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PARTNERSHIP

General Principles
1. HISTORICAL BACKGROUND OF GLOBAL AND PHILIPPINE PARTNERSHIP LAWS A. Under Roman Law a. There was no limit as to the number of partners b. In Roman partnership, one partner was not considered the implied agent of the others (to bind others, a partner had to obtain an express mandate from each of the others) c. Partners were liable jointly, solidarily d. Partners are financially liable only insofar as they would not be reduced to destitution (beneficium competentiae) e. Heirs of a deceased partner could not succeed to the rights of the deceased, even by express stipulation f. A Roman partner could not retire in order to enjoy alone a gain which he knew was awaiting him. B. Under Philippine Law Before the advent of the New Civil Code (August 30, 1950) There are two kinds of partnership in the Philippines 1. Civilold Civil Code 2. Commercial/mercantileCode of Commerce With the effectivity of the New Civil Code Those two kinds were repealed Art. 1770. A partnership must have a lawful object or purpose, and must be established for the common benefit or interest of the partners. When an unlawful partnership is dissolved by a judicial decree, the profits shall be confiscated in favor of the State, without prejudice to the provisions of the Penal Code governing the confiscation of the instruments and effects of a crime. Art. 1771. 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. Art. 1772. Every contract of partnership having a capital of P3000 or more, in money or property, shall appear in a public instrument, which must be recorded in the Office of the SEC Failure to comply with the requirements of the preceding paragraph shall not affect the liability of the partnership and the members thereof to third persons. Art. 1775. Associations and societies, whose articles are kept secret among the members, and wherein any one of the members may contract in his own name with third persons, shall have no juridical personality, and shall be governed by the provisions relating to co-ownership.

CHARACTERISTICS OF A PARTNERSHIP Development of Partnership Partnership plan of business association was developed to permit combinations of capital, or capital and experience and to secure economy by eliminating some of the overhead costs of individual enterprises, which sole proprietorship cant Ancient Origin of Partnership as a business organization Used long before the Romans; as early as 2300 BC : when Hamurabi of Babylon has included partnership in the system of laws that time Commercial partnerships were generally for single transactions Subsequently, in the Jewish law partnership as a business organization was concerned with the holding of the title to land by 2 or more persons (since ancient Jews are pastoral people) In British commerce, issues as regards partnership were disposed of by special courts, i.e. Courts of Staple, Admiralty Courts and Courts of Piepoudre Law of merchants (during the Middle Ages) English law of Partnership (that time when during his time as Chief Jusice, Lord Mansfield sought to establish a common law for commercial matters) 1. 2. 3. 4. 5. 6. 7. 8. Bilateralentered into by two or more persons and the rights and obligations arising therefrom are reciprocal Onerouseach of the parties aspires to procure for himself a benefit through the giving of something Nominateit has a special name or designation in our law Consensualperfected by mere consent Commutativethe undertaking of each of the partners is considered as the equivalent of the of the others Principalits life does not depend on the existence of another contract Preparatorybecause it is entered into as a means to an end Fiduciaryit is based on trust and confidence

Professiona group of men pursuing a learned art as a common calling in the spirit of public serviceno less a public service because it may incidentally be a means of livelihood. ATTRIBUTES OF A PARTNERSHIP 1. 2. 3. 4. 5. Mere meeting of minds brings about partnership Separate juridical person (though weaker than that of a corporation) There is mutual agency There is delectus personae (a person to be a partner, the other partners must all consent to his being a partner) Unlimited liability to creditor of partnership

Partnership defined
Art. 1767. By the contract of partnership two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing the profits among themselves. Two or more persons may also form a partnership for the exercise of a profession. Art. 1768. The partnership has a juridical personality separate and distinct from that of each of the partners, even in case of failure to comply with the requirements of Article 1772, first paragraph.

ESSENTIAL ELEMENTS OF A PARTNERSHIP 1. Agreement to contribute money, property or industry to a common fund (mutual contribution to a common stock); and 2. Intention to divide the profits among the contracting parties (joint interest in profits) REQUISITES OF A PARTNERSHIP 1. Intention to create a partnership 2. Common fund obtained from contributions 3. Joint interest in dividing the profits (and losses)

Article 1769. In determining whether a partnership exists, these rules shall apply: 1. Except as provided by Article 1825, persons who are not partners as to each other are not partners as to third persons; Co-ownership or co-possession does not of 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 dot of itself establish 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; The receipt by any person of a share of the profits of a business is prima facie evidence that he is a partner in the business, but no such inference shall be drawn if such profits were received in payment: a. b. c. d. e. As a debt by installments or otherwise; As wages of an employee or rent to a landlord; As an annuity to a widow or representative of a deceased partner; As interest on a loan, though the amount of payment vary with the profits of the business; As the consideration for the sale of a goodwill of a business or other property by installments or otherwise.

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make the partnership liable Corporation as Partner Corporation cant enter into a Corporation can engage in a joint partnership contract, thus, thus it venture with others through a cannot be a partner by reason of contract of agreement if the nature public policy; otherwise, people of the venture in line with the other than its officers may be able to business of the corporation and it is bind it authorized in its charter. Legal Personality A partnership acquires personality after following the requisites No legal personality required by law, e.g. Articles 17711773.

