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PARTNERSHIPGENERAL PROVISIONS

Definition:ART 1767. By the contract of partnership 2 or more persons bind themselves to contribute:1. money,

2. property, or3. industryto a common fund, with the intention of dividing the profits among themselves.

(General Professional Partnership)Two or more persons may also form a partnership for the exercise of a pr

ofession.

* A partnership has a juridical personality of its own, distinct and separate from that of each of the partners* For TAXATION PURPOSES, partnerships, except for general professional partnerships, are treated for income tax purposes as corporations and subject to tax as s

uch

Practice of LawA partnership for the practice of law is NOT a legal entity. It is a mer

e relationship or association for a particular purpose such as public service.It is not a partnership formed for the purpose of carrying on a trade or

business or of holding propertyThus, the use of a nom de plume, assumed or trade name in law practice i

s improper

1- In the matter of the petition for authority to continue use of firm name Sycip, Salazar, etc./ Ozeata, Romula, etc. (92S 1)H: Primary Characteristics w/c Distinguish the Legal Profession from Business

1. A duty of public service, of w/c emolument is a by-product, and in which onemay attain the highest eminence without making much money;2. A relation as an officer of the court to the administration of justice involving thorough sincerity, integrity, and reliability;3. A relation to clients in the highest fiduciary degree; and4. A relation to colleagues in the bar characterized by candor, fairness, and unwillingness to resort to current business methods of advertising and encroachment of their practice, or dealing directly with clients

Characteristics Elements of Partnership1. Consensual perfected by mere consent, upon the express or implied agreement of the parties

2. Nominateit has a special name or designation in our law3. Bilateral (or Multilateral) entered into by 2 or more persons and the rights

and obligations arising from them are always reciprocal4. Onerous each party aspire to procure for himself a benefit through the givingof something5. Commutative undertaking of each is considered as the equivalent of that of the others6. Principal does not depend upon some other contract for existence or validity7. Preparatory entered into as a means to an end

Essential Features of a Partnership/ Requisites of Contract of Partnership:1. There must be a valid contract (Art 1318)a. Consent and capacity of contracting parties

b. Object which is the subject matter of the contractc. Cause or consideration2. The parties must have legal capacity to enter into a contract


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3. There must be a mutual contribution of money, property or industry to the common fund4. The object must be lawful5. The primary purpose must be to obtain profits and divide the same among partiesValid Contract:

* No such thing as partnership created by operation of law alone* FORM: oral or written, express or implied subject to provisions of 1771-1173 and Statute of Frauds* Articles of Partnership = customarily embody the terms of the association* If Article of Partnership are kept secret among members, there is no legal personality and the relationship will be governed by rules on co-ownership (1775)

Doctrine of Delectus Personae: (Choice of the Person/s)* No one can be a member of the partnership w/o the consent of all the others* REASON: fiduciary nature of the partnership relation and the liability of eachpartner for the acts of the others within the scope of the partnership business* Partners have the power but not necessarily the right to dissolve the partners

hip.

Legal Capacity to Enter into a Contract of Partnership

1. Individualsa. The following cannot give consent to a contract of partnership* Unemancipated minors* Insane or demented persons* Deaf-mutes who do not know how to read or write* Persons suffering from civil interdiction* Incompetents under guardianship (Art 1327, 1329; Art 34RPC; Rules 93-94 of RC)b. Persons who are prohibited from giving each other donations cannot enter intoa universal partnership

? husbands and wives (spouses may enter into a particular partnership)? common law spousesc. A married woman may enter into a contract of partnership w/o her husbands consent but he may object on valid, serious or moral grounds (Art 87 & 73 of FC)

2. Partnership may be a partner in another partnership (the partnership formed is called RESULTING PARTNERSHIP)

3. Corporationsa. Unless authorized by a statute or its charter, a corporation is w/o capacityor power to enter into a contract of partnership* REASON based on public policy, a corporation can only act through its BODb. BUT it may enter into a joint venture partnership with another where the nature of the joint venture is in line with the business authorized by its statutec. IF a foreign corp. is a limited partner in a limited partnership for investment purposes only = not be deemed doing business in the Philippines

Joint Venture: (Joint Adventure)Joint Adventure is an informal partnership, with no firm name and no leg

al capacity. It is an American concept similar to our joint accounts. In Joint Account, the participating merchants can transact business under their own name,and can be individually liable therefor.

Usually, but not necessarily, it is limited to a single transaction, althoughthe business of pursuing it to a successful termination may continue for a number of years.

PartnershipJoint AdventureThough it may exist for a single transaction, usually contemplates the undertaking of a general & continuous businessOrdinarily limited to a single transaction; it is not intended to pursue a conti


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nuous businessProperty contributed belongs to the partnership and hence of all the partnersProperty used remains undivided of its contributorWhen acting pursuance to firm business, can bind himself, partnership, and his co-partnersNone of the joint adventurers can bind the joint adventure or hi co-adventurersOperate under a firm nameNo firm name

PartnershipJoint Account (sociedad de cuentas en participacion)Operates under a firm nameDoes not operate under a business nameEach partner participates in the conduct of businessBusiness is transacted and managed by only one of them in his own name and on his own liability, so that the public has no way of knowing that there are other people in the businessPartner can not only bind himself but also his co-partners3rd person has the right of action only against the manager nor can other associates sue those who deal w/ the managerLiquidation and accounting, as a rule, is the right and duty of every partnerLiquidation and accounting of the results of the business is the sole duty and p

rerogative of the managerSharing of Profits1. Merely presumptive and not conclusive evidence of partnership2. The object of a partnership is primarily a sharing of profits, while the distribution of losses is but a consequence of the same3. How losses are shared: (Art 1797)a. according to the agreement (but cannot exclude any of the partners -- 1799)b. in accordance with the profit-sharing ratioc. in proportion to the amount contributed to the partnership (BUT purely industrial partner shall not be liable for losses)

MERCANTILE VIEW OF PARTNERSHIP: (as opposed to COMMON LAW that views partnership

not as a juridical person)ART 1768. The partnership has a juridical personality separate and distinct fromthat of each of the partners, even in case of failure to comply with the requirements of Art. 1772(1).

ART. 1772(1): Every contract of partnership having a capital of P3,000 or more,in money or property, shall:1. appear in a public instrument,2. which must be recorded in the SEC

Art 1772(1) is not intended as a pre-requisite to acquire juridical personality BUT merely as condition for issuance of license.

Partnership can in general: (Art 46 NCC)1. Acquire and possess property of all kinds2. Incur obligations3. Bring civil or criminal actions4. Can be adjudged as insolvent even if the individual members be each financially solvent

Instances when there is no juridical personality:1. Failure to make an inventory when an immovable property is contributed (1773)2. Secret associations or societies (1775)

RULES TO DETERMINE THE EXISTENCE OF PARTNERSHIP:ART 1769. In determining whether a partnership exists, these rules shall apply:1. Except as provided by Art. 1825 (partner by estoppel), persons who are not partners as to each other are not partners as to third persons;2. Co-ownership or co-possession does not of itself establish a partnership, whether such-co-owners or co-possessors do or do not share any profits made by theuse of the property;3. The sharing of GROSS returns does not of itself establish a partnership, whether or not the persons sharing them have a joint or common right or interest inany property from which the returns are derived;4. The receipt by a person of a share of the PROFITS of a business is prima facie evidence that he is a partner in the business, but no such inference shall bedrawn if such profits were received in payment:a. As a debt by installments or otherwise;

b. As wages of an employee or rent to a landlord;c. As an annuity to a widow or representative of a deceased partner;d. As interest on a loan, though the amount of payment vary with the profits of


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the business;e. As the consideration for the sale of a goodwill of a business or other property by installments or otherwise.

