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PARTERSHIP REVIEWER gave a check worth 10k.

Is the
issuance a contribution of money?
Article 1767 No, unless the check is encashed.
By the contract of partnership, two or 2. Considering the same information
more persons bind themselves to contribute above but with B contributing 10k
money, property or industry to a common fund, in equivalent dollars.
with the intention of dividing the profits among No, the contribution must be
themselves. made using the legal tender, in
Two or more persons may also form a this case, Philippine pesos.
partnership for the exercise of a profession. - Property contributed may be movable,
(1665a). immovable or intangible property.
Ex. Equipment, land, patents, etc.
 NOMINATE - If the partnership did not contribute
- There is a name given by the law money or property, then industry was
- Contract of Partnership: contributed.
CONSENSUAL (meaning it is - Note: Contributions may differ for each
perfected by both parties) of the partners.
 PERSONS  TO A COMMON FUND TO DIVIDE
- Includes not only natural persons but PROFITS AMONGST EACH OTHER
also JURIDICAL persons. A - The primary objective of partnerships
corporation may not be a partner but it is to make profits. Sharing of profits
may engage in JOINT VENTURES. need not equal.
 BIND THEMSELVES - Sharing ratios are determined by the
- Must be capable and competent , partner’s agreement, and if there was
meaning, the following may are not no agreement, then the ratios will be
included: based on the ratio of the partner’s
1. Minors contributions.
2. Emancipated minors - Sharing ratio for losses will be the
3. Those under civil interdiction- same as the sharing ratios for profits.
accessory penalty of being - The industrial partner shall not share in
convicted of crimes losses.
4. Insane persons - The industrial partner is exempt only to
5. Incompetent persons (see oblicon the partners but bot to third parties
notes) without prejudice to his right. A1816.
- However, if the person is only a  CONSENT (DELECTUS PERSONAE)
suspect, he may still bind himself into a - You can’t join a partnership without
contract since there is no final verdict the consent of ALL partners.
yet. Why?
 TO CONTRIBUTE MONEY, Because the partnership will need to
PROPERTY OR INDUSTRY be dissolved before you are admitted
- Makes the contract onerous since this is and a new partnership will be made
Mutual and All must give either one of in this place.
the above.
- Examples: Article 1768
1. A and B create a partnership with a The partnership has a juridical
promise of contributing 10k each personality separate and distinct
in cash. A gave his share while B from that of each of the partners,
even in case of failure to comply with
the requirements of article 1772, first
paragraph. (n) Article 1770
A partnership must have a lawful object
or purpose, and must be established for the
 If they bought the land for P1.000.000 each common benefit or interest of the partners. When
to build a house but instead opted to sell it an unlawful partnership is dissolved by a judicial
for P2,500,000 then they have a profit of decree, the profits shall be confiscated in favor of
P500,000 but are they partners? the State, without prejudice to the provisions of
No, because even if there was a profit of P500,000, the Penal Code governing the confiscation of the
this is merely incidental to the sale and not from Instruments and effects of a crime. (1666a)
business operations of A&B.
 If the land was instead used to build an • The partnership must have a lawful object or
apartment that is rented out? purpose
Yes, because A&B share profits from RENTING, - Lawful object refers to CAPITAL
this can be considered as ordinary business - Lawful purpose refers to the
operations. BUSINESS itself
• There must be common interest and benefit
Example for (3) • Unlawfulness of the partnership will cause it to be
dissolved and profits shall be confiscated
 If a person owns a big tract of land for • Example of unlawful purpose:
planting rice and entered into an agreement GAMBLING
with a farmer that they will divide the A & B are partners where A contributed
harvest, is the farmer partners with the P100,000 in cash and B contributes gambling
owner of the land? paraphernalia. They were raided and the gambling
No because of the following reasons paraphernalia was confiscated. Can the P100.000
(1) The famer had no contribution also be confiscated?
(2) The farmer has no say in the disposition of the No, because the P100.000 was not the reason for
land the crime in anyway. The state is therefore
(3) The farmer has no say in management required to return this amount to A.
(4) In case of loss, the owner shall carry the entire
burden and the farmer need not pay anything  Legal effects of a Judicial Dissolution
- Partnership is considered void from the
Example for (4) beginning
- Profit and instrument of the crime is
 A partnership borrowed P50,000 and confiscated
instead of giving the creditor a specific - The only returnable items are those
amount to be repaid, they agreed that the that were never related to or connected
creditor will receive 1% of the partnership's with the crime committed.
annual gross profit. Is the creditor a
partner? Article 1771
No because the receipt of share in net income A partnership may be constituted in any
happens to be because of an existing debt. form, except where Immovable property or real
rights are contributed thereto, in which case, a
To determine whether a person is a partner; public instrument shall be necessary (1667a).
(1) Required contribution
(2) Say in management Can a partnership be created orally?
(3) Share in losses Yes. A partnership may be constituted in any
form as stated in Article 1771).
