Law on Partnership Art. 1767. By the contract of partnership two or more pers person ons s bind bind them themse selv lves es to cont contri ribu bute te mo mone ney, y, prope property rty,, or indust industry ry to a common common fund, with the intention of dividing the profits among themselves. wo or more persons may also form a partnership for the e!ercise of a profession. "166#a$ Partnership - a contract whereby two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing the profits among themselves, or in order to exercise a profession. CHARAAC!R"#"C# $. %. '. (. *. . . /. 2. $4.
Co ns nse ns nsual &ila &ilate tera rall or or mul multi tila late tera rall Principal )ominate +nerous Pre pa par at atory Comm Common on und und cont contri ribu buti tion on 0awful +b1ec t 3ivi 3ivisi sion on of prof profit its s Affectio Affectio societis societis 5 desire to formulate formulate an active active union
Partnership 6# Corporation
Partnership %reation& Consent 76oluntary agreement of Parties8 '!istence& 0imi 0imite ted d only only by agre agreem emen entt
%orporation hru a charter or a general enab enabli ling ng law law 7Corp 7Corpor orat atio ion n Code8 )ot )ot more more than than *4 yrs 7may 7may be reduced but not extended8
(wners) Liability to strangers& 9nle 9nless ss a limi limite ted d part partne ner, r, 0imited only to the capital even to beyond their contribution ransferability ransferability of interest& Assignable but not ransferable even without transferable. consent of other owners Agency& !very partner is an agent of #toc;holders #toc;holders are not agents agents the the firm firm and and may may bind bind it at all unless the ac t is unaut unauthor hori:e i:ed, d, expres expressly sly or impliedly (wner)s standing in a suit A stoc;holder has no against erring managers& A partner can sue a co- stan standi ding ng to sue sue the the erri erring ng partner who mismanage the member of the &+3. he suit firm must be in the name of the Corporation *ationality& Country of creation
law> upon upon retirement, retirement, civil interdicti interdiction on sufficient cause of a partner or if in any way incapa ci citated> also by agreement (+-*A Partnership /0 %(*23AL Partnership (+-*A %reation& Consent 7voluntary agreement8 of parties 3overning law& Agreement of parties> the law
%(*23AL Cele Celebr brat atio ion n of according to law Civil law
marr marria iage ge
is only subsidiary Legal personality& personality& 3istin 3istinct ct and separat separate e from from the partners %ommencement& 9nless 9nless stipulate stipulated d otherwise, otherwise, upon execution of contract Purpose& or or prof profit it 7or 7or exer exerci cise se of profession8 +ivision of profits& !=ua !=uall lly, y, unle unless ss stip stipul ulat ated ed otherwise
4anagement& 9pon those appointed, otherwise, each partner is an agent +issolution& 3eath, insanity, insanity, insolvency, insolvency, retirement, retirement, civil interdicti interdiction on of a partner or if in any way incapac it itated> also by agreement Li5uidation of profits& Possible even without dissolution of the partnership
)o distinct distinct personalit personality y from the spouses +nly on date of celebration of marriage amily life
!=uall !=ually y althou although gh set settlem tlemen entt may may otherwise
marriag marriage e provi rovid de
As a rule, administration and en1o ym yment of con1uga l prop ropert erty belo belong ng to both both spouses 1ointly As provided by law only
+nly after dissolution dissolution of the con1ugal partnership
Partnership 6# Co-ownership
Partnership %reation& &y cons consen entt only only of part partne ners rs
Legal Personality& Personality& #epara #eparate te and distin distinct ct from from the partners Purpose& or or prof profit it 7or 7or exer exerci cise se of profession Agency& As a rule, each partner is an agen agent, t, unle unless ss othe otherw rwis ise e agreed ransferability ransferability of interest& "nterest is assignable but not transferable
'!istence& 0imi 0imite ted d onl only y by by agr agree eeme ment nt
Profits& ?ay be agreed upon +issolution& 3eath, insanity, insanity, insolvency, insolvency, retirement, retirement, civil interdicti interdiction on of a partner or if in any way incapac it itated> also by agreement orm& 6alid in any form unless real property is contributed
%oownership ?ay ?ay be creat created ed by cont contra ract ct,, operation of law, or a conse=uence events )o legal personality personality distinct distinct and separate from co-owners ?ainly, ?ainly, collective collective en1oyment en1oyment of property )o mutu mutual al repr repres esen enta tati tion on except in instances provided by law 7e.g. during e1ectment cases8 3ispos 3isposal al of ali=uo ali=uott share share allowed allowed unless unless pre1udicial pre1udicial the o th ther c oo-owners impossible due indivisibility of shares
is to or to
9p to $4 $4 year years s rene renewa wabl ble> e> %4 %4 yrs if imposed imposed by donee or testator Always proportionate ali=uot share
to
0oss 0oss of thin thing, g, part partit itio ion n or division, ac=uisition by a coowner of all shares
)o public instrument even if the ob1ect is a real property
Partnership 6# Agency a.
Agen Agency cy is, in a sense, sense, broad broader er since since partn partner ersh ship ip is 1ust a form of agency b. An agen agentt neve neverr acts acts for for hims himsel elff but but only only for for his principal> a partner is both a principal 7for his own interest8 and an agent 7for the partnership and the other partners8 Partnership 6# @oint Adventure 7@oint Accounts8
a.
b.
A 1oint adventure 7an American concept similar to our 1oint accounts8 is a sort of informal partnership, with no frim name and no legal personality. "n a 1oint account, the participating merchants can transact business under their own name, and be individually liable therefore. 9sually, but not necessarily, a 1oint adventure is limited to a single transaction, although the business of pursuing it to a successful termination may continue for a number of years> a partnership generally relates to a continuing business of various transactions of a certain ;ind.
owners or copossessors do or do not share any profits made by the use of the property< "=$ he sharing of gross returns does not of itself establish a partnership, whether or not the persons sharing them have a 9oint or common right or interest in any property from which the returns are derived< ">$ he receipt by a person of a share of the profits of a business is prima facie evidence that he is a partner in the business, but no such inference shall be drawn if such profits were received in payment&
CAPAC" to become a Partner a.
"n general, any person capacitated to enter into a contract may become a partner
b.
A minor, unless his parent or guardian consents, cannot be a partner, Bithout such consent, the contract is voidable. "f all are minors and without consent of their parent or guardian, the contract is unenforceable.
c.
A spouse cannot contribute con1ugal property to a partnership without the other spouses consent, unless heDshe is the administrator and the court gives its consent. A partnership, since there is no prohibition, can be a partner in another partnership Per ma1ority view, a corporation, cannot be a partner.
d. e.
Art. 1768. he partnership has a 9udicial personality separate and distinct from that of each of the partners, even in case of failure to comply with the re5uirements of Article 177:, first paragraph. "n$ C+)#!E9!)C!# of a Partnership &eing a @uridical !ntity a. b.
"ts 1uridical personality is distinct and separate from that of each partners he partnership can, in generalF Ac=uire and possess property "ncur obligations &ring civil or criminal actions Can be ad1udged insolvent despite solvency of the partners 9nless he is personally sued, a partner has no right to male a separate appearance in court, if the partnership being sued is already represented. • • • •
c.
0"?"A"+)# on A0"!) PAR)!R#H"P# a. b. c.
"f the partnership is not at least 4G owned by ilipinos, it cannot ac=uire land by purchase hey may lease land for not more than 22 years hey ma y be mo rtgagees of land for * years, renewable for another * years but they cannot purchase the same in case of foreclosure.
R90!# in Case of Associations )ot 0awfully +rgani:ed as Partnership a. b.
"t possess no legal personality +ne who enter into contract with such partnershipI cannot later on allege the lac; of legal personality of such partnershipI 7!stoppel8
6"!BP+") of Private "ntl 0aw Bhether a partnership has a 1uridical personality or not depends on its national law 5 the law of the place where the partnership was organi:ed. . Art. 176;. -n determining whether a partnership e!ists, these rules shall apply& "1$ '!cept as provided by Article 18:#, persons who are not partners as to each other are not partners as to third persons< ":$ %oownership or copossession does not of itself establish a partnership, whether suchco
"a$ As a debt by installments or otherwise< "b$ As wages of an employee or rent to a landlord< "c$ As an annuity to a widow or representative of a deceased partner< "d$ As interest on a loan, though the amount of payment vary with the profits of the business< "e$ As the consideration for the sale of a goodwill of a business or other property by installments or otherwise. "n$ R!E9"#"!# of !xistence of Partnership "n general, to show the existence of a partnership, all of its essential characteristics must be proved 7see noted under Art $8. "n particular, the following must be provedF a. b. c.
intention to create a partnership contribution to a common fund 1oint interest in the profits
he following, partnershipF a. b.
do
not
by
themselves,
establish
a
co-ownership or co-possession sharing of gross returns 7even with 1oint ownership of the properties involved8
#HAR")< + )! PR+"# a prima facie evidence that a person is a partner !JC!P in the * instances under par ( of Art $2. KRefer also to the rules on partnership by estoppel under Art $/%2L
Art. 177?. A partnership must have a lawful ob9ect or purpose, and must be established for the common benefit or interest of the partners. @hen an unlawful partnership is dissolved by a 9udicial decree, the profits shall be confiscated in favor of the 0tate, without pre9udice to the provisions of the Penal %ode governing the confiscation of the instruments and effects of a crime. "1666a$ he partnership ob1ect or purpose must be lawful. +therwise, it is void ab initio. However, if a partnership has several purposes, one of which is unlawful, the partnership can still validly exist so long as the illegal purpose can be separated from the legal purpose7s8. A 1udicial decree is not necessary to dissolve an unlawful partnership. However, there would be nothing wrong in having the court dissolve the partnership as there may be a =uestion of the lawfulness of the partnership. 7#ee Art $/'48 C+)#!E9!)C!# + 9)0AB90 PAR)!R#H"P $. "t has no legal personality %. he partners forfeit the proceeds or profits, but )+ their contributions, provided no criminal prosecution has been instituted. '. "f the firm is also guilty of a crime, the RPC governs both the criminal liability and the forfeiture of the proceeds of the crime and the instruments or tools with which it was committed.
