A REVIEWLaw on Partnerships

What is a Partnership?Partnership is a contract whereby two or more persons bind themselves to contribute money, property or industry to a common fund, with the intention of dividing the profits among themselves. (Art. 1767.) Two or more persons may also form a partnership for the exercise of a profession. (Ibid.)

CharacteristicsPartnership is a consensual, nominate, bilateral, onerous, commutative, principal, and preparatory contract. (see III. - Contracts.) Strictly speaking, the practice of a profession is not a business or an enterprise.

However, the law allows the pursuit thereof by two or more persons. Such a partnership is called "general professional partnership.

Nature of PartnershipPartnership is fiduciary in nature, meaning that the partners must have and confidence in each other.

Personae delectae Partnership is based on the fiduciary relation ship among the partners, a person has right to select other persons whom he has trust and confidence to become his partners.

A partnership is a juridical personAs an association of persons, a partnership duly formed under the law has a juridical personality separate and district form that of each of the partners. Thus, in the partnership X & Co., in which A and B are the partners, there are three (3) district persons namely: (1) X & Co., (2) A, and (3) B. As a consequence of its distinct legal personality, a partnership may acquire the possess property, incur obligations, and bring civil or criminal actions in its own name. (Art. 46.)Note: There is no prohibition against a partnership being a partner in another partnership.

Essential Features of a Partnership1. There must be a valid contract;2. The parties must have legal capacity to enter into the contract;3. There must be a mutual contribution to a common fund of money (i.e., currency which is legal tender in the Philippines), property (which may be real or personal, tangible or intangible such as credit, share of stock), or industry (which may be personal manual efforts or intellectual;4. The Object must be lawful (Art. 1770.); and5. The purpose or primary purpose must be to obtain profits and to divide the same or among the partners. (Art. 1767, 1770.)

(1)The definition of partnership under Article 1767 refers to "profits" only and is silent as to "losses." The reason is that the object of a partnership is primarily the sharing of profits, while the distribution of losses is but a "consequence of the same." (Espiritu & Sibal, Phil. Law on Partnership [1937.] p.2, citing 11 Manresa 263.)(2) It is required that the article of partnership must not be secret among its members. (Art. 1775.)

Effects if articles are kept secret under Article 1775:The association here is certainly not a partnership and therefore not a legal person because anyone of the members may contract in his own name with third persons and name in the name of the firm.Although, not a juridical entity, it may be sued by third persons under the common name, it uses, otherwise said innocent third parties may be prejudiced.

However, it cannot sue as such, because it has no legal personality, and therefore, cannot ordinarily be a party to a civil action. Moreover the fact that it has no legal personality as a partnership cannot be invoked by the partners for the purpose of evading compliance with obligations contracted by them because they who caused the nullity of a contract are prohibited from availing of its benefits.Therefore, insofar as innocent third parties are concerned, the partners can be considered as members of a partnership; but as between themselves, or insofar as 3rd persons are prejudiced, only the rules on ownership must apply. The same rule applies in the case of partnership by estoppel.

Advantages of Partnership as a Business Organization1. It is easy and inexpensive to organize as it is formed by a simple contract between two or more persons;2. The unlimited liability of the partners makes it reliable from the point of view of the creditor;3. The combined personal credit of the partners offers better opportunity for obtaining additional capital than does the sole proprietorship;

4.The participation in the business by more than one person makes possible a closer supervision of all its activities;5. The direct gain to the partners is an incentive to close attention to the business;6. The personal element in the characters of the partners is retained; and7. It is generally free from government control.

Disadvantages as an Business Organization1. The personal liability for firm debts deters many from investing capital in it;2. A partner may be subject to personal liability for the wrongful acts or omissions of his associates;3. It also lacks stability due to the ease by which it may be dissolved;4. There is divided authority; and5. There is constant likelihood of dissension and disagreement when each of the partners has the same authority in the ,management of the concern.

Rules in determining whether partnership existTest of determining whether partnership exists depends upon the contract itself, express or implied and the intention to create partnership and in addition:The existence of the common fundJoint interest in the profitsMutual benefit or advantage of partners

HENCE, persons who are not partners as to each other are not partners as to third persons.However, when a person represents himself, or consents to another representing to anyone, as a partner in an existing partnership or with one or more persons not actually partners, he is liable to any such persons to who such representation has been made, who has, on the faith of such representation , given credit to the actual or apparent partnership. (Art. 1825)

Legal effect of the receipt by a person of a share of the profits of a business Such receipt is prima facie evidence that he is a partner in the business. No such inference, however, shall be drawn if such profits were received in payment:As a debt by installments or otherwise;

As wages of an employee or rent to a landlord;

As annuity to a window or representative of a deceased partner;

Legal effect of the receipt by a person of a share of the profits of a business As interest on a loan though the amount of payment may vary with the profits of the business; andAs the consideration for the sale of goodwill of a business or other property by installment or otherwise. (Art. 1769.)

In all the above cases, the profits in the business are not shared as profits of a partner but in some other respects.

Co-ownership versus PartnershipThere is co-ownership whenever the ownership of an undivided thing or right belongs to different persons. (Art. 484.) Although every partnership is founded on a community of interest, every community of interest does not necessarily constitute a partnership (e.g., The heirs who inherited an apartment which is leased to third persons are not partners but merely co-owners although they share in the profits from the lease of the property).

Associations and societies, whose articles are kept secret among the members, and 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. (1669)

Does sharing of gross returns by persons who have a joint or common interest in the property from which the returns are derived of itself establish a partnership?

No, since in a partnership, the partners share profits after satisfying all of the partnership's liabilities. (Arts. 1769, 1812, 1839.)

Effects of unlawful partnership(1) The contract is void ab initio and the partnership never existed in the eyes of the law (Art. 1409.);(2) The profits shall be confiscated in favor of the government; and(3) The instrument of tools and proceeds of the crime shall be forfeited in favor of the government. (Art. 1770.)

Formalities required for the creation of a partnershipAs a general rule, a partnership may be constituted in any form (Art. 1771.) except in the following cases:Where personal property is contributed and the capital is P 3, 000 or more. The contract must appear in a public instrument; andIt must be registered with the Securities and Exchange Commission. (Art. 1772.)

Formalities required for the creation of a partnershipNote: However, failure to comply with the above requirements does not prevent the establishment of the partnership as a distinct personality (Art. 1768.) or affect its liability and that of the partners to third persons (Art. 1772.) because they are merely for administrative and licensing purposes.

Formalities required for the creation of a partnershipWhere immovable property or real rights thereto are contributed, regardless of value. The contract must appear in a public instrument (Art. 1771.); andAn inventory of the property, signed by the partners, must be attached to the public instrument (Art. 1773.)

Formalities required for the creation of a partnershipNote: If the above requirements are not observed the contract of partnership is void. (Ibid.) They do not apply where the immovable property is acquired (not contributed by the partners) by the partnership. (Agad vs. Mabato. L-24173, June 28, 1968.)

Formalities required for the creation of a partnershipIn case of limited partnership. The partners must sign and swear to a certificate or articles of limited partnership which states the matters prescribed by law; and(b) They must file such certificate with the Securities and Exchange Commission. (Art. 1844.)Note: If there is no substantial compliance with the above legal requirements, the partnership becomes a general partnership.

When contribution consists of goods:(Art. 1787)Appraisal of value is needed to determine how much has been contributed.How appraisal is made:Firstly, as prescribed by the contract.Secondly, in default of the first, by experts chosen by the partners and at current prices.After goods are contributed to the partnership, the latter bears the risks.

Classification of Partnerships According to manner of creationorally constitutedconstituted in a private instrumentconstituted in public instrumentregistered in the Office of the Securities and Exchange Commission

Classes of PartnershipsAs to its object:Universal PartnershipParticular Partnership A) Universal partnership of all present property. - one in which the partners contribute all the properties which actually belong to each of them at the time of the constitution of the partnership to a common fund, with the intention of dividing the same among themselves as well as the profits which they may acquire therewith (Art. 1778.); and

B) Universal partnership of all profits. - one which comprises all that the partners may acquire by their industry or work during the existence of the partnership and the usufruct of movable or immovable property which each of the partners may possess at the time of the celebration of the contract. (Art. 1780.)

