III.

Kinds of partners business in which the partnership is engaged

Industrial partner Capitalist partner or in any kind of business
Form of contribution Reason for prohibition:
Industry Money or property o to prevent conflict of interest
Share in profits between the industrial partner and the
Just and equitable share According to agreement; if partnership
none, in proportion to o to insure faithful compliance by said
contribution partner with his prestation
Share in losses
Exempted as to losses as According to agreement; if As regards the capitalist partner:
between partners, but none, in the same prohibition extends only to any operation which
liable to third persons, proportion as the agreed is of the same kind of business in which the
without prejudice to share in profits; if none, in partnership is engaged unless there is a
reimbursement from proportion to contribution stipulation to the contrary.
capitalist partners
Engagement in business Remedies where industrial partner engages in
Cannot engage in Cannot engage, for his business.
business for himself, own account, in the same Capitalist partners have the right:
unless the partnership kind of business as that of o To exclude him from the firm or
expressly permits him to the partnership, unless o To avail themselves of the benefits
do so; should he do so there is a stipulation to which he may have obtained
without permission, the the contrary; should he do
capitalist partners may: so, he shall bring to the Article 1797. The losses and profits shall be
[1] exclude him from the common fund any profits distributed in conformity with the agreement. If
firm; or accruing to him from his only the share of each partner in the profits has been
[2] avail themselves of transactions and shall agreed upon, the share of each in the losses shall be in
the benefits obtained in personally bear all the the same proportion.
violation of the losses
prohibition, with right to [Article 1808]
damages in either case In the absence of stipulation, the share of each partner
[Article 1789] 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
A. Industrial
industrial partner shall receive such share as may be
Article 1789. An industrial partner CANNOT engage just and equitable under the circumstances. If besides
in business for himself, unless the partnership his services he has contributed capital, he shall also
expressly permits him to do so; and if he should do receive a share in the profits in proportion to his
so, the capitalist partners may either exclude him from capital. (1689a)
the firm or avail themselves of the benefits which he
may have obtained in violation of this provision, with a
Rule for distribution of profits
right to damages in either case. (n)
GR: partners shall share their profits according to their
agreement subject to Art. 1799
Industrial partner- one who contributes his industry,
labor, or services to the partnership If there is no agreement:
Share of capitalist partner proportion to
GR: he becomes the debtor of the partnership for his
his capital contribution
work or services from the moment the partnership
relation begins partnership acquires an exclusive Share of industrial partner paid his share
right to avail itself of his industry. first before the capitalist partners divide the
Exception: when the partnership expressly permits profit among themselves
him to engage in business for himself o Share is according to just and
equitable under the circumstances
If he engages in a business for himself without the o profits is not fixed as it is very difficult
express permission act is considered prejudicial to to ascertain the value of the services of
the interest of the other partners a person
o Under Code of Commerce: industrial
Express permission mere tolerance will not exempt partner was placed in the distribution
the industrial partner from liability in the same position as the capitalist
partner having the smallest
Action for specific performance to compel partner to interest.
perform the promised work or service is not available
as e remedy prohibited by the Constitution A partner is entitled to receive only his share of the
(Involuntary servitude) profits actually realized by the venture.

Prohibition against engaging in a business Rule for distribution of profits

As regards the industrial partner: GR: losses shall be distributed according to their
prohibition is absolute and applies whether agreement subject to Article 1799.
the industrial partner is to engage in the same
If there is no agreement
If the contract provides for the share of the partners in
the profits
Capitalist partners: the share of each in the
losses shall be in accordance with the profit-
sharing ratio
Industrial partner: not be liable for losses
If the contract does NOT provide for the share of the
partners in the profits losses shall be borne by the
partners in proportion to their capital
contributions, but the PURELY industrial partner
shall NOT be liable for the losses.
