MIDTERM REVIEWER IN PARTNERSHIP DUMAGAT.CUEVAS. BAGATSING. ESCATRON.CINCO. OCAMPO.

CRISTORIA
Partnership it is a contract where 2 or more persons bind themselves to contribute money , property or industry to a common fund. for the purpose of gaining profit and dividing these among themselves. Two or more persons may also form a partnership for the exercise of a profession. II. Essential Features of a Partnership: (5) 1. There must be a valid contract: thus consent , object , consideration required. contract may be express or implied. It is also a consensual contract Thus perfected by mere consent It could also be made orally or in writing . However there are instances that the contract of partnership must appear in a public instrument and registered. The purpose is for the issuance of licenses , to prevent FRAUD in taxation. These instances include when the capital is 3000 or more ; or when the contribution is an immovable. Note: even with the failure of the contract to appear in a public instrument and registered , the partnership is still considered formed. And so it will have a distinct and separate personality from the individual partners. 2. Parties must have legal capacity to enter into the contract. Any person is capable of entering into a contract except. 1. minors 2. insane persons 3. deaf mutes who dont know how to write 4. Persons who are suffering from civil interdiction 5. Incompetents who are under guardianship 3. There must be a mutual contribution of money . property or industry to a common fund. 4. the purpose and object must be lawful 5. The primary purpose must be to obtain profits and divide the same among the parties. The minimum requirement is a profit motive not actual profits. A stipulation which excludes one or more partners from any share in the profit or losses is void. III. Partnerships distinguished from concepts. The basic forms of business organization are: Sole proprietorship Partnership Corporation other 1. A partnerships primary purpose is to obtain profits and divide the same among the partners. Note : sharing of profits is a presumptive evidence of partnership but it is not a conclusive evidence In contrast the sharing of gross returns is not presumptive evidence . because it is merely profits received in payment as wages , commission , rent or interest on a loan Illustration: A co ownership where the parties contribute in the association they also share in the profits is still not a partnership id there is no valid contract or agreement to make a profit and do business. 4. Partnership vs. Corporation Partnership is created by mere agreement of the parties , a corporation is created by law of by operation of law. Partnership may be organized by only 2 persons while a corporation generally requires at least 5 incorporators. Partnership commences to acquire juridical personality from the moment of the execution of the contract of partnership. Corporations begins to have juridical personality only from the date of issuance of the certificate of incorporation by SEC. 5. Art. 1770: a partnership must also have a lawful object or purpose. Rule : a partnership is dissolved by operation of law upon the happening of an event which makes the associations object . purpose unlawful . An unlawful partnership has the ff. effects The contract is void ab initio as if the partnership never existed. Profits will be confiscated by the government. The contributions of the partnership will not be confiscated unless these are tools or instruments used in a crime. IV. Arts. 1771-1774: partnership where an immovable property or real rights are contributed. art. 455 (NCC) list down the 10 properties considered as an immovable

Article 1769: lays down the rules for determining whether or not an association is one of partnership. General rule: if all the essential features or characteristics of a partnership are present then the association is a partnership.

EH ROOM 403

a real right is a right that can been enforced against the whole world.

as to form: a contract of partnership can be made orally or in writing. Except if : If there is a contribution of an immovable property or real rights then the contract of partnership must be in a public instrument. Plus there must be an inventory of the property contributed. If the capital of the partnership is worth 3000 or more in money or property the contract of partnership must be in a public instrument and it also has to be recorded in the office of the SEC. Failure to follow these rules makes the contract void.

MIDTERM REVIEWER IN PARTNERSHIP DUMAGAT.CUEVAS. BAGATSING. ESCATRON.CINCO. OCAMPO. CRISTORIA However the failure will not affect the liability of the partnership and the members thereof to 3rd persons. With 3rd persons a de facto partnership or a partnership by estoppel may exist. immovable property contributed remains with the individual partner. So that only the use thereof is given or transferred to the partnership. The ff . become common partnership property: a. All profits acquired by the partners industry or work during the existence of the partnership b. It does not include profits acquired thru chance c. It also generally does not include fruits of property subsequently acquired unless stipulated otherwise. 7) Art. 1782: persons prohibited by law to give donations cannot enter into a universal partnership. This is because the partners virtually make a donation. 8) The ff. are void donations: a. Those between persons guilty of concubinage or adultery at the time of donation Those made to a public officer or his wife, descendants and ascendants by reason of his office. 9) The 2nd type of partnership classified as to object is a particular partnership. 10) Particular partnership is one where the object of the partnership is limited well defined , being confined to an undertaking of a single , temporary or ad hoc nature. 11) As to liability of partners a partnership is classified into 2. a. General partnership one where the general partners are liable pro rata and subsidiarily or sometimes solidarily with their separate property for partnership debts. b. Limited partnership is one where its members consists of a mix of general partner/s and a limited partner/s . the latter is not personally liable for the obligations of the partnership. ARTICLE 1783. Particular partnership has for its object: 1. determinate things, their use or fruits; 2. specific undertaking; or 3. exercise of a profession or vocation. Particular limited and well-defined, confined to an undertaking of a single. Temporary, or ad hoc nature Universal object is vague and indefinite, contemplates general business with some degree of continuity

