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ITINERARY OF STUDY:
1. Read the book of De Leon.
2. Read the book of Paras.
3. Read the cases stored on dropbox.
4. Read the codal provisions.
5. Review and memorize the keywords.
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ARTICLE 1767. By the contract of partnership two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing the proﬁ ts among themselves. Two or more persons may also form a partnership for the exercise of a profession.
what are the characteristic elements of partnership?
- C - ConsensualB - Bilateral
- O - Onerous
- C - Commutative
- N - Nominate
- P - Principal
- P - Preparatory
what is the form of a partnership?
It may be oral or written, express or implied from the acts and declarations of the parties, subject to the provisions of Articles 1771 to 1773 and to the Statute of Frauds.
While the partnership relation may be informally created and its existence proved by manifestations of the parties, it is customary to embody the terms of the association in a written document known as “Articles of Partnership” stating the name, nature or purpose and location of the ﬁ rm, and deﬁning, among others, the powers, rights, duties, and liabilities of the partners among themselves, their contributions, the manner by which the proﬁ ts and losses are to be shared, and the procedure for dissolving the partnership.
Who are those who cannot enter into a contract of partnership?
- 1. Unemancipated minors.
- 2. Insane or demented persons.
- 3. Deaf-mutes who do not know how to write.
- 4. Persons who are suffering from civil interdiction.
- 5. Incompetents who are under guardianship.
- 6. In general, those who are not capable of giving their consent.
1. Can a partnership enter into another partnership with another partnership?
2. Can a corporation enter into a partnership?
1. Yes. There is no prohibition against a partner-ship being a partner in another partnership.
2. NO. The doctrine adopted by our Supreme Court is that, unless authorized by statute or by its charter, a corporation is without capacity or power to enter into a contract of partnership. 12 (Mendiola vs. Court of Appeals, 497 SCRA 346 ; J.M. Tuason vs. Bolanos, 95 Phil. 106 ; 68 C.J.S. 408.) This limitation, it is said, is based on public policy, since in a partnership the corporation would be bound by the acts of persons who are not its duly appointed and authorized agents and ofﬁcers, which would be entirely inconsistent with the policy of the law that the corporation shall manage its own affairs separately and exclusively.
A corporation, however, may enter into joint venture partnership with another where the nature of the venture is in line with the business authorized by its charter. A joint venture is allowed only if the management of corporate interest is not surrendered.
What are the rules in determining whether a partnership exists?
(1) Except as provided by article 1825, persons who are not partners as to each other are not partners as to third persons;
(2) Co-ownership or co-possession does not of itself establish a partnership, whether such co-owners or co-possessors do or do not share any proﬁ ts made by the use of the property;
(3) The sharing of gross returns does not of itself establish a partnership, whether or not the persons sharing them have a joint or common right or interest in any property from which the returns are derived;
- (4) The receipt by a person of a share of the proﬁ ts of a business is prima facie evidence that he is a partner in the business, but no such inference shall be drawn if such proﬁ ts were received in payment:
- (a) As a debt by installments or otherwise;
- (b) As wages of an employee or rent to a land-lord;
- (c) As an annuity to a widow or representative of a deceased partner;
- (d) As interest on a loan, though the amount of payment vary with the proﬁ ts of the business;
- (e) As the consideration for the sale of a good-will of a business or other property by installments or otherwise.
Is there co-ownership in partnership?
YES. “Co-ownership” is an essential element of partnership. However, the existence of co-ownership does not itself prove the existence of a partnership for in order for a partnership to exist, there must be contribution of money, property and industry and there must also sharing of profits.
Distinguish a partnership from labor union.
A labor union is any association of employees which exists in whole or in part for the purpose of collective bargaining or of dealing with employers concerning terms and conditions of employment.
Partnerships and labor unions have some characteristics in common, but the purpose of partnership is essentially to enable its members, as principals, to conduct a lawful business, trade, or profession for pecuniary gain of partners, and no one may become a partner without consent of all partners. (People vs. Herbert, 295 N.Y.S. 251, 162 Misc. 817; 68 C.J.S. 403.)
Distinguish partnership from a business trust.
A trust is the legal relationship between one person (beneﬁciary) having the equitable ownership in property and another (trustee) owning the legal title to such property, the equitable ownership of the former entitling him to the performance of certain duties and the exercise of certain powers by the latter.
An outstanding distinction between the partnership and trust relations is that in the partnership, all of the members are principals and are agents for each other (see Art. 1818.), while the trustee is only a principal and is not an agent.
Distinguish Partnership from co-ownership.
