Partnership Section 1 Obligations of the Partners Among
Themselves
3. The obligation to warrant
- Warranty in Case of Eviction- refers only to specific or
determinate things which a partner contributed to the
partnership
ARTICLE 1786. Obligations of Every Partner.
Partner- Debtor of the partnership for whatever may have promised to
contribute thereto
-
Bound for warranty in case of eviction with regard to specific
and determinate things which he may have contributed to the
partnership
-
He shall also be liable for the fruits thereof from the time they
should have been delivered, without the need of any demand.
ARTICLE 1788. A partner who has undertaken to contribute a sum
of money and fails to do so becomes a debtor for the interest
and damage from the time he should have complied with his
obligation.
- The same rule applies to any amount he may have
taken from the partnership money and his liability shall
begin from the time he converted the amount to his
own use.
1. The obligation to contribute what had been promised
- EFFECT: Failure to contribute is to make the partner a debtor
of the partnership even if there is no demand (exception to
the general rule that there is no delay when there is no
demand)
-
In case of failure to deliver the promised contribution, the
remedy is: SPECIFIC PERFORMANCE WITH INTEREST AND
DAMAGES OCCASIONED THEREBY and NOT
RESCISSION
-
Ground of eviction if the determinate thing is not delivered
or contributed
2. The obligation to deliver the fruits thereof
- If property has been promised, the fruits thereof should also
be given. (e.g., rentals)
-
Fruits- those arising from the time they should have been
delivered without the need of any demand.
-
If a partner is in bad faith- liable for the fruits actually
produced and also those that could have been produced.
-
REMEDY: LIABLE FOR THE DAMAGES AND FRUITS OF THE
PROPERTY
-
If money has been promised and that partner failed to do
so, he becomes a debtor for the interest and damages from
the time he should have complied with his obligation.
(1788)
-
Essence of Partnership: each partner must share in the
profits and losses of the venture
Cases covered of the Liability for Damages and Interest
1. Money promised by a partner is not given on time
2. Money of the partnership is converted to partners’ own use
- Personal use
- REMEDY: REIMBURSE WHAT IS TAKEN FROM THE PARTNERSHIP
AND INDEMNIFY FOR DAMAGES
(OPPORTUNITY COST)
DEMAND IS NOT NECESSARY (exception to the rule of obligations:
“there is no default, if there is no demand”)
1. Case of Contribution
- time is of the essence for the formation of the partnership
unless a different period has been set
-
the firm is necessarily deprived of the benefits thereof, thus,
injury is constant
2. Case of Conversion
- Demand is also not necessary
- Even if no actual injury results, THE LIABILITY EXISTS,
because the article is absolute.
ARTICLE 1789. An industrial partner cannot engage in business
for himself unless the partnership expressly permits him to do so.
-
-
If he does, the capitalist partners may either
exclude him from the firm or avail themselves of
the benefits which he may have obtained in
violation of this provision, with a right to damages.
Absolute Prohibition to the industrial partner- he
cannot engage in other businesses (any kind)
Why? To avoid conflict of interest
REMEDY: EXCLUSION, AVAIL/OBTAIN BENEFITS
FROM THE VIOLATION, DAMAGES
Capitalist Partners
- Cannot engage in the same kind of business in
which the partnership is engaged
Point of
Comparison
Industrial Partners
As to
Contribution
Industry
Money or property or
both
As to Prohibition
Cannot engage
in any kind of
business
Cannot engage in
same kind of business
Shares in
agreement;
no agreement= in
proportion to his
contribution
Shares in agreement;
no agreement= share
which is just and
equitable
As to Profits
As to Losses
Capitalist Partners
Losses in
No agreement= shall
agreement;
not be liable for losses
no agreement= as
to profits
ARTICLE 1790. Unless there is a stipulation the contrary, the
partner shall contribute equal shares to the capital of the
partnership.
- PRESUMPTION: Equal Shares- does not quantify industrial
partner’s share
ARTICLE 1791. If there is no agreement to the contrary, in case of
imminent loss of the business of the partnership, any partner who
refuses to contribute an additional share to the capital except
an industrial partner, to save the venture, shall be obliged to sell
his interest to the other partners.
-
There is imminent loss
-
The article presumes that the capitalist partners are
solvent - Not applicable to industrial partners
-
GENERAL RULE: Capitalists partners are not bound to
contribute additional capital.
-
EXCEPT:
Does not want to contribute an additional share
(except industrial partners) shall be obliged to sell his
interest to the other partners who are willing to
contribute additional capital.
1. Stipulation
2. In case of imminent loss of the business to save
the venture
-
If the capitalist partner deliberately refuses to do so, the
above article applies
ARTICLE 1792. If a partner authorized to manage collects a
demandable sum which was owed to him in his own name, from
a person who owed the partnership another sum also
demandable, the sum thus collected shall be applied to the two
credits in proportion to their amounts, even if he may have given
a receipt for his own credit only.
-
-
Payment is proportionately divided to the two
debts: to the managing partner as creditor and to
the partnership as the creditor
Only if the personal credit of the partner should be
onerous to him
Not applicable to a partner who is not a
managing partner because there is no basis for
the suspicion that the partner is in bad faith.
Requisites:
1. There are two debts
2. Both debts are demandable
3. Partner who collects is authorized
NOTE: If it is expressly stated which debt is to be paid, the partner
cannot take and apply it to the other debt. If it is silent, the payment
shall be applied to the onerous (more burden) debt.
