102609077 Law on Partnership

7/30/2019 102609077 Law on Partnership

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PARTNERSHIP

> It is a CONTRACT whereby two or more persons (1) bind themselves toCONTRIBUTE money, property, or industry to a COMMON FUND (2) with the intentionof dividing the PROFITS among themselves or in order to EXERCISE a PROFESSION

> a STATUS and a FIDUCIARY RELATION subsisting between personscarrying on a business in common with a view on profit

CHARACTERISTICS OF THE CONTRACT OF PARTNERSHIP[C, C, L, I, AS, NP]

1. CONSENSUAL>

perfected by mere consent2. CONTRIBUTION of money, property or industry to a COMMON FUND3. object must be a LAWFUL one4. INTENTION of DIVIDING the PROFIT among the PARTNERS5. AFFECTIO SOCIETATIS

> the desire to formulate an ACTIVE UNION, with people among whom thereexist a mutual CONFIDENCE and TRUSTS

6. NEW PERSONALITY> the object must be for profit and not merely for the common enjoymentotherwise only a co-ownership has been formed. HOWEVER, pecuniary profitneed not be the only aim, it is enough that it is the principal purpose

BUSINESS TRUSTS> when certain persons entrust their property or money to others who will

manage the same for the former

RULES ON CAPACITY TO BECOME A PARTNER1. a person capacitated to enter into contractual relations may become a partner

2. an UNEMANCIPATED MINOR CANNOT become a partner UNLESS his parentor guardian consents

3. a MARRIED WOMAN, cannot contribute conjugal funds as her contribution to thepartnership UNLESS she is permitted to do so by her husband OR UNLESS sheis the administrator of the conjugal partnership, in which the COURT must giveits consent authority

4. a PARTNERSHIP being a juridical person by itself can form another partnership

5. a CORPORATION cannot become a partner on grounds of public policy

> a partner shares not only in profits but also in the losses of the firm

RULE:> the partnership has a PERSONALITY SEPARATE and DISTINCT from that of

each partner

CONSEQUENCES OF THE PARTNERSHIP BEING A JURIDICAL ENTITY1. its juridical personality is SEPARATE and DISTINCT from that of each partner


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2. the partnership CAN in GENERAL: A) acquire and possess property of all kindsB) incur obligationsC) bring civil and criminal actions

D) can be adjudged insolvent even if the individual members be eachfinancially solvent

3. unless he is generally sued, a partner has no right to make a separateappearance in court, if the partnership being sued is already represented

LIMITATIONS ON ALIEN PARTNERSHIP1) if 60% capital is not owned by Filipinos

> the firm cannot acquire by purchase or otherwise AGRICULTURAL Philippinelands

2) foreign partnership may lease lands provided the period does not exceed 99 years

3) foreign partnership may be MORTGAGEES of land> period of 5 years, renewable for another 5 years> they cannot purchase it in a foreclosure sale

RULES IN CASE OF ASSOCIATIONS NOT LAWFULLY ORGANIZED ASPARTNERSHIP

1. it possesses NO LEGAL PERSONALITY> it cannot sue as such HOWEVER, the partners in their individual capacity CAN

2. one who enters into a contract with a partnership as such cannot when sued later on for recovery of the debt, allege the lack of legal personality on the part of thefirm, even if indeed it had no personality> ESTOPPEL

> whether a partnership has a juridical personality or not depends on itsPERSONAL LAW of the partnership or the law of the place where the partnership wasorganized

REQUISITES FOR EXISTENCE OF PARTNERSHIP [I, CF, JI]1. INTENTION to create a partnership2. COMMON FUND obtained from contributions3. JOINT INTERESTS in the PROFITS

WHAT DO NOT ESTABLISH A PARTNERSHIP1. mere co-ownership or co-possession> even with profit sharing

2. mere sharing of GROSS returns> even with joint ownership of the properties involved

RULES TO DETERMINE THE EXISTENCE OF A PARTNERSHIP

1. persons who are not partners to each other are not partners as to third personsEXCEPTION:

> PARTNERSHIP BY ESTOPPEL

2. CO-OWNERSHIP of a property does not itself establish a partnership, eventhough the co-owners share in the profits derived from the incident of jointownership


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3. SHARING OF GROSS RETURNS ALONE does not indicate a partnershipwhether or not the persons sharing them have a joint or common right or interestin any property from which the returns are derived

4. the receipt of the share in the profits is a strong presumptive evidence of

partnership HOWEVER, no such inference will be drawn if such profits werereceived in payment A) as a DEBT by installments or otherwiseB) as WAGES of an employeeC) as RENT to a landlordD) as an ANNUITY to a widow or representative of a deceased partner E) as INTEREST on a LOAN, though the amount of payment vary with the

profits of the businessF) as the CONSIDERATION for the sale of a GOOD WILL of a business or

other property or otherwise> creditors are not partners, for their only interest in the sharing of profits is

the receipt or payment of their credits> in a partnership, the partners are supposed to trust and have confidence inall the partners

PARTNERSHIP BY ESTOPPEL> IF 2 persons not partners represent themselves as partners to strangers, a

partnership by estoppel results> WHEN 2 persons, who are partners, in connivance with a friend who is not a

partner inform a stranger that said friend is their partner, a partnership by estoppel alsoresult to the end that the stranger should not be prejudiced

