If they bought the land for P1.000.

000 each to build a house but instead opted to sell it for P2,500,000
then they have a profit of P500,000 but are they partners?

No, because even if there was a profit of P500,000, this is merely incidental to the sale and not from
business operations of A&B. the land was instead used to build an apartment that is ronted out?

Yes, because A&B share profits from RENTING, this can be considered as ordinary business operations.

Example for (3)

If a person owns a big tract of land for planting rice and entered into an agreement with a farmer that
they will divide the harvest is the farmer partners with the owner of the land?

No because of the following reasons

(1) The famer had no contribution

(2) The farma has no say in the disposition of the land

(3) The farmer has no say in management

(4) In case of loss, the owner shall carry the entire burden and the farmer med not pay anything

• Example for (4)

A partnership borrowed P50,000 and instead of giving the creditor a specific amount to be repaid, they
agreed that the creditor will receive 1% of the partnership's annual gross profit. Is the creditor a partner?

No because the receipt of share in net income happens to be because of an existing debt.

To determine whether a person is a partner

(1) Required contribution

(2) Say in management

(3) Share in losses

Article 1770

A partnership must have a lawful object or purpose, and must be established for the common benelit or
interest of the partners. When an unlawful partnership is dissolved by a judicial decree, the profits shall
be confiscated in favor of the Stato, without prejudice to the provisions of the Penal Code governing the
confiscation of the Instruments and effects of a crime. (1666a)

• The partnership must have a lawful object or purpose

- Lawlul object refers to CAPITAL

• Lawful purpose refers to the BUSINESS itself

• There must be common interest and benefit

• Unlawfulness of the partnership will cause it to be dissolved and profits shall be confiscated

• Example of unlawful purpose:

GAMBLING

A & B are partners where A contributed P100,000 in cash and B contributes gambling paraphernalia.
They were raided and the gambling paraphernalia was confiscated. Can the P100.000 also be
confiscated?

No bocause the P100.000 was not the reason for the crime in anyway. The state is therefore required to
rom this amount to A Logal effects of a Judicial Dissolution Partnership is considered void from the
beginning Profit and instrument of the crime is confiscated The only relu matie items are those that were
never related to or connected with the crime committed

Article 1771

A partnership may be constituted in any form, except where Immovable property or real rights are
contributed thereto, in which case, a public instrument shall be necessary (1667)

Can a partnership be created orally?

Yes. A partnership may be constituted in any form as stated in Article 1771). Partnerships are not
covered by the Statute of Fraud since these are not necessarily required to be in writing (contract of
partnership can be in any form) If immovable property and/or real rights are contributed to the
partnership. then the contract must be in a public instrument (notarized documents). In order to bind 3"
persons, the transfer of OWNERSHIP of immovable property MUST BE REGISTERED with the REGISTRY OF
PROPERTY in the province or city where the property is located

The article shows that partnerships can be perfected by MERE CONSENT.

Article 1772

Every contract of partnership having a capital of P3.000.00 or more, in money or property, shall appear
in a public instrument, which must be recorded in the office of the Securities and Exchange Commission.
Failure to comply with the requirements of the preceding paragraph shall not affect the liability of the
partnership and the members thereof to third persons. (n). If the partnership's capital is P3,000.00 or
more in any form), it must be in a public instrument, recorded with the SEC and note that property
referred to here is MOVABLE since immovable property is covered by Article 1771.

Failure to comply with the requirements of Article 1772 will not affect the ability of the partnership to 3
persons. O isn't this inconsistent with Article 13587
No, remember that in Article 1358, the contract terms exceed P500.00 then the contract must be in
writing. This is merely for purposes of convenience and not validity or enforceability of the law. Also note
that according to Article 1768, the partnership will still be Valid and have a juridical entity. How do we
reconcile this with Article 1358 and 1357?

Article 1358 is for purposes of convenience and not for validity or enforceability of the law.

Article 1357 states that contracting parties terve the right to compel each other to place the contract
into writing

# Purpose of Registration:

(1) Condition for obtaining a license to engage in business and in trado

(2) 35 persons want proof that the partnership is existent, who the partners are and what the
capitalization is before they enter into contracts/engage in business,

(3) The government requires this so that tax liabilities may not be avoided (BIR)

• Failure to comply with the Article's requirements will not prevent the formation of the partnership. The
Statute of Fraud will only apply if there was an agreement made by the contracting parties

• Exemple:

A and B promise to contribute to their partnership money worth P10,000.00 each within one year from
their agreement. A contributes early but when the time comes for B to contribute tuis share, he refuses
to do so. Can A compel B to give his contribution?