B. Capitalist
Article 1789. An industrial partner cannot engage in
business for himself, unless the partnership expressly
permits him to do so; and if he should do so, the
capitalist partners may either exclude him from the
firm or avail themselves of the benefits which he may
have obtained in violation of this provision, with a right
to damages in either case. (n)
Article 1790. Unless there is a stipulation to the
contrary, the partners shall contribute equal
shares to the capital of the partnership. (n)
Partners can stipulate the contribution of unequal
shares in the common fund
Rule is NOT applicable to an industrial partner
unless, besides his services, he has contributed capital
pursuant to an agreement to that effect
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 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)
Article 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)
Prohibition only applies to businesses same as or
similar to the business in which the partnership is
engaged and which is competitive with said business.
Reason for prohibition:
relationship is fiduciary and imposes upon
them the obligation of the utmost good faith
in their dealings with one another with
respect to partnership affairs
to prevent a partner from availing himself
personally of information obtained by him in
the course of the transaction of the partnership
business or by reason of his connection with
the firm regarding the business secrets and
clientele of the firm to its prejudice.
C. Managing
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 other
debtor by article 1252, but only if the personal credit
of the partner should be more onerous to him.
(1684)
Obligation of managing partner who collects
debt
Person is separately indebted to the partnership and to
the managing partner at the same time
GR: sum received by the managing partner shall be
applied to both credits in proportion to their amounts
Exception: where he received it for the account of the
partnership whole sum shall be applied to the
partnership credit only.
Requisites for the application of the rule
There exist at least two debts, one where the
collecting partner is creditor, and the other,
where the partnership is the creditor;
Both debts are demandable; and
The partner who collects is authorized to
manage and ACTUALLY manages the
partnership.
Reason: safeguards the interests of the partnership by
preventing the possibility of their being
subordinated by the managing partner to his
own interest to the prejudice of the other partners.
If no one is appointed as managing partner Art. 1803
would apply every partner is considered a managing
partner
Right of the debtor to application of the payment (Art.
1252)
debtor is given the right to prefer payment of the credit
of the partner if it should be more onerous to him in
accordance with his right to application of payment
Article 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)
Partners have the right to an equal voice in the conduct
and management of the partnership business
Partners may select a managing partner or make such
allocation of functions as the needs of the business
dictate especially in a large partnership.
Appointment as manager in the articles of
partnership may execute all acts of
administration notwithstanding the opposition
of the other partners, unless he should act in
bad faith power is revocable only upon just
and lawful cause and upon vote of the
representing the controlling interest
no party to a contract can violate the law of
the contract without the consent of the others.
In case of mismanagement, the other
partners may avail of the usual remedies
allowed by law, including an application for
dissolution of the partnership by a judicial
decree.
Appointment as manager after the
constitution of the partnership may be
revoked at any time for any cause whatsoever.
partner (and not a stranger) appointed as
manager
Article 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)
2 or more partners have been entrusted with the
management
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
If one or more managing partners shall oppose the
acts of the others decision of the MAJORITY of the
managing partners shall prevail
In case of a tie matter shall have to be decided by
the vote of the partners owning the controlling interest
(more than 50% of the capital investment)
If there is a specification of the respective duties of
the managing partners the decision of the partner
concerned shall prevail subject only to the limitation
that he should act in good faith.
Requisites for the application of the rule
Two or more partners have been appointed as
managers;
There is NO specification of their respective
duties; and
There is NO stipulation that one of them shall
not act without the consent of all the others.
Article 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)
Partners may stipulate that none of the managing
partners shall act without the consent of the others
unanimous consent of ALL the managing
partners shall be necessary for the validity of their
acts.
consent is so indispensable that neither the absence
nor disability of any one of them may be alleged as
excuse or justification to dispense with this
requirement.
ONLY exception: there is an imminent danger of
grave or irreparable injury to the partnership
partner may act alone without the consent of the
partner who is absent or under disability, without
prejudice to his liability for damages under Article
1794.
Exception does NOT apply when one of the managers,
in the exercise of his right to oppose, objects to the
proposed act.