RULE: LAWFUL OBJECT or PURPOSE

> a partnership must have LAWFUL OBJECT or PURPOSE, and must beestablished for the common benefit or interest of the partners

> it must be within the commence of man, possible and not contrary to law,morals, good customs, public order or public policy

> IF a partnership has SEVERAL PURPOSES, one of which is UNLAWFUL, thepartnership can still validly exist so long as the illegal purpose can be separated from

the legal purposes

> NO need for JUDICIAL DECREE to dissolve an unlawful partnership> VOID AB INITIO

> one of the causes for the dissolution of a partnership is any event whichmakes it unlawful for the business of the partnership to be carried on

RULE :> when an UNLAWFUL PARTNERSHIP is dissolved by a judicial decree, the PROFITSshall be CONFISCATED in FAVOR of the STATE

G. R.> a partnership may be constituted in any formEXCEPTION : PUBLIC INSTRUMENT

1. IMMOVABLE PROPERTY is contributed2. REAL RIGHTS are contributed


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* need for INVENTORY of IMMOVABLES

** for EFFECTIVITY of the partnership contract insofar as innocent thirdpersons are concerned the same must be REGISTERED if REALPROPERTIES are INVOLVED

> a partnership contract is NOT CONVERED by the STATUTE of FRAUDS

> an AGREEMENT TO FORM a partnership does not itself create a partnership

> when there are conditions to be fulfilled or when a certain period is to lapse, thepartnership is not created till after the fulfillment of the conditions or the arrival of theterm and this is true even if one of the parties has already advanced his agreed share of the capital

RULE: if CAPITAL is P3,000 or more

REQUIRED:1. PUBLIC INSTRUMENT2. RECORDED S.E.C.

* > FAILURE TO COMPLY shall not effect the liability of the partnership and itsmembers to third persons

** > IF REAL PROPERTIES have been contributed, REGARDLESS of the VALUE, apublic instrument is needed for the attainment of legal personality

REQUIREMENTS WHERE IMMOVABLE / REAL PROPERTY IS CONTRIBUTED

1. PUBLIC INSTRUMENT2. INVENTORY signed and attached to the P.I.* > applies regardless of the value of the real property

* > applies even if only real rights over the real property arecontributed

* > applies if aside from real property, cash or personal property iscontributed

> TRANSFER of land to the partnership must be duly recorded in the ROD to makethe transfer effective insofar as third persons are concerned

RULE:> any immovable property or an interest therein maybe acquired in the partnershipname> title so acquired can be conveyed only in the partnership name

> IF the partnership has ALIENS, it CANNOT OWN LANDS, whether public or private or whether agricultural or commercial EXCEPT through HEREDITARY SUCCESSION

LIMITATIONS ON ACQUISITION1. AGRICULTURAL LANDS 1024 HECTARES2. lease of public lands (GRAZING) 2000 HAS.

RULES IF A) articles are kept secret among the membersB) any one of the members may contract in his own name with third

persons1. NOT a partnership NOT a LEGAL PERSON


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2. it may be sued by third person under the common name it uses3. it cannot sue as such and cannot be ordinarily be a party to a civil action4. insofar as innocent third parties are concerned

> the parities can be considered as members of a partnership5. as between themselves or insofar as third persons are prejudiced

> only the rules of co-ownership must apply

EFFECT OF CERTAIN TRANSACTIONS1. contracts entered into by a partner in his own name may be sued upon still by

him in his individual capacity, not withstanding the absence of a partnership2. when two or more individuals, having a common interests in a business bring a

court action, it should be presumed that they prosecute the same in their individual capacity as co-owners and not in behalf of a partnership which doesnot exist in legal contemplation

CLASSIFICATION OF PARTNERSHIPS

A) ACCORDING TO MANNER OF CREATION 1. ORALLY constituted2. constituted in a PRIVATE INSTRUMENT3. constituted in a PUBLIC INSTRUMENT4. REGISTERED S.E.C.

B) ACCORDING TO OBJECT 1. UNIVERSAL2. PARTICULAR

C) ACCORDING TO LIABILITY 1. LIMITED PARTNERSHIP2. GENERAL PARTNERSHIP

D) ACCORDING TO LEGALITY 1. LAWFUL OR LEGAL2. UNLAWFUL OR ILLEGAL

E) ACCORDING TO DURATION 1. for a SPECIFIC PEIOD or FIXED PERIOD2. PARTNERSHIP AT WILL

F) ACCORDING TO REPRESENTATION TO OTHERS1. ORDINARY PARTNERSHIP2. PARTNERSHIP BY ETOPPEL

G) AS TO LEGALITY OF EXISTENCE 1. DE JURE PARTNERSHIP2. DE FACTO PARTNERSHIP

H ) AS TO PUBLICITY 1. SECRET PARTNERSHIP2. NOTORIOUS / OPEN PARTNERSHIP

I ) AS TO PURPSE 1. COMMERCIAL / TRADING2. PROFESSIONAL / NON-TRADING

GENERAL PARTNERSHIP> one where all the partners are general partners>

they are LIABLE even with respect to their individual properties, after the assets of thepartnership has been exhausted

