partnership reviewer

Civil law, or civilian law, is a legal system originating in Europe, intellectualized within the framework of Roman law, the main feature of which is that its core principles are codified into a referable system which serves as the primary source of law. This can be contrasted with common law systems, the intellectual framework of which comes from judgemade decisional law, and gives precedential authority to prior court decisions, on the principle that it is unfair to treat similar facts differently on different occasions (doctrine of judicial precedent, or stare decisis).12 Historically, a civil law is the group of legal ideas and systems ultimately derived from the Corpus Juris Civilis, but heavily overlaid by Napoleonic, Germanic, canonical, feudal, and local practices,3 as well as doctrinal strains such as natural law, codification, and legal positivism. Conceptually, civil law proceeds from abstractions, formulates general principles, and distinguishes substantive rules from procedural rules.4 It holds case law secondary and subordinate to statutory law. Civil law is often paired with the inquisitorial system, but the terms are not synonymous. There are key differences between a statute and a codal article. The most pronounced features of civil systems are their legal codes, with brief legal texts that typically avoid factually specific scenarios.5 The short articles in a civil law code deal in generalities and stand in contrast with statutory systems, which are often very long and very detailed.

LAW ON PARTNERSHIPS Civil Code of the Philippines Arts 1767-1867 Note: This material, which is a compilation of various notes and lectures, is intended for the students of SLU-SABM who are enrolled in Law 3A or Law to aid them in their appreciation and better understanding of the subject This is not for sale CHAPTER – GENERAL PROVISIONS PARTNERSHIP - By the contract of partnership, two or more persons bind themselves to contribute money, property or industry to a common fund, with the intention of dividing the profits among themselves Two or more persons may also form a partnership for the exercise of a profession (Art 1767) ESSENTIAL FEATURES: There must be a valid contract The parties must have legal capacity to enter into the contract There must be a mutual contribution of money, property, or industry to a common fund The object must be lawful The purpose or primary purpose must be to obtain profits and divide the same among the parties CNBOCPP CHARACTERISTICS: Consensual, Nominate, Bilateral, Onerous, Commutative, Principal, Preparatory DELECTUS PERSONAE – The principle of delectus personae (literally means “choice of person”) in partnership relations refers to the rule which is inherent in every partnership that no one can become a member of the partnership association without the consent of all the partners Consequently, even if a partner will associate another person in his share in the partnership, the associate shall not be admitted into the partnership without the consent of all the partners, even if the partner having an associate should be a manager  A partnership is a juridical person having a personality separate and distinct from that of each of the partners, even in case of failure to comply with the requirements of Art 1772, first paragraph ( the rule that a partnership having a capital of P3,000 or more must appear in a public instrument & recorded with the SEC) PARTNERSHIP DISTINGUISHED FROM CO-OWNERSHIP AND CORPORATION PARTNERSHIP CO-OWNERSHIP CORPORATION Creation Contract, by mere Created by law Created by law agreement of the parties Juridical Personality Has a juridical personality none Has a juridical personality separate and distinct from separate and distinct from that of each partner that of the stockholders Purpose Realization of profits Common enjoyment Depends on AOI of a thing or right Duration/Term of No limitation 10 years maximum 50 years maximum extendible existence to not more than 50 years in any one instance Disposal/Transferability Partner may not dispose of Co-owner may Stockholder has a right to of interest his individual interest freely so transfer shares without prior unless agreed upon by all consent of other stockholders partners Law3A – Notes on Partnerships Atty Jonathan B Tambol Power to act with 3rd persons Effect of death In absence of stipulation to the contrary, a partner may bind partnership (each partner is agent of the partnership) Death of partner results in dissolution of the partnership Dissolution May be dissolved at any time by the will of any or all of the partners No of incorporators Minimum of persons Commencement of juridical personality From the moment of execution of the contract of partnership Co-owner cannot represent the coownership Management is vested with the Board of Directors Death of co-owner does not necessarily dissolve coownership May be dissolved anytime by the will of any or all of the co-owners Minimum of persons Death of stockholder does not dissolve corporation Can only be dissolved with the consent of the state Minimum of incorporators From the date of issuance of certificate of incorporation by the SEC NO PRESUMPTION OF PARTNERSHIP FROM RECEIPT OF PROFITS: (Art 1769) As debt by installment; As wages or rent; As annuity; As interest on loan; As consideration for sale of goodwill of business/other property by installments