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PARTNERSHIP
( It is a CONTRACT whereby two or more persons (1) bind
themselves to CONTRIBUTE money, property, or industry to a COMMON
FUND (2) with the intention of dividing the PROFITS among
themselves or in order to EXERCISE a PROFESSION ( a STATUS and a
FIDUCIARY RELATION subsisting between persons carrying on a
business in common with a view on profit
CHARACTERISTICS OF THE CONTRACT OF PARTNERSHIP
[C, C, L, I, AS, NP]
1. CONSENSUAL
( perfected by mere consent
2. CONTRIBUTION of money, property or industry to a COMMON
FUND
3. object must be a LAWFUL one
4. INTENTION of DIVIDING the PROFIT among the PARTNERS
5. AFFECTIO SOCIETATIS
( the desire to formulate an ACTIVE UNION, with people among
whom there exist a mutual CONFIDENCE and TRUSTS
6. NEW PERSONALITY
( the object must be for profit and not merely for the common
enjoyment otherwise only a co-ownership has been formed. HOWEVER,
pecuniary profit need not be the only aim, it is enough that it is
the principal purpose
BUSINESS TRUSTS
( when certain persons entrust their property or money to others
who will manage the same for the former
RULES ON CAPACITY TO BECOME A PARTNER
1. a person capacitated to enter into contractual relations may
become a partner
2. an UNEMANCIPATED MINOR CANNOT become a partner UNLESS his
parent or guardian consents
3. a MARRIED WOMAN, cannot contribute conjugal funds as her
contribution to the partnership UNLESS she is permitted to do so by
her husband OR UNLESS she is the administrator of the conjugal
partnership, in which the COURT must give its consent authority
4. a PARTNERSHIP being a juridical person by itself can form
another partnership
5. a CORPORATION cannot become a partner on grounds of public
policy
( a partner shares not only in profits but also in the losses of
the firm
RULE:
( the partnership has a PERSONALITY SEPARATE and DISTINCT from
that of each partner
CONSEQUENCES OF THE PARTNERSHIP BEING A JURIDICAL ENTITY
1. its juridical personality is SEPARATE and DISTINCT from that
of each partner
2. the partnership CAN in GENERAL:
A) acquire and possess property of all kinds
B) incur obligations
C) bring civil and criminal actions
D) can be adjudged insolvent even if the individual members be
each financially solvent
3. unless he is generally sued, a partner has no right to make a
separate appearance in court, if the partnership being sued is
already represented
LIMITATIONS ON ALIEN PARTNERSHIP
1) if 60% capital is not owned by Filipinos
( the firm cannot acquire by purchase or otherwise AGRICULTURAL
Philippine lands
2) foreign partnership may lease lands provided the period does
not exceed 99 years
3) foreign partnership may be MORTGAGEES of land
( period of 5 years, renewable for another 5 years
( they cannot purchase it in a foreclosure sale
RULES IN CASE OF ASSOCIATIONS NOT LAWFULLY ORGANIZED AS
PARTNERSHIP1. it possesses NO LEGAL PERSONALITY
( it cannot sue as such HOWEVER, the partners in their
individual capacity CAN
2. one who enters into a contract with a partnership as such
cannot when sued later on for recovery of the debt, allege the lack
of legal personality on the part of the firm, even if indeed it had
no personality
( ESTOPPEL
( whether a partnership has a juridical personality or not
depends on its PERSONAL LAW of the partnership or the law of the
place where the partnership was organized
REQUISITES FOR EXISTENCE OF PARTNERSHIP [I, CF, JI]
1. INTENTION to create a partnership
2. COMMON FUND obtained from contributions
3. JOINT INTERESTS in the PROFITS
WHAT DO NOT ESTABLISH A PARTNERSHIP
1. mere co-ownership or co-possession
( even with profit sharing
2. mere sharing of GROSS returns
( even with joint ownership of the properties involved
RULES TO DETERMINE THE EXISTENCE OF A PARTNERSHIP1. persons who
are not partners to each other are not partners as to third
persons
EXCEPTION:
( PARTNERSHIP BY ESTOPPEL
2. CO-OWNERSHIP of a property does not itself establish a
partnership, even though the co-owners share in the profits derived
from the incident of joint ownership
3. SHARING OF GROSS RETURNS ALONE does not indicate a
partnership whether or not the persons sharing them have a joint or
common right or interest in any property from which the returns are
derived
4. the receipt of the share in the profits is a strong
presumptive evidence of partnership HOWEVER, no such inference will
be drawn if such profits were received in payment
A) as a DEBT by installments or otherwise
B) as WAGES of an employee
C) as RENT to a landlord
D) as an ANNUITY to a widow or representative of a deceased
partner
E) as INTEREST on a LOAN, though the amount of payment vary with
the profits of the business
F) as the CONSIDERATION for the sale of a GOOD WILL of a
business or other property or otherwise
( creditors are not partners, for their only interest in the
sharing of profits is the receipt or payment of their credits
( in a partnership, the partners are supposed to trust and have
confidence in all the partners
PARTNERSHIP BY ESTOPPEL
( IF 2 persons not partners represent themselves as partners to
strangers, a partnership by estoppel results
( WHEN 2 persons, who are partners, in connivance with a friend
who is not a partner inform a stranger that said friend is their
partner, a partnership by estoppel also result to the end that the
stranger should not be prejudiced
RULE: LAWFUL OBJECT or PURPOSE
( a partnership must have LAWFUL OBJECT or PURPOSE, and must be
established for the common benefit or interest of the partners
( it must be within the commence of man, possible and not
contrary to law, morals, good customs, public order or public
policy
( IF a partnership has SEVERAL PURPOSES, one of which is
UNLAWFUL, the partnership can still validly exist so long as the
illegal purpose can be separated from the legal purposes
( NO need for JUDICIAL DECREE to dissolve an unlawful
partnership
( VOID AB INITIO
( one of the causes for the dissolution of a partnership is any
event which makes it unlawful for the business of the partnership
to be carried on
RULE:
