Compiled Partnership Transcriptions (Mid-terms) June 24, 2010 Thursday Can you be a partner in a partnership? Yes.

s. I have the legal capacity to do and I do not possess the 5 disqualifications as mandated by law. If your parents leave you and your siblings 1 hectare of land, are you now partners? No, each is a co-heir. As a co-heir you have an inchoate right pending probate proceedings such that when the property is earning Php 5000 pesos and each one will be receiving a share, each of you are coheirs. Distinguish Co-ownership from Partnership.

As to Creation

Partnership Co-ownership always created by a contract, generally created by law, but either express or implied may exist even without a contract Juridical has a juridical personality Has no juridical personality Personality separate and distinct from that of each partner Purpose realization of profits common enjoyment of a thing or right; does not necessarily involve sharing of profits Duration no limitation upon the duration an agreement to keep the thing is set by law undivided for more than 10 years is not allowed Transfer of a partner may not dispose of a co-owner can dispose of his Interest his individual interest in the share without the consent of the partnership so as to make the others assignee a partner without unanimous consent Power to in the absence of stipulation to a co-owner cannot represent the Act with 3rd the contrary, a partner may co-ownership Persons bind the partnership Dissolution death or incapacity of a partner death or incapacity of a coresults in the dissolution of owner does not necessarily partnership dissolve the co-ownership Agency of as a rule, there is mutual as a rule, there is no mutual Representat agency representation (although it is ion enough for a co-owner to bring an action for ejectment against a stranger) Profits may be stipulated upon must always depend upon proportionate shares and any stipulation to the contrary is VOID (Art.485) Form may be in any from except no public instrument is needed when real property is even if real property is the object contributed (here a public of the co-ownership instrument is required) o In Partnership acquires a separate personality distinct from the other parties. There is no such privilege in co-ownership. What then is partnership? By the contract of partnership two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing the profits among
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themselves. Two or more persons may also form a partnership for the exercise of a profession. o They share profits. When you acquire or receive part of the profits of a particular business, are you then a partner? No sir. It is only a prima facie evidence that you are a partner but subject to rebuttal to the contrary. What is required to become a partner? 1. there must be a valid contract; 2. the parties must have legal capacity to enter into the contract; 3. there must be mutual contribution of money, property and industry to a common fund 4. the object must be lawful; and 5. the primary purpose must be to obtain profits and dividing o You were hired by a partnership, You have 10% of the profit every month and just report everyday and drive out vehicles. 10% every month. Here, you are NOT a partner even if you are receiving 10% of the profit. Answer: He is not a partner because there MUST be an agreement. There must be a contract and no consent was given. Without a contract, you cannot claim to be a partner. He was just taken in, no mention, and told to do something and will be compensated for his services. He was not brought in to be a partner. Because to be a partner requires among others, a contract. The fact that one receives a share of the profits is never proof that he is already a partner. In our illustration, as a matter of fact, there is an indication as to the reason why she was sharing the profits, which is because of the services he has rendered. Therefore, there should be a contract because the definition of the law says that by the contract of partnership two persons bind themselves, so there should be a contract. It does not simply says that when two or more persons contribute. It says, by the contract.., so there should be that contract. To be a valid contract: 1. Consent of the Parties 2. Object 3. Consideration In the example, there was no consent. No indication at all that they consented to be partners.

What kind of a contract is Partnership? Consensual which means by mere consent. Is it at all times consensual? NO. Form: Generally, a contract of partnership is consensual but there are instances wherein formalities are required for its validity and existence, in which case, the contract of partnership will now be considered as a formal contract.

o General rule: No special form is required for its validity or existence Exceptions: 1. Where the contract of partnership has a capital of 3,000 pesos or more, in money or property, it shall appear in a public instrument and must be recorded in the Office of the Securities and Exchange Commission. However, a partnership has a juridical personality even in case of failure to comply with this requirement. 2. Where immovable property or real rights are contributed (regardless of the value thereof): a. Must be in writing in a public instrument b. An inventory of the property contributed, signed by the parties is attached to the public instrument. Otherwise, if there is no inventory contract of partnership is void c. Must be recorded with the Register of Deeds where the immovable is located to bind third persons 3. Where the contract falls within the statute of fraud (such as when an agreement to enter in a partnership at a future time, which by its terms is not to be performed within a year from the making thereof. In which case, such agreement is unenforceable unless the same be in writing or at least evidenced by some note or memorandum thereof subscribed by the parties) So when you say an immovable property, what is an immovable property? o Real by nature it cannot be carried from place to place ( pars. 1 & 8, Art. 415, Civil Code) o Real by incorporation attached to an immovable in a fixed manner to be an integral part thereof (pars. 1-3 Art. 415, Civil Code) o Real by destination placed in a n immovable for the utility it gives to the activity carried thereon (pars. 4-7 and 9 Art. 415, Civil Code) o By analogy it is so classified by express provision of law (par. 10, Art. 415, Civil Code) Kinds of property: (See other kinds of property and examples) o Consumable: they are things that you have to consume if you want to enjoy them o Non-consumable- includes all others o Movable and Immovable o Fungible and Non-fungible What are real rights? What are such rights (especially over a property)? Personal rights? What then is a personal right as distinguished from a real right? Difference of real property or personal property. o Personal right is a right of a person which can be enforceable only against a specific or particular person. o Example of personal right right to demand support which can be enforced only against the persons who has the obligation or liability

to support you. It cannot be enforced to anyone. It cannot be enforced against the whole world. But a real right is a right which can be enforced against the whole world. o Differences between Real Rights and Personal Rights (taken from reviewers): Kinds of rights considered as property (a) Real (jus in re)power belonging to a person over a specific thing. It gives direct and immediate juridical power over a thing susceptible of being exercised against a determinate person and the whole world. (b) Right of obligation or Personal (jus ad rem)rights belonging to one person to demand of another as a definite passive subject, the fulfillment of a prestation to give, to do, or not to do. Real o o o o o o o o o o rights arises from (OPLUMEPARP) 1. Ownership 2. Possession 3. Lease 4. Usufruct 5. Mortgage 6. Easement 7. Pledge 8. Antichresis 9. Redemption 10. Preemption Personal Rights

Real Rights

(1) One definite active subject (1) There is a definite active and passive and the rest of object. the world as passive (2) Object is a corporeal thing. (2) Object is an intangible thing. (3) Personal affects the thing directly through the prestation of the debtor.

(3) Real right affects the thing directly. (4) Creation of the juridical title is by title alone. (4) The creation of the juridical relation is by mode and title. (5) Not extinguished by the loss or destruction of the thing. (5) Extinguished by the loss or destruction of the thing. (6) Produces only personal actions against definite debtor. (6) Gives rise to real actions against 3rd persons

To contribute property to the ownership, it need not only be immovable property, you could also even contribute real right over the property. o If for example: I contributed my real right over a personal property such as a right to use my car for the travel agency business, in which case, the partnership is not consensual but formal.
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o On the other hand, what I contributed this time was a small parcel of land composed of maybe 3 square meters and I approach you and I want us to be partners and I said that this property is actually worth 1,500 pesos; it is a small property but we could make money out of this. In this case, is the partnership consensual or not? Do we have to put it in writing? It is a formal contract since what is contributed is an immovable property and what the law contemplates is that when immovable property is contributed, regardless of its value, the contract must necessarily appear in a public instrument. 1. 2. 3. Sole proprietorship Partnership Corporation

What are the basic forms of business organization:

Why business organization? Why is it related to business? What do we expect to learn here? Because the definition of partnership itself involves profits and when we talk of profits, then we talk about business. So here, we will have to define the rights and obligations of partners, how do we govern their relationship as well as their liabilities in so far as third parties are concerned. o Soon, they will be dealing with the public and they will have to be regulated by the State. Their liabilities to the public will have to be secured so that the dealing public will be rest assured and feel secured that they are dealing with someone who cannot run away with the business. o That is why as a business organization where the formalities are required, we will have to register with the SEC, which is the government agency in charge of the monitoring, regulating and imposing disciplines on these types of business organization. So here, the Civil Code provides for their rights, liabilities and responsibilities but the State controls them. The State regulates and monitors them. That is why the SEC requires them to submit periodically some reports so that the government would be able to monitor and regulate their activities to protect third parties or the public.

By the nature of the contract, it is consensual and necessarily they are perfected by mere consent. But the moment circumstances would require that certain formalities would have to be complied with, those formalities will have to be satisfied. So in a partnership, we should distinguish this from a corporation. Partnership Manner of creation Number incorporators Mere agreement parties of Corporation the By law or operation of law

of May be organized by only Requires at least 5 2 persons incorporators

Commencement of From the moment of the From the date of juridical execution of the contract issuance of the personality of partnership certificate of
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incorporation by the SEC Powers May exercise any power authorized by the partners provided it is not contrary to law, morals, good customs, public order or public policy Every partner is an agent of the partnership unless the management is agreed upon to the contrary Can exercise only the powers expressly granted by law or implied from those granted or incident to its existence Power to do business and manage its affairs is vested in the board of directors

Management

Effect of A partner as such can sue The suit against a mismanagement a co-partner who member of the board mismanages of directors who mismanages must be in the name of the corporation Right succession of None since when a partner Has so that even if dies, the partnership will the stockholder will be dissolved die, the corporation will not be dissolved but the stockholdings of the deceased stockholder will be transmitted to his heirs Stockholders are only liable to the extent of the shares subscribed by them

Extent of liability Partners (except limited to third persons partners) are liable personally (may be severally liable) for partnership debts to third persons Transferability interest of Partner cannot transfer his interest in the partnership so as to make the transferee a partner without the consent of all the other partners

Generally, stockholder has the right to transfer his shares without the prior consent of the other stockholders

Term of existence

Any period of time as May not be formed stipulated by the partners for a term in excess of 50 years extendible to not more than 50 years

in any one instance Firm name Limited partnership is May adopt any firm required by the law to add name provided it is the word Ltd. to its name not the same as or similar to any registered firm name. At any time by the will of Can only be any or all of the partners dissolved with the consent of the State Civil Code Corporation Code

Dissolution

Governing law

Both, however, are creations of the state because both are juridical persons, both are artificial persons and therefore, anything granted to them to exist as a business organization is a privilege. It is not a right. That is why you will have to register yourself with the SEC only in so far as those instances where registration is required. But we said, being consensual, a partnership can exist even without being registered with the SEC because that registration with the SEC is only for administrative purposes. But so long as you do not fall under the provisions which would require formalities, that partnership will start existing. One important distinction between partnership and corporation is the consideration. In a partnership, the relationship is based absolutely on trust. In other words, you become partners because all of you have agreed. No one can become a partner unless all the other partners would agree. So therefore, the basic consideration is trust. Not so in a corporation. In a corporation, although the law requires that there should be five, there could be a thousand stockholders because the requirement of trust is not there. Not all stockholders would know each other. You can become a stockholder even without the consent or knowledge of all the other stockholders. In a partnership, trust is a must. You cannot become a partner unless all the other partners would allow you to become a partner. Both are juridical and artificial persons as distinguished from a sole proprietorship which could be a natural person. But that natural person who owns the business may be known by something else, not by his own name. That is why, they usually indicate their business name in some other ways. In partnership, the name of the partners will be there. In a corporation, the name of the corporation is also indicated in some other ways, that is the business name.

June 26, 2010 Saturday

And so, we said, a partnership so far as its life existence is concerned, has, generally, no limitations. It may be a partnership at will. In other words, it may exist as long as the partners intend to exist. So that once a partnership is formed, for example, the partnership of Espiritu & Gabuya, how many persons do we now talk about? When Gabuya & Espiritu decided to establish a partnership, how many persons do we now talk about?

o There are now three persons: Espiritu, Gabuya & the separate juridical personality of the partnership of Espiritu & Gabuya o When we establish a partnership and we have created a separate juridical person, the person of the partners themselves as natural persons would remain. It is important that they will remain, otherwise, if a liability may be incurred by the partnership and the partnership assets could no longer be enough to satisfy this liability, what could happen? Where may the creditors pursue? Creditors could still go after the partners themselves. So here, there being three persons, we now could talk about certain rights and obligations such as rights that a juridical person may enjoy. What could a juridical person enjoy? o May enter into contracts o Acquire, own, possess and dispose property of all kinds in its name o Right to usufruct o Incur obligations o Bring civil or criminal actions in conformity with the laws and regulations of its organizations o To sue and be sued In other words, having been granted the privilege to exist as a juridical person as provided by law, they should now be entitled to certain rights. Juridical persons can enjoy rights like any other natural person because that is precisely the reason why the law defines the rights because they are entitled supposedly to enjoy certain rights such as for example, the bill of rights under the Constitution. But not all rights under the bill of rights are enjoyed by a juridical person because some of them are not applicable to juridical persons. There are only some rights that a juridical person such as a partnership can enjoy. (i.e. due process clause since in any investigations, the partnership is entitled to be heard; equal protection clause; right to property; right to remain silent; right to self-incrimination because partnership could not be compelled to give some documents which might turn out as self-incriminating against the partnership) Right to liberty which means freedom from restraint or restriction, however, is not afforded to juridical persons because the right to liberty involves restriction of your movements and you cannot bring the office of the partnership and put the partnership in jail. Since partnership is a juridical person, therefore, it can never be entitled to right to liberty.

