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Agency & Partnership Finals Reviewer – de leon annotations Prof. D. Sanchez 2 semester, AY ’10-‘11
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Janz Hanna Ria N. Serrano
The law on partnership I. Nature; Creation A. Definition; essential features CC, 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  Partnership is a legal concept, but the determination of the existence of a partnership may involve inferences drawn from an analysis of all the circumstances attending its creation and operation.  Civil law concept v. American concept of partnership Civil Law American Partnership as a contract Partnership as a relation 1767 – terms as the agreement itself out of which a partnership is Based on the result of the contract/agreement, i.e., the juridical created relation growing out from the express/implied agreement of the parties to create a partnership Separate juridical personality Partnership is considered merely an extension of its members  General professional partnership – 1767, 2nd par. o Profession – “a group of men pursuing a learned art as a common calling in the spirit of public service – no less a public service becaust it may incidentally be a means of livelihood o Strictly speaking, the practice of a profession is not a business or an enterprise or profit; but the law allows the joint pursuit thereof o Partnership for the practice of law (1) A mere association for non-business purposes (2) Distinguished from business – the practice of law is intimately and peculiarly related to the administration of justice and should not be considered like an ordinary ‘money-making’ trade. Primary distinguishing characteristics: (a) A duty of public service (b) A relation as an officer of court (c) A relation to clients in the highest fiduciary degree (d) A relation to colleagues at the bar characterized by candor, fairness and unwillingness to resort to current business methods of advertising and encroachment on their practice  Characteristics o Consensual – perfected b y mere consent o Nominate – it has a special name/designation in law o Bilateral – entered into by 2 or more persons and the rights and obligations arising therefrom are always reciprocal o Onerous – each party aspires to procure for himself a benefit o Commutative – the undertaking of each partner is considered as equivalent of the others’ o Principal – does not depend for its existence and validity upon some other contracts o Preparatory – entered into as a means to an end, i.e. to engage in business for profit-realization  Essential features o There must be a valid contract (1) Partnership relation fundamentally contractual – no such thing as a partnership created by law/operation of law | partnership relation as a result of the contract of partnership (a) Form – relation is evidenced by the terms of the contract [oral or written, express or implied] (b) Articles of Partnership – while the partnership relation may be informally created, it is customary to embody the terms of the association in a written document, stating the name, nature/purpose, location of the firm and defining among others, the powers, rights, duties & liabilities of the partners among themselves, their contributions, the manner by which profits and losses are to be shared, and the procedure for dissolution. (c) Requisites – since fundamentally contractual – consent & capacity, object, cause/consideration (2) Partnership relation fiduciary in nature – partnership is a form of voluntary association entered into by the associates; it is a personal relation in which the element of delectus personae exists, involving as it does trust & confidence between the partners (a) Right to choose co-partners (b) Power to dissolve the partnership (3) Application of the principles of estoppel – CC, 1825. In such cases, there is no actual or legal partnership but merely a partnership liability imposed by law in favor of 3rd persons o The parties [2 or more persons] must have legal capacity to enter into the contract (1) Individuals – as a general rule, any person may be a partner who is capable of entering into contractual relations; consequently, any person who cannot give consent to a contract cannot be a partner, e.g. unemancipated minors, insane or demented persons, deaf-mutes who do not know how to write, persons suffering from civil interdiction, incompetents (2) Partnerships – there is no prohibition against a partnership being a partner in another partnership (3) Corporations – Mendiola v. CA, Tuason v. Bolanos: unless authorized by statute or by its charter, a corporation is without capacity to enter into a contract of partnership (a) A corporation, however, may enter into joint venture partnership where the nature of the venture is in line with the business authorized by its charter [JM Tuason v. Bolanos; Aurbach v. Sanitary Wares] (b) Where the partnership agreement provides that the 2 partners will manage the partnership so that the management of corporate interest is not surrendered, the partnership may be allowed [SEC Opinion, Dec. 22, 1966] (c) Where the entry of the foreign corporation as a limited partner in a limited partnership is merely for investment purposes and it shall not take part in the management and control of the business operation, it shall not be deemed “doing business” in the Philippines. [SEC Opinion, Aug. 6, 1998] o There must be a mutual contribution of money, property or industry to a common fund (1) Existence of proprietary interest – partners must contribute capital (a) Money (b) Property – may be real or personal, corporeal or incorporeal (c) Industry – the active cooperation, the work of the party associated, which may be either personal manual efforts or intellectual Contribution may be in all 3 forms, or any 2 or 1 of them A partnership may therefore exist even if it is shown that the partners have not contribute any capital of their own to a common fun for the contribution may be in the form of credit or industry not necessarily cash or fixed assets [Lim Tong Lim v. Phil. Fishing Gear Industries] Note: The law does not specify the kind of industry that a partner may contribute [Evangelista v. Abad Santos] (2) Proof of contribution – necessary Lim Tong Lim v. Phil Fishing Gear Industries: Three persons decided to form a corporation which was not legally formed, and one of them did not directly act on behalf of the corporation but reaped the benefits of the contract entered into by the other 2. Held: given the facts, it is clear that there was a partnership between Lim, Chua and Yao – they purchased the boats, which constituted the main assets of the partnership, and they agreed that the proceeds from the sales and operations thereof would be divided among them. o The object must be lawful  Should not be contrary to law, morals, good customs ,public order or public policy  Instances of unlawful object:

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Agency & Partnership Finals Reviewer – de leon annotations Prof. D. Sanchez 2 semester, AY ’10-‘11
nd

Janz Hanna Ria N. Serrano
- To create illegal monopolies or combinations in restraint - To carry on gambling [Arbes v. Polistico] - To engage in smuggling - To lease furnished apartments to prostitutes - To prevent competition in bidding for government contracts - To control the price of a commodity in the interest of its members o The primary purpose must be to obtain profits and to divide the same among the parties (1) The very reason for existence of partnership - One without any right to participate in the profits cannot be deemed as partner since the essence of partnership is that the partners share in the profits and losses [Tocao v. CA] (2) Need only be the principal, not exclusive aim o *articles of partnership must not be kept secret among members (otherwise, co-ownership [A1775])  Sharing of profits (1) Not necessarily in equal shares (2) Not conclusive evidence of partnership – merely presumptive  Sharing of losses (1) Necessary collateral of sharing in profits (2) Agreement not necessary – the obligation is implied from the partnership relation CC, 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; (2) 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; (3) The sharing of gross returns does not 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; (4) The receipt by a 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) As a debt by installments or otherwise (b) As wages of an employee or rent to a landlord; (c) As an annuity to a widow or representative of a deceased partner; (d) As interest on a loan, though the amount of payment vary with the profits of the business; (e) As the consideration for the sale of a goodwill of a business or other property by installments or otherwise.  A1769 shall apply only when there is doubt  Where existence disputed – Heirs of Tan Eng Kee v. CA: The existence of a partnership may be disputed by an interested party. The issue as to whether a partnership exists is a factual matter to be decided on the basis of all circumstances. No single factor usually is controlling. Where circumstances taken singly may be inadequate to prove the intent to form a partnership, nevertheless the collective effect of these circumstances may be such as to support a finding of the existence of the parties’ intent  Gatchalian v. Collector: 2 persons contributed money to buy a sweepstakes ticket with the intention to divide the prize which they may win. Held: A partnership was formed. It appeared that B personally appeared in the PCSO, in capacity as co-partner to collect the prize.  Obillos, Jr v. Commissioner: Children sold lots given by their father and divided the proceeds. Held: no partnership. The division of profits was merely incidental. There must be unmistakable intention to form a partnership  Sharing of gross returns alone does not indicate a partnership, since in a partnership, the partners share net profits after satisfying all of the partnership’s liabilities  Receipt of share in the profits = strong presumptive evidence of partnership o Philex Mining v. Commissioner: Where the “compensation” given to the manager of a project who had put substantial sum in the venture is pegged to profits, such compensation actually constitutes his share in the net profits of the partnership as a partner and not as an employee o Basic test of partnership, whether inter se or as to 3 rd persons, is whether the business is carried on in behalf of the person sought to be held liable  Burden of proof rests on the party asserting (1) The existence of a partnership must be proved; will not be presumed (2) The law presumes that persons who are acting as partners have entered into a contract of partnership (3) When a partnership is shown to exist, presumption is that it continues in the absence of evidence to the contrary (4) One who alleges that a partnership cannot prove it merely by evidence of an agreement wherein the parties call themselves “partners” ** LEGAL INTENTION is the crux of partnership. B. Creation CC, 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.  Effects of an unlawful partnership (1) Contract is void ab initio (2) Profits confiscated in favor of the government (3) Instruments or tools and proceeds of the crime also forfeited in favor of government (4) Contributions of the partners shall not be confiscated unless they fall under (3)  Judicial decree not necessary to dissolve, but is advisable  Right to return of contribution – Any other solution would be immoral, and the law will not consent to the contribution remaining in the possession of the manager or administrator who refused to return them by denying to the partners the action to demand them [Arbes v. Polistico]  Right to receive profits in an unlawful partnership = unlawful CC, 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.  Form of partnership contract (1) General rule – no special form required. Contract may be oral or in writing regardless of the value of the contributions (2) Where immovable or real rights are contributed – public instrument necessary (3) When partnership agreement covered by A1403 – agreement to enter into a partnership at a future time  Partnership implied from conduct (1) Binding effect – a partnership may exist and often exists in the absence of express agreement. Its existence may be implied from the acts or conduct of the parties, as well as from other declarations, and such implied contract would be binding as a written and express contract. (2) Ascertainment of intention of parties – the intention as discloses by the entire transaction, and as gathered from the facts and from the language employed by the parties as well as their conduct should be ascertained. (3) Conflict between intention and terms of contract – intention prevails CC, 1772. Every contract of partnership having a capital of three thousand pesos or more, in money or property, shall appear in a public instrument, which must be recorded in the Office of the Securities and Exchange Commission. 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.  Partnership with capital of 3K or more:

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Agency & Partnership Finals Reviewer – de leon annotations Prof. D. Sanchez 2 semester, AY ’10-‘11
nd

