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150 2005CENTRALIZED BAROPERATIONS

2005CENTRALIZED BAR OPERATIONS EXECUTIVE COMMITTEE AND SUBJECT CHAIRPERSONSMaricel Abarentos (Over-all Chairperson), Ronald Jalmanzar (Over-all Vice Chair), Yolanda Tolentino(VC-Acads), Jennifer

Ang(VC- Secretariat), Joy Inductivo (VC-Finance), Elaine Masukat (VC-EDP), Anna Margarita Eres (VC-Logistics) JonathanMangundayao (Political Law), Francis Benedict Reotutar (Labor Law), Romuald Padilla (Civil Law), Charmaine Torres (Taxation Law),

Mark David Martinez (Criminal Law), Garny Luisa Alegre (Commercial Law), Jinky Ann Uy (Remedial Law), Jackie Lou Bautista (LegalEthics)

PARTNERSHIP

PARTNERSHIP

By the contract of partnershiptwo or more persons bind themselves tocontribute money, property or industry

to a common fund, with the intention ofdividing the profits among themselves.

Two or more persons may alsoform a partnership for the exercise of aprofession. (Art. 1767)

A partnership has a juridicalpersonality which is separate anddistinct from that of the partners.

A partnership may sue and be sued inits name or by its duly authorizedrepresentatives. A managing partnerof the partnership may execute allacts of administration including theright to sue debtors of thepartnership in the case of theirfailure to pay their obligation whenit becomes demandable. (Tai TongChuache & Co. vs. InsuranceCommission 158 SCRA 336 [1988])

FORM OF PARTNERSHIP CONRTRACT

GENERAL RULE: No special form isrequired for the validity or existence ofthe contract of partnership.

EXCEPTIONS:

1.Where immovable property or realrights are contributed, the partnership

contract shall be void unless:a. It is reduced to writing in apublic instrument (Art. 1771).

b. An inventory of the propertycontributed is made, signed by theparties and attached to the publicinstrument. (Art.1773).

A partnership contract whichstates that the partnership isestablished to operate a fishpond isnot rendered void because noinventory of the fishpond was made(where it did not clearly appear in thearticles of partnership that the realproperty had been contributed byanyone of the partners). (Agad vs.Mabolo and Mabolo Agad and Co.,23 SCRA 1223[1968])

2. Where the contract is by its terms notto be performed within a year from the

making thereof, such partnershipcontract is covered by the statute offrauds and thus requires a written

agreement to be enforceable.

3. Where the contract of partnershiphas a capital of 3,000 pesos or more, inmoney or property, it shall appear in apublic instrument and must be recordedin the Office of the Securities andExchange Commission. However, apartnership has a juridical personalityeven in case of failure to comply withthis requirement.

Requisites:

1. intention to create a partnership2. common fund obtained from the

contributions3. joint interest in the profits

Essential Features:

1. there must be a valid contract;2. the parties must have legal capacity

to enter into the contract;

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San Beda College of Law 151

MEMORY AID IN CIVIL LAW

CIVIL LAW COMMITTEECHAIRPERSON:Romuald PadillaASST.CHAIRPERSON: Vida Bocar, Joyce Vidad EDP: Alnaiza Hassiman, Dorothy Gayon

SUBJECT HEADS:Christopher Rey Marasigan (Persons and Family Relations), Alejandro Casabar(Property), Ma. RhodoraFerrer(Wills and Succession), Ian Dominic Pua(Obligations and Contracts), Sha Elijah Dumama(Sales and Lease), John Stephen

Quiambao(PAT), Christopher Cabigao(Credit Transactions), Ligaya Alipao(Torts and Damages), Anthony Purganan(LTD),Ma. Ricasion Tugadi (Conflicts of Law)

NOTE: With regard to number 2 (legalcapacity of contracting parties),individuals not legally incapacitated tocontract and partnerships may enter intoa contract of partnership. With respect

to corporations, the court held inAurbach vs. Sanitary Wares

Manufacturing Corporation 180 SCRA 130[1989] that although a corporationcannot enter into a partnership contract,it may however engage in a joint venturewith others. A joint venture has beengenerally understood to mean anorganization formed for some temporarypurpose.

There is nothing against onecorporation being represented by anatural or juridical person in a suit in

court, for the true rule is that althougha corporation has no power to enter apartnership, it may nevertheless enterinto a joint venture with another wherethe nature of that venture is in line withthe business authorized by the charter.(JM Tuazon and Co., Inc vs. Bolanos 95PHIL 106 [1954])

3. there must be mutual contribution ofmoney, property and industry to acommon fund

NOTE: A partnership of a civil naturewas formed because Gatchalian & Co.put up money to buy a sweepstakesticket for the sole purpose of dividingequally the prize which they may win asthey did in fact in the amount ofP50,000. (Gatchalian vs. CIR 67PHIL 666[1939])

Where the father sold his rights over2 parcels of land to his 4 children so theycan build their residences, but the latter

after 1 year sold them and paid thecapital gains, they should not be treatedto have formed an unregisteredpartnership and taxed corporate incometax on the sale and on dividend incometax on their shares of the profits fromthe sale. (Obillos Jr. vs. CIR [1985])

4. the object must be lawful; and

5. the primary purpose must be toobtain profits

KEY: CJP3 - D2AFT

Partnership Co-ownership1. Creation

Always created by acontract, eitherexpress or implied

Generally created bylaw, but may existeven without acontract

2. Juridical personalityHas a juridicalpersonality separateand distinct from

that of each partner

Has no juridicalpersonality

3. PurposeRealization of

profits

Common enjoyment

of a thing or right;does not necessarily

involve sharing ofprofits

4. DurationNo limitation uponthe duration is setby law

An agreement tokeep the thingundivided for morethan 10 years is notallowed

5. Transfer of interestsA partner may notdispose of hisindividual interest in

the partnership soas to make theassignee a partnerwithout unanimousconsent

A co-owner can

dispose of his sharewithout the consent

of the others

6. Power to act with third persons

In the absence ofstipulation to thecontrary, a partner

may bind thepartnership

A co-owner cannotrepresent the co-ownership

7. Dissolution

Death or incapacityof a partner resultsin the dissolution ofpartnership

Death or incapacityof a co-owner doesnot necessarilydissolve the co-ownership

8. Agency or representationAs a rule, there ismutual agency

As a rule, there is nomutual

representation

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(although it isenough for a co-owner to bring anaction for ejectmentagainst a stranger)

9. Profits

May be stipulatedupon

Must always dependupon proportionate

shares and anystipulation to the

contrary is VOID(Art.485)

10. FormMay be in any fromexcept when realproperty iscontributed (here apublic instrument isrequired)

No public instrumentis needed even ifreal property is theobject of the co-ownership

KEY: CNJ PMERET2 - FPG

Partnership Corporation1. Creation

Created by mereagreement of theparties

Created by lawor by operationof law

2. Number of incorporatorsMay be organized by atleast two persons

Requires atleast fiveincorporators(except acorporation

sole)

3. Commencement of juridicalpersonality

Acquires juridicalpersonality from themoment of execution ofthe contract ofpartnership

Acquiresjuridicalpersonality fromthe date ofissuance of thecertificate ofincorporation bythe Securities

and ExchangeCommission

4. PowersPartnership mayexercise any powerauthorized by thepartners (provided it isnot contrary to law,morals, good customs,public order, public

Corporation canexercise onlythe powersexpresslygranted by lawor implied fromthose granted orincident to its

existence

policy)

