PDF Law on Business Organizations - Partnership & Corporation Reviewer

Law on Business Organizations Reviewer PARTNERSHIP failure to comply with the requirements of Article 1772, first paragraph. Art. 1767. By the contract of partnership two or more persons bind themselves to...

Law on Business Organizations Reviewer PARTNERSHIP failure to comply with the requirements of Article 1772, first paragraph. Art. 1767. By the contract of partnership two or more persons bind themselves to Partnership, a juridical person contribute money, property, or industry to As an independent juridical person, a a common fund with the intention of partnership may enter into contracts, dividing the profits among themselves. acquire and possess property of all kinds in its name, as well as incur obligations and Definition bring civil or criminal actions. Thus, a Partnership is a contract whereby two or partnership may be declared insolvent even more persons bind themselves to if the partners are not. It may enter into contribute money, property or industry to a contracts and may sue and be sued in its common fund with the intention of dividing firm name or by its duly authorized profits among themselves. representative. It is sufficient that service of summons be served on any partner. Elements 1. Intention to form a contract of Partners cannot be held liable for the partnership obligations of the partnership unless it is 2. Participation in both profits and losses shown that the legal fiction of a different 3. Community of interests juridical personality is being used for a fraudulent, unfair or illegal purpose. Basic Features 1. Voluntary agreement Effect of failure to comply with statutory 2. Association for profit requirements 3. Mutual contribution to a common fund Under Art 1772 4. Lawful purpose or object Partnership still acquires personality despite 5. Mutual agency of partners failure to comply with the requirements of 6. Articles must not be kept secret execution of public instrument and 7. Separate juridical personality registration of name in SEC. Characteristics Under Arts 1773 and 1775 1. Consensual – perfected by mere Partnership with immovable property consent. contributed, if without requisite inventory, 2. Bilateral – formed by two or more signed and attached to public instrument, persons creating reciprocal rights and shall not acquire any juridical personality obligations. because the contract itself is void. This is 3. Preparatory - entered into as a means also true for secret associations or societies. to an end. 4. Nominate – has a special name or To organize a partnership not an absolute designation. right 5. Onerous – contributions in the form of It is but a privilege which may be enjoyed either money, property and/or industry only under such terms as the State may must be made. deem necessary to impose. 6. Commutative – the undertaking of each partner is considered as the equivalent Art. 1769. In determining whether a of that of the others. partnership exists, these rules shall apply: 7. Principal – its existence or validity does not depend on some other contract. 1. Except as provided by Article 1825, persons who are not partners as to Principle of Delectus Personae (choice of each other are not partners as to third persons) – a person has the right to select persons. persons with whom he wants to be associated with in partnership. 2. Co-ownership or co-possession does not of itself establish a partnership, Art. 1768. The partnership has a juridical whether such co-ownership or co- personality separate and distinct from that possessors do or do not share any of each of the partners even in case of profits made by the use of the property. 1 3. The sharing of gross returns does not partnership, they become subject to of itself establish a partnership, liabilities of partners (doctrine of whether or not the persons sharing estoppel).Whether or not the parties call them have a joint or common right or their relationship or believe it to be a interest in any property from which the partnership is immaterial. Thus, with the returns are derived. exception of partnership by estoppel, a partnership cannot exist as to third persons 4. The receipt by a person of a share of if no contract of partnership has been the profits of a business is prima entered into between the parties facie evidence that he is a partner in the themselves. business, but no such inference shall be drawn if such profits were received in Co-ownership or co-possession payment: There is co-ownership whenever the ownership of an undivided thing or right a. As a debt by installments or belongs to different persons. otherwise. Clear intent to derive profits from b. As wages of an employee or rent to operation of business a landlord. Co-ownership does not of itself establish the existence of a partnership, although it is c. As an annuity to a widow or one of its essential elements. This is true representative of a deceased even if profits are derived from the joint partner. ownership. The profits must be derived from the operation of business by d. As interest on a loan, though the the members of the association and amount of payment vary with the not merely from property ownership. The profits of the business. law does not imply a partnership between co-owners because of the fact that they e. As the consideration for the sale of develop or operate a common property, a goodwill of a business or other since they may rightfully do this by virtue of property by installments or their respective titles. There must be a clear otherwise. intent to form a partnership. In general, to establish the existence of a Existence of fiduciary relationship partnership, all of its essential features or characteristics must be shown as being Partners have a well-defined fiduciary present. In case of doubt, art.1769 shall relationship between them. Co-owners do apply. This article seeks to exclude from the not. Should there be dispute; the remedy of category of partnership certain partners is an action for dissolution, features enumerated herein which, by termination and accounting. For co-owners themselves, are not indicative of the it would be one, for instance, for non- existence of a partnership. performance of contract. People can become co-owners without a contract but Persons not partners as to each other they cannot become partners without one. Persons who are partners as between themselves are partners as to third persons. Persons living together without benefit Generally, the converse is true: if they are of marriage not partners between themselves, they Property acquired governed by rules on co- cannot be partners as to third persons. ownership. Partnership is a matter of intention, each partner giving his consent to become Sharing of gross returns not even a partner. However, whether a partnership presumptive evidence of partnership exists between the parties is a factual The mere sharing of gross returns alone matter. Where parties declare they are not does not even constitute prima facie partners, this, as a rule, settles the question evidence of partnership, since in a between them. But where a person partnership, the partners share profits after misleads third persons into believing that they are partners in a non-existent satisfying all of the partnership’s liabilities. Reason for the rule asserting its termination. One who alleges Partner interested in both failures and partnership cannot prove it merely by successes; it is the chance of loss or gain evidence of an agreement using the term that characterizes a business. Where “partner”. Non-use of the term, however, the contract requires a given portion of is entitled to weight. The question of gross returns to be paid over, the portion is whether a partnership exists is not always paid over as commission, wages, rent, etc. dependent upon the personal arrangement or understanding of the parties. Parties Where there is evidence of mutual intending to do a thing which in law management constitutes partnership are partners. Where there is further evidence of mutual management and control, partnership may Legal intention is the crux of partnership. result. Parties may call themselves partners but their contract may be adjudged something Receipt of share in the profits strong quite different. Conversely, parties may presumptive evidence of partnership expressly state that theirs in not a An agreement to share both profits partnership yet the law may determine and losses tends strongly to establish the otherwise on the basis of legal intent. existence of a partnership. It is not However, courts will be influenced to some conclusive, however, just prima facie and extent by what the parties call their may be rebutted by other circumstances. contract. When no such inference will be drawn Tests and incidents of partnership Under par. 4 of art. 1769, sharing of profits In determining whether a partnership is not prima facie evidence of partnership in exists, it is important to distinguish the cases enumerated under subsections (a) between tests or indicia and incidents of – (e). In these cases, the profits are not partnership. Only those terms of a contract shared as partner but in some other upon which the parties have reached an respects or purpose. The basic test actual understanding, either expressly or of partnership is whether the business is impliedly, may afford a test by which to carried on in behalf of the person sought to ascertain the legal nature of the contract. be held liable. Some of the typical incidents of a partnership are: Sharing of profits as owner 1. The partners share in profits and losses. It is not merely the sharing of profits, but 2. They have equal rights in the mgt and the sharing of them as co-owner of the conduct of the partnership business. business or undertaking that makes one 3. Every partner is an agent of the partner. Test: Does the recipient have an partnership, and entitled to bind the equal voice as proprietor in the conduct and others by his acts. He may also be liable control of the business? Does he own a for the entire partnership obligations. share of the profits as proprietor of the 4. All partners are