18

PARTNERSHIP

PARTNERSHIP it is a CONTRACT whereby two or more persons (1) bind themselves to CONTRIBUTE money, property, or industry to a COMMON FUND (2) with the intention of dividing the PROFITS among themselves or in order to EXERCISE a PROFESSION

a STATUS and a FIDUCIARY RELATION subsisting between persons carrying 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. LAWFUL object4. INTENTION of DIVIDING the PROFIT among the PARTNERS5. AFFECTIO SOCIETATIS the desire to formulate an ACTIVE UNION, with people among whom there exist a mutual CONFIDENCE and TRUSTS6. NEW PERSONALITY the object must be for profit and not merely for the common enjoyment otherwise only a co-ownership has been formed. HOWEVER, pecuniary profit need 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 parent or guardian consents

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

2. the partnership CAN in GENERAL:A) acquire and possess property of all kindsB) incur obligationsC) bring civil and criminal actionsD) can be adjudged insolvent even if the individual members be each financially solvent

3. unless he is generally sued, a partner has no right to make a separate appearance 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 Philippine lands2) foreign partnership may lease lands provided the period does not exceed 99 years3) foreign partnership may be MORTGAGEES of land period of 5 years, renewable for another 5 they cannot purchase it in a foreclosure sale

RULES IN CASE OF ASSOCIATIONS NOT LAWFULLY ORGANIZED AS PARTNERSHIP1. it possesses NO LEGAL PERSONALITY it cannot sue as such HOWEVER, the partners in their individual capacity CAN2. 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 the firm, even if indeed it had no personality ESTOPPEL whether a partnership has a juridical personality or not depends on its PERSONAL LAW of the partnership or the law of the place where the partnership was organized

REQUISITES FOR EXISTENCE OF PARTNERSHIP [I, CF, JI]1. INTENTION to create a partnership2. COMMON FUND obtained from contributions 3. JOINT INTERESTS in the PROFITS

WHAT DO NOT ESTABLISH A PARTNERSHIP1. mere co-ownership or co-possession even with profit sharing2. 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 persons EXCEPTION: PARTNERSHIP BY ESTOPPEL

2. CO-OWNERSHIP of a property does not itself establish a partnership, even though the co-owners share in the profits derived from the incident of joint ownership

3. SHARING OF GROSS RETURNS ALONE does not indicate 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 of the share in the profits is a strong presumptive evidence of partnership HOWEVER, no such inference will be drawn if such profits were received 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 partnerE) 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 in all 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 also result 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 be established 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, the partnership 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 which makes it unlawful for the business of the partnership to be carried on

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

G. R. a partnership may be constituted in any form

EXCEPTION: PUBLIC INSTRUMENT1. IMMOVABLE PROPERTY is contributed 2. REAL RIGHTS are contributed

* need for INVENTORY of IMMOVABLES

** for EFFECTIVITY of the partnership contract insofar as innocent third persons are concerned the same must be REGISTERED if REAL PROPERTIES 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, the partnership is not created till after the fulfillment of the conditions or the arrival of the term 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 moreREQUIRED:1. PUBLIC INSTRUMENT2. RECORDED S.E.C.

* FAILURE TO COMPLY shall not effect the liability of the partnership and its members to third persons

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

REQUIREMENTS WHERE IMMOVABLE / REAL PROPERTY IS CONTRIBUTED1. PUBLIC INSTRUMENT 2. 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 are contributed* applies if aside from real property, cash or personal property is contributed

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

RULE: any immovable property or an interest therein maybe acquired in the partnership name 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 IFA) articles are kept secret among the members B) any one of the members may contract in his own name with third persons1. NOT a partnership NOT a LEGAL PERSON2. 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 action 4. 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, notwithstanding 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 does not exist in legal contemplation