Note: Naturally, a contract of partnership is a CONSENSUAL contract (perfected by mere consent) but it becomes FORMAL (written in a public instrument) if above conditions are present. 1774: a partnership has a separate and distinct personality . Thus it can acquire immovable property in its own name It can sell or convey the same property also in its own name 1775: secret associations and societies are those whose articles or agreements are kept secret among the members and wherein anyone of them may contract in his own name and third persons. This secrets associations are without juridical personality and are not partnerships. They will be governed by the rules on co ownership V. Arts. 1776- 1783: Classifications of partnerships. 1) A partnership creates a new juridical person but it does not obliterate the partners personality. Thus the liability of the partnership may be transferred to the individual partner who will answer for it with their own separate properties. 2) A partnership like a natural person has constitutional rights although it is limited. Right to due process , equal protection , right against self incrimination 3) A partnership can be classified as to object: Universal partnership b. Particular partnership 4) Universal partnership has 2 kinds: a. Universal partnership of all present property b. Universal partnership of profits 5) Universal partnership of all present properties is one where the following become the common property of all the partners. a. Property which belonged to each of them at the time of the constitution of the partnership b. Thus properties subsequently acquired thru inheritance , legacy or donation is not included . this is because future properties can not be contributed. c. Profits which they may acquire from the property contributed. 6) Universal partnership of profits When the articles of universal partnership does not specify if its of all present property or profits it is presumed to be a partnership of profits. A universal partnership of profits is one where ownership of a movable or

EH ROOM 403

b.

a.

A corporation and an individual cannot enter into a partnership. It may however enter into a joint venture with another corporation as long as the nature of the venture is in line with the business authorized by its charter. CHAPTER 2

MIDTERM REVIEWER IN PARTNERSHIP DUMAGAT.CUEVAS. BAGATSING. ESCATRON.CINCO. OCAMPO. CRISTORIA

OBLIGATIONS OF THE PARTNERS Four distinct juridical relations in partnership: 1. among the partners 2. partners with the partnership 3. partnership with third persons 4. partners with third persons ARTICLE 1784. GR: Partnership begins from the moment of the execution of the contract EXC: unless otherwise stipulated Partnership is essentially a consensual contract; its registration in the SEC is not essential to give it juridical personality. ARTICLE 1785. Partnership at will one in which no time is specified and is not performed for a particular undertaking which may be terminated at anytime by mutual agreement of the partners, or by the will of any one of the partner alone; or one for a fixed term or particular undertaking continued by the partners after termination of the term or particular undertaking without express agreement. Two kinds: 1. express 2. implied ARTICLE 1786. Obligations of a partner with respect to contribution of property: 1. Contribute money, property, or industry promised at the beginning of the partnership or at the time stipulated time 2. Answer for eviction in case partnership is deprived of the determinate property contributed 3. Liability for undelivered fruits (if the property is fruitproducing, and the fruits werent delivered at the execution of the contract or any specified time, the partner will be liable for the value of these fruits. No demand necessary. Other duties of contributing partners: a. Preserve the property with the diligence of a good father of a family b. Indemnify partnership for damages caused to it by delay in contribution of property Remedy for breach of warranty: Partnership may recover indemnity from contributing partner. If the partnership wouldnt have been constituted had it not been for the contribution, the other partners may dissolve the firm. ARTICLE 1787. When contribution is in goods the amount must determined by proper appraisal at the time contribution according to current prices 1. in the manner prescribed in the contract partnership 2. in the absence of stipulation, by experts chosen the partners be of of by After the goods have been contributed, partnership bears the risk or gets the benefit of subsequent changes in their value.

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1788: this article refers to 2 cases: 1. money promised but NOT given on time 2. partnership money converted to personal use Obligations of partners with respect to partnership capital: a. to CONTRIBUTE on the date due the amount hes undertaken to give b. to REIMBURSE money hes taken from the partnership c. Pay legal/agreed INTEREST in case of delay/ takes money from the common fund for personal use d. Pay for DAMAGES caused by delay/ conversion there is double responsibility since the partner is liable to pay both the interest and damages Liability of partner for failure to return particular money received. fraudulent misappropriation = partner guilty of estafa mere failure to return without bad faith = no estafa 1789: INDUSTRIAL PARTNER CANNOT engage in ANY business for himself UNLESS the partnership expressly permits him to do so. If he engages in business without consent, the partners may either: 1. exclude him from the partnership OR 2. avail themselves of the benefits which IP may have obtained 3. right to DAMAGES in both cases specific performance is not a remedy. Prohibition extends to any kind of business.

v. CAPITALIST partners prohibition extends only to the SAME kind of business in which partnership is engaged unless there is stipulation to the contrary. 1790: Partners shall contribute equal shares to the capital of the partnership unless there is a contrary stipulation.

