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Partner by Estoppel:
Art. 1797. The losses and profits shall be distributed
in conformity with the agreement. If only the share of Art. 1790 embodies the presumption of
each partner in the profits has been agreed upon, the law as to the equality in standing of the
the share of each in the losses shall be in the same partners.
proportion. Art. 1808 is limited to business which
competes with the partnership business; thus, it
In the absence of stipulation, the share of each must be the same products (same category), same
partner in the profits and losses shall be in services, and in the same location.
proportion to what he may have contributed, but the
industrial partner shall not be liable for the losses. C. Managing
As for the profits, the industrial partner shall receive Art. 1792. If a partner authorized to manage collects
such share as may be just and equitable under the a demandable sum which was owed to him in his
circumstances. If besides his services he has own name, from a person who owed the partnership
contributed capital, he shall also receive a share in another sum also demandable, the sum thus
the profits in proportion to his capital. collected shall be applied to the two credits in
proportion to their amounts, even though he may
The industrial partners contribution is have given a receipt for his own credit only; but
based on quantum meruit. should he have given it for the account of the
partnership credit, the amount shall be fully applied
B. Capitalist to the latter.
Art. 1789. An industrial partner cannot engage in
business for himself, unless the partnership The provisions of this article are understood to be
expressly permits him to do so; and if he should do without prejudice to the right granted to the other
so, the capitalist partners may either exclude him debtor by Article 1252, but only if the personal credit
from the firm or avail themselves of the benefits of the partner should be more onerous to him.
which he may have obtained in violation of this
provision, with a right to damages in either case. Art. 1800. The partner who has been appointed
manager in the articles of partnership may execute
Art. 1790. Unless there is a stipulation to the all acts of administration despite the opposition of
contrary, the partners shall contribute equal shares his partners, unless he should act in bad faith; and
to the capital of the partnership. his power is irrevocable without just or lawful cause.
The vote of the partners representing the controlling
Art. 1797. The losses and profits shall be distributed interest shall be necessary for such revocation of
power.
in conformity with the agreement. If only the share of
each partner in the profits has been agreed upon,
A power granted after the partnership has been
the share of each in the losses shall be in the same
constituted may be revoked at any time.
proportion.
In the absence of stipulation, the share of each Art. 1801. If two or more partners have been
partner in the profits and losses shall be in intrusted with the management of the partnership
proportion to what he may have contributed, but the without specification of their respective duties, or
industrial partner shall not be liable for the losses. without a stipulation that one of them shall not act
As for the profits, the industrial partner shall receive without the consent of all the others, each one may
such share as may be just and equitable under the separately execute all acts of administration, but if
circumstances. If besides his services he has any of them should oppose the acts of the others, the
contributed capital, he shall also receive a share in decision of the majority shall prevail. In case of a tie,
the profits in proportion to his capital. the matter shall be decided by the partners owning
the controlling interest.
Art. 1808. The capitalist partners cannot engage for
their own account in any operation which is of the Art. 1802. In case it should have been stipulated
kind of business in which the partnership is that none of the managing partners shall act without
engaged, unless there is a stipulation to the contrary. the consent of the others, the concurrence of all shall
be necessary for the validity of the acts, and the
Any capitalist partner violating this prohibition shall absence or disability of any one of them cannot be
bring to the common funds any profits accruing to alleged, unless there is imminent danger of grave or
him from his transactions, and shall personally bear irreparable injury to the partnership.
all the losses.
Art. 1800 speaks of the managing which he may have obtained in violation of this
partner. provision, with a right to damages in either case.
Art. 1801 refers to a situation where
there is more than one managing partner and Art. 1790. Unless there is a stipulation to the
there is solidary management among them. contrary, the partners shall contribute equal shares
Art. 1802 speaks of joint management. to the capital of the partnership.
But, since this relates to the obligations of partners
inter se, the acts of a managing partner in violation Art. 1791. If there is no agreement to the contrary,
of Art. 1802 may still be binding insofar as third in case of an imminent loss of the business of the
persons in good faith are concerned. partnership, any partner who refuses to contribute
an additional share to the capital, except an
D. By Estoppel industrial partner, to save the venture, shall he
See previous discussion on kinds of obliged to sell his interest to the other partners.
partnerships.