CLASSIFICATION OF PARTNERSHIPSA) ACCORDING TO MANNER OF CREATION1. ORALLY constituted2. constituted in a PRIVATE INSTRUMENT3. constituted in a PUBLIC INSTRUMENT4. REGISTERED S.E.C.B) ACCORDING TO OBJECT1. UNIVERSAL2. PARTICULARC) ACCORDING TO LIABILITY1. LIMITED PARTNERSHIP2. GENERAL PARTNERSHIPD) ACCORDING TO LEGALITY1. LAWFUL OR LEGAL2. UNLAWFUL OR ILLEGALE) ACCORDING TO DURATION1. for a SPECIFIC PEIOD or FIXED PERIOD2. PARTNERSHIP AT WILLF) ACCORDING TO REPRESENTATION TO OTHERS1. ORDINARY PARTNERSHIP2. PARTNERSHIP BY ETOPPELG) AS TO LEGALITY OF EXISTENCE1. DE JURE PARTNERSHIP2. DE FACTO PARTNERSHIPH) AS TO PUBLICITY1. SECRET PARTNERSHIP2. NOTORIOUS / OPEN PARTNERSHIPI) AS TO PURPSE1. 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 the partnership 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

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 the partners will be general partners

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

*UNIVERSAL PARTNERSHIP OF ALL PRESENT PROPERTY CONTRIBUTION of1. 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 the partners become common property regardless of within said profits were obtained through the usufruct contributed EXCEPT PRIZES and GIFTS

RULE: articles of universal partnership, entered without specification of its nature, only constitute a universal partnership of PROFITS

RULE: persons who are prohibited from giving each other any donation or advantage cannot enter into universal partnership WHO: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 a particular partnership or be members thereof a universal partnership is virtually a donation to each other of the partners properties or 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

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

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

PARTNERSHIP AT WILLa partnership wherein its continued existence really depends upon the will of the partners 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 be contributed before he actually contributes the same

4. a partner who promises to contribute to the partnership becomes a promissory debtor 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 been delivered, without a need of any demand

3. IF the partner is in BAD FAITH, he is liable not only for the fruits actually produced, BUT also for those that could have been produced4. IF MONEY HAS BEEN PROMISED, INTEREST and DAMAGES from the time he 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 the sale or an act imputable to the partner, the partnership is deprived of the whole or a part of the thing purchased

RULE WHEN CONTRIBUTION CONSISTS OF GOODS APPRAISAL of VALUE is needed to determine how much was contributed> HOW APPRAISAL MADE1. as PRESCRIBED in the CONTRACT2. in default, by EXPERTS chosen by the partners, and at CURRENT PRICES *necessity of the INVENTORY APPRAISALRULE on RISK of LOSSafter goods have been contributed, the partnership bears the risk of subsequent changes in the valueRULE:a partner who has undertaken to contribute a sum of money and fails to do so becomes a debtor for the interest and damages from the time he should have complied with his obligation

Types of Partners:1) According to contribution:a) CAPITALIST PARTNER one who FURNISHES CAPITAL NOT EXEMPTED from LOSSES he can engage in other business PROVIDED there is no competition between the partnership and his business share in the profits according to agreementsb) INDUSTRIAL PARTNER one who FURNISHES INDUSTRY or LABOR he is EXEMPTED from LOSSES as between the partner BUT liable to strangers without prejudice to reimbursement from the capitalist partner he CANNOT engage in any other BUSINESS WITHOUT the express CONSENT 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 PROFIT----- NET LOSSESc) CAPITALIST INDUSTRIALIST PARTNER> one who contributes BOTH CAPITAL and INDUSTRY

2) According to Liability:c) GENERAL PARTNER one who is liable beyond the extent of his contributiond) 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

3) According to participation/activity:e) MANAGING PARTNER one who manages actively the firms affairsf) SILENT PARTNER one who does not participate in the management, though he shares in the PROFITS or LOSSESg) LIQUIDATING PARTNER one who winds up or liquidates the affairs of the firm after it has been dissolvedh) OSTENSIBLE PARTNER one whose connection with the firm is public and openi) SECRET PARTNER one whose connection with the firm is concealed or kept secretj) DORMANT PARTNER one who is both a secret (hidden) and silent (not managing) partnerk) NOMINAL PARTNER one who is not really a partner BUT who may become liable as such insofar as third persons are concerned

RULE:partners shall CONTRIBUTE EQUAL SHARES to the capital of the partnership

*it is permissible to contribute UNEQUAL SHARES IF there is a stipulation to this effect

*in the absence of proof, the shares are presumed to be equal

CONDITIONS before a capitalist partner is obliged to sell his shares / interest to the other partners[IL, RC, NA]

