UNIT I: THE LAW ON PARTNERSHIP CHAPTER T: GENERAL PROVISIONS INTRODUCTION | A partnership arises from a contract entered: into by people who trust one | another and are willing to-contribute their money, property, and service to a | common fund that will be used to generate profit. The very foundation and essence | ofapartnership is the mutual desire and consent of the partners who have the right | to-choose with whom they wish to associate. The entire provisions of law relative | Code of the Philippines. INTENDED LEARNING OUTCOMES At the end of the Chapter, the students will be able to explain the nature of a partnership as a contract and know how to put up a partnership. Essential Features A partnership is a type of business organization created by. a contract. As provided under Article 1767 of Book IV of the Civil Code of the Philippines, in order that there may be a partnership, two or more persons must agree to unite their money, property, labor, or skill in carrying out a legitimate business for profit. Two or more persons may also form a partnership for the exercise of their profession. A partnership duly formed under, the law is a juridical person that has a personality separate and distinct from the partners. According to Article 1768, it may acquire and possess all kinds of properties, incur obligations, and file cases or become defendants in cases filed in courts. Article 1774 provides that real properties or any interest therein may be acquired in the partnership name since it has a juridical personality separate from and distinct from the partners and ownership can be conveyed only in the name of the partnership. Scanned with CamScannerIn order to establish the existence of a partnership, there must be: (1) a valid contract; (2) legal capacity of the persons forming the partnership; (3) mutual contribution of money, property, or industry to a common business; (4) a lawful business; and (6) primary purpose which is to obtain profits and to divide the same among the parties. Since the partnership is for the common benefit or interest of the partners, it is not necessary that the intention to divide the profits among the partners be in equal shares. A partnership as a contract has the following characteristics: © Consensual - it is perfected by mere consent, when two or more persons agree expressly or impliedly; except if real property is contributed wherein, it becomes a formal or solemn contract that requires the contract of partnership to be notarized and an inventory of real property attached to the said public instrument. * Bilateral itis entéred between two or more persons with reciprocal rights and obligations. *~ Principal —it does not depend for its validity or existence upon some other contract. ©. Commutative — the undertaking of one partner is regarded as the equivalent of that of the other partners. © Preparatory —itis entered into so that such persons may lawfully engagein business to realize profits which will then be divided among themselves. * Onerous where partners contribute something so that they may share in the profits of the business. «Nominate — ithas a special name or designation under the law. Parties, Object and Form ‘Any person capacitated to a contract may enter into a contract of partnership. ‘As such, persons who are suffering from civil interdiction, minors, insane or demented persons, deaf-mutes who do not know how to write, and incompetents who are under guardianship cannot enter into a partnership. On the other hand, the capacity of the following persons to enter into a contract of partnership is limited: (1) those who are prohibited from giving each other any donation or advantage cannot enter into a universal partnership} and (2) a corporation which cannot enter into a partnership in the absence of express authorization by statute or charter, but may engage in a joint venture with others? Article 1781, Civil Code of the Philippines. 2Aurbach vs. Sanitary Wares Manufacturing Corporation, GR, No. 75875, December 15, 1989, 2” BUSINESS LAWS AND REGULATIONS. Scanned with CamScanner‘The essential elements of a partnership are the lawful object and common benefit or interest of the partners. Since a partnership is really a contract between the parties, the parties are free to choose the business or transaction they want to enter into provided this is lawful and for the common benefit of the parties. If the partnership has an unlawful object or purpose, then the contract is void ab initio. Once dissolved by order of the court, the partnership’s profits, the instrument or tools, and proceeds of the crime shall be confiscated in favor of the government and even the contributions of the partners shall be confiscated if they are used as instruments or tools of the crime.? As to its object, a partnership may either be a universal partnership which refers to all the present property or to all profits or a particular partnership which has for its object determinate things, their use or fruits, or specific undertaking, or the exercise of a profession or vocation. Article 1778 provides that in a universal partnership of all present property, the partners contribute all the properties that belong to them to a common fund together with the profits they may acquire from said properties. The properties contributed include all those owned by the partners at the time of the. constitution of the partnership. According to Article 1779, they may also agree to include all other profits they may subsequently receive but the property that the partners may acquire subsequently by inheritance, legacy, or donation cannot be included in their agreement, except the fruits thereof. To illustrate: Howard, Sheldon, and Leonard entered. into a universal partnership of all present property, and they agreed that all properties subsequently acquired would belong to the partnership. Subsequently, Leonard received a parcel of land by inheritance from his father. Howard received a parcel of land with fruit-bearing trees as payment for his services from his client. Given the facts, only Howard's parcel of land with fruit-bearing trees will go to the partnership. The parcel of'land which Leonard inherited will not go into the partnership since future inheritance cannot be stipulated upon. However, the fruits of Leonard's land belong to the partnership if there is a stipulation to that effect because they may be considered as properties subsequently acquired, Ontthe other hand, according to Article 1780, a universal partnership of profits comprises all that thé partners may acquire by their industry or work during the existence of the partnership. Only the usufruct over the property of the partners passes to the partnership. Article 1781 provides that when the articles of universal partnership do not specify the nature of the partnership, the presumption is that _ the partners intended only a universal partnership of profits. Article 1770, Civil Code of the Philippines. UNITI | THELAWON PARTNERSHIP) 3 Scanned with CamScannerTo illustrate: Wiwon, Ahmong, and Shelly formed a universal partnership of profits. Wiwon contributed the use of his land. At the end of the partnership, the land should be returned to Wiwon because only the use of the land was contributed, and ownership had always been with him. According to Article 1782, persons who are prohibited by law to give donations to each other, such as a husband and wife, cannot form a universal partnership. A husband and wife may, however, form a particular partnership. While spouses cannot enter into a universal partnership, they can form and be partners in a limited partnership‘ Article 1783 contemplates a'particular partnership known as a professional partnership formed by professionals who join together to practice their profession. ‘According to Article 1771, as'a géneral rule, a contract of partnership may be made orally or in writing, unless real property or rights are contributed, in which case, it should be in a public instrument. Article 1772 provides that when cash or property worth P3,000 or more is contributed as capital, the Articles of Partnership shall be in a public instrument and registered with the Securities and Exchange Commission (SEC). If said requirements are not complied with, it will not affect the liability of the partnership and its partners to third parties. If the partnership is not written in a public instrument, the remédy of the partner is to compel the execution of a public instrument through an action for a specific performance. To illustrate: Breech and Chandler orally agreed to form a partnership. Each contributed cash ‘and personal properties worth P10,000 to a common fund but they did not register the partnership with the SEC. In this case, the partnership is still valid. . Also, according to Article 1773, if real property, regardless of value, is contributed by any of the partners, the contract of the partnership must be ina public instrument, and attached to it should be an inventory of the property contributed, duly signed by the parties. To illustrate: Mocha, Blanca, and Julio entered into a contract of partnership . for the operation of an employment agency. Mocha contributed P1 million cash, and Blanca, a unit in a commercial building. Julio contributed his industry by being tasked to manage the business. The contract was not accompanied with an inventory of the property contributed by Blanca, and it is not in a public instrument. In this case, the contract is void because it is not in a public instrument, and there is no inventory of the immovable property contributed attached to the said contract. “CIR ws. Suter and CTA, GR. No. L-25532, February 28, 1969. 