ust golden notes 2011 - partnership and agency

PARTNERSHIP

PARTNERSHIP

331UNIVERSITYOFSANTOTOMASF a c u l t a d d e D e r e c h o C i v i l ACADEMICSCHAIR:LESTERJAYALANE.FLORESIIVICECHAIRSFORACADEMICS:KARENJOYG.SABUGO&JOHNHENRYC.MENDOZAVICECHAIRFORADMINISTRATIONANDFINANCE:JEANELLEC.LEEVICECHAIRSFORLAYOUTANDDESIGN:EARLLOUIEM.MASACAYAN&THEENAC.MARTINEZ

I.CONTRACTOFPARTNERSHIP

A.DEFINITIONQ:Whatispartnership?A:Acontractwherebytwoormorepersonsbindthemselves to contribute money, property, orindustrytoacommonfund,withtheintentionofdividingtheprofitsamongthemselves.Note: Two or more persons may also form apartnership for the exercise of a profession. (Art.1767,NCC)

B.ELEMENTSQ: What are the essential elements of apartnership?A:

1. Agreement to contribute money,propertyor industrytoacommonfund(mutual contribution to a commonstock);and

2. Intention to divide the profits amongthecontractingparties(joint interest intheprofits). (Evangelistav.CollectorofInternalRevenue,G.R.No. L9996,Oct.15,1987).

Q:Whataretherequisitesofapartnership?A:ICJ

1. Intentiontocreateapartnership2. Common fund obtained from

contributions3. Jointinterestindividingtheprofits(and

losses)Q:Whatarethecharacteristicsofapartnership?A:BONCCPP

1. Bilateral it is entered intoby twoormore persons and the rights andobligations arising therefrom arereciprocal

2. Onerouseachofthepartiesaspirestoprocure for himself a benefit throughthegivingofsomething

3. Nominate it has a special name ordesignationinourlaw

4. Consensual perfected by mereconsent

5. Commutativetheundertakingofeachof the partners is considered as theequivalentofthatoftheothers

6. Principal its life doesnot depend ontheexistenceofanothercontract

7. Preparatorybecauseitisenteredintoasameans toanend, i.e. toengage inbusiness

8. Fiduciary it is based on trust andconfidence

Q: Jose entered into a verbal agreementwithFranciscotoformapartnershipforthepurchaseofcascoesforaproposedboatrentalbusiness.ItwasagreedthatFranciscowouldbuythecascoesand each partner is to furnish such amount ofmoneyashecould,and that theprofitswillbedivided proportionately. After FranciscopurchasedacascowiththemoneyadvancedbyJose, they undertook to draft the articles ofpartnership and embody the same in anauthentic document. However, they did notcome to an agreement. So, Francisco returnedthemoney advanced by Jose,which the latterreceivedwith an express reservation of all hisrightsasapartner.

1. Was there a partnership formedbetweenJoseandFrancisco?

2. If such partnership existed, was itterminated by the receipt of Jose ofthemoneyheadvanced?

A:

1. Yes. Both elements in a contract ofpartnership exist: a) mutualcontributiontoacommonstock,andb)a joint interest in the profits. If thecontractcontainsthesetwoelements,apartnershiprelationresults,andthelawitself fixes the incidentsof this relationif theparties fail todoso. In thiscase,therewasmoneyfurnishedbyJoseandreceivedby Francisco for thepurchaseof the cascoes and there was also anintention to divide the profitsproportionately between them. Thus,there is a partnership by virtue of theverbal agreement between Jose andFrancisco.

2. No. There was no clear intent on thepartofJose,inacceptingthemoney,torelinquish his rights as a partner.(Fernandez v.DelaRosa,G.R.No. 413,Feb.2,1903)

Q: Chim was the owner and manager of alumberyard.VicenteandTingparticipatedintheprofitsand losses. Acontractofsawing lumberwas entered into by Chim, acting in his ownname,withFrank.Atthetimethecontractwas

UST GOLDEN NOTES 2011

made, they were the joint proprietors andoperatorsofthesaidlumberyardengagedinthepurchase and sale of lumber under the nameand style of Chim. In an action to recover thebalanceunderthecontractfiledbyFrankagainstChim, Vicente and Ting, the latter two allegedthat they are not Chims partners. Did Chim,VicenteandTingformapartnership?A: No. A simple business was formed by Chimexclusively in his own name and under hispersonal management and he effected everytransactioninhisnameandinthenamesofotherpersonsinterestedintheprofitsandlossesofthebusiness.Whathasbeenformed isanaccidentalpartnershipofcuentasenparticipacion.Note: Under the Code of Commerce, cuentas enparticipacion means a sort of an accidentalpartnership constituted in such a manner that itsexistence was only known to those who had aninterest in the same, there being no mutualagreement between the partners, and without acorporatenameindicatingtothepublicinsomewaythat therewereotherpeoplebesides theonewhoostensibly managed and conducted the business,governed under article 239 of the Code ofCommerce.(Bournsv.Carman,G.R.No.L2880,Dec.4,1906)

INTENTTOCREATEAPARTNERSHIP

Q:Henry and Lyons are engaged in real estatebusinessandarecoownersofaparcelof land.Henry,withtheconsentofLyons,mortgagedthepropertytoraisethefundssufficienttobuyanddeveloptheSanJuanEstate.Lyonsexpressedhisdesire not to be part of the developmentproject, but Henry, nevertheless, pursued thebusiness alone.When the business prospered,Lyonsdemanded fora share in thebusiness. IsLyonsentitledtothesharesinSanJuanEstate?

A:No.Lyonshimselfmanifestedhisdesirenottobe part of the development project. Thus, nopartnership was formed. The mortgage of theland was immaterial to the existence of thepartnership. It is clear thatHenry, inbuying theSan Juan Estate, was not acting for anypartnershipcomposedofhimselfandLyons,andthe law cannot be distorted into a propositionwhichwouldmakeLyonsaparticipantinthisdealcontrary to his express determination. (Lyons v.Rosenstock,G.R.No.35469,Mar.17,1932)

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Q: Catalino and Ceferino acquired a jointtenancy over a parcel of land under a verbalcontract of partnership. It was stipulated thateachofthesaidpurchasersshouldpayonehalf

ofthepriceandthatanequaldivisionshouldbemadebetweenthemofthelandthuspurchased.DespiteCatalinosdemand foranequaldivisionbetween them, Ceferino refused to do so andeven profited from the fruits of the land. Aretheypartnersorcoowners?

A:Theyarecoownersbecauseitdoesnotappearthattheyenteredintoanycontractofpartnershipbut only for the sole transaction of acquiringjointlyorbymutualagreementofthelandundertheconditionthattheywouldpayofthepriceofthelandandthatitbedividedequallybetweenthem. (Gallemitv.Tabiliran,G.R.No.5837,Sept.15,1911)

COMMONFUND

Q: May a partnership be formed even if thecommonfundiscomprisedentirelyofborrowedorloanedmoney?Whatwouldbetheliabilityofthepartnersinsuchacase?

A: Yes. A partnership may be deemed to existamong parties who agree to borrow money topursue a business and to divide the profits orlosses that may arise therefrom, even if it isshownthattheyhavenotcontributedanycapitalof their own to a "common fund." Theircontribution may be in the form of credit orindustry, not necessarily cash or fixed assets.Being partners, they are all liable for debtsincurredbyoronbehalfof thepartnership. (LimTong Lim v. Philippine Fishing Gear Industries,Inc.,G.R.No.136448,Nov.3,1999)

SHAREINPROFITSANDLOSSES

Q: Mariano and Isabelo entered into apartnership agreement wherein they are tocontribute P15,000 each for the purpose ofprinting 95,000 posters. Isabelowas unable toprintenoughposterspursuanttotheagreement,thus he executed in favor of Mariano apromissorynoteinanamountequivalenttotheunrealizedprofitduetoinsufficientprinting.Thewhole amount became due but Isabelodefaultedpayment. IsMarianoentitledtofileacasefortherecoveryoftheunrealizedprofitofthepartnership?

A:No.Theessenceofapartnershipistoshareinthe profits and losses, thus, Mariano shouldshoulderthelosseswithIsabelo.(MoranJr.,v.CA,G.R.No.L59956,Oct.31,1984)

Q: To form a lending business, itwas verballyagreedthatNoynoywouldactasfinancierwhileCoryandKriswouldtakechargeofsolicitationof

CIVILLAWTEAM:ADVISER:ATTY.ELMERT.RABUYA;SUBJECTHEAD:ALFREDOB.DIMAFELIXII;ASST.SUBJECTHEADS:KARENFELIZG.SUPNAD,LAMBERTOL.SANTOSIII;MEMBERS:PAULELBERTE.AMON,ALSTONANARNA,OZANJ.FULLEROS,CECILIOM.JIMENO,JR.,ISMAELSARANGAYA,JR.;CONTRIBUTORS:LOISERAEG.NAVAL,MONICAJUCOM

PARTNERSHIP

membersandcollectionof loanpayments.Theyagreed that Noynoywould receive 70% of theprofitswhileCoryandKriswouldearn15%each.Thepartiesexecutedthe'ArticlesofAgreement'whichformalizedtheirearlierverbalagreement.Later,NoynoyfiledacomplaintagainstCoryandKris formisappropriation of funds allegedly intheircapacitiesasNoynoysemployees. Intheiranswer, Cory and Kris asserted that theywerepartners and not mere employees of Noynoy.What kind of relationship existed between theparties?

A:Apartnershipwas formedamong theparties.The "Articles of Agreement" stipulated that thesignatoriesshallsharetheprofitsofthebusinessin a 701515manner, with Noynoy getting thelion's share. This stipulation clearly proved theestablishmentofapartnership.(Santosv.SpousesReyes,G.R.No.135813,Oct.25,2001)


Q:Joseconveyedhislotsinfavorofhisfoursonsinorder for them tobuild their residences.Hissons sold the lots since they found the lotsimpractical for residential purposes because ofhigh costsof construction. Theyderivedprofitsfrom the sale and paid income tax. The sonswere required topaycorporate income taxandincome tax deficiency, on the theory that theyformed an unregistered partnership or jointventuretaxableasacorporation.Didthesiblingsformapartnership?