LIMITED PATNERSHIP> one where at least one partner is a general partner and the others are limited partners> one whose liability is limited only up to the extent of his contribution


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> a partnership where all the partners are limited partners cannot exist as a limited partnership

> REFUSED REGISTRATION> IF it continuous as such, it will be considered as a general partnership and all thepartners will be general partners

KINDS OF UNIVERSAL PARTNERSHIP1. PARTNERSHIP OF ALL PRESENT PROPERTY2. PARTNERSHIP OF ALL PROFITS

*UNIVERSAL PARTNERSHIP OF ALL PRESENT PROPERTY> CONTRIBUTION of

1. ALL the properties actually belonging to the partners2. the PROFITS acquired with said property

> BECOMES COMMON PROPERTY> EXCEPT all FUTURE PROPERTY> FRUITS of FUTURE PROPERTY INCLUDED IF STIPULATED UPON

*UNIVERSAL PARTNERSHIP OF PROFITS> comprises all that the partners may acquire by the INDUSTRY or WORK of thepartners become common property regardless of within said profits were obtainedthrough the usufruct contributed> EXCEPT PRIZES and GIFTS

RULE :> articles of universal partnership, entered without specification of its nature, onlyconstitute a universal partnership of PROFITS

RULE:> persons who are prohibited from giving each other any donation or advantage cannotenter into universal partnershipWHO :

1. HUSBAND and WIFE2. those guilty of ADULTERY or CONCUBINAGE3. those guilty of the same criminal offense if the partnership was entered into in

consideration of the same

> while spouses cannot enter into a universal partnership, they can enter into aparticular partnership or be members thereof

> a universal partnership is virtually a donation to each other of the partners propertiesor at least their usufruct

PARTICULAR PARTNERSHIP> a particular partnership has for its OBJECT:

1. DETERNMINATE THINGS their use or fruits2. SPECIFIC UNDERTAKING3. EXERCISE of a PROFESSION or VOCATION

OBLIGATIONS OF THE PARTNERSRULE :> a PARTNERSHIP BEGINS from the moment of the EXECUTION of the CONTRACT


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* > even if contributions have not yet been made the firm already exists, for partnershipis a consensual contract

DURATION OF PARTNERSHIP

> UNLIMITED* > MAY BE AGREED UPON1. EXPRESSLY definite period2. IMPLIEDLY upon achievement of its purpose

PARTNERSHIP AT WILL> a partnership wherein its continued existence really depends upon the will of thepartners or even on the will of any of them2 KINDS:

1. when there is no term, express or implied2. when it is continued by the habitual managers although the period has ended or

the purpose has been accomplished

3 IMPORTANT DUTIES OF EVERY PARTNER [C, D-F, W]1. duty to CONTRIBUTE what had been promised2. duty to DELIVER the FRUITS of what should have been delivered3. duty to WARRANT

RIULES ON THE DUTY TO CONTRIBUTE1. the contribution must be made at the time the partnership is entered into

UNLESS a different period is stipulated

2. no demand is needed to put the partner in default

3. the partner must exercise due diligence in preserving the property to becontributed before he actually contributes the same

4. a partner who promises to contribute to the partnership becomes a promissorydebtor of the partnership

RULES ON THE DUTY TO DELIVER THE FRUITS1. IF property has been promised, the fruits thereof should also be given

2. the fruits referred to are those arising from the time they should have beendelivered, without a need of any demand

3. IF the partner is in BAD FAITH, he is liable not only for the fruits actuallyproduced, BUT also for those that could have been produced

4. IF MONEY HAS BEEN PROMISED, INTEREST and DAMAGES from the timehe should have complied with his obligation should be given

5. NO DEMAND is needed to put the partner in default

6. it is DELIVERY, actual or constructive that TRANSFERS OWNERSHIP

RULES ON THE DUTY TO WARRANT1. the warranty in case of eviction refers to specific and determinate things already

contributed

2. there is EVICTION whenever by a final judgment based on a right prior to thesale or an act imputable to the partner, the partnership is deprived of the wholeor a part of the thing purchased


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RULE WHEN CONTRIBUTION CONSISTS OF GOODS> APPRAISAL of VALUE is needed to determine how much was contributed

HOW APPRAISAL MADE

1. as PRESCRIBED in the CONTRACT2. in default, by EXPERTS chosen by the partners, and at CURRENT PRICES*> necessity of the INVENTORY APPRAISAL

RULE on RISK of LOSS> after goods have been contributed, the partnership bears the risk of subsequentchanges in the value

RULE:> a partner who has undertaken to contribute a sum of money and fails to do sobecomes a debtor for the interest and damages from the time he should have

complied with his obligation

CAPITALIST PARTNER> one who FURNISHES CAPITAL*> NOT EXEMPTED from LOSSES*> he can engage in other business PROVIDED there is no competition betweenthe partnership and his business*> share in the profits according to agreements

INDUSTRIAL PARTNER> one who FURNISHES INDUSTRY or LABOR*> he is EXEMPTED from LOSSES as between the partner BUT liable tostrangers without prejudice to reimbursement from the capitalist partner *> he CANNOT engage in any other BUSINESS WITHOUT the expressCONSENT of the other partners, OTHERWISE1. he can be EXCLUDED from the firm