Art. 1771. A partnership may be constituted in any form, e!cept where immovable property or real rights are contributed thereto, in which case a public instrument shall be necessary. "1667a$ +R?A0""!# in a partnership contract
C0A##""CA"+) + PAR)!R#H"P# a.
b.
c.
d.
e. K)oteF the rules for limited partnerships are differentL An agreement to form a partnership does not of itself create a partnership. #uch agreement should be in writing so as to be enforceable under the statute of frauds if it is to be executed after one year from its ma;ing.
Art. 177:. 'very contract of partnership having a capital of three thousand pesos or more, in money or property, shall appear in a public instrument, which must be recorded in the (ffice of the 0ecurities and '!change %ommission. ailure to comply with the re5uirements of the preceding paragraph shall not affect the liability of the partnership and the members thereof to third persons. "n$ he re=uirement under the article is merely for license purposes and in no way affects the validity of the contract.
Art. 177=. A contract of partnership is void, whenever immovable property is contributed thereto, if an inventory of said property is not made, signed by the parties, and attached to the public instrument. "1668a$ "t has been advanced that both a public instrument embodying the contract and the inventory of the immovables are re=uired to ma;e the contract valid. However, a contrary view is offered that only the absence of said inventory will invalidate a partnership contract in case immovables are contributed. he transfer of land to the partnership must be duly recorded in the Registry of Property to ma;e the transfer effective insofar as third persons are concerned.
f.
As to CR !A "+) $. +rally constituted %. Constituted in a public instrument '. Constituted in a private instrument (. Registered with the #!C As to +&@!C $. 9niversal i. Bith all present property ii. Bith all profits %. Particular As to 0"A&"0" $. 0imited %.
Art. 1776. As to its ob9ect, a partnership is either universal or particular. As regards the liability of the partners, a partnership may be general or limited. "1671a$ Art. 1777. A universal partnership may refer to all the present property or to all the profits. "167:$ Art. 1778. A partnership of all present property is that in which the partners contribute all the property which actually belongs to them to a common fund, with the intention of dividing the same among themselves, as well as all the profits which they may ac5uire therewith. "167=$ he contribution consists ofF $. All the properties actually belonging to the partners %. he profits ac=uired with the said properties
Art. 177;. -n a universal partnership of all present property, the property which belongs to each of the partners at the time of the constitution of the partnership, becomes the common property of all the partners, as well as all the profits which they may ac5uire therewith.
Art. 177>. Any immovable property or an interest therein may be ac5uired in the partnership name. itle so ac5uired can be conveyed only in the partnership name. "n$
A stipulation for the common en9oyment of any other profits may also be made< but the property which the partners may ac5uire subse5uently by inheritance, legacy, or donation cannot be included in such stipulation, e!cept the fruits thereof. "167>a$
Although the article spea;s only of immovables, it also applies to personalty because the partnership is a 1uridical entity, capable of owning and possessing property.
Art. 178?. A universal partnership of profits comprises all that the partners may ac5uire by their industry or wor during the e!istence of the partnership.
Art. 177#. Associations and societies, whose articles are ept secret among the members, and wherein any one of the members may contract in his own name with third persons, shall have no 9uridical personality, and shall be governed by the provisions relating to co ownership. "166;$
4ovable or immovable property which each of the partners may possess at the time of the celebration of the contract shall continue to pertain e!clusively to each, only the usufruct passing to the partnership. "167#$
Associations not Partnerships he absence of legal personality of the association cannot be invo;ed by a partnerI for purposes of evading compliance with obligations "nsofar as innocent third parties are concerned, partnersI can be considered as members of a partnership> &9 as between themselves, or insofar as third persons are pre1udiced, only the rules on co-ownership must apply.
9niversal Partnership +f All Profits 6# +f All Present Property All Profits All Present Property +)0 9#9R9C of the All property actually belonging to properties are each partner is contributed and contributed to the becomes common property owned firm> )a;ed itle is by the partners and the partnership. retained by each of 7#ubse=uent properties should be the partners stipulated upon to form part of the 9sufruct of after- common fundDproperty8 ac=uired properties
may be included by stipulation. All profits ac=uired by the industry or wor; of each partner becomes common property regardless of whether or not said profits were obtained thru the usufruct contributed 7income may be excluded if theres stipulation to that effect8
A# A R90!, aside from the properties contributed, only profits of said properties contributed becomes common property. )+!F Profits from other sources may become common +)0 " there is a stipulation to such effect. Properties subse=uently ac=uired by inheritance, legacy, or donation, cannot be included in the stipulation, &9 the fruits thereof can be included in the stipulation.
Art. 1781. Articles of universal partnership, entered into without specification of its nature, only constitute a universal partnership of profits. "1676$
Art. 1786. 'very partner is a debtor of the partnership for whatever he may have promised to contribute thereto. e shall also be bound for warranty in case of eviction with regard to specific and determinate things which he may have contributed to the partnership, in the same cases and in the same manner as the vendor is bound with respect to the vendee. e shall also be liable for the fruits thereof from the time they should have been delivered, without the need of any demand. "1681a$ hree duties of a partner relative to contributionF $. 3uty to contribute what has been promised %. 3uty to deliver fruits of what should have been delivered '. 3uty to warrant BH!) a partner A"0# to contribute within specified time
ReasonF 0ess obligation is imposed in universal partnership of profits since na;ed ownership is retained by each partner.
the remedy is to collect what was owing, plus damages
Art. 178:. Persons who are prohibited from giving each other any donation or advantage cannot enter into universal partnership. "1677$
!xception 5 when the defaulting partner is dead
!xamplesF a. Husband and wife 5 7Art $''8 b. hose guilty of adultery and concubinage 7Art '28 c. hose guilty of the same criminal offense " the partnership was entered into in consideration of the same 5 Art '2 Partnerships violating Art $/% are null and void, and its nullity may be raised anytime. )o legal personality was ever ac=uired.
Art. 178=. A particular partnership has for its ob9ect determinate things, their use or fruits, or specific undertaing, or the e!ercise of a profession or vocation. "1678$ %AP' : (BL-3A-(*0 ( ' PA*'0 0'%-(* 1. (bligations of the Partners Among hemselves Art. 178>. A partnership begins from the moment of the e!ecution of the contract, unless it is otherwise stipulated. "167;$ - #ub1ect to formalities re=uired An agreement to form a partnership does not of itself results in a partnership. A partnership is consensual. "t may be created even if the contributions are not yet given. 7sub1ect to re=uirements on formalities, of course8
Art. 178#. @hen a partnership for a fi!ed term or particular undertaing is continued after the termination of such term or particular undertaing without any e!press agreement, the rights and duties of the partners remain the same as they were at such termination, so far as is consistent with a partnership at will. A continuation of the business by the partners or such of them as habitually acted therein during the term, without any settlement or li5uidation of the partnership affairs, is prima facie evidence of a continuation of the partnership. "n$ Partnership at will, of two ;indsF $. Bhen there is no term, express or implied %. Bhen a firm is continued beyond the term or after the purpose has been accomplished
Art. 1787. @hen the capital or a part thereof which a partner is bound to contribute consists of goods, their appraisal must be made in the manner prescribed in the contract of partnership, and in the absence of stipulation, it shall be made by e!perts chosen by the partners, and according to current prices, the subse5uent changes thereof being for account of the partnership. "n$ Art. 1788. A partner who has undertaen to contribute a sum of money and fails to do so becomes a debtor for the interest and damages from the time he should have complied with his obligation. he same rule applies to any amount he may have taen from the partnership coffers, and his liability shall begin from the time he converted the amount to his own use. "168:$ "nterest is at the agreed rate> +therwise at legal rate 5 G
Art. 178;. An industrial partner cannot engage in business for himself, unless the partnership e!pressly permits him to do so< and if he should do so, the capitalist partners may either e!clude 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 in either case. "n$ 9nli;e a capitalist partner who cannot engage in a business that would compete with the partnerships business, the industrialist partner is prohibited to engage in any business for himself. hese, however, may be sub1ect to contrary stipulation.