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the burden of proving the existence of partnership rests on the party having the affirmative of that issue. The existence of a partnership must be proved and will not be presumed INCIDENTS OF A PARTNERSHIP The partners share in profits and losses. They have equal rights in the management and conduct of the partnership business. Every partner is an agent of the partnership, and entitled to bind the other partners by his acts, for the purpose of its business. He may also be liable for the entire partnership obligations. All partners are personally liable for the debts of the partnership with their separate property except that limited partners are not bound beyond the amount of their investment. A fiduciary relation exists between the partners. On dissolution, the partnership is not terminated, but continues until the winding up of a partnership is completed. o Such incidents may be modified by stipulation of the partners subject to the rights of third persons dealing with the partnership.

Joint Venture Transactions entered into The duration of a partnership Limited to the period in which the generally relates to a continuing goods are sold or the project is business of various transactions of a carried on or a single transaction certain kind Nature Permanent, partners are interested in carrying on together of a general Temporary, although it may and continuing business of a continue for a number of years particular kind Firm Name and Liabilities There must be a partnership or firm A firm name is not necessary, thus, name under which the partnership the participating persons can shall operate. The names of the transact business under their own partners may appear in the firm name and can be individually liable name and the act of the partners will therefore

Partnership

Corporation Manner of Creation Created by mere agreement of the Created by law or by operation of parties (Art. 1787) law (Sec. 2, BP 68) Number of Incorporators May be organized by only two Requires at least 5 incorporators persons Commencement of Juridical Personality From the date of issuance of the From the moment of execution of certificate of incorporation by the the contract of partnership SEC Powers May exercise any power authorized by the partners provided it is not Only the powers expressly granted contrary to law, morals, good by law or implied from those customs, public order, or public granted or incident to its existence policy Management When management is not agreed Power to do business and manage upon, every partner is an agent of its affairs is vested in the board of the partnership directors and trustees Effect of Management A suit against a member of the A partner as such can sue a coboard of directors or trustees who partner who mismanages mismanages must be in the name of the corporation Right of succession No Yes Extent of Liability to 3rd Persons Partners are liable personally and Stockholders are liable only to the subsidiarily for partnership debts to extent of the shares subscribed by third persons them Transferability Cannot transfer his interest without Has right to transfer because a the consent of all other partners corporation is not based on the (delectus personarum) principle of delectus personarum Term of Existence For any period of time stipulated by Not exceeding 50 years, extendible partners for not more than 50 years Firm name Adopt any firm name not similar to Limited Partnership, Ltd those registered Dissolution Anytime by the will of any or all of With the consent of the State the partners Governing Law Civil Code Corporation Code

Partnership

Co-ownership Creation Always created by a contract, either Generally created by law, but may express or implied exist even without a contract Juridical personality Yes None Purpose Common enjoyment of a thing or Realization of profits right Duration An agreement to keep the thing No limitation undivided for not more than 10 years Disposal of Interests Partner may not dispose of his individual interest in the partnership Co-owner may freely do so so as to make the assignee a partner (consent of all the partners) Power to act with third persons A partner may bind the partnership A co-owner cannot represent the coin the absence of any stipulation to ownership the contrary Effect of death Results in the dissolution of the Does not necessarily dissolve the copartnership ownership Existence of a valid contract Partnership is a voluntary relation created by agreement of the parties. CONSENT and CAPACITY OF THE CONTRACTING PARTIES Meeting of minds of the parties Legal Capacity of the Parties to Enter into the Contract 1. Individualsthe contracting parties have the necessary legal capacity to enter into the contract. Any person may be a partner who is capable of entering into contractual relations The ff. cannot give their consent to a contract of ownership: a. Unemancipated minors; b. Insane or demented persons; c. Deaf-mutes who do not know how to write; d. Persons who are suffering from civil interdiction; and e. Incompetents who are under guardianship. Article 1782persons who are prohibited from giving each other any donation or advantage cannot enter into a universal partnership. Article 87moderate gifts by spouses to each other are allowed on occasion of family rejoicing. Article 73a married woman may enter into a contract of partnership even without her husbands consent, but the latter may object under certain conditions. PROHIITIONUniversal partnership: by bringing in property, it will be co-owned by every partner; avoid circumvention of the prohibition on donation EXPN: Particular partnership 2. Partnershipsthere is no prohibition against a partnership being a partner in another partnership. When two or more partnerships combine with each other (or with a natural person or persons) creating a distinct partnership all members of the constituent partnerships will be individually liable to the creditors of the newly created partnership.

Partnership

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Corporationswithout capacity or power to enter into a contract of partnership, unless authorized by statute or by its charter. RATIONALE: based on public policysince in a partnership the corporation would be bound by the acts of persons who are not its duly appointed and authorized agents and officers, which would be entirely inconsistent with the policy of the law that the corporation shall manage its own affairs separately and exclusively. EXCEPTIONS May still enter into JOINT VENTURE partnership with another where the nature of the venture is in line with the business authorized by its charter. Where the PSHIP AGREEMENT provides that the two partners will manage the partnership so that the management of corporate interest is not surrendered, the partnership may be allowed. Entry of a foreign corporation as limited partner in a limited partnership MERELY FOR INVESTMENT PURPOSES and it shall not take part in the management and control of the business operation of the partnership, if shall not be deemed doing business in the Phil., and hence, it is not required to obtain a license to do business in the Phil as required by Sections 123-126 of the Corpo Code