A:No.Theoriginalpurposewastodividethelotsfor residentialpurposes. If later, they foundoutthat it isnotfeasibletobuildtheirresidencesonthe lots, they can dissolve the coownership byreselling said lots.Thedivisionon theprofitwasmerely incidental to the dissolution of the coownership which was in the nature of things atemporary state. (Obillos, Jr. v. CIR, G.R. No. L68118,Oct.29,1985)

C.RULESTODETERMINEEXISTENCE

Q:Whataretherulestodeterminetheexistenceofpartnership?A:

1. Personswhoarenotpartnersastoeachother are not partners as to thirdpersons.

2. Coownership/copossession does notofitselfestablishapartnership.

3. Sharing of gross returns does not ofitselfestablishapartnership.

4. Receipt of a person of a share in theprofitsisaprimafacieevidencethathe

is a partner, but notwhen received aspaymentfor:

a. Debtasinstallmentb. Wagesc. Annuityd. Interestinaloane. Considerationforthesaleofa

goodwill

Note: in subparagraphs a e, the profits in thebusinessarenotsharedasprofitsofapartnerasapartner, but in some other respects or for someotherpurpose.Q: Distinguish partnership from coownership/copossession.A:

PARTNERSHIPCOOWNERSHIP/COPOSSESSION

IntenttoderiveprofitsTheprofitsmustbederivedfromtheoperationofthe

businessorundertakingbythemembersoftheassociationandnotmerelyfromproperty

ownership.

Thecoownersshareintheprofitsderivedincidenttothejoint

ownership.

ExistenceoffiduciaryrelationshipThereisawelldefinedfiduciaryrelationshipbetweenthemas

partners.

Thereisnofiduciaryrelationshipbetween

theparties.

RemedyfordisputeTheremedyforadisputeordifferencebetween

themwouldbeanactionfordissolution,termination,and

accounting.

Theremedywouldbeanaction,asforinstance,fornonperformanceofa

contract.

IntentTheremustbean

unmistakableintentiontoformapartnership.

Thereisnointenttoformapartnership.

Q: A and B are coowners of an inheritedproperties.Theyagreedtousethesaidcommonpropertiesandtheincomederivedtherefromasa common fundwith the intention to produceprofitsfortheminproportiontotheirrespectiveshares in the inheritance as determined in aproject of partition.What is the effect of suchagreementontheexistingcoownership?A: The coownership is automatically convertedintoapartnership.Fromthemomentofpartition,A and B, as heirs, are entitled already to theirrespective definite shares of the estate and theincomethereof,foreachofthemtomanageand


dispose of as exclusively his own without theinterventionof theotherheirs,and,accordingly,hebecomes liable individuallyforallthetaxes inconnectiontherewith.If,aftersuchpartition,anheirallowshissharestobe held in common with his coheirs under asinglemanagementtobeusedwiththe intentofmakingprofit thereby inproportion tohisshare,therecanbenodoubtthat,evenifnodocumentorinstrumentwereexecutedforthepurpose,fortax purposes, at least, an unregisteredpartnership is formed. (Ona v. Commissioner ofInternalrevenue,45SCRA74[1972])Q:Whatarethetypicalincidentsofpartnership?A:

1. Thepartnersshareinprofitsandlosses.(Arts.1767,179798)

2. They have equal rights in themanagement and conduct of thepartnershipbusiness.(Art.1803)

334 CIVILLAWTEAM:ADVISER:ATTY.ELMERT.RABUYA;SUBJECTHEAD:ALFREDOB.DIMAFELIXII;ASST.SUBJECTHEADS:KARENFELIZG.SUPNAD,LAMBERTOL.SANTOSIII;MEMBERS:PAULELBERTE.AMON,ALSTONANARNA,OZANJ.FULLEROS,CECILIOM.JIMENO,JR.,ISMAELSARANGAYA,JR.;CONTRIBUTORS:LOISERAEG.NAVAL,MONICAJUCOM

3. Every partner is an agent ofpartnership, and entitled to bind theother partners by his acts, for thepurposeofitsbusiness.(Art.1818)

4. Allpartnersarepersonallyliableforthedebts of the partnership with theirseparateproperty(Arts.1816,182224)exceptlimitedpartners.

5. A fiduciary relationship exists betweenthepartners.(Art.1807)

6. On dissolution, the partnership is notterminated, but continues until thewindingupofpartnershipiscompleted.(Art1828)

Q:What are the rules regardingdistributionofprofitsandlosses?A:

1. Distributionofprofitsa. Thepartnersshareintheprofits

accordingtotheiragreementb. Intheabsenceofsuch:

i. Capitalistpartnerinproportiontohiscontribution

ii. Industrialpartnerwhatisjustandequitableunderthecircumstances

2. Distributionoflossesa. The partners share in the losses

accordingtotheiragreementb. In the absence of such, according

totheiragreementastoprofits

c. In the absence of profitagreement, in proportion to hiscapitalcontribution

Q:Whatistheruleregardingastipulationwhichexcludesapartner in the sharingofprofitsandlosses?A:

GR:Stipulationisvoid.XPN: Industrialpartner isnot liablefor losses[Art. 1797(2), NCC]. However, he is notexempted from liability insofar as thirdpersonsareconcerned.Note:LossisdifferentfromliabilityIf,besideshisservicesthe industrialpartnerhascontributedcapital,heshallalsoreceiveashareintheprofitsinproportiontohiscapital.

D.HOWPARTNERSHIPISFORMEDQ:Howarepartnershipsformed?A: It is created by agreement of the parties(consensual).Note: There is no such thing as a partnershipcreatedby laworbyoperationor implicationoflaw alone. (De Leon, Comments and cases onPartnership,AgencyandTrust,p.13,2005ed.Q: What are the formalities needed for thecreationofapartnership?A:

GR:Nospecialformisrequiredforitsvalidityorexistence.(Art.1771,NCC)XPN: If property or real rights have beencontributedtothepartnership:1. Personalproperty

a. LessthanP3,000maybeoralb. P3,000ormoremustbe:

i. inapublicinstrument;andii. registered with SEC (Art.

1772,NCC)Note: Even if thepartnershipisnotregisteredwithSEC,thepartnership is still valid andpossesses a distinctpersonality (Paras, Civil Codeof the Philippines Annotated,Volume5,p.412,19696thed)

2. Realpropertyorrealrightsmustbe:

PARTNERSHIP

a. in a public instrument (Art. 1771,NCC)

b. withaninventoryofsaidpropertyi. signedbythepartiesii. attached to the public

instrument(Art.1773,NCC)

Note: Everything must becomplied with; otherwise,partnershipisvoidandhasnojuridical personality even asbetween the parties (Art.1773,NCC)

iii. registered in the Registry ofProperty of the province,where the real property isfound to bind third persons(Paras,p.412)

3. Limited partnership must beregisteredassuchwithSEC,otherwise,it is not valid as a limited partnershipbut may still be considered a generalpartnership with juridical personality(Paras, Civil Code of the PhilippinesAnnotated,Volume 5, p. 412, 1969 6thed)

Q: If the requirements under Art. 1773, asregards contribution of real property to apartnership,hasnotbeencompliedwith,whatisthestatusofthepartnership?

A: It is void. Nonetheless, a void partnershipunderArt.1773,inrelationtoArt.1771NCC,maystill be considered by the courts as an ordinarycontract as regards the parties thereto fromwhichrightsandobligationstoeachothermaybeinferred and enforced. (Torres v. CA, G.R. No.134559,Dec.91999)

Note:Torresv.CAdoesnotinvolvethirdpersons.

Q: What must be done in order that thepartnership may be effective as against thirdpersons whenever immovable property iscontributed?


A:Tobeeffectiveagainst3rdparties,partnershipmustberegistered in theRegistryofPropertyoftheprovincewheretherealpropertycontributedislocated.(Art.1771,NCC)

Q:Cantherebeapartnershipbasedonaverbalagreement, andwithout such agreement beingregisteredwithSEC?

A: Yes. Article 1772 NCC requires thatpartnerships with a capital of P3,000 or more

mustregisterwithSEC.However,thisregistrationrequirement isnotmandatory.Article1768NCCexplicitlyprovidesthatthepartnershipretains itsjuridicalpersonalityevenifitfailstoregister.Thefailure to register the contract of partnershipdoes not invalidate the same as among thepartners,solongasthecontracthastheessentialrequisites, because the main purpose ofregistrationistogivenoticetothirdparties,anditcan be assumed that the members themselvesknew of the contents of their contract. Noncompliance with this directory provision of thelawwillnotinvalidatethepartnership.

A partnership may be constituted in any form,exceptwhere immovable property of real rightsare contributed thereto, in which case a publicinstrument shall be necessary.Hence, based onthe intentionof theparties,averbal contractofpartnershipmayarise.(SungaChanv.Chua,G.R.No.143340,Aug.15,2001)

Note:Registration ismerely for administration andlicensing purposes; hence, it shall not affect theliabilityofthepartnershipandthemembersthereoftothirdpersons.[Art.1772,(2),NCC]

Q: A partnership was entered into betweenMauricio and Severino to operate a fishpond.Neitherpartnercontributedafishpondorarealright over any fish pond. Their capitalcontributions were in cash in the amount ofP1,000each.Whilethepartnershipcontractwasdoneinapublicinstrument,noinventoryofthefishpondtobeoperatedwasattachedinthesaidinstrument. Is there a valid contract ofpartnership?

A: Yes. There is a valid contract of partnershipdespitethe lackof inventory.Thepurposeofthepartnership was not to engage in the fishpondbusinessbut tooperatea fishpond.Neither saidfishpond nor a real right to any fish pond wascontributedtothepartnershiporbecomepartofthecapital thereof. (Agadv.Mabato,G.R.No.L24193,June28,1968)

E.PARTNERSHIPTERM

Q:Whatisapartnershipwithafixedterm?A:Itisoneinwhichthetermofitsexistencehasbeenagreeduponbythepartnerseither:

1. Expresslythereisadefiniteperiod2. Impliedly a particular enterprise or

transactionisundertakenNote:Themereexpectationthatthebusinesswouldbesuccessfulandthatthepartnerswouldbeableto


recouptheir investment isnotsufficienttocreateapartnershipforaterm.Q: Can the partners fix any term in thepartnershipcontract?A: Yes. The partners shall be bound to remainundersuchrelationforthedurationoftheterm.Q:What is the effectwhen the fixed termhasexpired?A: The expiration of the term fixed or theaccomplishment of the particular undertakingspecifiedwill cause the automaticdissolution ofthepartnership.Q:Whendoesapartnershipcommencetoexist?

A: A partnership commences from the time ofexecutionof the contract if there isno contrarystipulation as to the date of effectivity of thesame.

NOTE:Registration toSEC isnotessential togive itjuridicalpersonality.

There isno time limitprescribedby law for thelifeofapartnership.

Q:Whatisafuturepartnership?

A: It isakindofpartnershipwhere thepartnersmay stipulate some other date for thecommencementofthepartnership.Personswhoenter into a future partnership do not becomepartners until or unless the agreed time hasarrivedorthecontingencyhashappened.

NOTE: It is a partnership created by impliedagreement, the continued existence of which willdependupon themutualdesireandconsentof thepartners.

