Art. 1767 - 1867 Law on Partnership @ellexcpa Contract of Partnership I & : Contract of 2 or more persons To contribute MPI to a common fund With the intention of dividing profits / exercise a profession Consensual Requisites: a. Valid contract (consent, object, cause) b. Parties must have legal capacity c. Mutual contri: to a common fund (MPI) d. Object: lawful e. Primary purpose: obtain profit to be divided among the parties Characteristics: a. Consensual - perfected by mere consent (express or implied) b. Nominate - special name or designation in law c. Bilateral - entered into between two or more persons d. Onerous - benefit by giving something e. Principal - distance does not depend on existence of another contract f. Preparatory - means to an end g. a contract of agency Separate juridical personality? Yes. Such juridical personality shall be automatically acquired despite the failure to register in SEC. Principles: a. Affectio Societatis - mutual confidence and trust b. Delectus Personae - personal choice; right to choose whom he wants to be associated w/. If immovable/ real rights Must be in public instrument Inventory and signed by parties Forms: XPN Must be in public instrument If capitaI > 3k GR: P'ship may constitute in any form (express /implied) Registered with SEC Who may enter? a. individuals w/ legal capacity Certificate signed under oath b. partnership If limited p'ship Recorded with SEC c. corporation - now allowed under Revised Corporation Code - Otherwise, VOID; without Juridical Personality Valid, liability of the p'ship w/ 3rd person is not affected; with Juridical Personality Considered as general partnership XP: it the purpose is exercising profession Rules to apply in Determining Existence of Partnership ' a. Not partners as to each other b. Co-ownership or co-possession c. Sharing of gross returns d. Sharing of profits: - except a p'ship by estoppel - No partnership GR: yes (prime facie evidence) XPN: a. as debt by installment (debtor) b. as wages (employee) c. as rent to landlord (lessor) d. as to annuity to a widow (beneficiary) e. as to interest to a loan (debtor) Kinds of Partnership (Inheritance, legacy, donation) As to object: All present property Universal partnership All profits (if silent) Particular partnership I ✓ ALL present property and its fruits Included the ff by stipulation: ✓ future property, except those acquired by ILD ✓ fruits of future property incl. those acquired by ILD ✓ ONLY usufruct of the properties ✓ profits of present property (obtained through work/industry) ✓ usufruct of the present property ✓ if stipulated: fruits of the future property x fruits earned w/o effort or by chance - excluded a. General -- up to extent of his separate/personal property b. Limited -- up to extent of his contribution only (1 GP, 1 LP) 1. Subsidiary 2. Joint 3. Pro-rata W/o Ind. Part. In proportion Other kinds: As to term: a. P'ship w/ fixed term/particular undertaking b. P'ship at will W/ Ind. Part. Equally Actually exists among partners as well as to 3rd persons In reality, not a partnership but considered as one Which established by lapsing of time Exists both in fact and in law Exists in fact but not in law General definition of partnership Formed for the exercise of common fund Kinds of Partners According to contribution: a. Capitalist b. Industrial c. Capitalist-industrial a. Guilty of adultery or concubinage b. Found guilty in criminal offense c. Made to a public offer by reason of office d. Husband and wife a. Determinate things, their use or fruits; b. A specific undertaking, or c. Exercise of a profession or occupation As to liability to 3rd person: a. Ordinary partnership b. Partnership by estoppel c. Partnership by prescription d. De jure partnership e. De facto partnership f. Commercial/Business partnership g. GPP Note: persons who cannot donate to each other cannot enter into a universal p'ship (Art. 739): According to liability Contributes capital Furnishes industry Furnishes both a. General b. Limited c. General-limited Up to his personal asset Up to his CC only Subj to all the restrictions of a GP Others: a. Silent - does not participate b. Secret - not known to 3rd party c. Dormant - both silent and secret d. Ostensible - direct opposite of dormant e. Managing - undertakes the mgt. f. Liquidating - undertakes winding-up g. Incoming - admitted to the p'ship h. Quasi - no longer a partner but left a loan on p'ship i. Retiring - decided to leave @ age of retirement j. Substituted limited - admitted to all the rights of limited partner who has died @ellexcpa Obligations of a Partner To the partnership and other partners i 1) to give his contribution GR: contribute