Articles of universal partnership entered into without specification of its nature only constitute a universal partnership of profits (Art. 1781.)

ALL PROFITSALL PRESENT PROPERTYOnly the usufruct of the properties of the partners becomes COMMON PROPERTY (owned by them and the partnership); NAKED OWNERSHIP is retained by each of the partners.All PROFITS acquired by the INDUSTRY or WORK of the partners become COMMON PROPERTY (regardless of whether or not said profits were obtained through the usufruct contributed.All the property actually belonging to the partners are contributed and said properties become common property (owned by all partners and by the partnership).As a rule, aside from the contributed properties only the PROFITS of said contributed COMMON PROPERTY (not other profits)NOTE: Profits from other sources may become COMMON, but only if there is a stipulation to such effect. Properties subsequently acquired by inheritance, legacy or donation, cannot be included in the stipulation BUT the fruits thereof can be included in the stipulation.)

Note: Persons who are prohibited from giving each other any donation or advantage cannot enter into universal partnership of profits. (Art. 1782.)

Classes of PartnershipsParticular partnership. - one which has for its object determinate things, their use or fruits, or a specific undertaking, e.g., acquisition of a real property for the purpose of reselling it at a profit, or practice of a profession or vocation. (Art. 1783.) So, the carrying on a business of a continuing nature is not essential to constitute a partnership.

Classes of PartnershipsAs to liability of the partners: (a) General partnership. - one consisting of general partners who are liable pro rata and subsidiary (Art. 1816.) and sometimes solidarily (Arts. 1822-1824.) with their separate property for partnership debts; or (b) Limited partnership. - one formed by two or more persons having as members one or more general partners and one or more limited partners, who as such are not bound by the obligation of the partnership. (Art. 1843.)

Classes of PartnershipsAs to duration: (a)Partnership at will. - one which no time is specified and is not formed for a particular undertaking or venture and which may be terminated any time by mutual agreement of the partners or by the will of one alone (40 Am. Jur. 139.); or (b) Partnership with a fixed term. - one in which the term of period for which the partner is to exist is agreed upon or one formed for a particular undertaking, and upon the expiration of that term or completion of the particular enterprise, the partnership is dissolved, unless continued by the partners. (Art. 1785.)

Classes of PartnershipsAs to representation to others:

(a) Ordinary partnership. - one which actually exists among the partners and also as to third persons; or (b) Partnership by estoppel. - one which in reality is not a partnership, but is considered a partnership only in relation to those who, by their conduct or admission, are precluded to deny or disprove its existence. (Art. 1825.)

Partnership by EstoppelIt is created in two ways:When a 3rd person represents himself to another person as a partner in an existing partnership and the true partners did not object to his representation, then a Partnership by Estoppel is created among themselves.2. The other way is when the true partners of an existing partnership represent a third person did not object to their representation, then a partnership by estoppel is created among themselves.

Classes of Partnerships As to legality of its existence: (a) De jure partnership. - one which has complied with all the requirements for its establishment (see Arts. 1772, par. 2; 1773.); or (b) De facto partnership. - one which has failed to comply with all the legal requirements for its establishment. (Ibid.)As to publicity: (a) Secret partnerships. - one wherein the existence of certain persons as partners are not made known to the public by any of the partners; or (b) Open or notorious. - one whose existence is made known to the public by the members of the firm.

Classes of partnersAs to contributions:(a) Capital partner. - one who contributes capital. I.e., money or property, to the common fund (Art. 1767.); or(b) Industrial partner. - one who contributes industry or labor. (Art. 1789, 1767.)As to LiabilityGeneral Partner one whose liability to third person extends to his separate property. He may be either a capitalist or industrial partner or bothLimited Partner one whose liability is limited to his capital contribution. Also known as a special partner. He does not participate in the management of the partnership.

Classes of partnersAs to management (a) Liquidation partner. - one who takes charge of the winding up of partnership affairs upon dissolution (Art. 1836.) (b) Nominal partner or partner by estoppel. - one who is not really a partner, not being a party to the partnership agreement, but is made liable as a partner for the protection of innocent third persons (Art. 1825.); (c) Real partner. - one who is actually connected with the business as a partner (Art. 1767.)

Classes of partners(d) Ostensible partner. - one who is actually connected with the business as a partner in the business (Art. 1834, par. 2.); (e) Dormant partner. - one who does not take active part in the business and is not known to the public as a partner; he is both a silent and secret partner (Ibid.); and (f) Subpartner. - one who contracts with a partner with reference to the latter's share in the partnership. (Art. 1804) He is not really a partner.

Obligations of the partners among themselvesThere are at least four distinct juridical relations, namely:Relations among partners themselves;Relations of the partners with the partnership;Relations of the partnership with third persons with third persons with whom it contracts; andRelations of the partners with such third persons.

Obligations of the partners among themselvesWhen does a partnership begin?Since partnership is a consensual contract, it begins from the moment of the execution of the contract. The partners, however, may stipulate some other date for the commencement of the partnership (Art. 1784). Hence, there can be a future partnership, which at the moment has no juridical existence yet.

Obligations of the partners among themselvesObligations of the partner among themselves and to the partnership with respect to contribution of money or property:To contribute at the beginning of the partnership or at the stipulated time the money, property which he promised to contribute;It is permissible to contribute unequal shares, if there is a stipulation to this effect. In the absence of proof, the shares are presumed EQUAL.

Obligations of the partners among themselvesTo answer for eviction (as a vendor) in case the partnership is deprived of the determinate property contributed;To answer to the partnership for the fruits of the property the contribution of which he delayed, from the date they should have been contributed up to the time of actual delivery without the need of any demand (Art. 1786);

Obligations of the partners among themselvesObligations of the partner among themselves and to the partnership with respect to contribution of money or property:To preserve said property with the diligence of a good father of a family pending a delivery to the partnership (Art. 1163);To indemnify the partnership for nay damage (and also the legal interest of the promised contribution in money) caused to it by retention of the same or by the delay in its contribution (Arts. 1788, 1170)

Obligations of the partners among themselvesObligations of an Industrial Partner:To contribute at the beginning of the partnership or at the stipulated time the industry which he promised to contribute (Art. 1786);Not to engage in any other business for himself (prohibition is absolute) unless the partnership expressly permits him to do so; otherwise-The capitalist partners may exclude him from the firm; or they may avail themselves of the benefits which the industrial partner may have obtained from other businesses, with a right to damages in either case. (Art. 1789)Reason for the prohibition: The industrial partner is a debtor of the partnership for his work or services. He must therefore devote his full time to the interest of the partnership.

Obligations of the partners among themselvesRule on capitalist partner investment in other business:As a rule, he cannot engage for his own account, in any operation, which is of the same kind of business in which the partnership is engaged otherwise -He shall be liable to the partnership for any profits he obtained from his transactions; andHe shall personally bear all his losses (Art. 1808)Reason for the prohibition: The capitalist partner is likely to prejudice the partnership by the competition he will offer.Exceptions are (a) when the business is not the same or similar to that engaged in by the partnership; or (b) although it is of the same kind, if there is a stipulation to the contrary.

Obligations of the partners among themselvesRules in case managing partner collects a demandable debt from a person who also owes the partnership a demandable debt:The sum collected shall be applied to the two credits in proportion to their amounts;It shall be fully applied to the partnership credit, if the receipt given is for the account of the same; andThe debtor however has the right to have the payment applied to his debt to the partner if it should be more onerous to him. (Arts. 1792, 1252)Reason: To prevent the furtherance of a managing partner's interest to the prejudice of the firm. Note that the law speaks only of a managing partner.