Reason: one of the essential conditions of the authority
conferred on the managing partner is that the
management should be with the consent of all
the partners, and inasmuch as in this case such
unanimous consent is manifestly wanting, proposed
act is outside the scope of his authority
D. By estoppel
Article 1825. When a person, by words spoken or
written or by conduct, represents himself, or consents
to another representing him to anyone, as a partner in
an existing partnership or with one or more persons not
actual partners, he is liable to any such persons to
whom such representation has been made, who has,
on the faith of such representation, given credit to the
actual or apparent partnership, and if he has made
such representation or consented to its being made in
a public manner he is liable to such person, whether
the representation has or has not been made or
communicated to such person so giving credit by or
with the knowledge of the apparent partner making the
representation or consenting to its being made:
(1) When a partnership liability results, he is liable as
though he were an actual member of the partnership;
(2) When no partnership liability results, he is liable pro
rata with the other persons, if any, so consenting to the
contract or representation as to incur liability,
otherwise separately.
When a person has been thus represented to be a
partner in an existing partnership, or with one or more
persons not actual partners, he is an agent of the
persons consenting to such representation to bind
them to the same extent and in the same manner as
though he were a partner in fact, with respect to
persons who rely upon the representation. When all the
members of the existing partnership consent to the
representation, a partnership act or obligation results;
but in all other cases it is the joint act or obligation of
the person acting and the persons consenting to the
representation. (n)
Partner by estoppel; partnership by estoppel.
Estoppel: bar which precludes a person from denying
or asserting anything contrary to that which has been
established as the truth by his own deed or
representation, either express or implied.
GR: Persons who are not partners as to each other are
not partners as to third persons.
Exception: doctrine of estoppel, one may become
liable as a partner even though he is not a partner in
fact.
Partner by estoppel
(a) Directly represents himself to anyone as a
partner in an existing partnership or in a non-existing
partnership (with one or more persons not actual
partners); or
(b) Indirectly represents himself by consenting to
another representing him as a partner in an existing
partnership or in a non-existing partnership.
Partnership by estoppel
If all the actual partners consented to the
representation, then the liability of the person who
represented himself to be a partner or who consented
to such representation and the actual partners is
considered a partnership liability
no existing partnership and all those represented as
partners consented to the representation, or not all of
the partners of an existing partnership consented to
the representation, then, the liability of the person who
represented himself to be a partner or who consented
to his being represented as partner, and all those who
made and consented to such representation, is joint or
pro rata.
Liability: pro rata (all those who made and consented to
such representation)
When there is no existing partnership and not all but
only some of those represented as partners consented
to the representation, or none of the partners in an
existing partnership consented to such representation,
then the liability will be separate that of the person
who represented himself as a partner or who
consented to his being represented as a partner, and
those who made and consented to the representation,
or that only of the person who represented himself as
partner
Estoppel does NOT create a partnership
One who is deemed to be liable as a partner by reason
of estoppel does not thereby obtain full rights as a
partner.
The doctrine of estoppel has no application as between
actual partners. Partners become such by agreement
and not by estoppel.
Elements to establish liability as a partner on
ground of estoppel.
(1) Proof by plaintiff that he was individually aware of
the defendants representations as to his being a
partner or that such representations were made by
others and not denied or refuted by the defendant;
(2) Reliance on such representations by the plaintiff;
and
(3) Lack of any denial or refutation of the statements
by the defendant; such denial need not precede
plaintiffs acting thereon if the denial was forthcoming
promptly upon hearing of the representations, and if,
by prudence and diligence the plaintiff might have
learned of the truth or untruth of the representations.
Defendant need not be proved to be a man of financial
ability. Sole reliance is not a requisite with respect to
dealings involving the one representing or represented
to be a partner
The law makes liable as general partners all persons
who assume to act as a corporation and may include
persons who attempt, but fail to form a corporation and
who carry on business under the corporate name. A de
facto partnership among themis created.
Only the active members of the unsuccessfully
attempted corporation should be liable as general
partners. Subscribers to stocks who take no part in the
supposed corporation are not personally liable.
