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I.

NATURE; CREATION OF A PARTNERSHIP


Art. 1767 By the contract of partnership two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing the profits among themselves. Two or more persons may also form a partnership for the exercise of a profession.

When there are no third parties involved who may be prejudiced Art. 1773 does not apply. Art. 1773 is meant to protect third persons. (Torres v CA) Art.1666 provides that "A partnership must have a lawful object, and must be established for the common benefit of the partners. When the dissolution of an unlawful partnership is decreed, the profits shall be given to the charitable institutions of the domicile of the partnership, or in default of such, to those of the province." A charitable institution is not a necessary party in the present case for the determination of the rights of the parties. The action which may arise from said article, in the case of an unlawful partnership, is that for the recovery of the amounts paid in by the members from those in charge of the administration of said partnership, and it isnt necessary for the said partners to base their action on the existence of the partnership, but on the fact of having contributed some money to the partnership capital. (Arbes v Polistico)

1. 2. 3. 4. 5.

A. Essential Features:

There must be a valid contract The parties must have legal capacity to enter into the contract There must be a mutual contribution of money, property, or industry to a common fund The object must be lawful The purpose or primary purpose must be to obtain profits and divide the same among the parties

B. Form of Contract General Rule: No special form is required for its validity or existence. Exceptions: 1. Where immovable property or real rights are contributed. must be in writing in a public instrument with an inventory of the property contributed, signed by the parties 2. Where the contract of partnership has a capital of P3,000 or more, in money or property. it shall appear in a public instrument and must be recorded in the Office of the Securities and Exchange Commission. However, a partnership has a juridical personality even in case of failure to comply with this requirement. To be considered a juridical personality, a partnership must fulfill these requisites: (1) two or more persons bind themselves to contribute money, property or industry to a common fund; and (2) intention on the part of the partners to divide the profits among themselves. It may be constituted in any form; a public instrument is necessary only where immovable property or real rights are contributed thereto. This implies that since a contract of partnership is consensual, an oral contract of partnership is as good as a written one. Where no immovable property or real rights are involved, what matters is that the parties have complied with the requisites of a partnership. (Tocao v CA) There is no need to attach an inventory for what has been contributed in the partnership by the parties werent immovable property or real rights. None of the partners contributed either a fishpond or a real right to any fishpond. Art. 1773 of the Civil Code is not in point. (Agad v Mabato)

Rules to determine the existence of a partnership: General Rule: Persons who are not partners to each other are not partners as to third persons. exception: partnership by estoppel. Co-ownership of a property does not itself establish a partnership, even though the co-owners share in the profits derived from the incident of joint ownership. Sharing of gross returns alone does not indicate a partnership, whether or not the persons sharing them have a joint or common right or interest in any property from which the returns are derived; The receipt of the share in the profits is a strong presumptive evidence of partnership. However, no such inference will be drawn if such profits were received in payment: As a debt by installments or otherwise; As wages of an employee or rent to a landlord; As an annuity to a widow or representative of a deceased partner; As interest on a loan, though the amount of payment vary with the profits of the business; As the consideration for the sale of a goodwill of a business or other property by installments or otherwise. (art. 1769) All of essential features or characteristics of partnership must be shown as being present. Art. 1769 seeks to exclude from the category of

partnership certain features enumerated therein which, by themselves, are not indicative of the existence of a partnership Issue as to whether a partnership exists is a factual matter. 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. (Heirs of Tan Eng Kee v CA) DISTINCTIONS: Partnership Created by mere agreement of the parties; May be organized by only two persons

Power to act with Third Persons Dissolution

assignee a partner without unanimous consent Generally a partner may bind th partnership Death or incapacity of a partner dissolves the partnership there is mutual agency

Representation

Profits

must be stipulated upon

Juridical personality commences from the moment of execution of the contract of partnership May exercise any power authorized by the partners as long as it is not contrary to law, etc.

Created by operation Art. 1768, a partnership "has a Under of law juridical personality separate and distinct from that of each of the Requires at least 5 incorporators; partners." The partners cannot be held liable for the obligations of the Personality commences from the date shown that the partnership unless it is of issuance of the certificate of incorporation by the sec legal fiction of a different juridical personality is being used for fraudulent, Can exercise such powers expressly granted by v unfair, or illegal purposes.(Aguila law or incident CA) existence to its

Power to business isWON 2 in the board of do ISSUE: vested or more medium-sized If no agreement as to mgt. - every partner is an directors/ trustees; corporations (contractors) may enter agent of the partnership into a partnership or joint A partner as such may sue a co-partner who mismanages; venture/consortium Suit against the board of director who rule is that a HELD: The general mismanages must be brought in the corp.s a contract corporation cannot enter into name; of partnership with another corporation

Has no right of succession; or individual. This limitation is based on The partners are liable personally and subsidiarily Has right of succession; public policy, since in a partnership the for partnership debts; corporation would be bound by the acts The stockholders are liablewho are not duly appointed of persons to the extent of the Based on delectus personam; shares subscribed by them; and authorized agents and officers, May be established for any period of time stipulated by the partners;

which would be entirely inconsistent Not based on delectus personam; the law that the with the policy of corporation shall manage its own May not be formed for a separately and 50 period exceeding exclusively. affairs, May be dissolved at anytime by the will of any or years; Exceptions may be allowed as all partners; long as the following are met: 1. The articles of incorporation of the Governed by the civil code May be dissolved only with the consentmust expressly corporations involved of the state; authorized the corporation to enter into contracts of partnership with others in Governed by the corp. Code its business; the pursuit of 2. The agreement of articles of partnership must provide that all the partners will manage the partnership; and 3. The articles of partnership must Partnership stipulate that all the partners are and Creation Always created by a contract shall be jointly and severally liable for all the obligations of the partnership. ether express or implied Moreover, two or more corporations may enter into a joint Juridical Personality Has a juridical personality venture/consortium if the nature of the separate and distinct from that venture is in line with business of each partner authorized by its charter through a Purpose Realization of Profits contract or voluntary agreement between the said parties. Please note Duration No limitation upon the duration that no independent legal entity is is set by law borne out of it and the same need not be registered with the Commission. Transfer of Interests A partner may not dispose of his Moreover when the joint individual interest in the venture/consortium would result in the partnership so as to make the formation of a corporation or

partnership, the same has to be registered with the Commission and the conditions and requirements abovementioned should be complied with. (SEC OPINION to Antonio Librea dated Feb. 29, 1980) In deciding as to whether or not Gatchalian, et al. formed a partnership, the Court held that they organized a partnership of a civil nature because each of them put up money to buy a sweepstakes ticket for the sole purpose of dividing equally the prize which they may win. The partnership was not only formed, but upon the organization thereof and the winning of the prize, Jose Gatchalian personally appeared in the office of the Philippine Charity Sweepstakes, in his capacity as copartner, as such collected the prize, the office issued the check for P50,000 in favor of Jose Gatchalian and Company, and the said partner, in the same capacity, collected the said check. These circumstances prove the existence of a partnership. (Gatchalian v Collector of Internal Revenue) There is co-ownership and not unregistered partnership when no evidence that petitioners entered into an agreement to contribute money, property or industry to a common fund, and that they intended to divide the profits among themselves. Other indications (as presented in the case): Petitioners bought parcels of land but they did not sell the same nor make any improvements thereon. It was only after several years when, they sold the land. The transactions were isolated. The character of habituality peculiar to business transactions for the purpose of gain was not present. (Pascual and Dragon v Commissioner of Internal Revenue) Since petitioners were not engaged in any joint venture by reason of that isolated transaction and the division of the profit was merely incidental to the dissolution of the co-ownership, which was in fact merely a temporary state, they cannot be considered partners. CC Art. 1769 provides that "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". There must be an unmistakable intention to form a partnership or joint venture. (Obillos v CIR) Particular partnership distinguished from a joint adventure: A joint adventure presupposes generally a

parity of standing between the joint coventures or partners, in which each party has an equal proprietary interest in the capital or property contributed, and where each party exercises equal rights in the conduct of the business. In Aurbach v. Sanitary Wares, it was held that a joint adventure may be likened to a particular partnership. The legal concept of a joint adventure is hardly distinguishable from the partnership. The main distinction is that the partnership contemplates a general business with some degree of continuity, while the joint adventure is formed for the execution of a single transaction, and is thus of a temporary nature. In the Philippines this is not entirely accurate, since under the CC, a partnership may be particular or universal, and a particular partnership may have for its object a specific undertaking. Thus, under Philippine law, a joint adventure is a form of partnership. The Supreme Court has however recognized a distinction between these two business forms, and has held that although a corporation cannot enter into a partnership contract, it may however engage in a joint adventure with others. (Heirs of Tan Eng Kee v CA) A partnership constituted in such a manner, the existence of which was only known to those who had an interest in the same, there being no mutual agreements between the partners, and without a corporate name indicating to the public in some way that there were other people besides the one who ostensibly managed and conducted the business, is exactly the accidental partnership of cuentas on participacion defined in article 239 of the Code of Commerce. Those who contract with the person under whose name the business of such partnership of cuentas en participacion is conducted, shall have only a right of action against such person and not against the other persons interested, and the latter, on the other hand, shall have no right of action against the third person who contracted with the manager unless such manager formally transfers his right to them. (Bourns v Camran) A partnership generally presupposes a parity of standing between the partners, in which each party has an equal proprietary interest in the capital or property contributed and where each party exercises equal rights in the conduct of the business. (Sevila v CA)

