Kinds of Partners

Atty. A. Agrupis
Kinds of Partners
1. As to the Nature of Contribution
a. Capitalist Partner : Contributes money or property.
b. Industrial Partner: Contributes only his industry or personal service.
2. As to Liability
a. General Partner : Liability to third persons extends to his separate property.
b. Limited Partner : Liability to third persons is limited to his capital contributions.
Capitalist Partner vs. Industrial Partner
Capitalist Partner Industrial Partner
As to Contribution
Contributes money or property Contributes industry or personal service
As to Prohibition to Engage in Other Business
Cannot generally engage in the same or similar enterprise as that of his Cannot engage in any business for himself, unless the partnership
firm, unless there is stipulation to the contrary (Art.1808). expressly permits him to do so (Art. 1789)
As to profits
Shares in the profits according to agreement thereon; if none, pro rata Receives a just and equitable share (Art. 1797)
to his contribution (Art. 1797).
Capitalist Partner vs. Industrial Partner
Capitalist Partner Industrial Partner
As to Losses
1. First, the stipulation as to losses; Exempted as to losses between the partners; but is liable to third
2. If none, the agreement as to profits; and persons, without prejudice to reimbursement from the capitalist
3. If none, pro rata to distribution. partners (Art. 1816)
Kinds of Partners
3. As to Management
a. Managing Partner : Manages the business or affairs of the partnership.
b. Silent Partner: Does not take an active part in the business although he may be known to be to be a partner. If he
withdraws from the partnership, he must give notice to those persons who do business with the firm to escape liability in the
future.
c. Liquidating Partner: Takes charge of the winding up of the partnership affair after dissolution.
Kinds of partners
4. As to Exposure to Public Perception
a. Ostensible Partner : One who takes active part and known to the public as a partner in the business, whether he has
actual interest in the firm;
b. Secret Partner: Takes active part in the management of the business but is not known to be a partner by outside
parties nor held out as a partner by the other partners;
c. Dormant Partner: Does not take active part in the business and is not known or held out as partner; he would be both
a silent and a secret partner. His only interest the partnership is the sharing of profits earned.
Kinds of partners
5. As to Membership
a. Real Partner : One who is really a contributing member of an existing legal partnership.
b. Partner by Estoppel : One who is not really a partner but represents himself as one therefore
becomes liable as a partner.
Example
Supposed A, B, and C are not really partners, and D represented himself as a partner of A, B and C to E.
If the representation was made without the consent of A, B, and C, D alone shall be liable separately to E. If it was made with
the consent of A, B, and C, then all of them shall be liable pro rata to E. They are partners by estoppel.
If only A consented to the representation, separate liability is created only against A and D.
Kinds of Partners
6. As to Value of Contribution
a. Majority Partner : One whose contribution represents the majority or controlling interest; or
b. Nominal by Partner : One whose contribution represents only a minority interest.
7. As to the Nature of Membership
a. Original Partner : One who is a member of the partnership from the time of its commencement as a juridical
person.
b. Incoming Partner : One who becomes a member subsequent to the establishment of the firm or one who is
about to be admitted by the consent of all the members.
Liability of Incoming Partner (art. 1826)
Article 1826. A person admitted as a partner into an existing partnership is liable for all the obligations of the partnership
arising before his admission as though he had been a partner when such obligations were incurred, except that this liability
shall be satisfied only out of partnership property, unless there is a stipulation to the contrary. (n)
Kinds of Partners
7. As to the Nature of Membership
c. Continuing Partner: One who continues the partnership business after the dissolution of the partnership
due to the reasons stated in Art. 1840.
d. Retiring Partner : One who withdraw from the partnership.
8. As to State of Survivorship
a. Surviving Partner : One who remains alive while one of the partner dies or one who continues to be in
the partnership after its dissolution by reason of the death of a partner.
Kinds of Partners
b. Deceased Partner : One who died while being a member of the partnership.
9. As to the Effect of Expulsion
a. Expelled Partner: One who is expelled from the partnership by the other partner/s for a valid
cause.
b. Expelling Partner: Partner who caused the expulsion of a partner for a valid cause.
Obligations of
the Partners
Relationships Created
by a Contract of Partnership
1. Among the partners themselves;
2. Partners with the Partnership;
3. Partnership with Third Persons; and
4. Partners with Third Persons
General Principle on the Relationship of Partners Among
Themselves
1. Partnership relationship is essentially one of mutual trust and confidence.
- the imposes upon the partners the highest standards of integrity and good faith in their dealings with each other for the benefit
of the partnership.
- each partner is, in one sense, a trustee and at the same time, a cestui que trust. (beneficiary)
üHe is a trustee as to the extent that his duties bind him with respect to his co-partners and the partnership.
üHe is a cestui que trust as afar as the duties that rest on his co-partners.
General Principle on the Relationship of Partners Among
Themselves
2. Fiduciary Relationship remains until partnership is terminated
- The relation of trust applies also to matters concerned with the formation of the partnership.
- When the partnership is dissolved, the assets of the partnership must still be managed in accordance with the
fiduciary principle.
General Principle on the Relationship of Partners Among
Themselves
3. Relationship is a limited partnership
- The relation between a limited partner and the other partners in a limited partnership does not involve the
element of trust and confidence, as in the case of a general partnership.
Article 1818. Every partner is an agent of the partnership for the purpose of its business, and the act of every partner,
including the execution in the partnership name of any instrument, for apparently carrying on in the usual way the business
of the partnership of which he is a member binds the partnership, unless the partner so acting has in fact no authority to act
for the partnership in the particular matter, and the person with whom he is dealing has knowledge of the fact that he has no
such authority.
An act of a partner which is not apparently for the carrying on of business of the partnership in the usual way does not bind
the partnership unless authorized by the other partners.
Obligation of the Partners
A. Obligation of the Partners Among Themselves
(Art. 1784-1809)
B. Obligation of the Partners with regard to Third Person
(Art. 1815-1827)
Obligation of the Partners
Among Themselves
1. Obligation with respect to Contribution of Property
2. Obligation with respect to Contribution of Money or Money converted to Personal Use
3. Obligation Not to Engage in Other Business For Himself
4. Obligation to Contribute Capital and Additional Capital
5. Obligation of Managing Partner who Collects Debt
6. Obligation of Partner who Receives Share in Partnership Credit
7. Obligation of Partner for Damages to Partnership
8. Duty to Render Information
9. Obligation to Account for Any Benefit and Hold as Trustee Unauthorized Personal
Profits
Obligation
with Respect to
Contribution of Property
(Art. 1786 & 1788)
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.
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.

