Chapter 1 – General Provisions Article 1768 The partnership has a juridical personality separateArticle 1767 and distinct from that of each of the partners, even in By the contract of partnership two or more persons case of failure to comply with the requirements of article bind themselves to contribute money, property, or 1772, first paragraph. (n) industry to a common fund, with the intention of dividing the profits among themselves. Example Two or more persons may also form a partnership - If A and B form a partnership with X & Co., the property for the exercise of a profession. (1665a). of X & Co. is not A & B’s property and likewise, A & B’s property is not X & Co.’s. NOMINATE - Since X & Co is a juridical entity, it can acquire any - There is a name given by the law property since the partners are merely agents. - Contract of Partnership: CONSENSUAL (meaning it is - Thus the obligations of X & Co are not those of A & B’s. perfected by both parties) - The partnership of X & Co can file against A & B and be PERSONS sued by A & B, likewise, if a third party sues X & Co., A - Includes not only natural persons but also JURIDICAL & B are not affected. persons. A corporation may NOT be a partner but it may - The partnership will still be a juridical entity even without engage in JOINT VENTURES. compliance with A1772. BIND THEMSELVES - If X & Co. is exempted from certain things, it does not - Must be capable and competent, meaning, the following follow that A & B are included. may are not included: Consequences of being a Juridical Person 1. Minors - Can sue and be sued 2. Emancipated Minors - Acquire any kind of property 3. Those under civil interdiction – accessory penalty of - Insolvency of a partnership does not mean that the being convicted of crimes partners themselves are insolvent. 4. Insane persons 5. Incompetent persons (see oblicon notes) Article 1769 - HOWEVER, if the person is only a SUSPECT, he may In determining whether a partnership exists, these still bind himself into a contract since there is no final rules shall apply: verdict yet. (1) Except as provided by article 1825, persons who are TO CONTRIBUTE MONEY, PROPERTY OR INDUSTRY not partners as to each other are not partners as to - Makes the contract onerous since this is MUTAL and third persons. ALL must give either one of the above (2) Co-ownership or co-possession odes not of itself - Examples: establish a partnership, whether such co-owners or 1. A and B create a partnership with a promise of co-possessors do or do not share any profits made contributing P10,000 each in cash. A gave his by the use of the property share while B gave a check worth P10,000. Is the (3) The sharing of gross returns does not of itself issuance a contribution of money? establish a partnership, whether or not the persons No, unless the check is encashed. sharing them have a joint or common right or 2. Considering the same information above but with B interest in any property from which the returns are contributing P10,000 in equivalent dollars. derived No, the contribution must be made using the legal (4) The receipt by a person of a share in the profits of a tender, in this case, Philippine pesos. business is prima facie evidence that he is partner - Property contributed may be movable, immovable or in the business, but no such inference shall be intangible property. (Ex: equipment, land, patents, etc.) drawn if such profits were received in payment: - If the partnership did not contribute money or property, (a) As a debt by installments or otherwise; then industry was contributed. (b) As wages of an employee or rent to a landlord - Note: Contributions may differ for each of the partners. (c) As an annuity to a widow or representative of a TO A COMMON FUND TO DIVIDE PROFITS AMONGST deceased partner EACH OTHER (d) As interest on a loan, though the amounts of - The primary objective of partnerships is to make profits. payment vary with the profits of the business Sharing profits need not be equal. (e) As consideration for the sale of a goodwill of a - Sharing ratios are determined by the partner’s business or other property by installments or agreement, and if there was no agreement, then the otherwise. (n) ratios will be based on the ratio of the partners’ contributions. Provides the rule in determining partnerships - Sharing ratios for losses will be the same as the sharing Example for (1) ratios for profits. - If A & B say PUBLICLY that they are not partners, then - The industrial partner shall NOT share in losses. according to A1825, if they told C that they are and C - The industrial partner is exempt only to the partners but enters into a contract of partnership with them, then A rd not to 3 parties without prejudice to his right. A1816 and B are in a PARTNERSHIP OF ESTOPPEL. CONSENT (DELECTUS PERSONAE) Example for (2) - You can’t join a partnership without the consent of ALL - If A & B inherited land from their parents and partners. subsequently leased the land out for P50,000/month, Why? then it can be said that they share profits, but are they in Because the partnership will need to be dissolved a partnership? before you are admitted and a new partnership will be No, they are merely co-owners. The P50,000 profit is made in its place. merely incidental and besides, it was not derived from BUSINESS OPERATIONS.
- If they bought the land for P1,000,000 each to build a Can a partnership be created orally? house but instead opted to sell it for P2,500,000 then Yes. A partnership may be constituted in any form (as stated they have a profit of P500,000 but are they partners? in Article 1771) No, because even if there was a profit of P500,000, this Partnerships are not covered by the Statute of Fraud since is merely incidental to the sale and not from business these are not necessarily required to be in writing (contract operations of A&B. of partnership can be in any form) - If the land was instead used to build an apartment that If immovable property and/or real rights are contributed to is rented out? the partnership, then the contract must be in a public Yes, because A & B share profits from RENTING, this instrument (notarized documents) can be considered as ordinary business operations. rd In order to bind 3 persons, the transfer of OWNERSHIP of Example for (3) immovable property MUST BE REGISTERED with the - If a person owns a big tract of land for planting rice and REGISTRY OF PROPERTY in the province or city where the entered into an agreement with a farmer that they will property is located divide the harvest, is the farmer partners with the owner The article shows that partnerships can be perfected by of the land? MERE CONSENT. No because of the following reasons: (1) The farmer had no contribution Article 1772 (2) The farmer has no say in the disposition of the land Every contract of partnership having a capital of (3) The farmer has no say in management P3,000.00 or more, in money or property, shall appear in (4) In case of loss, the owner shall carry the entire a public instrument, which must be recorded in the office burden and the farmer need not pay anything of the Securities and Exchange Commission. Example for (4) Failure to comply with the requirements of the - A partnership borrowed P50,000 and instead of giving preceding paragraph shall not affect the liability of the the creditor a specific amount to be repaid, they agreed partnership and the members thereof to third persons. (n) that the creditor will receive 1% of the partnership’s annual gross profit. Is the creditor a partner? If the partnership’s capital is P3, 000.00 or more (in any No because the receipt of share in net income happens form), it must be in a public instrument, recorded with the to be because of an existing debt. SEC and note that property referred to here is MOVABLE To determine whether a person is a partner: since immovable property is covered by Article 1771. (1) Required contribution Failure to comply with the requirements of Article 1772 will (2) Say in management rd not affect the liability of the partnership to 3 persons. (3) Share in losses Isn’t this inconsistent with Article 1358? No, remember that in Article 1358, if the contract termsArticle 1770 exceed P500.00 then the contract must be in writing. A partnership must have a lawful object or purpose, This is merely for purposes of convenience and not