Obligations Rights1786 To give his contribution 1810 Property Rights1788 Where a party becomes a debtor for interest 1. rights in specific partnership property

2. interest in the partnership (share in the profits and surplus)3. right to participate in the management (except limited partner)

1788 Not to convert firm money or property for his own use

1804 Right to associate with another person in his share

1792 Duty to credit to the firm, payment made by a debtor who owes him and the firm

1805 Right to inspect and copy partnership books

1804 Pay for damages caused by his fault 11809

Right to demand a formal account

1807 To account for and hold as trustee, unauthorized personal profits

1830-31 Right to ask for the dissolution of the firm at the proper time

1808 Not engage in unfair competition with his own firm (capitalist partners)

1794 To share with the other partners the share of the partnership credit which he has received from an insolvent firm debtor

1784

Different Relationships:

1. Relations between A and B2. Relations between A and B and partnership3. Relations between A and B and third persons4. Relations between the partnership and third persons

When partnership begins

1. Generally—From the moment of the execution of the contract.

2. Exception—When there is a contrary stipulation

There can be future be a future partnership which has no juridical existence yet. Intent to create a future partnership—the agreement for a future partnership does not of itself result in a partnership. The intent must later on be actualized by the formation of the intended partnership.

Rule if contributions have not been actually made—the firm already exists, for partnership is a consensual contract (all formalities must be present)

1785—Duration of Partnership

Unlimited as to duration (no time limit fixed by law) Duration may be agreed upon—expressly (definite

period) or impliedly (when a particular enterprise is undertaken, the firm ends as soon as its purpose ends)

Partnership at will (Kinds)

1. No term, express or implied2. When it is continued by the habitual managers,

although the period has ended, or the purpose has been accomplished ( This is a prima facie evidence of firm’s continuation)

“at will” because its continued existence really depends upon the will of the partners or even on the will of any of them

1786—GENERAL DUTIES: Duties of every partner

1. Duty to contribute what had been promiseda. Must be made ordinarily at the time the

partnership is entered into, unless a different period is stipulated.

b. No demand needed to put partner in default because in partnership, the obligation to contribute is one where time is of the essence

c. Must exercise due diligence in preserving the property to be contributed before actual contribution otherwise he can be liable for loss and deterioration.

d. A partner who promises to contribute becomes a promissory debtor.

2. Duty to deliver the fruits of what should have been delivered

a. If property has been promised, the fruits (from the time they should have been delivered) should also be given. No demand needed.

b. If money is promised, interest and damages from the time he should have complied with his obligation should be given. No demand needed.

c. In both, the partner still owns the same before delivery.

3. Duty to warranta. Refers to “specific and determinate things”

already contributed.i. A thing is determinate or

specific when it is distinct from all others of the same class. (1460)

b. 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 whole or a part of the thing purchased.

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c. If a partner fails to contribute, the remedy is not rescission but collection as well as damages. Law on obligation does not generally apply in partnership.

1787—When contribution consists of goods

Appraisal of value is needed to determine how much has been contributed

How made?

1. As prescribed by the contract2. In default of first, by experts chosen by partners and

at current prices.

Inventory—proof how much goods or money had been contributed.

Risk of loss—after goods have been contributed, the partnership bears the risk of subsequent changes in the value

1788—OBLIGATION/DUTY: Rules of Failure to Contribute and for conversion

Scope:

1. When money promised is not given on time2. When partnership money is converted to the

personal use of the partner (conversion)

Coverage of Liability:

1. Interest at agreed rate or at legal rate of 6% per annum

2. Damages suffered by partnership

why no demand is needed to put partner in default

1. In case of contribution, because contribution is needed to form or start the partnership. The injury is constant.

2. In case of conversion, because the firm is deprived of the benefits of the money. Even if there is no injury, the liability exists.

