LAW002- OBLIGATIONS OF THE PARTNERS

Bachelor of Science in Accountancy

1792. If a partner authorized to manage collects

a demandable sum, which was owed to him in How will he apply the payment? Will it be totally
his own name, from a person who owed the applied to his obligation in favor of the
partnership another sum also demandable, the partnership? Or could it be 2,000 in favor of
sum thus collected shall be applied to the two Bromeo (managing partner) and the other 2,000
credits in proportion to their amounts, even in favor of the partnership.
though he may have given a receipt for his own
credit only; but should he have given it for the Payment is 4,000
account of the partnership credit, the amount  Article 1792 tells us that if Bromeo issues
shall be fully applied to the latter. a receipt as a managing partner,
recognizing that 4,000 as payment to the
The provisions of this article are understood to partnership, then the whole amount of
be without prejudice to the right granted to the 4,000 will be credited to the partnership.
debtor by Article 1252, but only if the personal  However, if Bromeo issues a receipt and
credit of the partner should be more onerous to acknowledges that the 4,000 as a portion,
him. 2,000 in his favor, and the other 2,000 to
the partnership, then, that is okay.
Obligation of managing partner who collects
the debt Payment is 2,000 only
 A debtor (3rd person) has an (1) obligation  If Bromeo issues a receipt as a managing
to the partnership, as well as to the (2) partner, wherein he acknowledges that
managing partner. the 2,000 as partial payment of Reyce to
 Rule: any sum received by the managing BFM company, then the 2,000 will be paid
partner shall be applied to the two credits to the partnership.
in proportion to their amounts  But if Bromeo issues a receipt
 Except: where the managing partner acknowledging that the 2,000 will be
received the payment from the debtor for Reyce’s payment to him, article 1792 is
the account of the partnership (wherein applied in a sense that the 2,000 payment
the receipt that was issued was in the of Reyce will be applied proportionately
name of the partnership, recognizing the to the managing partner Bromeo and the
payment in favor of the partnership), in partnership.
which case the whole sum shall be a. How do you appropriate the
applied to the partnership credit only. 2,000?
 1/3 (667) for Bromeo, 2/3
To apply the article 1792, requisites are: (1333) for the partnership.
1. There must be at least 2 debts
a. 1 in favor of the partnership and Reason for applying payment to partnership
the other in favor of the managing credit
partner.  It is important to understand that as a
2. Both obligations are demandable managing partner, he is entrusted to
3. The partner who collects the is manage the affairs of the partnership.
authorized to manage and actually a. If the partnership allows the
manages the partnership. managing partner to credit the
a. whole amount of payment, there
Example would be a conflict of interest.
Bromeo, Franklin, and Mark are partners in the  The reason behind 1792, is to safeguard
BFM Company. Reyce is the debtor in the the interest of the partnership by
partnership in the amount of 4,000, while Reyce preventing the possibility of the interest
is also a debtor of Bromeo in the amount of of the partnership being subordinated by
2,000. Reyce makes payment in the amount of the managing partner to his own interest
4,000. (where the managing partner will
LAW002- OBLIGATIONS OF THE PARTNERS
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prioritize his own interest over that of the obliged, if the debtor should thereafter become
partnership) insolvent, to bring to the partnership capital
what he received even though he may have
Right of debtor to application of payment given receipt for his share only.
 2nd paragraph, in accordance to 1252
a. Under the second paragraph, the Obligation of partner who receives share of
debtor is given the right to prefer partnership credit
payment of the credit of the  Different from 1792
partner if it should be more 1. 1792 has 2 distinct credit, (1) in
onerous to him in accordance favor of the partnership, and (2) in
with his right to application of favor of the managing partner.
payment.  While 1793, there is only one credit-
 1252, rule with regards to the application credit in favor of the partnership.
of payment  Applies regardless of who receives the
a. Wherein if the debtor has several credit (managing partner or not)
obligations in favor of the creditor
and his payment is not enough to Requisites for application of rule
pay all his obligations, then it 1. A partner has received his share (in whole
would be the debtor’s choice. or in part), his share of the partnership
 If the debtor fails to inform credit.
the creditor of his choice, 2. The other partners have not collected
then the creditor will get their shares
to choose where to apply 3. The partnership debtor has become
the obligation. insolvent.
 In the absence of the
choice of the debtor or Example
