660 4. When upon PARTNERSHIp ‘Thus, the vote of Edna ang ing to resolve the ti Nora would be controlling he tie, However, this will be the same as in the eee where no one was appointed ag manager among the partners. (See No. 4.) pulation that none of the 11 act without the consent of not managers- When there is a sti managing partners shal the others 1) Vote required ‘The concurrence of all of them shall be necessary for the validity of the acts. (art. 1802) Rule in case of absence or disability of one of the managing partners The absence or disability of one managing partner cannot be alleged, ic., the other managing partners are not authorized to act for the partnership unless there is imminent danger of grave or irreparable injury to the partnership. (Art. 1802) 2) the manner of management has not been agreed All the partners shall be considered agents of the partnership, i.e., all of them are managers. However, none of them 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 to give consent by the other partners is manifestly prejudicial to the interest of the partnership, the court’s intervention may be sought. (Art. 1803) Whatever any one of them may i wa ae y do alone shall bind Rule in case of opposition of the other partners 1) The decision of the majority shall prevail.TNERSH ae IP 661 2) In case of a tie, the decision of the partners owning the controlling interest shall prevail. (Arts. 1801, 1803) Example: MARILEN Company is owned by the following partners and their contributions: Mary, P10,000.00; Anna, 20,000.00; Rose, P30,000.00; Irma, P40,000.00; Liza, P50,000.00; Edna, P100,000.00, and Nora, P200,000.00. The partners did not designate who among themselves shall be the manager. Accordingly, all partners are considered agents or managers of the partnership. Bach one may thus execute acts of administration. a. Mary wants to buy goods from Excellent Company. Liza opposes it. Anna, Rose and Irma side with Mary, while Edna and Nora side with Liza. The group of Mary will prevail because they constitute the majority, ie., 4 over 3. b. Lappose that Rose abstains from voting thereby creating a tie. In this case, the group of Liza will prevail because she, Edna and Nora represent the controlling interest among all the partners. Right of partners to engage in business 1. Industrial partner a. General rule and exception ‘An industrial partner cannot engage in business for himself unless the partnerstip expressly permits him to do so. (Art. 1789) This prohibition applies even if the business is of a kind different from the partnership business. b. __ Reason for the prohibition ‘The partnership is the owner of the services of the industrial partner, which is his contribution to the common fund of the partnership. (See Art. 1789.)662 2: PARTNERSHIP engages in business ffect if the industrial partner sie s permission of the for himself without the expres partnership The capitalist partners 1) Exclude him from the partner: right to damages, oF 2) Avail themselves of tl from the business he engage right to damages. (Art. 1789) may either: ship, with a he benefits obtained din, with a Capitalist partner Kind of business a capitalist partner may engage in A capitalist partner may engage in business for his own account in the following: 1) The business he will engage in is of a kind different from the partnership business. 2) “The business he will engage in is of the same kind as the partnership business, but there is a stipulation allowing him to engage in that business. (See Art. 1808.) Reason for the prohibition to engage in the same kind of business The capitalist partner will be unfairly competing with the partnership business by reason of the information he has obtained from the partnership business. Effect if a capitalist partner engages in the same kind of business without a stipulation allowing him to engage in that business. 1) The capitalist partner shall bring to the common fund any profits accruing to him from his transaction, and 2) iecnall personally bear all the losses. (Art.PARTNERSHIP 663 Rules on sharing of partnership liabilities to third persons 1. Nature of liability a. Pro rata = ‘The liability of the partnership shall be equally divided among the partners. ____ The sharing should be equal because the liability is imposed on all the partners including an industrial. partner whose proportionate share cannot be determined in the absence of a profit and loss sharing agreement since he has no capital contribution. b. Subsidiary - Each partner shall be liable with his separate property after all the assets of the partnership have been exhausted. (Art. 1816) 2. Partners liable All general partners whether: a. capitalist partner, or b. __ industrial partner. 3, Status of stipulation exempting a partner from pro rata and subsidiary liability after the exhaustion of partnership assets Void as to third persons. b. Valid among the partners. (Art. 1817) ‘The stipulation, however, will not totally exempt a partner because his contribution will still be subject to the payment of partnership liabilities. This is to reconcile Art, 1817 with Art. 1799 which declares void any stipulation excluding a partner except in the case of an industrial from losses, partner. ‘Accordingly, if there is such stipulation, the liabilities shall be paid as follows: a. The assets of the partnership shall first be used to pay the liabilities,664 PARTNERSHp ssets are not sufficient, id equally from the separate rs including any industria, b, If the partnership as liability shall be pat assets of the partne! partner. c ‘Thereafter, the partners not exempted from a rata and. subsidiary ability shall reimburse according to the partners’ profit and loss sharing in the ratio of their capital agreement or : cevtibution, whichever is applicable, to the following partners the amount paid by them: 1) Industrial partner whom the law exempts from _ losses. 