SIMILARITIES BETWEEN A PARTNERSHIP AND A CORPORATION Both have juridical personality separate and distinct from that of the individuals composing it Both can only act through agents Both organizations are composed of an aggregate of individuals (except corporation sole) Both distribute profits to those who contribute capital to the business Both can only be organized when there is a law authorizing their organization Both are taxable as a corporation EFFECTS OF UNLAWFUL PARTNERSHIP (Art 1770) The contract is void ab initio and the partnership never existed in the eyes of the law The profits shall be confiscated in favor of the government The instruments or tools and proceeds of the crime shall also be forfeited in favor of the government The contributions of the partners shall not be confiscated unless they fall under no FORM OF PARTNERSHIP CONTRACT GENERAL RULE: No special form is required for the validity of the contract (Art 1771) EXCEPTIONS: Where immovable property/real rights are contributed (Art 1773) a Public instrument is necessary b Inventory of the property contributed must be made, signed by the parties and attached to the public instrument otherwise it is VOID Where capital is P3,000 or more, in money or property (Art 1772) a Public instrument is necessary b Must be registered with SEC Limited Partnership (Art 1844) Law3A – Notes on Partnerships Atty Jonathan B Tambol a Must be contained in a Certificate of Limited Partnership which states the matters enumerated under Article 1844, must be signed and sworn to by the partners b Such certificate must be filed with the Office of the SEC CLASSIFICATIONS OF PARTNERSHIP As to extent of its subject matter a UNIVERSAL PARTNERSHIP i.UNIVERSAL PARTNERSHIP OF ALL PRESENT PROPERTY (Art 1778-1779) - comprises the following: a) Property which belonged to each of the partners at the time of the constitution of the partnership b) Profits which they may acquire from all property contributed ii UNIVERSAL PARTNERSHIP OF PROFITS (Art 1780) - comprises all that the partners may acquire by their industry or work during the existence of the partnership Note: Persons who are prohibited from giving donations or advantage to each other cannot enter into a universal partnership (e.g., husband and wife) b.PARTICULAR PARTNERSHIP (Art 1783) - has for its objects: i Determinate things ii Their use or fruits iii Specific undertaking iv Exercise of profession or vocation As to liability of partners a.GENERAL PARTNERSHIP - consists of general partners who are liable pro rata and subsidiarily and sometimes solidarily with their separate property for partnership debts b.LIMITED PARTNERSHIP - one formed by or more persons having as members one or more general partners and one or more limited partners, the latter not being personally liable for the obligations of the partnership As to duration a.PARTNERSHIP AT WILL - one in which no time is specified and is not formed for a particular undertaking or venture which may be terminated anytime by mutual agreement b.PARTNERSHIP WITH A FIXED TERM - the term for which the partnership is to exist is fixed or agreed upon or one formed for a particular undertaking As to legality of existence a.DE JURE PARTNERSHIP - one which has complied with all the legal requirements for its establishment b.DE FACTO - one which has failed to comply with all the legal requirements for its establishment As to representation to others Law3A – Notes on Partnerships Atty Jonathan B Tambol a.ORDINARY OR REAL PARTNERSHIP - one which actually exists among the partners and also as to 3rd persons b.OSTENSIBLE OR PARTNERSHIP BY ESTOPPEL - one which in reality is not a partnership but is considered a partnership only in relation to those who, by their conduct or omission, are precluded to deny or disprove its existence As to publicity a.SECRET PARTNERSHIP - one wherein the existence of certain persons as partners is not avowed or made known to the public by any of the partners b.OPEN OR NOTORIOUS PARTNERSHIP - one whose existence is avowed or made known to the public by the members of the firm As to purpose a.COMMERCIAL OR TRADING PARTNERSHIP - one formed for the transaction of business b.PROFESSIONAL OR NON TRADING PARTNERSHIP - one formed for the exercise of a profession KINDS OF PARTNERS: 1.CAPITALIST - one who contributes money or property to the common fund 2.INDUSTRIAL - one who contributes only his industry or personal service 3.GENERAL - one whose liability to 3rd persons extends to his separate property 4.LIMITED - one whose liability to 3rd persons is limited to his capital contribution 5.MANAGING - one who manages the affairs or business of the partnership 6.LIQUIDATING - one who takes charge of the winding up of partnership affairs upon dissolution 7.PARTNER BY ESTOPPEL - one who is not really a partner but is liable as a partner for the protection of innocent 3rd persons 8.CONTINUING PARTNER - one who continues the business of a partnership after it has been dissolved by reason of the admission of a new partner, retirement, death or expulsion of one of the partners 9.SURVIVING PARTNER - one who remains after a partnership has been dissolved by death of any partner 10.SUBPARTNER - one who is not a member of the partnership who contracts with a partner with reference to the latter's share in the partnership 11.OSTENSIBLE - one who takes active part and known to