MIDTERM REVIEWER IN PARTNERSHIP DUMAGAT.CUEVAS. BAGATSING. ESCATRON.CINCO. OCAMPO. CRISTORIA

1791: in case of IMMINENT LOSS of partnership business and the 4 requisites concur: 1. Imminent loss of the partnership business 2. the Opinion of the majority of the capitalist partners is that additional contribution to the common fund can save the business 3. the capitalist partner refuses deliberately to contribute an additional share to the capital (not because of financial inability) 4. NO agreement that capitalist partner is not obliged to contribute
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Partners interest not a debt due from the partnership, therefore, is not subject to attachment or execution on a judgment recovered against the individual partner. ARTICLE 1813. Conveyance of a partner of his whole interest in the partnership does not dissolve the partnership nor entitle the assignee to: 1. interfere in the management or administration of partnership affairs; 2. require any information or account of partnership transactions;or 3. inspect partnership books. It merely entitles assignee to: 1. receive profits to which the assigning partner would otherwise be entitled to; 2. avail of usual remedies in case of fraud in the management; 3. receive assignors interest; and 4. require accounting in case of dissolution of the partnership. The non-assigning partners can ask for dissolution of the partnership when the assigning partner neglects his partnership duties after assigning or when it is clear that the parties intended the entire withdrawal from the partnership of such partner and the termination of the partnership among the partners. ARTICLE 1814. By virtue of a Charging Order, a judgment creditor of a partner may apply to a competent court to charge the interest of a debtor partner with payment of unsatisfied amount of the judgment debt with interest thereon, without prejudice to preferred rights of partnership creditors under Art. 1827. Any amount which the partnership would pay to the debtor-partner should instead be given to the judgment creditor. Interest charged may be redeemed at any time before foreclosure, or, in case of sale directed by the court, may be purchased without causing dissolution: 1. with separate property by any one or more of the partners; or 2. with partnership property by any one or more of the partners with the consent of all partners whose interest are not charged or sold If judgment debt remains unsatisfied notwithstanding issuance of charging order, court may appoint a receiver who is entitled to the share of the profits and surplus of the debtor-partner, or direct the sale of interest. The redeeming non-debtor partner does not acquire absolute ownership over the debtor-partners interest but holds it in trust for him.

REFUSAL to contribute by the capitalist partner = obliged to SELL his interest to the other partners Loss in one transaction does not mean imminent loss of the business. There is imminent loss if it would amount to dissolution of partnership.
ARTICLE 1810. PROPERTY RIGHTS OF A PARTNER 1. Right possess specific partnership property (coownership among the partners) 2. Interest in the partnership (profits/surplus) 3. Right to participate in the management *Nos. 1 and 3 cannot be granted to the heirs of a partner; they are only entitled to no. 2 because it is part of the estate of the deceased partner. ARTICLE 1811. Partners are co-owners of specific partnership property. 1. A partner has equal right to possess specific partnership property for partnership purposes - if excluded from this, can seek a formal accounting or judicial dissolution; no right to possess such property for any other purpose without the consent of his partners 2. A partners right in specific property cant be assigned except when all partners assign their rights in that property 3. A partners right in specific property isnt subject to attachment/execution except on a claim against the partnership 4. A partners right in specific property isnt subject to legal support ARTICLE 1812. Partners share in the interest of the partnership is his share in the profits (during the life of partnership) and surplus (after dissolution). Profit the excess of returns over expenditure or net income of partnership Surplus the assets of the partnership after partnership debts and liabilities are paid; the excess of assets over liabilities

1815: every partnership shall operate under a firm name, which may or may not include the name of 1 or more partners.

MIDTERM REVIEWER IN PARTNERSHIP DUMAGAT.CUEVAS. BAGATSING. ESCATRON.CINCO. OCAMPO. CRISTORIA

Those who not being members of the partnership include their names in the firm name, shall be subject to the liability of a partner. Importance of a firm name: necessary to distinguish the partnership which has a distinct and separate juridical personality from its members. MISLEADING name > identical or deceptively confusingly similar to that of any existing partnership or other name already protected by law or is patently deceptive or contrary to existing laws > would mislead the public by passing itself off as another partnership > use of misleading names prohibited Use of names of deceased partner is not prohibited provided the firm indicates in all its communications that said partner is deceased. (Rule 3.02 of the Code of Professional Responsibility) Changing your firm name requires GOOD FAITH. 1816: ALL partners (including ind.part.) are liable PRO-RATA and SUBSIDIARILY for CONTRACTS entered in the name and for the account of the partnership and by a person authorized to act for the partnership. However any partner may enter into a separate obligation to perform partnership contract. Pro-rata = share is proportionate to the number of individual members in a partnership and NOT on the amount of their contribution Subsidiary liability = partners become personally liable only after all partnership assets have been exhausted. = RT. TO PRIOR EXHAUSTION of partnership property LIABILITY V. LOSS Liability = ALL partners including IP liable pro-rata and subsidiarily Loss = Industrial partners are not liable for losses in the partnership INDUSTRIAL PARTNER can demand for reimbursement from the capitalist partners for the amount he has paid unless there is an agreement to the contrary.
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IP not exempted from liability to third persons though he is exempted from loss