5. ManagementWhen management is

not agreed upon, everypartner is an agent of

the partnership

The power to do

business andmanage its

affairs is vestedin the board ofdirectors ortrustees

6. Effect of mismanagement

A partner as such cansue a co-partner who

mismanages

The suit againsta member of

the board ofdirectors or

trustees whomismanagesmust be in thename of thecorporation

7. Right of succession

Partnership has no rightof succession

Corporation hasright ofsuccession

8. Extent of liability to third personsPartners are liablepersonally andsubsidiarily (sometimes

solidarily) forpartnership debts to

third persons

Stockholders areliable only tothe extent of

the sharessubscribed by

them

9. Transferability of interestPartner cannot transferhis interest in thepartnership so as tomake the transferee apartner without theunanimous consent ofall the existing partners

because the partnershipis based on the principle

of delectus personarum

Stockholder hasgenerally theright to transferhis shareswithout priorconsent of theother

stockholdersbecause

corporation isnot based onthis principle

10. Term of existencepartnership may beestablished for anyperiod of time

corporation maynot be formedfor a term in

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stipulated by thepartners

excess of 50years extendibleto not morethan 50 years inany oneinstance

11. Firm namelimited partnership is

required by law to addthe word Ltd. To its

name

corporation may

adopt any nameprovided it is

not the same asor similar to anyregistered firmname

12. Dissolutionmay be dissolved at anytime by any or all of thepartners

can only bedissolved withthe consent ofthe State

13. Governing Lawgoverned by the

contract and the CivilCode

governed by the

CorporationCode

JOINT VENTURE

It is hardly distinguishable frompartnership, since their elements aresimilar, i.e. community of interest inthe business, sharing of profits andlosses, and a mutual right of control.

The main distinction in common lawjurisdiction is that partnershipcontemplates a general businesswith some degree of continuity,while joint venture is formed for theexecution of a single transaction andis thus of temporary nature

In Kilosbayan, Incorporated vs.Guingona, Jr 232 SCRA 110 [1994],the court defined a joint venture asan association of persons orcompanies jointly undertaking somecommercial enterprise; generally allcontribute assets and share risks. Itsrequisites are:

a. A community of interest inthe performance of thesubject matter;

b. A right to direct and governthe policy in connectiontherewith;

c. Duty to share profits andlosses.

NOTE: Under the Civil Code, apartnership may be particular or

universal, and a particular partnershipmay have for its object a specificundertaking. Hence, a joint venturemay be treated like any other contract,innominate in nature to be regulated andgoverned primarily by the stipulations ofthe parties thereto and suppletorily bythe general provisions of the Civil Codeon obligations and contracts, by rulesgoverning the most analogous contracts(e.g. law on partnership), and by thecustoms of the place.

Other Similar Contracts

1. Collaboration- the act of workingtogether in a joint project.

2. Association- act of a number ofpersons uniting together for some specialpurpose or business.

RULES TO DETERMINE EXISTENCE OF

PARTNERSHIP (ART 1769)

1. GENERAL RULE: Persons who arenot partners as to each other are notpartners as to third persons.EXCEPTION:partnership by estoppel

2. Co-ownership of a property does notitself establish a partnership, eventhough the co-owners share in theprofits derived from the incident ofjoint ownership.

3. Sharing of gross returns alone doesnot indicate a partnership, whetheror not the persons sharing them have

a joint or common right or interestin any property from which thereturns are derived.

4. Receipt of share in the profits is astrong presumptive evidence ofpartnership. However, no suchinference will be drawn if suchprofits were received in payment:

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(a) as a debt by installments orotherwise; (b) as wages of anemployee or rent to a

landlord;(c) as an annuity to a widow or

representative of a deceasedpartner;

(d) as interest on a loan, though theamount of payment vary with theprofits of the business; and

(e) as the consideration for the saleof a goodwill of a business orother property by installments orotherwise.

CLASSIFICATION OF PARTNERSHIP

1. as to object:

a) universal partnership

i. universal partnership of allpresent property

ii. universal partnership ofprofits

b) particular partnership

2. as to liability of partners:

a) general partnership

b) limited partnership

3. as to duration:

a) partnership at willb) partnership with a fixed

period

4. as to legality of existence:

a) de jure partnership

b) de facto partnership

5. as to representation to others:a) ordinary or real partnership

b) ostensible or partnership byestoppel

6. as to publicity:a) secret partnership

b) notorious or open partnership

7. as to purpose:

a) commercial or trading

b) professional or non-trading

UNIVERSAL PARTNERSHIP

1. A universal partnership of allpresent property is one wherein thepartners contribute all the propertywhich actually belong to them to acommon fund, with the intention of

dividing the same among themselves, aswell as all the profits which they mayacquire therewith.

In a universal partnership of allpresent property, the property whichbelongs to each of the partners at thetime of the constitution of thepartnership, becomes the commonproperty of all the partners, as well asthe profits which they may acquiretherewith.

A stipulation for the commonenjoyment of any other profits may alsobe made; but the properties which the

partners may acquire subsequently byinheritance, legacy or donation cannotbe included in such stipulation, exceptthe fruits thereof.

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Where the articles of partnership donot specify the nature of the universalpartnership, whether it is one ofpresent property or of profits only,it will be presumed that the parties

intended merely a partnership of profits.

NOTE: Future properties cannot becontributed. Thus, propertysubsequently acquired by (1)inheritance, (2) legacy or (3) donationcannot be included by stipulation exceptthe fruits thereof.

2. A universal partnership of profits isone which comprises all that thepartners may acquire by their industry or

work during the existence of thepartnership and the usufruct of movableor immovable property which each ofthe partners may posses at the time ofthe celebration of the contract.

Movable or immovable propertywhich each of the partners may posses atthe time of the celebration of thecontract shall continue to pertainexclusively to each, only the usufruct

passing to the partnership.

NOTE: Persons who are prohibited fromgiving each other any donation oradvantage cannot enter into a universalpartnership. (Art. 739, Art. 87, FamilyCode)

Profits acquired by their partnersthrough chance (i.e. lottery) withoutemployment of any physical orintellectual efforts are not included.

PARTICULAR PARTNERSHIP

A particular partnership is onewhich has for its object determinatethings, their use and fruits, or a specific

undertaking, or the exercise of aprofession or vocation.

GENERAL PARTNERSHIP

A partnership consisting ofgeneral partners who are liable pro rataand subsidiarily and sometimes solidarilywith their separate property forpartnership debts.

LIMITED PARTNERSHIP

One formed by two or more

persons having as members one or moregeneral partners and one or more limitedpartners, the latter not being personallyliable for the obligations of thepartnership.

PARTNERSHIP AT WILL

A partnership wherein no time isspecified and is not formed for aparticular undertaking or venture andwhich may be terminated at anytime bymutual agreement of the partners, or bythe will of anyone partner alone; or onefor a fixed term or particularundertaking but has been continued bythe partners after termination of suchterm or particular undertaking withoutexpress agreement.

PARTNERSHIP WITH A FIXED TERM

A partnership wherein the term

for which the partnership is to exist isfixed or agreed upon or one formed for aparticular undertaking, and upon theexpiration of the term or completion orthe particular enterprise, thepartnership is dissolved, unlesscontinued by the partners.

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OTHER KINDS OF PARTNERSHIP

1. De Jure Partnership- one which has

complied will all the legalrequirements for its establishment.

