Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
Elements of Partnership
It is also a status and a fiduciary relation
subsisting between persons carrying on a
business in common with a view of profit. 1. Contribution - consists of either money,
property, or industry.
1
Agency, Trust, and Partnership Notes
4. Profit - object must be for profit and not Distinguish Partnership From…
merely for common enjoyment; otherwise,
only a co-ownership has been formed.
1. Corporation
It is created It may be
Therefore, other ends like social, moral, or upon created by:
spiritual objectives may also properly exist. voluntary
Manner of agreement of
Creation parties The State, in
5. Affectio Societatis - the desire to formulate the form of a
an active union with people among whom special
there exist mutual confidence and trust. charter
General
incorpor-atin
Delectus Personae - the phrase signifying the g law (Corp.
choice of a person; applied to show that Code)
partners have the right to select their
co-partners; and that no set of partners can
take another person into the partnership, It can exist It exists for
without the consent of each of the partners. indefinitely, not more than
or the parties 50 years.
Length of may stipulate
Partnership Under the Old Civil Code It may be
Existence otherwise.
reduced, but
not extended.
There were two kinds of partnerships:
2
Agency, Trust, and Partnership Notes
3
Agency, Trust, and Partnership Notes
insolvency, or dissolve a
insanity of a corporation.
Dissolution Hence, the
partner
conjugal
partnership
itself cannot
be sue or be
sued.
4
Agency, Trust, and Partnership Notes
contributed. necessarily
for profit.
Management Administratio
is conferred -n and Representatio There is no There is no
Management
upon the enjoyment of -n mutual mutual
partners so the conjugal representatio representatio
appointed by partnership -n. n, although a
the others. property co-owner
belong to may bring an
both spouses action for
jointly. ejectment
against a
There are There are few stranger.
many grounds for
Dissolution
grounds for dissolution. One cannot A co-owner
dissolution. substitute can dispose
Transfer of
another as his share
Interest
partner in his without the
Liquidation of There may be There will be place without consent of the
Profits division of no liquidation unanimous others.
profits even or giving of consent.
without profits until
dissolution. after
dissolution.
Factor Partnership Co-Ownershi
-p
3. Co-Ownership
No term limit It must not be
is set by law. for more than
Length of
Factor Partnership Co-Ownershi ten (10)
Existence if
-p years.
Created by
It is created It may be Contract
by contract, created by The years in
Creation
whether contract, law, excess upon
express or or other renewal is
implied. things. void.
Juridical It has legal or It has no It may be Profits must
Personality juridical juridical stipulated always
personality. personality. upon. depend on
Purpose It is created It is created Profits the
mainly for for collective proportionate
profit. enjoyment, shares.
and not
5
Agency, Trust, and Partnership Notes
5. Social Organization
4. Joint-Stock Company
6
Agency, Trust, and Partnership Notes
7
Agency, Trust, and Partnership Notes
Participating
merchants Moreover, a partnership can form another
can transact partnership with private individuals or with
business other partnerships, there being no prohibition
under their on the matter. A corporation cannot become
own name. a partner on grounds of public policy;
otherwise, people other than its officers may
Purpose A partnership A joint be able to bind the firm. However, a
generally account is corporation may enter into a joint venture
relates to a usually with another, provided the nature of that
continuing limited to a venture must be in line with the business
business of single authorized in its charter.
various transaction.
transactions
of a certain
kind. Article 1768
The partnership has a juridical personality
separate and distinct from that of each of the
10. Syndicate - a particular partnership partners, even in case of failure to comply with
organized to carry out a particular undertaking the requirements of Article 1772, first
or for some temporary objective. paragraph.
1772 Every contract of partnership having a
capital of 3,000 or more in money or property,
Legal Capacity of Partners shall appear in a public instrument, which
must be recorded in the SEC
8
Agency, Trust, and Partnership Notes
9
Agency, Trust, and Partnership Notes
(d) As interest on a loan, though the amount If two persons not partners represent
of payment vary with the profits of the themselves as partners to strangers, a
business; partnership by estoppel is created.
(e) As the consideration for the sale of a A partnership by estoppel is formed in such
goodwill of a business or other property by case to prevent third persons from being
installments or otherwise. prejudiced.
10
Agency, Trust, and Partnership Notes
When an unlawful partnership is dissolved by If the contributions have not yet been made,
a judicial decree, the profits shall be the partners cannot be made to make a
confiscated in favor of the State, without contribution.
prejudice to the provisions of the Penal Code
governing the confiscation of the instruments
and effects of a crime.
An unlawful partnership has no legal
personality.
The object of the contract of partnership must A partnership may be constituted in any form,
be within the commerce of man, possible, and except where immovable property or real
not contrary to law, morals, good customs, rights are contributed thereto, in which case a
public order or public policy. Otherwise, the public instrument shall be necessary.
partnership contract is void ab initio.
