Business Law Review Notes Note: Partnership for a particular undertaking at end of life decided to

1st Semester A.Y. 2020-2021 continue without expressed agreement, shall continue as partnership
Atty. Fidel Valdez at will does because the continuation in itself is prima facie evidence
of existence of partnership.
PARTNERSHIP Obligation of every partner
Module I
1. Contribute what is promised
Chapter II - First test; partner is then a debtor even if there is no
Obligations of the Partners demand (exception to no delay when there is no
demand)
Kinds of Partners: - Remedy for failure to do so is specific performance
with interest and damages
1. As to contribution 2. Deliver the fruits thereof
a. Capitalist partners - Interest
b. Industrial partners 3. Obliged to warrant
c. Capitalist-industrial partners - For specific/ determinate things only.
2. As to liability
a. General Property: Manner of appraisal
b. Limited
1. By stipulation
3. As to management
2. Absence of stipulation, by experts chosen by partners
a. Managing
according to current prices
b. Silent- who are not active in managing
c. Liquidating- take charge of liquidation process Assumption: Proportion of contribution is same as proportion of
4. As to third persons share in net profit/loss
a. Ostensible- active and known to public Cases covered of liability for damages and interest
b. Secret- active but not known to public
c. Dormant- inactive and not known to public 1. Money promised by partner but not given on time
5. As to membership 2. Money of partnership converted to partner’s own use
a. Real
b. Partners by estoppel- they are not really partners they
just became one because they present themselves as
one, with consent
6. As to continuation of the business affairs after dissolution
a. Continuing- continue after dissolution for whatever
reason
b. Discontinuing
7. As to nature of membership
a. Original
b. Incoming
c. Retiring
8. As to state of survivorship
a. Surviving- continue after dissolution by reason of
death of a partner
b. Deceased partner
9. As to effect of expulsion
a. Expelled
b. Expelling
10. As to the value of the contribution
a. Majority
b. Nominal
*Industrial partner is excluded to share in loss, unless he waived his
right, but not in third person liabilities.
Legal relations created by a partnership *breach of rule that capitalist partners cannot engage in similar kind
of business shall render him (a) bring to common funds all profits
1. Between partners accrued (b) personally bear all the losses
2. Between partners and partnership Remedies in case Industrial partner breached the prohibition:
3. Between partners and third person
4. Between partnership and third person a. Capitalist may exclude him from partnership + damages
b. Capitalist avail benefits he obtained + damages
General rule: A partnership begins from the moment of the execution
of contract *compelling him to perform his industry is not a remedy since it is
Exception to rule: Parties agreed for a specific date for the start of tantamount to involuntary servitude
partnership Initial Capital Contribution

1. By stipulation
 Partnership with a fixed term- life is agreed upon 2. Without stipulation, always equal between the partners
 Partnership for a particular undertaking- life ends upon
completion of undertaking Additional Capital contribution
 Partnership at will- life is not agreed upon General rule: capitalist partners are not bound to contribute addt’l
capital
Exception: I. Appointment in AOP

1. Stipulation Rule: Power is irrevocable without just or lawful cause

2. Imminent loss to save the venture. If capitalist refuse, Exception:
he/she is obliged to sell its interest to other capitalist
partners. a. With just cause, vote of partners having controlling interest
b. Without just cause, votes must be unanimous for reason of
1792. Collection of debt by managing partner change in will of the parties
Requisites: II. Appointment in an instrument other than AOP

1. At least 2 debts where managing partner is creditor and Rule: Power is revocable with or without just or lawful cause
partnership is creditor Rationale: Appointment is a mere delegation of power therefore
2. Both debts are demandable revocable.

Remedy: Case: 2 managing partner

a. If receipt is issued for the partner’s own credit, payment
will be applied in pro rata to both debts.
b. If receipt is issued for the partnership’s own credit,
payment will be applied to debt in partnership as a whole.
c. If debt has interest, payment will be applied to debt in
partner as a whole.
General rule: Each may separately execute all acts of
administration
Exception: If any of the managers oppose to the other,
a. Decision of the majority (per head) of managing partners
shall prevail
b. When tie, decision of managing partners owning the
controlling interest (more than 50%) shall prevail.