Art. 1795. The risk of specific and determinate
IV. PARTNERS OBLIGATIONS TO THE things, which are not fungible, contributed to the
partnership so that only their use and fruits may be
PARTNERSHIP
for the common benefit, shall be borne by the
partner who owns them.
A. To Contribute; Warrant
Art. 1786. Every partner is a debtor of the If the things contribute are fungible, or cannot be
partnership for whatever he may have promised to kept without deteriorating, or if they were
contribute thereto. contributed to be sold, the risk shall be borne by the
partnership. In the absence of stipulation, the risk of
He shall also be bound for warranty in case of the things brought and appraised in the inventory,
eviction with regard to specific and determinate shall also be borne by the partnership, and in such
things which he may have contributed to the case the claim shall be limited to the value at which
partnership, in the same cases and in the same they were appraised.
manner as the vendor is bound with respect to the
vendee. He shall also be liable for the fruits thereof The 2nd sentence of Art. 1786, when it
from the time they should have been delivered, speaks of specific and determinate things, refers to
without the need of any demand. non-fungible things.
Art. 1786 only specifically talks about
Art. 1787. When the capital or a part thereof which warranty against eviction but Prof. Bautista states
a partner is bound to contribute consists of goods, that the other warranties of sale (warranty against
their appraisal must be made in the manner hidden defects and warranty for merchantability
prescribed in the contract of partnership, and in the for purpose) should also be made applicable.
absence of stipulation, it shall be made by experts Art. 1786 explicitly does away with the
chosen by the partners, and according to current need for demand as to the fruits in the last
prices, the subsequent changes thereof being for sentence thereof.
account of the partnership. The appraisal in Art. 1787 is
necessary to know the value of the capital
Art. 1788. A partner who has undertaken to contribution of property.
contribute a sum of money and fails to do so o Valuation is usually done by
becomes a debtor for the interest and damages from agreement because the transfer of property to
the time he should have complied with his obligation. the partnership is similar to a sale; or it may
be done by an expert (appraiser).
The same rule applies to any amount he may have o If its through the former, the value is
taken from the partnership coffers, and his liability based on the agreement. But if its throught he
shall begin from the time he converted the amount to latter, the value is based on current prices or
his own use. the fair market value
Art. 1789. An industrial partner cannot engage in Art. 1791 refers to total loss of the
business for himself, unless the partnership business such that the partnership can no longer
expressly permits him to do so; and if he should do continue to pursue its purpose.
so, the capitalist partners may either exclude him o There must first be capital call; there
from the firm or avail themselves of the benefits must be an agreement for everyone to
contribute to continue the business; after such
agreement, the failure to contribute gives the o Cannot acquire for himself a
right to buy-out the interest of the partnership asset nor divert to his own use a
uncontributing partner. partnership opportunity;
Under the 1st par. of Art. 1795, the o Must not compete with partnership
partner retains ownership because he only within its scope of business.
contributes the usufruct and, thus, he still bears
the risk of loss (principle of respirit domino); it also Liwanag vs. CA
only refers to non-fungible things. Even when a contract of partnership has been entered
Under the 2nd par. of Art. 1795, if a into, when money or property have been received by a
partner loses the fungible goods before delivery, he partner for a specific purpose and he later
remains an obligor and, thus, still a partner misappropriated it, such partner is guilty of estafa.
subject to the delivery of his contribution, which is
a fungible thing.
Note that the risk of loss is
transferable by stipulation. US vs. Clarin
- When a partner contributes to the common fund,
B. To Apply Sums Collected Pro Rata he invests it in the risks or benefits of the business
Art. 1792. If a partner authorized to manage collects and, even if only the usufruct over the money has
a demandable sum which was owed to him in his been conveyed, the duty to return such capital
own name, from a person who owed the partnership devolves upon the partnership and not any of the
another sum also demandable, the sum thus partners.
collected shall be applied to the two credits in - When money has been received by the partnership,
proportion to their amounts, even though he may the business commenced and profits accrued, the
have given a receipt for his own credit only; but action that lies with the partner who furnished
should he have given it for the account of the capital for recovery of his money is not a criminal
partnership credit, the amount shall be fully applied action for estafa, but a civil one arising from the
to the latter. partnership contract for a liquidation of the
partnership and a levy on its assets if there should
The provisions of this article are understood to be be any.