Rationale: To prevent furtherance of the partner’s personal
interest to the detriment of the partnership.
ARTICLE 1793. A partner who has received, in whole or in part,
his share of a partnership credit, when the other partners have
not collected theirs, shall be obliged, if the debtor should after
became insolvent, to bring to the partnership capital what he
received though he may have given receipt for his share only.
-
There is only one credit in favor of the partnership
-
He is obliged to give the other partner a share in the amount of
what he is collected after the debtor has become insolvent
Applies to any partner
The debtor has become insolvent
Applies whether the partner received his share in whole or in
part
EXAMPLE: A and B entered into a partnership. X owes the partnership
P500,000. A collected from X in the amount of 200,000. Later, X
became insolvent. A now is obliged to give B his share in the credit in
the amount of P100,000.
ARTICLE 1794. Every partner is responsible to the partnership for
damages suffered by it through his fault, and he cannot
compensate them with the profits and benefits which he may
have earned for the partnership by his industry. However, the
courts may equitably lessen this responsibility if through the
partner’s extraordinary efforts in other activities of the
partnership, unusual profits have been realized.
-
There is negligence
-
GENERAL RULE: Damages suffered by the partnership through
his fault or negligence are not generally subject to set-off with
the profits and benefits which that partner may have earned
for the partnership by his industry.
-
RATIONALE: To earn profits and benefits is an obligation for the
partnership. It is also his obligation not to cause damages
through negligence for the partnership. These are two distinct
obligations.
The liability cannot be offset to his profits and benefits which he
earned for the partnership. – NOT ALLOWED
ARTICLE 1795. Risk of Loss.
- Universal Partnership of All Profits- partner retains
ownership
1. Specific and determinate things which are not fungible
- It is the partner who will bear the risk of loss because the
partner did not transfer the ownership to the partnership.
2. Fungible things
- Things cannot be kept without deteriorating
- It is the partnership who bears the risk of loss as there is
transfer of ownership after delivery of the fungible things.
3. Things contributed to be sold
- It is the partnership who bears the risk of loss as there is
transfer of ownership after delivery of the things
contributed to be sold.
4. Things brought and appraised in inventory
- It is the partnership who bears the risk of loss as there is transfer
of ownership after delivery of the things brought and appraised
in their inventory.
ARTICLE 1797. The losses and profits shall be distributed in
conformity of the agreement. If only the share of each partner
in the profits has been agreed upon, the share of each in the
losses shall be in the same proportion.
- In the absence of stipulation= losses and profits shall be in
ARTICLE 1799. A stipulation which excludes one or more partners
from any share in the profits or losses is void.
-
Only one or two persons= stipulation is void but the partnership
ceases to be valid
-
Exception: Industrial partner is not liable for losses unless he
waived the right.
ARTICLE 1804. Contract of Sub-partnership.
- A partnership under a partnership
- Every partner can associate with another third person with him in his
share
-
EFFECT: Third person is not a partner to the other partnership
This does not acquire the rights to the MAIN PARTNERSHIP, the third
person is only a partner in the sub-partnership.
proportion to what he may have contributed
-
Industrial partner shall not be liable for losses and shall receive
just and equitable shares.
-
If industrial partner contributed capital, he shall also receive a
share in the profits in proportion to his capital.
ARTICLE 1798. If the partners have agreed to entrust to a third
person the designation of the share of each one in the profits
and losses, such designation may be impugned only when it is
manifestly inequitable.
- The designation of losses and profits cannot be entrusted to one
of the partners.
-
MUST BE CONSENSUAL
GENERAL RULE: It is valid.
Exceptions: It is not valid, and it may be questioned if it is
manifestly inequitable unless:
1. A partner began to execute the decision of the third
person
2. A partner has not questioned the said decision of the
third person within a period of 3 months from the time
he had knowledge thereof.
-
Estopped if not questioned and will be binding
ARTICLE 1805. Partnership Books.
- Shall be kept at the principal place of business of the partnership
- Partner has given the right to access/inspect/copy the partnership
books at any reasonable hour
-
Reasonable Time/Hour- any business hour or day within the year
Right to Information- not absolute if it is not for the partnership
ARTICLE 1806. Mutual Trust and Confidence. Concealment.
- There shall no be concealment
- There is the duty to render true and full information on demand.
- Required to make voluntary sharing of true and full information.
ARTICLE 1807. Fiduciary Relationship. Agent.
1. Duty to act for common benefit of the partnership
2. Duty to account secret profits or similar profits (private advantages with the
expense of the partnership)
3. Duty to account for earnings accruing from the partnership after the
termination of the partnership
4. Duty to make full disclosure of information belonging to the partnership
5. Duty not to acquire interest or right adverse to the partnership (no conflict
of interest)
ARTICLE 1808. Capitalist Partner.
-
Capitalist partner cannot engage in the same kind of business
in which the partnership is engaged.
-
Once Violated: THE PROFITS FROM THAT BUSINESS WILL BE PUT
INTO THE COMMON FUND
-
The guilty partner will bear all the losses from the separate
business he entered into.
ARTICLE 1809. Any partner shall have the right to a formal
account as to partnership affairs:
-
GENERAL RULE: A partner is not entitled to constantly demand
formal accounting because it will cause inconvenience. No
formal accounting is demandable until after the dissolution of
the partnership.