personally liable for business producing them? One must have the debts of the partnership with their an interest with another in the profits of a separate property except that limited business as profits. partners are not bound beyond the amount of their investment. Burden of proof and presumption 5. A fiduciary relation exists between The burden of proving the existence of a the partners. partnership rests on the party having the 6. On dissolution, the partnership is not affirmative of that issue. The existence of terminated, but continues until the a partnership must be proved and will not winding up of partnership is completed. be presumed. The law presumes that those Such incidents may be modified by acting as partners have entered into a stipulation of the partners. contract of partnership. Where the law presumes the existence of partnership, the Similarities between a partnership and a burden of proof is on the party denying its corporation existence. When a partnership is shown to 1. Both have juridical personality separate exist, the presumption is that it continues and distinct from that of the individuals and the burden of proof is on the person composing it; 2. Both can only act through its agents; Right to return of contribution where 3. Both are organizations composed of an partnership is unlawful aggregate of individuals; Partners must be reimbursed the amount of 4. Both distribute profits to those who their respective contributions. The partner contribute capital to the business; who limits himself to demanding only the 5. Both can only be organized where there amount contributed by him need not resort is a law authorizing is organization; to the partnership contract on which to 6. Partnerships are taxable base his claim or action. Since the purpose as corporations. for which the contribution was made has not come into existence, the manager or Art. 1770. A partnership must have a lawful administrator must return it, and he who object or purpose, and must be established has paid his share is entitled to recover it. for the common benefit or interest of the partners. When an unlawful partnership is Right to receive profits where partnership dissolved by a judicial decree, the profits is unlawful Law does not permit action for obtaining shall be confiscated in favor of the earnings from an unlawful partnership State, without prejudice to the provisions because for that purpose, the partner will of the Penal Code governing the have to base his action upon the confiscation of the instruments and effects partnership contract, which is null and of a crime. Object or purpose of partnership without legal existence by reason of its unlawful object; and it is self-evident that The provision of the 1st paragraph what does not exist cannot be a cause reiterates 2 essential elements of a of action. Profits earned do not constitute contract of partnership: or represent the partner’s contribution. He 1. Legality of the object; and must base his claim on the contract which is 2. Community of benefit or interest of the void. It would be immoral and unjust for the partners. The parties possess absolute law to permit a profit from an industry freedom to choose the transaction or prohibited by it. T he courts will refuse to transactions they must engage in. The recognize its existence, and will not lend only limitation is that the object must their aid to assist either of the parties be lawful and for the common benefit thereto in an action against each other. of the members. The illegality of the Therefore, there cannot be no accounting object will not be presumed; it must demanded of a partner for the profits which appear to be of the essence of the may be in his hands, nor can recovery be relationship. had. Effects of an unlawful partnership Effect of partial illegality of partnership 1. The contract is void and the partnership business never existed in the eyes of the law; Where a part of the business is legal and 2. The profits shall be confiscated in favor part illegal, a n account of that which is of the government; legal may be had. Where, w/o the 3. The instruments or tools and proceeds knowledge or participation of the partners, of the crime shall also be forfeited in the firm’s profits in a lawful business has favor of the government; been increased by wrongful acts, the 4. The contributions of the partners shall innocent partners are not precluded as not be confiscated unless they fall against the guilty partners from recovering under #3. their share of the profits. A partnership is dissolved by operation of Effect of subsequent illegality of law upon the happening of an event which partnership business makes it unlawful. A judicial decree is Contract will not be nullified. Where the not necessary to dissolve an unlawful business for which the partnership is partnership. However, advisable that formed is legal when the partnership is judicial decree be secured. 3 rd persons who entered into, but afterward becomes illegal, deal w/ partnership w/o knowledge of an accounting may be had as to the illegal purpose are protected. business transacted prior to such time. Community of interest between the is in writing or at least evidenced by some partners for business purposes note or memorandum. The salient features of an ordinary partnership are a community of interest in Partnership implied from conduct profits and losses, a community of interest Binding effect in the capital employed, and a community Existence of partnership may be implied of power in administration. This community from the acts or conduct of the parties, as of interest is the basis of the partnership well as from other declarations, and such relation. However, although every implied contract would be as binding as a partnership is founded on a community of written and express contract. interest, e very community of interest does not necessarily constitute a partnership. Ascertainment of intention of parties Property used in the business may belong In determining whether a particular to one or more partners, so that there is no transaction constitutes a partnership, as joint property, other than joint earnings. between the parties, the intention as To state that partners are co-owners of a disclosed by the entire transaction, and business is to state that they have the as gathered from the facts and from the power if ultimate control. But partners may language employed by the parties as well agree upon concentration of management, as their conduct, should be ascertained. leaving some of their members entirely inactive or dormant. Only one of these Conflict between intention and terms features, profit-sharing, seems to be of contract absolutely essential. But a mere sharing of If the parties intend a general partnership, profits of itself does not of necessity they are general partners although their constitute a partnership. The court must purpose is to avoid the creation of such a consider all the essential elements in light relation. of the facts of the particular case before deciding whether a partnership exists. Art. 1772. Every contract of partnership having a capital of three thousand pesos or Art. 1771. A partnership may be constituted more, in money or property, shall appear in in any form, except where immovable a public instrument, which must be property or real rights are contributed recorded in the Office of the Securities and thereto, in which case a public instrument Exchange Commission. Failure to comply shall be necessary.Form of partnership with the requirements of the preceding contract paragraph shall not affect the liability of the partnership and the members thereof to General rule third persons. Registration of partnership No special form required for validity or existence of the contract of partnership. Partnership with capital of P3, 000 or more Contract maybe made orally or in writing Requirements: regardless of the value of the contributions. 1. The contract must appear in a public instrument; Where immovable property or real rights 2. It must be recorded or registered w/ are contributed the SEC. However, failure to comply w/ Execution of public instrument necessary the above requirements does not for validity of contract of partnership. To prevent the formation of the affect 3rd persons, the transfer of real partnership or affect its liability and property to the partnership must be duly that of the partners to 3rd persons. But registered in the Registry of Property. any partner is granted the right bylaw to compel each other to execute the When partnership agreement covered by contract in a public instrument. the Statute of Frauds An agreement to enter in a partnership at a Purpose of registration future time, which by its terms is not to be Registration is necessary as a condition for performed w/in a year from the making the issuance of licenses to engage in thereof is covered by the Statute of Frauds. business and trade. In this way, the tax Such agreement is unenforceable unless it liabilities of big partnerships cannot be evaded and the public can determine more accurately their membership and capital inventory of immovable property before dealing with them. contributed because w/o its description and designation, the instrument cannot be When partnership considered registered subject to inscription in the Registry The objective of the law is to make the of Property, and the contribution cannot recorded instrument open to all and to give prejudice 3rd persons. notice thereof to interested parties. This objective is achieved from the date the Art. 1774. Any immovable property or an partnership papers are presented to and interest therein may be acquired in the left for record in the Commission. This is the partnership name. Title so acquired can be effective date of registration. If the certificate of recording is issued on a conveyed only in the partnership name. subsequent date, its effectively retroacts to Acquisition or conveyance of property by date of presentation. partnership Art. 1773. A contract of partnership is void, Since partnership has juridical personality of whenever immovable property is its own, it may acquire immovable property contributed