II. CLASSIFICATION OS PARTNERSHIPS AND PARTNERS


Art. 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. (1671a) A. Kinds of partnerships 1) as to the extent of its subject matter a. universal (1777) i. as to all present property (1778) ii. as to profits (1780) b. particular (1783) 2) as to liability of the partners a. general - liable pro rata (1816) or solidarily (1822-1824) b. limited (1843) 3) as to its duration a. at will (1785) b. with a fixed term 4) as to legality of its existence a. de jure - one w/c has complied with all the legal requirements for its establishment (1772par2, 1773) b. de facto one w/c has failed to comply with all the legal requirements for its establishment 5) as to representation to others a. ordinary or real one w/c actually exists among the partners and also as to third persons b. ostensible or by estoppel one w/c in reality is not a partnership, but is considered one in relation to those who, by their conduct or admission, are precluded to deny or disprove its existence (1825) 6) as to publicity a. secret b. open or notorious 7) as to purpose a. commercial or trading (1767) b. professional or non-trading A partnership that does not fix its term is a partnership at will. The 'purpose' of the partnership is not the specific undertaking referred to in the law. Otherwise, all partnerships, which necessarily must have a purpose, would all be considered as partnerships for a definite undertaking. There would therefore be no need to provide for articles on partnership at will as none would so exist. Apparently what the law contemplates, is a specific undertaking or 'project' which has a definite or definable period of completion." The birth and life of a partnership at will is predicated on the mutual desire and consent of the partners. The right to choose with whom a person wishes to associate himself is the very foundation and essence of that partnership. Its continued existence is, in turn, dependent on the constancy of that mutual resolve, along with each partner's capability to give it, and the absence of a cause for dissolution provided by the law itself. (Ortega v CA) A partnership for the practice of law cannot be likened to partnerships formed by other professionals or for business. It is not a legal entity; it is a mere relationship or association for a

particular purpose it is not a partnership formed for the purpose of carrying on trade or business or of holding property. Thus, it has been stated that the use of a nom de plume, assumed or trade name in law practice is improper. (In re Sycip) A general professional partnership, unlike an ordinary business partnership (which is treated as a corporation for income tax purposes and so subject to the corporate income tax), is not itself an income taxpayer. The income tax is imposed not on the professional partnership, which is tax exempt, but on the partners themselves in their individual capacity computed on their distributive shares of partnership profits. Under the Tax Code on income taxation, the general professional partnership is deemed to be no more than a mere mechanism or a flowthrough entity in the generation of income by, and the ultimate distribution of such income to, respectively, each of the individual partners. (Tan v del Rosario)

B. Kinds of partners (under the CC) a. capitalist contributes money or property b. industrial contributes industry or personal service c. general liability extends to separate property - may be capitalist or industrial - aka real d. limited liability to 3rd persons limited to capital contribution - aka special e. managing manages the affairs or business of the partnership - may be appointed either in the articles of partnership or after the constitution of the partnership - aka general or real f. liquidating takes charge of the winding up g. by estoppel liable as if he is a partner for the protection of 3rd persons - aka by implication or nominal or quasi-partner h continuing continues the business after partnership has been dissolved i. surviving remains after dissolution due to death j. subpartner not a partner, but contracts w/ a partner re the latters share in the partnership

Industrialist Partner contribution prohibition to engage in other business profits contributes his industry cannot engage in any business for himself receives a just and equitable share

losses

exempted as to losses as

persons consenting to the representation. (n) between partners but it is liable to 3rd persons without prejudice When is a person a partner by to reimbursement from the estoppel? When by words or by capitalist partners conduct he: 1. Directly represents himself to anyone as a partner in an The ff become common property of all partners: existing partnership or in a property w/c belonged to each of them non-existing partnership (w/ at the time of the constitution of the one or more persons not actual partnership partners); profits w/c thay may acquire from the 2. Indirectly represents himself property contributed by consenting to another representing him as a partner General rule: in an existing partnership or in future properties cannot be contributed a non-existing partnership. profits from other sources (not from To hold the party liable, the 3rd person the properties contributed) will become must prove such misrepresentation and common property only if there is a that a bona fide reliance by him upon it stipulation caused him injury. Please note: Art. 1782. Persons who are When partnership liability results prohibited from giving each other any donation When all actual partners or advantage cannot enter into universal consented to the partnership. (1677) representation, then the liability of the person who Art. 739. The following donations shall be void: represented himself to be a (1) Those made between persons who were partner or who consented to guilty of adultery or concubinage at the time of such representation and the donation; actual partners is considered a (2) Those made between persons found guilty partnership liability. of the same criminal offense, in consideration Case of partnership by thereof; estoppel. (3) Those made to a public officer or his wife, descendants and ascendants, by reason of his When liability pro rata office. When there is no existing partnership and all those C. Partnership and Partner by represented as partners Estoppel consented to the Art. 1825. When a person, by words spoken or representation, or not all of the written or by conduct, represents himself, or partners of an existing consents to another representing him to partnership consented to the anyone, as a partner in an existing partnership representation, then, the or with one or more persons not actual liability of the person who partners, he is liable to any such persons to represented himself to be a whom such representation has been made, who partner or who consented to has, on the faith of such representation, given his being represented as credit to the actual or apparent partnership, partner, and all those who and if he has made such representation or made and consented to such consented to its being made in a public manner representation, is joint or pro he is liable to such person, whether the rata. representation has or has not been made or communicated to such person so giving credit When liability separate by or with the knowledge of the apparent When there is no existing partner making the representation or partnership and not all but only consenting to its being made: some of those represented as (1) When a partnership liability results, he is partners consented to the liable as though he were an actual member of representation, or none of the the partnership; partners in an existing (2) When no partnership liability results, he is partnership consented to such liable pro rata with the other persons, if any, so representation, then the consenting to the contract or representation as liability will be separate that to incur liability, otherwise separately. of the person who represented When a person has been thus represented to be himself as a partner or who a partner in an existing partnership, or with one consented to his being or more persons not actual partners, he is an represented as partner, and agent of the persons consenting to such those who made and representation to bind them to the same extent consented to the and in the same manner as though he were a representation, or that only of partner in fact, with respect to persons who rely the person who represented upon the representation. When all the members himself as partner. of the existing partnership consent to the representation, a partnership act or obligation Art. 1825 does not create a partnership results; but in all other cases it is the joint act as between the alleged partners. The or obligation of the person acting and the

