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money, 2. property, or 3. industry to a common fund, with the intention of dividing the profits among themselves. (General Professional Partnership) Two or more persons may also form a partnership for the exercise of a pr ofession. * A partnership has a juridical personality of its own, distinct and separate fr om that of each of the partners * For TAXATION PURPOSES, partnerships, except for general professional partnersh ips, are treated for income tax purposes as corporations and subject to tax as s uch Practice of Law A partnership for the practice of law is NOT a legal entity. It is a mer e relationship or association for a particular purpose such as public service. It is not a partnership formed for the purpose of carrying on a trade or business or of holding property Thus, the use of a nom de plume, assumed or trade name in law practice i s improper 1- In the matter of the petition for authority to continue use of firm name Sycip , Salazar, etc./ Ozeata, Romula, etc. (92S 1) H: Primary Characteristics w/c Distinguish the Legal Profession from Business 1. A duty of public service, of w/c emolument is a by-product, and in which one may attain the highest eminence without making much money; 2. A relation as an officer of the court to the administration of justice involvi ng thorough sincerity, integrity, and reliability; 3. A relation to clients in the highest fiduciary degree; and 4. A relation to colleagues in the bar characterized by candor, fairness, and u nwillingness to resort to current business methods of advertising and encroachme nt of their practice, or dealing directly with clients Characteristics Elements of Partnership 1. Consensual perfected by mere consent, upon the express or implied agreement o f the parties 2. Nominate it has a special name or designation in our law 3. Bilateral (or Multilateral) entered into by 2 or more persons and the rights and obligations arising from them are always reciprocal 4. Onerous each party aspire to procure for himself a benefit through the giving of something 5. Commutative undertaking of each is considered as the equivalent of that of th e others 6. Principal does not depend upon some other contract for existence or validity 7. Preparatory entered into as a means to an end Essential Features of a Partnership/ Requisites of Contract of Partnership: 1. There must be a valid contract (Art 1318) a. Consent and capacity of contracting parties b. Object which is the subject matter of the contract c. Cause or consideration 2. The parties must have legal capacity to enter into a contract
3. There must be a mutual contribution of money, property or industry to the com mon fund 4. The object must be lawful 5. The primary purpose must be to obtain profits and divide the same among parti es Valid Contract: * No such thing as partnership created by operation of law alone * FORM: oral or written, express or implied subject to provisions of 1771-1173 a nd Statute of Frauds * Articles of Partnership = customarily embody the terms of the association * If Article of Partnership are kept secret among members, there is no legal per sonality and the relationship will be governed by rules on co-ownership (1775) Doctrine of Delectus Personae: (Choice of the Person/s) * No one can be a member of the partnership w/o the consent of all the others * REASON: fiduciary nature of the partnership relation and the liability of each partner for the acts of the others within the scope of the partnership business * Partners have the power but not necessarily the right to dissolve the partners hip. Legal Capacity to Enter into a Contract of Partnership 1. Individuals a. The following cannot give consent to a contract of partnership * Unemancipated minors * Insane or demented persons * Deaf-mutes who do not know how to read or write * Persons suffering from civil interdiction * Incompetents under guardianship (Art 1327, 1329; Art 34RPC; Rules 93-94 of RC) b. Persons who are prohibited from giving each other donations cannot enter into a universal partnership ? husbands and wives (spouses may enter into a particular partnership) ? common law spouses c. A married woman may enter into a contract of partnership w/o her husbands con sent but he may object on valid, serious or moral grounds (Art 87 & 73 of FC) 2. Partnership may be a partner in another partnership (the partnership formed i s called RESULTING PARTNERSHIP) 3. Corporations a. Unless authorized by a statute or its charter, a corporation is w/o capacity or power to enter into a contract of partnership * REASON based on public policy, a corporation can only act through its BOD b. BUT it may enter into a joint venture partnership with another where the natu re of the joint venture is in line with the business authorized by its statute c. IF a foreign corp. is a limited partner in a limited partnership for investme nt purposes only = not be deemed doing business in the Philippines Joint Venture: (Joint Adventure) Joint Adventure is an informal partnership, with no firm name and no leg al capacity. It is an American concept similar to our joint accounts. In Joint A ccount, the participating merchants can transact business under their own name, and can be individually liable therefor. Usually, but not necessarily, it is limited to a single transaction, although the business of pursuing it to a successful termination may continue for a numb er of years. Though it may Joint Adventure Partnership exist for a single transaction, usually contemplates the undertaki Ordinarily limited to a single transaction; it is not intended to pursue a conti ng of a general & continuous business
When businessremains to firm business, can bind himself, partnership, and his Property contributed undivided of partnership and nuousacting pursuancebelongs to theits contributor hence of all the partners c used No firm name Operate under None of the a firm name o-partners joint adventurers can bind the joint adventure or hi co-adventurers Business is Each Account a under Does partner participatesbusiness by Operates operate firm and managed en only business Jointnot under(sociedadade cuentasnameparticipacion) Partnership transactednamein the conduct ofone of them in his own name and on hi s own liability, so that the public has no way of knowing that there are other p 3rd person business Partner thenot only bind himself only against the manager eople incanhas the right of actionbut also his co-partners nor can other associ Liquidation and accounting,of manager ates sue those who deal w/ thetherule, is thethe business is of every partner p accounting as a results of right and duty the sole duty and rerogative of the manager Sharing of Profits 1. Merely presumptive and not conclusive evidence of partnership 2. The object of a partnership is primarily a sharing of profits, while the dis tribution of losses is but a consequence of the same 3. How losses are shared: (Art 1797) a. according to the agreement (but cannot exclude any of the partners -- 1799) b. in accordance with the profit-sharing ratio c. in proportion to the amount contributed to the partnership (BUT purely indust rial partner shall not be liable for losses) MERCANTILE VIEW OF PARTNERSHIP: (as opposed to COMMON LAW that views partnership not as a juridical person) ART 1768. The partnership has a juridical personality separate and distinct from that of each of the partners, even in case of failure to comply with the requir ements of Art. 1772(1). ART. 1772(1): Every contract of partnership having a capital of P3,000 or more, in money or property, shall: 1. appear in a public instrument, 2. which must be recorded in the SEC Art 1772(1) is not intended as a pre-requisite to acquire juridical pers onality BUT merely as condition for issuance of license. Partnership can in general: (Art 46 NCC) 1. Acquire and possess property of all kinds 2. Incur obligations 3. Bring civil or criminal actions 4. Can be adjudged as insolvent even if the individual members be each financial ly solvent Instances when there is no juridical personality: 1. Failure to make an inventory when an immovable property is contributed (1773) 2. Secret associations or societies (1775) RULES TO DETERMINE THE EXISTENCE OF PARTNERSHIP: ART 1769. In determining whether a partnership exists, these rules shall apply: 1. Except as provided by Art. 1825 (partner by estoppel), persons who are not pa rtners as to each other are not partners as to third persons; 2. Co-ownership or co-possession does not of itself establish a partnership, whe ther such-co-owners or co-possessors do or do not share any profits made by the use of the property; 3. The sharing of GROSS returns does not of itself establish a partnership, whet her or not the persons sharing them have a joint or common right or interest in any property from which the returns are derived; 4. The receipt by a person of a share of the PROFITS of a business is prima faci e evidence that he is a partner in the business, but no such inference shall be drawn if such profits were received in payment: a. As a debt by installments or otherwise; b. As wages of an employee or rent to a landlord; c. As an annuity to a widow or representative of a deceased partner; d. As interest on a loan, though the amount of payment vary with the profits of
the business; e. As the consideration for the sale of a goodwill of a business or other proper ty by installments or otherwise. Requisites for Existence of Partnership: It must be proved that: 1. There was intention to create a partnership 2. There was a common fund obtained from contributions 3. There was a joint interest in the profits Principle of Estoppel (1825) ? A person holds himself out as a partner in an enterprise ? There is no actual or legal partnership relation but merely a partnership liab ility imposed by law in favor of third persons ? Under this doctrine, PERSONS LIABLE are: the person representing and the partn ers who consented ? Partnership becomes liable where all of the partners consent to such represent ation Reasons Why Co-ownership Does NOT Necessarily Establish a Partnership 1. There must be an intent to form a partnership 2. The net profit of a partnership must be derived from operation of the busines s and not merely from the incident of co-ownership Sharing of GROSS Profits 1. Does NOT constitute prima facie evidence of the existence of a partnership 2. Reason because the essential feature of a partnership is the sharing of the n et profits as a partner is also interested in the sharing of the losses and liab ilities Sharing of NET Profits 1. Constitutes prima facie evidence of the existence of a partnership but NOT co nclusive evidence 2. It is not merely the sharing of profits but the sharing of them as co-owner t hat makes one a partner (TEST: has a voice in management) Incidents of Partnership (immediately follow once partnership is established) 1. Partners share in profits and losses 2. They have equal rights in the management and conduct of the partnership busin ess 3. Every partner is an agent of the partnership 4. All partners are personally liable for the debts of the partnership with thei r separate property EXCEPT limited partners are not bound beyond the amount of t heir investment 5. A fiduciary relation exists between the partners 6. On dissolution, partnership is not terminated but continues until winding up of partnership is completed
A a Disposal An agreement Nopartner Duration may personality Purposecreated common duration own Haslimitation not Juridical Personalitythe of Generallyof torealizationof his exist w/o or a interest years partnership so Alwaysjuridicalby disposethingprofitsindividual right Creationiscreated bycontract mayof a thing a more than Co-ownershipInterestslaw andseparate and for contract 10in the is Partnershiptheuponatheenjoymentundivided distinct from each partnernot allowed a none keep partnership In the absence 3rd persons Power to may of any stipulation to the contrary, partner may bind the A co-owneran w/freely do so s to makeact assignee a partner, unless agreed uponaby all the partners partne Death Effect ofthe co-owner does the co-ownership A co-owner cannot results not necessarily dissolve partnership rship of adeath representin the dissolution of thethe partnership partner Partnership, Liability There is of of Contributions pecuniary No contribution a capital, Organized for personality although fees in usually place for Purpose Personality Nonejuridicalas ofrule, Hassuch objectivemembers capital, liable arethe firstcollected the Juridical Association Voluntarycontribution is the Partnership members ofprofit oneeither money, property or services debts of th Members e firm are individually liable for the debts of the association Broader Creation of both Agency term sincea principal (for his own interests) and partners Partnership partnership results in mutualaagencyof agencyan agent (for the firm A partner is partnership is only form among the Agentthe others) for himself but only for his principal (agent incurs no persona and never acts A partner, in l liability) the absence of specific agreement, is not subject to control of th e other partners. He can bind the partnership despite objection from his co-part
ners so long as his act is necessary for carrying on the partnership business in Ordinary agent merely takes the agreed measure Partner subject share of the of principal of Agent istakes histo the controlprofits as co-ownercompensation for his services ordinary manner A partnertrustee are principals partners Trustee Trust All of the only co-owner with is not an isfor each other Businessisis a aand not the beneficiariesagentspecific partnership property Partnershipmembersprincipal andhisand agentsofempowered to make contracts to car Only the ry on the business affairs and the only one who has legal title to the property By mere agreement of 1. Manner operation of law Corporation Partnership As To: or of Creationthe parties law Requires Minimum ofof Incorporators 2. Numberat2least 5 incorporators persons From the moment issuance of of the contract of incorporation by the SEC 3. Commencement of Juridical Personality date of execution the certificate 4. Powers Can exercise onlypowerpowers: May any the provided it is not contrary to law, morals 1. Expressly granted by law 2. implied from those granted 3. incident to its existence When not agreed 5. Management upon, every partner is an agent and can perform acts of administ Power rationis vested in the Board of Directors or Trustees 6. Effect of Mismanagement A partner can sue a co-partner who mismanages The suit against the board member who mismanages must be in the name of the corp oration 7. Right of Succession Partners 8. such right HasExtent(except limited 3rd persons No rightsaof liability topartners) are liable personally and subsidiarily and ev en sometimes solidarily 9. Tranferability of Interest Stockholders are liable only to the extent of the shares subscribed by them A partner cannot transfer his interest to make the transferee a partner w/o the consent of ALL existing partners because the partnership is based on the princip le of delectus personae A stockholder has the right to transfer his shares w/o the prior consent of the May be 10. Term of Existence others established for any period of time as stipulated A limited formed for is required by law 50 years 11. Firm name May not bepartnership a term in excess ofto add the word Ltd. to its name 12. Dissolution at any time by the will same or all of the partners May adopt any name provided it is not theof anyas any registered firm name be dissolved Civil Code 13. Governing Law Can only be dissolved with the consent of the State Corporation Code ESSENTIAL ELEMENTS OF A CONTRACT OF PARTNERSHIP: ART 1770. A partnership: 1. must have a lawful object or purpose, and 2. must be established for the common benefit or interest of the partners. When an unlawful partnership is dissolved by a judicial decree, the prof its shall be confiscated in favor of the State, without prejudice to the provisi ons of the Penal Code governing the confiscation of the instruments and effects of a crime. Consequences of a Partnership Formed For Unlawful Purposes 1. The partnership never existed in the eyes of the law; void ab initio 2. The profits shall be confiscated in favor of the government 3. The instruments or tools and proceeds of the crime shall also be confiscated in favor of the government 4. The contributions/capital of the partners shall NOT be confiscated unless the y are in the form of instruments or tools ? A judicial decree is not necessary to dissolve an unlawful partnership ? IMPLIED: partners contributions must be reimbursed (but Bautista opines that no recovery can be made invoking 1412 since the partners knew that the undertak ing was illegal)
ART 1771. A partnership may be constituted in any form, EXCEPT where immovable p roperty or real rights are contributed thereto, in which case a public instrumen t shall be necessary. GR: No special form required for validity of the contract of partnership EXCEPTION: 1. Public instrument is necessary where immovable property or real rights are co ntributed 2. To affect 3rd persons, partnership contract must be registered if real proper ties are involved 3. An agreement to form a partnership at a future time more than a year, is cove red by Statute of Frauds, thus, must be in writing ART 1772. Every contract of partnership having a capital of P3,000 or more, in m oney or property, 1. shall appear in a public instrument, 2. which must be recorded in the Office of the SEC. Failure to comply with the requirements of the preceding paragraph shall not affect the liability of the partnership and the members thereof to third pe rsons. Failure to Comply with the Requirements of Notarization and Registration will NO T Prevent the Partnership From: 1. acquiring legal personality 2. being liable to 3rd persons ART 1773. A contract of partnership is void, whenever immovable property is cont ributed thereto, if an inventory of said property is not made, signed by the par ties, and attached to the public instrument. Essential Requisites for Validity of a Partnership When Immovable Property is Co ntributed Thereto 1. Contract must be in a Public Instrument 2. An inventory of the property contributed must be made, signed by the parties and attached to the public instrument 3. In order to bind 3rd persons, the contract must be registered in the ROD wher e the property is located Q: A: When is an inventory not required? When the immovable property is not contributed by any of the partners
Summary of Formalities for the Creation of a Partnership: 1. GR: partnership can be constituted in any form due to its consensual characte r 2. Personal Property a. less than 3T = may be oral b. P3T or more = public instrument registered w/ SEC (req. is merely for licensi ng purposes) 3. Real Property (regardless of value) a. public instrument, with an attached inventory (otherwise, partnership has no legal personality; Bautista opines that only the inventory is necessary) and b. registered with ROD to affect 3rd persons 4. Limited Partnership = registered with SEC (otherwise it will be considered a general partnership) ART 1774. Any immovable property or an interest therein may be acquired in the p artnership name. Title so acquired can be conveyed only in the partnership name.
