Civil Law PDF

Presented by: Atty. Bernardo A. Masangkay jr.  CHAPTER 1: GENERAL PROVISIONS PARTNERSHIP a contract wherein two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention...

Presented by: Atty. Bernardo A. Masangkay jr.  CHAPTER 1: GENERAL PROVISIONS PARTNERSHIP a contract wherein two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing the profits among themselves. (see Art. 1767, CC) GENERAL PROFESSIONAL PARTNERSHIP, ART.1767¶2 Two or more persons may also form a partnership for the exercise of a profession. ELEMENTS OF A PARTNERSHIP: There shall be a partnership whenever: 1. There is a meeting of the minds; 2. To form a common fund; 3. With intention that profits (and losses) will be divided among the contracting parties. ESSENTIAL FEATURES: 1. There must be a VALID CONTRACT. 2. The parties must have LEGAL CAPACITY to enter into the contract. 3. There must be a mutual contribution of money, property, or industry to a COMMON FUND. 4. There must be a LAWFUL OBJECT. 5. The purpose or primary purpose must be to obtain PROFITS and DIVIDE the same among the parties. It is also required that the articles of partnership must NOT be kept SECRET among the members; otherwise, the association shall have no legal personality and shall be governed by the provisions on CO-OWNERSHIP (Art. 1775). "kept secret among the members" = secrecy directed not to third persons but to some of the partners CHARACTERISTICS: 1. Essentially contractual in nature (Art. 1767, 1784) 2. Separate juridical personality (Art. 1768) 3. Delectus personae 4. Mutual Agency (Art. 1803) 5. Personal liability of partners for partnership debts  FORM OF PARTNERSHIP CONTRACT GENERAL RULE: No special form is required for the validity of a contract. (Art. 1356)  CHAPTER 2: OBLIGATIONS OF PARTNERS  Art. 1784. A partnership begins from the moment of the execution of the contract, unless it is otherwise stipulated. EXCEPTIONS: 1. Where immovable property/real rights are contributed (Art. 1771) Public instrument is necessary Inventory of the property contributed must be made, signed by the parties and attached to the public instrument otherwise it is VOID 2. When the contract falls under the coverage of the Statute of Frauds (Art. 1409) 3. Where capital is P3,000 or more, in money or property (Art. 1772) Public instrument is necessary Must be registered with SEC NOTE: SEC Opinion, 1 June 1960: For purposes of convenience in dealing with government offices and financial institutions, registration of partnership having a capital of less than Php 3,000 is recommended. SEPARATE JURIDICAL PERSONALITY Art. 1768. The partnership has a juridical personality separate and distinct form that of each of the partners, even in case of failure to comply with the requirements of Article 1772, first paragraph. As a JURIDICAL PERSON, a partnership may: 1. acquire and possess property of all kinds; 2. incur obligations; and 3. bring civil or criminal actions, in conformity with the laws and regulations of their organization. (See Art. 46) PRINCIPLE OF DELECTUS PERSONARUM DELECTUS PERSONAE —The selection or choice of the person. The assignment of a partner of his share does not make assignee a partner (Art. 1804 and 1813) The existence of the partnership is closely tied-up to the particular contractual relationship of the partners (see instances of dissolution of the partnership upon change of contractual relationship.) MEANING OF MUTUAL AGENCY (ACCORDING TO DEAN VILLANUEVA) In the absence of contractual stipulation, all partners shall be considered agents and whatever any one of them may do alone shall bind the partnership (Art. 1803, 1818) Partners can dispose of partnership property even when in partnership name (Art. 1819) An admission or representation made by any partner concerning partnership affairs is evidence against the partnership (Art. 1820) Notice to any partner of any matter relating to partnership affairs is notice to the partnership (Art. 1821) Wrongful act or omission of any partner acting for partnership affairs makes the partnership liable (Art. 1822) Partnership bound to make good losses for acts or misapplications of partners (Art. 1823) UNLIMITED LIABILITY (ACCORDING TO DEAN VILLANUEVA) All partners are liable pro rata with all their properties and after partnership assets have been exhausted, for all partnership debts (Art. 1816) Any stipulation against personal liability of partners for partnership debts is void , except as among them (Art. 1817) All partners are liable solidarily with the partnership for everything chargeable to the partnership when caused by the wrongful act or omission of any partner acting in the