thereto, if an inventory of said in its own name. Title so acquired can property is not made, signed by the parties, be conveyed only in the partnership name. and attached to the public instrument. Partnership with contribution of immovable Art. 1775. Associations and societies, whose property articles are kept secret among the members, and wherein any one of the Where immovable property contributed, members may contract in his own name failure to comply w/ the following with third persons, shall have no juridical requisites will render the partnership personality, and shall be governed by the contract void: provisions relating to co-ownership. Secret 1. The contract must be in a public partnerships without juridical personality instrument; 2. An inventory of the property Partnership relation is created only by the contributed must be made, signed by voluntary agreement of the partners. It is the parties, and attached to the public essential that the partners are fully instrument. Art. 1773 is intended informed not only of the agreement but of primarily to protect 3rd persons. W/ all matters affecting the partnership. Secret regard to 3rdpersons, a de facto partnerships are not by nature partnership or partnership by estoppel partnerships. Secret partnerships shall be may exist. There is nothing to prevent governed by the provisions relating to co- the court from considering the ownership. partnership agreement an ordinary contract from which the parties’ rights Importance of giving publicity to articles and obligations to each other may be of partnership inferred and enforced. It is essential that the arts of partnership be given publicity for the protection not only of When inventory is not required the members themselves but also 3rd An inventory is required only whenever persons from fraud and deceit. A member immovable property is contributed. If not who transacts business for the secret contributed or if personal property, no partnership in his own name becomes inventory required. personally bound to 3rd persons unaware of the existence of such association. Importance of making inventory of real Partnership liability may still property in a p a r t n e r s h i p result, however, in cases of estoppel. An inventory is very important in a partnership to how much is due from each Art. 1776. As to its object, a partnership is partner to complete his share in the either universal or particular. As regards the common fund and how much is due to each liability of the partners, a partnership may of them in case of liquidation. The be general or limited. Classifications of execution of a public instrument of partnership partnership would be useless if there is no As to extent of its subject matter not avowed or made known to the public by 1. Universal partnership. (Art. 1777) any of the partners. a. Universal partnership of all present Open or notorious partnership: one whose property. (Art. 1778) existence is avowed or made known to the b. Universal partnership of profits. public by the members of the firm. (Art. 1780) 2. Particular partnership. (Art. 1783) As to purpose Commercial or trading partnership: one As to liability of the partners formed or the transaction of business. General partnership: one consisting of general partners who are liable pro rata and Professional or non-trading partnership: subsidiary and sometimes solidarily w/ their one formed for the exercise of a profession. separate property for partnership debts. Kinds of partners Limited partnership: one formed by two or Under the Civil Code more persons having as members one or 1. Capitalist partner: one who contributes more general partners and one or more money or property to the common limited partners, the latter not being fund. personally liable for the obligations of the 2. Industrial partner: one who contributes partnership. only his industry or personal service. 3. General partner: one whose liability to As to duration 3rd persons extends to his separate Partnership at will: one in w/c no time is property. specified and is not formed for a particular 4. Limited partner: one whose liability to undertaking or venture and w/c may be 3rd persons is limited to his capital terminated at any time by mutual contribution. agreement of the partners, or by the will of 5. Managing partner: one who manages any one partner alone; or one for a fixed the entity. term or particular undertaking w/c is 6. Liquidating partner: one who takes continued after the end of the term or charge of the winding up of partnership undertaking w/o express agreement. affairs upon dissolution. Partnership with a fixed term: one w/c the 7. Partner by estoppel: one who is not term for w/c the partnership is to exist is really a partner but is liable as a partner fixed or agreed upon or one formed for for the protection of innocent 3rd a particular undertaking. persons. He is one represented as being a partner but who is not so between As to the legality of its existence the partners themselves. De jure partnership: one w/c has complied 8. Continuing partner: one who continues w/ all the legal requirements for the business of a partnership after it its establishment. has been dissolved by reason of the De facto partnership: one w/c has failed to admission of a new partner, or the comply w/ all the legal requirements for its retirement, death or expulsion of one establishment. or more partners. 9. Surviving partner: one who remains As to representation to others after a partnership has been dissolved Ordinary or real partnership: one w/c by the death of any partner. actually exists among the partners and also 10. Subpartner: one who, not being as to 3rd persons. a member of the partnership, contracts Ostensible partnership or partnership or w/ a partner w/reference to the latter’s partnership by estoppel: one w/c in reality share in the partnership. is not a partnership, but is considered a partnership only in relation to those who, Other classifications by their conduct or admission, are 1. Ostensible partner: one who takes precluded to deny or disprove its existence. active part and known to the public as a partner. As to publicity 2. Secret partner: one who takes active Secret partnership: one wherein the part in the business but is not known to existence of certain persons as partners is be a partner by outside parties nor held  out as a partner by the other partners. Property w/c belonged to each of them at He is an actual partner. the time of the constitution of the 3. Silent partner: one who does not take partnership; any active part in the business although Profits w/c they may acquire from the he may be known to be a partner. property contributed. 4. Dormant partner: one who does not take active part in the business and is Contribution of future property not known or held out as a partner. He General rule: future properties cannot be would be both a silent and a secret contributed. The very essence of the partner. contract of partnership that the properties 5. Original partner: one who is a member contributed be included in the partnership of the partnership from the time of its requires the contribution of things organization. determinate. The position of a partner is 6. Incoming partner: a person lately, or like that of a donor, and donations about to be, taken into an existing cannot comprehend future property. Thus, partnership as a member. property subsequently acquired by 7. Retiring partner: one withdrawn from 1.inheritance; 2. Legacy; or 3. Donation the partnership; a withdrawing partner. cannot be included by stipulation except Art. 1777. A universal partnership may the fruits thereof. Hence, any stipulation refer to all the present property or to including property so acquired is void. all the profits. Profits from other sources (not from properties contributed) will become Art. 1778. A partnership of all present common property only is there’s a property is that in which the partners stipulation. contribute all the property which actually belongs to them to a common fund, with Art. 1780. A universal partnership of profits the intention of dividing the same among comprises all that the partners may acquire themselves, as well as all the profits they by their industry or work during may acquire therewith. the existence of the partnership. Movable or immovable property which each of the Art. 1779. In a universal partnership of all partners may possess at the time of the present property, the property which celebration of the contract shall continue to belongs to each of the partners at the time pertain exclusively to each, only the of the constitution of the partnership usufruct passing to the partnership. becomes the common property of all the partners, as well as all the profits which Universal partnership of profits explained they may acquire there with. A stipulation A universal partnership of profits is one w/c for the common enjoyment of any other comprises all that the partners may acquire profits may also be made; but the property by their industry or work during the which the partners may acquire existence of the partnership and the subsequently by inheritance, legacy or usufruct of movable or immovable property donation cannot be included in such w/c each of the partners may possess at the stipulation, except the fruits thereof. time of the celebration of the contract. Universal partnership of all present Ownership of present and future property property explained The partners retain their ownership over A universal partnership of profits is one w/c their present and future property. What comprises all that the partners may passes to the partnership are the profits or acquire by their industry or work during the income and the use or usufruct of the same. existence of the partnership and the Consequently, upon dissolution, such usufruct of movable or immovable property property is returned to the partners who w/c each of the partners may possess at the own it. time of the celebration of the contract. In this kind of partnership, the following Profits acquired through chance become the common property of all the Since the law only speaks of profits w/c partners: the partners may acquire by their industry or work, profits acquired purely by chance are not included.  