Art. 17;?. 2nless there is a stipulation to the contrary, the partners shall contribute e5ual shares to the capital of the partnership. "n$ Art. 17;1. -f there is no agreement to the contrary, in case of an imminent loss of the business of the partnership, any partner who refuses to contribute an additional share to the capital, e!cept an industrial partner, to save the venture, shall he obliged to sell his interest to the other partners. "n$ BH!) capitalist 7not industrialist8 partner obliged to sell interest to other partners> R!<9"#"!# $. there is imminent loss of the business %. he refuses deliberately, to contribute additional capital '. there is no agreement to the contrary
Art. 17;:. -f a partner authoriCed to manage collects a demandable sum which was owed to him in his own name, from a person who owed the partnership
another sum also demandable, the sum thus collected shall be applied to the two credits in proportion to their amounts, even though he may have given a receipt for his own credit only< but should he have given it for the account of the partnership credit, the amount shall be fully applied to the latter.
on behalf of the partnership and for the corresponding interest, from the time the e!pense are made< it shall also answer to each partner for the obligations he may have contracted in good faith in the interest of the partnership business, and for riss in conse5uence of its management. "1688a$
he provisions of this article are understood to be without pre9udice to the right granted to the other debtor by Article 1:#:, but only if the personal credit of the partner should be more onerous to him. "168>$
- "R?s 7%8 responsibilities to the partners - re=uires good faith on the partners - applies even if there is failure of the enterprise entered into, so long as there is good faith
Re=uisites for applicationF $. the debtor owes the firm A)3 a partner %. both sums are demandable '. the collecting partner is a managing partner
Art. 17;7. he losses and profits shall be distributed in conformity with the agreement. -f 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.
MArt $%*% is on application of payment 5 a right granted to a debtor.
Art. 17;=. A partner who has received, in whole or in part, his share of a partnership credit, when the other partners have not collected theirs, shall be obliged, if the debtor should thereafter become insolvent, to bring to the partnership capital what he received even though he may have given receipt for his share only. "168#a$ 9nli;e Art $2', here, there is only one credit and any partner is concerned not 1ust a managing one. he article does not apply after dissolution of the firm.
Art. 17;>. 'very partner is responsible to the partnership for damages suffered by it through his fault, and he cannot compensate them with the profits and benefits which he may have earned for the partnership by his industry. owever, the courts may e5uitably lessen this responsibility if through the partnerDs e!traordinary efforts in other activities of the partnership, unusual profits have been realiCed. "1686a$ Rule 5 no offsetting of loss and profits caused by a partner &9, mitigation is allowed in case of unusual profits caused. &efore a partner sues another for alleged fraudulent management and resultant damages, li=uidation must first be effected to ;now the extent of the damage.I 7#oncuya v 3e 0una, Phil (8 "f the negligent partner is already dead, suit for recovery may be had against his estate.I 7Po eng Cheo v 0im No am, (( Phil $$%8
Art. 17;#. he ris of specific and determinate things, which are not fungible, contributed to the partnership so that only their use and fruits may be for the common benefit, shall be borne by the partner who owns them. -f the things contribute are fungible, or cannot be ept without deteriorating, or if they were contributed to be sold, the ris shall be borne by the partnership. -n the absence of stipulation, the ris of the things brought and appraised in the inventory, shall also be borne by the partnership, and in such case the claim shall be limited to the value at which they were appraised. "1687$ PAR)!R 7+)B!R8 bears ris; of lossF $. specific and determinate thing where only usufruct is contributed
-n the absence of stipulation, the share of each partner in the profits and losses shall be in proportion to what he may have contributed, but the industrial partner shall not be liable for the losses. As for the profits, the industrial partner shall receive such share as may be 9ust and e5uitable under the circumstances. -f besides his services he has contributed capital, he shall also receive a share in the profits in proportion to his capital. "168;a$ Profit distribution $. Per agreement 7but should not be ini=uitous8 %. Per contribution, if no agreement 0oss sharing $. Per Agreement %. &ased on Profit sharing agreement '. Per contribution ")39#R"A0"# PAR)!R# #HAR! "n profits 5 a 1ust and e=uitable share " he is also a capitalist partner, he shares according to rules on profit sharing. H+B!6!R, he does not share in the losses 9)0!## there is contrary stipulation.
Art. 17;8. -f the partners have agreed to intrust to a third person the designation of the share of each one in the profits and losses, such designation may be impugned only when it is manifestly ine5uitable. -n no case may a partner who has begun to e!ecute the decision of the third person, or who has not impugned the same within a period of three months from the time he had nowledge thereof, complain of such decision. he designation of losses and profits intrusted to one of the partners. "16;?$
cannot be
Bhen designation by third party cannot be impugned by a partner even if manifestly ine=uitableF $. aggrieved partner has already begun to execute it> +R %. he has not impugned the same within three months from his ;nowledge thereof
Art. 17;;. A stipulation which e!cludes one or more partners from any share in the profits or losses is void. "16;1$ he industrialist partner is exempeted from losses 9)0!## there is contrary stipulation
"R? bears ris;F $. ungible or deteriorable things %. hings contributed to be sold '. hings Contributed and appraised in the inventory 9)0!## there is contrary stipulation
Art. 18??. he partner who has been appointed manager in the articles of partnership may e!ecute all acts of administration despite the opposition of his partners, unless he should act in bad faith< and his power is irrevocable without 9ust or lawful cause. he vote of the partners representing the controlling interest shall be necessary for such revocation of power.
Art. 17;6. he partnership shall be responsible to every partner for the amounts he may have disbursed
A power granted after the partnership has been constituted may be revoed at any time. "16;:a$
Appointment of ?anager, % ?odesF $. in the articles of partnership %. in another instrument or orally Appointed in the Articles of Partnershp 7a8 Power is irrevocable without 1ust or lawful cause - to remove him for @9# cause, vote of the controlling 7financial8 interest is re=uired - to remove him B+H+9 CA9#!, 7or for an un1ust one8, unanimity is re=uired 7including his own vote8 7b8 extent of powerF - " he acts in <++3 A"H, he may do all acts of A3?")"#RA"+) despite opposition of other partners - " he acts in &A3 A"H, he may not do so 7opposition of other partners is 1ustified and he may not do the act so opposed8 Appointment in other mode 7a8 Power to act may be revo;ed at anytime, with or without 1ust cause. - removal is by vote of controlling 7financial8 interest - the controlling interest should not abuse such right, otherwise, damages are recoverable from them under Art $2 and %4 7b8 !xtent of power As long as he is manager, he can do all acts of A3?")"#RA"+), but if the others oppose, and he persists, he can be removed
Art. 18?1. -f two or more partners have been intrusted with the management of the partnership without specification of their respective duties, or without a stipulation that one of them shall not act without the consent of all the others, each one may separately e!ecute all acts of administration, but if any of them should oppose the acts of the others, the decision of the ma9ority shall prevail. -n case of a tie, the matter shall be decided by the partners owning the controlling interest. "16;=a$ Applicability of the ArticleF Rules $. %.
two or more managing partners no specification of respective duties no stipulation re=uiring unanimity
!ach may perform all acts of A3?")"#RA"+)# "f there is opposition, ma1ority prevails "n case of tie, those with the controlling interest prevail provided they are also managers
H+B!6!R, opposition should be before the acts produce legal effects insofar as third persons are concerned
Art. 18?:. -n case it should have been stipulated that none of the managing partners shall act without the consent of the others, the concurrence of all shall be necessary for the validity of the acts, and the absence or disability of any one of them cannot be alleged, unless there is imminent danger of grave or irreparable in9ury to the partnership. "16;>$ Art. 18?=. @hen the manner of management has not been agreed upon, the following rules shall be observed& "1$ All the partners shall be considered agents and whatever any one of them may do alone shall bind the partnership, without pre9udice to the provisions of Article 18?1. ":$ *one of the partners may, without the consent of the others, mae any important alteration in the immovable property of the partnership, even if it may be useful to the partnership. But if the refusal of consent by the other partners is manifestly pre9udicial to
the interest of the partnership, the courtDs intervention may be sought. "16;#a$ BH!) manner of management is not agreed upon, each partner is, generally, an agent of the firm and of all partners. However, if there is opposition, ma1ority prevails. Bhen a partner acts in his own name, he does not bind the partnership, generally, unless there is ratification of his act or there is implied ac=uiescence. 9nanimity is re=uired for alteration of immovable but if the refusal to give consent, express or implied, is manifestly pre1udicial to the firm, court intervention may be sought.
Art. 18?>. 'very partner may associate another person with him in his share, but the associate shall not be admitted into the partnership without the consent of all the other partners, even if the partner having an associate should be a manager. "16;6$ - right of a partner to have an associate in his share Art. 18?#. he partnership boos shall be ept, sub9ect to any agreement between the partners, at the principal place of business of the partnership, and every partner shall at any reasonable hour have access to and may inspect and copy any of them. "n$ - applies only to a going partnershipI and not to one pending dissolution 7where right depends on courts discretion8 nor to one already dissolved. Partnership boo;s constitute an admission of the facts stated therein. he only way out is to prove that the entries had been places therein as a result of fraud or mista;e, which of course must be proved.