( when an UNLAWFUL PARTNERSHIP is dissolved by a judicial
decree, the PROFITS shall be CONFISCATED in FAVOR of the STATE
G. R.
( a partnership may be constituted in any form
EXCEPTION: PUBLIC INSTRUMENT
1. IMMOVABLE PROPERTY is contributed
2. REAL RIGHTS are contributed
* need for INVENTORY of IMMOVABLES
** for EFFECTIVITY of the partnership contract insofar as
innocent third persons are concerned the same must be REGISTERED if
REAL PROPERTIES are INVOLVED
( a partnership contract is NOT CONVERED by the STATUTE of
FRAUDS
( an AGREEMENT TO FORM a partnership does not itself create a
partnership
( when there are conditions to be fulfilled or when a certain
period is to lapse, the partnership is not created till after the
fulfillment of the conditions or the arrival of the term and this
is true even if one of the parties has already advanced his agreed
share of the capital
REQUIREMENTS WHERE IMMOVABLE / REAL PROPERTY IS CONTRIBUTED
1. PUBLIC INSTRUMENT
2. INVENTORY signed and attached to the P.I.
* ( applies regardless of the value of the real property
* ( applies even if only real rights over the real property
are
contributed
* ( applies if aside from real property, cash or personal
property is
contributed
( TRANSFER of land to the partnership must be duly recorded in
the ROD to make the transfer effective insofar as third persons are
concerned
RULE:
( any immovable property or an interest therein maybe acquired
in the partnership name
( title so acquired can be conveyed only in the partnership
name
(IF the partnership has ALIENS, it CANNOT OWN LANDS, whether
public or private or whether agricultural or commercial EXCEPT
through HEREDITARY SUCCESSION
LIMITATIONS ON ACQUISITION
1. AGRICULTURAL LANDS 1024 HECTARES
2. lease of public lands (GRAZING) 2000 HAS.
RULES IF A) articles are kept secret among the members
B) any one of the members may contract in his own name with
third persons
1. NOT a partnership NOT a LEGAL PERSON
2. it may be sued by third person under the common name it
uses
3. it cannot sue as such and cannot be ordinarily be a party to
a civil action
4. insofar as innocent third parties are concerned
( the parities can be considered as members of a partnership
5. as between themselves or insofar as third persons are
prejudiced
( only the rules of co-ownership must apply
EFFECT OF CERTAIN TRANSACTIONS
1. contracts entered into by a partner in his own name may be
sued upon still by him in his individual capacity, not withstanding
the absence of a partnership
2. when two or more individuals, having a common interests in a
business bring a court action, it should be presumed that they
prosecute the same in their individual capacity as co-owners and
not in behalf of a partnership which does not exist in legal
contemplation
CLASSIFICATION OF PARTNERSHIPS
A) ACCORDING TO MANNER OF CREATION
1. ORALLY constituted
2. constituted in a PRIVATE INSTRUMENT
3. constituted in a PUBLIC INSTRUMENT
4. REGISTERED S.E.C.
B) ACCORDING TO OBJECT
1. UNIVERSAL
2. PARTICULAR
C) ACCORDING TO LIABILITY1. LIMITED PARTNERSHIP
2. GENERAL PARTNERSHIP
D) ACCORDING TO LEGALITY1. LAWFUL OR LEGAL
2. UNLAWFUL OR ILLEGAL
E) ACCORDING TO DURATION1. for a SPECIFIC PEIOD or FIXED
PERIOD
2. PARTNERSHIP AT WILL
F) ACCORDING TO REPRESENTATION TO OTHERS1. ORDINARY
PARTNERSHIP
2. PARTNERSHIP BY ETOPPEL
G) AS TO LEGALITY OF EXISTENCE1. DE JURE PARTNERSHIP
2. DE FACTO PARTNERSHIP
H) AS TO PUBLICITY1. SECRET PARTNERSHIP
2. NOTORIOUS / OPEN PARTNERSHIP
I) AS TO PURPSE1. COMMERCIAL / TRADING
2. PROFESSIONAL / NON-TRADING
GENERAL PARTNERSHIP
( one where all the partners are general partners
( they are LIABLE even with respect to their individual
properties, after the assets of the partnership has been
exhausted
LIMITED PATNERSHIP
( one where at least one partner is a general partner and the
others are limited partners
( one whose liability is limited only up to the extent of his
contribution
( a partnership where all the partners are limited partners
cannot exist as a limited partnership
( REFUSED REGISTRATION
( IF it continuous as such, it will be considered as a general
partnership and all the partners will be general partners
KINDS OF UNIVERSAL PARTNERSHIP
1. PARTNERSHIP OF ALL PRESENT PROPERTY
2. PARTNERSHIP OF ALL PROFITS
*UNIVERSAL PARTNERSHIP OF ALL PRESENT PROPERTY
( CONTRIBUTION of
1. ALL the properties actually belonging to the partners
2. the PROFITS acquired with said property
( BECOMES COMMON PROPERTY
( EXCEPT all FUTURE PROPERTY
( FRUITS of FUTURE PROPERTY INCLUDED IF STIPULATED UPON
*UNIVERSAL PARTNERSHIP OF PROFITS
( comprises all that the partners may acquire by the INDUSTRY or
WORK of the partners become common property regardless of within
said profits were obtained through the usufruct contributed
( EXCEPT PRIZES and GIFTS
RULE:
( articles of universal partnership, entered without
specification of its nature, only constitute a universal
partnership of PROFITS
RULE:
( persons who are prohibited from giving each other any donation
or advantage cannot enter into universal partnership
WHO:
1. HUSBAND and WIFE
2. those guilty of ADULTERY or CONCUBINAGE
3. those guilty of the same criminal offense if the partnership
was entered into in consideration of the same
( while spouses cannot enter into a universal partnership, they
can enter into a particular partnership or be members thereof
( a universal partnership is virtually a donation to each other
of the partners properties or at least their usufruct
PARTICULAR PARTNERSHIP
( a particular partnership has for its OBJECT:
1. DETERNMINATE THINGS their use or fruits
2. SPECIFIC UNDERTAKING
3. EXERCISE of a PROFESSION or VOCATION
OBLIGATIONS OF THE PARTNERS
RULE:
( a PARTNERSHIP BEGINS from the moment of the EXECUTION of the
CONTRACT
* ( even if contributions have not yet been made the firm
already exists, for partnership is a consensual contract
DURATION OF PARTNERSHIP
( UNLIMITED
* ( MAY BE AGREED UPON
1. EXPRESSLY definite period
2. IMPLIEDLY upon achievement of its purpose
PARTNERSHIP AT WILL
( a partnership wherein its continued existence really depends
upon the will of the partners or even on the will of any of
them
2 KINDS:
1. when there is no term, express or implied
2. when it is continued by the habitual managers although the
period has ended or the purpose has been accomplished