- The following are the distinctions between a partnership and a co-ownership:
- (1) Creation. — Co-ownership is generally created by law. It may exist even without a contract, but partnership is always created by a contract (Art. 1767.), either express or implied;
- (2) Juridical personality. — A partnership has a juridical personality separate and distinct from that of each partner (Art. 1768.), while a co-ownership has none;
- (3) Purpose. — The purpose of a partnership is the realization of proﬁ ts (Art. 1767.), while in co-ownership, it is the common enjoyment of a thing or right (see Art. 486.) which does not necessarily involve the sharing of proﬁ ts; (4) Duration. — Under the law, there is no limitation upon the duration of a partnership (see Arts. 1767, 1785.) while in co-ownership, an agreement to keep the thing undivided for more than ten years is not allowed (see Art. 494.);
- (5) Disposal of interests. — A partner may not dispose of his individual interest in the partnership (Art. 1812.) so as to make the assignee a partner unless agreed upon by all of the partners (see comments under Art. 1814.), while a co-owner may freely do so (see Art. 495.);
- (6) Power to act with third persons. — In the absence of any stipulation to the contrary (Art. 1803.), a partner may bind the partnership, while a co-owner cannot represent the co-ownership (see Arts. 491, 492.); hence, a judgment secured against only one of the co-owners will not bind the other co-owners; and
- (7) Effect of death. — The death of a partner results in the dissolution of the partnership (Art. 1830.), but the death of a co-owner does not necessarily dissolve the co-ownership.
Distinguish partnership from conjugal partnership of gains.
- (1) Parties. — A business partnership is created by the voluntary agreement of two or more partners (Art. 1767.) belonging to either sex, while a conjugal partnership arises in case the future spouses — a man and a woman — agree that it shall govern their property relations during the marriage (Art. 105, Family Code.);
- (2) Laws which govern. — The ordinary partnerships are, as a rule, governed by the stipulation of the parties (see Arts. 1159, 1308.), whereas a conjugal partnership is governed by law (Arts. 105-133, Ibid.);
- (3) Juridical personality. — A partnership has a juridical personality (Art. 1768.), while a conjugal partnership of gains has none;
- (4) Commencement. — A partnership begins from the moment of the execution of the contract, unless it is otherwise stipulated (Art. 1784.), while a conjugal partnership of gains commences precisely on the date of the celebration of the marriage and any stipulation to the contrary is void (Arts. 88, 107, Ibid.);
- (5) Purpose. — The primary purpose of the ordinary partnership is to obtain proﬁ ts (Art. 1767.), while that of a conjugal partnership is to regulate the property relations of husband and wife during the marriage (Art. 74, Ibid.);
- (6) Distribution of proﬁts. — In the ordinary partnership, the proﬁts are divided according to the agreement of the partners or in proportion to their respective capital contributions (Art. 1797.), while in a conjugal partnership, the shares of the spouses in the proﬁ ts are divided equally (Art. 106, Ibid.);
- (7) Management. — In the ordinary partnership, the management is shared equally by all the partners unless one or more of them are appointed managers in the articles of partnership (Arts. 1801-1803.), while in a conjugal partnership, although the administration belongs to both spouses jointly, the husband’s decision shall prevail in case of disagreement (Art. 124, Ibid.); and
- (8) Disposition of shares. — In the ordinary partnership, the whole interest of a partner may be disposed of without the consent of the other partners (see comments under Art. 1813.), while in a conjugal partnership, the share of each spouse cannot be disposed of during the marriage even with the consent of the other.
Partnership distinguished from a voluntary association.
- (1) Juridical personality. — A partnership has a juridical personality, while a voluntary association has none;
- (2) Purpose. — A partnership is always organized for pecuniary proﬁ t, while in a voluntary association, this objective is lacking;
- (3) Contributions of members. — In a partnership, there is a contribution of capital, either in the form of money, property, or services, while in a voluntary association for social purposes, although fees are usually collected from the members to maintain the organization, there is no contribution of capital; and
- (4) Liability of members. — The partnership, as a rule, is the one liable in the ﬁrst place for the debts of the ﬁ rm, while in a voluntary association, the members are individually liable for the debts of the association, authorized by them either expressly or impliedly, or subsequently ratiﬁed by them.
Partnership distinguished from a corporation.
- (1) Manner of creation. — A partnership is created by mere agreement of the parties (Art. 1787.), while a corporation is created by law or by operation of law (Sec. 2, B.P. Blg. 68.);
- (2) Number of incorporators. — A partnership may be organized by only two persons (Art. 1767.), while a corporation (except a corporation sole) requires at least ﬁve incorporators (Sec. 10, Ibid.);
- (3) Commencement of juridical personality. — A partnership commences to acquire juridical personality from the moment of the execution of the contract of partnership (Art. 1784.), while a corporation begins to have juridical personality only from the date of issuance of the certiﬁcate of incorporation by the Securities and Exchange Commission (Sec. 19, Ibid.);
- (4) Powers. — A partnership may exercise any power authorized by the partners provided it is not contrary to law, morals, good customs, public order, or public policy (Art. 1306.), while a corporation can exercise only the powers expressly granted by law or implied from those granted or incident to its existence (Secs. 2, 36, Ibid.);
- (5) Management. — In a partnership, when the management is not agreed upon, every partner is an agent of the partnership (Art. 1803.), while in a corporation, the power to do business and manage its affairs is vested in the board of directors or trustees (Sec. 23, Ibid.);
- (6) Effect of mismanagement. — In a partnership, a partner as such can sue a co-partner who mismanages (see Arts. 1794, 1806, 1809.), while in a corporation, the suit against a member of the board of directors or trustees who mismanages must be in the name of the corporation (see Sec. 23, Ibid.);
- (7) Right of succession. — A partnership has no right of succession (see Arts. 1828-1831, 1860.), while a corporation has such right (Sec. 2, Ibid.); (8) Extent of liability to third persons. — In a partnership, the partners (except limited partners) are liable personally and subsidiarily (sometimes solidarily) for partnership debts to third persons (see Arts. 1816, 1822-1824.), while in a corporation, the stockholders are liable only to the extent of the shares subscribed by them (see Secs. 64, 37, Ibid.);
- (9) Transferability of interest. — In a partnership, a partner cannot transfer his interest in the partnership so as to make the transferee a partner without the consent of all the other existing partners because the partnership is based on the principle of delectus personarum (see Arts. 1767, 1804.), while in a corporation, a stockholder has generally the right to transfer his shares without the prior consent of the other stockholders because a corporation is not based on this principle.
