Partnership Laws and Principles Quiz

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Questions and Answers

What distinguishes a SECRET partner from a SILENT partner?

A SECRET partner actively participates in the business but is unknown to outsiders, while a SILENT partner does not participate actively but may be recognized as a partner.

What must happen for a collecting partner to apply the entire sum to the partnership credit?

There must be at least two demandable debts, one in which the collecting partner is the creditor and the other where the partnership is the creditor.

What are the obligations of a partner regarding the promised contribution of property?

A partner must contribute the promised property at the agreed time, preserve it with due diligence, and indemnify the partnership for any damages caused by delays.

What obligation does a partner have when he receives his share of partnership credit?

He is obliged to bring the amount received back to the partnership capital, regardless of having issued a receipt. Signup and view all the answers

What happens if a partner fails to contribute the property as promised?

The defaulting partner becomes a debtor to the partnership automatically, and the remedy for other partners is to seek specific performance with damages instead of rescission. Signup and view all the answers

Under what circumstances is a partner exempt from bearing losses?

A partner can be exempt from losses if explicitly stipulated by agreement, although this may be void concerning third parties. Signup and view all the answers

What constitutes a fiduciary duty in a partnership?

A fiduciary duty in a partnership is the obligation of partners to act in trust and confidence toward each other, maintaining honesty and good faith. Signup and view all the answers

How should a partner act if they delay in contributing their promised money?

They must pay agreed interest for the delay and indemnify the partnership for any damages caused due to their inaction. Signup and view all the answers

What rights does a partner have to inspect partnership records?

A partner has the right to inspect and copy partnership books at any reasonable hour. Signup and view all the answers

What is the remedy available to partners if one partner takes money from the partnership for personal use?

The remaining partners can seek reimbursement of the amount taken and any damages caused by the unauthorized conversion. Signup and view all the answers

What is required for a partner to request a formal account of partnership affairs?

A partner can request a formal account if wrongfully excluded from business or if the request is justified under the partnership agreement. Signup and view all the answers

What does the duty to account to the partnership entail for partners?

Partners have a fiduciary duty to keep accurate records and provide full information affecting partnership affairs. Signup and view all the answers

What are the consequences for a partner who fails to preserve contributed property with due diligence?

They must indemnify the partnership for any damages caused by their negligence in preserving the property. Signup and view all the answers

What is the legal stance for a partner who is late in contributing their agreed capital?

They are liable for legal interest on the late contribution and must compensate the partnership for any resulting damages. Signup and view all the answers

What are the requisites for a partner's obligation to bring received amounts back to capital?

The partner must have received his share in whole or in part, the others have not collected, and the partnership debtor is insolvent. Signup and view all the answers

What is the significance of a partner's right to associate another person in a subpartnership?

It allows a partner to share interests without needing consent from other partners, promoting flexibility. Signup and view all the answers

What is the minimum capital requirement for a partnership to be registered with the SEC?

The minimum capital requirement is P3,000. Signup and view all the answers

Explain the principle of delectus personarum in a partnership context.

Delectus personarum refers to the choice of partners, indicating that the assignment of a partner's share does not automatically make the assignee a partner. Signup and view all the answers

What does mutual agency imply about the authority of partners in a partnership?

Mutual agency implies that all partners are agents of the partnership and any action by one partner can bind the partnership. Signup and view all the answers

State the liability of partners for partnership debts.

Partners are liable pro rata with their properties for all partnership debts after the partnership assets are exhausted. Signup and view all the answers

What happens to a newly admitted partner concerning prior partnership obligations?

A newly admitted partner is liable for all obligations of the partnership that arose before their admission. Signup and view all the answers

How does the wrongful act of one partner affect the partnership?

The wrongful act of one partner makes the partnership liable for any resulting damages. Signup and view all the answers

What distinguishes a partnership from co-ownership?

A partnership involves a contractual relationship with mutual agency, while co-ownership pertains to shared property without the same contractual obligations. Signup and view all the answers

What consequences follow the dissolution of a partnership upon a partner's exit?

The partnership dissolves upon a partner's exit if there is a change in the contractual relationship. Signup and view all the answers

Can partners legally dispose of partnership property without consent from other partners?

Yes, partners can individually dispose of partnership property, even in the partnership's name. Signup and view all the answers

What is the role of the SEC concerning partnerships with capital less than P3,000?

While registration with the SEC is necessary for partnerships with capital of P3,000 or more, it is recommended for those with less capital for convenience in dealings. Signup and view all the answers

What are the three conditions that must be met for an assignment of interest in a partnership to be valid?

The assignment must be made in good faith, for fair consideration, and after a fair and complete disclosure of all important information regarding its value. Signup and view all the answers

What rights does an assignee have in relation to the assignor-partner?