credit, the most onerous Reyce who is obligated to the partnership in the
rule shall apply. amount of 4,500. Reyce made a payment to
Franklin, where Franklin’s share is 1,500 ahead of
Example: In connection with the BFM Company the shares of the other partners (Bromeo, Mark).
Therefore, if the obligation of Reyce to the However, Bromeo and Mark were not able to
managing partner (Bromeo) is more onerous collect more from Reyce, the remaining
than that of his obligation to the partnership, obligation since Reyce has already become
Reyce (debtor) can choose that the 2,000 will be insolvent.
applied to his obligation to Bromeo.
In this case, even if Franklin had already given a
Instace where the obligation be onerous receipt for his share only, he is required to return
a. Demandable (in the example, both are the 1,500 back to the partnership and that will be
already due and demandable) divided among them proportionately.
b. Obligation is subject to interest
(obligation in favor of Bromeo is subject Reason for imposing obligation to return
to interest)  It would be unfair or unjust that one
partner has already received his share
NOTE: To apply this exception, the debtor gets to while the remaining partners is at loss. It
choose to which his payment will be applied. is just fair for him to return what he has
However, his choice must be based on the most received back to the partnership and
onerous rule in connection to application of divide it among the other partners.
payment. 1794. Every partner is responsible to the
1793. A partner who has received, in whole or in partnership for damages suffered by it through
part, his share of a partnership, when the other his fault, and he cannot compensate them with
partners have not collected theirs, shall be
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the profits and benefits which he may have be for the common benefit, shall be borne by the
earned for the partnership by his industry. partner who owns them.
However, the courts may equitably lessen this
responsibility if through the partner’s If the things contributed are fungible, or cannot
extraordinary efforts in other activities of the be kept without deteriorating, or if they were
partnership, unusual profits have been realized. contributed to be sold, the risk shall be borne by
the partnership. In the absence of stipulation,
Obligation of partner for damages to the the risks of things brought and appraised in the
partnership inventory, shall also be borne by the partnership,
 GN: Any person guilty of negligence or and in such case the claim shall be limited to the
fault in the fulfillment of his obligation value at which they were appraised.
shall be liable for damages.
Article tells us who bears the loss incase the
Compensation of damages things was loss without the fault of the
 GN: Damages caused by a partner to the partnership or the partner, or due to fortuitous
partnership cannot be offset by the event.
profits or benefits which he may have
earned for the partnership by his Fungible
industry.  refers to things that is usually dealt by
a. He used the vehicle of the number, weight, or measure.
partnership, and then an accident  Rice, oil, fuel, sugar- wherein any given
happened due to his negligence unit or portion is treated as equivalent of
(drunk), thus, he will be liable to any other portion.
the partnership.
 He can’t say that his Risk of loss of things contributed
obligation will be offset, in Article discusses who bears the loss
accordance to 1794. 1. Rule with regards to loss (latin maxin)-
Otherwise it will be subject respirit domino, “owners bears the losss”
to abuse. It would be easy
for a partner to just be When things are contributed, we need to
negligent and cause determine if there is a transfer of ownership
damage to the partnership
since it can be offset with Cases for the determination of the risk of the
the profits and benefit that things contributed to the partnership
he may earn from the 1. Specific and determinate things which
partnership. are not fungible are contributed to the
b. However, if unusual profits are partnership, then ownership is
realized through the transferred to the partnership.
extraordinary efforts of the a. Who bears the loss? Partnership
partner at fault, the courts may b. If A contributed a specific car, and
equitably mitigate or lessen his transferred the ownership to the
liability for damages partnership- then the risk of loss
 Note that even in this case, will be accounted to the
the partner at fault is not partnership being the owner.
allowed to compensate
such damages with the
profits earned (offset) 2. Specific and determinate things which are
1795. The risk of specific and determinate things, not fungible where only the use is
which are not fungible, contributed to the contributed
partnership so that only their use and fruits may a. Who bears the loss? Partner who
remains the owner of the thing
LAW002- OBLIGATIONS OF THE PARTNERS
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b. There is no transfer of ownership, partner for the obligations he may have