ordinary course of business of the partnership or with authority from the other partners and for partner's act or misapplication of properties (Art. 1824) A newly admitted partner into an existing partnership is liable for all the obligations of the partnership arising before his admission but out of partnership property shares (Art. 1826) Partnership creditors are preferred to those of each of the partners as regards the partnership property (Art. 1827) Upon dissolution of the partnership, the partners hall contribute the amounts necessary to satisfy the partnership liabilities (Art. 1839, ) PARTNERSHIP DISTINGUISHED FROM COOWNERSHIP AND CORPORATION PARTNERSHIP DISTINGUISHED FROM COOWNERSHIP AND CORPORATION PARTNERSHIP DISTINGUISHED FROM COOWNERSHIP AND CORPORATION PARTNERSHIP DISTINGUISHED FROM COOWNERSHIP AND CORPORATION WEAKNESSES OF A PARTNERSHIP (DEAN VILLANUEVA) Partners are co-owners of the partnership properties and enjoy personal possession NOTE: (Art. 1811) Partners may individually dispose of real property of the partnership even when in SEC Opinion, 28 April 1995: The partnership name (Art. 1819) death of a partner, as a general Dissolution of the partnership can come about by the change in the relationship of the rule, dissolves the partnership by partners, such as when a partner chosses to cease being part of the partnership (Art. operation of law, except if the 1828, 1830b) articles of partnership stipulate Expulsion of partner dissolves the partnership (Art. 1830d) for the continuance of the partnership relations upon the Dissolved by the loss of the thing promised to be contributed to the partnership (Art. death of any of the partners. 1830) SEC Opinion, 5 August 1997: If Death, insolvency, or civil interdiction of a partner dissolves the partnership (Art. 1830 the remaining partners of the ,,) dissolved partnership intended Petition by partner will dissolve the partnership when a partner has been declared for all legal intents and purposes, insane; or the partner has become incapable of performing his part of the partnership to continue the partnership contract; a partner has been found guilty of such conduct as tends to affect prejudicially business even after the death of the partnership business; partner willfully or persistently commits a breach of partnership a partner, there is continuity of agreement; the partnership business can only be carried at a loss; other equitable personality of the partnership as there exists a "partnership at reasons (Art. 1831) will." RULES TO DETERMINE EXISTENCE OF PARTNERSHIP GENERAL RULE: Persons who are NOT partners as between themselves, CANNOT be partners as to third persons. (Art. 1769(1)) EXCEPTION: Partnership by Estoppel under Article 1825  OTHER RULES TO DETERMINE WHETHER A PARTNERSHIP EXISTS: (SEE ART. 1769) 1. Co-ownership or co-possession does not of itself establish a partnership 2. The sharing of gross returns does not of itself establish a partnership, whether or not the persons sharing them have a joint or common right or interest in any property from which the returns are derived; 3. The receipt by a person of a share of the profits of a business is prima facie evidence that he is a partner in the business, UNLESS such were received in payment: a. As debt by installments or otherwise; b. As wages or rent; c. As annuity; d. As interest on loan; e. As consideration for sale of goodwill of business/ other property by installments EFFECTS OF AN UNLAWFUL PARTNERSHIP 1. The contract is void ab initio and the partnership never existed in the eyes of the law. (Art. 1409) 2. The profits shall be confiscated in favor of the government. (Art. 1770) 3. The instruments or tools and proceeds of the crime shall also be forfeited in favor of the government. (Art. 1770, Art. 45-RPC) 4. The contributions of the partners shall not be confiscated unless they fall under no. 3. (See Arts. 1411 and 1412) NOTE: Judicial decree is not necessary to dissolve an unlawful partnership. EFFECT OF PARTIAL ILLEGALITY: 1. Where a part of the business of a partnership is legal and a part illegal, an account of that which is legal may be had. 2. Where, without the knowledge or participation of the partners, the firm's profits in a lawful business have been increased by wrongful acts, the innocent partners are not precluded as against the guilty partners from recovering their share of the profits. (De Leon, p. 65) WHO MAY BE PARTNERS GENERAL RULE: Any person capacitated to contract may enter into a contract of partnership. EXCEPTIONS: 1. Persons who are prohibited from giving each other any donation or advantage cannot enter into a universal partnership. (Art. 1782) 2. Persons suffering from civil interdiction. 