How do we classify partnership?

o As to the extent of its subject matter Universal partnership refers to all the present property or to all profits Universal partnership of all present property 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 the profits they may acquire therewith. Universal partnership of profits which comprises all that the partners may acquire by their industry or work during the existence of partnership. Particular partnership which has for its object determinate things, their use or fruits, or a specific undertaking, or the exercise of a profession or vocation. liability of the partners General partnership consisting of general partners who are liable pro rata and subsidiarily and sometimes solidarily with their separate property for partnership debts Limited partnership formed by 2 or more persons having as members one or more general partners and one or more limited partners, the latter not being personally liable for the obligations of the partnership its duration Partnership at will 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 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 particular undertaking without express agreement Partnership with a fixed term which the term for which the partnership is to exist is fixed or agreed upon or 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. the legality of its existence De jure partnership which has complied with all the legal requirements for its establishment De facto partnership which has failed to comply with all the legal requirements for its establishment representation to others Ordinary or real partnership which actually exists among the partners and also as to third persons Ostensible partnership or partnership by estoppel which in reality is not a partnership but is considered a partnership only in relation to those who, by their conduct or admission, are precluded to deny or disprove its existence. publicity Secret partnership wherein the existence of certain persons as persons is not made known to the public by any of the partners

o As to

o As to

o As to o As to

o As to

Open or notorious partnership whose existence is made known to the public by the members of the firm o As to purpose Commercial or trading partnership formed for the transaction of business Professional or non-trading partnership formed for the exercise of a profession If, for example, Ms. Guingoyon called you up one late evening, and Ms. Guingoyon said that I would like to propose to you a business. Can we enter into a partnership of a masiao outlet? And you said yes. You decided to share the profits in such partnership. Can you do that? o No, because partnership must have a lawful object or purpose, and in this case, a masiao outlet is prohibited by law, therefore it is unlawful. Consequently, the partnership is void. o How about a lotto outlet? There can be a partnership in this case if you get the required permits to operate. o So if the object is illegal, then there is no such partnership. What if Ms. Guingoyon and you established a universal partnership and Ms. Guingoyon happens to own 5 horses and you also own 5 cows, who now owns the 5 horses and 5 cows? o Ms. Guingoyon still owns the 5 horses and you still own the 5 cows because according to Art. 1781, articles of universal partnership, entered into without specification of its nature, only constitute a universal partnership of profits. In this case, there is no specification of the nature of the universal partnership established by Ms. Guingoyon and you, therefore, it is presumed that the partnership constitutes a universal partnership of profits and according to Art. 1780, movable or immovable property which each of the partners may possess at the time of celebration of the contract of universal partnership of profits shall continue to pertain exclusively to each, only the usufruct passing to the partnership. Consequently, therefore, the movable properties of 5 horses and 5 cows still belong exclusively to Ms. Guingoyon and you, respectively. What is the basis of the presumption in Art. 1781 (presumption in favor of universal partnership of profits)? o The reason is because it imposes less obligations on the partners since they preserve the ownership of their separate property. o Another basis is that according to the law on obligations and contracts, which states that in the interpretation of contracts, if it cannot be determined the real intention of the parties who entered into the contract, that which involves the least transmission of rights should be considered as the intention of the parties. Here, the universal partnership of profits involves the least transmission of rights for they retain ownership of their properties. Therefore, the presumption is in favor of such kind of partnership.

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So, when we talk of universal partnership of profits, what do we really refer to? o What it refers to is that what passes to the partnership are the profits or income and the use or usufruct of the properties. o So here, if that particular property of the partner, for example, constitutes a series of apartment houses, the partnership can use the apartment houses and the fruits of the same shall belong to the partnership. o Fruits, here, refer to profits or income acquired by the partners out of their industry or work or the use of their properties, whether movable or immovable. And when we talk of fruits, how do we classify them (See book as to meaning and examples)? o Natural there are 2 kinds of natural fruits: The spontaneous products of the soil (that is, human labor does not intervene) Examples: herbs, common grass The young and other products of animals Examples: chicken and chicken eggs o Civil those produced by lands of any kind thru cultivation or labor Examples: lanzones, palay and corn, all kinds of cultivated vegetables, since these are no doubt also produced by the land thru human labor (but not canned goods or manufactured products) o Industrial consists of: Rent of buildings Price of leases (rentals) of lands and other property The amount of perpetual or life annuities or other similar income such as dividends Universal partnership is differentiated from particular partnership. So what is a particular partnership? o A particular partnership is one which has for its object determinate things, their use or fruits, or a specific undertaking, or the exercise of a profession or vocation. o What is the object then in a particular partnership? The objects are determinate or particular things, their use or fruits. It may also refer to specific undertaking, or the exercise of a profession or vocation.

July 1, 2010 In a universal partnership, who owns the property of the partners? It depends. If its a universal partnership of profits, then the property remains as the exclusive property of the partners while if its a universal partnership of present property, the property is owned by the partnership. In a universal partnership of all present property, what is mine is yours. What is yours is mine. I eat yours, you eat mine. In other words, what belongs to you will now belong to me. What I have, you have. That is the concept of a universal partnership of all present property.
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 In a universal partnership of profits can we say those things? No because in a universal partnership of profits what is merely contributed is the income from a work or industry and the usufruct of the properties. You will now say, what is mine is mine and what is yours is yours. However, you enjoy what is mine and I enjoy what is yours. We enjoy the use. We enjoy the usufruct. Never can we enter into universal partnership of profits if we do it idja-idja. In a wedding reception and the ceremony of the cake, from now on, what is his will be yours, what is yours will be his, you could eat them together or you can eat them separately but everything belongs to the 2 of you. Thats because there is a universal partnership and presumed to be that of profits. There are now revisions however, you could now decide what to do with your assets but in the old law that was the presumption. If partner A owns an apartment, partner B own 3 passenger buses, partner C own a parcel of land. Who are now the owners of these properties? Here, since we do not know what universal partnership they have entered into, the assumption is that they have only entered into a universal partnership of profits. o The reason of this is between the 2 kinds of universal partnership it is the universal partnership of profits that is presumed because it is of the interpretation that it is the universal partnership of profits that will involve the least transmission of rights. The income of the parcels of land, who should be entitled to it? And the rentals of the apartment? Since it is presumed to be a universal partnership of all profits, then the partnership owns the income of the land and the rentals. It belongs to the partnership now A, B, and C. We said earlier that the partnership has a separate personality; it should now belong to the partnership even if they entered only into a universal partnership of profits. We need not argue because it only involves profits. However, if it involved the capital contribution, we should distinguish. Now that it involves only profits, we are sure that it goes to the partnership whether we interpret it to the least transmission of rights, we are talking about the fruits and the profits.

1 year, after they executed the partnership agreement, both parents of C died. The parents left C with a huge rice land. Who now owns the rice land left by the parents of C? C owns the rice land C inherited from his parents. o The fruits of the rice land? It belongs to C. Since it was assumed that the partnership was that of profits, then the fruits shall belong to the exclusive property of the partners. We cannot contribute to the partnership something which we do not own yet. o Reason: Why do you think that even if they entered into a universal partnership of all present property, it cannot include those which are inherited by the partners? Because in the practical side of it, maybe if you are a child, and you have respect, you can wait, even your parents can no longer talk, you have to wait even if you wanted to acquire the property. Others are crazy enough to want them dead.

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o However, if we allow these future properties to be contributed in a universal partnership, what do you think could happen? While the child could wait, maybe the other partners will be tempted to actually kill the parents. This is the practical reason of the law. As a matter of fact, can husband and wife ever become partners? Yes but only in a particular partnership. However, they cannot enter into a universal partnership because there is a prohibition that a husband and wife cannot donate properties to one another. In a universal partnership of all present property is equivalent to donating property. o Why can they be not allowed to donate? The intention is more on protecting 3rd parties. So that if these parties were allowed to donate to each other, they could conveniently dispose of the property to avoid or evade any lawful liability or obligation by simply donating. And because there is an expressly law that prevents them from donating, they could do it indirectly by making or entering into a universal property of all present property. That is the objective or the reason of the law. We tried to distinguish co-ownership from partnership. How did we distinguish? (See Page1) So here are 2 creditors, who after demanding payment from a common debtor, were unable to collect and therefore the 2 of them agreed that our common debtor has a condominium unit so why dont the two of us go after that condominium unit of our common debtor. And thats what they did. They filed a case against the common debtor so 2 cases were filed. And the creditors were able to secure now a favorable judgment and they are now about to execute. The value of the property was a 100 million so that creditor A was demanding for 60M and creditor B was demanding for 40M. So the value of the property was just enough for the 2 debts. And the two were able to execute the condominium unit. That condominium unit was attached by the sheriff and therefore taken away from the common debtor. So the debtor was already deprived of ownership of the condominium unit and the same was turned over or awarded to the creditors A & B and was already in their name. However, that condominium unit was earning 10,000 a week. So every time the tenant paid the 10,000, how much do you think should go to creditor A? 60% is it not? So in this case, is there partnership? o Prima facie evidence or presumption means that it can be rebutted by contrary evidence. It is distinguished from an absolute presumption in which no evidence can be presented and such presumption is admitted. But when we say prima facie presumption, evidence could still be presented to rebut that presumption. No partnership, only co-ownership. There was no agreement between the creditors that they shall convert their relationship as co-owners (by virtue of the favorable judgment awarded to them as creditors) into a partnership. There was never an agreement at all. We couldve said that they share in the profits and so the presumption applies (Art. 1769) but actually, the sharing of the profits is merely incidental to the co-ownership which was established by being now co-owners of the property. There was no intention at all to become partners. Although there were sharing of profits but such sharing was merely incidental. So all told, they are only co-owners. However, they can always agree to become partners. You own up to 60% and I own 40% of this unit. Lets
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combine them together. From now on, we will be partners. Therefore, we will be sharing whatever is the income. o In other words, when we ever would like to determine whether or not partnership exists, we have to examine closely the situation and find out whether or not it falls within the definition of what a contract of partnership is.

CRIPS happen to own now a boarding house. They are offering this boarding house to boarders who are students. If you want to be a member, you will have a big discount. CRIPS, however, while their names are all over, we do not know who are their leaders. Police are having difficulty identifying them. They do not come out in the open. And yet, some, for example, are sharing profits. Are they partners? Is there a partnership? o No, since they are secret associations. They cannot be partners. In which case, they are treated only as co-owners. (Art. 1775) General Partnership composed of two or more general partners whose liability extends to their separate or personal properties. No limited partners. Everybody is general partners. Limited Partnership composed of at least one general partner and at least one limited partner, the liability of such limited partner is limited only to his capital contribution.

Classification of partnership as to liability: o

Partners entered into a universal partnership of profits. One of the partners won in a lotto. Winnings, who should be entitled to? o In Art. 1780, the law speaks only of profits which the partners may acquire by their industry or work, it follows that profits acquired by partners through chance such as lottery or by lucrative title without employment of any physical or intellectual efforts, are not included. Therefore, the winnings shall be considered as a separate and exclusive property of the partner who won such winnings in the lotto.

July 3, 2010 Saturday

Secret associations can never establish partnership because by the nature of their existence alone, secret, they can never be granted juridical personality. (i.e. BLOODZ and CRIPS). Therefore, if ever they own a property, they will own such property and the rules governing on coownership shall apply.

Situation: Creditors A & B now co-owned a property by virtue of a favorable judgment awarded to them against their common debtor. Creditor A owned such property up to 60% and creditor B up to 40%. Another third party happens to be a creditor of creditor A. This third-party creditor pursued against creditor A. Creditor A did not pay so the third-party creditor is now trying to go after the property which is owned by both creditors A & B. Can that third-party creditor go after such property or attach such property?

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Yes but only up to the extent owned by creditor A, which is 60%. However, had creditors A & B been partners, had they agreed that they will establish a partnership, can that third-party creditor of creditor A go after such property? No because the partnership owns such property and the third-party creditor is only a personal creditor of creditor A. So that we can illustrate the distinction finally between partnership and coownership that in co-ownership, personal creditors can go after the property co-owned but only up to the extent of the ownership of the their personal debtor while in partnership, personal creditor cannot go after the property owned by such partnership.

What are the classifications of partnership as to duration?

1) Partnership at will 2 situations: a. One in which no time is specified and is not formed for a particular undertaking or venture and which may be terminated at anytime by mutual agreement of the partners or by the will of any one partner alone b. One for a fixed term or particular undertaking which is continued by the partners after the termination of such term or particular undertaking without express agreement 2) Partnership with a fixed term one in 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. When does a partnership begin?

From the moment of the execution of the contract, unless it is otherwise stipulated. Such contract can either be formal or consensual. Generally, partnership is a consensual contract. However, there are certain circumstances wherein partnership is a formal contract and certain formalities have to be complied with and weve already discussed about that. In which case, partnership will start upon the compliance of the formalities required, otherwise, if it is a merely a consensual contract, then partnership will start upon agreement by the parties to establish a partnership. This is what from the moment of the execution of the contract means depending if it is a formal or consensual contract.

If today we (Sir Espedids and Cabatingan) agreed to engage in partnership of a funeral business because Sir has his own car and Cabs has her own flower shop. Sirs car will be used and Cabs will supply for the flowers. When would our partnership begin to exist?

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The partnership would begin to exist upon agreement by the parties. Therefore, if we agreed that tomorrow we will make our first delivery to the memorial park. We will now start business tomorrow and if the day came, Sir was already driving his own car and the dead was waiting for the flowers and no flowers came. What is Cabs liability? o Cabs will be liable for interest and damages from the time Cabs should have delivered the flowers. o Therefore, if the family of the deceased demanded and was allowed by the court to recover 10,000 because the flowers were not delivered, should the partnership be liable for the 10,000? No, because it should be the partner who failed to contribute or deliver the property who should be held liable because from the time such partner failed to contribute the property he promised to contribute on the time he should have contributed such property, such partner becomes ipso jure a debtor to the partnership. o On the other hand, our partnership flourished a year after. This time Cabs promised as an additional contribution to deliver another funeral car. But again, after the date that she promised to deliver came, no car was delivered. That was also the time when we made commitments to make some delivery because we thought that the car was coming so we made commitments. 2 dead persons were waiting. We were not able to deliver until they got another funeral car from another company for which they paid 50,000. Do you think the family can demand 50,000 from our partnership? Again, no because it should be Cabs who should be made liable to the partnership because she becomes a debtor for the failure of delivering the funeral car and as such, she should be made liable to answer for the damages caused. o The car promised by Cabs, instead of delivering it to the partnership, she used it for one week as a tourist car. Because of this, Cabs earned 50,000 from the tourist. To whom does the 50,000 belong to? Since a week before, the partnership is already entitled for the use of the car, if the car was used for something else, anything earned during that unauthorized use should now belong to the partnership. o On the other hand, while it is moving the tourist around the city, it decided to go to Balamban but before they could reach Balamban, the brakes of the car was broken and the car was destroyed. Now, the car has to be repaired. So because the partnership needed the use of the car very badly, the partnership had to pay for the repairs. Cabs said that I have already contributed my car to the partnership. Any repairs should be born now by the partnership. Is she correct? No, because the car is still owned by Cabs, not by the partnership, when she failed to deliver the car on the time it should have been delivered. And we have learned in property

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that the owner bears the loss. In this case, Cabs still owned the car, so she shall bear the cost. o But what could had happen if she has delivered the car on the day promise but instead used it for the tourist and the same thing happened, the car also got damaged? The partnership shall bear the cost because this time the partnership now owns the car. But then the partnership is entitled to recover from Cabs because she used the car for her personal purposes. Cabs should reimburse the partnership because at the time damages were incurred or losses suffered, it was by the improper personal use of Cabs. Partners decided to contribute 50,000 each. Partner A in cash and Partner B with his car. How would we know that party B indeed contributed 50,000 worth?