1. if there is IMMINENT LOSS of the BUSINESS of the partnership

2. he REFUSES to CONTRIBUTE an ADDITIONAL SHARE to the CAPITAL

3. there is no agreement to the contrary

* INDUSTRIAL PARTNER IS EXEMPTED

*RULE if MANAGING PARTNER COLLECTS A CREDIT

REQUISITES:1. existence of at least 2 debts---- PARTNERSHIP ---- PARTNER2. both sums are demandable 3. the collecting partner is the managing partner

*the sum thus collected shall be applied to the two credits in proportion to their amounts

RULE:*where a partner receives his share in the partnership creditCONDITIONS:1. a partner has received his share in the partnership credit in whole or in part2. the other partners have not collected their part of the credit3. the debtor subsequently becomes INSOLVENT

RULE: - the partner shall be obliged to bring to the partnership capital 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 his fault

*he cannot compensate them with the profits and benefits, which he may have earned 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 USUFRUCT is enjoyed by a firmthe 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 SOLDFIRM 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 the time expenses where made

2. to ANSWER to each partner for OBLIGATIONS he may have entered into in good faith in the interest of the partnership, as well as the risks in consequence of 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 AGREEMENT 2. IF NONE, according to amount of CONTRIBUTION

*HOW LOSSES are DISTRIBUTED1. according to AGREEMENT as to losses 2. 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 the profits

*RULE on INDUSTRIAL PARTNERS LIABILITIES- may be held liable by third persons BUT he may recover what he has paid from the other 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 IF MANIFESTLY 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 administration BUT 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 as third 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 ALLEGED UNLESS there is imminent danger of grave or irreparable injury to the partnership

RULE ON DUTY of THIRD PERSONSthird persons are not required to inquire as to whether or not a partner with whom he transacts has the consent of all the managers

*RULES to be observed when the manner of management has not been agreed upon:1. all the partners are considered AGENTS whatever any one of them may do alone shall not bind the partnership

2. IF the acts of one are opposed by the rest, the majority shall prevail

3. when a partner acts in his OWN NAME, he does not bind the partnership

4. authority to bind the firm does not apply if somebody else has been given authority to manage in the articles of organization or through some other means

5. ALTERATIONS REQUIRE UNANIMITY- IMMOVABLE partnership property - BUT if the refusal to consent by the others is prejudicial to the interest of the partnership- COURTS INTERVENTION may be sought

RULES on ASSOCIATE of PARTNER1. every partner may associate another person with him in his share

2. for a partner to have an associate in his shareconsent of all the other partners is NOT REQUIRED

3. for the associate to become a partner ALL MUST CONSENT

RULES on PARTNERSHIP BOOKS1. kept at the principal place of business of the partnership

2. at any reasonable hour, every partner shall have access to and may inspect and copy any of them

DUTY of PARTNERS TO GIVE INFORMATIONgood faith not only requires that a partner should not make any FALSE CONCEALMENT, BUT he should abstain from all concealment

DUTY to ACCOUNT [B, P, U-P]every partner must account to the partnership1. any benefit acquired2. any profits received3. any use of partnership property

RIGHT TO DEMAND a FORMAL ACCOUNTany partner shall have the right to a formal account as to partnership affairs1. if wrongfully excluded from partnership BUSINESS2. if wrongfully excluded from partnership PROPERTY by his co-partners3. if the right exists under the terms of agreement4. if the other partner receives other benefits, profits or uses partnership property5. 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 final accounting 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 partners assign 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 and SURPLUSIT CAN BE: [A, A, LS]1. ASSIGNED2. ATTACHED3. be subject to LEGAL SUPPORT

*EFFECTS of CONVEYANCE by PARTNER of his INTEREST in the PARTNERSHIP1. IF he conveys his WHOLE INTERESTA) partnership may still remainB) partnership may be dissolved *mere conveyance does not dissolve the partnership

2. the ASSIGNEE does not necessarily become a partnerthe ASSIGNOR is still the partner, with a right to demand accounting and settlement

3. the ASSIGNEE CANNOT interfere in the MANAGEMENT or ADMINISTRATION of the firmthe ASSIGNEE CANNOT also DEMAND[I, A, I]A) INFORMATIONB) ACCOUNTINGC) INSPECTION of partnership books