without prejudice to the right granted to the other
debtor by Article 1252, but only if the personal credit Pang Lim vs. Lo Seng
of the partner should be more onerous to him. - Partners are required to
exhibit towards each other the highest degree of
C. To Compensate good faith because the relation is essentially
fiduciary as each is considered the confidential
Art. 1794. Every partner is responsible to the
agent of the other.
partnership for damages suffered by it through his
- Therefore, one partner cannot,
fault, and he cannot compensate them with the
to the detriment of another, apply exclusively to his
profits and benefits which he may have earned for
own benefit the results of the knowledge and
the partnership by his industry. However, the courts
information gained in the character of partner.
may equitably lessen this responsibility if through
the partner's extraordinary efforts in other activities
of the partnership, unusual profits have been Catalan vs. Gatchalian
realized. - The right of redemption
pertains to the owner of the property; as it was the
This also covers negligence of a partner
partnership which owned the property, in this
case, it was only the partnership which could
D. To Be Loyal; Fiduciary Duty
properly exercise the right of redemption.
Art. 1807. Every partner must account to the - When Catalan redeemed the
partnership for any benefit, and hold as trustee for it properties, he became a trustee and held the same
any profits derived by him without the consent of the in trust for his co-partner Gathchalian, subject to
other partners from any transaction connected with his right to demand from the latter his
the formation, conduct, or liquidation of the contribution to the amount of redemption.
partnership or from any use by him of its property.
In the absence of stipulation, the share of each C. To render true and full information
partner in the profits and losses shall be in
Art. 1806. Partners shall render on demand true
proportion to what he may have contributed, but the
and full information of all things affecting the
industrial partner shall not be liable for the losses.
partnership to any partner or the legal representative so, the capitalist partners may either exclude him
of any deceased partner or of any partner under legal from the firm or avail themselves of the benefits
disability. (n) which he may have obtained in violation of this
provision, with a right to damages in either case. (n)
Martinez v. Ong Pong Co
Quick Facts: Martinez delivered P1,500 to Ong Pong Co Art. 1808. The capitalist partners cannot engage for
and Ong Lay to invest in a store. They agreed that the their own account in any operation which is of the
profits and losses would be equally shared by all of kind of business in which the partnership is
them. Martinez was demanding for the 2 Ongs to engaged, unless there is a stipulation to the contrary.
render an accounting or to refund him the P1,500. Ong
Pong Co alleged that Ong Lay, now deceased was the VI. PARTNERS OBLIGATIONS TO
one who managed the business, and the capita of
P1,500 resulted in a loss.
PERSONAL AND PARTNERSHIP
Ratio: The 2 partners (Ongs) were the administrators CREDITORS; THIRD PARTIES
and obliged to render accounting. Since neither of
them rendered an account nor proven the losses, they A. To have his partnership interest charged for
are obliged to return the capital. Art. 1796 is not personal debts (primary)
applicable because no other money than that
contributed as capital was involved. The liability of the Art. 1814. Without prejudice to the preferred rights
partners is joint. Ong Pong Co shall only pay P750 to of partnership creditors under Article 1827, on due
Martinez. application to a competent court by any judgment
creditor of a partner, the court which entered the
Agustin v. Inocencio judgment, or any other court, may charge the
Quick Facts: The parties are all industrial partners. interest of the debtor partner with payment of the
For the construction of a casco, profits of the business unsatisfied amount of such judgment debt with
were contributed and money was borrowed from wife of interest thereon; and may then or later appoint a
the managing partner, Inocencio, Inocencio also receiver of his share of the profits, and of any other
advanced funds necessary to complete the work. The money due or to fall due to him in respect of the
other partners were not informed of the borrowing and partnership, and make all other orders, directions,
the advancement but the books were always open to accounts and inquiries which the debtor partner
their inspection. might have made, or which the circumstances of the
Ratio: The nature of the transaction (construction of case may require.
casco) was within the scope of the business of the
partnership so Inocencio, in borrowing money and The interest charged may be redeemed at any time
advancing funds, was acting within the scope of his before foreclosure, or in case of a sale being directed
authority as a managing partner. All the partners are by the court, may be purchased without thereby
liable for the debt. causing a dissolution:
Soncuya v. De Luna (1) With separate property, by any one or more of the
Quick Facts: Soncuya, de Luna and deceased Avelino partners; or
were members of a partnership, Centro Escolar de
Senoritas. Soncuya filed a complaint praying for (2) With partnership property, by any one or more of
damages as result of the fraudulent administration by the partners with the consent of all the partners
managing partner De Luna. whose interests are not so charged or sold.