only let the partnership use it. contracted in good faith in the interest of the
partnership business, and for risks in
3. Fungible things or things which cannot be consequence of its management.
kept without deteriorating even if they
are contributed only for the use of the Responsibility of the partnership to the partners
partnership 1. GN: Every partner is considered an agent
a. Contribute fuel, oil, for the use of of the partnership for the purpose of its
the partnership business, except if there is a stipulation
i. when the partnership uses a. That is why it is important that
that fuel, it will be you trust the person to be a
consumed- in that case the partner
partnership bears the loss
even if what is contributed Obligation of partnership
is only the “use,” since 1. Refund amounts disbursed by the
essentially nothing will be partner in behalf of the partnership plus
returned. the corresponding interest from the time
ii. The risk of loss is borne by the expenses are made
the partnership for a. A is a partner in a partnership, and
evidently the ownership there were fees or charges that A
was being transferred paid using his personal money to
since use is impossible pay for the expenses in behalf of
without the things (e.g., the partnership (since it would
oil, wine) being consumed take time if he will return back to
or impaired the office).
4. Things contributed to be sold  Therefore, the partnership
a. The partnership bears risk of loss has an obligation to
for there cannot be any doubt reimbursed A for the
that the partnership was intended expenses that he has paid
to be the owner; otherwise, the in behalf of the
partnership could not effect/sold partnership.
the sale b. Demand for reimbursement is not
5. Things brought and appraised in the necessary for an interest to be
inventory charged, it should be from the
a. The partnership bears the risk of time expenses are made.
loss because the intention of the
parties was to contribute to the 2. Answer for the obligations the partner
partnership the price of the things may have contracted in good faith in the
contributed with an appraisal in interest of the partnership business
the inventory. a. Partner entered into a contract of
i. There is an implied seal sale (raw materials) for the
making the partnership the partnership, it will be the
owner of the things. partnership that will pay for the
supplier, because this was a
contract of sale wherein the
obligation to pay is not that
1796. The partnership shall be responsible to personal to the partner. But rather
every partner for the amounts he may have an obligation of the partnership
disbursed on behalf of the partnership and for  The partner is only the one
the corresponding interest, from the time the who entered into such
expenses are made; it shall also answer to each
LAW002- OBLIGATIONS OF THE PARTNERS
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contract for the interest of  Based on civil code