Note: in the absence of stipulation as to sharing of profits and losses, share in the losses is in proportion to the capital contribution. So after paying the liability to a 3rd person pro-rata, those who contributed less capital and the industrial partner may seek reimbursement from those who contributed greater capital for the excess amount paid to the 3rd person. (page 174 example) 1817: A stipulation among the partners CONTRARY to the PRO RATA and SUBSIDIARY liability in art. 1816 is VOID and NO effect upon 3rd persons. --- such agreement is only valid and enforceable among the partners. 1818: GR: In the absence of stipulation, all partners are considered managers of the partnership. Every partner is an agent of the partnership. Acts for carrying on in the usual way of partnership business (acts of administration) GR: act of a partner binds the partnership. Exception: Not authorized and 3rd person with whom he is dealing has KNOWLEDGE of the fact that partner is not authorized. Acts NOT for carrying on in the usual way of partnership business (acts of ownership) GR: act of partner does not bind the partnership Exception: partner is authorized Acts of ownership: Partner has no authority to perform acts of ownership EXCEPT when AUTHORIZED by other partners OR unless they have abandoned the business OR other parties RATIFY his acts or are ESTOPPED from asserting partners lack of authority. Acts of ownership: 1. assign partnership property in trust for creditors or on the assignees promise to pay the debts of the partnership 2. dispose of the goodwill of the business 3. do an act which would make it impossible to carry on the ordinary business of partnership 4. confess a judgment 5. enter into a compromise re. partnership claim or liability 6. submit partnership claim to arbitration 7. renounce a claim of the partnership

MIDTERM REVIEWER IN PARTNERSHIP DUMAGAT.CUEVAS. BAGATSING. ESCATRON.CINCO. OCAMPO. CRISTORIA

contract made by a partner in the name of the firm is prima facie binding on the partnership UNLESS made outside the firms business partner acting without authority has personal liability on such contract 1819: CONVEYANCE OF REAL PROPERTY BELONGING TO PARTNERSHIP 1. Title in partnerships name; conveyance in partnerships name: conveyance passes TITLE Subject to RECOVERY if: a. conveyance was not in the ordinary course of business b. purchaser is in bad faith or has knowledge of the lack of authority of the conveying partner CANNOT recover if property was again transferred to a purchaser for value in good faith 2. Title in partnerships name; conveyance in partners name: conveyance passes EQUITABLE INTEREST Purchaser not entitled to Equitable interest if: a. conveyance was not in the ordinary course of business b. purchaser is in bad faith or has knowledge of the lack of authority of the conveying partner 3. Title in the name of 1/more partners; conveyance in the name of partner(s) in whose name title stands: conveyance passes TITLE Subject to RECOVERY if: c. conveyance was not in the ordinary course of business d. purchaser is in bad faith or has knowledge of the lack of authority of the conveying partner CANNOT recover if property was again transferred to a purchaser for value in good faith 4. Title in the name of 1/more/all partners/ 3rd person in trust for the partnership; conveyance in partners/partnerships name: conveyance passes EQUITABLE INTEREST Purchaser not entitled to Equitable interest if: c. conveyance was not in the ordinary course of business
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d. purchaser is in bad faith or has knowledge of the lack of authority of the conveying partner 5. Title in the name of ALL PARTNERS; conveyance in the name of ALL partners: conveyance passes title - Safest way of conveyance conveyance of partnership real property may be made by a partner if AUTHORIZED by co-partners OR if without authority may be RATIFIED by them 1820: an admission or representation made by any partner concerning PARTNERSHIP AFFAIRS WITHIN THE SCOPE OF HIS AUTHORITY is evidence against the partnership. -- even after dissolution, admission made by a partner will bind the co-partners if connected with the winding up of the partnership business -- admissions made must be connected with partnership business and partner must be acting within the scope of his authority at the time of making the statement 1821: NOTICE to any partner of any matter relating to partnership affairs and a. KNOWLEDGE of the ACTING partner acquired while a partner or then present to his mind b. KNOWLEDGE of ANY partner who reasonably could and should have communicated it to the acting partner Operates as NOTICE TO/KNOWLEDGE of the PARTNERSHIP EXCEPT in case of fraud on the partnership committed by or with the consent of that partner. 1822 1824: SOLIDARY LIABILITY OF PARTNERS AND PARTNERSHIP TO 3RD PERSONS 1822: Requisites for liability: b. partner guilty of wrongful act or omission c. acting within the ordinary course of business or with Authority of his copartners 1823: partnership is bound to make good the loss if: b. partner acting within the scope of his apparent authority receives money or property of a 3rd person and misapplies it c. partnership in the course of its business receives money or property of a third person and the money or property received is misapplied by any partner