*** while a partners INTEREST in the firm may be CHARGED or LEVIED upon, his INTEREST 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 the partners interest in the profits

** SEPARATE or INDIVIDUAL creditors have PREFERENCE in separate or individual properties

* when the CHARGING ORDER is applied for and granted, the court may appoint a receiver of the partners share in the profitsthe receiver appointed is entitled to any relief necessary to conserve the partnership 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. withseparate property, by any one or more of the partners OR

2. withpartnership property, by any one or more partners with the consent of all the partners 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 obligations BUT 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 property and after all the partnership assets have been exhausted

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

**while an INDUSTRIAL PARTNER is exempted by law from LOSSES as between the partners, he is NOT EXEMPTED from liability insofar as third persons are concernedhe 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 the business 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 has no such authority

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

*a partnership is a CONTARCT of MUTUAL AGENCY, each partner acting as a principal 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 authorized PROVIDED that the third party is in GOOD FAITH

RULE on UNUSUAL ACTSone 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 5. ENTER into a COMPROMISE6. SUBMIT to ARBITRATION7. RENOUNCE to CLAIM

*RULES on CONVEYANCE of REAL PROPERTY

1. where title to real property is in the partnership nameany partner may convey title to such property by a conveyance executed in the partnership name* PARTNERSHIP MAY RECOVER SUCH PROPERTY EXCEPT:1. if the firm is engaged in the buying and selling of land (USUAL BUSINESS)2. if property was conveyed to a HOLDER for VALUE and who had NO KNOWLEDGE of the partners LACK of AUTHORITY

2. where title is in the name of the partnership and partner sold in his OWN NAME

IF DONE IN USUAL BUSINESSbuyer does not become owner BUT ACQUIRES EQUITABLE INTEREST

IF NOT DONE IN USUAL BUSINESSbuyer does not become owner and is not even entitled to equitable interest

3. where title is in the name of one or more BUT not all the partners

partners in whose name the title is named MAY CONVEY BUT the PARTNERSHIP may RECOVER such property IF done not in its USUAL BUSINESS EXCEPT if he had transferred it to a Holder for value

4. when property held in trust by partner

a sale only conveys EQUITABLE INTEREST

5. when title is in the name of all partners

conveyance executed by all partners possess all rights of such property

EQUITABLE INTEREST -BENEFICIAL INTEREST, BUT NOT NAKED OWNERSHIP

*RULE on ADMISSION or REPRESENTATION MADE by a PARTNERan admission by a partner is an admission against the partnersip,under the following conditions:1. the admissions must concern partnership affairs2. must be within the scope of his authority

RESTRICTIONS ON THE RULE:1. admissions made BEFORE DISSOLUTION are binding only when the partner has authority to act on the particular matter

2. admissions made AFTER DISSOLUTION are binding only if the admissions were necessary to WIND UP the business

3. an admission made by a former partner made after he has RETIRED from the partnership 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 partnership PROVIDED 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 whole firm 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 omission 1. the partner is acting in the ordinary course of business of the partnership OR 2. 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 DONEA) within scope of partnership businessB) 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 dissolved and 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 ESTOPPELa person who represents himself or consents to another / others representing him to anyone as a partner either in an existing partnership or in one that is fictitious or apparent

PARTNERSHIP BY ESTOPPELwhen all the members of the existing partnership consent to such representation of a partner by estoppel

RULES AND SITUATIONS:1. if a third person is misled and acts because of such misrepresentationthe deceiver is a partner by estoppel

2. if the partnership consented to such misrepresentationpartnership liability results

3. if the firm had not consentedno 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 may have 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, the doctrine of estoppel does not apply

BURDEN of PROOFthe creditor or whoever alleges the existence of a partner or partnership by estoppel has the burden of proving the existence of the MISREPRESENTATION AND INNOCENT 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 extend only 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 regards the partnership property

Without prejudice to this rightthe private creditors of each partner may ask the attachment and public sale of the share of the latter in the partnership assets**IF a partner sells his share to a third party, BUT the firm itself still remains SOLVENT, partnership creditors CANNOT assail the validity of the sale by alleging that it is made in fraud of them, since they have not really been prejudiced