1789—Prohibition on industrial partner

Classification of Partners

As to contribution

1. Capitalist—one who furnishes capital; not exempted from losses; he CAN engage in other business provided there is no competition between the partner and his business (1808)

2. Industrial—one who furnishes industry or labor; exempted from losses; he CANNOT engage in any other business without the express consent of the partners, otherwise

He can be excluded from the firm, plus damages OR

The benefits he obtains from other businesses can be availed of by other persons

*even if there is no competition, it applies because his industry is supposed to be given only to the partnership

3. Capitalist—industrial partner—one who contributes both capital and industry.

As to liability:

1. General—one who is liable beyond the extent of his contribution

2. Limited—one who is liable only to the extent of his contribution (an industrial partner can only be a general partner)

As to management:

1. Managing—one who manages actively the firm’s affairs

2. Silent—one who does not participate in the management (though he shares in the profits or losses)

3. Liquidating partner—one who liquidates or winds up the affairs of the firm after it has been dissolved

4. Ostensible—one whose connection with the firm is public and open (that is, not hidden). Usually his name is included in the firm.

Miscellaneous

1. Secret—one whose connection with the firm is concealed or kept a secret.

2. Dormant—one who is both a secret and silent (not managing) partner

3. Nominal—one who is not really a partner but who may become liable as such insofar as third persons are concerned.

Capitalist IndustrialAs to contribution

Contributes money or property

Contributes his industry (mental or physical)

As to prohibition to engage in other business

Cannot generally engage in the same or similar enterprise as that of his firm (the test is the possibility of unfair competition)

Cannot engage in any business for himself (Reason: all his industry is supposed to be contributed to the firm)

As to profits Shares in the profits according to agreement, in none, pro rata to contribution

Receives a just and equitable share

As to losses First, the stipulation as to lossesIf none, the agreement as to profitsIf none, pro rata to contribution

Exempted as to losses between the partners. But is liable to strangers, without prejudice to reimbursement from the capitalist partners

1790—Amount of ContributionPage 2 of 6

1. It is permissible to contribute unequal shares, if there is a stipulation to this effect.

2. In the absence of proof, the shares are presumed equal.

Applicability: capitalist partners, industrial partner whose worth is more than the entire capital contributed

1791—When capitalist partner is obliged to sell his interest to the other partners

1. If there is imminent loss of the business of the partnership;

2. And he refuses (deliberately and not because of poverty) to contribute and additional share to the capital

3. And provided further that there is no agreement to the contrary

Reason: because of his apparent lack of interest, and granting that he sincerely believes that efforts to save the firm would be futile, the capitalist partner referred to should get out of the firm

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

1792—Rule if Manaing Partner Collects Credit

1. The existence of at least 2 debts (one where the firm is the creditor and the other, where the partner is the creditor)

2. Both sums are demandable.3. The collecting partner is a managing partner.

*Subject to application of payment in 1262, but only if the personal credit is more onerous to the debtor.

*Does not apply if the partner collecting is a managing partner.

Reason: to prevent furtherance of the partner’s personal interest to the detriment of the firm

1793—Where a partner receives his share of a partnership credit

1792—two debts, applies only to managing partner 1793—one debt only (firm credit), applies to any

partner

1793 does not apply if the collection is done after the dissolution of the partnership.

1794—Why general damages cannot be offset by benefits

the partner has the duty to secure benefits for the partnership; on the other hand, he has the duty also not to be at fault

Since both are duties, compensation should not take place, the partner being the debtor in both instances. Compensation requires 2 persons who are reciprocally debtors and creditors of each other.

Mitigation of liability: extraordinary efforts, unusual profits

Need for liquidation: before a partner sues for alleged fraudulent management and damages, a liquidation must first be effected to know the extent of the damage.