Requisites for Existence of Partnership: It must be proved that:1. There was intention to create a partnership2. There was a common fund obtained from contributions

3. There was a joint interest in the profits

Principle of Estoppel (1825)? A person holds himself out as a partner in an enterprise? There is no actual or legal partnership relation but merely a partnership liability imposed by law in favor of third persons? Under this doctrine, PERSONS LIABLE are: the person representing and the partners who consented? Partnership becomes liable where all of the partners consent to such representation

Reasons Why Co-ownership Does NOT Necessarily Establish a Partnership

1. There must be an intent to form a partnership2. The net profit of a partnership must be derived from operation of the business and not merely from the incident of co-ownership

Sharing of GROSS Profits1. Does NOT constitute prima facie evidence of the existence of a partnership2. Reason because the essential feature of a partnership is the sharing of the net profits as a partner is also interested in the sharing of the losses and liabilities

Sharing of NET Profits1. Constitutes prima facie evidence of the existence of a partnership but NOT conclusive evidence

2. It is not merely the sharing of profits but the sharing of them as co-owner that makes one a partner (TEST: has a voice in management)

Incidents of Partnership (immediately follow once partnership is established)1. Partners share in profits and losses2. They have equal rights in the management and conduct of the partnership business3. Every partner is an agent of the partnership4. All partners are personally liable for the debts of the partnership with their separate property EXCEPT limited partners are not bound beyond the amount of their investment5. A fiduciary relation exists between the partners6. On dissolution, partnership is not terminated but continues until winding upof partnership is completed

PartnershipCo-ownershipCreationAlways created by a contractGenerally created by law and may exist w/o a contractJuridical PersonalityHas a juridical personality separate and distinct from each partnerHas nonePurposePurpose is the realization of profitsPurpose is the common enjoyment of a thing or a rightDurationNo limitation upon the duration of partnershipAn agreement to keep the thing undivided for more than 10 years is not allowedDisposal of InterestsA partner may not dispose of his own individual interest in the partnership so as to make an assignee a partner, unless agreed upon by all the partnersA co-owner may freely do soPower to act w/ 3rd personsIn the absence of any stipulation to the contrary, a partner may bind the partnershipA co-owner cannot represent the co-ownershipEffect of deathDeath of a partner results in the dissolution of the partnershipDeath of the co-owner does not necessarily dissolve the partnership

PartnershipVoluntary AssociationJuridical PersonalityHas juridical personalityNonePurposeOrganized for pecuniary profitNo such objectiveContributions of membersThere is contribution of capital, either money, property or servicesNo contribution of capital, although fees are usually collectedLiability of membersPartnership, as a rule, is the one liable in the first place for the debts of the firmMembers are individually liable for the debts of the association

PartnershipAgencyCreation of partnership results in mutual agency among the partnersBroader term since partnership is only a form of agencyA partner is both a principal (for his own interests) and an agent (for the firm

and the others)Agent never acts for himself but only for his principal (agent incurs no personal liability)A partner, in the absence of specific agreement, is not subject to control of the other partners. He can bind the partnership despite objection from his co-part


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ners so long as his act is necessary for carrying on the partnership business inordinary mannerAgent is subject to the control of principalPartner takes his share of the profits as co-ownerOrdinary agent merely takes the agreed measure of compensation for his services

PartnershipBusiness TrustAll of the members are principals and agents for each otherTrustee is only a principal and is not an agentA partner is a co-owner with his partners of specific partnership propertyOnly the trustee and not the beneficiaries is empowered to make contracts to carry on the business affairs and the only one who has legal title to the property

As To:PartnershipCorporation1. Manner of CreationBy mere agreement of the partiesBy law or operation of law2. Number of IncorporatorsMinimum of 2 personsRequires at least 5 incorporators3. Commencement of Juridical PersonalityFrom the moment of execution of the contractFrom the date of issuance of the certificate of incorporation by the SEC4. Powers

May exercise any power provided it is not contrary to law, moralsCan exercise only the powers:1. Expressly granted by law2. implied from those granted3. incident to its existence5. ManagementWhen not agreed upon, every partner is an agent and can perform acts of administrationPower is vested in the Board of Directors or Trustees6. Effect of Mismanagement

A partner can sue a co-partner who mismanagesThe suit against the board member who mismanages must be in the name of the corporation7. Right of SuccessionNo rightsHas such a right8. Extent of liability to 3rd personsPartners (except limited partners) are liable personally and subsidiarily and even sometimes solidarilyStockholders are liable only to the extent of the shares subscribed by them9. Tranferability of InterestA partner cannot transfer his interest to make the transferee a partner w/o theconsent of ALL existing partners because the partnership is based on the principle of delectus personaeA stockholder has the right to transfer his shares w/o the prior consent of theothers10. Term of ExistenceMay be established for any period of time as stipulatedMay not be formed for a term in excess of 50 years11. Firm nameA limited partnership is required by law to add the word Ltd. to its name

May adopt any name provided it is not the same as any registered firm name12. DissolutionMay be dissolved at any time by the will of any or all of the partnersCan only be dissolved with the consent of the State13. Governing LawCivil CodeCorporation Code

ESSENTIAL ELEMENTS OF A CONTRACT OF PARTNERSHIP:ART 1770. A partnership:1. must have a lawful object or purpose, and2. must be established for the common benefit or interest of the partners.

When an unlawful partnership is dissolved by a judicial decree, the profits shall be confiscated in favor of the State, without prejudice to the provisions of the Penal Code governing the confiscation of the instruments and effectsof a crime.

Consequences of a Partnership Formed For Unlawful Purposes1. The partnership never existed in the eyes of the law; void ab initio2. The profits shall be confiscated in favor of the government3. The instruments or tools and proceeds of the crime shall also be confiscatedin favor of the government4. The contributions/capital of the partners shall NOT be confiscated unless they are in the form of instruments or tools

? A judicial decree is not necessary to dissolve an unlawful partnership? IMPLIED: partners contributions must be reimbursed (but Bautista opines that no

recovery can be made invoking 1412[1] since the partners knew that the undertaking was illegal)


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ART 1771. A partnership may be constituted in any form, EXCEPT where immovable property or real rights are contributed thereto, in which case a public instrument shall be necessary.

GR: No special form required for validity of the contract of partnershipEXCEPTION:1. Public instrument is necessary where immovable property or real rights are co

ntributed2. To affect 3rd persons, partnership contract must be registered if real properties are involved3. An agreement to form a partnership at a future time more than a year, is covered by Statute of Frauds, thus, must be in writing

ART 1772. Every contract of partnership having a capital of P3,000 or more, in money or property,1. shall appear in a public instrument,2. which must be recorded in the Office of the SEC.

Failure to comply with the requirements of the preceding paragraph shall

not affect the liability of the partnership and the members thereof to third persons.

Failure to Comply with the Requirements of Notarization and Registration will NOT Prevent the Partnership From:1. acquiring legal personality2. being liable to 3rd persons

ART 1773. A contract of partnership is void, whenever immovable property is contributed thereto, if an inventory of said property is not made, signed by the parties, and attached to the public instrument.

Essential Requisites for Validity of a Partnership When Immovable Property is Co

ntributed Thereto1. Contract must be in a Public Instrument2. An inventory of the property contributed must be made, signed by the partiesand attached to the public instrument3. In order to bind 3rd persons, the contract must be registered in the ROD where the property is located

Q: When is an inventory not required?A: When the immovable property is not contributed by any of the partners

Summary of Formalities for the Creation of a Partnership:1. GR: partnership can be constituted in any form due to its consensual character2. Personal Propertya. less than 3T = may be oralb. P3T or more = public instrument registered w/ SEC (req. is merely for licensing purposes)3. Real Property (regardless of value)a. public instrument, with an attached inventory (otherwise, partnership has nolegal personality; Bautista opines that only the inventory is necessary) andb. registered with ROD to affect 3rd persons4. Limited Partnership = registered with SEC (otherwise it will be considered ageneral partnership)

ART 1774. Any immovable property or an interest therein may be acquired in the p

artnership name.Title so acquired can be conveyed only in the partnership name.


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ART 1775. Associations and societies,1. whose articles are kept secret among the members, and2. wherein any one of the members may contract in his own name with third persons,shall have NO juridical personality, and shall be governed by the provisions relating to co-ownership.

? Although it has no juridical personality, it can be sued in its common name BUT it cannot sue

ART 1776. As to its object, a partnership is either universal or particular.As regards the liability of the partners, a partnership may be general o

r limited.