Q:Whenisapartnershipatwillterminate?

A: Itmaybe lawfully terminated atany timebytheexpresswillofallthepartnersoranyofthem.

Q:Howisapartnershipatwilldissolved?

A: Any one of the partners may dictate adissolutionofapartnershipatwill.

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Note: The partner who wants the partnershipdissolved must do so in good faith, not that theattendanceofbad faithcanprevent thedissolutionof the partnership, but to avoid the liability fordamagestootherpartners.

CLASSIFICATIONSOFPARTNERSHIP

Q:Statetheclassificationsofpartnership.A:Asto:

1. Objecta. Universalpartnership

i. of all present property (Art.1778, NCC) comprises thefollowing: propertywhichbelonged

toeachofthepartnersatthe time of theconstitution of thepartnership

profits which they mayacquirefromallpropertycontributed

ii. ofallprofits(Art.1780,NCC)comprises all that thepartnersmayacquirebytheirindustry or work during theexistenceofthepartnership

b. Particular partnership It is onewhich has for its object,determinate things, their use andfruits,ora specificundertakingorthe exercise of a profession or avocation.(Art.1783,NCC)

2. Liabilityofpartnersa. General partnership One where

all partners are general partnerswhoareliableevenwithrespecttotheir individual properties, aftertheassetsof thepartnershiphavebeenexhausted(Paras,p.411)

b. LimitedpartnershipOne formedby 2 or more persons having asmembers one or more generalpartners and one ormore limitedpartners, the latter not beingpersonallyliablefortheobligationsofthepartnership.

3. Durationa. Partnership at will Partnership

for a particular undertaking orventurewhichmaybe terminatedanytimebymutualagreement.

b. Partnership with a fixed period Thetermforwhichthepartnershipis toexist is fixedor agreeduponor one formed for a particularundertaking.

4. Legalityofexistencea. Dejurepartnershipb. Defactopartnership


PARTNERSHIP

5. Representationtoothersa. Ordinaryorrealpartnershipb. Ostensible or partnership by

estoppel When two or morepersons attempt to create apartnershipbutfailtocomplywiththelegalpersonalitiesessentialforjuridical personality, the lawconsiders them as partners, andthe association is a partnershipinsofar as it is favorable to thirdpersons,byreasonoftheequitableprinciple of estoppel (MacDonaldet. al. v. Natl. City Bank of NewYork, G.R. No. L7991, May 21,1956)

6. Publicitya. Secret partnership Partnership

thatisnotknowntomanybutonlyastoitspartners.

b. Notoriousoropenpartnership Itisknownnotonly to thepartners,buttothepublicaswell.

7. Purposea. Commercial or trading One

formed for the transaction ofbusiness.

b. Professional or nontrading One

formed for the exercise of aprofession

Q:WhatarethedifferentkindsofpartnershipundertheSpanishCivilCode?A:

1. Sociedad Anonima similar toanonymouspartnership

2. SociedadColectivawhichisgeneralorcollectivepartnership

3. SociedaddeCuentasenParticipacionjointaccountpartnership

4. SociedadMercantileRegularColectivamercantilepartnershipcompany

5. SociedadLeonilapartnershipbywhichtheentireprofitsshouldbelongtosomeofthepartnersinexclusionoftherest

Q:Whomaybepartners?A:

GR:Any person capacitated to contractmayenterintoacontractofpartnership.

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XPNs:1. Personswhoareprohibitedfromgiving

each other any donation or advantage

cannot enter into a universalpartnership.(Art.1782,NCC)

2. Personssufferingfromcivilinterdiction3. Personswho cannot give consent to a

contract:a. Minorsb. Insanepersonsc. Deafmuteswhodonotknowhow

towriteQ:Whatistheprincipleofdelectuspersonae?A:Thisreferstotherulethatisinherentineverypartnership, thatnoone canbecomeamemberof the partnership association without theconsentofallthepartners.Note:Evenifapartnerwillassociateanotherpersonin his share in the partnership, the associate shallnot be admitted into the partnership without theconsent of all the partners, even if the partnerhavinganassociateshouldbeamanager(Art.1804,NCC).Q:May a corporation enter into a partnershipwithanothercorporation?A:As a rule, it is illegal for two corporations toenter into a partnership. Nevertheless, acorporationmay enter into a joint venturewithanotherifthenatureoftheventureisinlinewiththebusinessauthorizedby itscharter.(Tuasonv.Bolaos,G.R.No.L4935,May28,1954)Q:Whatarethedifferentkindsofpartners?A:

1. CapitalistContributesmoneyorpropertytothecommonfund

2. Industrial Contributes only hisindustryorpersonalservice

3. General One whose liability to 3rdpersons extends to his separate orpersonalproperty

4. Limited One whose liability to 3rdpersons is limited to his capitalcontribution

5. Managing Manages the affairs orbusinessofthepartnership

6. Liquidating Takes charge of thewinding up of partnership affairs upondissolution

7. Partner by estoppel Is not really apartnerbutisliableasapartnerfortheprotectionofinnocent3rdpersons

8. Continuing partner Continues thebusiness of a partnership after it hasbeen dissolved by reason of theadmissionofanewpartner,retirement,

UNIVERSITYOFSANTOTOMASF a c u l t a d d e D e r e c h o C i v i l

ACADEMICSCHAIR:LESTERJAYALANE.FLORESIIVICECHAIRSFORACADEMICS:KARENJOYG.SABUGO&JOHNHENRYC.MENDOZAVICECHAIRFORADMINISTRATIONANDFINANCE:JEANELLEC.LEEVICECHAIRSFORLAYOUTANDDESIGN:EARLLOUIEM.MASACAYAN&THEENAC.MARTINEZ


death or expulsion of one of thepartners

9. Surviving partner Remains after apartnership has been dissolved bydeathofanypartner


10. Subpartner Is not amember of thepartnership; contracts with a partnerwith reference to the latter's share inthepartnership

11. Ostensible Takes active part andknown to the public as partner in thebusiness

12. Secret Takes active part in thebusiness but is not known to be apartnerbyoutsideparties

13. SilentDoesnottakeanyactivepartinthebusinessalthoughhemaybeknowntobeapartner

14. DormantDoesnottakeactivepart inthebusiness and isnot knownorheldoutasapartner

Q:Whataretherelationscreatedbyacontractofpartnership?A:

1. PartnersPartners2. PartnersPartnership3. Partnership3rd persons with whom it

contracts4. Partners3rd persons with whom

partnershipcontracts.F.UNIVERSALVS.PARTICULAR;

GENERALVS.LIMITED

UNIVERSALPARTNERSHIPQ: Distinguish the classes of universalpartnership.A:ALLPROFITS ALLPRESENTPROPERTY

WhatconstitutescommonpropertyOnlyusufructofthepropertiesofthepartners

becomecommonproperty

Allpropertiesactuallybelongingtothepartnersarecontributedtheybecome

commonproperty(ownedbyallofthepartners

andthepartnership)Astoprofitsascommonproperty

Allprofitsacquiredbytheindustryofthe

partnersbecomecommonproperty(whetherornot

theywereobtainedthrough

Astoprofitsfromothersources:GR:Asidefromthecontributedproperties,theprofitsofsaidpropertybecomecommon

property

XPN:Profitsfromothersourcesmaybecomecommon

theusufructcontributed)

ifthereisastipulationtosucheffect

Astopropertiessubsequentlyacquired:

GR: Propertiessubsequentlyacquiredbyinheritance,legacyordonation,cannotbeincluded

inthestipulation

XPN:Onlyfruitsthereofcanbeincludedinthestipulation(Art.

1779,NCC)Q: IftheArticlesofUniversalPartnershipfailtospecifywhether it isoneofallpresentpropertyorofprofits,whatshallbethenatureofsuch?A:ArticlesofUniversalPartnership entered intowithout specification of its nature onlyconstitutesauniversalpartnershipofprofits(Art.1781,NCC),because it imposeslesserobligationson the partners, since they preserve theownershipoftheirseparateproperty.

PARTICULARPARTNERSHIPQ:Whatisparticularpartnership?A: It isonewhichhas for itsobject,determinatethings, their use and fruits, or a specificundertakingor theexerciseof aprofessionor avocation.(Art.1783,NCC)Q:J,PandBformedalimitedpartnershipcalledSuter Co.,with P as the general partner and Jand B as limited partners. J and B contributedP18,000andP20,000respectively.Later,JandBgot married and P sold his share of thepartnership to the spouseswhichwas recordedin the SEC. Has the limited partnership beendissolvedbyreasonofthemarriagebetweenthelimitedpartners?A: No. The partnership is not a universal but aparticular one. As provided by law, a universalpartnershiprequireseitherthattheobjectoftheassociation must be all present property of thepartners as contributed by them to a commonfund,orallelsethatthepartnersmayacquirebytheir industry or work. Here, the contributionswere fixed sums of money and neither one ofthemwere industrial partners. Thus, the firm isnot a partnership which the spouses areforbiddentoenterinto.Thesubsequentmarriagecannotoperatetodissolveitbecauseitisnotoneof the causes provided by law. The capitalcontributions were owned separately by thembefore their marriage and shall remain to beseparate under the Spanish Civil Code. Their

PARTNERSHIP

339UNIVERSITYOFSANTOTOMASF a c u l t a d d e D e r e c h o C i v i l


individual interest did not become commonproperty after their marriage. (Commissioner ofInternalRevenuev.Suter,G.R.No.L25532,Feb.28,1969)Q:Whendoesapartnerbindthepartnership?A:

1. When he is expressly or impliedlyauthorized

2. Whenheactsinbehalfandinthenameofthepartnership

GENERALPARTNERSHIP

Q:Whatisgeneralpartnership?A: One where all partners are general partnerswho are liable even with respect to theirindividual properties, after the assets of thepartnership have been exhausted (Paras, CivilCode of the PhilippinesAnnotated,Volume 5, p.411,19696thed)

Q:Whoisageneralpartner?A:Onewhoseliabilitytothirdpersonsextendstohis separate property; he may be either acapitalist or an industrial partner. (De Leon,CommentsandCasesonPartnership,Agency,andTrust,p.77,2005ed)Q:Whataretheobligationsofapartner?A:

1. Obligationsamongthemselves2. Obligationstothirdpersons

Q:Whatisthebasisforsuchobligations?A: These obligations are based on trust andconfidence of the partners since partnership isgrounded on the fiduciary relationship of thepartnersandaswelltothirdpersons.