the public as partner in the business 12.SECRET - one who takes active part in the business but is not known to be a partner by outside parties 13.SILENT - one who does not take any active part in the business although he may be known to be a partner 14.DORMANT - one who does not take active part in the business and is not known or held out as a partner CHAPTER – OBLIGATIONS OF THE PARTNERS RELATIONS CREATED BY A CONTRACT OF PARTNERSHIP Relations among the partners themselves Relations of the partners with the partnership Relations of the partnership with 3rd persons with whom it contracts Relations of the partners with such 3rd persons Law3A – Notes on Partnerships Atty Jonathan B Tambol  Some obligations of a partner: (CCU-ADDS) To give his contribution (1786, 1788) Not to convert firm money or property for his own use (1788) Not to engage in unfair competition with his own firm (1789, 1808) To account for and hold as trustee unauthorized personal profits (1807) Pay for damages caused by his fault (1794) Duty to credit to the firm payment made by a debtor who owes him and the firm (1792) To share with the other partners the share of the partnership credit which he has received from an insolvent firm debtor (1793)  Some rights of a partner: (PAIDD) Property rights (1810) a.) Rights in specific partnership property b.) Interest in the partnership (1812) c.) Right to participate in the management (1810) Right to associate with another person in his share (1804) Right to inspect and copy partnership books (1805) Right to demand a formal account (1809) Right to ask for the dissolution of the firm at the proper time (1830-1831) A OBLIGATIONS OF THE PARTNERS AMONG THEMSELVES (Section 1) Obligations with respect to contribution of property (Art 1786): To contribute at the beginning of the partnership or at the stipulated time the money, property or industry which he may have promised to contribute To answer for eviction in case the partnership is deprived of the determinate property contributed To answer to the partnership for the fruits of the property the contribution of which he delayed, from the date they should have been contributed up to the time of actual delivery To preserve said property with the diligence of a good father of a family pending delivery to partnership To indemnify partnership for any damage caused to it by the retention of the same or by the delay in its contribution Effect of Failure to contribute property promised: Partners becomes ipso jure a debtor of the partnership even in the absence of any demand Remedy of the other partner is not rescission but specific performance with damages from defaulting partner Obligations with respect to contribution of money and money converted to personal use (Art 1788) To contribute on the date fixed the amount he has undertaken to contribute to the partnership To reimburse any amount he may have taken from the partnership coffers and converted to his own use To pay for the agreed or legal interest, if he fails to pay his contribution on time or in case he takes any amount from the common fund and converts it to his own use To indemnify the partnership for the damages caused to it by delay in the contribution or conversion of any sum for his personal benefits PROHIBITION AGAINST ENGAGING IN BUSINESS PROHIBITION INDUSTRIAL PARTNER (Art 1789) Industrial partner cannot engage in business (w/n same line of business with the partnership) unless Law3A – Notes on Partnerships CAPITALIST PARTNER (Art 1808) Capitalist partner cannot engage in business (with same kind of Atty Jonathan B Tambol partnership expressly permits him to so REMEDY Capitalist partners may: Exclude him from the firm; Avail themselves of the benefits which he may have obtained Damages, in either case N.B.: It is believed that industrial partners are also entitled to the remedy granted since they are equally prejudiced business with the partnership) for his own account, unless there is a stipulation to the contrary Capitalist partner in violation shall: Bring to common fund any profits accruing to him from said transaction, and Bear all losses Obligations with respect to contribution to partnership capital (Arts 1790-1791) Partners must contribute equal shares to the capital of the partnership unless there is stipulation to contrary Partners (capitalist) must contribute additional capital In case of imminent loss to the business of the partnership and there is no stipulation otherwise; refusal to so shall create an obligation on his part to sell his interest to the other partners Requisites: a There is an imminent loss of the business of the partnership b The majority of the capitalist partners are of the opinion that an additional contribution to the common fund would save the business c The capitalist partner refuses deliberately to contribute (not due to financial inability) d There is no agreement to the contrary Obligation of managing partners who collects debt from person who also owed the partnership (Art 1792) Apply sum collected to credits in proportion to their amounts If he received it for the account of partnership, the whole sum shall be applied to partnership credit Requisites: a There exist at least debts, one where the collecting partner is creditor and the other, where the partnership is the creditor b Both debts are demandable c The partner who collects is authorized to manage and