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Partnership (Cualing) Notes PDF
Partnership (Cualing) Notes PDF
Composition of a Partnership
B. Contribution of money, property, or industry to a
A. 2 or more persons common fund
A: Yes, condition: the new partnership has separate and Upon dissolution: partnership property will be used for
distinct personality from the partnerships. answering all the debts of the partnership
The contributions, i.e. money and properties are distinctly
different Universal Partnership of Property
Rationale: If the same, there will be a difficulty to - if all rights over the property are given to the partnership
distinguish the properties of each partnerships and of the -all profits realized in shall be under such property
new partnership e.g. Taxi of the partnership, the profit will be divided
-the property shall return back to the partner
Kinds of Partnerships
Q: If Industrial Partner and earning salary instead of profit,
1. General Partner is it a partner?
-contribution of money and property No. Differentiate between an employee. An industrial
partner is considered a partner if s/he receives profit and
2. Industrial Partner salary
-contribution of industry (services)
C. Common fund
Allowed: -pooling of all the contributions of the partners for the
Both General; General-Industrial capital
D. Profits
Not Allowed: -test in determining if a partnership exists or not
Both Industrial Partners -if only one partner earns profits, there is no partnership
Rationale: there is no money or property---since money -determine if there is a sharing of profits
and property is essential to a partnership
1. Consensual
-there must be consent between the partners
-can be oral and written 2. There is a contribution of property
The Articles of Partnership must registered with the SEC 3. It must be an association of profits with the intention of
when: dividing their profits themselves
a. there is a contribution of P3,000 or more;
b. there is a contribution of property. The division must be proportionate to the contribution of
the partner
2. Nominate
-the partnership must have a special name or A partnership once has its own separate juridical
designation personality it can now be sue and sued, it can even own
properties and shall pay its own taxes.
3. Bilateral
- it is entered into by two or more persons and the rights There is a sharing of profits entails the sharing of loss
and obligations arising therefrom are always reciprocal
4. It has a juridical personality which is separate and
4. Preparatory distinct from the partners
-the contract of partnership must be perfected before the
partnership begins When a partnership enters into a contract and there was
a breach of contract, who pays the damages?
5. Onerous the partnership
- because there is a giving of contribution for the partner
to benefit himself, i.e. profit Q: When will the partner be liable personally?
A: when he acts beyond his scope of his authority
6. Commutative,
-the undertaking of each of the partners is considered as 5. The partner is mutually an agent of the other partner
the equivalent of that of the others - a partner who enters into contract for and in behalf of
the partnership is considered as the agent of another
7. Principal partner and thus they are bound
-partnership it does not depend for its existence or
validity upon some other contracts; If an authorized partner enters into a contract s/he shall
be personally liable.
Special Features of Partnership
If there is a managing partner and such partner enters
1. There must be a valid contract into a contract with a third person, the partnership shall
-There has to be a valid and voluntary agreement to be held liable.
become partners
6. Purpose of the partnership must be lawful, not morals,
The parties must have legal capacity to enter into a public policy and within the commerce of man
contract
-incapable: unemancipated minors, insane, deaf-mute, 7. An Article of Partnership must not be kept secret
persons suffering civil interdiction--- cannot enter into any -the provisions, terms and conditions must be open and
contracts, known to the partners in order the that each partners
those who cannot give donation, e.g. husband and wife, may act intelligently and wisely for the common of the
rationale: circumvent the law on donation, partnership
the property donated shall become partnership property,
partners who are living as husband and wife (common Effect if kept secret: If one of the partners was acting in
law) behalf of the other partner, without knowledge of an
existence of a managing partner, and one of the partners
delectus personae was able to buy a property for the partnership---rules on
“choice of the person or choice of the persons” co-ownership shall apply
-the person who you wants to choose as a partner, right
to choose a partner
-a partnership is a fiduciary relationship and entails full
trust and confidence
One ground of dissolution is loss of trust and confidence 3 Levels of Existence
3 | Partnership
Art. 1769. Test to determine the existence of a 1. Sharing of profits and losses
partnership
2. Equal rights or voice in management and on the
Without any agreement or contract of partnership conduct of the partnership business (Art. 1807)
1. Persons who are not partners as to each other are not 3. A partner is an agent of the other partners---
partners as to third persons; his action binds the partnership and other partner as long
as it is for the purpose of the business (Art. 1818)
2. Co-ownership or co-possession does not itself
establish a partnership, whether such co-owners or co- 4. Partners are personally liable to the debt of the
possessors do or do not share any profits made by the partnership (Art. 1816, 1822-1824), liability of a limited
use of the property; partner is different to a general partner
3. The sharing of gross returns does not of itself establish 5. The books of the partnership shall be kept at the
a partnership, whether or not the persons sharing them principal place of business--- any of the partner may look
have a joint or common right or interest in any property into the books
from which the returns are derived;
6. There is a fiduciary relationship existing among the
4. The receipt by a person of a share of the profits of a parties
business is prima facie evidence that he is a partner in
the business, but no such inference shall be drawn if 7. A capitalist partner, one who contributes money or
such profits were received in payment: property, you cannot venture into another partnership
that is in competition with the business venture, while an
a. As a debt by installments or otherwise;
Industrial Partner is absolutely prohibited to venture into
b. As wages of an employee or rent to a landlord; another partnership since what he contributes is only
service and should be loyal
c. As an annuity to a widow or representative of a
deceased partner; 8. On dissolution, the partnership is not totally terminated,
but continues until the winding up of partnership is
d. As interest on a loan, though the amount of completed.