11
Agency, Trust, and Partnership Notes
Article 1773
Article 1772 A contract of partnership is void, whenever
immovable property is contributed thereto, if
Every contract of partnership having a capital
an inventory of said property is not made,
of three thousand pesos or more, in money or
signed by the parties, and attached to the
property, shall appear in a public instrument,
public instrument.
which must be recorded in the Office of the
Securities and Exchange Commission
Failure to comply with the requirements of the Requirements Where Immovable
preceding paragraph shall not affect the Property is Contributed
liability of the partnership and the members
thereof to third persons.
1. Public instrument
Purpose of Registration With the Office 2. Inventory of realty - signed by the parties
of the SEC and attached to the public instrument
12
Agency, Trust, and Partnership Notes
13
Agency, Trust, and Partnership Notes
Article 1776
As to its object, a partnership is either General Partnership - all partners are
universal or particular. As regards the liability general partners
of the partners, a partnership may be general
or limited.
3. As to the Manner of Creation
Classification of Partnership
Orally constituted
1. As to Object
Constituted in a private instrument
Unlawful
2. As to Liability
5. As to Duration
Limited Partnership - at least one
partner is a general partner who is
liable beyond his contribution, and Specific period/accomplishment of
the rest are limited partners who are purpose
liable only to the extent of their
contributions.
Partnership at will - the duration of
the firm depends on the will of the
partners. Also, a partnership at will if
formed if the period of the firm has
14
Agency, Trust, and Partnership Notes
Article 1779
In a universal partnership of all present
property, the property which belonged to each
of the partners at the time of the constitution
Article 1777
of the partnership, becomes the common
A universal partnership may refer to all the property of all the partners, as well as all the
present property or to all the profits. profits which they may acquire therewith.
15
Agency, Trust, and Partnership Notes
16
Agency, Trust, and Partnership Notes
Articles of universal partnership, entered into Persons Who Together Cannot Form a
without specification of its nature, only Universal Partnership
constitute a universal partnership of profits.
Effect of Violation
Article 1783
A particular partnership has for its object
determinate things, their use or fruits, or a
specific undertaking, or the exercise of a
profession or vocation.
17
Agency, Trust, and Partnership Notes
Article 1784
A partnership begins from the moment of the
execution of the contract, unless it is otherwise
stipulated.
18
Agency, Trust, and Partnership Notes
19
Agency, Trust, and Partnership Notes
20
Agency, Trust, and Partnership Notes
In the case of money or property, it is the it shall be made by experts chosen by the
partner who still owns the same before partners, and according to current prices, the
delivery. Actual or constructive delivery subsequent changes thereof being for account
transfers the ownership. of the partnership.
The warranty in case of eviction refers to In default of the first, by experts chosen by
specific and determinate things already the partners, and at current prices
contributed.
Risk of Loss
Article 1787
When the capital or a part thereof which a After the goods have been contributed, the
partner is bound to contribute consists of partnership bears the risks of subsequent
goods, their appraisal must be made in the changes in their value.
manner prescribed in the contract of
partnership, and in the absence of stipulation,
21
Agency, Trust, and Partnership Notes
Classification of Partners
Why No Demand is Needed to Put the
Partner in Default
a. Contribution
22
Agency, Trust, and Partnership Notes
2. Industrial Partner - One who furnishes 2. Silent Partner - one who does not
industry or labor. He is exempted from losses participate in the management, though he
as between the partner but he cannot engage shares in the profits or losses.
in any other business without the express
consent of the other partners; otherwise:
3. Liquidating Partner - one who liquidates
or winds up the affairs of the firm after it has
He can be excluded from the firm, plus been dissolved.
damages; or
d. Miscellaneous
In general, all his industry is suposed to be
given only to the partnership.
1. Secret Partner - one whose connection
with the firm is concealed or kept a secret.
b. Liability
3. Nominal Partner - one who is not really a
partner but who may become liable insofar as
third persons are concerned, e.g. partner by
1. General Partner - one who is liable beyond
estoppel.
the extent of his contribution. An industrial
partner can only be a general partner.
23
Agency, Trust, and Partnership Notes
shares will be
divided pro
rata to his
contribution.
Contributes Contributes
money or industry,
Contribution
property whether
mental or
physical
He cannot He cannot
generally engage in any
engage in the business for
Prohibition to same or himself.
Engage in similar
Other expertise as
Business that of his All his
firm. industry is
supposed to Factor Capitalist Industrial
be
Determining contributed It is based on He is
test is the to the firm. stipulation as exempted as
possibility of to losses. to losses as
unfair Losses between
competition. partners.
If there is no
Shares in the He receives a such
profits just and stipulaton, it However, he
according to equitable is based pro is liable to
Profits the share in the rata to strangers,
agreement profits. contribution without
thereon. prejudice to
reimburseme
nt from
If none, the capitalist
24
Agency, Trust, and Partnership Notes
Article 1790
Unless there is a stipulation to the contrary, A capitalist partner is obliged to sell his
the partners shall contribute equal shares to interest to others if there is imminent loss of
the capital of the partnership. the busness of the partnership and he refuses
deliberately to contribute an additional share
to the capital, provided that there is no
agreement to the contrary.
Amount of Contribution
Rationale
It is permissible to contribute unequal shares,
if there is a stipulation to this effect. In the
absence of proof, the shares are presumed
equal. By reason of the apparent lack of interest, and
provided that he sincerely believes that efforts
to save the firm would be futile, the capitalist
partner referred to should get out of the firm.