2. De Facto Partnership- one whichhas failed to comply with all thelegal requirements for itsestablishment.

3. Ordinary or real partnership- onewhich actually exists among thepartners and also as to third persons.

4. Ostensible partnership orpartnership de facto- one which inreality is not a partnership, but isconsidered a partnership only inrelation to those who, by their

conduct or admission, are precludedto deny or disprove its existence.

5. Secret partnership- one wherein theexistence of certain persons aspartners is not avowed or madeknown to the public by any of thepartners.

6. Open or notorious partnership- onewhose existence is avowed or madeknown to the public by the membersof the firm.

7. Commercial or trading partnership-one formed for the transaction ofbusiness.

8. Professional or non-tradingpartnership- one formed for theexercise of a profession.

CLASSIFICATION OF PARTNERS

1. as to CONTRIBUTION:

a) Capitalist partner- one whocontributes money or property to thecommon fund.

b) Industrial partner- one whocontributes only his industry orpersonal service.

2. as to LIABILITY:

a) General partner- one whoseliability to third persons extends tohis separate property, he may eitherbe a capitalist or industrial partner.

b) Limited partner- one whoseliability to third persons is limited tohis capital contribution.

3. as to MANAGEMENT:

a) Managing partner- one whomanages the business or affairs ofthe partnership; he may beappointed in the articles ofpartnership or after constitution ofthe partnership.

b) Silent partner- one who does nottake any active part in the businessalthough he may be known to be apartner.

c) Liquidating partner- one whotakes charge of the winding up ofthe partnership affairs upondissolution.

4. Miscellaneous:

a) Ostensible partner- one whotakes active part and known to thepublic as a partner in the business,whether or not he has actual interestin the firm.

b) Secret partner- one who takesactive part in the business by is notknown to be a partner by outsideparties nor held out as a partner bythe other partners. c) Dormant

partner- one who does not takeactive part in the business and is notknown or held out as partner.

KEY: CP2L

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Capitalist Partner IndustrialPartner

1. as to contribution

contributes moneyor property

contributes hisindustry (mentalor physical)

2. as to prohibition to engage inother business

Cannot generallyengage in the sameor similar enterpriseas that of his firm

cannot engage inany business forhimself

3. as to profits1. shares in the

profits accordingto agreement

thereon;2. if none, pro rata

to his

contribution

receives a just

and equitableshare

4. as to losses

1. first, thestipulation as tolosses;

2. if none, theagreement as toprofits;

3. if none, pro ratato contribution

exempted as tolosses (asbetween

partners); but isliable to thirdpersons, without

prejudice toreimbursement

from the

capitalistpartners

OBLIGATIONS OF PARTNERS AMONGTHEMSELVES:

I. Obligation with respect to

contribution of property

a) To contribute what had beenpromised

b) To answer for eviction in casethe partnership is deprived ofdeterminate propertycontributed

c) To answer to the partnership forthe fruits of the property thecontribution of which is delayed,from the date they should havebeen contributed to the time of

actual deliveryd) To preserve the property with

the diligence of a good father ofa family pending delivery to thepartnership

e) To indemnify the partners forany damages caused to it by theretention of the same or bydelay in its contribution.

II. Obligations with respect tocontribution of money and money

converted to personal use

a) To contribute on the date duethe amount he has undertaken tocontribute to the partnership

b) To reimburse any amount he mayhave taken from the partnershipcoffers and converted to his ownpersonal use

c) To pay the agreed or legalinterest, if he fails to pay hiscontribution on time or in casehe takes any amount from thecommon fund and converted to

his own personal used) To indemnify the partnership for

the damages caused to it by the

delay in the contribution or theconversion of any sum for hispersonal benefit.

III. Obligation Not to Engage in OtherBusiness for Himself

1. Industrial partner- cannot engage in

any business for himself unless thepartnership expressly permits him todo so. The other partners have theremedy of either excluding theerring partner from the firm or ofavailing themselves of the benefitswhich he may have obtained.

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Note: The prohibition is absolute andapplies whether the industrialpartner is to engage in the samebusiness in which the partnership isengaged or in any kind of business. It

is clear that the reason for theprohibition exists in both cases,

which is to prevent any conflict ofinterest between the industrialpartner and the partnership and toinsure faithful compliance by saidpartner with his prestation(Evangelista & Co. vs. Abad Santos,51 SCRA 416, 1973)

2. Capitalist partner- The prohibitionextends only to any operation which

is of the same kind of business inwhich the partnership is engagedunless there is a stipulation to thecontrary.

IV. Obligation to Contribute AdditionalCapital

As a general rule, a capitalistpartner is not bound to contribute to thepartnership more than what he agreed to

contribute but in case of an imminentloss of the business, and there is noagreement to the contrary, he is underobligation to contribute an additionalshare to save the venture. If he refusesto contribute, he shall be obliged to sellhis interest in the partnership to otherpartners.

V. Obligation of Managing Partner whoCollects Debt

Where a person is separatelyindebted to the partnership and to themanaging partner at the same time, anysum received by the managing partnershall be applied to the two credits inproportion to their amounts, exceptwhere he received it entirely for theaccount of the partnership, in which

case the whole sum shall be applied tothe partnership credit only.

Requisites for the application of therule:

1) There exists two debts, one wherethe collecting partner is creditor,the other, where the partnership iscreditor.

2) Both debts are demandable3) The partner who collects is

authorized to manage and actually

manages the partnership.

VI. Obligation of Partner Who ReceivesShare in Partnership Credit

A partner who receives, in wholeor in part, his share in the partnership,when the others have not collectedtheirs, shall be obliged, if the debtorshould thereafter become insolvent, tobring to the partnership capital what hereceived even though he may have givenreceipt for his share only.

Requisites for application of rule:

1) A partner has received, in whole orin part, his share in the partnershipcredit

2) The other partners have notcollected their shares.

3) The partnership debtor has becomeinsolvent.

VII. Obligation of Partner for Damagesto Partnership

Every partner is responsible to thepartnership for damages suffered by itthrough his fault. He cannot compensatethem with the profits and benefits which

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he may have earned for the partnershipby his industry.

VIII. Duty to Render Information

Partners shall render on demandtrue and full information of all thingsaffecting the partnership to any partneror the legal representative of anydeceased partner of any partner underlegal disability.

IX. Obligation to account for anybenefit and hold as trustee

unauthorized personal profits

Every partner must account tothe partnership for any benefit, and holdas trustee for it any profits derived byhim without the consent of the otherpartners from any transaction connectedwith the formation, conduct, liquidationof the partnership or form any use byhim of its property.

RIGHTS OF A PARTNER:

1. Property rights of a partnera) His rights in the specific

partnership propertyb) His interest in the partnershipc) His right to participate in the

management2. Right to reimbursement for amounts

advanced to the partnership and toindemnification for risks in

consequence of management3. Right to associate with another

person in his share4. Right of access and inspection of

partnership books5. Right to true and full information of

all things affecting the partnership6. Right to a formal account of

partnership affairs under certaincircumstances

NOTE: The ten year period todemand an accounting by a partnerbegins at the dissolution of thepartnership.

7. Right to have partnership dissolvedunder certain conditions.

RULES FOR DISTRIBUTION OF PROFITSAND LOSSES

1. Distribution of profitsa) According to their agreement

(but not inequitously to defeatArt.1799)

b) If none,1) Share of capitalist partner

shall be in proportion to hiscapital contribution

2) Industrial partner shallreceive such share as may bejust and equitable under thecircumstances

2. Distribution of lossesa) According to their agreement as

to losses (but not inequitously todefeat Art.1799)

b) If none, according to theiragreement as to profits

c) If none, in proportion to hiscapital contribution, but thepurely industrial partner shallnot be liable for the losses

GENERAL RULE: A stipulation excludinga partner from any share in the profits orlosses is VOID (Article 1799)

EXCEPTION:Article 1797(2) excludes anindustrial partner from losses. Thus, astipulation excluding an industrialpartner from losses is VALID, but he is

NOT exempted from liability insofar asthird persons are concerned.