3 IMPORTANT DUTIES OF EVERY PARTNER [C, D-F, W]
1. duty to CONTRIBUTE what had been promised
2. duty to DELIVER the FRUITS of what should have been
delivered
3. duty to WARRANT
RIULES ON THE DUTY TO CONTRIBUTE
1. the contribution must be made at the time the partnership is
entered into UNLESS a different period is stipulated
2. no demand is needed to put the partner in default
3. the partner must exercise due diligence in preserving the
property to be contributed before he actually contributes the
same
4. a partner who promises to contribute to the partnership
becomes a promissory debtor of the partnership
RULES ON THE DUTY TO DELIVER THE FRUITS
1. IF property has been promised, the fruits thereof should also
be given
2. the fruits referred to are those arising from the time they
should have been delivered, without a need of any demand
3. IF the partner is in BAD FAITH, he is liable not only for the
fruits actually produced, BUT also for those that could have been
produced
4. IF MONEY HAS BEEN PROMISED, INTEREST and DAMAGES from the
time he should have complied with his obligation should be
given
5. NO DEMAND is needed to put the partner in default
6. it is DELIVERY, actual or constructive that TRANSFERS
OWNERSHIP
RULES ON THE DUTY TO WARRANT
1. the warranty in case of eviction refers to specific and
determinate things already contributed
2. there is EVICTION whenever by a final judgment based on a
right prior to the sale or an act imputable to the partner, the
partnership is deprived of the whole or a part of the thing
purchased
RULE WHEN CONTRIBUTION CONSISTS OF GOODS
( APPRAISAL of VALUE is needed to determine how much was
contributed
HOW APPRAISAL MADE
1. as PRESCRIBED in the CONTRACT
2. in default, by EXPERTS chosen by the partners, and at CURRENT
PRICES
*( necessity of the INVENTORY APPRAISAL
RULE on RISK of LOSS
( after goods have been contributed, the partnership bears the
risk of subsequent changes in the value
RULE:
( a partner who has undertaken to contribute a sum of money and
fails to do so becomes a debtor for the interest and damages from
the time he should have complied with his obligation
CAPITALIST PARTNER
( one who FURNISHES CAPITAL
*( NOT EXEMPTED from LOSSES
*( he can engage in other business PROVIDED there is no
competition between the partnership and his business
*( share in the profits according to agreements
INDUSTRIAL PARTNER
( one who FURNISHES INDUSTRY or LABOR
*( he is EXEMPTED from LOSSES as between the partner BUT liable
to strangers without prejudice to reimbursement from the capitalist
partner
*( he CANNOT engage in any other BUSINESS WITHOUT the express
CONSENT of the other partners, OTHERWISE
1. he can be EXCLUDED from the firm
- plus damages OR
2. the BENEFITS he obtains from the other businesses CAN BE
AVAILED of by the other partners
plus damages
( whether or not there is COMPETITION
*( in computing always look for -----( NET PROFITS
-----( NET LOSSES
CAPITALIST INDUSTRIALIST PARTNER
( one who contributes BOTH CAPITAL and INDUSTRY
GENERAL PARTNER
( one who is liable beyond the extent of his contribution
LIMITED PARTNER
( one who is liable only to the extent of his contribution
***( an industrial partner can only be a general partner, never
a limited partner
MANAGING PARTNER
( one who manages actively the firms affairs
SILENT PARTNER
( one who does not participate in the management, though he
shares in the PROFITS or LOSSES
LIQUIDATING PARTNER
( one who winds up or liquidates the affairs of the firm after
it has been dissolved
OSTENSIBLE PARTNER
( one whose connection with the firm is public and open
SECRET PARTNER
( one whose connection with the firm is concealed or kept
secret
DORMANT PARTNER
( one who is both a secret (hidden) and silent (not managing)
partner
NOMINAL PARTNER
( one who is not really a partner BUT who may become liable as
such insofar as third persons are concerned
RULE:
( partners shall CONTRIBUTE EQUAL SHARES to the capital of the
partnership
*( it is permissible to contribute UNEQUAL SHARES IF there is a
stipulation to this effect
*( in the absence of proof, the shares are presumed to be
equal
CONDITIONS before a capitalist partner is obliged to sell his
shares / interest to the other partners [IL, RC, NA]
1. if there is IMMINENT LOSS of the BUSINESS of the
partnership
2. he REFUSES to CONTRIBUTE an ADDITIONAL SHARE to the
CAPITAL
3. there is no agreement to the contrary
*( INDUSTRIAL PARTNER IS EXEMPTED
*RULE if MANAGING PARTNER COLLECTS A CREDIT
REQUISITES:
1. existence of at least 2 debts ----( PARTNERSHIP
----( PARTNER
2. both sums are demandable
3. the collecting partner is the managing partner
*( the sum thus collected shall be applied to the two credits
in
proportion to their amounts
RULE:
*( where a partner receives his share in the partnership
credit
CONDITIONS:
1. a partner has received his share in the partnership credit in
whole or in part
2. the other partners have not collected their part of the
credit
3. the debtor subsequently becomes INSOLVENT
RULE: - the partner shall be obliged to bring to the
partnership
capital what he received even though he may have given receipt
for
his share only
*( DOES NOT APPLY when debt was collected after dissolution of
the partnership
RULE:
*( every partner is responsible to the partnership for damages
suffered by it through his fault
*( he cannot compensate them with the profits and benefits,
which he may have earned for the partnership by his industry
*( the courts may equitably lessen his responsibility
RES PERIT DOMINO
*RULES ON WHO BEARS THE RISK OF LOSS
1. if SPECIFIC and DETERMINATE THINGS NOT FUNGIBLE whose
USUFRUCT is enjoyed by a firm
( the PARTNER who OWNS it bears the loss for ownership was never
transferred to the firm
2. FUNGIBLE or DETERIORABLE
( FIRM bears the loss for it is evident ownership was
transferred
3. THINGS CONTRIBUTED to be SOLD
(FIRM bears the loss for evidently the firm was intended to be
the owner
4. CONTRIBUTED under APPRAISAL
( FIRM bears the loss because this has the effect of an implied
sale
RULE on RESPONSIBILITY of the FIRM
1. to REFUND amounts disbursed on behalf of the firm plus legal
interest from the time expenses where made
2. to ANSWER to each partner for OBLIGATIONS he may have entered
into in good faith in the interest of the partnership, as well as
the risks in consequence of its management