payment vary with the profits of the business;
Different Parties in Partnership
e. As the consideration for the sale of a goodwill of a
business or other property by installments or GR: There is no special capacity required by the partners,
otherwise. anyone can be a partner
Absence of one of the requisites--- no partnership b. Art. 739. The following donations shall be void:
Who has the burden of proof to show that a partnership 1. Those made between persons who were guilty
exists? of adultery or concubinage at the time of the
It is the partner/partnership donation, no need of conviction;
If there is no certainty with what kind of relationship is 2. Those made between persons found guilty of
entered into--- the partner has the burden of proof the same criminal offense, in consideration
thereof;
5 | Partnership
2. The profits derived and properties, instruments used loss after delivery: partnership bears the loss, the
and contributed shall be seized and confiscated in favor partners can contribute to give an additional capital for
the business venture
6 | Partnership
if only use is given and not ownership: before and after Sept. 4, 2015
delivery, partnership is dissolved
Classes of Partnership
Art. 1771: Formalities
Gr: No specific form, thus maybe oral or written A. Object
If non-compliance: The partnership will still be existent a. here, no period, express or implied, is given and
but the contract VOID so its duration depends on the will of the partners;
The partnership may be considered as a de facto or b. if the period has expired, but the partnership
partnership by estoppel continued, without liquidation, by the partners who
habitually acted as such during the term.
Art. 1774. Acquisition of Property Under the
Partnership Name C. Extent of Partner Liability
Art. 1775. If Articles are Kept Secret 2. Limited partnership — that where at least one
partner is a general partner, and the rest are limited
Effect: partners.
a. The association here is certainly not a partnership and -A limited partner is liable only to the extent of his
therefore not a legal person, contribution.
b. It may be sued by third persons under the “common D. According to representation to others:
name” it uses; otherwise, said innocent third parties may
be prejudiced. 1. ordinary partnership
2. partnership by estoppel
7 | Partnership
Rule: Appraisal of value of the goods is needed to Obligation to Preserve the Property
determine how much has been contributed. With the diligence of a good father of a family, take care
of the contributions a partner promised
How Appraisal is made?
Art. 1790. Respect the stipulation as to the amount of
(a) Firstly, as prescribed by the contract. contribution to be contributed
(b) Secondly, in default of the first, by EXPERTS chosen
by the partners, and at CURRENT prices. E.g. licensed In Articles of Partnership, can stipulate to the amount of
real estate appraisers contribution, this shall follow to the sharing of profits and
losses.
Art. 1795 Risk of loss of contribution of property or
goods e.g. Total= 5M; A=1M, B=3M, C=1M
(a) Specific and determinate things (NOT fungible) — If no stipulation, they shall contribute equally
whose use/usufruct is enjoyed by a firm — like a car — Exc: An industrial partner shall receive just and equitable
partner who owns it bears loss for ownership share.
Ex. Taxi business, Z allowed the car be used, If the car Additional Contribution
was wrecked, it Z who will bear the loss. If:
! There is stipulation, the partners are compelled
(b) Fungible or Deteriorable — Firm bears loss for ! There is imminent loss of the business partnership, the
evidently, ownership was being transferred; otherwise, business is to go bankrupt
use is impossible.
If one of the partner refuse--- he is obliged to sell his
Ex. Business of vegetable, or cell phone was lost, the interest over other partners
partnership shall bear the loss
If he refuses to contribute and refuses to sell---he is no
(c) Things Contributed to be Sold — Firm bears loss for longer interested in pursuing the business venture
evidently, firm was intended to be the owner; otherwise,
a sale could not be made. If there is a stipulation that Z partners is not compelled to
contribute even if there is imminent loss---cannot compel
(d) Contributed under Appraisal — Firm bears loss to contribute additional amount
because this has the effect of an implied sale.
What kind of refusal and still the partner is a part of
Art. 1789 Contribution of Services and Industry partnership? By reason of insolvency and he cannot
-labor and service therefore the partner is bound to give contribute additionally
100% attention to the partnership
- he cannot engage in any other business without the
express
consent of the other partners;
All the partners has the right to own the property Rule: Power is irrevocable.
Partnership property are covered by Rules on co- Exc: when there is just or unjust cause
ownership
What can the partners with respect to their partnership 1) In just cause, the controlling partners (partner with the
property? highest percentage in the contribution) should vote
to OUST HIM.
Any of the partners may use the property as long as for
the purpose of the business Therefore, the controlling partner as much as possible
should not be the managing partner
If for personal use: there should be consent of all the
partners
11 | Partnership
2) For unjust cause, there must be a unanimous vote, 3. not incidental to the business
including the vote of the managing partner. -not part of the business
Reason: This represents a change in the will of the 4. it is not necessary to carry out the object of the
parties: a change in the terms of the contract; partnership
a novation , so to speak, requiring unanimity.