shares equally XPN: there's stipulation If a partner fails to contribute GR: must be provided upon perfection XPN: there's stipulation Risk of loss: a. Borne by the partners: becomes a debtor for interest and damages No demand necessary since the law provides for liab in case of delay. i. Bound to deliver fruits from time they should deliver w/o need of demand ii. Must exercise due diligence in preserving the thing otherwise liable for loss and deterioration iii. Warrant the thing delivered against eviction A partner is liable similar to a vendor: 2) to give additional contribution in case of imminent loss Any partner who refuses to contribute additional share, he is obliged to sell his interest to other partners i. Thing contributed which is not fungible (specific and determinate thing) ii. Bear the loss and appraised in inventory, if stipulated b. Borne by partnership: i. Thing contributed is fungible, will deteriorate or to be sold ii. There was appraisal in the inventory and no stipulation that partner will bear the loss a. Industrial partners, unless stipulated b. If there in stipulation to contrary Except: 3) prohibition to engage in the other businesses Industrial partner Capitalist partner Cannot engage in business for himself Effect of non-compliance: Capitalist partner may except when permitted to do so Cannot engage in the same industry Effect of non-compliance except: 1) expressly stipulated 2) other partners permits him (expressly or implied) 3) when p'ship is already non-existent 4) general-capitalist partner becomes limited partner i. Exclude him from the firm ii. Avail themselves of benefits obtained in violation of provision i. Shall bring all profits illegally obtained ii. Is liable, personally, for all losses iii. May be ousted for loss of trust and confidence 4) credit to the firm the payment made by a debtor who owes both the partnership and the managing partner If managing partner issued a receipt: i. in the name of partnership ---- payment shall applied to the p'ship credit (whole amount) 5,000 ii. in his name ---- payment shall applied proportionate to the amounts of two debts ABC = 3.5k; A = 1.5k D Owed ABC Corp. - 7,000 A partner - 3,000 Collects 5,000 Except: when the debt by the debtor to the managing partner is more onerous, the whole amount will be applied to the partner. 5) other obligations of partners to the partnership and to other partners. To third parties: 1) firm name Every p'ship shall operate under a firm name, which may/may not include the name of the partner. - If included the name of 2) liability after exhaustion of partnership assets All partners incl industrial partner: shall be liable pro rata w/ all their personal property Any partner may enter into separate obligation to perform a p'ship contract. Any stipulation: void except to the partners 3) authority to act for and on behalf of the partnership Express *If the partner is not carrying on usual business of the partnership, the act will not bind the partnership unless Implied it is authorized by the other partners. Apparent Authority If an industrial partner is exempted but was made to pay the obligation, he can seek reimbursement from other partners. Consent of all partners necessary to: SACRED.D - Unusual acts Stranger ------------------- partner by estoppel; do not have the rights of partners Limited partner ----- liable as general partner Must be presented to all partners except if authorized by other partners Abandoned the business 1. Submit a p'ship claim or liability to arbitration 2. Assign the p'ship property in trust for creditors or on the assignee's promise to pay the debts of the p'ship 3. Confess a judgement 4. Renounce a claim of the p'ship 5. Dispose of the good will of the business 6. Do any other act w/c would make it impossible to carry on the ordinary course business of a p'ship Admission of partners: if made by one partner w/in the scope of his authority is evidence against the partnership Notice to a partner: operates as notice to the P'ship except in case f fraud committed by such partner 4) effects of conveyance of real property Property is in the name of: Partnership On or more partners Conveyance is in the name of Partnership One or more partners Who conveyed the property Partner One or more partners Partnership One or more partners/Third persons (in trust) All partners Partner Partner/P'ship Partner Partner All partners All partners = Effect Valid conveyance but p'ship may recover, except: a. When the transfer binds the p'ship b. Transferee had no knowledge of lack or excess of authority Passes only equitable interest of the partnership if within the authority (if not, apparently nothing transfers) Valid transfer @ellexcpa I 5) solidary liability for torts/ quasi - delict Ordinary course of business Wrongful act or omission Within the authority of co-partners 6) solidary liable for misappropriation Partner as receiver Partnership as receiver Partnership is solidary liable Partner acting w/in the scope of his apparent authority receives money /property of a 3rd person and misapplies it. P' ship in the course of business receives money/property of a 3rd person and is misapplies by any partner while it is in the custody of partnership. 