No. A cannot compel B to pay his contribution to the partnership

Why?

Bocause the contract'agrooment between the two parties was purely ORAL and never really written, and
it has already been one year since they agreed to their contract toms

Article 1773

A contract of partnership is vold, whenever immovable property is contributod thereto, an Inventory of

said property is not made, signed by the parties and attached to the public instrument. (1668a). Refers
specifically where one or both of the parties contributo immovable property. The roquirements are

(1) The contract must be in a public instrument

(2) An inventory of the immovable property must be made, signed by BOTH parties and attached to the
public instrument, otherwise the partnership is VOIDED
• Actual Case in Applying Article 1773

A and B agree to form a partnership engaging in a fish pond business where both partners will contribute
cesh, the cash is later used to buy land that is converted into a fish pond. C comes along and points out
that the partnership is void because no inventory of the land was made. Is the partnership really void?

No, the partnership is not void because according to the Supreme Court, Article 1773 need not apply
since the land was BOUGHT from the CASH CONTRIBUTION Suppose a partnership contributes
immovable property but does not conduct an inventory and enters into a contract with

A. The partnership does not fulfill its obligation to A and Asues the partnership. Was A right in suing the
partnership?

No, since the partnership was void from the beginning A should instead file against the partners
themselves. They will be sued under the legal basis of them being partners by estoppels, as stated in
Article 1825.

If A wishes to be in a partnership with and promises to contribute land but subsequently sells the same
plot to C. Who immediately registers the transfer, who owns the land?

C owns the land because A never registered the transfer Estafat when the owner of a property sells the
same to two or more different persons

Article 1774

Any immovable property or an interest therein may be acquired in the partnership name. Title so
acquired can be conveyed only in the partnership name. (n) Being a juridical entity, a partnership can
acquire property and subsequently become its owner

Article 1775

Associations and societies whose articles are kept secret among members, and wherein anyone of tho
members may contract in his own name with third persons, shall have no juridical personality and shall
be governed by the provisions relating to co-ownership (1669).There is no juridical entity since the
members can contract with 3 persons in their own name without binding others.

• In a partnership

(1) The partners are merely agents who cannot act alone

(2) Articles of Partnership are known to ALL partners AND to the GENERAL PUBLIC

Article 1776

As to its object, a partnership is either universal on particular. As regards to the liability of the partners, a
partnership may be general or limited. (167 faj
• Classifications of Partnerships

(1) As to the Object

(a) Universal Partnership of All Present Property - defined in Article 1778

(b) Universal Partnership of All Profits - defined in Article 1780

(c) Particular Partnerships - defined in Artide 1783

(2) As to the Liability

(a) General - general partners are liable PRO-RATA und subsidiarily. sometimes solitarily, with their own
property fassets if the partnership is insolvent may indude industrial partners)

(b) Limited - limited partners are liable only up to the extent of their contribution

(3) As to Duration:

(a) At will - no particular undertaking can be dissolved at any time

(b) With a Fixed Term -- may only be dissolved upon the end of its term unless continued by the partners

(4) As to Legality of Existance

(a) De Jure - complied with ALL requirements

(b) De Facto-failed to comply with ALL requirements

(5) As to Representation to Others

(a) Ordinary Real-actually exists

(b) Ostensible by Estoppel-exists only to partners

(6) As to Publicity

(a) Secret - some partners are not known to the public

(b) Open Notorious - all partners are known to the public

(7) Aş to Purpose

(a) Commercial Trading-business transactions

(D) Professional Non-Trading - exercise of professions

• kinds of Partners

(1) Under the Civil Code

(a) Capitalist contributes money property

(b) Industrial - contributes industry

(c) General - Itability extends to personal assets

(d) Limited ability up to contribution only

(e) Managing - manages the partnership Liquidating-responsible during dissolution

(g) By Estoppei - not really a partner

(h) Continuing - continues business after dissolution

0) Surviving-remains after partner's death

0) Sub-partner - contracts with parties, Article 1804

Other Classifications:

(a) Ostensible - active, known to the public

(b) Secret - active, unknown to the public

(c) Silent - inactive, known to the public

(d) Dormant-inactive, unknown to the public

(el Original-member at time of organization

(0) Incoming about to become a member

(9) Retining - about to withdraw

Article 1777

A universal partnership may refer to all the present property or to all the profits. (1672)