law considers them as partners and the association as a partnership only insofar as favorable to 3rd persons by reason of estoppel. The law will not permit a denial or such representation where 3rd parties have in the exercise of reasonable diligence relied thereon to their detriment. Difference w/ Art. 1834 (last par), w/c is not a partnership by estoppel, but rather, a partnership liability w/c continues for lack of proper termination. Applicability of general provisions of partnership If the law recognizes a defectively organized partnership as de facto as far as 3rd persons are concerned, it should have such attribute of partnership as domicile. Although it has no legal standing or juridical personality, it is a partnership de facto and the general provisions of the Civil Code applicable to all partnerships apply to it. Domicile place where partnership conducts business; registration of a chattel mortgage therein is valid. Elements to establish liability as a partner on ground of estoppel 1. Proof by plaintiff that he was individually aware of defendants representations as to his being a partner or that such representations were made by others and not denied or refuted by the defendant; 2. Reliance on such representations by the plaintiff; 3. Lack of any denial or refutation of the statements by the defendant; such denial need not precede plaintiffs acting thereon if the denial was forthcoming promptly upon hearing of the representations, and if, by prudence and diligence the plaintiff might have learned of the truth or untruth of the representations. The Corporation Code (Sec. 21) makes liable as general partners all persons who assume to act as a corporation and may include persons who attempt, but fail to form a corporation and who carry on business under the corporate name. A de facto partnership among them is created. While an unregistered commercial partnership has no juridical personality, nevertheless, where two or more persons attempt to create a partnership, failing to comply with all the legal formalities, the law considers them as partners. The association then

is a partnership in so far as it is a favorable to third persons, by reason of the equitable principle of estoppe. If the law recognizes a defectively organized partnership as de facto as far as third persons are concerned, for purposes of its de facto existence it should have such attribute of a regular partnership as a domicile. (MacDonald v. National City Bank) While it is ordinarily held that persons who attempt but fail to form a corporation and who carry on business under the corporate name occupy the position of partners inter se, persons cannot be made to assume the relation of partners, as between themselves, when their purpose is that no partnership shall exist. (Pioneer Insurance v. CA)

D. Relations created by a contract of partnership Relations among the partners themselves Relations of the partners with the partnership Relations of the partnership with 3rd persons with whom it contracts Relations of the partners with such 3rd persons

III.

OBLIGATIONS PARTNERS
A. Contribute

OF

1. Obligation with respect to contribution of property Art. 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. (1681a) To contribute at the beginning of the partnership or the stipulated time the money, property, or industry which he may have promised to contribute To answer for eviction in case the partnership is deprived of the determinate property contributed 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. To preserve said property with the diligence of a good father of a family pending delivery to the partnership To indemnify the partnership for any damage caused to it by the retention of the same or by the delay in its contribution

Effect of failure to contribute property promised: makes the partner ipso jure a debtor of the partnership even in the absence of any demand. Remedy of other partner or partnership: not rescission but an action for specific performance with damages and interest 2. Appraisal of goods or property contributed Art. 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. 3. Obligation with respect to contribution of money and money converted to personal use Art. 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. (1682) To contribute on the date due the amount he has undertaken to contribute To reimburse any amount he may have taken from the partnership coffers and converted to his own use To pay the agreed or legal interest, if he fails to pay his contribution on time or in case he takes any amount from the common fund and converts it into his own use. To indemnify the partnership for he damages caused to it by the delay in the contribution or the conversion of any sum for his personal benefit. An action for rescission under art.1191 cannot be applied to a case where a partner failed to contribute what he promised to the partnership, because it refers to the resolution of obligations in general, whereas Arts. 1681 and 1682, OCC now Arts. 1786 and 1788 specifically refer to the contract of partnership in particular.(Sancho v Lizarraga) Equipment which was contributed by one of the partners to the partnership becomes the property of the property and as such cannot be disposed of by the party contributing the same without the consent or approval of the partnership or of the other partner. (Lozana v Depakakibo) When money or property have been received by a partner for a specific purpose and he later misappropriated it, such partner is guilty of estafa.

(Liwanag v CA) The capital having been received by the partnership, and with the business commenced and profits accrued, the action that lies with the partner who furnished the capital for the recovery of his money is not a criminal action for estafa, but a civil one arising from the partnership contract for a liquidation of the partnership and a levy on its assets if there should be any.(US v Clarin)

4. Bring to partnership capital credit received Art. 1790. Unless there is a stipulation to the contrary, the partners shall contribute equal shares to the capital of the partnership. Above rule not applicable to industrial partner unless in addition to his services, he contributed capital. 5. Obligation of capitalist partner to contribute additional capital Art. 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. Requisites: There is an imminent loss of the business The majority of the capitalist partners are of the opinion that an additional contribution to the common fund would save the business The capitalist partner refuses deliberately to contribute an additional share There is no agreement to the contrary An industrial partner is exempted from the requirement to contribute

6. Obligation of partner who receives share of partnership credit Art. 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. Different from 1792 which treats 2 distinct credits, one in favor of the partnership and another in favor of the managing partner.

Requisites: A partner has received, in whole or in part, his share of the partnership credit The other partners have not collected their shares The partnership debtor has become insolvent B. Pay damages

Art. 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. (1686a) General Rule: The damages caused by a partner to the partnership cannot be offset by the profits or benefits which he may have earned for the partnership by his industry. Exception: If unusual profits are realized through extraordinary efforts of the partner at fault, the courts may equitably mitigate or lessen his liability for damages. Rule rests on equity. C. Bear risk of loss Art. 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. (1687) Risk of loss of things contributed Specific and determinate things which are notRisk fungible where only the use is contributed Specific and determinate things the ownership ofRisk which is transferred to the partnership Fungible things (consumable) Risk Things contributed to be sold Risk Things brought and appraised in the inventory Risk

agents. All partners have equal rights in the management and conduct of partnership affairs and whatever any one of them may do alone shall bind the partnership (subject to Art 1801 that in case of timely opposition of any partner, the matter shall first be decided by the majority vote. In case of a tie, the matter shall be decided by the vote of the partners representing the controlling interest.). Note: Art. 1803(1) should be read in relation to Article 1818. Unanimous consent required for alteration of immovable property. Consent need not be express, but may be presumed from the fact of knowledge of the alteration without interposing any objection. Art. 1818. Powers of partner as agent of partnership

Acts for carrying on in the usual way the businessEvery partner of the partnership with binding ef Except: when 3 authority Act w/c is not apparently for the carrying ofDoes not bind business in the usual way other partners Acts of strict dominion or ownership: Assign partnership property in trust for creditors Dispose of good-will of business Do an act w/c would make it impossible to carry on ordinary business of partnership Confess a judgement Enter into compromise concerning a partnership isclaim or liability borne by partner isSubmitby partnership borne partnership claim or liability to arbitration

isRenounce partnership borne by claim of partnership isActs in by partnership of a restriction on authority Partnership not borne contravention or presumptive is borne by partnership Liability of partner acting without authority: generally, personal liability. Art. 1698 declares that a member of a civil partnership is not liable solidarily (solidariamente) with his co-partners for its entire indebtedness; but read in connection with art. 1137, each is liable with the others (mancomunadamente) for his part of such indebtedness (CoPitco vs. Yulo/Bachrach v. La Protectora). Strangers dealing with a partnership have the right to assume, in the absence of restrictive clauses in the copartnership agreement, that every general partner has power to bind the partnership, specially those partners acting with ostensible authority. Though Art. 129, Code of Commerce provides that if the management of the general partnership has not been

D. Mutual agency Art. 1803. When the manner of management has not been agreed upon, the following rules shall be observed: (1) All the partners shall be considered agents and whatever any 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. (1695a) Rules when manner of management has not been agreed upon: All partners considered managers and

limited by special agreement to any of the members, all shall have the power to take part in the direction and management of the common business, and the members present shall come to an agreement for all contracts or obligations which may concern the association, this obligation is one imposed by law on the partners among themselves, and doesnt necessarily affect the validity of the acts of a partner, while acting within the scope of the ordinary course of business of the partnership, as regards third persons without notice. (Goquiolay et al v Sycip) Note: This case creates a presumption which 1818 does not provide. The stipulation in the articles of partnership that any of the two managing partners may contract and sign in the name of the partnership with the consent of the other, creates an obligation between the two partners, which consists in asking the other's consent before contracting for the partnership. This is not imposed upon a third person who contracts with the partnership. A third person may and has a right to presume that the partner with whom he contracts has, in the ordinary and natural course of business, the consent of his copartnert. (Litton v Hill) E. Render full information Art. 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. (n) A partner is not only bound to give information on demand in certain circumstances, but he is under the duty of voluntary disclosure of material facts within his knowledge relating to or affecting partnership affairs (see Art. 1821) F. Account for benefits Art. 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. (n) Relationship between partners is essentially fiduciary involving trust and confidence. Duties of a partner are analogous to those of a trustee. A partner cannot, at the expense or to the detriment of the other partners, sue or apply exclusively to his own individual benefit partnership assets or the results of the knowledge and information gained in the character of partner (Pang Lim v. Lo Seng)

G.