NOTE: In general, LIABILITY refers toresponsibility towards third persons, andLOSSES refers to responsibility as amongpartners

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CONTRACT OF SUB-PARTNERSHIP

One formed between a member of apartnership and a third person for adivision of profits owing to him fromthe partnership enterprise.

It is a partnership within apartnership distinct and separatefrom the main or principalpartnership.

NOTE: In the absence of unanimous

consent of all the partners, a sub-partner does not become a member ofthe partnership. Hence, a sub-partnerdoes not acquire the rights of a partnernor is he liable for its debts

PROPERTY RIGHTS OF A PARTNER

1. Right to specific partnershipproperty

contemplates tangible property The specific partnership property

belongs to the partnership as aseparate juridical personality. Thepartners have no actual interest in ituntil after dissolution.

equal right with other partners topossess specific partnership propertyfor partnership purposes

not assignable, except in connectionwith the assignment of rights of allpartners in the same property

not subject to attachment orexecution, except on a claim againstthe partnership

not subject to legal support

NOTE: Any immovable property or aninterest therein may be acquired in thepartnership name. The title so acquiredmay be conveyed only in the partnershipname subject to the provisions ofArticle1819 of the Civil Code.

2. Interest in the partnership

share in the profits and surplus A partner actually owns his

respective share.

Effects of conveyance by a partner ofhis interest in the partnership

1. conveyance of his whole interest partnership may either remain or bedissolved

2. assignee does not necessarilybecome a partner

3. assignee cannot interfere in the

management or administration ofthe partnership business or affairs

4. assignee cannot demandinformation, accounting and

inspection of the partnership books

Remedies of separate judgmentcreditor of a partner

Application for a charging orderafter securing judgment on his creditto subject the interest of the debtorpartner with payment of unsatisfiedamount of the judgment debt

Redemption of interest charged

1. General partnership

a) with separate property of apartner; or

b) with partnership property, withthe consent of all the partnerswhose interests are not socharged or sold

2. Limited partnership (interest oflimited partner)

a) with separate property of anygeneral partner but NOT withpartnership property

3. Right to participate in themanagement

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MANAGEMENT OF PARTNERSHIP

I. When the manner of management

has been provided for in thepartnership agreement

A.When a managing partner hasbeen appointed

1) Appointment in the articles ofpartnership

a. Power is irrevocable withoutjust or lawful cause

i. to remove him for JUSTcause, vote of partnersrepresenting controllinginterest is necessary

ii. to remove him without justcause or for an UNJUST cause,

there must be unanimityincluding his own vote

b. Extent of power

i. if he acts in good faith, hemay do all acts ofADMINISTRATION, despite

opposition of his partners

ii. if in bad faith, he cannot.

2) Appointment other than in thearticles of partnership

a. Power to act may be revoked

at any time, with or withoutjust cause

b. Extent of power: as long as heremains manager, he can performall acts of administration, but ifothers oppose and he persists, hecan be removed

B. When two or more managingpartners have been entrustedwith the management ofpartnership

1)Without specification of theirrespective duties and withoutstipulation requiring unanimity ofaction

GENERAL RULE:Each managingpartner may execute all acts ofadministration

EXCEPTION: If any of themanaging partners shouldoppose,

a) Decision of the majorityof the managing partners

shall prevailb) In case of a tie, decision

of the partnersrepresenting the

controlling interest shallprevail

2) With stipulation requiringunanimity of action

GENERAL RULE: Unanimousconsent of all the managingpartners shall be necessary forthe validity of the acts andabsence or inability of any

managing partner cannot bealleged

EXCEPTION: When there is animminent danger of grave orirreparable injury to thepartnership, partner may actalone without the consent of thepartner who is absent or underdisability

II. When manner of management hasnot been agreed upon

a) All partners shall be consideredmanagers and agents

b) Unanimous consent required foralteration of immovable property

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OBLIGATIONS OF PARTNERS TO THIRDPERSONSI. Liability for contractual obligations

(ART 1816)1. All partners, including industrial

partners, are personally liablewith all their property. Their

individual liability is pro rata andsubsidiary, unless otherwisestipulated

2. Liability of partnership for actsof partnersa) Acts for apparently carrying

on in the usual way thebusiness of the partnership

GENERAL RULE: Act bindsthe partnership.

EXCEPTION: Partnership isnot bound if:

i. acting partner has in factno authority and

ii. the third person knowsthat the acting partnerhas no authority

b) Acts of Strict Dominion orOwnership (acts which arenot apparently for carryingon in the usual way thebusiness of the partnership)

GENERAL RULE: Act doesnot bind the partnership.

EXCEPTION: Partnership isbound if:

i. the act is authorized by allthe partners; or

ii. they have abandoned thebusiness

c) Acts in contravention of arestriction on authorityi. Partnership is not liable to

third persons having actual

or presumptive knowledgeof the restrictions

II. Liability arising from partners tort(ART 1822) or Breach of Trust (ART1823)1. Where, by any wrongful act or

omission of any partner acting inthe ordinary course of business

of the partnership or withauthority of his co-partners, lossor injury is caused to any person,not being a partner in thepartnership (Article 1822)

2.

Where one partner, acting withinthe scope of his apparent

authority, receives money orproperty of a third person andmisapplies it (Article 1823)

3. Where the partnership, in thecourse of its business, receivesmoney or property and it ismisapplied by any partner whileit is in the custody of thepartnership (Article 1823)

NOTE: All partners are solidarily liablewith the partnership for any penalty or

damage arising from a partnership tortor breach of trust

III. Criminal liability of partnership Partnership liability does not extend

to criminal liability where thewrongdoing is regarded as individualin character. But where the crime isstatutory, especially when it involvesa fine rather than imprisonment,criminal liability may be imposed

LIABILITY OF STOCKHOLDERS IN ADEFECTIVELY FORMED CORPORATION It is ordinarily held that persons whoattempt but fail to form a

corporation and carry on businessunder the corporate name occupythe position of partners inter se.Thus where persons associatethemselves together under articlesto purchase property to carry on abusiness, and their organization is sodefective as to come short ofcreating a corporation within thestatute, they become in legal effectpartners inter-se.

Exception: One who takes no part

except to subscribe for stock in aproposed corporation, which wasnever legally formed, does notbecome a partner with othersubscribers who engage in businessunder the name of the pretendedcorporation, so as to be liable assuch in an action for settlement ofthe alleged partnership and

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contribution. (Pioneer Insurance &Surety Corporation vs. Court ofAppeals, 175 SCRA 668 [1989].)

PRINCIPLE OFDELECTUS PERSONARUM

A rule inherent in every partnershipwherein no one can become amember of the partnership withoutthe consent of all the partners.

NOTE: This element of delectuspersonae is true only in case of a generalpartner, but NOT as regards a limitedpartner.

MUTUAL AGENCY Partnership is a contract of mutual

agency, each partner acting as aprincipal on his own behalf, and asan agent of his co-partners and thepartnership.