PARTNERSHIP BY ESTOPPEL Estoppel is 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. A partner not a partner may become a partner by estoppel and thus be held liable to third persons as if he were a partner, when by words or by conduct he: o Directly represents himself to anyone as a patner in an existing partnership or in a non-existing partnership (with one or more persons not actual partners); or o Indirectly represents himself by consenting to another representing him as a partner in an existing partnership or in a non-existing partnership. (to hold the party liable, the third person must prove such misrepresentation by the purported partner and that a bona fide or justifiable reliance by him upon it caused him injury.) CAUSE OR CONSIDERATION WHICH IS ESTABLISHED Contribution of money, property, or industry to a common fund-partners must have a proprietary interest in the business or undertaking (CAPITAL) A. Moneycurrency which is legal tender in the Philippines o Checks, drafts, promissory notes payable to order, and other mercantile documents are not money; only representatives of money. Propertymay be real or personal, corporeal or incorporeal (includes credit such as promissory note or other evidence of obligation or even mere goodwill or a license to construct and operate a cockpit may be given as a contribution). Industryactive cooperation, the work of the party associated, which may either be personal manual efforts or intellectual, and for which he receives a share in the profits of the business. A partnership may still exist even when the partners have not contributed any capital of their own to a common fund for the

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contribution may be in the form of credit or industry not necessarily cash or fixed assets. In a limited partnership however, a limited partner cannot contribute mere industry or services. Proof of contribution is necessary with the intention of dividing the income or profits obtained therefrom.

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OBJECT which is the SUBJECT MATTER of the contract The purpose of a partnership must be lawful otherwise, no partnership can arise as the contract and void ab initio Must not be contrary to law, morals, good customs, public order, or public policy A partnership is formed to carry on a business and be able to obtain pecuniary profit or gain (PROFIT MOTIVE) Even an unprofitable business can be partnership provided the goal of the business is to generate profits. Realization of pecuniary profit need not be the exclusive aim of the partnership. It is sufficient that it is the principal purpose even if there are, incidentally, moral, social, or spiritual ends. SHARING OF PROFITS A stipulation which excludes one or more partners from any participation in the profits or losses is void. (Art. 1799) Merely presumptive and not conclusive, even if cogent, evidence of partnership Distribution of losses is a consequence of sharing of profits Effects of an unlawful partnership 1. The contract is void ab initio and the partnership never existed in the eyes of the law. 2. The profits shall be confiscated in favor of the government. 3. The instruments or tools and proceeds of the crime shall also be forfeited in favor of the government; and 4. The contribution of the partners shall not be confiscated unless they fall under No. 3. A partnership is dissolved by operation of law upon the happening of an event which makes it unlawful for the business of the partnership to be carried on, or for the members to carry it on in partnership. A judicial decree is not necessary to dissolve an unlawful partnership. Yet, it may be had for the convenience and peace of mind of the parties. o Third persons who deal with the partnership without being aware of its illegal purpose or character are protected unless knowledge can be presumed as where the transaction is plainly unlawful. Where a part of the business of a partnership is legal and a part illegal, an account of that which is legal may be had. o Without knowledge or participation of the partners, when the firms profits in a lawful business have been increased by wrongful acts, the innocent partners are not precluded as against the guilty partners from recovering their share of the profits. Where the business for which the partnership is formed is legal when the partnership is entered into, but afterward becomes illegal, an accounting may be had as to the business transacted prior to such time.

Where the capital is at least P3000, in money or property a. The contract must appear in a public instrument which must be record in the SEC b. FAILURE to comply with this requirement shall not affect the liability of the partnership and the members to third persons Will render the partnership contract void insofar as the contracting parties are concerned A de facto partnership or partnership by estoppel may exist Inventory is not required when immovable property is possessed or owned by the partnership but is not contributed by any of the partners.

CLASSIFICATIONS OF PARTNERSHIPS
As to legality of existence 1. De jure has complied with all the necessary requisites for lawful establishment 2. De factofailed to comply with requisites As to its object 1. Universal (Article 1777) a. as to all present property Partners contribute all their properties to a common fund with the intention of dividing them among themselves as well as all the profits they may acquire from the property contributed GR: future properties cannot be contributed RATIONALE : the very essence of the contract of partnership is that the properties contributed be included in the partnership requires the contribution of things which are determinate e.g. inheritance, donation, legacy (except the fruits) profits from other sources not from the properties contributed will become common property only if there is a stipulation. b. as to profits Partners contribute all that they may acquire by their industry or work during the existence of the partnership and the usufruct of movable or immovable property which each of the partners may possess at the time of the celebration of the contract Ownership of present and future property the partners retain their ownership; what passes to the partnership are the profits or income and the use or usufruct of the same upon the dissolution of the partnership, the properties shall be returned to the respective owners fruits of property subsequently acquired by the partners do not belong to the partnership profits acquired by the partners through chance, such as lottery or by lucrative title without employment of any physical or intellectual efforts are not included

FORMALITIES
GR: no special form is required for the or existence of the contract of partnership (may be made orally or in writing regardless of the value of contributions) Expns: 1.