actually manages the partnership Obligation of partner who receives share of partnership credit (Art 1793) Obliged to bring to the partnership capital what he has received even though he may have given receipt for his share only Requisites: a A partner has received in whole or in part, his share of the partnership credit b The other partners have not collected their shares c The partnership debtor has become insolvent RISK OF LOSS OF THINGS CONTRIBUTED (Art 1795) Specific and determinate things which are not fungible where only the use is contributed Specific and determinate things the ownership of which is transferred to the partnership Fungible things (consumable) Law3A – Notes on Partnerships Risk is borne by partner Risk is borne by partnership Risk is borne by partnership Atty Jonathan B Tambol Things contributed to be sold Things brought and appraised in the inventory Risk is borne by partnership Risk is borne by partnership RULES FOR DISTRIBUTION OF PROFITS AND LOSSES (Art 1797) With agreement Without agreement DISTRIBUTION OF PROFITS According to agreement DISTRIBUTION OF LOSSES According to agreement Share of capitalist partner is in proportion to his capital contribution Share of industrial partner is not fixed – as may be just and equitable under the circumstances If sharing of profits is stipulated – apply to sharing of losses If no profit sharing stipulated – losses shall be borne according to capital contribution Purely industrial partner not liable for losses RIGHTS AND OBLIGATIONS WITH RESPECT TO MANAGEMENT (Arts 1800-1803) Partner is appointed manager in the articles of partnership Partner is appointed manager after constitution of partnership or more persons entrusted with management of partnership without specification of duties/stipulation that each shall not act w/o the other’s consent Stipulated that none of the managing partners shall act w/o the consent of others Manner of management not agreed upon Power of managing partner is irrevocable without just/lawful cause; revocable only when in bad faith Power is revocable any time for any cause Each may execute all acts of administration Vote of partners representing controlling interest necessary to revoke power Concurrence of all necessary for the validity of acts Absence or disability of any one cannot be alleged unless there is imminent danger of grave or irreparable injury to the partnership If refusal of partner is manifestly prejudicial to interest of partnership, court's intervention may be sought All partners are agents of the partnership Unanimous consent required for alteration of immovable property In case of opposition, decision of majority shall prevail; In case of tie, decision of partners owning controlling interest shall prevail B PROPERTY RIGHTS OF A PARTNER (Section 2) His rights in specific partnership property His interest in the partnership His right to participate in the management Nature of partner's right in specific partnership property (Art 1811) Equal right to possession Right not assignable, not subject to attachment or execution, not subject to legal support Right limited to share of what remains after partnership debts have been paid Nature of partner's interest in the partnership (Art 1812) Share in the profits and surplus Law3A – Notes on Partnerships Atty Jonathan B Tambol Effects of conveyance by partner of his interest in the partnership (Art 1813): If a partner conveys his whole interest in the partnership, either of things may happen: a.) The partnership may still remain, b.) The partnership may be dissolved The assignee does not necessarily become a partner The assignor is still the partner, with a right to demand accounting and settlement The assignee cannot even interfere in the management or administration of the partnership business or affairs The assignee cannot also demand information, accounting, inspection of the partnership books Rights of the Assignee: To get whatever profits the assignor-partner would have obtained To avail himself of the usual remedies in case of fraud in the management To ask for annulment of the contract of assignment if he was induced to enter into it thru any of the vices of consent (fraud, error, intimidation, force, undue influence) or if he himself was incapacitated to give consent (minor, insane) To demand an accounting (only if indeed the partnership is dissolved)  Charging Order – refers to the remedy available to a judgment creditor of a debtor partner to charge the interest of the latter in the partnership by means of a court order for the purpose of satisfying the amount of the judgment A receiver of the debtor partner’s share of the profits may even be appointed This charging order, however, is always subject to the preferred rights of partnership creditors (Art 1814) C OBLIGATION OF PARTNERS WITH REGARD TO THIRD PERSONS (Section 3) Nota Bene (Note well): Every partnership shall operate under a firm name Persons who include their names in the partnership name even if they are not members shall be liable as a partner The continued use of the name of a deceased partner is permissible provided that the firm indicates in all its communications that said partner is deceased (Art 1815) All partners (including Industrial partners) shall be liable for contractual obligations of the partnership with their property, after all partnership assets have been exhausted (Art 1816) a Pro