2) General partners exempted from pro rata and subsidiary liability. Example: Calixto, Hebron, Austria, Roxas and Mendez are partners in the firm CHARM Sales Company. Calixto is an industrial partner, while the rest are capitalist partners with Hebron contributing 20,000.00; Austria, P30,000.00; _—_Roxas, 10,000.00; and Mendez, P40,000.00. The partners stipulated that Hebron shall not be liable for liabilities of the partnership after its assets are exhausted. After several years of operational losses, CHARM’s assets dwindled to 120,000.00, while its liabilities reached 160,000.00. How shall the liabilities be paid? bh The assets of P120,000.00 shall first be exhausted. This application leaves a balance of P40,000.00 of the liabilities. 7 2. The amount of P40,000.00 shall be shared equally by the five partners at P8,000.00 each to be paid out of their separate assets. eo Based on the ratio of the cay il partn i pital contributi oe Austra, anes and Mendez of 3:1:4, the eal hare al See ie aera of P40,000.00 is P15,000.00, 000.00, respectively, while none are due from Calixto and Hi table: lebron, as shown in the followingPARTNERSHIP 655 Payment to | Actual Share funder] Partner Creditors | In Liability eat : Calixto P 8,000.00/P ~~ None |P 8,000.00 ak 8,000.00 None 8,000,00 nasi 8,000.00 15,000.00 | (7,000.00) foxas 8,000.00 5,000.00 3,000.00 Mendez 8,000.00 20,000.00 | _ (12,000.00) As shown in the above table, Austria, and Mendez are to give an additional amount of 7,000.00 and P12,000.00, respectively, to return Calixto’s payment of P8,000.00, Hebron’s payment of P8,000.00, and Roxas’ overpayment of P3,000.00. Requirement to operate under firm name ‘A partnership shall operate under a firm name, which may or may not include the name of one or more of the partners. ‘Those who, not being members of the partnership, include their names in the firm name, shall be subject to the liability of a partner. (Art. 1815) Obligations of partners 1. Contribution of capital To contribute equally to the capital of the partnership unless there is @ stipulation to the contrary. (Art. 1790) 2. Obligations with respect to contribution of property a To deliver to the partnership at the time it was Jonstituted or on the date stipulated the property he has promised to contribute. b. To take care of the property before its delivery to ’ the parinership with the diligence of a good father ofa family asa rule. (Art. 1163) To be liable for damages in case of default. 4. To answer for eviction in case the partnership is deprived of the specific or determinate thing he has Contributed to the partnership.666 PARTNERSHIP e. To be liable for the fruits of the thing from the time they should have been delivered without the need of any demand. (Art. 1786) :ontribution of money nership at the time it was fate stipulated the money he Obligations with respect to a. To deliver to the part constituted or on the d has promised to contribute. b. To pay interest on the amount contribute from the time he sh with his obligation. ¢. To pay damages suffered by the partnership by reason of the default. (Art. 1788) he had promised to ould have complied mount appropriated partnership the amount that ship coffers. Obligations with respect to a1 a. To reimburse to the he has taken from the partner’ the amount he had converted b. To pay interest on 4 conversion. for his own use from the time of c. To pay the damages suffered by the partnership by reason of the conversion. (Art. 1788) Obligation to contribute additional capital To contribute additional share to the capital in case of an imminent loss of the business of the partnership, except: 1) Ifhe is an industrial partner, or a. 2) If there is an agreement to the contrary. b. To sell his interest to the other partners if he sehaaes contribute such additional capital. (Art. 1791) Obligation of a partner who has received his share of the partnership credit To bring to the partnership ca; J t pital his share of a partnership ce which he nas received in whole or in part even if he may have given his following requisites are present: eaePARTNERSHIP 667 a. me other partners have not collected their shares, an b. ‘The debtor becomes insolvent after the partner has received the payment. (Art. 1793) Obligation to pay damages to the partnership ; ‘To pay to the partnership for damages suffered by it through his fault. 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. (Art. 1794) Obligation to bear risk for property contributed To bear the risk of specific and determinate things owned by him which are not fungible, contributed to the partnership so that only their use and fruits may be for the common benefit. ‘The partnership shall bear the risk for the following contributions of partners: Fungible things or those that cannot be kept without deteriorating. b. Things contributed to be sold. ‘Things brought and appraised in the inventory unless there is a stipulation. (Art. 1795) ‘The purpose of such appraisal, as a rule, is to determine how much shall be credited to the capital account of the partner bringing the property to the partnership. a. Obligation to render information ‘fo render on demand true and full information of all things affecting the partnership to: a Any partner, or b. Legal representative of any deceased partner, or608 10. 1. PARTNERSHip c. Legal representative of any partner under legay disability. (Art. 1806) Obligation to account To account to the pal hold as trustee for it any profil the consent of the partner connected with the formation, the partnership or from use by 1807) rtnership for any benefit, ang ts, derived by him without ¢ from any transaction ‘conduct, or liquidation of him of its property. (Art, Liability of a newly-admitted partner for obligations of the partnership a. Obligations existing at the time of his admission He ig liable but only to the extent of his contribution except if there is an agreement that his liability shall extend to his separate property. b. Obligations incurred after his admission He shall be liable like the other partners pro rata with their separate property after the partnership assets have been exhausted. (See Art. 1826.) Rights of partners i ‘To associate another person with him in his share. ‘The share referred to is the partner's share of