To Whom Applicable
25
Agency, Trust, and Partnership Notes
Rationale
26
Agency, Trust, and Partnership Notes
27
Agency, Trust, and Partnership Notes
1. Refund
28
Agency, Trust, and Partnership Notes
Distribution of Profits
29
Agency, Trust, and Partnership Notes
30
Agency, Trust, and Partnership Notes
Appointment of Manager
Article 1800
The partner who has been appointed manager
in the articles of partnership may execute all If he acts in bad faith, he cannot do the same.
acts of administration despite the opposition of There is presumption of good faith, otherwise
his partners, unless he should act in bad faith; the controlling interest may remove him.
31
Agency, Trust, and Partnership Notes
32
Agency, Trust, and Partnership Notes
33
Agency, Trust, and Partnership Notes
34
Agency, Trust, and Partnership Notes
35
Agency, Trust, and Partnership Notes
Partners
Article 1806
Partners shall render on demand true and full Legal representative of a deceased partner
information of all things affecting the
partnership to any partner or the legal
representative of any deceased partner or of Legal representative of a partner under
any partner under legal disability. legal disability
Article 1807
Every partner must account to the partnership
for any benefit, and hold as trustee for it any
Rationale profits derived by him without the consent of
the other partners from any transaction
connected with the formation, conduct, or
There must be no concealment between liquidation of the partnership or from any use
partners in all matters affecting the firm’s by him of its property.
interest. This is required by good faith. Thus,
this duty to give on demand “true and full
information.” Even without the demand,
honesty demands the giving of vital
information, the refraining from all kinds of
concealment.
36
Agency, Trust, and Partnership Notes
must not be abused or used for personal “which is the kind of business in which the
advantage. partnership is engaged.” The competition may
become unfair in view of the knowledge by the
capitalist partner of the firm’s business secrets.
The trust relations exist only during the life of
the partnership, not before nor after. Hence,
fiduciary relations do not exist between the
persons still negotiating for the formation of
partnership, unless the foundation for the
breach of trust took place even during the
existence of the firm.
Exceptions
Holding as Trustee for the Partnership
37
Agency, Trust, and Partnership Notes
Article 1809
(3) It is unfair if the other partners can take
Any partner shall have the right to a formal undue advantage of partnership funds or
account as to partnership affairs: partnership transactions.
(1) If he is wrongfully excluded from the (4) It refers to the case when one partner has
partnership business or possession of its been travelling for a long period of time on a
property by his co-partners; business involving the firm.
38
Agency, Trust, and Partnership Notes
Article 1811
Partners are co-owners insofar as among
A partner is co-owner with his partners of themselves, with proportional and sometimes
specific partnership property. equal right over the specific partnership
property. However, the rules on co-ownership
do not necessarily apply. The rules on
The incidents of this co-ownership are such “co-ownership in partnership” are applicable.
that: Said rules are detailed in the Article’s
subsequent paragraphs.
39
Agency, Trust, and Partnership Notes
Article 1813
A partner’s right in the specific partnership
property is not subject to the attachment or A conveyance by a partner of his whole
execution, except on a claim against the interest in the partnership does not of itself
partnership. If there is a partnership debt the dissolve the partnership, or, as against the
specific property can be attached. The other partners in the absence of agreement,
partner’s separate creditors cannot attach the entitle the assignee, during the continuance of
specific partnership property, because if the the partnership, to interfere in the
former cannot make a voluntary assignment, management or administration of the
neither should his creditors be allowed an partnership business or affairs, or to require
involuntary assignment; the beneficial rights of any information or account of partnership
the separate creditors of a partner in specific transactions, or to inspect the partnership
partnership property should be no greater books; but it merely entitles the assignee to
than the beneficial rights of their debtor. receive in accordance with his contract the
profits to which the assigning partner would
otherwise be entitled. However, in case of
The right over specific partnership property is fraud in the management of the partnership,
not subject to legal support (See Article 291, the assignee may avail himself of the usual
Civil Code for persons obliged to support each remedies.
other).
40
Agency, Trust, and Partnership Notes
Article 1814
The assignee cannot even interfere in the Without prejudice to the preferred rights of
management or administration of the partnership creditors under Article 1827, on
partnership business or affairs. due application to a competent court by any
judgment creditor of a partner, the court which
entered the judgment, or any other court, may
The assignee cannot also demand charge the interest of the debtor partner with
information, accounting, or inspection payment of the unsatisfied amount of such
ofthe partnership books judgment debt with interest thereon; and may
then or later appoint a receiver of his share of
the profits, and of any other money due or to
Rights of the Assignee fall due to him in respect of the partnership,
and make all other orders, directions, accounts
1. To get whatever profits the and inquiries which the debtor partner might
assignor-partner would have obtained. - he have made, or which the circumstances of the
may be considered as an outside creditor. case may require.
41
Agency, Trust, and Partnership Notes
(2) With partnership property, by any one or When the charging order is applied for and
more of the partners with the consent of all the granted, the court may at the same time or
partners whose interests are not so charged or later appoint a receiver of the partner’s share
sold. in the profits or other money due him.