Q:Whatarethedistinctionsbetweenageneralandalimitedpartner/partnership?A:

GENERAL LIMITEDExtentofLiability

Personallyliableforpartnershipobligations Liabilityextendsonly tohiscapitalcontributionsRightinManagement

Whenmannerofmanagementisnotagreedupon,allgeneralpartnershaveanequalrightinthe

managementofthebusinessNoparticipationinmanagement

ContributionContributecash,propertyorindustry Contributecashorpropertyonly,notindustry

IfProperPartyto ProceedingsByorAgainstPartnership

Properpartytoproceedingsby/againstpartnership

Not proper party to proceedings by/against partnership,unless:1. Heisalsoageneralpartner;or2. Where the object of the proceeding is to enforce a

limitedpartnersrightorliabilitytothepartnershipAssignmentofInterest

Interestisnotassignablewithoutconsentofotherpartners

Interestisfreelyassignable

FirmName

Namemayappearinfirmname

GR: Namemustnot appearinfirmname

XPNs:1. Itisalsothesurnameofageneralpartner;2. Prior to the time when the limited partner became

such,thebusinesshadbeencarriedonunderanameinwhichhissurnameappeared.

ProhibitiontoEngageinOtherBusinessProhibitedinengaginginbusiness Noprohibition againstengaginginbusiness

EffectofDeath,Insolvency,Retirement,InsanityRetirement,death,insolvency,insanityofgeneral

partnerdissolvespartnershipDoesnothavesameeffect;rightsaretransferredtolegal

representativeCreation

Asarule,itmaybeconstitutedinanyform,by Createdbythemembersaftersubstantialcompliancein


contractorconductofthepartnership goodfaithoftherequirementssetforthbylawComposition/Membership

ComposedonlyofgeneralpartnersComposedofoneormoregeneralpartnersandoneor

morelimitedpartners


G.PARTNERSHIPBYESTOPPELQ:Whoisapartnerbyestoppel?A:Onewho,bywordsorconductdoesanyofthefollowing:

1. Directlyrepresentshimselftoanyoneasapartnerinanexistingpartnershiporinanonexistingpartnership

2. Indirectly represents himself byconsentingtoanotherrepresentinghimas a partner in an existing partnershiporinanonexistingpartnership

Q:Whatare theelementsbeforeapartnercanbeheldliableonthegroundofestoppel?A:

1. Defendant represented himself aspartner or is represented by others assuch, and did not deny/refute suchrepresentation.

2. Plaintiffreliedonsuchrepresentation.3. Statementofdefendantisnotrefuted.

Q:Whataretheliabilitiesincaseofestoppel?A:

WhenPartnershipisLiable

Ifallactualpartnersconsentedtotherepresentation,thentheliabilityofthepersonwho

representedhimselftobeapartnerorwhoconsentedtosuchrepresentationandtheactual

partnerisconsideredapartnershipliability

WhenLiabilityisPRORATA

When there isnoexistingpartnershipandall thoserepresented as partners consented to therepresentation, then the liabilityof thepersonwhorepresented himself to be a partner and all whomadeandconsentedtosuchrepresentation,isjointorprorata

WhenLiabilityisSEPARATE

Whenthereisnoexistingpartnershipandnotallbutonly some of those represented as partnersconsented to the representation, or none of thepartnership inanexistingpartnership consented tosuch representation, then the liability will beseparate

H.PARTNERSHIPV.JOINTVENTUREQ:Whatisajointventure?A:Anassociationofpersonsorcompaniesjointlyundertaking some commercial enterprise;generally,allcontributesassetsandsharerisks.Itrequires a community of interest in theperformance of the subject matter, a right todirect and govern the policy in connectiontherewith, and a dutywhichmay be altered byagreementtosharebothinprofitsandlosses.

Partnership JointVentureTransactionsenteredinto

Thedurationofapartnershipgenerallyrelatestoacontinuingbusinessofvarious

transactionsofacertainkind.

Limitedtotheperiodinwhichthegoodsaresoldortheprojectiscarriedonorasingle

transaction.

NaturePermanent,partnersareinterestedincarryingontogetherofageneralandcontinuingbusinessofa

particularkind.

Note:Aparticularpartnershiphasalimitedandtemporaryoradhocnature,beingconfinedtoasingleundertaking.

Temporary,althoughitmaycontinueforanumberofyears.

FirmNameandLiablitiesTheremustbea

partnershiporfirmnameunderwhichthe

partnershipshalloperate.Thenamesofthe

partnersmayappearinthefirmnameandtheactofthepartnerswillmakethepartnership

liable.

Afirmnameisnotnecessary,thustheparticipatingpersonscantransactbusinessundertheirownnameandcanbeindividually

liabletherefore.

CorporationaspartnerCorporationcannotenter

intoapartnershipcontract,thusitcannotbeapartnerbyreasonofpublicpolicy;otherwisepeopleotherthanitsofficersmaybeabletobindit(Albano,CivilLaw

Corporationscanengageinajoint

venturewithothersthroughacontractof

agreementifthenatureoftheventureinline

withthebusinessofthecorporationanditis

PARTNERSHIP

Reviewer,1998,p.570) authorizedinitscharter.

LegalPersonalityA partnership acquirespersonality afterfollowing the requisitesrequiredby law.e.g.Art.17711773,NCCNote: SEC registration isnot required before apartnershipacquireslegalpersonality. (Art. 1768,NCC)

Ajointventurehasnolegalpersonality.


I.PROFESSIONALPARTNERSHIPQ:Whatisaprofessionalpartnership?A: It is apartnership formedbypersons for thesole purpose of exercising their commonprofession, no part of the income of which isderivedfromengaginginanytradeorbusiness.Q:Inaprofessionalpartnership,whoisdeemedengagedinthepracticeofprofession?A: It is the individual partners and not thepartnership. Thus, they are responsible for theirownacts.Q: What is prohibited in the formation of aprofessionalpartnership?A:Partnershipbetween lawyersandmembersofother profession or nonprofessional personsshould not be formed or permitted where anypartofthepartnershipsemploymentconsistsofthe practice of law. (Canons of ProfessionalEthics)Q:Whatarethecharacteristicsofapartnershipforthepracticeoflaw?A:

a. A duty of public service, of which theemolumentisabyproduct

b. Arelationasanofficerofcourttotheadministrationofjustice

c. A relation to clients in the highestfiduciarydegree

d. A relationship to colleagues at the barcharacterized by candor, fairness, andunwillingness to resort to currentbusiness methods of advertising andencroachment on their practice, ordealingwiththeirclients.(IntheMatter

ofPetitionforAuthoritytoContinueUseof Firm Name Sycip, Salazar, etc. /Ozeata Romulo, etc., 92 SCRA 1[1979], citingH.S.Drinker, Legal Ethics[1953],pp45.)

Q: What is prohibited in the firm name of apartnershipforthepracticeoflaw?A:Intheselectionanduseoffirmname,nofalse,misleading, assumed, or trade names should beused.(CanonsofProfessionalEthics)

J.MANAGEMENTOFTHEPARTNERSHIPQ: What are the modes of appointment of amanager?A:Appointmentthrough

theArticlesofPartnership

AppointmentOtherThanintheArticles

Powerisirrevocablewithoutjustorlawful

cause

Note:Voterequiredforremovalofmanager

1. For just cause Vote of thecontrollingpartners(controllingfinancialinterest)

2. Without cause orfor unjust cause Unanimousvote

Powertoactisrevocableanytime,withorwithoutcause(shouldbedonebythecontrollinginterest)

ExtentofPower1. If he acts in good

faith,hemaydoallacts ofadministration(despiteopposition of hispartners)

2. If he acts in badfaith,hecannot

Aslongasheisamanager,hecanperformallactsofadministration(ifothersoppose,hecan

beremoved)


342 CIVILLAWTEAM:ADVISER:ATTY.ELMERT.RABUYA;SUBJECTHEAD:ALFREDOB.DIMAFELIXII;

ASST.SUBJECTHEADS:KARENFELIZG.SUPNAD,LAMBERTOL.SANTOSIII;MEMBERS:PAULELBERTE.AMON,ALSTONANARNA,OZANJ.FULLEROS,CECILIOM.JIMENO,JR.,ISMAELSARANGAYA,JR.;CONTRIBUTORS:LOISERAEG.NAVAL,MONICAJUCOM

Q:Whatistherulewheretherearetwoormoremanagers?A:Withoutspecificationoftheirrespectivedutiesandwithoutstipulationrequiringunanimityof

actionGR: Eachmay separately execute all acts ofadministration (unlimited power toadminister)

XPN:Ifanyofthemanagersopposes,decisionofthemajorityprevails

Note:IncaseoftieDecisionofthecontrollinginterest(whoarealsomanagers)shallprevail

Nature

GR:Unanimousconsentofallthemanagingpartnersshallbenecessaryforthevalidityoftheactsandabsenceorinabilityofanymanaging

partnercannotbealleged.

XPN:Wherethereisanimminentdangerofgraveorirreparableinjurytothepartnership.

Q: What is the rule when the manner ofmanagementhasnotbeenagreedupon?A:

1. All partners shall be consideredmanagersandagents

2. Unanimous consent is required foralterationofimmovableproperty

Q:AzucenaandPedroacquiredaparcelof landandabuilding.AzucenaobtainedaloanfromTaiTong Co., secured by a mortgage which wasexecuted over the land and building. Arsenio,representative of Tai Tong, insured it withTravellers Multi Indemnity Corporation. Thebuildingandthecontentsthereofwererazedbyfire. Travellers failed to pay the insurance.Hence, Azucena and Pedro filed a case againstTravellerswhereinTaiTong intervenedclaimingentitlement to the proceeds from Travellers.Whoisentitledtotheproceedsofthepolicy?A:TaiToingisentitledtotheinsuranceproceeds.Arseniocontractedtheinsurancepolicyonbehalfof Tai Tong. As the managing partner of thepartnership, he may execute all acts ofadministration including the right to suedebtorsof thepartnership in caseof their failure topaytheir obligations when it became due anddemandable.Or at the very least, Arsenio is anagent of the partnership. Being an agent, it isunderstoodthatheactedforandinbehalfofthe

firm. (Tai Tong Chuache & Co. v. InsuranceCommissioner,G.R.No.L55397,Feb.29,1988)Note:Ifrefusalofpartnerismanifestlyprejudicialtotheinterestofpartnership,courtsinterventionmaybesought.Q: What are the remedies available to thecreditorsofapartner?A:

1. Separate or individual creditors shouldfirst securea judgmenton their credit;and

2. Applytothepropercourtforachargingorder subjecting the interest of thedebtorpartner in the partnership forthepaymentoftheunsatisfiedamountof the judgment debt with interestthereon.