Art. 1801 Two or more managing partners
How do you revoke?
may file an application for dissolution of the partnership Rules:
by a judicial decree and create a new partnership. 1. If there is a designation
NO Court intervention since it is a management -The partner can only perform the power designated to
prerogative. him
What is the extent of you power? 2. If there is no designation, these partners have equal
If done in Good Faith, power, unlimited act of management
All acts of administration, e.g. business transactions, hire
and fire employees---should be done in good faith, 3. If it is stipulated that the managing partner cannot act
without the consent of the partners
no need for the consent of other partners
Rationale: When they appointed a managing partner, the If one of the managing partner objects to the acts of
other partners already surrendered their power to another managing partner
management
Remedy: Register his objection before the other partner
If the managing partner is acting in Bad Faith, completes the act or before the acts produce legal effect
He cannot do all acts of administration, but he is enjoying e.g. hiring then there is a contract of employment, the
the presumption that he is in good faith. objecting partner may stop the other partner.
B. Appointment as manager after the constitution of the If not, the act will bind the partnership
partnership in another instrument or orally
-this may be revoked at any time for any cause just or Why will register your objection? To protect third persons
unlawful cause.
Q: Who has the right to object the act of managing
Why is there a difference in revocation? partner?
The appointment is a mere designation of power
A: The other managing partner can only object to the
Extent of power? acts of the managing partners.
As long as he remains as the managing partner, he can
do all acts of administration. A & B managing partner
C & D partners
The act of administration of the managing partner should C & D cannot object because they already gave up the
be within his authority and for the best interest of the right to management to A & B
partnership
If there is an objection, how do you now decide?
Act of dominion---act of ownership Majority of all the managing partner
there should be consent of all the partners for it to
binding If there is a tie: vote of the partner with controlling
interest--- such partner is also a managing partner
GR: All acts of administration is conferred to the
managing partner Art. 1802 The all the acts of administration must be with
Exc: the consent of all the partners, even if you are a
1. specifically restricted managing partner.
Eg. All acts of administration except hire and fire
employees All partners must agree to the act of the managing
partner, e.g. hiring of an employee and all partners
2. expressly withheld should consent
-same as 1
12 | Partnership
The managing partner cannot act without the consent of It shall bind the partnership.
the other managing partner. Sept. 16, 2015
A, B & C are managing partner Rules in management when there is no designated
A for his acts to be valid, B & C must consent partner
A cannot put up the defense he is did not yet get the
consent because he is incapacitated Every partner is an agent of the partnership, any partner
A will hire is a managing partner as long as:
B & C was out of the country 1. The partner is acting is good faith
A cannot hire without the consent of B & C 2. It is acting in behalf of the partnership and for the
interest of the partnership;
Exc: there is an imminent danger or irreparable injury
that which will be a cost to the partnership if there is a Therefore the act of partnership binds the partnership.
delay, e.g. damage upon the taxi
There is no need for the consent of other managing When does the act of a partner does not bind a
partner partnership?
If there is timely objection by the other partner
Art. 1803: There is no designation of a managing partner
Eg. X partner will enter into a transaction with a third
The partners shall all be considered as managing person, X partner is in good faith and is acting for the
partners best interest of the partnership, for the act not to bind the
partnership, there should be a timely objection by Y
In re: Art. 1818 as long as the partners are acting in good partner
faith, the acts are binding upon the partnership
How can the objection Y partner be overturned?
As an agent, a partner is keen to act within the scope of Art. 1801 there has to be a majority decision of all the
his authority, whether actual, implied or apparent partners
authority The transaction may proceed and shall bind the
---his acts concerning the partnership business and every partnership
contract in the partnership name will bind the partnership
Art. 1818 as an agent of the partnership, a partner is
Q: When can a partner bind the partnership? deemed to have acted within his scope of his authority,
A: A partner binds the partnership when the following That includes all acts of administration, whether implied,
requisites are present: actual or apparent.
Ex: Partner is authorized to buy products which will be e.g. XYZ partnership uses only cash basis in their
used to sell, The partnership uses only cash and the third transactions, X enters into a transaction with instalment
person does not know this limitation and this partner or credit basis, the third person who enters into such
used check or credit,
13 | Partnership
transaction may hold the XYZ partnership liable, as long 5. Enter into a compromise concerning a partnership
as the third person does not know such limitation. claim or liability;
— this is an act of ownership and may be said to be
How can we determine whether or not the transaction equivalent to alienation, removing ownership from
is within the scope of the partnership business? partnership property
may be gauged by the usual manner in which it is carried 6. Submit a partnership claim or liability to arbitration;
out in the locality; — same as alienation
but scope may be broadened by actual conduct of
business, as carried out with knowledge, actual or 7. Renounce a claim of the partnership.
presumed, of the partner (partners, or partnership) — the right to renounce belongs to the partnership only
sought to be charged.