Classifications of Partnership1. As to OBJECTa. UNIVERSAL one w/c refers to all the present property or to all profits* of ALL PRESENT PROPERTY* of PROFITS

b. PARTICULARthe object is determinate thins, their use or fruits; a specific undertaking, or the exercise of a profession or occupation (1783)

2. As to LIABILITY of the PARTNERSa. GENERAL or ordinary one consisting of general partners who are liable pro rata and subsidiarily and sometimes solidarily, with their separate property for partnership debtsb. LIMITED or Sociedad en Comandita one formed by one or more general partners and one or more limited partners* limited partners shall not be personally liable for the obligations of the partnership* general partners name shall appear in the name of the firm

3. As to DURATIONa. at WILL no time specified and not formed for a particular undertaking (1785)b. with a FIXED TERM partnership is to exist on a fixed or agreed term or for aparticular undertaking

4. As to LEGALITY of its EXISTENCEa. DE JURE one w/c has complied w/ all the legal requirements for its establishmentb. DE FACTO one w/c has failed to comply with the legal requirements for its establishment

5. As to REPRESENTATION to OTHERSa. ORDINARY or REAL actually exists among the partners and as to 3rd personsb. OSTENSIBLE or BY ESTOPPEL considered as a partnership only in relation to those who, by their conduct or admission, are precluded to deny or disprove its existence

6. As to PUBLICITYa. SECRET one wherein the existence of certain persons as partners is not made known to the public by any of the partnersb. OPEN or NOTORIOUS one whose existence is made known to the public

7. As to PURPOSEa. COMMERCIAL one formed for the transaction of a businessb. PROFESSIONAL one formed for the exercise of a profession

Kinds of Partners1. CAPITALIST one who contributes money or property to the common fund


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2. INDUSTRIAL one who contributes only his industry or personal services3. GENERAL OR REAL one whose liability to 3rd persons extends to his separate property; he may either be a capitalist, or industrial partner4. LIMITED OR SPECIAL one whose liability to 3rd persons is limited to his own capital contribution5. MANAGING one who manages the affairs of the partnership6. LIQUIDATING one who takes charge of the winding up of the partnership affairs

upon dissolution7. PARTNER BY ESTOPPEL (Quasi-Partner; Nominal Partner) one who is not really apartner but is liable as a partner for the protection of innocent 3rd persons8. CONTINUING one who continues the business of the partnership after it has been dissolved due to retirement or death of one or more of the other partners9. SURVIVING one who remains after a partnership has been dissolved by death ofany partner10. SUB-PARTNER one who is not a member of the partnership, but contracts with apartner with reference to the partners share in the partnership (partner of an existing partner)11. OSTENSIBLE one who takes active part and is known to the public as a partnerin business

12. SECRETone who takes active part in the business but is not known to be a partners by outside parties nor held as a partner by other partners

13. SILENT one who does not take active part in the business although he may beknown to be a partner14. DORMANT (Sleeping Partner) one who does not take active part in the businessand is not known or held out as a partner15. ORIGINAL one who is a member of the partnership from the time of its organization16. INCOMING one about to be taken in as a member (his liability to partnershipobligations prior to his admission can be satisfied only out of partnership properties, unless stipulated otherwise)17. RETIRING one withdrawn from the partnership (not liable to obligations subsequent to his withdrawal if he has given the necessary notice of dissolution)

ART 1777. A universal partnership may refer to all the present property or to all the profits.

ART 1778. A partnership of all present property is that in which the partners contribute all the property which actually belongs to them to a common fund, withthe intention of dividing the same among themselves, as well as all the profitswhich they may acquire therewith.

ART 1779. In a universal partnership of all present property,1. the property which belonged to each of the partners at the time of the constitution of the partnership, becomes the common property of all the partners,2. as well as all the profits which they may acquire therewith.

A stipulation for the common enjoyment of any other profits may also bemade; but the property which the partners may acquire subsequently by:1. inheritance,2. legacy, or3. donationcannot be included in such stipulation, except the fruits thereof.

ART 1780. A universal partnership of profits comprises all that the partners mayacquire by their industry or work during the existence of the partnership.

Movable or immovable property which each of the partners may possess atthe time of the celebration of the contract shall continue to pertain exclusivel

y to each, only the usufruct passing to the partnership.


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Universal Partnership of All Present PropertyUniversal Partnership of ProfitsOwnership of Present PropertyProperty w/c belonged to each of them at the time of the constitution of the partnership shall become COMMON property of all partnersPartners retain their ownership over their present property -- only the USUFRUCTpasses to the partnershipProfits from present propertyProfits w/c they may acquire from the property contributed belong to the PARTNERSHIPPasses to the partnershipOwnership/ Usufruct of Future PropertyUsufruct can only pass to the partnership BY STIPULATION. But ownership/ usufruct of prop subsequently acquired by inheritance, legacy or donation CANNOT BE INC

LUDEDOwnership retained by the partner

Usufruct can only belong to the firm BY STIPULATIONFruits of Future PropertyCan only pass to the partnership BY STIPULATION, even fruits from prop subsequently acquired by inheritance, legacy or donationCan only pass to the partnership BY STIPULATION (use & fruits granted to the firm refers only to that of the prop possessed by the partner at the time of the celebration of the contract)Profits acquired by industryProfits from other sources may become COMMON but only if there is a STIPULATIONto such effectAll that the partners may acquire by their industry or work during the existenceof the partnership

belongs to the partnershipProfits acquired thru chanceRetained by the partnerRetained by the partner (since law speaks only of profits by industry or work)

ART 1781. Articles of universal partnership, entered into without specificationof its nature, only constitute a universal partnership of profits.

Presumption: The universal partnership is one of PROFITSReason: It imposes less obligations on the partners as the naked ownership of the property remain with the partners

ART 1782. Persons who are prohibited from giving each other any donation or adva

ntage cannot enter into universal partnership.

? However, a husband and his wife may enter into a particular partnership or bemembers thereof.? Following donations are void: (739)o Those made between persons who were guilty of adultery or concubinage at the time of the donationo Those made between persons found guilty of the same criminal offense, in consideration thereofo Those made to a public officer or his wife, descendants, and ascendants, by reason of his office

ART 1783. A particular partnership has for its object:1. determinate things,2. their use or fruits, or3. a specific undertaking, or4. the exercise of a profession or vocation.

? In Heirs of Tan Eng Kee v. CA, SC expressed the view that a joint venture maybe likened to a particular partnership

CHAPTER 2Obligations of the Partners

SECTION 1

Obligations of the Partners among Themselves

Obligations of a Partner


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1. Give his contribution (1786, 1788)2. Not to convert firm money or property for his own use (1788)3. Not to engage in unfair competition or engage in business similar to that ofthe partnership (1808)4. Duty to hold as trustee or account for personal profits acquired for the partnership (1807)5. Pay for damages caused by him (1794)

6. Credit to partnership payment by a debtor who owes him and the partnership (1792)7. Duty to share with the partners the share of what he may collect from an insolvent debtor (1743)

Rights of a Partner:1. Property rights (1810)a) right in specific partnership propertyb) interest in the partnership (share in the profits and surplus) [1812]c) right to participate in the management (1810)2. Right to associate with another person in his share (1804)3. Right to inspect and copy partnership books (1805)

4. Right to demand a formal account (1809)5. Right to ask for the dissolution of the firm at the proper time (1830-1831)

Relations Created by a Contract of Partnership1. Among the partners themselves2. Of the partners with the partnership3. Of the partnership with 3rd persons with whom it contracts4. Of the partners w/ such 3rd persons

ART 1784. A partnership begins from the moment of the execution of the contract,unless it is otherwise stipulated.

When a Partnership is Deemed to Exist

1. General Rule from the moment of the celebration of the contract2. Exceptions:a. When the partners stipulate some other date for the commencement of the partnership (future partnership)b. If what was entered into was a mere agreement to enter into a contract of partnership as a future time

ART 1785. When a partnership for a fixed term or particular undertaking is continued after the termination of such term or particular undertaking without any express agreement, the rights and duties of the partners remain the same as they were 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 thepartnership affairs, is prima facie evidence of a continuation of the partnership.