In this case, if a property is contributed, there must be an appraisal in the manner prescribed in the contract of partnership, and in the absence of stipulation, it shall be made by the experts chosen by the partners, and according to current prices, the subsequent change thereof being for the account of the partnership. o This time, they agreed that partner A will contribute a parcel of land worth a 100,000 and partner B will contribute cash 100,000. So that if we want to be sure that the parcel of land contributed by A is worth 100,000, there must be an appraisal. So there was already an appraisal. Partners already agreed that the parcel of land will now be contributed to the partnership. Reflected in the partnership agreement was the fact that the parcel of land was contributed by partner A worth 100,000 as verified and as determined by the appraisal committee or by any expert appraiser duly approved by the government. However, one month after, the parcel of land was surveyed by someone else who is interested to buy an adjacent land and partner A discovered that the property is now worth 150,000 so that partner A demanded from partner B the excess of 50,000 because partner As contribution has exceeded the agreed contribution. Can the partnership be compelled to pay the 50,000? No because after the property has been contributed, the partnership bears the risk or gets the benefit of subsequent changes in their value since subsequent changes of the property appraised shall be for the account of the partnership. So in this case, the partnership will get the benefit of the increase in value of the parcel of land from 100,000 to 150,000. o On the other hand, 2 months after, the value of the parcel of land from 100,000 appraisal value, because there are now squatters all around, has now become 25,000. Can the partnership compel partner A to make additional contribution because partner A promised to contribute 100,000 but now partner A is short of 75,000 for the value of the property lowered from 100,000 to 25,000? No, because again, after the property has been contributed, the partnership bears the risk or gets the benefit of
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subsequent changes in their value since subsequent changes of the property appraised shall be for the account of the partnership. So in this case, the partnership will bear the risk of the decrease in value of the parcel of land from 100,000 to 25,000. Why do you think the partners who failed to contribute on time their properties, which they promised to contribute for the partnership, are liable?

Because had they contributed the properties on time or punctually, the partnership might already have profited from that contribution. Because they failed to contribute the properties on time, the partnership was deprived of the proper use of the contributions promised and therefore was unable to make profit from such contributions. Thus, the partnership incurred losses and damages from such time, consequently, the partner who failed to contribute the property on time must be liable for interest. In the same manner, if he converted partnership money for personal use. o In other words, if a partner was assigned to collect money in behalf of the partnership and after collecting, he did not go to the office immediately instead he passed by SM and bought coffee and bought lotto. Then, he lost in the lotto. What happens? Such partner will also be liable for interest and damages from the time he converted the partnership money for his personal use.

What are to be contributed in a partnership?

Money, property or industry. In other words, from that part of the definition, how many types of partners do we have? o Capitalist partner one who contributed money or property o Industrial partner - one who contributed his industry or services

So that if you are an industrial partner, what are your limitations?

Generally, an industrial partner cannot engage in any business for himself unless he is expressly permitted by the partnership. o So if Sir Espedids is an auto mechanic and was hired by Cabs to be her partner in an auto-repair shop. Cabs supplying capital and the shop itself. Is Sir a capitalist partner? No, Sir is an industrial partner. So, can Sir work in another shop somewhere, even if he works on such shop only on Saturdays and Sundays? No, because the law provides so. The reason behind the law is that an industrial partner must fully devote his industry to the partnership only.

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July 15, 2010 Thursday Contributions of Industrial and Capitalist Partners If Carlobos would propose to you Benigian that you to enter into a partnership business to engage in funeral parlors and she offer herself as the make-up artist in the funeral parlor. How many bodies should she make up in a days time? Atty. E. said that they have to agree. She cannot also work 24/7. But the thing is she has to extend all his industry. So that if she says that shes good only for 5 faces today because this afternoon, she will go to her own beauty parlor. So, in the afternoon beauty parlor, live customers. In the morning, funeral parlor, silent customers. Is this allowed? As a matter of fact, she cannot engage in business. But this is not competitive business, live customers vs. silent customers? Whether competitive business or not, industrial partner is supposed to devote his entire industry to the partnership business. So, that is the measure of how much is she should work. The measure is you cannot engage in any other business because you are expected that your entire industry will be devoted to the partnership business. So, there is no specific volume of hours, no specific length of time, no measure of his industry. The law provides as a measure that prohibition to engage in any other business. And that is how the law measures his contribution.

Otherwise, if she insists on serving her living customers. What will happen? The capital partners will have the right to exclude her from the partnership or avail of the benefits of her other business or may obtain damages from her.

If Carlobos insists, what will you demand from Carlobos? Demand payment for damages or exclude her from the partnership or obtain whatever benefits that may have obtained by her.

How much do partners contribute? If the partner is an industrialist partner, then, the measure of his contribution will be exclusive to his industry. He will contribute his industry or service to the partnership. How much industry? As much as the business or the industry requires of him and if the amount of his service is stipulated in the
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agreement, then, contribution.

it

could

be

the

measure

of

his

On the other hand, capitalist partners? A capitalist partner contributes his property or his money to the partnership. Profits and Losses When they enter into a partnership business, what do they expect? They expect profits. You dont engage in business to expect losses of course. How much the partners be entitled to the profits? The distribution of profits will depend on their agreement. If there is no agreement, then, they will share the profits in proportion to their contribution. However, business may be not that successful. In this case, what could be the consequence of their business? They will incur losses. The industrial partner will not have to share in the losses If there is an agreement, such agreement as to the share in losses must be followed. If there is no agreement as to the losses but only as to the profits, then, the sharing profit ratio will also be applicable to the losses. If no agreement as to profits and losses, then, it will be in proportion with their contribution. How about the industrial partner? The industrial partner is exempt from sharing in the losses. He shares only in the profits. And how much would he share in the profits? The law requires that he will share in a just and equitable manner.

Obligation of capitalist partner to contribute additional capital If in the funeral business that we have mentioned, mid way in the business, an accident occurred and one boat filled with 5,000 passengers sank because of a typhoon. 5,000 died. Imagine, the funeral business with 5,000 faces to make-up. So, the partners eventually borrowed money from the bank to hire more make-up

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artists, to buy more coffins and to buy other funeral cars to accommodate because they wanted to bid as the sole delivery agents of the 5,000 passengers. So, they borrowed. But, when they applied to be the sole and exclusive and delivery agent from funeral parlor delivery to memorial park, they did not win the bid. After borrowing huge amounts of money from the bank. They did not win the bid. So, what could be the consequence if they borrowed and they did not get the business? The partners will incur losses. SITUATION 1: That was what exactly happened. So, before they incur the losses. After they learn that they cannot be the sole and exclusive delivery agent. Immediately, 2 of the 3 partners declared that they should put up additional contributions. Otherwise, if somebody is not willing to make additional contributions, then, he should be compelled to sell his interest. So, the 3 partners, A, B, and C. C said, Sorry I will not make an additional contribution. What are the options of A and B? (compare with immediately succeeding situation) SITUATION 2: Basically, the same business and in one transaction, one customer, the family of the deceased did not have the capacity to pay. As a matter of fact, when they got the funeral services, they told the management that they do not have the funds but you know, this guy who died had a lot of friends. And if you wish, you can assign one of your staff every night during the wake to put a box there and ask for donations. So, the staff took care of the donation box. Whatever amount would be taken from the donation box that will be all yours. And so, they agreed. However, on the night before the burial, they look at the donation box and maybe about 5 friends donated at 50 pesos each. So, only P250. Total services was P15,000 because P5,000 for the casket, P10,000 for the rack and lights. In other words, there is also a probable loss in this case. P15,000 worth of services only P250 in the donation box. And the same thing, A and B decided, we will have additional contributions. Otherwise, anyone who refuses is compelled to sell his interest. What are the options of A and B? C? Would that imminent loss cause the eventual dissolution of the partnership? Is the imminent loss so grave that it can cause the eventual dissolution of the partnership? Because the intention this time is to save the venture. Even if there is imminent loss, but that loss would not result to the dissolution of the business, then, there is no need to compel the partner who refused. The purpose here of compelling the partner to contribute to find out whether or not the partner is still interested to proceed with the partnership business. Now, here (Situation 2), loss involves one client only. This does not make, unless the business is so small, but here loss from one client does not necessarily constitute as enough reason to suspect that the business venture would be dissolved. BUT huge amounts of loans intended to acquire

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additional facilities to cater to the 5,000 bodies, thats a huge amount. So, that if they fail to get what they wanted, there is a danger that the partnership will be dissolved. There is a danger. Whether or not the loss would eventually lead into the dissolution of the partnership and to the bankruptcy of the partnership business. Managing Partner Who manages the partnership business? Generally, every partner is a manager unless there is an agreement or a stipulation to that effect appointing a partner in the articles. Every partner is a manager. However, if one is designated, then, he assumes the powers and responsibilities and duties of a manager. As a managing partner, in case of conflict in interest, what do you think is the inclination of the law? The law is inclined towards the partnership. As a managing partner, what are you supposed to observe? As the managing partner, you are to observe good faith, fair play and integrity in your dealings in behalf of the partnership. Obligation of managing partner who collects debt Pelinio, if Pagador owes you P10,000 and at the same time he owns the partnership, of which you are the managing partner, P20,000 and he pays you today, P10,000, how would you apply the payment? Assuming both debts are due and demandable. If Pelinio issues a receipt in his own name, then, the payment (P10,000) shall be applied proportionately to both debts. If one debt is more onerous than the other, then, the debtor (Pagador) can choose which to apply the payment. More onerous means that the debt, say for example, incurs a higher interest rate than the other. If only the partnership debt is due and demandable, then the whole payment (P10,000) shall be for the partnership. Obligation of partner who receives share of partnership credit A, B, C are partners. It was December and they do not have anything to distribute for their respective bonuses. They wanted to enjoy Christmas. When they review their bank account, it was zero. But everything was okay. Only they do not have cash in the bank. The only
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assets that they have were some collectibles, some receivable. Since they wanted to enjoy Christmas, A, B, C as partners said, all right, lets try to check on the receivables. We will try to collect as much as we could before December 25. And so, they identified the receivables. They identified the bigger ones. There were 3 big ones, P50,000 due from debtor X, P50,000 due from debtor Y, and another P50,000 due from debtor Z. Partners A, B, C said, why dont we agree. Let us distribute this. To partner A, go to debtor X; Partner B, go to debtor Y; Partner C, go to debtor Z. A immediately went to X, no delay at all. A was able to collect the P50,000. B went to Y, first time he went there, Y was not there. Second time, Y just left. Third time he went there, Y just left for abroad. Partner C went to Z, first time he went there, he got P5,000. 2nd time, he got another P5,000. 3rd time he went there, he was told by Z that he has no money. They collected a total of P60,000. B saw A shopping already for the P50K that he was able to collect. B also C in queue in the lotto station. He asked, why are you here. C said, I will bet the 10,000 for lotto. B said, bring back the P60,000 to the partnership funds and we will share it. Is B correct? To be able to demand that everything should be returned to the partnership funds, the complainant partner must prove that he was not able to collect from the debtor because the debtor is insolvent. Insolvent means that the debtor has no capacity to pay or that his liabilities are more than his assets. The debtors assets are no longer sufficient to settle his liabilities. Credit collected after dissolution of the partnership Lets change the facts a little bit (immediately preceding case). The partners could no longer continue the business, they have tried the best they could, but, after 50 years of existence still they did not enjoy substantial profits. They decided to dissolve the partnership. In every dissolution, however, there is liquidation. And the try to distribute their remaining assets. The remaining assets that they have are the same collectibles. They discovered that they have P150,000 worth of collectibles. They decided to divide this into 3. (Same sharing as mentioned above). These were all evidenced by promissory notes. A was able to collect from X, P50,000. B was not able to collect from Y because he was insolvent. C was able to collect P10,000 from Z. B is now asking A and C to bring back the money that they have collected. Is B correct? There are two views. The first view states that the partners have responsibility to give shares to the other partners. the

The second view, also adopted by Manresa and which Atty. E. agrees, states that the credit collected must no longer

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be brought back partnership, no among partners, the partners, are

in the partnership fund. There is no more more funds. The fiduciary relationship the trust and confidence that once binds no longer there.