Art. 1783. A particular partnership has for Fruits of property subsequently acquired its object determinate things, their use or Fruits of property subsequently acquired by fruits, or a specific undertaking, or the the partners do not belong to exercise of a profession or vocation. the partnership. Such profits, however, may be included by express stipulation. Particular partnership explained A particular partnership is one w/c is Art. 1781. Articles of universal partnership, neither a universal partnership of present entered into without specification of its property nor a universal partnership of nature, only constitute a universal profits. The fundamental difference partnership of profits. between a universal partnership and a particular partnership lies in the scope of Presumption in favor of universal their subject matter or object. In the partnership of profits former, the object is vague and Reason for presumption: universal indefinite, contemplating a general business partnership of profits imposes less w/ some degree of continuity, while in the obligations on the partners, since they latter, it is limited and well-defined, being preserve the ownership of their separate confined to an undertaking of a property. single, temporary, or ad hoc nature. Art. 1782. Persons who are prohibited from Business of partnership need not be giving each other any donation or continuing in nature advantage cannot enter into a universal The carrying on of a business of a partnership. Limitations upon the right to continuing nature is not essential to form a partnership constitute a partnership. An agreement to undertake a particular piece of work or a Persons who are prohibited by law to give single transaction or a limited number of donations cannot enter into a universal transactions and immediately divide the partnership for the reason that each of the resulting profits would seemt o fall w/in the partners virtually makes a donation. To meaning of the term “partnership” as used allow it would be permitting them to do in the law. indirectly what the law expressly prohibits. A partnership formed in violation of this Rule under American law article is null and void. Consequently, no The above is not true under the Uniform legal personality is acquired. A husband and Partnership Act w/c does not include joint wife, however, may enter into a particular ventures w/c exists for a single transaction partnership or be members thereof. or a limited number of transactions. Relevant provisions: Joint venture Art. 87: Donations between spouses during While a joint venture is not a formal marriage void, except moderate gifts on partnership in the legal or technical sense, occasion of family rejoicing. Also applies both are governed, subject to certain to those living together as husband and qualifications, practically by the same rules wife w/o valid marriage. or principles of partnership. This is logical Art. 739: The following donations are void: since in a joint venture, like in Those made between persons who are a partnership, there is a community of guilty of adultery or concubinage at the interest in the business and a mutual right time of the donation (no need for of control and an agreement to share jointly conviction; preponderance of evidence only in profits and losses. required); Those made between persons found guilty Corporation as a partner of the same criminal offense, While under the Philippine Civil Code, a inconsideration thereof; joint venture is a form of partnership w/ a c.)Those made to a public officer or his wife, legal personality separate and distinct from descendants and ascendants, by reason of the parties composing it, and should thus his office. be governed by the law of partnership, the Supreme Court has recognized the distinction between these two business forms, and has held that although a have contributed it up to actual delivery corporation cannot enter into a partnership without necessity of any demand; contract, it may, however, engage in a joint 4. Shall preserve said properties with the venture if the nature of the venture is diligence of a good father of a family authorized by its charter. pending their delivery to the partnership; Art. 1784. A partnership begins from the 5. And shall indemnify the partnership for moment of the execution of the contract, any damage caused it by the retention unless it is otherwise stipulated. (1679) of said properties or by the delay in their contribution. Art. 1785. When a contract for a fixed term or particular undertaking is continued after Art. 1787. When the capital or part thereof the termination of such term or particular which a partner is bound to contribute undertaking without any express consists of goods, their appraisal must be agreement, the rights and duties of the made in the manner prescribed in the partners remains the same as they were at contract of partnership, and in the absence such termination, so far as is consistent of stipulation, it shall be made by experts with a partnership at will. chosen by the partners, and according to current prices, the subsequent changes A continuation of the business by the thereof being for the account of the partners or such of them as habitually acted partnership. therein during the term, without any settlement or liquidation of the partnership Art. 1788. A partner who has undertaken to affairs, is prima facie evidence of a contribute a sum of money and fails to do continuation of the partnership. so becomes a debtor for the interest and damages from the time he should have Partnership at will is one in which no term complied with his obligation. of existence has been fixed and which may be terminated at the will of any partners. The same rule applies to any amount he may have taken from the partnership Art. 1786. Every partner is a debtor of the coffers, and his liability shall begin from the partnership for whatever he may have time he converted the amount to is own promised to contribute thereto. use. He shall also be bound for warranty in case Liability of partner for estafa of eviction with regard to specific and Failure to return the money taken, there is determinate things which he may have the element of fraudulent appropriation of contributed to the partnership, in the same the money delivered to a partner with cases and in the same manner as the specific instructions for the use of the vendor is bound with respect to the vendee. partnership, then estafa is committed under He shall also be liable for the fruits thereof the Revised Penal Code. from the time they should have been delivered, without the need of any demand. Art. 1789. An industrial partner cannot engage in any business for himself, UNLESS Obligations of partners to contribute: the partnership expressly permits him to do 1. Shall deliver at the beginning of the so; and if he should do so, the capitalist partnership or, if a different date has partners may either exclude him from the been agreed upon, at the stipulated firm or avail themselves of the benefits time the properties he agreed to which he may have obtained in violation of contribute; this provision, with a right to damages in 2. Shall answer for eviction, in case the either case. partnership is deprived of the ownership of any specific property he Industrial partner is one who contributes contributed; his industry or labor in the partnership. 3. Shall answer to the partnership for the fruits of the properties whose delivery Industrial partner barred from engaging in he delayed from the date he should business To prevent any conflict of interest between compensate them with the profits and the industrial and the partnership, and to benefits which he may have earned for the insure faithful compliance by said partner partnership by his industry. However, the with his prestation. courts may equitably lessen this responsibility if through the partner’s Art. 1790. Unless there is a stipulation to extraordinary efforts in other activities of the contrary, the partners shall contribute the partnership, unusual profits have been equal shares to the capital of the realized. partnership. Partner liable for damages caused the Art. 1791. If there is no agreement to the partnership contrary, in case of an imminent loss of the Art. 1794 follows the general rule of business of the partnership, any partner contracts that where a person is at fault in who refuses to contribute an additional the fulfillment of his obligations he shall be share to the capital, except an industrial liable for the payment of damages. The partner, to save the venture, shall be partner’s fault, however, must be obliged to sell his interest to the other determined in accordance with the partners. circumstances of person, time and place. Art. 1792. If a partner authorized to Liquidation necessary to ascertain manage collects a demandable sum, which damages was owed to him in his own name, from a It is first necessary that a liquidation of the person who owned the partnership another business thereof be made to the end that sum also demandable, the sum thus the profits and losses may be known and collected shall be applied to the two credits the causes of the latter and the in proportion to their amounts, even responsibility of the defendant as well as though he may have given a receipt for his the damages which each partner may have own credit only; but should he have given it suffered, may be determined. for the account of the partnership credit, the amount shall be fully applied to the Art. 1795. The risk of specific and latter. determinate things, which are not fungible, contributed to the partnership so that only The provisions of this article are understood their use and fruits may be for the common to be without prejudice to the right granted benefit, shall be borne by the partner who to the debtor by Art. 1252, but only if the owns them. personal credit of the partner should be more onerous to him. If the things contributed are fungible, or cannot be kept without deteriorating, or if Requisites: they were contributed to be sold, the risk 1. Two existing debts shall be