EXCEPTIONS:
1. If he is wrongfully excluded from the partnership or possession
of its property by his co-partners
Partnership Section 2 Property Rights of A Partner
ARTICLE 1810. Property Rights or Principal Rights of a Partner
1. Rights in specific partnership property (1811)
2. His interest in the partnership (1812)
3. Right to participate in the management (1803)
Related Rights
1.
2.
3.
4.
Right to Reimbursement and Indemnification
Right access and inspect of partnership books (Art. 1805)
Right to true and full information (Art. 1806)
Right of the partnership to be dissolved under certain
conditions
5. Right to a formal account as to Partnership Affairs
Point of
Comparison
Partnership Capital
As to Value
Constant- only the
original capital
contribution
2. If the right exists under the terms of any agreement
3. As provided by Article 1807 (secret profits/ conflict of interest)
4. Whenever other circumstances render it just and reasonable
ARTICLE 1809. Incoming partner
Partnership
Property
VariableInclusions are original
contributions, all
properties
subsequently acquired
on account of
partnership
IDENTIFYING PARTNERSHIP PROPERTY
-
Incoming Partner is liable for the obligations and liabilities even if it
occurred or incurred before he was admitted to the partnership.
-
Partner is still liable even if it was before he entered the partnership.
-
In contrast: Original partner will be liable up to the extent of separate
property.
Exceptions: there is a stipulation/intent contrary to that (provide
pieces of evidence)
-
If the liability is incurred after the admission of the incoming partner,
he will be liable to the extent of separate property.
2. The property carried in the books are recorded as
partnership assets
EFFECT: Incoming partner will be liable up to capital contribution for
the payment of obligation.
Look at the Intention of the Partners
1. The property acquired by the partner through partnership
funds – presumption that it is a partnership property
3. Other factors
ARTICLE 1811. A partner is co-owner with his partners with his
partners of specific partnership property.
- Only contemplates tangible property
EFFECTS:
1. Partnership Property
-
no partner can use/possess it exclusively
-
Property Rights are not assignable to others, except if all the
partners assigned the property even if it is not for a partnership
purpose
ARTICLE 1814. Separate Creditors.
-
equal right of possession
Individual purpose is allowed provided that there is consent of
other partners
ARTICLE 1812. A partner’s interest in the partnership is his share
of the profits and surplus.
- Profits- excess of revenues over expenditures (net
income)
- Surplus- excess of receipts over disbursements; assets of
the partnerships after paying debt and liabilities
- NOTE: A partner is not a creditor of the partnership for his
share or surplus because it can still be subject for other
obligations.
- Interest is assignable even without consent
Rights of Assignee:
1. Right to receive the profits accruing to the assigning
partner
2. Avail of usual remedies to the event of fraud
3. Dissolution- receive the assignor’s interest
4. Dissolution only- assignee may require an account from
the date only of the last account agreed by all the
partners
-
There are two different obligations
and there are two creditors
2 different obligations, 2 creditors
1 creditor for the partnership and 1
separate creditor (cannot collect
from partnership)
REMEDY of the separate creditor: APPLY FOR
A CHARGING ORDER AFTER PROVING THAT
PARTNER HAS DEBT TO HIM
GENERAL RULE: The separate creditor cannot attach or levy
partnership property to satisfy the credit or debt of the
partner.
-
-
Priority is still Partnership Creditors over
the separate creditors- partnership
creditors will be paid first
Charging Order- All the interest (share in
the profit and surplus) that the debtorpartner will obtain can be claimed by
the separate creditor of the obligation
for the payment of the obligation.
ARTICLE 1827. Partnership Creditors.
- Payment is made first to the partnership creditors.
- REMEDY of the separate creditor: CHARGING ORDER FOR THE
DEBTOR-PARTNER
Partnership Section 3 Obligations of the Partners with Regard to
Third Persons
GENERAL RULE: Partner can hold other partners liable for contracts
that he entered into using the partnership name or under that
partnership account, only if he is authorized.
ARTICLE 1815. Every partnership shall operate under a firm name
which may or may not include the name of one or more of the
partners.
- It is not necessary to put all the names of all the partners.
- GENERAL RULE: The partners may use any firm name desired,
-
EXCEPTION: A partner can be held individually liable if that partner
assumes a separate undertaking with his name for a partnership
contract for the benefit of the partnership.
-
He will be solidarily/primarily liable for that.
and this will be the name of that juridical person.
-
EXCEPTIONS:
1. Should not use misleading names or deceptive names to
other existing partnerships
-
-
NOTE: Even the industrial partner is liable for LIABILITIES.
-
To protect third persons and customers
There is a distinction between liability and losses.
2. As provided by a jurisprudence decided by the supreme
court, partners cannot use a firm name with the name of a
partner who is deceased
Liability (Article 1816)
Losses (Article 1797)
As to third persons
As to between the partners
The partnership cannot associate themselves with that
deceased partner so that it cannot mislead third persons as to
the expertise of the deceased partner.
Inability of the partnership to pay
debts to a third party at a
particular time
Held liable only if stated or
agreed
It does not mean that it is a loss
No more assets to be exhausted
or no profits
NOTE: Even if you are not a partner and your name is used in the firm
name.
-
Held liable as a partner to third persons
-
Exceptions: If third persons have notice or knowledge about the
partner
Estopped
Only applied to third persons who are not notified about the fact that
the third person included in the name is not a partner
ARTICLE 1816. All the partners, including industrial ones, shall be
held liable pro rata with all their property and after all the
partnership assets have been exhausted.
