Article 1787- When 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 experts chosen by the partners, and according to current prices, the subsequent changes thereof being for the account of the partnership.
Under Article 1787, if goods are contributed, there must be an appraisal of such goods made:1. 2.
In accordance with the Partners’ agreement, or or In the absence of such an agreement, by expert appraisers chosen by the partners who shall base their appraisal appraisal on current prices.
Appraisal of goods or property contributed
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The appraisal of the value of the goods contributed is necessary to determine how much has been c ontributed by the partners. a. In the absence of stipulation, the share of each partner in the profits and losses is in the proportion to what he may have contributed. b. The appraisal is made firstly, in the manner prescribed by the contract of partnership; secondly, in the absence of stipulation, by experts chosen by the partners and according to current prices. c. After the goods have been contributed, the partnership bears the risk or gets the benefit of subsequent changes in fair value. In the case of immovable property, the appraisal is made in the inventory of said property; otherwise, it may be made as provided in Article 1787. There is no reason why the rule in Article 1787 should not also aply with respect to other kinds of property.
Failure to comply with the above requirements renders the partnership void. Purpose of inventory: Inventory of the immovable property contributed is necessary to determine how much is the contribution of each partner worth in terms of money, so that in the event of dissolution, the return of the partners’ contributions can be easily determined and facilitated, based on such inventory value. This article has the intention to protect third persons. With With regard to them, a de facto partnership or partnership by estoppel may exist. Dissolution- is 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.
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Exceptions: 1. when the act is necessary for winding up purposes; 2. when the act is necessary to complete and fulfill unfinished contracts. Winding up- is the process of settling the business or partnership affairs after dissolution.
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Article 1772- Every contract of partnership having a capital of P3, 000 or more, in money or property, shall appear in a public instrument, which must be recorded in the Office of the the SEC.
Failure to comply with the requirements of the preceding paragraph shall not affect the liability of the partnership and the members thereof to third persons. Requirements:
1. 2. 3.
The 2 nd paragraph of Art. 1772, however, provides that failure of the partners to comply with the above requirements will make them a nd the Partnership liable for contractual liabilities to third parties. Article 1773- A contract of partnership is void, whenever immovable property is contributed thereto, if an i nventory of said property is not made, signed by the parties, and attached to the public instrument. Partnerships with contribution of immovable property
Where immovable property, regardless of its value, is contributed by any of the partners, the failure to comply with the following requirements will render the partnership contract void in so far as the contracting parties are concerned:-*4 1. 2. 3.
The contract of Partnership must be in a public instrument; The inventory must be signed by all t he partners and attached to the public instrument; The Articles of Partnership together with the inventory must be filed and registered with the SEC.
Involves process of liquidating Partnership business after dissolution, such as the consolidation of the Partnership assets and receivables; payments of all Partnership liabilities both to third party creditors and partners/ creditors; return of their respective contributions; and the distribution of net assets, if any, among the partners themselves.
Termination- is that point in time when all partnership affairs are completely wound up and finally settled. It signifies the end of the partnership life.
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Capital must be P3, 000 or more, in money or property; Contract must be in public instrument; Must be duly recorded and registered with the SEC.
The partnership is not terminated but continues until the winding up partnership affairs is completed. This is the break-up of a legal relation between or among the partners. This is the point in time when the partners cease to carry on the business together. This represents demise of the partnership. At this stage, the partners can no longer enter into new contracts or close new business that will bind the Partnership.
This is the 3rd stage where the Partnership officially ceases operation and bows out of existence after the completion of the winding up of Partnership affairs.
Act of Dominion- all the partners, including the managing partner, if any, must give their consent to all Acts of Dominion or Ownership. Act of Strict Dominion- for acts which are not apparently for carrying on in the usual way the business of the partnership, the partnership is not bound, unless authorized by all the other partners or unless they have abandoned the business. The instances of a cts which are generally outside the implied power of a partner are enumerated in the third paragraph. They constitute limitations to the authority granted to the partners to bind the partnership. Partnership at will- one in which no time is specified and is not formed for a particular undertaking or venture and which may be terminated anytime by mutual agreement of the partners, or by the will of any one partner alone, or one for a fixed term or particular undertaking which is continued by the partners after the termination of such term or part icular undertaking without express agreement. Partnership with a fixed term- one which the term for which the partnership is to exist is fixed or agreed upon or one formed for a particular undertaking, and upon the expiration of the term or completion of the particular enterprise, the partnership is dissolved, unless continued by the partners.