42
Agency, Trust, and Partnership Notes
43
Agency, Trust, and Partnership Notes
Under the law the liability of the partners is Here, he does not act in behalf of the
subsidiary and joint, not principal and solidary. partnership; he acts in his own name, although
for the benefi t of the partnership.
44
Agency, Trust, and Partnership Notes
However, under Article 1799, a stipulation in the usual way does not bind the partnership
which excludes one or more partners unless authorized by the other partners.
(capitalist) from any share in the profits or
losses is void.
Except when authorized by the other partners
or unless they have abandoned the business,
In order to reconcile these two rules insofar as one or more but less than all the partners have
capitalist partners are concerned, it is no authority to:
permissible to stipulate that a capitalist
partner will be exempted from liability in
excess of the original capital contributed, but (1) Assign the partnership property in trust for
will not be exempted insofar as his capital is creditors or on the assignee's promise to pay
concerned. the debts of the partnership;
Liability and Losses Distinguished (2) Dispose of the good-will of the business;
General liability refers to responsibility (3) Do any other act which would make it
towards third persons, and losses refers to impossible to carry on the ordinary business of
responsibility as among the partners . Still, the a partnership;
Article can refer to liability as among the
partners.
(4) Confess a judgment;
Article 1818
(5) Enter into a compromise concerning a
Every partner is an agent of the partnership for
partnership claim or liability;
the purpose of its business, and the act of every
partner, including the execution in the
partnership name of any instrument, for
apparently carrying on in the usual way the (6) Submit a partnership claim or liability to
business of the partnership of which he is a arbitration;
member binds the partnership, unless the
partner so acting has in fact no authority to act
for the partnership in the particular matter, (7) Renounce a claim of the partnership. No act
and the person with whom he is dealing has of a partner in contravention of a restriction on
knowledge of the fact that he has no such authority shall bind the partnership to persons
authority. having knowledge of the restriction.
45
Agency, Trust, and Partnership Notes
Agency of a Partner
When, although for “apparently carrying on in
the usual way the business of the partnership,”
still the partner has in fact no authority, and
It has been truthfully said that a partnership is the thirdparty knows that the partner has no
a contract of “mutual agency,” each partner authority. This is to penalize customer or client
acting as a principal on his own behalf, and as in bad faith.
an agent for his co-partners or the firm.
46
Agency, Trust, and Partnership Notes
Article 1819
Where title to real property is in the
partnership name, any partner may convey
title to such property by a conveyance
47
Agency, Trust, and Partnership Notes
1. Partnership
Where the title to real property is in the name
of all the partners a conveyance executed by all
the partners passes all their rights in such
property. 2. All the partners
This is a particular elaboration of Article 1818, 4. One, some, or not all the partners in trust
but is applicable to real property alone. for the partnership
The Article was adopted to do away with the 5. Third person in trust for the partnership
existing uncertainty surrounding the subject of
the conveyance of real property belonging to
the partnership. A, B, C owner of Ediwaw partnership. Binenta
ni A yung land without consent of his partners
under the name of the Ediwaw partnership. D
In some instances, what is conveyed is title, bought the property. Owner na ba si D?
and in other instances, what is conveyed is Yes. But the partners may get back the land
merely the equitable interest. unless:
The firm is engaged in buying and selling
An equitable interest or title is one not only of the land
recognized by law, but also by the principles of Kapag binenta yung property Acquired sa
equity. Evidently, as used in this Article, it ibang tao
refers to all interest which the partnership had,
except title, that is, the beneficial interests like
use, fruits, but not the naked ownership. A, B C, D are partners. Yung lupa under the
name of the partner binili ni A owner na ba
siya nun?
While under the rules of agency, a special
power to sell does not include the power to No. he does not become the owner of the
mortgage, and vice versa (See Article 1879), land. However, he may get the equitable
still thir Article has been interpreted, at least in interest of the firm insofar as the land is
the U.S. to include under the term “conveyance” concerned because the selling of the land is
the right to mortgage. usual course of business. Pwede naman niya pa
48
Agency, Trust, and Partnership Notes
reform yung contract kung pumayag ang ibang A, B and C were partners in the Real Estate
partners sa sale agreement. Firm. The name of the parcel of land was
named to the partners individually. If all of the
Pero kung ang partnership ay hindi engaged sa
partners will sell the land to X, will X be the
sale of the land, the buyer would not even be
owner?
entitled to the equitable interest
X will get the title. Consequently, he
becomes the owner for law says where the title
A, B C are partners in a real estate firm. A sold to real property is in the name of all partners
the land of the firm to X. May firm could get conveyance executed by all the partners passes
back the land? all their rights in such property it also includes
ownership.
No. since the firm is engaged in the
business of real estate and the land was
conveyed to X.
Suppose not engaged in land business?
It depends. If X is in good faith and had no
knowledge about lack of authority, the answer
would be conveyed to him
If he acted in Bad faith and he has full
knowledge about the lack of authority, The
firm can get back the land unless X sold it to
other person.