- Partnerships are not covered by the How do we reconcile this with Article 1358 and
Statute of Fraud since these are not 1357?
necessarily required to be in writing Article 1358 is for purposes of convenience and
(contract of partnership can be in any not for validity or enforceability of the law.
form). Article 1357 states that contracting parties have
- If immovable property and/or real the right to compel each other to place the
rights are contributed to the contract into writing.
partnership, then the contract must be
in a public instrument (notarized  Purpose of Registration:
documents). (1) Condition for obtaining a license to engage in
- In order to bind 3RD persons, the business and in trade
transfer of OWNERSHIP of (2) 3rd persons want proof that the partnership is
immovable property MUST BE existent, who the partners are and what the
REGISTERED with the REGISTRY capitalization is before they enter into
OF PROPERTY in the province or city contracts/engage in business.
where the property is located (3) The government requires this so that tax liabilities
- The article shows that partnerships can may not be avoided (BIR)
be perfected by MERE CONSENT.
 Failure to comply with the Article's
Article 1772 requirements will not prevent the formation
Every contract of partnership having a of the partnership.
capital of P3.000.00 or more, in money or  The Statute of Fraud will only apply if there
property, shall appear in a public instrument, was an agreement made by the contracting
which must be recorded in the office of the parties.
Securities and Exchange Commission. Failure to
comply with the requirements of the preceding Examples
paragraph shall not affect the liability of the A and B promise to contribute to their partnership
partnership and the members thereof to third money worth P10,000.00 each within one year from
persons. (n). their agreement. A contributes early but when the
time comes for B to contribute his share, he refuses to
 If the partnership's capital is P3,000.00 or do so. Can A compel B to give his contribution?
more in any form), it must be in a public No. A cannot compel B to pay his contribution to
instrument, recorded with the SEC and note the partnership
that property referred to here is MOVABLE Why?
since immovable property is covered by Because the contract/agreement between the two
Article 1771. parties was purely ORAL and never really written,
 Failure to comply with the requirements of and it has already been one year since they agreed
Article 1772 will not affect the ability of the to their contract terms.
partnership to 3rd persons.
Article 1773
Isn't this inconsistent with Article 1358? A contract of partnership is void,
No, remember that in Article 1358, the contract whenever immovable property is contributed
terms exceed P500.00 then the contract must be in thereto, if an inventory of said property is not
writing. This is merely for purposes of made, signed by the parties and attached to the
convenience and not validity or enforceability of public instrument. (1668a).
the law. Also note that according to Article 1768,  Refers specifically where one or both of the
the partnership will still be valid and have a parties contribute immovable property. The
juridical entity. requirements are:
(1) The contract must be in a public instrument Article 1775
(2) An inventory of the immovable property must be Associations and societies whose articles
made, signed by BOTH parties and attached to the are kept secret among members, and wherein
public instrument, otherwise the partnership is anyone of the members may contract in his own
VOIDED. name with third persons, shall have no juridical
 Actual Case in Applying Article 1773: personality and shall be governed by the
provisions relating to co-ownership. (1669)
A and B agree to form a partnership engaging in a
fish pond business where both partners will  There is no juridical entity since the
contribute cash, the cash is later used to buy land members can contract with 3 persons in their
that is converted into a fish pond. C comes along and own name without binding others.
points out that the partnership is void because no  In a partnership:
inventory of the land was made. Is the partnership (1) The partners are merely agents who cannot act
really void? alone.
No, the partnership is not void because according (2) Articles of Partnership are known to ALL
to the Supreme Court, article 1773 need not apply partners AND to the GENERAL PUBLIC.
since the land was BOUGHT from the CASH
CONTRIBUTION. Article 1776
As to its object, a partnership is either
Suppose a partnership contributes immovable universal on particular.
property but does not conduct an inventory and As regards to the liability of the partners,
enters into a contract with A. The partnership does a partnership may be general or limited. (1671a)
not fulfill its obligation to A and A sues the
partnership. Was A right in suing the partnership? Classifications of Partnerships:
No, since the partnership was void from the (1) As to the Object:
beginning. A should instead file against the (a) Universal Partnership of All Present Property -
“partners” themselves. They will be sued under defined in Article 1778.
the legal basis of them being partners by (b) Universal Partnership of All Profits - defined in
estoppels, as stated in Article 1825. Article 1780.
(c) Particular Partnerships - defined in Article 1783.
If A wishes to be in a partnership with and promises (2) As to the Liability:
to contribute land but subsequently sells the same (a) General - general partners are liable PRO-RATA
plot to C. Who immediately registers the transfer, und subsidiarily, sometimes solidarily, with their own
who owns the land? property/assets if the partnership is insolvent may
C owns the land because A never registered the include industrial partners).
transfer. (b) Limited - limited partners are liable only up to the
 Estafa: when the owner of a property sells extent of their contribution
the same to two or more different persons. (3) As to Duration:
(a) At will - no particular undertaking can be
Article 1774 dissolved at any time.