ART 1775. Associations and societies, 1. whose articles are kept secret among the members, and 2. wherein any one of the members may contract in his own name with third person s, shall have NO juridical personality, and shall be governed by the provisions rel ating to co-ownership. ? Although it has no juridical personality, it can be sued in its common name BU T it cannot sue 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 o r limited. Classifications of Partnership 1. As to OBJECT a. UNIVERSAL one w/c refers to all the present property or to all profits * of ALL PRESENT PROPERTY * of PROFITS b. PARTICULAR the object is determinate thins, their use or fruits; a specific u ndertaking, or the exercise of a profession or occupation (1783) 2. As to LIABILITY of the PARTNERS a. GENERAL or ordinary one consisting of general partners who are liable pro rat a and subsidiarily and sometimes solidarily, with their separate property for pa rtnership debts b. LIMITED or Sociedad en Comandita one formed by one or more general partners a nd one or more limited partners * limited partners shall not be personally liable for the obligations of the par tnership * general partner s name shall appear in the name of the firm 3. As to DURATION a. at WILL no time specified and not formed for a particular undertaking (1785) b. with a FIXED TERM partnership is to exist on a fixed or agreed term or for a particular undertaking 4. As to LEGALITY of its EXISTENCE a. DE JURE one w/c has complied w/ all the legal requirements for its establishm ent b. DE FACTO one w/c has failed to comply with the legal requirements for its est ablishment 5. As to REPRESENTATION to OTHERS a. ORDINARY or REAL actually exists among the partners and as to 3rd persons b. OSTENSIBLE or BY ESTOPPEL considered as a partnership only in relation to tho se who, by their conduct or admission, are precluded to deny or disprove its exi stence 6. As to PUBLICITY a. SECRET one wherein the existence of certain persons as partners is not made k nown to the public by any of the partners b. OPEN or NOTORIOUS one whose existence is made known to the public 7. As to PURPOSE a. COMMERCIAL one formed for the transaction of a business b. PROFESSIONAL one formed for the exercise of a profession Kinds of Partners 1. CAPITALIST one who contributes money or property to the common fund
2. INDUSTRIAL one who contributes only his industry or personal services 3. GENERAL OR REAL one whose liability to 3rd persons extends to his separate p roperty; he may either be a capitalist, or industrial partner 4. LIMITED OR SPECIAL one whose liability to 3rd persons is limited to his own ca pital contribution 5. MANAGING one who manages the affairs of the partnership 6. LIQUIDATING one who takes charge of the winding up of the partnership affairs upon dissolution 7. PARTNER BY ESTOPPEL (Quasi-Partner; Nominal Partner) one who is not really a partner but is liable as a partner for the protection of innocent 3rd persons 8. CONTINUING one who continues the business of the partnership after it has bee n dissolved due to retirement or death of one or more of the other partners 9. SURVIVING one who remains after a partnership has been dissolved by death of any partner 10. SUB-PARTNER one who is not a member of the partnership, but contracts with a partner with reference to the partner s share in the partnership (partner of an e xisting partner) 11. OSTENSIBLE one who takes active part and is known to the public as a partner in business 12. SECRET one who takes active part in the business but is not known to be a pa rtners by outside parties nor held as a partner by other partners 13. SILENT one who does not take active part in the business although he may be known to be a partner 14. DORMANT (Sleeping Partner) one who does not take active part in the business and is not known or held out as a partner 15. ORIGINAL one who is a member of the partnership from the time of its organiz ation 16. INCOMING one about to be taken in as a member (his liability to partnership obligations prior to his admission can be satisfied only out of partnership prop erties, unless stipulated otherwise) 17. RETIRING one withdrawn from the partnership (not liable to obligations subse quent to his withdrawal if he has given the necessary notice of dissolution) ART 1777. A universal partnership may refer to all the present property or to al l the profits. ART 1778. A partnership of all present property is that in which the partners co ntribute all the property which actually belongs to them to a common fund, with the intention of dividing the same among themselves, as well as all the profits which they may acquire therewith. ART 1779. In a universal partnership of all present property, 1. the property which belonged to each of the partners at the time of the consti tution of the partnership, becomes the common property of all the partners, 2. as well as all the profits which they may acquire therewith. A stipulation for the common enjoyment of any other profits may also be made; but the property which the partners may acquire subsequently by: 1. inheritance, 2. legacy, or 3. donation cannot be included in such stipulation, except the fruits thereof. ART 1780. A universal partnership of profits comprises all that the partners may acquire by their industry or work during the existence of the partnership. Movable or immovable property which each of the partners may possess at the time of the celebration of the contract shall continue to pertain exclusivel y to each, only the usufruct passing to the partnership.
Property of belonged to Profits Ownership Partnership of All of them at the Universalw/c Present PropertyPresent Propertytime of the constitution of the par each tnership shall become COMMON property of all partners Partners retain their ownership over their present property -- only the USUFRUCT Profits to the partnership from the property contributed belong to the PARTNER passes fromthey may property w/c present acquire SHIP Usufruct Usufruct of to Ownership/the partnership the partnership BY STIPULATION. But ownership/ usufruc Passes tocan only pass Future Property t of prop subsequently acquired by inheritance, legacy or donation CANNOT BE INC LUDED Ownership retained by the partner Usufruct can only belong to the firm BY STIPULATION Can only Future the partnership BY STIPULATION, even fruits from prop subsequen Fruits ofpass to Property tly acquired by inheritance, legacy or donation Can only pass to the partnership BY STIPULATION (use & fruits granted to the fir m refers only to that of the prop possessed by the partner at the time of the ce lebration of the contract) Profits acquired bysources may become COMMON but only if there is a STIPULATION from other industry All that the partners may acquire by their industry or work during the existence to such effect of the partnership belongs to the partnership Retained by the thru chance Profits acquiredpartner (since law speaks only of profits by industry or work) ART 1781. Articles of universal partnership, entered into without specification of its nature, only constitute a universal partnership of profits. Presumption: The universal partnership is one of PROFITS Reason: It imposes less obligations on the partners as the naked ownership of th e property remain with the partners ART 1782. Persons who are prohibited from giving each other any donation or adva ntage cannot enter into universal partnership. ? However, a husband and his wife may enter into a particular partnership or be members thereof. ? Following donations are void: (739) o Those made between persons who were guilty of adultery or concubinage at the t ime of the donation o Those made between persons found guilty of the same criminal offense, in consi deration thereof o Those made to a public officer or his wife, descendants, and ascendants, by re ason of his office ART 1783. A particular partnership has for its object: 1. determinate things, 2. their use or fruits, or 3. a specific undertaking, or 4. the exercise of a profession or vocation. ? In Heirs of Tan Eng Kee v. CA, SC expressed the view that a joint venture may be likened to a particular partnership CHAPTER 2 Obligations of the Partners SECTION 1 Obligations of the Partners among Themselves Obligations of a Partner
1. Give his contribution (1786, 1788) 2. Not to convert firm money or property for his own use (1788) 3. Not to engage in unfair competition or engage in business similar to that of the partnership (1808) 4. Duty to hold as trustee or account for personal profits acquired for the part nership (1807) 5. Pay for damages caused by him (1794) 6. Credit to partnership payment by a debtor who owes him and the partnership (1 792) 7. Duty to share with the partners the share of what he may collect from an inso lvent debtor (1743) Rights of a 1. Property a) right in b) interest c) right to 2. Right to 3. Right to 4. Right to 5. Right to Partner: rights (1810) specific partnership property in the partnership (share in the profits and surplus)  participate in the management (1810) associate with another person in his share (1804) inspect and copy partnership books (1805) demand a formal account (1809) ask for the dissolution of the firm at the proper time (1830-1831)
Relations Created by a Contract of Partnership 1. Among the partners themselves 2. Of the partners with the partnership 3. Of the partnership with 3rd persons with whom it contracts 4. Of the partners w/ such 3rd persons ART 1784. A partnership begins from the moment of the execution of the contract, unless it is otherwise stipulated. When a Partnership is Deemed to Exist 1. General Rule from the moment of the celebration of the contract 2. Exceptions: a. When the partners stipulate some other date for the commencement of the partn ership (future partnership) b. If what was entered into was a mere agreement to enter into a contract of par tnership as a future time ART 1785. When a partnership for a fixed term or particular undertaking is conti nued after the termination of such term or particular undertaking without any ex press agreement, the rights and duties of the partners remain the same as they w ere at such termination, so far as is consistent with a partnership at will. A continuation of the business by the partners or such of them as habitu ally acted therein during the term, without any settlement or liquidation of the partnership affairs, is prima facie evidence of a continuation of the partnersh ip. Partnership With a Fixed Term one in which the term of its existence has been ag reed upon: 1. Expressly as when there is a definite period 2. Impliedly as when a particular enterprise or transaction is undertaken 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 s pecific and determinate things which he may have contributed to the partnership, in the same cases and in the same manner as the vendor is bound with respect to the vendee. He shall also be liable for the fruits thereof from the time they should
have been delivered, without the need of any demand. Obligations With Respect to Contribution of Property 1. To contribute at the beginning of the partnership or at a stipulated time, mo ney, property or industry w/c he may have promised to contribute 2. To answer for eviction in case the partnership is deprived of the determinate property contributed 3. To deliver the fruits or interest of what should have been delivered, w/o nee d of demand 4. To preserve such property with the diligence of a GFOF pending delivery to th e partnership 5. To indemnify the partnership for any damage caused to it by retention of the same or by the delay in its contribution Q: What if a partner fails to contribute the property he promised? A: He becomes ipso jure a debtor of the partnership and the remedy of the o ther partners is NOT rescission but an action for SPECIFIC PERFORMANCE with dama ges and interest from the time he should have complied with the obligation. No d emand necessary to put the partner in default. If the defaulting partner is already dead, RESCISSION may prospe r. ? There is eviction whenever by a final judgment based on a right prior to the s ale or an act imputable to the partner, the partnership is deprived of the whole or a part of the thing purchased ART 1787. When the capital or a part thereof which a partner is bound to contrib ute consists of goods, their appraisal: 1. must be made in the manner prescribed in the contract of partnership, and in the absence of stipulation, it 2. shall be made by experts chosen by the partners, and according to current pri ces, the subsequent changes thereof being for account of the partnership. 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 hav e complied with his obligation. The same rule applies to any amount he may have taken from the partnersh ip coffers, and his liability shall begin from the time he converted the amount to his own use. Liability of a Partner for Failure to Return Partnership Money Received 1. Where fraudulent misappropriation committed the partner is guilty of estafa i f he misappropriates partnership money or property received by him for a specifi c purpose of the partnership 2. When there was failure to return this not constitute estafa, the liability of the partner is a civil one arising from the partnership contract for a liquidat ion of the partnership ART 1789. An industrial partner: 1. cannot engage in business for himself, unless the partnership expressly permi ts him to do so; and 2. if he should do so, the capitalist partners may either: a. exclude him from the firm or b. avail themselves of the benefits which he may have obtained in violation of t his provision, c. with a right to damages in either case. Distinctions Contributes Contribution Industrial money Capitalist Partneror property As to:
Prohibitions against Contributes industry engaging in business Relative extends only to any operation w/c is of the same kind of business in w/ Absolute prohibited from engaging in any kind of business (absent any express st c the partnership is engaged ipulation for him to do so) Consequence of engaging in prohibited business ? Bring to common funds any profits; ? Erring partner shall personally bear the loss Entitle subject to an partners to either: ? may bethe capitalist injunction writ 1. exclude him from the firm 2. avail themselves of the benefits w/c he have obtained Receives Profits profits 1. according to the agreement or 2. pro rata to his contribution Shares Loss in the losses: Receives his just and equitable share 1. according to the stipulation as to losses or 2. agreement as to profits 3. pro rata to his contribution Exempted as to partners but not as to 3rd persons BUT is subject to reimbursemen t from the other partners ART 1790. Unless there is a stipulation to the contrary, the partners shall cont ribute equal shares to the capital of the partnership. 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 add itional share to the capital, except an industrial partner, to save the venture, shall he obliged to sell his interest to the other partners. Obligation of Capitalist Partner to Contribute Additional Capital 1. General Rule a capitalist partner is not bound to contribute to the partnersh ip more that what he agreed to contribute 2. Exception in case of imminent loss to the business and there is no agreement to the contrary, he is under the obligation to contribute an additional share to save the venture 3. If he refuses to contribute, he shall be obliged to sell his interest to othe r partners Requisites Before a Capitalist Partner May be Obliged to Sell His Interest to th e Others: 1. There is imminent loss 2. Majority of the CP are of the opinion that an additional contribution to the common fund would save the business 3. The CP deliberately refuses to contribute an additional share to the capital 4. There is no agreement that even in case of imminent loss, the partners are no t allowed to contribute ? Industrial partner is exempted because he is already giving his entire industr y ART 1792. If a partner authorized to manage: * collects a demandable sum which was owed to him in his own name, * from a person who owed the partnership another sum also demandable, * the sum thus collected shall be applied to the 2 credits in proportion to thei r amounts, * even though he may have given a receipt for his own credit only; * but should he have given it for the account of the partnership credit, * the amount shall be fully applied to the latter. The provisions of this article are understood to be without prejudice to the right granted to the other debtor by Art. 1252, but only if the personal cr