Even if the reason for the failure to collect is the insolvency of the debtor, this is not enough to justify that whatever was collected must be brought back. B was the one who failed to collect. But before the promissory notes were distributed, C and A knew that Y was insolvent. They are not compelled to bring back the money collected. But since there was bad faith, B can demand from C and A damages. B has to prove bad faith. Risk of loss o Whenever you hold something and lose it, the owner bears the risk of loss. That is the general rule. o Lets say Ms. Vertulfo, you have a partner, Ms. Tan and Mr. Santillan. Tan and Santillan propose a business. You have agreed for a partnership and you were supposed to open already your meat shop on Monday. So that Tan volunteered to be in the counter because she was so good in handling knives. Santillan volunteered and offered his closed van for delivery. So that you have already agreed for a partnership. You have already published in the newspaper so that opening would be on Monday. However, Tan did not trust Santillan for his van. She suspected that it was not in good running condition so she tried to test Santillans van. She test-drive the van which happened on Saturday. One hour after she started driving the van, you heard that Tan had an accident and you could hardly identify the van. Thats how bad the accident happened. So the specific van was promised by Santillan but the van was destroyed. In other words, the delivery van that Santillan promised was destroyed. Such van is beyond repair. And so Monday came, Santillan cannot deliver the specific van promised. So who bears the loss of the van? If the agreement or intention was that the ownership of the van be contributed, then the partnership bears the loss. On the other hand, if the intention or agreement was that only the use and the fruits of the van be contributed, then it is Santillan who bears the loss. So that only if the use was contributed, who do you think is duty-bound to look for a delivery van on Monday because the partnership has a lot of meat to deliver on such day? Santillan has the responsibility to provide for a van to deliver the meat. So that if Santillan cannot find a substitute van and you were forced to call a rent car

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just to deliver the meat and the rent car is so much, who will be responsible for the charge? o Santillan bears the liability of the charge. On the other hand, if ownership was transferred? Partnership becomes owner so whatever happens to the van shall be born by the partnership and if the partnership cannot find a new van, they will have to hire a van on Monday to make the delivery and the partnership shall pay for the rentals of the van. Let us assume further that the agreement was for Santillan to contribute that specific van with plate no. 367 and to deliver it first business hour on Monday. Again it was testdrive by Tan and same accident happened. So on Monday, theres no more van of Santillan. Who bears the loss? What happens to Steve as a partner? What happens to his obligation? Before delivery, partner bears the loss but after delivery, partnership bears the loss. Even if a specific property was promised to be contributed, if it was lost before delivery, Santillan bears the loss. If the loss occurred after delivery, then the partnership bears the loss. Under the law on obligations and contracts, the obligation to deliver a specific or determinate thing is extinguished if such specific thing or determinate thing is lost. Santillan can no longer be compelled to deliver his car because he lost such specific car. He did not promise to contribute just any car, the generic thing, but he promised to contribute his specific car. And so, his obligation is extinguished since one of the modes of extinguishing obligations is loss. Since the specific thing was lost, and loss being a mode of extinguishing obligations, Santillan is no longer obliged. On the other hand, since Santillan cannot anymore deliver what he promised to contribute, Santillan can no longer be a partner to the partnership. No contribution, no partnership. Loss of the thing extinguishes obligations. What are the other modes of extinguishing obligations? o Payment o Loss of the thing o Remission of debt o Condonation o Merger o Confusion

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If the property promised to be contributed is a generic thing, any car, Santillan is obliged to look for another car. What if there was no indication whether or not what Santillan contributed was the mere use or the van itself, what he did was for the parties to look for an appraisal and the appraisers went and inspected the van of Santillan and the van was declared to be worth only 750T. And so that was what was written, Santillan to contribute his van with plate no. 367 worth or valued at 750T. Now, it got lost again after delivery. Santillan said I am no longer obliged to look for another van. The other partner said Look for another van because we did not state that only the use was contributed. Its not clear whether only the use or the van itself. So you have to look for another van because what you contributed was just the use of the van. Who bears the loss? If there was an appraisal the value was determined, theres no other intention of the partners other than to deliver the ownership of the van itself. Theres no other purpose why the partners will have to adopt an appraised value. In assigning the value, that will now measure the extent of the contribution of the partner. So that in terms of profit-sharing and sharing of losses, that would be the basis because that was his contribution. So even if they did not mention that ownership or the use was contributed, but it is clearly established that the partners sought the assignment of values for the van itself, then this conclusively presumed that the contribution was for the ownership of the van. So here, the partnership becomes the owner and thus, the partnership shall bear the loss. So Santillan offered his services as a driver and other than his van, he had actually a piggery so that every Monday, he brings 10 heads of pigs to be shopped and sold and thats his additional contribution. However, along the way as he was delivering and pulling the pigs from the piggery along the road, the other 5 pigs got lost along the way and he cannot find them. And so Santillan brought only 5 pigs. Who bears the loss of the 5 pigs? o Santillan still bears the loss because there was no delivery yet of the 5 pigs so before delivery, Santillan remains the owner and thus, he bears the loss. o The other 5 pigs arrived at the meat shop but only to find out that one of them had difficulty

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in breathing. Eventually, when brought to the veterinarian, the pig was declared dead on arrival. Who bears the loss? It depends. Its situational. If the pigs to be sold were already received and accepted by the meat shop and the partnership business, delivery was done and therefore, partnership bears the loss. On the other hand, if the pigs are not accepted, then delivery was not perfected, so Santillan remains the owner, thus, he bears the loss. Because when we say delivery, its acceptance by the partnership business. Same business, same driver. This time, Santillan was instructed as his job as the driver by the managing partner to get another 10 heads of pigs from the piggery in Asturias and bring it to the meat shop. From Asturias, he was carrying this 10 heads of pigs passing through the Transcentral Highway. At the Transcentral highway, Santillan has to answer the call of nature and has to disembark the van containing the pigs and look for a tree where he could pea. And as he was peaing, the van moved and the door opened and one pig was able to run. So he hired a brgy. tanod to look for the run-away pig and such brgy. tanod was able to find the pig so Santillan paid him 100. When Santillan arrived at the meat shop, he asked for a refund from the partnership of his payment of 100 to the brgy. tanod. Can he ask for the refund? o Here Santillan, just by peaing, was not negligent and since expenses incurred in good faith for the benefit of the partnership business itself, the partner who incur the cost or the expense shall be entitled to reimbursement. Thus, he can ask for the refund. _____________________________________________________________________________ ____________ July 22, 2010 - Partnership Losses What did we discuss about losses? Who bears the losses in our last discussion? o The rules on who bears the loss: Rule No. 1: Specific thing before delivery, the owner will bear the loss.
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Rule No. 1: For specific thing, before delivery, if only the use will be contributed, partner bears the loss. Rule No. 2: For specific thing, before delivery, even if ownership is transferred, partner bears the loss. Rule No. 3: For specific thing, after delivery, if only the use will be contributed, partner bears the loss. Rule No. 4: Specific thing, after delivery, ownership is transferred, partnership or firm bears the loss. Rule No. 5: For fungible things, partnership bears the loss. Rule No. 6: If the thing contributed is to be sold, if the partnership will accept it, then partnership bears the loss. Rule No. 7: If the thing is appraised in the inventory, partnership bears the loss.

o So that here, we talk of specific thing in rule no. 1. Because in generic, if what was to be promised was a generic thing, the partner is still obliged to deliver because genus does not perish. Therefore, his obligation is never extinguished by the loss because what he committed to deliver was a generic thing not a specific thing. Remember the pigs. Wherein the tanod was able to get back the pig and Mr. Santillan had to pay the tanod Php100 for the services of such tanod. Can Mr. Santillan seek reimbursement from the partnership for what he has paid the tanod for recovering that naughty pig because the naughty pig wanted to take a look at what Mr. S was holding? Your guide in determining whether or not the partner can be entitled to recovery or reimbursement of the expenses will be that whether or not that partner incurred such expenses in GOOD FAITH or whether or not that partner incurred those expense WITHOUT NEGLIGENCE on his part or without any act which in effect would be considered negligence.

o Would your answer be the same if the purpose of Mr. S for stopping the truck was not to answer the call of nature but rather to talk with a masiao usher, looking at the numbers? While looking at the numbers and about to buy a combination of numbers, 1 pig got away. No.

RULES ON SHARING: FIRST, SHARE IN THE CONTRIBUTION For Capitalist Partner: o Rule No. 1 as to contribution in our outline, if there is an agreement, then it should be based on whatever they agreed in their contribution. o In the absence of an agreement, contribution is equal. (No agreement, equal). For industrial partner:

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o He contributes his ENTIRE INDUSTRY. RULES ON SHARING: SECOND, SHARE IN PROFITS What do they expect? They expect to share profits. How to they share profits? o CAPITALIST PARTNER First, according to their agreement. If no agreement, apply the sharing in proportion to their contribution. If they contribute Php 50,000, they share also Php 50,000 No. In proportion is the word not in exact amounts.

o INDUSTRIAL PARTNER The sharing of profits is not fixed but whatever is JUST AND EQUITABLE.

RULES ON SHARING: SECOND, SHARE IN LOSSES Not all businesses will be successful they could suffer losses. Again: o CAPITALIST PARTNER AGREEMENT AS TO LOSSES: agreement as to losses. First, according to their

Maybe they expected to suffer losses thats why they made already an agreement as to how they will share the losses. But perhaps they never expected to suffer loss thats why they did not make an agreement:

AGREEMENT AS TO PROFIT: In the absence of an agreement as to losses, it must be in accordance with their agreement as to profits. Since they did not make an agreement as to losses. IN PROPORTION TO THEIR CONTRIBUTION: If they did not also agree as to profits and then apply or share the losses in proportion to their contribution.

o INDUSTRIAL PARTNER EXEMPTED from losses.

SHARING OF PROFITS DESIGNATION OF 3rd PERSON So that the sharing of profits and losses may be agreed upon by the parties or partners themselves. Is there any other way that the sharing of profits and losses may be determined other than the partners?

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o A 3rd person may be designated. However, we said, generally, the partners can agree. So that if partners A, B, C agreed that o Their contribution should be: 50% for A, 40% for B, and 10% for C. As for sharing of profits, they agreed that: A should get 40%, B should get 50% and C 10% How to do you find that? If you are A, you contributed 50% and share at 40%, for partner B, contributed 40% gets 50%. Since they agreed, that is okay. Since that is their agreement, as to profits, then apply the agreement as to profits.

o Assuming something else, in their capital, here is A who contributed 80%, B 15% and C 5%. In turn, they agreed that C gets 5% in proportion to his contribution but B gets the 80%, A gets the 15%. Okay still? Inequality by itself is not prohibited. There could be other considerations possible. Like mas gwapo si B or of higher standard of education then you will have a bigger share. However, if the inequality is SO GROSS that it now is bordering now on excluding any partner from the share of profits, then that is no longer allowed. Because excluding a partner from the profits, that will be void. In the illustration, while the partner is not excluded but you could see the difference. Contribute 80%, get only 15%, I dont think there is not any good explanation for that. In other words, unequal sharing of profits may be tolerated until it becomes so GROSSLY INEQUITABLE.

So that we said, generally, the partners among themselves agree, however they could also agree that since 1 of them, for example among A,B, C, C was recognized to be number 1 in accounting, he was a Harvard graduate, he took up management courses, he was number 1 in the board of accountancy. A, B, C said that C since you are good, ikaw na bahala, you decide what is our sharing of profits and losses. So C with all humility accepted the offer. After 6 months, B felt that, he thought that C can be trusted, the ways of C were not right . This is after 6 months and after they have complied with the earlier decision of C as to determination of the profits and losses. Can B still question the decision of C? o Yes. Because a partner cannot designate as to distribution of profits in the partnership. The 6 months is irrelevant because in the first place, the partner is not allowed to designate what is the sharing as to profits and losses. This is to guarantee the impartiality of the distribution of the profits and losses.

While the law does not allow the partner to be in charge of the designate in the determination of the profits and losses, may therefore anybody else other than the partner be designated by the partners? Yes. It can be delegated to another person other than a partner. However, when the designation of the profits and loss sharing is manifestly inequitable, the partners can question or oppose or in the language of the law, they can IMPUGN.

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o How and when should they question? They should question or impugn the designation within 3 months, so long as within that period, they have not started to execute the decision of the 3 rd party. Administration / Management How should the partnership be managed? Or on whom is management vested? o The management of the partnership is vested with the one who is appointed as manager either in the articles of the partnership or after the execution of the articles of partnership. o In the absence of any designated managing partner, every partner is a manager. This is just the general rule. So that normally a managing partner is designated. So that here, that designation may be done how? The designation of a managing partner may be done: o Through the articles. Meaning, when they execute the articles of partnership, they will already designate their as to who shall become the managing partners. o Or they could still appoint after the execution of the articles of partnership. ILLUSTRATION: So that here was Mr. Cesar, whom the partners agreed to manage the business of the partnership. Day 1 Cesar arrived in the office and they own a building incidentally, Cesar arrived at the lobby, Cesar said that he did not like the frame and so asked it to be changed with his picture on a frame. Then asked the lobby to be painted with black. So that when the customers come in, 1 out of 10 ma dakin-as daw, kay di kita. They cannot see the door. Do you think you could change the decision of Cesar? Does changing the paint an act of administration? Yes What is an act of administration? Act of administration is the act of a partner which does not involve acts of ownership, short of ownership. It may refer to acts of management, acts of preserving, acts of protecting the properties and other assets of the partnership. So the intention of the act is to protect and preserve, never intended to act as an owner because an act of ownership is not allowed to be performed by a partner himself. If it involves ownership of the property of the partnership, then, all the partners must be involved. So here, if you are a manager, you are limited to acts of administration. Acts which are intended to enhance the value perhaps, protect or preserve the assets of the partnership. Going back to our illustration Cezar, we wanted to change. It was your decision to have it painted black. Do you think your decision can be

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questioned? It was purely an act of administration. (called another person, reiterated the situation) Cezar was managing partner. Day 1, did nothing but put up his frame, change the entire lobby and painted the other lobby black. Therefore, some of the customers met an accident, drove to the hospital because they cannot see and sometimes, they stumble. How do we question the decision of Cezar? Generally, can the decision be questioned? It was purely an administrative act, changing the color. Yes, it can be questioned. The purpose of which must be to carry out the objectives of the partnership. Absence of which, the partners can question. How do we revoke his decision? Majority of the (managing) partners should oppose. So despite the opposition, he insists that black is beautiful. What shall we do? The decision of the partner who has the controlling interest. In other words, there must be cause? Should there be just cause? It depends. o If the designation was done in the articles of incorporation of the partnership, then, his appointment as a managing partner may be revoked only if there is a just and lawful cause with the concurrence of the partner who owns the controlling interest. o If the designation was done after the creation of the partnership, the appointment may be revoke any time with or without cause with the concurrence of the partner who owns the controlling interest. If there were 4 partners who wanted to question the decision. How many partners would constitute the controlling interest? What do we mean by controlling interest? Controlling interest means the partner who owns more than 50% of the entire capital of the partnership. So, we said that the manager may be designated through the articles and afterwards. And, which of the two modes of appointment would involve a stronger power? The designation done through the articles of incorporation appears to have more power in so far as the management is concerned. Management So that in the absence of designation, who manages the partnership? If we have 5 partners, and nobody was designated, how many managers do we have?