7) partner by estoppel One who represent himself as a partner: P'ship consented P 'ship did not consent a. in an existing p'ship b. non-existent p'ship P'ship is liable No p'ship liability exists Liability of parties is pro rata 8) liability of new (or incoming) partner a. debts incurred prior to admission b. debts incurred after admission Liable up to his contribution (except: if there is stipulation) Liable up to his personal assets Rights of a Partner Sharing in the profits 1) Sharing of profits a. Agreement b. Proportion to contribution c. Equally Industrial partner: Profit: just and equitable Losses: not liable; if there's stipulation -- liable Capitalist-industrial partner: just and equitable and share in remaining profits in accordance w/ agreement 2) Distribution of losses a. An agreement b. Agreement as to profits c. Proportion to contribution d. Equally Stipulation: excluding any partner, capitalist and industrial partner = VOID Property rights of a partner General rule Equal rights w/ partners I Is not assignable To specific p'ship property Not subject to attachment/execution Not subject to legal support To interest Exception No right to posess such property for any other purpose w/o the consent of partners Assignment of rights of all partners in the same property Claim against the partnership Conveyance of a partner's whole interest Partner's interest = share of the profits and surplus Does not dissolve the p'ship Does not necessarily become a partner GR: mutual agency XPN: appointed managing partner/s May execute all acts of just or lawful cause AND by vote of adminstration, in good faith, even Revoked by: In the articles of partnership partners rep. the controlling int. w/ opposition from other partners To participate in the management Rules on Management One managing partner After p'ship has been constituted May be revoked by: With stipulation that no MP may act w/o the consent of others Multiple managing partners -- no one can perform an act of administration w/o other's consent. With specification of duties -- each MP can perform an act of administration w/in their respective duties. No managing partner I No agreement as to mgt. With stipulation that no partner cannot act w/o the support of partners By vote of partners rep. the controlling int. EVEN WITHOUT just or lawful cause W/o specification or w/o stipulation: -- each MP may separately execute all acts of admin; -- if one MP oppose, it is decided by: a) majority of MP per head count b) in case of tie; controlling interest of all partners GR: Concurrence of all shall be necessary for the validity of the acts, and the absence or disability of any one of them cannot be alleged. Except: if there is imminent danger of grave or imparable injury to the p'ship. GR: All the partners shall be considered as agents Except: w/o the consent of others, make any important alteration in the immovable property, even it it may be useful to p'ship. Exception to the exception: the court may intervene if the refusal of consent by the other partners is manifestly prejudicial to the int of p'ship Other rights of a partner a. To associate w/ another person in his share. b. To inspect and copy partnership books. c. To demand a formal account: d. To ask for a dissolution of the firm at the proper time and right to return capital and advancements. e. Right to compensation f. Right to reimbursement Wrongfully excluded from p'ship / possession of its property by his co-partners When there is stipulation Secret profits earned by other partners Just and reasonable @ellexcpa Dissolution and Winding-up Dissolution Causes Extra-judicial causes (w/o intervention of the court) 1) without violation of the agreement bet. partners a. By termination of definite term/particular undertaking b. By the express will of any partners acting in good faith c. By the express will of all the partners who have not assigned their interests to their debts d. By expulsion of any partner Judicial causes 1) declared insane or is shown to be of unsound mind 2) incapable of performing his part 3) a guilty of such conduct as tends to affect prejudicially the