edit of the partner should be more onerous to him. Obligation of Managing Partner Who Collects Debts 1. Where a 3rd party is indebted to: a. the partnership, AND b. the managing partner at the same time 2. Any sum received by the MP shall be applied to the 2 credits in proportion to their amounts 3. Except where he received it for the account of the partnership 4. In w/c case the whole sum shall be applied to the partnership credit only 5. However, the 3rd party debtor is given the right to prefer payment of the cre dit to the partner if it should be more onerous to him in accordance w/ his righ t to application of payment Requisites 1. There are at least 2 debts: a. one where the collecting partner is the creditor b. one where the partnership is the creditor 2. Both debts are demandable 3. The partner who collects is authorized to manage and actually manages the par tnership ART 1793. A partner who has received, in whole or in part, his share of a partne rship credit, when the other partners have not collected theirs, shall be oblige d, 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 on ly. Applies to any managing One Two 1793debtonly (firm credit) 1792debtsonlytopartner partner Obligation of the Partner Who Receives Credit 1. Here there is only one credit in favor of the partnership 2. The partner who receives his share of the partnership credit may be the MP or not 3. Such partner is obliged to bring to the partnership capital what he received Requisites 1. A partner has received, in whole or in part, his share of the partnership cre dit 2. The other partners have not collected their shares 3. The partnership debtor has become insolvent 4. Only applies while the partnership is in existence and not after it dissoluti on ART 1794. Every partner is responsible to the partnership for damages suffered b y it through his fault, and he cannot compensate them with the profits and benef its 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, unus ual profits have been realized. * There must first be a liquidation before a partner sues another to know the ex tent of damages * If negligent partner is already dead, suit for recovery may be had against his estate ART 1795. The risk of specific and determinate things, 1. which are not fungible, 2. contributed to the partnership so that only their use and fruits may be for t he common benefit, 3. shall be borne by the partner who owns them.
1. 2. 3. 4.
If the things contributed: 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 apprai sed in the inventory, shall also be borne by the partnership, and in such case t he claim shall be limited to the value at which they were appraised. Risk of Loss of Things Contributed Specific and Determinate things: Who Bear the Loss Thing Contributed 1. NOT fungible Partner and Determinate wherecannot be is w/o deteriorating if they 2. only the USE ishethe ownerthe owner keptTRANSFERRED to partnership are contr Partnership Specific things or contributed ownership Fungible because things w/c being remains Partnership because it is impossible to ibuted ONLY for the USE of the partnershipuse such things w/o them being consumed Partnership and to be intention of the parties was to contribute to the partne Things contributedappraised in or impaired because theSOLD the INVENTORY bought rship the price of the things contributed ART 1796. The partnership shall be responsible to every partner: 1. for the amounts he may have disbursed on behalf of the partnership and for th e corresponding interest, 2. from the time the expense are made; it 1. he 2. shall also answer to each partner: for the obligations he may have contracted in good faith in the interest of t partnership business, and for risks in consequence of its management.
Obligation of Partnership to Partners 1. Refund the amounts disbursed by the partner (other than capital contribution) in behalf of the partnership plus interest 2. Answer for the obligations the partner may have contracted in good faith in t he interest of the partnership 3. Answer for risks in consequence of its management ART 1797. The losses and profits shall be distributed in conformity with the agr eement. If only the share of each partner in the profits has been agreed upon, t he 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 indus trial partner shall not be liable for the losses. As for the profits, the industrial partner shall receive such share as m ay be just and equitable under the circumstances. If besides his services he has contributed capital, he shall also receiv e a share in the profits in proportion to his capital. Rules for Distribution of Profits and Losses 1. PROFITS a. According to agreement b. If no agreement: * share of each CP shall be in proportion to his contribution * the IP shall receive such share, w/c must be satisfied first before the CP sha ll divided the profits, as may be just and equitable under the circumstances 2. LOSES
a. According to agreement b. If no such agreement but the contract provides for the shares of the partners in the profits: * losses shall be in accordance with the profit sharing ratio * but IP shall not be liable for losses c. If no profit sharing stipulated * losses shall be borne by the partners in proportion to their capital contribut ion * the purely IP shall not be liable for losses ART 1798. If the partners have agreed to intrust to a third person the designati on of the share of each one in the profits and losses, such designation may be i mpugned only when it is manifestly inequitable. In no case may a partner: 1. who has begun to execute the decision of the third person, or 2. who has not impugned the same within a period of three months from the time h e had knowledge thereof, 3. complain of such decision. The designation of losses and profits cannot be intrusted to one of the partners. Entrusting to a 3rd Person the Share in Profits and Losses 1. The designation of the share in profits and losses may be delegated to a 3rd person by common consent 2. This designation is generally binding on the partners UNLESS manifestly inequ itable 3. Therefore, a partner: a. who has begun to execute the decision of the third person, or b. who has not impugned the same within a period of three months from the time h e had knowledge thereof, can no longer complain 4. Reason to forestall any paralyzation of the partnership ART 1799. A stipulation which excludes one or more partners from any share in th e profits or losses is void. Note 1. This only applies to a CP 2. IP not included because he cannot w/draw his capital w/c is his industry 3. It is the stipulation that is void but the partnership exists ART 1800. The partner who has been appointed manager in the articles of partners hip may execute all acts of administration despite the opposition of his partner s, unless he should act in bad faith; and his power is irrevocable without just or lawful cause. The vote of the partners representing the controlling interest shall be necessary for such revocation of power. A power granted after the partnership has been constituted may be revoke d at any time. 2 Modes of Appointing a Manager 1. In the Articles of Partnership (AP) a. Manager may execute all acts of administration despite the opposition of the other partners b. His power is revoked only: * if he acted in bad faith * upon just and lawful cause * upon the vote of the partners representing the controlling interest * (to remove him WITHOUT A CAUSE, or for an UNJUST CAUSE, there must be unanimit
y (including his own vote)) c. In case of mismanagement, the other partners may avail of the usual remedies such as dissolution by judicial decree 2. After the Constitution of the Partnership a. This may be revoked at any time for any cause whatsoever b. Reason revocation is not founded on a change of the will on the part of the p artners, the appointment not being a condition of the contract; merely a contrac t of agency w/c may be revoked at any time Scope of Power of the MP 1. General Rule a partner appointed as MP has: a. all the powers of a general agent (acts of administration) as well as b. the incidental powers necessary to carry out the object of partnership in the transaction of its business 2. Exception when the powers of the MP are specifically restricted ART 1801. If two or more partners have been intrusted with the management of the partnership: 1. without specification of their respective duties, or 2. without a stipulation that one of them shall not act without the consent of a ll the others, 3. each one may separately execute all acts of administration, a. but if any of them should oppose the acts of the others, the decision of the majority shall prevail. b. In case of a tie, the matter shall be decided by the partners owning the cont rolling interest. Where the Respective Duties of 2 or More Managing Partners are NOT Specified 1. Rule Each one may separately perform acts of administration 2. Consequences a. If one or more of the MP s shall oppose the acts of the others the decision of the majority (per head) of the MP s shall prevail b. In case of a tie the matter shall have to be decided by the vote of the partn ers owning controlling interests Requisites 1. 2 or more partners have been appointed as MP s 2. There is no specification of their respective duties 3. There is NO stipulation that one of them shall not act w/o the consent of the others ART 1802. In case it should have been stipulated that none of the managing partn ers shall act without the consent of the others, 1. the concurrence of ALL shall be necessary for the validity of the acts, and 2. the absence or disability of any one of them cannot be alleged, unless there is imminent danger of grave or irreparable injury to the partnership. Where Unanimity of Action is Stipulated 1. General Rule - When it is stipulated that none of the MP s shall act w/o the co nsent of the others, a unanimous consent of all the MP s shall be necessary for th e validity of such acts 2. Exception when there is imminent danger of grave irreparable injury a. In such case, a MP may act alone w/o the consent of the partner who: * is absent, or * under disability b. But he may be later be liable for damages 3. However, the ground of imminent danger of xxx.. is NOT applicable when one of the MP s objects to the proposed act
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 Art. 1801. 2. None of the partners may, without the consent of the others, make any importa nt alteration in the immovable property of the partnership, even if it may be us eful 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 intervent ion may be sought. Rules When Manner of Management has NOT been Agreed Upon 1. All partners are considered managers and agents a. whatever anyone of them may do alone shall bind the partnership b. but in case of timely opposition of any partner * the matter shall be decided by majority vote * in case of a tie the matter shall be decided by the vote of the partners repre senting controlling interest 2. Unanimous consent is required for alteration of immovable property a. If the refusal to give consent by other partners is manifestly prejudicial to the interest of the partnership the intervention of the court may be sought for authority to make necessary alteration b. Reason for necessity of court intervention because any alteration of immovabl e property is an act of dominion in w/c all partners must consent 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 mana ger. Contract of Sub-Partnership 1. A partner may associate a 3rd person w/ him in his share w/o the consent of the other partner this 3rd person is called a SUBPARTNER 2. Subpartner a. cannot be a member of the partnership w/o the consent of all the other partne rs b. therefore he does not acquire the rights of a partner nor is he liable for it s debts 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 p artner shall at any reasonable hour have access to and may inspect and copy any of them. Reasonable Hours: Reasonable hours on business days throughout the year and not merely dur ing some arbitrary period of a few days chosen by the managing partners Duty to Render Information: ART 1806. Partners shall render on demand true and full information of all thing s affecting the partnership to: 1. any partner or 2. the legal representative: a. of any deceased partner or b. of any partner under legal disability. ART 1807. Every partner: 1. must account to the partnership for any benefit, and 2. hold as trustee for it any profits derived by him without the consent of the other partners:
a. from any transaction connected with the formation, conduct, or liquidation of the partnership or b. from any use by him of its property. Conditions for the application of 1807: 1. The transaction is of a kind that the partnership can legally embrace and act upon; 2. The transaction is connected with the formation, conduct or liquidation of th e partnership or use of the partnership property by the accused partner; 3. The transaction is of such nature that it is within the scope of the business of the firm; 4. The transaction complained of comprehends something of value to the partnersh ip, whether or not it is of a present or prospective value; and 5. The transaction is one that the accused partner has acted upon to his apparen t or sole advantage without the full knowledge or consent of his other partners ? consent referred to is informed consent the giving of an intelligent consent with knowledge of the fact necessary to