DISSOLUTION AND WINDING UPthe change in the relation of the partners caused by any partner causing to be associated in the carrying on of the businessit is the point of time the partners cease to carry on the business together

WINDING UPthe process settling business affairs after dissolution

TERMINATIONthe point in time after all the partnership affairs have been wound up

RULE ON DISSOLUTION*on dissolution the partnership is not terminated BUT continues until the winding up of partnership affairs is completed

*EFFECT on OBLIGATIONS1. just because a partnership is dissolved this does not necessarily mean that a partner can evade previous obligations entered into by the partnership

2. dissolution saves the former partners from new obligations to which they have not expressly or impliedly consented UNLESS the same be essential for winding up

*CAUSES OF DISSOLUTION1. without VIOLATION of the AGREEMENT between the partnersA) TERMINATION of the DEFINITE TERM or PARTICULAR UNDERTAKINGB) EXPRESS WILL or ANY PARTY in GOOD FAITH (PARTNERSHIP by WILL)C) EXPRESS WILL of ALL of the PARTNERS except those who have (interests) ASSIGNED or whose interests have been (separate debts) CHARGEDD) EXPULSION in good faith of a member2. in CONTRAVENTION of the agreement between the partners by the EXPRESS WILL of ANY PARTNER at any time3. UNLAWFULNESS of the BUSINESS4. LOSS thing promisedA) SPECIFIC THING PERISHES before deliveryB) USUFRUCT is lost EXCEPT if ownership had been transferred to the partnership5. DEATH of ANY partner6. INSOLVENCY of any partner or of the partnership7. CIVIL INTERDICTION of any partner8. DECREE of COURT

***if the cause is not justified or no cause was given, the withdrawing partner is liable for DAMAGES BUT in no case can he be compelled to remain in the firm

*the insolvency need not be judicially declared, it is enough that the assets be less than the liabilities

DISSOLUTION by JUDICIAL DECREE WHEN ALOWED:(I, UM, I-PP, C, PB, BL, OC)1. partner declared insane in any judicial proceeding or is shown to be of UNSOUND MIND2. partner becomes INCAPABLE of performing his part of the partnership contract3. partner has been guilty of such CONDUCT as tends to affect prejudicially the business4. partners PERSISTENT BREACH of agreement 5. 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 INTEREST1. after the termination of the specified term or particular undertaking2. AT ANY TIME, if the partnership was a partnership at will when the interest was assigned 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-DRULE: (STILL BOUND) as to each partners

G.R. where the dissolution is caused by the ACT, INSOLVENCY or DEATH of a partner, each partner is liable to his co-partners for his share of any liability created by any partner acting for the partnershipEXCEPTION: - individual liabilities1. if dissolution by ACTthe partner acting for the partnership HAD KNOWLEDGE of the dissolution OR2. if dissolution by DEATH or INSOLVENCYthe 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 not taken place PROVIDED the other party is:A) PREVIOUS CREDITOR and had NO KNOWLEDGE or NOTICE of the dissolution ORB) NOT a PREVIOUS CREDITOR, had NO KNOWLEDGE or NOTICE and dissolution was NOT PUBLISHED*if there was publication of the dissolution it is presumed he already knows, regardless of actual knowledge on non knowledge

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 INSOLVENT4. 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 not one 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 BETWEEN1. partner concerned2. other partners3. creditors

RULE:*the INDIVIDUAL PROPERTY of a DECEASED PARTNER shall be liable for all obligations 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 is done after one of the partners has retired and without the consent of such partnersaid 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 the court

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

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

BETTER RIGHTS of INNOCENT PARTNERSinnocent partners have better rights than guilty partners and that the guilty partners are required to indemnify for the damages caused

* RIGHT of INOCENT PARTNERS TO CONTINUE the BUSINESSin essence this is a new partnership can use the same firm namecan ask new members to joinBUT 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 CASHin case on non-continuance of the business, the interest of the partner should if he desires be given in cashassets may be sold

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

RIGHTS OF INNOCENT PARTNERS IN CASE of RESCISSION based on FRAUD AND MISREPRESENTATION1. Right to LIEN or RETENTION SURPLUS CAPITAL ADVANCES2. Right of SUBROGATION as creditor3. Right of INDEMNIFICATION