Exception to these acts of dominion
e.g. XYZ partnership transacts using cash only, the X -there is a need of unanimous authorization
partner uses a check or credit 1. When the partner is authorized by other partners
2. When all the other partners have abandoned the
ABC partnership is in the Real estate business but then partnership, the remaining partner may perform acts of
A partner is now selling motor vehicles, the third person dominion
should start to be wary and vigilant
In the event there is abandonment, 1 or more but not all
Effect: if there the transaction is not within the scope of partner may perform the acts of dominion
partnership business, the partnership may not be held
liable Art. 1803 (2) No designation of managing partner,
Important alteration in an immovable property
For third persons, and there is no designated managing
partner in the partnership, “None of the partners may, without the consent of the
check if the partner has authority to enter into such others, make any important alteration in the immovable
transaction and if there is general authority property of the partnership, even if it may be useful to the
partnership. But if the refusal of consent by the other
Art. 1818. 7 Instances these acts binds a partner if partners is manifestly prejudicial to the interest of the
there is no designation, cannot act on its own partnership, the court’s intervention may be sought.
There is a need for unanimous consent
• These important alterations are useful expenses but
Rationale: Because there are already acts of dominion, not necessary
actual ownership, they are not apparently carrying on in
the usual way of the business of the partnership Rationale: alteration in the immovable property of the
partnership is an act of strict dominion.
1. Assign the partnership property in trust for creditors or
on the assignee’s promise to pay the debts of the Rule:
partnership; Useful expenses must be with consent
---the firm will virtually be dissolved since there is a Necessary expenses do not need consent
removal of asset, giving the asset to the creditor
The consent required:
2. Dispose of the goodwill of the business; Unanimous consent of all the partners
— goodwill is valuable property, e.g. name of the The consent need not be express or implied.
business of the partnership Implied: as when the partners had knowledge of the
alteration and no opposition was made by them
3. Do any other act which would make it impossible to
carry on the ordinary business of a partnership; Eg. Taxi business
— this is evidently prejudicial Building where you house your office,
A part of the building is deteriorating,
4. Confess a judgment; The use will depend on the part of that building which is
— if done before a case is filed: confession is null and deteriorating,
void,; If the part is not used---- useful expense, there is a need
— if done after the case is filed, the firm would be to get the consent
jeopardized, the confession is not binding.
14 | Partnership
If the part houses the office, computer and files---- After dissolution, the partnership has to dispose
necessary, no need to get the consent of the partners, partnership assets, if statements that must pertain to
this is partnership liability these transactions, then it shall be binding
Q: Why is it limited only to immovable property? e.g. Vehicle that is owned by the partnership and it is
paid in instalment, and a partner admitted that there is
A: First, because of their comparative greater importance still a debt to the bank, this obligation is still demandable
than movable property. to the partnership and it shall pay for the debt
Second, because, in a proper case, they should be Rationale: If the admission is not the act of the
returned to the partners in the same condition as when partnership, it should NOT be evidence against it.
they were delivered to the partnership.
Since the partner shall only give the usufruct or right to
use and the same shall be returned to the partner upon Sept. 18, 2015
dissolution
Other Acts of a Partner that binds the partnership
Remedy of a partner if one of the partners object to the
important alteration and no alteration can be done: Art. 1821 Notice given by third persons
Court intervention,
If such objection is manifestly prejudicial to the Generally, notice to a partner is notice to the partnership
partnership
e.g. Deterioration on the not used part, but there might Reason: because of the existing fiduciary relationship, it
be termites on the deterioration, then court intervention is presumed that partners disclose to one another
may be sought relevant information concerning partnership business
Another act that may bind the partnership A third person need not to send notices to all partners
Art. 1820 Admission or Representation Made By a Conditions:
Partner
1. Notice must be related to partnership affairs
An admission, stipulation or statement by a partner is
admissible against the partnership under the conditions 2. The partner who receives notice is within the scope of
given: his authority
a. the admission must concern partnership affairs only e.g. Matter about a property, one of the partners is a
managing partner, it is within his scope of authority that
b. partner is acting within the scope of his authority he is notified of such matter, if the partner is notified,
---made to a third person is binding to the partnership
The partnership cannot claim ignorance of this notice
c. made by the partner while engaged in the partnership
As provided by Uniform Partnership Act
d. the existence of the partnership must be proved or
Knowledge of fact Notice of fact
established,
Actual knowledge of fact A person claiming the
but also when the partner benefit of the notice:
e.g. partner by estoppels, the admission may not be
has knowledge of other
binding to the partnership
facts A person states the fact to
such person and it is this
Restrictions on the Rule
There are other person who claims, and
information regarding such states it to another person
1. Admissions made BEFORE and going towards
fact
dissolution, and third party are going after the partnership,
Or delivers the fact
The admissions are binding only when the partner has
Maybe learned through through a written notice to
authority to act on that particular matter.
rumors or gossips his place of business or
residence
2. Admissions made AFTER dissolution are binding only
if the admissions were necessary to WIND UP the
business.
15 | Partnership
Q: Does this knowledge without notice considered Torts committed in the ordinary course of the business or
knowledge of the partnership? with the authority of the co-partners
Yes, still considered knowledge of the partnership when: The non-erring partners are also liable
1. The knowledge was acquired by a partner who is e.g. A, B, and C were partners. While acting within the
acting in the particular matter involved. scope of the firm’s business, A committed a tort against
X, a third person. Is the firm liable?
Q: When is the knowledge acquired and that may bind ANS.: Yes. Moreover A, B, and C, as well as the firm
the partnership? itself, are liable solidarily.