MIDTERM REVIEWER IN PARTNERSHIP DUMAGAT.CUEVAS. BAGATSING. ESCATRON.CINCO. OCAMPO. CRISTORIA

while it is in the custody of the partnership. partnership liable but WITHOUT prejudice to their right to recover from the guilty partner 1824 -liability of partnership for wrongful acts or omission (torts, QD) -solidary liability of partners
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contract is essential to the formation of partnership. 1826: Liability of incoming partner for partnership obligations Obligations incurred by partnership before admission: (e.g. existing obligations) liability is limited to his share in partnership property Obligations incurred by partnership after admission: (e.g. subsequent obligations) - Liability includes his share in the partnership and extends to his separate properties Where incoming partner assumed the obligation of retiring partner as one of the terms of the contract, incoming partner is liable directly to the old partnership creditors.

1816 -liability for contractual obligations -pro-rata and subsidiary liability of partners

1825: Partnership by estoppel Estoppel bar which precludes a person from denying or asserting anything contrary to that which has been established as the truth by his own deed or representation GR: persons who are not partners to each other are not partners as to third persons Exception: partnership by estoppel (liability as partners as to 3rd persons) Partnership by estoppel v. partner by estoppel (refer to notes) Partnership liability: when there is an existing partnership and all the partners consented to the representation. Liability joint or pro-rata: no existing partnership and all those represented as partners consented to such representation OR not all of the partners of an existing partnership consented to the representation Separate liability no existing partnership and not all but only some of those represented as partners consented none of the partners of an existing partnership consented to the representation To hold the party liable, 3rd person must prove such misrepresentation by the purported partner and that a bona fide reliance by him upon it caused him injury. Doctrine of estoppel is not applicable between actual partners. Estoppel does not create partnership as between alleged partners. A

ARTICLE 1827. Preference: partnership creditors preferred to creditors of individual partners as regards partnership property Remedy of private creditors of partners: seek attachment/public sale of the share of the debtorpartner in the partnership assets ARTICLE 1828. Three stages: 1. Dissolution - change in the partners relation caused by any partner ceasing to be associated in the carrying on of the business; not necessarily followed by winding up of partnership affairs 2. Winding up - process of settling business affairs after its dissolution involving the collection and dissolution of partnership assets, payment of debts, and determination of the value of each partners interest 3. Termination - point in time after all partnership affairs have been wound up and finally settled; signifies end of the partnership life ARTICLE 1829. Effect of dissolution: partnership winding up is completed continues until

Effect of dissolution on the partners: 1. they cant evade prior obligations 2. generally, theyre spared from new obligations to which they didnt consent, unless these are essential for the winding up ARTICLE 1829. EXTRAJUDICIAL CAUSES OF DISSOLUTION 1. Causes w/o violation of partnership agreement

MIDTERM REVIEWER IN PARTNERSHIP DUMAGAT.CUEVAS. BAGATSING. ESCATRON.CINCO. OCAMPO. CRISTORIA

a. End of the definite term or agreed undertaking b. By a partners express will, in good faith. If in bad faith, hell be liable for damages but he cant be compelled to remain in the firm c. Express will of all partners who havent assigned their interests or suffered them to be charged for their separate debts d. Expulsion of a partner in good faith 2. Causes in violation of partnership agreement 3. Business becoming unlawful 4. Loss of specific thing a. Promised specific thing lost before delivery dissolved b. Promised specific thing lost after delivery & transfer of ownership not dissolved c. Transfer of usufruct dissolved 5. Death of any partner 6. Insolvency 7. Civil interdiction 8. Court decree in relation to Art. 1831 ARTICLE 1831. JUDICIAL CAUSES On application by/for a partner 1. Insanity 2. Incapacity 3. Misconduct and persistent breach of partnership agreement 4. Business can be carried on only at a loss (potential or apparent) 5. Other circumstances (e.g. abandonment of business, fraud in the management, refusal without justifiable cause to render accounting of partnership affairs) On application by the purchaser of partners interest under Art. 1813 or 1814: 1. After the end of the specified term/agreed undertaking 2. Any time if partnership at will when partners interest had already been assigned/charged ARTICLE 1832. GR: Dissolution terminates all authority of any partner to act for the partnership EXC: 1. To wind up partnership affairs 2. To complete unfinished business iii. new transaction entered into by a partner with a 3rd person in good faith. ARTICLE 1833. Dissolution caused by act, insolvency, or death of a partner each partner is liable to his co-partners for his share of any liability created by a partner acting for the partnership as if the partnership had not been dissolved, unless: 1. dissolution be by act of any partner, partner acting for the partnership had knowledge of the dissolution; or 2. dissolution be by death or insolvency of a partner, partner acting for the partnership had knowledge or notice of death or insolvency. Knowledge of fact not only when he has actual knowledge thereof, but also when he has knowledge of other facts as in the circumstances show bad faith Notice of fact when the person claims the benefit of notice states the fact to such person, or delivers thru mail or by other means of communication, a written statement of the fact to such person or to a proper person at his place of business or residence ART. 1834 POWER PARTNERSHIP TO 3 PERSONS
RD