- All partners are held liable to creditors for any act or obligation
created or contracted to a third person by any partner (pro
rata/joint)
-
If he expressly stated that he will be personally liable, he cannot ask
other partners to be held liable because he volunteered in the first
place.
Allowed to enter contracts for acts of administration which can
benefit the partnership
There are still assets to be
exhausted but cannot be used
since it is the capital
THERE IS NO CONFLICT
BETWEEN THE TWO ARTICLES
After some time, liability can still
be paid
ARTICLE 1817. Partners cannot make a stipulation against liability
except as among the partners.
- It is a void stipulation as to third persons.
- It is a valid stipulation as to the partners, and it is allowed which
will be binding AMONG THEMSELVES only.
EXAMPLE: A will not be held liable for any liabilities. If A paid for a
liability, he will be entitled to full reimbursements.
-
The stipulation is valid among partners but not to persons.
Third persons can still ask the partner to pay.
However, the partner can ask for reimbursements from his co-partners.
Partnership creditor can ask for payment from any of the partners
Partnership Chapter 3 Dissolution and Winding up
ARTICLE 1828. The dissolution of a partnership is the change in
the relation of the partners caused by any partner ceasing to be
associated in the carrying on as distinguished from the winding
up of the business.
Dissolution- change in the relation of the parties caused by any
partner ceasing to be associated in the carrying on, as might be
distinguished from the winding up of the business.
-
Upon its dissolution, the partnership continues, and its legal personality
is retained.
It is that point of time the partners cease to carry on the business
together.
It is only until the complete winding up of the business culminating in
its termination.
It does not mean that the juridical personality was immediately
terminated.
Only a change in the relationship among partners
Partnership will continue to exist until termination
Occurrences that give rise to the ground of dissolution
Winding up- process of settling business affairs after dissolution.
- Net partnership assets are partitioned and distributed to the
partners.
2 Types of Dissolution:
1. Extrajudicial- outside the court (Article 1830 p(1-7))
2. Judicial- upon court’s decree where it needs pronouncement
(Article 1830 p(8) and Article 1831)
Four Categories:
- Enumeration is generally exclusive; these are the grounds recognized
by law
-
However, justified reason are accepted, but the legal effect is that it
is not binding to third persons.
1. Act of the parties is not in violation of agreement
a. By the termination of the definite term/particular
undertaking
- even implied, it does not need to be expressed
- If it is continued, it is accepted and converted to be
a PARTNERSHIP AT WILL (perfected by mere consent)
b. Express will of any partner
- Doctrine of Delectus Personae- power to dissolve
- Can be dissolved anytime even without the consent
- Done after dissolution
Termination- point in time after all the partnership affairs have ben
wound up.
ARTICLE 1829. Dissolution.
- EFFECT: Partnership is not terminated but continues until the
of the other partners provided that the person
dissolving is acting in good faith
-
Bad faith= wrongfully dissolved- partner is liable
-
EFFECTS:
Bad faith- act is motivated by ill will or purpose to
revenge or to promote selfish objectives- tested by
motive
winding up of the partnership affairs is completed.
-
It is not tantamount to termination
-
They are still co-partners in the stage of dissolution and winding up
stage
Not to be understood to strict or absolute sense
ANOTHER EFFECT: Partnership continues but for limited purpose,
where it can still enter contracts for WINDING UP or COMPLYING
to all outstanding obligation.
1. The partner initiating dissolution dischargers his copartners from all the liabilities due to him
- Guilty partner is liable for obligations before
dissolution
2. Guilty partner is liable for damages
c. Expressed by all partners
- No particular form, it is the mere consent that they will
-
not continue anymore
-
If it is a partnership for a particular undertaking or term,
there must be a unanimous consent or agreement of
partners
of partnership is gone and cannot be
substituted.
-
d. Expulsion of any partner
- There is decrease of partners= dissolution
- Expulsion is made in good faith
- Can be designated to one partner or anyone
is lost is required
contribution
to
make
additional
breach of contract for the unjustified dissolution
(c) Use or enjoyment only (UP of all Profits)
The power of dissolution always exists anytime- a
person cannot be compelled to stay in the partnership
- After or before delivery will dissolve the
partnership because cannot deliver specific thing
3. By operation of law
a. Business becomes unlawful- supervening effect
-
EXCEPT: It can still be agreed upon by the
partners
(b) Loss after delivery
- Partnership is not dissolved
- EFFECT: The person who owns the thing which
2. Act of the parties in violation of agreement
- The withdrawing partner is held liable for damages for
-
The loss of the contribution or thing to be
contributed
(a) Loss before delivery
- Partnership is dissolved because the element
The partnership becomes void
4. By court decree (1831)- there is order/declaration of court
a. Insane
b. Partner is incapacitated- old age (for a long period of time) / if
curable (it depends)
c. Misconduct/Breach of Contract
d. Business at Loss
e. Other circumstances like fraud and abandonment
PRESUMPTION: It is legal and becomes illegal.
EXCEPT: There could be dissolution except you can
change the nature of the business and continue
the partnership
b. Death a Partner
c. Civil Interdiction of any partner
- Acts are limited
- The partner is incapacitated because he is in
ARTICLE 1832. Dissolution terminates authority of any partner to
act for the partnership.
- Any act of the partner cannot bind the partnership
- EXCEPT: Articles 1833 and 1834 (winding up affairs or complete
transactions)
imprisonment
-
not allowed to dispose or manage property where he
cannot contribute to the partnership
ARTICLE 1833. Dissolution is caused by act, death or insolvency.