Art. 18?6. Partners shall render on demand true and full information of all things affecting the partnership to any partner or the legal representative of any deceased partner or of any partner under legal disability. "n$ - 3uty and right of partners to give true information Bho may demand informationF $. any partner %. legal representatives of a dead partner '. legal representative of a partner under legal disability
Art. 18?7. 'very partner must account to the partnership for any benefit, and hold as trustee for it any profits derived by him without the consent of the other partners from any transaction connected with the formation, conduct, or li5uidation of the partnership or from any use by him of its property. "n$ - Partners 3uty to account rust relations end with the death of the firm 9)0!## the foundation for the breach of trust tool place even during the existence of the firm.
Art. 18?8. he capitalist partners cannot engage for their own account in any operation which is of the ind of business in which the partnership is engaged, unless there is a stipulation to the contrary. Any capitalist partner violating this prohibition shall bring to the common funds any profits accruing to him from his transactions, and shall personally bear all the losses. "n$ A capitalist partner may also engage in competitive business if expressly allowed by the other partners or even impliedly as in where all of them violate the rule. "f a partner who is a limited partner in another competitive business is not covered by the prohibition for in the competitive business, he does not manage being a limited partner only.
A# to the effect of violation, it is submitted that any losses shall be deducted from profits before they are delivered to the firm.
Art. 18?;. Any partner shall have the right to a formal account as to partnership affairs& "1$ -f he is wrongfully e!cluded from the partnership business or possession of its property by his copartners< ":$ -f the right e!ists under the terms of any agreement< "=$ As provided by article 18?7< ">$ @henever other circumstances render it 9ust and reasonable. "n$
of the partnership, the assignee may avail himself of the usual remedies. -n case of a dissolution of the partnership, the assignee is entitled to receive his assignorDs interest and may re5uire an account from the date only of the last account agreed to by all the partners. "n$ Conveyance 7sale, assignment, donation8 by a partner of his whole interest may or may not dissolve a partnership but generally, it remains. he assignee does not become a partner. he assignor still is the partner. Assignee cannot interfere in the management or administration of the partnership businessDaffairs Assignee cannot demandF a. information b. accountingM c. inspection of the partnership boo;s Msub1ect to exception 7infra8
0'%-(* :. Property ights of a Partner Art. 181?. he property rights of a partner are& "1$ is rights in specific partnership property< ":$ is interest in the partnership< and "=$ is right to participate in the management. "n$ Art. 1811. A partner is coowner with his partners of specific partnership property. he incidents of this coownership are such that& "1$ A partner, sub9ect to the provisions of this itle and to any agreement between the partners, has an e5ual right with his partners to possess specific partnership property for partnership purposes< but he has no right to possess such property for any other purpose without the consent of his partners< ":$ A partnerDs right in specific partnership property is not assignable e!cept in connection with the assignment of rights of all the partners in the same property< "=$ A partnerDs right in specific partnership property is not sub9ect to attachment or e!ecution, e!cept on a claim against the partnership. @hen partnership property is attached for a partnership debt the partners, or any of them, or the representatives of a deceased partner, cannot claim any right under the homestead or e!emption laws< ">$ A partnerDs right in specific partnership property is not sub9ect to legal support under Article :;1. "n$ An assignment in violation of Par 7%8 is 6+"3
Art. 181:. A partnerDs interest in the partnership is his share of the profits and surplus. "n$ #uch share can, in general, be attached, assigned, or sub1ect to legal support.
Art. 181=. A conveyance by a partner of his whole interest in the partnership does not of itself dissolve the partnership, or, as against the other partners in the absence of agreement, entitle the assignee, during the continuance of the partnership, to interfere in the management or administration of the partnership business or affairs, or to re5uire any information or account of partnership transactions, or to inspect the partnership boos< but it merely entitles the assignee to receive in accordance with his contract the profits to which the assigning partner would otherwise be entitled. owever, in case of fraud in the management
R"
to get whatever profits the assignor-partner would have obtained b. to avail himself of the usual remedies in case of fraud in management c. to as; for annulment of assignment in case his consent was procured by vice d. to demand accounting if the partnership is dissolved but only covering the period from the date of the last accounting made R90! in case of ?ortgage Art $/$' also covers a case when the partner merely mortgage his interest. &ut said interest is not alienated> it is merely given as security, and the rules on securities for loans, etc, can properly apply.
Art. 181>. @ithout pre9udice to the preferred rights of partnership creditors under Article 18:7, on due application to a competent court by any 9udgment creditor of a partner, the court which entered the 9udgment, or any other court, may charge the interest of the debtor partner with payment of the unsatisfied amount of such 9udgment debt with interest thereon< 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 him in respect of the partnership, and mae all other orders, directions, accounts and in5uiries which the debtor partner might have made, or which the circumstances of the case may re5uire. he interest charged may be redeemed at any time before foreclosure, or in case of a sale being directed by the court, may be purchased without thereby causing a dissolution& "1$ @ith separate property, by any one or more of the partners< or ":$ @ith partnership property, by any one or more of the partners with the consent of all the partners whose interests are not so charged or sold. *othing in this itle shall be held to deprive a partner of his right, if any, under the e!emption laws, as regards his interest in the partnership. "n$ he article provides for the charging of the interest of a partner in favor of a personal creditor of said partner. his is, however, without pre1udice to the right of partnership creditors, meaning, partnership creditors are prioriti:ed over partners personal creditors who shall only receive after all firm creditors are paid. husF a.
Partnership creditors have preference in partnership assets
b.
#eparate or individual creditors have preference over separate or individual properties
R!C!"6!R#H"P a. b.
he court ?A appoint a receiver of the partners share in the PR+"# or other ?+)! due him he receiver is entited to any relief necessary to conserve the partnership assets for partnershippurposes
Redemption of "nterest charged a.
he charge may be redeemed or bought at any time &!+R! foreclosure b. A!R foreclosure, it may still be boughtI with separate property 7of any partner7s88 +R with partnership property 7with consent of all the +H!R partners8 )ote that with respect to his ")!R!# in the partnership 7not interest in partnership property8 a partner may avail himself of exemption laws 7e.g. insolvency laws, C provisions8
An act of a partner which is not apparently for the carrying on of business of the partnership in the usual way does not bind the partnership unless authoriCed by the other partners. '!cept when authoriCed by the other partners or unless they have abandoned the business, one or more but less than all the partners have no authority to& "1$ Assign the partnership property in trust for creditors or on the assigneeDs promise to pay the debts of the partnership< ":$ +ispose of the goodwill of the business< "=$ +o any other act which would mae it impossible to carry on the ordinary business of a partnership< ">$ %onfess a 9udgment< "#$ 'nter into a compromise concerning a partnership claim or liability< "6$ 0ubmit a partnership claim or liability to arbitration< "7$ enounce a claim of the partnership. *o act of a partner in contravention of a restriction on authority shall bind the partnership to persons having nowledge of the restriction. "n$
0'%-(* =. (bligations of the Partners @ith egard to hird Persons Art. 181#. 'very partnership shall operate under a firm name, which may or may not include the name of one or more of the partners.
BH!) A PAR)!R CA) &")3 H! PAR)!R#H"P a. b.
when he is expressly or impliedly authori:ed when he acts in behalf and in the name of the partnership
"nstances of implied authori:ationF
hose who, not being members of the partnership, include their names in the firm name, shall be sub9ect to the liability of a partner. "n$
$. %.
he non-members referred to in par 7%8 do not have rights of a partner.
other partners do not ob1ect despite when the act is for apparently carrying on in the usual way the business of the partnership and the third party is in good faith
BH!) AC + PAR)!R 3+!# )+ &")3 H! "R?
Art. 1816. All partners, including industrial ones, shall be liable pro rata with all their property and after all the partnership assets have been e!hausted, for the contracts which may be entered into in the name and for the account of the partnership, under its signature and by a person authoriCed to act for the partnership. owever, any partner may enter into a separate obligation to perform a partnership contract. "n$ Bhile an industrial partner is exempted from losses, he is not so as regards liability to third persons. he liability of the partners is subsidiary and 1oint, not principal and solidary. Partners will be personally liable, 1ointly or pro rata, only after partnership assets have been exhausted. !ven the industrial partner shall pay but he can recover from the capitalist partners unless there is contrary agreement. "f a partner share in the liability is remitted, the liability of the other partners shall not be affected.
Art. 1817. Any stipulation against the liability laid down in the preceding article shall be void, e!cept as among the partners. "n$ Harmoni:ed with Art $22F "t is permissible to stipulate that as among partners, a capitalist partner will be exempted from liability in excess of his original capital contribution but will not be exempted insofar as his capital is concerned.
Art. 1818. 'very partner is an agent of the partnership for the purpose of its business, and the act of every partner, including the e!ecution in the partnership name of any instrument, for apparently carrying on in the usual way the business of the partnership of which he is a member binds the partnership, unless the partner so acting has in fact no authority to act for the partnership in the particular matter, and the person with whom he is dealing has nowledge of the fact that he has no such authority.
a.
b.
while the act is apparently for carrying on in the usual way the business of the firmI but the third party is in bad faith 7i.e. he ;nows the lac; of authority of the acting partner8 Bhen the act is not for apparently carrying on in the usual way the business of the firm A)3 the partner acting has no authority
he Acts enumerated in Art $/$/ are acts of ownership and therefore re=uires that the authority be unanimous except if the business has been abandoned.