- (10) Term of existence. — A partnership may be established for any period of time stipulated by the partners (see Arts. 1767, 1785.), while a corporation may not be formed for a term in excess of 50 years extendible to not more than 50 years in any one instance (Sec. 11, Ibid.);
- (11) Firm name. — A limited partnership is required by the law to add the word “Ltd.” to its name (Art. 1844[1, a].), while a corporation may adopt any ﬁ rm name provided it is not the same as or similar to any registered ﬁ rm name (see Sec. 18, Ibid.);
- (12) Dissolution. — A partnership may be dissolved at any time by the will of any or all of the partners (Art. 1830[1, 2].), while a corporation can only be dissolved with the consent of the State (Secs. 117-122, Ibid.); and
- (13) Governing law. — A partnership is governed by the Civil Code, while a corporation is governed by the Corporation Code.
Similarities between a partnership and a corporation.
- They are as follows:
- (1) Like a corporation, a partnership has a juridical personality separate and distinct from that of the individuals composing it;
- (2) Like a corporation, a partnership can act only through agents;
- (3) Like a corporation, a partnership (except a corporation sole) is an organization composed of an aggregate of individuals;
- (4) Like a (stock) corporation, a partnership distributes its proﬁ ts to those who contribute capital to the business (although an industrial partner also shares in partnership proﬁ ts);
- (5) Like a corporation, a partnership can be organized only where there is a law authorizing its organization; and
- (6) A partnership, no matter how created or organized (except a general professional partnership) 21 is taxable as a corporation, subject to income tax.
ART. 1770 - what is the requirement as to the object of partnership? and
what is the effect when an unlawful partnership is dissolved?
A partnership must have a lawful object or purpose, and must be established for the common beneﬁt or interest of the partners.
When an unlawful partnership is dissolved by a judicial decree, the proﬁts shall be conﬁscated in favor of the State.
What will happen to the contribution where the unlawful partnership is dissolved?
The contribution shall be returned to the partners.
What is the effect as to the profits if the dissolved partnership is declared partly unlawful?
1. an account of that which is legal may be given to the partners but if by the wrongful acts of the partners, an innocent third person is prejudiced, the third person is allowed to acquire, wholly or partly, that account which was legal.
ART. 1771 - What is the form of a contract of partnership?
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.
- and except the partnership agreement is covered by the Statute of Frauds. (not in the codal itself.)
ART. 1772 - when shall the contract of partnership be required to be put in a public instrument?
Every contract of partnership having a capital of three thousand pesos or more, in money or property, shall appear in a public instrument, which must be recorded in the Ofﬁce of the Securities and Exchange Commission.
1. What is the purpose of registration mentioned in ART. 1773?
2. When is the partnership considered registered?
1. Registration is necessary as “a condition for the issuance of licenses to engage in business or trade. In this way, the tax liabilities of big partnerships cannot be evaded and the public can also determine more accurately their membership and capital before dealing with them.
2. When the certiﬁcate of recording of the instrument is issued on a date subsequent to the date of presentation thereof, its effectivity retroacts as of the latter date. In other words, the date the partnership papers are presented to and left for record in the Commission is considered the effective date of registration of the articles of partnership.
ART. 1773 - when shall a contract of partnership involving immovable property be considered void?
- It shall be considered void if : ISA
- 1. if an inventory of said property is not made.
- 2. if the said inventory is not signed by the parties.
- 3. if the inventory is not attached to a public instrument.
if the requirements laid down in article 1773 is not followed, will the partnership still be liable to the aggrieved third person?
YES, for with regard to them, a de facto partnership existed by way of estoppel.
Memorize this article:
ART. 1775. Associations and societies, whose articles are kept secret among the members, and wherein any one of the members may contract in his own name with third persons, shall have no juridical personality, and shall be governed by the provisions relating to co-ownership.
ART. 1776 - what are the classification of partnership as to its object?
How about as to liability of its partners?
As to its object, a partnership is either universal or particular.
As regards the liability of the partners, a partner-ship may be general or limited.
Define a universal partnership.
Give the kinds of universal partnership.
Universal partnership or one which refers to all the present property or to all proﬁts.
- There are thus two kinds of universal partnership, to wit:
- (1) Universal partnership of all present property.