Ratio: For a partner to be able to claim damages
allegedly suffered by him by reason of the fraudulent Nothing in this Title shall be held to deprive a
administration of the managing partner, a previous partner of his right, if any, under the exemption laws,
liquidation of the partnership is necessary. A as regards his interest in the partnership. (n)
liquidation of the business is necessary so the
following may be determined: profits and losses, causes remedy of a judgment creditor against a partner
of the losses, responsibility of the defendant and This refers to partners interest in the partnership
damages each partner may have suffered. and NOT to his right over a specific partnership
property
D. Not to engage in another business partners interest share of the profits and
Art. 1789. An industrial partner cannot engage in surplus
business for himself, unless the partnership
expressly permits him to do so; and if he should do
rights to specific partnership property right subsidiarily and pro rata for all partnership
of possession for partnership purposes obligations
Art. 1827. The creditors of the partnership shall be Art. 1817. Any stipulation against the liability laid
preferred to those of each partner as regards the down in the preceding article shall be void, except as
partnership property. Without prejudice to this right, among the partners. (n)
the private creditors of each partner may ask the
attachment and public sale of the share of the latter what if other parties waived?
in the partnership assets. (n)
VOID as against 3rd parties
preference of partnership creditors over personal therefore, as to them, pro rata liability applies
creditors (in case of insolvency or liquidation) except as among partners
2nd sentence: without prejudice to private creditors if there is waiver by some parties, those
right to ask attachment benefitted can claim against the other partners
what he paid pro rata
B. To be liable pro rata for partnership debts
(subsidiary & joint) Art. 1835. The dissolution of the partnership does
not of itself discharge the existing liability of any
Art. 1816. All partners, including industrial ones, partner.
shall be liable pro rata with all their property and
after all the partnership assets have been exhausted, A partner is discharged from any existing liability
for the contracts which may be entered into in the upon dissolution of the partnership by an agreement
name and for the account of the partnership, under to that effect between himself, the partnership
its signature and by a person authorized to act for creditor and the person or partnership continuing
the partnership. However, any partner may enter into the business; and such agreement may be inferred
a separate obligation to perform a partnership from the course of dealing between the creditor
contract. (n) having knowledge of the dissolution and the person
or partnership continuing the business.
refers to all GENERAL partners
The individual property of a deceased partner shall
- can industrial partners be general partners? YES be liable for all obligations of the partnership
- as a GR, all partners are general partners incurred while he was a partner, but subject to the
exception: stipulation limited partner prior payment of his separate debts. (n)
Each partner has been said to be possessed of a Profit the gain realized from the business or
joint interest in the whole of partnership property, investment over and above expenditures or the
but does not own individually any particular article excess of the value of returns over the value of
or any separate part or aliquot part thereof. advances.
(1) The right of equal possession includes use and Surplus- the excess of assets over liabilities; simply
control, including the power of sale and what is left of the assets of a firm after all its
disposition, such as applying partnership property liabilities have been satisfied.
to partnership debts, even without the consent of The interest of the partner in the partnership has
the other partners. It is however subject to several been otherwise described as the net balance
limitations. remaining to him; after all partnership debts or
One limitation: extends only to partnership claims against it have been paid and the equities
purposes. He has no right to possess it for any and accounts between such partner and his
other purpose without the consent of his partners. copartners have been adjusted.
If he does, he is accountable for the value of such Unlike his rights in specific partnership property, a
use as well as for any profits he may have derived partners interest in the partnership is assignable
therefrom. If he converts partnership money to his irrespective of the consent of the other partners.