PARTNERSHIP

Q:Whataretheeffectsoftheactsofpartners?A:

ACTSOFAPARTNER EFFECT

Actsforapparentlycarryingonintheusualwaythebusinessofthepartnership

Withbindingeffectexcept:1. Whenthepartnersoactinghasinfactnoauthorityto

actforthepartnershipintheparticularmatter,and2. Thepersonwithwhomheisdealinghasknowledgeof

thefactthathehasnosuchauthority

ActsnotintheordinarycourseofbusinessDonotbind partnershipunlessauthorizedbyother

partners(par.2,Art.1818,NCC)Actsofstrictdominionorownership:

1. Assigning partnership property in trust forcreditors;

2. Disposingofgoodwillofbusiness;3. Doinganactwhichwouldmake it impossibleto

carryontheordinarybusinessofpartnership;4. Confessingajudgment;5. Entering into a compromise concerning a

partnershipclaimorliability;6. Submitting partnership claim or liability to

arbitration;7. Renouncingclaimofpartnership

GR:Oneormorebutlessthanallthepartnershavenoauthority

XPNs:

1. authorizedbytheotherpartners;or

2. p3. artners have abandoned the business (par. 2, Art.

1818,NCC)

ActsincontraventionofarestrictiononauthorityPartnershipisnotliable to3rdpersonshavingactualor

presumptiveknowledgeoftherestrictionQ:Whatistheeffectofconveyanceofarealproperty?A:

343

TYPEOFCONVEYANCE EFFECT

Titleinthepartnershipsname;Conveyanceinpartnershipname

Conveyancepassestitlebutpartnershipcanrecoverunless:

1. a. Conveyancewasdoneintheusualwayofbusiness,andb. Thepartner so actinghas the authority to act for the

partnership;or2. Thepropertywhichhasbeenconveyedby thegranteeora

person claiming through such grantee to aholder for valuewithout knowledge that the partner, in making theconveyance,hasexceededhisauthority

Titleinthepartnershipsname;Conveyanceinpartner'sname

Conveyancedoesnotpasstitlebutonlyequitableinterest,provided:

1. Conveyancewasdoneintheusualwayofbusiness,or2. The partner so acting has the authority to act for the

partnership

Titleinthenameof1ormorepartners,andtherecorddoesnotdisclosetherightofthe

partnership;Conveyanceinnameofpartner/sinwhosenametitlestands

Conveyancepassestitlebutthepartnershipmayrecoversuchpropertyifthepartnersactdoesnotbindthepartnership:

1. The partner so acting has no authority to act for thepartnership,and

2. Thepersonwithwhomhe isdealinghasknowledgeof thefact unless the purchaser of his assignee, is a holder forvalue,withoutknowledge

Titleinnameof1ormoreorallpartnersor3rdpersonintrustforpartnership;

Conveyanceexecutedinpartnershipnameorinnameofpartners

Conveyancewillonlypassequitableinterest,provided:1. Theactisonewithintheauthorityofthepartner,and2. Conveyancewasdoneintheusualwayofthebusiness

Titleinthenamesofallthepartners;Conveyanceexecutedbyallthepartners

Conveyancewillpassalltherightsinsuchproperty





II.RIGHTSANDOBLIGATIONSOFPARTNERSHIPQ:Whataretheresponsibilitiesofapartnershiptopartners?A:

1. Refund the amounts disbursed bypartnerinbehalfofthepartnershippluscorresponding interest from the timetheexpensesaremade (e.g. loansandadvances made by a partner to thepartnership aside from capitalcontribution)

2. Answer for obligations a partner mayhave contracted in good faith in theinterestofthepartnershipbusiness

3. Answer for risks in consequence of itsmanagement(Art.1796)

III.RIGHTSANDOBLIGATIONSOFPARTNERSAMONGTHEMSELVES

Q:Whatare theobligationsofpartnersamongthemselves?A:

1. Contributionofproperty(Art.1786)2. Contribution of money and money

convertedtopersonaluse(Art.1788)3. Prohibition in engaging in business for

himself(Art.1789)4. Contributeadditionalcapital(Art.1791)5. Managing partner who collects debt

(Art.1792)6. Partner who receives share of

partnershipcredit(Art.1793)7. Damagestopartnership(Art.1794)8. Renderinformation(Art.1806)9. Accountableasfiduciary(Art.1807)

CONTRIBUTIONOFPROPERTY

Q: What are the obligations of partners withrespecttocontributionofproperty?A:ToCAFPI

1. Contribute at the beginning of thepartnership, or at the stipulated time,themoney,propertyor industrywhichhemayhavepromisedtocontribute

2. Answer for eviction in case thepartnership is deprived of thedeterminatepropertycontributed

3. AnswertothepartnershipfortheFruitsof the property the contribution ofwhich he delayed, from the date they

shouldhavebeencontributeduptothetimeofactualdelivery

4. Preserve said property with thediligence of a good father of a family,pendingdeliverytothepartnership

5. Indemnify the partnership for anydamagecausedtoitbytheretentionofthe same or by the delay in itscontribution

Q: Who bears the risk of loss of thingscontributed?A:

KINDOFPROPERTY/THINGWHOBEARSTHE

RISK?

Specificanddeterminatethingswhicharenotfungiblewhereonlytheuseiscontributed

partners

Specificanddeterminatethingstheownershipofwhichis

transferredtothepartnership

partnershipFungiblethings(Consumable)

Thingscontributedtobesold

Thingsbroughtandappraisedintheinventory

Q: What is the effect if a partner fails tocontribute the propertywhich he promised todelivertothepartnership?A:

1. Partners become ipso jure a debtor ofthepartnershipeven in theabsenceofanydemand(Art.1786,NCC)

2. Remedy of the other partner is notrescissionbutspecificperformancewithdamagesfromdefaultingpartner

CONTRIBUTIONOFMONEYANDMONEY

CONVERTEDTOPERSONALUSEQ:Whataretherulesregardingcontributionofmoneytothepartnership?A:CRIP

1. To Contribute on the date fixed theamount thepartnerhasundertaken tocontributetothepartnership

2. To Reimburse any amount the partnermay have taken from the partnershipcoffersandconvertedtohisownuse

3. To Indemnify the partnership for thedamages caused to it by delay in the

PARTNERSHIP

contribution or conversion of any sumforthepartnerspersonalbenefits

4. ToPay for theagreedor legal interest,if the partner fails to pay hiscontributionontimeorincasehetakesanyamountfromthecommonfundandconvertsittohisownuse

CONTRIBUTEADDITIONALCAPITAL

Q:Whataretherulesregardingobligationstocontributetopartnershipcapital?A:

1. Partners must contribute equal sharesto thecapitalof thepartnershipunlessthereisstipulationtocontrary

2. Capitalist partners must contributeadditional capital in case of imminentloss to thebusinessof thepartnershipwhen there is no stipulation to thecontrary; Refusal to do so shall createanobligationontherefusingpartnertosellhisinteresttotheotherpartners

Q: What are the requisites before capitalistpartnersarecompelled tocontributeadditionalcapital?A:

1. Imminent loss of the business of thepartnership

2. Majorityofthecapitalistpartnersareofthe opinion that an additionalcontribution to the common fundwouldsavethebusiness

3. Capitalistpartnerrefusesdeliberatelytocontribute (not due to financialinability)

4. Thereisnoagreementtothecontrary


MANAGINGPARTNERWHOCOLLECTSDEBT

Q: What are the obligations of managingpartners who collect his personal receivablefromapersonwhoalsoowesthepartnership?A:

1. Apply sum collected to 2 credits inproportiontotheiramounts

2. If he received it for the account ofpartnership, the whole sum shall beappliedtopartnershipcredit

Note:Requisites:

1. At least2debts,onewherethecollectingpartner is creditor and the other,wherethepartnershipisthecreditor

2. Bothdebtsaredemandable

3. Partner who collects is authorized tomanage and actually manages thepartnership

PARTNERWHORECEIVESSHAREOF

PARTNERSHIPCREDITQ:Whatistheobligationofapartnerwhoreceivesshareofpartnershipcredit?A:Tobringtothepartnershipcapitalwhathehasreceivedeven thoughhemayhavegivenreceiptforhisshareonly.Note:Requisites:

1. Apartnerhasreceivedinwholeorinpart,hisshareofthepartnershipcredit

2. Other partners have not collected theirshares

3. PartnershipdebtorhasbecomeinsolventQ:Mayapersonwhohasnotdirectlytransactedin behalf of an unincorporated association beheld liable for a contract entered into by suchassociation?A:Yes.Theliabilityforacontractenteredintoonbehalf of an unincorporated association orostensible corporation may lie in a person whomay not have directly transacted on its behalf,butreapedbenefitsfromthatcontract.(LimTongLimv.PhilippineFishingGear Industries Inc.,G.R.No.136448,Nov.3,1999)

PROHIBITIONINENGAGINGINBUSINESS

Q:Whatare the rules regarding theprohibitiontoengageinanotherbusiness?A:INDUSTRIALPARTNER CAPITALISTPARTNER

Prohibition

Cannotengageinbusinessforhimself

unlessthepartnershipexpresslypermitshimto

doso

Cannotengageinbusiness(withsamekindofbusinesswiththepartnership)forhisownaccount,unless

thereisastipulationtothecontrary

RemedyCapitalistpartnersmay:1. Exclude him from

thefirm2. Avail themselves of

the benefits whichhe may haveobtained

3. Damages, in eithercase (Art. 1789,NCC)

Capitalist partner, whoviolatedshall:1. Bring to the

common fund anyprofits accruing tohim from saidtransaction;and

2. Bears all losses(Art.1808,NCC)


Q:JoeandRudyformedapartnershiptooperatea car repair shop inQuezon City. Joe providedthecapitalwhileRudycontributedhislaborandindustry.Ononesideoftheirshop, Joeopenedandoperatedacoffeeshop,whileon theotherside,Rudy putup a car accessories store.Maytheyengageinsuchseparatebusinesses?Why?A: Joe, the capitalistpartner,mayengage in therestaurant business because it is not the samekindofbusinessthepartnershipisengagedin.Onthe other hand, Rudy may not engage in anyotherbusinessunless theirpartnershipexpresslypermits him to do so because as an industrialpartner he has to devote his full time to thebusiness of the partnership (Art. 1789, NCC).(2001BarQuestion)

DAMAGESTOPARTNERSHIPQ:Whatistherulewithregardtotheobligationof a partner as to damages suffered by thepartnershipthroughhisfault?A:

GR: Every partner is responsible to thepartnership for damages suffered by itthroughhisownfault.Thesedamagescannotbeoffsetby theprofitsorbenefitswhichhemay have earned for the partnership by hisindustry.XPN:Ifunusualprofitsarerealizedthroughextraordinaryeffortsoftheguiltypartner,thecourtsmayequitablymitigateorlessenhisliabilityfordamages.(Art.1794,NCC)

DUTYTORENDERINFORMATION

Q:Whatisthedutyofthepartnerswithrespecttoinformationaffectingthepartnership?A: They shall render on demand true and fullinformationofallthingsaffectingthepartnershipto:

1. thepartner;or2. legalrepresentativeofanydeceasedor

legally disabled partner. (Art. 1806,NCC)

ACCOUNTABLEASFIDUCIARY

Q:Howarepartnersaccountable toeachotherasfiduciary?