the profits. The associate shall not be admitted into the partnership without the consent of all the partners, even if the partner having an associate should be a manager. (Art. 1804) To have access to and inspect and copy the partnership books at reasonable hours. The partnership book shall be kept at the principal place of business of the partnership, subject to any agreement between the partners. (Art. 1805) fs tare a formal account of partnership affairs (Art.PARTNERSHIP 669 he is wrongfully excluded from the partnership iness or possession of its property by his co- partners. pone If the right exists under the terms of any agreement. With respect to benefits or profits derived by a partner without the consent of the partners from any transaction connected with the formation, conduct, or liquidation of the partnership or from use by him of its property. (Art. 1807) Whenever other circumstances render it just and reasonable. 4. Property rights of a partner a. His rights in specific partnership property (Art. 1810) A partner is co-owner with his partners of specific partnership property. Such co-ownership has the following incidents (Art. 1811): 1) A partner, except as provided by law and as agreed upon by the partners, has an equal right with his partners to possess specific partnership property for _ partnership purposes; however, he has no right to possess such property for any other purpose without the consent of his partners. 2) The right is not assignable except in connection with the assignment of rights of all the partners in the same property. ‘The right is not subject to attachment or execution except on a claim against the partnership. When a partnership property is attached for 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. 3)670 4) His interest in the y) 2) 3) PARTNERSHp ‘The right is not subject tO legal support, partnership (Art. 1810) jnterest in the partnership jg A partner's hig share of the profits and surplus, (Art, 1812) : a He may convey his whole interest in the partnership. a) The conveyance does not cause the | f the partnership. dissolution 0! b) The assignee does not become a partner. Accordingly, he has no right: (1) To interfere inthe management of the business. (2) To require any information of partnership transactions. (3) To inspect partnership books. ‘The assignee’s rights shall be limited to the following: (1) To receive the profits to which the assigning partner would otherwise be entitled. (2) To avail himself of the usual remedies in case of fraud in management. (@) Im case the partnership is dissolved, to require an account from the date only of the last account agreed to by all the partners. A partner's interest in the s partnership may be eliache for his separate debts, subject © preference for partnership creditors. However, the il pwever, partner may avail himself of the ‘exemption laws as againstPARTNERSHIP 671 his separate creditors after the partnership debts have been paid. (Art. 1814) c. His right to participate in management. (Art. 1810) Application of payment when a person owes separate demandable debts to the partnership and to the Periase authorized to receive payment le If the partner authorized to receive payment issues the receipt for the partnership, payment shall be applied to the partnership credit. If the partner authorized to receive payment issues his own receipt, payment shall be applied to the two credits proportionately (Art. 1792) ‘There shall be no proportionate application, i., payment shall be applied to the partner's credit in its entirety in any of the following cases: a. ‘The debt is owed to a partner not authorized to receive payment. b, ‘The debt to the partnership ‘s not yet due. ‘The debt owed to the partner authorized to receive payment is more onerous to the debtor and the latter exercises his right to apply the payment to such debt. Example: D owes C 10,000.00. He also owes P10,000.00 to ABC and Company of which C is the managing partner who is authorized to collect the credits of the partnership. Both debts are already due. D pays C P10,000.00 informing C that the amount is in payment of D's debt to him. Accordingly, C issues his own receipt. The payment here will be divided proportionately between C’s credit and the partnership credit at P5,000.00 each. Partner C Should not place his interest before that of the partnership. However, payment will be applied to C’s credit alone in the following instances: If the debt of D to C is more onerous to D, such as a. When the debt is secured by a pledge of D's ring,672 b. If the debt of D to C is already due ant PARTNERSHIp and D exercised his right to apply the Payment to his debt to C. d that due to ABC and Company is not yet due. c. If C is not the manager or the partner authorized to collect the debts due to the partnership. Obligations of the partnership to the partners 1 3. any amounts he may have To pay to the partner hhip with interest from the time disbursed for the partners! the expenses were made. To pay for the obligations which a partner may have contracted in good faith in the interest of the partnership business. To answer for risks in consequence of its management. (Art. 1796) Obligations of partnership for wrongful acts of partner/s ‘The partnership shall be solidarily liable with all the partners in the following cases: 1. For loss or injury caused to a third person or any penalty is incurred by reason of the wrongful act or omission of any partner acting in the ordinary course of the business of the partnership or with the authority of his co-partners. (art. 1822) Where one partner acting within the scope of his apparent authority receives money or property of a third person and misapplies it. Where the partnership in the course of the business receives money or property of a third-person and such money or property is misapplied by any ile it in the custody of the paticahigr TAR eh eee ae Note: The solidary liability as may be noted from the foregoing rules, applies only if the act 2 ; S of the partner i in the ordinary course of business, or with actual or cpeeet autheel