When articles of partnership do not specify the nature of the partnership: PRESUMPTION IS IN FAVOR OF UNIVERSAL PARTNERSHIP OF PROFITS [RATIONALE it imposes less obligations on the partners since they preserve the ownership of their separate property] Persons who cannot enter into UP: 1. legally married spouses 2. common law spouses 3. parties guilty of adultery or concubinage

Where immovable property/ real rights are contributed a. The contract must appear in a public instrument b. It must have an inventory of such immovable signed and attached to the instrument

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criminals convicted for the same offense in consideration of the same 5. a person and a public officer (or his wife, descendant or ascendant) by reason of his office REASON: allowing them will be like permitting them to do indirectly what the law expressly prohibits 2. Particular (Article 1783) The object may be determinate things, their use or fruits, or specific undertaking or the exercise of a profession or vocation.

As to the difference between UP and PP, when talking about the scope of their subject matter or object UPobject is vague and indefinite, contemplating a general business with some degree of continuity PPobject is limited and well-defined, being confined to an undertaking of a single, temporary or ad hoc nature

As to management 1. Managing partnerone who manages the affairs or business of the partnership; he may be appointed either in the articles of partnership or after the constitution of the partnership (general or real partner). 2. Silent partnerone who does not take any active part in the business although he may be known to be a partner. He need not be a secret partner. If he withdraws from the partnership, he must give notice to those persons who do business with the firm to escape liability in the future. 3. Liquidating partnerone who takes charge of the winding up of partnership affairs upon dissolution. As to exposure to public perception 1. Ostensible partnerone who takes active part and known to the public as a partner in the business, whether or not he has an actual interest in the firm. Thus, he may be an actual partner or a nominal partner. If he is not actually a partner, he is subject to liability by the doctrine of estoppel. 2. Secret partnerone who takes part in the business but is not known to be a partner by outside parties nor held out as a partner by the other partners, although he participates in the profits and losses of the partnership. He is an actual partner and an active partner in a sense that he participates in the management of the partnership affairs. 3. Dormant partnerone who does not take active part in the business and is not known or held out as partner. He would be both a silent and a secret partner. he may retire from the partnership without giving notice and cannot be held liable for obligations of the firm subsequent to his withdrawal. His only interest in joining the partnership would be the sharing of the profits earned. As to membership 1. Real partner 2. Quasi-partner/partner by estoppelone who is not really a partner, not being a party to a partnership agreement, but is liable as a partner for the protection of innocent third persons. As to business continues after dissolution 1. Continuing partnerone who continues the business of a partnership after it has been dissolved by reason of the admission of a new partner, or the retirement, death, or expulsion of one or more partners. 2. Discontinuing partner As to value of contribution 1. Majority partner 2. Nominal partnerwho is in name only, but not actually a partner As to nature of membership 1. Original partnerone who is a member of the ownership from the time of its organization. 2. Incoming partnera person lately, or about to be taken into an existing partnership as a member. 3. Retiring partnerone withdrawn from the partnership or withdrawing from the same Other partners 1. Surviving partnerone who remains after partnership has been dissolved by the death of any partner. 2. Subpartnerone who, not being a member if the partnership, contracts with a partner with reference to the latters share on the partnership.

As to duration 1. Partnership with a Fixed termone in which the term for which the partnership is to exist is fixed or agreed upon or one formed for a particular undertaking, and upon the expiration of the term or completion of the particular enterprise, the partnership is dissolved, unless continued by the partners. 2. Particular undertaking 3. Partnership at willone in which no time is specified and is not formed for a particular undertaking or venture and which may be terminated at any time by mutual agreement of the partners, or by the will of any one partner alone; or one for a fixed term or particular undertaking which is continued by partners after the termination of such term or particular undertaking without express agreement. As to extent of liability 1. General partnershipone consisting of general partners who are liable pro rata and subsidiarily and sometimes solidarily with their separate property for partnership debts. 2. Limited partnershipone formed by two or more persons having as members one or more general partners and one or more limited partners, the latter not being personally liable for the obligation of the partnership.

Classification of Partners
As to contribution Capital Partner One who contributes money or property to a common fund Cannot engage in the same or similar enterprise Shares in profits according to agreement thereon; if none, pro rata to his contribution 1. Stipulation as to losses 2. If none, the agreement as to profits 3. If none, none pro rata contribution Industrial Partner One who contributes only his industry or personal service Cannot engage in any business for himself Receives a just and equitable share

Exempted as to losses as between partners, but it is liable to 3rd persons without prejudice to reimbursement from the capitalist partners

As to liability 1. General partnerone whose liability to third persons extends to his separate property; he may either be a capitalist or industrial partner. 2. Limited partnerone whose liability to third persons is limited to his capital contribution.

Commencement of Partnership
GR: Being a consensual contract, a partnership exists from the moment of the celebration of the contract by the partners Registration with the SEC is not essential to give it a juridical personality

Birth and life of a partnership is predicated on the mutual desire and consent of the parties What is necessary for the existence of a partnership is that the essential requisites of a contract of partnership are present even when the partners haven not yet actually begun the carrying on of its business or given their contributions, or even though its conditions or details, such as the participation of the partners in the profits and losses and the nature of the partnership, have not yet been fixed, as they pertain to the accidental and not to the essential parts of the contract.