Partnership With a Fixed Term one in which the term of its existence has been agreed upon:1. Expressly as when there is a definite period2. Impliedly as when a particular enterprise or transaction is undertaken

ART 1786. Every partner is a debtor of the partnership for whatever he may havepromised 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 tothe vendee.

He shall also be liable for the fruits thereof from the time they should


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have been delivered, without the need of any demand.

Obligations With Respect to Contribution of Property1. To contribute at the beginning of the partnership or at a stipulated time, money, property or industry w/c he may have promised to contribute2. To answer for eviction in case the partnership is deprived of the determinateproperty contributed

3. To deliver the fruits or interest of what should have been delivered, w/o need of demand4. To preserve such property with the diligence of a GFOF pending delivery to the partnership5. To indemnify the partnership for any damage caused to it by retention of thesame or by the delay in its contribution

Q: What if a partner fails to contribute the property he promised?A: He becomes ipso jure a debtor of the partnership and the remedy of the other partners is NOT rescission but an action for SPECIFIC PERFORMANCE with damages and interest from the time he should have complied with the obligation. No demand necessary to put the partner in default.

If the defaulting partner is already dead, RESCISSION may prosper.

? There is eviction whenever by a final judgment based on a right prior to the sale or an act imputable to the partner, the partnership is deprived of the wholeor a part of the thing purchased

ART 1787. When the capital or a part thereof which a partner is bound to contribute consists of goods, their appraisal:1. must be made in the manner prescribed in the contract of partnership, and inthe absence of stipulation, it2. shall be made by experts chosen by the partners, and according to current prices, the subsequent changes thereof being for account of the partnership.

ART 1788. A partner who has undertaken to contribute a sum of money and fails todo 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 amountto his own use.

Liability of a Partner for Failure to Return Partnership Money Received1. Where fraudulent misappropriation committed the partner is guilty of estafa if he misappropriates partnership money or property received by him for a specific purpose of the partnership2. When there was failure to return this not constitute estafa, the liability ofthe partner is a civil one arising from the partnership contract for a liquidation of the partnership

ART 1789. An industrial partner:1. cannot engage in business for himself, unless the partnership expressly permits him to do so; and2. if he should do so, the capitalist partners may either:a. exclude him from the firm orb. avail themselves of the benefits which he may have obtained in violation of this provision,c. with a right to damages in either case.

DistinctionsAs to:Capitalist PartnerIndustrial PartnerContributionContributes money or property


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Contributes industryProhibitions against engaging in businessRelative extends only to any operation w/c is of the same kind of business in w/c the partnership is engagedAbsolute prohibited from engaging in any kind of business (absent any express stipulation for him to do so)Consequence of engaging in prohibited business? Bring to common funds any profits;? Erring partner shall personally bear the loss

? may be subject to an injunction writEntitle the capitalist partners to either:1. exclude him from the firm2. avail themselves of the benefits w/c he have obtainedProfitsReceives profits1. according to the agreement or2. pro rata to his contributionReceives his just and equitable shareLossShares in the losses:1. according to the stipulation as to losses or2. agreement as to profits3. pro rata to his contributionExempted as to partners but not as to 3rd persons BUT is subject to reimbursement from the other partners

ART 1790. Unless there is a stipulation to the contrary, the partners shall contribute equal shares to the capital of the partnership.

ART 1791. If there is no agreement to the contrary, in case of an imminent lossof 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.

Obligation of Capitalist Partner to Contribute Additional Capital1. General Rule a capitalist partner is not bound to contribute to the partnership more that what he agreed to contribute2. Exception in case of imminent loss to the business and there is no agreement

to the contrary, he is under the obligation to contribute an additional share tosave the venture3. If he refuses to contribute, he shall be obliged to sell his interest to other partners

Requisites Before a Capitalist Partner May be Obliged to Sell His Interest to the Others:1. There is imminent loss2. Majority of the CP are of the opinion that an additional contribution to thecommon fund would save the business3. The CP deliberately refuses to contribute an additional share to the capital4. There is no agreement that even in case of imminent loss, the partners are not allowed to contribute

? Industrial partner is exempted because he is already giving his entire industry

ART 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 2 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 tothe right granted to the other debtor by Art. 1252, but only if the personal cr


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edit of the partner should be more onerous to him.

Obligation of Managing Partner Who Collects Debts1. Where a 3rd party is indebted to:a. the partnership, ANDb. the managing partner at the same time2. Any sum received by the MP shall be applied to the 2 credits in proportion to

their amounts3. Except where he received it for the account of the partnership4. In w/c case the whole sum shall be applied to the partnership credit only5. However, the 3rd party debtor is given the right to prefer payment of the credit to the partner if it should be more onerous to him in accordance w/ his right to application of payment

Requisites1. There are at least 2 debts:a. one where the collecting partner is the creditorb. one where the partnership is the creditor2. Both debts are demandable

3. The partner who collects is authorized to manage and actually manages the partnership

ART 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 partnershipcapital what he received even though he may have given receipt for his share only.

17921793Two debtsOne debt only (firm credit)Applies only to managing partnerApplies to any partnerObligation of the Partner Who Receives Credit1. Here there is only one credit in favor of the partnership2. The partner who receives his share of the partnership credit may be the MP or

not3. Such partner is obliged to bring to the partnership capital what he received

Requisites1. A partner has received, in whole or in part, his share of the partnership credit2. The other partners have not collected their shares3. The partnership debtor has become insolvent4. Only applies while the partnership is in existence and not after it dissolution

ART 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 throughthe partner's extraordinary efforts in other activities of the partnership, unusual profits have been realized.

* There must first be a liquidation before a partner sues another to know the extent of damages* If negligent partner is already dead, suit for recovery may be had against hisestate

ART 1795. The risk of specific and determinate things,1. which are not fungible,

2. contributed to the partnership so that only their use and fruits may be for the common benefit,3. shall be borne by the partner who owns them.


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If the things contributed:1. are fungible, or2. cannot be kept without deteriorating, or3. if they were contributed to be sold,4. 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.

Risk of Loss of Things Contributed

Thing ContributedWho Bear the LossSpecific and Determinate things:1. NOT fungible2. only the USE is contributedPartner because he remains the ownerSpecific and Determinate where ownership is TRANSFERRED to partnershipPartnership being the ownerFungible things or things w/c cannot be kept w/o deteriorating if they are contributed ONLY for the USE of the partnershipPartnership because it is impossible to use such things w/o them being consumedor impairedThings contributed to be SOLDPartnershipThings bought and appraised in the INVENTORYPartnership because the intention of the parties was to contribute to the partne

rship the price of the things contributed

ART 1796. The partnership shall be responsible to every partner:1. for the amounts he may have disbursed on behalf of the partnership and for the corresponding interest,2. from the time the expense are made;

it shall also answer to each partner:1. for the obligations he may have contracted in good faith in the interest of the partnership business, and2. for risks in consequence of its management.

Obligation of Partnership to Partners

1. Refund the amounts disbursed by the partner (other than capital contribution)in behalf of the partnership plus interest2. Answer for the obligations the partner may have contracted in good faith in the interest of the partnership3. Answer for risks in consequence of its management

ART 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 profitsand 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.

Rules for Distribution of Profits and Losses

1. PROFITSa. According to agreementb. If no agreement:* share of each CP shall be in proportion to his contribution* the IP shall receive such share, w/c must be satisfied first before the CP sha

ll divided the profits, as may be just and equitable under the circumstances

2. LOSES


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a. According to agreementb. If no such agreement but the contract provides for the shares of the partnersin the profits:* losses shall be in accordance with the profit sharing ratio* but IP shall not be liable for lossesc. If no profit sharing stipulated* losses shall be borne by the partners in proportion to their capital contribut

ion* the purely IP shall not be liable for losses

ART 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:1. who has begun to execute the decision of the third person, or2. who has not impugned the same within a period of three months from the time he had knowledge thereof,3. complain of such decision.

The designation of losses and profits cannot be intrusted to one of thepartners.