3. Persons who cannot give consent to a contract: a. Minors b. insane persons c. deaf-mutes who do not know how to write MAY CORPORATIONS ENTER INTO PARTNERSHIP?  PHILIPPINE CORPORATE LAW (2001) BY DEAN VILLANUEVA (P. 902) CITING VARIOUS SEC OPINIONS: Corporations may enter into partnership agreements on the following conditions: 1. Authority to enter into a partnership relation is expressly conferred by the charter or the articles of incorporation (AoI), and the nature of the business venture to be undertaken by the partnership is in line with the business authorized by the charter or AoI. 2. If it is a foreign corporation, it must obtain a license to transact business in the country in accordance with the Corporation Code of the Philippines. WHEN IMMOVABLES OR REAL RIGHTS CONTRIBUTED GENERAL RULE: Failure to comply with the requirement of appearance in public instrument and SEC Registration will not affect the liability of the partnership and the members thereof to third persons. (Art. 1772 ¶ 2) EXCEPTION: When IMMOVABLE PROPERTY/ REAL RIGHTS are contributed, *public instrument + inventory* made and signed by the parties and attached to the public instrument (Arts. 1771 and 1773) is required for the benefit of third persons. EFFECT OF ABSENCE OF REQUIREMENTS UNDER ARTICLES 1771 AND 1773 (Source: Bar Review Notes for Partnership Law by Atty. Villareal) NOTE: Torres v. CA, 320 SCRA 428 (1999) Partnerships void under Art.1773, in relation Art. 1771 may still be considered either de facto or estoppel partnerships visà-vis third persons; may even be treated as an ordinary contract from which rights and obligations may validly arise, although not exactly a partnership under the Civil Code. Failure to prepare an inventory of the immovable property contributed, in spite of article 1773 declaring the partnership void would not render the partnership void when: a. NO THIRD PARTY INVOLVED (since Art. 1773 was intended for the protection of 3rd parties; b. Partners have MADE A CLAIM ON THE PARTNERSHIP AGREEMENT. CLASSIFICATIONS OF PARTNERSHIP AS TO EXTENT OF ITS SUBJECT MATTER 1. UNIVERSAL PARTNERSHIP a. UNIVERSAL PARTNERSHIP OF ALL PRESENT PROPERTY - comprises the following: i. Property which belonged to each of the partners at the time of the constitution of the partnership ii. Profits which they may acquire from all property contributed b. UNIVERSAL PARTNERSHIP OF PROFITS - comprises all that the partners may acquire by their industry or work during the existence of the partnership NOTE: Persons who are prohibited from giving donations or advantage to each other cannot enter into a universal partnership. (Art. 1782) CLASSIFICATIONS OF PARTNERSHIP AS TO EXTENT OF ITS SUBJECT MATTER 2. PARTICULAR PARTNERSHIP—has for its objects: a. Determinate things b. Their use or fruits c. Specific undertaking d. Exercise of profession or vocation CLASSIFICATIONS OF PARTNERSHIP AS TO LIABILITY OF PARTNERS 1. GENERAL PARTNERSHIP—consists of general partners who are liable pro rata and subsidiarily and sometimes solidarily with their separate property for partnership debts. 2. LIMITED PARTNERSHIP—one formed by 2 or more persons having as members one or more general partners and one or more limited partners, the latter not being personally liable for the obligations of the partnership CLASSIFICATIONS OF PARTNERSHIP AS TO DURATION 1. PARTNERSHIP AT WILL—one in which no time is specified and is not formed for a particular undertaking or venture which may be terminated anytime by mutual agreement 2. PARTNERSHIP WITH A FIXED TERM—the term for which the partnership is to exist is fixed or agreed upon or one formed for a particular undertaking CLASSIFICATIONS OF PARTNERSHIP AS TO LEGALITY OF EXISTENCE 1. DE JURE PARTNERSHIP—one which has complied with all the legal requirements for its establishment 2. DE FACTO—one which has failed to comply with all the legal requirements for its establishment CLASSIFICATIONS OF PARTNERSHIP AS TO PURPOSE 1. COMMERCIAL OR TRADING PARTNERSHIP—one formed for the transaction of business 2. PROFESSIONAL OR NON TRADING PARTNERSHIP—one formed for the exercise of a profession  KINDS OF PARTNERS: 1. CAPITALIST—one who contributes money or property to the common fund 2. INDUSTRIAL—one who contributes only his industry or personal service 3. GENERAL—one whose liability to 3rd persons extends to his separate property 4. LIMITED—one whose liability to 3rd persons is limited to his capital contribution 5. MANAGING—one who manages the affairs or business of the partnership 6. LIQUIDATING—one who takes charge of the winding up of partnership