Partnership Dissolution and Profit Confiscation

Partnership Essentials

• A partnership must have a lawful object or purpose, and the partners must have a community of benefit or interest.
• The parties have absolute freedom to choose the transaction or transactions they must engage in, as long as the object is lawful and for the common benefit of the members.

Effects of an Unlawful Partnership

• The contract is void 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 the above-mentioned forfeiture.

Dissolution of an Unlawful Partnership

• A partnership is dissolved by operation of law upon the happening of an event which makes it unlawful.
• A judicial decree is not necessary to dissolve an unlawful partnership, but it is advisable to secure one.
• 3rd persons who deal with the partnership without knowledge of the illegal purpose are protected.

Right to Return of Contribution

• Partners must be reimbursed the amount of their respective contributions.
• The partner who limits himself to demanding only the amount contributed by him need not resort to the partnership contract on which to base his claim or action.

Rights and Obligations of Industrial Partners

• An industrial partner cannot engage in any business for himself unless the partnership expressly permits him to do so.
• If an industrial partner engages in business without permission, the capitalist partners may either exclude him from the firm or avail themselves of the benefits which he may have obtained in violation of this provision, with a right to damages in either case.

Capital Contribution

• Unless there is a stipulation to the contrary, the partners shall contribute equal shares to the capital of the partnership.

Partnership Management

• In case of an imminent loss of the business of the partnership, any partner who refuses to contribute an additional share to the capital, except an industrial partner, to save the venture, shall be obliged to sell his interest to the other partners.

Collection of Debt

• If a partner authorized to manage collects a demandable sum, which was owed to him in his own name, from a person who owned the partnership another sum also demandable, the sum thus collected shall be applied to the two credits in proportion to their amounts.

Partner's Liability

• Every partner is responsible to the partnership for damages suffered by it through his fault, and he cannot compensate them with the profits and benefits which he may have earned for the partnership by his industry.
• The partner's fault must be determined in accordance with the circumstances of person, time, and place.

Liquidation

• It is first necessary that a liquidation of the business thereof be made to the end that the profits and losses may be known and the causes of the latter and the responsibility of the defendant as well as the damages which each partner may have suffered, may be determined.

Risk of Specific and Determinate Things

• The risk of specific and determinate things, which are not fungible, contributed to the partnership so that only their use and fruits may be for the common benefit, shall be borne by the partner who owns them.
• If the things contributed are fungible, or cannot be kept without deteriorating, or if they were contributed to be sold, the risk shall be borne by the partnership.

Partnership Books

• The duty to keep true and correct books showing the firm's accounts, such books being at all times open to inspection of all members of the firm, primarily rests on the managing or active partner.
• Each partner has the right to free access to the partnership books and to inspect or copy any of them at any reasonable time, even after dissolution.

Access to Partnership Books

• Rights can be exercised at any reasonable hour on business days throughout the year and not merely during some arbitrary period of a few days chosen by the managing partners.

Duty to Render Information

• Partners shall render on demand true and full information of all things affecting the partnership to any partner or the legal representative of any deceased partner or of any partner under legal disability.
• There must be no concealment between partners in all matters affecting the partnership.
• Information must be used only for partnership purposes.