Article 1778

A partnership of all present property is that in which the partners contribute all the property which
actually belongs to them to a common fund, with the intention of dividing the same among themselves,
as well as the profits which they may acquire therewith. (1673)

Article 1779

In a universal partnership of all present property, the property which belongs to each of the partners at
the time of the constitution of the partnership becomes the common property of all the partners, as well
as all the profits which they may acquire there with
A stipulation for the common enjoyment of any other profits may also be made; but the property which
the partners may acquire subsequently by inheritance, legacy or donation cannot be included in such
stipulation, except the fruits thereof. (1674a). Why is the universal partnership of all present property
not popular in the Philippines?

Proporty owned at the time of contribution will brocomo common property of the partnership
eventually because only the profits acquired through the contribution will become common property,
unless there was a stipulation that says otherwise

Example:

A and B form a Universal Partnership of All Present Property and stipulate that property and profits that
are acquired during business operations will become common property even if these were not due to
their contributions and that if anyone inherits property, it will become common property as well. A
acquires land as part of his compensation package from Ayala Land and inherits and from his parents
whose property will become common property?

Only A's land will become common property because it was essentially PAYMENT while B's was inherited.
The article prohibits donations to become common property, only fruits of such can become common
property. In a partnership contributions must be determinato certain and partners are akin to donors.
Donations cannot comprehend future property but profits can be stipulated.

Article 1780

A universal partnership of profits comprises all that the partners may acquire by their Industry or work
during the existence of the partnership. Movable or immovablo property which cach of the partners may
possess at the time of the celebration of the contract shall continue to pertain exclusively to oach, only
the usufruct passing to the partnership (1675)

• Example:

Suppose A and B form a Universal Partnership of All Profits and A wins in the lotto, P100,000.00. B tries
to share in 50% citing the codstence of their partnership and that A used the partnership's money to
purchase the lottery ticket. Can B really share in the lotto winnings?

No. В cannot since it came from CHANCE, not WORK If the P100,000.00 instead came from A's work in
DLSU, can B share in the profits of A?

Yes, because it une from WORK

• As long as it is PROFIT, the profit becomes common property to the partners UNLESS there was a
stipulation in their agreement
• If A and B form a Universal Partnership of All Profits for a Taxi-Cab business and both contribute
vehicles that will serve as the taxi, what they were actually contributing is the USE or the RIGHT TO USE
their vehicles. Upon dissolution the vóhicles will be neturned to them since there was never a transfer of
ownership

• Unique feature of the Universal Partnership of All Prolits

- The partners retain the title of ownership

Article 1781

Articles of Universal Partnership entered into without specification of its nature, only constitute a
universal partnership of profits (1676). If the articles of universal partnership are doubtful or unclear
then the presumption is that it is a universal partnership of all profits. Because a universal partnership of
all profits require less obligations and is less onerous since the partners get to retain ownership over the
property that they contribute

Article 1782

Persons who are prohibited from giving each other any donation or advantage cannot enter into a
universal partnership. (1677)

• A husband and wife cannot join a universal partnership

- They are not allowed to donate to each other and a universal partnership essentially requires that the
partners donate to each other

+ They can join a particular partnership instead

• A partnership formed in violation of this artide shall be null and void. it shall not have any legal
personality either

• Illustrativa Case

A B and C for a partnership to engage in the importation, marketing and operation of automatic
phonographs, radios, Television sets amusement machines and their parts ccessories, with Band C as
limited partners. Subsequently. A and B got married and thereafter, C sold his share to A and B for a
nominal amount. Was the partnership dissolved after the marriage of A and B and C's sale to them of his
share in the partnership?

No, the firm was not a universal partnership but a particular one.