*ORDER of PAYMENT in WINDING-UP of PARTNERSHIP LIABILITIESGENERAL PARTNERSHIP: [C, R, C, P]1. those owing to creditors other than partners2. 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 more money or property

PREFERENCE with RESPECT to the ASSETS 1. regarding partnership property partnership creditors have preference

2. regarding individual properties of partners individual 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 partnership continuing 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 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 business to the creditors of the dissolved partnership shall be satisfied out of the partnership property ONLY

G.R. when a partner retires, he is entitled what is due him after liquidation BUT no liquidation 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 a common 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 the existence of the new partnership or community of property must at least be brought home 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 not competent to prove the existence of a partnership between them as against such partner

*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 contribute money, property, or industry to a common fund, with the intention of dividing the profits among 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 subject to 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, or in conformity with the usual requirements of the law on partnerships, in order that one could 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 the property

* the sharing of gross returns does not itself establish a partnership, within the persons sharing them have a joint or common right or interest in any property from which 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 partnership 2. 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 the consent of the others

* an isolated transaction whereby 2 or more persons contribute funds to buy certain real estate for profit in the absence of other circumstances showing a contrary intention cannot be considered a partnership

*persons who contribute property or funds for a common enterprise and agree to share the gross returns of that enterprise in proportion to their contribution, BUT who severally retain the title to their respective contribution, are not thereby rendered partnersthey have no common stock or capital and no community of interest as principal proprietors in the business itself which the proceeds derived

*a joint purchase of land, by two does not constitute a co-partnership in respect thereto, NOR does an agreement to share the profits and losses on the sale of land create 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 ANDC) such a community of interest, as far as third persons are concerned as enables each party to make a contract, manage the business, and dispose of the whole property

* the common ownership of property does not itself create a partnership between the owners, though they may use it for the purpose of making gains AND they may without becoming partners, agree among themselves as to the management and use of such property and the application of the proceeds therefrom

*the sharing of returns does not in itself establish a partnership within the persons sharing 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

DUTERTE vs. RALLOS* an agreement between 2 persons to operate a cockpit, by which one is to contribute his 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 qualified party 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 the business of the partnership to be carried on or for the members to carry it on in partnership

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 the partnership because it is not one of the causes provided for dissolution by law with regards 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 VOIDwhenever 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, UNLESS the partnership expressly permits him to do so IF 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 to prevent any conflict of interest between the industrial partner and the partnership and to ensure faithful compliance by said partner with his prostation