and must be established for the common benefit or validity or enforceability of the law. Also note that interest of the partners. according to Article 1768, the partnership will still be When an unlawful partnership is dissolved by a valid and have a juridical entity. judicial decree, the profits shall be confiscated in favor How do we reconcile this with Article 1358 and 1357? of the State, without prejudice to the provisions of the Article 1358 is for purposes of convenience and not for Penal Code governing the confiscation of the validity or enforceability of the law. instruments and effects of a crime. (1666a) Article 1357 states that contracting parties have the right to compel each other to place the contract into writing. The partnership must have a lawful object or purpose Purpose of Registration: - Lawful object refers to CAPITAL (1) Condition for obtaining a license to engage in business - Lawful purpose refers to the BUSINESS itself and in trade There must be common interest and benefit rd (2) 3 persons want proof that the partnership is existent, Unlawfulness of the partnership will cause it to be dissolved who the partners are and what the capitalization is and profits shall be confiscated before they enter into contracts/engage in business. Example of unlawful purpose: (3) The government requires this so that tax liabilities may - GAMBLING not be avoided (BIR) A & B are partners where A contributed P100,000 in Failure to comply with the Article’s requirements will not cash and B contributes gambling paraphernalia. They prevent the formation of the partnership were raided and the gambling paraphernalia was The Statute of Fraud will only apply if there was an confiscated. Can the P100,000 also be confiscated? agreement made by the contracting parties No because the P100,000 was not the reason for the Example: crime in anyway. The state is therefore required to A and B promise to contribute to their partnership money return this amount to A. worth P10,000.00 each within one year from their Legal effects of a Judicial Dissolution agreement. A contributes early but when the time comes for - Partnership is considered void from the beginning B to contribute his share, he refuses to do so. Can A compel - Profit and instrument of the crime is confiscated B to give his contribution? - The only returnable items are those that were never No, A cannot compel B to pay his contribution to the related to or connected with the crime committed partnership. Why?Article 1771 Because the contract/agreement between the two parties A partnership may be constituted in any form, was purely ORAL and never really written, and it has already except where immovable property or real rights are been one year since they agreed to their contract terms. contributed thereto, in which case, a public instrument shall be necessary (1667a)
Article 1773 (a) Universal Partnership of All Present Property – A contract of partnership is void, whenever defined in Article 1778 immovable property is contributed thereto, if an (b) Universal Partnership of All Profits – defined in inventory of said property is not made, signed by the Article 1780 parties and attached to the public instrument. (1668a) (c) Particular Partnerships – defined in Article 1783 (2) As to the Liability: Refers specifically where one or both of the parties (a) General – general partners are liable PRO-RATA contribute immovable property. The requirements are: and subsidiarily, sometimes solitarily, with their own (1) The contract must be in a public instrument property/assets if the partnership is insolvent. (may (2) An inventory of the immovable property must be made, include industrial partners) signed by BOTH parties and attached to the public (b) Limited – limited partners are liable only up to the instrument, otherwise the partnership is VOIDED. extent of their contribution Actual Case in Applying Article 1773: (3) As to Duration: A and B agree to form a partnership engaging in a fish pond (a) At will – no particular undertaking, can be dissolved business where both partners will contribute cash; the cash at any time is later used to buy land that is converted into a fish pond. C (b) With a Fixed Term – may only be dissolved upon comes along and points out that the partnership is void the end of its term unless continued by the partners because no inventory of the land was made. Is the (4) As to Legality of Existence: partnership really void? (a) De Jure – complied with ALL requirements No, the partnership is not void because according to the (b) De Facto – failed to comply with ALL requirements Supreme Court, Article 1773 need not apply since the land (5) As to Representation to Others: was BOUGHT from the CASH CONTRIBUTION. (a) Ordinary/Real – actually exists Suppose a partnership contributes immovable property but (b) Ostensible/by Estoppel – exists only to partners does not conduct an inventory and enters into a contract with (6) As to Publicity: A. The partnership does not fulfill its obligation to A and A (a) Secret – some partners are not known to the public sues the partnership. Was A right in suing the partnership? (b) Open/Notorious – all partners are known to the No, since the partnership was void from the beginning. A public should instead file against the “partners” themselves. They (7) As to Purpose: will be sued under the legal basis of them being partners by (a) Commercial/Trading – business transactions estoppels, as stated in Article 1825. (b) Professional/Non-Trading – exercise of professions If A wishes to be in a partnership with B and promises to Kinds of Partners: contribute land but subsequently sells the same plot to C, (1) Under the Civil Code: who immediately registers the transfer, who owns the land? (a) Capitalist – contributes money/property C owns the land because A never registered the transfer. (b) Industrial – contributes industry Estafa: when the owner of a property sells the same to two (c) General – liability extends to personal assets or more different persons. (d) Limited – liability up to contribution only (e) Managing – manages the partnershipArticle 1774 (f) Liquidating – responsible during dissolution Any immovable property or an interest therein may (g) By Estoppel – not really a partner be acquired in the partnership name. Title so acquired (h) Continuing – continues business after dissolution can be conveyed only in the partnership name. (n) (i) Surviving – remains after partner’s death (j) Sub-partner – contracts with partners, Article 1804 Being a juridical entity, a partnership can acquire property (2) Other Classifications: and subsequently become its owner. (a) Ostensible – active, known to the public (b) Secret – active, unknown to the publicArticle 1775 (c) Silent – inactive, known to the public Associations and societies whose articles are kept (d) Dormant – inactive, unknown to the public secret among members, and wherein anyone of the (e) Original – member at time of organization members may contract in his own name with third (f) Incoming – about to become a member persons, shall have no juridical personality and shall be (g) Retiring – about to withdraw governed by the provisions relating to co-ownership. (1669) Article 1777 A universal partnership may refer to all the present There is no juridical entity since the members can contract property or to all the profits. (1672) rd with 3 persons in their own name without binding others. In a partnership: Article 1778 (1) The partners are merely agents who cannot act alone A partnership of all present property is that in which (2) Articles of Partnership are known to ALL partners AND the partners contribute all the property which actually to the GENERAL PUBLIC. belongs to them to a common fund, with the intention of dividing the same among themselves, as well as theArticle 1776 profits which they may acquire therewith. (1673) As to its object, a partnership is either universal or particular. Article 1779 As regards to the liability of the partners, a In a universal partnership of all present property, partnership may be general or limited. (1671a) the property which belongs to each of the partners at the time of the constitution of the partnership becomes Classifications of Partnerships: the common property of all the partners, as well as all (1) As to the Object: the profits which they may acquire therewith.