Pang Lim v. Lo Seng (42 P 282) F: Lim and Seng were partners on a leased land. The partnership put up improveme nts on the land which will belong to the landowner when the lease ends. Lim sold his share to Seng. Subsequently, Lim was able to bought the land and is now ask ing Seng to vacate. H: Lim cannot ask Seng to vacate since Lim is in bad faith Lim obviously desired the termination of the lease, in order to avail hi mself of the benefits of the improvements which would go to the owner of the lan d, as per stipulation in the lease contract. Moreover, when he sold his rights a s a partner, this included the right to the lease. For him to now disregard the lease, from which sale he had profited, would be most unfair, considering that h e seeks to destroy an interest derived from himself, and for which he has alread y received full value. Finally, one partner cannot, to the detriment of another, apply exclusively to his own benefit the results of the knowledge and informati on gained in the character of partner. ART 1808. The capitalist partners cannot engage for their own account in any ope ration which is of the kind of business in which the partnership is engaged, unl ess there is a stipulation to the contrary. Any capitalist partner violating this prohibition shall bring to the com mon funds any profits accruing to him from his transactions, and shall personall y bear all the losses. Instances When CP is NOT Prohibited From Engaging in Business 1. When there is a stipulation to the effect 2. When the business is not similar to the partnership 3. When other partners expressly or impliedly allowed him to do so 4. When the general-capitalist partner becomes merely a limited partner in a com petitive enterprise for after all, a limited partner does not manage Effects of Violation 1. CP shall be under obligation to bring to the common fund any profits derived from his transaction 2. In case of losses, CP shall bear them alone 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 i ts property by his co-partners; 2. If the right exists under the terms of any agreement; 3. As provided by article 1807;
4. Whenever other circumstances render it just and reasonable. Right of Partner to a FORMAL Account 1. General Rule During the existence of the partnership, a partner is NOT entitl ed to a formal account of partnership affairs 2. Exception - Art. 1809 3. Prescriptive Period a. the right to demand accounting exists as long as the partnership lasts b. it begins to run only upon the dissolution of the partnership when the final accounting is done SECTION 2 Property Rights of a Partner 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 Extent of Property Rights of a Partner 1. a. b. c. 2. a. on b. c. d. e. PRINCIPAL Rights His rights in specific partnership property His interest in the partnership (partner s share in profit) His right to participate in the management RELATED Rights To reimbursement for amounts advanced to the partnership and to indemnificati for risks in consequence of management Of access and inspection of partnership books To true and full information of all things affecting the partnership To formal account of partnership affairs under certain circumstances To have the partnership dissolved under certain conditions
Distinctions 1. Its Capitalvalue may vary Partnership Property from day to day with changes in the market value of the pa rtnership assets 2. Includes not only the original capital contributions of the partners but all 1. Its value remains acquired although of the partnership, including goodwill property subsequentlyunchanged,on accountit may be decreased or diminished by un animous consent of the partners 2. Represents the aggregate of the individual contributions made by the partners ART 1811. A partner is co-owner with his partners of specific partnership proper ty. The incidents of this co-ownership are such that: 1. A partner, subject to the provisions of this Title and to any agreement betwe en the partners, has an equal right with his partners to possess specific partne rship property for partnership purposes; but he has no right to possess such pro perty for any other purpose without the consent of his partners; 2. A partner's right in specific partnership property is not assignable except i n connection with the assignment of rights of all the partners in the same prope rty; 3. A partner's right in specific partnership property is not subject to attachme nt or execution, except on a claim against the partnership. When partnership pro perty is attached for a partnership debt the partners, or any of them, or the re
presentatives 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 su pport under Art. 291. Specific Partnership Property 1. Contemplates tangible property but NOT intangible thing such as a beneficial right to land of the public domain 2. A partner is co-owner with his partners of SPP but the rules on co-ownership do not necessarily apply 3. Fishpond of public domain = not considered SPP because only use and enjoyment is granted (Deluao v. Casteel) Incidents of Co-ownership of SPP 1. Equal Right of Possession LIMITATIONS: a. Not exclusive other partners also have a right of possession b. For partnership purposes only no partner can possess or use the SPP other tha n for partnership purposes w/o the consent of the other partners c. Subject to agreement and provision of NCC 2. Right NOT Assignable a partner cannot separately assign his right to SPP BUT ALL of them can assign their rights to the same property (SPP) a. This is because it is impossible to determine the extent of his beneficial in terest until the liquidation of partnership affairs b. Reasons for the non-assignability of partner s right in SPP: * it prevents interference by outsiders in partnership affairs * it protects the right of other partners and partnership creditors to have part nership assets applied to firm debts * it is often impossible to measure or value a partner s beneficial interest in a SPP c. Exception Under Art. 1840, the retiring partner is allowed to assign his righ ts in partnership property to partners continuing the business 3. Right Limited to Share of What Remains After Partnership Debts Have Been Paid a. SPP is not subject to attachment, execution, garnishment or injunction * w/o the consent of all the partners * except on a claim against the partnership b. When SPP is attached for partnership debts the partners cannot claim any righ t under the homestead or exemption laws c. Right of the partners to SPP is NOT subject to legal support * Reason the SPP belongs to the partnership and not to the partners * But their interest in the partnership is subject to legal support ART 1812. A partner's interest in the partnership is his share of the profits an d surplus. Partner s Interest in the Partnership - Consists of is share in the undistributed: 1. PROFITS during the life of the partnership as a going concern * Net income of the partnership for a given period of time 2. SURPLUS after the dissolution of the partnership * Assets of the partnership after partnership debts and liabilities are paid and settled and the rights of the partners among themselves are adjusted Distinctions Cannot be: Interests Partnership Rights 1. Assigned 2. Attached Can be: 3. The subject of legal support 1. assigned 2. attached 3. the subject of legal support
ART 1813. A conveyance by a partner of his whole interest in the partnership doe s not of itself: 1. dissolve the partnership, or, 2. as against the other partners in the absence of agreement, a. entitle the assignee, during the continuance of the partnership, * to interfere in the management or administration of the partnership business o r affairs, or * to require any information or account of partnership transactions, or * to inspect the partnership books; b. but it merely entitles the assignee to receive in accordance with his contrac t the profits to which the assigning partner would otherwise be entitled. However, in case of fraud in the management of the partnership, the assi gnee may avail himself of the usual remedies. In case of a dissolution of the partnership, the assignee: 1. is entitled to receive his assignor's interest and 2. may require an account from the date only of the last account agreed to by al l the partners. Rights of Assignee of Partner s Interest 1. To receive, in accordance w/ his contract, the profits accruing to the assign ing partner 2. To avail himself of the usual remedies provided by law in the event of fraud in the management 3. To receive the assignor s interest in case of dissolution 4. To require an account of partnership affairs Charging Order or Lien: ART 1814. Without prejudice to the preferred rights of partnership creditors und er Art. 1827, on due application to a competent court by any judgment creditor o f a partner, the court which entered the judgment, or any other court, 1. may charge the interest of the debtor partner with payment of the unsatisfied amount of such judgment debt with interest thereon; and 2. 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 3. make all other orders, directions, accounts and inquiries which the debtor pa rtner 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 consen t 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, i f any, under the exemption laws, as regards his interest in the partnership. Remedies of a Separate Judgment Creditor of a Partner 1. He can apply for a Charging Order after securing judgment on his credit a. Because a creditor of a partner cannot attach SPP for the satisfaction of his credit b. By virtue of the CO, any amount or portion thereof w/c the partnership would otherwise pay to the debtor-partner should be given instead to the judgment cred itor 2. This remedy is w/o prejudice to the preferred rights of the partnership credi tors 3. The court may resort to other courses of action provided in Art. 1814, if the judgment debt remain unsatisfied, despite the issuance of the CO
4. Redemption of the Charged Interest of a partner may be done: a. before foreclosure, or b. before the expiration of the redemption period 5. Redemption by the other partners will not dissolve the partnership but it is a ground for the other partners to ask for its dissolution 6. The partner may avail himself of the exemption laws, with respect to his inte rest, after the partnership debts have been paid. This is because, his interest in the partnership is really his property SECTION 3 Obligations of the Partners with Regard to Third Persons ART 1815. Every partnership shall operate under a firm name, which may or may no t include the name of one or more of the partners. Those who, not being members of the partnership, include their names in the firm name, shall be subject to the liability of a partner. Importance of Having a Firm Name 1. To have a name under w/c the partnership will operate 2. To distinguish the partnership w/c has a separate and distinct personality fr om: a. the individuals composing the partnership b. other partnerships and entities Right of the Partners to Use a Firm Name the partners enjoy utmost freedom in the selection of the partne 1. General Rule rship name 2. Limitations The partners cannot use a name that: a. Is misleading as when it is identical or deceptively confusingly similar to t hat of any existing partnership s or corporation s name b. Includes that of a deceased partner UNLESS that firm indicates in all its com munications that the said partner is deceased (Rule 3.02 of the Code of Professi onal Responsibility) Liability for Inclusion of Name in a Firm Name 1. Persons who are not partners, who include their names in the firm name (partn ers by estoppel): a. Do NOT acquire the rights of a partner b. Are subject to the liability of a partner insofar as 3rd persons without noti ce are concerned 2. Art. 1815 does NOT cover the case of a: a. Limited partner who allows his name to be included in the firm name b. Person continuing the business of a partnership after dissolution who uses th e name of the dissolved 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, fo r 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 part nership. However, any partner may enter into a separate obligation to perform a p artnership contract. Requisites to Hold Partners Liable 1. It must be a contractual obligation in the name of the partnership 2. Partnership assets must have been exhausted 3. The contract was entered into: a. in the name of the partnership b. for the account of the partnership
c. signed by one who is authorized to sign for the partnership 4. The partner entering the contract is authorized by the partnership Liability for Contractual Obligations of Partnership 1. Pro rata equally or jointly (based on the number of partners) and NOT proport ionally (on their contribution) a) Partner has left the country or his liability condoned by creditor = cannot i ncrease the liability of other partners 2. Subsidiary or secondary because the partners become personally liable only af ter the partnership assets have been exhausted 3. Even the IP is liable pro rata with the CP s but he can recover the amount from the CP s Note The exemption of the IP to pay LOSSES relates exclusively to the settlement o f the partnership affairs among the partners themselves and has nothing to do wi th the LIABILITIES of the partners to 3rd persons ART 1817. Any stipulation against the liability laid down in the preceding artic le shall be void, except as among the partners. A stipulation among the partners contrary to the pro rata and subsidiary liability is: 1. VOID and of no effect insofar as it affects the rights of 3rd persons 2. VALID and enforceable only as among the partners ART 1818. Every partner is an agent of the partnership for the purpose of its bu siness, and 1. the act of every partner, a. including the execution in the partnership name of any instrument, b. for apparently carrying on in the usual way the business of the partnership o f which he is a member 2. binds the partnership, 3. unless: a. the partner so acting has in fact no authority to act for the partnership in the particular matter, and b. the person with whom he is dealing has knowledge of the fact that he has no s uch authority. An act of a partner which is not apparently for the carrying on of busin ess of the partnership in the usual way does not bind the partnership unless aut horized by the other partners. Except when authorized by the other partners or unless they have abandon ed the business, one or more but less than all the partners have no authority to (Acts of Dominion): 1. Assign the partnership property in trust for creditors or on the assignee's p romise to pay the debts of the partnership; 2. Dispose of the good-will of the business; 3. Do any other act which would make it impossible to carry on the ordinary busi ness of a partnership; 4. Confess a judgment; 5. Enter into a compromise concerning a partnership claim or liability; 6. Submit a partnership claim or liability to arbitration; 7. Renounce a claim of the partnership. No act of a partner in contravention of a restriction on authority shall bind the partnership to persons having knowledge of the restriction. Goodwill of the business:
Reasonable expectation of its continued profitable operation Liability of Partnership for Acts of Partners 1. Acts for Apparently Carrying on in the USUAL WAY the Business of the Partners hip (Acts of ADMINISTRATION) a. Every partner is an agent and may execute such acts w/ binding effect on the partnership: * even if he has in fact no authority * unless the 3rd person has knowledge of such lack or authority b. In order that the partnership shall NOT be liable for a partner s acts: * The partner so acting has NO authority * The 3rd person KNOWS that the partner has no authority 2. Acts of Strict DOMINION or OWNERSHIP a. For acts w/c are not apparently for carrying on the business of the partnersh ip, the partnership is NOT bound, UNLESS * the partner is authorized by all the other partners; or * the other partners have abandoned the business 3. Acts in Contravention of a Restriction on Authority a. If the partner commits these acts: * the partnership is NOT liable to a 3rd person who has ACTUAL or PRESUMPTIVE kn owledge of the restrictions * w/n the acts are for apparently carrying on in the usual way the busines s of the partnership When the Acts of a Partner BINDS the Partnership 1. When he acts in the name of the partnership 2. When he is authorized a. Express b. Implied when the act of the partner is carrying on in the usual way the busin ess of the partnership and there is silence on the part of the other partners When the Partnership is NOT Bound by the Partner s Acts 1. When the partner has no authority, express or implied, to act in a particular matter 2. When the 3rd person knows that the partner has NO authority to act on such ma tter EVEN if the act is for carrying out the usual business of the partnership ART 1819. Where title to real property is in the partnership name, 1. any partner may convey title to such property by a conveyance executed in the partnership name; 2. but the partnership may recover such property: a. unless the partner's act binds the partnership under Art. 1818, or b. unless such property has been conveyed by the grantee or a person claiming th rough 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, 1. a conveyance executed by a partner, in his own name, 2. passes the equitable interest of the partnership, 3. provided the act is one within the authority of the partner under Art. 1818[1 ]. Where title to real property is in the name of one or more but not all t he partners, and 1. the record does not disclose the right of the partnership, 2. the partners in whose name the title stands may convey title to such property ,
3. but the partnership may recover such property if the partners' act does not b ind the partnership under Art. 1818, 4. unless the purchaser or his assignee, is a holder for value, without knowledg e. Where the title to real property is in the name of one or more or all th e partners, or in a third person in trust for the partnership, 1. a conveyance executed by a partner: a. in the partnership name, or b. in his own name, 2. passes the equitable interest of the partnership, 3. provided the act is one within the authority of the partner under Art. 1818[1 ]. Where the title to real property is in the name of all the partners a co nveyance executed by all the partners passes all their rights in such property. Equitable Interest: All interest which the partnership had, except title. That is, the benef icial interests like use, fruits, but not the naked ownership Effect of Conveyance of Real Property Belonging to Partnership (depending in who se name it is registered and in whose name it is conveyed) 1. Title in partnership name; Conveyance in partnership name a. A,B and C are partners in X partnership. A sold a parcel of land registered u nder X to D w/o express authority b. Effect The conveyance passes to D, BUT * X CAN recover the property if: :) the conveyance was not in the usual way of business, OR :) D had knowledge of the fact that A has no authority, even if the conveyance w as made in the usual way of business * X CANNOT recover if D had conveyed the property to E who had no knowledge of A s lack of actual authority in making the conveyance to D 2. Title in partnership name; Conveyance in partner s name a. If the sale was executed by A in his own name to D b. Effect D does NOT become the owner of the land * He only gets the equitable interest of X * Assuming that the selling of the land is in the usual course of business c. D would NOT be entitled even to the equitable interest * If the sale is NOT in the usual course of business, OR * D had knowledge of A s lack of authority although the sale was made in the usual course of business 3. Title in the name of 1 or more partners; Conveyance in the name of the partne rs in whose name title stands a. Although the land really belongs to the partnership, it is registered in the name of A and the record does not disclose the right of X b. If A sold the land in his own name to D, title is conveyed to D c. Effect is the same as # 1 4. Title in the name or 1 or more or all partners or a 3rd person in trust for p artnership; conveyance executed in partnership name or in name of partner a. The land is in the name of A in trust for X. A sells the land to D in the nam e of X or in A s own name b. Effect Only the equitable interest of X will pass to D as A is a mere trustee of the partnership c. Rule is the same as # 2
5. Title in name of all partners; Conveyance in name of all partners a. The land is registered in the name of A, B and C b. Conveyance made by all partners to D will pass title to D c. The effect would be the same although the sale is NOT is the usual course of business NOTE: ? Recovery is possible in the first 4 instances. In the 5th instance, title pass es ? Conveyance includes the right to mortgage ART 1820. An admission or representation made by any partner concerning partners hip affairs within the scope of his authority in accordance with this Title is e vidence against the partnership. Effect 1. The 2. The 3. The of Admission by a admission must be admission made by admission must be Partner (Requisites) on a matter concerning partnership affairs the partner is w/in the scope of his authority made during the existence of the partnership
ART 1821. 1. Notice to any partner of any matter relating to partnership affairs, and 2. the knowledge of the partner acting in the particular matter, acquired while a partner or then present to his mind, and 3. the knowledge of any other partner who reasonably could and should have commu nicated it to the acting partner, G operate as notice to or knowledge of the partnership, except in the case of fr aud on the partnership, committed by or with the consent of that partner. Notice to or Knowledge of a Partner, of a Matter Affecting Partnership Affairs 1. Notice to, or knowledge of any partner of any matter relating to partnership affairs a. operates as notice to or knowledge of the partnership and shall bind the part nership b. except in cases of fraud on the partnership committed by or w/ the consent of that partner 2. Therefore when a 3rd person delivers notice to a partner that is an effective communication to the partnership Cases of Knowledge Knowledge of: 1. the partner acting in the particular matter acquired while a partner 2. the partner acting in the particular matter then present to his mind 3. any other partner who reasonably could and should have communicated it to the acting partner ART 1822. Where, 1. by any wrongful act or omission of any partner acting: a. in the ordinary course of the business of the partnership or b. with the authority of his co-partners, 2. loss or injury is caused to any person, not being a partner in the partnershi p, or 3. any penalty is incurred, G the partnership is liable therefor to the same extent as the partner so acting or omitting to act. 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 propert
y of a third person and the money or property so received is misapplied by any p artner while it is in the custody of the partnership. ART 1824. All partners are liable solidarily with the partnership for everything chargeable to the partnership under Art. 1822 and 1823. Requisites for Liability Arising from Partner s Tort 1. The partner must be guilty of a wrongful act or omission 2. The partner must be acting: a. in the ordinary course of business, or b. with the authority of his co-partners even if the act is unconnected with the business Distinctions 1. Liability refers to Art. 1816 1823, 1824 partnership obligations 1822, 1. 2. Liability is pro rata and subsidiary from wrongful acts or omissions of any p of the partnership arising artner 2. Liability is solidary because of the rule of respondent superior PARTNER OR PARTNERSHIP BY ESTOPPEL: ART 1825. When a person, 1. by words spoken or written or by conduct, 2. represents himself, or consents to another representing him to anyone, 3. as a partner in an existing partnership or with one or more persons not actua l partners, G he is liable to any such persons to whom such representation has been made, wh o has, o on the faith of such representation given credit to the actual or apparent par tnership, G and if he has made such representation or consented to its being made in a pub lic manner o he is liable to such person, o whether the representation has or has not been made or communicated to such pe rson so giving credit by or with the knowledge of the apparent partner making th e representation or consenting to its being made: 1. When a partnership liability results, he is liable as though he were an actua l member of the partnership; 2. When no partnership liability results, he is liable pro rata with the other p ersons, if any, so consenting to the contract or representation as to incur liab ility, otherwise separately. G When a person has been thus represented to be a partner in an existing partner ship, or with one or more persons not actual partners, o he is an agent of the persons consenting to such representation to bind them t o the same extent and in the same manner as though he were a partner in fact, o with respect to persons who rely upon the representation. G When all the members of the existing partnership consent to the representation , o a partnership act or obligation results; G but in all other cases it is the joint act or obligation of the o person acting and o the persons consenting to the representation. A Person NOT a Partner May Become a Partner by Estoppel When By Words or Conduct He: 1. Directly represents himself to anyone as a partner in an existing partnership or in a non-existing partnership (w/ one or more persons not actual partners) 2. Indirectly represents himself by consenting to another representing him as a partner in an existing partnership or in a non-existing partnership
Note 1. The holding out as a partner may be done: a. by the person himself, or b. by his consent, or c. with his knowledge 2. To hold the party liable as a partner in estoppel, the 3rd person must: a. prove such misrepresentation, and b. bona fide reliance by him upon it caused injury 3. Art. 1825 does NOT create a partnership as between the alleged partners, the law only considers them as partners only insofar as it is favorable to 3rd perso ns Liability When There is Partnership By Estoppel 1. Partnership Liability if all the actual partners consented to ion 2. Liability is Pro Rata or Joint a) when there is no existing partnership and all those represented onsented to the representation; OR b) not all of the partners of an existing partnership consented to ation 3. Liability Separate a) when there is no existing partnership and not all but only some esented as partners consented; or b) none of the partners in an existing partnership consented the representat as partners c the represent of those repr
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 thoug h he had been a partner when such obligations were incurred, except that this li ability shall be satisfied only out of partnership property, unless there is a s tipulation to the contrary. Liability of INCOMING PARTNER for Partnership Obligations 1. Existing obligations of the partnership a) limited to his share in partnership property b) unless there is a stipulation to the contrary 2. Subsequent obligations of the partnership a) extends to his separate property 3. If the new partner assumed the obligations of a retiring partner a) he is directly liable to the old partnership creditors ART 1827. The creditors of the partnership shall be preferred to those of each p artner as regards the partnership property. Without prejudice to this right, the private creditors of each partner may ask the attachment and public sale of the share of the latter in the partnership assets. Preference of Creditors in Partnership Property 1. Partnership creditors 2. Private creditors of the partners remedy is to apply for a charging order CHAPTER 3 Dissolution and Winding Up ART 1828. The dissolution of a partnership is the change in the relation of the partners caused by any partner ceasing to be associated in the carrying on as di stinguished from the winding up of the business. Definition of 1828 is not comprehensive enough since it only contemplates an ins tance when one ceases to be a partner. Under 1840, partnership is dissolved when a new partner is admitted
Changes in Membership Which May Result in Dissolution 1. Retirement 2. Death 3. Admission of new members 3 Stages 1. Dissolution that point in time when the partners cease to carry on the busine ss together; represents the demise of a partnership 2. Winding up the process of settling the business or partnership affairs after dissolution 3. Termination that point when all partnership affairs are wound up or completed ; the end of the partnership life ART 1829. On dissolution the partnership is not terminated, but continues until the winding up of partnership affairs is completed. Dissolution 1. Does not automatically result in the termination of the legal personality of the partnership 2. The partnership continues for a limited purpose of: a. making good all outstanding engagements b. liquidation and distribution of partner s interest Causes of Dissolution: ART 1830. Extra-Judicial Dissolution Dissolution is caused: 1. Without violation of the agreement between the partners: a. By the termination of: * the definite term or * particular undertaking specified in the agreement; b. By the express will of any partner, * who must act in good faith, * when no definite term or particular undertaking is specified; c. By the express will of ALL the partners * who have not assigned their interests or * suffered them to be charged for their separate debts, * either before or after the termination of any specified term or particular und ertaking; d. By the expulsion of any partner from the business * bona fide * in accordance with such a power conferred by the agreement between the partner s; 2. In contravention of the agreement between the partners, * where the circumstances do not permit a dissolution under any other provision of this article, * by the express will of any partner at any time (withdrawal); 3. By any event which makes it unlawful for the business of the partnership to b e carried on or for the members to carry it on in partnership; 4. When a specific thing a. which a partner had promised to contribute to the partnership, perishes befor e the delivery; b. in any case by the loss of the thing, when the partner who contributed it * having reserved the ownership thereof, * has only transferred to the partnership the use or enjoyment of the same; c. but the partnership shall not be dissolved by the loss of the thing when it o ccurs after the partnership has acquired the ownership thereof;
5. 6. 7. 8.
By By By By
the death of any partner; the insolvency of any partner or of the partnership; the civil interdiction of any partner; decree of court under the following article.