4 BUSINESS LAWS AND REGULATIONS Scanned with CamScannerWoy 12207 Se, * t The element of delectus personae (defined as the right of a person to choose whom B he wants to associate with) exists in a partnership. A partnership is thus formed by the voluntary agreement between the parties, and it is a must that the parties be fully apprised reement and all the matters affecting the partnership since is considered the agent of his partners and the partnership with respect | apariner i toits transactions. Article 1775 provides that associations whose articles are kept . secret among the members and where they contract in their own name with third persons are not partnerships because they do not have juridical personality, and are governed by the provisions on co-ownership. Duration of Partnership Since a partnership is a consensual contract, that is, perfected by mere consent or agreement of the parties, it exists from the moment of the execution of the contract, unless the parties stipulated otherwise.’ Thus, a partnership commences on the date agreed upon by the partners, upon the happening of a condition agreed upon by the partners, or in the absence of an agreement, upon the execution of the contract. As to duration, a partnership may either be for a fixed term or a particular undertaking or at will, the formation and dissolution of which depends on the mutual desire and consent of the parties. Any one of the partners may, at his sole pleasure, dictate the dissolution of the partnership, even in bad faith, subject to liability for damages$ According to Article 1785, a partnership term may be extended expressly or impliedly, when the partnership is for a fixed term or particular undertaking and is continued, without any express agreement, after the termination of the fixed term or particular undertaking. Rules to Determine Existence When the intent of the parties is clear, such intent shall govern. When it does not clearly appear, the following rules apply: © Persons who are not partners to each other are not partners as to third persons unless there is estoppel. © Co-ownership or co-possession does not establish a partnership, even, when there is sharing of profits in the use of the property. ‘© Sharing of gross returns does not establish a partnership, even when the parties have a joint or common interest in any property from which the returns are derived. Article 1784, Civil Code ofthe Philippines. ff “Ortega vs. CA, GR. No. 109248. July 3, 1995. é ‘UNIT | THE LAW ON PARTNERSHIP 5 Scanned with CamScanner* The receipt by a person of a share in the profits of a business is prima facie evidence that he is a partner, which may be contradicted by proof that such profits were received in payment of a debt, wages, rents, annuity, interest on a loan, or as consideration for the sale of a goodwill of a business? To illustrate: there is no partnership created in each of the following instances: A. Bailey and Boyito inherited from their mother a huge sum of money, which they used to buy a condominium unit that is leased to Chandler. B. Shirley receives a share of the profits, as payment of a debt to her by the partnership. C. Leoagreed tomanage the Sand and Gravel Co. He solicited hauling transactions from different construction firms, and he receives as compensation 10% of the proceeds. D. Claudine loaned money to Grace for her online business. Grace returned the money in installments from the profits of the business. E. Dogonghei Partnership entered into a management agreement with their creditors to ensure partnership payment of their credits. F._ Grace receives a share of the profits, as payment of her commission from the partnership. F G. Joanne receives a share of the profits, as payment for rent in the building used by the partnership. H. Breech and Chandler subsequently owned a commercial building, earning 400,000 monthly lease, which they inherited from their father. 1. The employees in a company formed a union for purposes of collective bargaining. Kinds of Partnership : : There are different kinds of partnerships, to wit: * As to the legality of its existence, a partnership may either be a partnership de jure that has complied with all the requisites for its lawful establishment, or a partnership de facto that failed to so comply. © As to its object, a partnership may either be a universal partnership of all the present property or of all profits, or a particular partnership. Consenl * Article 1769, Civil Code of the Philippines. 1 Oprer 6 BUSINESS LAWS AND REGULATIONS a Aeceptemee/ Scanned with CamScanner¢ As to the liability of the partners, a partnership may either be a general partnership consisting of general partners who are liable pro rata and __ subsidiarily or at times solidarily with their separate property for partnership obligations, or a limited partnership which is formed by two or more persons having as members one or more general partners and one or more limited partners who are not personally liable for the partnership obligations As to its publicity, a partnership may either be a secret partnership—one where the existence of certain persons as partners is not made known by the partners or an open or notorious partnership whose existence is made known to the ~ public by the partners. ‘As to its purpose, a partnership may either be a commercial or trading partnership that exists for the transaction of business or a professional or non- trading partnership that exists for the exercise of a profession. As to its duration, a partnership may either be for a fixed term or particular undertaking or a partnership at will. ds of Partners As there are different kinds of partnerships, there are also different kinds of \ers, to wit: .: i i capitalist partner who contributes money or property; industrial partner who contributes only his industry, skills, or services; general partner whose liability to third persons extends to his separate property; limited partner whose liability to third persons is limited to his capital contribution; managing partner who is designated to manage the affairs or business of the partnership; liquidating partner who takes charge of winding up the partnership affairs; partner by estoppel who is not really a partner but is liable as such for the *“ protection of innocent third persons; _ continuing partner who continues the business after the dissolution of _ the partnership by the admission of a new partner, or retirement, death, or , expulsion of existing partners; : Picreing hres weiy oF Corperaky prion” ‘Article 1776, Civil Code of the Philippines. Scanned with CamScanner* surviving partner who remains a partner after dissolution by the death of any partner; ‘* — sub-partner who is not a member of the partnership and, technically and legally speaking, not a partner as he only contracts with a partner concerning the share of the latter in the partnership; * _ ostensible partner who takes an active part in the business of the partnership and is known by the public; * secret partner who takes an active part in the business, but is unknown to the third persons as a partner; * silent partner who does not take an active part in the business, but maybe known to be a partner by third persons; * dormant partner who does not take an active part in the business and is not known or held out as a partner; * original partner who has been partner sihce the constitution of the partnership; * incoming partner who is about to join or be taken asa member into an existing partnership; and © retiring partner who is withdrawing from the partnership. Partnership as Distinguished from Other Contracts Partnerships have distinguishing features not found in other contracts and may be differentiated from other contracts, to wit: * Partnership distinguished from joint venture A partnership operates with a firm name and legal personality, while a joint venture opetates without a firm name and legal personality. A partnership generally relates to a continuing business of various transactions of a certain kind, while a joint venture is usually limited to a single transaction. A corporation may not enter into a partnership but may enter into joint ventures. * Partnership distinguished from co-ownership A partnership is, generally, created by either an express or implied contract, while a co-ownership is generally created by law and may exist even without a contract. A partnership