49
Agency, Trust, and Partnership Notes
Previous Admission
Article 1820
An admission or representation made by any A previous admission of a partner which is not
partner concerning partnership affairs within present during the trail may be admissible
the scope of his authority in accordance with against the partnership if it was made within
this Title is evidence against the partnership. the scope of the partnership and during its
existence, provided that the existence of the
partnership is first proved by evidence other
Admission or Representation Made By a than such act or declaration. (See Sec. 26, Rule
Partner 130, Rules of Court)
50
Agency, Trust, and Partnership Notes
51
Agency, Trust, and Partnership Notes
The Article does not apply in the following Liability of Partnership for
cases: Misappropriation
If the wrongful act or omission was not The difference between par. 1 and par. 2 is that
done within the scope of the partnership in the former the misappropriation is made by
business and for its benefit or with the the receiving partner, while in the latter, the
authority of the co-partners. culprit may be any partner. The effect however
is the same in both cases, as can be seen from
Article 1824.
If the act or omission was not wrongful.
Article 1824
If the act or omission, although wrongful,
did not make the partner concerned liable All partners are liable solidarily with the
himself. partnership for everything chargeable to the
partnership under Articles 1822 and 1823.
52
Agency, Trust, and Partnership Notes
Article 1825
When a person, by words spoken or written or Partner and Partnership By Estoppel
by conduct, represents himself, or consents to
another representing him to anyone, as a
partner in an existing partnership or with one This Article refers to a “partner by estoppel”
or more persons not actual partners, he is and to a “partnership by estoppel.”
liable to any such persons to whom such
representation has been made, who has, on the
faith of such representation, given credit to the A person may represent himself as a partner of
actual or apparent partnership, and if he has an existing partnership, with or without the
made such representation or consented to its consent of the partnership.
being made in a public manner he is liable to
such person, whether the representation has
or has not been made or communicated to such If a third person is misled and acts because of
person so giving credit by or with the such misrepresentation, the deceiver is a
knowledge of the apparent partner making the partner by estoppel. If the partnership
representation or consenting to its being consented to the misrepresentation, a
made: partnership liability results. We have here a
case of “partnership by estoppel” with the
original members and the deceiver as partners.
(1) When a partnership liability results, he is
liable as though he were an actual member of
the partnership;
53
Agency, Trust, and Partnership Notes
54
Agency, Trust, and Partnership Notes
new firm, but only of the original partners. The incoming partner partakes of the benefit of
Hence, they may lose their preference. the partnership property, and an established
business. He has every means of obtaining full
knowledge and protecting himself, because he
To avoid this injustice, under the New Civil may insist on the liquidation or settlement of
Code, they will be considered as creditors of t existing partnership debts.
he new firm together with the firm’s new
creditors. (See also Art. 1840, which among
other things provide that generally “creditors of On the other hand, the creditors have no
the dissolved partnership are also creditors of means of protecting themselves.
the person or partnership continuing the
business.”)
Article 1827
It is therefore essential that the partnership The creditors of the partnership shall be
assets of the new firm (with the capital of the preferred to those of each partner as regards
new partner) be available even to the old the partnership property. Without prejudice to
creditors. this right, the private creditors of each partner
may ask the attachment and public sale of the
share of the latter in the partnership assets.
It is wrong to state that “the theory that a new
firm is created by the admission of a new
partner, has been abandoned.” It is wrong Preference of Partnership Creditors
because indeed a new firm is created; but the
old creditors of the firm retain their preference
as partnership creditors. The partnership is a juridical person with
whom the creditors have contracted. Moreover,
the assets of the partnership must fi rst be
Article 1826 should be read together with exhausted.
Article 1840. Both are based on the principle
that there has been one continuous business.
Why Individual Creditors May Still
Attach the Partner’s Share
Liability of New Partner for Previous
Obligations
The remainder (after paying partnership
obligations) really belongs to the partners.
The rule of holding the new partner liable with However, the purchaser at the public sale does
his share of the firm’s assets for previous not necessarily become a partner.
obligations of the firm is not harsh on said new
partner.
55
Agency, Trust, and Partnership Notes
56
Agency, Trust, and Partnership Notes
Termination
Chapter 3 - Dissolution and Termination is the point in time after all the
partnership affairs have been wound up.
Winding Up
Effect on Obligations
Article 1828
The dissolution of a partnership is the change
in the relation of the partners caused by any Just because a partnership is dissolved, this
partner ceasing to be associated in the carrying does not necessarily mean that a partner can
on as distinguished from the winding up of the evade previous obligations entered into by the
business. partnership.
Article 1830
Dissolution
Dissolution is caused:
Dissolution is the change in the relation of the
partners caused by any partner ceasing to be
associated in the carrying on of the business.
(1) Without violation of the agreement
between the partners:
It is that point of time when the partners cease
to carry on the business together.