Liable for contracts

Partnership

Art. 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. (n) Partnership liabilityAll partners, including the industrial partner, are liable to creditors of the partnership for its contractual obligations. Individual liability- a partner may assume a separate undertaking in his name with a3rd party to perform a partnership contract or make himself solidarily liable ob a partnership contract. In such case, partner is personally bound. There is a marked distinction between a liability and a loss, and the inability of a partnership to pay a debt to a third party at a particular time does not necessarily mean that the partnership business, as a whole, has been operated at a loss. The partnership may have outstanding credits which for the moment may be unavailable for the payment of debts, but which eventually may be realized upon and yield profits more than sufficient to cover all losses. Bearing this in mind it will be found that there in reality is no conflict between the two articles quoted; one speaks of liabilities, the other of losses. (Pacific Commercial vs. Aboitiz) The exemption of the industrial partner to pay for losses relates exclusively to the settlement of the partnership affairs among the partners themselves and has nothing to do with the liabilities of the partners to third persons. (La Compania Maritima v Munoz)

Art. 1817. Any stipulation against the liability laid down in the preceding article shall be void, except as among the partners. (n) The dismissal of the complaint to favor one of the general partners of a partnership does not increase the liability of each of the remaining partners. In the instant case, there were 5 general partners when the promissory note in question was executed for and in behalf of the partnership. Since the liability of the partners is pro rata, the liability of each partner shall be limited to only 1/5 of the obligations of United. The fact that the complaint against Lumauig was dismissed, upon motion of Island Sales, does not unmake Lumauig as a general partner in United. In so moving to dismiss the complaint, Island Sales

merely condoned Lumauigs individual liability.(Island Sales v. United Pioneers) It is but fair that the consequences of any wrongful act committed by any of the partners therein should be answered solidarily by all the partners and the partnership as a whole. While the liability of the partners are merely joint in transactions entered into by the partnership, a third person who transacted with said partnership can hold the partners solidarily liable for the whole obligation if the case of the third person falls under Articles 1822 or 1823. The obligation is solidary because the law protects him who in good faith relied upon the authority of a partner, whether such authority is real or apparent. (Muasque v. CA)

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. (n)

IV.

OBLIGATION PARTNERSHIP
A. Bear risk of loss

OF

Art. 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. (n) Liability of incoming partner for partnership obligations: Limited to his share in partnership property for existing obligations. Extends to his separate property for subsequent obligations Incoming partner personally not liable for existing partnership obligations unless there is a stipulation to the contrary. Liability of outgoing / incoming partner: Where a partner gives notice of his retirement or withdrawal, he is freed from any liability on contracts entered into thereafter, but his liability on existing incomplete contracts continues. He is liable for goods sold and delivered after his retirement or withdrawal and notice thereof, if the sale was pursuant to a contract made before such retirement or withdrawal. H. partnership Solidarily liable with

Art. 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. (1687) B. Reimburse Art. 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. (1688a) 1796 speaks of the 3 obligations of the partnership to the partners: 1. Refund amounts disbursed on behalf of the partnership plus corresponding interest from the time expenses are made (not from date of demand). Here, the law refers to loans or advances made by a partner to the partnership other than capital contributed by him. 2. Answer for obligations the partner may have contracted in good faith in the interest of the partnership business, and 3. Answer for risks in consequence of its management. Being a mere agent, the partner is NOT personally liable, provided, however, that he is free from all fault (Art. 1912), and acted within the scope of his authority (1897, 1898, 1910 par. 2). But unlike an ordinary agent, he is not given the right of retention if he is not reimbursed or indemnified (1914). C. Operate under firm name Art. 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

Art. 1824. All partners are liable solidarily with the partnership for everything chargeable to the partnership under Articles 1822 and 1823. (n) Art. 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. (n) Art. 1823. The partnership is bound to make good the loss: (1) Where one partner acting within the scope of his apparent authority

name, shall be subject to the liability of a partner. (n) Liability for inclusion of name in the firm name: Persons who, not being partners include their name in the firm name do not acquire the rights of a partner BUT they shall be subject to liabilities of a partner. Art. 1815 does NOT cover a limited partner who allows his name to be included in the firm name (Art. 1815) a person continuing the business of a partnership after a dissolution who uses the name of the dissolved partnership or the name of a deceased partner as part thereof (Art. 1840, last par.) The corporate name should contain the word Corporation or Incorporated, while the partnership name should contain the word Company. The only instance when a domestic partnership name may be recorded in this Commission without the use of the word Company is when the primary purpose for which the partnership is organized is to engage in the practice of profession of a particular discipline. (SEC Opinion dated Oct 19, 1984 addressed to Atty. Renato J. Santiago) Note that the ruling in In re Sycip here has been abandoned in view of Rule 3.02 of the Code of Professional Responsibility, which permits the surviving partners of a law firm the continued use of the name of a deceased partner provided there is an indication that the partner is already dead. D. Bound by admission of partner Art. 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. (n) General Rule: Person is not bound by the act, admission, statement, or agreement of another of w/c he has no knowledge or to w/c he has not given his consent except by virtue of a particular relation between them. Exception: Admissions by a party as testified to by a 3rd person are admissible in evidence against him in litigation. Admissions by another are received against a party if the former is acting in the capacity of agent of the latter. Under Art. 1820, the admission of a partner made during the existence of the partnership are binding against the partnership and copartners when such admissions refer to a matter concerning partnership affairs and made w/in the scope of his authority. Exception to exception: When a partner makes admissions for himself only w/o purporting to act for the partnership, he alone shall be chargeable w/ his admissions.

An admission by a partner who was no longer a partner at the time is not admissible in evidence against the partnership. (Congco vs. Trillana) E. Bound by notice to partner

Art. 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. (n) F. Liable for wrongful act of partner Art. 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. (n) Art. 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. (n)

V. RIGHTS OF PARTNERS
A. Share in losses and profits Art. 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. (1689a)

Rules for distribution of profits and losses DISTRIBUTION OF PROFITS According to agreement Share of capitalist partner is in proportion to his capital contribution

With agreement Without agreement

(2) If the right exists under the terms of any Share of industrial partner is not fixed - as may be just and agreement; (3) As provided by article 1807; equitable under the (4) Whenever other circumstances render it circumstances just and reasonable. (n) Art. 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. (1690) Art. 1799. A stipulation which excludes one or more partners from any share in the profits or losses is void. (1691) Although this stipulation is void, the partnership is valid, subsists and the profits or losses shall be apportioned as if there were no stipulation on the same. The industrial partner is not liable for losses because he cannot withdraw the work or labor already done by him. His laboring in vain is his contribution to the loss. B. Associate another person Art. 1804. Every partner may associate another person with him in his share, but the associate shall not be admitted into the partnership without the consent of all the other partners, even if the partner having an associate should be a manager. (1696) Contract of subpartnership: The partnership formed between a member of a partnership and a third person for a division of the profits coming to him from the partnership enterprise. Subpartner does not acquire the rights of a partner, nor is he liable for partnership debts C. Access partnership books Art. 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. (n) Access to partnership books at any reasonable hour: reasonable hours on business days throughout the year and not merely during some arbitrary period of a few days chosen by the managing partners (Pardo v. Lumber Co.) D. Obtain formal account Art. 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; Art. 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. (n) GEN RULE: During the existence of the partnership, a partner is not entitled to a formal account of the partnership affairs. EXCEPTIONS: the special and unusual situations enumerated under Article 1809. 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. Articles 1806, 1807, and 1809 show that the right to demand an accounting exists as long as the partnership exists. Prescription begins to run only upon the dissolution of the partnership when the final accounting is done. (Fue Leung v. IAC) E. Property rights Art. 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. (n) Property used by the partnership. A partner may: contribute to the partnership only the use of property allow the partnership to use his separate propert hold the title to partnership property in his own name without having it belong to him. Property acquired by a partners with partnership funds. General rule: Property acquired by a partner in his own name with partnership funds is partnership property. Exceptions: Contrary intention appears Property was acquired after dissolution but before the winding up [but he would be liable to account to the partnership] Art. 1811. A partner is co-owner with his partners of specific partnership property. The incidents of this co-ownership are such that: (1) A partner, subject to the provisions of this Title and to any agreement between the partners, has an equal right with his 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. (n) Art. 291,CC is now Art. 195,FC Art. 195. Subject to the provisions of the succeeding articles, the following are obliged to support each other to the whole extent set forth in the preceding article: (1) The spouses; (2) Legitimate ascendants and descendants; (3) Parents and their legitimate children and the legitimate and illegitimate children of the latter; (4) Parents and their illegitimate children and the legitimate and illegitimate children of the latter; and (5) Legitimate brothers and sisters, whether of full or half-blood (291a) A partner cannot separately assign his right to specific partnership property. A partners right is limited to his share of what remains after all partnership debts have been paid. Thus,specific partnership property is not subject to attachment, execution, garnishment, or injunction, without the consent of all partners, except on a claim against the partnership

interest and may require an account from the date only of the last account agreed to by all the partners. (n)