- plus damages OR2. the BENEFITS he obtains from the other businesses CAN BE AVAILED of by the

other partners- plus damages> whether or not there is COMPETITION

*> in computing always look for ----- > NET PROFITS-----> NET LOSSES

CAPITALIST INDUSTRIALIST PARTNER> one who contributes BOTH CAPITAL and INDUSTRY

GENERAL PARTNER> one who is liable beyond the extent of his contribution

LIMITED PARTNER> one who is liable only to the extent of his contribution

***> an industrial partner can only be a general partner, never a limited partner

MANAGING PARTNER> one who manages actively the firms affairs

SILENT PARTNER


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RULE : - the partner shall be obliged to bring to the partnershipcapital what he received even though he may have given receipt for his share only

*>

DOES NOT APPLY when debt was collected after dissolution of the partnership

RULE :*> every partner is responsible to the partnership for damages suffered by it through hisfault

*> he cannot compensate them with the profits and benefits, which he may haveearned for the partnership by his industry

*> the courts may equitably lessen his responsibility

RES PERIT DOMINO

*RULES ON WHO BEARS THE RISK OF LOSS

1. if SPECIFIC and DETERMINATE THINGS NOT FUNGIBLE whose USUFRUCTis enjoyed by a firm

> the PARTNER who OWNS it bears the loss for ownership was never transferred to the firm

2. FUNGIBLE or DETERIORABLE> FIRM bears the loss for it is evident ownership was transferred

3. THINGS CONTRIBUTED to be SOLD> FIRM bears the loss for evidently the firm was intended to be the owner

4. CONTRIBUTED under APPRAISAL> FIRM bears the loss because this has the effect of an implied sale

RULE on RESPONSIBILITY of the FIRM

1. to REFUND amounts disbursed on behalf of the firm plus legal interest from thetime expenses where made

2. to ANSWER to each partner for OBLIGATIONS he may have entered into ingood faith in the interest of the partnership, as well as the risks in consequenceof its management

*> REFUND must be made even in case of failure of the enterprise entered into,

provided the partner is not at fault*> AMOUNT DISBURSED does not refer to the ORIGINAL CAPITAL

*HOW PROFITS ARE DISTRIBUTED1. according to AGREEMENT2. IF NONE, according to amount of CONTRIBUTION


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*HOW LOSSES are DISTRIBUTED1. according to AGREEMENT as to losses2. IF NONE, according to agreement as to PROFITS3. IF NONE, according to amount of CONTRIBUTION

*>

an INDUSTRIAL PARTNER shall receive a JUST and EQUITABLE share in theprofits

*RULE on INDUSTRIAL PARTNERS LIABILITIES- may be held liable by third persons BUT he may recover what he has paid from theother capitalist partners

*RULE on DESIGNATION by THIRD PERSON of SHARES in PROFITS and LOSSES*> third person is NOT a PARTNER --> appointed to only distribute shares

*> the designation of shares by third persons may be IMPUGNED, IF it is MANIFESTLY

INEQUITABLE*> the designation of shares by third persons CANNOT be IMPUGNED EVEN IFMANIFESTLY INEQUITABLE IF:

1. the aggrieved partner has already BEGUN to EXECUTE the decision2. the aggrieved partner has not IMPUGNED the distribution within 3 months he

had knowledge

*RULE IF APPOINTMENT OTHER THAN in the ARTICLES of PARTNERSHIP1. power to act may be REVOKED at ANY TIME with or without just cause> REMOVAL should be done by the controlling interest

2. EXTENT of POWER> as long as he remains manager, he can perform all acts of administrationBUT if others oppose and he persists, he can be removed

*RULE WHEN there are 2 or MORE MANAGERSCONDITIONS:

1. 2 or more partners are managers2. there is no specification of respective duties3. there is no stipulation requiring UNANIMITY

SPECIFIC RULES :

1. each may separately execute all acts of administration> UNLIMITED POWER to ADMINISTER

2. IF any of the managers OPPOSE> MAJORITY RULE> IN CASE OF A TIE

- persons owning controlling interest prevail provided they are also managers

*> right to oppose is not given to NON-MANAGERS*> OPPOSITION should be done BEFORE the acts produce legal effects insofar asthird persons are concerned

RULE WHEN UNANIMITY is REQUIRED1. the CONCURRENCE of all shall be necessary for the validity of the acts

2. the ABSENCE or DISABILITY of ANYONE of them CANNOT BE ALLEGEDUNLESS there is imminent danger of grave or irreparable injury to thepartnership


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5. whenever other circumstances render it just and reasonable

*> the right to demand an accounting exists as long as the partnership exists*> prescription begins to run only upon the dissolution of the partnership when the finalaccounting is done

PROPERTY RIGHTS OF PARTNERS [P, I, M]1. rights in specific PARTNERSHIP PROPERTIES2. INTERESTS in the PARTNERSHIP3. right to PARTICIPATE in the MANAGEMENT

RULE :*> a partner is CO-OWNER with his partners of SPECIFIC PARTNERSHIP PROPERTY

*> RIGHTS of a PARTNER in SPECIFIC PARTNERSHIP PROPERTY

1. he has equal rights with his partners to POSSESS the property BUT only for PARTNERSHIP PURPOSES> he may possess such property for other purposes PROVIDED the other partners expressly or impliedly gives their CONSENT