the partnership. 2. The industrial partner shall
receive such share, which must be
3. If there are risk in consequence of satisfied first before the capitalist
management, the partnership will be partners shall divide the profits, as
liable may be just and equitable under
a. As a rule, every partner is the circumstances. The share of an
considered an agent of industrial partner in the profits is
partnership. In contract of not fixed.
partnership, an agent who acts  In determining the share of
within the authority given to him, an industrial partner, this
is not personally liable. must be satisfied first
 For the reason that he is before the capitalist
only acting for and in partners divide the profits
behalf of his principal among themselves based
(wherein the partner is the on their capital
agent, and the partnership contribution.
is the principal)
Rules for distribution of LOSSES
1797. The losses and profits shall be distributed  Losses are shared according to the
in conformity with the agreement. If only the agreement, but cannot exclude any of the
share of each partner in the profits has been partners (1797)
agreed upon, the share of each in the losses shall a. Even though the sharing of losses
be in the same proportion. is silent in the definition of
contract of partnership, sharing of
In the absence of stipulation, the share of each losses is a natural consequence of
partner in the profits and losses shall be in the sharing of profits.
proportion to what he may have contributed, but  Industrial partner is the only one that can
the industrial partner shall not be liable for the be excluded from the sharing of losses
losses. As for the profits, the industrial partner a. Because he has already exerted
shall receive such share as may be just and his efforts or service, he cannot
equitable under the circumstances. If besides his recover what he has contributed.
services he has contributed capital, he shall also  Partners may agree to a different
receive a share in the profits in proportion to his agreement regarding the sharing of profit
capital. and losses.
a. Normally, it is the same (25% each
Rules for distribution of PROFITS (how profits partners for the sharing of profit
are shared) or losses), but they can also say
 Profits are shared according to the that in the sharing of profits, all
agreement, but cannot exclude any of the will be share equally, however, in
partners (1797) the sharing of losses, Partner A
1. Cannot exclude the partner, with will bear 25%, B- 50%, C-10%, and
regards to the definition of D-15%.
partnership where they enter into  It is allowed, since they can
a contract for the realization of agree to different
profit and divide it among agreement.
themselves.  If there is no such agreement
 If there is no agreement a. If there is no such agreement, but
1. The share of each capitalist the contract provides for the
partner shall be in proportion to share of the partners in the
his capital contribution
LAW002- OBLIGATIONS OF THE PARTNERS
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profits, the share of each in the But if later on, A will not agree to the decision of
losses shall be in accordance with the 3rd person for the reason that his capital
the profit-sharing ratio, but the share is bigger compared to the other partners.
industrial partner shall not be By deciding that the third person will make the
liable for losses decision on how they will share profits and
b. If there is also no profit-sharing losses- they are already bound, except when it is
stipulated in the contract, then manifestly inequitable (clearly unfair). Therefore,
losses shall be borne by the A cannot question it anymore.
partners in proportion to their  The designation by the third person
capital contributions would generally be binding unless
manifestly inequitable.
1798. If the partners have agreed to intrust to a a. Even then, a partner who has
third person the designation of the share of each begun to execute the decision of
one in the profits and losses, such designation the third person or who fails to
may be impugned only when it is manifestly impugn the same within three
inequitable. In no case may a partner who has months from the time he had
begun to execute the decision of the third knowledge of it can no longer
person, or who has not impugned the same complain.
within a period of three months from the time he
b. In such case, the partner is guilty
had knowledge thereof, complain of such
of estoppel or is deemed to have
decision.
given his consent or ratification to
the designation
The designation of losses and profits cannot be
intrusted to one of the partners.
Designation of losses and profits cannot be
intrusted to one of the partners.
Designation by a third person of share in profits
of losses  The prohibition in the second paragraph
 Article tells us that the designation of the (1798) is necessary to guarantee the
share in the profits and losses may be utmost impartiality in the distribution of
delegated to a third person by common shares in the profits and losses.
consent.
a. A person who is not a partner, but Example
all the partners agree that this If the 3 partners would agree that B would
person will determine how they determine how the profits and losses be shared,
will share profits and losses. and then B would make a decision that his share
 What is left to the will of 3rd person is not will be 70%, A is 10%, and C for 20%, then later
the perfection of the contract, what is left on C will question his decision
to be decided by the 3rd person is only the  A cannot stop C from questioning his
determination of the sharing of profits decision, in accordance to 1798, 2nd
and losses. paragraph.
 However, if the designation made by the
Example partner is agreed upon by the other
A, B, and C are partners- they are shy with partners, then it is valid. And they are
regards to the sharing of their profits and losses. bound by the said designation of profits
So, they agreed that Y (third person), will and losses.
determine the profits or losses for them. And
whatever the third person will decide, that will 1799. A stipulation which excludes one or more
bind the three of them since they already partners from any share in the profits or losses is
consented that the 3rd person will be the one to void.
decide.
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GN: The law does not, as a general rule, allow a Instances of how managing partner is
stipulation excluding one or more partners from appointed
any share in the profits and losses 1. Managing partner may be appointed as
 Even it is stipulated by the parties manager in the articles of partnership
where they will exclude one partner, a. Meaning at the time the contract
it will be void. partnership was created.
2. Appointment as manager after the
Unless constitution of the partner
 Referring to losses, and referring to an a. After the partnership was created.
industrial partner. b. Power granted after the
 With reference to the industrial partnership has been constituted
partner, the law itself already may be revoked anytime.
excludes him from losses and
therefore, a stipulation which Each partner has right and equal voice in the
exempts him from losses is naturally conduct of partnership business, not dependent
valid. on their capital contribution. However, they may
a. For the reason that an appoint a manager wherein it is important to
industrial partner cannot determine when they were appointed:
anymore withdraw the work
or labor that he has rendered. Appointed as manager Appointment as
in the articles of manager after the
1800. The partner who has been appointed partnership (partnership constitution of the
manager in the articles of partnership may is created) partner
execute all acts of administration despite the Manager may execute all Appointment may
opposition of his partners, unless he should act acts of administration be revoked at any
in bad faith; and his power is irrevocable without despite the opposition of time for any cause
just or lawful cause. The vote of the partners the partners. or whatsoever.
representing the controlling interest shall be His power is revoked
necessary for such revocation of power. only if acted in bad faith,
upon just and lawful
A power granted after the partnership has been cause (there’s a valid
constituted may be revoked at any time. reason), upon the vote
of the partners
GN: All partners are managing partners, representing the
EXCEPTION: Stipulation by the partners. controlling interest.
In case of
This article refers to a general rule in which each mismanagement, the
partner in a general partnership has a right to an other partners may avail
equal voice in the conduct and management of of the usual remedies
partnership business, regardless of their capital such as dissolution by
contribution. juridical degree.
 Meaning, that in the absence of
stipulation, all the partners can be Example
considered as the managing partners If A, B, and C are partners and A is appointed as
(equal voice) manager in the articles of partnership, then A
 The partners may select 1 or 2 managing may execute all acts of administration, even if
partners in connection to the operation of both B and C will oppose his decision (with
their business. reference only to acts of administration)
It can be revoked if A acted in (1) bad faith (fraud
the partnership), (2) vote of the partnership
representing the controlling interest (take into
LAW002- OBLIGATIONS OF THE PARTNERS
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consideration the capital contribution of the the entire burden on the