Effect of Death of the negligent partner: suit may be had against the estate

1795—Risk of Loss

1. Specific and determinate things—whose usufruct is enjoyed by a firml partner who owns it bears loss for ownership was never transferred to the firm

2. Fungible or Deteriorable—Firm bears the loss for evidently, ownership was being transferred, otherwise use is impossible

3. Things contributed to be Sold—firm bears the loss for firm was intended to be the owner, otherwise a sale could not be made

4. Contributed under Appraisal—firm bears loss because this has the effect of an implied sale.

1796—Responsibility of the firm

To refund amounts disbursed on behalf of the firm plus interest from the time expenses were made and NOT from demand. (Rule on agency) *does not refer to original capital

To answer to each partner for obligations, he may have entered into in good faith and in the interest of the partnership, as well as for risks in consequence of management

1797—How profits are distributed

1. Agreement2. If none, according to amount of contribution

How losses are distributed

1. Agreement as to losses2. If none, according to agreement as to profits3. If none, according to amount of contribution

Industrial partner’s

1. Profits—just and equitable share (under the old law, it is the share equivalent to that of the capitalist partner with the least capital)

2. Losses—exempted from losses. But he may be liable to third persons without prejudice to recovery from the capitalist partners

1798—designation by third person of shares in profits and losses

Ratio: to avoid partiality

When designation by 3rd party may be impugned—“when it is manifestly inequitable”

When cannot be impugned even if manifestly inequitable:

1. If the aggrieved partner has already begun to execute the decision

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2. Or if he has not impugned the same within a period of three months from the time he had knowledge thereof (not from time of making)

1799—Stipulation excluding a partner from profits or losses

GR: void, because partnership is for common benefit

Exception: industrial partner where the law itself excludes him from losses

Ratio: While capitalist partners can withdraw their capital, the industrial partner cannot withdraw any labor or industry he already exerted. In a sense, he already has shared in the losses, if the partnership shows no profit, this means that he has labored in vain.

1800—appointment of manager

Appointment in articles of partnership

1. Power is irrevocable without just or lawful cause

a. To remove him for just cause, and the controlling partners should vote to oust him

b. To remove him without cause or for unjust cause, there must by unanimity (including his own vote)

i. This represents change in the will of parties, a change in the terms of contract

2. Extent of powera. If he acts in good faith, he may do all acts

of administration despite opposition by partners

b. If he acts in bad faith, he CANNOT.

Appointment other than in the Articles of Partnership

1. Power to act may be revoked at any time, with or without just cause.

a. Such appointment is a mere delegation of power, revocable at any time. It should be done by controlling interest provided done not to abuse the right.

2. Extent of Power: as long as he remains manager, he can perform all acts of administration, if others oppose and he persists, he can be removed.

Scope of Powers of Manager—powers of a general agent as well as incidental powers needed to carry out the objectives of the partnership

1801—Rule when there are two or more managers

1. Two or more managers2. There is NO specification of respective duties3. There is NO stipulation requiring unanimity

Specific Rules

Each may separately execute all acts of administration

Except if any managers should oppose. The decision of majority of the managers shall prevail.

If there is a tie, the partners owning the controlling interest prevail.

The right to oppose is not given to non-managers because in appointing their managers, they have stripped their right to participate in the administration.

When can other managers oppose? Before the acts produce legal effects insofar as third persons are concerned.

1802—When unanimity is required

Duty of third persons: they are not obliged to inquire into the propriety of the act of a manager, for the presumption is that he acts with due authority and can bind the partnership.

1803—When Manager has not been agreed upon

If there is opposition, majority shall prevail (presumption in this case is that all the partners can manage)

GR: partner acts in his own name, he cannot bind the firm.

Exp: Act may be ratified if the proceeds redound to the benefit of the firm

The rule does NOT apply if somebody else had been given authority to manage in the articles of organization or thru some other means.

Alterations require unanimity. (Others—admitting new partners, substantial change in the business,transactions with third persons)

Rule on Alterations

1. “important alterations in immovable property”—because they are more important than personalty and they should be returned in the same condition to the contributing partner in proper cases

2. Alterations—contemplates useful expenses not necessary ones

a. Useful expenses-- which increases the value or augments the income of the property, as contrasted to a

b. necessary expense which is incurred for the preservation of the thing.]