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Article 1825- Partner by estoppel; Partnership by estoppel
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Meaning and effect of estoppel. – Estoppel is a bar which precludes a person from denying or asserting anything contrary to that, which has been established as the truth by his own deed or representation, either express or implied. Through estoppel, an admission or representation is rendered conclusive upon the person making it and cannot be denied or disproved as against the person relying thereon. When person a partner by estoppel. – A person not a partner may become a partner by estoppel, and thus be held liable to third persons as if he were a partner, when by words or by conduct he: a. Directly represents himself to anyone as a partner in an existing partnership or in a non- existing partnership (with one or more persons not actual partners); b. Indirectly represents himself by consenting to another representing him as partner in an existing partnership or in a non- existing partnership. The third person with whom the partner contracted must show that the purported partner represented himself or permitted others to represent him as partner, and furthermore, that he dealt with the partnership to his injury in justifiable reliance on such representation.
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When partnership liability results. – If all the actual partners consented to the representation, then the l iability of the person who represented himself to be a partner or who consented to such representation and the actual partners is considered a partnership liability. This is a case of agent of the partnership and his act or obligation that of the partnership. When liability pro rata. – When there is no existing partnership and all those represented as partners consented to the representation, or not all of the partners of an existing partnership contracted to the representation, then the liability of the person who represented himself to be a partner or who consented to his being represented as partner, and all those who made and consented to such representation, is joint or pro rata. When liability separate. – When there is no existing partnership and not all but only some of those represented as partners in an existing partnership consented to such representation, then the liability will be separate – that of the person who represented himself as a partner or who consented to his being represented as a partner, and those who made and consented to the representation, or that only of the person who represented himself as partner. Estoppel does not create partnership.
Kinds of Partners
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Under the Civil Code a. Capitalist partner- one who contributes money or property to the common fund. b. Industrial partner- one who contributes only his industry or personal service. c. General partner- one whose liability to third person extends to his separate property; he may either be a capitalist or industrial partner. d. Limited partner- one whose liability to third persons is limited to his capital contribution. He is also known as special partner . Unlike the general partner, he does not participate in the management of the business. e. Managing partner- one who manages the affairs or business of the partnership; he may be appointed either in the articles of partnership or after the constitution of the partnership. He is also known as a general or real partner. f. Liquidating partner- one who takes charge of the winding up of partnership affairs upon dissolution.
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Partner by estoppel- one who is not really a partner, not being a party to a partnership agreement, but is liable as a partner for the protection of innocent third persons. He is one who is represented as being, in fact, a partner, but who is not so as between the partner themselves. He is also known as partner by implication or nominal partner . The term “quasi partner” is sometimes used. He is liable for the debts of the firm to those who in good faith believed him to be a partner h. Continuing partner- one who continues the business of a partnership after it has been dissolved by reason of the admission of a new partner, or the retirement, death, or expulsion of one or more partners. i. Surviving partner- one who remains after a partnership has been dissolved by the death of any partner. j. Subpartner- one who, not being a member of the partnership, contracts with a partner with reference to the latter’s hare in the partnership. Other classifications a. Ostensible partner- one who takes active part and known to the public as a partner in the business, whether or not he has an actual interest in the firm. If he is not actually a partner, he is subject to liability by the doctrine of estoppel. b. Secret partner- one who takes active part in the business but is not known to be a partner by outside parties n or held out as a partner by the other partners, although he participates in the profits and losses of the partnership. c. Silent partner- one who does not take any active part in the business although he may be known to be a pa rtner. Thus, he need not be a secret partner. If he withdraws from the partnership, he must give notice to those persons who do business with the firm to escape liability in the future. d. Dormant partner- one who does not take active part in the business and is not known or held out as partner. He would be both a silent and a secret partner. The term is used as synonymous with “sleeping partner.” He may retire from the partnership without giving notice and cannot be held liable for the obligations of the firm subsequent to his withdrawal. His only interest in joining the partnership would be the sharing of the profits earned. e. Original partner- one who is a member of the partnership from the time of its organization. f. Incoming partner- a person, lately, or about to be, taken into a partnership as a member. g. Retiring partner- one withdrawn from the partnership; a withdrawing partner
Universal 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 acquire therewith. The property which belonged 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 acquire therewith. Universal Partnerships of Profits- comprises all that the partners may acquire by their industry or work during the existence of the partnership and the usufruct of movable or immovable property which each of the partners may possess at the time of the celebration of the contract. Preference of partnership creditors in partnership property:
The rule is based upon the theory that the partnership, treated as a legal entity distinct and separate from the members composing it, should apply its property to the payment of its debts in preference to the claim of any partner or his creditors. Article 1822-24 – The above three articles provide for the solidarily liability of all the partners and the partnership to third persons for the partner’s
wrongful act or omission or breach of trust acting within the scope of firm’s business or with the authority of his co-partners. This is true even though the other partners did not participate in or ratify, or had no knowledge of the act or omission, without prejudice to their right to recover from the guilty partners in other words, whether innocent or guilty, all the partners are solidarily liable with the partnership itself.