affairs upon dissolution 7. PARTNERS BY ESTOPPEL—one who is not really a partner but is liable as a partner for the protection of innocent 3rd persons 8. CONTINUING PARTNER—one who continues the business of a partnership after it has been dissolved by reason of the admission of a new partner, retirement, death or expulsion of one of the partners 9. SURVIVING PARTNER—one who remains after a partnership has been dissolved by death of any partner 10. SUBPARTNER—one who is not a member of the partnership who contracts with a partner with reference to the latter's share in the partnership 11. OSTENSIBLE—one who takes active part and known to the public as partner in the business 12. SECRET—one who takes active part in the business but is not known to be a partner by outside parties 13. SILENT—one who does not take any active part in the business although he may be known to be a partner 14. DORMANT—one who does not take active part in the business and is not known or held out as a partner OBLIGATIONS OF THE PARTNERS TO ONE ANOTHER A) OBLIGATIONS OF THE PARTNERS AMONG THEMSELVES 1. PROMISED CONTRIBUTION Obligations with respect to contribution of property: a. to contribute at the beginning of the partnership or at the stipulated time the money, property or industry which he may have promised to contribute (Art. 1786) b. To answer for eviction in case the partnership is deprived of the determinate property contributed (Art. 1786) c. To answer to the partnership for the fruits of the property the contribution of which he delayed, from the date they should have been contributed up to the time of actual delivery (Art. 1786) d. To preserve said property with the diligence of a good father of a family pending delivery to partnership (Art. 1163) e. To indemnify partnership for any damage caused to it by the retention of the same or by the delay in its contribution (Arts. 1788, 1170) OBLIGATIONS OF THE PARTNERS TO ONE ANOTHER A) OBLIGATIONS OF THE PARTNERS AMONG THEMSELVES 1. PROMISED CONTRIBUTION EFFECT OF FAILURE TO CONTRIBUTE PROPERTY PROMISED: 1. Partners becomes ipso jure a debtor of the partnership even in the absence of any demand (See Art. 1169) 2. Remedy of the other partner is not rescission but specific performance with damages from defaulting partner (Art. 1788) Obligations with respect to contribution of money and money converted to personal use: a. To contribute on the date fixed the amount he has undertaken to contribute to the partnership b. To reimburse any amount he may have taken from the partnership coffers and converted to his own use c. To pay for the agreed or legal interest, if he fails to pay his contribution on time or in case he takes any amount from the common fund and converts it to his own use d. To indemnify the partnership for the damages caused to it by delay in the contribution or conversion of any sum for his personal benefits (See Art. 1788) OBLIGATIONS OF THE PARTNERS TO ONE ANOTHER A) OBLIGATIONS OF THE PARTNERS AMONG THEMSELVES 2. FIDUCIARY DUTY A partnership is a fiduciary relation—one entered into and to be maintained on the basis of trust and confidence. With that, a partner must observe the utmost good faith, fairness, and integrity in his dealings with the others: a. he cannot directly or indirectly use partnership assets for his own benefit; b. he cannot carry on a business of the partnership for his private advantage; c. he cannot, in conducting the business of the partnership, take any profit clandestinely; d. he cannot obtain for himself that he should have obtained for the partnership (e.g. business opportunity) e. he cannot carry on another business in competition with the partnership; f. he cannot avail himself of knowledge or information which may be properly regarded as the property of the partnership; PROHIBITION AGAINST ENGAGING IN COMPETITIVE BUSINESS CONSEQUENCES IF AN INDUSTRIAL PARTNER ENGAGES IN ANY BUSINESS: (Art. 1789) 1. he can be excluded from the partnership; or 2. the capitalist partners can avail of the benefit he obtained from the business, or 3. the capitalist partners have the right to file an action for damages against the industrial partner, in either case. PROHIBITION AGAINST ENGAGING IN COMPETITIVE BUSINESS CONSEQUENCES IF THE CAPITALIST PARTNER ENGAGES IN A BUSINESS (which competes with the business of the partnership): 1. he may be required to bring to the common fund the profits he derived from the other business; (Art. 1808) 2. he shall personally bear the losses; (Art. 1808) 3. he may be ousted form the partnership, especially if there was a warning. Obligations with respect to contribution to partnership capital: a. Partners