Any immovable property or an interest (b) With a Fixed Term -- may only be dissolved upon
therein may be acquired in the partnership name. the end of its term unless continued by the partners
Title so acquired can be conveyed only in the (4) As to Legality of Existence:
partnership name. (n) (a) De Jure - complied with ALL requirements
(b) De Facto-failed to comply with ALL
 Being a juridical entity, a partnership can requirements
acquire property and subsequently become (5) As to Representation to Others:
its owner. (a) Ordinary/Real-actually exists
(b) Ostensible/ by Estoppel-exists only to partners
(6) As to Publicity: A stipulation for the common enjoyment
(a) Secret - some partners are not known to the public of any other profits may also be made; but the
(b) Open/Notorious - all partners are known to the property which the partners may acquire
public. subsequently by inheritance, legacy or donation
(7) As to Purpose: cannot be included in such stipulation, except the
(a) Commercial/Trading -business transactions fruits thereof. (1674a)
(D) Professional/Non-Trading -exercise of  Why is the universal partnership of all
professions. present property not popular in the
Kinds of Partners: Philippines?
(1) Under the Civil Code:  Property owned at the time of contribution
(a) Capitalist- contributes money property will become common property of the
(b) Industrial - contributes industry partnership eventually because only the
(c) General - liability extends to personal assets profits acquired through the contribution
(d) Limited -liability up to contribution only will become common property, unless there
(e) Managing - manages the partnership was a stipulation that says otherwise.
(f) Liquidating-responsible during dissolution Example:
(g) By Estoppel- not really a partner A and B form a Universal Partnership of All
(h) Continuing - continues business after dissolution Present Property and stipulate that property and
0) Surviving-remains after partner's death profits that are acquired during business operations
0) Sub-partner - contracts with parties, Article 1804 will become common property even if these were not
Other Classifications: due to their contributions and that if anyone inherits
(a) Ostensible - active, known to the public property, it will become common property as well. A
(b) Secret - active, unknown to the public acquires land as part of his compensation package
(c) Silent - inactive, known to the public from Ayala Land and inherits and from his parents
(d) Dormant-inactive, unknown to the public whose property will become common property?
(e) Original-member at time of organization Only A's land will become common property
(f) Incoming -about to become a member because it was essentially PAYMENT while B's
(g) Retiring - about to withdraw was inherited. The article prohibits donations to
become common property, only fruits of such can
Article 1777 become common property.
A universal partnership may refer to all  In a partnership contributions must be
the present property or to all the profits. (1672) determinate/certain and partners are akin to
donors. Donations cannot comprehend
Article 1778 future property but profits can be stipulated.
A partnership of all present property is
that in which the partners contribute all the Article 1780
property which actually belongs to them to a A universal partnership of profits
common fund, with the intention of dividing the comprises all that the partners may acquire by
same among themselves, as well as the profits their industry or work during the existence of the
which they may acquire therewith. (1673) partnership. Movable or immovable property
which each of the partners may possess at the time
Article 1779 of the celebration of the contract shall continue to
In a universal partnership of all present pertain exclusively to each, only the usufruct
property, the property which belongs to each of passing to the partnership (1675).
the partners at the time of the constitution of the
partnership becomes the common property of all Example:
the partners, as well as all the profits which they Suppose A and B form a Universal
may acquire therewith. Partnership of All Profits and A wins in the lotto,
P100, 000.00. B tries to share in 50% citing the  They are not allowed to donate to each other
existence of their partnership and that A used the and a universal partnership essentially
partnership's money to purchase the lottery ticket. requires that the partners donate to each
Can B really share in the lotto winnings? other.
No. В cannot since it came from CHANCE, not  They can join a particular partnership
WORK. instead.
If the P100, 000.00 instead came from A's  A partnership formed in violation of this
work in DLSU, can B share in the profits of A? article shall be null and void. It shall not
Yes, because it came from WORK. have any legal personality either.
 As long as it is PROFIT, the profit becomes
common property to the partners UNLESS Illustrative Case:
there was a stipulation in their agreement A B and C for a partnership to engage in the
 If A and B form a Universal Partnership of importation, marketing and operation of automatic
All Profits for a Taxi-Cab business and both phonographs, radios, Television sets amusement
contribute vehicles that will serve as the machines and their parts accessories, with B and C
taxi, what they were actually contributing is as limited partners. Subsequently, A and B got
the USE or the RIGHT TO USE their married and thereafter, C sold his share to A and B
vehicles. Upon dissolution, the vehicles will for a nominal amount. Was the partnership dissolved
be returned to them since there was never a after the marriage of A and B and C's sale to them of
transfer of ownership. his share in the partnership?
 Unique feature of the Universal Partnership No, the firm was not a universal partnership but a
of All Profits particular one.
- The partners retain the title of ownership
 Pertinent Legal Provisions
Article 1781 (1) Article 87: Every donation or grant of gratuitous
Articles of Universal Partnership, entered advantage, direct or indirect between spouses during
into without specification of its nature, only their marriage, valid or not shall be void except
constitute a universal partnership of profits moderate gifts which the spouses may give each
(1676). other on the occasion of any family rejoicing.