Under Art. 1830, Extra-judicial dissolution: May be caused: 1) w/o violation of the agreement between the partners (#1) a) Expiration of term or undertaking b) In partnership at will, by express will of any partner c) Express will or mutual assent of all partners d) Expulsion of a partner pursuant to agreement 2) in contravention of said agreement (#2) It may be: 1) voluntary when caused by the will of one or more or all of the partners (# 1& 2) 2) involuntary when brought about independently of the will of the partners or b y operation of law (#3,4,5,6,7 and 8) a) Supervening illegality b) Loss of specific thing contributed c) Death of a partner (w/out exception, regardless of agreement) d) Insolvency e) Civil interdiction of a partner Goquiolay v. Sycip (12/10/1963) F: partners agreed that in case of death, partnership shall continue with the de ceased partner represented by his heirs. One of the partners died. Is his widow general or limited partner? H: Widow is also general partner Lichauco v. Lichauco (33 P 350) Partnership can still be dissolved even if the partners had agreed that dissolution can only be had with the consent of 2/3 of the partners. NOTE: Under Art 1830, dissolution is automatic while under 1831, it is not re must be application by the partner Insolvency here need not be judicially declared. In case of insanity 1. judicial declaration is necessary; or 2. insanity must be duly proved Other causes of automatic dissolution: (1840) 1. new partner is admitted or 2. when a partner retires, withdraws, or is expelled from the partnership Dissolution by Judicial Decree ART 1831. On application by or for a partner the court shall decree a dissolutio n whenever: 1. A partner: a. has been declared insane in any judicial proceeding or b. is shown to be of unsound mind; 2. A partner becomes in any other way incapable of performing his part of the pa rtnership contract; 3. A partner has been guilty of such conduct as tends to affect prejudicially th e carrying on of the business; 4. A partner the
a. willfully or persistently commits a breach of the partnership agreement, or b. otherwise so conducts himself in matters relating to the partnership business that it is not reasonably practicable to carry on the business in partnership w ith him; 5. The business of the partnership can only be carried on at a loss; 6. Other circumstances render a dissolution equitable. On the application of the purchaser of a partner's interest under Art. 1 813 or 1814: 1. After the termination of the specified term or particular undertaking; 2. At any time if the partnership was a partnership at will when the interest wa s assigned or when the charging order was issued. Dissolution of a Partnership May be Decreed Judicially on Application Either: 1. By a PARTNER (par 1, # 1-6) 2. By the assignee of a partner s interest or the person to whom a Charging Order has been assigned (par 2 # 1-2) ART 1832. Except so far as may be necessary to wind up partnership affairs or to complete transactions begun but not then finished, dissolution terminates all a uthority of any partner to act for the partnership: 1. With respect to the partners, a. When the dissolution is not by the act, insolvency or death of a partner; or b. When the dissolution is by such act, insolvency or death of a partner, in cas es where Art. 1833 so requires; 2. With respect to persons not partners, as declared in Art. 1834. Effects of Dissolution on the Authority of a Partner 1. General Rule Dissolution terminates ALL authority to act for the partnership, except: a. to wind up the business b. complete transactions begun but not then finished 2. Exceptions a. Insofar as the PARTNERS themselves are concerned, when the dissolution is: * NOT by the act, insolvency or death of a partner the authority of ANY partner to bind the partnership by a new contract is immediately terminated (only acting partner is liable) * BY the act, insolvency or death of a partner the termination of authority of A NY partner depends upon w/n the partner had knowledge or notice of the dissoluti on b. With respect to THIRD PERSONS * the partnership is generally bound by the new contract * although the authority of the acting partner, as it affects his co-partners, i s already deemed terminated * the innocent partner can always recover from the acting partner Effect of Dissolution With Regard to the Partners: ART 1833. Where the dissolution is caused by the act, death or insolvency of a partner, each partner is liable to his co-partners for his share of any liabilit y created by any partner acting for the partnership as if the partnership had no t been dissolved unless: 1. The dissolution being by act of any partner, the partner acting for the partn ership had knowledge of the dissolution; or 2. The dissolution being by the death or insolvency of a partner, the partner ac ting for the partnership had knowledge or notice of the death or insolvency. When Dissolution is Caused by the Act, Insolvency or Death of a Partner: (A-I-D) When a partner enters into a contract w/ a 3rd person after dissolution, the new contract will generally bind the other partners, UNLESS the acting part ner:
a. had KNOWLEDGE of the dissolution by ACT of a partner b. had KNOWLEDGE or NOTICE of dissolution by DEATH or INSOLVENCY of a partner ART 1834. After dissolution, a partner can bind the partnership, except as provi ded in the third paragraph of this article: 1. By any act: a. appropriate for winding up partnership affairs or b. completing transactions unfinished at dissolution; 2. By any transaction which would bind the partnership if dissolution had not ta ken place, provided the other party to the transaction: a. Had extended credit to the partnership prior to dissolution and had no knowle dge or notice of the dissolution; or b. Though he had not so extended credit, had nevertheless known of the partnersh ip prior to dissolution, and, having no knowledge or notice of dissolution, the fact of dissolution had not been advertised in a newspaper of general circulatio n in the place (or in each place if more than one) at which the partnership busi ness was regularly carried on. The liability of a partner under the first par 1 # 2, shall be satisfied out of partnership assets alone when such partner had been prior to dissolution : 1. Unknown as a partner (dormant partner) to the person with whom the contract i s made; and 2. So far unknown and inactive in partnership affairs that the business reputati on of the partnership could not be said to have been in any degree due to his co nnection with it. The partnership is in no case bound by any act of a partner after dissol ution: 1. Where the partnership is dissolved: a. because it is unlawful to carry on the business, b. unless the act is appropriate for winding up partnership affairs; or 2. Where the partner has become insolvent; or 3. Where the partner has no authority to wind up partnership affairs; except by a transaction with one who a. Had extended credit to the partnership: * prior to dissolution and * had no knowledge or notice of his want of authority; or b. Had not extended credit to the partnership: * prior to dissolution, and, * having no knowledge or notice of his want of authority, * the fact of his want of authority has not been advertised in the manner provid ed for advertising the fact of dissolution in par 1 # 2 (b). Nothing in this article shall affect the liability under Art. 1825 of an y person who after dissolution represents himself or consents to another represe nting him as a partner in a partnership engaged in carrying on business. (Partne rship by Estoppel) After Dissolution 1) Partnership is bound: a) Business is for winding up (par. 1 # 1) b) Business is to complete unfinished transactions c) Completely new business w/ 3rd parties considered innocent (par 1 #2) 2) Partnership is not bound: a) Instances not included above like 3rd party was in bad faith b) 3 instances under par. 3 ART 1835. The dissolution of the partnership does not of itself discharge the ex isting liability of any partner.
A partner is discharged from any existing liability upon dissolution of the partnership: 1. by an agreement to that effect between a. himself, b. the partnership creditor and c. the person or partnership continuing the business; and 2. such agreement may be inferred from the course of dealing between: a. the creditor having knowledge of the dissolution and b. the person or partnership continuing the business. The individual property of a deceased partner shall be liable for all ob ligations of the partnership incurred while he was a partner, but subject to the prior payment of his separate debts. Effect of Dissolution on Partner s Existing Liability 1. General Rule the dissolution of a partnership does not of itself discharge th e existing liability of a partner 2. Exception upon the dissolution of a partnership, a partner MAY BE RELIEVED fr om all existing liabilities ONLY when there is an express or implied agreement b etween: a. the partner b. the partnership creditor c. the partner continuing the business Liability of Estate of Deceased Partner Such partner s individual property shall be subject to partnership liabili ties but his personal creditors shall have priority ART 1836. Unless otherwise agreed, 1. the partners who have not wrongfully dissolved the partnership or 2. the legal representative of the last surviving partner, not insolvent, 3. has the right to wind up the partnership affairs, provided, however, that: a) any partner, b) his legal representative or c) his assignee, d) upon cause shown, may obtain winding up by the court. Manner of Winding Up 1. Extra-judicial by the partners themselves w/o intervention of the court 2. Judicial under the control and direction of the proper court upon proper caus e shown by: a. any partner b. his legal representative c. his assignee Persons Authorized to Wind Up 1. The partners designated by the agreement 2. In the absence of such agreement, all the partners who have NOT wrongfully di ssolved the partnership 3. The legal representative of the last surviving partner (when all partners are already dead, not insolvent ART 1837. When dissolution is caused in any way, except in contravention of the partnership agreement, 1. each partner, as against his co-partners and all persons claiming through the m in respect of their interests in the partnership, 2. unless otherwise agreed, 3. may have:
a) the partnership property applied to discharge its liabilities, and b) the surplus applied to pay in cash the net amount owing to the respective par tners. But: 1. if dissolution is caused by expulsion of a partner, bona fide under the partn ership agreement and 2. if the expelled partner is discharged from all partnership liabilities, 3. either by payment or agreement under Art. 1835, he shall receive in cash o nly the net amount due him from the partnership. When dissolution is caused in contravention of the partnership agreement the rights of the partners shall be as follows: 1. Each partner who has not caused dissolution wrongfully shall have: a. All the rights specified in the first paragraph of this article, and b. The right, as against each partner who has caused the dissolution wrongfully, to damages breach of the agreement. 2. The partners who have not caused the dissolution wrongfully, a. if they all desire to continue the business in the same name either by themse lves or jointly with others, b. may do so, during the agreed term for the partnership and for that purpose ma y possess the partnership property, c. 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 2nd par, # 1 (b) of this article, and :) in like manner indemnify him against all present or future partnership liabil ities. 3. A partner who has caused the dissolution wrongfully shall have: a. If the business is not continued under the provisions of the 2nd par, # 2, * all the rights of a partner under the 1st par, * subject to liability for damages in the 2nd par, # 1 (b), of this article. b. If the business is continued under the 2nd par # 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 t o his co-partners by the dissolution, ascertained and paid to him in cash, or th e 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 goodwill of the business shall not be considered. Partner s Lien It is: 1. the right of every partner, on a dissolution, 2. against the other partners and persons claiming through them, 3. to have the partnership property applied to discharge partnership liabilities 4. and the surplus assets, if any, distributed in cash to the respective partner s, 5. after deducting what may be due to the firm from them as partners * extent of partner s lien depends on whether there s violation Right of a Partner to Application of Property on Dissolution Rights Where Dissolution is NOT in Contravention of the Agreement 1. To have the partnership applied to discharge the liabilities of the partnersh ip; and 2. To have the surplus, if any, applied to pay in cash, the net amount owing to
the respective partners When the Dissolution is Caused by the Expulsion of a Partner Bona Fide (w/o the violation of the partnership agreement) 1. Such expelled partner may be discharged from all partnership liabilities eith er by: a. payment, or b. an agreement between: * him * partnership creditors * other partners 2. He shall have the right only to receive in CASH the NET amount due him from t he partnership Rights Where Dissolution in Contravention of Agreement 1. Rights of the INNOCENT Partner (one who has not caused the wrongful dissoluti on): a. To: * have partnership applied for the payment of its liabilities, and * receive in cash his share of the surplus b. To be indemnified for damages caused by the partner guilty of wrongful dissol ution c. To continue the business in the same name during the agreed term of the guilt y, by themselves or jointly w/ others, and d. To possess partnership property should they continue the business, including the value of the goodwill 2. Rights of the GUILTY Partner (one who wrongfully caused the dissolution) a. If the business is NOT continued by the other partners, to: * have the partnership property applied to discharge its liabilities, and * receive in cash his share of the surplus LESS damages caused by his wrongful d issolution b. If the business is CONTINUED * to have the value of his interest in the partnership at the time of the dissol ution ascertained and :) paid in cash OR :) secured by a bond approved by the court * to be released from all existing and future liabilities of the partnership c. In ascertaining the value of the guilty party s interest, the value of the good will is NOT considered Goodwill of a Business The advantage which it has from its establishment or from the patronage of it s customers, over and above the mere value of its property and capital. It is pa rt of the partnership s assets. It can only exist in a commercial partnership and NOT in a professional partnership. ART 1838. Where a partnership contract is rescinded on the ground of the fraud o r misrepresentation of one of the parties thereto, the party entitled to rescind is, without prejudice to any other right, entitled: 1. To a lien on, or right of retention of, the surplus of the partnership proper ty after satisfying the partnership liabilities to third persons for any sum of money paid by him for the purchase of an interest in the partnership and for any capital or advances contributed by him; 2. To stand, after all liabilities to third persons have been satisfied, in the place of the creditors of the partnership for any payments made by him in respec t of the partnership liabilities; and 3. To be indemnified by the person guilty of the fraud or making the representat ion against all debts and liabilities of the partnership.
