PARTNERSHIP

[Part 2]

Art. 1776 – Classification of Partnership

 
a.        as to object/subject matter
1.        Universal Partnership
-  may   refer to all   the present
property or to all the profits
a.          universal of all present property
- that which the partners contribute all the property which actually belongs to them to a common
 
b.          universal of profits
-          comprises all that the partners may acquire by their industry or work during the existence of the partnership
2.        Particular Partnership
- object are determinate things, their use or fruits; a specific undertaking or the exercise of a profession or occupation
 
b.        as to liability of partners
1.        General
- they are liable even with respect to their individual properties, in pro rata after the assets of the partnership 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
2.        Limited
-          formed by two or more persons 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
 
         A limited partner is one whose liability is limited only up to the extent of his contribution
 
c.        as to duration
1.        at will
2.        at a fixed term
-          the term of existence has been agreed upon expressly or impliedly
-          the expiration of the term thus fixed or the accomplishment of the particular undertaking specified will cause the
automatic dissolution of the partnership
 
d.        as to legality of existence
1.        de jure –
2.        de facto
 
e.        as to representation
1.        ordinary/real
2.        ostensible/ partnership by estoppel
 
f.          as to publicity
1.        secret
2.        open or notorious
 
g.        as to purpose
1.        commercial
2.        professional
 
         Kinds of Partners
1.        Capitalist Partners
-          one who furnishes capital;
-          not exempted from losses; can engage in other business provided there is no competition between the partner
and his business
 
2.        Industrial
-          one who furnishes industry or labor;
-          can be a general partner but never a limited partner;
 -          exempted from losses as between the partner; cannot engage in any other business without express consent of
the partners, otherwise
- he can be excluded from the firm (plus damage)
- or the benefits he obtains from the other business can be availed of by the other partners (plus damages)
 
3.        General/Real
-          one who is liable beyond the extent of his contribution
 
4.        Managing
-          one who manages actively the firm’s affairs
 
5.        Liquidating
-          one who liquidates or winds up the affairs of the firm after it has been dishonored
 
6.        Partner by estoppel/Quasi-partner
-          one who is not really a partner but who may become liable as such insofar as third persons are concerned
 
7.        Continuing
8.        Surviving
9.        Subpartner
 
         Other classifications
a.        ostensible partner
-          one whose connection with the firm is public and open
 
b.        secret
-          one whose connection with the firm is concealed or kept a secret
 
c.        silent
-          one who does not participate in the management, though he shares in the profits or losses
 
d.        dormant/sleeping
-          one who is both a secret and silent partner (not managing)
 
e.        original
f.          incoming
g.        retiring
 
Arts. 1778-80 – Universal Partnership
 
         2 kinds of Universal Partnership
A. Universal property of all present property
-          one which comprises all that the partners may acquire by their industry or work during the existence of the
partnership and the usufruct of movable or immovable property which each of the partners may possess at the time
of the celebration of the contract.
         The following become common property of all the partners:
1.        property which belonged to each of them at the time of the construction of the partnership
2.        profits which they may acquire from the property contributed
 
         Property which the partners may acquire subsequently by inheritance, legacy or donation cannot be included for
the stipulation for common enjoyment
         Fruits thereof may be included
 
B. All profits
-          comprises all that the partners may acquire by their industry or work during the existence of the partnership
 
         Distinction between all profits and all present property
 
         All profits
-          only the usufruct of the properties of the partners become common property; naked ownership is retained by each
of the partners
-          all profits required by the industry or work of the partners become common property
         All present property
-          all the property actually belonging to the partners are contributed- and said properties become common properties
-          as a rule, aside from the properties, only the profits of the said contributed common property
         Note:
-          profits from other sources may become common, but only if there is a stipulation to such effect.
-          Properties subsequently acquired by inheritance, legacy or donation, cannot be included in the stipulation, but the
fruits thereof can be included in the stipulation
 
Art. 1781 – Presumption in favor of partnership of profits
 
-          applicable only when a universal partnership has been entered into
 
         note:
-          future property cannot be included in the stipulation regarding universal partnership of all present property
Reasons:
1.        contracts regarding successions rights cannot be made;
2.        partnership demands that the contributed things be determinate, known and certain;
3.        universal partnership of all present properties really implies a donation and future property cannot be donated
 
 
Art. 1782 – Persons prohibited by law to give donation- cannot enter into Universal Partnership
 
Reason: they should not be allowed to do indirectly what the law forbids directly
 
Art. 1783 – Particular Partnership
- it has for its object determinate things, their use of fruits, or specific undertaking, or the exercise of a profession or
vocation
 