Art. 181;. @here title to real property is in the partnership name, any partner may convey title to such property by a conveyance e!ecuted in the partnership name< but the partnership may recover such property unless the partnerDs act binds the partnership under the provisions of the first paragraph of article 1818, or unless such property has been conveyed by the grantee or a person claiming through such grantee to a holder for value without nowledge that the partner, in maing the conveyance, has e!ceeded his authority. @here title to real property is in the name of the partnership, a conveyance e!ecuted by a partner, in his own name, passes the e5uitable interest of the partnership, provided the act is one within the authority of the partner under the provisions of the first paragraph of Article 1818. @here title to real property is in the name of one or more but not all the partners, and the record does not disclose the right of the partnership, the partners in whose name the title stands may convey title to such property, but the partnership may recover such property if the partnersD act does not bind the partnership under the provisions of the first paragraph of Article 1818, unless the purchaser or his assignee, is a holder for value, without nowledge.
@here the title to real property is in the name of one or more or all the partners, or in a third person in trust for the partnership, a conveyance e!ecuted by a partner in the partnership name, or in his own name, passes the e5uitable interest of the partnership, provided the act is one within the authority of the partner under the provisions of the first paragraph of Article 1818.
partner acting in the particular matter, ac5uired while a partner or then present to his mind, and the nowledge of any other partner who reasonably could and should have communicated it to the acting partner, operate as notice to or nowledge of the partnership, e!cept in the case of fraud on the partnership, committed by or with the consent of that partner. "n$ )+"C!
@here the title to real property is in the name of all the partners a conveyance e!ecuted by all the partners passes all their rights in such property. "n$ !=uitable interest, as used in Art $/$2, is all interest which the partnership had except title.
"n general, notice to a partner is notice to the firm PR+6"3!3 it relates to partnership affairs. 7"t does not matter whether he is acting in any particular matter or not. !xceptionF case of fraud on the firm committed by or with consent of said partner with notice.
Par $, explained
N)+B0!3
+nly a partner authori:ed to convey the real property may convey it so but under the partnership name so as to effectively pass title to the transferee. +therwise, the frim may recovery the realty.
Nnowledge of a partner is ;nowledge to the firm, PR+6"3!3F
"f the partner is not authori:ed, still, the partnership cannot recover the realty if the transferee subse=uently transferred it to another purchaser for value and in good faith.
a.
b.
Par %, explained #ince the realty is in the firm name, title can never be passed to any person by coveyance in the name of an authori:ed partner. +nly the e=uitable interest is passed. "f the partner is not even authori:ed, not even e=uitable title is passed. he transferee ac=uires nothing. Par ', explained he same rules apply as in Par $. he only difference is that the realty is in the name of one or some 7but not all8 partners who were also the ones who conveyed the realty. hus, the realty is treated as in the name of the firm even though the firms title was not disclosed in the records. he presumption is that the firm has the beneficial interest of the realty granting the fact that it was contributed to it or ac=uired by it.
Art. 18::. @here, by any wrongful act or omission of any partner acting in the ordinary course of the business of the partnership or with the authority of co partners, loss or in9ury is caused to any person, not being a partner in the partnership, or any penalty is incurred, the partnership is liable therefor to the same e!tent as the partner so acting or omitting to act. "n$ he partners, as well as the firm, are liable in solidum, without pre1udice to their right to recover from the guilty partner. Bhen the irm and other partners 7not guilty8 are not liableF a.
Par (, explained. he realty is held in trust for the firm. +nly the e=uitable title is passed to the transferee provided the partner so conveying has authority. "f he has no authority, nothing is ac=uired by the transferee. Par *, explained "f the realty is in the name of all partners, not in the name of the firm, then naturally, their unanimous decision to convey is simply an act of their ownership and the firm could no longer recover said realty.
Art. 18:?. An admission or representation made by any partner concerning partnership affairs within the scope of his authority in accordance with this itle is evidence against the partnership. "n$ Admission by a partner, is generally an admission against the partnership under the ff conditionsF a. admission concerns partnership affairs b. within the scope of admitting partners authority Restrictions a.
b.
Admissions made &!+R! dissolution are binding only when the partner has authority to act on the particular matter Admissions made A!R dissolution are binding only " the admissions were necessary to wind up the business
Art. 18:1. *otice to any partner of any matter relating to partnership affairs, and the nowledge of the
partner with ;nowledge is acting on the particular matter involved 7;nowledge may be ac=uired before or after having become a partner as long as such is still present to his m indI8> +R partner with ;nowledge though not acting in that particular matter could have communicated it to the partner acting on that particular matter. 7here, ;nowledge must be ac=uired when already a partner8
b. c. d.
"f act or omission is without authority or not done within the scope of the firm business "f the act or omission is not wrongful "f the act or omission did not ma;e the partner concerned liable himself. "f the act or omission was committed after dissolution and not in connection with the process of winding up.
Art. 18:=. he partnership is bound to mae good the loss& "1$ @here one partner acting within the scope of his apparent authority receives money or property of a third person and misapplies it< and ":$ @here the partnership in the course of its business receives money or property of a third person and the money or property so received is misapplied by any partner while it is in the custody of the partnership. "n$ "n par 7$8 misappropriation is by the receiving partner> in 7%8, the culprit may be any partner. he effect are the same 7see Art $/%(8
Art. 18:>. All partners are liable solidarily with the partnership for everything chargeable to the partnership under Articles 18:: and 18:=. "n$ 9nli;e in contractual obligations where liability of the partners is 1oint, in torts and crimes, the liability is solidary with the firm.
Art. 18:#. @hen a person, by words spoen or written or by conduct, represents himself, or consents to another representing him to anyone, as a partner in an e!isting partnership or with one or more persons not actual partners, he is liable to any such persons to
whom such representation has been made, who has, on the faith of such representation, given credit to the actual or apparent partnership, and if he has made such representation or consented to its being made in a public manner he is liable to such person, whether the representation has or has not been made or communicated to such person so giving credit by or with the nowledge of the apparent partner maing the representation or consenting to its being made& "1$ @hen a partnership liability results, he is liable as though he were an actual member of the partnership< ":$ @hen no partnership liability results, he is liable pro rata with the other persons, if any, so consenting to the contract or representation as to incur liability, otherwise separately. @hen a person has been thus represented to be a partner in an e!isting partnership, or with one or more persons not actual partners, he is an agent of the persons consenting to such representation to bind them to the same e!tent and in the same manner as though he were a partner in fact, with respect to persons who rely upon the representation. @hen all the members of the e!isting partnership consent to the representation, a partnership act or obligation results< but in all other cases it is the 9oint act or obligation of the person acting and the persons consenting to the representation. "n$ Partnership by estoppel and Partnership by estoppel !ffectsF $.
%.
'.
in case there is truly an existing partnership, the partner by estoppel is liable to deceived people but ac=uires not rights as a partner. the partner by estoppel as well as those who aided him in the misrepresentation, whether partners or not in an actual firm if there be one, are also liable the liability to those who are deceived is 1oint or pro rata
he creditor or any person who alleges the existence of a partner or partnership by estoppel has the burden of proving such misrepresentations and his innocent reliance thereto.
Art. 18:6. A person admitted as a partner into an e!isting partnership is liable for all the obligations of the partnership arising before his admission as though he had been a partner when such obligations were incurred, e!cept that this liability shall be satisfied only out of partnership property, unless there is a stipulation to the contrary. "n$
Binding up - is the process of settling business affairs after dissolution. 7e.g. paying of previous obligations, collecting assets previously demandable8 ermination - is the point in time after all the partnership affairs have been wound up.
Art.
18=?.
+issolution
is
caused&
"1$ @ithout violation of the agreement between the partners& "a$ By the termination of the definite term or particular undertaing specified in the agreement< "b$ By the e!press will of any partner, who must act in good faith, when no definite term or particular is specified< "c$ By the e!press will of all the partners who have not assigned their interests or suffered them to be charged for their separate debts, either before or after the termination of any specified term or particular undertaing< "d$ By the e!pulsion of any partner from the business bona fide in accordance with such a power conferred by the agreement between the partners< ":$ -n contravention of the agreement between the partners, where the circumstances do not permit a dissolution under any other provision of this article, by the e!press will of any partner at any time< "=$ By any event which maes it unlawful for the business of the partnership to be carried on or for the members to carry it on in partnership< ">$ @hen a specific thing which a partner had promised to contribute to the partnership, perishes before the delivery< in any case by the loss of the thing, when the partner who contributed it having reserved the ownership thereof, has only transferred to the partnership the use or en9oyment of the same< but the partnership shall not be dissolved by the loss of the thing when it occurs after the partnership has ac5uired the ownership thereof< "#$ By the death of any partner< "6$ By the insolvency of any partner or of the partnership< "7$ By the civil interdiction of any partner< "8$ By decree of court under the following article. "17??a and 17?1a$ CA9#!# + "R? 3"##+09"+) $. Bithout violation of agreementF
As regards firm obligations prior to his admission, a new partner is only liable thereto to the extent of his contribution. His separate properties cannot be affected 9)0!## there is contrary stipulation.