rata – based on the number of partners and not on the amount of their contributions b Subsidiary Admission or representation made by any partner concerning partnership affairs within scope of his authority is evidence against the partnership Notice to partner of any matter relating to partnership affairs operates as notice to partnership except in case of fraud (Art 1821): a Knowledge of partner acting in the particular matter acquired while a partner b Knowledge of the partner acting in the particular matter then present to his mind c Knowledge of any other partner who reasonably could and should have communicated it to the acting partner Partners and the partnership are solidarily liable to 3rd persons for the partner's tort or breach of trust (Art 1822) Requisites: a.) A partner commits a wrongful act or omission; Law3A – Notes on Partnerships Atty Jonathan B Tambol b.) He is acting in the ordinary course of the business of the partnership or with the authority of his copartners; c.) Loss or injury is caused to any third person Liability of incoming partner is limited to (Art 1826): a His share in the partnership property for existing obligations b His separate property for subsequent obligations Creditors of partnership preferred in partnership property & may attach partner's share in partnership assets (Art 1827) Every partner is an agent of the partnership (Art 1818) POWER OF PARTNER AS AGENT OF PARTNERSHIP (Art 1818) Acts for carrying on in the usual way the business of the partnership Act w/c is not apparently for the carrying of business in the usual way Acts of strict dominion or ownership: a Assign partnership property in trust for creditors b Dispose of good-will of business c Do an act w/c would make it impossible to carry on ordinary business of partnership d Confess a judgment e Enter into compromise concerning a partnership claim or liability f Submit partnership claim or liability to arbitration g Renounce claim of partnership Acts in contravention of a restriction on authority Every partner is an agent and may execute acts with binding effect even if he has no authority Except: when 3rd person has knowledge of lack of authority Does not bind partnership unless authorized by other partners Partnership not liable to 3rd persons having actual or presumptive knowledge of the restrictions EFFECTS OF CONVEYANCE OF REAL PROPERTY BELONGING TO PARTNERSHIP (Art 1819) Title in partnership name, Conveyance in partnership name Title in partnership name, Conveyance in partner's name Title in name of 1/ more partners, Conveyance in name if partner/partners in whose name title stands Title in name of 1/more/all partners or 3rd person in trust for partnership, Conveyance executed in partnership name or in name of partners Law3A – Notes on Partnerships Conveyance passes title but partnership can recover if: Conveyance was not in the usual way of business, or Buyer had knowledge of lack of authority Conveyance does not pass title but only equitable interest, unless: Conveyance was not in the usual way of business, or Buyer had knowledge of lack of authority Conveyance passes title but partnership can recover if: Conveyance was not in the usual way of business, or Buyer had knowledge of lack of authority Conveyance will only pass equitable interest Atty Jonathan B Tambol Title in name of all partners, Conveyance in name of all partners Conveyance will pass title PARTNER BY ESTOPPEL/PARTNERSHIP BY ESTOPPEL (ART 1825) ESTOPPEL – a bar which precludes a person from denying or asserting anything contrary to that which has been established as the truth by his own deed or representation, either express or implied Through estoppel, an admission or representation is rendered conclusive upon the person making it and cannot be denied or disproved as against the person relying thereon PARTNER BY ESTOPPEL – refers to a person who represents himself, or consents to another or others representing him to anyone, as a partner either in an existing partnership or in one that is fictitious or apparent Two Instances: Directly represents himself to anyone as a partner in an existing partnership or in a non-existing partnership (with one or more persons not actual partners) Indirectly represents himself by consenting to another representing him as a partner in an existing partnership or in a non-existing partnership PARTNERSHIP BY ESTOPPEL – arises when all the actual partners consented to the representation, with the original members and the deceiver as partners This is the only instance under our law when an existing partnership is bound by the representation made by or in behalf of a partner by estoppel    Partnership liability – when all the actual partners consented to the representation Pro rata liability (Joint) a.) No existing partnership and all those represented as partners consented b.) Existing partnership and not all of the partners consented Separate liability a.) No existing partnership and not all but only some of those represented as partners consented b.) Existing partnership but no one of the partners consented NOTA BENE: Estoppel does not create partnership The law considers the persons involved as partners and the association as a partnership only in so far as it is favorable to third persons by reason of the equitable principle of estoppel Liability is created only in favor of persons who, on the faith of the