must contribute equal shares to the capital of the partnership unless there is stipulation to contrary (Art. 1790) b. Partners (capitalist) must contribute additional capital In case of imminent loss to the business of the partnership and there is no stipulation otherwise; refusal to do so shall create an obligation on his part to sell his interest to the other partners (Art. 1790) Requisites: a. There is an imminent loss of the business of the partnership b. The majority of the capitalist partners are of the opinion that an additional contribution to the common fund would save the business c. The capitalist partner refuses deliberately to contribute (not due to financial inability) d. There is no agreement to the contrary PROHIBITION AGAINST ENGAGING IN COMPETITIVE BUSINESS Obligation of managing partners who collects debt from person who also owed the partnership (Art. 1792) a. Apply sum collected to 2 credits in proportion to their amounts b. If he received it for the account of partnership, the whole sum shall be applied to partnership credit Requisites: a. There exists at least 2 debts, one where the collecting partner is creditor and the other, where the partnership is the creditor b. Both debts are demandable c. The partner who collects is authorized to manage and actually manages the partnership Obligation of partner who receives share of partnership credit a. Obliged to bring to the partnership capital what he has received even though he may have given receipt for his share only (Art. 1793) Requisites: a. A partner has received in whole or in part, his share of the partnership credit b. The other partners have not collected their shares c. The partnership debtor has become insolvent BEARING THE RISK OF LOSS OF THINGS CONTRIBUTED (ART. 1795) RULES FOR DISTRIBUTION OF PROFITS AND LOSSES (SEE ART. 1797) NOTE: Stipulation exempting a partner from losses should be allowed. If a person can make a gift to another, there is no sound reason why a person cannot also agree to bear all the losses. Of course, as far as THIRD PERSONS are concerned, any such stipulation may be properly declared void. (De Leon, pp. 124-125, citing Espiritu and Sibal) RIGHTS AND OBLIGATIONS WITH RESPECT TO MANAGEMENT RIGHTS AND OBLIGATIONS WITH RESPECT TO MANAGEMENT RIGHTS AND OBLIGATIONS WITH RESPECT TO MANAGEMENT  OTHER RIGHTS AND OBLIGATIONS OF PARTNERS: 1. Right to associate another person with him in his share without consent of other partners (subpartnership) 2. Right to inspect and copy partnership books at any reasonable hour 3. Right to a formal account as to partnership affairs (even during existence of partnership): a. If he is wrongfully excluded from partnership business or possession of its property by his copartners b. If right exists under the terms of any agreement c. As provided by art 1807 d. Whenever other circumstances render it just and reasonable 4. Duty to render on demand true and full information affecting partnership to any partner or legal representative of any deceased partner or of any partner under legal disability 5. Duty to account to the partnership as fiduciary OBLIGATIONS OF THE PARTNERS TO ONE ANOTHER B) PROPERTY RIGHTS OF A PARTNER 1. His rights in specific partnership property 2. His interest in the partnership 3. His right to participate in the management (Art. 1810) NATURE OF PARTNER'S RIGHT IN SPECIFIC PARTNERSHIP PROPERTY —a partner has an equal right to possession which is not assignable and such right is limited to the share of what remains after partnership debts have been paid NATURE OF PARTNER'S RIGHT IN THE PARTNERSHIP —a share in the profits and surplus  OBLIGATIONS OF THE PARTNERS TO ONE ANOTHER C) OBLIGATION OF PARTNERS WITH REGARD TO THIRD PERSONS 1. Every partnership shall operate under a firm name. Persons who include their names in the partnership name even if they are not members shall be liable as a partner 2. All partners shall be liable for contractual obligations of the partnership with their property, after all partnership assets have been exhausted: a. Pro rata b. Subsidiary 3. Admission or representation made by any partner concerning partnership affairs within scope of his authority is evidence against the partnership 4. Notice to partner of any matter relating to partnership affairs operates as notice to partnership, except in case of fraud: a. Knowledge, of partner acting in the particular matter, acquired while a partner b. Knowledge of the partner acting in the particular matter then present to his mind c. Knowledge of any other partner who reasonably could and should have communicated it to the acting partner 5. Partners and the partnership are