We have 5 managing partners.

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It is expected that there will be no peace if all of the 5 partners would manage. So, the law provides some rules because there will be expected trouble. As they say, one kingdom is not enough for one queen Illustration: Funeral Business. Cezar, Conde, Millan. They were the partners. Millan is an expert in make-up. Every time there is a customer brought to the funeral parlor, it is brought first to the swimming pool, in charged there is Cezar. That is why every time a body is brought, bring him to the swimming pool, the lifeguard is there, Cezar. So the body is thrown to the swimming pool, Cezar will slowly scrub. From the swimming pool, it is brought to the beauty parlor. Then, Millan takes over. Millan is the manager of the beauty parlor department. Cezar was the manager of the swimming pool department. When it was brought to the beauty parlor department, Millan was there and she started doing her job. She was slowly working on the face, then, Conde suddenly stood behind Millan. Conde said, Millan, ka-baga ra anang kilay. Panipisi na uy. Ang lips kay puwa ra kayo. Kani, mao ni imong gusto, patay nga murag buhi? What happened was, Conde interfered all the time. Every time Millan does her job, Conde was there interfering. And thats were trouble starts. So that, if trouble starts. How should we resolve? o If your functions and areas are well-defined, then, do whatever you want insofar as your respective area is concerned. To each his own. Mind your own department. Each must decide in his own sphere of jurisdiction. But this does not mean that the other partners cannot make some objections to the decision of the other. Because as a partner, he also has the authority and power to find ways on how to improve the business of the partnership. In that case for example, if Millan were left alone, she might not have the experience. She was just accountant before, and now, she was promoted as a make-up artist. While the general rule, is to each his own. Let us perform our function and limit our acts to our respective areas of jurisdiction. That does not mean that the other partners cannot. So that the other partners can make suggestions. They do not want to call interference but some kay mamugos man. So, how do we resolve that?

o If there is a conflict, majority decides. o If there is no majority, in case of tie, he who has the controlling interest resolves the tie.

There are occasions when the partners are not just contented with the majority. Matter of fact, on many occasions, the partners would require that their decision must be supported. In other words, unanimity prevails.

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There are occasions when unanimous decision is required. How should things be decided? General rule: All partners must concur. o Otherwise, it will be invalid and not binding. Exceptions: o Imminent danger of grave or irreparable injury of the partnership.

From what we have discussed, let us review again the rules. 1. If there is no partner is designated as manager, then, all the partners will be managing partners. 2. Each partner shall decide within his department. 3. If there is conflict, majority rules. 4. If there is a tie, the decision of the partner having the controlling interest prevails. 5. In cases were unanimity is needed, everybody must concur. 6. If there is an imminent danger of grave or irreparable injury of the partnership, partners can decide even if they are not complete.

Alteration of immovables If the partners have not designated the manner of management, then, each partner is an agent of the partnership. And his act can bind the partnership unless it is with regard to an alteration of an immovable wherein he must get the concurrence of the partners even if such alteration is beneficial to the partnership. If a partner opposes, and his opposition is prejudicial to the partnership, then, they can go to the courts. In case of alteration of immovables, even if it is beneficial to the partnership, still, it will require unanimity from the partnership. And if they cannot agree, they can go to court.

Associate An associate is a sub-partner. A sub-partner is a 3 rd person who associates himself to a partner for the purpose of having a share in the partnership A sub-partner is not a partner in the real sense. He is not even a partner at all. Because we said, that to become a partner of the partnership, it is required that all the members consent. Here, trust and confidence is an absolute necessity. Every partner should know and trust all the other partners. How does he become an associate? An associate approaches any of the partners of the partnership.
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Illustration: Youre playing cards and somebody approaches you and say, abay ko bai, pun-i imong pusta ug 5 (P10 ang pusta). Is he a player? No, he is not. If I win, his P5 wins. If I lose, he also loses. But when I play my card, he cannot participate in the game. Since he is now an associate of your partnership, you were the accountant of the partnership business. Mr. Dy said, Ms. GIngoyon, what is your cell phone number? And so, he texted you at 1 oclock in the morning. He said that he is an associate of Ms. Omolon in the partnership and he wanted to look at the books of the partnership so he would know whether or not the business is doing good. Can you be obliged? o No, Gingoyon cannot be obliged to let Dy see the books because he has no right at all as an associate. He does not have that right of a partner. If he were a partner, he cannot also do that because 1 oclock in the morning is not a reasonable time of the day.

Access to partnership books Under what circumstances, can a partner have access to the partnership books? A partner can access to the books during reasonable business hours. Reasonable business hour means office hours. What are the other rights of the partner in so far as records are concerned? What is included? All matters describing the status of the business of the partnership including transactions, sales, loans and other liabilities. Prohibition against a partner engaging in a business Industrial partner The prohibition is absolute in the sense that the prohibition applies whether the business is in competition or not. If there is violation, the other partners can o exclude him from the partnership or o avail for whatever benefits he received arising from the transaction, o with right to damages in both cases. Capitalist partner The prohibition is relative in the sense that he cannot engage in a competitive business with the partnership. If there is a violation, the capitalist partners can: o Bring to the common funds any profits accruing from his transactions

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o If there are losses, he bears it Is exclusion an available remedy in case of violation of the prohibition? o It is not mentioned under the law. However, if the extent of the violation is so gross, his behavior has become so disadvantageous to the partnership business, he can be excluded in some other ground, not solely on engaging in another business. Perhaps, because of the attitude or he is causing so much trouble to the partnership. Then, he can be excluded. o If the ground is purely on engaging in a competitive business, then, that option is not given to the other partners.

July 24, 2010 Saturday When we talk of property rights of partners, what would this include? o Rights in specific partnership property o Right to his interest in the partnership o Right to participate in the management In specific partnership property, the partners are treated as co-owners. So that if the partnership owns a land, somewhere in Lahug, can one of the partners tell his drivers to live on such land since he is one of the co-owners? o No, since the limitation of partners in specific partnership property is that they must possess specific partnership property for partnership purposes and that he has no right to possess such property for any other purpose without the consent of his partners. In this case, letting one of the partners drivers live in the land is not for partnership purposes. o So that if the partners allowed Sir as the partner to use that property and in turn, Sir told the driver that Anyway, they have already agreed that I could use that property. Go ahead. You stay there. Is that right? In this case, the partners right in specific partnership property was assigned to somebody else which cannot be allowed since under the law, a partners right in specific partnership property is not assignable. The privilege or right to use the property was given to the partner as a partner in the partnership, which privilege or right cannot be assigned. In other words, since the other partners allowed Sir to use the property, does that mean that Sir could go to the bank and offer such property as a collateral? NO, since the right to use such property is a personal right as a partner. Therefore, as a partner, any privilege granted by law or by the other partners is personal as a partner. Thus, such privilege can never be assigned.

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When you say right to partnership interest, what is included there? o Such right to the partnership interest includes the partners share in the profits as well as share in the surplus. o So that here, as distinguished from a partners property rights, it is a partners right to be considered as a co-owner of the property. Can Sirs personal creditors go against the partnership property by saying that I, as their debtor, is a co-owner, and therefore, they are going to attach my right over that property? No, since partners right in specific partnership property is not subject to attachment or execution, except on a claim against the partnership. In this case, it is not a claim against the partnership but a claim against a partner as a personal debtor. Therefore, Sirs personal creditors cannot go against the partnership property. In other words, if there is any attempt to interfere in the ownership of any partnership property, this should not be allowed. So that Sirs right to use as a co-owner in partnership property can never be attached. So that here, if Sir has an illegitimate child and the mother now sues Sir in the family court. She was able to get a decision compelling Sir to support her child. Can the mother go against any partnership property and say, The father of my child is a co-owner of this property and therefore, my child is a co-owner of this property? No, since a partners right in specific partnership property can never be subjected for legal support.

If Sir has a personal creditor and that creditor was able to get a favorable judgment so that the creditor, since Sir has no money and no other property except his interest in the partnership, went to the partnership to execute against Sirs interest? Can the personal creditor do that? Yes, the judgment creditor can go after Sirs interest in the partnership after applying to the proper court for a charging order. Such charging order is not a separate remedy but is just a continuation of the collection case filed by the personal creditor. Once the decision is handed out, part of the execution is to go against the partnership interest and charge such interest. It is just a continuation of the execution of the decision secured by the judgment creditor. In this case, the judgment creditor cannot go against partnership property but it could go against a partners interest in the partnership. So thats what the judgment creditor did. After learning that each partner was entitled for some drawing rights for certain amounts every month, thats what the judgment creditor did. Every end of

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the month, he will go to the office of the partnership and collect the amount which should have been paid monthly to the partner, the judgment debtor. First month, the other partners need not mind. They readily gave the amount and the judgment creditor has to sign an acknowledgment receipt of the amount. However, 4 months after, the judgment creditors behavior deteriorated. Instead of asking 1 cup of coffee in the office, he is now asking 3 cups of coffee in the office and stays there in the office. Now, other than asking for 3 cups of coffee, he would insist that Ymas will be the one to serve him the coffee because he wanted the way Ymas prepared the coffee. So that would you, as a partner, feel comfortable of this guy (judgment creditor) coming to Ymas every month? No. The judgment creditor becomes an irritant. So that there is now a need to dispense such judgment creditor. As a partner, you will have to find ways to get rid of him. Could you get rid of him? o Yes, the partners are given the remedy, as provided for by law, to redeem or purchase the interest charged, attached or executed or perhaps, foreclosed. o How? 2 ways: With separate property, by any one or more of the partners; or With 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. Distinguish an assignee from an associate: o An assignee has a better rights since an associate is almost totally a strange. An associate cannot interfere. In so far as the partnership is concerned, the associate does not exist. If the partner deals with such third person associate, the partnership has nothing to do with such associate. Once the partner assigns a part or whole of his interest, then the assignee now up to a certain extent may be recognized by the partnership in certain instances. An assignee is given better rights as provided for in the law in the following instances: 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 assignors interest in case of dissolution 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
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So that if a partner, for example, assigns all of his interest to the assignee. Is that assignee now a partner? What happens to the assignor partner? o The assignee is not considered a partner but the assignor partner remains to be a partner since he still has 2 property rights, which are the right to use specific partnership property and the right to participate in the management. These 2 rights cannot be assigned. But in so far as the interest is concerned, to all intends and purposes, the partner is still entitled to that but since he assigned it, the assignee may now demand for the delivery of any share in the profits and surplus and now entitled to the rights abovementioned. Heres a partner in a funeral business. He had personal guests coming from Manila and since it was a Monday, many of the delivery cars were available. So to fetch his guests at the airport, he called one driver and said Please use the car. Fetch my guests at the airport. And his guests were just too happy to board the car with curtains. The following day, the partner receives a bill of collection from the partnership. Can he be compelled to pay? o Yes since he used the car for personal purposes to fetch his personal guests. The partner can only use specific partnership property for partnership purposes only. o However, another partner learned that the mother of his contact at the LTO died and this contact is very helpful for purposes of getting back the licenses of the drivers, facilitating registration, the drivers arrested for overspeeding the funeral cars and their licenses were confiscated, this contact is the one who helps in returning the licenses. Payback time, the partner offered free services to the mother of this LTO contract. However, again, the following day, the partner who made that offer for free services got a collection letter from the management. Can that partner be compelled to pay?

- End. Well continue next meeting July 29, 2010 THURSDAY Judgment Creditor So that we tried to distinguish an associate from an assignee. Now, in the previous assignment, there was mention about a judgment creditor. So what do we mean by a judgment creditor and what are the rights of a judgment creditor? So how do we now distinguish for example the rights of a judgment creditor versus the rights of an assignee? So that in so far as the source of the relationship is concerned, between the partner and the judgment creditor on one hand. And an assignee and the partner on the other, how did we distinguish the relationship? How did it arise? Based on an agreement, so voluntarily? o On the other hand, may a judgment creditor become an assignee instead? What do you think? There is no prohibition and we could

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never prevent them. Even if there is already a judgment against the partner, the partner can out rightly offer his partnership rights in so far his interests are concerned. And therefore, offer it as payment and settle the obligation. Although we said basically there is a distinction between an assignee and a judgment creditor in the sense that in so far as the rights of a judgment creditor are concerned, it arises from an involuntary act being enforced by a court order. Yet, there is nothing that will prevent both the judgment creditor and the partner from agreeing where the partner can voluntarily offer part or all of his interest in the partnership to settle the obligation covered by the court order. And so, nothing could prevent the parties from agreeing in a voluntary assignment despite the fact that there already is a court order against the partner. Firm Name Why do you think a name is important? Because it identifies you from the rest. o There are hazels which are good girls, there are hazels who are better girls. SO that a name is important to identify you from the rest. You are a person by yourself and if we did not have any names then perhaps people will call us by our numbers. So, thats why we said its always important that a person should bear a name. A description is not enough even rather a name will be more accurate in identifying a certain person. And because a partnership a juridical person, necessarily, it must have a name. How should the name be written? What should be included in the name? It may or may not include the name of the partners. So that if the partners decided to have their names included in their partnership name. o The partnership of 3 persons could say Dumagat-Aton-Escaan Company so that you ask De la Cruz, Do you want your name to be included in our firm name? De la Cruz says, Up to You. But I do not have money and I wont join the partnership. So De la Cruz agreed that her name be included in the partnerhship. One day Louella learned that the partnership went backrupt and there was a judgment against the partnership and there was a judgment worth Php1M, so that Dumagat-Aton-Escaan could no longer be located, only De la Cruz was available and thats where the sheriff went. The sheriff attached all the properties of De la Cruz. De la Cruz disclaims that she was not part of the partnership so why should her properties now be attached? Can she complain? If her name is included in the partnership name, she can be liable like any partner. So that, unless you want to be liable, never allow your name to be included in the partnership name.