*( REFUND must be made even in case of failure of the enterprise
entered into, provided the partner is not at fault
*( AMOUNT DISBURSED does not refer to the ORIGINAL CAPITAL
*HOW PROFITS ARE DISTRIBUTED
1. according to AGREEMENT
2. IF NONE, according to amount of CONTRIBUTION
*HOW LOSSES are DISTRIBUTED
1. according to AGREEMENT as to losses
2. IF NONE, according to agreement as to PROFITS
3. IF NONE, according to amount of CONTRIBUTION
*( an INDUSTRIAL PARTNER shall receive a JUST and EQUITABLE
share in the profits
*RULE on INDUSTRIAL PARTNERS LIABILITIES
- may be held liable by third persons BUT he may recover what he
has paid from the other capitalist partners
*RULE on DESIGNATION by THIRD PERSON of SHARES in PROFITS and
LOSSES
*( third person is NOT a PARTNER --( appointed to only
distribute shares
*( the designation of shares by third persons may be IMPUGNED,
IF it is MANIFESTLY INEQUITABLE
*( the designation of shares by third persons CANNOT be IMPUGNED
EVEN IF MANIFESTLY INEQUITABLE IF:
1. the aggrieved partner has already BEGUN to EXECUTE the
decision
2. the aggrieved partner has not IMPUGNED the distribution
within 3 months he had knowledge
*RULE IF APPOINTMENT OTHER THAN in the ARTICLES of
PARTNERSHIP
1. power to act may be REVOKED at ANY TIME with or without just
cause
( REMOVAL should be done by the controlling interest
2. EXTENT of POWER
( as long as he remains manager, he can perform all acts of
administration
BUT if others oppose and he persists, he can be removed
*RULE WHEN there are 2 or MORE MANAGERS
CONDITIONS:
1. 2 or more partners are managers
2. there is no specification of respective duties
3. there is no stipulation requiring UNANIMITY
SPECIFIC RULES:
1. each may separately execute all acts of administration
( UNLIMITED POWER to ADMINISTER
2. IF any of the managers OPPOSE
( MAJORITY RULE
( IN CASE OF A TIE
- persons owning controlling interest prevail provided they are
also managers
*( right to oppose is not given to NON-MANAGERS
*( OPPOSITION should be done BEFORE the acts produce legal
effects insofar as third persons are concerned
RULE WHEN UNANIMITY is REQUIRED
1. the CONCURRENCE of all shall be necessary for the validity of
the acts
2. the ABSENCE or DISABILITY of ANYONE of them CANNOT BE ALLEGED
UNLESS there is imminent danger of grave or irreparable injury to
the partnership
RULE ON DUTY of THIRD PERSONS
( third persons are not required to inquire as to whether or not
a partner with whom he transacts has the consent of all the
managers
*RULES to be observed when the manner of management has not been
agreed upon:
1. all the partners are considered AGENTS
( whatever any one of them may do alone shall not bind the
partnership
2. IF the acts of one are opposed by the rest, the majority
shall prevail
3. when a partner acts in his OWN NAME, he does not bind the
partnership
4. authority to bind the firm does not apply if somebody else
has been given authority to manage in the articles of organization
or through some other means
5. ALTERATIONS REQUIRE UNANIMITY
- IMMOVABLE partnership property
- BUT if the refusal to consent by the others is prejudicial to
the interest of the partnership
- COURTS INTERVENTION may be sought
RULES on ASSOCIATE of PARTNER
1. every partner may associate another person with him in his
share
2. for a partner to have an associate in his share
( consent of all the other partners is NOT REQUIRED
3. for the associate to become a partner
( ALL MUST CONSENT
RULES on PARTNERSHIP BOOKS
1. kept at the principal place of business of the
partnership
2. at any reasonable hour, every partner shall have access to
and may inspect and copy any of them
DUTY of PARTNERS TO GIVE INFORMATION
( good faith not only requires that a partner should not make
any FALSE CONCEALMENT, BUT he should abstain from all
concealment
DUTY to ACCOUNT [B, P, U-P]
( every partner must account to the partnership1. any benefit
acquired
2. any profits received
3. any use of partnership property
RIGHT TO DEMAND a FORMAL ACCOUNT
( any partner shall have the right to a formal account as to
partnership affairs1. if wrongfully excluded from partnership
BUSINESS
2. if wrongfully excluded from partnership PROPERTY by his
co-partners
3. if the right exists under the terms of agreement
4. if the other partner receives other benefits, profits or uses
partnership property
5. whenever other circumstances render it just and
reasonable
*( the right to demand an accounting exists as long as the
partnership exists
*( prescription begins to run only upon the dissolution of the
partnership when the final accounting is done
PROPERTY RIGHTS OF PARTNERS [P, I, M]
1. rights in specific PARTNERSHIP PROPERTIES
2. INTERESTS in the PARTNERSHIP
3. right to PARTICIPATE in the MANAGEMENT
RULE:
*( a partner is CO-OWNER with his partners of SPECIFIC
PARTNERSHIP PROPERTY
*( RIGHTS of a PARTNER in SPECIFIC PARTNERSHIP PROPERTY
1. he has equal rights with his partners to POSSESS the property
BUT only for PARTNERSHIP PURPOSES
( he may possess such property for other purposes PROVIDED the
other partners expressly or impliedly gives their CONSENT
2. he CANNOT ASSIGN his right to the property EXCEPT if all the
other partners assign their rights in the same property
3. his right to the property is NOT SUBJECT to ATTACHMENT or
EXECUTION, EXCEPT on a claim against partnership
4. his right to the property is NOT SUBJECT to LEGAL SUPPORT
*( if there is PARTNERSHIP DEBT, the specific property can be
attached
RULE:
*( a PARTNERS INTEREST in the partnership is his SHARE of the
PROFITS and SURPLUS
IT CAN BE: [A, A, LS]
1. ASSIGNED
2. ATTACHED
3. be subject to LEGAL SUPPORT
*EFFECTS of CONVEYANCE by PARTNER of his INTEREST in the
PARTNERSHIP
1. IF he conveys his WHOLE INTEREST
A) partnership may still remain
B) partnership may be dissolved
*( mere conveyance does not dissolve the partnership
2. the ASSIGNEE does not necessarily become a partner
( the ASSIGNOR is still the partner, with a right to demand
accounting and settlement
3. the ASSIGNEE CANNOT interfere in the MANAGEMENT or
ADMINISTRATION of the firm
( the ASSIGNEE CANNOT also DEMAND [I, A, I]
A) INFORMATION
B) ACCOUNTING
C) INSPECTION of partnership books
***( while a partners INTEREST in the firm may be CHARGED or
LEVIED upon, his INTEREST in a specific firm PROPERTY CANNOT be
attached.