solidary liable to 3rd persons for the partner's tort or breach of trust 6. Liability of incoming partner is limited to: a. His share in the partnership property for existing obligations b. His separate property for subsequent obligations 7. Creditors of partnership preferred in partnership property & may attach partner's share in partnership assets 8. Every partner is an agent of the partnership POWER OF PARTNER AS AGENT OF PARTNERSHIP POWER OF PARTNER AS AGENT OF PARTNERSHIP EFFECTS OF CONVEYANCE OF REAL PROPERTY BELONGING TO PARTNERSHIP EFFECTS OF CONVEYANCE OF REAL PROPERTY BELONGING TO PARTNERSHIP PARTNER BY ESTOPPEL —by words or conduct, he does any of the ff.: 1. Directly represents himself to anyone as a partner in an existing partnership or in a nonexisting partnership 2. Indirectly represents himself by consenting to another representing him as a partner in an existing partnership or in a non existing partnership ELEMENTS TO ESTABLISH LIABILITY AS A PARTNER ON GROUND OF ESTOPPEL: 1. Defendant represented himself as partner/represented by others as such and not denied/refuted by defendant 2. Plaintiff relied on such representation 3. Statement of defendant not refuted LIABILITIES IN ESTOPPEL ASSIGNMENT OF INTEREST IN PARTNERSHIP Assignment is subject to three (3) conditions: 1. made in good faith 2. for fair consideration 3. after a fair and complete disclosure of all important information as to its value RIGHTS OF AN ASSIGNEE: 1. Get whatever assignor-partner would have obtained 2. Avail usual remedies in case of fraud in the management 3. Ask for annulment of contract of assignment if he was induced to join through any of the vices of consent 4. Demand an accounting (only in case of dissolution) OBLIGATIONS OF THE PARTNERS TO ONE ANOTHER D) RESPONSIBILITY OF PARTNERSHIP TO PARTNERS 1. To refund the amounts disbursed by partner in behalf of the partnership + corresponding interest from the time the expenses are made (loans and advances made by a partner to the partnership aside from capital contribution) 2. To answer for obligations partner may have contracted in good faith in the interest of the partnership business 3. To answer for risks in consequence of its management  CHAPTER 3: DISSOLUTION AND WINDING UP  DISSOLUTION —change in the relation of the partners caused by any partner ceasing to be associated in the carrying on of the business; partnership is not terminated but continues until the winding up of partnership affairs is completed WINDING UP —process of settling the business or partnership affairs after dissolution TERMINATION —that point when all partnership affairs are completely wound up and finally settled. It signifies the end of the partnership life. CAUSES OF DISSOLUTION: 1. Without violation of the agreement between the partners a. By termination of the definite term/ particular undertaking specified in the agreement b. By the express will of any partner, who must act in good faith, when no definite term or particular undertaking is specified c. By the express will of all the partners who have not assigned their interest/ charged them for their separate debts, either before or after the termination of any specified term or particular undertaking d. By the bona fide expulsion of any partner from the business in accordance with power conferred by the agreement 2. In contravention of the agreement between the partners, where the circumstances do not permit a dissolution under any other provision of this article, by the express will of any partner at any time 3. By any event which makes it unlawful for business to be carried on/for the members to carry it on for the partnership 4. Loss of specific thing promised by partner before its delivery 5. Death of any partner 6. Insolvency of a partner/partnership 7. Civil interdiction of any partner 8. Decree of court under art 1831 GROUNDS FOR DISSOLUTION BY DECREE OF COURT (ART. 1831) 1. Partner declared insane in any judicial proceeding or shown to be of unsound mind 2. Incapacity of partner to perform his part of the partnership contract 3. Partner guilty of conduct prejudicial to business of partnership 4. Willful or persistent breach of partnership agreement or conduct which makes it reasonably impracticable to carry on partnership with him 5. Business can only be carried on at a loss 6. Other circumstances which render dissolution equitable Upon application by purchaser of partner's interest: After termination of specified term/particular undertaking Anytime if partnership at will when interest was assigned/charging order issued EFFECTS OF DISSOLUTION A. AUTHORITY OF PARTNER TO BIND PARTNERSHIP GENERAL RULE: Authority