Rights of Injured Partner Where Partnership Contract is Rescinded on the Ground of Fraud or Misrepresentation 1. Right of a lien on, or retention of, the surplus of partnership property afte r satisfying partnership liabilities for any sum of money paid or contributed by him 2. Right to subrogation in place of partnership creditors after payment of partn ership liabilities 3. Right of indemnification by the guilty partner against all debts and liabilit ies of the partnership Liquidation and Distribution of Assets of Dissolved Partnership: ART 1839. In settling accounts between the partners after dissolution, the foll owing rules shall be observed, subject to any agreement to the contrary: 1. The assets of the partnership are: a. The partnership property (including goodwill), b. The contributions of the partners necessary for the payment of all the liabil ities specified in # 2. 2. : a. b. en c. , d. The liabilities of the partnership shall rank in order of payment, as follows Those owing to (partnership) creditors other than partners, Those owing to partners other than for capital and profits (such as loans giv by the partners or advances for business expenses), Those owing to partners in respect of capital (return of capital contributed) Those owing to partners in respect of profits (share of the profits, if any).
3. The assets shall be applied in the order of their declaration in # 1 of this article to the satisfaction of the liabilities. 4. The partners shall contribute, as provided by Art. 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 # 5. 6. Any partner or his legal representative shall have the right to enforce the c ontributions specified in # 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 contrib utions specified in # 4 (liabilities of the partnership incurred while he was a partner). 8. (Doctrine of Marshalling of Assets). When partnership property and the indivi dual properties of the partners are in possession of a court for distribution, a. partnership creditors shall have priority on partnership property and b. separate creditors on individual property, c. saving the rights of lien or secured creditors. 9. Where a partner has become insolvent or his estate is insolvent, the claims a gainst 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. Equitable lien or quasi lien The right of a partner to have debts owing to the partnership from his co-par tners deducted from his share. This exists only when the affairs of the partners hip are rounded up and the shares or the partners are computed after dissolution . Doctrine of Marshalling of Assets
Partnership assets to partnership creditors; individual assets to indivi dual creditors; anything left from either goes to the other When Creditors of the Old Partnership are Also Creditors of the New: ART 1840. In the following cases creditors of the dissolved partnership are also creditors of the person or partnership continuing the business: 1. When: a. any new partner is admitted into an existing partnership, or b. any partner retires and assigns (or the representative of the deceased partne r 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, c. 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 deceas ed partner assigns) their rights in partnership property to the remaining partne r, 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 partnershi p is continued as set forth in # 1 and 2, a. with the consent of: * the retired partners or * the representative of the deceased partner, b. but without any assignment of his right in partnership property; 4. When all the partners or their representatives assign their rights in partner ship property to one or more third persons: a. who promise to pay the debts and b. who continue the business of the dissolved partnership; 5. When any partner wrongfully causes a dissolution and a. the remaining partners continue the business under the provisions of Art. 183 7, either alone or with others, and b. without liquidation of the partnership affairs; 6. When a partner is expelled and: a. the remaining partners continue the business either alone or with others b. without liquidation of the partnership affairs. The liability of a 3rd person becoming a partner in the partnership cont inuing the business, under this article, to the creditors of the dissolved partn ership shall be satisfied out of the partnership property only, unless there is a stipulation to the contrary. When the business of a partnership after dissolution is continued under any conditions set forth in this article: 1. the creditors of the dissolved partnership, as against the separate creditors of the retiring or deceased partner, 2. have a prior right to any claim of the retired or deceased partner against th e person or partnership continuing the business, 3. on account of the retired or deceased partner's interest in the dissolved par tnership or on account of any consideration promised for such interest or for hi s right in partnership property. Nothing in this article shall be held to modify any right of creditors t o set aside any assignment on the ground of fraud. The use by the person or partnership continuing the business of the part nership name, or the name of a deceased partner as part thereof, shall not of it
self make the individual property of the deceased partner liable for any debts c ontracted by such person or partnership. ART 1841. When any partner retires or dies, and 1. the business is continued under any of the conditions set forth in Art. 1840, or 1837, # 2, 2. without any settlement of accounts as between him or his estate and the perso n or partnership continuing the business, unless otherwise agreed, 3. 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 4. shall receive as an ordinary creditor an amount equal to the value of his int erest in the dissolved partnership with interest, or, 5. at his option or at the option of his legal representative, a. in lieu of interest, b. the profits attributable to the use of his right in the property of the disso lved partnership; 6. provided that the creditors of the dissolved partnership as against the: a. separate creditors, or b. the representative of the retired or deceased partner, 7. shall have priority on any claim arising under this article, as provided by A rt. 1840. Rights of the Retiring Partner or Estate of Deceased Partner When Business is Co ntinued WITHOUT Settlement of Accounts 1. To have the value of the interest of the retiring partner or deceased partner in the partnership ascertained as of the date of dissolution 2. To receive thereafter, as an ordinary creditor, a. an amount equal to the value of his share in the dissolved partnership, OR b. in lieu of interest, the profits attributable to the use of his right ART 1842. The right to an account of his interest shall accrue to any partner, o r his legal representative as against: 1. the winding up partners or 2. the surviving partners or 3. the person or partnership continuing the business, G at the date of dissolution, in the absence of any agreement to the contrary. Prescription begins to run only upon the dissolution of the partnership when t he final accounting is done. Under 1806, 1807 & 1809, the right to demand an acc ounting exists as long as the partnership exists. CHAPTER 4 Limited Partnership (n) Distinctions LP s liability management has his capital contribution Personally liable for only tonot been agreed Limited General Partnerextendspartnership obligations upon, all GP s have an equal right t When manner of Not A proper party cashproceeding Mustacontribute the management by or not May contribute to aunless the or butto the the partnership Has noproper inmoney, propertyobject againstproceeding is to enforce LP s right ag o manage the businessor property, industryservices share party GP s or liability to the partnership ainstinterest in the partnership may not be assigned as to make the assignee a new LP s interestthe freely assignable, w/partners partner w/o is consent of the other the assignee acquiring all the rights of th Prohibitedmustengaging the the firm LP GP s subject appear inin a business: e LP name maytonot appear infirm name name in qualifications 1) In w/c is of the kind of business in which the partnership is engaged - if h e is a Capitalist partner 2) In anyno prohibition There is kind of business if he is an Industrial Partner Does not have the same effect because his administrator shall have Retirement, death or insolvency of a GP dissolves the partnership the rights of a LP for the purpose of selling his estate Must be Partnership May be constitutedinsa general by contract or conduct of the partners ComposedcontainedGPin1any form partner and 1 limited partnerduly signed and swor Limited only least certificated of limited partnership, General of atof Must operate under a firm name, recorded may not include the name of 1 or more n to by all of the partners, andw/c may orin the SEC Thereoperate under a firmdissolution andbe followed byformal and procedural Mustthe partners of are differences in name w/c must winding up the word Limited
ART 1843. A limited partnership is one: 1. formed by two or more persons under the provisions of the following article, 2. having as members: a. one or more general partners, AND b. one or more limited partners. The limited partners as such shall not be bound by the obligations of the partne rship. f A partnership cannot be a limited partner Characteristics of a Limited Partnership 1. Formed by compliance with statutory requirements 2. One or more general partners control the business and are personally liable t o creditors 3. One or more limited partners a. contribute to the capital and b. share in the profits c. do NOT participate in the management of the business d. are NOT personally liable for partnership obligations beyond the amount of t heir capital contributions 4. The LP s may ask for the return of their capital contribution under the conditi ons prescribed by law 5. The partnership debts are paid out of: a. a common fund and b. the individual properties of the GP s ART 1844. Two or more persons desiring to form a limited partnership shall: 1. Sign and swear to a certificate, which shall state a. The name of the partnership, adding thereto the word "Limited"; b. The character of the business; c. The location of the principal place of business; d. The name and place of residence of each member, general and limited partners being respectively designated; e. The term for which the partnership is to exist; f. The amount of cash and a description of and the agreed value of the other pro perty contributed by each limited partner; g. The additional contributions, if any, to be made by each limited partner and the times at which or events on the happening of which they shall be made; h. The time, if agreed upon, when the contribution of each limited partner is to be returned; i. The share of the profits or the other compensation by way of income which eac h limited partner shall receive by reason of his contribution; j. The right, if given, of a limited partner to substitute an assignee as contri butor in his place, and the terms and conditions of the substitution; k. The right, if given, of the partners to admit additional limited partners; l. The right, if given, of one or more of the limited partners to priority over other limited partners, as to contributions or as to compensation by way of inco me, and the nature of such priority; m. The right, if given, of the remaining general partner or partners to continue the business on the death, retirement, civil interdiction, insanity or insolven cy of a general partner; and n. The right, if given, of a limited partner to demand and receive property othe r than cash in return for his contribution. 2. File for record the certificate in the SEC A limited partnership is formed if there has been substantial compliance in good faith with the foregoing requirements.
2 Essential Requirements for Formation of a LP 1. Signed and sworn Certificate of the LP w/c states the matters enumerated in A rt. 1844 2. Certificate must be filed with the SEC (to give actual or constructive notice to potential creditors) Requirement of Compliance 1. Substantial compliance is sufficient 2. If there is no substantial compliance the LP becomes a GP as far as 3rd perso ns are concerned in w/c all members are liable BUT agreement is valid among part ners Note 1. A partnership transacting business is, prima facie, a GP 2. Failure of a LP to extend its term when expired and to register it anew with the SEC has the effect of divesting the Limited Partners of the privilege of lim ited liability 3. As far as 3rd persons are concerned, it will be considered a GP ART 1845. The contributions of a limited partner may be cash or property, but no t services. f Certified check may be contributed ART 1846. The surname of a limited partner shall not appear in the partnership n ame unless: 1. It is also the surname of a general partner, or 2. Prior to the time when the limited partner became such, the business has been carried on under a name in which his surname appeared. A limited partner whose surname appears in a partnership name contrary t o the provisions of the first paragraph is liable as a general partner to partne rship creditors who extend credit to the partnership without actual knowledge th at he is not a general partner. 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 kne w 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 up on to enable him to cancel or amend the certificate, or to file a petition for i ts cancellation or amendment as provided in Art. 1865. Any Partner to the Certificate Containing a False Statement is Liable Provided t he Following Requisites are Present: 1. He knew the statement to be false: a. at the time he signed the certificate b. after he signed, and he had sufficient time to cancel or amend it or file a p etition for its cancellation or amendment but he failed to do so 2. The person seeking to enforce liability has relied upon the false statement i n transacting business w/ the partnership 3. The person suffered loss as a result of reliance upon such false statements Note Liability under Art. 1847 is a civil case for damages, the guilty party shall no t be liable as a GP 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 t akes part in the control of the business.
