Art.

1808 – Prohibition against a Capitalist Partner

 
 Business Prohibition on Capitalist Partner
-          prohibited from engaging for his own account in any operation which is the kind of
business in which the partnership is engaged
 
Instances where there is no prohibition
a.        when there is an express stipulation allowing the capitalist partner to engage himself;
b.        when the other partners expressly allow him to do so;
c.        when the other partners impliedly allowed him to do so;
d.        when the company ceases to be engaged in business during the period of liquidation
and winding up; and
e.        when the general-capitalist partner becomes merely a limited partner in a competitive
enterprise
 
·         Effect of Violation
a.         the violator shall bring the partner shall of the profits illegally obtained;
b.         he shall personally bear all the losses
 
·         Art. 1809 – Right of Partner to a Formal Account
 
Right to demand a formal account
a.               generally, no formal accounting is demandable until after dissolution
b.               however, under Art. 1809, formal accounting may be properly asked for
 
Estoppel
-          cannot be questioned anymore if it was accepted without objection for this would
now be a case of estoppel, unless fraud and error are alleged and proved
 
·         Stipulation and Continuing Share
-          valid and proper accounting must be made
 
III. Property Rights of a Partner
 
Art. 1810 – Property Rights of a Partner
 
Principal Rights:
a.        specific partnership
b.        interest in the partnership
c.        right to participate in the management
 
Related Rights:
a.        the right to reimbursement for amounts advanced to the partnership and to
indemnification for risks in consequence of management;
b.        the right to access the inspection of partnership books;
c.         the right to true and full information of all things affecting the partnership;
d.        the right to formal account of partnership affairs under certain circumstances;
and
e.        the right to have the partnership dissolved also under certain conditions
 
Distinction between Partnership Property and Partnership Capital
 
a.        as to changes in value
 PP – variable; its value may vary from day to day with changes in the market value of
the partnership assets
PC – constant; remains unchanged as the amount fixed by agreement of partners, and
is not affected by fluctuations in the value of partnership property, although it may be
increased or diminished by unanimous consent of the partners
b.        as to assets included
PP – includes not only the original capital contributions of the partners, but all property
subsequently acquired on account of the partnership or with partnership funds,
including partnership name and the good will of the partnership
PC – represents the aggregate of the individual contributions made by the partners in
establishing or continuing the partnership
 
Art. 1811 – Partnership in Specific  Partnership Property
 
·         Co-ownership in Specific Partnership Property
- partners are co-owners but rules on co-ownership does not necessarily apply
 
·         Rights of a partner in specific partnership property
1.        in general, he has an equal right with his partners to posses, but only for
partnership purposes;
2.        he cannot assign his right;
3.        his right is not subject to attachment or execution; and
4.        his rights is not subject to legal support
 
Art. 1812 – Partner’s Interest in the Partnership is his share of the profits and surplus
 
                In general., a partner’s interest in the partnership (his share in the profits and
surplus) may be assigned, attached or be subject to legal support
 
Art. 1813 – Conveyance of Interest
 
·         Effects of conveyance by partner of his Interest in the Partnership
1.         Partnership may still remain; partnership may be dissolved
2.         Assignee does not necessarily become a partner
3.         Assignee cannot even interfere in the management or administration of the
partnership business or affairs
4.         Assignee cannot demand information, accounting or inspection of the partnership
books
 
·         Rights of Assignee
1.         to get whatever profits the assignor-partner would have obtained;
2.         to avail himself of the usual remedies in case of fraud in the management;
3.         to ask for annulment of the contract of assignment if there was  fraud, error,
intimidation, force, undue influence;
4.         to demand an accounting
 
Art. 1814 –
 
Charging Interest of a Partner
-          while a partner’s interest in the partnership may be charged or levied upon, his
interest in a specific firm property cannot as a rule be attached.
 