Stipulation requiring unanimity of action

General rule: unanimous consent of all managing partners ( even
if one of the managers is absent or incapacitated)
Exception: When there’s imminent danger of grave or
irreparable injury to the partnership.
Art. 1802 is not applicable to third person, third person has right
to presume that the partner with whom he contracts has the
consent of his copartner.
Rules when manner of management has not been agreed upon

1. All partners shall be considered as managers.

2. Important alterations in immovable property, unanimity is
1793. Collection of debt by any partner required.
Remedy: Payment received should be proportionate
General Rule: No set-off of 2 obligations (obligation to earn for the Contract of sub-partnership
partnership and obligation when partner caused damages to Partner can have an associate or sub-partner without consent from
partnership) other partners but the associate’s admission to partnership requires
Exception: Extraordinary activities where unusual profits are consent from partners for the ff. reasons:
realized.
a. Mutual trust
Property: Risk of loss b. Change in membership is a modification/novation of
contract.
1. Specific and determinate things which are not fungible-
contribution is the use of object. Risk of loss is endured by Partners have rights to access books of partnership.
the partner because there’s no transfer of ownership. Partners have rights to demand true and full information of all things
2. Fungible things- partnership bears the risk of loss affecting the partnership, otherwise it is concealment.
3. Things contributed to be sold- partnership bears the risk of Partners have right to a formal accounting as to partnership affair
loss
4. Things brought and appraised in the inventory- partnership a. If he is wrongfully excluded from the partnership business
bears the loss or possession of its property by his co-partners
b. If the right exists under the terms of any agreement
Obligation of the partnership to every partner to refund and answer c. Art. 1807
partner’s obligation contracted in the interest of the partnership. d. Whenever other circumstance render it just and reasonable
Case: Intrusting of shares to third person
General rule: Valid Note: Formal accounting is demandable only during dissolution
Exception: Not valid and may be questioned if it is manifestly unless the following cases occur (a-d)
inequitable unless: Profits derived by a partner without consent of other partners should
be accounted.
a. A partner began executing the decisions of the third party 3 final stages of partnership
b. A partner has not questioned the decision within 3 months
from knowledge thereof a. Dissolution- final accounting is demanded. When it is done,
prescription begins.
Stipulation which excludes one or more partners from any share in b. Winding-up
the profits or losses is void. c. Termination

General rule: Managing partner can do all acts of administration

Exception: bad faith
Managing partner: 2 modes of appointment
 d. In case of dissolution, require an account from the date only
of the last account agreed to by all partners.

Charging order- court order to charge debtor-partner’s interest in

partnership for payment due to a third party creditor.

Receiver- appointed to receive all interest receivable by debtor-

partner; he/she is auhorized to settle all other orders.

Redemption of charge in partner’s interest in partnership

1. Before foreclosure
- Can be redeemed at any time before foreclosure
2. After foreclosure
Section 2 - Can be purchased without causing dissolution
Property rights of a partner a. With separate property of a partner
b. With partnership property with the consent of all the
Property rights partners whose interest are not so charged or sold.
1. His rights in specific partnership property
2. His interest in the partnership Section 3
3. His right to participate in the management General rule: Partners may use any firm name
Exception: Partners cannot use identical/deceptively confusing names
similar, subject to patent
His rights in specific partnership property
 Partners by estoppel are subject to the liability of a partner.
A partner is a co-owner of property belonging to the partership
Liability Loss
a. Partners have equal right to possess property for As to third persons As between partners
partnership purposes, no other purposes Industrial partner is liable to Industrial partner is not liable
b. Partners’ right to specific partnership property is not liability, but may demand to loss.
assignabe except with assignment of rights of all partners in reimbursement from partners
same property. because he is not liable to loss
c. Partners’right to specific partnership property is not subject Pro-rata Subsidiary
to attachment or execution Equally or joint Partners’ separate property may
d. Partners’right to specific partnership property is not subject be held liable only after the
to Legal support exhaustion of partnership’s
assets.
His interest in the partnership Stipulations as to third parties Stipulations among partners (L)
(L)
A partner’s interest in partnership is hi share in profits and surplus
Void Valid
Profit- excess of revenue over expenditures

Suplus- excess of receipts over disbursement or the fund that remain Partner as agent of the partnership
after the partnership has dissolved and all debts paid.
1. Acts for carrying out activities in the ordinary course of
This interest can be assigned, can be attached and can be subject to business of the partnership
legal support. General Rule: It binds
Exception:
a. The partner has no authority to act for the partnership
b. The third person has knowledge that the partner has no
Conveyance- voluntary trannsfer of a right or of property. authority
Conveyance can be in a form of assignment, sale, or donation. 2. Acts for carrying out activities not in the ordinary course of
business of the partnership
Effects of conveyance
General rule: It does not bind
a. If a partner conveys, (rule) it may subsist or (exception) it Exception: When authorized by partners
may be dissolved when the remaining partners opt not to 3. Acts of ownership
continue the operation. General rule: It does not bind
b. The assignee (a) cannot interfere in the management of the Exception: When authorized by all partners
partnership business (b) cannot require information or 4. Acts in contravention of a restriction on authority
accounting of partnership transaction and (c) cannot inspect General Rule: IT does not bind
partnership books