Obligations of the partners among themselvesA partner who has received, in whole or in part, his share of a partnership credit, when the other partners have not collected theirs, shall be obliged, if the debtor should thereafter become insolvent, to bring to the partnership capital what he received even though he may have given receipt for his share only. (Art. 1793)Example X owes a firm P 1,000. P, a partner was given his share of P 500, there being only two partners. Later X becomes insolvent. P must share the P 500 with the other partner even if P had given a receipt for his share.This applies whether the partner has received HIS SHARE wholly or in part.

Obligations of the partners among themselvesObligations of a Partner:Money converted to personal use. - To pay to the partnership interest and damages for any sum of money which he may have taken from the partnership coffers; said liability to begin from the time of conversion (not demand) of the amount to his own use (Art. 1788)Additional share to capital. - To contribute an additional share to the capital in case of imminent loss of the business of the partnership to save the venture; otherwise, he (Except an industrial partner because having contributed his entire industry there is nothing more he can do) shall be obliged to sell his interest to the other partners. (Art. 1791) Reason for the sanction: The refusing partner reflects his lack of interest in the continuance of the partnership;

Obligations of the partners among themselvesObligations of a Partner:Indemnity for damages to partnership. - To indemnify the partnership for damages suffered by it through his fault and he cannot compensate them with the profits or benefits he may have earned for the partnership. (Art. 1794) Reason: A partner has an obligation to secure benefits for the partnership. Hence, the profits he may have earned pertains as matter of right to the partnership;Information affecting partnership. - To render on demand true and full information of all things affecting the partnership to any partner or his legal representative. (Art. 1806) Reason: The relations between the partners involve trust and confidence; andShare in loss. - To share in the loss of the partnership except in the case of the industrial partner. (Art. 1797)

Obligations of the partners among themselvesRights enjoyed by a partner:To receive his share of the profits of the partnership (Arts. 1797, 1799);To participate in the management of the firm, in the absence of an agreement to the contrary (Arts. 1803, 1810)To associate another person (sub-partner) with him in his share (Art. 1804) consent of the other partners is not required. But to make an associate a partner, all must consent. Reason MUTUAL TRUST IN THE PARTNERSHIP.To have access to, inspect and copy, at any reasonable hour, any of the partnership books (Art. 1805);

To demand a formal account (even before dissolution) of the partnership affairs:If he is wrongfully excluded from the partnership business or possession of its property;If he has such right under the terms of any agreement;If a partner receives any benefit or profit which should pertain to the partnership (see Art. 1807) andWhenever other circumstances render it just and reasonable (Art. 1809);To ask for the dissolution and winding up of the partnership by decree of the court (Art. 1831, infra.); and

To ask for the return of his contribution, provided that the partnership assets are in excess of all its liabilities. (Art. 1839, Infra.)Note:As a rule, a partner is not entitled to a formal account. Reasons: His rights to know partnership affairs are amply protected (Art. 1805, 1806, supra.) and furthermore, a formal account requires considerable time and effort

Rules of failure to contribute and for conversion (Art. 1788)Cases covered:when money promised is not given on timewhen partnership money is converted to the personal use of the partner.Coverage of Liability covers also INTEREST AND DAMAGESInterest at the agreed rate: if none at the legal rate of 12% per annumDamages that may be suffered by the partnership

Note: No need for Demand to put partner in default.Reason: in case of the contribution, because time is of the essence: a partnership is formed precisely to make use of the contributions and this use should start from its formation, unless a different period has been set, otherwise the firm is necessarily deprived of the benefits thereof. Thus the injury is constant.In case of conversion, because the firm is deprived of benefits of the money, from the very moment of conversion.

PRESUMPTION AS TO THE AMOUNT OF CONTRIBUTIONUnless there is a stipulation to the contrary, the partners shall contribute equal shares to the capital of the partnership. (Art. 1790)

Rules for the distribution of profits and losses among partners.Distribution of profits:The partners share the profits according to their agreement subject to Article 1799 (see question No. 11, infra.);If there is no such agreement:The share of each capitalist partner shall be in proportion to his capital contribution. This rule is based on the presumed will of the partners;The industrial partner shall receive such share, which must be satisfied first before the capitalist partners shall divide the profits, as may be just and equitable under the circumstances;The capitalist-industrial partner shall get a share in the profits, which must also be satisfied first, as an industrial partner, and an additional share, in proportion to his contribution from the balance. (Art. 1797.)

Obligations of the partners among themselvesDistribution of losses:

The losses shall be distributed according to their agreement subject to Article 1799 (see question No.11. infra.);If there is no such agreement, but the contract provides for the share of the partners in the profits, the share of each in the losses shall be in accordance with the profits-sharing ratio; but the industrial partner shall not be liable for losses. The term "losses" implies that there are no profits.

Obligations of the partners among themselvesMay a partner be excluded from any share in the profits or losses?No. Any such stipulation is void. (Art. 1700.) Reason: The partnership must exist for the common benefit and interest of the partners. (Art. 1770.)

But a stipulation exempting the industrial partner from the losses is naturally valid since the law itself excludes him from losses. (Art. 1797.) Reasons. Unlike a capitalist partner who can withdraw his capital, an industrial partner cannot withdraw the work already done by him; and Furthermore, in the event of loss, then an industrial partner has labored in vain and in a real sense, he has already contributed his share in the loss.

EXAMPLE: A, B, and C formed a partnership, whereby each of them contributed P 20,000.00. They agreed that should the partnership realize profits, the same shall be distributed in the following proportions: A as managing partner 40% B .. 30% C .. 30%In this case, the partners shall share the profits in conformity with their agreement. If there is no agreement with respect to the share of each partner, then, they shall share the profits equally.Suppose, the contributions of the partners are as follows:A ..P 30,000.00B .. 20,000.00C . 10,000.00Total P 60,000.00

In the absence of stipulation the share of each of the partners shall be in proportion to his contribution, that is:A .. P 3/6B . 2/6C . 1/6If D is an industrial partner he shall receive such share as may be just and equitable under the circumstances. Assuming that the partnership makes a profit of P 17,000.00, the partners may determine considering all the circumstances, that D, as industrial partner, is entitled to P 2,000.00. The balance of P 15,000.00 will be divided among A, B, and C in proportion to their respective capital contributions: P 7,500.00, P 5,000.00, and P 2,500.00 respectively.Now, if D, aside from his services, contributed P 12, 000.00, then, he will also have a share in the balance of P 15,000.00 in proportion to his contribution, which is 3/15 (P 12,000.00 P 6,000.00) or P 3,000.00, while A, B, and C will share P 6,000.00, P 4,000.00, and P 2,000.00, respectively.

Distribution of losses:The losses shall be distributed according to their agreement subject to Article 1799 (see question No.11. infra.);If there is no such agreement, but the contract provides for the share of the partners in the profits, the share of each in the losses shall be in accordance with the profits-sharing ratio; but the industrial partner shall not be liable for losses. The term "losses" implies that there are no profits.EXAMPLE: In the same example, the partners will share in the losses in conformity with their agreement. If they failed to agree as to the sharing of losses, the share of each partner in the losses shall be in the same proportion stipulated with regards to the share of each in the profits, to wit:A .. 40%B .. 30%C . 30%

If there is also no profit-sharing ratio stipulated, then the losses shall be divided in proportion to their capital contributions. D, however, being an industrial partner, shall not be liable for losses but the same shall be borne by A, B, and C, the capitalist partner, then he shall share in the losses in proportion to his contribution.