- Each partner is liable to his co-partners for his share for any
liabilities or obligations incurred as if the partnership has not
been dissolved.
d. Insolvency of any partner/ or the partnership
- must be declared via a court decree
e. Loss of the specific thing
-
Individually liable
ARTICLE 1834. If the act is for winding up or by any transaction
consented by partners, it can still bind the partnership.
-
They can still bind the partnership for acts winding up or any
transaction consented by partners.
-
Estoppel.
Extended credit to the partnership.
ARTICLE 1837. Rights in dissolution not in contravention of any
agreement.
Rights if there is no violation:
1. To have partnership property applied to discharge the liabilities of the
partnership
2. To have the surplus to pay in cash in net amount owing to the
respective partner
ARTICLE 1835. The dissolution of the partnership does not of itself
discharge the existing liability of any partner.
- Does not discharge the liability of the partner or extinguish
obligations
-
The liability of a partner ceases to exist even if dissolution
occurs.
-
EXCEPT: Agreement that the partner will not liable if there is
dissolution
-
Estate- the individual property of the deceased partner will be
liable for all the obligations incurred by the partner.
ARTICLE 1836. Winding up.
Manner of Winding Up:
1. Judicially- court will supervise and direct the winding up
2. Extrajudicially- partner themselves without intervention of the
court
Persons authorized to wind up:
1. The Liquidating partner/ designated partner by agreement
2. In the absence of an agreement, all partners who have not wrongfully
dissolved the partnership
3. The legal representative of the last surviving partners who should not
be insolvent
Powers of Liquidating Partners
1.
Make new contracts which are for the purpose of winding up the
partnership affairs
2.
3.
To raise money to pay for the partnership debts
4.
Incur expenses in the conduct of litigation (legal fees)
To incur obligations to complete existing contracts or to preserve
partnership assets (allowed to enter contracts to pay for obligations
before dissolution to complete transactions)
Rights of partner who did not cause dissolution wrongfully (there
is violation but not in bad faith):
1. To have partnership property applied to discharge the liabilities of the
partnership
2. To receive in cash the surplus
3. Be indemnified of damages by guilty partners
4. Can continue the partnership in the same name during the agreed
term or period
5. Possess partnership property should they decide to continue the
business
Rights of the partner who wrongfully dissolved the partnership:
1. If partnership continues
a.
Get the value of his interest or share at the time of dissolution
b.
Exclusion or be released from existing and future liabilities of the
partnership
2. If partnership does not continue
a.
Get the value of his interest or share at the time of dissolution less
damages
b.
To have the surplus to pay in cash in net amount less
damages
ARTICLE 1839. Rules on Treatment to Properties and Creditors.
Rank of liabilities/ Order of Payment of Partnership:
1. Third person Creditors
2. Partners (not the capital or profit share)
3. Partners with respect to capital
4. Partners with respect to profits
Order of Payment of an Insolvent Partner against claims of his separate
property:
1.
Separate Creditors
2.
Partnership Creditors
3.
Partners
ARTICLE 1841. Rights of Retiring or Estate of Deceased Partners
when business is continued.
1. Get the value of his interest over the partnership on the
date of dissolution
2. Receive the profits attributable to that partner on the
time of dissolution only
ARTICLE 1842. Right to Formal Accounting of Partner’s Interest.
Persons Liable to Render Account:
1. Winding up Partner or Liquidating Partner
2. Surviving Partners
3. Person or Partnership continuing the business
Comparison between General Partner and Limited Partner
POINT OF
COMPARISON
General Partner
Limited Partner
As to Liability
Up to the extent of
separate property
Up to the extent of
capital contribution
As to
Management
Equal Rights in the
Management
Cannot manage the
business, no equal rights
As to
Contribution
Either all or some (MPI)
Money, Property, or
both
No industry
ARTICLE 1844. Two or more persons desiring to form a limited
partnership shall: (REFER TO PARTNERSHIP NOTES FOR FULL LIST)
(1) Certificate of Partnership
(a) The name of the partnership, adding thereto the word
“Limited”;
(b) The character of the business;
(c) The location of the principal place of business;
(d) The name and place of residence of each member, general
and limited partners being respectively designated;
(h) The time, if agreed upon, when the contribution of each
limited partner is to be
returned;
Chapter 4. LIMITED PARTNERSHIP.
ARTICLE 1843. A limited partnership is one formed by two or more
persons under the provisions of the following article, having as
members one or more general partners and one or more limited
partners. The limited partners as such shall not be bound by the
obligations of the partnership.
-
One General partner or more
One Limited partner or more
-
(2) Recorded in SEC
-
Characteristics:
1. Comply with Article 1844 (statutory requirements)
2. One or more General Partner controls the business and are
personally liable to creditors up to the extent of their separate
property
3. One or more limited partners who contribute to the capital and
have share in profits but do not participate in the management
of the business
If not complied with the partnership is a GENERAL PARTNERSHIP
There must be substantial compliance
Signed and sworn by the partners
File for record the certificate in the Office of the Securities and
Exchange Commission.
LIMITED PARTNERSHIP is not a mere voluntary agreement
-
There is a need to comply with requirements
RATIONALE: To protect third persons
PRESUMPTION: General partnership is always presumed as it is
less burdensome.
ARTICLE 1845. The contributions of a limited partner may be cash
or property, but not services.
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For the protection of third persons
An industrial partner can only become a general partner
NOTE: It is allowed that a partner can be a general partner and a
limited partner at the same time (ARTICLE 1849) as long as it is
indicated in the certificate of partnership under the extent of liability.