(2) Article 739. The following donations shall be
 If the articles of universal partnership are void:
doubtful or unclear then the presumption is (a) Those made between persons who were guilty of
that it is a universal partnership of all adultery or concubinage at the time of the donation
profits. (b) Those made between persons found guilty of the
- Because a universal partnership of all same criminal offense in consideration thereof
profits require less obligations and is (c) Those made to a public officer or his wife,
less onerous since the partners get to descendants and ascendants by reason of his office.
retain ownership over the property that
they contribute. Article 1783
A particular partnership has for its object
Article 1782 determinate things, their use or fruits, or a
Persons who are prohibited from giving specific undertaking, or the exercise of a
each other any donation or advantage cannot profession or vocation (1678)
enter into a universal partnership. (1677)
 Defines what a particular partnership is:
 A husband and wife cannot join a universal  Particular partnerships are those that are:
partnership.
- Neither a universal partnership for all NO. Because they cannot enforce the contract
present property nor a universal since it was perfected 1.5 years ago and the
partnership for all profits. contract was only oral. Since the contract was for
- Example: Those that are formed for the 1.5 years, it was greater than 1 year and should
acquisition and Sale of property. have been written instead.
Accounting Firms Law Firms. Etc.
Popular because it is easy to join  The Statute of Fraud does not usually apply
but to some particular cases such as the
Chapter 2 - Obligations of the Partners example above, it will.
 If the contribution is immovable property,
Section 1 - Obligations of the Partners among comply with Article 1773 otherwise the
Themselves partnership will be void.

 Relations created by a contract of Article 1785


partnership: When a partnership for a fixed term or
(1) Relations among the partners themselves particular undertaking is continued after the
(2) Relations of the partners with the partnership termination of such term or particular
(3) Relations of the partnership with third persons undertaking without any express agreement, the
(4) Relations of the partners with third persons rights and duties of the partners remain the same
as they were at such termination, so far as is
Article 1784 consistent with a partnership at will.
A partnership begins from the moment of A continuation of the business by the
the execution of the contract, unless it is otherwise partners or such of them as habitually acted
stipulated. (1679) therein during the term, without any settlement or
liquidation of the partnership affairs, is prima
 Partnership is perfected by mere consent and facie evidence of a continuation of the
if ALL the requirements are met. partnership. (n)
 Notwithstanding the fact that the partners
have not given their contributions yet.  A partnership with a fixed term/particular
undertaking is continued without express
Example: agreement
A and B agree to form a partnership that  Rights and duties remain the same as they
will begin on December 1 and upon the arrival of were at termination
certain machinery needed by the business. In this Example:
situation, are A and B in already in a partnership? If A and B forma partnership to last until
As long as the agreement remains executory, then December 30, 2011 and A is the manager and they
A and B are NOT partners therefore there is no share profits 50-50 and after December 30, 2011 they
partnership yet. continue with their partnership. What happens?
 Partners may agree to form a partnership to A and B retain their rights, meaning A is still the
take effect in the future manager and they still share profits 50-50.
Example:
A and B agree to form a partnership 1.5  If there was express agreement for the form
years later, with contributions of P100,000.00 each. of existence, then when the term expires, the
A contributes his share early but when the time partnership is dissolved and becomes a
comes for B to contribute his share, he refuses and partnership at will.
says he no longer wants to partake in the  Continuation is when there is NO
partnership. Can A compel B to contribute his share settlement/liquidation. There must be prima
to the partnership?
facie evidence, meaning it must be seen on NO, if one of the partners fails to comply with his
first glance. requirements, then the others can request for
specific performance with damages from the
Article 1786 defaulting partner A.
Every partner is a debtor of the
partnership for whatever he may have promised What are the obligations of A before October 2011?
to contribute thereto. (1) To contnbute what he promised
He shall also be bound for warranty in (2) To be held liable to answer for eviction if the
case of eviction with regard to specific and partnership is deprived of this contribution
determinate things which he may have (3) To take care of the contribution with the diligence
contributed to the partnership, in the same cases of a good father of a family
and in the same manner as the vendor is bound
with respect to the vendee. He shall also be liable Suppose A leased the car out and gets it back by
for the fruits thereof from the time they should December 2011.
have been delivered, without the need of any Then A must deliver the car and the fruits
demand. (1681a) (profits from lease) to the partnership because
there was a delay.
Article 1787
When the capital or a part thereof which Suppose that after A contributes the car, a 3 rd person,
a partner is bound to contribute consists of goods, D claims to the real owner of the car and is able to
their appraisal must be made in the manner prove so.
prescribed in the contract of partnership, and in Then A is held liable for eviction because
the absence of stipulation, it shall be made by the partnership is deprived for a specific thing. A
experts chosen by the partners, and according to is also held liable for damages to BOTH the
current prices, the subsequent changes thereof partnership and to D.
being the account of the partnership. (n)
What about B? Can the partnership determine the
Article 1788 value of the goods he contributed?
A partner who has undertaken to In Article 1787, It clearly states that the
contribute a sum of money and fails to do so goods SHOULD be appraised by the partnership
becomes a debtor for the interest and damages there was no agreement/stipulation, then the
from the time he should have complied with his partnership shall have the goods appraised by an
obligation. The same rule applies to any amount expert.
he may have taken from the partnership coffers,
and his liability shall begin from the time he What if the goods appreciate/depreciate?
converted the amount to his own use. (1682) It will be charged to the partnerships account.