The designation of profit and loss sharing may be entrusted to a third person. The designation made by the third person is binding upon the partners unless such is MANIFESTLY INEQUITABLE. If, however the designation by third person is annulled, the share of the partners in the profits and losses shall be in proportion to their capital contribution.The designation made by third person although inequitable could no longer be impugned or cancelled:If the partner has begun to execute the decision of the third person.If he does not impugn or cancel such designation within three months from the time he had knowledge thereof. (Art. 1798)

Obligations of the partners among themselvesRules Governing Management of Partnership: Obligations of the partners among themselvesWhere the manager is appointed in the articles of partnership:

Extent of Power. - He may execute acts of administration (not ownership) despite the opposition of his partners unless he acts in bad faith;

Obligations of the partners among themselvesTherefore:To remove him for JUST cause, the controlling partners ( controlling financial interest) should vote to OUST HIM (See Art. 1800, par 1);To remove him WITHOUT CAUSE or FOR AN UNJUST CAUSE, there must be UNANIMITY (including his own vote)Reason: Revocation will amount to change in the terms of the contract of partnership. For just or lawful cause, the vote of the controlling partners (controlling financial interest) is necessary to oust him.

Obligations of the partners among themselvesExtent of Power:If he acts in GOOD faith, he may do all acts of Administration (not ownership) despite the opposition of his partners.b) If in BAD faith, he cannot ( however, he is presumed to be acting in good faith; moreover if he is really is in bad faith the controlling interest should remove him.)

Obligations of the partners among themselvesWhere manager is appointed orally or in an instrument other than the articles of partnership:Extent of Power. - The partner appointed as manager after constitution of the partnership may also perform acts of administration;Revocation of Power. - The power may be revoked at anytime with or without just cause. Removal should be done by controlling interest. Reason: The appointment is mere delegation of power.

Where there are two or more managing partners whose respective duties are not specified.Extent of Power.- Each one may separately perform acts of administration;In case of opposition by any of the managers. - The decision of the majority of the managers (per head) shall prevail. In case of tie, the matter shall be decided by the managing partners owning the controlling interest (more than 50% of the investment) (Art. 1801);

Where two or more managing partners with stipulation that none of them shall act without the consent of the others.Extent of Power. - The concurrence of all is necessary for the validity of their acts; and the absence or incapacity of any manager cannot be alleged as an excuse to dispense with this requirement.Exception. - When there is imminent danger of grave or irreparable injury to the partnership (Art. 1802);Revocation of Power. - Same as letter (a) and (b) as the case may be.

Where the manner of management has not been agreed upon:Extent of Power. - All the parties shall be considered as agents of the partnership whose acts shall bind the partnership;None of the partners may make alterations in the immovable property of the partnership even if it may be useful to the firm. In case of dispute, the partners may seek the intervention of the court.In case of Opposition by a partner. - The decision of the majority of the partners shall prevail. In case of tie, the partners representing the controlling interest shall decide the matter. (Art. 1801)

Obligations of the partners among themselvesThe obligations of the partnership to the partners?To refund amounts disbursed by a partner in behalf of the partnership plus the corresponding interest from the time the expenses are made;To answer for the obligations he may have contracted in good faith in the interest of the partnership business; andTo answer for risks in consequence of its management. (Art. 1796.)Note: A partner is a mere agent of the partnership for the purpose of the business in the absence of any stipulation to the contrary. (Art. 1818.) Hence, he is not personally liable.

PROPERTY RIGHTS OF A PARTNERHis rights in specific partnership property;His interest in the partnership; andHis right to participate in the management. (Art. 1810.)

PROPERTY RIGHTS OF A PARTNERNature of a partner's right in specific partnership property?A partner is a co-owner with his partners of specific partnership property. The incidents of this rule are:A partner, subject to legal provision on partnership and to any agreement between the partners, has an equal right to possess specific partnership property, but for partnership purposes only;

His right in specific partnership property is not assignable. Reason: The extent of his beneficial interest in the property cannot be determined until after liquidation of partnership affairs. However, the rights of all the partners to the same property may be assigned by them;His right in said property is not subject to attachment or execution except on a claim against the partnership and not to the partner; andThe property is not subject to legal support due from a partner. (Art. 1811.)

PROPERTY RIGHTS OF A PARTNERPartnership property from partnership capital.The distinctions are:Partnership property is variable - its value may vary from day to day with changes in the market value of the partnership assets, while partnership capital is constant - it remains unchanged as the amount fixed by agreement of the partners, and is not affected by fluctuations in the value of partnership property; andPartnership property includes not only the original capital contributions of the partners, but all property subsequently acquired on account of the partnership or with partnership funds, while partnership capital represents the aggregate of the individual contributions made by the partners. (Babb & Martin, Business Law, p.240.)

PROPERTY RIGHTS OF A PARTNERWhat does the partner's interest in the partnership consist of?It consists of his share in the profits while the partnership is on going and in the surplus after its dissolution. (Art. 1812.)Is the partner's interest in the partnership assignable?This interest may be assigned. Such assignment, however, does not make the assignee or transferee a partner. Reason: No one can become a partner without the consent of the other partners. The right of the assignee (among others) is to receive the profits accruing to the assigning partner.

Property Rights of the PartnerEffects of Conveyance by Partner of His Whole Interest in the Partnership (Art. 1813)If a partner conveys ( assigns, sells, donates) his WHOLE interest in the partnership ( his share in the profits and surplus), either two things may happen:1. the partnership may still remain2. The partnership is dissolved. However, such conveyance DOES NOT itself dissolve the firm, therefore the general partnership remains.b. The assignee does not necessarily become a partner. The assignor is still the partner, with a right to demand accounting and settlement.

The assignee cannot interfere in the management or administration of the partnership business or affairs.The assignee cannot demand InformationAccountingInspection of the partnerships bookRIGHTS OF THE ASSIGNEETo get whatever profits the assignor-partner would have obtained.To avail himself of the usual remedies in case of fraud in the management.To ask for annulment of the contract of assignment if he was induced to enter into it thru vices of consent.To demand accounting but only if the partnership is dissolved, but even then, the account cover the period only from the date of the last accounting which had been agreed by the partners (Art. 1813 2nd par.

PROPERTY RIGHTS OF A PARTNERWith respect to the partner's interest in the partnership, who enjoy preference - his creditors or the partnership creditors?The interest in the surplus is available for the satisfaction of the separate debts of the partners (Art. 1814.) subject to the preferred rights of the partnership creditors as regards partnership property. (Art. 1824.) This means that they have to be paid first from partnership property before the separate or private creditors of each partners of each partner.

PROPERTY RIGHTS OF A PARTNERWithout prejudice to the preferred rights of partnership creditors under Article 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, may charge the interest of the debtor partner with payment of the unsatisfied amount of such judgment debt with interest thereon, and may then or latter appoint a receiver of his share of the profits, and of any other money due or to fall due to him in respect of the partnership, and 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 of a general partner may be redeemed at anytime before foreclosure by the separate property by one or more partners or by the partnership property by one or more partners with the consent of all the partners whose interest are not charged.

PROPERTY RIGHTS OF A PARTNERExample : A, B and C are partners A personally owes X a sum of money. X sues A, and obtains a final judgment in this favor. But A has no money. What can X do?He can charge the interest of partner A by asking the same court ( or any other court possessed of jurisdiction. Charged means to attach or levy upon his interest in the partnership for payment of his unpaid liabilities. Note: while a partners interest in the partnership ( his share in the profits or surplus) may be charged or levied upon but his interest in specific partnership property as a rule cannot be attached.

PROPERTY RIGHTS OF A PARTNERWhen charging order is applied for and granted, the court MAY at the same time or later appoint a receiver of the partners share in the PROFITS or other MONEY due him. The receiver appointed is entitled to any relied necessary to conserve the partnership purpose. Thus, he may nullify all efforts to assign specific partnership property.REDEMPTION OF THE CHARGE INTEREST +1.The charge may be redeemed or bought at any time BEFORE FORECLOSURE2. AFTER FORECLOSURE, it may still be bought with the separate property ( one or more of the partners) or with the partnerships property with consent of all partners.

Note that if it is the limited partners interest that is subject to charging order of his creditor, it may be redeemed by the separate property of the general partner but not of the PARTNERSHIPS PROPERTY ( Article 1862)

OBLIGATIONS OF THE PARTNERS WITH REGARDS TO THIRD PERSONSGive the effects of the inclusion in the firm name of the name of a person who is not a partner.They are:Such person does not acquire the rights of a partner (Art. 1767.); andHe shall be subject to the liability of a partner (Art. 1815.) in so far as third persons without notice are concerned.