Janz Hanna Ria N. Serrano
(a) Contact must appear in a public instrument (b) Must be recorded or registered with the SEC  Failure to comply DOES NOT prevent the formation of a partnership or affect its liability and that of the partners to 3 rd persons  Purpose: tax liabilities cannot be evaded; public can also determine more accurately they membership and capital before dealing with them  When partnership considered registered – Date the partnership papers are presented to and left for record CC, 1784. A partnership begins from the moment of the execution of the contract, unless it is otherwise stipulated.  Partnership is a consensual contract, hence, it exists from the moment of the celebration of the contract by the partners  The birth and life of a partnership is predicated on the mutual desire and consent of the parties (Ortega v. CA]  Executory agreement of partnership – A1784 not absolute: Partners may stipulate some other date for the commencement of the partnership CC, 1815. Every partnership shall operate under a firm name, which may or may not include the name of one or more of the partners. Those who, not being members of the partnership, include their names in the firm name, shall be subject to the liability of a partner.  Importance – necessary to distinguish the partnership which has a distinct and separate juridical personality  Persons, who, not being partners, include their names in the firm name do not become a partner, but shall be subject to liability of a partner as regards 3rd persons. Code of Professional Responsibility Rule 3.02. In the choice of a firm name, no false, misleading or assumed name shall be used. The continued use of the name of a deceased partner is permissible provided that the firm indicates in all its communications that said partner is deceased. CC, 1141. Real actions over immovables prescribe after thirty years. This provision is without prejudice to what is established for the acquisition of ownership and other real rights by prescription. Separate juridical personality CC, 1768. The partnership has a judicial 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.  Partnership a juridical person - Like the corporation, a partnership is duly formed under the law is a juridical person to which the law grants a juridical personality separate and distinct from that of each of the partners - It may enter into contracts, acquire and possess property of all kinds in its name, as well as incur obligations and bring civil or criminal actions in conformity with the laws and regulations of its organizations CC, 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. - In view of the separate juridical personality of a partnership, the partners cannot be held liable for the obligations of the partnership unless it is shown that the legal fiction of a different juridical personality is being used for a fraudulent, unfair or illegal purpose and except as provided in A1816 [Aguila v. CA]  Effect of failure to comply with statutory requirements (1) Under A1772 – still acquires juridical personality (2) Under A1773 and 1775 – no separate juridical personality CC, 1773. A contract of partnership is void, whenever immovable property is contributed thereto, if an inventory of said property is not made, signed by the parties, and attached to the public instrument.  Requirements: regardless of value of immovable property: (a) Contract must be in a public instrument (b) An inventory of the property must be made, signed by the parties and attached to the public instrument  Agad v. Mabolo: A partnership contract which states that the partnership is established “to operate a fishpond” (not “to engage in a fishpond business) is not rendered void because no inventory of the fishpond was made where it did not clearly and positively appear that the real property had been contributed by anyone of the partners  Importance of inventory: to show how much is due from each partner to complete his share in the common fun and how much is due to each of them in case of liquidation  To organize a partnership not an absolute right – merely a privilege which may be enjoyed only under such terms as the state may deem necessary to impose CC, 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 NIRC Sec 22(b). The term "corporation" shall include partnerships, no matter how created or organized, joint-stock companies, joint accounts (cuentas en participacion), association, or insurance companies, but does not include general professional partnerships and a joint venture or consortium formed for the purpose of undertaking construction projects or engaging in petroleum, coal, geothermal and other energy operations pursuant to an operating consortium agreement under a service contract with the Government. "General professional partnerships" are partnerships formed by persons for the sole purpose of exercising their common profession, no part of the income of which is derived from engaging in any trade or business. NIRC Sec. 26. Tax Liability of Members of General Professional Partnerships. - A general professional partnership as such shall not be subject to the income tax imposed under this Chapter. Persons engaging in business as partners in a general professional partnership shall be liable for income tax only in their separate and individual capacities. For purposes of computing the distributive share of the partners, the net income of the partnership shall be computed in the same manner as a corporation. Each partner shall report as gross income his distributive share, actually or constructively received, in the net income of the partnership. CC, 1811, 2nd par. 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 partners 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 partner's 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 partner's right in specific partnership property is not subject to attachment or execution, except on a 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 partner's right in specific partnership property is not subject to legal support under Article 291 Mutual agency CC, 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 one of them may do alone shall bind the partnership, without prejudice to the provisions 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 court's intervention may be sought.  All partners considered managers and agents  unanimous consent required for alteration of immovable property o Bachrach v. La Protectora: A contract was entered into by a partner without the consent of the others, there being no agreement with regard to the manner of management. Held: Partnership liable for the indebtedness. There being no agreement with regard to the manner of management, all the partners are considered agents of the partnership. Partner A must be deemed to have authority to contract the indebtedness in question inasmuch as it was incurred in the prosecution of the business. CC, 1818. Every partner is an agent of the partnership for the purpose of its business, and the act of every partner, including the execution in the partnership name of any instrument, for apparently carrying on in the usual way the business of the partnership of which he is a member binds the

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Agency & Partnership Finals Reviewer – de leon annotations Prof. D. Sanchez 2 semester, AY ’10-‘11
nd

Janz Hanna Ria N. Serrano
partnership, unless the partner so acting has in fact no authority to act for the partnership in the particular matter, and the person with whom he is dealing has knowledge of the fact that he has no such authority. An act of a partner which is not apparently for the carrying on of business of the partnership in the usual way does not bind the partnership unless authorized by the other partners. Except when authorized by the other partners or unless they have abandoned the business, one or more but less than all the partners have no authority to: (1) Assign the partnership property in trust for creditors or on the assignee's promise to pay the debts of the partnership; (2) Dispose of the good-will of the business; (3) Do any other act which would make it impossible to carry on the ordinary business of a partnership; (4) Confess a judgment; (5) Enter into a compromise concerning a partnership claim or liability; (6) Submit a partnership claim or liability to arbitration; (7) Renounce a claim of the partnership. No act of a partner in contravention of a restriction on authority shall bind the partnership to persons having knowledge of the restriction.  Power of partner as agent of partnership – in the absence of an agreement to the contrary, all partners have equal rights in the management and conduct of the partnership business (a) As among themselves – when a partner performs an act within the scope of his actual, implied or apparent authority, he is not only a principal as to himself, but is also for all purposes, an agent as to his co-partners or to the partnership (b) As to 3rd persons – limitations upon the authority of any one of the partners are not binding upon innocent 2rd person dealing with the partnership, who have the right to assume that every general partner has power to bind the partnership especially those acting with ostensible authority  Liability of partnership for acts of partners (a) Acts for apparently carrying on in the usual way of the business of the partnership – generally, partnership liable; exception: requisites: (1) partner so acting has in fact no authority, and (2) the third person knows that the acting partner has no authority (b) Acts of strict dominion or ownership – for acts which are not apparently carrying on in the usual way the business of the partnership, the partnership is NOT bound, unless authorized by ALL other partners or unless they have abandoned the business (c) Acts in contravention of a restriction on authority – partnership not liable to 3rd persons having actual or presumptive knowledge of the restrictions  Liability of partner acting without authority = personally liable CC, 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 partner's act binds the partnership under the provisions of the first paragraph of article 1818, or unless such property has been conveyed by the grantee or a person claiming through such grantee to a holder for value without knowledge that the partner, in making the conveyance, has exceeded his authority. Where 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 Article 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 partners in 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 Article 1818, unless the purchaser or his assignee, is a holder for value, without knowledge. Where the title to real property is in the name of one or more or all the partners, or in a third person in trust for the partnership, a conveyance executed by a partner in the partnership name, or 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 Article 1818. Where the title to real property is in the name of all the partners a conveyance executed by all the partners passes all their rights in such property.  Conveyance of real property belonging to the partnership (a) Prima facie ownership of real property – presumption: it belongs to the partnership if partnership funds are used. (b) Legal effects of conveyance – real property may be registered or owned in the name of: a. The partnership b. One or more but not all the partners c. One or more or all the partners or in a third person in trust for the partnership d. All the partners (c) Scope of “conveyance” – par. 1, 3, 5: conveyance of title/ownership || par. 2, 4 – conveyance of equitable interest  Examples 1. 1st par: Partner A sold a parcel of land, registered under the name of the partnership, to D without express authority - Conveyance passes the title to D - But, partnership may recover if (a) conveyance not in the usual way of business or (b) D had knowledge that A has no authority 2. 2nd par: If partner A executed the sale in his own name to D, D does not become the owner of the land - He gets only the equitable interest of the partnership, assuming that the selling of the land is in the usual course of the business - D not entitled to equitable interest if: (a) Partnership is not engaged in the buying and selling of lands (b) D had knowledge of A’s lack of authority 3. 3rd par: the parcel of land really belongs to the partnership, but registered in A’s name and the record does not disclose the partnership’s right  if A sold the land to D in his own name, title is conveyed to D. 4. 4th par: suppose the parcel of land was in A’s name in trust for the partnership; if A sells the land to D in partnership’s name or in A’s name, conveyance will pass only the equitable interest 5. 5th par: if the parcel of land is registered in the name of all partners, conveyance made by all partners to D will pass title to the property  Innocent purchasers without notice – regardless of the fact that one partner cannot convey partnership realty without concurrence of the others, it is fundamental that innocent purchasers without notice be protected  A conveyance of partnership realty by one partner may be authorized by his co-partners, or when made without authority, may be reatified by them CC, 1820. An admission or representation made by any partner concerning partnership affairs within the scope of his authority in accordance with this Title is evidence against the partnership.  General rule: person is not bound by the act, admission, statement, or agreement of another of which he has no knowledge to or which he has not given his consent  Before the partnership can be charged with the admission of a partner under A1820, the partnership relation must be shown and proof of that fact must be made by evidence other than the admission itself  Once the existence of the partnership relation has been proven by other independent evidence, statements, admissions made by any partner speaking for the partnership concerning partnership affairs while acting within the scope of his authority are admissible as evidence CC, 1821. Notice to any partner of any matter relating to partnership affairs, and the knowledge of the partner acting in the particular matter, acquired while a partner or then present to his mind, and the knowledge of any other partner who reasonably could and should have communicated it to the acting partner, operate as notice to or knowledge of the partnership, except in the case of fraud on the partnership, committed by or with the consent of that partner.  3 cases of knowledge (1) Knowledge of the partner acting in the particular matter acquired while a partner