Corporation Law1. 1. Doctrine of Corporate Opportunity a director is made to account to his corporation, gains and profits from transactions entered into by him/another competing corporation in which he has substantial interest, which should have been a transaction undertaken by the corporation. This s a breach of fiduciary relationship.1. 2. Doctrine of Piercing the Veil of Corporate Entity it is to disregard for justifiable reasons by the state the fiction of juridical personality of the corporation separate and distinct from the persons composing it1. 3. De Jure Corporation corporation formed with all the requirements of law1. 4. De Facto Corporation corporation defectively formed from a bona fide attempt to incorporate under the existing law and exercises corporate powers1. 5. Corporation by Estoppel a group of persons which holds itself out as a corporation and enters into a contract with 3rd persons on the strength of such appearance cannot be permitted to deny its existence in an action under said contract1. 6. Corporation by Prescription body not lawfully organized as a corporation but has been recognized by immemorial usage as a corporation with rights and duties maintainable by law (ex. Roman Catholic)1. 7. Trust Fund Doctrine the subscribed capital stock of the corporation is a trust fund for the payment of debts of the corporation which the creditors have the right to look up to satisfy their credits. Corporations may not dissipate this and the creditors may sue the stockholders directly for their unpaid subscriptions1. 8. Voting Shares1. a. Founders Shares given rights and privileges not enjoyed by owners of other stocks; right to vote/be voted in the election of directors shall not exceed 5 yearsNon-Voting Shares1. a. Preferred Shares issued only with par value; given preference in distribution of assets in liquidation and in payment of dividends and other preferences stated in the articles of incorporation2. b. Redeemable Shares expressly provided in articles; have to be purchased/taken up upon expiration of period of said shares purchased whether or not there is unrestricted retained earnings3. c. Treasury Stocks stocks previously issued and fully paid for and reacquired by the corporation through lawful means (purchase, donation, etc.)1. 9. Exceptions where holders of non-voting shares may vote:1. a. amendments of articles of incorporation2. b. adoption/amendment of by-laws3. c. increase/decrease of bonded indebtedness4. d. increase/decrease of capital stock5. e. sale/disposition of all/substantially all corporate property6. f. merger/consolidation of corporation7. g. investment of funds in another corporation/another business purpose8. h. corporate dissolution1. 10. Preferred Cumulative Participating Share of Stock share entitling its holder to preference in the payment of dividends ahead of common stockholders and to be paid the dividends ahead of common stockholders and to be paid the dividends due for prior years and to participate further with common stockholders in dividend declarations1. 11. Promotion Stock for Services Rendered Prior to Incorporation Escrow Stock stock deposited with a 3rd person to be delivered to stockholder/assignor after complying with certain conditions usually payment of full subscription price1. 12. Over-issued Stock stock issued in excess of authorized capital stock; null and void1. 13. Watered Stock stock issued gratuitously, money/property less than par value, services less than par value, dividends where no surplus profits exist1. 14. Certificate of Stock written acknowledgment by the corporation of the stockholders interest in the corporation. It is the personal property and may be mortgaged/pledged. Transfer binds the corporation when it is recorded in the corporate books. A stockholder who does not pay his subscription is not entitled to the issue of a stock certificate. The total par value of the stocks subscribed by him should first be paid.1. 15. Chattel mortgage of shares registered with the Registrar of Deeds need not be registered in corporate books to bind third parties because corporate books only cover absolute transfers. But the pledgee/mortgagee may not have voting rights unless stated in the contract and registered in the corporate name.1. 16. Methods of Collection of Unpaid Subscription1. a. call, delinquency and sale at public auction of delinquent shares2. b. ordinary civil action3. c. collection from cash dividends and other amounts due to stockholders if allowed by by-laws/agreed to by him1. 17. A corporation can reacquire stocks in the following cases:1. a. eliminate fractional shares2. b. corporate indebtedness arising from unpaid subscriptions3. c. purchase delinquent shares4. d. exercise of appraisal right1. 18. Right of Appraisal1. a. amending articles, changing, restricting, enlarging stockholders rights/extending, shortening corporate life2. b. sale/disposition of all/substantially all of corporate assets3. c. merger and consolidation4. d. investment of funds in another corporation/for a different purpose1. 19. Grounds for Rejection of Registration1. a. not in prescribed form2. b. purpose illegal, inimical3. c. treasurers affidavit false4. d. non-compliance with required Filipino stock ownership1. 20. Corporation must organize within 2 years from issuance of certificate of incorporation.How to organize?1. a. adoption of by-laws2. b. election of Board of Directors3. c. election of officersBut from issuance of certificate, it acquires juridical personality1. 21. Merger one corporation absorbs the other and remains in existence while the other is dissolved1. 22. Consolidation a new corporation is created and the consolidating corporations are extinguished1. 23. Theory of General Capacity a corporation is said to hold such powers as are not prohibited/withheld from it by general law1. 24. Theory of Special Capacity the corporation cannot exercise powers except those expressly/impliedly given1. 25. Concession Theory a group of persons wanting to create a corporation will have to execute documents and comply with requirements set by the state before being given corporate personality; merely a privilege; state may provide causes for which the privilege may be withdrawn1. 