         Doctrine:
If two (2) individuals form a particular partnership for a deal in reality, it does not necessarily follow that all deals are for
the benefit of the partnership.  In the absence of agreement, each particular deal results in a particular partnership. If one
of them, on his account, and using his own funds, should make transactions in the same business, it is his own
undertaking
 
II. Obligations of the Partners among themselves
 
Art. 1784 – When partnership begins
 
General Rule:
-          begins from the moment of the execution of the contract
Exception:
-          unless it is otherwise stipulated
 
         Intent to create a future partnership
         Art 1784 presupposes that there can be a future partnership which at the moment has no juridical existence
yet
         The agreement for a future partnership does not itself result in a partnership. The intent must be later on
actualized by the formation of the intended partnership
 
         Rule if contributions have not yet been actually made
- generally, even if contributions have not yet been made, the firm already exists, for partnership is a consensual contract
(all requisites for such consent must be present)
 
Art. 1785 – Duration of Partnership
 
         Duration: unlimited in the sense that no time limit is fixed by law; may be agreed upon (expressly or impliedly)
 
         Partnership “at will”
- 2 kinds
a.        when there is no term, express or implied
b.        when continued by habitual managers
 
-          note:
It is called “at will” because its continued existence really depends upon the will of the partners or even on the will of
any of them.
 
Art. 1786 – Duties of Parties
         3 Important Duties of a partner
1.        to contribute what has been promised;
2.        to deliver the fruits of what should have been delivered; and
3.        to warrant
 
         Obligations with respect to contribution of property
1.        to contribute at the beginning of the partnership or at the stipulated time the money, property or industry which he
may have promised to contribute;
2.        to answer for eviction in case the partnership is deprived of the determinate property contributed; and
3.        to answer to the partnership for the fruits of the property the contribution of which he delayed, from the date they
should have been contributed up to the time of actual delivery
 
in addition, the partner has the obligation:
 
4.        to preserve said property with the diligence of a good father of a family pending delivery to the partnership; and
5.        to indemnify the partnership for any damage caused to it by the retention of the sane or by the delay in its
contribution
 
         Effects of failure to contribute property promised
        The mutual contribution to a common fund being of the essence of the contract of partnership, for without the
contributions the partnership is useless, it is but logical that the failure to contribute is to make the partner ipso jure a
debtor of the partnership even in the absence of any demand.
 
        The remedy of the partner is not rescission but an action for specific performance with damages and interest from
the defaulting partner from the time he should have complied with his obligation.
 
Art. 1787 – Appraisal of Goods
 
-          manner prescribed by the contract of partnership in the absence of stipulation, appraisal shall be made by
experts chosen by the partners and according to current prices
 
A.       When contribution consist of goods
- appraisal of value is needed to determine how much has been contributed
 
B.       How appraisal is made
- as prescribed by the contract
- in default of the first, experts chosen by the partners, and at current prices
 
C.       Necessity of the Inventory Appraisal
- proof is needed to determine how much goods or money had been contributed. An inventory is useful
               
D.       Risk of loss
- after goods have been contributed, the partnership bears the risk of subsequent changes in their value
 
Art. 1788- Obligations with respect to contribution of money
 
1.        to contribute on the date due the amount he has undertaken to contribute to the partnership;
2.        to reimburse any amount he may have taken from the partnership coffers and converted to his own use;
3.        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 for his own use; and
4.        to indemnify the partnership for the damages caused to it by the delay in the contribution or the conversion of
any sum for his personal benefit
 
         Liability of guilty partner for interest and damages
 -          the guilty partner is liable for interest and damages not from the time judicial or extrajudicial demand is made but
from the time he should have complied with his obligation or from the time he converted the amount to his own use,
as the case may be.
-          Unless there is a stipulation fixing a different time, this obligation of a partner to give his promised contribution
arises from the commencement of the partnership, that is, upon perfection of the contract.
 