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Agency & Partnership Finals Reviewer – de leon annotations Prof. D. Sanchez 2 semester, AY ’10-‘11
nd

Janz Hanna Ria N. Serrano
(2) Knowledge of the partner acting in the particular matter then present to his mind (3) Knowledge of any other partner who reasonably could and should have communicated it to the acting partner  E.g. service of summons on A operates as service to the partnership and the other partners CC, 1822. Where, by any wrongful act or omission of any partner acting in the ordinary course of the business of the partnership or with the authority of co-partners, loss or injury is caused to any person, not being a partner in the partnership, or any penalty is incurred, the partnership is liable therefor to the same extent as the partner so acting or omitting to act. CC, 1825. When a person, by words spoken or written or by conduct, represents himself, or consents to another representing him to anyone, as a partner in an existing partnership or with one or more persons not actual partners, he is liable to any such persons to whom such representation has been made, who has, on the faith of such representation, given credit to the actual or apparent partnership, and if he has made such representation or consented to its being made in a public manner he is liable to such person, whether the representation has or has not been made or communicated to such person so giving credit by or with the knowledge of the apparent partner making the representation or consenting to its being made: (1) When a partnership liability results, he is liable as though he were an actual member of the partnership; (2) When no partnership liability results, he is liable pro rata with the other persons, if any, so consenting to the contract or representation as to incur liability, otherwise separately. When a person has been thus represented to be a partner in an existing partnership, or with one or more persons not actual partners, he is an agent of the persons consenting to such representation to bind them to the same extent and in the same manner as though he were a partner in fact, with respect to persons who rely upon the representation. When all the members of the existing partnership consent to the representation, a partnership act or obligation results; but in all other cases it is the joint act or obligation of the person acting and the persons consenting to the representation.  Meaning and effect of estoppel – estoppel is a bar which precludes a person from denying or asserting anything contrary to what has been established as the truth by his own deed or representation  When a person a partner by estoppel – a person may become a partner by estoppels and thus be held liable to 3 rd persons as if he were a partner, when by words or conduct he: (a) Directly represents himself to anyone as a partner in an existing partnership or in a non-existing partnership; or (b) Indirectly represents himself by consenting to another representing him as a partner in an existing partnership or in a non-existing partnership  When partnership liability results – if all the actual partners consented to the representation, the liability of the person who represented himself to be a partner and the actual partners = partnership liability  When liability pro rata – when there is no existing partnership and all those represented as partners consented to the representation, or not all of the partners of an existing partnership consented to the representation, the liability of the person who represented himself as partner, AND all those who made and consented to such representation, is joint or pro rata.  When liability separate – when there is no existing partnership but and not all but only some of those represented consented, or none of the partners in an existing partnership consented – separate liability of the person who represented himself/consented to represent  Estoppel does not create partnership  Liability as partners may arise contrary to their intention  Doctrine of estoppel has no application as between actual partners  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 (2) Reliance on such representations by the plaintiff (3) Lack of any denial or refutation of the statements by the defendant Sec. 29, Rule 130. Admission by co-partner or agent. — The act or declaration of a partner or agent of the party within the scope of his authority and during the existence of the partnership or agency, may be given in evidence against such party after the partnership or agency is shown by evidence other than such act or declaration. The same rule applies to the act or declaration of a joint owner, joint debtor, or other person jointly interested with the party. Sec. 11, Rule 14. Service upon domestic private juridical entity. – When the defendant is a corporation, partnership or association organized under the laws of the Philippines with a juridical personality, service may be made on the president, managing partner, general manager, corporate secretary, treasurer, or in-house counsel. CC, 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 cause. The vote of the partners representing the controlling interest shall be necessary for such revocation of power. A power granted after the partnership has been constituted may be revoked at any time. CC, 1801. If two or more partners have been intrusted with the management of the partnership without specification of their respective duties, or without a 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 CC, 1802. In case it should have been stipulated that none of the managing partners shall act without the consent of the others, the concurrence of all shall be necessary for the validity of the acts, and the absence or disability of any one of them cannot be alleged, unless there is imminent danger of grave or irreparable injury to the partnership CC, 1832. Except so far as may be necessary to wind up partnership affairs or to complete transactions begun but not then finished, dissolution terminates all authority of any partner to act for the partnership: (1) With respect to the partners: (a) When the dissolution is not by the act, insolvency or death of a partner; or (b) When the dissolution is by such act, insolvency or death of a partner, in cases where article 1833 so requires; (2) With respect to persons not partners, as declared in article 1834. CC, 1833. Where the dissolution is caused by the act, death or insolvency of a partner, each partner is liable to his co-partners for his share of any liability created by any partner acting for the partnership as if the partnership had not been dissolved unless: (1) The dissolution being by act of any partner, the partner acting for the partnership had knowledge of the dissolution; or (2) The dissolution being by the death or insolvency of a partner, the partner acting for the partnership had knowledge or notice of the death or insolvency. CC, 1834. After dissolution, a partner can bind the partnership, except as provided in the third paragraph of this article: (1) By any act appropriate for winding up partnership affairs or completing transactions unfinished at dissolution; (2) By any transaction which would bind the partnership if dissolution had not taken place, provided the other party to the transaction: (a) Had extended credit to the partnership prior to dissolution and had no knowledge or notice of the dissolution; or (b) Though he had not so extended credit, had nevertheless known of the partnership prior to dissolution, and, having no knowledge or notice of dissolution, the fact of dissolution had not been advertised in a newspaper of general circulation in the place (or in each place if more than one) at which the partnership business was regularly carried on. The liability of a partner under the first paragraph, No. 2, shall be satisfied out of partnership assets alone when such partner had been prior to dissolution: (1) Unknown as a partner to the person with whom the contract is made; and (2) So far unknown and inactive in partnership affairs that the business reputation of the partnership could not be said to have been in any degree due to his connection with it. The partnership is in no case bound by any act of a partner after dissolution: (1) Where the partnership is dissolved because it is unlawful to carry on the business, unless the act is appropriate for winding up partnership affairs; or

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Agency & Partnership Finals Reviewer – de leon annotations Prof. D. Sanchez 2 semester, AY ’10-‘11
nd

Janz Hanna Ria N. Serrano
(2) Where the partner has become insolvent; or (3) Where the partner has no authority to wind up partnership affairs; except by a transaction with one who: (a) Had extended credit to the partnership prior to dissolution and had no knowledge or notice of his want of authority; or (b) Had not extended credit to the partnership prior to dissolution, and, having no knowledge or notice of his want of authority, the fact of his want of authority has not been advertised in the manner provided for advertising the fact of dissolution in the first paragraph, No. 2 (b). Nothing in this article shall affect the liability under Article 1825 of any person who, after dissolution, represents himself or consents to another representing him as a partner in a partnership engaged in carrying business. Distinguish from: 1. Co-ownership; co-possession Partnership Co-ownership Creation Always created by contract Generally created by law Juridical personality Separate and distinct None Purpose Realization of profits Common enjoyment of a thing or right Duration No limitation 10 years Disposal of interests Partner may not dispose of his individual May freely do so interest in the partnership Power to act with 3rd persons A partner may bind the partnership A co-owner cannot represent the coownership Effect of death Dissolution 2. Tenancy in common; joint tenancy 3. Joint ventures 4. Joint adventures, joint accounts, cuentas en participacion  no more 5. Agency Agency Partnership In both cases, the agent or partner can bind the principal or his co-partner only by such contract s as are entered into within the scope of his authority || both fiduciary Control by the principal: not applicable to the partnership concept Yet the partnership relation, while having many of the characteristics of Fundamental: that an agent must submit to the principal’s tight to the agency relationship, differs from it in that a partner’s power to binfd control the agent’s conduct in regard to the subject of agency his co-partner is not subject to the co-partner’s right control, unless there is an agreement to that effect Liability of the agent: the ordinary agent assumes no personal liability Liability of the agent: a partner acting as agent for the partnership binds where he acts within the scope of his authority not only the firm members but himself as well || a partner is both principal and agent at the same time Sharing of profits

E.

II.

Kinds of Partnership A. Universal CC, 1776. As to its object, a partnership is either universal or particular. As regards the liability of the partners, a partnership may be general or limited.  Classifications of partnership (1) As to the extent of its subject matter (a) Universal partnership - Universal partnership of all present property [A1778] - Universal partnership of profits [A1780] (b) Particular partnership – A1783 (2) As to liability of partners (a) General partnership – one consisting of general partners who are liable pro rate and subsidiarily and sometimes solidarily with their separate property for partnership debts (b) Limited partnership – one formed by 2 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 obligations of the partnership (3) As to its duration (a) Partnership at will – one 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 parties, or by the will of any one partner alone; or one for a fixed term or particular undertaking which is continued by the partners after the termination of such term without express agreement (b) Partnership with a fixed term – one 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, the partnership is dissolved. (4) As to the legality of its existence (a) De jure – one which has complied with all the legal requirements for its establishment (b) De facto (5) As to representation to others (a) Ordinary or real partnership – one which actually exists among partners and also as to 3rd persons (b) Ostensible partnership/partnership by estoppel (6) As to publicity (a) Secret partnership (b) Open or notorious (7) As to purpose (a) Commercial or trading partnership – one formed for the transaction of business (b) Professional or non-trading – one formed for the exercise of a profession  CC, 1777. A universal partnership may refer to all the present property or to all the profits. CC, 1778. A partnership of all present property is that in which the partners contribute all the property which actually belongs to them to a common fund, with the intention of dividing the same among themselves, as well as all the profits which they may acquire therewith. CC, 1779. In a universal partnership of all present property, the property which belongs to each of the partners at the time of the constitution of the partnership, becomes the common property of all the partners, as well as all the profits which they may acquire therewith. A stipulation for the common enjoyment of any other profits may also be made; but the property which the partners may acquire subsequently by inheritance, legacy, or donation cannot be included in such stipulation, except the fruits thereof.  In this kind of partnership, the following become common property of all the partners: (a) Property which belong to each of them at the time of the constitution of the partnership; and, (b) Profits which they may acquire from the property contributed  As a general rule, future property cannot be contributed CC, 1780. A universal partnership of profits comprises all that the partners may acquire by their industry or work during the existence of the partnership.