Requisites When A Partner Binds ThePartnership1. when he is expressly or impliedly

authorized2. when he acts in behalf and in the

name of the partnership

PARTNERSHIP BY ESTOPPEL Arises when a person, by words

spoken or written or by conduct,represents himself or consents toanother representing him to anyone,as partner in an existing partnership,or with one or more persons notactual partners; he is liable to anysuch person to whom suchrepresentation has been made, whohas, on the faith of suchrepresentation given credit to the

actual or apparent partnership. (Art1825)

NOTE: Art. 1825 does not create apartnership as between the allegedpartners. A contract, express or impliedis essential to the creation ofpartnership. The law considers thempartners and the association as a

partnership insofar as it is favorable tothird persons. However, partnershipliability is created only in favor ofpersons who on the faith of suchrepresentation given credit to the actual

or apparent partnership

DISSOLUTION

Change in the relation of thepartners caused by any partnerceasing to be associated in carryingon the business. (Article 1828)

It is the point in time when thepartners cease to carry on the

business together. It represents thedemise of a partnership.

NOTE: The dissolution of a partnershipmust not be understood in the absoluteand strict sense so that at thetermination of the object for which itwas created the partnership isextinguished. (Testate of Mota vs.Serra, 47 PHIL 464, 1926.) Dissolutiondoes not automatically result in thetermination of the legal personality ofthe partnership, nor the relations of thepartners among themselves who remainas co-partners until the partnership isterminated.

WINDING UP

Process of settling the partnershipbusiness or affairs after dissolution.

TERMINATION

Point in time when all partnershipaffairs are wound up or completedand is the end of the partnershiplife.

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CAUSES OF DISSOLUTION

1. Extrajudicial dissolution (ART

1830) - the parties may agree toexpand the grounds provided underArt 1830 but NOT to delimit them.The causes enumerated are asfollows:

a. Without violation of theagreement between the partners

i. By the termination of thedefinite term or particular

undertaking specified inthe agreement;

ii. By the express will of anypartner, who must act ingood faith, when nodefinite term or particular

undertaking is specified;iii. By the express will of all

the partners who have notassigned their interest or

suffered them to becharged for their separatedebts, either before orafter the termination of anyspecified term or particular

undertaking;iv. By the expulsion of any

partner from the businessbona fide in accordancewith such power conferredby the agreement between

the partners;b. In contravention of theagreement between thepartners, where thecircumstances do nor permit adissolution under any otherprovision of this article by theexpress will of any partner atany time.

c. By any event which makes itunlawful for the business of thepartnership to be carried on orfor the members to carry it on inpartnership.

d.W

hen a specific thing, a partnerhad promised to contribute,perishes before its delivery. Orwhere the partner onlycontributed the use orenjoyment of the thing and hasreserved ownership thereof, itsloss, before or after deliverydissolves the partnership.

e. By the death of any partner;f. By the insolvency of any partner

or the partnership;g. By the civil interdiction of any

partner;

2. Judicial dissolution (ART 1831) -when so decreed by the court, thepresiding judge may place thepartnership under receivership anddirect an accounting to be madetowards winding up the partnershipaffairs.

On application by or for any partner,the court shall decree a dissolutionwhenever:

a. A partner has been declared

insane in any judicial proceedingor is shown to be of unsoundmind;

b. A partner becomes in any otherway incapable of performing hispart of the partnership contract;

c. A partner has been guilty of suchconduct as tend to affectprejudicially the carrying on ofthe business;

d. A partner willfully or persistentlycommits a breach of thepartnership agreement, orotherwise so conducts himself inmatters relating to thepartnership business that it isnot reasonably practicable tocarry on the business inpartnership with him.

e. The business of the partnershipcan only be carried on in a loss;

f. Other circumstances render adissolution equitable.

On application of the purchaser of a

partners interest under Article 1813or 1814:

a. After the termination of thespecified term or particularundertaking;

b. At any time if the partnershipwas a partnership at will whenthe interest was assigned or

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when the charging order wasissued.

EFFECTS OF DISSOLUTION

A. As to partners authority to act forthe partnership

GENERAL RULE: Dissolution terminatesall authority of any partner to act for thepartnership

EXCEPTIONS:

1. Acts necessary to wind uppartnership affairs

2. Acts necessary to completetransactions begun but not thenfinished

Note: Thus, dissolution terminatesthe ACTUAL authority of a partner toundertake NEW business for thepartnership

QUALIFICATIONS TO THE GENERALRULE:

1. With respect to the partners (in sofar as partners themselves areconcerned)

a) Dissolution is not by act,insolvency or death of a partner:General Rule applies. Hence,dissolution terminates theACTUAL authority of a partner toundertake NEW business for thepartnership

b) Dissolution is by act, insolvencyor death of a partner:

GENERAL RULE: Authority ofpartners inter se to act for thepartnership is NOT deemedterminated. Thus, each partneris liable to his co-partners for hisshare of any liability created byany partner acting for the

partnership as if the partnershiphas not been dissolved

EXCEPTIONS:

1) The cause of dissolution isthe ACT of a partner and theacting partner hadKNOWLEDGE of suchdissolution

2) The cause of dissolution isthe DEATH or INSOLVENCY ofa partner and the acting

partner had KNOWLEDGE orNOTICE of such dissolution

2. With respect to persons notpartners (third persons)

a) When partnership is bound tothird persons after dissolution1) Act appropriate for winding

up partnership affairs2) Act appropriate for

completing unfinishedtransactions

3) Completely NEW transactionwhich would bind thepartnership if dissolution hadnot taken place provided:

the other party is in goodfaith, meaning:i. Previous creditor (had

previously extendedcredit) AND he had NOKNOWLEDGE or NOTICEof the dissolution, OR

ii. NOT a previous creditorAND the fact ofdissolution had not beenpublished in a newspaperof general circulation

b) When partnership is NOT boundto third persons after dissolution

1) Where partnership wasdissolved because it wasunlawful to carry on thebusiness, except when theact is for winding up

2) Where the acting partner inthe transaction has becomeinsolvent

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3) Where the partner isunauthorized to wind up,except if the transaction iswith third persons in goodfaith (under the same

circumstances as definedabove)

4) Where act is NOTappropriate for winding uppartnership affairs or forcompleting unfinishedtransactions

5) completely NEW transactionwhich would bind thepartnership if dissolution hadnot taken place with thirdpersons in bad faith

B. As to partners existing liabilityGENERAL RULE: Dissolution does notautomatically discharge the existingliability of any partner

EXCEPTION:A partner may be relievedfrom all existing liabilities upondissolution ONLY by an agreementbetween:

1. Partner concerned2. Other partners3. Partnership creditors

Note: The consent of the partnershipcreditors and the other partners tothe novation may be implied fromtheir conduct.

RIGHTS OF A PARTNER UPONDISSOLUTION

1. Where dissolution is NOT incontravention of the partnershipagreement

a) To have partnership propertyapplied to discharge partnershipliabilities

b) To receive in cash his share ofthe surplus

2. Where dissolution is incontravention of the partnershipagreementa) Rights of a partner who has not

caused the dissolution wrongfully

1) To have partnership propertyapplied to discharge

partnership liabilities2) To receive in cash his share

of the surplus3) To be indemnified for

damages caused by thepartner guilty of thewrongful dissolution

4) To continue the business inthe same name during theagreed term of thepartnership, by themselvesor jointly with others

5) To possess partnershipproperty should they decideto continue the business

b) Rights of a partner who haswrongfully caused the dissolution

1) If the business is notcontinued by the otherpartnersi. To have partnership

property applied todischarge partnershipliabilities

ii. To receive in cash his shareof the surplus less damages

caused by his wrongfuldissolution

2) If the business is continued

i. To have the value of hisinterest in the partnership

at the time of thedissolution, surplus lessdamages caused by hiswrongful dissolution to hisco-partners, ascertainedand paid in cash or securedby a bond approved by thecourt; AND

ii. To be released from all

existing and futureliabilities

NOTE: The value of thegoodwill of the business isnot considered inascertaining the value of the

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interest of the guiltypartners.