FUTURE PARTNERSHIPpersons who enter into such a relation do not become partners at some future time or on the happening of some future contingency do not become partners until and unless the agreed time has arrived or the contingency has happened. At the moment has no juridical existence yet AGREEMENT TO CREATE A PARTNERSHIPso long as the agreement remains executor the partnership is inchoate, not having called into being by the concerted action necessary under the partnership agreement

EXPN: unless otherwise agreed upon by the parties Extension of life 1. By express renewal of the agreement 2. By implied renewal (Article 1785) Mere continuation of such term or particular undertaking without any settlement or liquidation With such continuation, the partnership for a fixed term or particular undertaking is dissolved and a new one, a partnership at will, is created by implied agreement the continued existence of which will depend upon the mutual desire and consent of the partners.

Management of Partnership Art. 1800. The partner who has been appointed manager in the articles of partnership may execute all acts of administration despite the opposition of his partners, unless he should act in bad faith; and his power is irrevocable without just or lawful case. The vote of the partners representing the controlling interest shall be necessary for such revocation of power. A power granted after partnership has been constituted may be revoked at any time. GR: Each partner in a general partnership has a right to an equal voice in the conduct and management of the partnership business. EXPN: Partnership agreement provides otherwise **the partners may select a managing partner or make such allocation of functions as the needs of the business dictate especially in a large partnership. TWO DISTINCT CASES OF APPOINTMENTS IN Art. 1800 A. Appointment as manager in the articles of partnership May execute all acts of administration notwithstanding the opposition of the other partners, unless she should act in bad faith His power is only revocable upon just and lawful cause + vote of the partners representing the controlling interest. REASON: the presumption of law that appointment is one of the conditions of the contract revocation represents a change in the terms of the contract; no party to a contract can violate the law of the contract without the consent of others Mismanagement of such party other partners may avail of the usual remedies allowed, e.g. application for dissolution of the partnership by a judicial decree. Appointment as manager after the constitution of the partnership Revocable at any time for any cause REASON: revocation is not founded on a change of will on the part of the partners, the appointment not being a condition of the contract (MERELY A CONTRACT OF AGENCY) Vote for revocation represent the controlling interest

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thereto, at the instance of the other partners who are attending to their individual business and giving no time or attention to the business of the firm One partner is exempted from rendering personal services to the partnership but was afterwards renders such service at the instance and request of his co-partners, or where the services rendered are extraordinary.

Art. 1801. If two or more partners have been intrusted with the management of the partnership without specification of their respective duties, or without stipulation that one of them shall not act without the consent of all the others, each one may separately execute all acts of administration, but if any of them should oppose the acts of the others, the decision of the majority shall prevail. In case of a tie, the matter shall be decided by the partners owning the controlling interest. WHERE RESPECTIVE DUTIES OF 2 OR MORE MANAGING PARTNERS NOT SPECIFIED Each one may separately perform acts of administration REQUISITES 1. 2 or more partners have been appointed as managers; 2. There is no specification of their respective duties; and 3. There is no stipulation that one of them shall not act without the consent of all the others. Opposition of one or more of the managing partners as to acts of the others decision of the majority of the managing partners shall PREVAIL In case of tie, the matter shall be decided by the vote of the partners owning the controlling interest, that is, more than 50% of the capital investment

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SCOPE OF POWER OF A MANAGING PARTNER GR: all the powers of a general agent + incidental powers necessary to carry out the object of the partnership in the transaction of its business EXPN: powers of the manager are specifically restricted COMPENSATION FOR SERVICES RENDERED GR: A partner is not entitled to compensation for his services other than the share of the profits. EXPNs: 1.

Art. 1803. When the manner of management has not been agreed upon, the following rules shall be observed 1. All the partners shall be considered agents and whatever any of them may do alone shall bind the partnership, without prejudice to the provision of Article 1801. 2. None of the partners may, without the consent of the others, make any important alteration in the immovable property of the partnership, even if it may be useful to the partnership. But if the refusal of consent by the other partners is manifestly prejudicial to the interest of the partnership, the courts intervention may be sought. RULES WHEN MANNER OF MANAGEMENT HAS NOT BEEN AGREED UPON 1. All partners shall have equal rights in the management and conduct of partnership affairs (regardless of the amount of their capital contributions or extent of their services to the partnership). subject to Arts. 1801 and 1818 (par 3) Unanimous consent required for alteration of immovable property express or presumed consent REASON: any important alteration (even when useful to the partnership) in the immovable property of the partnership is an act of strict dominion. Court intervention may be sought for to make the necessary alteration when refusal to give consent is manifestly prejudicial to the interest of the partnership.

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A partner engaged by his co-partners to perform services not required of him in fulfillment of the duties which the partnership relation imposes and in a capacity other than that of a partner Where there is extraordinary neglect on the part of one partner to perform his duties toward the firms business, thereby imposing the entire burden on the remaining partner One partner may employ his co-partner to do work for him outside of and independent of the co-partnership and become personally liable therefor Partners exempted by the terms of the partnership from rendering service to the firm may demand pay for services rendered. Where one partner is entrusted with the management of the partnership business and devotes his whole time and attention

Art. 1804. Every partner may associate another person with him in his share, but the associate shall not be admitted into the partnership without the consent of all the other partners, even if the partner having an associate should be a manager.