partners) remaining partner.
 They have equal sharing- 1/3 each. If 3. One partner may employ his
A acted fraudulently + the vote of B co-partner to do work for him
and C that is 2/3, then the managing outside of and independent of
power of A will be revoked. the co-partnership
4. Partners exempted by the
But if A holds 70% of the partnership, and he terms of partnership from
acted in bad faith, then B and C wanted to rendering services to the firm
revoke his power. Here only one requirement is may demand pay for services
complied (acted in bad faith), there is no vote rendered.
representing controlling interest because B and C 5. Where one partner is
only owns 30%. So, they cannot revoke him. entrusted with the
 But the other remedy they can do is management of the
to file an action for declaration of partnership business and
dissolution of partnership through a devotes his whole time and
judicial decree. attention thereto, at the
instance of the other partners
Instances not considered acts of administration who are attending to their
1. Selling the land of partnership, wherein individual business and giving
the business of the partnership does not no time or attention to the
involve selling of real estate property (act partnership business.
of ownership)  Where he manages
everything
Compensation for services rendered
 GN: Managing partner is not entitled 1801. If two or more partners have been
to compensation intrusted with the management of the
1. Partner is not entitled to salary partnership without specification of their
because as a partner, your respective duties, or without stipulation that one
purpose is for the best interest of them shall not act without the consent of all
of the partnership. There is no the others, each one may separately execute all
need for the law to give you acts of administration, but if any of them should
additional compensation when oppose the acts of the others, the decision of the
as a partner your interest is for majority shall prevail. In case of tie, the matter
the best of the partnership. shall be decided by the partners owning the
2. Can be titled to compensation controlling interest.
if there is an agreement.
 Exceptions: Requisites for applying 1801
1. A partner engaged by his co- 1. Two or more partners have been
partners to perform services appointed as managers
not required of him in a. This could also apply to situation
fulfillment of the duties which wherein the partners did not
the partnership relation agree who will be the manager, so
imposes and, in a capacity, essentially all of them will be the
other than that of a partner manager
2. A contract for compensation 2. There is no specification of their duties
may be implied where there is 3. There is no stipulation that one of them
extraordinary neglect on the shall not act without the consent of all
part of one partner to perform the others.
his duties toward the fi rm’s
business, thereby imposing
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Rule is that each one may separately perform case, there is no tie, since there
acts of administration are 3 managing partners.
 If one or more of the managing partners
shall oppose the acts of the others, then 1802. In case it should have been stipulated that
the decision of the majority (per head) of none of the managing partners shall act without
the managing partners shall prevail. the consent of the others, the concurrence of all
a. Note that the right to oppose can shall be necessary for validity of the acts, and the
be exercised only by those absence or disability of any one of them cannot
entrusted with the management be alleged, unless there is imminent danger of
of the partnership and not by any grave or irreparable injury to the partnership.
partner.
 In case of tie, the matter shall have to be Not the same with 1801 because 1801 is
decided by the vote of the partners applicable wherein there is no stipulation that
owning the controlling interest (50% +1), one of the managing partners shall not act
that is, more than 50% of the capital without the consent of the others. 1802 applies
investment. if there is that stipulation.