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Agency & Partnership Finals Reviewer – de leon annotations Prof. D. Sanchez 2 semester, AY ’10-‘11
nd

Janz Hanna Ria N. Serrano
Movable or immovable property which each of the partners may possess at the time of the celebration of the contract shall continue to pertain exclusively to each, only the usufruct passing to the partnership.  Ownership of present and future property – partners retain their ownership over their present and future property; what passes to the partnership are the profits or income and the use or usufruct of the same | upon dissolution, property is returned to the partners who own it  Profit acquired through chance not included  Fruits of property subsequently acquired not included, unless otherwise stipulated CC, 1781. Articles of universal partnership, entered into without specification of its nature, only constitute a universal partnership of profits.  Presumption in favor of universal partnership of profits: reason  imposes less obligations on the partners, since they preserve the ownership of their separate property CC, 1782. Persons who are prohibited from giving each other any donation or advantage cannot enter into universal partnership. CC, 739. The following donations shall be void: (1) Those made between persons who were guilty of adultery or concubinage at the time of the donation; (2) Those made between persons found guilty of the same criminal offense, in consideration thereof; (3) Those made to a public officer or his wife, descendants and ascendants, by reason of his office. In the case referred to in No. 1, the action for declaration of nullity may be brought by the spouse of the donor or donee; and the guilt of the donor and donee may be proved by preponderance of evidence in the same action. B. Particular CC, 1776, supra. CC, 1783. A particular partnership has for its object determinate things, their use or fruits, or specific undertaking, or the exercise of a profession or vocation.  Fundamental difference from a universal partnership: scope of their subject matter  Examples: those formed for the acquisition of an immovable property for the purpose of reselling it at a profit or for the common enjoyment of its use  Business of partnership need not be continuing in nature C. General – CC, 1776. D. Limited – CC, 1776. E. At will CC, 1785. When a partnership for a fixed term or particular undertaking is continued after the termination of such term or particular undertaking without any express agreement, the rights and duties of the partners remain the same as they were at such termination, so far as is consistent with a partnership at will. A continuation of the business by the partners or such of them as habitually acted therein during the term, without any settlement or liquidation of the partnership affairs, is prima facie evidence of a continuation of the partnership.  Partnership with a fixed term – one which the term of its existence has been agreed upon; the expiration causes automatic dissolution - May be extended or renewed by the parties by express agreement  Continuation of partnership for an indefinite term (1) Partnership for a term impliedly fixed – an agreement of the parties may evidence an understanding that the relation should continue until the accomplishment of a particular undertaking or certain things have been don or have taken place (2) Partnership with mere expectation that business will be profitable  does not establish a fixed term F. For a term or undertaking – CC, 1785. G. Commercial CC, 1767, supra. H. Professional – CC, 1767. I. By estoppel/apparent CC, 1825. When a person, by words spoken or written or by conduct, represents himself, or consents to another representing him to anyone, as a partner in an existing partnership or with one or more persons not actual partners, he is liable to any such persons to whom such representation has been made, who has, on the faith of such representation, given credit to the actual or apparent partnership, and if he has made such representation or consented to its being made in a public manner he is liable to such person, whether the representation has or has not been made or communicated to such person so giving credit by or with the knowledge of the apparent partner making the representation or consenting to its being made: (1) When a partnership liability results, he is liable as though he were an actual member of the partnership; (2) When no partnership liability results, he is liable pro rata with the other persons, if any, so consenting to the contract or representation as to incur liability, otherwise separately. When a person has been thus represented to be a partner in an existing partnership, or with one or more persons not actual partners, he is an agent of the persons consenting to such representation to bind them to the same extent and in the same manner as though he were a partner in fact, with respect to persons who rely upon the representation. When all the members of the existing partnership consent to the representation, a partnership act or obligation results; but in all other cases it is the joint act or obligation of the person acting and the persons consenting to the representation. Kinds of Partners A. Industrial – one who contributes only his industry or personal service CC, 1789. An industrial partner cannot engage in business for himself, unless the partnership expressly permits him to do so; and if he should do so, the capitalist partners may either exclude him from the firm or avail themselves of the benefits which he may have obtained in violation of this provision, with a right to damages in either case. CC, 1797. The losses and profits shall be distributed in conformity with the agreement. If only the share of each partner in the profits has been agreed upon, the share of each in the losses shall be in the same proportion. In the absence of stipulation, the share of each partner in the profits and losses shall be in proportion to what he may have contributed, but the industrial partner shall not be liable for the losses. As for the profits, the industrial partner shall receive such share as may be just and equitable under the circumstances. If besides his services he has contributed capital, he shall also receive a share in the profits in proportion to his capital. B. Capitalist – one who contributes money or property to the common fund CC, 1789, supra. CC, 1790. Unless there is a stipulation to the contrary, the partners shall contribute equal shares to the capital of the partnership. CC, 1797, supra. CC, 1808. The capitalist partners cannot engage for their own account in any operation which is of the kind of business in which the partnership is engaged, unless there is a stipulation to the contrary. Any capitalist partner violating this prohibition shall bring to the common funds any profits accruing to him from his transactions, and shall personally bear all the losses C. Managing – one 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; also known as general or real partner CC, 1792. If a partner authorized to manage collects a demandable sum which was owed to him in his own name, from a person who owed the partnership another sum also demandable, the sum thus collected shall be applied to the two credits in proportion to their amounts, even though he may have given a receipt for his own credit only; but should he have given it for the account of the partnership credit, the amount shall be fully applied to the latter. The provisions of this article are understood to be without prejudice to the right granted to the other debtor by Article 1252, but only if the personal credit of the partner should be more onerous to him

III.

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Agency & Partnership Finals Reviewer – de leon annotations Prof. D. Sanchez 2 semester, AY ’10-‘11
nd

Janz Hanna Ria N. Serrano
CC, 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 cause. The vote of the partners representing the controlling interest shall be necessary for such revocation of power. A power granted after the partnership has been constituted may be revoked at any time.  2 distinct cases of appointments (1) Appointment as manager in the articles of partnership  may execute all acts of administration notwithstanding opposition, unless in bad faith Revocable only upon just and lawful cause [A1920] + upon the vote of the partners representing the controlling interest (2) Appointment as manager after the constitution of the partnership  may be revoked at any time  Scope of power of a managing partner o General rule: a partner appointed as manager has all the powers of a general agent as well as all the incidental powers necessary to carry out the object of the partnership in the transaction of its business. o Exception: when the powers are specifically restricted  Compensation for services rendered (1) Partner generally not entitled to compensation – a share of the profits is his only compensation (2) Exceptions (a) Partner engaged by his co-partners to perform services not required of him in the fulfillment of his duties as a partner (b) Contract for compensation may be implied where there is extraordinary neglect on the part of 1 partner to perform his duties thereby imposing the entire burden on the remaining partner (c) One partner may employ his co-partner to do work for him outside of the partnership (d) Partners exempted by the terms of the partnership from rendering services may demand pay for services rendered CC, 1801. If two or more partners have been intrusted with the management of the partnership without specification of their respective duties, or without a 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. (1) Each one may separately perform acts of administration (a) If 1 or more of the managing partners shall oppose the acts of the others ,then the decision of the majority [per head] of the managing partners shall prevail. (b) In case of tie, the matter shall have to be decided by the vote of the partners owning the controlling interest [more than 50% of the capital] (2) Requisites for application of rule (a) 2 or more partners have been appointed as managers (b) There is no specification of their respective duties (c) There is no stipulation that one them shall not act without the consent o all the others CC, 1802. In case it should have been stipulated that none of the managing partners shall act without the consent of the others, the concurrence of all shall be necessary for the validity of the acts, and the absence or disability of any one of them cannot be alleged, unless there is imminent danger of grave or irreparable injury to the partnership.  Concurrence necessary for validity of acts – this consent is so indispensable that neither the absence nor disability of one of them may justify to dispense with this requirement; exception: when there is imminent danger of grave or irreparable injury to the partnership  Rule where there is opposition by a managing partner – opposition should be respected.  Litton v. Hill: A third person seeks the enforcement of a contract entered into by a partner in violation of stipulation that none of the partners shall act without the consent of the others. Held: The transaction is still binding upon the partnership. A 3rd person may, and has a right to, presume that the managing partners with whom he contracts has, in the ordinary and usual courts of business, the consent of his co-partner.  Consent of managing partners not necessary in routine transactions By estoppel – CC, 1825. – one who is not really a partner, not being a party to a partnership agreement, but is liable as a partner for the protection of 3rd persons

D.

Rights and obligation in general, of partners inter se (1) Partnership relation essentially one of mutual trust and confidence (2) Fiduciary relationship remains until partnership is terminated (3) Relationship in a limited partnership – does not involve trust and confidence IV. Partner’s obligations to the partnership A. To contribute; warrant CC, 1786. Every partner is a debtor of the partnership for whatever he may have promised to contribute thereto. He shall also be bound for warranty in case of eviction with regard to specific and determinate things which he may have contributed to the partnership, in the same cases and in the same manner as the vendor is bound with respect to the vendee. He shall also be liable for the fruits thereof from the time they should have been delivered, without the need of any demand.  Obligations with respect to contribution of property (1) To contribute at the beginning of the partnership or at the stipulated time the money, property or industry which he may have promised to contribute (2) To answer for eviction in case the partnership is deprived of the determinate property contributed - Eviction shall take place whenever by a final judgment based on a right prior to the sale or an act imputable to the vendor, the vendee is deprived of the whole or a part of the thing purchased (3) To answer to the partnership for the fruits of the property the contribution of which he delayed, from the date they should have been contributed up to the time of actual delivery - No demand necessary to put partner in default (4) To preserve said property with the diligence of a good father of a family pending delivery to the partnership [A1163] (5) To indemnify the partnership for any damage caused to it by the retention of the same or by delay in its contribution [A1788, A1170]  Effect of failure to contribute property promised  partner becomes ipso jure a debtor of the partnership even in the absence of any demand o Remedy of the other partner/s or the partnership: NOT rescission but SPECIFIC PERFORMANCE [to collect what is owing]  A partner who fails to perform personal services which he has stipulated to render to the partnership is GENERALLY not liable CC, 1787. When the capital or a part thereof which a partner is bound to contribute consists of goods, their appraisal must be made in the manner prescribed in the contract of partnership, and in the absence of stipulation, it shall be made by experts chosen by the partners, and according to current prices, the subsequent changes thereof being for account of the partnership.  The appraisal of the value of the goods contributed is necessary to determine how much has been contributed by the partners. In the absence of any stipulation, the share of each partner in the profits and losses is in proportion to what he may have contributed  In case of immovable property: appraisal made in the inventory [A1773] CC, 1788. A partner who has undertaken to contribute a sum of money and fails to do so becomes a debtor for the interest and damages from the time he should have complied with his obligation. The same rule applies to any amount he may have taken from the partnership coffers, and his liability shall begin from the time he converted the amount to his own use.  Contemplates 2 distinct cases: (1) money promised but not given on time; (2) partnership money converted to the personal use of the partner  Obligations of the partners with respect to partnership capital under A1788. (1) To contribute on the date due the amount he has undertaken to contribute (2) To reimburse any amount he may have taken from the partnership coffers converted to his own use