Entrusting to a 3rd Person the Share in Profits and Losses1. The designation of the share in profits and losses may be delegated to a 3rdperson by common consent2. This designation is generally binding on the partners UNLESS manifestly inequitable3. Therefore, a partner:a. who has begun to execute the decision of the third person, orb. who has not impugned the same within a period of three months from the time he had knowledge thereof, can no longer complain

4. Reason to forestall any paralyzation of the partnership

ART 1799. A stipulation which excludes one or more partners from any share in the profits or losses is void.

Note1. This only applies to a CP2. IP not included because he cannot w/draw his capital w/c is his industry3. It is the stipulation that is void but the partnership exists

ART 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 justor lawful cause. The vote of the partners representing the controlling interestshall be necessary for such revocation of power.

A power granted after the partnership has been constituted may be revoked at any time.

2 Modes of Appointing a Manager

1. In the Articles of Partnership (AP)a. Manager may execute all acts of administration despite the opposition of theother partnersb. His power is revoked only:* if he acted in bad faith

* upon just and lawful cause* upon the vote of the partners representing the controlling interest* (to remove him WITHOUT A CAUSE, or for an UNJUST CAUSE, there must be unanimit


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y (including his own vote))c. In case of mismanagement, the other partners may avail of the usual remediessuch as dissolution by judicial decree

2. After the Constitution of the Partnershipa. This may be revoked at any time for any cause whatsoeverb. Reason revocation is not founded on a change of the will on the part of the p

artners, the appointment not being a condition of the contract; merely a contract of agency w/c may be revoked at any time

Scope of Power of the MP1. General Rule a partner appointed as MP has:a. all the powers of a general agent (acts of administration) as well asb. the incidental powers necessary to carry out the object of partnership in thetransaction of its business2. Exception when the powers of the MP are specifically restricted

ART 1801. If two or more partners have been intrusted with the management of thepartnership:

1. without specification of their respective duties, or2. without a stipulation that one of them shall not act without the consent of all the others,3. each one may separately execute all acts of administration,a. but if any of them should oppose the acts of the others, the decision of themajority shall prevail.b. In case of a tie, the matter shall be decided by the partners owning the controlling interest.

Where the Respective Duties of 2 or More Managing Partners are NOT Specified1. Rule Each one may separately perform acts of administration2. Consequencesa. If one or more of the MPs shall oppose the acts of the others the decision of

the majority (per head) of the MPs shall prevailb. In case of a tie the matter shall have to be decided by the vote of the partners owning controlling interests

Requisites1. 2 or more partners have been appointed as MPs2. There is no specification of their respective duties3. There is NO stipulation that one of them shall not act w/o the consent of theothers

ART 1802. In case it should have been stipulated that none of the managing partners shall act without the consent of the others,1. the concurrence of ALL shall be necessary for the validity of the acts, and2. the absence or disability of any one of them cannot be alleged, unless thereis imminent danger of grave or irreparable injury to the partnership.

Where Unanimity of Action is Stipulated1. General Rule - When it is stipulated that none of the MPs shall act w/o the consent of the others, a unanimous consent of all the MPs shall be necessary for the validity of such acts2. Exception when there is imminent danger of grave irreparable injurya. In such case, a MP may act alone w/o the consent of the partner who:* is absent, or* under disabilityb. But he may be later be liable for damages

3. However, the ground of imminent danger of xxx.. is NOT applicable when one ofthe MPs objects to the proposed act


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ART 1803. When the manner of management has NOT been agreed upon, the followingrules shall be observed:1. All the partners shall be considered agents and whatever any one of them maydo alone shall bind the partnership, without prejudice to the provisions of Art.1801.2. None of the partners may, without the consent of the others, make any important alteration in the immovable property of the partnership, even if it may be us

eful to the partnership. But if the refusal of consent by the other partners ismanifestly prejudicial to the interest of the partnership, the court's intervention may be sought.

Rules When Manner of Management has NOT been Agreed Upon1. All partners are considered managers and agentsa. whatever anyone of them may do alone shall bind the partnershipb. but in case of timely opposition of any partner* the matter shall be decided by majority vote* in case of a tie the matter shall be decided by the vote of the partners representing controlling interest2. Unanimous consent is required for alteration of immovable property

a. If the refusal to give consent by other partners is manifestly prejudicial tothe interest of the partnership the intervention of the court may be sought forauthority to make necessary alterationb. Reason for necessity of court intervention because any alteration of immovable property is an act of dominion in w/c all partners must consent

ART 1804. Every partner may associate another person with him in his share, butthe associate shall not be admitted into the partnership without the consent ofall the other partners, even if the partner having an associate should be a manager.

Contract of Sub-Partnership1. A partner may associate a 3rd person w/ him in his share w/o the consent of

the other partner this 3rd person is called a SUBPARTNER2. Subpartnera. cannot be a member of the partnership w/o the consent of all the other partnersb. therefore he does not acquire the rights of a partner nor is he liable for its debts

ART 1805. The partnership books shall be kept, subject to any agreement betweenthe partners, at the principal place of business of the partnership, and every partner shall at any reasonable hour have access to and may inspect and copy anyof them.

Reasonable Hours:Reasonable hours on business days throughout the year and not merely dur

ing some arbitrary period of a few days chosen by the managing partners

Duty to Render Information:ART 1806. Partners shall render on demand true and full information of all things affecting the partnership to:1. any partner or2. the legal representative:a. of any deceased partner orb. of any partner under legal disability.

ART 1807. Every partner:

1. must account to the partnership for any benefit, and2. hold as trustee for it any profits derived by him without the consent of theother partners:


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a. from any transaction connected with the formation, conduct, or liquidation ofthe partnership orb. from any use by him of its property.

Conditions for the application of 1807:1. The transaction is of a kind that the partnership can legally embrace and actupon;

2. The transaction is connected with the formation, conduct or liquidation of the partnership or use of the partnership property by the accused partner;3. The transaction is of such nature that it is within the scope of the businessof the firm;4. The transaction complained of comprehends something of value to the partnership, whether or not it is of a present or prospective value; and5. The transaction is one that the accused partner has acted upon to his apparent or sole advantage without the full knowledge or consent of his other partners

? consent referred to is informed consent with knowledge of the fact necessary tothe giving of an intelligent consent

Pang Lim v. Lo Seng (42 P 282)F: Lim and Seng were partners on a leased land. The partnership put up improvements on the land which will belong to the landowner when the lease ends. Lim soldhis share to Seng. Subsequently, Lim was able to bought the land and is now asking Seng to vacate.H: Lim cannot ask Seng to vacate since Lim is in bad faith

Lim obviously desired the termination of the lease, in order to avail himself of the benefits of the improvements which would go to the owner of the land, as per stipulation in the lease contract. Moreover, when he sold his rights as a partner, this included the right to the lease. For him to now disregard thelease, from which sale he had profited, would be most unfair, considering that he seeks to destroy an interest derived from himself, and for which he has already received full value. Finally, one partner cannot, to the detriment of another,

apply exclusively to his own benefit the results of the knowledge and information gained in the character of partner.

ART 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.

Instances When CP is NOT Prohibited From Engaging in Business1. When there is a stipulation to the effect2. When the business is not similar to the partnership3. When other partners expressly or impliedly allowed him to do so4. When the general-capitalist partner becomes merely a limited partner in a competitive enterprise for after all, a limited partner does not manage

Effects of Violation1. CP shall be under obligation to bring to the common fund any profits derivedfrom his transaction2. In case of losses, CP shall bear them alone

ART 1809. Any partner shall have the right to a FORMAL account as to partnershipaffairs:1. If he is wrongfully excluded from the partnership business or possession of i

ts property by his co-partners;2. If the right exists under the terms of any agreement;3. As provided by article 1807;


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4. Whenever other circumstances render it just and reasonable.