A stipulation for the common enjoyment of any If the articles of universal partnership are doubtful or unclear other profits may also be made; but the property which then the presumption is that it is a universal partnership of all the partners may acquire subsequently by inheritance, profits. legacy or donation cannot be included in such - Because a universal partnership of all profits require stipulation, except the fruits thereof. (1674a) less obligations and is less onerous since the partners get to retain ownership over the property that they Why is the universal partnership of all present property not contribute. popular in the Philippines? Property owned at the time of contribution will become Article 1782 common property of the partnership eventually because only Persons who are prohibited from giving each other the profits acquired through the contribution will become any donation or advantage cannot enter into a universal common property, unless there was a stipulation that says partnership. (1677) otherwise. Example: A husband and wife cannot join a universal partnership. A and B form a Universal Partnership of All Present Property - They are not allowed to donate to each other and a and stipulate that property and profits that are acquired universal partnership essentially requires that the during business operations will become common property partners donate to each other. even if these were not due to their contributions and that if - They can join a particular partnership instead. anyone inherits property, it will become common property as A partnership formed in violation of this article shall be null well. A acquires land as part of his compensation package and void. It shall not have any legal personality either. from AyalaLand and B inherits land from his parents. Whose Illustrative Case: property will become common property? A, B and C form a partnership to engage in the importation, Only A’s land will become common property because it was marketing and operation of automatic phonographs, radios, essentially PAYMENT while B’s was inherited. The article television sets, amusement machines and their parts prohibits donations to become common property, only fruits accessories, with B and C as limited partners. Subsequently, of such can become common property. A and B got married and thereafter, C sold his share to A In a partnership, contributions must be determinate/certain and B for a nominal amount. Was the partnership dissolved and partners are akin to donors. Donations cannot after the marriage of A and B and C’s sale to them of his comprehend future property but profits can be stipulated. share in the partnership? No, the firm was not a universal partnership but a particularArticle 1780 one. A universal partnership of profits comprises all that Pertinent Legal Provisions the partners may acquire by their industry or work (1) Article 87: Every donation or grant of gratuitous during the existence of the partnership. advantage, direct or indirect, between spouses during Movable or immovable property which each of the their marriage, valid or not, shall be void except partners may possess at the time of the celebration of moderate gifts which the spouses may give each other the contract shall continue to pertain exclusively to on the occasion of any family rejoicing. each, only the usufruct passing to the partnership. (2) Article 739: The following donations shall be void: (1675) (a) Those made between persons who were guilty of adultery or concubinage at the time of the donation Example: (b) Those made between persons found guilty of the Suppose A and B form a Universal Partnership of All Profits same criminal offense, in consideration thereof and A wins in the lotto, P100,000.00. B tries to share in 50% (c) Those made to a public officer or his wife, citing the existence of their partnership and that A used the descendants and ascendants by reason of his partnership’s money to purchase the lottery ticket. Can B office really share in the lotto winnings? No, B cannot since it came from CHANCE, not WORK. Article 1783 If the P100,000.00 instead came from A’s work in DLSU, can A particular partnership has for its object B share in the profits of A? determinate things, their use or fruits, or a specific Yes, because it came from WORK. undertaking, or the exercise of a profession or vocation As long as it is PROFIT, the profit becomes common (1678) property to the partners UNLESS there was a stipulation in their agreement Defines what a particular partnership is If A and B form a Universal Partnership of All Profits for a Particular partnerships are those that are: Taxi-Cab business and both contribute vehicles that will - Neither a universal partnership for all present property serve as the taxi, what they were actually contributing is the nor a universal partnership for all profits USE or the RIGHT TO USE their vehicles. Upon dissolution, - Example: Those that are formed for the acquisition and the vehicles will be returned to them since there was never a sale of property, Accounting Firms, Law Firms, etc. transfer of ownership. - Popular because it is easy to join Unique feature of the Universal Partnership of All Profits: - The partners retain the title of ownership. Chapter 2 – Obligations of the PartnersArticle 1781 Section 1 – Obligations of the Partners amongst Articles of Universal Partnership, entered into Themselves without specification of its nature, only constitute a Relations created by a contract of partnership universal partnership of profits (1676) (1) Relations among the partners themselves (2) Relations of the partners with the partnership (3) Relations of the partnership with third persons (4) Relations of the partners with third persons
Every partner is a debtor of the partnership forArticle 1784 whatever he may have promised to contribute thereto. A partnership begins from the moment of the He shall also be bound for warranty in case of execution of the contract, unless it is otherwise eviction with regard to specific and determinate things stipulated. (1679) which he may have contributed to the partnership, in the same cases and in the same manner as the vendor is Partnership is perfected by mere consent and if ALL the bound with respect to the vendee. He shall also be liable requirements are met for the fruits thereof from the time they should have Notwithstanding the fact that the partners have not given been delivered, without the need of any demand. (1681a) their contributions yet Example: Article 1787 A and B agree to form a partnership that will begin on When the capital or a part thereof which a partner is December 1 and upon the arrival of certain machinery bound to contribute consists of goods, their appraisal needed by the business. In this situation, are A and B in must be made in the manner prescribed in the contract already in a partnership? of partnership, and in the absence of stipulation, it shall As long as the agreement remains executory, then A and B be made by experts chosen by the partners, and are NOT partners therefore there is no partnership yet. according to current prices, the subsequent changes Partners may agree to form a partnership to take effect in thereof being the account of the partnership. (n) the future Example: Article 1788 A and B agree to form a partnership 1.5 years later, with A partner who has undertaken to contribute a sum contributions of P100,000.00 each. A contributes his share of money and fails to do so becomes a debtor for the early but when the time comes for B to contribute his share, interest and damages from the time he should have he refuses and says he no longer wants to partake in the complied with his obligation. partnership. Can A compel B to contribute his share to the The same rule applies to any amount he may have partnership? taken from the partnership coffers, and his liability shall NO. Because they cannot enforce the contract since it was begin from the time he converted the amount to his own perfected 1.5 years ago and the contract was only oral. use. (1682) Since the contract was for 1.5 years, it was greater than 1 year and should have been written instead. Suppose A, B and C are partners. A promises to contribute a The Statute of Fraud does not usually apply but to some RED CAR, B promises to contribute GOODS WORTH particular cases such as the example above, it will. P50,000.00 and C promises to contribute P50,000.00 IN If the contribution is immovable property, comply with Article CASH on October 2011. On October 2011, none of them 1773 otherwise the partnership will be void. comply. What happens? A, B and C thus become debtors to the partnership.Article 1785 Suppose B and C contribute their parts but A does not. Can When a partnership for a fixed term or particular B and C ask for the recission or annulment of the contract? undertaking is continued after the termination of such NO. If one of the partners fails to comply with his term or particular undertaking without any express requirements, then