         Cases covered by the article:
a.        when money promised is not given on time;
b.        when partnership money is converted to the personal use of the partner
 
         Coverage of liability
a.        interest at the agreed rate (if none, the legal interest)
b.        damages that may be suffered by the partnership
 
         Why no demand is needed to put partners in default:
a.        contribution
-          a partnership is formed precisely to make use of contributions, and this use should start from its formation, unless
a different period has been set; otherwise the firm is necessarily deprived of the benefits thereof
- injury is constant
- time is of the essence
b. conversion
-          the   form   is   deprived   of   the
benefits of the money, from the      very moment of conversion
 
         note: even if no actual injury results, the liability exists because Art. 1788 is absolute
 
Art. 1789 – Obligations of an Industrial Partner
 
Remedies where industrial partner engages in business
-          if the industrial partner engages in business for himself, without the express permission of the partnership, the
capitalist partners have the right to exclude him from the firm or to avail themselves of the benefits which he may
have obtained.  In either case, the capitalist partners have the right to damages
 
note: the permission given must be express; hence, mere toleration by the partnership will not exempt the industrial
partner from liability
 
Distinction between Capitalist Partner and Industrial Partner
a. as to contribution
CP – contributes money or property
IP – contributes industry (mental or physical)
 
b. as to prohibition to engage in other business
CP – cannot generally engage in the same or similar enterprise as that of his firm (possibility of unfair competition)
IP – cannot engage in any business for himself (all his industry is supposed to be contributed to the firm)
 
c. as to profits
CP – shares in the profits according to the agreement thereon; if none, pro rata to his contribution
IP – receives a just and equitable share
 
d. as to losses
CP – stipulation; if no stipulation, the agreement as to the profits; if none, pro rata contribution
IP – exempted as to losses (as between the partners0; but is liable to strangers without prejudice to reimbursement
from capitalist partners
 
Art. 1790  - Contribution
 
General Rule: Partner shall contribute equal shares to the capital of the partnership
 
Exception: stipulation to the contrary
 
         Amount of contribution
-          it is permissible to contribute unequal shares, if there is a stipulation to that effect
 
         To whom applicable
-          both to industrial as well as to capital partners undoubtedly
 
Art. 1791 – Obligation of Capitalist Partner
 
General Rule:
-          a capitalist partner is not bound to contribute to the partnership more than what he agreed to contribute but in
case of imminent loss of the business, and there is no agreement to the contrary, he is under obligation to contribute
an additional share to save the venture.
-          if he refuses to contribute, he shall be obliged to sell his interest to the other partners
 
         Requisites when a capitalist partner is obliged to sell his interest to the other partners:
1. if there is imminent loss of the partnership;
2. he refuses to contribute an additional share to the capital; and
3. there is no agreement to the contrary
 
         note: industrial partner is exempted for he is already giving his entire industry
 
Art. 1792 – Obligations of Managing Partner who collects debt
         Requisites:
a.        existence of at least two debts;
b.        both sums are demandable; and
c.        collecting partner is authorized to manage and actually manages the partnership
   
         when not applicable
-          if the partner collecting is not a managing partner
-          here, there is no basis for the suspicion that the partner is in BAD FAITH
 
Art. 1793 – Obligation of Partner who receives share of partnership credit
-          to bring such to the partnership capital in case of insolvency of the debtor and other partners have not yet
collected their share
 
         as compared to Art. 1792
a.        one debt only (firm credit)
b. applies to any partner
 
Art. 1794 – Obligation of partner for damages to partnership
 
         Why General Damages cannot be offset by benefits:
 
a.        the partner has the duty to secure benefits for the partnership; on the other hand, he has the duty also not to be at
fault
b.       since both are duties, compensation should not take place, the partner being the debtor in both instances
-          compensation requires 2 persons who are reciprocally debtors and creditors of each other
 
         Mitigation of Liability
-          equity may mitigate liability if there are “extraordinary efforts” resulting in unusual “profits”
 
         Need for Liquidation
-          before a partner sues another for alleged fraudulent management and resultant damages, a liquidation must first
be effected to know the extent of damages
 
Effect of Death of the negligent Partner
-          suit for recovery may be had against his estate
 
Art. 1795 – Risk of Loss of things contributed
 
Cases contemplated:
1.        Specific and determinate things which are not fungible where only the use is contributed
-          the risk of loss is borne by the partner because he remains the owner of the things
2.        Specific and determinate things the ownership of which is transferred to the partnership
-          the risk of loss is for the account of the partnership, being the owner
3.        Fungible things or things which cannot be kept without deteriorating even if they are contributed only for the use of the
partnership
-          the risk of loss is borne by the partnership for evidently the ownership was being transferred since use is
impossible without the things being consumed or impaired
4.        Things contributed to be sold
-          the partnership bears risk of loss for there cannot be any doubt that the partnership was intended to be the owner;
otherwise’ the partnership could not effect the sale
5.        Things brought and appraised in the inventory
-          the partnership bears the risk of loss because the intention of the parties was to contribute to the partnership the
price of the things contributed with an appraisal in the inventory.  There is thus an implied sale making the
partnership owner of the said things, the price being represented by their appraised value.
 