346

A:Everypartnermustaccounttothepartnershipfor any benefit, and hold as trustee for it anyprofitsderivedbyhimwithouttheconsentofthe

other partners from any transaction connectedwiththeformation,conduct,orliquidationofthepartnership or from any use by him of itsproperty.(Art.1807,NCC)

RIGHTSOFGENERALPARTNERSQ:Whatarethepropertyrightsofapartner?

A:SIM1. RightinSpecificpartnershipproperty2. Interestinthepartnership(shareinthe

profitsandsurplus)3. RighttoparticipateintheManagement

Q: What is the nature of a partner's right inspecificpartnershipproperty?A:

1. Equal right to possession forpartnershippurposes

2. Right is not assignable, except inconnectionwithassignmentofrightsofallpartnersinthesameproperty

3. Right is limited to his share of whatremains after partnership debts havebeenpaid

4. Right is not subject to attachment orexecutionexceptonaclaimagainstthepartnership

5. RightisnotsubjecttolegalsupportQ: What are the effects of assignment ofpartnerswholeinterestinthepartnership?A:

1. Rightswithheldfromtheassignee:Such assignment does not grant theassigneetherightto:a. Tointerfereinthemanagementb. To require any information or

accountc. Toinspectpartnershipbooks

2. Rightsofassigneeonpartnersinterest:

a. To receive in accordance with hiscontracttheprofitsaccruingtotheassigningpartner

b. To avail himself of the usualremedies provided by law in theeventoffraudinthemanagement

c. Toreceivetheassignorsinterestincaseofdissolution

d. To require an account ofpartnershipaffairs,butonlyincasethe partnership is dissolved, andsuchaccountshallcovertheperiodfrom the date only of the last


PARTNERSHIP

account agreed to by all thepartners

Q:Whataretheeffectsofconveyanceofapartnerofhisinterestinthepartnership?A:

1. Conveyance of his whole interest partnership may either remain or bedissolved

2. Assigneedoesnotnecessarilybecomeapartner;hecannot:a. interfere in the management or

administration;orb. demand information, accounting

and inspection of the partnershipbooks.

Note:Buttheassigneehasthefollowingrights:

1. receive in accordance with his contractthe profits which the assigning partnerwouldotherwisebeentitled

2. avail himself of the usual remediesprovided by law in event of fraud inmanagement

3. receive assignors interest in case ofdissolution

4. requireandaccountofpartnershipaffairsbut only in case the partnership isdissolved, and such account shall covertheperiod from thedateonlyof the lastaccountagreedtobyalltheparties

CRIMINALLIABILITYFORMISAPPROPRIATION:

ESTAFAQ: Rosa received from Jois money, with theexpress obligation to act as Jois agent inpurchasing local cigarettes, to resell them toseveral stores,and to give Jois the commissioncorrespondingtotheprofitsreceived.However,Rosa misappropriated and converted the saidamount due to Jois to her personal use andbenefit. Jois fileda caseofestafaagainstRosa.Can Rosa deny liability on the ground that apartnershipwasformedbetweenherandRosa?A: No. Even assuming that a contract ofpartnership was indeed entered into by andbetweentheparties,whenapartnerreceivesanymoneyorpropertyforaspecificpurpose(suchasthat obtaining in the instant case) and he latermisappropriates the same, is guilty of estafa.(Liwanagv.CA,G.R.No.114398,Oct.24,1997)

347

IV.OBLIGATIONSOFPARTNERSHIP/PARTNERSTOTHIRDPERSONS

Q: What are the obligations of partners withregardto3rdpersons?A:

1. Everypartnershipshalloperateunderafirm name. Persons who include theirnames in thepartnershipnameeven iftheyarenotmembersshallbe liableasapartner

2. All partners shall be liable forcontractual obligations of thepartnershipwiththeirproperty,afterallpartnership assets have beenexhausted:a. Proratab. Subsidiary

3. Admission or representation made byany partner concerning partnershipaffairswithinthescopeofhisauthorityisevidenceagainstthepartnership

4. Noticetopartnerofanymatterrelatingtopartnershipaffairsoperatesasnoticetopartnershipexceptincaseoffraud:a. Knowledgeofpartneractinginthe

particularmatteracquiredwhileapartner

b. Knowledgeofthepartneractingintheparticularmatter thenpresenttohismind

c. Knowledge of any other partnerwho reasonably could and shouldhave communicated it to theactingpartner

5. Partners and the partnership aresolidarily liable to 3rd persons for thepartner'stortorbreachoftrust

6. Liability of incoming partner is limitedto:a. His share in the partnership

propertyforexistingobligationsb. His separate property for

subsequentobligations7. Creditorsofpartnershiparepreferredin

partnership property & may attachpartner'sshareinpartnershipassets

Note: On solidary liability. Art. 1816 should beconstrued together with Art. 1824 (in connectionwithArts.1822and1823).Whilethe liabilityofthepartners ismerely joint intransactionsentered intoby the partnership, a third personwho transactedwith said partnership may hold the partnerssolidarilyliableforthewholeobligationifthecaseofthethirdpersonfallsunderArticles1822and1823.(Munasquev.CA,G.R.No.L39780,Nov.11,1985)





V.DISSOLUTIONQ: Distinguish dissolution, winding up andtermination.Dissolution Windingup Termination

Achangeintherelationofthe

partnerscausedbyanypartnerceasing

tobeassociatedincarryingonthe

business.

Settlingthepartnershipbusinessoraffairsafterdissolution

Pointintimewhenall

partnershipaffairsare

wounduporcompleted;theendofthe

partnershiplife

Q:Whatarethecausesofdissolution?A:

1. Withoutviolatingtheagreement:a. Terminationofthedefinitetermor

specificundertakingb. Expresswillofanypartneringood

faith, when there is no definitetermandnospecifiedundertaking

c. Expresswillofallpartners (exceptthose who have assigned theirinterests or suffered them to becharged for their separate debts)either before or after thetermination of any specified termorparticularundertaking

d. Expulsion of any partner in goodfaithofamember

2. Violatingtheagreement3. Unlawfulnessofthebusiness4. Loss

a. Specific thing promised ascontribution is lost or perishedbeforedelivery

b. Lossofaspecificthingcontributedbeforeorafterdelivery, ifonlytheuseofsuchiscontributed

Note: The partnership shall not bedissolvedbythe lossofthethingwhen itoccursafter thepartnershiphasacquiredtheownershipthereof.

5. Deathofanyofthepartners6. Insolvency of any partner or of the

partnership7. Civilinterdictionofanypartner8. BydecreeofcourtunderArt.1831,NCC

a. apartnerhasbeendeclaredinsaneorofunsoundmind

b. a partner becomes in any otherway incapable of performing hispartofthepartnershipcontract

c. a partner has been guilty of suchconduct as tends to affectprejudiciallythecarryingonofthebusiness

d. a partner willfully or persistentlycommits a breach of thepartnershipagreement

e. thebusinessofthepartnershipcanonlybecarriedonataloss

f. other circumstances render adissolutionequitable

Q:Whataretheeffectsofdissolution?A:

1. Partnershipisnotterminated2. Partnership continues for a limited

purpose3. Transaction of new business is

prohibited (De Leon, Comments andCases on Partnership, Agency, andTrust,p.229,2005ed)

Note:Thedissolutionofapartnershipmustnotbeunderstood in theabsoluteand strictsenseso thatat the termination of the object for which it wascreatedthepartnershipisextinguished,pendingthewindingupofsome incidentsandobligationsofthepartnership,butinsuchcase,thepartnershipwillbereputedasexistinguntilthejuridicalrelationsarisingoutofthecontractaredissolved. (TestateofMottav.Serra,G.R.No.L22825,Feb.14,1925)Dissolution does not automatically result in thetermination of the legal personality of thepartnership,northerelationsofthepartnersamongthemselves who remain as copartners until thepartnership is terminated. (DeLeon,CommentsandCasesonPartnership,Agency,andTrust,p.29,2005ed)Q: What is the effect of dissolution on theauthorityofapartner?A:

GR: The partnership ceases to be a goingconcernXPN:Thepartnerspowerofrepresentationisconfinedonlytoactsincidenttowindinguporcompleting transactions begun but not thenfinished.(Art.1832,NCC)

Note: Subject to the qualifications set forth inArticles 1833 and 1834 in relation to Article1832,NCC:1. In so far as the partners themselves are

concernedTheauthorityofanypartnertobindthepartnershipbyanewcontractis immediately terminated when the

PARTNERSHIP

dissolution is not by the Act, Insolvency,orDeathofapartner(AID).

2. When the dissolution is by the act,insolvency, or death, the termination ofauthority depends upon whether or notthe partner had knowledge or notice ofdissolution(Art.1833,NCC).

Q:Thearticlesofcopartnershipprovidethat incase of death of one partner, the partnershipshallnotbedissolvedbutshallbecontinuedbythedeceasedpartnersheirs.WhenH,apartner,died,hiswife,W,tookoverthemanagementofsomeof the realpropertieswithpermissionofthe survivingpartner,X,buthernamewasnotincluded in the partnership name. Sheeventuallysoldtheserealpropertiesafterafewyears. X now claims thatW did not have theauthoritytomanageandsellthosepropertiesasshewasnotapartner.Isthesalevalid?A:Yes.Thewidowwasnotamereagent,becauseshe had become a partner upon her husband'sdeath,asexpresslyprovidedbythearticlesofcopartnership, and by authorizing the widow tomanagepartnershippropertyXrecognizedherasa general partner with authority to administerandalienatepartnershipproperty.ItisimmaterialthatW'snamewasnotincludedinthefirmname,sincenoconversionofstatusisinvolved,andthearticlesofcopartnershipexpresslycontemplatedthe admission of the partner's heirs into thepartnership.(Goquiolayv.Sycip,G.R.No.L11840,Dec.16,1963)Q:What is the liabilityof a partnerwhere thedissolution is caused by the act, death orinsolvencyofapartner?A:

GR: Each partner is liable to his copartnersfor his share, of any liability created by anypartner for the partnership, as if thepartnershiphadnotbeendissolved.XPNs:Partnersshallnotbeliablewhen:1. the dissolution, being by act of any

partner, the partner acting for thepartnership had knowledge of thedissolution;or

2. the dissolution, being by the death orinsolvency of a partner, the partneracting for the partnership hadknowledge or notice of the death orinsolvency(Art.1833,NCC)

349

Q:After thedissolutionofapartnership, canapartnerstillbindthepartnership?A:

GR: Yes. A partner continues to bindpartnership even after dissolution in thefollowingcases:1. Transactions to wind up partnership

affairs/complete transactionsunfinishedatdissolution;

2. Transactions which would bindpartnership if not dissolved dissolutionhadnottakenplace,providedtheotherparty/obligee:a. i. Had extended credit to partnership

priortodissolution;andii. Had no knowledge/notice of

dissolution;orb. i. Didnotextendcredittopartnership;ii. Had known partnership prior to

dissolution;andiii. Had no knowledge/notice of

dissolution/fact of dissolution notadvertisedinanewspaperofgeneralcirculation in the place wherepartnershipisregularlycarriedon.