the others can request for specific agreement, the rights and duties of the partners remain performance with damages from the defaulting partner A. the same as they were at such termination, so far as is What are the obligations of A before October 2011? consistent with a partnership at will. (1) To contribute what he promised A continuation of the business by the partners or (2) To be held liable to answer for eviction if the partnership such of them as habitually acted therein during the term, is deprived of his contribution without any settlement or liquidation of the partnership (3) To take care of the contribution with the diligence of a affairs, is prima facie evidence of a continuation of the good father of a family. partnership. (n) Suppose A leased the car out and gets it back by December 2011. A partnership with a fixed term/particular undertaking is Then A must deliver the car and the fruits (profits from lease) continued without express agreement to the partnership because there was a delay. rd - Rights and duties remain the same as they were at Suppose that after A contributes the car, a 3 person, D termination. claims to the real owner of the car and is able to prove so. Example: Then A is held liable for eviction because the partnership is If A and B form a partnership to last until December 30, 2011 deprived for a specific thing. A is also held liable for and A is the manager and they share profits 50-50 and after damages to BOTH the partnership and to D. December 30, 2011 they continue with their partnership. What about B? Can the partnership determine the value of What happens? the goods he contributed? A and B retain their rights, meaning A is still the manager In Article 1787, it clearly states that the goods SHOULD be and they still share profits 50-50. appraised by the partnership. If there was no If there was express agreement for the term of existence, agreement/stipulation, then the partnership shall have the then when the term expires, the partnership is dissolved and goods appraised by an expert. becomes a partnership at will What if the goods appreciate/depreciate? Continuation is when there is NO settlement/liquidation. It will be charged to the partnership’s account. There must be prima facie evidence, meaning it must be What will happen if C fails to comply with his obligation? seen on first glance. C will be liable for his contribution plus interest and damages from the date he was supposed to contribute. The same ruleArticle 1786 will apply if the partners take money from the partnership’s funds without everyone’s consent. He will however, not be charged for theft or estafa and his obligation will only be to
return the money he took plus interest and damages from the capital, except an industrial partner, to sav4e the the time he took the money. venture, shall be obliged to sell his interest to the other When will a partner be held criminally liable? partners. (n) Suppose the partners set aside P10,000.00 for payment to one of their creditors. A takes this amount from the fund and If there is an imminent loss in the partnership, the partner is subsequently discovered to have done so. who refuses to contribute additional funds, IF HE IS - Then A can be charged for estafa since he CAPABLE TO DO SO, shall sell his share TO THE misappropriated the money ALREADY SET ASIDE. PARTNERS, unless he is an industrial partner. - Imminent LossArticle 1789 There is a need for the capitalist partners to An industrial partner cannot engage in business for contribute additional funds to save the partnership himself, unless the partnership expressly permits him to The industrial partner need not do so because he do so; and if he should do so, the capitalist partners has already given 100% of his efforts may either exclude him from the firm or avail If the capitalist partner is WILLING but NOT themselves of the benefits which he may have obtained FINANCIALLY CAPABLE, the article will NOT apply in violation of this provision, with a right to damages in to him because he is already insolvent either case. (n) - Selling of interest Refusal to contribute additional funds to save the An industrial partner contributes his industry partnership means that the partner no longer has - Partnership has the EXCLUSIVE RIGHT to his industry any interest in the partnership - Prohibited from the engaging in business of ANY kind He should not be allowed to reap the benefits that unless the partnership has expressly permitted him to the other partners have worked hard for because do so. he had not done anything to help anyway Example: He cannot complain of being removed from the Suppose that a partnership is engaged in a automobile partnership because he will be paid what is due to repair shop. A is the industrial partner (chief mechanic) and him for his share in the interest of the partnership works only up to 5PM every working day. Can he go home - Agreement that the partner need not contribute and work on the partnership’s customers’ autos, even if he additional funds in cases of loss says it to the capitalist partners EVERY DAY before he The capitalist partner will not be required since it leaves? was in their agreement in the first place. The law says that there must be EXPRESSED permission, Note that more contribution to the partnership in this situation, all A has is IMPLIED permission. The capital would mean you share more in the profits capitalist partners’ remedy is therefore to either: (only one) but this should be voluntary (1) Avail of the benefits from A’s “business” Things to consider: (2) Exclude A from the partnership and demand for (1) There must be an IMMINENT LOSS damages (2) The partner who is unwilling to contribute must be Capitalist partners are prohibited from engaging in SIMILAR SOLVENT/FINANCIALLY CAPABLE businesses only. (3) There was no agreement that the partners will not have Industrial partners have the same remedies as capitalist to contribute additional funds in cases of loss partners. If the purpose of additional contribution is simply to raise capital, then this article will not apply.Article 1790 Unless there is a stipulation to the contrary, the Article 1792 partners shall contribute equal shares to the capital of If a partner authorized to manage collects a the partnership. (n) demandable sum, which was owed to him in his own name, from a person who owed the partnership another The partners shall contribute to the capital of the partnership sum also demandable, the sum thus collected shall be as per their agreement, except if there was no agreement in applied to the two credits in proportion to their amounts, the first place, in which case, they shall contribute equally. even though he may have given a receipt for his own Example: credit only; but should he have given it for the account A and B decide to form a partnership and agree to contribute of the partnership credit, the amount shall be fully to the capital in the ratio of 60:40, how much should the applied to the latter. partners contribute to the partnership? The provisions of this article are understood to be The partners shall contribute in the ratio of 60:40, meaning if without prejudice to the right granted to the debtor by their partnership capital is a combined total of P10, 000.00 Article 1252, but only if the personal credit of that then A contributed P6, 000.00 and B contributed P4, 000.00. partner should be more onerous to him. (1684) A and B decide to form a partnership but did not say how much the other should contribute, how much should each A and B are in a partnership where A is the managing partner contribute to the partnership? partner. C owes A a sum of P5,000.00 and the partnership a Since the partners did not give any sort of agreement as to sum of P10,000.00. The credit to A is due on September 1 the ratio of their capital contribution, we shall assume that while the partnership’s is due on September 15, both debts they will contribute in equal proportions, meaning if the are due and demandable. A collects from C a total of partnership capital is a combined total of P10, 000.00, then P3,000.00 only and A subsequently issues a receipt in his each partner contributed P5, 000.00. name. Is the partnership entitled to share in the P3,000.00? Yes but in proportion to their respective debts so A getsArticle 1791 P1,000.00 and the partnership gets P2,000.00. If there is no agreement to the contrary, in case of Supposing there was no mention as to who the managing imminent loss of the business of the partnership, any partner is, will the requisites of Article 1792 still be present? partner who refuses to contribute an additional share to