Suppose A, B and Care partners. A promises What will happen if C fails to comply with his
to contribute a RED CAR, B promises to contribute obligation?
GOODS WORTH P50,000.00 and C promises to C will be liable for his contribution plus
contribute P50,000.00 IN CASH on October 2011. interest and damages from the date he was
On October 2011, none of them comply. What supposed to contribute. The same rule will apply if
happens? the partners take money from the partnership's
A Band C thus become debtors to the partnership. funds without everyone's consent. He will
however, not be charged for theft or estafa and his
Suppose B and C contribute their parts but obligation will only be to return the money he took
A does not Can Band C ask for the rescission or plus interest and damages from the time he took
annulment of the contract? the money.
When will a partner be held criminally liable? Article 1790
Suppose the partners set aside P10.000.00 Unless there is a stipulation to the
for payment to one of their creditors. A takes this contrary, the partners shall contribute equal
amount from the fund and is subsequently shares to the capital of the partnership. (n)
discovered to have done so.
- Then A can be charged for estafa since he  The partners shall contribute to the capital of
misappropriated the money ALREADY SET the partnership as per their agreement,
ASIDE. except if there was no agreement in the first
place, in which case, they shall contribute
Article 1789 equally.
An industrial partner cannot engage in Example:
business for himself, unless the partnership A and B decide to form a partnership and
expressly permits him to do so; and if he should agree to contribute to the capital in the ratio of
do so, the capitalist partners may either exclude 60:40, how much should the partners contribute to
him from the firm or avail themselves of the the partnership?
benefits which he may have obtained in violation The partners shall contribute in the ratio of 60:40,
of this provision, with a right to damages in either meaning if their partnership capital is a combined
case. (n) total of P10,000.00 then A contributed P6, 000.00
and B contributed P4,000.00
 An industrial partner contributes his industry
- Partnership has the EXCLUSIVE RIGHT A and B decide to form a partnership but did
to his industry. not say how much the other should contribute, how
- Prohibited from the engaging in business much should each partner contribute to the
of ANY kind unless the partnership has partnership?
expressly permitted him to do so. Since the partners did not give any sort of
agreement as to the ratio of their capital
Example: contribution, we shall assume that they will
Suppose that a partnership is engaged in a contribute in equal proportions, meaning if the
automobile repair shop. A is the industrial partner partnership capital is a combined total of
(chief mechanic) and works only up to 5PM every P10,000.00, then each partner contributed
working day. Can he go home and work on the P5,000.00.
partnership's customers' autos, even if he says it to
the capitalist partners EVERY DAY before he leaves? Article 1791
The law says that there must be If there is no agreement to the contrary,
EXPRESSED permission, in this situation, all A has in case of imminent loss of the business of the
is IMPLIED permission. The capitalist partners' partnership, any partner who refuses to
remedy is therefore to either; only one contribute an additional share to the capital,
(1) Avail of the benefits from A's business except an industrial partner to save the venture,
(2) Exclude A from the partnership and demand for shall be obliged to sell his interest to the other
damages partners. (n)
 Capitalist partners are prohibited from
engaging in SIMILAR businesses only  If there is an imminent loss in the
 Industrial partners have the same remedies partnership, the partner who refuses to
as capitalist partners contribute additional funds, IF HE IS
CAPABLE TO DO SO, shall sell his share
TO THE PARTNERS, unless he is an
industrial partner.
 Imminent Loss sum thus collected shall be applied to the two
 There is a need for the capitalist partners to credits in proportion to their amounts, even
contribute additional funds to save the though he may have given a receipt for his own
partnership credit only; but should he have given it for the
 The industrial partner need not do so account of the partnership credit, the amount
because he has already given 100% of his shall be fully applied to the latter.
efforts The provisions of this article are
 If the capitalist partner is WILLING but understood to be without prejudice to the right
NOT FINANCIALLY CAPABLE, the granted to the debtor by Article 1252, but only if
article will NOT apply to him because he is the personal credit of that partner should be more
already insolvent. onerous to him. (1684)
 Selling of interest
 Refusal to contribute additional funds to .A and B are in a partnership where A is the
save the partnership means that the partner managing partner. C owes A a sum of P5,000.00 and
no longer has any interest in the partnership the partnership a sum of P10,000.00. The credit to A
 He should not be allowed to reap the is due on September 1 while the partnership's is due
benefits that the other partners have worked on September 15, both debts are due and
hard for because he had not done anything to demandable. A collects from C a total of P3,000.00
help anyway only and A subsequently issues a receipt in his name.