• Pertinent Legal Provisions

(1) Artide 87. Every donation or grant of gratuitous advantage, direct or indirect between spouses during
their marriage. valid or not shall be vold except moderate gifts which the spouses may give each other
on the occasion of any family rejoicing
(2) Article 739. The following donations shall be void

(a) Those made between persons who were guilty of adultery or concubinage at the time of the
donation

(b) Those made between persons found guilty of the same criminal offense in consideration thereof

(c) Those made to a public officer or his wife, descendants and ascendants by reason of his office

Article 1783

A particular partnership has for its object determinate things, their use or fruits, or a specific
undertaking, or the exercise of a profession or vocation (1678)

• Defines what a particular partnership is

• Particular partnerships are those that are Neither a universal partnership for all present property mor a
universal partnership for all profits

Example: Those that are formed for the acquisition and Sale of property. Accounting Firms Law Firms.ofc
Popular because it is easy to join

Chapter 2 - Obligations of the Partners

Section 1 - Obligations of the Partners among Themselves Relations created by a contract of partnership

(1) Relations among the partners themselves

(2) Relations of the partners with the partnership

(3) Relations of the partnership with third persons

(4) Relations of the partners with third persons

Article 1784

A partnership begins from the moment of the oxecution of the contract, unless it is otherwise

stipulated. (1679)

 Partnership is perfected by mere consent and I ALL the requirements are met

• Notwithstanding the fact that the partners have not given their contributions yet

Example:

A and B agree to form a partnership that will begin on December 1 and upon the arrival of certain
machinery needed by the business. In this situation, are A and B in already in a partnership?
As long as the agreement remains executory, then A and B are NOT partners therefore there is no
partnership yot

• Partners may agree to form a partnership to take effect in the future

Example:

A and B agrue to form a partnership 1.5 yoars later, with contributions of P100,000.00 each. A
contributes his share early but when the time comes for B to contributo his share, the refuses and says
he no longer wants to partake in the partnership. Can A compel B to contribute his share to the
partnership?

NO. Because they cannot anforce the contract since I was porlacted 1.5 years ago and the contract was
only oral. Since the contract was for 15 years, it was greater than 1 year and should have been written
instead

• The Statute of Fraud doss not usually apply but to some particular cases such as the example above, it
will

. If the contribution is immovable property. comply with Article 1773 otherwise the partnership will be
vold.

Article 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 al 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)

.A partnership with a fixed term particular undertaking is continued without express agreement

- Rights and duties remain the same as they were at termination,

. Example:

IT A and B forma partnership to last until December 30, 2011 and A is the manager and they share profits
50-50 and after Docomber 30, 2011 they continue with their partnership. What happens?

A and B retain their rights, meaning A is still the manager and they still share profits 50-50.

. If there was express agreement for the form of existence, then when the term expiros, the partnership
is dissolved and becomes a partnership at wall

• Continuation is when there is NO settlement liquidation There must be prima facie evidence, meaning
it must be soen on first glance
Article 1786

Every partner is a debtor of the partnership for whatever he may have promised to contribute thereto.
He shall also be bound for warranty in case of eviction with regard to specilic and determinate things 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 vended. He shall also be liable for the fruits thereof from the time they should
have been delivered, without the need of any demand. (1681a)

Article 1787

When the capital or a part thereof which a partner is bound to contribute consists of goods, their
appraisal must be made in the manner prescribed in the contract of partnership, and in the absence of
stipulation, it shall be made by experts chosen by the partners, and according to current prices, the
subsequent changes thereof being the account of the partnership. (n)

Article 1788

A partner who has undertaken to contribute a sum of money and fails to do so becomes a debtor for the
interest and damages from the time he should have complied with his obligation. The same rule applies
to any amount he may have taken from the partnership coffers, and his liability shall begin from the time
he converted the amount to his own uso. (1682)

• Suppose A, B and Care partners. A promises to contribute a RED CARB promises to contribute GOODS
WORTH P50,000.00 and C promises to contribute P50,000.00 IN CASH on October 2011. On October
2011, none of them comply. What happens?

A Band C thus become debtors to the partnership

• Suppose B and C contribute their parts but A does not Can Band C ask for the recission or annulment of
the contrad?

NO, one of the partners fails to comply with his requirements, then the others can request for specific
performance with damages from the defaulting partner A

• What are the obligations of A before October 2011?

(1) To contnbute what he promised

(2) To be held liable to answer för vidion the partnership is deprived of this contribution

(3) To take care of the contribution with the diligence of a good father of a family

. Suppose Albased the car out and gets it back by December 2011.

Then A must dover the car and the fruits profits from lase to the partnership because there was a delay
• Suppose that after a contributes the car, a 3 person, D claims to the real owner of the car and is able to
prove so Than A is held liable for eviction because the partnership is deprived for a specific thing. A s also
held liable for damages to BOTH the partnership and to D.