- (2) Universal partnership of proﬁts.
Define General partnership.
Define Limited partnership.
General partnership or one consisting of general partners who are liable pro rata and subsidiarily (Art. 1816.) and sometimes solidarily (Arts. 1822-1824.) with their separate property for partnership debts.
Limited partnership or one formed by two or more persons having as members one or more general partners and one or more limited partners, the latter not being personally liable for the obligations of the partnership.
what are the other kinds of partnership?
- 1. partnership at will.
- 2. partnership with a period.
- 3. de jure partnership or one which has complied with all the legal requirements for its establishment.
- 4. de facto partnership or one which has failed to comply with all the legal requirements for its establishment.
- 5. Ordinary or real partnership or one which actually exists among the partners and also as to third persons.
- 6. Ostensible partnership or partnership by estoppel or one which in reality is not a partnership, but is considered a partnership only in relation to those who, by their conduct or admission, are precluded to deny or disprove its existence.
- 7. Secret partnership or one wherein the existence of certain persons as partners is not avowed or made known to the public by any of the partners.
- 8. Open or notorious partnership or one whose existence is avowed or made known to the public by the members of the ﬁrm.
- 9. Professional partnership.
- 10. Commercial partnership.
Give the kinds of partners.
- (a) Capitalist partner or one who contributes money or property to the common fund (see Art. 1767.);
- (b) Industrial partner or one who contributes only his industry or personal service (Arts. 1789, 1767.);
- (c) General partner or one whose liability to third persons extends to his separate property; he may be either a capitalist or industrial partner. (see Arts. 1843, 1816.) He is also known as real partner;
- (d) Limited partner or one whose liability to third persons is limited to his capital contribution. (see Art. 1843.) He is also known as special partner. The terms “general partner” and “limited partner” have relevance only in a limited partnership;
- (e) Managing partner or one who manages the affairs or business of the partnership; he may be appointed either in the articles of partnership or after the constitution of the partnership. (see Art. 1800.) He is also known as general or real partner;
- (f) Liquidating partner or one who takes charge of the winding up of partnership affairs upon dissolution (see Art. 1836.); (g) Partner by estoppel or one who is not really a partner, not being a party to a partnership agreement, but is liable as a partner for the protection of innocent third persons. (see Art. 1825.) He is one who is represented as being in fact a partner,but who is not so as between the partners themselves. He is also known as partner by implication or nominal partner. The term “quasi-partner” is sometimes used (68 C.J.S. 405.);
- (h) Continuing partner or one who continues the business of a partnership after it has been dissolved by reason of the admission of a new partner, or the retirement, death, or expulsion of one or more partners (see Art. 1840.);
- (i) Surviving partner or one who remains after a partnership has been dissolved by the death of any partner (see Art. 1842.); and
- (j) Subpartner or one who, not being a member of the partnership, contracts with a partner with reference to the latter’s share in the partnership.
- (2) Other classiﬁcations. — They have also been classiﬁ ed into:
- (a) Ostensible partner or one who takes active part and known to the public as a partner in the business (see Art. 1834, par. 2.), whether or not he has an actual interest in the ﬁ rm. Thus, he may be an actual partner or a nominal partner. If he is not actually a partner, he is subject to liability by the doctrine of estoppel (Art. 1825.);
- (b) Secret partner or one who takes active part in the business but is not known to be a partner by outside parties nor held out as a partner by the other partners (Ibid.), although he participates in the proﬁ ts and losses of the partnership. He is an actual partner. He is also an active partner in the sense that he participates in the management of the partnership affairs; (c) Silent partner or one who does not take any active part in the business although he may be known to be a partner. (Ibid.) Thus, he need not be a secret partner. If he withdraws from the partnership, he must give notice to those persons who do business with the ﬁrm to escape liability in the future;
- (d) Dormant partner or one who does not take active part in the business and is not known or held out as partner. (see Art. 1834, par. 2.) He would be both a silent and a secret partner. He would be both a secret and a silent partner. He may retire from the partnership without giving notice and cannot be held liable for obligations of the ﬁrm subsequent to his withdrawal. His only interest in joining the partnership would be the sharing of the proﬁ ts earned. The term is used as synonymous with “sleeping partner” (68 C.J.S. 404.);
- (e) Original partner or one who is a member of the partnership from the time of its organization;
- (f) Incoming partner or a person lately, or about to be, taken into an existing partnership as a member (68 C.J.S. 404; see Arts. 1826, 1828.); and
- (g) Retiring partner or one withdrawn from the partner-ship; a withdrawing partner.
ART. 1778 - Define a partnership of all present property.
ART. 1779 - What is the effect of the constitution of a universal partnership of all present property?
What are those cannot be included in a universal partnership of all present property?
ART. 1778 - A partnership of all present property is that in which the partners contribute all the property which actually belongs to them to a common fund, with the intention of dividing the same among themselves, as well as all the proﬁts they may acquire therewith.
ART. 1779. In a universal partnership of all pres-ent property, the property which belongs to each of the partners at the time of the constitution of the partnership, becomes the common property of all the partners, as well as all the proﬁts which they may acquire there-with.