With respect to partners: I. Dissolution not by act, death or insolvency of a partner authority of any partner to bind the partnership by a new contract is immediately terminated II. Dissolution by act, insolvency, or death of a partner termination depends on WON partner has knowledge or notice of the dissolution With respect to third persons: Partners are generally bound by the new contract if: i. the transaction is necessary for winding up ii. theres a need to complete unfinished business already begun

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OF

PARTNER

TO

BIND

DISSOLVED

PAR. 1: WHEN PARTNER MAY BIND DISSOLVED PARTNERSHIP: 1.) Act appropriate for WINDING UP partnership affairs or COMPLETING TRANSACTIONS UNFINISHED. 2.) Any transaction which would bind the partnership if dissolution had not taken place, PROVIDED the 3rd party: a.) Extended credit to partnership prior to dissolution: NO knowledge or notice of dissolution b.) Not extended credit: Knowledge of partnerships existence; NO knowledge or notice of dissolution; -- Dissolution NOT ADVERTISED in NP of gen. circulation in the place where partnership regularly carried on. PAR. 3: WHEN PARTNER CANNOT BIND DISSOLVED PARTNERSHIP: 1.) Partnership dissolved because UNLAWFUL to carry on business. EXC: For winding up partnership affairs 2.) Partner became INSOLVENT 3.) Partner has NO AUTHORITY to wind up (guilty of wrongful dissolution; insolvent) EXC:

MIDTERM REVIEWER IN PARTNERSHIP DUMAGAT.CUEVAS. BAGATSING. ESCATRON.CINCO. OCAMPO. CRISTORIA

a.) 3rd party extended credit to partnership prior to dissolution: -- NO knowledge or notice of lack of authority; b.) Not extended credit: -- NO knowledge or notice of lack of authority; -- Dissolution NOT ADVERTISED in NP of gen. circulation in the place where partnership regularly carried on. Dissolution does NOT itself discharge existing liability of a partner o EXC: Express/implied consent bet. partner, partnership creditors, AND other partners. Liability of estate of deceased partner: o Partnership obligations: individual property liable Private creditors preferred v. partnership creditors
WINDING UP

PAR. 2:

PAR. 4:

ART. 1835
LIABILITY

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Acting partners insolvency: o Art. 1833(2): Authority NOT deemed terminated if acting partner had no knowledge or notice of insolvency. Partners liable to co-partners for obligations incurred by acting partner.

ART. 1836

Manner of winding up: a. Judicially Control and direction of proper court UPON CAUSE shown by partner, his legal reps., or assignee. b. Extrajudicially w/o intervention of court Persons authorized to wind up: a. Partners designated by agreement; or b. Partners who have not wrongfully dissolved; or c. Legal rep. of last surviving partner, not insolvent; d. Court may appoint receiver

Art. 1834(par.3, no.2): partnership not bound to 3rd persons.

Character of notice: a. As to prior dealers (extended credit on faith of partnership): Notice must be actual. Mere mailing insufficient to relieve partner from liability. b. As to all others: Advertisement through NP or gen circulation.

ONLY where 3rd party knew of existence of partnership prior to dissolution. Otherwise, not entitled to notice.

Surviving partners have the right and duty to liquidate. Legal rep. has no right to interfere so long as partner proceeds in good faith. o Entitled to reasonable compensation for services Powers of liquidating partner: 1. Make NEW CONTRACTS for the purpose of winding up; 2. RAISE MONEY to pay partnership debts; 3. Incur OBLIGATIONS to complete existing contracts or preserve partnership assets; 4. Incur EXPENSES necessary in the conduct of litigation.

LIABILITY OF DORMANT PARTNER:

Dormant partner: No active part in the business; not known or held out as partner (inactive and secret). o Liabilities satisfied out of partnership assets alone (EXC. to rule that partners are liable subsidiarily and pro-rata). o Personally liable for partnership debts arising after his withdrawal. o Dormant partner need NOT give notice. o REASON: Being unknown as a partner, he could not have contributed towards establishing the partnership reputation or credit.
AS REGARDS PARTNERSHIP BY ESTOPPEL:

ART. 1837

RIGHT OF PARTNER TO APPLICATION OF PARTNERSHIP

PROPERTY ON DISSOLUTION

(PARTNERS

LIEN)

3rd persons may claim the validity of contracts made with dissolved partnerships in disregard of the fact of dissolution.

EFFECT OF DISSOLUTION ON PARTNERS EXISTING

Dissolution NOT in contravention: 1. Partnership property: applied to DISCHARGE liabilities of partnership; 2. Surplus: applied to pay in CASH the net amount owing to partners; 3. Expelled partner: Discharged from partnership liabilities by agreement bet. him, partners, and partnership creditors (Art. 1835); Right only to receive in cash the net amount due him from the partnership.