What is the nature of the liability of partners to third persons for partnership contracts?The liability of all the partners, including industrial ones, is:Pro rata. - This must be understood to mean equally or jointly and not proportionately because the pro-rating is based on the number of partners and not in the amount of their contribution subject to adjustment among them (see question No. 13 [3], Chap.3.); andSubsidiary. - The partners become personally liable only after all the partnership assets have been exhausted. (Art. 1816.)Any stipulation against the liability laid down above is enforceable only as among the partners but is void as to third persons. (Art. 1817.)

Note: The exemption of the industrial partner to pay losses relates exclusively to the settlement of partnership affairs among themselves. (Compania Maritima vs. Muoz, 9 Phil. 326.)

Article 1818:When a partner can bind or cannot bind the firm:The fact that the partner is an agent;The instances when he can bind the partnershipThe instances when he cannot bind the partnership;The instances when he cannot bind the partnership ( in which case should he enter into the contract, he alone, and not the firm nor the partner) would be liable.Agency of a PartnerIt has been truthfully aid that a partnership is a contract of MUTUAL AGENCY, each partner acting as a principal on his own behalf, and as an agent for his co-partners or the firm.

WHEN CAN A PARTNER BIND THE PARTNERSHIPWhen he is expressly authorized or impliedly authorized:When he acts in behalf and in the name of the partnership.Instances of Implied Authorization:When the other partners do not object, although they have knowledge of the act;When the act is for apparently carrying on in the usual way of the business of the partnership. ( THIS IS BINDING TO THE FIRM EVEN IF THE PARTNER WAS NOT REALLY AUTHORIZED, PROVIDED THAT THE THIRD PARTY IS IN GOOD FAITH)

What acts of a partner will be binding on a partnership with respect to third persons? (1) Acts for apparently carrying on in the usual way the business of the partnership. - Unless the partner has in fact no authority and the third person has knowledge of that fact;(2) Acts not apparently for carrying on in the usual way the business of the partnership. - When authorized by the other partners;(3) Acts of strict dominion or ownership. when authorized by the other partners;when the other partners have abandoned the business; orwhen effect by all of them; and

4) Acts in contravention of a restriction on authority. - Unless the third person has knowledge of such restriction, whether or not the acts are apparently carrying on in the usual way the business of the partnership. (Art. 1818.)Note: "Usual way" means usual for the particular partnership or usual for similar partnerships. (Crane, Law on Partnership, p. 190.)

Example:A, and B are partners in buying and selling automobiles. A, by partners agreement was authorized to BUY automobiles on a cash basis , never on an INSTALLMENT PLAN. One day , A bought on credit or on the installment plan a car from X, a client. X did not know of As lack of authority. As purchase was made on behalf and in the name of partnership. In the given example, partnership is bound because although A was not really authorized, still for apparently carrying on in the usual way the business of the partnership. A impliedly authorized and X was in good faith. Had X known of As actual lack of authority , the answer would not be bound.

instances of acts of strict dominion or ownership. .Assignment of partnership property in trust for creditors or on the assignee's promise to pay the debts of the partnership;Disposal of the goodwill of the business;Any act which would make it impossible to carry the ordinary business of the partnership;Confession of judgement;Compromise concerning a partnership claim or liability;Submission or partnership claim or liability to arbitration; andRenunciation of a claim of the partnership. (Ibid.)

CONVEYANCE AND REGISTRATION OF REAL PROPERTY OF PARTNERSHIP ( Art. 1819)If title is in the name of the partnership I. If the partner is authorized to sell the real property and the sale is made in the name of the partnership, the buyer gets a valid title. II. If the partner is without authority and he sells the property in the name of the partnership, the partnership may recover the land from the buyer.

Exceptions ( meaning the partnership can no longer recover the property from the buyer)When the partners acts in the usual way of business and the buyer does not know of the partners lack of authority, or When the property has already been validly conveyed to a third party in good and for value.a. If the partner sells the property in his own name and in the usual way of business and with authority, the buyer does not get valid title, but only the equitable interest.What is equitable interest? It is not a legal title but a fair, just and right title to the property based on the principle of equity

If the partnerships property is in the name of one or more but not all the partners, and the record does not disclose the right of the partnership, if sold by sold by the partner in his name, title is conveyed to the buyer, but the partnership has the right to recover the property.Exception: (1) If the sellers act does not bind the partnership as when the partners act in the usual way of business and the buyer does not know of the partners lack of authority. no recovery(2) When the buyer is in good faith and for value, without knowledge of partners lack of authority.- no recovery

c. If the property is registered in the name of a third person in trust of the partnership: - If the registered trustee sells the partnership property, the buyer gets only the equitable interest

Example:Par. 1A, B , C and D are partners of firm Edimus. A parcel of land registered under name Edimus was sold by A on behalf and in the name of the firm Edimus but without express authority. The purchaser is X Does he become the owner?Answer: Ordinarily YES but the firm may get back the land unless:The firm is engaged in the buying and selling of land ( consequently, the act of A is usual;X had in turn sold the same land to Y for value and Y did not know of As actual lack of authority. (This is the case even when the selling of the land was not for apparently carrying on the business in the usual ways) Thus in the case presented, the firm cannot get back the land. Reason: Because the property has in turn been conveyed by the grantee X. To a holder for value (Y) without the knowledge that the partner, in making the conveyance, has exceeded his authority.

2. Example : Paragraph 2 A, B , C and D are partners of firm Edimus. engaged in the buying and selling of land. A parcel of land registered under name Edimus was sold by A on in his own name. Does the buyer become the owner of the land? If not what right does the buyer have?Ans: the buyer does not become the owner of the land. However, he gets the equitable interest of the firm insofar as the land is concerned, because after all the selling of the land was in the usual course of business. Of course, the buyer may later on ask for the reformation of the contract, so that now, the sellers name would appear to be that of Edimus, provided of course that the other partners would not object. ( they would object of course if indeed A did not have actual authority to sell, unless the buyer did not know of such lack of authority.) If the contract be thus reformed, it is clear that the buyer has also been given title. Note: If the partnership had not been engaged in the purchase and sale of land, the buyer would not even be entitled to the equitable interest.

Example o Par. No. 3A, B , C and D are partners in the real estate firm Edimus. Although a certain parcel of land really belonged to the firm, it was registered in the name of A and B. A and B sold, in their name, the land to X. May the firm get back the land?Ans: Since the firm is engaged in the real estate business the act of selling the land was for carrying in in the usual way the firms business. So, the firm cannot get back the land, for title thereto has been conveyed to X.Question: Suppose in the preceding problem A and B had not been expressly disauthorized by the firm to sell land, would your answers remain the same?Ans: It depends:If X had been in good faith, that is, he head no knowledge of the lack of authority, the answer would be the same ( 1st par. Art. 18181)b. If X had been in Bad Faith, the firm can get back the land unless X in turn had sold the property to Y who is in good faith. (Here the assignee Y of the purchaser X is a holder for value without knowledge.)

Example of Par. 4A, B , C and D are partners in the real estate firm Edimus. A certain parcel of land was in the name of A in trust for the firm Edimus.If A sells the land to X in the name of Edimus, will X become owner?Ans: No, what X gets will only be the equitable interest of the firm.b) If A sell the land to X in his (As) own name, will X become the owner?Ans.: No what X gets will also be only the equitable interest of the firm.Reason: It is clear in both instances that under the registry records A is only the trustee.

Example of Par. 5A, B , C and D are partners in the real estate firm Edimus. A certain parcel of land was registed not in the name of the firm but in the name of A, B, C and D. If A, B, C and D will sell the land to X, will X become the owner, or will he have only the equitable interest?Ans: X will get the title. Consequently, he becomes the owner, for the law says that where the title to real property is in the names of all the partners, a conveyance executed by all the partners passes all their rights in such property ( Art. 1819, par. 5). The phrase all their rights includes ownership because under Art. 1811 A partner is co-owner with his partners of specific partnership property.