It may be reached by the partners separate Art. 1830. Dissolution is caused: [xxx]
creditors by means of a charging order and the (2) In contravention of the agreement between the
other remedies specified in Art 1814. And the partners, where the circumstances do not permit a
partner can, with respect to it, claim rights under dissolution under any other provision of this article,
the exemption laws. by the express will of any partner at any time;
Art. 1831. On application by or for a partner the
Art. 1813. A conveyance by a partner of his whole court shall decree a dissolution whenever:
interest in the partnership does not of itself dissolve
the partnership, or, as against the other partners in (1) A partner has been declared insane in any judicial
the absence of agreement, entitle the assignee, proceeding or is shown to be of unsound mind;
during the continuance of the partnership, to
interfere in the management or administration of the (2) A partner becomes in any other way incapable of
partnership business or affairs, or to require any performing his part of the partnership contract;
information or account of partnership transactions,
or to inspect the partnership books; but it merely (3) A partner has been guilty of such conduct as
entitles the assignee to receive in accordance with tends to affect prejudicially the carrying on of the
his contract the profits to which the assigning business;
partner would otherwise be entitled. However, in case
of fraud in the management of the partnership, the (4) A partner willfully or persistently commits a
assignee may avail himself of the usual remedies. breach of the partnership agreement, or otherwise so
conducts himself in matters relating to the
In case of a dissolution of the partnership, the partnership business that it is not reasonably
assignee is entitled to receive his assignor's interest practicable to carry on the business in partnership
and may require an account from the date only of the with him;
last account agreed to by all the partners. (n)
(5) The business of the partnership can only be
If partner conveys (assigns, sells, donates) his carried on at a loss;
WHOLE interest in the partnership (his share in
the profits and surplus), the partnership remains, (6) Other circumstances render a dissolution
in general. equitable.
WoN a dissolution results from the assignment
depends on its nature as much as on the intent or On the application of the purchaser of a partner's
agreement of the parties, as may be gathered from interest under Article 1813 or 1814:
the original partnership agreement, the written
assignment, or from their subsequent conduct. (1) After the termination of the specified term or
The assignee does not necessarily become a particular undertaking;
partner. The assignor is still the partner, with a
right to demand accounting and settlement. (2) At any time if the partnership was a partnership
Rights of assignee: at will when the interest was assigned or when the
o To get whatever profits the assignor-partner charging order was issued. (n)
would have obtained. (5) loss means operating loss for an extended
o To avail himself of the usual remedies in case of period of time
fraud in the management.
o To ask for annulment of the contract of Dan Fue Leung v. IAC
assignment if he was induced to enter it thru any Arts. 1806-1809 show that the right to demand an
of the vices of consent or if he himself was accounting exists as long as the partnership exists.
incapacitated to give consent. Partnership begins to run only upon the dissolution of
o To demand accounting but only if indeed the the partnership when the final accounting is done.
partnership is dissolved, but even then, the
account can cover the period only from the date US v. Clarin supra
of the last accounting which has been agreed to
by all the partners. Emnace v. CA
o Assignee can demand dissolution of the Action for accounting, payment of partnership shares,
partnership when the partnership has become a division of assets and damages is a personal action
partnership at will. which may be commenced and tried where the
defendant resides or may be found, or where the
E. To ask for dissolution plaintiffs reside, at the election of the latter.
If an action is against a partner, on the basis of his partnership business. These include personal
personal liability, it is an action in personam, and the obligations incurred by him in the ordinary and
fact that two of the assets of the partnership are proper course of partnerships affairs and in the
parcels of land does not materially change the nature preservation of its business or property.
of the action.
Each partner is further entitled to be indemnified
The heirs, as successors who stepped into the shoes of by the partnership for risks in consequence of its
their decedent upon his death, can bring an action for management. This contemplates risks and losses
accounting originally pertaining to the decedent. This which a partner necessarily incurs on behalf of the
right is transmitted by law. The heirs are complainants partnership.
in their own right as successors.
The firm must refund amounts disbursed on its C. To ask for dissolution
behalf plus interest from the time expenses were
made (and not from demand, since after all, a
partner is an agent, and the rule on agency applies
Art. 1831. On application by or for a partner the
to him).
court shall decree a dissolution whenever:
(1) A partner has been declared insane in any judicial
The Code also makes the partnership answerable
proceeding or is shown to be of unsound mind;
to each partner for the obligations he may have
contracted in good faith in the interest of the
(2) A partner becomes in any other way incapable of
performing his part of the partnership contract;