3. Consent to alterations may be express or implied (knowledge with no objection)

1804—Associate of Partner

1. For a partner to have an associate in his share, consent of other partners is NOT required.

2. For the associate to become a partner, ALL must consent.

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a. Reason: (1) mutual trust is the basis of partnership; (2) change in the membership is a modification or novation of contract

1805—Right to inspect Partnership Books

1. Right granted to obtain true and full information of the partnership affairs.

2. “Reasonable hour”—business days throughout the year and not merely some capricious or arbitrary period selected by managers (Supreme Court)

3. Value of Partnership Books as evidence: They constitute admission of facts stated therein and can be used as against the maker or keeper, unless fraud or mistake is proven as defense.

1806—Duty of Partners to give information

Reason: There must be no concealment between partners in all matters affecting the firm’s interest

Who can demand information?

1. Any partner2. Legal representative of a dead partner3. Legal representative of any partner under legal

disability

1807—Duty to Account

Reason: The fiduciary relations between partners must not be abused.

“Hold as trustee for the partnership”—means that the partnership can claim as own any property or money from transactions using partnership funds, even without the knowledge and consent of other partners.

1808—Business prohibition on capitalist partners

When there is no prohibition:

1. When it is expressly stipulated that the capitalist partner can engage.

2. When the other partners expressly allow him to do so.

3. When the other partners impliedly allow him to do so.

4. When the company ceases to be engaged in business.

5. When the general-capitalist partner becomes merely a limited partner in a competitive enterprise, (no management right)

Effect of Violation

1. Shall bring to the partnership all the profits illegally obtained

2. Personally bear all the losses3. Violator can be ousted from the firm on ground of

loss of trust and confidence.

1809—Right to Demand Formal Account

1. GR: No formal accounting is demandable till after dissolution.

2. he may have access to the books3. There is no express stipulation4. It is unfair if other partners can take undue

advantage funds or partnership transactions5. When one partner has been travelling for a long

period of time on a business involving the firm

Estoppel—an accounting made cannot be questioned anymore if it was accepted without objection for this would now be a case of estoppels.

1810—Property Rights of a Partner

“interest in the partnership”—the partner’s shares of the profits and losses

Right to participate in the management—property right

1811—Co-ownership in Specific Partnership Property

Rights of a Partner in Specific Partnership Property

1. has an equal right with his partners to possess but only for partnership purposes (not for other purposes)

2. he cannot assign his right except if all the other partners assign their rights in the same property; violation of this rule renders the assignment is void.

3. His right is not subject to attachment or execution (except on a claim against the partnership)

4. His right is not subject to legal support

1812—Partner’s Interest in the Partnership

A partner’s interest in the partnership (his share in the profits and surplus) can in general be assigned, be attached and be subject to legal support.

Transferee cannot interfere or participate in the management or administration but he can receive the net profits to which the partner would have been entitled.

1813—Effects of Conveyance By Partner of His interest in the Partnership

1. If a partner conveys (assigns, sells, donates) his whole interest, either two things may happen

a. The partnership may still remainb. The partnership may be dissolved

2. The assignee does not necessarily become a partner. The assignor is still the partner, with a right to demand accounting and settlement.

3. The assignee cannot even interfere in the management or administration.

4. The assignee cannot demand: information, accounting and inspection of partnership books.

Rights of Assignee

1. To get whatever profits the assignor-partner would have obtained

2. To avail himself of the usual remedies in case of fraud in the management

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3. To ask for annulment of the contract of assignment if he was induced to enter into thru any vices of consent or he himself was incapacitated to give consent.

4. To demand accounting

1814—Charging of Interst of a partner

GR: While a partner’s interest in the partnership may be charged or levied upon, his interest in a specific firm property cannot as a rule be attached.

Preferential Rights of Partnership Creditors: Partnership creditors are entitled to priority over partnership assets, that is, the separate creditors will get only after the firm creditors have been satisfied.

Separate or individual creditors have preference in separate or individual properties.

Redemption of interest charged:

Redemption—means the extinguishment of the charge or attachment on the partner’s interest in the profits.

How made?o The “charge” may be redeemed or bought

at anytime BEFORE foreclosure.o AFTER foreclosure, it may still be bought

with separate property or with partnership property

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