Art. 1796 – Responsibility of the Firm
 
Obligation of the partnership to the partners:
1.        refund amounts disbursed by the partner in behalf of the partnership plus the corresponding interest from the time
the expenses are made;
2.        to answer for the obligations the partner may have contracted in good faith in the interest of the partnership
business; and
3.        answer for risk in consequence of its management
 
Art. 1797 – Rules for Distribution of Profits and Losses
 
         Distribution of Profits
a.           partners share the profits according to their agreement subject to Art. 1799
b.           if there is no such agreement:
1.        the share of each capitalist partner shall be in proportion to his capital contribution (this rule is based on the
presumed will of the partners)
2.        the industrial partner shall receive such share, which must be satisfied first before the capitalist partners shall
divide the profits, as may be just and equitable under the circumstances.
-          the share of the industrial partner in the profits is not fixed, as in the case of the capitalist partners, as it is
very difficult to ascertain the value of the services of a person
 
         Distribution of Losses
a.        the losses shall be distributed according to their agreement subject to Art. 1799
b.        if there is no such agreement, but the contract provides for the share of the partners in the profits, the share of
each in the losses shall be in accordance with the profit-sharing ratio, but the industrial partner shall not be liable
for losses. The profits or losses of the partnership cannot be determined by taking into account the result of one
particular transaction but of all the transactions had.
c.        If there is also no profit-sharing stipulated in the contract, then losses shall be born by the partners in
proportion to their capital contributions, but the purely industrial partner shall not be liable for the losses.
 
         Industrial Partner’s Profit
-          a just and equitable share
 
         Industrial Partner’s Losses
-          while he may be held liable by third persons, still he can recover whatever he is made to give them, from the other
partners, for he is exempted from losses, with or without stipulation to this effect
 
         Non-applicability to Strangers
-          Art. 1797 applies only to the partners, not when liability in favor of strangers are concerned, particularly with
reference to the industrial partner
 
Art. 1798 – Designation by Third Persons
 
a.        third person
- in the article, not a partner; to avoid partiality
               
b.       when designation by the 3rd party may be impugned
- when it is manifestly inequitable
 
c.        when designation cannot be impugned even if manifestly inequitable:
- if the aggrieved partner has already begun to execute the decision
- if he has not impugned the same within 3 months from the time he had knowledge thereof
 
Art. 1799 – (1) Stipulation excluding a partner from any share in profits or losses
 
General Rule:
-          a stipulation excluding one or more partners from any share in the profits or losses is void
Reason: partnership is for COMMON BENEFIT
 
Exception:
-          in the case of the industrial partner whom the law itself excludes from losses
note: stipulation exempting a partner from losses should be allowed
 
         Reason why industrial partner is generally exempted from losses
-          the industrial partner cannot withdraw any labor or industry he had already exerted.
 
Art.1800 - Rights and Obligations of a Managing Partner
 
         Modes of Appointing  a Manager
1.        appointment as manager in the articles of partnership
2.        appointment as manager made in an instrument other than the articles of partnership or made orally
 
         Distinction between Appointment in Articles of Partnership and Appointment from other Source (other than the articles
of partnership)
 
a.        as to power
Partnership – power is irrevocable without just or lawful cause
-          to justify removal for just cause: controlling partners should vote to oust him
-          without just cause: there must be unanimity
 
other source  - power to act may be revoked at any time, with or without just cause
 
-          such appointment is a mere delegation of power; revocable at any time
-          removal shall also be done by the controlling interest
 
b.        as to extent of power
Partnership
         good faith – he may do all acts of administration (not ownership) despite the opposition of his partners
         bad faith – he cannot
 
other source – as long as he remains manager, he can perform all acts of administration, but of course, if the others
oppose and he persists, he can be removed
 
         Scope of the Powers of the Manager
Unless specifically restricted:
-          he has the powers of a general agent;
-          as well as the incidental powers needed to carry out the objectives of the partnership
 