Yes, in the absence of information relating to the identity of painted RED. Damages are suffered by the partnership for the managing partner, the assumption shall be that ALL P30,000.00 due to the repainting. Can A compensate this partners are managing partners. loss using the profits he earned for the partnership? If A issues a receipt on the name of the partnership instead, A cannot compensate it with the profits he earned because it to whose credit will the P3,000.00 be put? is his obligation to bring profits in the first place. The The entire P3,000.00 will go to the partnership. responsibility of the P30,000.00, however, may be mitigated Supposing the credit of A carries 18% while that of the by the court if by other activities, A is able to bring about partnership carries only 10%. C pays A and says that the unusual or extraordinary profits, meaning, he may be P3,000.00 shall be applied to A’s credit. Is the partnership allowed by the courts to pay back just P15,000.00 instead. entitled to share in the P3,000.00 still? Follows that if the partner is guilty of fraud or damages, he No, the debtor is given the right to apply payment to shall be liable for that. whichever debt is more onerous. Things to remember: Article 1795 The two conditions should be both present in order for the The risk of specific and determinate things which Article to apply, otherwise, the entire amount will go to are not fungible, contributed to the partnership so that whoever collects payment from the debtor. only their use and fruits may be for the common benefit, (1) 2 debts and both are due and demandable shall be borne by the partner who owns them. (2) The one collecting should be the managing partner If the things contributed are fungible, or cannot be kept without deteriorating, or if they were contributed toArticle 1793 be sold, the risk shall be borne by the partnership. In the A partner who was received, in whole or in part, his absence of stipulation, the risk of things brought and share of a partnership credit, when the other partners appraised in the inventory, shall also be borne by the have not collected theirs, shall be obliged, if the debtor partnership, and in such case the claim shall be limited should thereafter become insolvent, to bring to the to the value at which they were appraised. (1687) partnership capital what he received even though he may have given receipt for his share only. (1685a) Refers to rules as to who bears the risks made by contributions In this case, there is only ONE debt but 2 or more debtors, If the contribution is determinate and non-fungible but only both of which are partners. the use is contributed, when it is lost, then the one who Example: contributes it is liable for it. A and B are partners and C owes the partnership a sum of If fungible things are contributed, the partnership shall be the P10,000.00. B is the managing partner but A collects his one to shoulder the risks share in the P10,000.00 and C pays A P5,000.00 to which A The partnership shall also be the one to bear the risk for issues a receipt in his name. When B’s turn to collect comes, items brought for sale in inventory for appraisal for the value C is already insolvent. What should A do? at which they were appraised. A shall return his P5,000.00 to the partnership and split it with B because C has already become insolvent. Article 1796 Take not that whoever collects doesn’t matter as it doesn’t The partnership shall be responsible to every make a difference partner for the amounts he may have disbursed on If you get your share early and the other parties cannot get behalf of the partnership and for the corresponding theirs because the debtor has become insolvent, then you interest from the time the expenses are made; it shall must return YOUR share to the partnership so that no one also answer to each partner for the obligations he may gets more than he should have. have contracted in good faith in the interest of the partnership business, and for the risks in consequenceArticle 1794 of its management. (1688a) Every partner is responsible to the partnership for Refers to the obligation of the partnership to the partners damages suffered by it through his fault, and he cannot The partners are merely agents so they are not personally compensate them with the profits and benefits which he liable except if they are at fault or if they exceeded their may have earned for the partnership by his industry. expressed authority However, the courts may equitably lessen this Obligations of the Partnership: responsibility if through the partner’s extraordinary (1) To reimburse any amount disbursed by the partners in efforts in other activities of the partnership, unusual behalf of the partnership profits have been realized. (1686a) - Example: A partnership borrows from the bank a sum of Why compensation will not apply: P10,000.00 for additional funds but cannot pay it Compensation will not apply because in compensation, you back when it is due to be paid back. A pays back should be both a debtor and a creditor at the same time. the P10,000.00 using his personal funds. Should he However, the partner here is only a DEBTOR for damages be reimbursed by the partnership? and he cannot compensate using his profits and benefits Yes, the partnership should reimburse A for the earned for the partnership because it IS HIS DUTY to do so sum of P10,000.00 PLUS legal interest starting in the first place. from the date A disbursed the P10,000.00. Responsibility may be equitably mitigated by the courts if, (2) To answer for any obligation contracted in good faith through extraordinary efforts of the partner, unusual profits - Example: are recognized/realized. A partnership needs office supplies so B contracts Example: for P10,000.00 worth of supplies. Who will pay for A partnership between A and B is engaged in an autoshop the contract price of P10,000.00? business. A customer brought his car in to be painted The partnership shall be the one to shoulder the YELLOW but A bought RED paint instead and the car is cost as it was made in good faith and B did not overstep his authority.
If it was stated that the partners cannot contract for A P 30,000.00 3/6 P 7,500.00 - P 7,500.00 more than P5,000.00 worth of supplies and B still contracts for P10,000.00, how much will the B P 20,000.00 2/6 P 5,000.00 - P 5,000.00 partnership pay? C P 10,000.00 1/6 P 2,500.00 P 2,000.00 P 4,500.00 The partnership will only pay what was allowed, that is, P5,000.00 and B will pay the remaining P TOTAL P 60,000.00 6/6 P 15,000.00 P 2,000.00 balance since B overstepped his authority. 17,000.00 (3) To answer for risks in management - Example: The same rules shall apply for losses in the partnership’s A partnership is engaged in selling goods and a operations, however the industrial partner shall not share in customer keeps asking for discounts and an the losses as there is no way for him to retract his industry argument ensues between the customer, C and the and in the event of losses, his efforts would have been for partner A. A gets injured and is brought to the vain and it can thus be said that he has already shared. hospital. Who shall shoulder the hospital bills? What is the legal effect of having a stipulation that excludes The partnership shall shoulder the hospital bills as it a partner from sharing in the profits or losses? was during A’s time in managing the business that Under Article 1799, the stipulation shall be void because he was injured. there must be mutual sharing of profits and losses.Article 1797 Can the partners appoint a 3rd person to designate the division of their profits and losses? The losses and profits shall be distributed in Yes and they will not be allowed to question his decisions conformity with the agreement. If only the share of each partner in the profits has been agreed upon, the share of unless the designation of shares is manifestly inequitable. each in the losses shall be in the same proportion. 2 cases where partners ABSOLUTELY cannot question In the absence of stipulation, the share of each designated shares by the 3rd parties: partner in the profits and losses shall be in proportion to (1) When a partner begins to execute the 3rd party’s what he may have contributed, but the industrial partner decision shall not be liable for the losses. As for the profits, the (2) When complaints are raised AFTER three months from industrial partner shall receive such share as may be the point of knowledge of the designation just and equitable under the circumstances. If besides Can the partners designate one of themselves to distribute his services, he has contributed capital, he shall also profits or losses? receive a share in the profits in proportion to his capital. No, the law prohibits this situation because there may be (1689a) disparities when it comes to the distribution of net profits.Article 1798 Article 1800 If the partners have agreed to entrust to a third The partner who has been appointed manager in the person the designation of the share of each one in the articles of partnership may execute all acts of profits and losses, such designation may be impugned administration despite the opposition of his partners, only when it is manifestly inequitable. In no case may a unless he should act in bad faith; and his power is partner who has begun to execute the decision of the irrevocable without just and lawful