MIDTERM REVIEWER IN PARTNERSHIP DUMAGAT.CUEVAS. BAGATSING. ESCATRON.CINCO. OCAMPO. CRISTORIA

Dissolution IN contravention: o Partner who has NOT caused wrongful dissolution: 1. Partnership property applied to DISCHARGE; share of SURPLUS in cash; 2. Indemnified for DAMAGES; 3. CONTINUE business in same name (alone or jointly with others); 4. POSSESS partnership property upon continuation. o Partner who CAUSED wrongful dissolution: Business not continued: partnership property applied to DISCHARGE; share of SURPLUS in cash LESS damages Business continued: 1. Value of INTEREST in partnership LESS damages, ascertained and paid in cash or secured by bond approved by court); 2. RELEASED from all existing and future liabilities of partnership. o Includes contributions necessary for payment of partnership obligations.

Equitable lien: partners right to have debts owing to the partnership from his co-partners deducted from their respective shares. Partners lien: Each partner entitled to a share in the surplus in proportion to his interest.

ART. 1838

FRAUD OR MISREPRESENTATION OF ONE OF THE PARTIES

ART.

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RULES 1.

IN

SETTLING

ACCOUNTS

BET.

PARTNERS

(SUBJ.

TO

AGREEMENT):

2.

3.

Goodwill: o Advantage from the patronage of customers, over and above mere value of property. o If of money value, considered part of partnership assets. o Firm name part of goodwill. o Proper subject of sale, but only in commercial partnerships.

RESCISSION OF PARTNERSHIP CONTRACT DUE TO

4.

Right of injured partner: 1. LIEN or right of retention on surplus of partnership property after paying partnership liabilities with money paid or contributed by him; 2. SUBROGATION in place of partnership creditors after payment of partnership liabilities; 3. INDEMNIFICATION by guilty partner against all debts and liabilities of the partnership. Without prejudice to any other rights

5.

Assets of partnership: a. Partnership property (incl. goodwill); b. Contributions nec. for payment of liabs. Order of application of assets: a. PARTNERSHIP CREDITORS; b. Partners other than for capital and profits (LOANS and ADVANCES); c. RETURN OF CAPITAL; d. PROFITS to partners in proportion Industrial partner: Share of profits remaining after return of capital to contributors. Where assets insufficient: a. Partner or legal rep.: right to ENFORCE CONTRIBUTIONS to the extent of the amount which he has paid in excess of his share of the liability; Individual property of deceased partner liable for such; b. Assignee for benefit of creditors or person appointed by court: right to ENFORCE CONTRIBUTIONS to the amount necessary to satisfy liabilities. Partnership property/individual property in possession of court for distribution: a. Partnership property first applied to partnership creditors; b. Individual property first applied to private creditors. Doctrine of marshalling of assets Distribution of property of insolvent partner: a. PRIVATE creditors; b. PARTNERSHIP creditors; c. Partner by way of CONTRIBUTION

1839 LIQUIDATION AND DISTRIBUTION OF ASSETS Partnership need not convert assets to cash for distribution. Court may order distribution in cash, property, or both.

ART. 1840 CONTINUATION OF DISSOLVED PARTNERSHIP Creditors of dissolved partnership = creditors of new partnership when: 1. NEW PARTNER admitted;

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2. Old partner RETIRES AND ASSIGNS RIGHTS in partnership property to: a. Two or more partners; or b. One or more partners AND one or more 3rd persons, if business is continued without liquidation; ALL BUT ONE partner RETIRE AND ASSIGN RIGHTS in partnership property to remaining partner, who continues business without liquidation, either alone or with others; Any partner retires or dies and business is continued as provided in (2) and (3), with his CONSENT, but without assignment of right; ALL PARTNERS ASSIGN RIGHTS in partnership property to one or more 3rd persons who promise to pay debts and who continue business; Any partner causes WRONGFUL DISSOLUTION and remaining partners continue business without liquidation, either alone or with others; Partner is EXPELLED and remaining partners continue business without liquidation, either alone or with others. partner liable for any debts contracted by the former. ART. 1841 1. 2.
RIGHTS OF RETIRING, OR OF ESTATE OF DECEASED,

PARTNER WHEN BUSINESS IS CONTINUED

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3. 4.

ASCERTAINMENT of the value of his interest as of date of dissolution; Receive, as an ordinary creditor, value of his SHARE in the dissolved partnership with: a. Interest; OR b. Profits attributable to the use of his right

5.

6.

Creditors of dissolved partnership have prior right v. private creditors of retired or deceased partner. If surviving partners continue the business without consent of deceased partners estate, they do so without any risk to the estate. If the estate consents, it is answerable for all debts and losses to the extent of the decedents share. ART. 1842 a. b.
ACCRUAL AND PRESCRIPTION OF PARTNERS RIGHT TO

ACCOUNT OF HIS INTEREST

7.