XPNs: Partner cannot bind the partnershipanymoreafterdissolutionwheredissolutionisduetounlawfulnesstocarryonbusiness

XPNtoXPN:Windingupofpartnershipaffairs1. Partnerhasbecomeinsolvent2. Actisnotappropriateforwindingupor

forcompletingunfinishedtransactions3. Completely new transactions which

would bind the partnership ifdissolution had not taken place withthirdpersonsinbadfaith.

4. Partner is unauthorized to wind uppartnership affairs, except bytransactionwithonewho:a. i. Had extended credit to partnership

priortodissolution;ii. Had no knowledge or notice of

dissolution;orb. i. Didnotextend credit topartnership

priortodissolution;ii. Had known partnership prior to

dissolution;andiii. Had no knowledge/notice of

dissolution/fact of dissolution notadvertisedinanewspaperofgeneralcirculation in the place wherepartnershipisregularlycarriedon.




Q: Does the dissolution of a partnershipdischargeexistingliabilityofapartner?A:

GR:No.XPN:Said liability isdischargedwhenthere isanagreementbetween:

1. Partnerhimself;2. Person/scontinuingthebusiness;and3. Partnershipcreditors

Q: What is the order of priority in thedistributionofassetsduringthedissolutionofalimitedpartnership?A: In setting accounts after dissolution, theliabilities of the partnership shall be entitled topaymentinthefollowingorder:

1. Those to creditors, in the order ofpriority as provided by law, exceptthoseto limitedpartnersonaccountoftheir contributions, and to generalpartners

2. Those to limitedpartners in respect totheir share of the profits and othercompensation by way of income ontheircontributions

3. Those to limitedpartners in respect tothecapitaloftheircontributions

4. Those to general partners other thanforcapitalandprofits

5. Those togeneralpartners in respect toprofits

6. Those togeneralpartners in respect tocapital(Art.1863,NCC)

Note:Subject toanystatement in thecertificateortosubsequentagreement, limitedpartnersshare inthepartnershipassets in respect to theirclaims forcapital,and in respect to their claims forprofitsorfor compensation by way of income on theircontribution respectively, in proportion to therespectiveamountsofsuchclaims.

WINDINGUP

Q:What takes place during thewinding up ofthepartnership?A: It is during this time after dissolution thatpartnershipbusinessoraffairsarebeing settled.(De Leon, Comments and Cases on Partnership,Agency,andTrust,p.229,2005ed)

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Note:Examplesofwindingup:1. Payingpreviousobligations2. Collectingassetspreviouslydemandable

Engaging innewbusinessnecessary forwindingupsuch as contractingwith ademolition company forthe demolition of the garage used in a used carpartnership (Paras, Civil Code of the PhilippinesAnnotated,Volume5,p.485,19696thed)Q:Whoarethepersonsauthorizedtowindup?A:

1. Partnersdesignatedbytheagreement2. Intheabsenceofsuch,allpartnerswho

have not wrongfully dissolved thepartnership

3. Legal representative of last survivingpartnerwhoisnotinsolvent

Q:Whatarepartnershipassets?A:

1. Partnershipproperty2. Contributionsofthepartnersnecessary

for the payment of all liabilities [Art.1839(2),NCC]

Q:Whatistheorderofpaymentinwindingup?A:

1. Those owing to creditors other thanpartners

2. Thoseowingtopartnersotherthan forcapitalorprofits

3. Those owing to partners in respect ofcapital

4. Those owing to partners in respect toprofits[Art.1839(2),NCC]

Q:Whatisthedoctrineofmarshallingofassets?A:

1. Partnership creditors have preferenceinpartnershipassets

2. Separate or individual creditors havepreference in separate or individualproperties

3. Anything left from either goes to theother.

Q: What are the rights of a partner wheredissolution is not in contravention of theagreement?A: Unless otherwise agreed, the rights of eachpartnerareasfollows:

1. To have the partnership propertyapplied to discharge the liabilities ofpartnership;and

2. Tohave the surplus, ifany,applied, topay in cash the net amount owing totherespectivepartners.


PARTNERSHIP

Q: What are the rights of a partner wheredissolution is in contravention of theagreement?A: The rights of a partner vary depending uponwhetherheistheinnocentorguiltypartner.

1. Rights of partner who has not causedthedissolutionwrongfully:a. To have partnership property

applied for the payment of itsliabilitiesandtoreceiveincashhisshareofthesurplus

b. Tobeindemnifiedforthedamagescaused by the partner guilty ofwrongfuldissolution

c. To continue the business in thesamenameduringtheagreedtermof the partnership, by themselvesorjointlywithothers

d. To possess partnership propertyshouldtheydecidetocontinuethebusiness

2. Rights of partner who has wrongfully

causedthedissolution:a. If thebusiness isnot continuedby

the other partners, to have thepartnership property applied todischarge its liabilities and toreceive in cash his share of thesurpluslessdamagescausedbyhiswrongfuldissolution

b. Ifthebusinessiscontinued:i. To have the value of his

interest in the partnership atthe time of the dissolution,less any damage caused bythe dissolution to his copartners,ascertainedandpaidin cash, or secured by bondapprovedbythecourt;and

ii. To be released from allexisting and future liabilitiesofthepartnership

Q:Whataretherightsof injuredpartnerwherepartnershipcontractisrescinded?A:

1. Right of a lien on, or retention of, thesurplus of partnership property aftersatisfying partnership liabilities for anysum of money paid or contributed byhim;

351

2. Right of subrogation in place ofpartnership creditors after payment ofpartnershipliabilities;and

3. Right of indemnification by the guiltypartner against all debts and liabilitiesofthepartnership.

Q: How are the accounts settled betweenpartners?A:

1. Assetsofthepartnershipinclude:a. Partnership property (including

goodwill)b. Contributionsofthepartners

2. Orderofapplicationoftheassets:a. First, those owing to partnership

creditorsb. Second, those owing to partners

other than for capital and profitssuchasloansgivenbythepartnersoradvancesforbusinessexpenses

c. Third,thoseowingforthereturnofthe capital contributed by thepartners

d. Fourth, the shareof theprofits, ifany,duetoeachpartner

Q:Apartnershipwas formedwithMagdusa asthe manager. During the existence of thepartnership,twopartnersexpressedtheirdesiretowithdrawfromthefirm.Magdusadeterminedthe value of the partners share which wereembodied in the document drawn in thehandwritingofMagdusabutwasnot signedbyall of the partners. Later, the withdrawingpartners demanded for payment but wererefused. Considering that not all partnersintervenedinthedistributionofallorpartofthepartnershipassets,shouldtheactionprosper?A: No. A partners share cannot be returnedwithout first dissolving and liquidating thepartnership, for the return is dependent on thedischarge of creditors, whose claims enjoypreference over those of the partner, and it isselfevident thatallmembersof thepartnershipare interested in itsassetsandbusiness,andareentitled to be heard in thematter of the firmsliquidation and distribution of its property. Theliquidation prepared by Magdusa not signed bythe other partners is not binding on them.(Magdusav.Albaran,G.R.No.L17526, June30,1962)Q:Whatispartnerslien?A: The right of every partner to have thepartnership property applied, to dischargepartnership liabilities and surplus assets, if any,distributed in cash to the respective partners,




after deducting what may be due to thepartnershipfromthemaspartners.Q:Canapartnerdemandforhisshareduringtheexistenceofapartnership?A:No.A share inapartnership canbe returnedonly after the completion of the latter'sdissolution, liquidation and winding up of thebusiness.Since the capital was contributed to thepartnership,nottopartners, it isthepartnershipthat must refund the equity of the retiringpartners.Sinceitisthepartnership,asaseparateanddistinctentitythatmustrefundthesharesofthe partners, the amount to be refunded isnecessarily limitedto itstotalresources. Inotherwords, it can only pay out what it has in itscoffers,whichconsistsofallitsassets.(Villarealv.Ramirez,G.R.No.144214,July14,2003)Q:Whataretheeffectswhenthebusinessofadissolvedpartnershipiscontinued?A:

1. Creditors of old partnership are alsocreditors of the new partnership whocontinues the business of the old onewithout liquidation of the partnershipaffairs.

2. Creditorshaveanequitable lienon theconsideration paid to theretiring/deceased partner by thepurchaser when retiring/deceasedpartner sold his interest without finalsettlementwithcreditors.

3. Rights of retiring/estate of deceasedpartner:a. To have the value of his interest

ascertained as of the date ofdissolution;and

b. Toreceiveasordinarycreditorthevalueofhis share in thedissolvedpartnershipwithinterestorprofitsattributable to use of his right, athisoption.

Note: The right to demand on accounting of thevalue of his interest accrues to any partner or hislegalrepresentativeafterdissolution intheabsenceofanagreementtothecontrary.

352

Prescriptionbeginstorunonlyuponthedissolutionof the partnership, when the final accounting isdone.