cause. The vote of third person, or who has not impugned the same within the partners representing the controlling interest shall a period of three months from the time he had be necessary for such revocation of power. knowledge thereof, complain of such decision. A power granted after the partnership has been The designation of losses and profits cannot be constituted may be revoked any time. (1692a) entrusted to one of the partners. (1690) 2 Kinds of Managing Partners:Article 1799 (1) Appointed DURING the Constitution of the PartnershipA stipulation which excludes one or more partners from - May execute all administrative acts unless he acted inany share in the profits or losses is void. (1691) bad faith. His power may not be revoked unless there is a JUST and LAWFUL cause and the vote Lays out the rules in the distribution of profits and losses of the partners with controlling interest A, B and C are partners with the following capital - Even if there are objections as to his decisions contributions, P30,000.00, P20,000.00 and P10,000.00 coming from the partners, his authority will prevail respectively, where C is a capitalist-industrialist partner. For UNLESS he has acted in bad faith one year of their operations, their partnership had earned net - Acts of administration: ordinary business and profits of P17,000.00. How shall these profits be divided administrative transactions among the partners? (C is entitled to receive P2,000.00 out - Why can he note be revoked for no reason? of the entire P17,000.00) Because if you revoke his power, you are in effect (1) In accordance with any existing agreement between the changing the terms of the contract of partnership. partners as to how they shall share. (2) Appointed AFTER the Constitution of the Partnership (2) If there was no agreement, then the partners shall share - May have his power revoked with or without cause on a pro-rata basis - Decided upon by those partners who own controlling (3) The industrial partner shall get what is JUST and interest in the partnership EQUITABLE in the circumstances. (BONUS TO PARTNER) Article 1801 If two or more partners have been entrusted with the management of the partnership without specification of SHARE IN TOTAL P CAPITAL RATIO DISTRIBUTABLE BONUS SHARE IN their respective duties, or without stipulation that one of CONTRIBUTION PROFIT PROFITS them shall not act without the consent of the others, each one may separately execute all acts of
administration, but if any of them should oppose the shall bind the partnership, without prejudice to acts of the others, the decision of the majority shall the provisions of article 1801. prevail. In case of tie, the matter shall be decided by the (2) None of the partners may, without the consent of partners owning the controlling interest. (1693a) the others, make any important alteration in the immovable property of the partnership, even if it Assume that A, B, C and D are all managing partners. A may be useful to the partnership. But if the appoints E as a secretary but B objects to this. Is the refusal of consent by the other partners is appointment of E valid? manifestly prejudicial to the interest of the Yes since majority votes are first counted by head. If C&D partnership, the court’s intervention may be were the ones to object, and they owned a combined total of sought. (1695a) 51% of partnership interest, then the appointment will not be valid. However, if B was still the one who objected and he If there is no agreement as to who will be the managing owns 51% of partnership interest, the appointment will still partners, during constitution and after constitution of the be valid because majority votes are first counted by head. partnership, then the assumption shall be that ALL the If the partnership cannot make a decision and ends up in a partners are managing partners, without prejudice to Article tie (head count and interest), then the partnership is to be 1801, meaning Article 1801 will then apply to their case. dissolved. This will be the only remedy, unless one of the The second paragraph of this article provides that the other partners will relent. partners cannot simply alter immovable property owned by the partnership without the consent of the other partnersArticle 1802 because this is NOT an act of administration but of In case it should have been stipulated that none of OWNERSHIP. the managing partners shall act without the consent of Note that consent here is no qualified, so it may be the others, the concurrence of all shall be necessary for expressed or it may be implied. the validity of the acts, and the absence or disability of Example: any one of them cannot be alleged, unless there is Suppose A, B, C and D are in a partnership where the imminent danger of grave or irreparable injury to the managing partner is not specified and A decides to put up a partnership. (1694) warehouse in a piece of land owned by the partnership without consent of other partners because he believes it to This is a case wherein two partners, A and B, stipulate that be useful and beneficial to the partnership. His partners one cannot act without the consent of the other. Thus, there come over, once the warehouse is finished, to look at it and must always be concurrence between the two before any did not object to its existence. Was this valid? transactions may be entered into, the absence of the other’s Yes, since the partners did not object, then there is IMPLIED consent shall not be used as an excuse. consent. Since consent was never qualified in the article, it is Illustrative Case: assumed that implied consent is enough. A sold to B, one of the managing partners of Partnership X, Suppose before A builds the warehouse, he asks for the the other being C, a certain number of mining claims without consent of the other partners, who refuse to give it. When A the consent of C. In an action by A to recover the unpaid tries to convince them and asks why they refuse to give balance of the purchase price against Partnership X, C consent, they simply say that they do not want it to be there, claims that the contract is not binding upon the partnership making their objection manifestly prejudicial, meaning, there for the reason that under the articles of partnership, there is is really no reason for their objection, what then, is the a stipulation that one of the partners cannot bind the firm by remedy of A in this situation? a written contract without the consent of others. Is the A may bring the matter to court. If the court finds the other transaction made by B binding upon the partnership? partners of having no solid reason to object, it may compel According to the Supreme Court, the stipulation applies only the other partners to give their consent. to B and C. A has the right to assume that B was authorized to complete the transaction. Therefore, the partnership is Article 1804 liable, and since B violated the terms of contract between Every partner may associate another person with himself and C, he is required to reimburse C for the amount him in his share, but the associate shall not be admitted C will be paying A on behalf of the partnership, the reason into the partnership without the consent of all the other being, it would be unfair to C who had no knowledge of B’s partners, even if the partner having an associate should transaction to have to pay when he never agreed anyway. be a manager. (1696) The only instance in which a partner may transact without concurrence is when there is imminent danger of grave or Refers to SUBPARTNERSHIP irreparable damage to the partnership if he does not do so. A, B and C are in a partnership wherein A is the managing However, the party involved must be able to prove so else partner. A enters into a contract with D that states D will he shall become liable for what he has done. receive 50% of A’s share in partnership profits. Can A do this Example: even without the consent of the other partners? A and B are in a partnership where they sell fruits, B notices Yes, because a sub-partnership will not affect the that the fruits in the warehouse are starting to rot so, without composition of the partnership and D will not be able to consent of A, he sells them. interfere with the partnership’s management anyway. This will be alright because if the fruits rot, then it would have When are you required to share your partnership profits with rd been bad on the part of the partnership. 3 persons? rd When you contract with 3 persons because perhaps inArticle 1803 some past event you needed money and they provided you When the manner of management has not been with it, and in your contract, it was agreed upon that you will agreed upon, the following rules shall be observed: share in the partnership profits. rd (1) All of the partners shall be considered agents The 3 person can also opt to receive ALL profits. and whatever any one of them may do alone Can D become a partner without the consent of the other partners, if he associates with the managing partner?