What about B? Can the partnership determine the value of the goods hie contributed? in Article 1787. it
clearly states that the goods SHOULD be appraised by the partnership there was no agreement
stipulation then the partnership shall have the goods appraised by an expert.

• What if the goods appreciato/depreciate?

It will be charged to the partnerships account

• What will happen if fails to comply with his obligation?

C will be liable for this contribution plus interest and damages from the date he was supposed to
contribute. The same rule Will apply the partners take money from the partnership's funds without
everyone's consent. He will however, mat ba changed for theft or estafa and his obligation will only be to
return the money took plus interest and damages from the time he took the money.

When will a partner be held criminally liable?

Suppose the partners set aside P10.000.00 for payment to one of their creditors. A takes this amount
from the fund and is subsequently discovered to have done so

- Then A can be charged for estafa since he misappropriated the money ALREADY SET ASIDE.

Article 1789

An industrial partner cannot engage in business for himsoll, unless the partnership oxpressly permits him
to do so; and if the 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 caso, (n)

• An industrial partner contributes his industry

- Partnership has the EXCLUSIVE RIGHT to his industry

- Prohibited from the engaging in business of ANY lund unless the partnership has expressly permitted
him to do so.

• Example:

Suppose that a partnership is engaged in a automobila repair shop A is the industrial partner (chief
mechanic) and works only up to 5PM every working day. Can he go home and work on the partnership's
customers' autos, even if he says it to the capitalist partners EVERY DAY before ha leaves?
The law says that there must be EXPRESSED permission, in this situation, all A has is IMPLIED permission.
The capitales partners' remedy is therefore to other only ono)

(1) Avall of the benefits from A's business

(2) Exclude A from the partnership and demand for damages

• Capitalist partners are prohibitod from engaging in SIMILAR businesses only Industrial partners have
the same remedies as capitalist partners

Article 1790

Unless there is a stipulation to the contrary, the partners shall contribute equal shares to the capital of
the partnership. (n)

• The partners shall contribute to the capital of the partnership as por thoir agroomontexcept if there
was no agrooment in the first place, in which case, they shall contribute equally.

• Example

A and B decide to form a partnership and agree to contabuto to the capital in the ratio of 60:40, how
much should the Dartners contribute to the partnership?

The partners shall contribute in the ratio of 60:40, meaning if their partnership capital is a combined
total of P10,000.00 then A contributed PS, 000.00 and B contributed P4,000.00 A and B decide to form a
partnership but did not say how much the other should contributo, how much should each partner
contribute to the partnership?

Since the partners did not give any sort of agreement as to the ratio of their capital contribution, we
shall assume that oy will contributa in qual preparions, meaning if the partnership capital is a combined
lotal of P10,000.00, then each partner contributed P5,000.00

Article 1791

there is no agreement to the contrary, in case of 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
sav4e the venturo, shall be obliged to sell his interest to the other partners. (n)

. If there is an imminent loss in the partnership, the partner who neluses to contribute additional funds,
IF HE IS CAPABLE TO DO SO. shall sell his share TO THE PARTNERS, unless he is an industrial partner.

• Imminent Loss

 There is a need for the capitalist partners to contribute additional funds to save the partnership
 The industrial partner need not do so because he has already given 100% of his efforts
 If the capitalist partner is WILLING but NOT FINANCIALLY CAPABLE, the article will NOT apply to
him because he is already insolvent
Selling of interest

O Refusal to contribute additional funds to save the partnership means that the partner no longer has
any interest in the partnership

0 He should not be allowed to reap the benefits that the other partners have worked hard for because
he had not done anything to help anyway

0 He cannot complain of being removed from the partnership because he will be paid what is due to him
for this share in the interest of the partnership Agreement that the partner need not contribute
additional funds in cases of loss

0 The capitalist partner will not be required since it was in their agreement in the first place.

0 Note that more contribution to the partnership capital would mean you share more in the profits but
this should be voluntary

# Things to consider

(1) There must be an IMMINENT LOSS

(2) The partner who is unwilling to contribute must be SOLVENT FINANCIALLY CAPABLE

(3) There was no agreement that the partners will not have to contribute additional funds in cases of
loss. If the purpose of additional contribution is simply to raise capital, then this article will not apply.

Article 1792

If a partner authorized to manage collects a demandable sum, which was owed to him in his own name,
from a person who owed the partnership another sum also demandable, the sum thus collected shall be
applied to the two credits in proportion to their amounts, even though he may have given a receipt for
his own credit only: but should he have given it for the account of the partnership credit, the amount
shall be fully applied to the latter.