A: May have been acquired while already a partner, or When the Firm and the Other Partners are NOT Liable
even PRIOR TO THAT TIME, provided “present to his
mind”,----he still remembers the knowledge. a. If the wrongful act or omission was not done within the
scope of the partnership business and for its benefit or
2. The partner was present to his mind and remembers with the authority of the co-partners.
the knowledge--- Prior to the partnership and the partner
is in authority to act for a particular matter b. If the act or omission was NOT wrongful.
There was no wrongful act
3. The knowledge was acquired by a partner not acting in e.g. self-defense,
a particular matter
----while the partner is already in the partnership c. If the act or omission, although wrongful, did not make
the partner concerned liable himself----the partner is not
e.g. The Y partner is authorized in the hiring and firing of the reason for the act or omission
an employee, X partner came to know that one of the
employees has a criminal record, d. If the wrongful act or omission was committed after the
X partner has the obligation to say about character of the partnership had been dissolved and same was not in
employee. connection with the process of winding up.
Q: When is the knowledge not binding to the partnership? 1. Partner was acting within scope of his authority
2. There was receipt of money
A: The partner comes to know of an information, in case 3. The partner misapplied the money while it is in the
the partner commits deliberate intent or fraud on the custody of the partnership
partnership committed by or with the consent of the other
partner who knew such knowledge e.g Investment business, Z partner has the authority to
receive money, Z misappropriates by gambling
Other acts of the partner that binds the partnership
16 | Partnership
Art. 1824. All partners are liable solidarily with the 1. The partner was acting in the usual way of the
partnership for everything chargeable to the partnership business, e.g. real estate business
under Articles 1822 and 1823
---due to tort - the buyer does not know the lack of authority
Different from Art. 1816 2. The buyer already sold the property to a third person
-provides joint liability, partnership obligations the Who is a buyer in good faith, for value and has no notice
transactions that was entered by the partnership itself has that the partner has acted with lack of authority
and there is corresponding obligation
Ex. A, B, C, and D are partners of the firm “Edimus.”
A parcel of land registered under the name “Edimus” was
Obligation of the Partnership re: Workmen’s sold by A on behalf and in the name of the firm “Edimus,”
Compensation but without express authority. The purchaser is X. Does
X become the owner?
Scene:
there was illegal dismissal and the worker was able to A.: Ordinarily YES, but the firm may get back the land
obtain a favourable judgment unless:
a. the firm is engaged in the usual buying and selling of
The liability of the business partners should be land
SOLIDARY.
b. X had in turn sold the same land to Y for value and Y
Rationale: If the responsibility of the partners were to be did not know of A’s actual lack of authority.
merely joint and not solidary, and one of them happens
to be insolvent, the amount awarded to the dependents Reason: The property has in turn been “conveyed by the
of the deceased employee would be only partially grantee (X) to a holder for value (Y) without knowledge
satisfied. that the partner, in making the conveyance, has
The law intends to give full protection to the employee. exceeded his authority. ”
Art. 1819 Conveyance B. The title is in the name of the partnership but was
-conveyance of real property through sale and donation sold in the name of the partner (Par. 2)
In partnership, if there is a specific authority to sell a real What passes to the buyer is only the equitable interest
property it includes the authority to mortgage over the property, such as beneficial interest of use and
fruits over the property
Real property may be registered or owned in the name of:
1. The partnership; Conditions
2. 1 or more but not all the partners; The partner was:
3. 1 or more, or all in trust;
4. All partners 1. acting with scope of his authority
2. in the usual way of the business of the partnership
What is equitable interest? 3. sells the property in his own name, instead of putting
-all interest which the partnership had, except TITLE, that the name of the partnership
is, the beneficial interests like use, fruits, but not the
naked ownership. Remedy of the buyer:
Reformation of the contract,
Rules:
17 | Partnership
The partnership shall execute a new contract changing How does a buyer acquire valid title from a property sold
the name of the seller, to the name of the partnership by a trustee?
provided: other partners would not object to the There must be Ratification:
reformation of the contract
1. After the lapse of many years from the time of
If the partners object: The buyer may use and have the execution of a conveyance by a partner purporting to act
fruits of the property for the partnership,
The buyer is not entitled to equitable interest when: The partnership came to know the act of the trustee
1. The buyer knows the lack of authority of the partner laches will already apply
2. They are not in the usual manner of business, not in ---reasonable time
the real estate business
3. When the buyer knows the lack of authority, and the 2. At the time the document was given and executed to
partnership is in the usual manner of the business. the buyer, e.g. Deed of Sale, the partners was present
and there was no objection
C. One or more but not all of the partner and there is
no indication that the property is a partnership Implied Ratification on the action of the trustee will validly
property. (Par. 3) pass title
e.g. A, B, C and D were partners in the real estate firm of 3. From the nature of the partnership business, and
“Edimus.” Although a certain parcel of land really where a firm is engaged in the business of buying and
belonged to the firm, it was registered in the name of A selling real estate, a contract of sale executed by one of
and B. the partners in the firm name is valid.