 He cannot complain of being removed from Is the partnership entitled to share in the P3,000.00?
the partnership because he will be paid what Yes but in proportion to their respective debts so
is due to him for this share in the interest of A gets P1,000.00 and the partnership gets
the partnership P2,000.00
 Agreement that the partner need not
contribute additional funds in cases of loss Supposing there was no mention as to who
the managing partner is, will the requisites of Article
 The capitalist partner will not be required
1792 still be present?
since it was in their agreement in the first
place. Yes, in the absence of information relating to the
identity of the managing partner, the assumption
 Note that more contribution to the
shall be that ALL partners are managing partners
partnership capital would mean you share
more in the profits but this should be
If A issues a receipt on the name of the
voluntary
partnership instead, to whose credit will the
P3,000.00 be put?
Things to consider
The entire P3,000.00 will go to the partnership.
(1) There must be an IMMINENT LOSS
(2) The partner who is unwilling to contribute must
Supposing the credit of A carries 18% while
be SOLVENT FINANCIALLY CAPABLE
that of the partnership carries only 10%. C pays A
(3) There was no agreement that the partners will not
and says that the P3,000.00 shall be applied to A's
have to contribute additional funds in cases of loss.
credit. Is the partnership entitled to share in the
 If the purpose of additional contribution is
P3,000.00 still?
simply to raise capital, then this article will
No, the debtor is given the right to apply payment
not apply.
to whichever debt is more onerous.
Article 1792
Things to remember
If a partner authorized to manage collects
The two conditions should be both present in order
a demandable sum, which was owed to him in his
for the Article to apply, otherwise, the entire amount
own name, from a person who owed the
will go to whoever collects payment from the debtor
partnership another sum also demandable, the
(1) 2 debts and both are due and demandable
(2) The one collecting should be the managing here is only DEBTOR for damages and he cannot
partner compensate using his profits and benefits earned
for the partnership because it IS HIS DUTY to do
Article 1793 so in the first place.
A partner who was received, in whole or
in part, his share of a partnership credit, when the  Responsibility may be equitably mitigated
other partners have not collected theirs, shall be by the courts through extraordinary efforts
obliged, if the debtor should thereafter become of the partner, unusual profits are
insolvent, to bring to the partnership capital what recognized/realized.
he received even though he may have given receipt
for his share only. (1685a) Example
A partnership between A and B is engaged
 In this case, there is only ONE debt but 2 or in an auto shop business. A customer brought his car
more debtors, both of which are partners. in to be painted YELLOW but A bought RED paint
Example: instead and the car is painted RED. Damages are
A and B are partners and C owes the suffered by the partnership for P30,000.00 due to the
partnership a sum of P10,000.00 B is the managing repainting. Can A compensate this loss using the
partner but A collects his share in the P10,000.00 profits he earned for the partnership?
and C pays A P5,000.00 to which A issues a receipt A cannot compensate it with the profits he earned
in his name. When B's turn to collect comes, C is because it is his obligation to bring profits in the
already insolvent. What should A do? first place. The responsibility of the P30, 000.00,
A shall return his P5,000.00 to the partnership however, may be mitigated by the court if by
and split it with B because C has already become other activities. A is able to bring about unusual
insolvent. or extraordinary profits meaning, he may be
allowed by the courts to pay back just P15,000.00
 Take not that whoever collects doesn't instead.
matter as it doesn't make a difference
 If you get your share early and the other  Follows that if the partner is guilty of fraud
parties cannot get theirs because the debtor or damages, he shall be liable for that.
has become insolvent, then you must retum
YOUR share to the partnership so that no
one gets more than he should have. Article 1795
The risk of specific and determinate
Article 1794 things which are not fungible, contributed to the
Every partner is responsible to the partnership so that only their use and fruits may
partnership for damages suffered by it through be for the cornmon benefit, shall be borne by the
his fault, and he cannot compensate them with the partner who owns them.
profits and benefits which he may have earned for The things contributed are fungible, or
the partnership by his industry. However, the cannot be kept without deteriorating, or if they
courts may equitably lessen this responsibility if were contributed to be sold, the risk shall be
through the partner's extraordinary efforts in borne by the partnership. In the absence of
other activities of the partnership, unusual profits stipulation, the risk of things brought and
have been realized. (1686a) appraised in the inventory, shall also be borne by
the partnership, and in such case the claim shall
Why Compensation will not apply be limited to the value at which they were
Compensation will not apply because in appraised. (1687)
compensation, you should be both a debtor and a
creditor at the same time. However, the partner  Refers to rules as to who bears the risks
made by contributions.
 If the contribution is determinate and non- A partnership needs office supplies so B
fungible but only the use is contributed, contracts for P10,000.00 worth of supplies. Who will
when it is lost, then the one who contributes pay for the contract price of P10.000.00?
it is liable for it. The partnership shall be the one to shoulder the
 If fungible things are contnbuted, the cost as it was made in good faith and did not
partnership shall be the one to shoulder the overstep his authority.
risks.
 The partnership shall also be the one to bear If it was stated that the partners cannot
the risk for items brought for sale in contract for more than P5,000.00 worth of supplies
inventory for appraisal for the value at and B still contracts for P10.000.00. How much will
which they were appraised. the partnership pay?