RIGHTS of the ASSIGNEE
1. to get whatever profits the assignor-partner would have
obtained
2. to avail himself of the usual remedies in case of fraud in
the management
3. to ask for ANNULMENT of the contract of assignment IF:
A) he was induced to enter into it through any of the vices of
consent OR
B) he himself was incapacitated to give consent
4. to demand an accounting BUT only if the partnership is
dissolved
PREFERENTIAL RIGHTS of PARTNERSHIP CREDITORS
*( partnership creditors are entitled to PRIORITY over
partnership assets, including the partners interest in the
profits
**( SEPARATE or INDIVIDUAL creditors have PREFERENCE in separate
or individual properties
*( when the CHARGING ORDER is applied for and granted, the court
may appoint a receiver of the partners share in the profits
( the receiver appointed is entitled to any relief necessary to
conserve the partnership assets for partnership purposes
*( interest charged may be redeemed at any time before
foreclosure
*( AFTER FORECLOSURE the interest may still be redeemed by
(without causing dissolution)
1. with separate property, by any one or more of the partners
OR
2. with partnership property, by any one or more partners with
the consent of all the partners whose interests are not so charged
or sold
*( consent of the delinquent partner not needed
RULE:
( every partnership shall operate under a FIRM NAME
*( the firm name may or may not include the name of one or more
of the partners
**( STRANGERS who include their names in the firm are liable as
partners because of ESTOPPEL, BUT do NOT have the RIGHTS of
partners
**( IF a LIMITED PARTNER includes his name in the firm name, he
has obligations BUT not the rights of a general partner
RULE on LIABILITY for CONTRACTUAL OBLIGATIONS
*( all partners, including industrial ones, shall be liable
pro-rata with all their property and after all the partnership
assets have been exhausted
*( NOT APPLICABLE for TORTS or CRIMES -----( LOSS
-----( INJURY
-----( MISAPPROPRIATION
**( while an INDUSTRIAL PARTNER is exempted by law from LOSSES
as between the partners, he is NOT EXEMPTED from liability insofar
as third persons are concerned
( he may recover what he has paid from the CAPITALIST
partners
*( under the law the liability of the partners is subsidiary and
joint NOT principal and solidary
*RULE on LIABILITY of a PARTNER who has WITHDRAWN
1. a partner who withdraws is not liable for liabilities
contracted after he has withdrawn
2. if his interest has not yet been paid him
( his right to the same is that of a mere creditor
**( a stipulation exempting liability to third persons is
VOID
*( any partner may enter into a separate obligation to perform a
partnership contract
RULE:
*( every partner is an agent of the partnership for the purpose
of its business
G.R.- the act of every partner for apparently carrying on in the
USUAL WAY the business of the partnership of which he is member
binds the partnership
EXCEPT:
1. if he has NO AUTHORITY and
2. the person with whom he was dealing with HAS KNOWLEDGE of the
fact that he has no such authority
RULE:
( an act of a partner which is not apparently for the carrying
on of business of the partnership in the usual way does not bind
the partnership UNLESS authorized by the other partners
*( a partnership is a CONTARCT of MUTUAL AGENCY, each partner
acting as a principal on his own behalf and as an agent for his
co-partners or the firm
REQUISITES on WHEN can a partner BIND the partnership
1. expressly or impliedly AUTHORIZED
2. when he acts in BEHALF AND IN THE NAME of the partnership
INSTANCES of IMPLIED AUTHORIZATION
1. when the other partners DO NOT OBJECT, although they have
knowledge of the act
2. when the act is for apparently carrying on in the usual way
the business of the partnership
*( this is binding on the firm even if the partner was not
really authorized PROVIDED that the third party is in GOOD
FAITH
RULE on UNUSUAL ACTS
( one or more but less than all the partners HAVE NO AUTHORITY
TO:
[AP, DG, AI, CJ, EC, SA, RC]1. ASSIGN the PARTNERS PROPERTY
2. DISPOSE of GOODWILL
3. do any other act which would make it impossible to carry on
the ordinary business of the partnership
4. CONFESS a judgment
5. ENTER into a COMPROMISE
6. SUBMIT to ARBITRATION
7. RENOUNCE to CLAIM
*RULES on CONVEYANCE of REAL PROPERTY
1. where title to real property is in the partnership name
( any partner may convey title to such property by a conveyance
executed in the partnership name
*( PARTNERSHIP MAY RECOVER SUCH PROPERTY
EXCEPT:
1. if the firm is engaged in the buying and selling of land
(USUAL BUSINESS)
2. if property was conveyed to a HOLDER for VALUE and who had NO
KNOWLEDGE of the partners LACK of AUTHORITY
2. where title is in the name of the partnership and partner
sold in his OWN NAME ( IF DONE IN USUAL BUSINESS
( buyer does not become owner BUT ACQUIRES EQUITABLE
INTEREST
( IF NOT DONE IN USUAL BUSINESS
( buyer does not become owner and is not even entitled to
equitable interest
3. where title is in the name of one or more BUT not all the
partners
( partners in whose name the title is named MAY CONVEY BUT the
PARTNERSHIP may RECOVER such property IF done not in its USUAL
BUSINESS EXCEPT if he had transferred it to a Holder for value
4. when property held in trust by partner ( a sale only conveys
EQUITABLE INTEREST
5. when title is in the name of all partners
( conveyance executed by all partners possess all rights of such
property
EQUITABLE INTEREST
-BENEFICIAL INTEREST, BUT NOT NAKED OWNERSHIP
*RULE on ADMISSION or REPRESENTATION MADE by a PARTNER
( an admission by a partner is an admission against the
partnersip,under the following conditions:
1. the admissions must concern partnership affairs
2. must be within the scope of his authority
RESTRICTIONS ON THE RULE:
1. admissions made BEFORE DISSOLUTION are binding only when the
partner has authority to act on the particular matter
2. admissions made AFTER DISSOLUTION are binding only if the
admissions were necessary to WIND UP the business
3. an admission made by a former partner made after he has
RETIRED from the partnership is not evidence against the firm
EFFECT of NOTICE to a PARTNER
( notice to a partner is notice to the partnership
*(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 WAS GIVEN:
*( knowledge of the partner is also knowledge of the firm
PROVIDED THAT:
1. the knowledge was acquired by a partner who is acting in the
particular matter involved;and
2. 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 he was so situated that he
could communicate it to the partner acting on that particular
matter