borne by the partnership. In the 2. Both debts must be demandable absence of stipulation, the risk of things 3. The one who collected the debt is a brought and appraised in the inventory, partner who is authorized to manage shall also be borne by the partnership, and and is actually managing the in such case the claim shall be limited to the partnership value at which they were appraised. Art. 1793. A partner who has received, in Risk of Specific and determinate things whole or in part, his share of a partnership The risk of specific and determinate things credit, when the other partners have not which are not fungible, like a boat, only the collected theirs, shall be obliged, if the use of which is contributed, shall be borne debtor should thereafter become insolvent, by the partner as the ownership thereof is to bring to the partnership capital what he not transferred to the partnership. This received even though he may have given follows the general rule that the thing receipt for his share only. perished with the owner. Art. 1794. Every partner is responsible to Things fungible or perishable the partnership for damages suffered by it If the things contributed are fungible or through his fault, and he cannot cannot be kept without deteriorating (perishable) like wine, oil, etc., even if they also receive a share in the profits in are contributed only for the use of the proportion to his capital. partnership, the risk of loss shall be for the account of the partnership for the latter Rules in profit sharing: cannot make use of them without their 1. The partners share the profits in getting consumed or presumed. accordance with the ratio established by their contract. Things contributed to be sold 2. If there is no such stipulation in the If the things contributed are to be sold, the partnership contract, then: partnership bears the risk of loss, for 1. If all are capitalist partners they obviously the partnership is the intended have the profits in proportion to owner; otherwise, the firm cannot make the their capital contributions; sale. 2. If there are capitalist as well as industrial partners, the industrial Things brought and appraised in inventory partner get a share each that is The partnership bears the risk of loss of just and equitable while the things brought and appraised in capitalist partners divide the the inventory as this has the effect remainder in proportion to their of an implied sale thus making the capital contributions; and partnership the owner of said things. 3. If there is a capitalist-industrial partner, he gets a share in the Art. 1796. The partnership shall be profits as an industrial partner and responsible to every partner for the an additional share in proportion to amounts he may have disbursed on behalf his capital contribution to be of the partnership and for the determined as in (b), above. corresponding interest, from the time the expenses are made; it shall also answer to Rules in loss sharing: each partner for the obligations he may 1. The stipulation in the partnership have contracted in good faith in the interest agreement regarding loss sharing must of the partnership business, and for the risk be followed. inconsequence of its management. 2. If there is no such agreement, but the contract provides for a profit sharing Responsibility of the partnership to a ration, the profit sharing ratio shall also partner be the loss sharing ration. If a partner has advanced funds for the 3. In the absence of loss sharing and profit partnership, he is entitled to recover the sharing stipulations in the contract, amounts advanced by him with interest. then the loss shall be borne by the This must be so for the reason that a partners in proportion to their capital partner is a mere agent of the partnership contributions; but a purely industrial and under the rules of agency, an agent partner is exempted from participation who advances funds for his principal may in the loss. recover the same interest. Share of industrial partner in profits and Art. 1797. The profits and losses shall be losses distributed in conformity with the Unless agreed upon, the industrial partner agreement. If only the share of each partner shall receive such share in the profits as in the profits has been agreed upon, the may be just and equitable under the share of each in the losses shall be in the circumstances. As for the losses, the same proportion. industrial partner is not liable. However, In the absence of stipulation, the share of under Art. 1816, if the partnership has a each partner in the profits and losses shall contractual debt and it cannot pay, the be in proportion to what he may have industrial partner equally with the capitalist contributed, but the industrial partner shall partners, can be compelled by the creditor not be liable for the losses. As for the to pay his pro rata share out of his own profits, the industrial partner shall receive property or assets. such share as may be just and equitable under the circumstances. If besides his Art. 1798. If the partners have agreed to services he has contributed capital, he shall entrust to a third person the designation of the share of each one in the profits and partner’s capital contribution. losses, such designation may be impugned only when it is manifestly inequitable. In no Appointed as manager after the case may a partner who has begun to constitution of the partnership execute the decision of the third person, or Partner appointed in arts of partnership who has not impugned the same within a may execute all acts of administration period of three months from the time he notwithstanding the opposition of the other had knowledge thereof, complain of such partners, unless he should act in bad faith. decision. His power is revocable only upon just and lawful cause and upon the vote of the The designation of profits and losses cannot partners representing the controlling be entrusted to one of the partners. interest. Reason: revocation represents change in Reason for the provision terms of contract. Admittedly, the designation of profits and In case of mismanagement: Usual remedies losses cannot be entrusted to one of the allowed by law including dissolution. partners as the fulfillment of a contract cannot be left to one of the contracting Appointment as manager after the parties. It may, however, be entrusted to a constitution of the partnership third person by common interest. Appointment may be revoked at any time for any cause what so ever. Art. 1799. A stipulation which excludes one or more partners from any share in the Reason: revocation not founded on a profits or losses is void. change of will on the part of the partners. Appointment not condition of contract. It is Stipulation to exclude a partner from merely a simple contract of agency, which profits and losses is void may be revoking at any time. It is believe The law does not allow a provision in the that the vote for revocation must also contract of partnership excluding one or represent the controlling interest. more partners from sharing in the profits and losses. The reason is that a partnership Scope of the power of the managing is organized for the common benefit or partner interest of the partners. General rule: partner appointed as manager has all the powers of a general agent as well Reason for exclusion of industrial partner as all the incidental powers necessary to An industrial partner is not liable for losses carry out the object of the partnership in because if the partnership fails to realize the transaction of its business. any profits, the industrial partner would Exception: When powers of manager is have contributed his labor in vain. specifically restricted. A managing partner Furthermore, the industrial partner cannot may not bind the partnership by contract withdraw the work already done by him for foreign to its business. the partnership. Compensation for service rendered Art. 1800. The partner who has been Partner Generally not entitle to appointed manager in the articles of the compensation, In the absence of an partnership may execute all acts of the agreement to the contrary, each member of administration despite the opposition of his the partnership assumes the duty to give his partners, unless he should act in Bad faith., time, attention, and skill to the and his powers is irrevocable without the management of its affairs, as may be just or lawful cause. The vote of the reasonably necessary to the success of the partners representing the controlling common enterprise; and for this service a interest shall be necessary for such share of the profits is his only revocation of power. A power granted after compensation. In managing partnership the partnership has constituted may affairs, a partner is practically taking care of revoked at any time. Each partner has a his own interest or managing his own right to an equal voice in the conduct of the business. In the absence of any prohibition partnership business. This right is not in the arts. Of partnership for the payment dependent on the amount or size of the of salaries to general partners, there is nothing to prevent the partners to enter respective duties; into a collateral verbal agreement to that 3. There is no stipulation that one of them effect. shall not act without the consent of all EXCEPTIONS: In proper cases, the law the others. may imply a contract for compensation; 1. A partner engaged by his co-partners to perform services not required of him in ART. 1802 In case it should have been fulfilment of the duties and in capacity stipulated that none of the managing other than that of a partner. partner shall act without the consent of the 2. When there is extraordinary neglect on others, the concurrence of all shall be the part of one partner to perform his necessary for validity of the acts, and the duties, imposing entire burden on absence or disability of any one of them remaining partner. cannot alleged, unless there is imminent 3. One partner may employ the other danger of grave or irreparable injury to the to do work for him outside of and partnership. independent of the co-partnership. 