Can they use it for personal use? When C dies, the rights of the partnership over the
Yes, as long as there us consent of all the partners partnership property shall go to the legal representative
of C, he was the last to die. The legal representative shall
e.g. ABC Partnership, A wants to loan money for his own be in charge in liquidating, dissolution.
use and he makes use of the partnership property as the
security/collateral
A cannot use the property for his own use B. Right over a specific partnership property is not
assignable
If he uses loan for partnership purposes valid collateral.
A partner cannot separately assign his right to specific
Q: Can he use 1/3 of his interest over the property? partnership property but all of them can assign their
rights in the same property
A: Depends,
Reasons:
If with consent of partners, he may use that 1/3 share as
a collateral for the loan 1. It is impossible to determine the extent of his beneficial
interest in the property until after the liquidation of
Will a bank accept such collateral? Depends partnership affairs;
If without the consent then the partner cannot use if for 2. Prevents interference by third parties in partnership
collateral affairs--- there is no fiduciary relationship;
Reasons for the consent of the partner 3. It protects the right of other partners especially
partnership creditors to have partnership assets applied
1. The bank might not accept a portion over a co-owned to firm debt
property ----In partnership liabilities, partnership creditors are paid
before personal creditors
2. There is a difficulty to determine the exact beneficial
interest of a partner over specific partnership property If assigned,
without dissolution of the partner
-The assignment is VOID and the partners may recover
It is only during dissolution when there is liquidation that that might have been assigned
a partner will know the exact
The law allows a retiring partner to assign his rights in
If there is a violation, what is the remedy? partnership property to the partner or partners continuing
the business.
1. The erring partner, must account to any benefits or
profits he gained for the use, and for any damages that C. Right over a specific partnership property not
might have incurred for the wrongful use subject to attachment or execution
2. The partners have the right to ask for an accounting, if X has a creditor,
the erring partner does not account X is not an owner of the property even if it is through a
judgment
3. The partners may apply for a dissolution of the
partnership, because there the decrease in the fiduciary Q: When is it subject to attachment or execution?
relationship in the trust and confidence on a partner A: Differentiate who is a Personal creditor and a
Partnership Creditor, upon dissolution, the latter can first
The right to use or posses may be given up by a partner be satisfied.
and surrender it to a managing partner
Death of a partner
19 | Partnership
Interest A: The assignee steps into the shoes of the partner thus
-it consists of the partner’s proportionate share in the after the payment to the partnership creditor, the
undistributed profits during the life of the partnership and payment to the assignee shall follow.
his share in the undistributed surplus after the dissolution
There is profit and surplus upon dissolution and 2. To avail himself of the usual remedies provided by law
settlement of property debts and payment of credit to in the event of fraud in the management
partners and distribution of contribution then surplus --run after managing partner
The right of each partner to the share of profits and 3. To receive the assignor’s interest in case of dissolution;
losses
4. To require an account of partnership affairs, but only in
Personal Property of the partner case the partnership is dissolved and shall cover the
-Once the interest or the share has been given period from the date only of the last account agreed to by
-Can be used by the partner as long as not contrary to all the partners.
law, public policy, etc. -no dissolution, no right to ask for an accounting
-accounting before is not included
Art. 1813. Right of a partner in assigning his interest
over the partnership
20 | Partnership
What the court may appoint a receiver, the receiver: Q: How do you determine the extent of the interest?
1. will receive in behalf of the creditor the payments;
2. has the right to demand payment from partners who A: The share of a partner is in proportionate with the
has existing credits against the partnership for their residue or balance after the credits and debts of the
existing loans; partnership have been taken into account
3. Make all other orders, directions, accounts and other
inquiries Q: On dissolution, who do you determine the extent?
2. Share in proportion to their respective contribution, After two (2) years there was a loss of P30K
Capitalist Partner
A 40 % of P30K = P12K
3. The Industrial Partner (IP) shall receive just and B 30 % of P30K = P9K
equitable share based on the circumstances C 20 % of P30K = P6K
-The IP share shall be given first before the share to the D 10 % of P30K = P3K
Capitalist Partners
Although there was no agreement on loss sharing, there
4. Both Capitalist and Industrial Partner was agreement of profit sharing--- Go to Rule # 2
a. Determine his just and equitable share D will also share in the loss because of the profit sharing
agreement. His exemption to the loss is immaterial due
b. Distribute share on the profits based on the to the agreement.
contribution
Q: The Industrial Partner is exempt from loss, how can
Rules on Loss Sharing he recover?
1. Based on the Agreement A: Since he is exempted, he can recover from the P3K
from the other partners. Therefore he still does not bear
2. If there is stipulation on the profit sharing ratio but no the loss
agreement as to loss sharing--- use the profit sharing
ratio if there is no profit sharing agreement--- he is purely
exempted.
If there is profit sharing agreement and the Industrial
Partner is entitled to profit ratio, he becomes liable to the Art. 1798. Designation of Share to Profits and Losses
share, but this shall be borne out by the other Partners. to be made by Third Persons
Art. 1799 Stipulation Excluding a Partner from Profits Absence of an agreement, it shall be kept in the principal
or Losses place of business
GR: stipulation excluding one or more partners from any This book shall be kept by the managing partner or a
share in the profits or losses is VOID partner designated to hold the book
If none, any active partners in the partnership
Exc: stipulation is on the exempting of the industrial
partner excludes from losses. When can they access?