Rights of creditors of dissolved partnership which is continued: 1. EQUAL RIGHTS of dissolved and new partnership creditors. Old creditors = creditors of new partnership 2. Liability of persons continuing the business: a. New partner: Liable to the extent of share in partnership property, unless contrary agreement; b. (5) applies only when 3rd person continuing business promises to pay debts. Otherwise, creditors of dissolved partnership have NO claim. EXC: Assignment can be set aside as fraud. 3. Prior right of dissolved partnership creditors v. purchaser: When retiring or deceased partner sold his interest without final settlement, partnership creditors have an equitable lien on the consideration paid to the outgoing partner. Ahead of claims of private creditors. The use by the person or partnership continuing the business of the partnership name, or the name of the deceased partner as part, shall not make the individual property of the deceased

Right to demand accounting accrues to any partner after dissolution in the absence of contrary agreement. Prescription starts to run only upon dissolution; right to demand accounting exists as long as partnership exists. Persons liable to render an account: 1. Winding up partner; 2. Surviving partner; or 3. Person or partnership continuing the business

Liquidation necessary for determination of partners share. 1. Share of profits general liquidation needed before partner may claim specific sum; 2. Share in partnership cannot be returned without dissolution and liquidation. o GR: Upon dissolution, partner entitled to payment of what is due after a liquidation. EXC: When there is already a settlement or agreement. LIMITED PARTNERSHIP ART. 1843 LIMITED PARTNERSHIP One formed by two or more persons under provisions of Art. 1844, having as members ONE OR MORE general partner and ONE OR MORE limited partners. Limited partners not bound by partnership obligations. Characteristics:

MIDTERM REVIEWER IN PARTNERSHIP DUMAGAT.CUEVAS. BAGATSING. ESCATRON.CINCO. OCAMPO. CRISTORIA

1. Formed by compliance with STATUTORY requirements; 2. One or more general partners CONTROL the business and are PERSONALLY liable to creditors; 3. One or more limited partners CONTRIBUTE to the capital and share in the profits but do NOT participate in management and are NOT personally liable (investors); 4. Limited partners may ask for return of capital contributions under Art. 1844. 5. Partnership debts paid out of common fund of individual properties of general partners. v. Limited Limited partnership not created by mere voluntary agreement but where permitted by statute.

Must have SUBSTANTIAL COMPLIANCE in good faith. Otherwise, the liability of the limited partners becomes general as to 3rd persons, but co-partners still bound by their agreement. Hence, limited partner may seek reimbursement from general partners.

General 1. Partner liable; personally

2. Unless otherwise agreed, partners have equal right in management; 3. Partner may contribute money, property, or industry; 4.

5. Partners interest may not be assigned without consent of others; 6. Name of partner may appear in firm name; 7. Partner prohibited from engaging in business of the same kind (capitalist) or any business for himself (industrial); 8. Partners retirement, death, insanity, or insolvency dissolves partnership; 9. Generally, partnership may be constituted in any form by contract or conduct; ART. 1844 REQUIREMENTS
PARTNERSHIP

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General partner/partnership partner/partnership: Limited

Only up to contribution;

capital

Requirements for formation: 1. CERTIFICATE or articles of the limited partnership, signed and sworn to, must include: o NAME of limited partnership, with Limited; o CHARACTER of business; o LOCATION of principal office; o Name and place of RESIDENCE of each member, general and limited partners respectively designated; o TERM of partnership; o AMOUNT of cash, DESCRIPTION and AGREED VALUE of property contributed by each limited partner; o ADDITIONAL CONTRIBUTIONS of each limited partner, and when made/to be made; o TIME when contribution of limited partner is to be returned; o SHARE of profits or other compensation which each limited partner shall receive; If given: j. Right of limited partner to SUBSTITUTE with an assignee, with terms and conditions; k. Right of the partners to ADMIT additional limited partners; l. Right of one or more of the limited partners to PRIORITY over other limited partners as to contributions or compensation; m. Right of remaining general partners to CONTINUE the business; n.Right of limited partner to DEMAND and RECEIVE property other than cash in return of contribution. FILE for record in Office of SEC. o To give actual or constructive notice to potential creditors or

No share in management;

Must contribute cash or property but not services; Partner not a proper party for actions by, or against, partnership; or to enforce partners right against, or liability to, the partnership; Partners interest is freely assignable, with assignee acquiring all rights of the limited partner; Generally, must not; No such prohibition;

No effect, since partners executor/administrator has rights of the former for the purpose of selling the estate; Partnership created by compliance with statutory requirements.

FOR

FORMATION

OF

LIMITED

2.

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persons dealing partnership. with the

Person who files for false certificate renders himself as a general partner. If no substantial compliance in good faith (defective certificate), court may declare that no limited partnership has been formed. o Partnership creditors recognizing and dealing with such firm as a limited partnership may be guilty of estoppel. Failure of limited partner to extend its term when it expired, and to register it anew with SEC, has the effect of divesting the limited partner of the privilege of limited liability.

1845 Limited partners contribution

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A limited partner is not allowed to contribute services. Otherwise, he shall be considered an industrial and general partner. o Limited partner may not be an industrial partner without being a general partner.