Right of Partner to a FORMAL Account1. General Rule During the existence of the partnership, a partner is NOT entitled to a formal account of partnership affairs2. Exception - Art. 18093. Prescriptive Period

a. the right to demand accounting exists as long as the partnership lastsb. it begins to run only upon the dissolution of the partnership when the finalaccounting is done

SECTION 2Property Rights of a Partner

ART 1810. The property rights of a partner are:1. His rights in specific partnership property;2. His interest in the partnership; and3. His right to participate in the management

Extent of Property Rights of a Partner

1. PRINCIPAL Rightsa. His rights in specific partnership propertyb. His interest in the partnership (partners share in profit)c. His right to participate in the management

2. RELATED Rightsa. To reimbursement for amounts advanced to the partnership and to indemnification for risks in consequence of managementb. Of access and inspection of partnership booksc. To true and full information of all things affecting the partnership

d. To formal account of partnership affairs under certain circumstancese. To have the partnership dissolved under certain conditions

Distinctions

Partnership PropertyCapital1. Its value may vary from day to day with changes in the market value of the partnership assets2. Includes not only the original capital contributions of the partners but allproperty subsequently acquired on account of the partnership, including goodwill1. Its value remains unchanged, although it may be decreased or diminished by unanimous consent of the partners2. Represents the aggregate of the individual contributions made by the partners

ART 1811. A partner is co-owner with his partners of specific partnership property.

The incidents of this co-ownership are such that:1. A partner, subject to the provisions of this Title and to any agreement between the partners, has an equal right with his partners to possess specific partnership property for partnership purposes; but he has no right to possess such property for any other purpose without the consent of his partners;2. A partner's right in specific partnership property is not assignable except in connection with the assignment of rights of all the partners in the same property;

3. A partner's right in specific partnership property is not subject to attachment or execution, except on a claim against the partnership. When partnership property is attached for a partnership debt the partners, or any of them, or the re


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presentatives of a deceased partner, cannot claim any right under the homesteador exemption laws;4. A partner's right in specific partnership property is not subject to legal support under Art. 291.

Specific Partnership Property1. Contemplates tangible property but NOT intangible thing such as a beneficial

right to land of the public domain2. A partner is co-owner with his partners of SPP but the rules on co-ownershipdo not necessarily apply3. Fishpond of public domain = not considered SPP because only use and enjoymentis granted (Deluao v. Casteel)

Incidents of Co-ownership of SPP1. Equal Right of Possession LIMITATIONS:a. Not exclusive other partners also have a right of possessionb. For partnership purposes only no partner can possess or use the SPP other than for partnership purposes w/o the consent of the other partnersc. Subject to agreement and provision of NCC

2. Right NOT Assignablea partner cannot separately assign his right to SPP BUTALL of them can assign their rights to the same property (SPP)

a. This is because it is impossible to determine the extent of his beneficial interest until the liquidation of partnership affairsb. Reasons for the non-assignability of partners right in SPP:* it prevents interference by outsiders in partnership affairs* it protects the right of other partners and partnership creditors to have partnership assets applied to firm debts* it is often impossible to measure or value a partners beneficial interest in aSPPc. Exception Under Art. 1840, the retiring partner is allowed to assign his rights in partnership property to partners continuing the business3. Right Limited to Share of What Remains After Partnership Debts Have Been Paid

a. SPP is not subject to attachment, execution, garnishment or injunction* w/o the consent of all the partners* except on a claim against the partnershipb. When SPP is attached for partnership debts the partners cannot claim any right under the homestead or exemption lawsc. Right of the partners to SPP is NOT subject to legal support* Reason the SPP belongs to the partnership and not to the partners* But their interest in the partnership is subject to legal support

ART 1812. A partner's interest in the partnership is his share of the profits and surplus.

Partners Interest in the Partnership - Consists of is share in the undistributed:1. PROFITS during the life of the partnership as a going concern* Net income of the partnership for a given period of time

2. SURPLUS after the dissolution of the partnership* Assets of the partnership after partnership debts and liabilities are paid andsettled and the rights of the partners among themselves are adjusted

DistinctionsPartnership RightsPartnership InterestsCannot be:1. Assigned2. Attached3. The subject of legal supportCan be:

1. assigned2. attached3. the subject of legal support


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ART 1813. A conveyance by a partner of his whole interest in the partnership does not of itself:1. dissolve the partnership, or,2. as against the other partners in the absence of agreement,a. entitle the assignee, during the continuance of the partnership,* to interfere in the management or administration of the partnership business or affairs, or

* to require any information or account of partnership transactions, or* to inspect the partnership books;b. but it merely entitles the assignee to receive in accordance with his contract the profits to which the assigning partner would otherwise be entitled.

However, in case of fraud in the management of the partnership, the assignee may avail himself of the usual remedies.

In case of a dissolution of the partnership, the assignee:1. is entitled to receive his assignor's interest and2. may require an account from the date only of the last account agreed to by all the partners.

Rights of Assignee of Partners Interest1. To receive, in accordance w/ his contract, the profits accruing to the assigning partner2. To avail himself of the usual remedies provided by law in the event of fraudin the management3. To receive the assignors interest in case of dissolution4. To require an account of partnership affairs

Charging Order or Lien:ART 1814. Without prejudice to the preferred rights of partnership creditors under Art. 1827, on due application to a competent court by any judgment creditor of a partner, the court which entered the judgment, or any other court,

1. may charge the interest of the debtor partner with payment of the unsatisfiedamount of such judgment debt with interest thereon; and2. may then or later appoint a receiver of his share of the profits, and of anyother money due or to fall due to him in respect of the partnership, and3. make all other orders, directions, accounts and inquiries which the debtor partner might have made, or which the circumstances of the case may require.

The interest charged may be redeemed at any time before foreclosure, orin case of a sale being directed by the court, may be purchased without therebycausing a dissolution:1. With separate property, by any one or more of the partners; or2. With partnership property, by any one or more of the partners with the consent of all the partners whose interests are not so charged or sold.

Nothing in this Title shall be held to deprive a partner of his right, if any, under the exemption laws, as regards his interest in the partnership.

Remedies of a Separate Judgment Creditor of a Partner1. He can apply for a Charging Order after securing judgment on his credita. Because a creditor of a partner cannot attach SPP for the satisfaction of hiscreditb. By virtue of the CO, any amount or portion thereof w/c the partnership wouldotherwise pay to the debtor-partner should be given instead to the judgment creditor2. This remedy is w/o prejudice to the preferred rights of the partnership credi

tors3. The court may resort to other courses of action provided in Art. 1814, if thejudgment debt remain unsatisfied, despite the issuance of the CO


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4. Redemption of the Charged Interest of a partner may be done:a. before foreclosure, orb. before the expiration of the redemption period5. Redemption by the other partners will not dissolve the partnership but it isa ground for the other partners to ask for its dissolution6. The partner may avail himself of the exemption laws, with respect to his interest, after the partnership debts have been paid. This is because, his interest

in the partnership is really his property

SECTION 3Obligations of the Partners with Regard to Third Persons

ART 1815. Every partnership shall operate under a firm name, which may or may not include the name of one or more of the partners.

Those who, not being members of the partnership, include their names inthe firm name, shall be subject to the liability of a partner.

Importance of Having a Firm Name

1. To have a name under w/c the partnership will operate2. To distinguish the partnership w/c has a separate and distinct personality from:a. the individuals composing the partnershipb. other partnerships and entities

Right of the Partners to Use a Firm Name1. General Rule the partners enjoy utmost freedom in the selection of the partnership name2. Limitations The partners cannot use a name that:a. Is misleading as when it is identical or deceptively confusingly similar to that of any existing partnerships or corporations nameb. Includes that of a deceased partner UNLESS that firm indicates in all its com

munications that the said partner is deceased (Rule 3.02 of the Code of Professional Responsibility)

Liability for Inclusion of Name in a Firm Name1. Persons who are not partners, who include their names in the firm name (partners by estoppel):a. Do NOT acquire the rights of a partnerb. Are subject to the liability of a partner insofar as 3rd persons without notice are concerned2. Art. 1815 does NOT cover the case of a:a. Limited partner who allows his name to be included in the firm nameb. Person continuing the business of a partnership after dissolution who uses the name of the dissolved partnership

ART 1816. All partners, including industrial ones, shall be liable pro rata withall 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 thepartnership, 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.