The law expressly provides the exemption, At any reasonable hour/business hours, business days
a stipulation exempting the industrial partner from losses throughout the year
is naturally valid.
This presupposes a “going partnership, ” and not in the
Effect of the void stipulation exempting a partner from process of dissolution
profits or losses:
The Partnership will still subsist as if the stipulation was If in the process of dissolution/dissolved:
not made, the profits will then be distributed according to Only the courts may direct the partner to access on the
their contributions. books.
Although the books belong to all the partners, still no
Unequal Sharing of Profits is allowed even if the single partner is duty-bound to continue the place of
contributions were equal because what will always follow business for the benefit of the others.
shall be the agreement A purchaser of the firm’s goodwill is not duty-bound to
keep the books for the inspection of the former partners.
Other Rights (Sanderson v. Cooke)
Art. 1767. Reimbursement of Expenses made on A partner cannot use the information he obtain from the
behalf o the partnership books for non-partnership purposes
The Partner has the right to demand reimbursement from Value of the Partnership Books
the partnership
Facts stated can be used an admission that can be
Art. 1813 Right to assignment introduced as evidence against the keeper or maker of
the books or records.
Art. 1804. Right to associate of a Partner
e.g. Question on the distribution of profits, the partner
Associate of Partner may access the partnership books and check all the
profits distributed to the partners---this can be presented
a. For a partner to have an associate in his share, as evidence
consent of the other partners is not required.
If it is proven that the entries had been placed therein as
b. For the associate to become a partner, ALL must a result of fraud or mistake---this cannot be introduced as
consent evidence
Reasons:
1. mutual/fiduciary trust is the basis of partnership;
2. change in membership is a modification or novation of Oct. 9, 2015
the contract of partnership. Art. 1806. Right to the true and full information
Art. 1805. Right of the partners to access the books Reason: fiduciary nature of the partnership, a partner
and records of the Partnership must not conceal all transactions and even the condition
of partnership property
Subject to the agreement where such books shall be kept
Who Can Demand Information:
23 | Partnership
a. any partner a. the violator shall bring to the partnership all the profits
illegally obtained
b. legal representative of a deceased partner b.but he shall personally bear the net losses.
-the legal representative may look into the profits c. The violator can be ousted from the firm on the ground
obtained by the partnership and know the share/interest of loss of trust and confidence, particularly if the violation
of the deceased of the partner to his estate is repeated after due warning.
c. legal representative of any partner under legal Art. 1809 Right to Formal Accounting
disability
GR: There is formal accounting when the partnership is
Art. 1807. Duty to Account going towards dissolution
When a partner enters for his own benefit or use 1. If he is wrongfully excluded from the partnership
partnership funds for his own benefit, he has a duty to: business or possession of its property by his co-partners;
-in order to see the benefits that were derived by the
1. account for all the benefits and profits he will derive out partnership during a transaction or use of partnership
of the transaction; property
-he may also look at the books of the partnership
2. purchase in his name, he shall be considered as a
trustee for the partnership 2. If the right exists under the terms of any agreement;
Q: When should trust relations exist? 3. A transaction was kept secret, there was use of
A: During the life of the partnership until termination partnership funds so that there is a fair standing between
the partners
If entered into transactions before partnership, there
should be trust relations 4. Whenever other circumstances render it just and
reasonable.
A partner is prevented from using information obtained, e.g. A partner who was outside of the country
attained and learned information that might be used to
business transaction----any profits derived from the There is the right to demand as long as the partnership is
information during the partnership--- should be accounted in existence
to the partnership
Prescription begins to run only upon the dissolution of the
Art. 1808 Business Prohibition on Capitalist Partner partnership when the final accounting is done
The capitalist partner is prohibited from engaging for his If there is no objection made before dissolution, the
own account in any operation same or similar business partner waives the right to question the discrepancies in
that may result in competition an accounting.
Instances When There Is No Prohibition If there is a timely objection, there can be another formal
objection
a. When it is expressly stipulated that the capitalist
partner can so engage himself. Remedy if denied the right to accounting:
b. When the other partners expressly allow him to do so. File an application for dissolution, this right is an
c. When the other partners impliedly allow him to do so. important and there is loss of fiduciary trust and
e.g. When ALL of them are likewise violating the article confidence
d. When the company ceases to be engaged in business
e. When the general-capitalist partner becomes merely a An action for accounting, asking that the assets of the
limited partner in a competitive enterprise for after all, a partnership be accounted for, sold and distributed
limited partner does not manage. according to the agreement of the partners is a personal
action (De Leon)
Effect of Violation:
Obligations of the Partners to Third Parties
24 | Partnership
Art. 1815 Operation under a Firm Name Reason: for making this “partner ” a nominal partner is to
(Mandatory) protect the right of third persons
A firm name is necessary to distinguish the partnership When does Art. 1815 not apply?
which has a distinct and separate juridical personality
from the individuals composing the partnership and from 1. To Limited Partners because they
other partnerships and entities. -do not have the rights of a general partner but has same
obligation
Rules: A partnership may adopt any name, -his liability is limited only up to his contributions
it may be: -the third person cannot run after such partner
1. the name of an individual partner, the surnames of all 2. Persons who continues the partnership even of
the partners, or the surname of one or more of the dissolved
members with the addition of “and Company,” -the partnership or other partner will not be liable
2. the individual names wholly distinct from the names of 3. If the person misrepresents himself as a partner---
any of the members partner by estoppels
3. name purely fanciful or fictitious Q: If a partnership changes its name, will the rights
acquired be passed to the new partnerhip?