A stipulation for the common enjoyment of any other proﬁts may also be made; but the property which the partners may acquire subsequently by inheritance, legacy or donation cannot be included in such stipulation, except the fruits thereof.
Who are those who cannot enter into a universal partnership?
ART. 1782 - Persons who are prohibited from giving each other any donation or advantage cannot enter into a universal partnership.
(A husband and his wife, however, may enter into a particular partnership
or be members thereof.) But not in a universal one.
Remember that in order that Article 739 may apply, it is not required that there be a previous conviction for adultery or concubinage. This can be inferred from the clause that “the guilt of the donor and the donee may be proved by preponderance of evidence.’’ (The Insular Life Assurance Co., Ltd. vs. Ebrado, 80 SCRA 181 .)
- Relate the above article to this:
- Art. 739. The following donations shall be void:
- (1) Those made between persons who were guilty of adultery or concubinage at the time of the donation;
- (2) Those made between persons found guilty of the same criminal offense, in consideration thereof;
- (3) Those made to a public ofﬁcer or his wife, descendants and ascendants, by reason of his ofﬁce. (This is a provision in property.)
ART. 1780 - what is the universal partnership of profits?
It is one which comprises all that the partners may acquire by their industry or work during the existence of the partnership and the usufruct of movable or immovable property which each of the partners may possess at the time of the celebration of the contract.
ART. 1783 - what are the object of a particular partnership?
A particular partnership has for its object determinate things, their use or fruits, or a speciﬁc undertaking, or the exercise of a profession or vocation.
What is the obligations of the partners among themselves?
- A contract of partnership gives rise to at least four distinct juridical relations, namely:
- (1) Relations among the partners themselves;
- (2) Relations of the partners with the partnership;
- (3) Relations of the partnership with third persons with whom it contracts; and (4) Relations of the partners with such third persons.
Each partner is a trustee to the extent that his duties bind him with respect to his co-partners and the partnership, and a cestui que trust as far as the duties that rest on his co-partners. (Allen vs. Steinberg, 223 A.d. 240.)
A partnership involves a fiduciary relation.
But the relationship between a limited partner and the other partners in a limited partnership does not involve the element of trust and conﬁdence, as in the case of a general partnership.
When does partnership begins?
ART. 1784. A partnership begins from the moment of the execution of the contract, unless it is otherwise stipulated, UNLESS if there is a contrary stipulation as to the date of effectivity of the same, its registration in the Securities and Exchange Commission is essential to give it juridical personality.
What is the rule if a partner fails or refuses to give his contribution?
Is a partner bound to give warranty in case of eviction and to be liable for the fruits of an immovable property which the said partner contributed to the partnership?
ART. 1786. Every partner is a debtor of the partner-ship for whatever he may have promised to contribute thereto.
He shall also be bound for warranty in case of eviction with regard to speciﬁc and determinate things which he may have contributed to the partnership, in the same cases and in the same manner as the vendor is bound with respect to the vendee. He shall also be liable for the fruits thereof from the time they should have been delivered, without the need of any demand.
What is the remedy of the other partners if one partner fails to give his contribution?
The remedy of the other partner or the partnership is not rescission but an action for speciﬁc performance (to collect what is owing)
with damages and interest from the defaulting partner from the time he should have complied with his obligation.
- ADDITIONAL NOTES:
- No demand is necessary to put the partner in default.
Is a partner who fails to perform the personal services which he has stipulated to render to the partnership, liable to the other partners for the value of the services?
- not liable. — Unless there is a special agreement to that effect.
- EXC -
- (a) If a partner neglects or refuses, without reasonable cause, to render the service which he agreed to perform by reason of which the partnership suffered loss, no good reason can be suggested why the erring partner should not be just as responsible for the breach of his agreement to render personal service to the partnership as for the breach of any other stipulation in the partnership contract.
(b) If the partner is compelled to make good the loss, each member of the ﬁ rm, including himself, will receive his proportion of the amount in the distribution of the partner-ship assets, and in no just sense can this be regarded as compensation for the services individually rendered. The proper measure of damages in such case is the value of the services wrongfully withheld. (Ibid.)
(c) If under the circumstances of the case the proper measure of the damages or loss (which may include unrealized proﬁts) is the value of the services wrongfully withheld, then the defendant should be charged this value.
May an industrial partner engage in business for himself other than that of the partnership?
ART. 1789. An industrial partner cannot engage in business for himself unless the partnership expressly permits him to do so;
and if he should do so without such permission, the capitalist partners may either :
1. exclude him from the ﬁrm or
2. avail themselves of the beneﬁts which he may have obtained in violation of this provision,
3. with a right to damages in either case.
If there is an imminent loss of the business and if a partner is required to contribute an additional share to the capital to save the venture or business but refuses to give such contribution, what is the obligation of the said partner to the other partners?
- ART. 1791 -
- He shall be obliged to sell his interest to the other partners, except if:
- 1. he is an industrial partner.
- 2. that there is a stipulation to the contrary.