Rights of the transferee or assignee Wha To receive in accordance with his contract theinterfere in the profits accruing to the assigning partner To avail of the usual remedies provided by law inrequire any info the event of fraud in the management inspect any of To receive the assignors interest in case ofadd another ro dissolution (jas, please add another row to thisphrase) table and insert this last phrase) ndi ko maform walang table. somewhere. he 2 lang nagappe Partnership is a relation in which delectus personae is an important element. No one may be introduced into the firm as a partner without the unanimous consent of the other partners.

Art. 1812. A partner's interest in the partnership is his share of the profits and surplus. (n) Profit net income during the carrying out of the business of the partnership Surplus the excess of assets over liabilities (after accounting/dissolution) Art. 1813. A conveyance by a partner of his whole interest in the partnership does not of itself dissolve the partnership, or, as against the other partners in the absence of agreement, entitle the assignee, during the continuance of the partnership, to interfere in the management or administration of the partnership business or affairs, or to require any information or account of partnership transactions, or to inspect the partnership books; but it merely entitles the assignee to receive in accordance with his contract the profits to which the assigning partner would otherwise be entitled. However, in case of fraud in the management of the partnership, the assignee may avail himself of the usual remedies. In case of a dissolution of the partnership, the assignee is entitled to receive his assignor's

Art. 1814. Without prejudice to the preferred rights of partnership creditors under Article 1827, on due application to a competent court by any judgment creditor of a partner, the court which entered the judgment, or any other court, may charge the interest of the debtor partner with payment of the unsatisfied amount of such judgment debt with interest thereon; and may then or later appoint a receiver of his share of the profits, and of any other money due or to fall due to him in respect of the partnership, and make all other orders, directions, accounts and inquiries which the debtor partner might have made, or which the circumstances of the case may require. The interest charged may be redeemed at any time before foreclosure, or in case of a sale being directed by the court, may be purchased without thereby causing a dissolution: (1) With separate property, by any one or more of the partners; or (2) With partnership property, by any one or more of the partners with the consent of all the partners whose interests are not so charged or sold. Nothing in this Title shall be held to deprive a partner of his right, if any, under the exemption laws, as regards his interest in the partnership. (n) F. Convey real property Art. 1819. Where title to real property is in the partnership name, any partner may convey title to such property by a conveyance executed in the partnership name; but the partnership may recover such property unless the 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. (n)

conveyed ONLY in the partnership name. (n) *cf. Art. 1819 B. Preference of creditors Art. 1827. The creditors of the partnership shall be preferred to those of each partner AS REGARDS 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. (n)

VII. DISSOLUTION AND WINDING UP


Art. 1828. The dissolution of a partnership is the CHANGE IN 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. (n)

Any change in the membership of a partnership produces an immediate Effects of Conveyance of Real Property dissolution of the existing partnership Title in partnership name Conveyance passes title but formation of can new relation and the partnership a Any partner may convey under partnership name recover unless: 1)The partner who sold it was one. carrying in Strictly and technically speaking, there on the usual way the business of the partnership (1818) hence binding the partnership; is no such thing as an incoming or 2) Buyer had no knowledge of the lack of into partner or admission of a person authority of the seller an existing firm. All persons forming Title in partnership name, Conveyance does notnew title but only equitable the pass partnership the upon Conveyance in partner's name interest. Provided that: The the new person into the admission of partner who sold it was carrying on in the usual incoming business of business are way the partners, even the partnership (1818) hence binding the has though the same business partnership theretofore been conducted by the Title in name of 1/ more partners, Conveyance inConveyance passes title but partnership can others. name if partner/partners in whose name titlerecover unless: 1)The partner who sold it was stands carrying on 1829. usual way the business of the is Art. in the On dissolution the partnership partnership (1818) hence binding continues until the NOT TERMINATED, but the partnership; or 2) winding had of partnership affairsthe COMPLETED. Buyer up no knowledge of is lack of authority of the seller (n) Title in name of 1/more/all partners or 3rd personConveyance will only pass equitable interest. Effects of The partner who sold it was in trust for partnership, Conveyance executed inProvided that: Dissolution: does not automatically partnership name of in name of partners carrying in Dissolutionway the business of the on the usual result in the termination of the partnership (1818) hence binding the partnership legal personality of the partnership, nor of the relations of the partners among themselves. Partnership continues for Art. 1819 provides that: Where the the limited purpose of winding up its title to real property is in the names of affairs. all the partners a conveyance executed by all the partners passes all their The dissolution of a partnership must rights in such property. The term not be understood in the absolute and conveyance used in this provision strict sense so that at the termination includes a mortgage. (Syjuco v Castro) of the object for which it was created NOTE: This is different from the provisions on the partnership is extinguished, agency, which provide that a special power to pending the winding up of some sell excludes the power to mortgage [Art. incidents and obligations of the 1879]. partnership, but in such case, the partnership will be reputed as existing until the juridical relations arising out of the contract are dissolved. The dissolution of a firm does not relieve any of its members from liability for A. Acquire immovables existing obligations, although it does save them from new obligations to Art. 1774. Any IMMOVABLE property OR an which they have not expressly or INTEREST therein may be acquired in the impliedly assented, and any of them partnership name. Title so acquired can be may be discharged from old obligations

VI. RIGHTS PARTNERSHIP

OF

by novation or other form of release. (Testate of Mota v Serra) The three final stages of a partnership are: (1) Dissolution- the change in the relation of the partners caused by any partner ceasing to be associated in the carrying on of the business (Art. 1828). It is that point of time the time the partners cease to carry on the business together. (2) Winding Up - the process of settling business affairs of dissolution. (Ex: paying of previous obligations; collecting of assets previously demandable; even new business if needed to wind up, as the contracting with a demolition company for the demolition of the garage used in a "used car" partnership.) (3) Termination Defined- the point in time after all the partnership affairs have been wound up. (Idos v CA) The provision prohibiting the dissolution of the association under review, except by the consent and agreement of twothirds of its partners, in no wise limited or restricted the rights of the individual partners in the event the dissolution of the association was effected, not by any act of theirs, but by the express mandate of statutory law. It would be unreasonable to hold that such an association could never be dissolved and liquidated without the consent and agreement of two-thirds of its partners, notwithstanding that it had lost all its capital, or had become bankrupt, or that the enterprise for which it had been organized had been concluded or abandoned. (Lichauco v Lichauco) Not being a mercantile partnership (hence, not governed by the Code of Commerce, but the CC), it was dissolved by the death of Perpetua. It cannot be maintained that the partnership continued to exist after the death of Perpetua for it does not appear that any stipulation to that effect has ever been made by her and Dequilla, pursuant to the provisions of art. 1704. The partnership having been dissolved, its subsequent legal status was that of a partnership in liquidation, and the only rights inherited by Perpetuas heir, were those resulting from the liquidation in favor of the Perperua, and nothing more. Before this liquidation is made, it is impossible to determine what rights or interests, if any, Perpetua had, the partnership bond having been dissolved. (Bearneza v Dequilla) The dissolution of the partnership did not mean that the juridical entity was immediately terminated and that the distribution of the assets to its partners should perfunctorily follow. The dissolution simply effected a change in the relationship among the partners.