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Agency & Partnership Finals Reviewer – de leon annotations Prof. D. Sanchez 2 semester, AY ’10-‘11
nd

Janz Hanna Ria N. Serrano
(3) To pay the agreed or legal interest, if he fails to pay his contribution in time or in case he takes any amount from the common fund and converts it to his own use (4) To indemnify the partnership for the damages caused to it by the delay in the contribution or the conversion of any sum for his personal benefit  Liwanag v. CA: A partner is guilty of estafa if he misappropriates partnership money or property received by him for a specific purpose of the partnership  US v. Clarin: Mere failure on the part of an industrial partner to return to the capitalist partner the capital brought by him into the partnership is not an act constituting the crime of estafa. The money having been received by the partnership, the business commenced and profits accrued, the action that lies with the partner who furnished capital is a civil one arising from the partnership contract for liquidation CC, 1790. Unless there is a stipulation to the contrary, the partners shall contribute equal shares to the capital of the partnership. CC, 1791. If there is no agreement to the contrary, in case of an imminent loss of the business of the partnership, any partner who refuses to contribute an additional share to the capital, except an industrial partner, to save the venture, shall he obliged to sell his interest to the other partners.  As a general rule: Capitalist partner not bound to contribute to the partnership more than what he agreed to contribute  Exception: in the case of imminent loss of the business, and there is no agreement to the contrary, he is under obligation to contribute an additional share to save the venture  Requisites (1) There is an imminent loss of the business of the partnership (2) The majority of the capitalist partners are of the opinion that an additional contribution would save the business (3) The capitalist partner refuses deliberately to contribute an additional share (4) There is not agreement to the contrary  Industrial partner exempted  Reason for the sanction: refusal to contribute reflects his lack of interest; it would be unjust for him to remain and reap the benefits of the efforts of others when he himself refuses to help. CC, 1795. The risk of specific and determinate things, which are not fungible, contributed to the partnership so that only their use and fruits may be for the common benefit, shall be borne by the partner who owns them. If the things contribute are fungible, or cannot be kept without deteriorating, or if they were contributed to be sold, the risk shall be borne by the partnership. In the absence of stipulation, the risk of the things brought and appraised in the inventory, shall also be borne by the partnership, and in such case the claim shall be limited to the value at which they were appraised.  5 cases contemplated: (a) Specific and determinate things which are not fungible where only the use is contributed – risk of loss borne by the partner (b) Specific and determinate things the ownership of which is transferred to the partnership – risk of loss is for the account of the partnership (c) Fungible things or things which cannot be kept without deteriorating even if they are contributed only for the use of the partnership – risk of loss borne by partnership (d) Things contributed to be sold – partnership bears loss (e) Things brought and appraised in the inventory – partnership bears risk of loss because the intention of the parties was to contrivute to the partnership the price of the things contributed with an appraisal in the inventory B. To apply sums collected pro rata CC, 1792. If a partner authorized to manage collects a demandable sum which was owed to him in his own name, from a person who owed the partnership another sum also demandable, the sum thus collected shall be applied to the two credits in proportion to their amounts, even though he may have given a receipt for his own credit only; but should he have given it for the account of the partnership credit, the amount shall be fully applied to the latter. The provisions of this article are understood to be without prejudice to the right granted to the other debtor by Article 1252, but only if the personal credit of the partner should be more onerous to him.  Where a person is separately indebted to the partnership and to the managing partners at the same time, any sum received by the managing partner shall be applied to the 2 credits in proportion to their amounts, except where he received it for the account of the partnership, in which case the whole sum shall be applied to the partnership credit only  Requisites for the rule to apply (1) There exists at least 2 debts, one where the collecting partner is the creditor, and the other, where the partnership is the creditor (2) Both debts are demandable; and (3) The partner who collects is authorized to manage and actually manages the partnership  Reason for applying: safeguarding the interest of the partnership  Right of debtor to application of payment [CC,1252] C. To compensate CC, 1794. Every partner is responsible to the partnership for damages suffered by it through his fault, and he cannot compensate them with the profits and benefits which he may have earned for the partnership by his industry. However, the courts may equitably lessen this responsibility if through the partner's extraordinary efforts in other activities of the partnership, unusual profits have been realized.  Damages not generally subject to set-off  Exception: if unusual profits are realized through the extraordinary efforts of the partner at faul, the courts may equitably mitigate or lessen his liability for damages D. To be loyal; fiduciary duty CC, 1807. Every partner must account to the partnership for any benefit, and hold as trustee for it any profits derived by him without the consent of the other partners from any transaction connected with the formation, conduct, or liquidation of the partnership or from any use by him of its property  Duty to act for common benefit  Pang Lim v. Lo Seng: He cannot, at the expense or to the detriment of the other partners, use or apply exclusively to his own individual benefit partnership assets or the results of the knowledge and information gained in the character of partner  Duty begins during the formation of partnership  Duty continues even after dissolution  Duty to account for earnings accruing even after termination of partnership  Duty to make full disclosure of information belonging to the partnership  Duty not to acquire interest or right adverse to the partnership  Catalan v. Gatchalian: A partner redeemed with his own private funds foreclosed property of partnership. Held: Partner did not become absolute owner of property. When A redeemed the property in question he became a trustee for the benefit of his co-partner, subject to his right to demand from the latter his contribution.  Pang Lim v. Lo Seng: A partner, after selling to his co-partner his interest in a partnership and acquiring from a lessor the plant and land leased by the partnership, seeks to terminate the partnership Held: A does not have the right to terminate the lease; he acted in bad faith. He had been in a relation of confidence with B and in that position had acquired knowledge of the possibilities of the property. on account of his status as partner, A knew that the original lease had veen extended and the extent of the valuable improvements that had been made thereon.  Lim Tanhu v. Ramolete: Widow of deceased partner seeks accounting from surviving partners who acquired with partnership assets, properties long after the dissolution of the partnership as a result of the death of the deceased partner who was in control of partnership affairs during his lifetime. Held: Widow not entitled to accounting. A1807 not applicable. Since B was in control of the affairs of the partnership, fraud by C & D of B is hard to believe. Partner’s obligations per se A. To bring to collation

V.

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Agency & Partnership Finals Reviewer – de leon annotations Prof. D. Sanchez 2 semester, AY ’10-‘11
nd

Janz Hanna Ria N. Serrano
CC, 1793. A partner who has received, in whole or in part, his share of a partnership credit, when the other partners have not collected theirs, shall be obliged, if the debtor should thereafter become insolvent, to bring to the partnership capital what he received even though he may have given receipt for his share only.  There is only 1 credit – credit in favor of the partnership  Applies regardless of which partner receives  Requisites: (a) A partner has received, in whole or in part, his share of the partnership credit (b) The other partners have not collected their shares (c) The partnership debtor becomes insolvent B. To share in the profits/losses CC, 1797. The losses and profits shall be distributed in conformity with the agreement. If only the share of each partner in the profits has been agreed upon, the share of each in the losses shall be in the same proportion. In the absence of stipulation, the share of each partner in the profits and losses shall be in proportion to what he may have contributed, but the industrial partner shall not be liable for the losses. As for the profits, the industrial partner shall receive such share as may be just and equitable under the circumstances. If besides his services he has contributed capital, he shall also receive a share in the profits in proportion to his capital. (1) Distribution of profits (a) The partners share the profits according to their agreement in subject to A1799 (b) If there is no such agreement: a. The share of each capitalist partner shall be in proportion to his capital contribution b. The industrial partner shall receive such share, which must be satisfied first before the capitalist partners shall divide the profits  Moran, Jr. v. CA: A partner is entitled to receive only his share of the profits actually realized by the venture. Even when an assurance was made by a partner that they would earn a huge amount of profits, in the absence of fraud, the other partners cannot claim a right to recover the profits promised where the business was highly speculative and turned out to be a failure. (2) Distribution of losses (a) Losses shall be distributed according to their agreement subject to A1799 (b) If there is no such agreement, but the contract provides for the share of the partners’ profits, the share of each in the losses shall be in accordance with the profit-sharing ratio, but the industrial partner shall not be liable for the losses (c) If there is also no profit-sharing stipulated, then losses shall be borned by the partners in proportion to their capital contributions, but the purely industrial partner shall not be liable for the losses CC, 1798. If the partners have agreed to intrust to a third person the designation of the share of each one in the profits and losses, such designation may be impugned only when it is manifestly inequitable. In no case may a partner who has begun to execute the decision of the third person, or who has not impugned the same within a period of three months from the time he had knowledge thereof, complain of such decision. The designation of losses and profits cannot be intrusted to one of the partners.  Delegation to a 3rd person – by common consent | prohibition in 2nd par. Is necessary to guarantee the utmost impartiality in the distribution of shares in the profits and losses CC, 1799. A stipulation which excludes one or more partners from any share in the profits or losses is void  Stipulation generally void, but the partnership subsists – profits and losses shall be apportioned as if there were no stipulation to the same  Stipulation may be a factor to show that no partnership exists  Where person excluded not intended by parties to become a partner, the stipulation is valid  Where person excluded from losses is industrial partner – valid  Where stipulation provides for unequal shares – valid, unless the inequality is so gross C. To render true and full information CC, 1806. Partners shall render on demand true and full information of all things affecting the partnership to any partner or the legal representative of any deceased partner or of any partner under legal disability.  Under the same principle of mutual trust and confidence among partners, there must be no concealment between them in all matters affecting the partnership D. Not to engage in another business CC, 1789. An industrial partner cannot engage in business for himself, unless the partnership expressly permits him to do so; and if he should do so, the capitalist partners may either exclude him from the firm or avail themselves of the benefits which he may have obtained in violation of this provision, with a right to damages in either case  Industrial partner – one who contributes his industry, labor or services to the partnership. He is considered the owner of his services, which is his contribution to the common fund  Unless the contrary is stipulated, he becomes a debtor of his work or services from the moment the partnership relation begins. In effect, the partnership acquires an exclusive right to avail itself of his industry  Consequently, if he engages in business for himself, such act is considered prejudicial to the interest of the other partners.  Action for specific performance – not available: amounts to involuntary servitude  Prohibition against engaging in business o As regards an industrial partner – absolute; It is clear that the reason for the prohibition exists in both cases, which is to prevent any conflict of interest between the industrial partner and the partnership and to insure faithful compliance by said partner with his prestation [Evangelista v. Abad Santos] o As regards capitalist partners – prohibition extends only to any operation which is of the same kind of business in which the partnership is engaged unless there is a stipulation to the contrary  Remedies where industrial partner engages in business: o Capitalist partners have the right to either exlude him from the firm or to avail themselves of the benefits which he may have obtained o Damages CC, 1808. The capitalist partners cannot engage for their own account in any operation which is of the kind of business in which the partnership is engaged, unless there is a stipulation to the contrary. Any capitalist partner violating this prohibition shall bring to the common funds any profits accruing to him from his transactions, and shall personally bear all the losses. Partner’s obligation to personal and partnership creditors; third parties A. To have his partnership interest charged for personal debts (primary) CC, 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