·         Preferential Rights of Partnership Creditors
-          preference is given to partnership creditors in the partnership assets;
-          separate or individual creditors have preference in separate or individual properties
 
·         Remedies of separate Judgment Creditor of a Partner
1.        Application for the “charging order” after securing judgment on his credit
2.        Availability of other remedies
 
·         Receivership
a.        when the charging order is applied for and granted, the court may at the same time
or later appoint a receiver of the partner’s share in the profits or money due him
b.        the receiver appointed is entitled to any relief necessary to conserve the partnership
assets for partnership purposes
 
·         Redemption of the Interest Charged
a.                redemption- means the extinguishment of the  charge or attachment on the
partner’s interest in the profits;
b.                when redemption is made
-          any time before closure;
-          after closure, it may still be bought with separate property or with partnership
property
 
IV. Obligation of the Partners with regard to Third Persons
 
Art. 1815 – Firm Name
 
·         Firm Name
-          name, title or style under which a company transacts business; a partnership of
two or more persons; a commercial house
 
·         Purpose
-          necessary to distinguish the partnership which has a distinct and separate juridical
personality from the individuals composing the partnership and from other
partnerships and entities.
 
·         Liability of strangers who include their name
-          liability as partners because of estoppel, but do not have the rights as partners
 
Art. 1816 – Liability for Contractual Obligations of Partners
 
·         Partnership Liability
·         Individual Liability
 
Liability Distinguished from Losses
-          an industrial partner is exempted by law for losses’ but not from liability;
-          third persons may sue the firm and the partners, including the industrial partners;
-          partners will be personally liable only after the assets of the partnership have been
exhausted
 
Stipulations such as those exempting all the industrial partners and some of the
capitalist partners, insofar as third persons are concerned, would be null and void
 
Art 1817 –  Stipulations Eliminating Liability
 
Art. 1799 and 1817 reconciled:
-          it is permissible to stipulate among them that a capitalist partner will be exempted
from liability in excess of the original capital contributed; but will not be exempted
insofar as his capital is concerned           
 
Liability vs. Losses
Liability – refers to responsibility towards third persons
Losses – refers to responsibility as among partners
 
Art. 1818 – Partner as an Agent of Partnership
 
When a partner can bind or cannot bind the firm
a.        Art. 1818 speaks of an instance when the partner is an agent; and
b.        when he can and cannot bind as agent
·         Agency of a partner
-          partnership is a contract of mutual agency
-          each partner acting as a principal on his own behalf and as an agent for his co-
partners or the firm
 
When can a partner bind the partnership
                Requisites:
a.            when he is expressly authorized or impliedly authorized; and
b.            when he acts in behalf and in the name of the partnership
 
When will act not bind the partnership
A.       when, although for apparently carrying on in the usual way the business of the
partnership,” still the partner has in fact NO AUTHORITY, and the third party
knows that the partner has no authority;
B.       when the act is not for apparently carrying on in the usual way of the
partnership and the partner has no authority
 
NOTE:  The 7 kinds of acts enumerated in Art. 1818 are instances of acts which are
NOT for apparently carrying on in the usual way the business of the partnership.
                In the 7 instances, the authority must be unanimous except if the business
has been abandoned.
 
·         Reasons why 7 acts are “unusual”
a.        assign the firm property – firm will virtually be dishonored
b.        dispose of the goodwill – good will is valuable property
c.        do any other act which would make it impossible to carry on – this is evidently
prejudicial
d.        confers a judgment – if done before a case is filed, this is null and void; if done later,
the firm would be jeopardized
e.        compromise – an act of ownership and may be said to be equivalent to alienation
f.          arbitration – an act of ownership which may not be justified
g.        renounce a claim – why should a partner renounce a claim that does not belong to
him but to the partnership?
 
Art. 1819 – Conveyance of Real Property
 
·         the article speaks of “:to convey” or a conveyance
·         real property may be registered or owned in the name of
- the partnership
- all the partners
- one, some or not all the partners in trust for the partnership
 
Art. 1920 – Admission or representation made by a partner
 
Conditions:
 -          admission must concern partnership affairs;
-          within the scope of the authority
 
Restrictions on the rule:
a.         admission made BEFORE dissolution are binding only when the partners has
authority to act on the particular matter
b.         admissions made AFTER dissolution are binding only if the admissions were
necessary to wind up the business
 
note: a previous admission of a partner is admissible in evidence against the
partnership when it is made within the scope of the partnership, and during the
existence, provided of course that the existence of the partnership is first proved by
evidence other than such act or declaration
 
Art. 1821 – Notice to a Partner
 
·         Cases of Knowledge of a Partner
1.        knowledge of a partner acting in  a particular matter acquired while a partner;
2.        knowledge of a partner acting in  a particular matter then present to his mind; and
3.        knowledge of any partner who reasonably could and should have communicated it
to the  acting partner
 