Contract of Subpartnershipa partnership formed between a member of a partnership and a third person for a division of the profits coming to him from the partnership enterprise Nature: partnership within a partnership; separate and distinct from the main or principal partnership **for a subpartner to become a partner to the principal partnership, the unanimous consent of all the partners shall be given by all the partners because a partnership is based on mutual trust and confidence among the partners ASSIGNMENT OF PARTNERS WHOLE INTEREST IN THE PARTNERSHIP (Art. 1813) What is assignable is the INTEREST and NOT the partners right in specific partnership Assignment of interest does not in itself dissolve the partnership but provides for a non-assigning partners with a ground for dissolution Status and rights of assignor as partner are unaffected delectus personae Rights withheld from assignee 1. To interfere in the management 2. To require any information or account; or 3. To inspect any of the partnership books Rights of assignee of partners interest 1. To receive in accordance with his contract the profit accruing to the assigning partner 2. To avail himself of the usual remedies provided by law in the event of fraud in the management; 3. To receive the assignors interest in case of dissolution; and 4. To require an account of partnership affairs, but only in case the partnership is dissolved, and such account shall cover the period from the date only of the last account agreed to by all partners.

Art. 1803. ON IMPORTANT ALTERATION IN IMMOVABLE PROPERTY OF A PARTNERSHIP (see discussion in the preceding page) Art. 1819. 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; but the partnership may recover such property unless the partners act binds the partnership under the provisions of the first paragraph of Art. 1818, or unless such property has been conveyed by the grantee or a person claiming through such grantee to a holder for value without the knowledge that the partner, in making the conveyance, has exceeded his authority. Where the title to real property is in the name of the partnership, a conveyance executed by a partner , in his own name, passes the equitable interest of the partnership, provided the act is one within the authority of the partner under the provisions of the first paragraph of Art. 1818. Where title to real property is in the name of one or more but not all the partners, and the record does not disclose the right of the partnership, the partnership, the partners is whose name the title stands may convey title to such property, but the partnership may recover such property if the partners act does not bind the partnership under the provisions of the first paragraph of Art. 1818, unless the purchases or his assignee, is a holder for value, without knowledge. Where the title to property is in the name of one or more or all partners, or in a third person in trust of the partnership, a conveyance executed by a partner in the partnership name, or in his name, passes the equitable interest of the partnership, provided the act is one within the authority of the partner under the provisions of the first paragraph of Art. 1818. Where the title to real property is in the names of all the partners a conveyance executed by all the partners passes all their rights in such property.

RULES DEALING WITH IMMOVABLE PROPERTY OF PARTNERSHIP Art. 1774. Any immovable property or an interest therein may be acquired in the partnership name. Title so acquired can be conveyed only in the partnership name.

Under Art. 1819, the real property may be registered or owned in the name of: 1. The partnership; 2. One or more but not all the partners; 3. One or more or all the partners, or in a third person in trust for the partnership; or 4. All the partners.

In whose name the property is registered Partnership *executed in partnership name the

If with express authority from partnership NONE

Effect of Conveyance Passes title to buyer YES

Recovery by Partnership of the property

Instances when recovery is possible *The conveyance was not in the usual way of business **The buyer had knowledge of the fact that the partner has no authority even though the conveyance was made in the usual way of business

Partnership *executed in the name of a partner

NONE

Buyer does not become the owner but gets equitable interest of the partnership *if the selling of the land is in the usual course of business of the partnership Passes title to buyer

*if buyer had, in turn, conveyed the property to another person who had no knowledge of partners lack of authority in making the conveyance to the buyer, the partnership cannot recover. x-x-x-x-x-x-x-x-x-x-x-x

One or more partners *record does not disclose the right of the partnership

NONE

YES *if buyer had, in turn, conveyed the property to another person who had no knowledge of partners lack of authority in making the conveyance to the buyer, the partnership cannot recover. x-x-x-x-x-x-x-x-x-x-x-x

The following are instances where buyer would not be entitled to EI: *pship is not engaged in the buying and selling of lands **buyer had knowledge of partners lack of authority although the sale was made in the usual course of business *The conveyance was not in the usual way of business **The buyer had knowledge of the fact that the partner has no authority even though the conveyance was made in the usual way of business

One or more or all partners or in a 3rd person in trust of

NONE

Buyer does not become the owner but gets equitable

The following are instances where buyer would not be entitled to EI:

pship *executed in the name of pship or partner

interest of the partnership *if the selling of the land is in the usual course of business of the partnership Passes title

All partners, executed in the name of all partners

YES

NO

*pship is not engaged in the buying and selling of lands **buyer had knowledge of partners lack of authority although the sale was made in the usual course of business x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x

EQUITABLE INTEREST OR TITLE One not duly recognized by law but in equity alone; it is a rights or interest in property which is imperfect and unenforceable at law but which, under well-recognized equitable principles, should be and is convertible into a legal right or title Innocent purchaser without notice may acquire a valid title because he has the right to presume that the possession or interest of the partnership is subordinate to and not inconsistent with the record of title A conveyance of immovable property of the partnership by one partner may be authorized by his co-partners, or when made without authority, may be ratified by them. (SUCH AUTHORITY OR RATIFICATION MUST AFFIRMATIVELY APPEAR) CO-OWNERSHIP POWER (Power to Specific Partnership) Art. 1811. A partner is co-owner with his partners of specific partnership property. The incidents of this co-ownership are such that: 1. A partner, subject to the provisions of this Title and to any agreement between the partners, has an equal right with his partner to possess specific partnership property for partnership purposes; but he has no right to possess such property for any other purpose without the consent of his partners. 2. A partners right in specific partnership property is not assignable except in connection with the assignment of rights of all the partners in the same property; 3. A partners right in specific partnership property is not subject to attachment or execution, except on claim against the partnership. When partnership property is attached for a partnership debt the partners, or any of them, or the representatives of a deceased partner, cannot claim any right under the homestead or exemption laws; 4. A partners right in specific partnership property is not subject to legal support under Article 291.

prescription runs upon dissolution NATURE: in personam

DEATH of a Partner His right in specific partnership property vests in the surviving partners, not in the legal representative of the deceased partner May the right to possess specific partnership property be waived/surrendered? Yes, in a partnership with large membership, where the management and possession are concentrated in the managing partners The possession of partnership property by one partner is the possession of all partners until his possession becomes adverse

2.