         Rules as to Compensation
General Rule:
-          in the absence of an agreement to the contrary, each member of the partnership assumes the duty to give his
time, attention, and skill to the management of its affairs, so far at least, as may be reasonable necessary to the
success of the common enterprise; and for this service a share of the profits is only his compensation.
Exception:
a.        a partner engaged by his co-partners to perform services not required of him in fulfillment of the duties which the
partnership relation imposes and in a capacity other  than that of a partner is entitled to receive the compensation
agreed upon therefor;
b.        a contract for compensation may be implied where there is extraordinary neglect on the part of one partner to
perform his duties toward the firm’s business, thereby imposing the entire burden on the remaining partner;
 c.        one partner may employ his co-partner to do work for him outside of and independent of the co-partnership, and
become personally liable therefor;
d.        partners exempted by the terms of partnership from rendering services to the firm may demand pay for services
rendered;
e.        where one partner is entrusted with the management of the partnership business and devotes his whole time and
attention thereto, at the instance of the other partners who are attending to their individual business and giving no
time or attention to the business of the firm, the case presents unusual conditions, is taken out of the general rule as
to compensation and warrants the implication of an agreement to make compensation, In such cases, the amount of
compensation depends, of course, upon the agreement of the parties, express or implied, as well as upon the
particular circumstances of the case; and
f.          by the contract of partnership, one partner is exempted from the duty of rendering personal services to the
concerned, if he afterwards does render such service at the instance and request of his co-partners, or where the
services rendered are extraordinary.
               
Art. 1801 – Rule where there are 2 or more Managers
 
         Applicability of the Article
1.           there are two or more managers;
2.           there is no specification of respective duties; and
3.           there is no stipulation requiring unanimity
 
         Specific Rules:
1.        Each may separately execute all acts of administration;
2.        except if any of the managers should oppose (division of the majority of the managers shall prevail)
-          if there is a tie, the partners owning the controlling interest prevail; provided they are also managers
 
         when opposition may be made
-          before the acts produce legal effects insofar as third persons are concerned
 
Art. 1802 – Unanimity of Action
 
         When Unanimity is Required
a.        applies when there must be unanimity in the actuations of the managers
b.        absence or incapacity of one of the managers still requires unanimity
except:
-          when there is imminent danger of grave or irreparable injury to the partnership
 
         Duty of third persons
RULE:
        Third persons are not required to inquire as to whether or not a partner with whom he transacts has the consent of
all the managers, for the presumption is that he acts with due authority and can bind the partnership.
 
APPLICABILITY:
When they innocently deal with a partner apparently carrying on in the usual way the business, it is imperative that if
unanimity is required it is essential that there be unanimity; otherwise the act shall not be valid, that is the partnership is
not bound.
 
Art. 1803 – Rule when manner of management has not been agreed upon
 
a.        Generally, each partner is an agent
b.        Although each is an agent, still if the acts are opposed by the rest, the majority should prevail for the
presumed intent is for all the partners to manage as in Art. 1801;
c.        When a partner acts as an agent, it is understood that he acts in behalf of the firm; therefor when he acts in
his own name, he does not bind the partnership generally
d.        On the other hand, the authority to bind the firm does not apply if somebody else had been given authority to
manage in the articles of organization or thru other means.
         Rule on Alterations
a.        “important alterations”
-          deals with immovable property because of their greater importance than personality. Also, in proper cases,
they should be returned to the partners in the same condition as when they were delivered to the partnership
 
b.        “alteration”
 -          contemplates useful expenses
 
c.        consent of the others may be express or implied
 
Art. 1804 – Contract of Subpartnership
 
Subpartnership – 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
                - partnership within a partnership and is distinct and separate from the main or principal partnership
 
         Right of person associated with partner share
-          subpartnership agreements do not in any wise affect the composition, existence, or operations of the firm.  The
partners are partners inter se,  but, in the absence of the mutual assent of all the parties, the subpartner does not
become a member of the partnership, even the agreement is known to the other members of the firm.
 
         Associate of Partner
a.        for a partner to have an associate in his share, consent of the other partners is not required;
b.        for the associate to become a partner, all must consent
 
Art. 1805 – Partnership Books
 
a.        such a right is granted to enable the partner to obtain true and fuel information of the partnership affairs
b.        the article presupposes an “ongoing partnership”
c.        “reasonable hour”
- contemplates business days throughout the year
 
         Value of Partnership Books of Account as Evidence
-          they constitute an admission of the facts stated therein, an admission that can be introduced on evidence as
against the keeper or maker thereof.
 
Art. 1806 – Duty of Partner to render Information
 
         Duty to give information
-          there must be no concealment between partners in all matters affecting the firm’s interest
-          requires good faith
-          duty to give on demand “true and full information”
 
Errors in the Book
-          if partnership books contain error, but said errors have not been alleged, the books must be considered entirely
correct insofar as the keeper of said books of account is concerned
 
Who can demand information
a.        any partner;
b.        legitimate representative of dead partner;
c.        legitimate representative of any partner under any legal disability
 
Art. 1807 – Duty to Account
 
         Partner accountable as fiduciary
-          the relation between the partners is essentially fiduciary involving trust and confidence, each partner being
considered in law, as he is, the confidential agent of the others
 