26. Acts requiring majority vote of stockholder:1. a. filing of issue value of no par value share2. b. adoption, amendment, repeal of by-laws3. c. compensation and other per diems for directors1. 27. Where similar acts have been approved by the directors as a matter of general practice, custom and policy, the general manager may bind the company even without formal authorization of the board of directors1. 28. Powers of stockholders:1. a. a direct participation in management where his vote is needed to approve certain corporate actions2. b. indirect participation in management to vote or remove directors3. c. proprietary rights4. d. remedial rights1. 29. Voting Trust Agreement an agreement between a group of stockholders and trustee for a term not exceeding 5 years in which control over the stocks is lodged in the trustee. The purpose is for controlling the voting.1. a. in writing, notarized and filed with the SEC and the corporation2. b. period not exceeding 5 years3. c. cannot be entered into to circumvent the laws against monopolies, illegal combinations in restraint of trade in fraud1. 30. Cumulative Voting the number of votes that a shareholders number of shares multiplied by the number of directors may give all said votes to one candidate or he may distribute them as he may deem fit. Cumulative voting is a matter of right in a stock corporation. In a non-stock corporation, it cannot be utilized unless allowed by the by-laws/articles1. 31. The power of removal of directors that may be exercised with or without cause cannot apply to the director representing the minority shareholders. He may only be removed with cause.1. 32. General Rule: If surplus profits exceed the requirements the corporation shall declare dividends. This is compulsory if the surplus is equal/or more than the paid-up capital.Exceptions:1. a. justified by approved expansion projects2. b. prohibited by creditor to declare dividends3. c. retention is necessary under existing circumstances1. 33. Business Judgment Rule decisions made by a corporations management body shall not be interfered with even by the courts unless such acts are oppressive/unconscionable as to violate the rights of the minority1. 34. Individual Suit one brought to assert a right of a stockholder peculiar to himself1. 35. Representative Suit brought by the stockholder in his own behalf and in behalf of other stockholders similarly situated, having common cause against the corporation1. 36. Derivative Suit brought by a stockholder for and in behalf of the corporation to protect/vindicate corporate rights after he has exhausted intra-corporate remediesRequisites:1. a. cause of action in favor of the corporation2. b. refusal of corporation to sue3. c. injury to the corporation Although corporations dissolved have 3 years to wind up, they can convey their properties to a trustee who can continue the suit beyond the 3 year period. The lawyer who handled the case in the trial court may be considered as trustee for the dissolved corporation with respect to the matter in litigation only even if no appointment was extended to him. (Selano vs. CA) In a case filed before dissolution, it may continue even beyond the 3 year period until final determination of litigation. Otherwise, the corporation in liquidation would lose what justly belongs to them/be exempt from payment of obligations because of a technicality.1. 37. Foreign Corporations1. a. Doing Business continuity of commercial dealings incident to prosecution of purpose and object of the organization. Isolated, occasional or casual transactions do not amount to engaging in business. But where the isolated act is not incidental/casual but indicates the foreign corporations intention to do other business, said single act constitutes engaging in business in the Philippines2. b. Instances when unlicensed foreign corporations can sue:(1) isolated transactions(2) action to protect good name, goodwill, and reputation of a foreign corporation(3) contracts provide that Phil. Courts will be venue to controversies(4) license subsequently granted enables foreign corporation to sue on contracts executed before the grant of the license(5) recovery of misdelivered property(6) where the unlicensed foreign corporation has a domestic corporation1. 38. Religious Corporations1. a. Corporation Sole special form of corporation; associated with the clergy and consists of 1 person only and his successors; incorporated by law giving them legal capacity and advantage2. b. Close Corporations one whose articles provide that its shares shall not be held by more than 20 persons; its issued stock shall be subject to one or more restrictions on transfer and shall not be listed in any stock exchange/make public offering3. c. Non-stock Corporation one where no part of its income is distributable to its members and shall be used in furtherance of the purpose of which it was organized1. 39. SEC Jurisdiction1. a. original and exclusive jurisdiction(1) fraudulent devices and schemes employed by directors detrimental to public interest(2) intra-corporate disputes and with the state in relation to their franchise and right to exist as such(3) controversies in the election, appointment of directors, trustees, etc.(4) petition to be declared in a state of suspension of payments1. b. Grounds for Suspension/Revocation of Certificate of Registration(1) fraud in procuring registration(2) serious misrepresentation as to objectives of corporation(3) refusal to comply with lawful order of SEC(4) continuousinoperation for at least 5 years(5) failure to file by-laws within the required period(6) failure to file reports(7) other similar grounds

Issuance of New Certificates of Stock in Lieu of Lost, Stolen or Destroyed Certificates:1. Filing of an affidavit in triplicate setting forth the circumstances as to how the relevant certificate/s were lost, stolen or destroyed. 2. Publication of notice in a newspaper of general circulation once a week for three consecutive weeks. 3. One year period within which any contest may be presented to the corporation. 4. Cancellation of the lost, stolen or destroyed certificates in the books of the corporation5. Issuance of new certificates.