*( SERVICE of PLEADINGS on the partner in a law firm is also
service on the whole firm and the other partners
LOSS OR INJURY
RULE on WRONGFUL ACT or OMISSION of a PARTNER (SOLIDARY
LIABILITY)
*( the partnership is solidarily liable with the partner if the
wrongful act or omission
1. the partner is acting in the ordinary course of business of
the partnership OR
2. with authority of his co-partners
*( innocent partners have right to recover from the guilty
partner
* When the firm and other partners not liable:
1. if the wrongful act or omission was NOT DONE
A) within scope of partnership business
B) with authority of the other co-partners
2. if the act or omission is NOT WRONGFUL
3. if the act or omission, although wrongful did not make the
partner concern liable
- DAMNUN ABSQUE INSURIA
4. if the wrongful act or omission was committed after the firm
had been dissolved and the same was not in connection with the
process of winding up.
LIABILITY of PARTNERSHIP for MISAPPROPRIATION (SOLIDARY
LIABILITY)
1. RECEIVING PARTY MISAPPROPRIATES
2. ANY PARTNER MISAPPPROPRIATES
money or property in custody of partnership
PARTNER BY ESTOPPEL
( a person who represents himself or consents to another /
others representing him to anyone as a partner either in an
existing partnership or in one that is fictitious or apparent
PARTNERSHIP BY ESTOPPEL
( when all the members of the existing partnership consent to
such representation of a partner by estoppel
RULES AND SITUATIONS:
1. if a third person is misled and acts because of such
misrepresentation
( the deceiver is a partner by estoppel
2. if the partnership consented to such misrepresentation
( partnership liability results
3. if the firm had not consented
( no partnership liability results BUT the deceiver is
considered still as a partner by estoppel with all the obligations
but not the rights of a partner
4. when a person represents himself as a partner of a
NON-EXISTENT partnership
( NO partnership liability results BUT the deceiver and all
persons who may have aided him in the misrepresentation are still
liable
( liability would be JOINT or PRO-RATA
*( when although there is misrepresentation, if the third party
is not deceived, the doctrine of estoppel does not apply
BURDEN of PROOF
( the creditor or whoever alleges the existence of a partner or
partnership by estoppel has the burden of proving the existence of
the MISREPRESENTATION AND INNOCENT RELIANCE on it
ENTRY OF A NEW PARTNER into an EXISTING PARTNERSHIP
RULE:
*( he shall be liable for all the obligations of the partnership
BUT his liability will extend only to his share in the partnership
property
*( his own individual property shall be excluded
*( same liability of a limited partner
PREFERENCE of PARTNERSHIP CREDITORS
RULE:
*( the creditors of the partnership shall be preferred to those
of such 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
**(IF a partner sells his share to a third party, BUT the firm
itself still remains SOLVENT, partnership creditors CANNOT assail
the validity of the sale by alleging that it is made in fraud of
them, since they have not really been prejudiced
DISSOLUTION AND WINDING UP
( the change in the relation of the partners caused by any
partner causing to be associated in the carrying on of the
business
( it is the point of time the partners cease to carry on the
business together
WINDING UP
( the process settling business affairs after dissolution
TERMINATION
( the point in time after all the partnership affairs have been
wound up
RULE ON DISSOLUTION
*( on dissolution the partnership is not terminated BUT
continues until the winding up of partnership affairs is
completed
*EFFECT on OBLIGATIONS
1. just because a partnership is dissolved this does not
necessarily mean that a partner can evade previous obligations
entered into by the partnership
2. dissolution saves the former partners from new obligations to
which they have not expressly or impliedly consented UNLESS the
same be essential for winding up
*CAUSES OF DISSOLUTION
1. without VIOLATION of the AGREEMENT between the partners
A) TERMINATION of the DEFINITE TERM or PARTICULAR
UNDERTAKING
B) EXPRESS WILL or ANY PARTY in GOOD FAITH (PARTNERSHIP by
WILL)
C) EXPRESS WILL of ALL of the PARTNERS except those who have
(interests) ASSIGNED or whose interests have been (separate debts)
CHARGED
D) EXPULSION in good faith of a member
2. in CONTRAVENTION of the agreement between the partners
( by the EXPRESS WILL of ANY PARTNER at any time
3. UNLAWFULNESS of the BUSINESS
4. LOSS thing promised
A) SPECIFIC THING PERISHES before delivery
B) USUFRUCT is lost EXCEPT if ownership had been transferred to
the partnership
5. DEATH of ANY partner
6. INSOLVENCY of any partner or of the partnership
7. CIVIL INTERDICTION of any partner
8. DECREE of COURT
***( if the cause is not justified or no cause was given, the
withdrawing partner is liable for DAMAGES BUT in no case can he be
compelled to remain in the firm
*( the insolvency need not be judicially declared, it is enough
that the assets be less than the liabilities
DISSOLUTION by JUDICIAL DECREE WHEN ALOWED:
(I, UM, I-PP, C, PB, BL, OC)
1. partner declared insane in any judicial proceeding or is
shown to be of UNSOUND MIND
2. partner becomes INCAPABLE of performing his part of the
partnership contract
3. partner has been guilty of such CONDUCT as tends to affect
prejudicially the business
4. partners PERSISTENT BREACH of agreement
5. the business of the partnership can only be denied on at a
loss
6. other circumstances which render dissolution equitable
IN CASE OF PURCHASER of PARTNERS INTEREST
1. after the termination of the specified term or particular
undertaking
2. AT ANY TIME, if the partnership was a partnership at will
when the interest was assigned or when the charging ordered was
issued
*( proof as to the existence of the firm must first be given
*( even if a partner has not yet been previously declared insane
by the court, dissolution may be asked, as long as the insanity is
duly proved in court
*( in a suit for dissolution, the court may appoint a RECEIVER
at its discretion
EFFECTS OF DISSOLUTION
RULE:
*( when the firm is dissolved, a partner can no longer bind the
partnership
*( a dissolved partnership still has the personality for the
winding up of its affairs
( the firm is still allowed to collect previously acquired
credits
( the firm is still bound to pay of its debts
DISSOLUTION CAUSED by A-I-D
RULE: (STILL BOUND) as to each partners
G.R.( where the dissolution is caused by the ACT, INSOLVENCY or
DEATH of a partner, each partner is liable to his co-partners for