Requisites to Hold Partners Liable1. It must be a contractual obligation in the name of the partnership2. Partnership assets must have been exhausted

3. The contract was entered into:a. in the name of the partnershipb. for the account of the partnership


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c. signed by one who is authorized to sign for the partnership4. The partner entering the contract is authorized by the partnership

Liability for Contractual Obligations of Partnership1. Pro rata equally or jointly (based on the number of partners) and NOT proportionally (on their contribution)a) Partner has left the country or his liability condoned by creditor = cannot i

ncrease the liability of other partners2. Subsidiary or secondary because the partners become personally liable only after the partnership assets have been exhausted3. Even the IP is liable pro rata with the CPs but he can recover the amount fromthe CPs

NoteThe exemption of the IP to pay LOSSES relates exclusively to the settlement o

f the partnership affairs among the partners themselves and has nothing to do with the LIABILITIES of the partners to 3rd persons

ART 1817. Any stipulation against the liability laid down in the preceding artic

le shall be void, except as among the partners.

A stipulation among the partners contrary to the pro rata and subsidiaryliability is:1. VOID and of no effect insofar as it affects the rights of 3rd persons2. VALID and enforceable only as among the partners

ART 1818. Every partner is an agent of the partnership for the purpose of its business, and1. the act of every partner,a. including the execution in the partnership name of any instrument,b. for apparently carrying on in the usual way the business of the partnership of which he is a member

2. binds the partnership,3. unless:a. the partner so acting has in fact no authority to act for the partnership inthe particular matter, andb. 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.

Except when authorized by the other partners or unless they have abandoned the business, one or more but less than all the partners have no authority to(Acts of Dominion):1. Assign the partnership property in trust for creditors or on the assignee's promise to pay the debts of the partnership;2. Dispose of the good-will of the business;3. Do any other act which would make it impossible to carry on the ordinary business of a partnership;4. Confess a judgment;5. Enter into a compromise concerning a partnership claim or liability;6. Submit a partnership claim or liability to arbitration;7. Renounce a claim of the partnership.

No act of a partner in contravention of a restriction on authority shall

bind the partnership to persons having knowledge of the restriction.

Goodwill of the business:


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Reasonable expectation of its continued profitable operation

Liability of Partnership for Acts of Partners

1. Acts for Apparently Carrying on in the USUAL WAY the Business of the Partnership (Acts of ADMINISTRATION)a. Every partner is an agent and may execute such acts w/ binding effect on the

partnership:* even if he has in fact no authority* unless the 3rd person has knowledge of such lack or authorityb. In order that the partnership shall NOT be liable for a partners acts:* The partner so acting has NO authority* The 3rd person KNOWS that the partner has no authority

2. Acts of Strict DOMINION or OWNERSHIPa. For acts w/c are not apparently for carrying on the business of the partnership, the partnership is NOT bound, UNLESS* the partner is authorized by all the other partners; or* the other partners have abandoned the business

3. Acts in Contravention of a Restriction on Authoritya. If the partner commits these acts:* the partnership is NOT liable to a 3rd person who has ACTUAL or PRESUMPTIVE knowledge of the restrictions* w/n the acts are for apparently carrying on in the usual way the business of the partnership

When the Acts of a Partner BINDS the Partnership1. When he acts in the name of the partnership2. When he is authorizeda. Expressb. Implied when the act of the partner is carrying on in the usual way the busin

ess of the partnership and there is silence on the part of the other partners

When the Partnership is NOT Bound by the Partners Acts1. When the partner has no authority, express or implied, to act in a particularmatter2. When the 3rd person knows that the partner has NO authority to act on such matter EVEN if the act is for carrying out the usual business of the partnership

ART 1819. Where title to real property is in the partnership name,1. any partner may convey title to such property by a conveyance executed in thepartnership name;2. but the partnership may recover such property:a. unless the partner's act binds the partnership under Art. 1818[1], orb. unless such property has been conveyed by the grantee or a person claiming through such grantee to a holder for value without knowledge that the partner, inmaking the conveyance, has exceeded his authority.

Where title to real property is in the name of the partnership,1. a conveyance executed by a partner, in his own name,2. passes the equitable interest of the partnership,3. provided the act is one within the authority of the partner under Art. 1818[1].

Where title to real property is in the name of one or more but not all the partners, and

1. the record does not disclose the right of the partnership,2. the partners in whose name the title stands may convey title to such property,


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3. but the partnership may recover such property if the partners' act does not bind the partnership under Art. 1818[1],4. unless the purchaser or his assignee, is a holder for value, without knowledge.

Where the title to real property is in the name of one or more or all the partners, or in a third person in trust for the partnership,

1. a conveyance executed by a partner:a. in the partnership name, orb. in his own name,2. passes the equitable interest of the partnership,3. provided the act is one within the authority of the partner under Art. 1818[1].

Where the title to real property is in the name of all the partners a conveyance executed by all the partners passes all their rights in such property.

Equitable Interest:All interest which the partnership had, except title. That is, the benef

icial interests like use, fruits, but not the naked ownership

Effect of Conveyance of Real Property Belonging to Partnership (depending in whose name it is registered and in whose name it is conveyed)

1. Title in partnership name; Conveyance in partnership namea. A,B and C are partners in X partnership. A sold a parcel of land registered under X to D w/o express authorityb. Effect The conveyance passes to D, BUT* X CAN recover the property if::) the conveyance was not in the usual way of business, OR:) D had knowledge of the fact that A has no authority, even if the conveyance was made in the usual way of business

* X CANNOT recover if D had conveyed the property to E who had no knowledge of Aslack of actual authority in making the conveyance to D

2. Title in partnership name; Conveyance in partners namea. If the sale was executed by A in his own name to Db. Effect D does NOT become the owner of the land* He only gets the equitable interest of X* Assuming that the selling of the land is in the usual course of businessc. D would NOT be entitled even to the equitable interest* If the sale is NOT in the usual course of business, OR* D had knowledge of As lack of authority although the sale was made in the usualcourse of business

3. Title in the name of 1 or more partners; Conveyance in the name of the partners in whose name title standsa. Although the land really belongs to the partnership, it is registered in thename of A and the record does not disclose the right of Xb. If A sold the land in his own name to D, title is conveyed to Dc. Effect is the same as # 1

4. Title in the name or 1 or more or all partners or a 3rd person in trust for partnership; conveyance executed in partnership name or in name of partnera. The land is in the name of A in trust for X. A sells the land to D in the name of X or in As own nameb. Effect Only the equitable interest of X will pass to D as A is a mere trustee

of the partnershipc. Rule is the same as # 2


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5. Title in name of all partners; Conveyance in name of all partnersa. The land is registered in the name of A, B and Cb. Conveyance made by all partners to D will pass title to Dc. The effect would be the same although the sale is NOT is the usual course ofbusiness

NOTE:

? Recovery is possible in the first 4 instances. In the 5th instance, title passes? Conveyance includes the right to mortgage

ART 1820. An admission or representation made by any partner concerning partnership affairs within the scope of his authority in accordance with this Title is evidence against the partnership.

Effect of Admission by a Partner (Requisites)1. The admission must be on a matter concerning partnership affairs2. The admission made by the partner is w/in the scope of his authority3. The admission must be made during the existence of the partnership

ART 1821.1. Notice to any partner of any matter relating to partnership affairs, and2. the knowledge of the partner acting in the particular matter, acquired whilea partner or then present to his mind, and3. the knowledge of any other partner who reasonably could and should have communicated it to the acting partner,G operate as notice to or knowledge of the partnership, except in the case of fraud on the partnership, committed by or with the consent of that partner.

Notice to or Knowledge of a Partner, of a Matter Affecting Partnership Affairs1. Notice to, or knowledge of any partner of any matter relating to partnershipaffairs

a. operates as notice to or knowledge of the partnership and shall bind the partnershipb. except in cases of fraud on the partnership committed by or w/ the consent ofthat partner2. Therefore when a 3rd person delivers notice to a partner that is an effectivecommunication to the partnership

Cases of Knowledge Knowledge of:1. the partner acting in the particular matter acquired while a partner2. the partner acting in the particular matter then present to his mind3. any other partner who reasonably could and should have communicated it to theacting partner

ART 1822. Where,1. by any wrongful act or omission of any partner acting:a. in the ordinary course of the business of the partnership orb. with the authority of his co-partners,2. loss or injury is caused to any person, not being a partner in the partnership, or3. any penalty is incurred,G the partnership is liable therefor to the same extent as the partner so actingor omitting to act.