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Agency & Partnership Finals Reviewer – de leon annotations Prof. D. Sanchez 2 semester, AY ’10-‘11
nd

Janz Hanna Ria N. Serrano
 Application for a “charging order” after securing judgment on the credit – while a separate creditor of a partner CANNOT attach or levy, he can secure a judgment on his credit and then apply for a ‘charging order’ subjecting the interest of the debtor partner with the payment of the unsatisfied debt CC, 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. To be liable pro rate for partnership debts (subsidiary and joint) CC, 1816. All partners, including industrial ones, shall be liable pro rata with all their property and after all the partnership assets have been exhausted, for the contracts which may be entered into in the name and for the account of the partnership, under its signature and by a person authorized to act for the partnership. However, any partner may enter into a separate obligation to perform a partnership contract.  Partnership liability – partners are principals to the other partners and agents for them and the partnership; they are liable to 3 rd persons who have dealt with one of them in the same way a principal is liable to 3rd persons who have dealt with an agent  General rule: a partner has the right to make ALL partners liable for contracts he makes for the partnership but only if he was authorized  Individual liability – a partner may assume a separate undertaking in his name with a 3 rd party to perform a partnership contract or make himself solidarily liable  Nature of individual liability of partners (1) Pro rata  must mean equally or jointly, and NOT proportionately; because the pro-rating is based on the number of partners and not on the amount of their contributions to the common fund (2) Subsidiary or secondary – they become personally liable only after all the partnership assets have been exhausted [guarantors] (3) Liability of industrial partner – even him has to pay, subject to reimbursement by the capitalist partners  Liability v. loss CC, 1817. Any stipulation against the liability laid down in the preceding article shall be void, except as among the partners. CC, 1835. The dissolution of the partnership does not of itself discharge the existing liability of any partner. A partner is discharged from any existing liability upon dissolution of the partnership by an agreement to that effect between himself, the partnership creditor and the person or partnership continuing the business; and such agreement may be inferred from the course of dealing between the creditor having knowledge of the dissolution and the person or partnership continuing the business. The individual property of a deceased partner shall be liable for all obligations of the partnership incurred while he was a partner, but subject to the prior payment of his separate debts.

B.

Tort liability; breach of trust liability (primary and solidary) CC, 1822. Where, by any wrongful act or omission of any partner acting in the ordinary course of the business of the partnership or with the authority of co-partners, loss or injury is caused to any person, not being a partner in the partnership, or any penalty is incurred, the partnership is liable therefor to the same extent as the partner so acting or omitting to act. CC, 1823. The partnership is bound to make good the loss: (1) Where one partner acting within the scope of his apparent authority receives money or property of a third person and misapplies it; and (2) Where the partnership in the course of its business receives money or property of a third person and the money or property so received is misapplied by any partner while it is in the custody of the partnership. CC, 1824. All partners are liable solidarily with the partnership for everything chargeable to the partnership under Articles 1822 and 1823.  Solidary liability of the partners and also the partnership to 3 rd persons for the wrongful act or omission or breach of trust of a partner acting within the scope of the firm’s business ir with the authority of his co-partners  Different from liability under A1816: 1816 is joint and subsidiary liability for contractual obligations  Injured party may proceed against partnership or any partner  Requisites for liability (a) Partner must be guilty of a wrongful act or omission (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  Misapplication of money or property of a 3rd person – partnership liable  Muñasque v. CA. A partner misappropriated payments to partnership with the result that creditors who supplied materials on credit were not paid. Held: liability of the partners are solidary. While the liability of the partners is merely joint in transactions entered into by the partnership, a 3rd person who transacted with said partnership can hold the partners solidarily liable for the whole obligation if the case falls under A1822, 1823. D. Liability in case of estoppel CC, 1825, supra. Corporation Code, Sec. 21. Corporation by estoppel. - All persons who assume to act as a corporation knowing it to be without authority to do so shall be liable as general partners for all debts, liabilities and damages incurred or arising as a result thereof: Provided, however, That when any such ostensible corporation is sued on any transaction entered by it as a corporation or on any tort committed by it as such, it shall not be allowed to use as a defense its lack of corporate personality. On who assumes an obligation to an ostensible corporation as such, cannot resist performance thereof on the ground that there was in fact no corporation. E. Liability of new partners (subsidiary) CC, 1826. A person admitted as a partner into an existing partnership is liable for all the obligations of the partnership arising before his admission as though he had been a partner when such obligations were incurred, except that this liability shall be satisfied only out of partnership property, unless there is a stipulation to the contrary.  Limited to his share in partnership property for existing obligations  Extends to his separate property for subsequent obligations  Rights of existing and subsequent creditors – have equal rights as against partnership property and separate property of the previously existing members of the partnership while only subsequent creditrs have rights against the separate estate of the newly admitted partner VII. Rights of a partner A. To associate another in his share CC, 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  Subpartner – a partner may associate another person with him in his share without the consent of the other partners  Nature: the partnership formed between a member of a partnership and a 3rd person for a division of the profits coming to him from the partnership enterprise is subpartnership = distinct and separate from the main partnership  Right of person associated with partner’s share – these agreements do not in any wise affect the composition, existence or operations of the firm B. To access, inspect and copy partnership books CC, 1805. The partnership books shall be kept, subject to any agreement between the partners, at the principal place of business of the partnership, and every partner shall at any reasonable hour have access to and may inspect and copy any of them.  Partner with duty to keep partnership books – primarily rests on the managing or active partner or the particular partner given the specific duty; presumption: partners have knowledge of the contents C. To have a formal account CC, 1809. Any partner shall have the right to a formal account as to partnership affairs: (1) If he is wrongfully excluded from the partnership business or possession of its property by his co-partners; (2) If the right exists under the terms of any agreement; (3) As provided by article 1807;

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Agency & Partnership Finals Reviewer – de leon annotations Prof. D. Sanchez 2 semester, AY ’10-‘11
nd

Janz Hanna Ria N. Serrano
(4) Whenever other circumstances render it just and reasonable.  General rule: during the existence of the partnership, a partner is not entitled to a formal account of partnership affairs. Reason: rights of the partner to know partnership affairs is amply protected by A1805; 1806.  Exceptions – A1809  Prescriptive period – as long as the partnership lasts  Nature of action for accounting – in personam  Evangelista v. Abad Santos: Plaintiff was excluded as industrial partner after she filed a complaint for formal accounting, the defendants having always known her government position and other work when she joined the partnership. Held: A has a right to accounting. CC, 1842. The right to an account of his interest shall accrue to any partner, or his legal representative as against the winding up partners or the surviving partners or the person or partnership continuing the business, at the date of dissolution, in the absence of any agreement to the contrary. Property rights CC, 1810. The property rights of a partner are: (1) His rights in specific partnership property; (2) His interest in the partnership; and (3) His right to participate in the management.  Partnership property v. partnership capital Partnership property Partnership capital Changes in Variable – value may vary from day to day with changes in the Constant – remains unchanged as the amount fixed by value market value of the partnership assets agreement of the partners Assets included Includes not only the original capital contributions of the Represents the aggregate of the individual contributions partners but all property subsequently acquired on account of made by the partners in establishing or continuing the the partnership; includes partnership name and goodwill partnership  Ownership of certain property (4) Property used by the partnership – where there is no express agreement that property used by the partnership constituted partnership property, such use does not make it partnership ptoperty (5) Property acquired by a partner with partnership funds – unless a contrary intention appears, presumed to be partnership property, even if acquired in his own name (6) Property carried in partnership books as assets – very strong inference that it is partnership property 1. To possess specific partnership property CC, 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 partners 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 partner's 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 partner's right in specific partnership property is not subject to attachment or execution, except on a 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 partner's right in specific partnership property is not subject to legal support under Article 291.  Contemplates tangible property  A partner is a co-owner but the rules on co-ownership do not necessarily apply (a) Equal right of possession for partnership purposes (b) Right not assignable – partner cannot separately assign his right to specific partnership property but ALL of them can assign their rights in the same property || why: it is impossible to determine the extent of his beneficial interest in the property until after liquidation (c) Right limited to share of what remains after partnership debts have been paid 2. To convey partnership interest CC, 1812. A partner's interest in the partnership is his share of the profits and surplus.  Share of the profits and surplus – partner’s interest in the partnership consists of his proportionate share in the undistributed surplus after its dissolution  Partner’s interest not a debt due from partnership – a partner is not a creditor of the partnership for the amount of his share. Therefore, not subject to attachment or execution on a judgment recovered against the individual partner CC, 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 assignor's interest and may require an account from the date only of the last account agreed to by all the partners.  Effect of assignment of partner’s whole interest in partnership (1) Rights withheld from assignee – permits conveyance of his whole interest in the partnership without causing dissolution | but, such does not grant assignee the right: (a) To interfere in the management (b) To require any information or account (c) To inspect any of the partnership books (2) Status and rights of assignor as partner unaffected – legal effect of conveyance is the same as subpartnering  Remedy of other partners: none, technically.  Rights of assignee of partner’s interest o To receive, in accordance with his contract the profits accruing to the assigning partner o To avail himself of the usual remedies provided by law in the event of fraud in the management o To receive the assignor’s interest in case of dissolution o To require an account of the 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 To ask for dissolution CC, 1830(2). Dissolution is caused: In contravention of the agreement between the partners, where the circumstances do not permit a dissolution under any other provision of this article, by the express will of any partner at any time CC, 1831. On application by or for a partner the court shall decree a dissolution whenever: (1) A partner has been declared insane in any judicial proceeding or is shown to be of unsound mind; (2) A partner becomes in any other way incapable of performing his part of the partnership contract; (3) A partner has been guilty of such conduct as tends to affect prejudicially the carrying on of the business; (4) A partner willfully or persistently commits a breach of the partnership agreement, or otherwise so conducts himself in matters relating to the partnership business that it is not reasonably practicable to carry on the business in partnership with him;

D.