has a separate juridical personality, while co-ownership has no separate juridical personality. Generally, the purpose of the partnership is to obtain profits while the purpose of co-ownership is the common enjoyment of a thing or right. The duration of the partnership has no 8 BUSINESS LAWS AND REGULATIONS Scanned with CamScannerlimitation, while in co-ownership, an agreement to keep a thing undivided for more than 10 years is not allowed, but may be extended. There is mutual agency between partners, while there is no mutual representation among co- wners. Death or incapacity of a partner dissolves the partnership, while death or incapacity of a co-owner does not dissolve the co-ownership. A partner “cannot dispose of his interest, so as to make the assignee a partner, without e consent of others, while a co-owner can dispose of his share without the onsent of others. tnership distinguished from a corporation A partnership is similar to a corporation in a number of ways. Like a poration, a partnership has a juridical personality separate and distinct from members. A partnership acts through agents. It consists of an aggregate individuals and distributes profits to those who contributed capital to ‘the business. It can be organized only where there is a law authorizing its “organization. It is taxable as in a corporation. It has no limitation in duration. On the other hand, there are also differences between a partnership and corporation. A partnership is created by agreement, while a corporation is ‘ted by operation of law, ie, the Revised Corporation Code. A partnership wolves at least two persons while a corporation can exist with a single older, as in the case of a one-person corporation.’ A partnership's “personality commences from the moment of execution of the contract, while a corporation's personality commences from the issuance of the certificate of ‘incorporation by the SEC. A partnership can exercise any power authorized ‘by partners, while a corporation can exercise only powers conferred by the evised Corporation Code or by its articles of incorporation, and such as are ssary or incidental to the exercise of such powers. When management is it agreed upon, every partner may act for the partnership, while management vested in the board of directors or trustees. Partners are generally liable partnership debts, while the stockholders are liable only to the extent of ir shares in a corporation.- A partner cannot dispose of his interest, so as to “make the assignee a partner, without the consent of others, while a stockholder “has the right to transfer his shares without the consent of others. Lastly, a ership may be dissolved at any time by any partner or all of the partners, ‘while a corporation may only be dissolved with the consent of the State. Partnership distinguished from conjugal partnership of gains .A partnership is created by voluntary agréement between two or more Partners of either sex, while the conjugal partnership of gains arises in case Scanned with CamScannerthe spouses, of opposite sex, agree before marriage. A partnership is governed primarily by the agreement of the partners, while law (Family Code of the Philippines) governs a conjugal partnership of gains. A partnership has a juridical personality, while a conjugal partnership of gains has no juridical personality. The commencement date of a partnership may be agreed" upon, while the commencement date of a conjugal partnership of gains is on the date of the celebration of the marriage and any stipulation to the contrary is void. Share in profits may be stipulated in a partnership, in the absence of which, the share of partners is in proportion to the contribution, while the share in profits is equal in a conjugal partnership of gains. In a partnership, management is shared by all partners, unless otherwise agreed-upon while in a conjugal partnership of gains, administration belongs to the spouses jointly, but the decision of the husband prevails in case of disagreement. A partner can dispose of interest even without the consent of others, while a spouse cannot dispose of interest during the marriage, even with consent. © Partnership distinguished from association A partnership has a juridical personality, while an association has no juridical personality. A partnership is organized for profit, while an association is not always organized for profit. Capital is contributed to a partnership, while capital is not contributed to an association although fees are collected from members. The partnership is primarily liable, and the partners are liable only subsidiarily, while the members of the association are liable individually for the debts that they authorized or ratified. Share in profits may be stipulated in a partnership, in the absence of which, the share of partners is in proportion to the contribution, while the share in profits is equal in an association. PRACTICE EXERCISES 1. Cana husband and wife form a limited partnership to engage in real estate business, with the wife being a limited partner? 2. Can two corporations organize a general partnership under the Civil Code of the Philippines? 3. Can a corporation and an individual form a general partnership? 10 BUSINESS LAWS AND REGULATIONS Scanned with CamScannerILEVANCE OF THE LESSON _ A partnership is best for a small number of people who know each other want to start a business. It is relatively easy to put up, and having a juridical ability as compared to operating as a sole proprietorship. A sole proprietorship is siness entity owned by the person directly managing it whose personal funds . mingle with the funds and earnings of the business. In other words, in a sole nsidered a8 a separate legal entity and the owner gets taxed as an individual derives income from the operations of his business. Since all the assets of the business are owned by the proprietor, then all the debts of the business are also his. The proprietor has unlimited liability—he is fully, solely, and personally liable or costs, debts, and legal liabilities of the business and must pay for them even if it s using his personal funds for the purpose. ESSON SUMMARY: ‘A partnership is a type of business organization created by a contract entered by two or more persons who conitribute their money, property, and industry to a common fund with the intention of dividing the profits among themselves. Ithas a personality separate and distinct from the partners. It may acquire and possess all kinds of properties, incur obligations and file cases in courts or ‘become defendants in cases. : Since a partnership is a consensual contract, it exists from the moment of the execution of the contract, unless otherwise stipulated by the partners. As a general rule, a contract of partnership may be made orally or in writing, unless the capital of the partnership is P3,000 or more in which case it must in a public instrument, or if real property or rights are contributed, in which case it must be in a public instrument with an inventory of the property contributed, and in both cases, must be registered with the SEC. As to its object, a partnership may either be a universal partnership of all present property or of all profits, or a particular partnership. As to duration, a partnership may either be for a fixed term or particular undertaking or at will. UNITI| THELAWON PARTNERSHIP 11! ‘ Scanned with CamScanneroc Corp = Road OF | Dive cows Wo Stocr Sip = Bose oy Wske’s - payobe 19 Weaver - can be vse by someone -vINEr tha, ane one in Tay cheque fayaus 30 Order We ean obly be Weer bY ne one! wos nome 1S written on Ane Cheque Scanned with CamScannerAPTER 2: AND) OBLIGATIONS contract of partnership creates four kinds of relationships: (1) among the (2) between the partners and the partnership; (3) between the partnership persons; and (4) between the partners and third persons. DED LEARNING OUTCOMES At the end of this chapter, the students will be able to describe the rights of a nership, summarize the rights and obligations of partners among themselves, ulate steps for the other partners to take in case one partner breaches his ights and Obligations of the Partnership Contribution artnership has a right to the contribution from the partners. The money or contributed, or their use or fruits becomes the property of the partnership. of the nature of his contribution to the partnership—whether as a t partner or.an industrial partner, every partner is obliged to contribute at ing of the partnership or at the stipulated time the money, property, or at he may have promised to contribute to the partnership... m, Creamo, and Chloe entered into a partnership where Chloe ited her apartment situated in Pasay City to be converted into an office firm. Before the delivery of the title and possession of the said property e partnership, a fire completely razed the said apartment. In this case, the ship is dissolved because Chloe can no longer deliver the contribution CC, DD, and EE are partners. AA promised to deliver his car to their’ ship. MM, a separate