Right not assignable A partner cannot separately assign his right to specific partnership property but all of them can assign their rights in the same property. REASONS: a. impossibility of determining the extent of a partners beneficial interest in the property until after the liquidation of partnership affairs b. prevents interference by outsiders in partnership affairs c. protects the right of other partners and partnership creditors to have partnership assets applied to firm debts The consent of all the partners, either express or implied, is the source and limit of partners right to deal with partnership property for any but a partnership purpose The law allows a retiring partner to assign his rights in partnership property to the partner or partners continuing the business.

The whole of partnership property belongs to the partnership considered as a juridical person and a partner has no interest in it but his share of what remains after all partnership debts are paid. THUS, the THIRD INCIDENT: 3. SPP is not subject to attachment, execution, garnishment, or injunction, without the consent of all partners except on a claim against the partnership. 4. Right of the partners in the SPP is not subject to legal support. REASON: property belongs to the partnership and not to the partners. But their interest in the partnership is subject to legal support.

Nature of Right: contemplates only tangible property A partner does not actually own any part of partnership property or property owned by the partnership as a separate business entity, although he does have rights in specific partnership assets. INCIDENTS 1. Equal right of possession for partnership purposes if excluded REMEDY is either a) seek formal accounting; or b) judicial dissolution FORMAL ACCOUNTING (by managing/active partner) GR: Not necessary EXPNs: a. if partner is wrongfully excluded from the partnership business or possession of its property by his co-partners b. if the right exists under the terms of any agreement c. as provided by Article 1807 d. whenever other circumstances render it justifiable Prescriptive Period right exists as long as the partnership lasts

EQUITY RIGHTS OF PARTNERS Art. 1812. A partners interest in the partnership is his share of the profits and surplus. Profit excess of returns over expenditure in a transaction or series of transactions; or the net income of the partnership for a given period of time. Surplus assets of the partnership after partnership des and liabilities are paid and settled and the rights of the partners among themselves are adjusted.

Art. 1813. A conveyance by a partner of his whole interest in the partnership does not of itself dissolve the partnership, or, as against the other partners in the absence of agreement, entitle the assignee, during the continuance of the partnership, to interfere in the management or administration of the partnership business or affairs, or to require any information or account of partnership transactions, or to inspect the partnership books; but it merely entitles the assignee to receive in accordance with his contract the profits to which the assigning partner would otherwise be entitled. However, in case of fraud in the management of the partnership, the assignee may avail himself of the usual remedies. In case of a dissolution of the partnership, the assignee is entitled to receive his assignors interest and may require an account from the date only of the last account agreed to by all the partners EFFECTS ASSIGNMENT OF PARTNERS WHOLE INTEREST IN THE PARTNERSHIP (Art. 1813) The partnership may either still remain or be dissolved (mere conveyance does not of itself dissolve the firm) The assignee does not necessarily become a partner. The assignor is still the partner, with a right to demand accounting and settlement. The assignee cannot even interfere in the management or administration of the partnership business or affairs. The assignee cannot also demand: 1) information; 2) accounting; 3) inspection of the partnership books. Art. 1814. Without prejudice to the preferred rights of partnership creditors under Article 1827, on due application to a competent court by any judgment creditor of a partner, the court which entered the judgment, or any other court, may charge the interest of the debtor partner with payment of the unsatisfied amount of such judgment debt with interest thereon, and may then or later appoint a receiver of his share of the profits, and of any other money due or to fall due to him in respect of the partnership, and make all other orders, directions, accounts and inquiries which the debtor partner might have made, or which the circumstances of the case may require. The interest charged may be redeemed at any time before foreclosure, or in case of a sale being directed by the court, may be purchased without thereby causing a dissolution: (1) With separate property, by any one or more of the partners; or (2) With partnership property, by any one or more of the partners with the consent of all the partners whose interests are not so charged or sold. Nothing in this Title shall be held to deprive a partner of his right, if any, under the exemption laws, as regards his interest in the partnership.