The partnership, although dissolved, continues to exist until its termination, at which time the winding up of its affairs should have been completed and the net partnership assets are partitioned and distributed to the partners. (Sy v CA) A. Causes of Dissolution The statutory enumeration of causes of dissolution is exclusive. Art. 1830 (extrajudicial) and 1831(judicial) provide for causes of dissolution. Other causes are provided in Art. 1840. Causes: Without violation of the agreement between the partners: termination of the definite term or particular undertaking specified in the agreement; express will of any partner, who must act in good faith, when no definite term or particular is specified; express will of all the partners who have not assigned their interests or suffered them to be charged for their separate debts, before or after the termination of any specified term or particular undertaking; expulsion of any partner in accordance with such a power conferred by the agreement; when business becomes unlawful when a specific thing promised to be contributed to the partnership perishes before delivery loss of a specific thing when the partner reserved ownership over it death insolvency of a partner/ partnership civil interdiction In contravention of the agreement between the partners: where the circumstances do not permit a dissolution under 1830 by the express will of any partner at any time; 1830 Upon application of a partner: partner has been declared insane or is shown to be of unsound mind; partner becomes incapable of performing his part of the contract; partner has been guilty of such conduct that prejudices the business; partner wilfully or persistently commits a breach of the partnership agreement business of the partnership can only be carried on at a loss; equitable grounds

On the application of the purchaser of a partner's interest under Article 1813 or 1814: TERMINATION of the term or undertaking when partnership is at will and the INTEREST of one partner is ASSIGNED

that mutual resolve, along with each partner's capability to give it, and the absence of a cause for dissolution provided by the law itself. Verily, any one of the partners may, at his sole pleasure, dictate a dissolution of the partnership at will. He must, however, act in good faith, not that the attendance of bad faith can prevent the dissolution of the partnership but that it can result in a liability for damages. (Ortega v CA) Under art. 1830, a partner may cause the dissolution of the partnership, even if there is specified term in the articles of partnership and even before the expiration of this period, with or without justifiable cause. If no cause was given or if it is unjustified, the withdrawing partner becomes liable for damages, but he cannot be compelled to remain in the firm. (Rojas v. Maglana)

Art. 1813. A conveyance by a partner of his whole interest in the partnership does not of itself dissolve the partnership, or, as against the other partners in the absence of agreement, entitle the assignee, during the continuance of the partnership, to interfere in the management or administration of the partnership business or affairs, or to require any information or account of partnership transactions, or to inspect the partnership books; but it merely entitles the assignee to receive in accordance with his contract the profits to which the assigning partner would otherwise be entitled. However, in case of fraud in the management of the partnership, the assignee may avail himself of the usual remedies. In case of a dissolution of the partnership, the assignee is entitled to receive his assignor's interest and may require an account from the date only of the last account agreed to by all the partners. Art. 1814. Without prejudice to the preferred rights of partnership creditors under Article 1827, on due application to a competent court by any judgment creditor of a partner, the court which entered the judgment, or any other court, may charge the interest of the debtor partner with payment of the unsatisfied amount of such judgment debt with interest thereon; and may then or later appoint a receiver of his share of the profits, and of any other money due or to fall due to him in respect of the partnership, and make all other orders, directions, accounts and inquiries which the debtor partner might have made, or which the circumstances of the case may require. The interest charged may be redeemed at any time before foreclosure, or in case of a sale being directed by the court, may be purchased without thereby causing a dissolution: (1) With separate property, by any one or more of the partners; or (2) With partnership property, by any one or more of the partners with the consent of all the partners whose interests are not so charged or sold. Nothing in this Title shall be held to deprive a partner of his right, if any, under the exemption laws, as regards his interest in the partnership. (n) The birth and life of a partnership at will is predicated on the mutual desire and consent of the partners. The right to choose with whom a person wishes to associate himself is the very foundation and essence of that partnership. Its continued existence is, in turn, dependent on the constancy of

B. Consequences of dissolution 1. As to partner's authority to act for the partnership General Rule: Authority of partners to bind partnership is terminated (1832) Exception: Wind up partnership affairs Complete transactions not finished Qualifications: 1.With respect to the partners (1833) if dissolution is not by act, insolvency, or death of a partner the general rule applies. Dissolution terminates the actual authority of a partner to undertake new business for the partnership. if dissolution is by act, insolvency or death of a partner the rule is that the authority of partners inter se to act for the partnership is not deemed terminated. Thus, each partner is liable to his copartners for his share of any liability created by any partner acting for the partnership as if the partnership has not been dissolved. Exception: a. The cause of the dissolution is the act of a partner and the acting partner had knowledge of such dissolution b. the cause of dissolution is the death or insolvency of a partner and the acting partner had knowledge or notice of such dissolution 2. With respect to third persons (1834) When partner continues to bind the partnership even after dissolution By an act appropriate for winding up partnership affairs Act for completing unfinished transactions Transaction which would bind the partnership if dissolution had not taken place provided that the other party: Had extended credit to partnership prior to dissolution

Had no knowledge/notice of dissolution, OR Did not extend credit to partnership Had known partnership prior to dissolution Had no knowledge/notice of dissolution/fact of dissolution not advertised in a newspaper of general circulation in the place where partnership is regularly carried on When partner cannot bind the partnership after dissolution where partnership was dissolved because it was unlawful to carry on the business except when the act is for winding up where the partner has become insolvent where the partner is unauthorized to wind up partnership affairs, except by transaction with one who:

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; (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. This article treats more of a commercial partnership, with a goodwill to protect rather than a professional partnership with no saleable goodwill but whose reputation depends on the personal qualifications of its individual members. Creditors of the old partnership can go after the partnership continuing the business except: (1) when there is a stipulation to the contrary; and, (2) when there has been a liquidation of partnership affairs Not only the retiring partners but also the new partnership itself which continued the business of the old, dissolved, one, are liable for the debts of the preceding partnership. A withdrawing partner remains liable, to a third party creditor of the old partnership. (Singsong vs. Isabela Sawmill) The liability of a third person becoming a partnership continuing the business, under 1840, 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 partneship after dissolution is continued under any conditions set forth in 1840 the 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 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

Had extended credit to partnership prior to dissolution & Had no knowledge/notice of dissolution, OR Did not extend credit to partnership prior to dissolution Had known partnership prior to dissolution Had no knowledge/notice of dissolution/fact of dissolution not advertised in a newspaper of general circulation in the place where partnership is regularly carried on 2. As to partner's existing liability General Rule: Dissolution does not automatically discharge the existing liability of any partner. (1835) Exception: A partner may be relieved from all existing liabilities upon dissolution only by an agreement between: 1. partner concerned 2. person/partnership continuing the business 3. partnership creditors 3. person/partnership business Liability continuing of the

Art. 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

of creditors to set wide any assignment on the ground of fraud. (Yu v NLRC) C. Rights of Partners upon dissolution 1. Right to wind up Art. 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. (n) Winding up may be done either: judicially or extrajudicially The ff. are authorized to wind up the affairs of the partnership: 1. partners designated by the agreement 2. in the absence of such agreement, all the partners who have not wrongfully dissolved the partnership, or 3. the legal representative (executor/ administrator) of the last surviving partner (when all the partners are already dead), not insolvent The court may appoint a receiver to wind up the partnership affairs. of a liquidating partner: Make new contracts Raise money to pay partnership debts Incur obligations to complete existing contracts or preserve partnership assets Incur expenses necessary in the conduct of litigation wrongfully dissolved -done contravention of the agreement in

on wrongful dissolution Art. 1837. xxx When dissolution is caused in contravention of the partnership agreement the rights of the partners shall be as follows: (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 co-partners 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. (n) 4. Rights where dissolution not in contravention of agreement (unless otherwise agreed), which constitute the partners lien: to have the partnership property applied to discharge partnership liabilities and the surplus assets, if any, distributed in cash to the respective partners, after deducting what may be due to the firm from them as partners 5. Rights of innocent party: (dissolution in contravention of agreement) Apply partnership property to discharge liabilities of partnership Apply surplus, if any to pay in cash the net amount owed to partners Indemnity for damages caused by partner guilty of wrongful dissolution Continue business in same name during agreed term Posses partnership property if business is continued 6.Rights of guilty party: one who wrongly caused dissolution

Powers

When a member of a mercantile partnership dies, the duty of liquidating its affairs devolves upon the surviving member/s of the firm, not upon the legal representatives of the deceased partner. Upon the death of a partner, it is the duty of the surviving associates to take the proper steps to settle the affairs of the firm,and any claim against him or his estate should be prosecuted against his estate in administration. (Lota v Tolentino)

2. Right to damages for wrongful dissolution Art. 1837. 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: (b) The right, as against each partner who has caused the dissolution wrongfully, to damages breach of the agreement. 3. Right to continue business

If business not continued by others apply partnership property to discharge liabilities of partnership & receive in cash his share of surplus less damages caused by his wrongful dissolution If business continued by others - have the value of his interest at time of dissolution ascertained and paid in cash/secured by bond & be released from all existing/future partnership liabilities

the partnership, for the firms outside creditors have preference over the assets of the enterprise [Arts. 1839(2), 1827] and the firms property cannot be diminished to their prejudice [Magdusa vs. Albaran].