ARTICLE 1846. The surname of a limited partner shall not appear
in the partnership name unless:
(1) It is also the surname of a general partner, or
(2) Prior to the time when the limited partner became such, the
business had been carried on under a name in which his
surname appeared.
A limited partner whose surname appears in a partnership name
contrary to the provisions of the first paragraph is liable as a general
partner to partnership creditors who extend credit to the partnership
without actual knowledge that he is not a general partner.
ARTICLE 1847. If the certificate contains a false statement, one
who suffers loss by reliance on such statement may hold liable
any party to the certificate who knew the statement to be false:
(1) At the time he signed the certificate, or
(2) Subsequently, but within a sufficient time before the statement was
relied upon to enable him to cancel or amend the certificate, or to file
a petition for its cancellation or amendment as provided in Article
1865.
-
-
FALSE STATEMENT- one who suffers (third person) loss by reliance
may hold liable any partner or party to the certificate who
knew the statement is false
LIMITED PARTNER- incoming after creation of the certificate is
allowed
CONDITION: Amend the certificate of partnership (ilalagay)
ARTICLE 1851. A limited partner shall have the same rights as a
general partner to:
(1) Have the partnership books kept at the principal place of business
of the partnership,
and at a reasonable hour to inspect and copy any of them;
(2) Have on demand true and full information of all things affecting the
partnership,
(3) and a formal account of partnership affairs whenever
circumstances render it just and reasonable; and
- Not automatically; there are grounds
(4) Have dissolution and winding up by decree of court.
- Not limited
- Can be dissolved by the partners as long as it is justified
(5) Receive the share of the profits or other compensation by way of
income
(6) The right to receive the return of his contribution if the partnership
assets are in excess of the partnership liabilities (Article 1856 and 1857)
ARTICLE 1856. Compensation of a limited partner.
-
Entitled to a compensation as income
It must be stipulated in the certificate of partnership (NOT
AUTOMATICALLY GRANTED)
Assets shall still exceed partnership liabilities after paying a
limited partner his share and compensation
RATIONALE: Protect Third Person Creditors
ARTICLE 1857. A limited partner shall not receive from a general
partner/ out of partnership property any part of his contributions
until:
(1) All liabilities of the partnership have been paid or there remains
property of the partnership sufficient to pay them except liabilities to
general partners and to limited partners on account of their
contributions;
(2) The consent of all members is had, unless the return of the
contribution may be rightfully demanded under the provisions of the
second paragraph; and
(3) The certificate is cancelled or so amended as to set forth the
withdrawal or reduction.
Subject to the provisions of the first paragraph, a limited partner
may rightfully demand the return of his contribution:
(1) On the dissolution of a partnership, or
(2) When the date specified in the certificate for its return has arrived,
or
(3) After he has given six months’ notice in writing to all other members,
if NO TIME IS SPECIFIED IN THE CERTIFICATE, either for the return of the
contribution or for the dissolution of the partnership.
-
This is the REMEDY OF THE LIMITED PARTNER if there is no time specified
in the certificate of partnership
For return of contribution or dissolution
In the absence of any statement in the certificate to the contrary or
the consent of all members, a limited partner, irrespective of the nature
of his contribution, has only the right to demand and receive cash in
return for his contribution.
ARTICLE 1858. A limited partner is liable to the partnership:
(1) The difference between his contribution as actually made
and that stated in the certificate as having made
(2) For any unpaid contribution which he agreed in the
certificate to make in the future at the time and on the
conditions stated in the certificate
ARTICLE 1861. Death of a Limited Partner.
- Executor has all the rights of a limited partner for the
purpose of settling his estate.
- The estate of a deceased limited partner shall be liable
for all his liabilities as a limited partner.
ARTICLE 1863. In settling accounts after dissolution, the liabilities
of the partnership shall be entitled to payment in the following
order:
(1) Those to creditors, in the order of priority as provided by law,
except those to limited partners on account of their
contributions, and to general partners;
(2) Those to limited partners in respect to their share of the profits
and other compensation by way of income on their
contributions;
(3) Those to limited partners in respect to the capital of their
contributions;
(4) Those to general partners other than for capital and profits;
(5) Those to general partners in respect to profits;
(6) Those to general partners in respect to capital.
ARTICLE 1864. Certificate shall be cancelled.
The certificate shall be cancelled when the partnership is
dissolved, or all limited partners cease to be such. A certificate
shall be amended when:
(1) There is a change in the name of the partnership or in the amount
or character of the contribution of any limited partner;
(2) A person is substituted as a limited partner;
(3) An additional limited partner is admitted;
(4) A person is admitted as a general partner;
(5) A general partner retires, dies, becomes insolvent or insane, or is
sentenced to civil interdiction and the business is continued under
article 1860;
(6) There is a change in the character of the business of the
partnership;
(7) There is a false or erroneous statement in the certificate;
(8) There is a change in the time as stated in the certificate for the
dissolution of the partnership or for the return of a contribution;
(9) A time is fixed for the dissolution of the partnership, or the return of
a contribution, no time having been specified in the certificate, or
(10) The members desire to make a change in any other statement in
the certificate in order that it shall accurately represent the agreement
among them.