Ø Art. 1788 refers to obligation with respect to contribution of money or money converted to personal use.
Ø Where fraudulent misappropriation is committed, the partner is liable for estafa.
Specific Obligation with Respect to the Contribution of Property:
1. To contribute what has been promised.
vThe mutual contribution to a common fund is the essence of
partnership, for without the contributions, the partnership is useless.
vFailure to contribute is to make the partner ipso jure a debtor of the
partnership even in the absence of any demand.
vRemedy: action for specific performance
2. Warrant specific and determinate property contributed to the partnership.
3. To deliver the fruits of the property.
4. Preserve the property with diligence of a good father of a family pending
delivery to the partnership.
5. To indemnify the partnership for any damage caused to it by the retention of
the same by the delay in its contribution.
Obligation
Not to Engage in
Other Business For Himself
(Art. 1789 & 1808)
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 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)
Rule in Engaging Business
q As regards an Industrial Partner
- the prohibition is absolute and applies whether the industrial
partner is to engage in the same kind or business in which the
partnership is engaged in or in any kind of business.
- Rationale: to prevent any conflict of interest between the
industrial partner and the partnership and to insure faithful
compliance by said partners with his prestation.
Rule in Engaging Business
qAs regards Capitalist Partner
- The prohibition extends only to any operation which is of the
same kind of business in which the partnership is engaged unless
there is stipulation to the contrary.