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Agency & Partnership Finals Reviewer – de leon annotations Prof. D. Sanchez 2 semester, AY ’10-‘11
nd

Janz Hanna Ria N. Serrano
(5) The business of the partnership can only be carried on at a loss; (6) Other circumstances render a dissolution equitable. On the application of the purchaser of a partner's interest under Article 1813 or 1814: (1) After the termination of the specified term or particular undertaking; (2) At any time if the partnership was a partnership at will when the interest was assigned or when the charging order was issued.  Grounds for dissolution be decree of court (a) On application by a partner: a. Insanity b. Incapacity – must be lasting ,from which the prospect of recovery is remote c. Misconduct and persistent breach of partnership agreement d. Business can be carried on only at a loss e. Other circumstances  abandonment of the business, fraud in the management of the business, fraud in the management of the business, refusal to render accounting (b) On application by a purchaser of a partner’s interest  VIII. Partnership’s obligation to the partners A. To reimburse; to answer for obligations contracted CC, 1796. . The partnership shall be responsible to every partner for the amounts he may have disbursed on behalf of the partnership and for the corresponding interest, from the time the expense are made; it shall also answer to each partner for the obligations he may have contracted in good faith in the interest of the partnership business, and for risks in consequence of its management.  In the absence of any stipulation to the contrary, every partner is an agent of the partnership for the purpose of its business. Hence, the partnership has the obligation to: (1) Refund amounts disbursed by the partner in behalf of the partnership + interest from the time the time the expense was made (2) Answer for the obligations the partner may have contracted in good faith in the interest of the partnership business (3) Answer for risks in consequence of its management  Being a mere agent, partner is not personally liable provided he is free from all fault  Martinez v. Ong Pong Co. A partner seeks an accounting from the other partners who received from him money to be invested by them in a business. Held: A1796 is not applicable insofar as the provision contemplates money other than the capital involved. IX. Rights of assignees A. To receive interest CC, 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 assignor's interest and may require an account from the date only of the last account agreed to by all the partners. B. To require an account CC, 1813, supra. C. To ask for dissolution CC, 1831, supra. X. Dissolution and winding up A. Dissolution; winding up; termination CC, 1828. The dissolution of a partnership is the change in the relation of the partners caused by any partner ceasing to be associated in the carrying on as distinguished from the winding up of the business  Effects of change in membership of a partnership (1) Dissolution of existing partnership and formation of a new one (2) Transformation of all partners into incoming partners (3) Continuance by remaining partners of partnership as before  In other words, the change in the relation of the partners will dissolve the partnership but will not disturb the continuance by the remaining partners or by the existing and new partners of the business as before  Dissolution – the change in the relation of the partners caused by any partner ceasing to be associate in the carrying on of the business - That point in time when the partners cease to carry on the business together  Winding up – the actual process of settling the business or partnership affairs after dissolution, involving the collection and distribution of partnership assets, payment of debts, and determination of the value of each partner’s interest in the partnership  Termination – that point in time when all partnership affairs are completely wound up and finally settled; signifies the end of the partnership life CC, 1829. On dissolution the partnership is not terminated, but continues until the winding up of partnership affairs is completed  Effects of dissolution (1) Partnership not terminated (2) Partnership continues for a limited purpose of making good all outstanding engagements, of taking and settling all accounts, and collecting all the property, means and assets of the partnership existing at the time of its dissolution for the benefit of all interested (3) Transaction of new business prohibited B. Causes of dissolution (1) Statutory enumeration exclusive (2) Effect of sale or assignment by one partner of his entire interest in the partnership to a 3 rd person does not ipso facto dissolve the partnership  CC, 1813.  In the absence of an express agreement to that effect, there exists no right or power of any member, or even a majority of the members, to expel all other members of the firm at will. Nor can they at will forfeit the share or interest of a member or members and compel him or them to quit the firm 1. Without violating the agreement CC, 1830(1). Dissolution is caused without violation of the agreement between the partners: (a) By the termination of the definite term or particular undertaking specified in the agreement; (b) By the express will of any partner, who must act in good faith, when no definite term or particular is specified; (c) By the express will of all the partners who have not assigned their interests or suffered them to be charged for their separate debts, either before or after the termination of any specified term or particular undertaking; (d) By the expulsion of any partner from the business bona fide in accordance with such a power conferred by the agreement between the partners; 2. In contravention of the agreement CC, 1830(2). Dissolution is caused in contravention of the agreement between the partners, where the circumstances do not permit a dissolution under any other provision of this article, by the express will of any partner at any time  Dissolution may be for any cause or reason – any partner may cause the dissolution of the partnership at any time without the consent of his co-partners for any reason which he deems sufficient  Legal effects – withdrawing partner is liable for damages for unjustified dissolution but in no case can be compelled to remain in the partnership

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Agency & Partnership Finals Reviewer – de leon annotations Prof. D. Sanchez 2 semester, AY ’10-‘11
nd

Janz Hanna Ria N. Serrano
 power of dissolution always exists – no person can be compelled either to become a partner or to remain one 3. By operation of law CC, 1830(3). Dissolution is caused by any 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  e.g. a law makes the continuance of the business illegal CC, 1830(4). Dissolution is caused when a specific thing which a partner had promised to contribute to the partnership, perishes before the delivery; in any case by the loss of the thing, when the partner who contributed it having reserved the ownership thereof, has only transferred to the partnership the use or enjoyment of the same; but the partnership shall not be dissolved by the loss of the thing when it occurs after the partnership has acquired the ownership thereof  loss before delivery – partnership is dissolved  Loss after delivery – partnership not dissolved, but it assumes the loss of the thing having acquired ownership thereof  Loss where only use or enjoyment contributed – loss, regardless of before or after delivery, dissolves the partnership because in either case the partner cannot fulfill his undertaking CC, 1830(5). Dissolution is caused by the death of any partner  Surviving partners have no authority to continue the business except so far as is necessary to wind up  Status of partnership – a partnership in liquidation  Liquidation of its affairs – entrusted to surviving partners  Continuation of business without liquidation – legal CC, 1830(6). Dissolution is caused by the insolvency of any partner or of the partnership  Insolvency must be adjudged by court CC, 1830(7). Dissolution is caused by the civil interdiction of any partner 4. By court decree CC, 1830(8). Dissolution is caused by decree of court under the following article CC, 1831, supra. Effects of dissolution 1. Termination of mutual agency; exceptions CC, 1832. Except so far as may be necessary to wind up partnership affairs or to complete transactions begun but not then finished, dissolution terminates all authority of any partner to act for the partnership: (1) With respect to the partners: (a) When the dissolution is not by the act, insolvency or death of a partner; or (b) When the dissolution is by such act, insolvency or death of a partner, in cases where article 1833 so requires; (2) With respect to persons not partners, as declared in article 1834.  General rule: unless otherwise stipulated, every partner is considered the agent of the partnership with authority to bind the partnership with authority to bind the partnership as well as the other partners; upon dissolution ,the partnership ceases to be a going concern and the partner’s power of representation is confined only to acts incident to winding up or completing transactions begun but not then finished  Qualifications to the rule – subject to A1833, 1834 (a) In so far as the partners themselves are concerned, the authority of any partner to bind the partnership by a new contract is immediately terminated (b) With respect to 3rd persons, the partnership is generally bound by the new contract although the authority of the acting partner as it affects his co-partners is already deemed terminated CC, 1833. Where the dissolution is caused by the act, death or insolvency of a partner, each partner is liable to his co-partners for his share of any liability created by any partner acting for the partnership as if the partnership had not been dissolved unless: (1) The dissolution being by act of any partner, the partner acting for the partnership had knowledge of the dissolution; or (2) The dissolution being by the death or insolvency of a partner, the partner acting for the partnership had knowledge or notice of the death or insolvency.  Authority of partners inter se to act for the partnership – not deemed terminated except in 2 instances: (a) The cause of the dissolution is the act of the partner and the acting partner had knowledge of such dissolution (b) The cause of the dissolution is the death or insolvency of a partner and the acting partner had knowledge or notice of the death or insolvency CC, 1834. After dissolution, a partner can bind the partnership, except as provided in the third paragraph of this article: (1) By any act appropriate for winding up partnership affairs or completing transactions unfinished at dissolution; (2) By any transaction which would bind the partnership if dissolution had not taken place, provided the other party to the transaction: (a) Had extended credit to the partnership prior to dissolution and had no knowledge or notice of the dissolution; or (b) Though he had not so extended credit, had nevertheless known of the partnership prior to dissolution, and, having no knowledge or notice of dissolution, the fact of dissolution had not been advertised in a newspaper of general circulation in the place (or in each place if more than one) at which the partnership business was regularly carried on. The liability of a partner under the first paragraph, No. 2, shall be satisfied out of partnership assets alone when such partner had been prior to dissolution: (1) Unknown as a partner to the person with whom the contract is made; and (2) So far unknown and inactive in partnership affairs that the business reputation of the partnership could not be said to have been in any degree due to his connection with it. The partnership is in no case bound by any act of a partner after dissolution: (1) Where the partnership is dissolved because it is unlawful to carry on the business, unless the act is appropriate for winding up partnership affairs; or (2) Where the partner has become insolvent; or (3) Where the partner has no authority to wind up partnership affairs; except by a transaction with one who: (a) Had extended credit to the partnership prior to dissolution and had no knowledge or notice of his want of authority; or (b) Had not extended credit to the partnership prior to dissolution, and, having no knowledge or notice of his want of authority, the fact of his want of authority has not been advertised in the manner provided for advertising the fact of dissolution in the first paragraph, No. 2 (b). Nothing in this article shall affect the liability under Article 1825 of any person who, after dissolution, represents himself or consents to another representing him as a partner in a partnership engaged in carrying business. Right to wind up CC, 1836. Unless otherwise agreed, the partners who have not wrongfully dissolved the partnership or the legal representative of the last surviving partner, not insolvent, has the right to wind up the partnership affairs, provided, however, that any partner, his legal representative or his assignee, upon cause shown, may obtain winding up by the court.  Winding up may be judicial or extra-judicial  Nature of action for liquidation – personal action  Persons authorized to wind up (a) Partners designated by the agreement (b) In the absence of such agreement, all the partners who have not wrongfully dissolved the partnership (c) The legal representative of the last surviving partner, not insolvent (d) Court, may in its discretion after considering all the facts and circumstances of the particular case, appoint a receiver to wind up  Survivor’s right and duty to liquidate – not upon the legal representative of the deceased partner