ART. 1792. If a partner authorized to manage collects a demandable sum, which was owed to him in his own name, from a person who owed the partnership another sum also demandable, the sum thus collected shall be applied to the two credits in proportion to their amounts, even though he may have given a receipt for his own credit only; but should he have given it for the account of the partnership credit, the amount shall be fully applied to the latter. The provisions of this article are understood to be without prejudice to the right granted to the debtor by Article 1252, but only if the personal credit of the partner should be more onerous to him.
ART. 1793. A partner who has received, in whole or in part, his share of a partnership, when the other partners have not collected theirs, shall be obliged, if the debtor should thereafter become insolvent, to bring to the partnership capital what he received even though he may have given receipt for his share only.
ART. 1794. Every partner is responsible to the partnership for damages suffered by it through his fault, and he cannot compensate them with the proﬁ ts and beneﬁts which he may have earned for the partnership by his industry. However, the courts may equitably lessen this responsibility if through the partner’s extraordinary efforts in other activities of the partnership, unusual proﬁ ts have been realized.
what are the rules as to who shall bear the risk of loss of the thing contributed?
- ART. 1795 -
- 1.if the thing contributed is speciﬁc, determinate, not fungible, and that only their use and fruits may be for the common beneﬁt, the risk is borne by the partner who owns them.
2. If the things contributed are fungible, or cannot be kept without deteriorating, or if they were contributed to be sold, the risk shall be borne by the partnership.
What are the responsibilities of the partnership to the partners?
- ART. 1796 -
- 1. It shall be responsible to every partner for the amounts he may have disbursed on behalf of the partnership and for the corresponding interest, from the time the expenses are made.
2. it shall also answer to each partner for the obligations he may have contracted in good faith in the interest of the partnership business, and for risks in consequence of its management.
ART. 1797 - How are the losses and profits distributed?
It shall be distributed in conformity with the agreement.
- If no agreement as to the losses but there is an agreement to the share of profits, it shall be distributed in the same proportion of their respective shares in the profits.
- If no agreement as to the profits and losses, it shall be distributed in proportion to their respective contribution.
- ADDITIONAL NOTES:
- 1. An industrial partner shall not be liable for the losses.
- 2. As for the proﬁ ts, the industrial partner shall receive such share as may be just and equitable under the circumstances. If besides his services he has contributed capital, he shall also receive a share in the proﬁ ts in proportion to his capital.
ART. 1798 -
1. If the partners have agreed to intrust to a third person the designation of the share of each one in the proﬁts and losses, may the designation be impugned?
2. May the designation of losses and profits be intrusted to one of the partners?
- 1. Such designation may be im-pugned only when it is manifestly inequitable.
- 2. No.
what is the effect of a stipulation excluding one partner or more partners in profits and losses?
ART. 1799 - it is void.
ARTICLES PERTAINING TO THE MANAGING PARTNER.
ART. 1800. The partner who has been appointed manager in the articles of partnership may execute all acts of administration despite the opposition of his part-ners, unless he should act in bad faith; and his power is irrevocable without just or lawful cause. The vote of the partners representing the controlling interest shall be necessary for such revocation of power. A power granted after the partnership has been constituted may be revoked at any time.
ART. 1801. If two or more partners have been intrusted with the management of the partnership without speciﬁ cation of their respective duties, or without stipulation that one of them shall not act without the consent of all the others, each one may separately execute all acts of administration, but if any of them should oppose the acts of the others, the decision of the majority shall prevail. In case of tie, the matter shall be decided by the partners owning the controlling interest.
ART. 1802. In case it should have been stipulated that none of the managing partners shall act without the consent of the others, the concurrence of all shall be necessary for validity of the acts, and the absence or disability of any one of them cannot be alleged, unless there is imminent danger of grave or irreparable injury to the partnership.
ART. 1803 - what are the rules to be observed when the manner of management of the partnership has not been agreed upon?
1. All the partners shall be considered agents and whatever any one of them may do alone shall bind the partnership.
2. None of the partners may, without the consent of the others, make any important alteration in the immovable property of the partnership, unless he should be given court's approval.
ART. 1804 - how is a contract ofsubpartnership be done?
It is done by the act of any partner in associating another person in his share, with the consent of all other partners.
ART. 1808 -
1. May a capitalist partner engage in business the same as that of the partnership?
2. What is the capitalist partner's liability if he engage in a business the same as that of the partnership?
1. Generally the answer is NO, unless there is a stipulation to the contrary.
- 2. He shall be :
- a. compelled to bring to the common funds any profits accruing to him from his transactions; and
- b. held personally liable to bear all the losses.
ART. 1809 - When shall a partner have a right to a formal account as to the partnership affairs?
- 1. If he is wrongfully excluded from the partner-ship business or possession of its property by his co-partners;
- 2. If the right exists under the terms of any agreement;
- 3. As provided by Article 1807;
- 4. Whenever other circumstances render it just and reasonable.
ART. 1810 - what are the property rights of a partner?
- 1. His rights in speciﬁc partnership property; 2. His interest in the partnership; and
- 3. His right to participate in the management.
(a) Proﬁt means the excess of returns over expenditure in a transaction or series of transactions; or the net income of the partnership for a given period of time. (see Webster’s 3rd Int. Dict., p. 1811.)