Rights and obligation in general, of partners
inter se
(1) Partnership relation essentially one of mutual trust
and confidence
(2) Fiduciary relationship remains until partnership is
terminated
(3) Relationship in a limited partnership does not
involve trust and confidence
IV. Partners obligations to the partnership
A. To contribute; warrant
Article 1786. Every partner is a debtor of the
partnership for whatever he may have promised to
contribute thereto.
He shall also be bound for warranty in case of
eviction with regard to specific and determinate
things which he may have contributed to the
partnership, in the same cases and in the same
manner as the vendor is bound with respect to the
vendee. He shall also be liable for the fruits thereof
from the time they should have been delivered,
without the need of any demand. (1681a)
Obligations with respect to contribution of
property
(1) To contribute at the beginning of the
partnership or at the stipulated time the money,
property, or industry which he may have promised
to contribute;
(2) To answer for eviction in case the partnership is
deprived of the determinate property
contributed; and
(3) To answer to the partnership for the fruits of
the property the contribution of which he delayed,
from the date they should have been contributed
up to the time of actual delivery.
Additional obligations
(4) To preserve said property with the diligence of
a good father of a family pending delivery to the
partnership [Art. 1163.]; and
(5) To indemnify the partnership for any damage
caused to it by the retention of the same or by the
delay in its contribution. [Arts. 1788, 1170.]
Effect of failure to contribute property
Makes the partner ipso jure a debtor of the partnership
even in the absence of any demand.
Remedy of other partners
Action for specific performance (to collect what is
owing) with damages and interest from the defaulting
partner from the time he should have complied with his
obligation.
Liability of partner in case of eviction
Bound by rules on sales: take place whenever by a
final judgment based on a right prior to the sale or
an act imputable to the vendor, the vendee is
deprived of the whole or a part of the thing
purchased.
Liability of partner for fruits of property in case
of delay.
no demand is necessary to put the partner in default
Liability of partner for failure to perform service
stipulated.
GR: Partner NOT liable unless there is a special
agreement to that effect
Exception:
If a partner neglects or refuses, without
reasonable cause, to render the service which
he agreed to perform by reason of which the
partnership suffered loss
If the partner is compelled to make good
the loss, each member of the firm, including
himself, will receive his proportion of the
amount in the distribution of the partnership
assets,
If under the circumstances of the case the
proper measure of the damages or loss (which
may include unrealized profits) is the value of
the services wrongfully withheld, then the
defendant should be charged this value
Article 1787. When the capital or a part thereof
which a partner is bound to contribute consists of
goods, their appraisal must be made in the
manner prescribed in the contract of
partnership, and in the absence of stipulation, it
shall be made by experts chosen by the partners,
and according to current prices, the subsequent
changes thereof being for account of the partnership.
(n)
Reason for appraisal: to determine how much has
been contributed by the partners In the absence
of a stipulation, the share of each partner in the
profits and losses is in proportion to what he
may have contributed.
In the case of immovable property, the appraisal is
made in the inventory of said property or as provided
in this article
Article 1788. A partner who has undertaken to
contribute a sum of money and fails to do so
becomes a debtor for the interest and damages
from the time he should have complied with his
obligation.
The same rule applies to any amount he may have
taken from the partnership coffers, and his liability
shall begin from the time he converted the amount to
his own use. (1682)
2 distinct cases
Money promised but not given on time
Partnership money converted to the personal
use of the partner
Obligations of partners with respect to capital
To contribute on the date due the amount
he has undertaken to contribute to the
partnership;
To reimburse any amount he may have
taken from the partnership coffers and
converted to his own use;
To pay the agreed or legal interest, if he
fails to pay his contribution on time or in
case he takes any amount from the
common fund and converts it to his own
use; and
To indemnify the partnership for the
damages caused to it by the delay in the
contribution or the conversion of any sum
for his personal benefit.
Liability of partner for failure to return
partnership money received.