2. he CANNOT ASSIGN his right to the property EXCEPT if all the other partnersassign their rights in the same property

3. his right to the property is NOT SUBJECT to ATTACHMENT or EXECUTION,EXCEPT on a claim against partnership

4. his right to the property is NOT SUBJECT to LEGAL SUPPORT

*> if there is PARTNERSHIP DEBT, the specific property can be attached

RULE:*> a PARTNERS INTEREST in the partnership is his SHARE of the PROFITS andSURPLUSIT CAN BE : [A, A, LS]

1. ASSIGNED2. ATTACHED

3. be subject to LEGAL SUPPORT

*EFFECTS of CONVEYANCE by PARTNER of his INTEREST in the PARTNERSHIP1. IF he conveys his WHOLE INTEREST

A) partnership may still remainB) partnership may be dissolved*> mere conveyance does not dissolve the partnership

2. the ASSIGNEE does not necessarily become a partner > the ASSIGNOR is still the partner, with a right to demand accounting andsettlement

3. the ASSIGNEE CANNOT interfere in the MANAGEMENT or ADMINISTRATIONof the firm> the ASSIGNEE CANNOT also DEMAND [I, A, I]

A) INFORMATIONB) ACCOUNTINGC) INSPECTION of partnership books


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***> while a partners INTEREST in the firm may be CHARGED or LEVIED upon, hisINTEREST in a specific firm PROPERTY CANNOT be attached.

RIGHTS of the ASSIGNEE

1. to get whatever profits the assignor-partner would have obtained

2. to avail himself of the usual remedies in case of fraud in the management

3. to ask for ANNULMENT of the contract of assignment IF: A) he was induced to enter into it through any of the vices of consent ORB) he himself was incapacitated to give consent

4. to demand an accounting BUT only if the partnership is dissolved

PREFERENTIAL RIGHTS of PARTNERSHIP CREDITORS*> partnership creditors are entitled to PRIORITY over partnership assets, including thepartners interest in the profits

**> SEPARATE or INDIVIDUAL creditors have PREFERENCE in separate or individualproperties

*> when the CHARGING ORDER is applied for and granted, the court may appoint areceiver of the partners share in the profits> the receiver appointed is entitled to any relief necessary to conserve thepartnership assets for partnership purposes

*> interest charged may be redeemed at any time before foreclosure

*> AFTER FORECLOSURE the interest may still be redeemed by (without causing dissolution)1. with separate property , by any one or more of the partners OR

2. with partnership property , by any one or more partners with the consent of all thepartners whose interests are not so charged or sold*> consent of the delinquent partner not needed

RULE:> every partnership shall operate under a FIRM NAME*> the firm name may or may not include the name of one or more of the partners

**> STRANGERS who include their names in the firm are liable as partners because of ESTOPPEL, BUT do NOT have the RIGHTS of partners

**> IF a LIMITED PARTNER includes his name in the firm name, he has obligationsBUT not the rights of a general partner

RULE on LIABILITY for CONTRACTUAL OBLIGATIONS*> all partners, including industrial ones, shall be liable pro-rata with all their propertyand after all the partnership assets have been exhausted

*> NOT APPLICABLE for TORTS or CRIMES ----- > LOSS----- > INJURY----- > MISAPPROPRIATION


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**> while an INDUSTRIAL PARTNER is exempted by law from LOSSES as between thepartners, he is NOT EXEMPTED from liability insofar as third persons are concerned> he may recover what he has paid from the CAPITALIST partners

*> under the law the liability of the partners is subsidiary and joint NOT principal and

solidary

*RULE on LIABILITY of a PARTNER who has WITHDRAWN1. a partner who withdraws is not liable for liabilities contracted after he has

withdrawn

2. if his interest has not yet been paid him> his right to the same is that of a mere creditor

**> a stipulation exempting liability to third persons is VOID

*> any partner may enter into a separate obligation to perform a partnership contract

RULE:*> every partner is an agent of the partnership for the purpose of its business

G.R.- the act of every partner for apparently carrying on in the USUAL WAY thebusiness of the partnership of which he is member binds the partnershipEXCEPT:1. if he has NO AUTHORITY and2. the person with whom he was dealing with HAS KNOWLEDGE of the fact that he hasno such authority

RULE:> an act of a partner which is not apparently for the carrying on of business of thepartnership in the usual way does not bind the partnership UNLESS authorized by theother partners

*> a partnership is a CONTARCT of MUTUAL AGENCY, each partner acting as aprincipal on his own behalf and as an agent for his co-partners or the firm

REQUISITES on WHEN can a partner BIND the partnership1. expressly or impliedly AUTHORIZED2. when he acts in BEHALF AND IN THE NAME of the partnership

INSTANCES of IMPLIED AUTHORIZATION1. when the other partners DO NOT OBJECT, although they have knowledge of the

act2. when the act is for apparently carrying on in the usual way the business of the

partnership*> this is binding on the firm even if the partner was not really authorizedPROVIDED that the third party is in GOOD FAITH

RULE on UNUSUAL ACTS> one or more but less than all the partners HAVE NO AUTHORITY TO :[AP, DG, AI, CJ, EC, SA, RC]