creditor of AA, attaches the car as payment for tstanding obligation of AA to him. In this case, MM can still attach the because partner AA is still the owner of the property. UNIT) THELAWONPARTWERSIP 15, Scanned with CamScannerAccording to Article 1786, if a partner promised to contribute specific property, heis obliged to preserve said property with the diligence of a good father of a family pending delivery to the partnership. If he fails to contribute the property that he promised, he becomes ipso jure liable as a debtor of the partnership, without the need of any demand, and the other partners can file an action against him for specific performance with damages. Because of the delay, he is also liable to the partnership for the fruits of the property from the time it should have been contributed up to the time of actual delivery. He is obliged to indemnify the partnership for any damage caused to the partnership because of the delay in his contribution. Demand is not necessary to put him in delay, as an exception to the general rule. He is likewise liable for eviction in case the partnership is deprived of the property contributed. To illustrate: In A, B, C, and D partnership, only B did not deliver his agreed capital contribution in the form of a specific house and lot. The remedy against him is for specific performance. According to Article 1787, when whatis to be contributed by the partner consists of goods, there should be an appraisal of the value of said goods in accordance with the agreement of the partners to determine how much has been contributed by the partners and if there is no agreement, the appraisal shall be done by experts chosen by the partners and according to current prices. Article 1788 provides that every partner is required to contribute on the date due the amount he has promised to contribute to the partnership and to reimburse any amount he may have taken from the common fund arid converted to his own use. In case he fails to pay his contribution on time, or ifhe takes an amount for his personal use from the common fund, he shall pay interest. He is also obliged to indemnify the partnership for the damages caused to the partnership for his delay in the contribution or by reason of his having converted any sum from the common fund for his personal benefit. He is liable to pay both interest and damages counted from the time he should have complied with his obligation to contribute the sum of money or from the time he converted the amount to his own use. Note that the remedy of the other partners in case there is a failure'by a partner to contribute the property promised is not rescission but specific performance with damages from the defaulting partner. Under Article 1790, if there is no agreement on the conttibution of unequal shares to the common fund, it is presumed that the partners’ contributions are in | equal shares. Unless otherwise agreed upon by the partners, an industrial partner becomes a debtor of the partnership for his work or services from the moment of the commencement of the partnership; the partnership acquires an exclusive right to avail itself of its personal service. If the industrial partner engages in business for himself, whether it is the same business in which the partnership is engaged or any kind of business, such act is considered as prejudicial to the interest of the partnership and the other partners as well. Hence, he is absolutely prohibited from 16 BUSIVESS LAWS AND REGULATIONS Scanned with CamScanner‘or himself without the express permission of the partnership. engages in a iness for himself, without the express permission of the list partners, as well as the cee industrial partners since to exclude in from the partnership or to avail themselves of the benefits said industrial partner may have obtained, with a right to damages in either To illustrate: Uno, Dos, Tres, and Quatro are capitalist partners while Cinco an industrial partner in Kastila Partnership. The partnership is engaged in real e business. Without the consent of Uno, Dos, Tres, and Quatro, Cinco put up a ction supply store to supply Kastila partnership with construction materials, is case, Uno, Dos, Tres, and Quatro may exclude Cinco from the partnership or til themselves of the benefits which Cinco may have obtained from the operation e construction supply store, with a right to damages in either case On the other hand, unless the partners agreed otherwise, the capitalist partner prohibited from engaging for his own account in any business, which is the same ‘lar to and in competition with the business in which the partnership is ed. Under Article 1808, a capitalist partner who engaged for his own account in operation which is of the same kind of business in which the partnership is ed can be compelled to bring to the common fund of the partnership any accruing to him from his transactions, but if there is a loss, he shall personally ar the said loss. The partners may by agreement, however, permit the capitalist to engage in the same kind of business as that of the partnership. To illustrate: Bing is the capitalist partner and Geller is the industrial partner, is engaged personally in the same kind of business the partnership is engaged this case, if there are profits, Bing must give the profits to the partnership. If are losses, Bing will personally bear it. t to Additional Contribution According to Article 1791, a capitalist partner is one who contributes money perty to the common fund. As a general rule, he is not bound to contribute e partnership more than what he agreed to contribute. However, in case of an ent loss of the business of the partnership where the majority of the capitalist jliged to contribute an additional share to save the business. If such partner es t6 do so (deliberately and not because he is financially unable), he shall be ito sell his interest to the other partners. Scanned with CamScannerRight to Apply Payment Received to Partnership Credit One who manages the business of the partnership is commonly referred to as a managing partner. He is appointed either in the articles of partnership or after the constitution of the partnership. According to Article 1792, a partner authorized to manage, who collects a demandable sum owed to him in his own name from a person who also owes the partnership a demandable sum, is obliged to apply the sum collected to both credits pro rata, even if he issued a receipt for his own credit only. However, in case the receipt was issued for the account of the partnership credit only, the sum shall be applied to the partnership credit alone. Also, when the debtor declares, at the time of making the payment, to which debt the sum must be applied, it shall be so applied. To illustrate: A. Penny is indebted to Sheldon, the managing partner of Big Bang & Co. for 10,000 and to the partnership for P20,000. Sheldon collected P15,000 from Penny when both debts are due and demandable. The payment will be applied: 1. P15,000 to Big Bang & Co. if Sheldon issued a receipt for partnership credit. 2. P10,000 to Big Bang & Co. andP5,000 to Sheldon if Sheldon issued a receipt for his credit. 3. P15,000to Sheldon if Penny applied the payment to her debt with Sheldon provided such debt is more onerous than her debt to Big Bang & Co. B. Geller and Bing are partners in a certain business, Geller being the manager. Tribianni owes Geller P50,000 and the partnership P100,000, both debts are now due and demandable. Tribianni pays Geller P30,000 and the latter issues a receipt under his name. The P30,000 shall be applied proportionately to the partnership credit and Geller’s credit, that is, P20,000 to the former and P10,000 to the latter. - C. Rachel, Monica, and Phoebe are partners.’ Monica is the managing partner. Joey is indebted to the partnership for P4,000 and to’ Monica personally for another 4,000. Joey is also indebted to Phoebe for P4,000. All debts are due. Joey paid Phoebe, P4,000 and Phoebe issued a receipt in her name. In this case, the act of Phoebe is proper because she has the discretion to do so as she is not a managing partner. D. The creditors of Jay are Max, managing partner of XYZ & Co. for P10,000 and the partnership for P20,000. When both debts are due and demandable, Max collected from Jay is P10,000. For said collection, Max gave a receipt in his own. name. In this case, the P10,000 shall be proportionately applied to both debts since there was no application of payment made by Jay. 18 BUSINESS LAWS ANN REGULATIONS ‘ Scanned with CamScannert to Return of Credit Received "According to Article 1793, a partner, authorized to manage or not, who already ved, in whole or in part, his share of a partnership credit, is obliged to bring to partnership capital what he received when the other partners have not collected ess of the partnership, Geller, Bing, and Tribianni agreed to equally di iit of P300,000 among themselves. Bing and Tribianni were able to collect from P100,000 each, but Geller was not able to collect because Cooper became. vent, In this case, Bing and Tribianni should return to the partnership capital! they have collected. 