representation, gave credit to the actual or apparent partnership Elements to establish liability as a partner on ground of estoppel: Defendant represented himself as partner/represented by others as such and not denied/refuted by defendant Plaintiff relied on such representation Statement of defendant not refuted D RESPONSIBILITY OF PARTNERSHIP TO PARTNERS To refund the amounts disbursed by partner in behalf of the partnership + corresponding interest from the time the expenses are made (loans and advances made by a partner to the partnership aside from capital contribution) Law3A – Notes on Partnerships Atty Jonathan B Tambol 2.To answer for obligations partner may have contracted in good faith in the interest of the partnership business 3.To answer for risks in consequence of its management CHAPTER - DISSOLUTION AND WINDING UP DISSOLUTION - change in the relation of the partners caused by any partner ceasing to be associated in the carrying on of the business; partnership is not terminated but continues until the winding up of partnership affairs is completed WINDING UP - process of settling the business or partnership affairs after dissolution TERMINATION – the point in time when all partnership affairs are wound up CAUSES OF DISSOLUTION (Art 1830): VIC LIED 1.Without violation of the agreement between the partners a.By termination of the definite term/ particular undertaking specified in the agreement b.By the express will of any partner, who must act in good faith, when no definite term or particular undertaking is specified c.By the express will of all the partners who have not assigned their interest/charged them for their separate debts, either before or after the termination ofany specified term or particular undertaking d.By the expulsion of any partner from the business bonafide in accordance with power conferred by the agreement 2.In contravention of the agreement between the partners, where the circumstances not permit a dissolution under any other provision of this article, by the express will of any partner at any time By any event which makes it unlawful for business to be carried on/for the members to carry it on for the partnership 4.Loss of specific thing promised by partner before its delivery 5.Death of any partner 6.Insolvency of a partner/partnership 7.Civil interdiction of any partner 8.Decree of court under art 1831 GROUNDS FOR DISSOLUTION BY DECREE OF COURT (Art 1831) 1.Partner declared insane in any judicial proceeding or shown to be of unsound mind Incapacity of partner to perform his part of the partnership contract Partner guilty of conduct prejudicial to business of partnership Willful or persistent breach of partnership agreement or conduct which makes it reasonably impracticable to carry on partnership with him Business can only be carried on at a loss Other circumstances which render dissolution equitable Upon application by purchaser of partner's interest: After termination of specified term/particular undertaking Anytime if partnership at will when interest was assigned/charging order issued Law3A – Notes on Partnerships Atty Jonathan B Tambol EFFECTS OF DISSOLUTION: A AUTHORITY OF PARTNER TO BIND PARTNERSHIP General Rule: Authority of partners to bind partnership is terminated Exceptions: To wind up partnership affairs To complete transactions not finished Qualifications: With respect to partners – a Authority of partners to bind partnership by new contract is immediately terminated when dissolution is not due to ACT, DEATH or INSOLVENCY (ADI) of a partner (Art 1833); b If due to ADI, partners are liable as if partnership not dissolved, when the ff concur: i If cause is ACT of partner, acting partner must have knowledge of such dissolution ii If cause is DEATH or INSOLVENCY, acting partner must have knowledge/notice With respect to persons not partners (Art 1834) a Partner continues to bind partnership even after dissolution in ff cases: (1) Transactions in connection to winding up partnership affairs/completing transactions unfinished (2) Transactions which would bind partnership if not dissolved, when the other party/obligee: (a)Situation i Had extended credit to partnership prior to dissolution & ii Had no knowledge/notice of dissolution, or (b) Situation i Did not extend credit to partnership prior to dissolution ii Had known partnership prior to dissolution iii Had no knowledge/notice of dissolution/fact of dissolution not advertised in a newspaper of general circulation in the place where partnership is regularly carried on b Partner cannot bind the partnership anymore after dissolution: (1) Where dissolution is due to unlawfulness to carry on with business (except: winding up of partnership affairs) (2) Where partner has become insolvent (3) Where partner unauthorized to wind up partnership affairs, except by transaction with one who: (a) Situation i Had extended credit to partnership prior to dissolution & ii Had no knowledge/notice of dissolution, or (b) Situation i Did not extend credit to partnership prior to dissolution ii Had known partnership prior to dissolution iii Had no knowledge/notice of dissolution/fact of dissolution not advertised in a newspaper of general circulation in the place where partnership is regularly carried on B DISCHARGE OF LIABILITY (Art 1835) Dissolution does not discharge existing liability of partner, except by agreement between: (1) partner himself (2) person/partnership continuing the business Law3A – Notes on Partnerships Atty Jonathan B Tambol (3) (3) partnership creditors Rights of partner where dissolution not in contravention of agreement Apply partnership property to discharge liabilities of partnership Apply surplus, if any to pay in cash the net amount owed to partners Rights of partner where dissolution in contravention of agreement Partner who did not cause dissolution wrongfully: a Apply partnership property to discharge liabilities of partnership b Apply surplus, if any to pay in cash the net amount owed to partners c Indemnity for damages caused by partner guilty of wrongful dissolution d Continue business in same name during agreed term e Posses partnership property if business is continued Partner who wrongly caused dissolution: a.If business not continued by others - apply partnership property to discharge liabilities of partnership & receive in cash his share of surplus less damages caused by his wrongful dissolution b.If business continued by others - have the value of his interest at time of dissolution ascertained and paid in cash/secured by bond & be released from all existing/future partnership liabilities Rights of injured partner where partnership contract is rescinded on ground of fraud/misrepresentation by party: Right to lien on surplus of partnership property after satisfying partnership liabilities Right to subrogation in place of creditors after payment of partnership liabilities Right of indemnification by guilty partner against all partnership debts & liabilities C SETTLEMENT OF ACCOUNTS BETWEEN PARTNERS (Art 1839) Assets of the partnership: Partnership property (including goodwill) Contributions of the partners Order of Application of Assets: Partnership creditors Partners as creditors Partners as investors - return of capital contribution Partners as investors - share of profits if any D WHEN BUSINESS OF DISSOLVED PARTNERSHIP IS CONTINUED (Art 1840): Creditors of old partnership are also creditors of the new partnership which continues the business of the old one w/o liquidation of the partnership affairs Creditors have an equitable lien on the consideration paid to the retiring /deceased partner by the purchaser when retiring/deceased partner sold his interest w/o final settlement with creditors Rights if retiring/estate of deceased partner: a To have the value of his interest ascertained as of the date of dissolution b To receive as ordinary creditor the value of his share in the dissolved partnership with interest or profits attributable to use of his right, at his option Right to Account- may be exercised by: Law3A – Notes on Partnerships Atty Jonathan B Tambol Winding up partner Surviving partner Person/partnership continuing the bus Manner of Winding Up Judicially Extrajudicially Persons Authorized to Wind Up: (Art 1836) Partners designated by the agreement; In absence of agreement, all partners who have not wrongfully dissolved the partnership; or Legal representative of last surviving partner (who is not insolvent) – when all the partners are already dead CHAPTER - LIMITED PARTNERSHIP - One formed by two or more persons having as members one or more general partners and one or more limited partners wherein the limited partners as such shall not be bound by the obligations of the partnership beyond their capital contributions (Art 1843) CHARACTERISTICS: Formed by compliance with statutory requirements; One or more general partners control the business; One or more limited partners contribute to the capital and share in the profits but not participate in the management of the business and are not personally liable for partnership obligations beyond their capital contributions; May ask for the return of their capital contributions under conditions prescribed by law; Partnership debts are paid out of common fund and the individual properties of general partners DIFFERENCES BETWEEN GENERAL AND LIMITED PARTNER/PARTNERSHIP GENERAL LIMITED Personally liable for partnership obligations Liability extends only to capital contribution when manner of mgt not agreed upon, all gen partners have an equal right in the mgt of the business No participation in management Contribute cash, property or industry Contribute cash or property but not industry Proper party to proceedings by/against partnership Not proper party Interest not assignable without consent of other Interest is highly assignable partners Name may appear in firm name Name must not appear in firm name (w/ exceptions) Prohibition against engaging in business No prohibition Law3A – Notes on Partnerships Atty Jonathan B Tambol Retirement, death, insolvency, insanity of gen partner dissolves partnership Does not have same effects; rights transferred to legal representative General Partner vs Limited Partner: The may be distinguished from each other in the following ways: 1.) A general partner can be held personally liable for partnership obligations after all of the assets of the partnership have been exhausted, whereas a limited partner cannot be held liable as such 2.) A general partner may participate in the management of the partnership, whereas a limited partner does not 3.) A general partner may contribute money, property or industry to the common fund, whereas a limited partner, as such, can contribute money or other property only, not services 4.) The name of a general