(a) By the termination of the definite term or
particular undertaking specified in the
agreement;
Winding Up
57
Agency, Trust, and Partnership Notes
58
Agency, Trust, and Partnership Notes
If one partner says he will not have anything (3) Unlawfulness of the Business
more to do with the fi rm, and the other does
not object, there is dissolution by implied
mutual consent. Also, when one buys out the If the business later on becomes unlawful, it
interest of ALL the others. follows that the firm will not be allowed to
carry on. On the other hand if the business or
object had been unlawful from the very
Expulsion in good faith of a member beginning, the fi rm never had any juridical
personality.
59
Agency, Trust, and Partnership Notes
Rationale
(3) A partner has been guilty of such conduct
as tends to affect prejudicially the carrying on
The business of a firm requires solvency or of the business;
ability to meet the financial demands of
creditors.
(4) A partner wilfully or persistently commits
a breach of the partnership agreement, or
60
Agency, Trust, and Partnership Notes
otherwise so conducts himself in matters A partner for any of the 6 causes given in
relating to the partnership business that it is the first paragraph.
not reasonably practicable to carry on the
business in partnership with him;
The purchaser of a partner’s interest in the
partnership under Art. 1813 or 1814,
(5) The business of the partnership can only be provided that the period has expired or if
carried on at a loss; the firm was a partnership at will when
the interest was assigned or charged.
Rationale
Dissolution by Judicial Decree
61
Agency, Trust, and Partnership Notes
62
Agency, Trust, and Partnership Notes
It would be erroneous to let the old firm pay if Dissolution Caused by Act, Insolvency,
the new firm has the capacity to pay. or Death
63
Agency, Trust, and Partnership Notes
If the firm is not bound, see Art. 1834, where However, it is still essential that there be
only the partner acting is liable. “knowledge or notice” of the fact of death or
insolvency to justify non-liability of the other
partners to the partner acting. Otherwise, it
Effect would be unfair to let the partner acting
assume the whole liability.
64
Agency, Trust, and Partnership Notes
(2) By any transaction which would bind the (2) Where the partner has become insolvent;
partnership if dissolution had not taken place, or
provided the other party to the transaction:
(2) So far unknown and inactive in partnership When Firm Is Bound or Not Bound
affairs that the business reputation of the
partnership could not be said to have been in
any degree due to his connection with it. This Article speaks of two possibilities:
The partnership is in no case bound by any act When the partnership is bound to
of a partner after dissolution: strangers;
(1) Where the partnership is dissolved because When the partnership is not bound to
it is unlawful to carry on the business, unless strangers.
the act is appropriate for winding up
partnership affairs; or
When Partnership Is Bound (Creation of
Partnership Liability)
65
Agency, Trust, and Partnership Notes
New business with third parties who are The individual property of a deceased partner
in bad faith shall be liable for all obligations of the
partnership incurred while he was a partner,
but subject to the prior payment of his
Where the firm was dissolved because it separate debts.
was unlawful to carry on the business
except:
Dissolution Ordinarily Does Not
Discharge Existing Liability of Partners
(1) When the act is for winding up;
66
Agency, Trust, and Partnership Notes
67
Agency, Trust, and Partnership Notes
If the surviving member of the firm is not the said income is not considered as “profits” for
general manager or administrator thereof, he after dissolution, the fi rm has ceased to
is not required to serve as liquidator thereof continue the business of the partners together.
without compensation.
Profits
68
Agency, Trust, and Partnership Notes
69
Agency, Trust, and Partnership Notes
70
Agency, Trust, and Partnership Notes
71
Agency, Trust, and Partnership Notes
Right of indemnification
(4) The partners shall contribute, as provided
by Article 1797, the amount necessary to
Article 1839 satisfy the liabilities.
In settling accounts between the partners after
dissolution, the following rules shall be
observed, subject to any agreement to the (5) An assignee for the benefit of creditors or
contrary: any person appointed by the court shall have
the right to enforce the contributions specified
in the preceding number.
(1) The assets of the partnership are:
72
Agency, Trust, and Partnership Notes
partnership property and separate creditors be assets in his hands applicable to the capital
on individual property, saving the rights of lien account.
or secured creditors.
73
Agency, Trust, and Partnership Notes
stipulation, not entitled to participate in the Partnership creditors have the preference
capital. He shares in the profits, however. regarding partnership property when both the
partnership property and the individual
properties of the partners are in the possession
Distribution of profits of the court for distribution.
Preference With Respect to the Assets A person who alleges himself to be a partner of
a deceased individual has the right to intervene
in the settlement of the decedent’s estate,
74
Agency, Trust, and Partnership Notes
particularly in the approval of the executor’s or but without any assignment of his right in
administrator’s account for after all it may be partnership property;
that he (the alleged partner) was indeed a
partner to whom the deceased partner owed
something. Administrators and executors, (4) When all the partners or their
instead of opposing the intervention of representatives assign their rights in
interested parties, should welcome the partnership property to one or more third
participation of the same for their own persons who promise to pay the debts and who
protection. Mere intruders should not be continue the business of the dissolved
allowed. partnership;
(1) When any new partner is admitted into an (6) When a partner is expelled and the
existing partnership, or when any partner remaining partners continue the business
retires and assigns (or the representative of either alone or with others without liquidation
the deceased partner assigns) his rights in of the partnership affairs.
partnership property to two or more of the
partners, or to one or more of the partners and
one or more third persons, if the business is The liability of a third person becoming a
continued without liquidation of the partner in the partnership continuing the
partnership affairs; business, under this article, to the creditors of
the dissolved partnership shall be satisfied out
of the partnership property only, unless there
(2) When all but one partner retire and assign is a stipulation to the contrary.