Rights of assignee
Title- legal evidence of a person’s ownership rights in a property
a. Receive profits
b. In case of fraud, may avail usual remedies Equitable interest- interest held by virtue of an equitable title or
c. In case of dissolution, receive assignor’s interest claimed on equitable grounds

Real property may be registered to:

 1. The partnership Newly admitted partner is liable to existing obligation of partnership,
- Conveyance is executed in partnership’s name this liability shall be satisfied only out of partnership property and not
- Title is transferred to its personal property.
2. The partnership
- Conveyance is executed in partners’ name Partnership creditors are preferred over private creditors of partners.
- Equitable interest is transferred. Remedy: reform the Remedy for private creditors: attach the shares of the partners.
contract to change the name of seller
3. One or more but not all partners
- Conveyance is executed in partner’s name CORPORATION
4. One or more or all partners, or in a third person in trust for Title I
the partnership RA No. 11232 Revised Corporation Code of the Philippines
- Conveyance is executed in partnership’s name or his
Corporation- An artificial being created by operation of
own name
- Equitable interest is transferred. Remedy: reform the law having the right of succession, and the powers,
contract to change the name of seller attributes and properties expressly authorized by law
5. All of the partners and incident to its existence. (Sec.2)
- Conveyance executed passes all their rights in such
property CLASSES OF CORPORATION
1. AS TO ORGANIZERS
Admission
a. public – by State only; and
Admission- someone admits that something is true or he/she has done b. private – by private persons alone or with the State.
something. 2. AS TO FUNCTIONS
Rule: An admission by a partner is an admission of the partnership if a. public – government of a portion of the territory; and
b. private – usually for profitmaking
a. The admission concern partnership affairs
b. The admission is within the scope of his authority 3. AS TO GOVERNING LAW
 An admission by a former partner made after his a. public – Special Laws; and
resignation, is not an evidence against the firm. b. private – Law on Private Corporations
4. AS TO LEGAL STATUS
a. De jure corporation – organized in accordance with
Notice
the requirements of law.
Rule: Notice to a partner is notice to the partnership b. De facto corporation – organized with a colorable
Exception: In case of fraud in partnership, involving the said partner. compliance with the requirements of a valid law. Its
existence cannot be inquired collaterally. Such inquiry
may be made by the Solicitor General in a quo warranto
Wrongful act or omission- partnership and partners are solidarily proceeding. (Sec. 20)
liable but they can also recover from the negligent partner. Requisites:
Misappropriation- partnership and partners are solidarily liable but 1. The existence of a valid law under which it may be
they can also recover from the negligent partner. incorporated;
Charges to partnership- partnership and partners are solidarily liable 2. A bona fide attempt in good faith to incorporate
under such law; 3. Actual use or exercise in good faith of
Partnership by estoppel- creates a partnership obligation
corporate powers; and 4. Issuance of a certificate of
Partnership by estoppel Partner by estoppel incorporation by the SEC as a minimum requirement of
- All partners - Some partners continued good faith. The only difference between a de
consented the consented the
misrepresentatio misrepresentatio
facto corporation and a de jure corporation is that a de
n n jure corporation can successfully resist a suit by a state
- Partners and - partners brought to challenge its existence; a de facto
Partnership is involved are corporation cannot sustain its right to exist. c.
liable liable
(solidarily) to (jointly/pro-rata) Corporation by estoppel – group of persons that
loss incurred by to loss incurred assumes to act as a corporation knowing it to be
third party by third party without authority to do so, and enters into a transaction
- also exist even if
there is no with a third person on the strength of such appearance.
partnership It cannot be permitted to deny its existence in an action
really existed under said transaction. (Sec. 21) It is neither de jure nor
de facto. d. Corporation by prescription – one which has
Note: Burden of proving existence of estoppel (both cases) rests with exercised corporate powers for an indefinite period
the third person without interference on the part of the sovereign
power, e.g. Roman Catholic Church. 5. AS TO EXISTENCE
OF SHARES OF STOCK a. Stock corporation – a
corporation (1) whose capital stock is divided into
shares and (2) which is authorized to distribute to
shareholders dividends or allotments of the surplus
profits on the basis of the shares held. (Sec. 3) b. Non-
stock corporation – does not issue stocks nor distribute
dividends to their members. CLAS