The partnership will only pay what was allowed,
Article 1796 that is, P5,000.00 and B will pay the remaining
The partnership shall be responsible to balance since B overstepped his authority.
every partner for the amounts he may have
disbursed on behalf of the partnership and for the (3) To answer for risks in management
corresponding interest from the time the expenses Example:
are made; it shall also answer to each partner for A partnership is engaged in selling goods
the obligations he may have contracted in good and a customer keeps asking for discounts and an
faith in the interest of the partnership business, argument ensues between the customer, C and the
and for the risks in consequence of its partner A. A gets injured and is brought to the
management (1688a) hospital. Who shall shoulder the hospital bills?
The partnership shall shoulder the hospital bills as
 Refers to the obligation of the partnership to it was during A's time in managing the business
the partners. that he was injured.
 The partners are merely agents so they are
not personally liable except if they are at Article 1797
fault or if they exceeded their expressed The losses and profits shall be distributed
authority. in conformity with the agreement. If only the
share of each partner in the profits has been
Obligations of the Partnership agreed upon, the share of each in the losses shall
(1) To reimburse any amount disbursed by the be in the same proportion.
partners in behalf of the partnership In the absence of stipulation, the share of
Example: each partner in the profits and losses shall be in
A partnership borrows from the bank a proportion to what he may have contributed, but
sum of P10,000.00 for additional funds but cannot the industrial partner shall not be liable for the
pay it back when it is due to be paid back. A pays losses. As for the profits, the industrial partner
back the P10,000.00 using his personal funds. shall receive such share as may be just and
Should he be reimbursed by the partnership? equitable under the circumstances. If besides his
Yes, the partnership should reimburse A for the services, he has contributed capital, he shall also
sum of P10,000.00 PLUS legal interest starting receive a share in the profits in proportion to his
from the date A disbursed the P10.000.00. capital (1689a)

(2) To answer for any obligation contracted in good Article 1798


faith If the partners have agreed to entrust to a
Example third person the designation of the share of each
one in to profits and losses, such designation may
be impugned only when it is manifestly
inequitable. In no case may partner who has
begun to execute the decision of the third person, Under Article 1799, the stipulation shall be void
or who has not impugned the same within a period because there must be mutual sharing of profits
of three months from the time he had knowledge and losses.
thereof, complain of such decision.
The designation of losses and profits Can the partners appoint a 3rd person to
cannot be entrusted to one of the partners. (1690) designate the division of their profits and losses?
Yes and they will not be allowed to question his
Article 1799 decisions unless the designation of shares is
A stipulation which excludes one or more manifestly inequitable.
partners from any share in the profits or losses is
void. (1691)  2 cases where partners ABSOLUTELY
cannot question designated shares by the 3rd
 Lays out the rules in the distribution of parties.
profits and losses. (1) When a partner begins to execute the 3rd
party's decision
A B and C are partners with the following (2) When complaints are raised AFTER
capital contributions, P30,000.00, P20,000.00 and three months from the point of knowledge of
P10.000.00 respectively, where C is a capitalist- the designation
industrialist partner. For one year of their
operations, their partnership had earned net profits Can the partners designate one of
of P17,000.00. How shall these profits be divided themselves to distribute profits or losses?
among the partners? (C is entitled to receive No, the law prohibits this situation because there
P2.000,00 out. of the entire P17.000.00) may be disparities when it comes to the
(1) in accordance with any existing agreement distribution of net profits.
between the partners as to how they shall share.
(2) If there was no agreement, then the partners Article 1800
shall share on a pro-rata basis The partner who has been appointed
The industrial partner shall get what is JUST and manager in the articles of partnership may
EQUITABLE in the circumstances. (BONUS TO execute all acts of administration despite the
PARTNER) opposition of his partners, unless he should act in
A 30k 30 7.5 7.5 bad faith; and his power is irrevocable without
B 20k 20 5 5 just and lawful cause. The vote of the partners
C 10k 10 2.5 2 4.5 representing the controlling interest shall be
total 60k 60 15 2 17 necessary for such revocation of power.
A power granted after the partnership
 The same rules shall apply for losses in the has been constituted may be revoked any time.
partnership's operations, however the (1692a)
industrial partner shall not share in the
losses as there is no way for him to retract 2 Kinds of Managing Partners
his industry and in the event of losses, his (1) Appointed DURING the Constitution of the
efforts would have been for vain and it can Partnership
thus be said that he has already shared. - May execute all administrative acts
unless he acted in bad faith. His power
What is the legal effect of having a stipulation that may not be revoked unless there is a
excludes a partner from sharing in the profits or JUST and LAWFUL cause and the
losses? vote of the partners with controlling
interest.
- Even if there are objections as to his
decisions coming from the partners, his
authority will prevail UNLESS he has Article 1802
acted in bad faith. In case it should have been stipulated that
- Acts of administration; ordinary none of the managing partners shall act without
business and administrative the consent of the others, the concurrence of all
transactions. shall be necessary for the validity of the acts, and
- Why can he note be revoked for no the absence or disability of any one of them cannot
reason? be alleged, unless there is imminent danger of
- Because if you revoke his power, you grave or irreparable injury to the partnership.
are in effect changing the terms of (1694)
the contract of partnership.