ART 1823. The partnership is bound to make good the loss:

1. Where one partner acting within the scope of his apparent authority receivesmoney or property of a third person and misapplies it; and2. Where the partnership in the course of its business receives money or propert


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y of a third person and the money or property so received is misapplied by any partner while it is in the custody of the partnership.

ART 1824. All partners are liable solidarily with the partnership for everythingchargeable to the partnership under Art. 1822 and 1823.

Requisites for Liability Arising from Partners Tort

1. The partner must be guilty of a wrongful act or omission2. The partner must be acting:a. in the ordinary course of business, orb. with the authority of his co-partners even if the act is unconnected with thebusiness

DistinctionsArt. 1816Art. 1822, 1823, 18241. Liability refers to partnership obligations

2. Liability is pro rata and subsidiary1. Liability of the partnership arising from wrongful acts or omissions of any partner2. Liability is solidary because of the rule of respondent superior

PARTNER OR PARTNERSHIP BY ESTOPPEL:ART 1825. When a person,1. by words spoken or written or by conduct,2. represents himself, or consents to another representing him to anyone,3. as a partner in an existing partnership or with one or more persons not actual partners,

G he is liable to any such persons to whom such representation has been made, who has,o on the faith of such representation given credit to the actual or apparent partnership,G and if he has made such representation or consented to its being made in a public manner

o he is liable to such person,o 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.

G When a person has been thus represented to be a partner in an existing partnership, or with one or more persons not actual partners,o 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,o with respect to persons who rely upon the representation.G When all the members of the existing partnership consent to the representation,o a partnership act or obligation results;G but in all other cases it is the joint act or obligation of theo person acting ando the persons consenting to the representation.

A Person NOT a Partner May Become a Partner by Estoppel When By Words or ConductHe:1. Directly represents himself to anyone as a partner in an existing partnership

or in a non-existing partnership (w/ one or more persons not actual partners)2. Indirectly represents himself by consenting to another representing him as apartner in an existing partnership or in a non-existing partnership


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Note1. The holding out as a partner may be done:a. by the person himself, orb. by his consent, orc. with his knowledge2. To hold the party liable as a partner in estoppel, the 3rd person must:

a. prove such misrepresentation, andb. bona fide reliance by him upon it caused injury3. Art. 1825 does NOT create a partnership as between the alleged partners, thelaw only considers them as partners only insofar as it is favorable to 3rd persons

Liability When There is Partnership By Estoppel1. Partnership Liability if all the actual partners consented to the representation2. Liability is Pro Rata or Joint -a) when there is no existing partnership and all those represented as partners consented to the representation; OR

b) not all of the partners of an existing partnership consented to the representation3. Liability Separate a) when there is no existing partnership and not all but only some of those represented as partners consented; orb) none of the partners in an existing partnership consented

ART 1826. A person admitted as a partner into an existing partnership is liablefor 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.

Liability of INCOMING PARTNER for Partnership Obligations1. Existing obligations of the partnershipa) limited to his share in partnership propertyb) unless there is a stipulation to the contrary2. Subsequent obligations of the partnershipa) extends to his separate property3. If the new partner assumed the obligations of a retiring partnera) he is directly liable to the old partnership creditors

ART 1827. The creditors of the partnership shall be preferred to those of each partner as regards the partnership property. Without prejudice to this right, theprivate creditors of each partner may ask the attachment and public sale of theshare of the latter in the partnership assets.

Preference of Creditors in Partnership Property1. Partnership creditors2. Private creditors of the partners remedy is to apply for a charging order

CHAPTER 3Dissolution and Winding Up

ART 1828. The dissolution of a partnership is the change in the relation of thepartners caused by any partner ceasing to be associated in the carrying on as distinguished from the winding up of the business.

Definition of 1828 is not comprehensive enough since it only contemplates an instance when one ceases to be a partner. Under 1840, partnership is dissolved whena new partner is admitted


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Changes in Membership Which May Result in Dissolution1. Retirement2. Death3. Admission of new members

3 Stages

1. Dissolution that point in time when the partners cease to carry on the business together; represents the demise of a partnership2. Winding up the process of settling the business or partnership affairs afterdissolution3. Termination that point when all partnership affairs are wound up or completed; the end of the partnership life

ART 1829. On dissolution the partnership is not terminated, but continues untilthe winding up of partnership affairs is completed.

Dissolution1. Does not automatically result in the termination of the legal personality of

the partnership2. The partnership continues for a limited purpose of:a. making good all outstanding engagementsb. liquidation and distribution of partners interest

Causes of Dissolution:ART 1830. Extra-Judicial Dissolution

Dissolution is caused:1. Without violation of the agreement between the partners:a. By the termination of:* the definite term or* particular undertaking specified in the agreement;b. By the express will of any partner,

* who must act in good faith,* when no definite term or particular undertaking is specified;c. By the express will of ALL the partners* who have not assigned their interests or* suffered them to be charged for their separate debts,* either before or after the termination of any specified term or particular undertaking;d. By the expulsion of any partner from the business* bona fide* in accordance with such a power conferred by the agreement between the partners;

2. In contravention of the agreement between the partners,* where the circumstances do not permit a dissolution under any other provisionof this article,* by the express will of any partner at any time (withdrawal);

3. By any event which makes it unlawful for the business of the partnership to be carried on or for the members to carry it on in partnership;

4. When a specific thinga. which a partner had promised to contribute to the partnership, perishes before the delivery;b. in any case by the loss of the thing, when the partner who contributed it* having reserved the ownership thereof,

* has only transferred to the partnership the use or enjoyment of the same;c. but the partnership shall not be dissolved by the loss of the thing when it occurs after the partnership has acquired the ownership thereof;


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5. By the death of any partner;6. By the insolvency of any partner or of the partnership;7. By the civil interdiction of any partner;8. By decree of court under the following article.

Under Art. 1830, Extra-judicial dissolution:

May be caused:1) w/o violation of the agreement between the partners (#1)a) Expiration of term or undertakingb) In partnership at will, by express will of any partnerc) Express will or mutual assent of all partnersd) Expulsion of a partner pursuant to agreement2) in contravention of said agreement (#2)

It may be:1) voluntary when caused by the will of one or more or all of the partners (# 1&2)

2) involuntary when brought about independently of the will of the partners or by operation of law (#3,4,5,6,7 and 8)a) Supervening illegalityb) Loss of specific thing contributedc) Death of a partner (w/out exception, regardless of agreement)d) Insolvencye) Civil interdiction of a partner

Goquiolay v. Sycip (12/10/1963)F: partners agreed that in case of death, partnership shall continue with the deceased partner represented by his heirs. One of the partners died. Is his widowgeneral or limited partner?H: Widow is also general partner

Lichauco v. Lichauco (33 P 350)Partnership can still be dissolved even if the partners had agreed that

dissolution can only be had with the consent of 2/3 of the partners.

NOTE:Under Art 1830, dissolution is automatic while under 1831, it is not the

re must be application by the partner

Insolvency here need not be judicially declared. In case of insanity1. judicial declaration is necessary; or2. insanity must be duly proved

Other causes of automatic dissolution: (1840)1. new partner is admitted or2. when a partner retires, withdraws, or is expelled from the partnership

Dissolution by Judicial DecreeART 1831. On application by or for a partner the court shall decree a dissolution whenever:1. A partner:a. has been declared insane in any judicial proceeding orb. is shown to be of unsound mind;2. A partner becomes in any other way incapable of performing his part of the partnership contract;

3. A partner has been guilty of such conduct as tends to affect prejudicially the carrying on of the business;4. A partner


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a. willfully or persistently commits a breach of the partnership agreement, orb. otherwise so conducts himself in matters relating to the partnership businessthat it is not reasonably practicable to carry on the business in partnership with him;5. The busi

00 Partnership Dana

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