Conditions in the use of the firm name:
A: Case Sharruf and Co. v. Baloise Fire Insurance Co.
1. It should not use misleading name (64 Phil. 258)
-The partners cannot use a name that is “identical or Facts: Sharruf and Eskenazi, partners under the name “Sharruf
and Co., ” insured for P40,000 their goods. Later, the name was
deceptively confusingly similar to that of any existing
changed to “Sharruf and Eskenazi.” The in sured goods were
partnership or corporation or to any other name already subsequently burned, but the in surance company re fused to
protected by law or is patently deceptive, confusing or pay on the ground that its name, having been changed, the
contrary to existing laws, as to mislead the public by partnership now had no ju ridical personality to sue, nor did it
passing itself off as another partnership or corporation, or have insurable interest in the goods.
its goods or services as those of such other company.
e.g. Starbucks case Held: The change of name was made in good faith, not having
been done to defraud the insurance company. Moreover,
composition of the partnership remained the same. Therefore,
the firm can collect the in surance indemnity.
2. It should not use of the name of Deceased Partner
Re: Code of Professional Responsibility
Art.1816. Limited Liability of Partners for Contractual
Obligations
The continued use of the name of a deceased partner is
permissible provided that the firm indicates in all its Payment of Contractual obligations entered into by the
communications that said partner is deceased. partnership and being a member of the partnership the
industrial partner shall also be liable in the contractual
3. Use of false or assumed name obligation
-any transactions entered into using the fictitious name
shall be unaffected and considered valid The partners are joint/pro-rata and subsidiary liable
Joint: A third persons may run after any of the partners
Additional Requirement re: Partnership Name: for his share, cannot get the whole amount, depending
Registered with the Department of Trade and Industry on the agreement between the partners
(DTI), to avoid similar names
Art. 1797. Industrial Partner is exempt from losses
Liability of Strangers Who Include Their Names
Art. 1824. Solidary liability re: Torts and Misappropriation
Persons who, not being partners, include their names in
the firm name do not acquire the rights of a partner but, Rules in respect to contractual liabilities
they shall be subject to the liability of a nominal partner 1. Partnership assets must be first exhausted
insofar as third persons without notice are concerned. Primarily liable: Partnership
Third persons may run after this “partner ”.
25 | Partnership
e.g. ABC Partnership, D “I am part of the partnership”, Sharing between A, B and C could be equally or pro-rata
ABC heard, A objected to this representation by D, ABC depending on the agreement
represented that D is partner and D objected.
Q: Does the admission of a new partner dissolve the old
3. Separate liability of those who consented or the person firm and create a new one? (Reason for Art. 1826)
who represented himself A: Yes, since the old firm is dissolved, the previous or the
old creditors are given preference or protected.
When there is no existing partnership and some of those
represented as partners consented to the representation, Art. 1827 Preference of Credits of the Partnership
OR none of the partners in an existing partnership
consented to such representation. 1. The partnership creditors shall have first priority over
partnership assets
Estoppel does not create partnership
E.g. Dissolution and there is liquidation
To invoke liability: Alpha Partnership
Third persons should be innocent--- they are not aware B, C and D
of such partner/ship by estoppel Partnership Assets: P200K
Liabilities:
Burden of proof: Partnership creditors
The creditor, or whoever alleges the existence of a X P50K
partner or partnership by estoppel has the burden of Y P100K
proving the existence of the misrepresentation and the Z P50K
innocent reliance on it.
Partnership borrowed money from Partner B= P100K
Art. 1826. Obligations of subsequently admitted
partners The first that shall be paid out from the partnership
assets shall be partnership creditors, X, Y and Z
GR: A newly admitted partner shall be liable also for
obligations already existing before he was admitted, the 2. Personal Assets
extent of his liability is limited to his share in the
partnership property
Exc: there is a stipulation, “that a newly admitted partner e.g.
will still share in the obligations beyond his contribution”
Alpha Partnership, B, C and D
Example. Partnership Asset= P150K
Partnership Creditor= P200K
Alpha Partnership Balance= P50K
A, B, C Partners The balance shall be distributed between B, C and D
Oct. 9, 2015: Loan of 200K from Z C has a personal credit of P50K from P
Dec. 31, 2015: Maturity of the loan Personal Asset: P30K
Nov. 1, 2015: Admission of D to the Alpha Partners
with P20K Case of C:
C shall pay first P with his P30K before his share on the
Q: Who will be liable of the obligation of 200K from Z? P50K
A: Alpha Partnership
Remedy of the Personal Creditor:
If the partnership assets is able, okay! Cannot attach the partnership asset
But if Partnership assets as of Dec. 31, 2015: P160K
Balance: P40K You can attach the interest of the partner over the share
in the profits and surplus of the partner