Admission or Representation Made By a Partner (Art. 1820)generally, an admission by a partner is an admission against the partnership under the conditions given:The admission must concern partnership affairsWithin the scope of authorityAdmission must be made during the existence of the partnership.Proof of the existence of the partnership.Restriction on the Rule:Admissions made before dissolution are binding only when the partner has authority to act on the particular matter.Admissions made after dissolution are binding only if the admissions were necessary to wind up the business.Reason: If the admission is not the act of the partnership ( thru the partner), it should not be evidence against it. The words within the scope of authority produce this result..

Needless to say an admission made by a former partner, made after he has retired from the partnership is NOT evidence against the firm.

When is previous admission ( not present court testimony) of a partner admissible against the partnership?When it was made WITHIN the scope of the partnership and DURING its existence, provided of course that the existence of the partnership is first proved by other evidence than such act or declaration.

Cases where notice to or knowledge of a partner constitutes notice to or knowledge of the partnership.Notice to any partner of any matter relating to partnership affairs;Knowledge of the partner acting in the particular matter acquired while a partner;Knowledge of the partner acting in the particular matter then present to his mind; andKnowledge of any other partner who reasonably could and should have communicated it to the acting partner. (Art. 1821.)But there is no notice to or knowledge of the partnership in the case of fraud on the partnership committed by or with the consent of the partner. (Ibid.)

Effect of Notice to a PartnerIn general, notice to a partner is notice to the partnership, that is, a partnership cannot claim ignorance if a partner knew. But this rule has restrictions and qualifications.Notice to a partner, given while already a partner is a notice to the partnership provided it relates to partnership affairs.

Effect of knowledge although No Notice is givenIt may be that no notice has been given, but knowledge has been somehow acquired. (Thus, while, nobody made any notification still the partner perhaps because of analysis or deduction came to know of something.) Is this knowledge of a partner also considered knowledge o the partnership?

Knowledge of the partner is also knowledge of the firm provided:a) The knowledge was acquired by a partner who is acting in the particular matter involved. (NOTE: The knowledge may have been acquired while already a partner, or even PRIOR TO THAT TIME, provided he still remembers the same, that is, present to his mind.)b) Or the knowledge may have been acquired by a partner not acting in the particular matter involved. But here it is essential that the partner having knowledge had reason to believe that the fact related to a matter which had some possibility of being the subject of the partnership business, and then only if he was so situated that he could communicate it to the partner acting in the particular matte before such partner gives binding effect to his act. The words who reasonably could and should have communicated it to the acting partners accomplishment this result.

Problem:P acquired some knowledge about Ss credit before P became a partner. Later P became a partner, and one day S had a transaction with the firm. P never conveyed the information he knew t o the firm although he could have done so. Another partner R was the person who dealt with Ss transaction. Nobody else in the firm knew what P already knew. Question: Is Ps knowledge also the knowledge of the partnership?Ans: No because P was not the partner acting in the particular matter involved. He had acquired he knowledge BEFORE he became a partner, not afterwards. The words present in his mind (remembered) do not apply, for they apply only to the person ACTING in the particular matter. Where the knowledge or notice has been received by the partner before he became a partner acting in the particular matter, there is no doubt that there has been neither knowledge of nor notice to the partnership.

What is the nature of the liability to third persons of the partners for non-contractual debts arising from their individual acts?All the partners are solidarily liable with the partnership for everything chargeable to the partnership in the following cases:Where (a) by any wrongful act or omission of any partner (b) acting in the ordinary course of business or with the authority of his co-partners, loss of injury is caused to any person, not being a partner in the partnership, or penalty is incurred (Art. 1822; e.g., negligent operation of a vehicle by a partner which result in a traffic accident);Reference to torts or quasi-delicts

Where (a) one partner acting within the scope of his apparent authority receives money or property of a third person, and (b) misapplies it; andWhere (a) the partnership in the course of its business (b) receives money or property is misapplied by any partner (d) while it is the custody of the partnership. (Art. 1823.)Reference; Liability of Partnership for Misappropriation.Under Art. 1824, all partners are liable solidarily with the partnership for everything chargeable under Articles 1822 to Art. 1823.

When Firm and the Other partners are not liable:If the wrongful act or omission was not done within the scope of the partnership business and for its benefit.If the act or omission was not wrongful (See Art. 1822 which uses the term wrongful)If the act or omission, although wrongful, did not make the partner concerned liable himself.If the wrongful act or omission was committed after the firm had been dissolved ( stopped its business) and the same was not in connection with the process of winding up.

What is the nature of the liability to third persons of the partners for non-contractual debts arising from their individual acts.All the partners are solidarily liable with the partnership for everything chargeable to the partnership in the following cases:Where (a) by any wrongful act or omission of any partner (b) acting in the ordinary course of business or with the authority of his co-partners, loss of injury is caused to any person, not being a partner in the partnership, or penalty is incurred (Art. 1822; e.g., negligent operation of a vehicle by a partner which result in a traffic accident);

Where (a) one partner acting within the scope of his apparent authority receives money or property of a third person, and (b) misapplies it; andWhere (a) the partnership in the course of its business (b) receives money or property is misapplied by any partner (d) while it is the custody of the partnership. (Art. 1823.)

How may a person become a partner by estoppel?

(1) By representing himself as a partner in an existing partnership or in a non-existing partnership (i.e., with one or more persons, not actual partners); or(2) By consenting to another making such representation. (Art. 1825.)

Who will be liable to third persons who acted in good faith when a person is falsely represented as a partner in an actual or apparent partnership?They are:The partner by estoppel;Those who consented to such representation; andThe partnership itself if all the actual partners consented to the representation. (Ibid.) This is a case of partnership by estoppel.

Note: Estoppel does not create a partnership as between the alleged partners. A contract is essential to the formation of a partnership. (Art. 1767.)

Rule on the liability of the partners for partnership obligations where a person is admitted as a partner in an existing partnership.When a person is admitted as a partner into an existing partnership, he is liable for all obligations existing at the time of his admission as though he was already a partner when such obligations were incurred. Such obligations shall be satisfied only out of the partnership property, unless there is a stipulation to the contrary. (Art. 1826.)Those who were already partners at the time when the obligations were incurred are liable with their separate property. (Art. 1816.) For all the obligations accruing subsequent to the admission of the new partner, all the partners are liable with their separate properties.

What is the extent of the liability of a person admitted as a partner into an existing partnership?(1) As to partnership debts contracted before his admission. - He is liable only up to the amount of his contribution or his share in the partnership property unless there is a stipulation to the contrary; and (2) As to partnership debts contracted after his admission. - He is liable with his separate property if partnership assets are not sufficient. (Art. 1826.)

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, the private creditors of each partner may ask the attachment and public sale of the share of the latter in the partnership assets.Reason for the Preference of Partnership CreditorsAfter all the partnership is a juridical person with whom the creditors have contracted. Moreover the assets of the partnership must be first exhausted.Reasons why individual creditors may still attach the partners share: After all the remainder ( after paying partnership obligations) really belongs to the partner. Note the purchaser at the public sale does not necessarily become a partner.

Sale by a Partner of His Share to a Third PartyIf a partner sells his share to a third party, but the firm itself still remains solvent, creditors of the partnership cannot assail the validity of the sale by alleging that it is made in fraud of them, since they have not rally been prejudiced.

DISSOLUTION AND WINDING UP

DISSOLUTION AND WINDING UPDefine dissolution.Dissolution is the change in the relation of the partners caused by any partner ceasing to be associated in the carrying on of the business. (Art. 1828.) It is that point in time when the partners cease to carry on business together.Is the partnership terminated on dissolution?No, it continues until the winding up to partnership affairs is completed. (Art. 1829.) The principal significance of dissolution is that thereafter no new partnership business should be undertaken, but affairs should be liquidated and distribution made to those entitled to the partner's interest. (Crane, Law on Partnership, p.223.)