(2) Appointed AFTER the Constitution of the  This is a case wherein two partners, A and B
Partnership stipulate that one cannot act without the
- May have his power revoked with or consent of the other. Thus, there must
without cause always be concurrence between the two
- Decided upon by those partners who before any transactions may be entered into,
own controlling interest in the the absence of the other's consent shall not
partnership be used as an excuse.

Article 1801 Illustrative Case


If two or more partners have been A sold to B one, of the managing partners of
entrusted with the management of the partnership Partnership X, the other being C, a certain number of
without specification of their respective duties, or mining claims without the consent of C. In an action
without stipulation that one of them shall not act by A to recover the unpaid balance of the purchase
without the consent of the others, each one may price against Partnership X. C claims that the
separately execute all acts of administration, but if contract is not binding upon the partnership for the
any of them should oppose the acts of the others, reason that under the articles of partnership, there is
the decision of the majority shall prevail. In case a stipulation that one of the partners cannot bind the
of tie, the matter shall be decided by the partners firm by a written contract without the consent of
owning the controlling interest. (1693a) others. Is the transaction made by B binding upon the
partnership?
Assume that A, B, C and D are all managing According to the Supreme Court, the stipulation
partners, A appoints E as a secretary but B objects to applies only to B and C. A has the right to assume
this is the appointment of E valid? that B was authorized to complete the transaction.
Yes since majority votes are first counted by head, Therefore, the partnership is liable, and since B
If C&D were the ones to object, and they owned a violated the terms of contract between himself and
combined total of 51% of partnership interest, C, he is required to reimburse C for the amount C
then the appointment will not be valid. However, will be paying A on behalf of the partnership, the
if B was still the one who objected and he owns reason being, it would be unfair to G who had no
51% of partnership interest, the appointment will knowledge of B's transaction to have to pay when
still be valid because majority votes are first he never agreed anyway.
counted by head.
 The only instance in which a partner may
 If the partnership cannot make a decision transact without concurrence is when there
and ends up in a tie (head count and is imminent danger of grave or irreparable
interest), then the partnership is to be damage to the partnership if he does not do
dissolved. This will be the only remedy. so. However, the party involved must be
unless one of the other partners will relent. able to prove so else. He shall become liable
for what he has done.
Example: once the warehouse is finished, to look at it and did
A and B are in a partnership where they sell not object to its existence. Was this valid?
fruits, B notices that the fruits in the warehouse are Yes, since the partners did not object then there is
starting to rot so, without consent of A ho sells them. IMPLIED consent. Since consent was never
This will be alright because if the fruits rot, then it qualified in the article. It is assumed that implied
would have been bad on the part of the consent is enough.
partnership.
Suppose before A builds the warehouse, he
Article 1803 asks for the consent of the other partners, who refuse
When the manner of management has not to give it. When A tries to convince them and asks
been agreed upon, the following rules shall be why they refuse to give consent, they simply say that
observed: they do not want it to be there, making their objection
(1) All of the partners shall be considered agents manifestly prejudicial, meaning, there is really no
and whatever any one of them may do alone shall reason for their objection, what then, is the remedy of
bind the partnership, without prejudice to the A in this situation?
provisions of article 1801. A may bring the matter to court. If the court finds
(2) None of the partners may, without the consent the other partners of having no solid reason to
of the others, make any important alteration in object, it may compel the other partners to give
the immovable property of the partnership, even the consent.
if it may be useful to the partnership. But if the
refusal of consent by the other partners is Article 1804
manifestly prejudicial to the interest of the Every partner may associate another
partnership, the court's intervention may be person with him in his share, but the associate
sought. (1695a) shall not be admitted into the partnership without
the consent of all the other partners, even if the
 If there is no agreement as to who will be partner having an associate should be a manager.
the managing partners, during constitution (1696)
and after constitution of the partnership,
then the assumption shall be that ALL the  Refers to SUBPARTNERSHIP
partners are managing partners, without
prejudice to Article 1801, meaning Article A, B and C are in a partnership wherein A is
1801 will then apply to their case. the managing partner. A enters into a contract with
 The second paragraph of this article D that states D will receive 50% of A's share in
provides that the partners cannot simply partnership profits. Can A do this even without the
alter immovable property owned by the consent of the other partners?
partnership without the consent of the other Yes because a sub-partnership will not affect the
partners because this is NOT an act of composition of the partnership and D will not be
administration but of OWNERSHIP. able to interfere with the partnership's
 Note that consent here is no qualified, so it management anyway.
may be expressed or it may be implied. When are you required to share your partnership
profits with 3rd persons?
Example When you contract with 3rd persons because
Suppose A, B, C and D are in a partnership perhaps in some past event you need money and
where the managing partner is not specified and A they provided you with it, and in your contract, it
decides to put up a warehouse in a piece of land was agreed upon that you will share in the
owned by the partnership without consent of other partnership profits.
partners because he believes it to be useful and The 3rd person can also opt to receive ALL profits.
beneficial to the partnership. His partners come over,

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