CORPORATION LAW
TITLE I GENERAL PROVISIONS
SEC 1. Title of the Code (Revised Corporation Code)
- Republic Act No. 11232- Basis of Corporation Law (Private
Corporations only)
- Batas Pambansa 168- Not applicable; amended
SEC. 2. Corporation Defined. – A corporation is an artificial being
created by operation of law, having the right of succession and
the powers, attributes, and properties expressly authorized by
law or incidental to its existence.
Doctrine of Piercing the Veil of Corporate Fiction
-
a mere exception- should be cautious in applying and it is not
automatic
It should be substantiated with pieces of evidence with the
burden on the plaintiff (need to prove)
GENERAL RULE: You can look at the corporation itself.
The liability of the corporation is the liability of the separate
juridical entity
EXCEPTION: Doctrine of Piercing the Veil of Corporate Fiction.
However, there are instances where in you need to look deeper
on the people behind the corporation.
The shareholder may now be held liable with respect to the
obligations of the corporation
RATIONALE: The law is very strict or guarded when it comes to
corporations because it can affect the people and the economy
where it has a big impact to third persons and the market.
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-
Attributes of a Corporation
1. A corporation is an artificial being
3 INSTANCES to apply the doctrine:
- A juridical personality/ separate entity and has a
distinct personality
1. The corporate entity is used to defeat public convenience
- Ex. Tax Evasion- crime
2. It is created by operation of law
-
There is an intervention of law
Must be compliant to all requirements
Compared to partnership, a partnership is formed
through mere consent and can be constituted in any
form
3. Having the right of succession
- Unlike in partnership, a death of a partner is a ground
for dissolution
- In corporation, a death of a shareholder/ change in
composition of the corporation does not dissolve the same.
- A corporation can exist perpetually
- It can be inherited or succeeded by any person chosen
by the incorporator
2. When the corporate entity is used for the commission of fraud
- Ex. Money Laundering
3. In case of alter ego cases
- Additional entity hiding under the corporation
SEC. 3. Classes of Corporations. – Corporations formed or
organized under this Code may be stock or nonstock
corporations.
a. Stock corporations
-
are those which have capital stock divided into shares and;
are authorized to distribute to the holders of such shares,
dividends, or allotments of the surplus profits on the basis of the
shares held.
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4. The powers, attributes, and properties
- Provided that it is authorized by law or incidental to its
existence
- Rights and obligations
b. Nonstock corporations
-
All other corporations are nonstock corporations.
c. Domestic corporations
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Created under the Philippine Law (RA 11232)
NOTE: Place of Operation- does not dictate the kind of
corporation, it is based on which law the corporation was created
-
1.
d. Foreign corporations
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Corporations not created under the Philippine Law
Address - Main place or venue for actions/venue of case; There is a
need of notification in case of change in address
a corporation whose ownership shares are available for
exchange on a public market.
f.
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Purpose - must be a legitimate purpose; business itself must be
legitimate/legal; REASON: to determine that the purpose is not
contrary to law, morals, etc.
2.
e. Open Corporation
-
IMPORTANCE: this will be the identity to be used in transactions
with others
3.
Closed Corporation
4.
shall not exceed 20 shareholders
ex. Family corporations
5.
Stages in the Formation
1. Promotion- inviting investors, brainstorming, and entering into
contracts to attract investors
2. Incorporation- submitting all necessary requirements and
registering in the SEC (results to the birth of the corporation)
3. Normal Business Transactions/Events- legal events in the
conduct of business
4. Dissolution
5. Winding up
6.
The names, nationalities, and residence addresses of the
incorporators;
The number of directors, which shall not be more than fifteen
(15) or the number of trustees which may be more than fifteen
(15);
The names, nationalities, and residence addresses of persons
who shall act as directors or trustees until the first regular
directors or trustees are duly elected and qualified in
accordance with this Code;
If it be a stock corporation, the amount of its authorized capital
stock, number of shares into which it is divided, the par value
of each, names, nationalities, and residence addresses of the
original subscribers, amount subscribed and paid by each on
the subscription, and a statement that some or all of the shares
are without par value, if applicable;
a.
SEC. 13. Contents of the Articles of Incorporation. – All
corporations shall file with the Commission articles of incorporation in
any of the official languages, duly signed and acknowledged or
authenticated, in such form and manner as may be allowed by the
Commission, containing substantially the following matters, except as
otherwise prescribed by this Code or by special law:
SEC 17. Corporate Name.
-
Must have distinctiveness and it is distinguishable or unique
It should not be the same with existing corporations
The name to be used when being sued
Cannot use name intended for government
Test of distinguishability- some generic words can be used (ex.
Case of Lyceum)
7.
If it be a nonstock corporation, the amount of its capital, the
names, nationalities, and residence addresses of the
contributors, and amount contributed by each; and
Such other matters consistent with law and which the
incorporators may deem necessary and convenient.
SEC 11. Corporate Term
-
BEFORE: Maximum term is 50 years but renewable
AFTER (Revised Corporation Code) : Can exist perpetually as a
general rule
Exception: if expressly stated or stipulated
Existing corporations before the Revised Corporation Code- are
converted to become perpetual unless if they notify SEC
SEC. 5. Corporators and Incorporators, Stockholders and
Members. – Corporators are those who compose a corporation,
whether as stockholders or shareholders in a stock corporation
or as members in a nonstock corporation.
-
6. MINIMUM SHARES
-
Incorporators are those stockholders or members mentioned in the
articles of incorporation as originally forming and composing the
corporation and who are signatories thereof.