Example Where unanimity of action stipulated

A, B, and C are partners. A and B are appointed 1. Concurrence necessary for validity of acts
as managing partners, so the rule is that having  Partnership may agree that none of the
more than one manager, each may perform their managing partners shall act without the
acts of administration separately in the absence consent of the others.
of stipulation that one cannot cat without the a. By agreement, managing partners
other. should act as one.

In case they are choosing the supplier for their Rule: there must be a unanimous consent. All of
business, A want to purchase raw materials from the managing partners should agree for the
ABC corp. while B want to purchase from XYZ validity of the act.
corp. Since they are both managing partners, the  Such unanimous consent is necessary that
decision is tied. neither the absence nor disability of any
In case of tie one of the managing partners may be
 Therefore, it shall be decided by the alleged as excuse or justification to
controlling interest of the partnership. If dispense with this requirement.
all the partners A, B, and C have equal
controlling interest, it will now depend on Exception
C on which side he will choose.  Unless there is an imminent danger of
a. However, if it turns out that A has grave or irreparable injury to the
70% interest, 15% for B, and 15% to C, partnership
then A here has the controlling a. Wherein a managing partner may
interest. Thus, A will be the one to act alone even without the
decide with regards to the supplier. consent of all the managing
partners despite the stipulation
Managing partner not decided requiring unanimous consent.
 if the managing partner has not been b. If no danger, and the managing
decided, by default, all 3 of them will be partner proceeds with his
the managing partner. decision, and then the partnership
a. Since A, B, C are all managing suffers damages, then that
partners and C decided to side managing partner who decided
with A, then they get to choose without the consent of the other
since it’s the majority per head of partners would be liable for the
all the managing partners. In this damages.
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a. The consent need not be express,

Note: The consent of all the managing partners is but may be presumed from the
not necessary in routine transactions. fact of knowledge of the alteration
 If you are in a business and a customer without interposing any objection.
pay, you accept the payment, then there  They have a parcel of land
is no need for the consent of the other and discussed that they
partner. (same case with buying goods, will construct a 3-story
paying debt to supplier) building that they will
lease to 3rd persons. No
1803. When the manner of management has not one from the partner can
been agreed upon, the following rules shall be decide to convert it into a
observed: swimming pool or
1. All the partners shall be considered agents something else because it
and whatever any one of them may do alone is an important alteration
shall bind the partnership, without prejudice in the immovable property
to the provisions of Article 1801. of the partnership. That is
2. None of the partners may, without the not anymore, an act of
consent of the others, make any important administration but an act
alteration in the immovable property of the of ownership, which
partnership, even if it may be useful to the requires the consent of all
partnership. But if the refusal of consent by the other partners (not just
the other partners is manifestly prejudicial to the managing partners)
the interest of the partnership, the court’s
intervention may be sought. If there is an alteration of an immovable property
everyone should agree, otherwise, that
Rules when manner of management has not alteration cannot validly proceed. Partners who
been agreed upon would proceed in the absence of unanimous
1. All partners considered managers and agents consent, will be liable for damages.
 Partners did not agree among themselves
who will be the managing partner, so all 1804. Every partner may associate another
of them will be consider agents. person with him in his share, but the associate
Whatever any one of them may do, shall shall not be admitted into the partnership
bind the partnership. without the consent of all the other partners,
a. In case of timely opposition of any even if the partner having an associate should be
partner, the matter shall first be a manager.
decided by the majority vote.
b. In case of a tie, then the matter A partner may associate another person with him
shall be decided by the vote of the in his share without the consent of the other
partners representing the partners.
controlling interest
That other person will be considered as a
subpartner.