Effect of Violation: The violator can be ousted from the firm on the ground of loss of trust and confidence. This would result in the
dissolution of the partnership. (Paras)
Obligation to
Contribute Capital
and Additional Capital
(Art. 1790 & 1791)
Article 1790. Unless there is a stipulation to the contrary, the partners shall contribute equal shares to the capital of the
partnership. (n)

vAn industrial partners is exempted as he is already giving his entire industry. Having contributed his entire industry, he can do
nothing further.
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)
üAs a general rule, a capitalist partner is not bound to contribute to
the partnership more than what he agreed to contribute but 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. If he refuses to contribute, he shall be
obliged to sell his interest to the other partners.
Obligation of Managing
Partner who Collects Debt
(Art. 1792)
Article 1792. If a partner authorized to manage collects a demandable sum, which was owed to him in his own name, from a person
who owed the partnership another sum also demandable, the sum thus collected shall be applied to the two credits in proportion to
their amounts, even though he may have given a receipt for his own credit only; but should he have given it for the account of the
partnership credit, the amount shall be fully applied to the latter.
The provisions of this article are understood to be without prejudice to the right granted to the debtor by Article 1252, but only if the
personal credit of the partner should be more onerous to him. (1684)
General Rule: When a person is separately indebted to the partnership and to the managing partner at the same time, any sum received
by the latter, 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.
Exception:
a. Where he received it entirely for the account of the partnership, in which case the whole sum shall be applied to the partnership
credit only; and
b. If the collecting partner is not a managing partner, there is no basis for the suspicion that the partner is in bad faith.

üThe debtor is given the right to prefer payment of the credit of the partner only if it should be more onerous to him.
Obligation of Partner who
Receives Share
in Partnership Credit
(Art. 1793)
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 Application of Art. 1793:
a. A partner has received, in whole or in part, his share of a partnership credit;
b. The partnership debtor has become insolvent; and
c. The other partners have not collected their shares.

üWhen a debtor becomes insolvent, the debt in favor of the partnership becomes a bad debt and is a loss which must be borne by
all the partners.
üArt. 1793 is consistent with the principle of community of interest among the partners.
Illustration:
D owes partnership XoXo P4,500.
A, a partner, received a share of P1,500 ahead of B and C, the two other partners. When B and C were collecting from D, the latter was
already insolvent.
In this case, even if A had given a receipt for his share only, he can be required to share the P1,500 to B and C.