(b) Surplus refers to the assets of the partnership after partnership debts and liabilities are paid and settled and the rights of the partners among themselves are adjusted. (see Art. 1839.) It is the excess of assets over liabilities. If the liabilities are more than the assets, the difference represents the extent of the loss.
ART. 1813 - (Assignment of partner's interest to an assignee) A conveyance by a partner of his whole interest in the partnership does not of itself dissolve the partnership, or, against the other partners in the absence of agreement, entitle the assignee, during the continuance of the partnership, to interfere in the management or administration of the partnership business or affairs, or to require any information or account of partnership transactions, or to inspect the partnership books; but it merely entitles the assignee to receive in accordance with his contract the proﬁts to which the assigning partner would otherwise be entitled.
However, in case of fraud in the management of the partnership, the assignee may avail himself of the usual remedies.
In case of a dissolution of the partnership, the assignee is entitled to receive his assignor’s interest and may require an account from the date only of the last account agreed to by all the partners.
ART. 1814 - (Judgment of a court charging a partner's interest for the payment of his debt.) On due application to a competent court by any judgment creditor of a partner, the court which entered the judgment, or any other court, may charge the interest of the debtor partner with payment of the unsatisﬁed amount of such judgment debt with interest thereon; and may then or later appoint a receiver of his share of the proﬁts, and of any other money due or to fall due to him in respect of the partnership, and make all other orders, directions, accounts and inquiries which the debtor partner might have made, or which circumstances of the case may require.
The interest charged may be redeemed at any time before foreclosure, or in case of a sale being directed by the court, may be purchased without thereby causing a dissolution: (1) With separate property, by any one or more of the partners; or (2) With partnership property, by any one or more of the partners with the consent of all the partners whose interests are not so charged or sold. Nothing in this Title shall be held to deprive a partner of his right, if any, under the exemption laws, as regards his interest in the partnership.
ART. 1815 - may a partner include the name of those who are not being members of the partnership?
YES but it such inclusion shall be subject to his liability.
ART. 1816 - who are those partner who are liable with all their property for the contract which may be entered in the name and for the account of the partnership?
All partners including industrial one shall be liable pro rata with all their property and after all the partnership assets have been exhausted, for the contracts which may be entered into in the name and for the account of the partnership.
- ADDITIONAL NOTES:
- ART. 1817. Any stipulation against the liability laid down in the article 1816 shall be void, except as among the partners.
READ THIS ARTICLE:
ART. 1818. Every partner is an agent of the partnership for the purpose of its business, and the act of every partner, including the execution in the partnership name of any instrument, for apparently carrying on in the usual way the business of the partnership of which he is a member binds the partnership, unless the partner so acting has in fact no authority to act for the partnership in the particular matter, and the person with whom he is dealing has knowledge of the fact that he has no such authority.
An act of a partner which is not apparently for the carrying on of the business of the partnership in the usual way does not bind the partnership unless autho-rized by the other partners.
Except when authorized by the other partners or un-less they have abandoned the business, one or more but less than all the partners have no authority to:
(1) Assign the partnership property in trust for creditors or on the assignee’s promise to pay the debts of the partnership;
(2) Dispose of the goodwill of the business;
(3) Do any other act which would make it impossible to carry on the ordinary business of a partnership;
(4) Confess a judgment;
(5) Enter into a compromise concerning a partner-ship claim or liability;
(6) Submit a partnership claim or liability to arbitration;
(7) Renounce a claim of the partnership.
No act of a partner in contravention of a restriction on authority shall bind the partnership to persons having knowledge of the restriction.
ART. 1819. Where title to real property is in the partnership name, any partner may convey title to such property by a conveyance executed in the partnership name; but the partnership may recover such property unless the partner’s act binds the partnership under the provisions of the ﬁrst paragraph of article 1818, or unless such property has been conveyed by the grantee or a person claiming through such grantee to a holder for value without the knowledge that the partner, in mak-ing the conveyance, has exceeded his authority.
Where title to real property is in the name of the partnership, a conveyance executed by a partner, in his own name, passes the equitable interest of the partner-ship, provided the act is one within the authority of the partner under the provisions of the ﬁrst paragraph of article 1818.
Where title to real property is in the name of one or more but not all the partners, and the record does not disclose the right of the partnership, the partners in whose name the title stands may convey title to such property, but the partnership may recover such property if the partners’ act does not bind the partnership under the provisions of the ﬁrst paragraph of Article 1818, unless the purchaser or his assignee, is a holder for value, without knowledge.
Where the title to real property is in the name of one or more or all the partners, or in a third person in trust for the partnership, a conveyance executed by a partner in the partnership name, or in his name, passes the equitable interest of the partnership, provided the act is one within the authority of the partner under the provisions of the ﬁrst paragraph of article 1818.
Where the title to real property is in the names of all the partners a conveyance executed by all the partners passes all their rights in such property.
ART. 1821 - Notice to any partner of any matter relating to partnership affairs operates as a notice to or knowledge of the partnership, except in the case of a fraud on the partnership.