Where fraudulent misappropriation
committed partner is guilty of estafa if he
misappropriates partnership money or property
received by him for a specific purpose of the
partnership.
Where there was mere failure to return
action that lies with the partner who furnished
capital for the recovery of his money is a civil
one arising from the partnership contract
for a liquidation of the partnership and a
levy on its assets if there should be any.
Article 1790. Unless there is a stipulation to the
contrary, the partners shall contribute equal
shares to the capital of the partnership. (n)

Above rule is NOT applicable to an industrial
partner unless, besides his services, he has
contributed capital pursuant to an agreement to
that effect
Article 1791. If there is no agreement to the contrary,
in case of an imminent loss of the business of the
partnership, any partner who refuses to contribute
an additional share to the capital, except an
industrial partner, to save the venture, shall he
obliged to sell his interest to the other partners.
(n)
GR: capitalist partner is not bound to contribute to the
partnership more than what he agreed to contribute
Exception: in case of an imminent loss of the
business, and there is no agreement to the contrary, he
is under obligation to contribute an additional share to
save the venture
Requisites for the application of the rule
There is an imminent loss of the business of
the partnership;
The majority of the capitalist partners are of
the opinion that an additional contribution
to the common fund would save the
business;
The capitalist partner refuses deliberately
(not because of his financial inability to do so),
to contribute an additional share to the
capital; and
There is no agreement that even in case of an
imminent loss of the business the partners are
not obliged to contribute.
Reason: refusal of the partner reflects his lack of
interest in the continuance of the partnership
unjust for him to remain and reap the benefits of the
efforts of the others while he himself refuses to help.
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 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)
5 cases contemplated
(1) Specific and determinate things which are not
fungible where only the use is contributed. The
risk of loss is borne by the partner because he remains
the owner of the things (like car);
(2) Specific and determinate things the
ownership of which is transferred to the
partnership. The risk of loss is for the account of
the partnership, being the owner;
(3) Fungible7 things or things which cannot be
kept without deteriorating even if they are
contributed only for the use of the partnership.
The risk of loss is borne by the partnership for
evidently the ownership was being transferred since
use is impossible without the things (e.g., oil, wine)
being consumed or impaired;
(4) Things contributed to be sold. The
partnership bears risk of loss for there cannot be any
doubt that the partnership was intended to be the
owner; otherwise, the partnership could not effect the
sale; and
(5) Things brought and appraised in the
inventory. The partnership bears the risk of loss
because the intention of the parties was to contribute
to the partnership the price of the things contributed
with an appraisal in the inventory. There is thus an
implied sale making the partnership owner of the said
things, the price being represented by their appraised
value.
B. To apply sums collected pro-rata
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 other
debtor by article 1252, but only if the personal credit of
the partner should be more onerous to him. (1684)
Obligation of managing partner who collects
debt
Person is separately indebted to the partnership and to
the managing partner at the same time
GR: sum received by the managing partner shall be
applied to both credits in proportion to their amounts
Exception: where he received it for the account of the
partnership whole sum shall be applied to the
partnership credit only.
Requisites for the application of the rule
There exist at least two debts, one where the
collecting partner is creditor, and the other,
where the partnership is the creditor;
Both debts are demandable; and
The partner who collects is authorized to
manage and ACTUALLY manages the
partnership.
Reason: safeguards the interests of the partnership by
preventing the possibility of their being
subordinated by the managing partner to his
own interest to the prejudice of the other partners.
If no one is appointed as managing partner Art. 1803
would apply every partner is considered a managing
partner
Right of the debtor to application of the payment (Art.
1252)
debtor is given the right to prefer payment of the credit
of the partner if it should be more onerous to him in
accordance with his right to application of payment
C. To compensate
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 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)
Obligation of partner for damages to partnership
Any person guilty of negligence or fault in the
fulfillment of his obligation shall be liable for damages
partners fault, however, must be determined in
accordance with the nature of the obligation and
the circumstances of the person, the time, and
the place
Compensation of damages with profits earned for
partnership by guilty partner.