carrying on of the business 4) willfully or persistently commits a breach 5) business of the p'ship can only be carried on at a loss 6) reacher a dissolution equitable Trial will be necessary - 2) in contravention of the agreement The partner who causes the dissolution will be liable for damages 3) by operation of the law a. By any event which makes it an lawful b. When a specific thing that a partner had promised to contribute, perishes before delivery c. By the death of any partner d. By the insolvency of any partner or p'ship e. By the civil interdiction of any partner Effects of Dissolution: 1) mutual agency is terminated a. If the cause is AID (acts/insolvency/death) -- notice to partners b. If the cause is not AID -- mutual agency terminated; dissolution w/o notice 2) the ff acts are still binding after dissolution: a. Acts to for winding-up the affairs of p'ship b. Contracts w/ creditors who had no notice of dissolution 3) partners may continue the p'ship after dissolution of the old p'ship, a new p' ship is created. Winding-up I Liquidator shall be: 1) a party who has not wrongfully caused the dissolution 2) the legal representative of the last surviving partner (if all are dead) if not insolvent 3) the court, upon cause shown by a partner, his legal representative or assignee Partner's liability: -- in case the assets of the partnership are not sufficient to cover the liab., the remaining claims may be satisfied against the separate assets of partners (order of priority) 1) owing to separate creditors 2) owing to partnership creditors 3) owing to partners by way of contribution Distribution of assets: (order of priority) 1) owing to creditors other than partners 2) owing to partners other than for capital and profits 3) owing to partners in respect of capital 4) owing to partners in respect of profits Limited Partnership -- one or more general partners AND one or more limited partners -- Limited partner's liability is limited to his capital contribution Formation Two or more persons desiring to form a limited p'ship Shall be filed w/ the SEC Sign and swear to a certificate that states: a. Name of the partnership -- adding thereto the word "Limited" or "LTD" b. Character of business In absence, it will be treated as general partnership c. Location of the principal place of business d. Name and place of residence of members e. Term for which partnership is to exist Important! The limited partner will be liable as a f. Amount of cash and description and agreed value of property contributed by limited partner debtor to the p'ship. g. Additional contributions to be made, if any h. The time, if agreed upon, when the contribution of each limited partner is to be returned LP may nevertheless demand the return if: i. After six months' notice to members, either for the return of contri. or for the dissolution of p'ship. ii. Dissolution of p'ship. i. Share of the profits, which each limited partner shall receive by reason of his contribution j. The right of a limited partner to substitute an assignee as contributor to his place, if given. Provided: a. All the partners consent b. The assignor (LP), being empowered by the cert., gives the assignee the right ~ Has all the rights and powers except those liabilities of which he was ignorant at the time he became LP 1) the substitution does not release LP from his lability to the p'ship 2) only entitled to receive the shore of profits & still an outsider to the p'ship. k. The right, if given, to admit additional LP l. The right, if given, of one or more of the LP to priority over other LP m. The right, if given, of the remaining GP or partners to continue the business on the death, retirement, insanity, etc. of the general partner n. The right, if given, of a LP to demand and receive property other than cash in return of his contri. Limitations a. Cannot contribute industry or service (money or property only) b. Surname cannot appear in p'ship name Unless: • same surname w/ general partner • prior to the time when the limited partner became such, the business has been carried on under a name in which his surname appeared c. Cannot take part in the management Dissolution /Winding-up GR: retirement, death, insolvency, insanity or civil interdiction of a GENERAL PARTNER dissolves the p'ship XPN: if partnership is continued by remaining general partners Distribution of assets: (order of priority) 1) owing to creditors other than partners 2) owing to LP other than capital & profits 3) owing to LP in respect of profits 4) owing to LP in respect of capital 5) owing to GP other than for capital & profits 6) owing to GP in respect of profits 7) owing to GP in respect of capital