(or the representative of a deceased partner
assigns) their rights in partnership property to
the remaining partner, who continues the When the business of a partnership after
business without liquidation of partnership dissolution is continued under any conditions
affairs, either alone or with others; set forth in this article the creditors of the
dissolved partnership, as against the separate
creditors of the retiring or deceased partner or
(3) When any partner retires or dies and the the representative of the deceased partner,
business of the dissolved partnership is have a prior right to any claim of the retired
continued as set forth in Nos. 1 and 2 of this partner or the representative of the deceased
article, with the consent of the retired partners partner against the person or partnership
or the representative of the deceased partner, continuing the business, on account of the
75
Agency, Trust, and Partnership Notes
retired or deceased partner's interest in the of his interest at the date of dissolution
dissolved partnership or on account of any ascertained, and shall receive as an ordinary
consideration promised for such interest or for creditor an amount equal to the value of his
his right in partnership property. interest in the dissolved partnership with
interest, or, at his option or at the option of his
legal representative, in lieu of interest, the
Nothing in this article shall be held to modify profits attributable to the use of his right in the
any right of creditors to set aside any property of the dissolved partnership;
assignment on the ground of fraud. provided that the creditors of the dissolved
partnership as against the separate creditors,
or the representative of the retired or deceased
The use by the person or partnership partner, shall have priority on any claim
continuing the business of the partnership arising under this article, as provided Article
name, or the name of a deceased partner as 1840, third paragraph.
part thereof, shall not of itself make the
individual property of the deceased partner
liable for any debts contracted by such person Retirement or Death of a Partner
or partnership.
When any partner retires or dies, and the The right to an account of his interest shall
business is continued under any of the accrue to any partner, or his legal
conditions set forth in the preceding article, or representative as against the winding up
in Article 1837, second paragraph, No. 2, partners or the surviving partners or the
without any settlement of accounts as between person or partnership continuing the business,
him or his estate and the person or partnership at the date of dissolution, in the absence of any
continuing the business, unless otherwise agreement to the contrary.
agreed, he or his legal representative as against
such person or partnership may have the value
76
Agency, Trust, and Partnership Notes
Possible Defendants
The action can be filed agains the following
personst:
Winding up partners
Surviving partners
77
Agency, Trust, and Partnership Notes
Chapter 4 - Limited Partnership (f) The amount of cash and a description of and
the agreed value of the other property
contributed by each limited partner;
Article 1843
A limited partnership is one formed by two or (g) The additional contributions, if any, to be
more persons under the provisions of the made by each limited partner and the times at
following article, having as members one or which or events on the happening of which
more general partners and one or more limited they shall be made;
partners. The limited partners as such shall not
be bound by the obligations of the partnership.
(h) The time, if agreed upon, when the
contribution of each limited partner is to be
Article 1844 returned;
(e) The term for which the partnership is to (m) The right, if given, of the remaining general
exist; partner or partners to continue the business
on the death, retirement, civil interdiction,
insanity or insolvency of a general partner; and
78
Agency, Trust, and Partnership Notes
(n) The right, if given, of a limited partner to Effect if Only Aggregate Contribution Is
demand and receive property other than cash Stated
in return for his contribution.
Article 1845
Filing for record of the certificate in the
Office of the Securities and Exchange The contributions of a limited partner may be
Commission cash or property, but not services.
79
Agency, Trust, and Partnership Notes
(1) It is also the surname of a general partner, Liability for a False Statement
or
Article 1848
A limited partner whose surname appears in a
A limited partner shall not become liable as a
partnership name contrary to the provisions of
general partner unless, in addition to the
the first paragraph is liable as a general
exercise of his rights and powers as a limited
partner to partnership creditors who extend
partner, he takes part in the control of the
credit to the partnership without actual
business.
knowledge that he is not a general partner.
80
Agency, Trust, and Partnership Notes
Article 1849
After the formation of a lifted partnership, (2) Do any act which would make it impossible
additional limited partners may be admitted to carry on the ordinary business of the
upon filing an amendment to the original partnership;
certificate in accordance with the
requirements of Article 1865.
(3) Confess a judgment against the
partnership;
When Additional Limited Partners May
Be Admitted
(4) Possess partnership property, or assign
Note that even after a limited partnership has their rights in specific partnership property,
already been formed, the firm may still admit for other than a partnership purpose;
new limited partners, provided there is a
proper amendment to the certificate.
(5) Admit a person as a general partner;
Failure to Amend
(6) Admit a person as a limited partner, unless
the right so to do is given in the certificate;
If additional limited partners are taken in,
without proper amendment of certifi cate with
the SEC, this does not necessarily mean the (7) Continue the business with partnership
dissolution of the limited partnership. property on the death, retirement, insanity,
civil interdiction or insolvency of a general
partner, unless the right so to do is given in the
certificate.