4. Partners exempted by terms of When unanimity of action stipulated partnership from rendering services concurrence necessary for validity of acts may demand pay for services rendered. The partners may stipulate that none of the 5. Where one partner is entrusted with managing partners shall act without the management and devotes his whole consent of the others. In such a case, the time and devotion at the instance of the unanimous consent of all the managing other partners who are attending to partners shall be necessary for the validity their individual business and giving no of their acts. This consent is time or attention to the partnership so indispensable that neither absence nor business. disability of any one of them may allege as excuse to dispense with requirement. Exception: When there is imminent danger Art. 1801. If two or more partners have of grave or irreparable injury to the been intrusted with the management of the partnership then a partner may act alone partnership without the specification of without consent of partner who is absent or their respective duties or without the under disability. stipulation that one of them shall not act without the consent of all others, each one Consent of managing partners not separately execute all acts of necessary in routine transactions administration, but if anyone of them The requirement of written authority refers should oppose the act of each other, the evidently to formal and unusual written decision of the majority shall prevail. In the contracts. case of tie the partners owning the controlling interest shall decide the matter. Art. 1803. When the manner of Where respective duties of two or more management has not agreed upon, the managing partners not specifies. following rules shall observed: Each one may separately perform acts 1. All partners shall be considered agents of administration and whatever any one of them may do 1. If one or more of the managing partners alone shall bind the partnership without shall oppose the acts of the others, prejudice to the provision of article then the decision of the majority of the 1801 managing partners shall prevail. Right to oppose can be exercise only by those 2. None of the partners may, without the entrusted with mgt. consent of others, make any important 2. In case of tie, matter shall be decided by alteration in the immovable property of the vote of the partners owning the the partnership, even if it may be useful controlling interest. to the partnership, but if there ids refusal of the consent by the other REQUISITES FOR APPLICATION OF RULE partners is manifestly prejudicial to the 1. Two or more partners have been interest of the partnership, the court’s appointed as managers; intervention may be sought. 2. There is no specification of their Rules when manner of the management not become a member of the partnership, that has not agreed upon all partners even if the other partners know about the considered as managers and agents agreement. Not being a member of All partners shall have equal rights in the the partnership, he does not acquire the mgmt. and conduct of partnership affairs. rights of a partner nor is he liable for its All of them shall considered mgrs. and debts. agents and whatever any one of them may do alone shall bind the partnership. If there Reason for the rule is timely opposition, however, the matter Partnership is based on mutual trust and shall decided by majority vote. In case confidence among the partners. Inclusion of of tie, vote of partners representing new partner would be a modification of the controlling interest. original contract of partnership requiring unanimous consent of all the partners. Unanimous consent required for Prohibition applies even if person alteration of immovable property associated is already a partner. The consent need not be express. It may presume from the fact of knowledge of the Art. 1805. The partnership books shall be alteration without interposing any kept, subject to any agreement between objection. Prohibition only applies the partners, at the principal place of the to immovable property because of the business of the partnership, and every greater importance of this kind of property, partner shall at any reasonable hour have and the alteration thereof must be access to and may inspect and copy any of important. This would be an act of strict them. dominion. If refusal to give consent is manifestly prejudicial to the interest of Keeping of partnership books the partnership, court intervention maybe Partner with duty to keep partnership sought. Consent may presume from silence books (lack of opposition despite knowledge).If The duty to keep true and correct books alteration is necessary for preservation of showing the firm’s accounts, such books the property, consent of the other partners being at all times open to inspection of all not required. members of the firm, primarily rests on the managing or active partner. It is presume Art. 1804. Every partner may associate that the partners have knowledge of the another person with him in his share, but contents of the partnership books and that the associates shall not admitted into the said books state accurately the state partnership without the consent of all other of accounts, but errors can corrected. partners, even of the partner having an associate should be a manager of Rights with the respect to partnership subpartnership nature books Books should kept at the principal place of The partnership formed between a business as each partner has the right to member of a partnership and a third free access to them and to inspect or copy Person for a division of the profits coming any of them at any reasonable time, even to him from the partnership enterprise is after dissolution. Inspection rights not termed subpartnership. absolute can restrained from using info It is a partnership within a partnership and for other than partnership purpose. is distinct and separate from the main or principal partnership. Access to partnership books Rights can exercise at any reasonable hour. Right of the person associated with the This means reasonable hours on business partnership’s share days throughout the year and not merely Subpartnership agreements do not during some arbitrary period of a few days affect the composition, existence, or chosen by the managing partners. operations of the firm. The subpartners are partners interest, Art. 1806. Partners shall render on demand true and full information of all things However, in the absence of the mutual affecting the partnership to any partner or assent of all the parties, a subpartner does the legal representative of any deceased partner or of any partner under legal i.e. the winding up of partnership affairs disability. Duty to render information, there is completed. must be no concealment between partners in all matters affecting the partnership. Duty to account for secret and similar Information must use only for partnership profits purpose. Not just on demand but partner The duty of a partner to account as a also has duty of voluntary disclosure. fiduciary operates to prevent from making a However, duty to render info does notarise secret profit out of the operation of the with respect to matters appearing partnership and from carrying on the in partnership books since each partner has business for his private advantage or the right to inspect those. Good faith not a business in competition w/ the firm only requires that a partner should not w/o consent of other partners. Violation make a false statement but also that he may be ground for dissolution. should abstain from any false concealment. Duty to account for earnings accruing even Art. 1807. Every partner must account the after termination of partnership partnership for any benefit, and hold as If a partner uses info obtained by him from trustee for it any profits derived from him the partnership for his own account w/o the without the consent of the partners from consent of the other partners, he is liable to any transaction connected with the account for any benefit he might obtain. formation, conduct, or liquidation of the partnership or from any use by him of his Duty to make full disclosure of information property. belonging to partnership A partner is also subject to the fiduciary The relation between the partners duty of undivided loyalty and complete is essentially fiduciary involving trust and disclosure of info of all things affecting the confidence, each partner considered in law, partnership. By Information is meant as he is, in fact, the confidential agent of information, which can be used for the the others. The duties of a partner are purposes of the partnership. Info cannot analogous to those of a trustee. use for a partner’s private gain – even if after termination. Duty to act for common benefit Cannot use and apply exclusively to own Duty not to acquire interest or right individual benefit partnership assets or adverse to partnership results of knowledge and info gained in If partner does, he holds it in trust for the character of partner. Managing partners benefit of the partnership and must account particularly owe a fiduciary duty to inactive to the firm for the profits of the transaction, partners. unless it appears that the others consented Duty begins during the formation Art. 1808. The Capitalist partners cannot of partnership engage for their own account in any Principle of good faith applies not only operation, which is of the kind of business during partnership but during the in which the partnership is engaged, unless negotiations leading to the formation of the there is a stipulation to the contrary. Any partnership. Also, a person who agreed w/ capitalist partner violating this prohibition another to form a partnership has the shall bring to the common funds any profit obligation to account for commissions and accruing to him from his transactions, and discounts received in acquiring property for shall personally bear all the losses. the future partnership. Prohibition against partner engaging the Duty continues even after the dissolution business of the partnership Prohibition relative – Prohibition against Duty of partner to act w/ utmost good faith capitalist partner to engage in business is towards his co-partners continues relative, unlike the industrial partner who is throughout the entire life of the partnership absolutely prohibited from engaging in any even after dissolution for whatever reason business for himself. Capitalist partner is or whatever means, until the relationship is only prohibited from engaging for his own terminated, account in any operation which is the same as or similar to the business in which the partnership is engaged and which is Art. 1810. The property rights of a partner competitive w/ said business are: VIOLATION – Obligation to bring to 1. His rights in specific partnership common fund any profits derived and in property; case of losses, he shall bear them alone. Partners, however, by stipulation may 2. His interest in the partnership; permit it. The law permits him to carry on a business not connected or competing with 3. His right to participate in the that of the partnership. Law is silent on management, extent of property rights whether he can engage in same line of of a partner. business for the account of another. Prohibition still applies because of fiduciary Principal Rights position imposing duties of utmost good 1. Rights in specific partner property; faith. He may not carry on any other 2. Interest in partnership; business in rivalry w/ the partnership. 