2. Unanimous consent required for alteration of

immovable property Contract of subpartnership
 the unanimous consent of all the partners  The partnership formed between a
is necessary for any important alteration member of a partnership and a third
in the immovable property of the person for a division of the profits coming
partnership to him from the partnership enterprise.
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Bachelor of Science in Accountancy

a. Angela will enter into a

subpartnership with Yuki, Yuki will Keeping of partnership books
be considered as a subpartner.  The partnership book shall be kept at the
 However, he is not a principal place of the business subject to
partner of the partnership, any agreement between the partners.
in the absent of consent of a. In a sense that they can (1) bring it
all the other partners. to their home by agreement, (2)
partners can also inspect and
 It is a partnership within a partnership copy the books at reasonable
and is distinct and separate from the hours.
main or principal partnership.  What is reasonable may
depend upon the
 However, the subpartner (partner inter circumstances of each case
se) cannot be a member of the (business hours but there
partnership without the consent of all the is also some business that
other partners. Therefore, he does not operates at night)
acquire the rights of a partner nor is he b. While a partner may have the
liable for its debts. right to inspect the books, his
a. Since he is not a partner. right is not absolute because the
Essentially his right is only to other partners may prevent him
collect share of the partner in the from inspecting or accessing the
partnership. books if they are able to
b. Such subpartnership does not in determine that partner will use
any way affect the composition, the book other than partnership
existence or operations of the purpose.
partnership.  Such partner will share
information to other
 In case the subpartner will become a person, to the prejudice of
partner (because the other partners the partnership.
already gave their consent) then, the old
partnership will automatically be 1806. Partners shall render on demand true and
dissolved with the admission of the new full information of all things affecting the
partner. partnership to any partner or the legal
a. For a subpartner to become a representative of any deceased partner or of any
partner, all the other partners partner under legal disability.
must consent even if the partner
who associated the subpartner is Partnership is based on trust and confidence so
the manager. there must be no concealment between and
among the partners.

However, the right to true and full information

may be demanded.
 The use of “on demand” does not mean
anytime
 it should be under
1805. The partnership books shall be kept, reasonable circumstances.
subject to any agreement between the partners,  Also, on demand does not mean that a
at the principal place of business of the partner is under no duty to make
partnership, and every partner shall at any voluntary disclosure of information
reasonable hour have access to and may inspect affecting a partnership.
and copy any of them.
LAW002- OBLIGATIONS OF THE PARTNERS
Bachelor of Science in Accountancy

a. If you are a partner of a  That is what it means that a partner who

partnership, you have the makes a profit out of the partnership, or
obligation to disclose to the other accepts a secret gift or commission from
partners any information that the 3rd person dealing with the
would affect the business partnership is dutybound to account such
 Do not wait for the other profit or commission with his co-partners.
partners to demand the a. It is up to his co-partners if he will
information from you. allow Bal to keep the commission,
 As a partner, you already or divide it among themselves, or
have that duty to relay give it to the partnership.
information affecting the b. What is important here is the duty
partnership. on the part of the partner to
b. Not only is a partner bound to give report or account anything he has
information on demand but in received by virtue of the
certain circumstances, he is under partnership. Otherwise, that will
the duty of voluntary disclosure of be considered as a breach of trust
material facts that would affect (taking advantage of trust reposed
the business of the partnership. by him by the other partners)