GR: damages caused by a partner to the partnership
CANNOT be offset by the profits or benefits which he
may have earned for the partnership by his industry
partner has the obligation to secure
benefits for the partnership profits which
he may have earned pertain as a matter of law
or right, to the partnership.
obligation to exercise diligence in the
performance of his obligation as a partner
Exception:
If unusual profits are realized through the
extraordinary efforts of the partner at fault, the courts
may equitably mitigate or lessen his liability for
damages
D. To be loyal; fiduciary duty
Article 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)
Duty to act for common benefit
Pang Lim v. Lo Seng: He cannot, at the expense or to
the detriment of the other partners, use or apply
exclusively to his own individual benefit partnership
assets or the results of the knowledge and information
gained in the character of partner
Duty begins during the formation of
partnership
Duty continues even after dissolution
Duty to account for earnings accruing even
after termination of partnership
Duty to make full disclosure of information
belonging to the partnership information
which can be used for the purposes of the
partnership.
o Information belongs to the partnership
in the sense of property in which it has
a valuable right, if it is of the character
which might be employed to the
partnerships advantage
Duty not to acquire interest or right
adverse to the partnership A partner may
not
o purchase, for his own benefit, property
of any kind in which the partnership is
interested, or
o lease property when the firm is entitled
to the benefit of such lease, or
o secure a valuable contract for himself
which it is his duty to secure for the
firm, or
o obtain secretly any right that should
belong to the partnership, and put it to
his own individual profit.
Catalan v. Gatchalian: A partner redeemed with his
own private funds foreclosed property of partnership.
Held: Partner did not become absolute owner of
property. When A redeemed the property in question
he became a trustee for the benefit of his co-partner,
subject to his right to demand from the latter his
contribution.
Pang Lim v. Lo Seng: A partner, after selling to his
co-partner his interest in a partnership and acquiring
from a lessor the plant and land leased by the
partnership, seeks to terminate the partnership
Held: A does not have the right to terminate the lease;
he acted in bad faith. He had been in a relation of
confidence with B and in that position had acquired
knowledge of the possibilities of the property. on
account of his status as partner, A knew that the
original lease had veen extended and the extent of the
valuable improvements that had been made thereon.
Lim Tanhu v. Ramolete: Widow of deceased partner
seeks accounting from surviving partners who acquired
with partnership assets, properties long after the
dissolution of the partnership as a result of the death of
the deceased partner who was in control of partnership
affairs during his lifetime.
Held: Widow not entitled to accounting. A1807 not
applicable. Since B was in control of the affairs of the
partnership, fraud by C & D of B is hard to believe.
V. Partners obligation inter se
A. To bring to collation
Article 1793. A partner who has received, in whole or
in part, his share of a partnership credit, when the
other partners have not collected theirs, shall be
obliged, if the debtor should thereafter become
insolvent, to bring to the partnership capital what he
received even though he may have given receipt for
his share only. (1685a)
Requisites for the application of the rule:
A partner has received, in whole or in part,
his share of the partnership credit;
The other partners have not collected their
shares; and
 The partnership debtor has become
insolvent
Reason: the debt of the debtor of the partnership
become bad debt. It would be unjust and unfair for the
partner who collected the debt not to share the loss
with the other partners or for the former to obtain more
Provision is based on community of interest among
the partners
B. To share in profits/losses
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 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)
Rule for distribution of profits
GR: partners shall share their profits according to their
agreement subject to Art. 1799
If there is no agreement:
Share of capitalist partner proportion to
his capital contribution
Share of industrial partner paid his share
first before the capitalist partners divide the
profit among themselves
o Share is according to just and
equitable under the circumstances
o profits is not fixed as it is very difficult
to ascertain the value of the services of
a person
o Under Code of Commerce: industrial
partner was placed in the distribution
in the same position as the capitalist
partner having the smallest
interest.
A partner is entitled to receive only his share of the
profits actually realized by the venture.