The provisions of this article are understood to be without prejudice to the right granted to the debtor
by Article 1252, but only if the personal credit of that partner should be more onerous to him. (1684)

.A and B are in a partnership where A is the managing partner Cowes A a sum of P5,000.00 and the
partnership a sum of P10,000.00. The credit to A is due on September 1 while the partnership's is due on
September 15, both debts are due and demandable. A collects from G a total of P3,000.00 only and A
subsequently issues a receipt in his name. Is the partnership entitled to share in the P3,000.00?

Yes but in proportion to their respective debts So A gets P1,000.00 and the partnership gots P2,000.00

• Supposing there was no mention as to who the managing partner is, will the requisitos of Article 1792
still be present?
Yes, in the absence of information relating to the identity of the managing partner, the assumption shall
be that ALL partners aro managing partners If A Issuos a receipt on the name of the partnership Instead,
to whose credit will the P3,000.00 be put?

The entre P3,000.00 will go to the partnership Supposing the credit of A carnes 18% while that of the
partnership carries only 10%. C pays A and says that the P3,000.00 shall be applied to A's credit. Is the
partnership entitled to share in the P3,000.00 stil?

No, the debtor is given the night to apply payment to whichever debt is more onerous.

Things to remember

The two conditions should be both present in order for the Article to apply, otherwise, the entire
amount will go to whoever collects payment from the debtor

(1) 2 debts and both are due and demandable

(2) The one collecting should be the managing partner

Article 1793

A partner who was 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 oven though he may have given receipt for his share
only. (1685a)

. In this case, there is only ONE debt but 2 or more debtors. both of which are partners

. Example:

A and B are partners and Cowes the partnership a sum of P10,000.00 Bis the managing partner but A
collects his share in the P10,000.00 and C pays A P5,000.00 to which A issues a receipt in his name.
When B's turn to collect comes C is already insolvent. What should A do?

A shall return his P5,000.00 to the partnership and split it with B because C has already become
insolvent

• Take not that whoever collects doesn't matter as it doesn't make a difference

. If you get your share early and the other parties cannot get theirs because the debtor has become
insolvent, then you must retum YOUR share to the partnership so that no one gots more than he should
have

Article 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 ho may have tarned for the partnership by
his industry. However, the courts may equitably lessen this responsibility it through the partner's
extraordinary efforts in other activities of the partnership. unusual profits have been realized. (1686a)

• Why Compensation will not apply Compensation will not apply because in componsation, you should
be both a debtor and a creditor at the same time. However, the partner here is only DEBTOR for
damages and he cannot compensate using his profits and benefits carned for the partnership because it
IS HIS DUTY to do so in the first place.

• Responsibility may be oquitably mitigated by the courts through extraordinary efforts of the partner,
unusual profits are recognized realized.

Example

A partnership between A and B is engaged in an autoshop business. A customer brought his car in to be
painted YELLOW but A bought RED paint instead and the car is painted RED. Damages are suffered by the
partnership for P30,000.00 due to the repainting Can A compensate this loss using the profits he camod
for the partnership?

A cannot compensate it with the prelits he earned because it is this obligation to bring profits in the first
place. The responsibility of the P30 000.00, however, may be mitigated by the court if by other activities.
A is able to bring about unusual or endrordinary profits meaning, he may be allowed by the courts to pay
back just P15,000.00 instead

 Follows that if the partner is guilty of fraud or damages, he shall be liable for that

Article 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 cornman benefit shall be borne by the partner who owns them.
the things contributed 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 ibsence of stipulation, the risk of 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)

• Refers to rules as to who bears the risks made by contributions

. If the contribution is determinate and non-fungible but only the use is contributed, when it is lost then
the one who contributes it is able for it.

• If fungible things are contnbuted, the partnership shall be the One to shoulder the risks

• The partnership shall also be the one to bear the risk for items brought for sale in inventory for
appraisal for the value at which they were appraised

Article 1796
The partnership shall be responsible to every partner for the amounts he may have disbursed on behalf
of the partnership and for the correspondingbinterest from the time the expenses 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 the risks in consequence of its management (1688)

• Refers to the obligation of the partnership to the partners

• The partners are merely agents so they are not personally liable except if they are al fault or if they
exceeded their expressed authority

• Obligations of the Partnership

(1) To reimburse any amount disbursed by the partners in behalf of the partnership

- Example:

A partnership borrows from the bank a sum of P10,000.00 for additional funds but cannot pay it back
when it is due to be paid back. A pays back the P10,000.00 using his personal funds. Should he be
reimbursed by the partnership?