VIII.

7. Rights of injured partner where partnership contract is rescinded on ground of fraud/misrepresentation by 1 party: (1838) Right to lien on surplus of partnership property after satisfying partnership liabilities Right to subrogation in place of creditors after payment of partnership liabilities Right of indemnification by guilty partner against all partnership debts & liabilities 8. Right of retiring/ deceased partner Art. 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. (n) 9. Right to account Art. 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. (n) The profits of a business cannot be determined by taking into account the result of one particular transaction instead of all the transactions had, hence the need for a general liquidation before a partner may claim a specific sum as his share of the profits [Sison vs. McQuaid]. A partners share cannot be retuned without first dissolving and liquidating

SETTLEMENT ACCOUNTS BETWEEN PARTNERS

OF

Art. 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. (n) This provision sets forth a priority system for the distribution of partnership property [see Art. 1810] and individual property when a partnership is dissolved.

These rules are subject to variation by agreement of the partners, either in their original partnership agreement or in a dissolution agreement, subject to the rights of partnership creditors. ORDER OF PAYMENT IN THE WINDING UP OF PARTNERSHIP LIABILITIES in a general partnership: 1839 (2) 1. Those owing to creditors other than partners; 2. Those owing to partners other than for capital or profits; 3. Those owing to partners in respect of capital; 4. Those owing to partners in respect of profits.

inclusion of partner's name in the Name may appear in firm name firm name prohibition to engage in other Prohibition against engaging in business business effect of retirement death insanity or insolvency firm name

members of the partnership

Retirement, death, insolvency, insanity of gen partner dissolves partnership (1860) must contain the word company or Co. (SEC Memo Circular No. 14-00) *unless it is a professional partnership composed only of general partners

Doctrine of Marshalling of Assets 1839 (8): 1. Partnership creditors have preference in partnership assets 2. Separate or individual creditors have preference in separate or individual properties 3. Anything left from either goes to the other

IX. PARTNERSHIP

LIMITED

Essential requirements for the formation of a limited partnership: (1844) the certificate or articles of the limited partnership which states the matters enumerated in the article, must be signed and sworn to. Such certificate must be filed for record in the office of the SEC Who may become Limited Partners A partnership cannot become a limited partner. A general partnership may be changed into a limited one, and a partner in the former general partnership may become a limited partner in the limited partnership just formed. The general rule for those who seek to avail of the protection of the laws permitting the creation of limited partnerships must show a substantially full compliance of such laws. A limited partnership that has not complied with the law of its creation is not considered a limited partnership at all; but a general partnership in which all members are liable. (Jo Chung Cang V. Pacific Commercial)

Art. 1843. A limited partnership is one formed by two or more persons under the provisions of the following article, having as members one or more general partners and one or more limited partners. The limited partners as such shall not be bound by the obligations of the partnership. Characteristics: formed by compliance with the statutory requirements (1844) One or more general partners control the business and are personally liable to creditors (1848, 1850) One or more limited partners contribute to the capital and share in the profits but do not participate in the management of the business and are not personally liable for partnership obligations beyond the amount of their capital contributions. (1845, 1848, 1856) The limited partners may ask for the return of their capital contributions under the conditions prescribed by law (1844(h), 1857) The partnership debts are paid out of the common fund and the individual properties of the general partners.

Art. 1847. If the certificate contains a false statement, one who suffers loss by reliance on such statement may hold liable any party to the certificate who knew the statement to be false: (1) At the time he signed the certificate, or (2) Subsequently, but within a sufficient time before the statement was relied upon to enable him to cancel or amend the certificate, or to file a petition for its cancellation or amendment as General Partnership provided in Article 1865. Personally liable for partnership Art. 1864. The certificate shall be cancelled obligations when the When manner of mgt. not agreed partnership is dissolved or all limited partners upon, all gen partners have an cease to be such. equal right in the mgt. of the A certificate shall be amended when: (1) There is a change in the name of the business partnership or in the amount or character of the Contribute cash, property or contribution of any limited partner; industry (2) A person is substituted as a limited partner; Proper party to proceedings (3) An additional limited partner is admitted; by/against partnership (4) A person is admitted as a general partner; (5) A general partner retires, dies, becomes insolvent or insane, or is sentenced to civil interdiction and the business is continued under

extent of liability right to paticipate in the management

contribution proper party to proceedings by or against the partnership

Article 1860; (6) There is a change in the character of the business of the partnership; (7) There is a false or erroneous statement in the certificate; (8) There is a change in the time as stated in the certificate for the dissolution of the partnership or for the return of a contribution; (9) A time is fixed for the dissolution of the partnership, or the return of a contribution, no time having been specified in the certificate, or (10) The members desire to make a change in any other statement in the certificate in order that it shall accurately represent the agreement among them. Requirements to amend a certificate: amendment must be in writing; it must be signed and sworn to by all the members, including the new members, and the assigning members in case of substitution or addition of a GP or LP; and the certificate, as amended, must be filed for record in the SEC Requirements to cancel a certificate: in writing; signed by all the members; and filed with the SEC; if the cancellation is ordered by the court, a certified copy of such order shall be filed with the SEC as well

manager of the firm Art. 1858. A limited partner is liable to the partnership: (1) For the difference between his contribution as actually made and that stated in the certificate as having been made; and (2) For any unpaid contribution which he agreed in the certificate to make in the future at the time and on the conditions stated in the certificate. A limited partner holds as trustee for the partnership: (1) Specific property stated in the certificate as contributed by him, but which was not contributed or which has been wrongfully returned, and (2) Money or other property wrongfully paid or conveyed to him on account of his contribution. Liabilities of a limited partnership: 1. To the partnership (see 1858) 2. To partnership creditors and other partners a. Art. 1845 when he contributes services b. Art. 1846 c. Art. 1847 d. Art. 1848 e. Art. 1854 in fraud of partnership creditors f. Art. 1844 (2) failure to substantially comply with the legal requirements governing formation of limited partnerships 3. To separate creditors (see 1862) The liabilities of a limited partner as set forth in this article can be waived or compromised only by the consent of all members; but a waiver or compromise shall not affect the right of a creditor of a partnership who extended credit or whose claim arose after the filing and before a cancellation or amendment of the certificate, to enforce such liabilities. C. Rights in common with general partner The specific rights of a limited partner are as follows: To require that partnership books be kept at the principal place of business of the partnership To inspect and copy at a reasonable hour partnership books or any of them To demand true and full information of all things affecting the partnership To demand a formal account of partnership affairs whenever circumstances render it just and reasonable To ask for dissolution and winding up by decree of the court To receive a share of the profits or other compensation by way of income To receive the return of his contribution provided the partnership assets are in excess of all its liabilities D. Loan and other Business Transactions with Limited Partnership

Art. 1860. The retirement, death, insolvency, insanity or civil interdiction of a general partner dissolves the partnership, unless the business is continued by the remaining general partners: (1) Under a right so to do stated in the certificate, or (2) With the consent of all members.

X. LIMITED PARTNER
A. Contribution Art. 1845. The contributions of a limited partner may be cash or property, but not services. B. Liability Art. 1848. A limited partner shall not become liable as a general partner unless, in addition to the exercise of his rights and powers as a limited partner, he takes part in the control of the business. What constitutes control of the business sufficient to make a limited partner liable as a general partner has not been clearly defined by the courts. Examples of limited partner taking part in the control of business: Board of directors chosen by limited partners An appointee of a limited partner becomes the directing

Art. 1854. A limited partner also may loan money to and transact other business with the partnership, and, unless he is also a general partner, receive on account of resulting claims against the partnership, with general creditors, a pro rata share of the assets. No limited partner shall in respect to any such claim: (1) Receive or hold as collateral security and partnership property, or (2) Receive from a general partner or the partnership any payment, conveyance, or release from liability if at the time the assets of the partnership are not sufficient to discharge partnership liabilities to persons not claiming as general or limited partners. The receiving of collateral security, or payment, conveyance, or release in violation of the foregoing provisions is a fraud on the creditors of the partnership.