No, D would need to get the consent of all partners because Example: this would change the partnership composition. A and B are partners engaged in the operation of a cinema business. The theater was mortgaged to C who foreclosedArticle 1805 the mortgaged debt. A, in his own behalf, redeemed the The partnership books shall be kept, subject to any property with his own private funds. Subsequently, A files a agreement between the partners, at the principal place petition for the cancellation of the old title of the partnership of business of the partnership, and every partner shall and the issuance of a new title in HIS name alone. Did A at any reasonable hour have access to and may inspect become the absolute owner of the property? and copy any of them. (n) No, the law says that he will only hold the property as the trustee and will be entitled to reimbursement plus interest The partnership books shall be kept in the following places, from the time he redeemed the property. in order: (1) In accordance with partnership agreements Article 1808 (2) If there were no agreements, then the partnership books The capitalist partners cannot engage for their own shall be kept in the principal place of business of the account in any operation which is of the kind of partnership (ex: headquarters) business in any operation which is of the kind of Each partner will have access to ALL partnership books. business in which the partnership is engaged, unless When will the partner be allowed to access the partnership there is a stipulation to the contrary. books? Any capitalist partner violating this prohibition shall The partner is allowed to access partnership books during bring to the common fund any profits accruing to him REASONABLE HOURS OF BUSINESS (8am-5pm), from his transaction, and shall personally bear all the according to the law. The one who is keeping the partnership losses. (n) books cannot state when it can be inspected. The article is with regards to a capitalist partner engaging inArticle 1806 other businesses. Partners shall render on demand true and full Is the capitalist partner allowed to engage in other information of all things affecting the partnership to any businesses aside from the one he has with the partnership? partner or legal representative of any deceased partner Yes, as long as the business he engages in is something or of any partner under legal disability. (n) dissimilar or different from the of the partnership’s. What will happen if the capitalist partner violates the law The article does not mean that the partners need wait for regarding his ability to engage in other businesses? demands before disclosing information, when they get hold Then he shall have to bring the profits he gained from the of the information, they should disclose it immediately, other business to the partnership and be liable for losses although additional details may be demanded. suffered by the partnership. If information is not disclosed and it is found out later on, the Why is the capitalist partner not allowed to engage in a partner/s who did not disclose such will be held liable for it similar line of business? and be charged for misrepresentation. Because he might take advantage of the information in the Suppose A, B and C are in a partnership wherein A is sent to partnership or of their clients, resulting in a conflict of interest inspect partnership property in Mindanao. A realizes that the between himself and the other partners. property contains oil deposits and does not disclose this The capitalist partner can engage in a business similar to the information to B and C. He also lies and says that the partnership if there was a stipulation in the contract of property is completely useless for their business and offers partnership and if the business he operates exists in a to buy B and C’s interests in the partnership. When A is the different area or place. only one holding the business, he develops the land and gains substantial profits from the oil deposits. B and C later Article 1809 on learn about the information A kept hidden from them and Any partner shall have the right to a formal account demand that they be given their shares in the oil profits. The as to partnership affairs: question now is, can B and C, after having sold their (1) If he is wrongfully excluded from the partnership interests in the partnership, still share in the profits? business or possession of its property by his co- Yes, they will be allowed to share in the profits because the partners information regarding oil deposits was present when they (2) If the right exists under the terms of any sold their share to A, just that it was hidden from them. agreement (3) As provided by Article 1807Article 1807 (4) Whenever other circumstances render it just and Every partner must account to the partnership for reasonable. (n) any benefit, and hold as trustee for it any profits derived by him without the consent of the other partners from General Rule: any transaction connected with the formation, conduct During existence, a partner is not required to demand for an or liquidation of the partnership or from any use by him accounting because his interest is already protected by two of its property. (n) Articles of the law, Article 1805 and Article 1806. But for specific cases, the law provides that he can DEMAND for an A partner who receives benefits or profits derived without accounting of the partnership books. consent of others shall account for it as the partnerships. 4 Cases where a partner can demand for an accounting: If particular property is mortgaged and foreclose, the partner (1) When he is wrongfully excluded from the partnership who uses personal funds is able to get the property back will operations (business and property possession) not become the new owner, he will only be its trustee. (2) If the right exists under their agreement If the partner gets the property back after ONE year from the (3) Under Article 1807 rd 3 party involved, then it shall become his as it was a private (4) Other circumstances which render it just and transaction, so long as he uses his own funds. reasonable.
(1) DURING operations, the partner’s interest is his share inSection 2 – Property Rights of a Partner profits and losses (2) AFTER operations/LIQUIDATION/DISSOLUTION, hisArticle 1810 interest is in the surplus of partnership assets after all The property rights of a partner are: debts have been cleared. (1) His rights in specific partnership property Interest can be subject to attachment or execution because it (2) His interest in the partnership belongs to the partner, not the partnership. (3) His right to participate in the management. (n) Article 1813 The partner has the following rights: A conveyance by a partner of his whole interest in (1) Right to the ownership of partnership property the partnership does not of itself dissolve the partner, (2) Right to his interest in the partnership or, as against the other partners in the absence of (3) Right to participate in partnership management agreement, entitle the assignee, during the continuance of the partnership, to interfere in the management orArticle 1811 administration of the partnership business or affairs, or A partner is co-owner with his partners of specific to require any information or account of partnership partnership property. transactions, or to inspect the partnership books but it The incidents of this co-ownership are such that: merely entitles the assignee to receive in accordance (1) A partner, subject to the provisions of this Title with his contract the profits to which the assigning and to any agreement between the partners, has partner would otherwise be entitled. However, in case of an equal right with his partners to possess fraud in the management of the partnership, the specific partnership property for partnership assignee may avail himself of the usual remedies. purposes; but he has no right to possess such In case of dissolution of the partnership, the property for any other purpose without the assignee is entitled to receive his assignor’s interest consent of his partners; and may require an account from the date only of the (2) A partner’s right in specific partnership last account agreed to by all the partners. (n) property is not assignable except in connection with the assignment of rights of all the partners How can a partner convey his interest in the partnership in the same property; without getting the partnership dissolved? (3) A partner’s right in specific partnership rd (1) By selling it to a 3 person rd property is not subject to attachment or (2) By donating it to a 3 person rd execution, except on a claim against the (3) By using it as security on a loan from a 3 person partnership. When partnership property is Example: attached for a partnership debt the partners, or D offers to buy A’s interest of P50,000.00 for P1,000,000.00 any of them, or the