Art. 18:7. he creditors of the partnership shall be preferred to those of each partner as regards the partnership property. @ithout pre9udice to this right, the private creditors of each partner may as the attachment and public sale of the share of the latter in the partnership assets. "n$
a.
b.
c. d.
%AP' = +-00(L2-(* A*+ @-*+-*3 2P Art. 18:8. he 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. "n$ Art. 18:;. (n dissolution the partnership is not terminated, but continues until the winding up of partnership affairs is completed. "n$ 3issolution - is the change in the relation of the partners caused by any partner ceasing to be associated with the firm.
termination of a. def inite te rm b. specific underta;ing Here, if the firm is continued, it becomes a partnership at will express will of a partner in good faith, if there is no term or specific underta;ing. 7if he insists on leaving in bad faith, he may be liable for damages8 express will of all partners 7except those who have assigned or cause there interest to be charged8 expulsion of a partner in good faith 7"f in bad faith, there can also be eventual dissolution8
%. 6iolation of Agreement- a partner expressly withdrawing despite an agreement 7li;e term or underta;ing8. #aid partner is liable for damages '. "llegality of the business or illegality of the business in the form of a partnership (. 0+## a. "f a specific thing promised as contribution is lost before delivery b. "f only the usufruct of thing is c ontributed and the thing is lost before or after delivery
*. 3eath of any partner - there is automatic dissolution> but no automatic termination Partial dissolution 5 business is continued by other partners otal dissolution 5 firm is terminated . "nsolvency of a. any partner> +R b. of the firm - there is no need for 1udicial decree of dissolution . Civil interdiction of any partner /. 3ecree of c ourt 5 by final 1udgment 7see Art $/'$8 )+!F the partners cannot decrease or limit the causes of dissolution
Art. 18=1. (n application by or for a partner the court shall decree a dissolution whenever& "1$ A partner has been declared insane in any 9udicial proceeding or is shown to be of unsound mind< ":$ A partner becomes in any other way incapable of performing his part of the partnership contract< "=$ A partner has been guilty of such conduct as tends to affect pre9udicially the carrying on of the business< ">$ A partner wilfully or persistently commits a breach of the partnership agreement, or otherwise so conducts himself in matters relating to the partnership business that it is not reasonably practicable to carry on the business in partnership with him< "#$ he business of the partnership can only be carried on at a loss< "6$ (ther circumstances render a dissolution e5uitable. (n the application of the purchaser of a partnerDs interest under Article 181= or 181>& "1$ After the termination of the specified term or particular undertaing< ":$ At any time if the partnership was a partnership at will when the interest was assigned or when the charging order was issued. "n$ "n a suit for dissolution, proof as t the existence of the firm must first be given. Bho Ca #ue for 3issolutionF a. b.
A partner for the first 78 causes enumerated A purchaser of a partners interest under Art $/$' and $/$(, provided the re=uisites given are complied withF a. erm of the firm has expired> or b. "f a partnership at will, the interest of the partner was assigned or charged
"n a suit for dissolution, the court may appoint a receiver at its discretion. he time of dissolution is at the time the 1udicial decree becomes final.
Art. 18=:. '!cept so far as may be necessary to wind up partnership affairs or to complete transactions begun but not then finished, dissolution terminates all authority of any partner to act for the partnership& "1$ @ith respect to the partners& "a$ @hen the dissolution is not by the act, insolvency or death of a partner< or "b$ @hen the dissolution is by such act, insolvency or death of a partner, in cases where article 18== so re5uires<
":$ @ith respect to persons not partners, as declared in article 18=>. "n$
Art. 18==. @here the dissolution is caused by the act, death or insolvency of a partner, each partner is liable to his copartners for his share of any liability created by any partner acting for the partnership as if the partnership had not been dissolved unless& "1$ he dissolution being by act of any partner, the partner acting for the partnership had nowledge of the dissolution< or ":$ he dissolution being by the death or insolvency of a partner, the partner acting for the partnership had nowledge or notice of the death or insolvency. Art. 18=>. After dissolution, a partner can bind the partnership, e!cept as provided in the third paragraph of this article& "1$ By any act appropriate for winding up partnership affairs or completing transactions unfinished at dissolution< ":$ By any transaction which would bind the partnership if dissolution had not taen place, provided the other party to the transaction& "a$ ad e!tended credit to the partnership prior to dissolution and had no nowledge or notice of the dissolution< or "b$ hough he had not so e!tended credit, had nevertheless nown of the partnership prior to dissolution, and, having no nowledge or notice of dissolution, the fact of dissolution had not been advertised in a newspaper of general circulation in the place "or in each place if more than one$ at which the partnership business was regularly carried on. he liability of a partner under the first paragraph, *o. :, shall be satisfied out of partnership assets alone when such partner had been prior to dissolution& "1$ 2nnown as a partner to the person with whom the contract is made< and ":$ 0o far unnown and inactive in partnership affairs that the business reputation of the partnership could not be said to have been in any degree due to his connection with it. he partnership is in no case bound by any act of a partner after dissolution& "1$ @here the partnership is dissolved because it is unlawful to carry on the business, unless the act is appropriate for winding up partnership affairs< or ":$ @here the partner has become insolvent< or "=$ @here the partner has no authority to wind up partnership affairs< e!cept by a transaction with one who& "a$ ad e!tended credit to the partnership prior to dissolution and had no nowledge or notice of his want of authority< or "b$ ad not e!tended credit to the partnership prior to dissolution, and, having no nowledge or notice of his want of authority, the fact of his want of authority has not been advertised in the manner provided for advertising the fact of dissolution in the first paragraph, *o. : "b$. *othing in this article shall affect the liability under Article 18:# of any person who, after dissolution, represents himself or consents to another
representing him as a partner engaged in carrying business. "n$
in
a
partnership
Art. 18=#. he dissolution of the partnership does not of itself discharge the e!isting liability of any partner.
paragraph, *o. 1 "b$ of this article, and in lie manner indemnify him against all present or future partnership liabilities. "=$ A partner who has caused the dissolution wrongfully shall have&
A partner is discharged from any e!isting liability upon dissolution of the partnership by an agreement to that effect between himself, the partnership creditor and the person or partnership continuing the business< and such agreement may be inferred from the course of dealing between the creditor having nowledge of the dissolution and the person or partnership continuing the business.
"a$ -f the business is not continued under the provisions of the second paragraph, *o. :, all the rights of a partner under the first paragraph, sub9ect to liability for damages in the second paragraph, *o. 1 "b$, of this article. "b$ -f the business is continued under the second paragraph, *o. :, of this article, the right as against his co partners and all claiming through them in respect of their interests in the partnership, to have the value of his interest in the partnership, less any damage caused to his copartners by the dissolution, ascertained and paid to him in cash, or the payment secured by a bond approved by the court, and to be released from all e!isting liabilities of the partnership< but in ascertaining the value of the partnerDs interest the value of the goodwill of the business shall not be considered. "n$
he individual property of a deceased partner shall be liable for all obligations of the partnership incurred while he was a partner, but sub9ect to the prior payment of his separate debts. "n$ 9pon dissolution, a partner may be discharged of his liability by agreement of him, other partners, and the creditor.
Art. 18=6. 2nless otherwise agreed, the partners who have not wrongfully dissolved the partnership or the legal representative of the last surviving partner, not insolvent, has the right to wind up the partnership affairs, provided, however, that any partner, his legal representative or his assignee, upon cause shown, may obtain winding up by the court. "n$ @H+ has right to wind up firm affairs a. !xtra1udiciallyF i. partners who have not wrongfully dissolved the firm ii. +R legal representatives of the last surviving partner who is not insolvent b. @udicially - under the control and direction of the court, upon proper cause shown to the court, a person shall be appointed 5 a surviving partner
Art. 18=7. @hen dissolution is caused in any way, e!cept in contravention of the partnership agreement, each partner, as against his copartners and all persons claiming through them in respect of their interests in the partnership, unless otherwise agreed, may have the partnership property applied to discharge its liabilities, and the surplus applied to pay in cash the net amount owing to the respective partners. But if dissolution is caused by e!pulsion of a partner, bona fide under the partnership agreement and if the e!pelled partner is discharged from all partnership liabilities, either by payment or agreement under the second paragraph of Article 18=#, he shall receive in cash only the net amount due him from the partnership. @hen dissolution is caused in contravention of the partnership agreement the rights of the partners shall be as follows& "1$ 'ach partner who has not caused dissolution wrongfully shall have& "a$ All the rights specified in the first paragraph of this article, and "b$ he right, as against each partner who has caused the dissolution wrongfully, to damages breach of the agreement. ":$ he partners who have not caused the dissolution wrongfully, if they all desire to continue the business in the same name either by themselves or 9ointly with others, may do so, during the agreed term for the partnership and for that purpose may possess the partnership property, provided they secure the payment by bond approved by the court, or pay any partner who has caused the dissolution wrongfully, the value of his interest in the partnership at the dissolution, less any damages recoverable under the second
Art. 18=8. @here a partnership contract is rescinded on the ground of the fraud or misrepresentation of one of the parties thereto, the party entitled to rescind is, without pre9udice to any other right, entitled& "1$ o a lien on, or right of retention of, the surplus of the partnership property after satisfying the partnership liabilities to third persons for any sum of money paid by him for the purchase of an interest in the partnership and for any capital or advances contributed by him< ":$ o stand, after all liabilities to third persons have been satisfied, in the place of the creditors of the partnership for any payments made by him in respect of the partnership liabilities< and "=$ o be indemnified by the person guilty of the fraud or maing the representation against all debts and liabilities of the partnership. "n$ hree Rights of a person who has right to annulI the firm $. %. '.