DISSOLUTION AND WINDING UP

Winding up is the process of settling the business or affairs of the partnership after dissolution (Ibid., p.320.) after which the existence of the partnership is terminated.) Termination is that point in time when all the partnership affairs are wound up or completed, and the partnership ceases to exist for all purposes.

DISSOLUTION AND WINDING UPWhat are the causes for the dissolution of a partnership?They are:Without violation of partnership agreement:a. Termination of the agreed term of the particular undertaking;b. By the express will of any partner who must act in good faith (otherwise, the partner will be liable for damages), when no definite term or particular undertaking is specified;

DISSOLUTION AND WINDING UPWhat are the causes for the dissolution of a partnership?

c. By the express will of all partners except those:who have assigned their interest; orsuffered them to be charged for their separation debts, and

d. By expulsion of any partner. Reason: It has the effect of decreasing the number of partners. The partner expelled in bad faith can claim damages;

DISSOLUTION AND WINDING UP2. In violation of partnership agreement:(a) By the express will of any partner at any time (with or without justifiable cause). Reasons: A partner cannot be compelled to remain in the firm against his will;3. By any event making it unlawful for the partnership or members thereof to continue the business4. By loss of specific thing which a partner had promised to contribute before delivery. Reasons: There is no contribution. If only the use of enjoyment of the thing is contributed, the partner having reserved the ownership thereof, the loss of the same before or after delivery dissolves the partnership. Reason: The partner bears the loss and, thereof, he is considered in default with respect to his contribution;

DISSOLUTION AND WINDING UP5. By the death of any partner. Reason: It causes a decrease in the number of partners;6. By the insolvency of any partner or the partnership. Reason: The business of a partnership requires ability to meet financial obligation to creditors;7. By the civil interdiction of any partner. Reason: It results in his incapacity to enter into dispositions of property inter vivos (i.e., during his lifetime); and8. By judicial decree in cases provided by law. (Art. 1830.)Note: Civil interdiction deprives the offender during the time of his sentence or imprisonment of the right to manage his property and to dispose of the same by any act to take effect during his lifetime. (see Art. 34, Revised Penal Code.)

cases when the court may decree a dissolution of the partnership.In the following instances:On the application by or for a partnership:In case of a partner's insanity;When a partner becomes incapable of performing his part of the partnership contract;When a partner is guilty of conduct tending to effect prejudicially the business;In case a partner willfully or persistently commit a breach of the partnership agreement or such misconduct which makes it no longer practicable to carry on the business with him.When the business can only be carried on at a loss; and Other circumstances making dissolution equitable (like fraud in the render accounting or to allow inspection of partnership's books, etc.)

cases when the court may decree a dissolution of the partnership.

On the application by a purchaser of a partner's interest (under Arts. 1813, 1814, supra.)After the termination of the specified term or particular undertaking; orAt any time if the firm was a partnership at will when the interest was assigned or the charging order was issued. (Art. 1831.)

DISSOLUTION AND WINDING UPeEfect of dissolution on the authority of partners to act for the partnership?

General rule. - Dissolution terminates all authority of any partner to act for the partnership.Exceptions: When necessary to wind up partnership affair; andWhen necessary to complete transactions begun but not then finished. (Art. 1832.)

DISSOLUTION AND WINDING UPThe effects in case new contracts are entered into by a partner with third persons after dissolution.(1) As among the partners themselves. - The other partners are not bound (although they may be liable to third persons - when the dissolution is not by the act, insolvency, or death of a partner (e.g., expiration of the term);when the dissolution is by the act of any partner (e.g., resignation) and the partner acting for the partnership had knowledge of the dissolution; andwhen the dissolution is by the death or insolvency of a partner and the partner acting for the partnership had knowledge or notice of the death or dissolution. (see Art. 1833.)

What acts or transactions will bind a partnership even after dissolution?Acts appropriate for winding up;Acts appropriate for completing unfinished at dissolution; andTransactions which would bind the partnership if dissolution had not taken place provided the third person-Had extended credit to the partnership prior to dissolution;Had not extended credit but had known of the partnership prior to dissolution and having no knowledge or notice of dissolution, the fact of dissolution had not been advertised in the newspaper of general circulation in the place at which the partnership was regularly carried on. (Art. 1834)

Cases is a partnership not bound by any act of a partner after dissolution?In the following cases:When the partnership is dissolved because it is unlawful to carry on the business unless the act is appropriate for winding up partnership affairs;Where the partners has become insolvent; orWhere the partner has no authority to wind up partnership affairs except as otherwise provided by law.

DISSOLUTION AND WINDING UPtwo ways of winding up a dissolved partnership?Judicially - under the control and direction of the proper court upon cause shown by any partner, his legal representative or his assignee; orExtra judicially - by the partner themselves without intervention of the court. (Art. 1836)

No partner can perform new acts which will the partnership during the dissolution stage EXCEPT:Acts necessary for the winding up purposes;Acts necessary for complete unfinished business of the Partnership.However, if the dissolution is due to the act, insolvency or death (AID) of a partner, the other partner can still bind the partnership with contracts entered after the dissolution of the partnership provided the partner so acting has no knowledge of the AID or dissolution of the contract by reason of any of the AID at the time of the perfection of the contract. (Art. 1833)

DISSOLUTION AND WINDING UPWhat are the rights of each partner in case of dissolution without violation of partnership agreement?Unless otherwise agreed =To have the partnership properties applied to discharge the liabilities of partnership; and To have the surplus, if any, applied, to pay in cash the net amount owing to the respective partners, (Art. 1837)

What are the rights of the innocent partners in case of dissolution in violation of partnership agreement?They are:to have partnership property applied for the payment of its liabilities;To receive in cash their share of the surplus;To be indemnified for damages caused by the partner guilty of wrongful dissolution;To continue the business in the same name during the agreed term of the partnership by themselves or jointly with others; andTo possess partnership property should they decide to continue the business.

What are the rights of the partner who wrongfully caused the dissolution?They are:If the business is not continued by the other partners. -To have partnership property applied to discharge its liabilities; andTo receive in cash his share of the surplus less damages caused by his wrongful dissolution.

What are the rights of the partner who wrongfully caused the dissolution?If the business is continued. -To have the value of his interest in the partnership (but the value of the goodwill of the business is not considered) at the time of dissolution ascertained and paid in cash or secured by bond approved by the court; andTo be released from the existing and future liabilities of the partnership.

What are the rights of the injured partner where the partnership is rescinded on the ground of fraud?Right of a lien or retention of the surplus of partnership property after satisfying partnership liabilities for any sum of money contributed or paid by him;Right to subrogation in the place of partnership creditors after payment of partnership liabilities;Right of indemnification by the guilty partner against all debts and liabilities of the partnership; andSuch other rights to which he is entitled under other provisions of law. (Art. 1838)

Distribution of partnership assets after dissolutionAssets of the partnership. - They are:Partnership property (including goodwill); andContribution of the partners necessary for the payment of all liabilities in accordance with Article 1797

Distribution of partnership assets after dissolutionOrder of application of the assets. - The partnership asset shall be applied to the satisfaction of the liabilities of the partnership in the following order:First, those owing to the partnership's creditors;Second, those owing to partners other than for capital and profits such as loans given by the partners or advances for business expenses;Third, those owing for the return of the capital contributed by the partners; andLastly, the share of the profits, if any, due to each partner.