representatives of a and A agrees to sell his interest. What happens now? deceased partner, cannot claim any right under D becomes the assignee and A becomes the assignor but the homestead or exemption laws; the partnership will not be dissolved because his interest in (4) A partner’s right in specific partnership profits and surplus is the one being sold. A will also continue property is not subject to legal support under to be the partner but D will be the one to receive his profits. Article 291. (n) This is similar to sub-partnerships, so the consent of others is not required for interest to be conveyed. The partners are considered co-owners of specific The assignee does not have any say in the management partnership property Rights of the Assignee: If A, B and C are partners who own specific property under (1) He shall get the assignor’s share in profits/surplus the partnership’s name, what are their rights? (2) He may avail of legal remedies of the partners in cases (1) They can use it for partnership business purposes of fraud by the assignor (2) They cannot use it for personal purposes WITHOUT the (3) He can demand for an accounting upon dissolution but consent of others. only starting from the date of the last accounting Why can’t A simply assign his right with respect to the undertaken by the partnership partnership’s property? (4) Can ask for the dissolution of the partnership if it has (1) It doesn’t belong to him reached the end term or anytime if the partnership is (2) The extent of his interest with regards to the property one at will, because he is interested in the surplus. cannot be determined before dissolution The assignee, however, cannot become a partner without rd The partnership can altogether assign a 3 party with the the consent of the other partners because it will entail a right to use the property for partnership business purposes. change in the partnership’s composition. The right of the partners as to the property is not subject to attachment unless it is a claim against the partnership due to Article 1814 the reason that any one partner is not the owner of it. Without prejudice to the preferred rights of a Under Article 291, the specific partnership property cannot partnership creditor under Article 1827, on due be used as the subject of legal support because it does not application to a competent court by any judgment belong to any one of the partners. creditor of a partner, the court which entered the judgment, or any other court, may charge the interest ofArticle 1812 the debtor partner with payment of the unsatisfied A partner’s interest in the partnership is his share of amount of such judgment debt with interest thereon; the profits and surplus. (n) and may then or later appoint a receiver of his share of the profits, and of any other money due or to fall due to The article defines what the partner’s interest in the him in respect of the partnership, and make all other partnership is. orders, directions, accounts and inquiries which the What is the partner’s interest in the partnership?
debtor partner might have made, or which the Any stipulation against the liability laid down in the circumstances of the case may require. preceding article shall be void, expect as among the The interest charged may be redeemed at any time partners. (n) before foreclosure, or in case of a sale being directed by rd the court, may be purchased without thereby causing As to 3 persons, ALL partners are liable pro-rata and dissolution: subsidiary, but as to each other, they are liable in proportion (1) With separate property, by any one or more of to their capital contribution. the partners Examples: (2) With partnership property, by any one or more of (1) A, B and C are in a partnership where C is the industrial the partners with the consent of all the partners partner and a sum of P26,000.00 is owed to D. A and B whose interests are not so charged or sold contributed P15,000.00 and P5,000.00 respectively. Nothing in this Title shall be held to deprive a How shall the debt be shared? partner of his right, if any, under the exemption laws, as As to D, the partners will share equally in the debt left regards his interest in the partnership. (n) after exhausting all assets (P6,000.00) so they will each have to pay P2,000.00 regardless of C being an rd Refers to a partner who obtained a loan from a 3 person industrial partner. If C is insolvent, or if B died, or if A and was unable to repay such. has left the country, the liability of the partners cannot For example, PARTNER A failed to pay CREDITOR C a be increased. sum of P50,000.00, so C files against A, knowing that A, As to each other, they are liable in proportion to their being a partner, will receive his interest. C wins the case but capital contribution, so B and C will be reimbursed by A. A is still unable to pay, so C asks that A’s interest be (2) A, B, C, D and E are sued in court but E is later cleared attached so that it goes to C and cancels out A’s debt. of his charges. The court orders A, B, C and D to pay - Done to protect C’s interest their creditor, but C moves to reconsider that all should - Attached interest can be redeemed using the property of be charged, but this move was denied. Can A, B, C and the partners or the partnership’s property, as long as all D alone be liable for the debt? partners consent to this, and are given reimbursement According to the Supreme Court, the 4 partners cannot from the defaulting partner alone be liable for the debt because in excluding E, they - Amount charged must e sufficient to pay the loan plus have increased the other partners’ liability and this is legal interest prohibited by the law. The law states that the liability of the partners cannot be increased such that they rdSECTION 3 – Obligations of the Partners as to 3 Persons shoulder the liability of another partner. (3) What if there was an agreement that stated B is onlyArticle 1815 liable up to P5,000.00? How will A, B and C share in Every partnership shall operate under a firm name, their liability? rd which may or may not include the name of one or more The stipulation shall be void as to 3 persons, so they of the partners. will still share pro-rata. Anyway, B and C will be Those who, not being members of the partnership, reimbursed by A, because as among themselves, the include their names in the firm name, shall be subject to stipulation is valid and C is an industrial partner. the liability of a partner. (n) Article 1818 Firm names are required for partnerships because they are Every partner is an agent of the partnership for the juridical persons in need of separate names so that they are purpose of its business, and the act of every partner, distinguishable from the partners and other partnerships. including the execution in the partnership name of any rd The name can come from any of the partners or 3 persons. instrument, for apparently carrying on in the usual way rd If a 3 person’s name is used with his consent, then he shall the business of the partnership of which he is a member be liable as a partner without the rights of a partner because binds the partnership, unless the partner so acting has the partnership uses his name. in fact no authority to act for the partnership in the Partnership name must be registered with the (DTI) particular matter, and the person with whom he is DEPARTMENT OF TRADE AND INDSUTRY because if dealing has no knowledge of the fact that he has no there was already such an existing name, there might be such authority. cases of duplication. An act of a partner which is not apparently for the You cannot choose the name of a deceased partner as his carrying on of business of the partnership in the usual death caused the partnership’s dissolution. way does not bind the partnership unless authorized by Sample General and Limited Partnership Names: the other partners. (1) GENERAL – A & Company Except when authorized by the other partners or (2) LIMITED – A, Ltd. unless they have abandoned the business, one or more but less than all the partners have no authority to:Article 1816 (1) Assign the partnership property in trust for All partners, including industrial ones, shall be creditors or o the assignee’s promise to pay the liable pro-rata with all their property and after all the debts of the partnership partnership assets have been exhausted, for the (2) Dispose of the goodwill of the business contracts which may be entered into in the name and for (3) Do any other act which would make impossible the account of the partnership under its signature and to carry on the ordinary business of a by a person authorized to act for the partnership. partnership However, any partner may enter into a separate (4) Confess a judgment obligation to perform a partnership contract. (n) (5) Enter into a compromise concerning a partnership claim or liabilityArticle 1817 (6) Submit a partnership claim or liability to arbitration