RIGHTS OF A PARTNER WHEREPARTNERSHIP CONTRACT IS RESCINDEDON THE GROUND OF FRAUD ORMISREPRESENTATION

(NOTE: The following are the rights ofthe partner entitled to rescind)

1. Right of LIEN on, or RETENTION of,the surplus of partnership propertyafter satisfying partnership liabilitiesfor any sum of money paid orcontributed by him

2. Right of SUBROGATION in place ofthe partnership creditors afterpayment of partnership liabilities;

and3. Right of INDEMNIFICATION by the

guilty partner against all debts andliabilities of the partnership

MANNEROF WINDING UP

1. Extrajudicial by the partnersthemselves without the intervention

of the court2. Judicial under the control and

direction of the court upon propercause shown by any partner, hislegal representative or his assignee

PERSONS AUTHORIZED TO WIND UP

1. partners designated by theagreement

2. in the absence of such agreement,

all partners who have not wrongfullydissolved the partnership3. legal representative of last surviving

partner not insolvent

ORDEROF PAYMENT IN WINDING UP

1. General Partnership (ART 1839 (2))a) those owing to creditors other

than partnersb) those owing to partners other

than for capital or profits

c) those owing to partners inrespect of capital

d) those owing to partners inrespect of profits

2. Limited Partnership (ART 1863)a) those owing to creditors, except

those to limited partners onaccount of their contribution,and to general partners

b) those owing to limited partnersin respect of their share of theprofits and other compensationby way of income

c) those owing to limited partnersin respect of their capitalcontributions

d) those owing to general partnersother than for capital and profits

e) those owing to general partnersin respect of profits

f) those owing to general partnersin respect of capital

DOCTRINE OF MARSHALLING OF ASSETS(Article 1839(8))

1. Partnership creditors havepreference in partnership assets

2. Separate or individual creditors havepreference in separate or individualproperties

3. Anything left from either goes to theother

PARTNERS LIEN

Right of every partner to have thepartnership property applied todischarge partnership liabilities ANDto have the surplus assets, if any,

distributed in cash to the respectivepartners, after deducting what maybe due to the partnership from themas partners.

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LIMITED PARTNERSHIP

One formed by two or more persons

having as members one or moregeneral partners and one or morelimited partners, the latter not beingpersonally liable for partnershipdebts.

NOTE: The Supreme Court, declared afirm to be a general partnership in acase where it appears that the inclusionof Ltd. (limited) in the firm was only asubterfuge resorted to by the partners inorder to evade liability for possiblelosses, while assuming their enjoymentof advantages to be derived from the

relation. Jo Chung Cang vs. PacificCommercial Co. 45 PHIL 142 [1923]). Inother words if the parties intended ageneral partnership, they are generalpartners although their purpose is toavoid the creation of such a relation.

Characteristics of Limited Partnership

1. Limited partnership is formed bysubstantial compliance in good faithwith the statutory requirements

2. One or more general partners controlthe business and are personallyliable to creditors

3. One or more limited partnerscontribute to the capital and sharein the profits but do not participatein the management of the businessand are not personally liable forpartnership obligations beyond theamount of their capital contributions

4. The limited partners may ask for the

return of their capital contributionsunder the conditions prescribed bylaw

5. The partnership debts are paid out

of the common fund and theindividual properties of the generalpartners

LimitedPartner/Partnership

GeneralPartner/

Partnership1. Extent of liability

Limited partnersliability extends only tohis capital contribution

Generalpartner ispersonally

liable forpartnershipobligations

2. Right to participate in themanagement of partnership

Limited partner has no

share in themanagement of alimited partnership andrenders himself liable to

partnership creditors asa general partner if hetakes part in the controlof the business

General

partners havean equal rightin themanagement of

the business(when themanner ofmanagementhas not beenagreed upon)

3. ContributionLimited partner mustcontribute cash orproperty to thepartnership but notservices

Generalpartner maycontributemoney,property or

industry to thepartnership

4. Proper party to proceedings by oragainst the partnership

Limited partner is not aproper party toproceedings by oragainst a partnershipUnless:

1. he is also a generalpartner, or

2. where the object ofthe proceeding is to

enforce a limitedpartners rightagainst or liability tothe partnership

Generalpartner is theproper party toproceedings byor against a

partnership

5. Transferability of interest

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Limited partnersinterest is freelyassignable, withassignee acquiring allthe rights of the limited

partner subject tocertain qualifications

Generalpartnersinterest in thepartnershipmay not be

assigned as tomake the

assignee a newpartner withoutthe consent ofthe otherpartners,although hemay associate athird personwith him in hisshare

6. Inclusion of partners name in thefirm name

As a general rule, nameof a limited partnermust not appear in thefirm name

Name of ageneral partnermay appear inthe firm name

7. Prohibition to engage in otherbusiness

No such prohibition inthe case of a limitedpartner who isconsidered a merecontributor to thepartnership

Generalpartner isprohibited fromengaging in abusiness whichis of the SAMEkind of businessin which the

partnership isengaged, if he

is a capitalistpartner, or inANY of business

for himself ifhe is an

industrialpartner

8. Effect of retirement, death, insanityor insolvency

Retirement, death,insanity or insolvency ofa limited partner doesnot dissolve thepartnership for his

executor oradministrator shall have

the rights of a

limited partner for thepurpose of selling hisestate

Retirement,death, insanityor insolvency ofa generalpartner

dissolves thepartnership

9. CreationLimited partnership iscreated by the membersafter substantialcompliance in goodfaith with the

requirements set forth

by law

Generalpartnership, asa general rule,may beconstituted in

any form by

contract orconduct of thepartnership

10. Members of the partnershipComposed of one or

more general partnersand one or more limitedpartners

Composed only

of generalpartners

11. Firm nameFirm name must befollowed by the wordLimited

No suchrequirement

12. Rules governing dissolution and

winding upGoverned by Art. 1839 Governed by

Art. 1863

ESSENTIAL REQUIREMENTS FORFORMATION OF LIMITED PARTNERSHIP

1. A certificate or articles of limitedpartnership which states the mattersenumerated in Article 1844, whichmust be signed and sworn;

2. Such certificate must be filed forrecord in the Office of the Securities

and Exchange Commission.

NOTE: A strict compliance with the legalrequirements is not necessary. It is

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sufficient that there is substantialcompliance in good faith. If there is nosubstantial compliance, the partnershipbecomes a general partnership as far asthird persons are concerned, in which all

the members are liable as generalpartners. (Jo Chung Cang vs. Pacific

Commercial Co., 45 PHIL 142 [1923].)

However, a firm which fails tosubstantially comply with the formalrequirements of a limited partnership isa general partnership only as to itsrelations to third persons. The firm is alimited partnership, subject to all rulesapplicable to such partnership; and asbetween the partners they are bound bytheir agreement; and that all the limitedpartners relations to his co-partners and

their obligations to him growing out ofthe relation remain unimpaired.