Yes, the partnership should reimburse A for the Sum of P10,000.00 PLUS legal interest starting from the
date A disbursed the P10.000.00

(2) To answer for any obligation contracted in good fath

Example

A partnership needs office supplies so B contracts for P10,000.00 worth of supplies. Who will pay for the
contract price of P10.000.007 The partnership shall be the one shoulder the cost as it was made in good
faith and did not Overstop his authority

If it was stated that the partners cannot contract formore than P5,000.00 worth of supplies and B still
contracts for P10.000.00. how much will the partnership pay?

The partnership will only pay what was allowed that is P5,000.00 and B will pay the remaining balance
since Bowerstopped his authority

(3) To answer for risks in management

Example:

A partnership is engaged in selling goods and a customer koeps asking for discounts and an argument
ensues between the customer and the partner A. A gets injured and is brought to the hospital. Who shall
shoulder the hospital bills?

The partnership shall shoulder the hospital bills as it was during A's time in managing the business that
he was injured
Article 1797

The losses and profits shall be distributed in conformity with the agreement. If only the share of each
partner in the profits has boon agroed 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. Il besides his services, he has contributed capital, he shall also receive a share in the
profits in proportion to his capital (1689a)

Article 1798

If the partners have agreed to entrust to a third person the designation of the share of each one in to
prolits and losses, such designation may be impugned only when it is manifestly inequitabile. In no caso
maya partner who has begun to execute the decision of the third person, or who has not impugned the
same within a period of throő months from the time he hod knowledge thereof, complain of such
decision. The designation of losses and profits cannot be entrusted to one of the partners. (1690)

Article 1799

A stipulation which excludes one or more partners from any share in the profits or losses is void. (1691)

• Lays out the rules in the distribution of profits and losses

A B and C are partners with the following capital contributions, P30,000.00, P20,000.00 and P10.000.00
respectively, whore C is a capitalist-industrialist partner. For one year of their operations, their
partnership had earned net profits of P17,000.00. How shall these profits be divided among the
partners?

(C is entitled to receive P2.000,00 out. of the entire P17.000.00)

(1) in accordance with any existing agreement between the partners as to how they shall share.

(2) If there was no agreement, then the partners shall share on a pro-rata basis

The industrial partner shall get what is JUST and EQUITABLE in the circumstances. (BONUS TO PARTNER)

CARTAL CONTRIBUTIONAUTO

REN

THBU TABLE

PORT

TOTAL

SAMSUN
HORTS

25000

PS

60

PS

:00

HP

000

TOTAL

• The same rules shall apply for losses in the partnership's Operations, however the industrial partner
shall not share in the losses as there is no way for him to retract his industry and in the event of losses,
his efforts would have been for vain and it can thus be said that he has already shared, What is the legal
offect of having a stipulation that excludes a partner tror sharing in the profits or losses?

Under Article 1799, the stipulation shall be void because there must be mutual sharing of profits and
losses. Can the partners appoint a 3rd person to designate the division of their profits and losses?

Yes and they will not be allowed to question his decisions unless the designation of shares is manifestly
inequitable

# 2 cases where partners ABSOLUTELY cannot question designated shares by the 3rd parties.

(1) When a partner begins to excute the 3rd party's decision

(2) When complaints are raised AFTER three months from the point of knowledge of the designation

. Can the partners designate one of themselves to distinbute pratits or losses?

No, the prohibits this situation because there may be disparities when it comes to the distribution of net
profits

Article 1800

The partner withia 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 and 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 any time. (1692a)
+ 2 Kinds of Managing Partners

(1) Appointed DURING the Constitution of the Partnership

.May execute all administrative acts unless he acted in bad faith. His power may not be revoked unless
there is a JUST and LAWFUL cause and the vote of the partners with controlling interest

.Even if there are abjections as to his decisions coming from the partners, his authority will prevail
UNLESS he has acted in bad faith

Acts of administration ordinary business and administrative transactions

Why can he note be revoked for no reason?