his share of any liability created by any partner acting for the
partnership
EXCEPTION: - individual liabilities
1. if dissolution by ACT
( the partner acting for the partnership HAD KNOWLEDGE of the
dissolution OR
2. if dissolution by DEATH or INSOLVENCY
( the partner acting for the partnership HAD knowledge or notice
of the death or insolvency
*( only the partner acting assumes liability
*AFTER DISSOLUTION, a partner can still bind the PARTNERSHIP
(WU, UT, TB)
1. By any ACT appropriate for WINDING UP partnership affairs
2. By COMPLETING transactions UNFINISHED at dissolution
3. By any TRANSACTION which could bind the partnership IF
dissolution had not taken place PROVIDED the other party is:
A) PREVIOUS CREDITOR and had NO KNOWLEDGE or NOTICE of the
dissolution OR
B) NOT a PREVIOUS CREDITOR, had NO KNOWLEDGE or NOTICE and
dissolution was NOT PUBLISHED
*( if there was publication of the dissolution it is presumed he
already knows, regardless of actual knowledge on non knowledge
WHEN is the PARTNERSHIP NOT BOUND
1. new business with third parties who are in bad faith
2. firm dissolved because UNLAWFUL except for acts of winding
up
3. partner who acted became INSOLVENT
4. partner not authorized to wind up EXCEPT if customer in good
faith
*( if after dissolution, if a stranger will represent himself as
a partner although he is not one he will be a partner by
estoppel
RULE:
*( the dissolution of the partnership does not itself discharge
the existing liability of any partner
( NEED for an AGREEMENT BETWEEN
1. partner concerned
2. other partners
3. creditors
RULE:
*( the INDIVIDUAL PROPERTY of a DECEASED PARTNER shall be liable
for all obligations of the partnership incurred while he was a
partner BUT subject to prior payments of his separate debts
*( IF there be a NOVATION of the OLD PARTNERSHIP DEBTS and such
novation is done after one of the partners has retired and without
the consent of such partner
( said partner cannot be held liable by creditors who made the
novation with knowledge of the firms dissolution
EXTRAJUDUCIAL AND JUDICIAL WINDING-UP
EXTRAJUDICIAL:
1. by the partners who have not wrongfully dissolved the
partnership
2. by the legal representative of the last surviving
partners
JUDICIAL:
( under the control and direction of the court, upon proper
cause that is shown to the court
*( profits that will actually enter the firm after dissolution
as a consequence of transactions already made before dissolution
are included because they are considered as profits existing at the
time of dissolution
*( any other income earned after the time, like interest or
dividends on stock owned by the partners or partnership at the time
of dissolution should not be distributed as profits BUT as merely
additional income to the capital
BETTER RIGHTS of INNOCENT PARTNERS
( innocent partners have better rights than guilty partners and
that the guilty partners are required to indemnify for the damages
caused
* RIGHT of INOCENT PARTNERS TO CONTINUE the BUSINESS
( in essence this is a new partnership
( can use the same firm name
( can ask new members to join
BUT shall: for protection of guilty partners
1. give a BOND approved by the court
2. to PAY guilty partners his interests at the time of
dissolution MINUS DAMAGES
*( a guilty partner who is EXCLUDED will be indemnified against
all present or future partnership liabilities
RIGHT TO GET CASH
( in case on non-continuance of the business, the interest of
the partner should if he desires be given in cash
( assets may be sold
( a guilty partner, in ascertaining the value of his interest is
not entitled to a proportional share of the value of GOOD WIL
RIGHTS OF INNOCENT PARTNERS IN CASE of RESCISSION based on FRAUD
AND MISREPRESENTATION
1. Right to LIEN or RETENTION ( SURPLUS
( CAPITAL
( ADVANCES
2. Right of SUBROGATION as creditor
3. Right of INDEMNIFICATION
*ORDER of PAYMENT in WINDING-UP of PARTNERSHIP LIABILITIES
GENERAL PARTNERSHIP: [C, R, C, P]
1. those owing to creditors other than partners
2. those owing to partners other than for capital or profits
REIMBURSEMENTS
3. those owing to partners in respect to CAPITAL
4. those owing to partners in respect to PROFITS
*( IF the partnership assets are insufficient, the other
partners must contribute more money or property
PREFERENCE with RESPECT to the ASSETS
1. regarding partnership property
( partnership creditors have preference
2. regarding individual properties of partners
( individual creditors are preferred
RULE if PARTNER is INSOLVENT
- How INDIVIDUAL PROPERTY is DISTRIBUTED
ORDER OF PREFERENCE:
1. INDIVIDUAL or SEPARATE CREDITORS
2. PARTNERSHIP CREDITORS
3. those owing to other partners by way of contribution
*When creditors of the dissolved partnership are also creditors
of the partnership continuing business:
1. new partner is admitted without liquidation
2. a partner retires and assigns his rights IF the business is
continued without liquidation of the partnership affairs
3. all but one partner retire without liquidation
4. when all partner assign their right to a person who will
assume their debt
5. after wrongful dissolution, remaining partners continue the
business without liquidation
6. when partner expelled and remaining partners continue the
business without liquidation
*( liability of third person becoming a partner in the
partnership continuing the business to the creditors of the
dissolved partnership shall be satisfied out of the partnership
property ONLY
G.R. when a partner retires, he is entitled what is due him
after liquidation BUT no liquidation is needed if there is already
a settlement at the date of dissolution
JURISPRUDENCE
BASTIDA vs. MENZI
*( articles of association by which 2 or more persons obligate
themselves to place in a common fund any property, industry, or any
of these things, in order to obtain profit, shall be COMMERCIAL
BORJA vs. ADDISON
*( a surviving husband may form a partnership with the heirs of
the deceased wife for the management and control of the community
property
( BUT in the absence of the formalities prescribed by the Civil
Code, knowledge of the existence of the new partnership or
community of property must at least be brought home to third
persons dealing with the surviving husband in regard to the
community real property in order to bind them by the community
agreement
KIEL vs. SABERT
*( the declarations of one partner, not made in the presence of
his co-partner, are not competent to prove the existence of a
partnership between them as against such partner
*( the existence of a partnership cannot be established by
general reputation, rumor or hearsay
EVENGELISTA vs. C.I.R.
