Week 2 Chapter 2 - Obligations of the Partners Section 1 - Obligations of the

partners among themselves (Art. 1784 to 1809, New Civil Code) 

 
ART. 1784. A partnership begins from the moment 
of the execution of the contract, unless it is otherwise 
stipulated. (1679) 
 
Commencement and term of partnership. 
(1) A partnership is a consensual contract; hence, it exists 
from the moment of the celebration of the contract by the 
partners.1 (see Art. 1315.) Since under Article 1784, a partnership 
commences from the time of execution of the contract if there is 
no contrary stipulation as to the date of effectivity of the same, 
its registration in the Securities and Exchange Commission is NOT 
essential to give it juridical personality. 
(2) The birth and life of a partnership is predicated on the 
mutual desire and consent of the parties. (see Ortega vs. Court 
of Appeals, 245 SCRA 529 [1995].) Unlike a corporation, no time 
limit is prescribed by law for the life of partnership. Hence, the 
partners may fi x in their contract any term and they shall be 
bound to remain under such a relation for the duration of the term 
barring the occurrence of any of the events causing dissolution of 
the partnership before its expiration. (Arts. 1830-1831.) 
 
Rules governing partnership relation. 
What is necessary for the existence of a partnership is that 
the essential requisites of a contract of partnership are present 
even when the partners have not yet actually begun the carrying 
on of its business or given their contributions, or even though its 
conditions or details, such as the participation of the partners in 
the profi ts and losses and the nature of the partnership, have not 
yet been fi xed, as they pertain to the accidental and not to the 
essential parts of the contract. 
 
Where a partnership relation results, the law itself fi xes the 
incidents and consequences of this relation (supra.) if the parties 
fail to do so. (Fernandez vs. De la Rosa, 1 Phil. 671 [1902].) This 
is true although the parties thereto actually call their relation 
something other than a partnership or even go as far as to state 
expressly that they are not partners. 
 
Executory agreement of partnership 
(1) Future partnership. — The partners may stipulate some 
other date for the commencement of the partnership. Persons 
who have entered into a contract to become partners at some 
future time or on the happening of some future contingency do 
not become partners until or unless the agreed time has arrived 
or the contingency has happened. As long as the agreement for a 
partnership remains inchoate or unperformed, the partnership is 
not consummated. (68 C.J.S. 418; Urra vs. Ponce, [C.A.] 59 O.G. 
244.) 
Hence, there can be a future partnership which at the 
moment has no juridical existence yet. In the absence of express 
stipulation, evidence is admissible to show the commencement 
date as determined by the words, acts or conduct of the parties. 
Incidentally, the Statute of Frauds provides that an agreement 
that by its terms is not to be performed within a year from the 
making thereof, must be in writing and signed by the party 
charged in order to be enforceable. (Art. 1403[2, a].) 
(2) Agreement to create partnership. — There is a marked 
distinction between a partnership actually consummated and 
an agreement to enter into a contract of partnership at a future 
time. A partnership in fact cannot be predicated on an agreement 
to enter into a co-partnership at a future day unless it is shown 
that such an agreement was actually consummated. So long as 
the agreement remains executory the partnership is inchoate, not 
having called into being by the concerted action necessary under 
the partnership agreement. (40 Am. Jur. 142.) 
 
 The death of either party to an executory agreement of partnership 
prevents the formation of a fi rm, since such agreement is 
based on the continuance of the life of each. (68 C.J.S. 419.) 
 
(3) Failure to agree on material terms. — A failure of the parties 
to agree on material terms may not merely be evidence of the 
intent of the parties to be bound only in the future, but may 
prevent any rights or obligations from arising on either side for 
lack of complete contract. (7 C.J.S. 391; Limuco vs. Calinao, [C.A.] 
No. 10099-R, Sept. 30, 1953.) 
Article 1784 must be read in relation to Articles 1771 and 
1773. 
 
ART. 1785. When a partnership for a fi xed term or 
particular undertaking is continued after the termination 
of such term or particular undertaking without any 
express agreement, the rights and duties of the partners 
remain the same as they were at such termination, so far 
as is consistent with a partnership at will. 
A continuation of the business by the partners or 
such of them as habitually acted therein during the 
term, without any settlement or liquidation of the partnership 
affairs, is prima facie evidence of a continuation 
 of the partnership. (n) 
 
 Continuation of partnership beyond fi xed term. 
A partnership with a fi xed term is one in which the term of its 
existence has been agreed upon expressly 
 (as when there is a defi nite period) or impliedly 
 (as when a particular enterprise or transaction is undertaken).  
The expiration of the term thus fi xed 
or the accomplishment of the particular undertaking specifi ed 
(or the demonstration of the impossibility of its accomplishment) 
will cause the automatic dissolution of the partnership. (Art. 
1830[1, a].) 
 