1. ASSIGN the PARTNERS PROPERTY2. DISPOSE of GOODWILL3. do any other act which would make it impossible to carry on the ordinary

business of the partnership4. CONFESS a judgment


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3. an admission made by a former partner made after he has RETIRED from thepartnership is not evidence against the firm

EFFECT of NOTICE to a PARTNERnotice to a partner is notice to the partnership

*notice to a partner, given while already a partner is a notice to the partnershipPROVIDED it relates to partnership affairs

EFFECT of KNOWLEDGE ALTHOUGH NO NOTICE WAS GIVEN:

*knowledge of the partner is also knowledge of the firm PROVIDED THAT :1. the knowledge was acquired by a partner who is acting in the particular matter

involved;and2. the partner having knowledge, had reason to believe that the fact related to a

matter which had some possibility of being the subject of the partnership

business AND he was so situated that he could communicate it to the partner acting on that particular matter

* SERVICE of PLEADINGS on the partner in a law firm is also service on the wholefirm and the other partners

LOSS OR INJURY

RULE on WRONGFUL ACT or OMISSION of a PARTNER (SOLIDARY LIABILITY)*the partnership is solidarily liable with the partner if the wrongful act or omission1. the partner is acting in the ordinary course of business of the partnership

OR2. with authority of his co-partners

*innocent partners have right to recover from the guilty partner

* When the firm and other partners not liable:1. if the wrongful act or omission was NOT DONE

A) within scope of partnership business

B) with authority of the other co-partners

2. if the act or omission is NOT WRONGFUL

3. if the act or omission, although wrongful did not make the partner concern liable- DAMNUN ABSQUE INSURIA

4. if the wrongful act or omission was committed after the firm had been dissolvedand the same was not in connection with the process of winding up.

LIABILITY of PARTNERSHIP for MISAPPROPRIATION (SOLIDARY LIABILITY)

1. RECEIVING PARTY MISAPPROPRIATES2. ANY PARTNER MISAPPPROPRIATES- money or property in custody of partnership

PARTNER BY ESTOPPEL


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a person who represents himself or consents to another / others representing him toanyone as a partner either in an existing partnership or in one that is fictitious or apparent

PARTNERSHIP BY ESTOPPEL

when all the members of the existing partnership consent to such representation of apartner by estoppel

RULES AND SITUATIONS:1. if a third person is misled and acts because of such misrepresentation

the deceiver is a partner by estoppel

2. if the partnership consented to such misrepresentationpartnership liability results

3. if the firm had not consented

no partnership liability results BUT the deceiver is considered still as a partner by estoppel with all the obligations but not the rights of a partner

4. when a person represents himself as a partner of a NON-EXISTENT partnership NO partnership liability results BUT the deceiver and all persons who mayhave aided him in the misrepresentation are still liableliability would be JOINT or PRO-RATA

* when although there is misrepresentation, if the third party is not deceived, thedoctrine of estoppel does not apply

BURDEN of PROOF the creditor or whoever alleges the existence of a partner or partnership by estoppelhas the burden of proving the existence of the MISREPRESENTATION ANDINNOCENT RELIANCE on it

ENTRY OF A NEW PARTNER into an EXISTING PARTNERSHIPRULE:* he shall be liable for all the obligations of the partnership BUT his liability will extendonly to his share in the partnership property

*his own individual property shall be excluded

*same liability of a limited partner

PREFERENCE of PARTNERSHIP CREDITORSRULE:*the creditors of the partnership shall be preferred to those of such partner as regardsthe partnership property

without prejudice to this right the private creditors of each partner may ask the attachment and public sale of theshare of the latter in the partnership assets

**IF a partner sells his share to a third party, BUT the firm itself still remainsSOLVENT, partnership creditors CANNOT assail the validity of the sale by alleging thatit is made in fraud of them, since they have not really been prejudiced

DISSOLUTION AND WINDING UP


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4. partners PERSISTENT BREACH of agreement5. the business of the partnership can only be denied on at a loss6. other circumstances which render dissolution equitable

IN CASE OF PURCHASER of PARTNERS INTEREST

1. after the termination of the specified term or particular undertaking2. AT ANY TIME, if the partnership was a partnership at will when the interest wasassigned or when the charging ordered was issued

*proof as to the existence of the firm must first be given

* even if a partner has not yet been previously declared insane by the court,dissolution may be asked, as long as the insanity is duly proved in court

*in a suit for dissolution, the court may appoint a RECEIVER at its discretion

EFFECTS OF DISSOLUTIONRULE:*when the firm is dissolved, a partner can no longer bind the partnership

*a dissolved partnership still has the personality for the winding up of its affairsthe firm is still allowed to collect previously acquired creditsthe firm is still bound to pay of its debts

DISSOLUTION CAUSED by A-I-D

RULE: (STILL BOUND) as to each partners

G.R. where the dissolution is caused by the ACT, INSOLVENCY or DEATH of apartner, each partner is liable to his co-partners for his share of any liability created byany partner acting for the partnershipEXCEPTION: - individual liabilities

1. if dissolution by ACT the partner acting for the partnership HAD KNOWLEDGE of the dissolutionOR2. if dissolution by DEATH or INSOLVENCY the partner acting for the partnership HAD knowledge or notice of the death or insolvency