Rule for distribution of profits
GR: losses shall be distributed according to their
agreement subject to Article 1799.
If there is no agreement
If the contract provides for the share of the partners in
the profits
Capitalist partners: the share of each in the
losses shall be in accordance with the profit-
sharing ratio
Industrial partner: not be liable for losses
If the contract does NOT provide for the share of the
partners in the profits losses shall be borne by the
partners in proportion to their capital
contributions, but the PURELY industrial partner
shall NOT be liable for the losses.
Article 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)
Reason for prohibition: to guarantee the utmost
impartiality in the distribution of shares in the profits
and losses
Designation by the third person would generally be
binding unless manifestly inequitable.
Reason behind the comparatively short period of
3 months within which to impugn the
designation: to forestall any paralyzation in the
operations of the partnership.
Article 1799. A stipulation which excludes one or
more partners from any share in the profits or losses is
void. (1691)
GR: law does NOT allow a stipulation excluding one or
more partners from any share in the profits and losses
partnership must exist for the common benefit and
interest of the partners
Although the stipulation is void, the partnership, if
otherwise valid, subsists and the profits or losses shall
be apportioned as if there were no stipulation on the
same.
If there is a stipulation there shall be no liability for
losses, or where from the nature of the contract, it is
clear that a party did not intend to share in the losses,
such fact may be a factor in determining that no
partnership exists
One excluded from any share in the profits or
losses is NOT intended by the parties to become
a partner, the stipulation is, of course, valid
Stipulation excluding industrial partners is valid since
law itself excludes them This is without prejudice,
however, to the rights of third persons.
Limitation does not mean that the partners cannot
stipulate for unequal shares in the profits or losses
even if their respective contributions are equal, unless
the inequality is so gross that it is, in effect, a
simulated form or attempt to exclude a partner from
any share in the profits or losses.
C. To render true and full information
Article 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 As regards the capitalist partner:
disability. (n) prohibition extends only to any operation which
there must be no concealment between them in all is of the same kind of business in which the
matters affecting the partnership partnership is engaged unless there is a
stipulation to the contrary.
information, to be sure, must be used only for a
partnership purpose. Remedies where industrial partner engages in
business.
use of the words on demand does not mean that a Capitalist partners have the right:
partner is under no obligation to make a voluntary o To exclude him from the firm or
disclosure of information affecting the partnership To avail themselves of the benefits which he may
have obtained
duty to render information does not arise with respect
to matters appearing in the partnership books since Article 1808. The capitalist partners cannot engage
each partner has the right to inspect the books. for their own account in any operation which is of the
kind of business in which the partnership is engaged,
Good faith not only requires that a partner should not unless there is a stipulation to the contrary.
make any false statement but also that he should
abstain from any concealment.
Any capitalist partner violating this prohibition shall
bring to the common funds any profits accruing to him
D. Not to engage in another business
from his transactions, and shall personally bear all the
losses. (n)
Article 1789. An industrial partner cannot engage in
business for himself, unless the partnership expressly
Prohibition only applies to businesses same as or
permits him to do so; and if he should do so, the
similar to the business in which the partnership is
capitalist partners may either exclude him from the
engaged and which is competitive with said business.
firm or avail themselves of the benefits which he may
have obtained in violation of this provision, with a right
Reason for prohibition:
to damages in either case. (n)
relationship is fiduciary and imposes upon
them the obligation of the utmost good faith
Prohibition against engaging in a business
in their dealings with one another with
As regards the industrial partner:
respect to partnership affairs
prohibition is absolute and applies whether
to prevent a partner from availing himself
the industrial partner is to engage in the same
personally of information obtained by him in
business in which the partnership is engaged
the course of the transaction of the partnership
or in any kind of business
business or by reason of his connection with
Reason for prohibition: the firm regarding the business secrets and
o to prevent conflict of interest clientele of the firm to its prejudice.
between the industrial partner and the
partnership
o to insure faithful compliance by said
partner with his prestation