of partners to bind partnership is terminated Exception: 1. Wind up partnership affairs 2. Complete transactions not finished QUALIFICATIONS: 1. With respect to partners— a. Authority of partners to bind partnership by new contract is immediately terminated when dissolution is not due to ACT, DEATH or INSOLVENCY (ADI) of a partner (art 1833); b. If due to ADI, partners are liable as if partnership not dissolved, when the ff. concur: i. If cause is ACT of partner, acting partner must have knowledge of such dissolution ii. If cause is DEATH or INSOLVENCY, acting partner must have knowledge/ notice 2. With respect to persons not partners (Art. 1834)— a. Partner continues to bind partnership even after dissolution in ff. cases: (1) Transactions in connection to winding up partnership affairs/completing transactions unfinished (2) Transactions which would bind partnership if not dissolved, when the other party/obligee: (a) Situation 1 - i. Had extended credit to partnership prior to dissolution & ii. Had no knowledge/notice of dissolution, or (b) Situation 2 - i. Did not extend credit to partnership ii. Had known partnership prior to dissolution iii. Had no knowledge/notice of dissolution/fact of dissolution not advertised in a newspaper of general circulation in the place where partnership is regularly carried on b. Partner cannot bind the partnership anymore after dissolution: (1) Where dissolution is due to unlawfulness to carry on with business (except: winding up of partnership affairs) (2) Where partner has become insolvent (3) Where partner unauthorized to wind up partnership affairs, except by transaction with one who: (a) Situation 1 - i. Had extended credit to partnership prior to dissolution & ii. Had no knowledge/notice of dissolution, or (b) Situation 2 - i. Did not extend credit to partnership prior to dissolution ii. Had known partnership prior to dissolution iii. Had no knowledge/notice of dissolution/fact of dissolution not advertised in a newspaper of general circulation in the place where partnership is regularly carried on EFFECTS OF DISSOLUTION B. DISCHARGE OF LIABILITY Dissolution does not discharge existing liability of partner, except by agreement between: Partner and himself person/partnership continuing the business partnership creditors RIGHTS OF PARTNER WHERE DISSOLUTION NOT IN CONTRAVENTION OF AGREEMENT: 1. Apply partnership property to discharge liabilities of partnership 2. Apply surplus, if any to pay in cash the net amount owed to partners RIGHTS OF PARTNER WHERE DISSOLUTION IN CONTRAVENTION OF AGREEMENT: 1. Partner who did not cause dissolution wrongfully: a. Apply partnership property to discharge liabilities of partnership b. Apply surplus, if any to pay in cash the net amount owed to partners c. Indemnity for damages caused by partner guilty of wrongful dissolution d. Continue business in same name during agreed term e. Posses partnership property if business is continued 2. Partner who wrongly caused dissolution: a. If business not continued by others - apply partnership property to discharge liabilities of partnership & receive in cash his share of surplus less damages caused by his wrongful dissolution b. If business continued by others - have the value of his interest at time of dissolution ascertained and paid in cash/secured by bond & be released from all existing/future partnership liabilities RIGHTS OF INJURED PARTNER WHERE PARTNERSHIP CONTRACT IS RESCINDED ON GROUND OF FRAUD/MISREPRESENTATION BY 1 PARTY: 1. Right to lien on surplus of partnership property after satisfying partnership liabilities 2. Right to subrogation in place of creditors after payment of partnership liabilities 3. Right of indemnification by guilty partner against all partnership debts & liabilities EFFECTS OF DISSOLUTION C. SETTLEMENT OF ACCOUNTS BETWEEN PARTNERS ASSETS OF THE PARTNERSHIP: 1. Partnership property (including goodwill) 2. Contributions of the partners ORDER OF APPLICATION OF ASSETS: 1. Partnership creditors 2. Partners as creditors 3. Partners as investors—return of capital contribution 4. Partners as investors—share of profits if any EFFECTS OF DISSOLUTION D. WHEN BUSINESS OF DISSOLVED PARTNERSHIP IS CONTINUED: 1. Creditors of old partnership are also creditors of the new partnership which continues the business of the old one w/o liquidation of the partnership affairs 2. Creditors have an equitable lien on the consideration paid to the retiring /deceased partner by the purchaser when retiring/deceased partner sold his interest w/o final settlement with creditors 3. Rights if retiring/estate of deceased partner: a. To have the value of his interest ascertained