81
Agency, Trust, and Partnership Notes
If a general partner in a limited partnership Among other things, a limited partner also has
goes abroad, his capacity to bind the firm is the right to have dissolution and winding up by
governed by the law of the place where the decree of the court.
limited partnership was formed.
82
Agency, Trust, and Partnership Notes
83
Agency, Trust, and Partnership Notes
84
Agency, Trust, and Partnership Notes
85
Agency, Trust, and Partnership Notes
86
Agency, Trust, and Partnership Notes
The liabilities of a limited partner as set forth who has died or has assigned his interest in a
in this article can be waived or compromised partnership.
only by the consent of all members; but a
waiver or compromise shall not affect the right
of a creditor of a partnership who extended An assignee, who does not become a
credit or whose claim arose after the filing and substituted limited partner, has no right to
before a cancellation or amendment of the require any information or account of the
certificate, to enforce such liabilities.
partnership transactions or to inspect the
partnership books; he is only entitled to
receive the share of the profits or other
When a contributor has rightfully received the
compensation by way of income, or the return
return in whole or in part of the capital of his
of his contribution, to which his assignor
contribution, he is nevertheless liable to the
would otherwise be entitled.
partnership for any sum, not in excess of such
return with interest, necessary to discharge its
liabilities to all creditors who extended credit
or whose claims arose before such return. An assignee shall have the right to become a
substituted limited partner if all the members
consent thereto or if the assignor, being
thereunto empowered by the certificate, gives
Waiver of Liability
the assignee that right.
87
Agency, Trust, and Partnership Notes
Some Causes for the Dissolution of a The estate of a limited partner is liable when
Limited Partnership said limited partner, while still alive contracted
certain liabilities.
88
Agency, Trust, and Partnership Notes
Article 1862
On due application to a court of competent (3) Those to limited partners in respect to the
jurisdiction by any creditor of a limited partner, capital of their contributions;
the court may charge the interest of the
indebted limited partner with payment of the
unsatisfied amount of such claim, and may (4) Those to general partners other than for
appoint a receiver, and make all other orders, capital and profits;
directions and inquiries which the
circumstances of the case may require.
(5) Those to general partners in respect to
profits;
The interest may be redeemed with the
separate property of any general partner, but
may not be redeemed with partnership (6) Those to general partners in respect to
property. capital.
The remedies conferred by the first paragraph Subject to any statement in the certificate or to
shall not be deemed exclusive of others which subsequent agreement, limited partners share
may exist. in the partnership assets in respect to their
claims for capital, and in respect to their claims
for profits or for compensation by way of
Nothing in this Chapter shall be held to deprive income on their contribution respectively, in
a limited partner of his statutory exemption. proportion to the respective amounts of such
claims.
Article 1863
Article 1864
In settling accounts after dissolution the
liabilities of the partnership shall be entitled to The certificate shall be cancelled when the
payment in the following order: partnership is dissolved or all limited partners
cease to be such.
89
Agency, Trust, and Partnership Notes
Article 1865
(5) A general partner retires, dies, becomes
insolvent or insane, or is sentenced to civil The writing to amend a certificate shall:
interdiction and the business is continued
under Article 1860;
(1) Conform to the requirements of Article
1844 as far as necessary to set forth clearly the
(6) There is a change in the character of the change in the certificate which it is desired to
business of the partnership; make; and
(7) There is a false or erroneous statement in (2) Be signed and sworn to by all members,
the certificate; and an amendment substituting a limited
partner or adding a limited or general partner
shall be signed also by the member to be
(8) There is a change in the time as stated in substituted or added, and when a limited
the certificate for the dissolution of the partner is to be substituted, the amendment
partnership or for the return of a contribution; shall also be signed by the assigning limited
partner.
90
Agency, Trust, and Partnership Notes
and when the certificate is to be amended, the sArticle 1844, provided the certificate sets
court shall also cause to be filed for record in forth:
said office a certified copy of its decree setting
forth the amendment.
(1) The amount of the original contribution of
each limited partner, and the time when the
A certificate is amended or cancelled when contribution was made; and
there is filed for record in the Office of the
Securities and Exchange Commission, where
the certificate is recorded: (2) That the property of the partnership
exceeds the amount sufficient to discharge its
liabilities to persons not claiming as general or
(1) A writing in accordance with the provisions limited partners by an amount greater than the
of the first or second paragraph, or sum of the contributions of its limited partners.
(2) A certified copy of the order of the court in A limited partnership formed under the law
accordance with the provisions of the fourth prior to the effectivity of this Code, until or
paragraph; unless it becomes a limited partnership under
this Chapter, shall continue to be governed by
the provisions of the old law.
(3) After the certificate is duly amended in
accordance with this article, the amended
certified shall thereafter be for all purposes the
certificate provided for in this Chapter.
Article 1866
A contributor, unless he is a general partner, is
not a proper party to proceedings by or against
a partnership, except where the object is to
enforce a limited partner's right against or
liability to the partnership.
Article 1867
A limited partnership formed under the law
prior to the effectivity of this Code, may
become a limited partnership under this
Chapter by complying with the provisions of
91