*only the partner acting assumes liability

*AFTER DISSOLUTION, a partner can still bind the PARTNERSHIP(WU, UT, TB)

1. By any ACT appropriate for WINDING UP partnership affairs

2. By COMPLETING transactions UNFINISHED at dissolution

3. By any TRANSACTION which could bind the partnership IF dissolution had nottaken place PROVIDED the other party is:

A) PREVIOUS CREDITOR and had NO KNOWLEDGE or NOTICE of thedissolution OR

B) NOT a PREVIOUS CREDITOR, had NO KNOWLEDGE or NOTICE anddissolution was NOT PUBLISHED

* if there was publication of the dissolution it is presumed he already knows,regardless of actual knowledge on non knowledge


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WHEN is the PARTNERSHIP NOT BOUND1. new business with third parties who are in bad faith2. firm dissolved because UNLAWFUL except for acts of winding up3. partner who acted became INSOLVENT

4. partner not authorized to wind up EXCEPT if customer in good faith

* if after dissolution, if a stranger will represent himself as a partner although he is notone he will be a partner by estoppel

RULE:* the dissolution of the partnership does not itself discharge the existing liability of any partner NEED for an AGREEMENT BETWEEN

1. partner concerned2. other partners

3. creditors

RULE :* the INDIVIDUAL PROPERTY of a DECEASED PARTNER shall be liable for allobligations of the partnership incurred while he was a partner BUT subject to prior payments of his separate debts

* IF there be a NOVATION of the OLD PARTNERSHIP DEBTS and such novation isdone after one of the partners has retired and without the consent of such partner said partner cannot be held liable by creditors who made the novation with

knowledge of the firms dissolution

EXTRAJUDUCIAL AND JUDICIAL WINDING-UP

EXTRAJUDICIAL:1. by the partners who have not wrongfully dissolved the partnership2. by the legal representative of the last surviving partners

JUDICIAL: under the control and direction of the court, upon proper cause that is shown to thecourt

* profits that will actually enter the firm after dissolution as a consequence of transactions already made before dissolution are included because they are consideredas profits existing at the time of dissolution

* any other income earned after the time, like interest or dividends on stock owned bythe partners or partnership at the time of dissolution should not be distributed as profitsBUT as merely additional income to the capital

BETTER RIGHTS of INNOCENT PARTNERS innocent partners have better rights than guilty partners and that the guilty partnersare required to indemnify for the damages caused

* RIGHT of INOCENT PARTNERS TO CONTINUE the BUSINESSin essence this is a new partnershipcan use the same firm namecan ask new members to join


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BUT shall: for protection of guilty partners1. give a BOND approved by the court2. to PAY guilty partners his interests at the time of dissolution MINUS DAMAGES

* a guilty partner who is EXCLUDED will be indemnified against all present or future

partnership liabilities

RIGHT TO GET CASH in case on non-continuance of the business, the interest of the partner should if hedesires be given in cashassets may be sold

a guilty partner, in ascertaining the value of his interest is not entitled to a proportionalshare of the value of GOOD WIL

RIGHTS OF INNOCENT PARTNERS IN CASE of RESCISSION based on FRAUDAND MISREPRESENTATION1. Right to LIEN or RETENTION SURPLUS CAPITAL

ADVANCES2. Right of SUBROGATION as creditor 3. Right of INDEMNIFICATION

*ORDER of PAYMENT in WINDING-UP of PARTNERSHIP LIABILITIESGENERAL PARTNERSHIP: [C, R, C, P]

1. those owing to creditors other than partners

2. those owing to partners other than for capital or profits REIMBURSEMENTS3. those owing to partners in respect to CAPITAL4. those owing to partners in respect to PROFITS

* IF the partnership assets are insufficient, the other partners must contribute moremoney or property

PREFERENCE with RESPECT to the ASSETS1. regarding partnership property partnership creditors have preference

2. regarding individual properties of partnersindividual creditors are preferred

RULE if PARTNER is INSOLVENT- How INDIVIDUAL PROPERTY is DISTRIBUTED

ORDER OF PREFERENCE:1. INDIVIDUAL or SEPARATE CREDITORS2. PARTNERSHIP CREDITORS3. those owing to other partners by way of contribution

*When creditors of the dissolved partnership are also creditors of the partnershipcontinuing business:

1. new partner is admitted without liquidation2. a partner retires and assigns his rights IF the business is continued without

liquidation of the partnership affairs3. all but one partner retire without liquidation


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4. when all partner assign their right to a person who will assume their debt5. after wrongful dissolution, remaining partners continue the business without

liquidation6. when partner expelled and remaining partners continue the business without

liquidation

* liability of third person becoming a partner in the partnership continuing the businessto the creditors of the dissolved partnership shall be satisfied out of the partnershipproperty ONLY

G.R. when a partner retires, he is entitled what is due him after liquidation BUT noliquidation is needed if there is already a settlement at the date of dissolution

JURISPRUDENCE

BASTIDA vs. MENZI* articles of association by which 2 or more persons obligate themselves to place in acommon fund any property, industry, or any of these things, in order to obtain profit,shall be COMMERCIAL

BORJA vs. ADDISON* a surviving husband may form a partnership with the heirs of the deceased wife for the management and control of the community property BUT in the absence of the formalities prescribed by the Civil Code, knowledge of theexistence of the new partnership or community of property must at least be broughthome to third persons dealing with the surviving husband in regard to the community

real property in order to bind them by the community agreement

KIEL vs. SABERT* the declarations of one partner, not made in the presence of his co-partner, are notcompetent to prove the existence of a partnership between them as against suchpartner

* the existence of a partnership cannot be established by general reputation, rumor or hearsay

EVENGELISTA vs. C.I.R.