3. Right to participate in management. Reason for prohibition RELATED RIGHTS Fiduciary nature of relationship imposes 1. Right to reimbursement for amounts obligation of utmost good faith. Rule advanced to partnership and to prevents use of info obtained in course indemnification for risks inconsequence of transaction of partnership business or of management (art. 1796). because of connection w/ firm regarding 2. Right of access and inspection of business secrets and clientele of firm to its partnership books (art. 1805). prejudice. 3. Right to true and full information of all things affecting partnership (art. 1806). Art. 1809. Any partner shall have the right 4. Right to formal account of partnership to a formal account as partnership affairs: affairs under certain circumstances (art. 1809). 1. If he is wrongfully excluded from the 5. Right to have partnership dissolved also partnership business or possession of under certain conditions (arts. 1830- its property by his co-partner; 1831). 2. If the right exists under the terms of any Partnership property and partnership agreement; capital distinguished 3. Provided by article 1807; 4. Whenever other circumstances render it just and reasonable, Right of the partner to a formal account. General rule: During existence of partnership, a partner is not entitled to a formal account of partnership affairs. Reason: rights of partner amply protected in arts1805 and 1806. In addition, it would cause much inconvenience and unnecessary waste of time. Exception: In the special and unusual situations enumerated under art. 1809. Right of partner to demand an accounting w/o bringing about dissolution is a necessary corollary to right to share in profits. A formal account is a necessary incident to the dissolution of the partnership. Partnership Partnership  property capital Changes Variable: its Constant: it value value may remains vary from day unchanged today w/ as the changes in amount is fix market value by agreement of the partners, and is not affected by fluctuations in the value of the partnership property, although it may be increased and decreased by  partners; unanimous consent of the partners. 2. A partner’s right in specific partnership Assets Includes not The property is not assignable except in Included only the aggregate connection with the assignment of rights of original of the all the partners in the same property; capital individual contributions, contributions 3. A partner’s right in specific partnership but also all made by the property is not subject to attachment or property partners in execution, except on a claim against the subsequently establishing partnership; acquired or continuing because of the 4. A partner’s right in specific partnership the partnership. property is not subject to legal support partnership under art. 291 nature of a partner’s right in or w/ specific partnership property partnership funds, Art. 1811 contemplates tangible property including but not intangible things. A partner is a co- partnership owner w/ his partners of specific name and partnership property, but the rules on co- goodwill. ownership do not necessarily apply. The legal incidents of this tenancy in partnership Ownership of certain property are distinctively characteristic of the Property use by the partnership – Where partnership relation. They are as follows: there is no express agreement that property used by a partnership constitutes Equal rights of possession - Ordinarily, a partnership property, such use does not partner has an equal right to possess make it partnership property, and whether specific partnership property for it is so depends on the intention of the partnership purposes. None of the partner parties, w/c may be shown by proving an scan possesses and uses the express agreement or acts of particular specific partnership property other than for conduct. The intent of the parties is the partnership purposes w/o the consent controlling factor. of the other partners. Should any of them Property acquired by a partner with use the property for his own benefit, he partnership funds – Unless a contrary must account, like a stranger, to the others intention appears, property acquired by a for the profits derived there from or the partner in his own name w/ partnership value of his wrongful possession or funds is partnership property. However, occupation. A partner wrongfully excluded if the property was acquired after from possession of partnership property dissolution but before the winding up of the by a co-partner has a right to formal partnership affairs, it would be his separate account and may even apply for a property but he would be liable to account judicial decree of dissolution. On the death to the partnership for the funds used in its of a partner, his right in specific partnership acquisition. property vests in the surviving partners. By agreement, the right to possess specific Art. 1811. A partner is co-owner with his partnership property may surrender. In the partners of specific partnership property. absence of special agreement, however, The incidents of this co-ownership are such neither partner separately owns, or has the that; exclusive right of possession of any partnership property or any proportional 1. A partner, subject to the provision of this part thereof. Each has dominion over title and any agreement between the the entire partnership property. The partner, has an equal right with his partners possession of partnership property by one to possess specific partnership property for partner is the possession of all until his partnership purposes; but he has no right to possession becomes adverse. A partner possess such property for any other cannot initiate title by adverse possession purpose without the consent of his until and unless he makes an adverse claim.  partnership and not to the partners. Right not assignable - A partner cannot However, their interest in the partnership separately assign his right to specific is. The method of reaching a judgment partnership property but all of them can debtor’s interest in partnership property is assign their rights in the same property. specifically set forth in art.1814. Reasons for non-assignability: Art. 1812. A partner’s interest in the 1. It prevents interference by outsiders in partnership is his share of the profits and partnership affairs; surplus. 2. It protects the right of other partners and partnership creditors to have Share of profits and surplus – The partner’s partnership assets applied to firm interest in the partnership consists of his debts; share in the undistributed profits during the 3. It is often impossible to determine the life of the partnership as a going concern extent of a partner’s beneficial interest and his share in the undistributed surplus in a particular partnership asset. Reason after its dissolution. for impossibility: Each partner, having a beneficial interest in the partnership Profits: the excess of returns over property considered as a whole, has a expenditure in a transaction or series of beneficial interest in each part. Where, transactions; or the net income of the however, none of the above reasons partnership for a given period. apply, an authorized assignment by a partner of his right in specific Surplus: the assets of the partnership after partnership property is void, but it may partnership debts and liabilities are paid be regarded as a valid assignment of and settled and the rights of the partners the partner’s interest in the among themselves are adjusted. It is the partnership. The law allows a retiring excess of assets over liabilities. If the partner to assign his rights in liabilities are more than the assets, the partnership property to the partner(s) difference represents the extent of the loss. continuing the business. Art.1813. A conveyance by a partner by his Right limited to share of what remains whole interest in the partnership does not after partnership debts has been paid of itself dissolve the partnership, or, against Strictly speaking, no particular partnership the other partners in the absence of property or any specific or an aliquot part agreement, entitle the assignee, during the thereof can be considered the separate or continuance of the partnership, to interfere individual property of any partner. The in the management or administration of the whole of partnership property belongs to partnership business or affairs, or to require the partnership considered as a juridical any information or account of the person, and a partner has no interest in it partnership transactions, or to inspect the but his share of what remains after all partnership books; however it merely partnership debts are paid. Consequently, entitles the assignee to receive the specific partnership property is not subject accordance with