Because if you revoke his power you are in effect changing the terms of the contract of partnership

(2) Appointed AFTER the Constitution of the Partnership

.May have his power revoked with or without cause

.Decided upon by those partners who own controlling interest in the partnership

Article 1801

If two or more partners have been entrusted with the management of the partnership without
specification of their respective duties, or without stipulation that one of them shall not act without the
consent of 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 tie, the matter
shall be decided by the partners owning the controlling interest. (1693a)

Assuno thot AB, C and D are all managing partners, A appoints E as a secretary but B objects to this is the
appointment of Evalid?

Yes since majority votes are first counted by head, I C&D were the ones to object, and they owned a
combined total of 51% of partnership interest then the appointment will not be valid Howover, B was
still the one who Objödted and heOwns 51% of partnership interest the appointment will still bo walid
becausomojanty votes are first counted by head. If the partnership cannot make a decision and ends up
in a lie head count and interest), then the partnership is to be dissolved. This will be the only remedy.
unless one of the other partners will relent

Article 1802

In caso 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)
This is a case wherein two partners, A and B stipulate that one cannot act without the consent of the
other. Thus, there must always be concurrenco bolwoon the two before any transactions may be entered
into the absence of the other's consent shall not be used as an excuse.

• Illustrative Case

A sold to B. one of the managing partners of Partnership X the other being C, a certain number of mining
claims without the consent of C. in an action by A to recover the unpaid balance of the purchase price
against Partnership XC claims that the contract is not binding upon the partnership for the reason that
under the articles of partnership, there is a stipulation that one of the partners cannot bind the firm by a
written contract without the consent of others is the transaction made by B binding upon the
partnership?

According to the Supreme Court, the shipulation applies only to Band C. A has the night to assume that
was authorized to complete the transaction. Therefore, the partnership is liable, and since B violated the
terms of contract between himself and C, he is required to reimburse for the amount C will be paying A
on behalf of the partnership, the reason boing, it would be unfair to G who had no knowledge of B's
transaction to have to pay when he never agreed anyway.

The only instance in which a partner may transact without concurrencO IS when there is imminent
danger of grave or irreparable damage to the partnership if he does not do so However, the party
involved must be able to prove so else.He shall become liable for what he has done.

Example:

A and B are in a partnership where they sell fruits, B notices that the fruits in the warehouse are starting
to rot so, without consont of A ho sells them. This will be alright trecause of the fruits rot, then it would
have been bad on the part of the partnership

Article 1803

When the manner of management has not been agreed upon, the following rules shall be observed:

(1) All of 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 count's
intervention may be sought. (1695a)

. If there is no agreement as to who will be the managing partners during constitution and after
constitution of the partnership, then the assumption shall be that ALL the partners are managing
partners, without prejudice to Article 1801, meaning Article 1801 will then apply to their case
. The second paragraph of this article provides that the partners cannot simply ater immovable property
owned by the partnership without the consent of the other partners because this is NOT an act of
administration but of OWNERSHIP

. Note that consent here is no qualified, so it may be expressed or it may be implied

Example

Suppose A, B, C and D are in a partnership where the managing partner is not specified and A decides to
put up a warehouse in a piece of land owned by the partnership without consent of other partners
because he believes it to be useful and beneficial to the partnership His partners come over, once the
warehouse is finished, to look at it and did not object to its cadstence. Was this valid?

Yes, since the partners did not object then there is IMPLIED consent. Since consent was never qualified in
the article. It is sumed that implied consent is enough

Suppose before A builds the warehouse, he asks for the consent of the other partners, who refuse to
give it. When A tries to convince them and asks why they refuse to give consent, they simply say that
they do not want it to be there, making their objection manifestly prejudicial, meaning, there is really no
reason for their objection, what then, is the fomedy of A in this situation?

A may bring the matter to court the court finds the other partners of having no solid reason to objed, it
may compell the other partners to give the consent.

Article 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)

• Refers to SUBPARTNERSHIP

. AB and Care in a partnership wherein As the managing partner. A enters into a contract with that states
D will receive 50% of A's share in partnership profits. Can A do this even without the consent of the
other partners

Yes because a sub-partnership will not affect the composition of the partnership and D will not be able
to interfere with the partnership's management anyway

When are you required to share your partnership profits with 3 persons?

When you contract with 3 persons because perhaps in soie past event you need money and they
provided you with it, and in your contract, it was agreed upon that you will shane in the partnership
profits

The 3 person can also opt to receive ALL profits

• Can D become a partner without the consent of the other partners, if he associates with the managing
partner?