2 Instances Where a LP May be Held Liable as a GP 1. When he allows his surname to be used in the firm name 2. When he takes part in the control of the business ART 1849. After the formation of a lifted partnership, additional limited partne rs may be admitted upon filing an amendment to the original certificate in accor dance with the requirements of Art. 1865. ART 1850. A general partner shall have all the rights and powers and be subject to all the restrictions and liabilities of a partner in a partnership without li mited partners. However, without the written consent or ratification of the specific act by all the limited partners, a general partner or all of the general partners h ave no authority to: 1. Do any act in contravention of the certificate; 2. Do any act which would make it impossible to carry on the ordinary business o f the partnership; 3. Confess a judgment against the partnership; 4. Possess partnership property, or assign their rights in specific partnership property, for other than a partnership purpose; 5. Admit a person as a general partner; 6. Admit a person as a limited partner, unless the right so to do is given in th e certificate; 7. Continue the business with partnership property on the death, retirement, ins anity, civil interdiction or insolvency of a general partner, unless the right s o to do is given in the certificate. Powers of General Power 1. With regard to a. Acts of Administration no distinction as that of a General Partnership b. Acts or Ownership written consent or ratification of all limited is required 2. GP who violates the requirement imposed is liable for damages to the LP ART 1851. A limited partner shall have the same rights as a general partner to: 1. Have the partnership books kept at the principal place of business of the par tnership, and at a reasonable hour to inspect and copy any of them; 2. Have on demand true and full information of all things affecting the partners hip, and a formal account of partnership affairs whenever circumstances render i t just and reasonable; and 3. Have dissolution and winding up by decree of court. A limited partner shall have the right: 1. to receive a share of the profits or other compensation by way of income, and 2. to the return of his contribution as provided in Art. 1856 and 1857. Specific Rights of a Limited partner: 1. To require the partnership books to be kept at the principal place of busines s of the partnership 2. To inspect and copy at a reasonable hour partnership books or any of them 3. To demand true and full information of all things affecting the partnership 4. To demand a formal account of partnership affairs whenever circumstances rend er it just and reasonable 5. To ask for dissolution and winding up by decree of court 6. To receive a share of the profits or other compensation by way of income 7. To receive the return of his contribution provided the partnership assets are in excess of all its liabilities (unlike GP who cannot demand the return of con tribution until partnership is dissolved)
ART 1852. Without prejudice to the provisions of Art. 1848, 1. a person who has contributed to the capital of a business conducted by a pers on or partnership 2. erroneously believing that he has become a limited partner in a limited partn ership, 3. is not, by reason of his exercise of the rights of a limited partner, a gener al partner with the person or in the partnership carrying on the business, or 4. bound by the obligations of such person or partnership, 5. provided that on ascertaining the mistake he promptly renounces his interest in the profits of the business, or other compensation by way of income. Art. 1852 Grants an Exemption from Liability: 1. In favor of one who has contributed to the capital of the business of the par tnership 2. Erroneously believing that he has become a limited partner: a. in a limited partnership, or b. in a general partnership, thinking that it is a limited partnership Conditions for Exemption From Liability 1. Such person will NOT be personally liable as a GP by reason of his exercise o f the rights of a LP provided: a. On ascertaining the mistake, he promptly renounces his interest in the profit s of other compensation by way of income b. His surname does not appear in the partnership name c. He does not participate in the management of the business 2. If he does not renounce, he will be considered a GP ART 1853. A person may be a general partner and a limited partner in the same pa rtnership at the same time, provided that this fact shall be stated in the certi ficate provided for in Art. 1844. A person who is a general, and also at the same time a limited partner, 1. shall have all the rights and powers and be subject to all the restrictions o f a general partner; 2. except that, in respect to his contribution, he shall have the rights against the other members which he would have had if he were not also a general partner . Person Who is a GP and LP at the Same Time 1. He has the rights and power of a GP: a. he is liable w/ his separate property to 3rd persons 2. With Respect to his contribution as a LP, insofar as the other partners are c oncerned: a. he is entitled to recover from the GP s the amount he has paid to 3rd persons b. in settling accounts after dissolution, he shall have priority over GP s in the return of their respective contributions ART 1854. A limited partner also: 1. may loan money to and 2. transact other business with the partnership, and, 3. unless he is also a general partner, receive on account of resulting claims a gainst 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 any 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 suf ficient 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 par tnership. Transactions of a LP 1. Allowable Transactions a LP, who is not also a GP, is NOT prohibited from: a. Granting loans to the partnership b. Transacting other business with it c. Receiving a pro rata share of the partnership assets w/ general creditors 2. Prohibited Transactions a LP, in respect of any such claim, is prohibited fro m: a. Receiving or holding as collateral security, any partnership property b. Receiving any payment, conveyance, or release from liability IF it will preju dice the right of 3rd persons 3. The rights of 3rd persons always enjoy preferential rights insofar as partner ship assets are concerned ART 1855. Where there are several limited partners the members may agree that on e or more of the limited partners shall have a priority over other limited partn ers: 1. as to the return of their contributions, 2. as to their compensation by way of income, or 3. 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 equ al footing. ART 1856. A limited partner may receive from the partnership: 1. the share of the profits or the compensation by way of income stipulated for in the certificate; 2. provided, that after such payment is made, whether from property of the partn ership or that of a general partner, 3. the partnership assets are in excess of all liabilities of the partnership 4. except liabilities to limited partners on account of their contributions and to general partners. Order of Priority 1. Liabilities to 3rd persons 2. Those due to LP by way of profits or compensation 3. Those due to LP by way of return of contribution 4. Those due to GP ART 1857. A limited partner shall not receive from a general partner or out of p artnership property any part of his contributions until: 1. All liabilities of the partnership, except liabilities to general partners an d 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 i s 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 th e consent of all members, a limited partner, irrespective of the nature of his c ontribution, has only the right to demand and receive cash in return for his con tribution. A limited partner may have the partnership dissolved and its affairs wou nd 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 partnersh ip property is insufficient for their payment as required by the first paragraph , # 1, and the limited partner would otherwise be entitled to the return of his contribution. Requisites for Return of Contribution of LP 1. All liabilities of the partnership have been paid, or the assets are sufficie nt to pay such liabilities 2. The consent of all the members (GP and LP) has been obtained except when the return may be rightfully demanded 3. If the fact is not stipulated in the certificate, it is cancelled or so amend ed as to set forth the withdrawal or reduction of the contribution When Return of Contribution can Be Demanded by LP (Matter or Right) Provided Abo ve Requisites are Complied With 1. On the dissolution of the partnership 2. Upon the arrival or the date specified in the certificate for the return 3. After the expiration of the 6 months notice given by LP to other partners Return of Contribution 1. General Rule Even if a LP has contributed property, he has only the right to demand or receive cash as a return of his contribution 2. Exceptions a. When there is a stipulation to the contrary in the certificate b. Where all the partners consent to another form of return Grounds for LP to File a Petition for Dissolution 1. When his demand for the return of his contribution is denied although he has right to such return 2. When his contribution is not paid although he is entitled to its return 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. The liabilities of a limited partner as set forth in this article can be waived or compromised: 1. only by the consent of all members; 2. but a waiver or compromise shall not affect the right of a creditor of a part nership: a. who extended credit or b. whose claim arose after the filing and before a cancellation or amendment of the certificate, c. to enforce such liabilities.
When a contributor has rightfully received the return in whole or in par t of the capital of his contribution, 1. he is nevertheless liable to the partnership for any sum, 2. not in excess of such return with interest, 3. necessary to discharge its liabilities to all creditors: a. who extended credit or b. whose claims arose before such return. Liabilities of a LP 1. To the Partnership as a general rule, the liabilities of LP is to the partner ship and not to the creditors of the partnership 2. To Partnership Creditors and Other Partners a. When he contributes services instead of only money or property to the partner ship b. When he allows his surname to appear in the firm name c. When he fails to have a false statement in the certificate corrected, knowing it to be false d. When he takes part in the control of the business e. When he receives partnership property as collateral security, payment or rele ase in fraud of partnership creditors f. When there is failure to substantially comply w/ the legal requirements gover ning the formation of limited partnership 3. To separate creditors creditor of a LP may also apply to the proper court for a charging order subjecting the interest in the partnership of the LP for the p ayment of his obligation 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: 1. has died or 2. has assigned his interest in a partnership. An assignee, who does not become a substituted limited partner, 1. has no right: a. to require any information or account of the partnership transactions or b. to inspect the partnership books; 2. he is only entitled to receive: a. the share of the profits or b. other compensation by way of income, or c. the return of his contribution, to which his assignor would otherwise be enti tled. An assignee shall have the right to become a substituted limited partner : 1. if all the members consent thereto or 2. if the assignor, being thereunto empowered by the certificate, gives the assi gnee that right. An assignee becomes a substituted limited partner when the certificate is app ropriately amended in accordance with Art. 1865. The substituted limited partner: 1. has all the rights and powers, and is subject to all the restrictions and lia bilities of his assignor, 2. except those liabilities of: a. which he was ignorant at the time he became a limited partner and b. which could not be ascertained from the certificate. The substitution of the assignee as a limited partner does not release t
he assignor from liability to the partnership under Art. 1847 and 1858. Substituted LP One admitted to all the rights of a LP who has died or assigned his inte rest in a partnership Requisites in Order That the Assignee May Become A Substituted LP 1. All the members must consent, or the LP, empowered by the certificate, gave h im such right to be a LP 2. The certificate must be amended 3. The amended certificate must be registered in the SEC The Assignor is NOT Released from Liability From: 1. Persons who suffered damage by reliance on false statements 2. Creditors who extended their credit or whose claims arose BEFORE the substitu tion ART 1860. The retirement, death, insolvency, insanity or civil interdiction (DRI CI) of a general partner dissolves the partnership, unless the business is conti nued by the remaining general partners: 1. Under a right so to do stated in the certificate, or 2. With the consent of all members. 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 limi ted partner. The estate of a deceased limited partner shall be liable for all his lia bilities as a limited partner. f This right is not available in a general partnership. ART 1862. On due application to a court of competent jurisdiction by any credito r of a limited partner, the court may charge the interest of the indebted limite d 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 circum stances of the case may require. The interest: 1. may be redeemed with the separate property of any general partner, but 2. may not be redeemed with partnership property. The remedies conferred by the first paragraph shall not be deemed exclus ive of others which may exist. Nothing in this Chapter shall be held to deprive a limited partner of hi s statutory exemption. In a general partnership, the interest of a partner subjected to a charging orde r may be redeemed with: 1. property of a GP 2. partnership property w/ consent of all the partners ART 1863. In settling accounts after dissolution, the liabilities of the partner ship shall be entitled to payment in the following order: 1. Those to creditors, in the order of priority as provided by law, except those to limited partners on account of their contributions, and to general partners 2. Those to limited partners in respect to their share of the profits and other compensation by way of income on their contributions; 3. Those to limited partners in respect to the capital of their contributions; 4. Those to general partners other than for capital and profits; 5. Those to general partners in respect to profits;
6. Those to general partners in respect to capital. Subject to any statement in the certificate or to subsequent agreement, limited partners share in the partnership assets in respect to their claims for capital, and in respect to their claims for profits or for compensation by way o f income on their contribution respectively, in proportion to the respective amo unts of such claims. f In a general partnership, the claims of the GP in respect of capital enjoy pre ference over those in respect of profits Causes for Dissolution of Limited Partnership 1. Misconduct of GP 2. Fraud practiced on the LP by GP 3. Retirement, death, etc of GP 4. When all LP cease to be such 5. Expiration of term for w/c it was to exist 6. Mutual consent of the partners before expiration of the original term ART 1864. The certificate shall be cancelled when: 1. the partnership is dissolved or 2. all limited partners cease to be such. A certificate shall be amended when: 1. There is a change in the name of the partnership or in the amount or characte r of the contribution of any limited partner; 2. A person is substituted as a limited partner; 3. An additional limited partner is admitted; 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 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 dissolutio n 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 co ntribution, no time having been specified in the certificate, or 10. The members desire to make a change in any other statement in the certificat e in order that it shall accurately represent the agreement among them. ART 1865. The writing to amend a certificate shall: 1. Conform to the requirements of article 1844 as far as necessary to set forth clearly the change in the certificate which it is desired to make; and 2. Be signed and sworn to by all members, and a. an amendment substituting a limited partner or adding a limited or general pa rtner shall be signed also by the member to be substituted or added, and b. when a limited partner is to be substituted, the amendment shall also be sign ed by the assigning limited partner. The writing to cancel a certificate shall be signed by all members. A person desiring the cancellation or amendment of a certificate, if any person designated in the first and second paragraphs as a person who must execu te the writing refuses to do so, may petition the court to order a cancellation or amendment thereof. If the court finds that the petitioner has a right to have the writing e xecuted by a person who refuses to do so, it shall order the SEC where the certi ficate is recorded, to record the cancellation or amendment of the certificate; and when the certificate is to be amended, the court shall also cause to be file d for record in said office a certified copy of its decree setting forth the ame ndment.
A certificate is amended or cancelled when there is filed for record in the SEC, where the certificate is recorded: 1. A writing in accordance with the provisions of the first or second paragraph, or 2. A certified copy of the order of the court in accordance with the provisions of the fourth paragraph; 3. After the certificate is duly amended in accordance with this article, the am ended certified shall thereafter be for all purposes the certificate provided fo r in this Chapter. Requirements to amen a certificate: 1. The amendment must be in writing 2. It must be signed and sworn to by all the members, including new members and the assigning limited partner 3. The amended certificate must be filed for record in the SEC ART 1866. A contributor, unless he is a general partner, 1. is not a proper party to proceedings by or against a partnership, 2. except where the object is to enforce a limited partner's right against or li ability to the partnership. When a LP May 1. to enforce 2. to recover 3. to enforce be Considered a Party - Where the object is his individual rights against the partnership damages for violation of such right his liability to the partnership
ART 1867. A limited partnership formed under the law prior to the effectivity of this Code, may become a limited partnership under this Chapter by complying wit h the provisions of Art. 1844, provided the certificate sets forth: 1. The amount of the original contribution of each limited partner, and the time when the contribution was made; and 2. That the property of the partnership exceeds the amount sufficient to dischar ge its liabilities to persons not claiming as general or limited partners by an amount greater than the sum of the contributions of its limited partners. A limited partnership formed under the law prior to the effectivity of t his Code, until or unless it becomes a limited partnership under this Chapter, s hall continue to be governed by the provisions of the old law. ?? ?? ?? ?? 1 1 Partnership Reviewer emily zen chua
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