C.

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Agency & Partnership Finals Reviewer – de leon annotations Prof. D. Sanchez 2 semester, AY ’10-‘11
nd

Janz Hanna Ria N. Serrano
 Powers of liquidating partner o Make new contracts – for the specific purpose of winding up only o Raise money to pay partnership debts o Incur obligations to complete existing contracts or preserve partnership assets o Incur expenses necessary in the conduct of litigation Settling of accounts/application of properties/sharing of profits & losses CC, 1797. The losses and profits shall be distributed in conformity with the agreement. If only the share of each partner in the profits has been agreed upon, the share of each in the losses shall be in the same proportion. In the absence of stipulation, the share of each partner in the profits and losses shall be in proportion to what he may have contributed, but the industrial partner shall not be liable for the losses. As for the profits, the industrial partner shall receive such share as may be just and equitable under the circumstances. If besides his services he has contributed capital, he shall also receive a share in the profits in proportion to his capital. CC, 1798. If the partners have agreed to intrust to a third person the designation of the share of each one in the profits and losses, such designation may be impugned only when it is manifestly inequitable. In no case may a partner who has begun to execute the decision of the third person, or who has not impugned the same within a period of three months from the time he had knowledge thereof, complain of such decision. The designation of losses and profits cannot be intrusted to one of the partners. CC, 1799. A stipulation which excludes one or more partners from any share in the profits or losses is void. CC, 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. CC, 1837. When dissolution is caused in any way, except in contravention of the partnership agreement, each partner, as against his co-partners and all persons claiming through them in respect of their interests in the partnership, unless otherwise agreed, may have the partnership property applied to discharge its liabilities, and the surplus applied to pay in cash the net amount owing to the respective partners. But if dissolution is caused by expulsion of a partner, bona fide under the partnership agreement and if the expelled partner is discharged from all partnership liabilities, either by payment or agreement under the second paragraph of Article 1835, he shall receive in cash only the net amount due him from the partnership. When dissolution is caused in contravention of the partnership agreement the rights of the partners shall be as follows: (1) Each partner who has not caused dissolution wrongfully shall have: (a) All the rights specified in the first paragraph of this article, and (b) The right, as against each partner who has caused the dissolution wrongfully, to damages breach of the agreement. (2) The partners who have not caused the dissolution wrongfully, if they all desire to continue the business in the same name either by themselves or jointly with others, may do so, during the agreed term for the partnership and for that purpose may possess the partnership property, provided they secure the payment by bond approved by the court, or pay any partner who has caused the dissolution wrongfully, the value of his interest in the partnership at the dissolution, less any damages recoverable under the second paragraph, No. 1 (b) of this article, and in like manner indemnify him against all present or future partnership liabilities. (3) A partner who has caused the dissolution wrongfully shall have: (a) If the business is not continued under the provisions of the second paragraph, No. 2, all the rights of a partner under the first paragraph, subject to liability for damages in the second paragraph, No. 1 (b), of this article. (b) If the business is continued under the second paragraph, No. 2, of this article, the right as against his co-partners and all claiming through them in respect of their interests in the partnership, to have the value of his interest in the partnership, less any damage caused to his copartners by the dissolution, ascertained and paid to him in cash, or the payment secured by a bond approved by the court, and to be released from all existing liabilities of the partnership; but in ascertaining the value of the partner's interest the value of the good-will of the business shall not be considered CC, 1838. Where a partnership contract is rescinded on the ground of the fraud or misrepresentation of one of the parties thereto, the party entitled to rescind is, without prejudice to any other right, entitled: (1) To a lien on, or right of retention of, the surplus of the partnership property after satisfying the partnership liabilities to third persons for any sum of money paid by him for the purchase of an interest in the partnership and for any capital or advances contributed by him; (2) To stand, after all liabilities to third persons have been satisfied, in the place of the creditors of the partnership for any payments made by him in respect of the partnership liabilities; and (3) To be indemnified by the person guilty of the fraud or making the representation against all debts and liabilities of the partnership. Effects of rescission CC, 1838, supra. CC, 1839. In settling accounts between the partners after dissolution, the following rules shall be observed, subject to any agreement to the contrary: (1) The assets of the partnership are: (a) The partnership property (b) The contributions of the partners necessary for the payment of all the liabilities specified in No. 2. (2) The liabilities of the partnership shall rank in order of payment, as follows: (a) Those owing to creditors other than partners, (b) Those owing to partners other than for capital and profits, (c) Those owing to partners in respect of capital, (d) Those owing to partners in respect of profits. (3) The assets shall be applied in the order of their declaration in No. 1 of this article to the satisfaction of the liabilities. (4) The partners shall contribute, as provided by article 1797, the amount necessary to satisfy the liabilities. (5) An assignee for the benefit of creditors or any person appointed by the court shall have the right to enforce the contributions specified in the preceding number. (6) Any partner or his legal representative shall have the right to enforce the contributions specified in No. 4, to the extent of the amount which he has paid in excess of his share of the liability. (7) The individual property of a deceased partner shall be liable for the contributions specified in No. 4. (8) When partnership property and the individual properties of the partners are in possession of a court for distribution, partnership creditors shall have priority on partnership property and separate creditors on individual property, saving the rights of lien or secured creditors. (9) Where a partner has become insolvent or his estate is insolvent, the claims against his separate property shall rank in the following order: (a) Those owing to separate creditors; (b) Those owing to partnership creditors; (c) Those owing to partners by way of contribution. Effects of continuation of the business CC, 1840. In the following cases creditors of the dissolved partnership are also creditors of the person or partnership continuing the business: (1) When any new partner is admitted into an existing partnership, or when any partner retires and assigns (or the representative of the deceased partner assigns) his rights in partnership property to two or more of the partners, or to one or more of the partners and one or more third persons, if the business is continued without liquidation of the partnership affairs; (2) When all but one partner retire and assign (or the representative of a deceased partner assigns) their rights in partnership property to the remaining partner, who continues the business without liquidation of partnership affairs, either alone or with others; (3) When any partner retires or dies and the business of the dissolved partnership is continued as set forth in Nos. 1 and 2 of this article, with the consent of the retired partners or the representative of the deceased partner, but without any assignment of his right in partnership property; (4) When all the partners or their representatives assign their rights in partnership property to one or more third persons who promise to pay the debts and who continue the business of the dissolved partnership;

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Agency & Partnership Finals Reviewer – de leon annotations Prof. D. Sanchez 2 semester, AY ’10-‘11
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Janz Hanna Ria N. Serrano
(5) When any partner wrongfully causes a dissolution and the remaining partners continue the business under the provisions of article 1837, second paragraph, No. 2, either alone or with others, and without liquidation of the partnership affairs; (6) When a partner is expelled and the remaining partners continue the business either alone or with others without liquidation of the partnership affairs. The liability of a third person becoming a partner in the partnership continuing the business, under this article, to the creditors of the dissolved partnership shall be satisfied out of the partnership property only, unless there is a stipulation to the contrary. When the business of a partnership after dissolution is continued under any conditions set forth in this article the creditors of the dissolved partnership, as against the separate creditors of the retiring or deceased partner or the representative of the deceased partner, have a prior right to any claim of the retired partner or the representative of the deceased partner against the person or partnership continuing the business, on account of the retired or deceased partner's interest in the dissolved partnership or on account of any consideration promised for such interest or for his right in partnership property. Nothing in this article shall be held to modify any right of creditors to set aside any assignment on the ground of fraud. The use by the person or partnership continuing the business of the partnership name, or the name of a deceased partner as part thereof, shall not of itself make the individual property of the deceased partner liable for any debts contracted by such person or partnership. CC, 1841. When any partner retires or dies, and the business is continued under any of the conditions set forth in the preceding article, or in Article 1837, second paragraph, No. 2, without any settlement of accounts as between him or his estate and the person or partnership continuing the business, unless otherwise agreed, he or his legal representative as against such person or partnership may have the value of his interest at the date of dissolution ascertained, and shall receive as an ordinary creditor an amount equal to the value of his interest in the dissolved partnership with interest, or, at his option or at the option of his legal representative, in lieu of interest, the profits attributable to the use of his right in the property of the dissolved partnership; provided that the creditors of the dissolved partnership as against the separate creditors, or the representative of the retired or deceased partner, shall have priority on any claim arising under this article, as provided Article 1840, third paragraph. Prescription of action CC, 1153. The period for prescription of actions to demand accounting runs from the day the persons who should render the same cease in their functions. The period for the action arising from the result of the accounting runs from the date when said result was recognized by agreement of the interested parties. CC, 1144. The following actions must be brought within ten years from the time the right of action accrues: (1) Upon a written contract; (2) Upon an obligation created by law; (3) Upon a judgment.

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