As to third persons or creditorsguilty of estoppel, the firm shall not betreated as a general partnership despitelack of substantial compliance to therequirements of a limited partnership. Ifcreditors deal with the firm as a limitedpartnership, they will be estopped frominsisting that there is no suchpartnership, or that the terms of thepartnership were not sufficiently statedin the notice of its formation. (40 Am.

Jur. 476.)

CONTENTS OF THE CERTIFICATE ORARTICLES OF LIMITED PARTNERSHIP

1. Name of the partnership, addingthereto the word limited;

2. Character of the business;3. Location of the principal place of

business;4. Name and place of residence of each

member, general and limitedpartners being respectivelydesignated;

5. Term for which the partnership is toexist;

6. Amount of cash and description ofand the agree value of the otherproperty contributed by each limitedpartner;

7. Additional contributions to be madeby each limited partner and thetimes at which or events on thehappening of which they shall bemade;

8. Time, if agreed upon, when tocontribution of each limited partner

is to be returned;9. Share in the profits or other

compensation by way of incomewhich each limited partner shallreceive by reason of hiscontribution;

10.Right, if given, of a limited partnerto substitute an assignee ascontributor in his place, and theterms and conditions of thesubstitution;

11.Right, if given, of the partners to

admit additional partners;12.Right, if given, of one or more of thelimited partners to priority overother limited partners, as tocontributions or as to compensationby way of income, and the nature ofsuch priority;

13.Right, if given, of the remaininggeneral partner or partners tocontinue the business on the death,retirement, civil interdiction,insanity or insolvency of a generalpartner; and

14.Right, if given, of a limited partner

to demand and receive propertyother than cash in return of hiscontribution.

LIABILITY FOR FALSE STATEMENT INCERTIFICATE

Any partner to the certificatecontaining a false statement is liable toone who suffers loss by reliance on suchcertificate provided the followingrequisites are present:

1. He knew the statement to be falseat the time he signed thecertificate, or subsequently havingsufficient time to cancel or amend

it or file a petition for itscancellation or amendment, hefailed to do so;

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2. The person seeking to enforceliability has relied upon the falsestatement in transacting businesswith the partnership;

3. The person suffered a loss as a

result of reliance upon such falsestatement.

MANAGEMENT OF LIMITEDPARTNERSHIP

A general partner in a limitedpartnership is vested with the entire

control of the firms business andhas all the rights and powers and issubject to all the liabilities andrestrictions of a partner in a general

partnership. A general partner in a limited

partnership however has noauthority, without written consentor ratification of all limited partners,to:1. Do any act in contravention of

the certificate;2. Do any act which would make it

impossible to carry on theordinary business of thepartnership;

3. Confess judgment against thepartnership;

4. Possess partnership property, orassign their rights in specificpartnership property, for other

that a partnership purpose;5. Admit a person as a general

partner;6. Admit a person as a limited

partner, unless the right to do sois given in the certificate

7. Continue the business with thepartnership property on thedeath, retirement, insanity, civilinterdiction or insolvency of ageneral partner, unless the right

to do so is given in thecertificate.

A limited partner is liable as ageneral partner for the firmsobligations if he takes part orinterferes in the management of thebusiness.

RIGHTS OF A LIMITED PARTNER

KEY: BIF2AR2

1. To have the partnership books keptat the principal place of business ofthe partnership

2. To inspect, at a reasonable hour,partnership books and copy any ofthem

3. To demand true and full informationof the things affecting thepartnership

4. To demand a formal account of thepartnership affairs whenevercircumstances render it just andreasonable

5. To ask for dissolution and winding upby decree of court

6. To receive a share in the profits orother compensation by way ofincome

provided: that the partnershipassets are in excess of partnershipliabilities after such payment

7. To receive the return of hiscontribution provided:

a) All the liabilities of the

partnership have been paidOR the partnership assetsare sufficient to paypartnership liabilities

b) The consent of all themembers (general andlimited partners) has beenobtained

EXCEPTION:

When the return of thecontribution may berightfully demanded:

1) On the dissolution of thepartnership

2) Upon the arrival of thedate specified in thecertificate for the return

3) After he has given 6months notice in writing

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to all other partners, ifno time is specified inthe certificate their forthe return of thecontribution or for the

dissolution of thepartnership

c) The certificate is cancelledor so amended as to setforth the withdrawal orreduction

LIABILITIES OF A LIMITED PARTNER

1. Liability for unpaid contributiona) For the difference between his

contribution as actually made

and that stated in the certificateas having been made; AND

b) For any unpaid contributionwhich he has agreed in thecertificate to make in the futureat the time and the conditionsstated in the certificate

2. Liability as trusteea) Specific property stated in the

certificate as contributed byhim, but which was notcontributed or which has beenwrongfully returned; AND

b) Money or other propertywrongfully paid or conveyed tohim on account of hiscontribution

NOTE:These liabilities can be waived orcompromised only by consent of all themembers; but a waiver or compromiseshall NOT affect the right of a creditor ofa partnership who extended credit orwhose claim arose after the filling and

before the cancellation or amendment ofthe certificate, to enforce suchliabilities.

SUBSTITUTED LIMITED PARTNER

A person admitted to all the rights ofa limited partner who has died of hasassigned his interest in the

partnership.

GENERAL RULE: He has all, the rightsand powers, and is subject to all therestrictions and liabilities of his assignor.

EXCEPTION: Those liabilities which hewas ignorant at the time he became alimited partner AND which could not beascertained from the certificate.

REQUISITES IN ORDER THAT THEASSIGNEE MAY BECOME A SUBSTITUTEDLIMITED PARTNER

1. All the members must consent to theassignee becoming a substitutedlimited partner, OR the limitedpartner, being empowered by thecertificate must give the assigneethe right to become a limitedpartner

2. The certificate must be amended in

accordance with Art.18653. The certificate as amended must be

registered in the Securities andExchange Commission

ALLOWABLE TRANSACTIONS OF ALIMITED PARTNER

Being merely a contributor to thepartnership is not prohibited from:

1. granting loans to the partnership2. transacting other business with the

partnership3. receiving a pro rata share of the

partnership assets with the generalcreditors if he is NOT also a generalpartner

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NOTE:In transacting a business with thepartnership as a non-member, thelimited partner is considered a non-

partner creditor

PROHIBITED TRANSACTIONS OF ALIMITED PARTNER

1. receiving or holding as collateralsecurity any partnership property; or

2. receiving any payment, conveyance,or release from liability if it willprejudice the partnership creditors

NOTES:

Violation of the prohibition will giverise to the presumption that it hasbeen made to defraud partnershipcreditors

The prohibition is NOT ABSOLUTE,there is no such prohibition if thepartnership assets are sufficient todischarge partnership liabilities topersons not claiming as general orlimited partners.

AGENCY

CONTRACT OF AGENCY

A contract whereby a person (agent)binds himself to render some serviceor to do something in representationor on behalf of another (principal),with the consent or authority of thelatter. (Article 1868)

The parties to the contract are:

1. Principal- one whom the agentrepresents and from whom hederives authority; he is the

person represented.2. Agent- one who acts for and

represents another; he is theperson acting in a representativecapacity.

AGENCY LEASE OFSERVICES

1. Principle of

representation isapplied.

1. Principle of

employment isapplied.

2. Extinguished at

will of the principal.

2. Concurrence of

parties is necessary.