0ien or retention subrogation indemnification
Art. 18=;. -n settling accounts between the partners after dissolution, the following rules shall be observed, sub9ect to any agreement to the contrary& "1$ he assets of the partnership are& "a$ he partnership property, "b$ he contributions of the partners necessary for the payment of all the liabilities specified in *o. :. ":$ he liabilities of the partnership shall ran in order of payment, as follows& "a$ hose owing to creditors other than partners, "b$ hose owing to partners other than for capital and profits, "c$ hose owing to partners in respect of capital, "d$ hose owing to partners in respect of profits. "=$ he assets shall be applied in the order of their declaration in *o. 1 of this article to the satisfaction of the liabilities.
">$ he partners shall contribute, as provided by article 17;7, the amount necessary to satisfy the liabilities. "#$ An assignee for the benefit of creditors or any person appointed by the court shall have the right to enforce the contributions specified in the preceding number. "6$ Any partner or his legal representative shall have the right to enforce the contributions specified in *o. >, to the e!tent of the amount which he has paid in e!cess of his share of the liability. "7$ he individual property of a deceased partner shall be liable for the contributions specified in *o. >. "8$ @hen partnership property and the individual properties of the partners are in possession of a court for distribution, partnership creditors shall have priority on partnership property and separate creditors on individual property, saving the rights of lien or secured creditors. ";$ @here a partner has become insolvent or his estate is insolvent, the claims against his separate property shall ran in the following order& "a$ hose owing to separate creditors< "b$ hose owing to partnership creditors< "c$ hose owing to partners by way of contribution. "n$ Art. 18>?. -n the following cases creditors of the dissolved partnership are also creditors of the person or partnership continuing the business& "1$ @hen any new partner is admitted into an e!isting partnership, or when any partner retires and assigns "or the representative of the deceased partner assigns$ his rights in partnership property to two or more of the partners, or to one or more of the partners and one or more third persons, if the business is continued without li5uidation of the partnership affairs< ":$ @hen all but one partner retire and assign "or the representative of a deceased partner assigns$ their rights in partnership property to the remaining partner, who continues the business without li5uidation of partnership affairs, either alone or with others< "=$ @hen any partner retires or dies and the business of the dissolved partnership is continued as set forth in *os. 1 and : of this article, with the consent of the retired partners or the representative of the deceased partner, but without any assignment of his right in partnership property< ">$ @hen all the partners or their representatives assign their rights in partnership property to one or more third persons who promise to pay the debts and who continue the business of the dissolved partnership< "#$ @hen any partner wrongfully causes a dissolution and the remaining partners continue the business under the provisions of article 18=7, second paragraph, *o. :, either alone or with others, and without li5uidation of the partnership affairs< "6$ @hen a partner is e!pelled and the remaining partners continue the business either alone or with others without li5uidation of the partnership affairs. he liability of a third person becoming a partner in the partnership continuing the business, under this article, to the creditors of the dissolved partnership shall be satisfied out of the partnership property only, unless there is a stipulation to the contrary. @hen the business of a partnership after dissolution is continued under any conditions set forth in this article
the creditors of the dissolved partnership, as against the separate creditors of the retiring or deceased partner or the representative of the deceased partner, have a prior right to any claim of the retired partner or the representative of the deceased partner against the person or partnership continuing the business, on account of the retired or deceased partnerDs interest in the dissolved partnership or on account of any consideration promised for such interest or for his right in partnership property. *othing in this article shall be held to modify any right of creditors to set aside any assignment on the ground of fraud. he use by the person or partnership continuing the business of the partnership name, or the name of a deceased partner as part thereof, shall not of itself mae the individual property of the deceased partner liable for any debts contracted by such person or partnership. "n$ Art. 18>1. @hen any partner retires or dies, and the business is continued under any of the conditions set forth in the preceding article, or in Article 18=7, second paragraph, *o. :, without any settlement of accounts as between him or his estate and the person or partnership continuing the business, unless otherwise agreed, he or his legal representative as against such person or partnership may have the value of his interest at the date of dissolution ascertained, and shall receive as an ordinary creditor an amount e5ual to the value of his interest in the dissolved partnership with interest, or, at his option or at the option of his legal representative, in lieu of interest, the profits attributable to the use of his right in the property of the dissolved partnership< provided that the creditors of the dissolved partnership as against the separate creditors, or the representative of the retired or deceased partner, shall have priority on any claim arising under this article, as provided Article 18>?, third paragraph. "n$ Art. 18>:. he right to an account of his interest shall accrue to any partner, or his legal representative as against the winding up partners or the surviving partners or the person or partnership continuing the business, at the date of dissolution, in the absence of any agreement to the contrary. "n$ CHAP!R ( 0"?"!3 PAR)!R#H"P 7n8 Art. $/('. 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. he limited partners as such shall not be bound by the obligations of the partnership. Art. $/((. wo or more persons desiring to form a limited partnership shallF 7$8 #ign and swear to a certificate, which shall state -
7a8 he name of the partnership, adding thereto the word "Limited"> 7b8 he character of the business> 7c8 he location of the principal place of business> 7d8 he name and place of residence of each member, general and limited partners being respectively designated> 7e8 he term for which the partnership is to exist> 7f8 he amount of cash and a description of and the agreed value of the other property contributed by each limited partner> 7g8 he additional contributions, if any, to be made by each limited partner and the times at which or events on the happening of which they shall be made>
7h8 he time, if agreed upon, when the contribution of each limited partner is to be returned> 7i8 he share of the profits or the other compensation by way of income which each limited partner shall receive by reason of his contribution> 718 he right, if given, of a limited partner to substitute an assignee as contributor in his place, and the terms and conditions of the substitution> 7;8 he right, if given, of the partners to admit additional limited partners> 7l8 he right, if given, of one or more of the limited partners to priority over other limited partners, as to contributions or as to compensation by way of income, and the nature of such priority> 7m8 he right, if given, of the remaining general partner or partners to continue the business on the death, retirement, civil interdiction, insanity or insolvency of a general partner> and 7n8 he right, if given, of a limited partner to demand and receive property other than cash in return for his contribution. 7%8 ile for record the certificate in the +ffice of the #ecurities and !xchange Commission. A limited partnership is formed if there has been substantial compliance in good faith with the foregoing re=uirements. Art. $/(*. he contributions of a limited partner may be cash or property, but not services. Art. $/(. he surname of a limited partner shall not appear in the partnership name unlessF 7$8 "t is also the surname of a general partner, or 7%8 Prior to the time when the limited partner became such, the business has 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 ;nowledge that he is not a general partner. Art. $/(. "f the certificate contains a false statement, one who suffers loss by reliance on such statement may hold liable any party to the certificate who ;new the statement to be falseF 7$8 At the time he signed the certificate, or 7%8 #ubse=uently, 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 $/*. Art. $/(/. A limited partner shall not become liable as a general partner unless, in addition to the exercise o f his rights and powers as a limited partner, he ta;es part in the control of the business. Art. $/(2. After the formation of a lifted partnership, additional limited partners may be admitted upon filing an amendment to the original certificate in accordance with the re=uirements of Article $/*. Art. $/*4. A general partner shall have all the rights and powers and be sub1ect to all the restrictions and liabilities of a partner in a partnership without limited partners. However, without the written consent or ratification of the specific act by all the limited partners, a general partner or all of the general partners have no authority toF 7$8 3o any act in contravention of the certificate> 7%8 3o any act which would ma;e it impossible to carry on the ordinary business of the partnership> 7'8 Confess a 1udgment against the partnership>
7(8 Possess partnership property, or assign their rights in specific partnership property, for other than a partnership purpose> 7*8 Admit a person as a general partner> 78 Admit a person as a limited partner, unless the right so to do is given in the ce rtificate> 78 Continue the business with partnership property on the death, retirement, insanity, civil interdiction or insolvency of a general partner, unless the right so to do is given in the certificate. Art. $/*$. A limited partner shall have the same rights as a general partner toF 7$8 Have the partnership boo;s ;ept at the principal place of business of the partnership, and at a reasonable hour to inspect and copy any of them> 7%8 Have on demand true and full information of all things affecting the partnership, and a formal acc ount of partne rship affairs whenever circumstances render it 1ust and reasonable> and 7'8 Have dissolution and winding up by decree of court. A limited partner shall have the right to receive a share of the profits or other compensation by way of income, and to the return of his contribution as provided in Articles $/* and $/*. Art. $/*%. Bithout pre1udice to the provisions of Article $/(/, a person who has contributed to the capital of a business conducted by a person or partnership erroneously believing that he has become a limited partner in a limited partnership, is not, by reason of his exercise of the rights of a limited partner, a general partner with the person or in the partnership carrying on the business, or bound by the obligations of such person or partnership, provided that on ascertaining the mista;e he promptly renounces his interest in the profits of the business, or other compensation by way of income. Art. $/*'. A person may be a general partner and a limited partner in the same partnership at the same time, provided that this fact shall be stated in the certificate provided for in Article $/((. A person who is a general, and also at the same time a limited partner, shall have all the rights and powers and be sub1ect to all the restrictions of a general partner> except that, in respect to his contribution, he shall have the rights against the other members which he would have had if he were not also a general partner. Art. $/*(. A limited partner also may loan money to and transact other business with the partnership, and, unless he is also a general partner, receive on account of resulting claims against the partnership, with general creditors, a pro rata share of the assets. )o limited partner shall in respect to any such claimF 7$8 Receive or hold as collateral security and partnership property, or 7%8 Receive from a general partner or the partnership any payment, conveyance, or release from liability if at the time the assets of the partnership are not sufficient to discharge partnership liabilities to persons not claiming as general or limited partners. he rec eiving of collateral security, or payment, conveyance, or release in violation of the foregoing provisions is a fraud on the creditors of the partnership. Art. $/**. Bhere there are several limited partners the members may agree that one or more of the limited partners shall have a priority over other limited partners as to the return of their contributions, as to their compensation by way of income, or as to any other matter. "f such an agreement is made it shall be stated in the certificate, and in the absence of such a statement all the limited partners shall stand upon e=ual footing. Art. $/*. A limited partner may receive from the partnership the share of the profits or the compensation by way of income