* By the contract of partnership 2 or more persons bind themselves to contributemoney, property, or industry to a common fund, with the intention of dividing the profitsamong themselves

ESSENTIAL ELEMENTS of a PARTNERSHIP1. an agreement to CONTRIBUTE money, property, or industry to a COMMON

FUND2. intent to divide the profits among the contracting parties

* when our internal Revenue Code includes partnerships among the entities subjectto the tax on corporations, said code which are not necessarily partnerships in the

technical sense of the term

* PARTNERSHIPS includes a SYNDICATE, GROUP, POOL, JOINT VENTURE, or other unincorporated organization, through or by the means of which any business,financial operation, or venture is carried on

*a joint venture need not be undertaken in any of the standard forms,


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or in conformity with the usual requirements of the law on partnerships, in order that onecould be deemed constituted for purposes of the TAX on corporations

PASCUAL vs. C.I.R.* co-ownership or co-possession does not itself establish a partnership, whether such

co-owners or co-possessors do or do not share any profits made by the use of theproperty

* the sharing of gross returns does not itself establish a partnership, within thepersons sharing them have a joint or common right or interest in any property fromwhich the returns are derived

* aside from the circumstances of profit, the presence of other elements constituting partnership is necessary, such as :

1. the clear intent to form a partnership2. the existence of a juridical personality different from that of the individual partners

AND3. the freedom to transfer or assign any interest in the property by one with theconsent of the others

* an isolated transaction whereby 2 or more persons contribute funds to buy certainreal estate for profit in the absence of other circumstances showing a contrary intentioncannot be considered a partnership

* persons who contribute property or funds for a common enterprise and agree toshare the gross returns of that enterprise in proportion to their contribution, BUT whoseverally retain the title to their respective contribution, are not thereby rendered

partners they have no common stock or capital and no community of interest as principalproprietors in the business itself which the proceeds derived

* a joint purchase of land, by two does not constitute a co-partnership in respectthereto, NOR does an agreement to share the profits and losses on the sale of landcreate a partnership

*in order to constitute a PARTNERSHIP INTER SESE there must be: A) an intent to form the sameB) generally participating in both profits and losses AND

C) such a community of interest, as far as third persons are concerned asenables each party to make a contract, manage the business, and disposeof the whole property

* the common ownership of property does not itself create a partnership between theowners, though they may use it for the purpose of making gains AND they may withoutbecoming partners, agree among themselves as to the management and use of suchproperty and the application of the proceeds therefrom

* the sharing of returns does not in itself establish a partnership within the personssharing therein have a joint or common right or interest in the propertythere must be:

1. clear intent to form a partnership2. the existence of a juridical personality different from the individual partners

AND3. the freedom of each party to transfer or assign the whole property


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DUTERTE vs. RALLOS* an agreement between 2 persons to operate a cockpit, by which one is to contributehis services and the other to provide the capital, the profits to be divided between them,constitutes a partnership

DELUAO vs. CASTEEL* a contract of partnership to exploit a fishpond pending its award to any qualifiedparty or applicant is VALID BUT a contract of partnership to divide the fishpond after such award is ILLEGAL

* one of the causes of dissolution is any event which make it unlawful for thebusiness of the partnership to be carried on or for the members to carry it on inpartnership

C.I.R. vs. SUTER

*a UNIVERSAL PARTNERSHIP requires either that the object of the association be:1. all the present property of the partners as contributed by them to the common

fund OR2. all that the partners may acquire by their industry or work during the existence of

the partnership

* the subsequent marriage of the partners could not operate to dissolve thepartnership because it is not one of the causes provided for dissolution by law withregards to limited partnerships

*partnership has distinct and separate personality from that of its partners

* a husband and wife may not enter into a contract of general co-partnership/UNIVERSAL partnership

ACOAD vs. MABATO* a partnership may be constituted in any form EXCEPT where immovable property or real rights are contributed thereto, in which case a public instrument shall be necessary

*A CONTRACT of PARTNERSHIP is VOID whenever immovable property is contributed thereto, if inventory of said

property is not made, signed by the parties and attached to the public instrument

EVANGELISTA vs. ABAD SANTOS* an INDUSTRIAL PARTNER cannot engage in BUSINESS FOR HIMSELF, UNLESSthe partnership expressly permits him to do soIF HE SHOULD DO SO, the capitalist partners may either:

1. EXCLUDE him from the firm OR2. AVAIL themselves of the benefits which he may have obtained in violation of this

provisionwith a right to DAMAGES in either case

*the prohibition against an industrial partner engaging in business for himself seeks toprevent any conflict of interest between the industrial partner and the partnership and toensure faithful compliance by said partner with his prostation


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Documents

102609077 Law on Partnership