*( By the contract of partnership 2 or more persons bind
themselves to contribute money, property, or industry to a common
fund, with the intention of dividing the profits among
themselves
ESSENTIAL ELEMENTS of a PARTNERSHIP
1. an agreement to CONTRIBUTE money, property, or industry to a
COMMON FUND
2. intent to divide the profits among the contracting
parties
*( when our internal Revenue Code includes partnerships among
the entities subject to the tax on corporations, said code which
are not necessarily partnerships in the technical sense of the
term
*( PARTNERSHIPS includes a SYNDICATE, GROUP, POOL, JOINT
VENTURE, or other unincorporated organization, through or by the
means of which any business, financial operation, or venture is
carried on
*( a joint venture need not be undertaken in any of the standard
forms,
or in conformity with the usual requirements of the law on
partnerships, in order that one could be deemed constituted for
purposes of the TAX on corporations
PASCUAL vs. C.I.R.
*( co-ownership or co-possession does not itself establish a
partnership, whether such co-owners or co-possessors do or do not
share any profits made by the use of the property
*( the sharing of gross returns does not itself establish a
partnership, within the persons sharing them have a joint or common
right or interest in any property from which the returns are
derived
*( aside from the circumstances of profit, the presence of other
elements constituting partnership is necessary, such as:
1. the clear intent to form a partnership
2. the existence of a juridical personality different from that
of the individual partners AND
3. the freedom to transfer or assign any interest in the
property by one with the consent of the others
*( an isolated transaction whereby 2 or more persons contribute
funds to buy certain real estate for profit in the absence of other
circumstances showing a contrary intention cannot be considered a
partnership
*( persons who contribute property or funds for a common
enterprise and agree to share the gross returns of that enterprise
in proportion to their contribution, BUT who severally retain the
title to their respective contribution, are not thereby rendered
partners
( they have no common stock or capital and no community of
interest as principal proprietors in the business itself which the
proceeds derived
*( a joint purchase of land, by two does not constitute a
co-partnership in respect thereto, NOR does an agreement to share
the profits and losses on the sale of land create a partnership
*( in order to constitute a PARTNERSHIP INTER SESE there must
be:
A) an intent to form the same
B) generally participating in both profits and losses AND
C) such a community of interest, as far as third persons are
concerned as enables each party to make a contract, manage the
business, and dispose of the whole property
*( the common ownership of property does not itself create a
partnership between the owners, though they may use it for the
purpose of making gains AND they may without becoming partners,
agree among themselves as to the management and use of such
property and the application of the proceeds therefrom
*( the sharing of returns does not in itself establish a
partnership within the persons sharing therein have a joint or
common right or interest in the property
( there must be:
1. clear intent to form a partnership
2. the existence of a juridical personality different from the
individual partners AND
3. the freedom of each party to transfer or assign the whole
property
DUTERTE vs. RALLOS
*( an agreement between 2 persons to operate a cockpit, by which
one is to contribute his services and the other to provide the
capital, the profits to be divided between them, constitutes a
partnership
DELUAO vs. CASTEEL
*( a contract of partnership to exploit a fishpond pending its
award to any qualified party or applicant is VALID BUT a contract
of partnership to divide the fishpond after such award is
ILLEGAL
*( one of the causes of dissolution is any event which make it
unlawful for the business of the partnership to be carried on or
for the members to carry it on in partnership
C.I.R. vs. SUTER
*( a UNIVERSAL PARTNERSHIP requires either that the object of
the association be:
1. all the present property of the partners as contributed by
them to the common fund OR
2. all that the partners may acquire by their industry or work
during the existence of the partnership
*( the subsequent marriage of the partners could not operate to
dissolve the partnership because it is not one of the causes
provided for dissolution by law with regards to limited
partnerships
*( partnership has distinct and separate personality from that
of its partners
*( a husband and wife may not enter into a contract of general
co-partnership/ UNIVERSAL partnership
ACOAD vs. MABATO
*( a partnership may be constituted in any form EXCEPT where
immovable property or real rights are contributed thereto, in which
case a public instrument shall be necessary
*( A CONTRACT of PARTNERSHIP is VOID
( whenever immovable property is contributed thereto, if
inventory of said property is not made, signed by the parties and
attached to the public instrument
EVANGELISTA vs. ABAD SANTOS
*( an INDUSTRIAL PARTNER cannot engage in BUSINESS FOR HIMSELF,
UNLESS the partnership expressly permits him to do so
( IF HE SHOULD DO SO, the capitalist partners may either:
1. EXCLUDE him from the firm OR
2. AVAIL themselves of the benefits which he may have obtained
in violation of this provision
( with a right to DAMAGES in either case
*( the prohibition against an industrial partner engaging in
business for himself seeks to prevent any conflict of interest
between the industrial partner and the partnership and to ensure
faithful compliance by said partner with his prostation
Notes of hotjurist
in foro conscientiae