So that Dumagat, some customers were complaining Dumagat because the partnership name was hard to remember. When we are asked of our supplier, we are finding it hard to mention your partnership name. So because there was difficulty, you decided to change your firm name. You think you could change? Yes. o What do you do to change your name? You have to amend your articles. Because thats how important a name is. Its not only for purposes of satisfying your ego, you know it sounds very sweet
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when people mention our name but there is a responsibility, therefore you cannot just change your name by yourself. If you have registered your name in the Securities and Exchange Commission, necessarily you have to amend the articles so that the SEC could continue monitoring your activities as a juridical person. As a duly registered partnership for example. Youre dealing with the public through that name. o So that if the partners eventually said that you know we have a lot of debts, maybe people are no longer extending us credit, our suppliers are no longer extending us credit because our credit has not been good. So perhaps, we have to change our name so that our suppliers would believe that actually we are a new company. The suppliers were no longer extending them credit because their credit was no longer good. To induce their suppliers to extend them more credit, they change their name. Do you think you could change that name? No. What does the law require before you could change your name? It must be done in good faith and not necessarily to evade obligations or mislead their suppliers. It must be done in good faith. You must have a reason why. Because if your intention is to mislead the suppliers perhaps into believing that you are a new company, and therefore evade from your reputation of being a partnership who refuses to pay lawful obligations, that cannot be done.

o So thats how important a name is. Perhaps difficulty in remembering the name or perhaps they just wanted to change the name for no other reason so long as this is done in good faith. Thats how important it is. o So that even a person, a natural person, can they change their name? Yes of course. o Name is important and you cannot just change your name unless you have a good reason to change it. Partner Liabilities Earlier, we were discussing the liability of an industrial partner. What was the extent of the liability of an industrial partner? o When it involves losses, an industrial partner is exempted. And so, here was his company with A, B, C who were the capitalist partners and I, as the industrial partner, after 1 year of operation, the financial statements indicated that they had a total asset of Php3M and total liabilities of Php2M, and so they decided to close. The creditors, who were entitled to collect the liability of Php2M, went to court and they were able to get a decision in their favor. And so the sheriffs went against and were looking for A, B, C, who were no longer around and could no longer be found. But the industrial partner, believing that he was exempted from losses, did not bother to leave. So that when the sheriff served them the writ of execution, the industrial partner said this is a loss. Our assets were only worth Php3M, they have paid all of the Php4M and the remaining Php2M, and so this is a loss and according to Atty. D, I am exempted from loss. Can the sheriff compel him to pay? o Loss and liability is not one and the same. So each partner should be liable pro-rata.

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o So here, is the industrial partner for this? Yes because industrial partners are not exempted from payment of a liabilities to 3 rd persons. How did we distinguish then liability from loss? From the facts that we indicated, clearly, I am not an accountant, but is that liability also a loss at the same time. Thats a loss. Its already a loss. There is no way they can recover they can still recover because the assets are gone, as a matter of fact, they are supposed to dissolve already. That liability has become a loss and the point was we have a rule that exempts an industrial partner from losses, and yet we are saying that yes, that industrial partner can be compelled to pay because, despite the fact that he is exempted from loss. So how do we explain that? o Yes, he can be compelled to pay that because the law also wanted to protect 3rd parties. But because the industrial partner is exempted from losses and what he has been compelled to pay is part of the loss, we reconcile it by, he could seek reimbursement from the capitalist partners. In that case, we have complied with both provisions. The provision which compels him to pay his liability in so far as 3rd parties are concerned and the provision which grants him an exemption from losses by giving him the RIGHT TO SEEK REIMBURSEMENT from the other partners. o So how much should he be liable for? . How come its ? Because there are 4 partners. And what is the extent of his liability to 3 rd parties? Pro-rata. Pro-rata means: There is actually a conflict even among the authors, they cannot agree. Some authors say pro-rata here means equal. Some authors however say, in proportion to their contribution. Since the law uses the word pro-rata, there is no way it could mean equal although some author insist pro-rata in this provision should mean equal. It can never be because pro-rata is always in proportion. Thats the meaning of pro-rata. So sir agrees with some authors who claim that PRO-RATA would simply mean in proportion to their contribution and never equal.

o So here, the industrial partner is protected and therefore his right to be exempted from losses is still preserved in the sense that he could seek reimbursement from the other partners. Exemption from Losses Another situation, A, B, C were partners, now with all of them as the capitalist partners. However, all the partners when they started in the partnership that C should be exempted from losses. So that again when there was a court decision where the sheriff was now trying to execute against partnership property, A and B were gone leaving behind only C. So that when C was seen by the sheriff, the sheriff wanted to compel C to pay, when sheriff said please pay, can again C say that we have an agreement, I am exempted from losses. Can the sheriff compel C to pay? Yes. o Still, partner C can be compelled to pay because a stipulation exempting any of the capitalist partners from losses is not a valid provision.

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Partnership Management In the absence of any designation as to who manages the partnership, who will manage the partnership? o All of them. Each partner, therefore could be a manager, is an agent of the partnership business. So that generally, we said, who can bind the partnership in the absence of any manager? Anyone of them can bind the partnership. o Do you find that comfortable or safe provision? Its not really accurate to say that each agent can bind the partnership, although we said each partner can bind the partnership. Although, generally each partner is a manager but its a different thing to say each partner can bind. He can bind the partnership only under what circumstances? ***Did not answer this but below are the instances where the partnership is bound.

Lets male this clearer, General Rule: As a general rule, each partner is a manager. Therefore, we could say, each partner can enter into contracts in behalf of the partnership and that could be a binding contract. However, the law cautions us by saying that although each partner can bind the partnership, there are instances when a partner cannot bind the partnership. Simpler stated, what are these instances? That the transaction entered into by that partner is not the usual business of the partnership. That the partner has no authority. And that the 3rd person, to whom that partner is dealing with knew that that partner has no authority.

o Under these instances we said, the effect would be, that that act of the partner does not bind the partnership. When unanimity is required However, there are also instances when, although we said that anyone may act in behalf of the partnership. But there are instances where not just one but all should affirm, otherwise, without the unanimity of the partners, again, the act will not bind the partnership. What are these instances? Instances where unanimity is required: o Disposition of goodwill o Confession of judgment o Doing acts which makes it impossible to carry out the ordinary business of a partnership o Renunciation of a claim of partnership o Submission in arbitration o Property in trust o Enter in a compromise concerning a partnership claim or liability The common denominator involves acts which involve acts of dominion or ownership. We said a manager, whether appointed
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or not, only perform acts of management. Here, these are not acts of mere administration. These involve act of ownership assign or dispose of the assets of the corporation, dispose of goodwill. What do we mean by goodwill? o Goodwill of a partnership means the reputation of the business of the company. A reputation that was built over the years, the good name that it has established for years, after years of hard work, after years of developing business relations with its customers or clientele. o As a matter of fact, you cannot use the good name without the permission of the owner of the business. You cannot even imitate. You cannot put up your own coffee shop and say, Boos coffee shop. This cannot be because klaro kayo na ni-kopya ka sa Bos, pareha ran a sa efficient oil. o In other words, there is value in goodwill. If you want to use the name of a business which has goodwill, you pay. This is the reason why the franchise business is doing very well because of their goodwill. Example, you buy at Julias Bakeshop. So, theres good name in so far as bakeries are concerned. So, what do they do? Julia Bakeshop will sell you a franchise. You could put my name there. The same design, the same font, same color. You buy your flour only from me. You buy your margarine only from me. You buy your utensils only from me. You pay P150,000 for the privilege from buying from me. Thats the franchise business. You are just buying the name. The formula, yes. But who knows you could have a better formula. You could have baked a much better, a much tastier item of bread. But because of the name, you are constrained sometimes. This is the value of goodwill. If it makes it impossible to carry the business, you have 10 cars. You are in a taxi business. If one partner decides to sell 8 of these 10 cars. If you do this, you have to get the consent of all the partners.

Confession of judgment, what do we mean? o Confession of judgment where a party not only admit certain facts but also admitting liability. Instead of arguing in court, you just tell the court that you are admitting all the allegations in the complaint and that you are liable. If the partner does that, that might be binding on the partnership but he must secure the consent and conformity of all the other partners. Compromise as distinguished from arbitration. o In arbitration, we entrust the decision to an arbitrator, who is a 3rd party who is not all a party to the case while in a compromise agreement, the settlement is based on the parties themselves. That is the basic distinction.

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o In a compromise decision, therefore, it is the decision of the party himself. It is the decision of the protagonists themselves. But in arbitration, the parties to the case, or a protagonist in the conflict delegates the authority to decide to a 3rd person. Therefore, that 3rd person will have to decide without any bias. So here, it is a voluntary conformity of the protagonists or litigants to allow the 3 rd party to decide on their behalf, instead of themselves. This is a voluntary act of the parties. o Because if it were not voluntary, then, we rather bring them in court. Because in court, very similar to arbitration, but in the court, the parties do not designate the judge. The judge is designated under the Rules of Court based on jurisdiction, based on the authority granted to the court. All these 7 instances, unanimity is required. Conveyance of real property belonging to the partnership A partnership may own a real property. And when a partnership owns a real property, it may be registered in whose name? It may be registered in the partnerships name. It is owned by the partnership, necessarily, it must be registered under the partnerships name. However, since we said that partners can also be managers. Can it also be registered under the name of the partners? Yes. It can be registered under the name of the partnership, any of the partners, or of all of the partners. It can also be disposed in whose name? The partnership property can be registered under the partnerships name, any of the partners, or all of the partners. So that here, in all those instances, what could be the best thing to do? How should we register the real property of the partnership, the safest way? The safest way is to register in the partnerships name. (Note: murag dili man cgro ni mao, murag ang safest kay i-resigter sa name sa tanan partners.) If that is the safest way to register, what is the safest way to dispose? If you had a client for example who was a buyer of a partnership property and that client asks you, Atty., who do you think should we ask to sign the deed of sale of that partnership property? I want to protect my interest so that there would be no problems in the future and that I will become the absolute owner and nobody can question me anymore. What would you require? Who should sign? The safest way to dispose of a partnership property is to ask all the partners to sign the deed of sale. Thats the only safest way. No potential problem in the future. Anyway, all of them will have to sign. So, none of them can later on question. Thats the only way that we can be sure, here, when all of them will sign we will be able to transfer to your client, the buyer, the absolute ownership of the property.

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 There can be instances when the deed of sale was already sign, yet, not absolute ownership was transferred, rather, only the equitable interest is transferred. What do we mean when we say that only the equitable interest is transferred? Even if an equitable interest is transferred, it is not a perfect transfer of ownership. Because when we say equitable interest, what right have we acquired? o The buyer acquires only a personal right to compel them to sign. What is supposed to be done in order to perfect ones title, not just the equitable interest? o Ask the ratification or conformity of all the partners. Perhaps, thats the only way were we can perfect my ownership over the property. o I will not be satisfied with only an equitable interest. I should do something to make my ownership absolute, a perfect right. So that, as of now, I do not have full ownership of the property, and as you said, I should do something to make my ownership absolute. Therefore, what right do I have against the other partners? I have acquired a personal right against the other partners, to compel the other partners to sign. Once all of them signs, my personal right against them will now become a real right over the thing. When we say personal right, it is binding against a specific person while a real right, I can enforce it against anyone, I can enforce it against the whole world. That means I have acquired full title, full ownership over the property. Otherwise, I have only acquired an equitable interest.

As a matter of fact, the law outlines, under whose name the property may be registered. So that, if it s registered in the name of the partnership? o If it is registered under the partnerships name and conveyed in the partnerships name, but only by one partner, then, title is conveyed. Although only one partner signed, that partner is presumed to be a manager or an agent of the partnership, therefore, it is binding. However, it is not really perfect because, applying the previous provisions (Art. 1818), if it is not in the usual way of business or if the partner who signed the transfer, the assignment or deed of sale was not authorized and the 3rd party who bought it knew that there was no authority, then, the partnership can take it back.

o If the title is registered under the partnerships name and sold in the name of one partner, only equitable interest is transferred.

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Since only equitable interest is transferred, the title to the property is not perfect. The buyer must perfect his title by securing conformity of all the other partners.

o Registration is in the name of one or more of the partners, not all, conveyance is in the name of partner or partners in whose name the title stands. Title is conveyed. This is a valid transfer because it is their name which appears in the title and it was they who sold, they could transfer the property. However, the partnership could still recover if the partner or partners who conveyed the property had no authority or was not in the usual way of the business unless the buyer is in good faith. By good faith, we mean that he did not know the lack or absence of authority. So, that transfer is valid subject to those instances which the partnership can recover.

o Title in the name of one or more or all partners or a third person in trust for partnership, conveyance executed in partnership name or in the name of the partner. Equitable interest is transferred. Here it is clear that even though the registration is in the name of one or all, but only one of them signed, that transfer can be recognized but only equitable interest is transferred. Again, when we say equitable interest, it could be perfected upon ratification by all of the partners.

o Title in the name of all partners, conveyance in the name of all partners. Title is conveyed. Therefore, as we have said earlier, the safest way is to transfer the partnership property, insofar as buyers are concerned, in the name of all of the partners.