as of the date of dissolution b. To receive as ordinary creditor the value of his share in the dissolved partnership with interest or profits attributable to use of his right, at his option PERSONS AUTHORIZED TO WIND UP 1. Partners designated by the agreement 2. In absence of agreement, all partners who have not wrongfully dissolved the partnership 3. Legal representative of last surviving partner  CHAPTER 4: LIMITED PARTNERSHIP CHARACTERISTICS: 1. Formed by compliance with statutory requirements 2. One or more general partners control the business 3. One or more general partners contribute to the capital and share in the profits but do not participate in the management of the business and are not personally liable for partnership obligations beyond their capital contributions 4. May ask for the return of their capital contributions under conditions prescribed by law 5. Partnership debts are paid out of common fund and the individual properties of general partners DIFFERENCES BETWEEN GENERAL AND LIMITED PARTNER/ PARTNERSHIP  REQUIREMENTS FOR FORMATION OF LIMITED PARTNERSHIP: 1. Certificate of articles of the limited partnership must state the ff. matters: a. Name of partnership + word "ltd." b. Character of business c. Location of principal place of business d. Name/place of residence of members e. Term for partnership is to exist f. Amount of cash/value of property contributed g. Additional contributions h. Time agreed upon to return contribution of limited partner i. Sharing of profits/other compensation j. Right of limited partner (if given) to substitute an assignee k. Right to admit additional partners l. Right of limited partners (if given) to priority for contributions m. Right of remaining gen partners (if given) or continue business in case of death, insanity, retirement, civil interdiction, insolvency n. Right of limited partner (if given) to demand/receive property/cash in return for contribution  REQUIREMENTS FOR FORMATION OF LIMITED PARTNERSHIP: 2. Certificate must be filed with the SEC WHEN GENERAL PARTNER NEEDS CONSENT/RATIFICATION OF ALL LIMITED PARTNERS: 1. Do any act in contravention of the certificate 2. Do any act which would make it impossible to carry on the ordinary business of the partnership 3. Confess judgment against partnership 4. Possess partnership property/assign rights in specific partnership property other than for partnership purposes 5. Admit person as general partner 6. Admit person as limited partner - unless authorized in certificate 7. Continue business with partnership property on death, retirement, civil interdiction, insanity or insolvency of gen partner unless authorized in certificate SPECIFIC RIGHTS OF LIMITED PARTNERS: 1. Right to have partnership books kept at principal place of business 2. Right to inspect/copy books at reasonable hour 3. Right to have on demand true and full info of all things affecting partnership 4. Right to have formal account of partnership affairs whenever circumstances render it just and reasonable 5. Right to ask for dissolution and winding up by decree of court 6. Right to receive share of profits/other compensation by way of income 7. Right to receive return of contributions provided the partnership assets are in excess of all its liabilities REQUISITES FOR RETURN OF CONTRIBUTION OF LIMITED PARTNER: 1. All liabilities of partnership have been paid/if not yet paid, at least sufficient to cover them 2. Consent of all members has been obtained 3. Certificate is cancelled/amended as to set forth withdrawal /reduction of contribution  LIABILITIES OF A LIMITED PARTNER To the partnership 1. for the difference between his contribution as actually made and that stated in the certificate as having been made, and 2. for any unpaid contribution which he agreed in the certificate to make in the future time As a trustee for the partnership 1. for the specific property stated in the certificate as contributed by him but which he had not contributed; 2. for the specific property of the partnership which had been wrongfully returned to him; and 3. Money or other property wrongfully paid or conveyed to him on account of his contribution. DISSOLUTION OF LIMITED PARTNERSHIP (Priority in Distribution of Assets): 1. Those due to creditors, including limited partners 2. Those due to limited partners in respect of their share in profits/compensation 3. Those due to limited partners of return of capital contributed 4. Those due to general partner other than capital & profits 5. Those due to general partner in respect to profits 6. Those due to general partner for return of capital contributed Presented by: Atty. Bernardo A. Masangkay jr.