stipulated for in the certificate> provided that after such payment is made, whether from property of the partnership or that of a general partner, the partnership assets are in excess of all liabilities of the partnership except liabilities to limited partners on account of their contributions and to general partners. Art. $/*. A limited partner shall not receive from a general partner or out of partnership property any part of his contributions untilF 7$8 All liabilities of the partnership, except liabilities to general partners and to limited partners on account of their contributions, have been paid or there remains property of the partnership sufficient to pay them> 7%8 he consent of all members is had, unless the return of the contribution may be rightfully demanded under the provisions of the second paragraph> and 7'8 he certificate is cancelled or so amended as to set forth the withdrawal or reduction. #ub1ect to the provisions of the first paragraph, a limited partner may rightfully demand the return of his contributionF 7$8 +n the dissolution of a partnership> or 7%8 Bhen the date specified in the certificate for its return has arrived, or 7'8 After he has six monthsO 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. "n 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. A limited partner may have the partnership dissolved and its affairs wound up whenF 7$8 He rightfully but unsuccessfully demands the return of his contribution, or 7%8 he other liabilities of the partnership have not been paid, or the partnership property is insufficient for their payment as re=uired by the first paragraph, )o. $, and the limited partner would otherwise be entitled to the return of his contribution. Art. $/*/. A limited partner is liable to the partnershipF 7$8 or the difference between his contribution as actually made and that stated in the certificate as having been made> and 7%8 or any unpaid contribution which he agreed in the certificate to ma;e in the future at the time and on the conditions stated in the certificate. A limited partner holds as trustee for the partnershipF 7$8 #pecific property stated in the certificate as contributed by him, but which was not contributed or which has been wrongfully returned, and 7%8 ?oney or other property wrongfully paid or conveyed to him on account of his contribution. he liabilities of a limited partner as set forth in this article can be waived or compromised only by the consent of all members> but a waiver or compromise shall not affect the right of a creditor of a partnership who extended credit or whose claim arose after the filing and before a cancellation or amendment of the certificate, to enforce such liabilities. Bhen a contributor has rightfully received the return in whole or in part of the capital of his contribution, he is nevertheless liable to the partnership for any sum, not in excess of such return with interest, necessary to discharge its liabilities to all creditors who extended credit or whose claims arose before such return. Art. $/*2. A limited partnerOs interest is assignable. A substituted limited partner is a person admitted to all the rights of a limited partner who has died or has assigned his interest in a partnership.
An assignee, who does not become a substituted limited partner, has no right to re=uire any information or account of the partnership transactions or to inspect the partnership boo;s> he is only entitled to receive the share of the profits or other compensation by way of income, or the return of his contribution, to which his assignor would otherwise be entitled. An assignee shall have the right to become a substituted limited partner if all the members consent thereto or if the assignor, being thereunto empowered by the certificate, gives the assignee that right. An assignee becomes a substituted limited partner when the certificate is appropriately amended in accordance with Article $/*. he substituted limited partner has all the rights and powers, and is sub1ect to all the restrictions and liabilities of his assignor, except those liabilities of which he was ignorant at the time he became a limited partner and which could not be ascertained from the certificate. he substitution of the assignee as a limited partner does not release the assignor from liability to the partnership under Articles $/( and $/(/. Art. $/4. he retirement, death, insolvency, insanity or civil interdiction of a general partner dissolves the partnership, unless the business is continued by the remaining general partnersF 7$8 9nder a right so to do stated in the certificate, or 7%8 Bith the consent of all members. Art. $/$. +n the death of a limited partner his executor or administrator shall have all the rights of a limited partner for the purpose of setting his estate, and such power as the deceased had to constitute his assignee a substituted limited partner. he estate of a deceased limited partner shall be liable for all his liabilities as a limited partner. Art. $/%. +n due application to a court of competent 1urisdiction by any creditor of a limited partner, the court may charge the interest of the indebted limited partner with payment of the unsatisfied amount of such claim, and may appoint a receiver, and ma;e all other orders, directions and in=uiries which the circumstances of the case ma y re=uire.
he interest may be redeemed with the separate property of any general partner, but may not be redeemed with partnership property. he remedies conferred by the first paragraph shall not be deemed exclusive of others which may exist. )othing in this Chapter shall be held to deprive a limited partner of his statutory exemption. Art. $/'. "n setting accounts after dissolution the liabilities of the partnership shall be entitled to payment in the following orderF 7$8 hose 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> 7%8 hose to limited partners in respect to their share of the profits and other compensation by way of income on their contributions> 7'8 hose to limited partners in respect to the capital of their contributions> 7(8 hose to general partners other than for capital and profits> 7*8 hose to general partners in respect to profits> 78 hose to general partners in respect to capital. #ub1ect to any statement in the certificate or to subse=uent agreement, limited partners share in the partnership assets in respect to their claims for capital, and in respect to their claims for profits or for compensation by way of income on
their contribution respectively, in proportion to the respective amounts of such claims. Art. $/(. he certificate shall be cancelled when the partnership is dissolved or all limited partners cease to be such. A certificate shall be amended whenF 7$8 here is a change in the name of the partnership or in the amount or character of the contribution of any limited partner> 7%8 A person is substituted as a limited partner> 7'8 An additional limited partner is admitted> 7(8 A person is admitted as a general partner> 7*8 A general partner retires, dies, becomes insolvent or insane, or is sentenced to civil interdiction and the business is continued under Article $/4> 78 here is a change in the character of the business of the partnership> 78 here is a false or erroneous statement in the certificate> 7/8 here is a change in the time as stated in the certificate for the dissolution of the partnership or for the return of a contribution> 728 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 7$48 he members desire to ma;e a change in any other statement in the certificate in order that it shall accurately represent the agreement among them. Art. $/*. he writing to amend a c ertificate shallF 7$8 Conform to the re=uirements of Article $/(( as far as necessary to set forth clearly the change in the certificate which it is desired to ma;e> and 7%8 &e signed and sworn to by all members, and an amendment substituting a limited partner or adding a limited or general partner shall be signed also by the member to be substituted or added, and when a limited partner is to be substituted, the amendment shall also be signed by the assigning limited partner. he writing to cancel a certificate shall be signed by all members. A person desiring the cancellation or amendment of a certificate, if any person designated in the first and second paragraphs as a person who must execute the writing refuses to do so, may petition the court to order a cancellation or amendment thereof. "f the court finds that the petitioner has a right to have the writing executed by a person who refuses to do so, it shall order the +ffice of the #ecurities and !xchange Commission where the certificate is recorded, to record the cancellation or amendment of the certificate> and when the certificate is to be amended, the court shall also cause to be filed for record in said office a certified copy of its decree setting forth the amendment. A certificate is amended or cancelled when there is filed for record in the +ffice of the #ecurities and !xchange Commission, where the certificate is reco rdedF 7$8 A writing in accordance with the provisions of the first or second paragraph, or 7%8 A certified copy of the order of the court in accordance with the provisions of the fourth paragraph> 7'8 After the certificate is duly amended in accordance with this article, the amended certified shall thereafter be for all purposes the certificate provided for in this Chapter. Art. $/. A contributor, unless he is a general partner, is not a proper party to proceedings by or against a partnership, except where the ob1ect is to enforce a limited partnerOs right against or liability to the partnership. Art. $/. A limited partnership formed under the law prior to the effectivity of this Code, may become a limited partnership
under this Chapter by complying with the provisions of Article $/((, provided the certificate sets forthF 7$8 he amount of the original contribution of each limited partner, and the time when the contribution was made> and 7%8 hat the property of the partnership exceeds the amount sufficient to discharge its liabilities to persons not claiming as general or limited partners by an amount greater than the sum of the contributions of its limited partners. A limited partnership formed under the law prior to the effectivity of this Code, until or unless it becomes a limited partnership under this Chapter, shall continue to be governed by the provisions of the old law.