(1) Rights and duties of partners. — The partnership, however, 
may be extended or renewed by the partners by express 
agreement, written or oral, or impliedly, by the mere continuation 
of the business after the termination of such term or particular 
undertaking without any settlement or liquidation. In such case, 
the rights and duties of the partners remain the same as they 
were at such termination but only insofar as is consistent with a 
partnership at will. (See Art. 1776.) 
 
 In other words, with such continuation, the partnership for 
 a fi xed term or particular undertaking is dissolved and a new one, 
  a partnership at will, is created by implied agreement the 
continued existence of which will depend upon the mutual desire 
and consent of the partners. Thus, for example, the manner of 
management and profi t-sharing ratio originally agreed upon shall 
still govern but the partnership having become a partnership at 
will may be lawfully terminated at any time by the express will 
of all the partners or any of them. (see Art. 1830[1, b, c].) 
 
(2) Dissolution of partnership. — Verily, any one of the partners 
may, at his sole pleasure, dictate a dissolution of a partnership at 
will. He must, however, act in good faith not that the attendance 
of bad faith can prevent the dissolution of the partnership (see 
Art. 1830[1, b].) but that can result in a liability for damages to 
the other partners. (Art. 1830[2]; see Art. 1837, par. 2; Ortega vs. 
Court of Appeals, 245 SCRA 529 [1995].) Implicit in good faith 
is the requirement that the dissolution must not be made at an 
improper or unreasonable time. 
Even a partnership for a fi xed term may likewise be terminated 
by the express will of any partner before the time mentioned. (Art. 
1830[2].) There is no such thing as an indissoluble partnership 
 
Continuation of partnership for an indefi nite term. 
(1) Partnership for a term impliedly fi xed. — Although the 
term of a partnership is not expressly fi xed, an agreement of the 
parties may evidence an understanding that the relation should 
continue until the accomplishment of a particular undertaking or 
certain things have been done or have taken place 
 
(a) When a partner advances a sum of money to a partnership 
with the understanding that the amount contributed 
is to be loaned to the partnership and is to be repaid as soon 
as feasible from the prospective profi ts of the business, the 
partnership is for the term reasonably required to repay the 
loan. The partners may impliedly agree to continue in business 
until a certain sum of money is earned, or one or more 
partners recoup their investment, or until certain debts are 
paid, or until certain property could be disposed of on favorable 
terms. 
In each of these cases, however, the implied agreement 
must be proved. 
(b) In each of the following cases the court properly 
held that the partners’ implied promise was to continue 
the partnership for a term reasonably required to allow 
the partnership to earn suffi cient money to accomplish the 
understood objective: 
1) where the partners borrowed substantial amounts 
of money to launch an enterprise and there was an understanding 
that the loans would be repaid from partnership 
profi ts (Owen vs. Owen, 119 P. 2d 713.); 
2) where one partner loaned his co-partner money to 
invest in the partnership with the understanding that the 
money would be repaid from partnership profi ts (Vangel 
vs. Vangel, 254 P. 2d 919.); 
3) where one partner contributed all the capital, the 
other contributed his services, and it was understood 
that upon the repayment of the contributed capital 
from partnership profi ts the partner who contributed 
his services would receive a one-third interest in the 
partnership assets (Mervyn Investment Co. vs. Beber, 194 
P 1037.); and 
4) where the parties entered into a joint venture to 
build and operate a motel until it could be sold upon 
favorable and mutually satisfactory terms. (Shannon vs. 
Hudson, 325 P. 2d 1022.) 
(2) Partnership with mere expectation that business will be profi table.
— Where the understanding to which defendant (the partner who contended that the partnership created was
for
a term) testifi ed was no more than a common hope that the
partnership earnings would pay for all the necessary expenses,
such a hope does not establish even by implication a “fi xed term
or particular undertaking” as required by Article 1785. The mere
expectation that the business would be successful and that the
partners would be able to recoup their investment is not suffi cient
to create a partnership for a term. All partnerships are ordinarily
entered into with the hope or expectation that they will be
profi table, but that alone does not make them all partnerships for
a term and obligate the partners to continue in the partnership
until all the losses over a period of many years may have been
recovered. (Cohen vs. Cohen, 119 P. 2d 713.)