3 it to Indemnity for Damages “According to Article 1794, every partner is responsible to the partnership ‘for ages suffered by it through his fault. As a general rule, the liability for damages" t be set-off or compensated by profits or benefits which the partner may earned for the partnership by his industry; but if unusual profits are realized +h the extraordinary efforts of the partner at fault, the courts may equitably te the liability for damages of the partner at fault. rding to Article 1795, in determining. who bears the risk of loss of the contributed to the partnership, the following rules apply: ii case of specific arid determinate things which are’not fungible and where ‘only the use is contributed by the partner, the risk of loss is borne by the partner. In case of specificand determinate things the ownership of whichis transferred to.the partnership, the risk of loss is for the account of the partnership. A case of fungible or consumable things, the risk of loss is borne by the ‘nership. In case of things contributed in order that the partnership may sell the same, the partnership bears the risk of loss. In case of things brought and appraised in the inventory, the partnership bears the risk of loss. Tf the loss is due to the fatilt of any of the partners, the partner at fault shall be _Tiable for damages to the partnership in accordance with Article 1794. UNIT! | THE LAW ON PARTNERSHIP 19 Scanned with CamScannerThe risk of loss of things contributed is borne by the partnership where: the thing is intended for sale, the thing is fungible which cannot be kept or use without consuming, and the thing is determinate, and ownership is transferred to the partnership. Suit for Damages Before a partner may sue another for alleged fraudulent management and resultant damages, there must be a liquidation first to determine the extent of the damage. Without liquidation of partnership affairs, a partner cannot claim damages? Responsibility to Partners According to Article 1796, the partnership is obliged to refund to the partner the amounts disbursed by him on behalf of the partnership, such as advances for partnership obligations due and payable, together with the corresponding, interest from the time the expenses were incurred. It is also obliged to answer for the obligation, which a partner may have contracted in good faith in the interest of partnership business, and is obliged to answer for risks in consequence of its management. PRACTICE EXERCISE ‘Simon and Ragesh formed a partnership to operate a car repair shop in Manila. Simon provided the capital while Ragesh contributed his labor and industry. On one side of their shop, Simon opened and operated a coffee shop, while on the other side, Ragesh put up a car accessories store. May they engage in such separate businesses? RELEVANCE OF THE LESSON A partnership has a personality separate and distinct from the partners. It is important to remember that having a separate personality, and as a juridical person, a partnership has its corresponding rights and consequential obligations which under the law it cannot just pass on to the persons constituting the partnership. *Soncuya vs. De Luna, G.R. No. L-A5464, April 28,1999. N ANIGINESS1 AWS ANT REGITATIONS. Scanned with CamScanneriSSON SUMMARY "The partnership has a right to the contribution from the partners. Incase of an imminent loss of the business of the partnership and an additional contribution to the common fund is needed to save the business, the capitalist "partner must contribute an additional share and if he refuses to do so, he shall " sell his interest to the other partners. _ An industrial partner is absolutely prohibited from engaging in business | for himself without the express permission of the partnership, otherwise, the capitalist partners, may either exclude him from the partnership or avail _ themselves of the benefits which he may have obtained, with a right to damages in either case. The capitalist partner cannot engage for his own account in any business which. is similar to and in competition with the business in which the partnership is engaged; otherwise, he shall bring to the common fund any profits he derived _ from his transactions, but shall personally bear the losses. _ A managing partner who collects a sum owed to him in his own name from a person who also owes the partnership is obliged to apply the sum collected to both credits pro rata; if he issued a receipt in the name of the partnership, the _ sum shall be applied to the partnership credit alone. ‘A partner who received, in whole or in part, his share of a partnership credit, " is obliged to bring to the partnership capital what he received when the other "partners have not collected their shares and the partnership debtor has become insolvent. Every partner is responsible to the partnership for damages suffered by it through his fault. " The partnership is obliged to refund to the partner the amounts disbursed by him on behalf of the partnership together with interest from the time the expenses were incurred. _ The partnership is also obliged to answer for the obligation which the partner _may have contracted in good faith, and to answer for risks in consequence of its management. Scanned with CamScannerLesson 2: Rights and Obligations of Partners Inter Se Right to Associate Another in Share According to Article 1804, every partner has the right to associate another person with him in his share of the profits coming from the partnership even without the consent of the partners. This person is called a sub-partner—he is not a partner and shall not become such unless there is unanimous consent of all the other partners, even if the partner associating with him is a managing partner. As a sub-partner, he acquires neither the rights nor the liability of a partner as he does not enjoy the mutual trust and confidence among the partners and his inclusion as anew partner will result in a modification of the existing contract of partnership. To Illustrate: Tachi, Fernan, and Guzman are partners, Tachi without the knowledge of Fernan and Guzman entered into a contract with Jayjay whereby Jayjay will participate in Tachi’s share in the profits of the partnership. Jayjay becomes a sub-partner of Tachi. A Right to Inspect Partnership Books The partnership books are presumed to contain the true and correct record of the accounts of the partnership and are normally in the custody of the managing partner or partners, or in the absence of the managing partner or partners, the active partners. According to Article 1805, the partnership books shall be kept at the place agreed upon by the partners and when there is no such agreement, at the principal place of business of the partnership. Every partner shall, at any reasonable hour, have access to and may inspect or copy any of them. Other partners may, however, deny a partner of his rights to inspect the books if the information to be gathered will be utilized for some purpose other than the’partnership purpose. , Right to Formal Account Asageneral rule, the right toa formal account of partnership affairs accrues only when the partnership is dissolved. Under Article 1809, however, formal accounting may bé demanded by any partner even before dissolution in the following instances: * if heis wrongfully excluded from the partnership business or possession of its property by his partners; * ifthe right exists under their agreement; 22 BUSINESS LAWS AND REGULATIONS Scanned with CamScannerif without his consent, a partner has derived profits from any transaction connected with the formation, conduct, or liquidation of the partnership or from any use of partnership property; or whenever other circumstances render it just and reasonable. operty Rights of Partners Under Article 1810, the property rights of each partner are the following: his fights in specific partnership property, his interest in the partnership, and his right 0 participate in the management. L ership of Certain Properties The ownership of property used by the partnership depends on the intention f the parties, which may be drawn from an express agreement or their conduct—a artner may allow the property to be used by the partnership without transfer of nership, contributing only the use or enjoyment thereof, and he may also hold fle to partnership property, without acquiring its ownership.’ Property acquired a partner with partnership funds is presumed to be partnership property and same presumption also arises when the property is indicated in the partnership doks as a partnership asset. ts in a Specific Property The partners have equal rights to possess partnership property for partnership irposes, but for other purposes, the consent of their partners is necessary. If the riner is excluded, he may ask for a formal accounting‘ or dissolution by judicial sree According to Article 1811, the partner's right in such property is not ‘able, except when all the partners assign their rights in the same property. tight is not subject to attachment or execution, except on a claim against tnership. In case of such attachment, the partners, or any of them, or the esentatives of a deceased partner, cannot claim any right under the homestead mption laws. The right is not subject to legal support. To illustrate: Kibi, Kibot, and Kwek are partners. Kibi assigned the assets of artnership to Kokey on the condition that Kokey would pay the debts of the tnership. The assignment has the approval of Kibot, but Kwek objected. In this the assignment is not valid. Article 1819, Civil Code of the Philippines. ‘Article 1809, Civil Code of the Philippines. Article 1881, Civil Code of the Philippines. Scanned with CamScannerInterest in Partnership According to Article 1812, the partner's interest in the partnership consists of his share in the profits during the existence of the partnership and his share in the surplus after its dissolution. The partner's interest is his share of the residue or balance after a formal account has been taken and the value of a partner’s share cannot be determined until liquidation of the business had taken place and all the obligations of the partnership settled. The partner's interest is his personal property and is therefore assignable by him in the absence of any contrary agreement. It may also be levied upon by a judgment creditor and subject to legal support. Under Article 1813, an assignment by a partner of his whole interest in the partnership does not dissolve the partnership. It also does not entitle the assignee to interfere in the management of the partnership business, require information or account of the partnership, or inspect the partnership books. It merely entitles the assignee to receive the profits to which the assigning partner was entitled. In case of fraud in management, he may avail himself of the usual remedies. In case of dissolution, he is entitled to receive his assignor's interest and to require an accounting from the date only of the last account agreed to by all the partners. Thus, whenever a partner sells his whole interest in the partnership, which does not of itself dissolve the partnership, the buyer would have the right to receive the share of the profit for which the partner-seller is entitled. To illustrate: A. Boyito, Bailey; and Simon are general partners in a merchandising, firm. Having contributed equal amounts to the capital, they also agreed on equal distribution of whatever net profit is realized per fiscal period. After two years of operation, however, Simon conveys his whole interest in the partnership to Perry, without the knowledge and consent of Boyito and Bailey. In this case, the partnership is not dissolved. A conveyance by a partner of his whole interest in a partnership does not in itself dissolve the partnership in the absence of an agreement. Also, Perry may receive the net profits to which Simon would have otherwise been entitled. Perry, however, cannot interfere or participate in the management or administration of the partnership business or affairs. B. Ahrang, Boyito, and Chloe formed a partnership to continue for a term of five years. In the third year, Chloe sold his entire interest to Domdom. In such a case, Domdom has a right to receive profits to which Chloe would otherwise be entitled, but he cannot ask for judicial rescission. He cannot exercise acts of management because he is not a partner, and he can neither inspect the books of the partnership nor ask for formal accounting. 24 BUSINESS LAWS AND REGULATIONS Scanned with CamScannerLeonard, Sheldon, Ragesh, and Howard are partners, Howard assigned his interest in the partnership to his daughter Halley. In this case, the partnership is not dissolved. jith- regard to partnership property, partnership creditors are preferred ar the personal creditors of the partners. But, according to Article 1814, on due ation by any judgment creditor of a partner, a competent court may charge terest of the partner for the satisfaction of the judgment debt. The court may 9 appoint a receiver of the share of the profits and any other money accruing to partner; and make all other orders, directions, accounts, and inquiries, which debtor partner might have made, or which the circumstances may fequire. The est charged may be redeemed before foreclosure or, in case of sale directed by court, maybe purchased without causing dissolution. with separate property e or more of the partners or with partnership property by one or more of the tners with consent of all, except the debtor partner. Right to Participate in Management “Management of the partnership is primarily governed by the agreement of ers in the articles of partnership. It'may be agreed that the partnership e articles of partnership or after the constitution of the partnership. When the of the management has not been agreed upon, all the partners shall be les may execute all acts of administration despite opposition by the other ers, but he cannot do so when he acts in bad faith. "* illustrate: In the partnership of Apmong, Bailey, and Chandler, Ahmong inted in the Articles of Partnership as managing partner. As such manager acting in good faith, he may execute all acts of administration despite the ion of Bailey and Chandler. Article 1800 provides that if the managing partner is appointed in the articles, ership, his powers may be revoked when there is just or lawful cause for evocation and by the partners representing the controlling interest. If he is ited after the constitution of the partnership, his powers may be revoked any time and for any cause. According to Article 1801, when there are two or ‘managing partners appointed, without specification of their duties or without jent on how each one will act, each one may separately execute all acts of dministration. But if any of the other managing partners opposes the acts of the the decision of the majority prevails. In case of a tie, the partners owning the ntrolling interest will decide. UNITI| THELAWONPARTNERSHIP 25 Scanned with CamScannerTo illustrate: Wiwon, Sparky, Junjay, and Creamo organized a genera, partnership with Wiwon and Sparky as industrial partners and Junjay and Creamg as capitalist partners. Junjay contributed P50,000 and Creamo contributed P20,009 to the common fund. By a unanimous vote of the partners, Wiwon and Sparky were appointed managing partners, without any specification of their respective power, and duties. Tachi applied for the position of Secretary and Max applied for the position of Accountant of the partnership. The hiring of Tachi was decided upon by Wiwon and Sparky, but was opposed by Junjay and Creamo. The hiring of Max wag decided upon by Wiwon and Creamo, but was opposed by Sparky and Junjay. Who of the applicants should be hired by the partnership? ‘Answer: Tachi should be hired. The hiring of Tachi prevails because it is an act of administration that can be performed by the duly appointed managing partners, Wiwon and Sparky. Max cannot be hired, because, in case of a tie in the decision of the managing partners, such deadlock will be decided by the partners owning the controlling interest. In this case, the opposition of Sparky and Junjay prevails because Junjay owns the controlling interest. ‘According to Article 1802, if there are more than one managing partner appointed by the partners and it is agreed that none of the managing partners shal] act without the consent of the other managing partners, all of them must concur for their acts to be valid. The absence or the disability of any of them cannot be used as an excuse or justification for not complying with said requirement. The sole exception is when there is an imminent danger of grave or irreparable injury to the partnership in which case a managing partner may act alone and even without the consent of the other managing partner or partners who may be absent or under disability. But unanimous consent is not required in case of routine transactions or transactions required in the regular course of business of a partnership, in which case any of the partners can act without the consent of others and his or her act alone shall be valid. When there is no agreement as to the manner of management, all the partners are considered agents. This is referred to as mutual agency; whatever any one does alone binds the partnership, unless there is a timely opposition to the act, under Article 1801. Any important alteration in the immovable property of the ‘partnership, even if useful to the partnership, requires unanimity; but the consent of others is not required if the alteration is necessary for the preservation of the property. Article 1803 provides that if the refusal to give consent is manifestly prejudicial to the partnership, the consenting partners may go to court and ask for its intervention. [BUSINESS LAWS AND REGULATIONS Scanned with CamScanneright to Profits and Obligation for Losses _ Profits and losses shall be distributed in conformity with the partnership ment. If only the share in profits has been stipulated, the share in the losses shall ‘in the same proportion. In the absence of any stipulation, the share in the profits the capitalist partners shall be in proportion to their contributions. The losses ll be borne by the capitalist partners, also in proportion to their contributions. share of the industrial partners in the profits is that share as may be just equitable; if he also contributed capital, he will receive a share of the profits roportion to his contribution. The industrial partner, who did not contribute vital, is not liable for losses.