3 allowable transactions: 1. granting loans to partnership 2. transacting other business with it 3. receiving a pro rata share of the partnership assets with general creditors if he is not also a general partner Art. 1854 does not prohibit absolutely the taking as collateral security by a limited property of any partnership property, as no. 1 & 2 are modified by the requirement of sufficient assets to discharge the obligation of the partnership. Prohibited transactions: Receiving or holding as collateral security any partnership property Receiving any payment, conveyance, or release from liability if it will prejudice the right of third persons Third persons always enjoy a preferential right insofar as partnership assets are concerned E. Return of contribution Art. 1855. Where there are several limited partners the members may agree that one or more of the limited partners shall have a priority over other limited partners as to the return of their contributions, as to their compensation by way of income, or as to any other matter. If such an agreement is made it shall be stated in the certificate, and in the absence of such a statement all the limited partners shall stand upon equal footing. Art. 1857. A limited partner shall not receive from a general partner or out of partnership property any part of his contributions until: (1) All liabilities of the partnership, except liabilities to general partners and to limited partners on account of their contributions, have been paid or there remains property of the partnership sufficient to pay them; (2) The consent of all members is had, unless the return of the contribution may be rightfully demanded under the provisions of the second paragraph; and (3) The certificate is cancelled or so amended

as to set forth the withdrawal or reduction. Subject to the provisions of the first paragraph, a limited partner may rightfully demand the return of his contribution: (1) On the dissolution of a partnership; or (2) When the date specified in the certificate for its return has arrived, or (3) After he has six months' notice in writing to all other members, if no time is specified in the certificate, either for the return of the contribution or for the dissolution of the partnership. In the absence of any statement in the certificate to the contrary or the consent of all members, a limited partner, irrespective of the nature of his contribution, has only the right to demand and receive cash in return for his contribution. A limited partner may have the partnership dissolved and its affairs wound up when: (1) He rightfully but unsuccessfully demands the return of his contribution, or (2) The other liabilities of the partnership have not been paid, or the partnership property is insufficient for their payment as required by the first paragraph, No. 1, and the limited partner would otherwise be entitled to the return of his contribution. Art. 1855 By agreement of all members, preference may be given over other limited partners as to the: Return of their contributions Their compensation by way of income Any other matter Absent such agreement, all limited partners shall stand on the same footing in respect of those matters. Art. 1857 Requisites for the return of contribution of limited partner: All liabilities of the partnership have been paid If not paid: assets of the partnership are sufficient to pay such liabilities consent of all members certificate is cancelled or so amended as to set forth such withdrawal or reduction of the contribution Limited partner may demand return of his contribution provided requisites 1 & 3 are complied with: on the dissolution of the partnership; or upon arrival of the date specified in the certificate for the return; or after the expiration of 6 mos. notice in writing given by him to the other partners if no time is fixed in the certificate for the return of the contribution or for the dissolution of the partnership F. Share of profits Art. 1856. A limited partner may receive from the partnership the share of the profits or the compensation by way of income stipulated for in the certificate; provided that after such payment is made, whether from property of the partnership or that of a general partner, the partnership assets are in excess of all liabilities of the partnership except liabilities to limited

partners on account of their contributions and to general partners. G. Assign interests Art. 1859. A limited partner's interest is assignable. A substituted limited partner is a person admitted to all the rights of a limited partner who has died or has assigned his interest in a partnership. An assignee, who does not become a substituted limited partner, has no right to require any information or account of the partnership transactions or to inspect the partnership books; he is only entitled to receive the share of the profits or other compensation by way of income, or the return of his contribution, to which his assignor would otherwise be entitled. An assignee shall have the right to become a substituted limited partner if all the members consent thereto or if the assignor, being thereunto empowered by the certificate, gives the assignee that right. An assignee becomes a substituted limited partner when the certificate is appropriately amended in accordance with Article 1865. The substituted limited partner has all the rights and powers, and is subject to all the restrictions and liabilities of his assignor, except those liabilities of which he was ignorant at the time he became a limited partner and which could not be ascertained from the certificate. The substitution of the assignee as a limited partner does not release the assignor from liability to the partnership under Articles 1847 and 1848. Art. 1847. If the certificate contains a false statement, one who suffers loss by reliance on such statement may hold liable any party to the certificate who knew the statement to be false: (1) At the time he signed the certificate, or (2) Subsequently, but within a sufficient time before the statement was relied upon to enable him to cancel or amend the certificate, or to file a petition for its cancellation or amendment as provided in Article 1865. Art. 1848. A limited partner shall not become liable as a general partner unless, in addition to the exercise of his rights and powers as a limited partner, he takes part in the control of the business. Requisites in order that the assignee may become a substituted limited partner: 1. All the members must consent to the assignee becoming a substituted limited partner OR the limited partner, being empowered by the certificate, must give the assignee the right to become a limited partner 2. The certificate must be amended in accordance with Art. 1865 3. The certificate as amended must be registered in the SEC. Substitution, withdrawal, death,

insolvency, insanity, civil interdiction, addition of a limited partner does not necessarily dissolve the partnership. H. Effect of death Art. 1861. On the death of a limited partner his executor or administrator shall have all the rights of a limited partner for the purpose of setting his estate, and such power as the deceased had to constitute his assignee a substituted limited partner. The estate of a deceased limited partner shall be liable for all his liabilities as a limited partner. I. Right of creditor Art. 1862. On due application to a court of competent jurisdiction by any creditor of a limited partner, the court may charge the interest of the indebted limited partner with payment of the unsatisfied amount of such claim, and may appoint a receiver, and make all other orders, directions and inquiries which the circumstances of the case may require. The interest may be redeemed with the separate property of any general partner, but may not be redeemed with partnership property. The remedies conferred by the first paragraph shall not be deemed exclusive of others which may exist. Nothing in this Chapter shall be held to deprive a limited partner of his statutory exemption. Creditor of a limited partner may apply to the proper court for an order charging the limited partners interest in the partnership for the payment of his claim.

J. Person erroneously believing he is a limited partner Art. 1852. Without prejudice to the provisions of Article 1848, a person who has contributed to the capital of a business conducted by a person or partnership erroneously believing that he has become a limited partner in a limited partnership, is not, by reason of his exercise of the rights of a limited partner, a general partner with the person or in the partnership carrying on the business, or bound by the obligations of such person or partnership, provided that on ascertaining the mistake he promptly renounces his interest in the profits of the business, or other compensation by way of income. This article provides exemption from general liability of a person who contributed capital with an erroneous belief that he has become a limited partner in a limited partnership, or in general partnership thinking that it is a limited one.

Conditions for exemption: On ascertaining the mistake, he promptly renounces his interest in the profits of the business or other compensation by way of income

(interest must be renounced before partnership has become liable to 3rd persons in good faith) His surname does not appear in the partnership name He does not participate in the management of the business K. Dissolution Any of such causes in 1860 affecting a limited partner does not result in its dissolution, unless there is only one limited partner. A limited partnership may be dissolved for: the misconduct of a general partner for fraud practiced on the limited partner by the general partner Art. 1860 when all the limited partners ceased to be such Art. 1864 (1) expiration of the term for which it was to exist Art. 1844 (1e) by mutual consent of the partners before the expiration of the firms original term When the firm is dissolved by the expiration of the term fixed in the certificate, notice of the dissolution need not be given since the papers filed and recorded in the SEC are notice to all the world. Where, however, the dissolution is by the express will of the partners, the certificate shall be cancelled, and a dissolution is not effected until there has been compliance with this requirement. Settling accounts after

L. dissolution

Order of Payment: Limited Partnership (1863) Those owing to creditors, except those to limited partners on account of their contribution, and to general partners; Those to limited partners in respect to their share of the profits and other compensation by way of income in their contributions; Those to limited partners in respect of their capital contributions; Those to general partners other than for capital and profits; Those to general partners in respect to profits; Those to general partners in respect to capital.