Read articles 1822, 1825, 1826, 1827.
When can a person be a partner by estoppel?
— Estoppel is a bar which precludes a person from denying or asserting anything contrary to that which has been established as the truth by his own deed or representation, either express or implied. (19 Am. Jur. 61.) Through estoppel, an admission or representation is rendered conclusive upon the person making it and cannot be denied or disapproved as against the person relying thereon.
- A person may become a partner by estoppel by:
- 1. Directly representing himself to anyone as a partner in an existing partnership or in a non-existing partnership (with one or more persons not actual partners); or
- 2. Indirectly representing himself by consenting to another representing him as a partner in an existing partnership or in a non-existing partnership.
- ADDITIONAL NOTES:1. Article 1825 does not create a partnership as between the alleged partners. The law considers them as partners and the association as a partnership only insofar as it is favorable to third persons by reason of the equitable principle of estoppel.
- 2. The basic elements in connection with establishment of liability as a partner if based on the doctrine of estoppel must encompass:
- (a) Proof by plaintiff that he was individually aware of the defendant’s representations as to his being a partner or that such representations were made by others and not denied or refuted by the defendant;
- (b) Reliance on such representations by the plaintiff; and
- (c) Lack of any denial or refutation of the statements by the defendant;
ART. 1828 - Define dissolution.
The dissolution of a partnership is the change in the relation of the partners caused by any partner ceasing to be associated in the carrying on as distinguished from the winding up of the business.
Define dissolution, winding up, and termination.
- (1) Dissolution is the change in the relation of the partners caused by any partner ceasing to be associated in the carrying on of the business. (Art. 1828.) It is that point in time when the partners cease to carry on the business together. It represents the demise of a partnership. (68 C.J.S. 842.) Thus, any time a partner leaves the business, the partnership is dissolved. (2) Winding up is the actual process of settling the business or partnership affairs after dissolution, involving the collection and distribution of partnership assets, payment of debts, and determination of the value of each partner’s interest in the partnership. It is the ﬁ nal step after dissolution in the termination of the partnership.
- (3) Termination is that point in time when all partnership affairs are completely wound up and finally settled. It signiﬁes the end of the partnership life. It takes place after both dissolution and winding up have occurred.
What is the effect of dissolution?
ART. 1829. On dissolution the partnership is not terminated, but continues until the winding up of partnership affairs is completed.
ART. 1830 - what are the eight (8) causes of dissolution?
- 1. Without violation of the agreement between the partners.
- 2. In contravention of the agreement between the partners, where the circumstances do not permit a dissolution under any other provision of this article, by the express will of any partner at any time.
- 3. By any event which makes it unlawful for the business of the partnership to be carried on or for the members to carry it on in partnership.
- 4. When a speciﬁc thing, a partner had promised to contribute to the partnership, perishes before the delivery; in any case by the loss of the thing, when the part-ner who contributed it having reserved the ownership thereof, has only transferred to the partnership the use or enjoyment of the same; but the partnership shall not be dissolved by the loss of the thing when it occurs after the partnership has acquired the ownership thereof;
- 5. By the death of any partner;
- 6. By the insolvency of any partner or of the partnership.
- 7. By the civil interdiction of any partner;
- 8. By decree of court under article 1831.
ART. 1830 - what are the acts considered not in violation of the agreement between the partners but nonetheless cause the dissolution of the partnership?
- 1. By the termination of the deﬁnite term or particular undertaking speciﬁed in the agreement;
- 2. By the express will of any partner, who must act in good faith, when no deﬁnite term or particular undertaking is speciﬁed;
- 3. By the express will of all the partners who have not assigned their interests or suffered them to be charged for their separate debts, either before or after the termination of any speciﬁed term or particular undertaking;
- 4. By the expulsion of any partner from the business bona ﬁde in accordance with such a power conferred by the agreement between the partners.
1. Does the sale or assignment by one partner of his entire interest in the partnership to a third person ipso facto dissolves the partnership? (reiterated question)
2. What is the liability of a partner who causes an unjustified dissolution?
3. Based under the precepts of ART. 1830, if the thing perished after the delivery of the thing promised, what shall be the effect of the loss of the said thing?
2. he may be liable for damages.
3. The partnership is not dissolved.
ART. 1831 - What are the grounds in order for a partner to cause the dissolution of the partnership by acquiring court decree to that effect?
- (1) A partner has been declared insane in any judicial proceeding or is shown to be of unsound mind;
- (2) A partner becomes in any other way incapable of performing his part of the partnership contract;
- (3) A partner has been guilty of such conduct as tends to affect prejudicially the carrying on of the business;
- (4) A partner willfully or persistently commits a breach of the partnership agreement, or otherwise so conducts himself in matters relating to the partnership business that it is not reasonably practicable to carry on the business in partnership with him;
- (5) The business of the partnership can only be carried on at a loss;
- (6) Other circumstances render a dissolution equitable.
ART. 1832 - What is the effect of dissolution?
Dissolution terminates all authority of any partner to act for the partnership, EXCEPT so far as may be necessary to wind up partnership affairs or to complete transactions begun but not then ﬁnished.