Admission by a partner Let us go back to the funeral business. A case was filed against the partnership which has been dissolved 2 years ago but that cause of action arose while the partnership is still existing. The BIR is now looking for the accounting books of the partnership were fabricated. And they saw a witness who was a former partner and this former partner was head of the make-up department. He had his authority within the make-up department, he decides how many shade shall be used in the make-up, how wide the eyebrow should be. That was his function, yet, he was presented by the BIR to prove that the entries in the books are fabricated and this partner said, Yes, he was a partner at that time. That he was the head of the make-up department. That as head of the make-up department that the body leaves happy and contented. And so he was asked, Are you telling us, would you admit therefore that the accounting records are not true and correct. That partner said, Yes, I stand by my grave that those records are inaccurate. Those records are fabricated. That was his testimony. If you were the lawyer of the partnership would you allow that admission to stay in the record?

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 If I were the counsel, I would not allow that admission to stay because, while he is a partner, his knowledge on the issue raised are not enough to qualify him to testify on those things. Because to be able to testify in those things and for his admission to be admissible, what does the law require? o He must testify on something that is within the scope of his authority. In our case, these were financial matters, how could the make-up artist be competent to testify on accounting works while in fact, he only reports to the parlor. He has no access at all to the accounting department. His scope of authority is confined to the makeup department. His admission there could never be allowed to stay in the record. Notice to partner Notice to partner is notice to the partnership. Knowledge acquired by a partner is presumed to have been conveyed to the partnership. Because if you are a partner, we said that you are an agent of the partnership. And therefore, it does not only refer to your authority to act in behalf of the partnership, it should also involve certain responsibilities. As a partner, because you are an agent of the partnership, you are supposed to be responsible enough in conveying or communicating to the partnership any notice, knowledge or information that you may have acquired. If the partner receive notice, then, it will be sufficient to be considered as a notice to the partnership. If the partner has acquired knowledge or information about a matter of which he is involved or concerned, then, he is presumed to have conveyed that knowledge or information. Therefore, knowledge by partner shall bind the partnership. What is a crime? These are acts or omissions punished by law. And since a partnership is a person, can she be made guilty of a crime? Why or why not? No, because it is a juridical person. Why do you think are juridical persons not liable criminally? It cannot be liable criminally because it cannot be sent to jail. Other than that, crime is based on intention. As a matter of fact, when there is no intention to commit the crime, it cannot be guilty. A juridical person does not have a mind of its own rather his decisions are based on the decisions of the managers, then, it can never be. However, when a crime is committed by a partner in a partnership, who can be made liable? Although the partnership can never be guilty of a crime, the partnership can be made liable insofar as the civil liability is concerned.

Crime

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What is the nature of their civil liability? We said that a person criminally liable is also civilly liable. The nature of their liability is solidary. When we say joint liability, it means to each his own. It is limited to their share. When we say solidary, it means one for all, all for one.

However, that (solidary) liability will arise only when? They will only be liable in the circumstances mentioned under Art. 1822 and 1823.

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Acts or omissions o For the wrongful acts or omissions of a partner, the partnership and the partners will be solidarily liable. So that here was a partner of the ABC partnership and a good customer of the partnership business was having a baptismal party of his child and requested that one of the partners should stand as one of the sponsors for his child. And so partner A agreed since the one who requested is a good customer of the partnership. After the baptismal ceremony, partner A proceeded to the house where the party started. Party started at 11 am just before lunchtime. But at 11 pm, partner A, who was the godfather, was still drinking. Somebody came whom partner A did not want so that he got a bottle and hit that somebody in the head with a bottle and stabbed the same. So that somebody died. Partner A was sued for murder and the family was asking for damages. Partner A was sent to jail but the civil liability for the damages, he cannot pay and because the case was filed separately for the damages, so the other partners were made to pay for the death of one of the guests of the party. Do you think the other partners be liable? The partners and the partnership are not liable for partner A did the criminal act not in the usual way of the business of the partnership and also it was not consented to by the other partners or the partnership. Example where partners and the partnership are solidarily liable: When a partner is driving a car owned by the partnership on his way to meet a client and while doing such, he hit another person. So what is the source of the liability? o The law provides for such liability to the partnership and this is what we call vicarious

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liability. So that up to what extent would the partners be liable? Solidarily liable this means that the party aggrieved can go against any one of the partners or the partnership itself or all of them for the entire amount of the obligation. o How do we reconcile the provision of the law stating the partners joint liability (pro rata) to third parties? So wheres the distinction between the partners solidary liability and their joint liability (pro rata) with regards to third parties? If the liability arises from contractual obligations or a contract, then the extent of the partners liability to third parties shall be joint or pro rata. However, if the liability arises from a quasi-delict or tort or acts or omissions punished by law, then the extent of the partners liability to third parties shall be solidary. This is because we have learned that the sources of obligations are law, contracts, quasi-contracts, delicts or quasi-delicts.

Partners by estoppel and partnership by estoppels o What do you mean by estoppel? Estoppel means a bar that precludes someone from denying or asserting contrary to something that has been established as a fact by his own act, conduct, behavior, language or deed.

What do you mean by partnership by estoppel? There is partnership by estoppel when a person who represents himself to third parties as a partner of an existing partnership and all the partners of such existing partnership admitted that indeed the person who claims to be a partner is a partner. There is also a partnership by estoppel when there is no existing partnership but some group of persons misrepresent themselves to the public as a partnership. However, in this instance, they could be liable but they cannot enjoy the privileges granted by law to a partnership even if there is a partnership by estoppel because here, the law is only after the protection of third parties. Thats why this group of partners who are only partners by estoppel, while they cannot enjoy the privileges granted by law, they could be made liable, not strictly as a partnership, but they are liable pro rata.
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o What do you mean by a partner by estoppel? A partner by estoppel happens when a person who represents himself to third parties as a partner of an existing partnership and all the partners of such existing partnership did not consent to such misrepresentation.

What is required before a new partner is admitted? o Since relationship of partners is that of mutual trust and confidence, therefore, new partners can be admitted only with the consent of all the other partners. o Generally, what is the extent of the liability of the partners? If liability arises from a contract, their liability is joint or pro rata but if liability arises from a quasi-delict or tort, their liability is solidary.

o What is the extent of liability of new partners? For liabilities incurred before his admission, the new partners liability is up to the extent of his contribution in the partnership or up to his share in the partnership assets. So that if A and B contributed 100K each. As they went along, C came in as a new partner and also contributed 100K. When C came in, liabilities were worth already 400K. So if those 400K will demand for payment, will the 300K be sufficient? No. So there will be a short of 100K. And because there is a short of 100K, who shall pay the balance of 100K? It is only A and B who shall be liable for 100K at 50K each. C is not liable since he is a new partner and as such, he is only liable for liabilities incurred before his admission up to the extent of his contribution of 100K and not up to the extent of his separate or personal property. C is liable even up to the extent of his personal property only for liabilities incurred after his admission. Can A and B say that Lets split this into three because our contributions are equal and according to our agreement, if we contributed equally then we share to the losses equally? o GR: New partners can only be made liable for liabilities incurred before his admission up to the extent of his contribution or to his share in the partnership assets, unless there is a stipulation to the contrary.

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If another 100K was incurred by the partnership after C came in and the 100K could no longer be paid by the partnership, so how much could each be liable for? o C is now liable for the 100K and will have to participate in the settlement of such liability even up to the extent of his separate or personal property or assets. The 100K liability, therefore, in this case, shall be divided into 3 to compute for the liability of each partners A, B and C. o Do you find this fair? Its fair to let the new partner be liable up to the extent of his contribution for obligations incurred before his admission since he receives benefits from an established partnership. Its also fair to let the new partner be not liable up to the extent of his personal properties for obligations incurred before his admission (since liability only extends to his contribution in the partnership) because during the negotiations, in which the obligations arose, the new partner wasnt there. Thus, he did not consent to enter into such obligations made by the partnership before his admission. The new partner did not take the risk at such time. Although a partner takes the risk in the sense that he is liable not only to the extent of his contribution but also to his personal property but such assumption of risk should start only when the new partner is admitted in the partnership. The new partner was not in the position to take such risk for obligations incurred before his admission. The new partner was also not in the position to determine whether or not that obligation is fair or whether or not it is worth taking the risk since he was not there to participate in making the decision. However, for obligations incurred after the new partner came in, then the new partner already assumed such risk and responsibility.

Preference of credits o Partnership creditors shall first proceed to partnership assets and if the same are no longer enough then they can proceed to the personal or individual properties of the partners. So that once
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partnership creditors have exhausted partnership assets, then they can go after the personal assets of individual partners. However, in so far as individual partners are concerned, they may also, in their own right, have their own creditors. So that here, there may be a conflict between the creditors of the partnership and the creditors of the individual partners. While the creditors of the partnership can proceed against partnership assets, the creditors of the individual partners may also proceed against partnership assets in certain instances such as when the private creditors ask for the attachment and public sale of the share of the debtor-partner in the partnership assets. How do we settle the conflict? For partnership property, preferential right is given to partnership creditors. If there would still be remaining or excess after satisfying the claims of partnership creditors, then the private creditors of the individual partners can go after such excess to satisfy their claims. For partners individual or personal property, preferential right is given to the private creditors of the individual partners. If there are still remaining or excess after satisfying claims of the private creditors of the individual partners, then such excess shall be used to satisfy the claims of partnership creditors since partners are liable for obligations even up to the extent of their personal properties.

August 5, 2010 Thursday PARTNERSHIP BY ESTOPPEL What again was the meaning or how did we define partnership by estoppels? o In an existing partnership when a person who represents himself to third parties as a partner of an existing partnership and all the partners of such existing partnership admitted that indeed the person who claims to be a partner is a partner. o In a non-existing partnership when there is no existing partnership but some group of persons misrepresent themselves to the public as a partnership. However, in this instance, they could be liable but they cannot enjoy the privileges granted by law to a partnership even if there is a partnership by estoppel because here, the law is only after the protection of third parties. Thats why this group of partners who are only partners by estoppel, while they cannot enjoy the privileges granted by law, they could be made liable, not strictly as a partnership, but they are liable pro rata. Partner by estoppel on the other hand happens when a person who represents himself to third parties as a partner of an existing partnership and all the partners of such existing partnership did not consent to such misrepresentation. LIABILITY OF NEWLY ADMITTED PARTNER
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So that earlier, we discussed the extent of liability of a newly admitted partner. How did we define the extent of his liability? So that if we were to describe the extent of his liability. If we were to describe that partner in relation to the extent of his liability, how do we classify him? What kind of a new partner is he? o The new partner, as to transactions incurred before his admission, he could well be considered as a limited partner. On the other hand, so far as liabilities incurred after his admission, he could well be considered as a general partner.

So that, if today, Mr. S is admitted as a partner and last July 30, the partnership borrowed money from the bank, which is to be due and payable on August 15, what is the extent of that new partners liability who is admitted today, August 5, 2010? Take note, he was already there when the loan was to be paid, what is the extent of his liability? o The law does not distinguish. o Where is the line drawn? The line is drawn on the date of his admission and the law does not look at the due date. The law looks into not the due date but the DATE IT WAS INCURRED. It has nothing to do at all on the due date. Rather the date when it was incurred. o So theres the line, if it is incurred before admission, his liability is only up to the extent of his contribution. Incurred after admission, his liability is up to his personal properties even if due and payable after retirement (di masabtan last word used murag incurring pero murag dilig). o Why is the law so? This is the middle ground. While he cannot be totally be required to assume the responsibilities of a general partner, he could not also say he could not be totally liable at all. Theres no extreme. Because if he says he should not be liable at all, then in that case, he should not enjoy anything at all. But here, any profits earned before his admission, on transactions entered into before his admission, he is already entitled, for the benefits, he already enjoys. So he cannot also say he should not be made liable at all. However, in fairness, because while it is true that you were not there to be able to participate, interfere or perhaps review the transaction, but you also saw when you came in, you also saw that. I mean you saw that liability. It was up to you whether you wanted to come in or you wanted to stay out. Because you decided to come in, then you should also assume a certain degree of risk. You should also a portion of that liability. CHAPTER 3: DISSOLUTION AND WINDING

In other words, we have created a monster, we will now slue the monster. We have created a person, we will now try to dissolve a person. Is dissolution the death of the partnership? No. o Cause even if there is already dissolution, is the partnership still alive? Yes. How come? Why should he be alive? Because it still has to perform acts for it to completely wind up. (Answered by Mr. Santillan).
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Because dissolution does not cause the death of the partnership, this partnership would still act as a partnership. It would still remain as a partnership. However his task would be limited to perform acts of making good all outstanding engagements, of taking and settling of accounts and collecting all property means and assets of the partnership existing at the time of dissolution. Thus, while it is still alive, it could no longer make moves as freely as it was used to. So that here, his days are numbered and so his act will not be very limited.

EXTINGUISHMENT OF PARTNERS AUTHORITY UPON DISSOLUTION As a matter of fact, while we said before that a partner generally is an agent of a partnership, is this still true at this point of time? o So that generally, the partners authority is extinguished. Generally, he cannot bind the partnership anymore. As a general rule, the partnership can no longer enter into contracts. o Although generally, he could no longer bind, there are EXCEPTIONS as we said. Under what instances would it still bind? BY WAY OF EXCEPTION, except when: 1. To wind up the partnership business What contract for example can they enter into a new contract? Can they enter into a new contract? We said yes. What new contracts for example? To be engaged in the services of professionals or experts. We therefore engage the services of a receiver. And a receiver can be a person whom the partners will authorize to collect some receivable or settle some liabilities. That can be the function of a receiver. And you have to engage the services of this person. And to engage his services, you might have to enter into a new contract.