Note: it would be unjust for A not to share in the loss with B and C or for him to obtain more and B and C, less.
Obligation of Partner for
Damages to Partnership
(Art. 1794)
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 partners extraordinary efforts in other
activities of the partnership', unusual profits have been realized. (1686a)
Article 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in any
manner contravene the tenor thereof, are liable for damages.
Duty to Render
Information
(Art. 1806)
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 disability. (n)
Illustrative Case 1:
A and B are partners engaged in the real estate business. A
learned that C was interested in buying a certain parcel of land
owned by the partnership, even for a high price. Without informing
B, A was able to make B sell to him (A) his (B’s) share in the
partnership. Then, A sold the land at a big profit.
In this case, A is liable to B for the latter’s share in the profits.
When A purchased B’s interests, A was under the duty to make the
disclosure of facts having a bearing on the value of such interests
which were not known to B.
Illustrative Case 2:
If A discovered a valuable mine on land of the partnership, he is
under a duty to disclose such information before purchasing the
interest of B.
Obligation to Account for any
benefit and hold as Trustee
unauthorized Personal Profit
(Art. 1806)
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.
Illustrative Case 1:
A and B are partners engaged in the real estate business.
A bought a parcel of land with partnership funds in his own name
and subsequently sold the same at a profit.
B has a right to share in the profit and A holds as trustee the profits
derived by him from the transaction.
No partner is allowed to have conflict of interest with the
partnership. Each partner is required to account for, and surrender
to the partnership, any profit derived from its business or from the
use of its assets.
Illustrative Case 2:
A and B were partners in the operation of a cinema business. The
theatre was mortgaged to C who foreclosed the mortgaged debt.
A, in his own behalf, redeemed the property with his own private
funds.
Subsequently, A filed a petition for the cancellation of the old title of
the partnership and the issuance of another title in his name alone.
Did A become the absolute owner of the property?
Answer:
No. In this case, when A redeemed the property in question, he
became a trustee for the benefit of the co-partner, B, subject to his
right to demand from the latter his contribution to the price of
redemption plus legal interest. (Catalan vs. Gatchalian)
Responsibilities of the Partnership
to Partners
Article 1796. The partnership shall be responsible to every partner for the amounts he may have disbursed on behalf of the
partnership and for the corresponding interest, from the time the expense are made; it shall also answer to each partner for the
obligations he may have contracted in good faith in the interest of the partnership business, and for risks in consequence of its
management. (1688a)
v In the absence of any stipulation to the contrary, every partner is an agent of the partnership for the purpose of its business
(Art. 1818).
Hence, the partnership has the obligation to:
1. To refund amounts disbursed by the partner on behalf of the partnership and the corresponding interest from the time the
expenses are made. This refers to loans and advances made by the partner other than capital;
2. To answer for the obligations that the partner may have contracted in good faith in the interest of the partnership
business; and
3. To answer for risks in consequence of management.
Example:
The article of a trading partnership composed of A, B, and C provides that any purchase in excess of P5,000 must first be
approved by all the partners. This rule was strictly observed in all transactions of the partnership. C made a purchase of
goods out of his personal fund for P7,000 without the knowledge of A and B. The partnership incurred a loss.

C is not entitled to be reimbursed for the purchase.

Obligation of the Partners
to Third Persons
Obligation of the Partners to Third Persons

1. Liability for Contractual Obligation

2. Liability of Partnership for Acts of Partners
a) Acts of for apparently carrying on in the usual way the business of the partnership
b) Acts of strict dominion or ownership (Art.1818 par. 2 and 3)
c) Acts in Contravention of a Restriction on Authority.
Liability for
Contractual Obligation
(Art. 1816)
Article 1816. All partners, including industrial ones, shall be liable pro rata with all their property and after all
the partnership assets have been exhausted, for the contracts which may be entered into in the name and for
the account of the partnership, under its signature and by a person authorized to act for the partnership.
However, any partner may enter into a separate obligation to perform a partnership contract. (n)
 Nature of Individual Liability of Partners
üThe debts and obligations of the partnership are, in substance, also the debts and obligations of each individual
members of the firm.
üThe individual liability is pro rata and subsidiary.
üEven the industrial partner who, ordinarily, is not liable for losses would have to pay but, of course, he can
recover the amount he ahs paid from the capitalist partners unless there is an agreement to the contrary.
Example

A and B are capitalist partners, with C as an industrial partner.

A and B contributed P100,000 each to the capital of the partnership. A contractual liability of P26,000 was
incurred by the partnership in favor of D.
Example
Under Art. 1816, D can sue the firm and all the partners including C, the industrial partner.
The capital asset of P20,000 shall first be exhausted thereby leaving an unsatisfied liability of P6,000.
D can recover the amount from A, B, and C jointly or pro rata at P2,000 each. After paying D, C can recover for
reimbursement of P1,000 each from A and B.
Example
Basis: Under Art. 1797, he is exempted from the loss of P6,000, as among themselves, unless there is a stipulation
to the contrary.
Example 2
If, in the same example, the capital contributions of A and B are P15,000 and P5,000, respectively, in the absence
of stipulation, they share in the loss of P6,000 in proportion to their contribution, to wit: A- ¾ or P4,500, and
B- ¼ or P1,500.

Hence, B can recover P500 and C, P2,000 from A.