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Requisites for liability:
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The partner must be guilty of a wrongful act or omission. He must be acting in the ordinary course of business or with the authority of his co-partners even if the act is connected with the business.
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Nature of partner’s interest in the partnership:
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Share of the profits and surplus – the partner’s interest in the partnership consists of his proportionate share in the profits during the life of the partnership as a going concern and his share in the surplus after its dissolution. This interest is assignable by the partner in the absence of any agreement to the contrary, being personal property: a) Profit – means the excess of returns over expenditure in a transaction or series of transactions; or the net income of the partnership for a given period of time. b) Surplus- Refers to the assets of the partnership after partnership debts and liabilities are paid and settled and the rights of the partners among themselves are adjusted. It is the excess of assets over liabilities; if the liabilities are more than the assets the difference represents the extent of the loss. The profits are shared in conformity with the agreement; otherwise, in proportion to the capital contributions but the industrial partner shall receive such share as may be just and equitable under the circumstances.
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Extent of the partner’s interest - Nothing is to be considered as the share of a partner but his proportion of the residue or balance after an account has been taken of the debts and credits, including the amount paid by the several partners in liquidating firm debts or in making advances to the partnership, and until that occurs, it Is impossible to determine the extent of his interest. This interest in the surplus alone is available for the satisfaction of the separate debts of the partners.
Rights of assignee of partner’s interest:
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To receive in accordance with his contract the profits accruing to the assigning partner. To avail himself of the usual remedies provided by law in the event of fraud in the management. To receive the assignor’s interest in case of dissolution; and To require an account of partnership affairs, but only in case the partnership is dissolved, and such account shall cover the period from the date only of the last account agreed to by all the partners.
Persons authorized to wind up:
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The partners designated by the agreement. In the absence of such agreement, all the partners who have not wrongfully dissolved the partnership. The legal representative of the last surviving partner ( when all the partners are already dead), not insolvent.
Article 1830 – Dissolution is caused: Voluntary (1&2)
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Without violation of the agreement between the partners:
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By the termination of the definite term or particular undertaking specified in the agreement. b.) By the express will of any partner, who must act in good faith, when no definite term or particular undertaking is specified. c.) By the express will of all the partners who have not assigned their interests or suffered them to be charged for their separate debts, either before or after the termination of any specified term or particular undertaking. d.) By the expulsion of any partner from the business bona fide in accordance with such a power conferred by the agreement between the partners. In contravention of the agreement between the partners, where the circumstances do not permit a dissolution under any provision of this article, by the express will of any partner at any time; By any event which makes it unlawful for the business of the partnership to be carried on or for the members to carry it on in partnership; When a specific thing, which a partner had promise 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 enjoyment of the same; but the partnership shall not be dissolve by the loss of the thing when it occurs after the partnership has acquired the ownership thereof. By the death of any partner. By the insolvency of any partner of t he partnership. By the civil interdiction of any partner. By decree of court under the following article.