3. Agent exercisediscretionary powerto attain an end forwhich he wasappointed.

3. Employee exerciseministerial functionsonly.

4. PreparatoryContract

4. Principal Contract

AGENCY TO SELL SALE

1. Agent receives thegoods as the goods ofthe principal.

1. The buyerreceives goods asowner

2. Agent delivers theproceeds of the sale

2. Buyer pays theprice.

3. Agent can return

the object in case heis unable to sell the

same

3. the buyer, as a

rule, cannot returnthe object sold

4. Bound to actaccording to theinstructions of hisprincipal.

4. The buyer candeal with the thingas he please beingthe owner.

PURPOSE OF AGENCY

The purpose of agency is to extendthe personality of the principalthrough the facility of the agent. Itenables the activity of man which isnaturally limited in its exercise by

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the impositions of his physiologicalconditions to be legally extended bypermitting him to be constructivelypresent in many different places andto perform diverse juridical acts and

carry on many different activitiesthrough another when physical

presence is impossible or inadvisableat the same time. (11 Manresa 434)

ELEMENTS OF AGENCY

A. Consent

Any person or entity having juridicalcapacity and capacity to act and nototherwise disqualified, may enterinto an agency.

But as regards the party with whom

the agent acts or contracts, the legalcapacity of the principal rather thanthe agent, is of the greater import.

B. Object

the services to be undertaken by the

agent may cover all acts pertaining to a

business of the principal (generalagency) or one or more specifictransactions (special agency)

the extent of the agents authorityto act, whether it be a general or aspecial agency, depends on how theagency is couched.

C. Cause

May be onerous or gratuitous butpresumed for compensation

NOTE: The agent may not be deprivedof his right to compensation by anunjustified revocation of the agency

KINDS OF AGENCY

1. as to manner of creation

a) express- one where the agenthas been actually authorizedby the principal, either orallyor in writing;

b) implied- one which is impliedfrom thei. acts of the principal- from

his silence or lack of action,or his failure to repudiatethe agency knowing thatanother person is acting onhis behalf without authority.

ii. Acts of the agent- when hecarries out the agency, orfrom his silence or inaction

according to thecircumstances.

2. as to its charactera) gratuitous- one where the

agent receives nocompensation for his services.

b) compensated or onerous-one where the agent receivescompensation for his services.

3. as to extent of business covereda) general- one which comprises

all the business of theprincipal;

b) special- one which comprisesone or more specifictransactions.

4. as to authority conferreda) couched in general terms-

one which is created ingeneral terms and is deemedto comprise only acts ofadministration;

b) couched in specific terms-one authorizing only theperformance of a specific actor acts.

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5. as to its nature and effectsa) ostensible or

representative- one where

the agent acts in the nameand in representation of theprincipal.

b) simple or commission- onewhere the agent acts in hisown name but for theaccount of the principal.

ACTS WHICH MAY BE DELEGATED TO ANAGENT

GENERAL RULE: What a man may do inperson, he may do thru another.

EXCEPTIONS:

1. Personal acts- if personalperformance is required the doing ofan act by a person on behalf ofanother does not constituteperformance by the latter.

a) Voting during an election;b) Making a will;c) Making statements which arerequired to be done under oath;d) A member of the board of

directors or trustees in acorporation cannot validly act assuch by proxye) An agent cannot delegate toa sub-agent the performance ofacts which he has beenappointed to perform in person.

2. Criminal Acts or Acts not allowed bylaw- There can be no agency in theperpetration of a crime or unlawful act.

Examples:

a) An alien principal using anagent to acquire lands;b) Persons who, because of theirposition and relation with thepersons under their charge orproperty under control, areprohibited from acquiring said

property and cannot do so throughan agent.

FORM OF AGENCY

Agency may be express or impliedfrom the acts of the principal, fromhis silence or lack of action, or hisfailure to repudiate the agency,knowing that another person isacting on his behalf withoutauthority. (Article 1869)

NOTE: In an implied agency, theprincipal is still bound by the acts of theagent just as in case of express agency

GENERAL RULE: There are no formal

requirements governing the appointmentof an agent. The agents authority maybe oral or written. It may be in a publicor private writing.EXCEPTION: When the law requires aspecific form

Example: Sale of a piece of land orany interest therein through anagent:

NOTES:

authority to sell must be in writing;otherwise the sale is VOID (Art.1874)

the sale itself should be in writing inorder to be enforceable.

The authority of an agent to executea contract of sale of real estate mustbe conferred in writing and mustgive him specific authority, either toconduct the general business of theprincipal or to execute a bindingcontract containing terms andconditions which are in the contracthe did execute. (Dizon et al. vs. CA

et al., GR 124741, January 28, 2003)

FORM OF ACCEPTANCE BY AGENT

Acceptance by the agent may also beexpress or implied from his actswhich carry out the agency, or from

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his silence or inaction according tothe circumstances

Kinds of Implied Acceptance

1. Where persons are present Acceptance may be implied if:a. principal delivers his power of

attorney to the agent andb. agent receives it without any

objection2. Where persons are absent

GENERAL RULE:Acceptance cannotbe implied from silence of the agent

EXCEP

TION:

1. principal transmits his power ofattorney to the agent, whoreceives it without anyobjection;

2. principal entrusts to him byletter or telegram a power ofattorney with respect to thebusiness in which he ishabitually engagedas an agent,and he did not reply to the letteror telegram

RULE ON AGENCY BY ESTOPPEL One who clothes another with

apparent authority as his agent, andholds him out to the public as such,

cannot be permitted to deny theauthority of such person in goodfaith, and in the honest belief thathe is what he appears to be. (Cuisonvs. CA,GR.88531, October 26, 1993)

CLASSES AND KINDS OF AGENTS

1. Universal Agent- one employed to doall acts that the principal may

personally do, and which he canlawfully delegate to another thepower of doing.

2. General Agent- one employed totransact all the business of the

principal, or all the business of aparticular kind or in a particular

place, or in other words to do allacts, connected with a particulartrade, business or employment.

3. Special or Particular Agent- oneauthorized to act in one or morespecific transactions, or to do one ormore specific acts, or to act upon aparticular occasion.

General Agent Special Agent

1. Scope of Authority

Usually authorized todo all acts connectedwith the business oremployment in which

he is engaged.

Authorized todo only acts inpursuance ofparticular

instructions orwithrestrictions

necessarilyimplied from

the acts to be

done

2. Continuity

Conducts a series of

transactions involvinga continuity ofservice.

Usually involves

a singletransaction or aseries oftransactions notinvolvingcontinuity

3. Extent by which agent may bindprincipal

Binds his principal byan act within thescope of his authority

although it may becontrary to his specialinstructions

Cannot bind hisprincipal in amanner beyond

or outside thespecific actswhich he isauthorized toperform on

behalf of the

IMPLIEDACCEPTANCE

AGENCY BYESTOPPEL

1. De Jure Agent 1. Not really anagent

2. Binds theprincipal for actswithin the scopeof his authority.

2. Only thepurported agent isliable.

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principal

4. Termination of Authority

Apparent authoritydoes not terminate bythe mere revocationof his authoritywithout notice to thethird party

Mere revocationis effective toterminate theauthority as tothird personsbecause the

third person hasa duty to

inquire

5. Construction ofInstructions ofPrincipal

Statement ofprincipal with

respect to theagents authoritywould ordinarilyregarded as

advisory only

Authority of agent

must be strictlypursued

SPECIAL POWEROF ATTORNEY (SPA) An instrument in writing by which

one person, as principal, appointsanother as his agent and confersupon him the authority to performcertain specified acts or kinds of actson behalf of the principal.

NOTE: It need not be notarized; exceptwher

APT Memaid

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