An assignee can receive whatever the assignor-partner would have obtained and has rights to usual remedies in case of fraud. Signup and view all the answers

How should a partnership respond if a partner incurs expenses on its behalf?

The partnership must refund the amounts disbursed by the partner along with corresponding interest from the time the expenses were made. Signup and view all the answers

Define the process of winding up in the context of partnership dissolution.

Winding up is the process of settling the business or partnership affairs after dissolution. Signup and view all the answers

What signifies the termination of a partnership?

Termination signifies the point when all partnership affairs are completely wound up and finally settled, marking the end of the partnership's life. Signup and view all the answers

What could be a valid cause for the dissolution of a partnership according to the content provided?

A valid cause for dissolution could be the termination of a definite term or a particular undertaking specified in the partnership agreement. Signup and view all the answers

What responsibility does a partnership have regarding the obligations contracted by a partner in good faith?

The partnership must answer for obligations that the partner may have contracted in good faith in the interest of the partnership business. Signup and view all the answers

What happens if an assignee is induced to join through vices of consent?

The assignee can ask for the annulment of the contract of assignment if they were induced to join through vices of consent. Signup and view all the answers

What rights does a guilty partner have against the partnership debts after dissolution?

A guilty partner has the right of indemnification against all partnership debts and liabilities. Signup and view all the answers

In what order are the assets of a dissolved partnership applied when settling accounts?

The order is: partnership creditors, partners as creditors, partners as investors for capital contribution, and partners as investors for share of profits. Signup and view all the answers

What is the right of subrogation in the context of partnership liabilities?

The right of subrogation allows a partner to assume the rights of creditors after paying off partnership liabilities. Signup and view all the answers

Who is authorized to wind up the affairs of a partnership after dissolution?

Partners designated by the agreement, all non-wrongfully dissolving partners, or the legal representative of the last surviving partner. Signup and view all the answers

What distinguishes a limited partner from a general partner in a limited partnership?

Limited partners do not participate in management and are only liable up to their capital contributions. Signup and view all the answers

What document is necessary to form a limited partnership?

A certificate of articles of limited partnership must be filed stating the partnership's name, character of business, and location. Signup and view all the answers

What effect does the continuation of the business of a dissolved partnership have on creditors?

Creditors of the old partnership remain creditors of the new partnership continuing the business without liquidation. Signup and view all the answers

What must occur when a retiring or deceased partner's interest is sold?

The retiring or deceased partner's estate must ascertain the value of their interest as of dissolution and receive it as an ordinary creditor. Signup and view all the answers

Study Notes

Partnership Requirements

A public instrument is required for partnerships with capital of P3,000 or more, in money or property.
Partnerships with capital of less than P3,000 are recommended to register with the SEC for convenience.
Partnerships have a separate and distinct legal personality from their partners, even if they don't comply with the requirements for a public instrument.

Partnership as a Juridical Person

A partnership can:
- Acquire and possess property
- Incur obligations
- Bring civil and criminal actions

Principle of Delectus Personarum

Partners are carefully chosen, and assignment of a partner's share doesn't automatically make the assignee a partner.
The existence of the partnership depends on the specific contractual relationship between the partners.

Mutual Agency

All partners are agents of the partnership in the absence of specific stipulations.
Any partner's actions can bind the partnership.
Partners can dispose of partnership property, even when in the partnership name.
Admissions or representations made by a partner about partnership affairs are evidence against the partnership.
Notice to a partner about partnership matters is considered notice to the partnership.
The partnership is liable for wrongful acts or omissions of partners acting in the ordinary course of business or with authority from other partners.
The partnership is also liable for a partner's misapplication of properties.

Unlimited Liability

All partners are liable for partnership debt pro rata with all their property, after partnership assets are exhausted.
Stipulations against personal liability are void except among partners.
Partners are jointly and severally liable with the partnership for wrongful acts or omissions of a partner acting in the ordinary course of business or with authority from other partners.
Newly admitted partners are liable for partnership obligations that existed before their admission, but only for their share of partnership property.
Partnership creditors have preference over individual partner creditors when claiming partnership property.
Upon dissolution, partners must contribute to cover partnership liabilities.

Distinction from Co-ownership and Corporations

To be covered later...

Partnership Weaknesses

Partners are co-owners of partnership property.
Partners can dispose of real property individually, even when the property is in the partnership name.
The partnership can dissolve based on changes in the relationship between partners, such as a partner's choice to leave.

Obligations of Partners to One Another

Partners are required to contribute the promised property or industry at the beginning of the partnership or at the stipulated time.
Partners are liable for eviction if the partnership loses the contributed determinate property.
Partners must pay for the fruits of contributed property from the time they should have been contributed until actual delivery.
Partners must preserve contributed property with the diligence of a good father of a family.
Partners must indemnify the partnership for damages caused by retaining the contributed property or delaying its contribution.