2. To finish or to complete unfinished businesses. Or to finish those which were not completed. These are the only contracts or things or transactions that a partnership can enter into. Or how else? There were some orders made before the dissolution and the partnership business has not made the delivery yet. Then they could proceed, they could engage the services of some trucking or hauling companies to make the delivery. Those are intended to finish or to complete unfinished business. So at least 2 things could still be performed by way of exception by the partnership itself.

RIGHT OF HEIRS OF THE DEAD PARTNER So here, while it is already dissolved, the partnership continues to exist. The dissolution therefore simply refers to the point of time when the relationship among the partners has changed. So that when the partner

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dies, what happens to the heirs? What are the rights of the heirs? The partnership is dissolved. In other words, when the partnership is dissolved, the relationship has changed. SO that after her husband died, can the wife now report every meeting of the partners and now claim that she is now the new partner? She cannot. Not because she has killed her husband but even under the law she has no authority to represent her husband. The death of her husband does not make her automatically a partner. There is no such thing. Remember the 3 property rights of a partner? o Use the specific property of a partnership o Partnership Interest o Participate in the Management Can the wife now acquire the right of her husband to participate in the management? Cannot. Because that right is a personal right. It is a right acquired by him as a partner. And only he can demand for that right. It is a personal right granted to him by the other partners. And that right was granted because of the trust and confidence. So can the wife assume that right? No. Second right is the right to the use of the partnership property. Can the wife also 1 day go to the office of the partnership and use the car of the partnership to bring around her new husband? No. Third right, partnership interest. Again, what is included in this right is the right to share in the profits. So that can the wife now attend the meeting and demand for his share in the profits or the profits of her late husband? Can the wife now demand with this? There is no option. This is part of the husbands or the deceaseds estate. This is part of the deceaseds estate. Any lawful heir or any legitimate heir will now be entitled to claim for this. Otherwise, if we do not give that right to the heirs, who will be entitled? No one. Can partners just distribute among themselves? No. This is part of the deceaseds estate and therefore should form part of the inheritance that the heirs would be entitled. o Because when do heirs become entitled? At the time of death of a partner. Succession takes right after the moment of death. So automatically, these heirs, although they cannot be partners, they are already entitled similar rights given to an assignee. Remember the rights of an assignee? Very similar rights. So dissolution, winding up, what happens next? This is the point of death of the partnership, termination. This is the point where we could say the partnership ceases to exist. GROUNDS FOR DISSOLUTION So how, under what grounds may a partnership be dissolved? (1) Without violation of the agreement between the partners: (a) 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 is specified;

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(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; (2) In contravention of the agreement between the partners, where the circumstances do not permit a dissolution under any other provision of this article, by the express will of any partner at any time; (3) 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; (4) When 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 enjoyment of the same; but the partnership shall not be dissolved by the loss of the thing when it occurs after the partnership has acquired the ownership thereof; (5) 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. The law simply classifies the causes. There are causes for dissolution, where we do not have to violate the agreement. What agreement is this all about? It refers to the document, the articles of partnership itself. The partnership agreement itself. So it classifies into 2: o First group are instances or causes where we do not violate the agreement. In other words, it is in accordance with the agreement. First, talks of the expiration of term or the arrival of the period. Or the performance of a particular undertaking. It talks also of an expulsion of a partner. How could this arise? Maybe 1 partner, everytime he reports to the office of the partnership goes drunk and every time he goes drunk, he interferes in the operations of the partnership. If that behavior has come up to the point where it already interrupts or disrupts the operations of the company, then the rest of the partners can expel the partner. And so this is a dissolution because once a partner is expelled the relationship has changed. Whereas before there were 5 of them, now there are already 4 of them. Technically it is dissolved and technically the remaining partners have just decided to pursue the partnership business. But technically an expulsion would cause the dissolution of a partnership. However it MUST BE WITH A CAUSE. Otherwise, if they do without cause, the other partners could be liable for damages. So they should be looked into.

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o Two, where these causes run counter to the provisions of the agreement itself. On the other hand if the situation is the complete reverse(to the expulsion example). Meaning 1 partner could no longer withstand the behavior of all the other partners. That particular partner could withdraw. Wherein the first situation, the partners could expel, here, the partner could also withdraw because you can never be compelled to be with a group whom you could no longer work with. You could no longer be at peace with them, theres no point., no matter how much profit you receive, if it will only cause you heart attack, thats never worth becoming a partner. In which case, that partner could withdraw and that withdrawal must be in GOOD FAITH. Otherwise, he could be held liable for damages by the other partners. In good faith. Withdrawal or expulsion, this must be done always in GOOD FAITH.

Another cause for dissolution is the loss of a specific thing. o Specific thing Ownership Before delivery partner bears the loss dissolution After delivery partnership bears the loss no dissolution Use Before delivery partner bears the loss dissolution After delivery partner bears the loss dissolution o Generic thing Ownership Before delivery partner bears the loss no dissolution After delivery partnership bears the loss no dissolution Use Before delivery partner bears the loss no dissolution After delivery partner bears the loss no dissolution o The loss of a generic thing does not result into a dissolution because genus never perishes, therefore, if partner bears the loss, then such partner must give another generic thing to fulfill his obligation to the partnership.

Death of a partner results to a dissolution of the partnership because it changes the relationship of the parties. Insolvency. Why should insolvency be a cause for a dissolution of the partnership? o Since when a partner is insolvent, his liabilities are more than his assets, so therefore, his assets are no longer enough to satisfy his liabilities and thus, theres a danger that he might not be able to carry out his duties as a partner especially on instances when the
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assets of the partnership would be exhausted and it will now be required that all his personal assets will have to answer for the liabilities of the partnership. To protect the partnership from further incurring unsecured debts or to protect the partnership from a situation where one of them or some of them could no longer be able to satisfy claims and liabilities due to third persons, then, they should immediately dissolve, otherwise, it will only give false belief that might jeopardize third party creditors. Civil interdiction o In other words, the partner is deprived of his civil rights. He can no longer have the capacity to enter into contracts. He can no longer administer his own properties and would not have any discretion as to how his properties will be distributed. And if the partner is suffering from this, again, he could no longer fulfill his duties as a partner in so far as rights in favor of third parties are concerned.

DISSOLUTION THROUGH COURT ORDER So those are the instances where dissolution can be done even without court order, in other words, the extrajudicial modes of dissolving a partnership. On the other hand, there can also be instances when the authority of the court is required. Instances where a court order is necessary to declare the dissolution of the partnership. What could these instances be? o 1. A partner willfully or persistently commits a breach of the partnership agreement, or otherwise conducts himself in matters relating to the partnership business that it is not reasonably practicable to carry on the business in partnership with him o 2. A partners has been declared insane in any judicial proceeding or is shown to be of unsound mind Why should a court order be required to declare a person insane? It is because its not easy to determine and just claim that a person is insane since some of the partners might just be conspiring. Therefore, there is a need of a court order.

o 3. A partner becomes in any other way incapable of performing his part of the partnership contract Incapacity this means that a partner as a business partner is unable to perform his obligations and duties as a partner, such as for example, when the partner is incapacitated or incapable of delivering what he has promised to contribute. So in this case, it is as if he was not able to make a contribution.

o 4. The business of the partnership can only be carried on at a loss For example, today your business is doing very well. Profit level is high and people are happy because your business is

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youre one of the caterers. You are engaged in a catering business providing food for the airline companies. Since the flights are international, then the food you provide should be for 3 meals. So thats a big business until the airline showed some problems. Some of their pilots have left the airline without permission. The pilots have resigned. So by next year, 2011, the airline company might no longer be renewing your contract. So there will be an expected loss on the next year. Today, while you are still enjoying big profits, could you already dissolve the partnership? Yes, since when we speak of the partnership business can only be carried on at a loss, the loss referred to here is apparent or potential loss, not actual loss. So its up to you now how to prove. Thats why you go to court if you could establish. In other words, its not for the partnership to say that there is potential or apparent loss. Its for the court to declare. And if the court is convinced, then there could be a dissolution. If the court is not convinced, as the other partners would say (there are still reasonable prospects for success), then there could be no dissolution. So that its a matter of establishing before the court that under the present circumstances, there could be an apparent or potential loss in the future. Its not actual loss or present loss, but rather, present circumstances would show that the business can only be carried on at a loss.

o 5. A partner has been guilty of such misconduct as tends to affect prejudicially the carrying on of the business o 6. Other circumstances render dissolution equitable EFFECTS OF DISSOLUTION GR: Dissolution terminates the authority of any partner to act for the partnership o E: Acts necessary for the winding up of partnership affairs Acts necessary for the completion of unfinished transactions/business When dissolution is caused by the act, insolvency or death of a partner, each partner is still bound as if there is no dissolution, unless: E to E: o Acting partner had knowledge of the fact of dissolution caused by the act of a partner o Acting partner had knowledge or notice of the fact of dissolution caused by the insolvency or death of a partner

_____________________________________________________________________________ ___________________________ August 7, 2010

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Here what happens? We also started to discuss possible transactions entered into with third parties. We go to the rules (personal note- this is a better illustration of the rules than the one placed above)

GR

the authority of the partners are terminated -pship not bound

1EXPT

for winding up For completion of unfinished business -pship is bound

2EXPT Dissolution is due the act of the partner Acting partner has no knowledge Dissolution is due to insolvency or death of the partner Acting partner has no knowledge or notice -pship bound EXPT2 acting partner has knowledge or notice -pship not bound

The second instance refers to death or insolvency while the first instance refers to act of the partner.

Lets just try to check it. The act of the partner that could dissolve, what could be an example? Withdrawal. If one partner withdrew and the other partner entered into a new transaction without knowledge of his withdrawal, the partnership is bound because he did not know.

Insolvency of a partner. If another partner enters into a new transaction and he has no knowledge of such, partnership remains bound.

Im just curious why in the first instance, act of the partner, it requires knowledge. In the second instance, insolvency or death, refers to knowledge or notice. That second instance that there is a distinction between knowledge and notice.
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What will that distinction be? Notice is when you learn about the fact from someone else or through other means. Knowledge, he personally knows about the facts. He saw the deceased; he attended the wake thats knowledge. But if he just read it in the papers or he was just told by someone else, thats mere notice.

In the first instance, notice is not sufficient. He must have personal knowledge about the withdrawal.

But if its insolvency or death, it is enough that someone told him. Because if someone told him and despite the information relayed to him, he still entered into a new transaction, partnership is not anymore bound.

So when you say, I did not know. I only received a message but I did not actually know. Would that be an excuse? Not in case of insolvency. Not in case of death. But for the act, it is not sufficient that he has notice.

But in insolvency or death, the fact that he received information, the fact that he was notified, the partnership should no longer be bound. Because the partner who received the notice or to whom the information was conveyed or relayed should be bound by that notice.

Although we said also that on those instances, the partnership remains bound, still we have another group of exception. And this exception refers to the extension of credit. IOU in these instances, there has become or there has been established that a special relationship between the partnership and a third party creditor.

So it becomes a question of whether or not that creditor is a stranger to the partnership.

The law therefore distinguishes between a third party who is a total stranger and a third party who is somehow maintained or established relationship with the partnership. What are the rules?

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First instance, the situation is where creditor has extended credit before the dissolution to the partnership and he had no knowledge of the dissolution. the partnership is still bound

The dissolution occurred July 31. He extended credit July 15. On July 30, the partnership is to be sold. Will the partnership be bound? Yes. Credit was extended before dissolution. But here, on July 30 dissolution occurred after extension of credit.

But is that the situation considered referred to here? What could not be clear would be a situation where credit was extended after July 30, after the dissolution. If credit was extended after the dissolution, normally, in the rules that we have learned This is a new transaction not intended to wind up, not intended to finish business, but this is a totally new transaction extended after the dissolution. Is the partnership still bound? Not anymore. Because we said all authority are terminated after dissolution.

Here, the rule seems to imply that there is still a possibility that that third party creditor could still demand and therefore the partnership could still demand.

Under what circumstances do you think? Are we saying that the partnership should publish?

Here is a partnership of ABC engaged in the laundry business. X has been supplying the materials for the laundry for five years. The partnership was dissolved Jul 31. And even after Jul 31, S continued to supply on credit. However Sept 15 when S demanded for payment, the partnership says that they have been dissolved and they should not pay. Is Yes. In that case, we should not blame the supplier. The law does not blame the supplier. Even if the supplier continued supplying and the partnership which has been dissolved continued to receive, the partnership should be required to settle that liability, because there has been a relationship between the the partnership bound?

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supplier and the partnership business. And that relationship has been there for some time. And it is this relationship that the law intends to recognize.

(personal note: to not make the partnership liable to creditors who had priorly extended credit, personal notice or knowledge is to be given. to not make the partnership liable to creditors who had not priorly extended credit, notice through publication is to be sufficient.)

So that the only way that the partnership should no longer be bound for supplies delivered after dissolution, what should have been done? There should be notice.

And how should this notice be sent? There should be publication. Thats what the law requires if you want to avoid liability insofar as third party creditors as concerned with whom partnership business has been dealing in the past.

The law recognizes that relationship

Because of the dissolution, the business of the partnership might have been assigned to another party. Heres a new party willing to proceed with the business of the party and he must have acquired the business. And part of the arrangement might have been, - you get all of our assets and you pay all our liabilities which is very possible. Here, if the partnership sold the business to a third party and there remains to be unpaid liabilities, who should be liable? Who should be required to pay the liabilities? If the transfer, as he is assuming the liabilities, he knew the new business will assume the liabilities. So that in the absence of that agreement, the old debtor remains liable. This refers to what kind of mode of extinguishing an obligation? Novation And when we say novation, there is a change in object or subject matter of the contract or change of the parties.

Thats why we have real novation as distinguished from personal novation.

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In real novation, we change the thing to be delivered. The subject matter In personal novation, we change the persons, creditor. either the debtor or

Here, what kind of novation has occurred? Personal. Because we now have a new creditor. And therefore we change the person of the creditor. Or perhaps we could also change the person of the debtor. In changing these parties, whose consent is necessary? Consent of all the debtors and the creditors.

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