Q:Whoarethepersonsrequiredtorenderanaccount?A:

1. Windinguppartner;2. Survivingpartner;and3. Person or partnership continuing the

business

Q: Emnace and Tabanao decided to dissolvetheir partnership in 1986. Emnace failed tosubmitthestatementofassetsand liabilitiesofthepartnership,andtorenderanaccountingofthepartnership's finances.Tabanaosheirs filedagainst Emnace an action for accounting, etc.Emnace counters, contending that prescriptionhassetin.Decide.A:Prescriptionhasnotyetset in.Prescriptionofthe said right starts to run only upon thedissolution of the partnership when the finalaccounting is done. Contrary to Emnacesprotestations,prescriptionhadnotevenbeguntorunintheabsenceofafinalaccounting.Therighttodemandanaccountingaccruesat thedateofdissolution in the absence of any agreement tothecontrary.Whenafinalaccounting ismade, itis only then that prescription begins to run.(Emnacev.CA,G.R.No.126334,Nov.23,2001)Q: Pauline, Patricia and Priscilla formed abusinesspartnershipforthepurposeofengaginginneonadvertising fora termof five (5)years.Pauline subsequently assigned to Philip herinterest in the partnership.When Patricia andPriscillalearnedoftheassignment,theydecidedtodissolvethepartnershipbeforetheexpirationofitstermastheyhadanunproductivebusinessrelationshipwithPhilipinthepast.Ontheotherhand, unaware of the move of Patricia andPriscillabutsensingtheirnegativereactiontohisacquisition of Paulines interest, Philipsimultaneouslypetitioned for thedissolutionofthepartnership.Is the dissolution done by Patricia and Priscillawithout the consent of Pauline or Philip valid?Explain.A:UnderArt1830(1)(c),NCC, thedissolutionbyPatricia and Priscilla is valid and did not violatethe contractofpartnershipeven thoughPaulineandPhilipdidnotconsentthereto.TheconsentofPauline isnotnecessarybecauseshehadalreadyassigned her interest to Philip. The consent ofPhilip is also not necessary because theassignment to him of Paulines interest did notmakehimapartner,underArt.1813,NCC.


PARTNERSHIP

Does Philip have any right to petition for thedissolution of the partnership before theexpirationofitsspecifiedterm?Explain.A: No, Philip has no right to petition fordissolution because he does not have thestandingofapartner.(Art.1813,NCC)(1995BarQuestion)


VI.LIMITEDPARTNERSHIP

A.DEFINITIONQ:Whatislimitedpartnership?A:Oneformedbytwoormorepersonshavingasmembersoneormoregeneralpartnersandoneor more limited partners, the latter not beingpersonallyliableforpartnershipdebts(Art.1843)Q:Whatarethecharacteristicsoflimitedpartnership?A:

1. It is formed by compliance with thestatutoryrequirements

2. One or more general partners controlthebusinessandarepersonallyliabletocreditors

3. One or more limited partnerscontribute to the capital and share intheprofitsbutdonotparticipate inthemanagement of the business and arenot personally liable for partnershipobligations beyond their capitalcontributions

4. The limited partners may ask for thereturn of their capital contributionsunderconditionsprescribedbylaw

5. Partnership debts are paid out ofcommon fund and the individualpropertiesofgeneralpartners

B.HOWLIMITEDPARTNERSHIPISFORMED/AMENDED

Q:Whatare theessential requirements for theformationoflimitedpartnership?A:

1. Certificate of articles of limitedpartnership which states the mattersenumerated inArt.1844,NCC,mustbesignedandsworn;and

2. Certificate must be filed for record intheofficeoftheSEC.

Note: Strict compliance with legal requirements isnotnecessary.Itissufficientthatthereissubstantial

compliance in good faith (Jo Chun v. PacificCommercialCo.,G.R.No.19892,Sept.6,1923).Q:Doesalimitedpartnershiphaveapersonalityseparateanddistinctfromthatofthepartners?Whataretheconsequencesofsuch?A: Yes. The personality of a limited partnershipbeingdifferentfromthatofitsmembers,itmust,on generalprinciple, answer for, and suffer, theconsequenceofitsactsassuchanentitycapableof being the subject of rights and obligations. Ifthe limited partnership failed to pay itsobligations, this partnership must suffer theconsequences of such a failure, and must beadjudged insolvent. (Campos Rueda & Co. v.PacificCommercialCo.,et.al,G.R.No.L18703,Aug.28,1922)Q:When is the certificateor articlesof limitedpartnershipcancelled?A:

1. Whenthepartnershipisdissolved2. Whenallthelimitedpartnersceasedto

besuchQ:Whenmayacertificateorarticlesof limitedpartnershipbeamended?A:

1. Itmustfallunderthefollowingchangesandconditions:a. There is a change in the name of

the partnership or in the amountorcharacterofthecontributionofanylimitedpartner

b. Apersonissubstitutedasalimitedpartner

c. An additional limited partner isadmitted

d. Aperson is admitted as a generalpartner

e. A general partner retires, dies,becomes insolventor insane,or issentenced to civil interdiction andthe business is continued underArticle1860

f. There isachange in thecharacterofthebusinessofthepartnership

g. There is a false or erroneousstatementinthecertificate

h. There is a change in the time asstated in the certificate for thedissolution of the partnership orforthereturnofacontribution

i. A time is fixed for the dissolutionofthepartnership,orthereturnof


a contribution, no time havingbeenspecifiedinthecertificate

j. The members desire to make achange in any other statement inthecertificate inorderthat itshallaccurately represent theagreement among them (Art.1864,NCC)

2. Mustbe signed and sworn toby allof

the members including the newmembers if some added; in case ofsubstitution, the assigning limitedpartnermustalsosign

3. MustberecordedintheSEC

LIMITEDPARTNERQ:Whataretheliabilitiesofalimitedpartner?A:


ASCREDITOR ASTRUSTEE

Deficiencyincontribution

Specificpropertystatedascontributedbutnotyet

contributed/wrongfullyreturned

Unpaidcontribution

Money/otherpropertywrongfullypaid/conveyedtohimonaccountofhiscontribution

Q:What transactionsareallowedorprohibitedinalimitedpartnership?A:

1. Alloweda. Grantingloanstopartnershipb. Transacting business with

partnershipc. Receiving pro rata share of

partnership assets with generalcreditorsifheisnotalsoageneralpartner

2. Prohibited

a. Receiving/holding partnershippropertyascollateralsecurity

b. Receiving any payment,conveyance,releasefromliabilityifitwillprejudicerightof3rdpersons

Note:Violationoftheprohibitionwillgiverisetothepresumption that it has been made to defraudpartnershipcreditors.Theprohibition isnotabsolutebecause there isnoprohibitionifthepartnershipassetsaresufficienttodischarge partnership liabilities to persons notclaimingasgeneralorlimitedpartners.

Q:Whendoesageneralpartnerneedconsentorratificationofallthelimitedpartners?A:Whenhe:

1. does any act in contravention of thecertificate;

2. does any act which would make itimpossible to carry on the ordinarybusinessofthepartnership;

3. confesses judgment againstpartnership;

4. possesses partnership property /assigns rights in specific partnershipproperty other than for partnershippurposes;

5. admitspersonasgeneralpartner;6. admits person as limited partner

unlessauthorizedincertificate;or7. continues business with partnership

property on death, retirement, civilinterdiction, insanity or insolvency ofgeneralpartnerunlessauthorizedinthecertificate.

PARTNERSHIPTORT

Q:Whenisthereapartnershiptort?A:Where:

1. byanywrongfulactoromissionofanypartner,actingintheordinarycourseofbusiness of the partnership or withauthority of his copartners, loss orinjuryiscausedtoanyperson,notbeingapartnerinthepartnership;

2. onepartner,actingwithin thescopeofhisapparentauthority, receivesmoneyor property from a third person, andmisappliesit;or

3. the partnership, in the course of itsbusiness, receives money or property,anditismisappliedbyanypartnerwhileitisinthecustodyofthepartnership.

Note: Partners are solidarily liable with thepartnershipforanypenaltyordamagearisingfromapartnershiptort.

C.RIGHTSANDOBLIGATIONSOFALIMITEDPARTNER

Q: What are the specific rights of a limitedpartner?A:To:

1. havepartnershipbookskeptatprincipalplaceofbusiness;

2. inspect/copy books at reasonablehours;

PARTNERSHIP

3. have on demand true and fullinformation of all things affectingpartnership;

4. have formal account of partnershipaffairs whenever circumstances renderitjustandreasonable;

5. ask for dissolution and winding up bydecreeofcourt;

6. receive share of profits/othercompensationbywayofincome;and

7. receive return of contributions,provided the partnership assets are inexcessofallitsliabilities.

Q:Whoisasubstitutedlimitedpartner?A:Apersonadmittedtoalltherightsofalimitedpartnerwhohasdiedorassignedhis interest inthepartnershipQ: What are the rights and liabilities of asubstitutedlimitedpartner?A:

GR:He has all the rights and powers and issubjecttoalltherestrictionsand liabilitiesofhisassignor.XPN: Those liabilitieswhich hewas ignorantof at the time that he became a limitedpartner and which could not be ascertainedfromthecertificate

Q:Whataretherequirementsfortheadmissionofasubstitutedlimitedpartner? A:

1. All the members must consent to theassigneebecomingasubstitutedlimitedpartner or the limited partner, beingempoweredbythecertificatemustgivethe assignee the right to become alimitedpartner;

2. The certificate must be amended inaccordancewithArt.1865,NCC;and

3. The certificate as amended must beregisteredintheSEC.

Q: What is the basis of preference given tolimitedpartnersoverotherlimitedpartners?A: Priority or preferencemay be given to somelimitedpartnersoverotherlimitedpartnersastothe:

1. returnoftheircontributions;

355

2. their compensation byway of income;or

3. anyothermatter.

Note: In the absence of such statement in thecertificate,even ifthere isanagreement,all limitedpartners shall stand on equal footing in respect ofthesematters.Q: What are the requisites for return ofcontributionofalimitedpartner?A:

1. All liabilities of the partnership havebeenpaidor if theyhavenotyetbeenpaid, the assets of the partnership aresufficienttopaysuchliabilities;

2. The consent of all the members(generalandlimitedpartners)hasbeenobtained except when the return mayberightfullydemanded;and

3. The certificateof limitedpartnership iscancelledoramended

Q: When is the return of contribution of alimitedpartneramatterofright?A:When all liabilities of the partnership, exceptliabilities to general partners and to limitedpartnerson accountof their contributions,havebeen paid or there remains property of thepartnership sufficient to pay them and thecertificate is cancelled or so amended as to setforththewithdrawalorreduction:

1. onthedissolutionofthepartnership;2. uponthearrivalofthedatespecifiedin

thecertificateforthereturn;or3. aftertheexpirationof6monthnoticein

writing given by him to the otherpartners if no time is fixed in thecertificate for the return of thecontribution or for the dissolution ofthepartnership.

Note: Even if a limited partner has contributedproperty, he has only the right to demand andreceivecashforhiscontribution.Theexceptionsare:

1. When there is stipulation to thecontraryinthecertificate;or

2. Whenallthepartners(generalandlimitedpartners)consenttothereturnotherthanintheformofcash

Q:Whataretheliabilitiesofalimitedpartner?1. TothepartnershipA:Sincelimitedpartnersarenotprincipals inthetransaction of a partnership, their liability as arule,istothepartnership

ust golden notes 2011 - partnership and agency

Documents

d d e d e r e c h o

jose andfrancisco

receipt of jose

virtue of theverbal

rights andobligations

contract ofpartnership

francisco returnedthemoney

fernandez v