Failure to Contribute Promised Property

A partner who fails to contribute property becomes a debtor to the partnership, even without demand.
The remedy for a defaulted partner is specific performance with damages, not rescission.

Obligations with Respect to Money Contributions

Partners must contribute the agreed amount on the stipulated date.
Partners must reimburse the partnership for money they may have taken and converted to their personal use.
Partners must pay agreed or legal interest for delayed contributions or for money taken from the common fund and converted to personal use.
Partners must indemnify the partnership for damages caused by delayed contribution or conversion of money for personal benefits.

Fiduciary Duty

Partners owe each other a fiduciary duty of trust and confidence.
A partner who receives a share of a partnership credit, even after giving a receipt for only their own share, is obligated to bring the full amount to the partnership capital.

Bearing the Risk of Loss of Things Contributed

To be covered later…

Rules for Distribution of Profits and Losses

Profits and losses are usually distributed in proportion to the contributions made by each partner.
Partners can stipulate to distribute profits and losses differently, but any stipulation exempting a partner from losses is only valid between the partners, not with third persons.

Rights and Obligations with Respect to Management

To be covered later…

Other Rights and Obligations of Partners

Partners have the right to associate another person with them in their share without consent of other partners (subpartnership).
Partners have the right to inspect and copy partnership books at any reasonable hour.
Partners have the right to a formal account of partnership affairs in several circumstances, including when wrongfully excluded from the business or property, when the right is explicitly stated in an agreement, as provided in Article 1807, or whenever other circumstances deem it just and reasonable.
Partners have the duty to provide true and full information about the partnership to any partner or the legal representative of a deceased partner or a legally disabled member as required.
Partners have a fiduciary duty to account to the partnership.

Liability in Estoppel

If a person:
- Represented themselves or are represented as a partner
- Their statement wasn't denied or refuted
- Another party relied on the representation
They can be held liable as a partner, even if they are not a partner in fact.

Assignment of Interest in Partnership

The assignment of a partner's interest is subject to certain conditions:
- Made in good faith
- For fair consideration
- After a fair and complete disclosure about the value of the interest
An assignee has the right to:
- Receive what the assignor would have received
- Access remedies for fraudulent management
- Annul the contract if induced to join through vices of consent
- Demand an accounting (only in case of dissolution)

Partnership Responsibility to Partners

The partnership is obligated to:
- Reimburse partners for expenses incurred on behalf of the partnership, with corresponding interest.
- Be liable for obligations contracted in good faith for the benefit of the partnership.
- Cover risks arising from partnership management.

Dissolution and Winding Up

Dissolution is a change in the relationship of partners where one or more partners cease to be associated in carrying on the business. Dissolution doesn't terminate the partnership, but continues until winding up is complete.
Winding up is the process of settling partnership affairs after dissolution.
Termination refers to the point when all partnership affairs are completely settled, marking the end of the partnership's life.

Causes of Dissolution

Dissolution without violation of the agreement:
- Expiration of the definite term or undertaking specified in the agreement.
- Express will of any partner in good faith when no term or undertaking is specified.
- Express will of all partners who haven't assigned their interests.
- Bona fide expulsion of a partner according to the agreement.

Effects of Dissolution

Winding up:
- Appointed by agreement, by all partners who have not wrongfully dissolved the partnership, or by the legal representative of the last surviving partner.
Settlement of accounts between partners:
- Partnership property including goodwill and partners' contributions
- Assets are applied in the following order:
  - Partnership creditors
  - Partners as creditors
  - Partners as investors (return of capital contributions)
  - Partners investors (share of profits)
When business is continued:
- Old partnership creditors are also creditors of the new partnership.
- Creditors have equitable lien on consideration paid to the retiring or deceased partner when selling their interest.
- Retiring or deceased partner has the right to have their interest value ascertained upon dissolution and receive the value as an ordinary creditor.

Limited Partnership

Formed by compliance with statutory requirements.
General partners control the business.
Limited partners contribute capital, share in profits, but don't participate in management and aren't personally liable for partnership obligations beyond their contributions.
Limited partners can ask for the return of their contributions under specific conditions.
Partnership debts are paid from the common fund and individual properties of general partners.

Differences between General and Limited Partners/Partnerships

To be covered later…

Requirements for Formation of Limited Partnership

Certificate of articles of limited partnership must state:
- Partnership name including "ltd"
- Character of business
- Location of principal place of business
- ...

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Description

Test your knowledge on the requirements and principles of partnerships. This quiz covers essential topics such as the juridical personality of partnerships, the principle of delectus personarum, and mutual agency among partners. Perfect for law students and professionals looking to brush up on partnership regulations.