         Duties of a partner
1.        Duty to act for common benefit
2.        Duty begins during the formation of partnership
3.        Duty continues even after dissolution of partnership
4.        Duty to account for secret and similar profits
5.        Duty to account for earnings accruing even after termination of partnership
6.        Duty to make full disclosure of information belonging to partnership
7.        Duty not to acquire interest or right adverse to partnership
 
         Duty to Account
 REASON:
-          the fiduciary relation between the partners are relationships of trust and confidence which must not be abused or
used to personal advantage
-          trust relations exists only during the life of the partnership, not before nor after
 
Art. 1808 – Prohibition against a Capitalist Partner
 
         Business Prohibition on Capitalist Partner
-          prohibited from engaging for his own account in any operation which is the kind of business in which the
partnership is engaged
 
Instances where there is no prohibition
a.        when there is an express stipulation allowing the capitalist partner to engage himself;
b.        when the other partners expressly allow him to do so;
c.        when the other partners impliedly allowed him to do so;
d.        when the company ceases to be engaged in business during the period of liquidation and winding up; and
e.        when the general-capitalist partner becomes merely a limited partner in a competitive enterprise
 
         Effect of Violation
a.         the violator shall bring the partner shall of the profits illegally obtained;
b.         he shall personally bear all the losses
 
         Art. 1809 – Right of Partner to a Formal Account
 
Right to demand a formal account
a.               generally, no formal accounting is demandable until after dissolution
b.               however, under Art. 1809, formal accounting may be properly asked for
 
Estoppel
-          cannot be questioned anymore if it was accepted without objection for this would now be a case of estoppel,
unless fraud and error are alleged and proved
 
         Stipulation and Continuing Share
-          valid and proper accounting must be made
 
III. Property Rights of a Partner
 
Art. 1810 – Property Rights of a Partner
 
Principal Rights:
a.        specific partnership
b.        interest in the partnership
c.        right to participate in the management
 
Related Rights:
a.        the right to reimbursement for amounts advanced to the partnership and to indemnification for risks in
consequence of management;
b.        the right to access the inspection of partnership books;
c.         the right to true and full information of all things affecting the partnership;
d.        the right to formal account of partnership affairs under certain circumstances; and
e.        the right to have the partnership dissolved also under certain conditions
 
Distinction between Partnership Property and Partnership Capital
 
a.        as to changes in value
PP – variable; its value may vary from day to day with changes in the market value of the partnership assets
PC – constant; remains unchanged as the amount fixed by agreement of partners, and is not affected by fluctuations
in the value of partnership property, although it may be increased or diminished by unanimous consent of the
partners
b.        as to assets included
PP – includes not only the original capital contributions of the partners, but all property subsequently acquired on
account of the partnership or with partnership funds, including partnership name and the good will of the partnership
 PC – represents the aggregate of the individual contributions made by the partners in establishing or continuing the
partnership
 
Art. 1811 – Partnership in Specific  Partnership Property
 
         Co-ownership in Specific Partnership Property
- partners are co-owners but rules on co-ownership does not necessarily apply
 
         Rights of a partner in specific partnership property
1.        in general, he has an equal right with his partners to posses, but only for partnership purposes;
2.        he cannot assign his right;
3.        his right is not subject to attachment or execution; and
4.        his rights is not subject to legal support
 
Art. 1812 – Partner’s Interest in the Partnership is his share of the profits and surplus
 
                In general., a partner’s interest in the partnership (his share in the profits and surplus) may be assigned, attached or
be subject to legal support
 
Art. 1813 – Conveyance of Interest
 
         Effects of conveyance by partner of his Interest in the Partnership
1.         Partnership may still remain; partnership may be dissolved
2.         Assignee does not necessarily become a partner
3.         Assignee cannot even interfere in the management or administration of the partnership business or affairs
4.         Assignee cannot demand information, accounting or inspection of the partnership books
 
         Rights of Assignee
1.         to get whatever profits the assignor-partner would have obtained;
2.         to avail himself of the usual remedies in case of fraud in the management;
3.         to ask for annulment of the contract of assignment if there was  fraud, error, intimidation, force, undue influence;
4.         to demand an accounting
 
Art. 1814 –
 
Charging Interest of a Partner
-          while a partner’s interest in the partnership may be charged or levied upon, his interest in a specific firm property
cannot as a rule be attached.
 