SEC. 10. Number and Qualifications of Incorporators. – Any
person, partnership, association, or corporation, singly or jointly
with others but not more than fifteen (15) in number, may
organize a corporation for any lawful purpose or purposes:
Provided, that natural persons who are licensed to practice a
profession, and partnerships or associations organized for the purpose
of practicing a profession, shall not be allowed to organize as a
corporation unless otherwise provided under special laws.
Incorporator
- Founders who conceptualized, invited investors and the
names are listed in the Articles of Incorporation
- Different from corporators (ordinary members who are not
included in the Articles of Incorporation)
-
-
PERSONS
Incorporating Directors
-
Incorporators who are natural persons must be of legal age.
-
Must not be more than 15 incorporators
4. RESIDENCE
-
Majority (simple majority 50+1) of the incorporators must be
residing in the Philippines
5. NATIONALITY
-
Certain number of foreign nationals as incorporators
GENERAL RULE: 60% Filipinos and 40% Foreign Nationals
Must be identified in the Articles of Incorporation
Board of Directors/ officers (corporate treasurer)
SEC 15. Amendment to Articles of Incorporation
- Cannot automatically change Articles of Incorporation
1. Approval of Board of Directors
-
50% + 1 – simple majority
2. Need to get shareholders concurrences representing of
2/3 Outstanding Capital Stock
-
General Rule: through written ascent (emailed) if change is not
substantial
Through a stockholders’ meeting- Substantial change
a.
b.
c.
d.
e.
ARE
3. COMPOSITION
Each incorporator of a stock corporation must own or be a
subscriber to at least one (1) share of the capital stock.
If you own none, you are not an incorporator
A corporation with a single stockholder is considered a One Person
Corporation as described in Title XIII, Chapter III of this Code.
Certain Qualifications An Incorporator Must Possess
1. JURIDICAL PERSONS AND NATURAL
ALLOWED TO BE INCORPORATORS.
2. AGE REQUIREMENT
Mass Media- must be 100% Filipinos
Increase or Decrease capital stock
Merger/Consolidation
Extending or Shortening of Corporate Term
And
Dissolution
SEC 16. Grounds to reject Articles of Incorporation/ Any
amendment to
1.
-
2.
3.
4.
-
5.
Not in Proper Form (Sec 14) prescribed herein
Not substantially in accordance
Notification/ there is a notice before rejection
Purpose is illegal
Incompatibility of primary and secondary purpose
Falsification/Deceiving/Misrepresentation of Articles of Incorporation
Amount of capital stock subscribed/paid is false
Required Percentage of Filipino Ownership of the Capital Stock is not
complied with
SEC. 17. Corporate Name. – No corporate name shall be
allowed by the Commission if it is not distinguishable from that
already reserved or registered for the use of another
corporation, or if such name is already protected by law, or
when its use is contrary to existing law, rules, and regulations.
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The following elements must be present before one can qualify as
a de facto corporation
1.
2.
3.
A name is not distinguishable even if it contains one or more of
the following:
(a) The word “corporation”, “company”, “incorporated”, “limited”,
“limited liability”, or an abbreviation of one of such words; and
(b) Punctuations, articles, conjunctions, contractions, prepositions,
abbreviations, different tenses, spacing, or number of the same word
or phrase.
The Commission, upon determination that the corporate name is:
(1) not distinguishable from a name already reserved or registered for
the use of another corporation;
(2) already protected by law; or
(3) contrary to law, rules and regulations, may summarily order the
corporation to immediately cease and desist from using such name
and require the corporation to register a new one.
The Commission shall also cause the removal of all visible
signages, marks, advertisements, labels, prints and other
EFFECTs bearing such corporate name. Upon the approval of the
new corporate name, the Commission shall issue a certificate of
incorporation under the amended name.
SEC. 19. De facto Corporations. – The due incorporation of any
corporation claiming in good faith to be a corporation under this
Code, and its right to exercise corporate powers, shall not be
inquired into collaterally in any private suit to which such
corporation may be a party. Such inquiry may be made by the
Solicitor General in a quo warranto proceeding.
-
Exists as a fact but not in law
Valid Law permitting the incorporation of the private
corporation
Attempt in good faith to incorporate
The members/shareholders/officers are exercising corporate
powers
SEC. 20. Corporation by Estoppel. – All persons who assume to act
as a corporation knowing it to be without authority to do so shall be
liable as general partners for all debts, liabilities and damages
incurred or arising as a result thereof: Provided, however, That when
any such ostensible corporation is sued on any transaction entered by
it as a corporation or on any tort committed by it as such, it shall not
be allowed to use its lack of corporate personality as a defense.
Anyone who assumes an obligation to an ostensible corporation as
such cannot resist performance thereof on the ground that there was
in fact no corporation.
SEC. 21. EFFECTs of Non-Use of Corporate Charter and
Continuous Inoperation. – If a corporation does not formally organize
and commence its business within five (5) years from the date of its
incorporation, its certificate of incorporation shall be deemed revoked as of
the day following the end of the five (5)-year period.
Within 5 years from the date of incorporation business operations shall
commence if not:
The certificate of incorporation is considered revoked
b. At least 5 consecutive years to be inoperative
a.
the Commission may, after due notice and hearing,
place the corporation under delinquent status.
c.
Delinquent corporations have 2 years to resume
operations and comply with all requirements provided
by SEC
-
the Commission shall issue an order lifting the
delinquent status to become a legal corporation again.
Failure to comply with the requirements and resume
operations within the period given by the Commission
shall cause the revocation of the corporation’s
certificate of incorporation.