* If there is an agreement to divide the profits and es according to their capital contribution, the same shall be observed. If there ion of profits and losses, profits shall be distributed partners’ capital contribution and the capitalist partners _Jade, Grei, and Boch are partners with a capital contribution of: Jade -P10,000, rei -P20,000, and Boch — P30,000. The profit of the partnership is P60,000. The following are the ways in which the profit be distributed: “1, Equally, at P20,000 each for Jade, Grei, and Boch as they agreed. 2. Proportionately, Jade — 10,000, Grei - 20,000, and Boch — P30,000 as provided by law. * 3. At such amount fixed by Shepot, a third party appointed by the partners to fix their share. Tachi and Martha are capitalist partners and Fernan is their industrial partner. Their contributions to the’ capital of their partnership are: Tachi - P20,000, Martha - P10,000, and Fernan -P30,000 in addition to his services. They agreed. ‘to a profit and loss sharing ratio as follows: proportionate to their capital contribution, and Fernan gets 40% of the profit as an industrial partner. The ! partnership realized a profit of 100,000. In this case, the shares of the partners in the profit are: Tachi — P20,000, Martha - P10,000, and Fernan - P70,000, “representing his 40% share as industrial partner (P40,000), and his share as _ capitalist partner (P30,000). ‘Asticle 1797, Civil Code of the Philippines. UNITT| THELAWON PARTNERSHIP 27, Scanned with CamScannerExclusion of Partner from Share Any stipulation that excludes one or more partners from any share in the profits and losses is void, but the partnership remains valid and subsists and the. profits and losses shall be distributed as if there was no agreement, With regard to the industrial partner, a stipulation exempting him from the losses is valid since the law itself excludes him from losses.” A stipulation that excludes an industrial partner from any share in the losses is valid, but this is binding only to the partners and will not affect the rights of partnership creditors. Obligation to Render Information Since there exists mutual trust and confidence among the partners, the partners have the obligation to disclose all information affecting the partnership to any partner, the legal representative of any deceased partner, or the legal representative of any partner under legal disability. Note that this obligation to disclose pertains only to those matters that are not reflected in the partnership books. Obligation to Account and Act as Trustee Under Article 1807, all partners hold a fiduciary position as against each other and as such; must account to the partnership for any benefit and hold as trustees for the partnership any profits they derived without the consent of the other partners from any transaction connected with the formation, conduct, or liquidation of the partnership; or from any use by the partners of the partnership property. PRACTICE EXERCISE AZ, BY, CX, DW, EY, FU, GT, HS, IR, and JQ are partners in a coffee shop business where they each contributed P10,000. AZ, BY, and CX were appointed as managers. While looking for a location, AZ wanted that the same shall be placed inside the Mall of Asia in Pasay City, while BY wanted the same to be placed inside Greenbelt in Makati City. CX agreed with BY but DW, EV, FU; and GT opposed AZ and BY because they wanted the same to be placed inside the Podium in Pasig City. Which decision should prevail? Article 1799, Civil Code of the Philippines. ‘Article 1806, Civil Code of the Philippines. Scanned with CamScannerEVANCE OF THE LESSON A partner enjoys certain rights and privileges. Being a partner in a partnership uires commitment and adherence to the attendant obligations, particularly with ard to the other partners and the partnership itself. ON SUMMARY "Every partner enjoys the following rights: the right to associate another in his share; right to inspect partnership books; right to formal account; and property rights (which include rights in specific partnership property, interest in the partnership, and the right to participate in the management). Management of the partnership is primarily governed by the agreement of the partners in the articles of the partnership but if there is no agreement, all the tners are considered agents of the partnership. e managing partner may execute all acts of administration despite opposition the other partners, but he cannot do so when he acts in bad faith, in which. his powers may be revoked. its and losses shall be distributed in accordance with the agreement; when ere is NO agreement, in proportion to their contributions, in which case the share of the industrial partners in the profits is that share as may be just and uitable, but he is not liable for losses. : ion to Operate under a Firm Name Under Article 1815, every partnership shall operate under a firm name. People allow their names to be included in the partnership name even if they are not ers shall be liable as partners. ity of Partnership Inder Article 1816, the partnership is primarily liable for contracts entered into me and for its account, under its signature, and by a person authorized to Upon exhaustion of its assets, all partners are liable pro rata with all their -. Any partner may enter into a separate obligation to perform a partnership Scanned with CamScannerTo illustrate: Angie, Beng, and Ching formed ABC partnership for the purpose of contracting with the Government in the construction of one of its bridges. On June 30, 2021, after the completion of the project, the bridge was turned over by the partners to the Government. On August 30, 2021, Domdom, a supplier of materials used in the project sued Angie for collection of theindebtedness to him. Angie moved to dismiss the complaint against her on the ground that it was the ABC partnership that is liable for the debt. Domdom replied that the ABC partnership was dissolved upon completion of the project for which purpose the partnership was formed. In this case, the complaint against Angie should not be dismissed because Angie is still liable as a general partner for her pro rata share of one-third. The dissolution of a partnership caused by the termination of the particular undertaking specified in the agreement does not extinguish obligations, which must be liquidated during the “winding up” of the partnership affairs. The partners are liable subsidiarily, ie, the liability arises only upon exhaustion of partnership assets? However, a third person who transacted with the partnership can hold the partners solidarily liable for the whole obligation in case of wrongful acts or omission and misapplication of money or property by a partner in the ordinary course of business. Under Article 1826, a person admitted as a partner into an existing partnership is liable for all the obligations of the partnership arising before his admission, but his liability shall be satisfied only out’ of partnership property unless there is an agreement to the contrary. In other words, he is not personally liable. Under Article 1816, the partners are liable pro rata. An industrial partner is not exempt from this liability, but he can recover the amount he has paid from the capitalist partners unless the partnership agreement provides otherwise. Any * stipulation against this individual liability is void against third persons but valid among the partners. The pro rata liability of partners, including the industrial partner on unsettled contracts, entered into in the name and for the account of the partnership after all partnership assets are exhausted means that the partners share in the liability equally and jointly. 4 Liability of Partners for Partnership Contracts Under Article 1818, any act of a partner, which is apparently for the carrying on of the usual business of the partnership will bind the partnership, including the execution of any instrument in the partnership name; but the partnership is not bound when the partner does not have authority to act and the person with whom he deals knew about his lack of authority. Also, the acts of a partner that is °La Comps ima vs. Muftoz, G.R. No. L-3704; December 12, 1907. 