Without agreement

*SHARE OF CAPITALIST PARTNERin proportion to his capital contribution **share of INDUSTRIAL PARTNER not fixed (as may be just and equitable under the circumstances)

*if sharing of profits is stipulated applying to sharing of losses **if no profit sharing losses shall be borne according to capital contribution ***purely industrial partner not liable for losses

For capitalist-industrial partner: wrt his capital contribution, he shall, in addition, receive a share in the profits in proportion to the amount of his capital contribution. Industrial partner is not liable for losses. Designation of shares: by agreement, may be entrusted to a 3rd person. Designation made by the 3rd person is binding on partners, unless it is manifestly inequitable or unreasonable (Art. 1798). When the designation of a 3rd person can no longer be impugned: 1. The partner has begun to execute the decision of the third person 2. He has not questioned it within 3 months from knowledge of it Designation of losses and profits cannot be entrusted to one of the partners. PROHIBITED STIPULATION: the exclusion of a partner from the profits or from sharing in the losses (Art. 1799) EXPNS -

Where the one excluded from any share in the profits or losses is not intended by the parties to become a partner, the stipulation, of course, is valid. o Yet, if one holds himself out, or allows himself to be held, as a partner to a third person, who, under the belief that he is such, enters into a contract with them, he is liable on such contract. A stipulation exempting an industrial partner from the losses

The limitation does not mean that the partners cannot stipulate for unequal shares in the profits or losses even if their respective contributions are equal, unless the inequality is so gross that it is, in effect, a simulated form or attempt to exclude a partner from any share in the profits or losses.

OTHER RIGHTS OF PARTNERS Right to reimbursement for amounts advanced to the partnership and to indemnification for risks in consequence of management. (Art. 1796) 3 Obligations of the partnership: a. Refund disbursements with legal interest b. Answer for obligations contracted in good faith in the partnerships interest c. Answer for risks in consequence of its management Being a mere agent, the partner is not personally liable, provided, however, that he is free from all fault and he acted within the scope of his authority. Right to associate with another person in his share (Art. 1804) For a partner to have an associate in his share, consent of the other partners is not required. For the associate to become a partner, all must consent (whether the partner having the associate is a manager or not) REASONS mutual trust is the basis of partnership change in membership is a modification or novation of the contract

REMEDIES OF A SEPARATE JUDGMENT CREDITOR 1. Charging the interest of a partner 2. Receivership 3. Sale of the interest REDEMPTION OF INTEREST CHARGED Redemption extinguishment of the charge or attachment on the partners interest in the profits How made? a. The charge may be redeemed or bought at any time before the foreclosure. b. After the foreclosure, it may still be bought with separate property (by any one or more of the partners); or with partnership property (with consent of all the other partners) Rules for Distribution of Profits and Losses Distribution of Profits According to With agreement agreement

Distribution of Losses According to agreement

Rights of the creditors of the partnership and of a partner Art. 1827. The creditors of the partnership shall be preferred to those of each partner as regards the partnership property. Without prejudice to this right, the private creditors of each partner may ask the attachment and public sale of the share of the latter in the partnership assets. Rationale: the partnership, treated as a legal entity distinct and separate from the members composing it, should apply its property to the payment of its debts in preference to the claim of any partner or his creditors. Partnership + separate partners may be joined Exhaust common property first before private property of the partners cannot be taken in payment of partnership debts. Remedy of private creditors of a partner Attachment and public sale of the share of the indebted partner in the partnership assets (share that really belongs to the partner) a. The rights of the creditor of a partner are limited to his share in the profits (Art. 1814) and assets after liquidation A separate creditor of a partner can secure a judgment on his credit and then apply to the proper court for a charging order, subjecting the interest of the debtor partner in the partnership with the payment of the unsatisfied amount of such judgment with interest thereon with the least interference with the partnership business and the rights of the other partners. Other remedies Appointment of a receiver of ones share of the profits, and of any other money due or to fall due to him in respect of the partnership, and make all of the other orders, directions, accounts and inquiries which the debtor partner might have made, or which circumstances of the case may require b. The provision about creditors of a partners having a right to the partnership assets is only true under American Law Consequently, Art. 1827 (last part) should be limited to the creditors (partners) rights in the profits, and his eventual share of assets after liquidation.

Related rights: a. The right to reimbursement for amounts advanced to the partnership and to indemnification for risks in consequence of management (Art. 1796); b. The right of access and inspection of partnership books (Art. 1805); c. The right to true and real information of all things affecting the partnership (Art. 1806); d. The right to a formal account of partnership affairs under certain circumstances (Art. 1809); and e. The right to have the partnership dissolved also under certain conditions (Arts. 1830-1831) Distinction: Partnership Property v. Partnership Capital as to changes in value Variable; may vary from day to Constant; remains unchanged day as the amount fixed by agreement of the partners; not affected by fluctuations in the value of the partnership property; yet it may be increased or diminished by unanimous consent of the partners. as to assets included Includes not only the original Aggregate of the individual capital contributions of the contributions made by the partners, but all property partners in establishing or subsequently acquired on continuing the partnership account of the partnership funds Property used by the partnership does not constitute a partnership property when there is no express agreement that such is. It depends on the intentions of the parties, which may be shown by proving an express agreement or acts of particular conduct. PROPERTY ACQUIRED BY A PARTNER WITH PARTNERSHIP FUNDS GR: property acquired by a partner in his own name with the partnership funds is presumed to be partnership property. EXPN: unless a contrary intention appears **if acquired after dissolution but before the winding up of the partnership affairs, it would be his separate property but he would be liable to account to the partnership for the funds used in its acquisition. **Property carried in partnership books as partnership asset Partnership property **income generated by the property is received by the partnership; taxes thereon are paid by the partnership

c.

PROPERTY RIGHTS OF PARTNERS Art. 1810. The property rights of a partner: 1. His rights in specific partnership property; 2. His interest in the partnership; and 3. His right to participate in the management.