·         Effect of Notice to a Partner
a.        in general, notice to a partner is notice to the partnership, that is, a partnership
cannot claim ignorance if a partner knew (but this is with restriction)
b.        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
-          notice of the partner is also knowledge of the firm provided:
a.        the knowledge was acquired by a partner who is acting in the particular matter
involved;
b.        the knowledge may have been acquired by a partner not acting in the particular
matter involved
 
Art. 1822 – Liability of Partnership
 
·         Requisites for Liability
a.        the partner must be guilty of a wrongful act or omission; and
b.        he must be acting in the ordinary course of business, or with the authority of his
co-partners even if the act is unconnected with the business
 
note: partnership liability does not extend to criminal liability
 
·         Instances when the firm and other partners are not liable:
a.        if the wrongful act or omission was not done within the scope of the partnership
business and for its benefit;
b.        if the act or omission was not wrongful;
c.        if the act or omission, although wrongful, did not make the partner concerned liable
himself; and
d.        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
 
Art. 1823 – Liability for Misappropriation
 
·         Liability of partnership for misappropriation
-          the difference between par. 1 and par. 2 is that in the former misappropriation is
made by the receiving partner, while in the latter, the culprit may be any partner.  The
effect however is the same in both cases
 
Art. 1824 – Solidary Liability of partners
-          not only the partners that are liable in solidum; it is also the partnership
 
Art. 1825 – Partner by Estoppel and Partnership by Estoppel
 
·         Estoppel
-          a bar which precludes a person from denying or asserting anything contrary to that
which has been established as the truth by his own deed or representation, either
express or implied
 
When Partnership Liability Results:
-          if all the actual partners consented to the representation, then the liability of the
person who represented himself to be a partner or who consented to such
representation and the actual partners is considered a partnership liability.
 
Elements to establish liability as a partner on ground of estoppel:
1.        proof by plaintiff that he was individually aware of the defendant’s
representations as to his being a partner or that such representations were made by
others and not denied or refuted by the defendant;
2.        reliance on such representations by the plaintiff; and
3.        lack of denial or refutation of the statements by the defendants; such denial
need not precede plaintiff’s acting thereon if the denial was forthcoming promptly
upon hearing of the representations, and if, by prudence and diligence the plaintiff
might have learned the truth or untruth of the representations.
 
·         When the problem may arise:
A person may:
a.        represent himself as a partner of an existing partnership with or without the
consent of the partnership;
b.        represent himself as a partner of a non-consent partnership
 
When estoppel does not apply:
-          when although there is misrepresentation, 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 the innocent
reliance on it
 
Art. 1826 – Entry of a New Partner
 
·         Entry of a new partner into an existing partnership
-          the newly admitted partner would be liable as an ordinary original partner for all
partnership obligations incurred after his admission to the firm
 
·         Creation of a new partnership in view of the entry
-          the admission of a new partner dissolves the old firm and creates a new one;
-          since the old firm is dissolved, the original creditors would not be the creditors of
the new firm, but only of the original partners; hence, they may lose their preference;
 -          under the civil code, they are considered creditors of the new firm
 
·         Liability of incoming partner for partnership obligations
1.        limited to his share in partnership property for existing obligations, unless there is
stipulation to the contrary;
2.        extends to his separate property for subsequent obligations
 
·         Liability of an Outgoing Partner
-          where a partner gives notice of his retirement or withdrawal from the partnership,
he is freed from any liability on contracts entered into thereafter, but his liability on
existing incomplete contract continues.
 
·         the rule of holding the new partner liable for previous obligations of the firm is not
harsh on the said new partner. After all the incoming partner partakes of the benefit of
the partnership, property and an established business
 
Art. 1827 – Creditors of Partnership
 
Reason for the Preference of Partnership Creditors
 
-          after all, the partnership is a juridical person with whom the creditors have
contracted; moreover the assets of the partnership must first be executed
 
Reason why industrial creditors may still attach the partner’s share
 
-          after all, remainder belongs to the partner
 
Sale by a partner of his share to  a third party
 
-          if a partner sells his share to a third party, but the firm itself still remains solvent,
creditors of the partnership cannot assail the validity of the sale by alleging that it is
made in fraud of them, since they have not really been prejudiced