Distribution of partnership assets after dissolutionRight of a partner where assets are insufficient. - If the assets enumerated in No. 1, any partner of his legal representative (to the extent of the amount which he has paid in excess of his share of the liability), or any assignee for the benefit of creditors or any person appointed by the court, shall have the right to enforce the contributions of the partners provided in Article 1797.Liability of deceased partner's individual property. - The individual property of a deceased partner shall be liable for his share of the contribution necessary to satisfy the liabilities of the partnership incurred while he was a partner. ( Arts. 1816, 1835, par. 3)

Distribution of partnership assets after dissolutionPriority of payment of partnership creditors/partner's creditors.- When partnership property and the individual properties of the partners are in possession of the court for distribution, partnership creditors from the individual properties of the partners.Distribution of property of insolvent partner. - If a partner is insolvent, his individual property shall be distributed as follows:First, to those owing to separate creditors; andThen to those owing to partnership creditors; andLastly, to those owing to partners by way of contribution. (Art. 1839)

LIMITED PARTNERSHIPDefine a Limited Partnership:A limited partnership is one formed by two or more persons in accordance with the provisions of the law, having as members one or more general partners and one or more limited partners. (Art. 1843)

LIMITED PARTNERSHIPGive the characteristics of a limited partnership:A limited partnership is formed by compliance with the statutory requirements;One or more general partners control the business and are personally liable to creditors;One or more limited partners contribute to the capital and share in the profits but do not participate in the management of the business and are not personally liable for partnership obligations; andThe partnership debts are paid out of the common fund and the individual properties of the general partners.Note: The liability of a limited partner is an exception to the general rule that all partners including industrial partner are liable pro-rata with all their property for partnership debts. (Art. 1816)

What is the purpose of the law in authorizing the formation of limited partnership.The purpose is to bring into trade and commerce funds of those not inclined to engage in that business, who are disposed to furnish capital upon such limited liability with a view to the share of profits which might be expected to result to them from its use.State the essential requirements for the formation of a limited partnership.The certificate or articles of limited partnership which states the matters enumerated in Article 1844 must be signed and sworn to; andSuch certificate must be filed for record in the Securities and Exchange Commission (Art. 1844)Note: A strict compliance with the legal requirements is not necessary. It is sufficient that there is substantial compliance in good faith. If there is no substantial compliance, the partnership becomes general partnership.

What must be contributed by a limited partner?The contribution of a limited partner may be cash or property but not services (Art. 1845); otherwise, he shall be considered an industrial partner, in which case, he shall not be exempted from personal liability.In general, what are the rights, powers and liabilities of a general partner in a limited partnership?A general partner has all the rights and powers and is subject to all restrictions of a partner in a partnership without limited partners. However, acts of strict dominion or ownership (e.g., admitting a new partner; continuing the business on death, etc. of a general partner; acts in contravention of the certificate, etc.) are beyond the scope of the authority without the written consent or at least ratification of all the limited partners. (Art. 1850)

Enumerate the rights of a limited partner.To require that the partnership books be kept at the principal place of business of the partnership (Art. 1805);To inspect and copy at a reasonable hour partnership books or any of them;To demand true and full information of all things affecting the partnership (Art. 1806);To demand a formal account of partnership affairs whenever circumstances render it just reasonable (Art. 1809);To ask for dissolution and winding up by decree of court (Art. 1857)To receive a share of the profits or other compensation by way of income (Art. 1856) andTo receive the return of his contribution provided the partnership assets are in excess of all its liabilities (Art. 1857)Note: The rights of a limited partners are necessarily lesser than those of a general partner.

State the liabilities that a partner may incur in favor of the partnership.He is liable for any unpaid contribution:The difference between the contribution as actually made and that stated in the certificate as having been made; andThe amount he agreed to make at a future time stated in the certificate.He holds as trustee:Specific property stated in the certificate as contributed by him but which he had not contributed or had been wrongfully returned; andMoney or other property wrongfully paid or conveyed to him on account of his contribution. (Art. 1858)

May the above liabilities of a limited partner be waived or comrpomised?Yes provided that the waiver or compromise-is made with the consent of all the parties; anddoes not prejudice the partnership creditors who extended credit or whose claims arise before the cancellation or amendment of the certificate.10. May a person be both a general and a limited partner in the same partnership?Yes, provided that the fact is stated in the certificate signed and sworn to and recorded in the SEC.He shall have all the rights, powers and liabilities of a general partner; hence he liable with his separate property to third person;With respect to his contribution, he would have the right of a limited partner in so far as the other partners are concerned (Art. 1853)

LIMITED PARTNERSHIPGive the requisites for the return of contribution of a limited partnerAll liabilities of the partnership have been paid, or if they have not yet been paid, the assets of the partnership are sufficient to pay such liabilities to limited partners on account of their contribution and to the general partners are not considered;The consent of all the members has been obtained except when the return may be rightfully demanded; andThe certificate is cancelled or so amended as to set forth the withdrawal or reduction of the contributions. (Art. 1857)

LIMITED PARTNERSHIPWhen is a return of contribution of a limited partner a matter of right?The requisites in No. 13 (1) & (2) have been duly complied withOn the dissolution of the partnership;Upon the arrival of the date specified in the certificate for the return; orAfter the expiration of the 6 months' notice in writing given by him to the other partners if no time is fixed in the certificate for the return of the contribution or for the dissolution of the partnership.

LIMITED PARTNERSHIPWho is preferred limited partner?A preferred limited partner is one given preference over other limited partners as to -Return of contribution;Compensation by way of income;Any other matter by an agreement stated in the certificate of limited partnership (Art. 1855)

LIMITED PARTNERSHIPWhat is a substituted limited partner?A substituted limited partner is a person admitted to all the rights of a limited partner who has died or has assigned his interest in a partnership (Art. 1859).Give the requisites in order that the assignee may become a substituted limited partner?All the members must consent to the assignee becoming a substituted limited partner or the limited partner, being empowered by the certificate must give the assignee the right to become a limited partner;The certificate must be amended in accordance with Article 1865;The certificate as amended must be registered in the SEC.

Instances that will show that a limited partner is a mere contributor or practically a stranger in the limited partnership; The surname of the limited partner shall not appear in the partnership name unless it is also a surname of a general partner or prior to the time when the limited partner became such, the business had been carried on under a name in which his surname appeared (Art. 1846);A limited partner cannot participate in the management of the partnership business (Art. 1848); He may grant loans to and transact other business with the partnership (Art. 1854);He can demand under certain conditions, the return of his contribution (Art. 1857);He is not (unless he is also a general partner) a proper party to a suit by or against the limited partnership unless the suit is to enforce a limited partner's right against or liability to the partnership (Art. 1866); andThe retirement, death, insolvency, insanity or civil interdiction of a limited partnership as long as there remains a limited partner (Art. 1860)

After the dissolution, how shall the liabilities of a limited partnership be settled:In the following order:Those due to creditors, including limited partners, except those on account of their contributions in the order of priority as provided by law (Arts. 1854, 1856, 1857 (1))Those due to limited partners in respect to their share of the profits and other compensation by way of income on their contribution;Those due to limited partners for the return of the capital contribution;Those due to general partners in respect to profits; andThose due to general partners for the return of the capital contributed. (Art. 1863)Note: In the absence of any statement in the certificate as to the share of the profits which each partner shall receive by reason of his contribution (Art. 1844, par. 1 (I) ) and subject to any subsequent agreement, limited partners share in the partnership assets in respect to their claims for capital and profits in proportion to the respective amounts of such claims. (Art. 1863)

When shall the certificate of limited partnership be cancelled or amended?The certificate shall be cancelled:When the partnership is dissolved; orAll the limited partners cease to be such (Art. 1846)Reason: A limited partnership cannot exist without any limited partner. In all other cases (e.g., change in name of partnership, addition or substitution of a limited partner, etc.) , only an amendment of the certificate is required.

State the requirements for the amendment or cancellation of a certificate.The amendment must be in writing;It must be signed and sworn to by all the members including the new members and the assigning limited partner in case of substitution or addition of a limited or general partner; andThe certificate, as amended must be filed for record in the SEC (Art. 1865)The cancellation of the certificate has been duly amended, the amended certificate shall thereafter be for all purposes the certificate of the partnership. (Art. 1844)

THE END

****