ART. 1786. Every partner is a debtor of the partnership

for whatever he may have promised to contribute
thereto.
He shall also be bound for warranty in case of eviction
with regard to specifi c 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

The above article deals with the obligations of the partners

among themselves and to the partnership with respect to
contribution of property. They are as follows:

(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.
In addition, the partner has the obligation:

(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.)
  The money or property contributed by a partner becomes
the property of the partnership. It necessarily follows that the
same cannot be withdrawn or disposed of by the contributing
partner without the consent or approval of the partnership or of
the other partners. (Lozana vs. Depakakibo, 107 Phil. 728 [1960].)

 Effect of failure to contribute property promised.

The mutual contribution to a common fund being of the

essence of the contract of partnership (Art. 1767.), for without
the contributions the partnership is useless, it is but logical that
the failure to contribute is to make the partner ipso jure a debtor
of the partnership even in the absence of any demand. (see Art.
1169[1].)
Under this article, the remedy of the other partner or the
partnership is not rescission but an action for specifi c performance
(to collect what is owing) with damages and interest from the
defaulting partner from the time he should have complied with
his obligation. (Art. 1788.) Article 1191, which refers to resolution
of reciprocal obligations in general, is not applicable. Articles
1786 and 1788 specifi cally refer to the contract of partnership in
particular; and it is a well-known principle that special provisions
prevail over general provisions. (Sancho vs. Lizaraga, 55 Phil. 60
[1930]; see, however, Uy vs. Puzon, 79 SCRA 598 [1977], cited
under Art. 1788.)

Article 1838, however, allows rescission or annulment of a

partnership contract on the ground of fraud or misrepresentation
committed by one of the parties thereto.

Liability of partner for fruits of property in case of delay.

Here, again, no demand is necessary to put the partner in default.

From the mere fact that the property which a partner ought
to deliver does not pass to the common fund on time, the
partnership fails to receive the fruits or benefi ts which the said
contribution produced as well as those it ought to produce, thus
prejudicing the common purpose of obtaining from them the
greatest possible profi ts through some means of speculation or
investment. The injury, therefore, to the partnership is constant.
(see 11 Manresa 332-335.)

Liability of partner for failure to perform service stipulated.

Is a partner who fails to perform the personal services which

he has stipulated to render to the partnership, liable to the other
partners for the value of the services?

(1) Partner generally not liable. — Unless there is a special

agreement to that effect, the partners are not entitled to charge
each other, or the partnership of which they are members, for
their services in the fi rm business. The doctrine seems to be that
every partner is bound to work to the extent of his ability for
the benefi t of the whole, without regard to the services of his copartners,
however unequal in value or amount, and to require a
partner to account for the value of his services would be, in effect,
allowing compensation to the other members of the partnership
for the services they rendered.3
(2) Exception. — The general rule that partners are not
entitled to compensation for their services is inapplicable where
the reason of it fails.

(a) 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, no good
reason can be suggested why the erring partner should not
be just as responsible for the breach of his agreement to
render personal service to the partnership as for the breach
of any other stipulation in the partnership contract. (Marsh’s
Appeal, 69 Pa. St. 30.)

(b) If the partner is compelled to make good the loss,

each member of the fi rm, including himself, will receive his
proportion of the amount in the distribution of the partnership
assets, and in no just sense can this be regarded as compensation
for the services individually rendered. The proper
measure of damages in such case is the value of the services
wrongfully withheld. (Ibid.)

(c) If under the circumstances of the case the proper

measure of the damages or loss (which may include unrealized
profi ts) is the value of the services wrongfully withheld, then
the defendant should be charged this value. If the defendant
had made profi t by engaging in other business in violation of
the contract, he is liable to account for the same. (Ibid.)

ART. 1787. When the capital or a part thereof which

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

 Appraisal of goods or property contributed.

(1) The appraisal of the value of the goods contributed is

necessary to determine how much has been contributed by
the partners. In the absence of an stipulation, the share of each
partner in the profi ts and losses is in proportion to what he may
have contributed. (Art. 1797.)

The appraisal is made, fi rstly, in the manner prescribed by the

contract of partnership; secondly, in the absence of stipulation, by
experts chosen by the partners and according to current prices.
After the goods have been contributed, the partnership bears
the risk or gets the benefi t of subsequent changes in their value.
(2) In the case of immovable property, the appraisal is made
in the inventory of said property (see Arts. 1773, 1795.); otherwise
it may be made as provided in Article 1787. There is no reason
why the rule in Article 1787 should not also apply with respect to
other kinds of property.