his contract, the profits to to attachment, execution, garnishment, or which the assigning partner would injunction, w/o the consent of all the otherwise be entitled. partners except on a claim against the partnership. For the same reason that the In case of fraud in the management of the property belongs to the partnership, the partnership, the assignee may avail himself partners cannot claim any right under the of the usual remedies. In case of dissolution homestead or exemption laws when it is of the partnership, the assignee is entitle to attached for partnership debts. However, a receive his assignor’s interest and may judgment creditor may levy upon a require an account from the date only of partner’s interest in the partnership itself the last account agreed to by all partners. because it is actually his property, by means Effect of assignment of partner’s whole of a “charging order.” The right of interest in partnership. the partners to specificpartnership property is not subject to legal support A partner’s right in specific partnership since the property belongs to the property is not assignable but he may assign his interest in the partnership to any of his preferred rights of the partnership creditors co-partners or to a third Person irrespective on due application to a competent court by of the consent of the other partners, in the any judgement creditor of the partner, the absence of agreement to the contrary. court which entered the interest of the debtor partner with payment of the Rights withheld from assignee unsatisfied amount of such judgement debt 1. To interfere in the management. with the interest thereon; and may then or 2. To require any information or account. later appoint a receiver of his share of the 3. To inspect any of the partnership books. profits, and of any other money due or to fall due to him in respect of the partnership, No one can be compelled to be partners w/ and make all other orders, directions and someone else. The assignment does not accounts and inquiries which the debtor divest the assignor of his status and rights partner might have made, or which as a partner nor operate as dissolution. circumstances of the case may require. The The law, however, provides the non- interest charged may redeem at any time assigning collaborates w/ a ground before foreclosure, or in any case of a sale for dissolving the partnership if they being directed by the court, may be so desire. purchase without thereby causing dissolution: Remedy of other partners Dissolution of partnership not intended – 1. With separate property, by any one or Many partnership agreements are made more of the partners; merely as security for loans, the assigning partner never intending to destroy the 2. With partnership property, by any one partnership relation. If the assigning partner or more of the partners with the neglects his duties after assignment, consent of all the partners a whose the other partners may dissolve the interest are not so charged or sold, partnership under art. 1830. nothing in this title shall be held to Dissolution of partnership intended – A deprive a partner of his right, if any, partner’s conveyance of his interest in the under the exemption laws, as regards partnership operates as dissolution of the his interest in the partnership. partnership only when it is clear that the parties contemplated and intended the Application for a charging order after entire withdrawal from the partnership of securing judgement on his credit such partner and the termination of the While a separate creditor of a partner partnership as between the partners. cannot attach or levy upon specific partnership property for the satisfaction of Rights of assignee of partner’s interest his credit because partnership assets are 1. To receive in accordance w/ his contract reserved for partnership creditors, he can the profits accruing to the assigning secure a judgment on his credit and then partner; apply to the proper court for a “charging 2. To avail himself of the usual remedies order”, subjecting the interest of the debtor provided by law in the event of fraud in partner in the partnership w/ the payment the management; of the unsatisfied amount of such judgment 3. To receive the assignor’s interest in case w/ interest thereon w/ the least of dissolution; interference w/ the partnership business 4. To require an account of partnership and the rights of the other partners. affairs, but only in case the partnership By virtue of the charging order, any amount is dissolved, and such account shall or portion thereof w/c the partnership cover the period from the date only of would otherwise pay to the debtor-partner the last account agreed to by all should instead be given to the judgment partners. The purchaser of a partner’s creditor. This remedy, however, is w/o interest may apply to the court for prejudice to the preferred rights of dissolution after the termination of the partnership creditors whose claims should specified term or undertaking or at any be satisfied first. time if the partnership is one at will. Availability of other remedies Art. 1814. Without prejudice to the Art. 1814 have made this an exclusive remedy so that a writ of execution will not synonymous with “company,” “house,” and be proper. However, if the judgment debt “concern.” remains unsatisfied, the court may resort to other courses of action notwithstanding the Importance of having a firm name issuance of the charging order. A partnership must have a firm name under which it will operate. A firm name is Redemption or purchase of interest necessary to distinguish the partnership, charged which has a distinct and separate juridical Redemptioner – The interest of the debtor- personality from the individuals composing partner so charged may be redeemed or the partnership and from other purchased w/ the separate property of any partnerships and entities. one or more of the partners, or w/ partnership property but w/ the consent of Right of the partners to choose firm name all the partners whose interests are not so The partners enjoy the utmost freedom in charged or sold. the selection of the partnership name. As a general rule, they may adopt any firm Redemption Price – The value of name desired. the partner’s interest in the partnership has no bearing on the redemption price w/c is Use of misleading name – The partners likely to be lower since it will be dependent cannot use a name that is identical or on the amount of the unsatisfied judgment deceptively confusingly similar to that debt. of any existing partnership or corporation or to any other name already protected by law Right of redeeming non-debtor partner – or is patently deceptive, confusing or There deeming non-debtor partner does contrary to existing laws, as to mislead the not acquire absolute ownership over the public by passing itself off as another debtor-partner’s interest but holds it in partnership or corporation, or its goods or trust for him consistent w/ principles of services as those of such other company. fiduciary relationship. Liability inclusion of name in the firm name Rights of partner under exemption laws – Persons who, not being partners, include A partner cannot claim any right under the their names in the firm name do not acquire homestead laws or exemption laws when the rights of a partner but shall be subject specific partnership property is attached for to the liability of a partner insofar as 3rd partnership debt. W/ respect, however, to Persons without notice are concerned. Such the partner’s interest in the partnership as persons become partners by estoppel. Art. distinguished from his interest in specific 1815 does not cover the case of a limited partnership property, the partner may avail partner who allows his name to be included himself of the exemption laws after in the firm name, orof a person continuing partnership debts have been paid. A the business of a partnership after partner’s interest or share in the dissolution, who uses the name of the partnership property is really his property. dissolved partnership or the name of a deceased partner as part thereof. Art. 1815. Every partnership shall operate under a firm name, which may or may not Art. 1816. All partners, including industrial include the name of one or more of the ones, shall be liable pro rata with all their partners, those who, not being members of property and after all the partnership assets the partnership, include their names in the have been exhausted, for the contracts firm name, shall be subject to liability of a which may be entered into in the name and partner for the account of the partnership, under its signature and by a person authorized to act Requirement of the firm name for the partnership. However, any partner Meaning of word “firm” – The name, title, may enter into a separate obligation to or style under which a company transacts perform a partnership contract. business; a partnership of two or more persons; a commercial house. In its Article 1816 distinguished from article common acceptation, the term implies a 1787 partnership. The term is also used as Article 1816 applies in cases where third Art. 1818. Every partner is an agent of the party creditors are concerned as it falls partnership for the purpose of its business, under the heading of section 3. “Obligations and the act of every partner, including the of the Partners with Regard to Third execution in the partnership name of any Persons.” Article 1797 applies only where instrument, for apparently carrying on in the issue is among the partners as it falls the usual way the business of the under the heading of Section 1, Chapter 2, partnership of which he is a member binds which states: “Obligations of the Partners the partnership, unless the partner so Among Themselves.” The pro rata liability acting has in fact no authority to act for the of partners to third persons under Article partnership in the particular matter, and 1816 being a clear mandate of the law, any the person with whom he is dealing has stipulation changing or modifying such knowledge of the fact that he has no liability is void except as among the such liability. partne