         Preferential Rights of Partnership Creditors
-          preference is given to partnership creditors in the partnership assets;
-          separate or individual creditors have preference in separate or individual properties
 
         Remedies of separate Judgment Creditor of a Partner
1.        Application for the “charging order” after securing judgment on his credit
2.        Availability of other remedies
 
         Receivership
a.        when the charging order is applied for and granted, the court may at the same time or later appoint a receiver of
the partner’s share in the profits or money due him
b.        the receiver appointed is entitled to any relief necessary to conserve the partnership assets for partnership
purposes
 
         Redemption of the Interest Charged
a.                redemption- means the extinguishment of the  charge or attachment on the partner’s interest in the profits;
b.                when redemption is made
-          any time before closure;
-          after closure, it may still be bought with separate property or with partnership property
 
IV. Obligation of the Partners with regard to Third Persons
 
Art. 1815 – Firm Name
 
         Firm Name
-          name, title or style under which a company transacts business; a partnership of two or more persons; a
commercial house
 
         Purpose
-          necessary to distinguish the partnership which has a distinct and separate juridical personality from the individuals
composing the partnership and from other partnerships and entities.
 
         Liability of strangers who include their name
-          liability as partners because of estoppel, but do not have the rights as partners
 
Art. 1816 – Liability for Contractual Obligations of Partners
 
         Partnership Liability
         Individual Liability
 
Liability Distinguished from Losses
-          an industrial partner is exempted by law for losses’ but not from liability;
-          third persons may sue the firm and the partners, including the industrial partners;
-          partners will be personally liable only after the assets of the partnership have been exhausted
 
Stipulations such as those exempting all the industrial partners and some of the capitalist partners, insofar as third
persons are concerned, would be null and void
 
Art 1817 –  Stipulations Eliminating Liability
 
Art. 1799 and 1817 reconciled:
-          it is permissible to stipulate among them that a capitalist partner will be exempted from liability in excess of the
original capital contributed; but will not be exempted insofar as his capital is concerned           
 
Liability vs. Losses
Liability – refers to responsibility towards third persons
Losses – refers to responsibility as among partners
 
Art. 1818 – Partner as an Agent of Partnership
 
When a partner can bind or cannot bind the firm
a.        Art. 1818 speaks of an instance when the partner is an agent; and
b.        when he can and cannot bind as agent
         Agency of a partner
-          partnership is a contract of mutual agency
-          each partner acting as a principal on his own behalf and as an agent for his co-partners or the firm
 
When can a partner bind the partnership
                Requisites:
a.            when he is expressly authorized or impliedly authorized; and
b.            when he acts in behalf and in the name of the partnership
 
When will act not bind the partnership
A.       when, although for apparently carrying on in the usual way the business of the partnership,” still the partner
has in fact NO AUTHORITY, and the third party knows that the partner has no authority;
B.       when the act is not for apparently carrying on in the usual way of the partnership and the partner has no
authority
 
NOTE:  The 7 kinds of acts enumerated in Art. 1818 are instances of acts which are NOT for apparently carrying on
in the usual way the business of the partnership.
                In the 7 instances, the authority must be unanimous except if the business has been abandoned.
 
         Reasons why 7 acts are “unusual”
a.        assign the firm property – firm will virtually be dishonored
 b.        dispose of the goodwill – good will is valuable property
c.        do any other act which would make it impossible to carry on – this is evidently prejudicial
d.        confers a judgment – if done before a case is filed, this is null and void; if done later, the firm would be jeopardized
e.        compromise – an act of ownership and may be said to be equivalent to alienation
f.          arbitration – an act of ownership which may not be justified
g.        renounce a claim – why should a partner renounce a claim that does not belong to him but to the partnership?
 
Art. 1819 – Conveyance of Real Property
 
         the article speaks of “:to convey” or a conveyance
         real property may be registered or owned in the name of
- the partnership
- all the partners
- one, some or not all the partners in trust for the partnership
 
Art. 1920 – Admission or representation made by a partner
 
Conditions:
-          admission must concern partnership affairs;
-          within the scope of the authority
 
Restrictions on the rule:
a.         admission made BEFORE dissolution are binding only when the partners has authority to act on the
particular matter
b.         admissions made AFTER dissolution are binding only if the admissions were necessary to wind up the
business
 
note: a previous admission of a partner is admissible in evidence against the partnership when it is made within the
scope of the partnership, and during the existence, provided of course that the existence of the partnership is first
proved by evidence other than such act or declaration
 
Art. 1821 – Notice to a Partner
 
         Cases of Knowledge of a Partner
1.        knowledge of a partner acting in  a particular matter acquired while a partner;
2.        knowledge of a partner acting in  a particular matter then present to his mind; and
3.        knowledge of any partner who reasonably could and should have communicated it to the  acting partner
 