30. BUSINESS LAWS AND REGULATIONS Scanned with CamScannertapparently for carrying on of the usual business will not bind the partnership, the other partners authorized him to do the act. Except when authorized by ‘er partners or unless the partners have abandoned the business, one or more than all the partners do not have the authority to: assign the partnership property in trust for creditors or on the assignee's promise to pay the debts of the partnership; dispose of the goodwill of the business; do any other act that would make it impossible to carry on the ordinary business of a partnership; » - confess a judgment; : enter into a compromise concerning a partnership claim or liability; submit a partnership claim or liability to arbitration; and renounce a claim of the partnership.” yy act of a partner in contravention of a limitation on authority does not bind ership to persons having knowledge of such limitation. yance of Partnership Real Property © der Article 1819, any partner may convey the real property in the name of tnership. The partnership can recover it, except: when the act of the partner e partnership because the said partner is authorized to carry out the usual of the partnership;" or if he is not authorized, the property has been red by the grantee, or a person claiming under him, to a holder for value \ot know that the partner exceeded his authority? A partner authorized y out the usual business may convey; in his own name, the equitable interest ‘nership. Where the title is in the name of one or more but not all the s, and the record does not disclose the right of the partnership, the partners title may convey title. The partnership may recover it when the partners itle have-no authority to carry on the usual business of the partnership he purchaser or his assignee is a holder for value who did not know that exceeded authority.* On the other hand, if the title is in the name of one oral the partners, or in a third person in trust for the partnership a thorized to:carry on the usual business may convey equitable title in the 1818, par. 3, Civil Code ofthe Philippines. 1818, par. 1, Civil Code ofthe Philippines. ticle 1819 par. 1, Civil Code ofthe Philippines. le 1819, par. 2, Civil Code ofthe Philippines. le 1819, par. 3, Civil Code of the Philippines. ‘UNITI | THELAWON PARTNERSHIP 31 Scanned with CamScannerpartnership name or his own name. If the title is in the names of all the partners, aconveyance executed by all of them will transfer all the rights to the property." Liability of Partners Under Article 1820, an admission or representation by any partner may be used as evidence against the partnership when it concerns partnership affairs, and such affairs are within the scope of said partner's authority. The partnership is solidarily liable with the partner who causes loss or injury to any person whois not a partner or incurs any penalty through any wrongful act or omission in the ordinary course of the business of the partnership or although notin such ordinary course of business, + with the authority of his partners.” According to Article 1823, the partnership is also liable for losses suffered by a third person whose money or property was received by a partner who acted within the scope of his apparent authority and misapplied it, or received by the partnership in the Course of its business and misapplied by any partner while it is in the custody of the partnership. Under Article 1824, all partners are solidarily liable with the partnership for its liabilities under Articles 1822 and 1823, without prejudice to the guilty partner being liable to the other partners. Article 1825 defines a partner by estoppel as a person who, by words spoken or written or by conduct, represents himself as a partner or consents to another representing him to anyone as a partner in an existing partnership or with one or more persons who are not actual partners. He is liable as though he is a partner wherein an existing partnership, all the partners consented to the representation and a partnership liability results. He is liable jointly and pro rata (as though he is a partner in fact) with those who consented to the representation when there is an existing partnership but not'all'the partners consented, or there is no existing partnership and all those represented as partnets consented to the representation. Hes liable separately when there is an existing partnership but none of the partners consented or there is no existing partnership and not all of those’ represented. #8 as partners consented to the representation. To illustrate: A. If Pompom and Breech are not partners as fo each other, neither will they be » partners with respect to Chloe, a third person. But if Pompom, with the consent ‘of Breech, represents to Chloe that they are partners, then Pompom and Breech will be considered partners as to Chloe; even if they are not really partners. ‘article 1819, par. 4, Civil Code of the Philippines. "Article 1819, pat.5, Civil Code ofthe Philippines. Article 1822, Civil Code ofthe Philippines. Scanned with CamScannerA,S, T, and G formed ASTG Company. PJ represented himself as a partner _of ASTG Company. Simon, on the faith of such representation, extended 10,000,000 credit to ASTG Company. If all the partners consented to PI's presentation, they are considered partnership by estoppel, and thus, are all XO and YO established a partnership by contributing each at P500,000. ZO, a rd party allowed hisname tobe included in the firm name of the partnership, The partnership was insolvent and after exhausting all the remaining assets, there was a liability left to third persons in the amount of P300,000. In this case, the creditors can compel XO, YO, and ZO to pay P100,000 each. ility of an Incoming Partner ip is liable for all the obligations of the. partnership a ssion as though he had been a partner when such obligations were incurred, that this liability shall be satisfied only out of partnership property unless san agreement to the contrary. Hence, the liability of an incoming Partner notice to any partner of any matter relating to partnership affairs; knowledge of the partner acting in the particular matter acquired while a partner; : a knowledge of the partner acting in the particular matter then present to ~_ his mind; or knowledge of any other partner who reasonably could and should have communicated it to the acting partner. q But these do not apply in case of fraud on the partnership committed by or hthe consent of the partner. Whats the liability of a person who by words spoken or written or by conduct, sents himself or consents to another representing him to anyone, as a partner ting partnership or with one or more persons, not actual partners? UNITI| THELAWON PARTNERSHIP 33 q he Scanned with CamScannerRELEVANCE OF THE LESSON A partnership is a fiduciary relation—one entered into and maintained on the basis of trust and confidence, As such, both the partnership and the partners composing it must observe the utmost good faith, fairness, and integrity in their dealings not only with and among themselves but more particularly, in their dealings with third parties who transact with them. LESSON SUMMARY © The partnership shall be liable for contracts entered into in its name and for its account, under its signature, and by a person authorized to act for it. © Upon exhaustion of its assets, all partners are liable pro rata with all their property. An industrial partner is not exempt from this liability, but he can recover the amount he has paid from the capitalist partners unless there is a stipulation to the contrary. * Any act of a partner, which is apparently for the carrying on of the usual business of the partnership, binds the latter unless the partner has no authority to act and the person with whom he deals has, knowledge of such fact. On the other hand, the acts of a partner that is not apparently for carrying on of the usual business do not bind the partnership, unless the other partners authorized him. * — Without authority from the other partners or unless the latter have abandoned the business, one or more partners have no authority to do acts of strict dominion or ownership. Any act of a partner in contravention of a restriction on authority does not bind the partnership to persons having knowledge of the restriction. {i * An admission’ or representation by any partner may be used as evidence against the partnership when it concernis partnership affairs within the scope of his authority. * , Notice to any partner of any matter relating to partnership affairs and knowledge of the partner of particular matters acquired as a partner operate ” asnotice to or knowledge of the partnership. The partnership is solidarily liable for wrongful acts of and misapplication of money or property by a partner, and all partners are solidarily liable with the partnership for such liabilities, without prejudice to the guilty partner being liable to the other partners. * A partner by estoppel is liable for partnership liability while the liability of an incoming partner is limited to his share in the partnership property for existing obligations and his separate property for subsequent obligations. 34. BUSINESS LAWS AND REGULATIONS. Scanned with CamScanner