partner may appear in the firm name, whereas that of a limited partner does not 5.) There is a limitation on the right of a general partner to engage in another business or in the same kind of business as that in which the partnership is engaged, whereas there is no such limitation in the case of a limited partner REQUIREMENTS FOR FORMATION OF LIMITED PARTNERSHIP (Art 1844) Certificate of articles of the limited partnership must state the ff matters: a Name of partnership + word "ltd." b Character of business c Location of principal place of business d Name/place of residence of members e Term for partnership is to exist f Amount of cash/value of property contributed g Additional contributions h.Time agreed upon to return contribution of limited partner i Sharing of profits/other compensation j Right of limited partner (if given) to substitute an assignee k Right to admit additional partners l Right of limited partners (if given) to priority for contributions m Right of remaining gen partners (if given) or continue business in case of death, insanity, retirement, civil interdiction, insolvency n Right of limited partner (if given) to demand/receive property/cash in return for contribution Certificate must be filed with the SEC WHEN GENERAL PARTNER NEEDS CONSENT/RATIFICATION OF ALL LIMITED PARTNERS (Art 1850): Do any act in contravention of the certificate; Do any act which would make it impossible to carry on the ordinary business of the partnership; Confess judgement against partnership; Possess partnership property/assign rights in specific partnership property other than for partnership purposes; Admit person as general partner; Law3A – Notes on Partnerships Atty Jonathan B Tambol Admit person as limited partner - unless authorized in certificate; Continue business with partnership property on death, retirement, civil interdiction, insanity or insolvency of general partner unless authorized in certificate SPECIFIC RIGHTS OF LIMITED PARTNERS (Art 1851): Right to have partnership books kept at principal place of business Right to inspect/copy books at reasonable hour Right to have on demand true and full info of all things affecting partnership Right to have formal account of partnership affairs whenever circumstances render it just and reasonable Right to ask for dissolution and winding up by decree of court Right to receive share of profits/other compensation by way of income Right to receive return of contributions provided the partnership assets are in excess of all its liabilities LOAN AND OTHER BUSINESS TRANSACTIONS WITH LIMITED PARTNERSHIP (Art 1854) Allowed: a Granting loans to partnership; b Transacting business with partnership; c Receiving pro rata share of partnership assets with general creditors if he is not also a general partner Prohibited: a Receiving/holding partnership property as collateral security; b Receiving any payment, conveyance, release from liability if it will prejudice right of third persons REQUISITES FOR RETURN OF CONTRIBUTION OF LIMITED PARTNER (Art 1857): All liabilities of partnership have been paid/if not yet paid, at least sufficient to cover them; Consent of all members has been obtained; Certificate is cancelled or amended as to set forth the withdrawal or reduction of contribution LIABILITY OF LIMITED PARTNER (Art 1858) As Creditor As Trustee Deficiency in Specific property stated as contributed but not yet cont./wrongfully returned contribution Unpaid contribution Money/other prop wrongfully paid/conveyed to him on account of his contribution DISSOLUTION OF LIMITED PARTNERSHIP Priority in Distribution of Assets: 1.Those due to creditors, including limited partners 2.Those due to limited partners in respect of their share in profits/compensation 3.Those due to limited partners of return of capital contributed Law3A – Notes on Partnerships Atty Jonathan B Tambol 4.Those due to general partner other than capital & profits 5.Those due to general partner in respect to profits 6.Those due to general partner for return of capital contributed AMENDMENT/CANCELLATION OF CERTIFICATE Cancelled: Partnership is dissolved other than by reason of expiry of term All limited partners cease to be such Amended: Change in name of partnership, amount/character of contribution of ltd Partner Substitution of ltd Partner Admission of additional ltd Partner Admission of gen partner Death, insolvency, insanity, civil interdiction of gen partner & business is continued Change in character of business False/erroneous statement in certificate Change in time as stated in the certificate for dissolution of partnership/return of contribution Time is fixed for dissolution of partnership Return of contribution if no orig time specified 10 Change in other statement in certificate Law3A – Notes on Partnerships Atty Jonathan B Tambol ... ordinary business of the partnership; Confess judgement against partnership; Possess partnership property/assign rights in specific partnership property other than for partnership purposes; Admit... interest in the partnership (Art 1813): If a partner conveys his whole interest in the partnership, either of things may happen: a.) The partnership may still remain, b.) The partnership may... concerning partnership affairs within scope of his authority is evidence against the partnership Notice to partner of any matter relating to partnership affairs operates as notice to partnership