1807. Every partner must account to the Duty to make full disclosure of information
partnership for any benefit, and hold as trustee affecting the partnership
for it any profits derived by him without the  Partnership owns a land, and then they
consent of the other partners from any are not doing anything with land.
transaction connected with the formation, However, one of the partners, Mel, has
conduct, or liquidation of the partnership or from knowledge that SM has purchased the
any use by him of its property. adjacent property. So, in effect the value
of their property will increase.
Based on the fact that a partnership involves a a. Mel already knows that SM
fiduciary relation (trust and confidence) purchased the adjacent land.
However, he did not inform his
If you are a partner of a partnership, you have a partners, he rather told his
duty to account for profits that you have/may partners that since they are not
have earned in connection to the business. using the property, he will be buy
 Partners, Bal, Cal, and Dal are looking for the land. Remaining partners
a buyer to their property and Bal was able agreeing to him since they are not
to contact Kel. Kel is interested in buying using the land, and the
the property, so a sale transpired and Kel partnership sold the land to Mel.
is very happy that he was able to  But actually, the reason
purchase the property. Because of his Mel bought that land is
happiness, he gave Bal a commission, because he knows the
since it was Bal who relayed the value has already
information to him. Bal here is not really increased because he was
in bad faith since there is no agreement made aware that SM
between him and Kel. It was Kel who bought the adjacent land.
initiated the giving of the commission. b. Since he did not disclose it to the
With that, Bal has the duty to report it to partnership, he is in violation of
the partnership because he received that the trust repost by the
money because of the partnership. partnership. He is in violation of
duty to make full disclosure to the
Duty to account for profits or secret gifts partnership of any information
affecting the partnership.
LAW002- OBLIGATIONS OF THE PARTNERS
Bachelor of Science in Accountancy

 Thus, he will be liable for business, and will have access to

damages. Since there is a information, which would be
bad faith on the part of unfair to his business. Then he will
Mel as a partner. use the information to his other
business. Thus, it would not be fair
1808. The capitalist partners cannot engage for to the other partners.
their own account in any operation which is of
the kind of business in which the partnership is 1809. Any partner shall have the right to a formal
engaged, unless there is a stipulation to the account as to partnership affairs:
contrary. 1. If he is wrongfully excluded from the
partnership business or possession of its
Any capitalist partner violating this prohibition property by his co-partners;
shall bring to the common funds any profits 2. If the right exists under the terms of any
accruing to him from his transactions, and shall agreement;
personally bear all the losses. 3. As provided by Article 1807;
4. Whenever other circumstances render it just
Prohibition against capitalist partner engaging and reasonable.
in business
 The prohibition against the capitalist Right of partner to a formal account
partner to engage in business is relative  GN: Partner is not entitled to a formal
unlike the industrial partner who is account of partnership affairs
absolutely prohibited from engaging in a. The reason is that it would be
any business for himself. inconvenient and unnecessary
 Since, the capitalist partner is only waste of time.
prohibited from engaging for his own
account in any operation which is the  When talking about formal
same as or similar to the business in accounting, where a
which the partnership is engaged and partner is being asked to
which is competitive with said business. formally account for the
a. Any capitalist partner violating this profits, it would mean that
prohibition shall be under the partner needs to
obligation to bring to the common prepare income statement,
fund any profits derived by him balance sheets, and such
from his transactions and, in case which is inconvenient for
of losses, he shall bear them those who would prepare.
alone.
 That’s the reason why
Reason for prohibition there is only specific
 The relationship of partners is fiduciary instances wherein a
and imposes upon them the obligation of partner can demand for
the utmost good faith in their dealings formal accounting.
with one another with respect to
partnership affairs.
 The rule prevents a partner from availing
himself personally of information
obtained by him in the course of the Exception to the general rule
business, which he can use in his other 1. If he is wrongfully excluded from the
business, since it is of the same nature. partnership business or possession of its
a. Competing in nature, and by property by his co-partners
reason of his connection, he can a. Not included in the sharing of
get clients from his other profits, or excluded from using the
LAW002- OBLIGATIONS OF THE PARTNERS
Bachelor of Science in Accountancy

property for purposes of the

partnership.
2. If the right exists under the terms of any
agreement
a. If the partnership has stipulated
that you can demand for a formal
accounting, then no problem. As
long as it is agreed upon by the
parties.
3. As provided by Article 1807;
a. With regard to accounting of
secret and similar profit, in
connection to the obligation of full
disclosure of information.
4. Whenever other circumstances render it
just and reasonable.
a. A partner has left the country for
vacation. Kel, went out to the
country for a month or two and he
was stranded due to the
pandemic. For the time that he
was there, and during his return,
he can demand for formal
accounting- instance or
circumstance where it just and
reasonable for a partner to
demand for a formal accounting
of the partnership affairs.