         Effect of Notice to a Partner
a.        in general, notice to a partner is notice to the partnership, that is, a partnership cannot claim ignorance if a partner
knew (but this is with restriction)
b.        notice to a partner, given while already a partner, is a notice to the partnership provided it relates to partnership
affairs
 
         Effect of knowledge although no notice was given
-          notice of the partner is also knowledge of the firm provided:
a.        the knowledge was acquired by a partner who is acting in the particular matter involved;
b.        the knowledge may have been acquired by a partner not acting in the particular matter involved
 
Art. 1822 – Liability of Partnership
 
         Requisites for Liability
a.        the partner must be guilty of a wrongful act or omission; and
b.        he must be acting in the ordinary course of business, or with the authority of his co-partners even if the act is
unconnected with the business
 
note: partnership liability does not extend to criminal liability
 
         Instances when the firm and other partners are not liable:
a.        if the wrongful act or omission was not done within the scope of the partnership business and for its benefit;
b.        if the act or omission was not wrongful;
c.        if the act or omission, although wrongful, did not make the partner concerned liable himself; and
 d.        if the wrongful act or omission was committed after the firm had been dissolved and the same was not in
connection with the process of winding up
 
Art. 1823 – Liability for Misappropriation
 
         Liability of partnership for misappropriation
-          the difference between par. 1 and par. 2 is that in the former misappropriation is made by the receiving partner,
while in the latter, the culprit may be any partner.  The effect however is the same in both cases
 
Art. 1824 – Solidary Liability of partners
-          not only the partners that are liable in solidum; it is also the partnership
 
Art. 1825 – Partner by Estoppel and Partnership by Estoppel
 
         Estoppel
-          a bar which precludes a person from denying or asserting anything contrary to that which has been established as
the truth by his own deed or representation, either express or implied
 
When Partnership Liability Results:
-          if all the actual partners consented to the representation, then the liability of the person who represented himself
to be a partner or who consented to such representation and the actual partners is considered a partnership liability.
 
Elements to establish liability as a partner on ground of estoppel:
1.        proof by plaintiff that he was individually aware of the defendant’s representations as to his being a partner or
that such representations were made by others and not denied or refuted by the defendant;
2.        reliance on such representations by the plaintiff; and
3.        lack of denial or refutation of the statements by the defendants; such denial need not precede plaintiff’s acting
thereon if the denial was forthcoming promptly upon hearing of the representations, and if, by prudence and
diligence the plaintiff might have learned the truth or untruth of the representations.
 
         When the problem may arise:
A person may:
a.        represent himself as a partner of an existing partnership with or without the consent of the partnership;
b.        represent himself as a partner of a non-consent partnership
 
When estoppel does not apply:
-          when although there is misrepresentation, the third party is not deceived, the doctrine of estoppel does not apply
 
Burden of Proof
                - the creditor, or whoever alleges the existence of a partner or partnership by estoppel has the burden of  proving
the existence of the misrepresentation and the innocent reliance on it
 
Art. 1826 – Entry of a New Partner
 
         Entry of a new partner into an existing partnership
-          the newly admitted partner would be liable as an ordinary original partner for all partnership obligations incurred
after his admission to the firm
 
         Creation of a new partnership in view of the entry
-          the admission of a new partner dissolves the old firm and creates a new one;
-          since the old firm is dissolved, the original creditors would not be the creditors of the new firm, but only of the
original partners; hence, they may lose their preference;
-          under the civil code, they are considered creditors of the new firm
 
         Liability of incoming partner for partnership obligations
1.        limited to his share in partnership property for existing obligations, unless there is stipulation to the contrary;
2.        extends to his separate property for subsequent obligations
 
         Liability of an Outgoing Partner
-          where a partner gives notice of his retirement or withdrawal from the partnership, he is freed from any liability on
contracts entered into thereafter, but his liability on existing incomplete contract continues.
 
          the rule of holding the new partner liable for previous obligations of the firm is not harsh on the said new partner.
After all the incoming partner partakes of the benefit of the partnership, property and an established business
 
Art. 1827 – Creditors of Partnership
 
Reason for the Preference of Partnership Creditors
 
-          after all, the partnership is a juridical person with whom the creditors have contracted; moreover the assets of the
partnership must first be executed
 
Reason why industrial creditors may still attach the partner’s share
 
-          after all, remainder belongs to the partner
 
Sale by a partner of his share to  a third party
 
-          if a partner sells his share to a third party, but the firm itself still remains solvent, creditors of the partnership
cannot assail the validity of the sale by alleging that it is made in fraud of them, since they have not really been
prejudiced