandate. Thus, under the JVA, should the NIDC opt to sell its shares
of stock to a third party, Kawasaki could only exercise its right of first refusal to the extent that its total shares
of stock would not exceed 40% of the entire shares of stock. The NIDC, on the other hand, may purchase even
beyond 60% of the total shares. As a government corporation and necessarily a 100% Filipino-owned corporation,
there is nothing to prevent its purchase ofstocks even beyond 60% of the capitalization as the Constitution clearly
limits
only
foreign
capitalization.
Kawasaki was bound by its contractual obligation under the JVA that limits its right of first refusal to 40% of the total
capitalization of PHILSECO. Thus, Kawasaki cannot purchase beyond 40% of the capitalization of the joint venture
on account of both constitutional and contractual proscriptions.
c)

Management of Partnership (Art. 1800-1803)

Art. 1800. The partner who has been appointed manager in the articles of partnership may execute all acts of
administration despite the opposition of his partners, unless he should act in bad faith; and his power is irrevocable
without just or lawful cause. The vote of the partners representing the controlling interest shall be necessary for
such revocation of power.
A power granted after the partnership has been constituted may be revoked at any time. (1692a)
Art. 1801. If two or more partners have been intrusted with the management of the partnership without
specification of their respective duties, or without a stipulation that one of them shall not act without the consent of
all the others, each one may separately execute all acts of administration, but if any of them should oppose the
acts of the others, the decision of the majority shall prevail. In case of a tie, the matter shall be decided by the
partners owning the controlling interest. (1693a)

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 or disability of
any one of them cannot be alleged, unless there is imminent danger of grave or irreparable injury to the
partnership. (1694)
Art. 1803. When the manner of management has not been agreed upon, the following rules shall be observed:
(1) All the partners shall be considered agents and whatever any one of them may do alone shall bind the
partnership, without prejudice to the provisions of Article 1801.
(2) None of the partners may, without the consent of the others, make any important alteration in the immovable
property of the partnership, even if it may be useful to the partnership. But if the refusal of consent by the other
partners is manifestly prejudicial to the interest of the partnership, the court's intervention may be sought. (1695a)
d)

When partner can demand for a formal accounting of partnership

affairs (Art. 1807, 1809)

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)
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)