Partnership Complete

7/29/2019 Partnership Complete

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Notes on De LeonPartnershipC c,) L L E E N?4?Exception: if by their acts, consent,representations, third persons were led tobelievethat they are partners in a non-existing partnership?Example: A and B are not partners. However, A,with the consent of B, told X thatthey arepartners. So as to X, A and B are partnersCo-ownership or co-possession:?Intention to obtain profitso

In partnership, the profits must bederived from the operation of a businessor underta

ing and not merely fromproperty ownershipoThere is no presumption of partnershipbetween co-owners because there mustbe a clear intention to a partnership?Existence of fiduciary relationshipoThere is no fiduciary relationshipbetween co-owners

oPersons may become co-owners withouta contract. For example, by inheritance.Butthey cannot be partners without acontract?Partnership distinguished from co-ownershipPartnership Co-ownershipCreation Generally createdby law. It mayexist without acontractAlways created bya contract, eitherexpress or impliedJuridicalpersonalityHas a juridicalpersonalityNo juridicalpersonalityPurpose To obtain profit Commonenjoyment of athing. Does notnecessarilyinvolve sharing of profitsDuration No limitation Maximum is 10yearsDisposal of interestA partner cannotdispose his interestas to ma

e thetransferee apartnerMay dispose hisinterestPower to act withthir

d personsPartner may bindthe partnership,unless there is astipulation to thecontraryCo-owner cannotrepresent the co-ownershipEffect of death Dissolves thepartnershipDoes notnecessarilydissolve thepartnershipSharing of gross returnsnot presumptive evidence of partnership?Reason: because in a partnership, the partners,being interested in the success and failure of thebusiness, share in the profits only after satisfyingall partner


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ship liabilitiesSharing of gross profits:?Prima facie evidence of partnershipoSharing of profits and losses is a strongpresumptive evidence of a partnership.Conversely, lac

of such agreementstrongly negates the existence of apartnershipoSharing of profits and losses is notconclusive evidence. This may berebutted byother circumstances?When existence of partnership will not be inferreddespite share in the profitsoProfits received as payment of a debt byinstalment or otherwise?Example: A is a creditor of apartnership X. A wasauthorized to manage thebusiness. A will receivecompensation, and a share in thenet profits as payment for thedebto

Profits received as wages of an employeeor rent to a landlord?Example: A is an employee of partnership X. instead of a fixedsalary, A agreed to receive acertain percentage of themonthly net profits?Example: A is the owner of thebuilding where partnership Xholds its office. As payment forrent, A will receive a share if thenet profits.oProfits received as an annuity to a widowor representative of a deceased partner

?Example: A is the widow of apartner in Partnership X. A willreceive an annuity based on acertain percentage of the netprofits in exchange for thecontinuation ofthe partnershipwithout liquidation andsatisfaction of the deceasedpartner?s interestoProfits received as interest on a loan?Example: A is a creditor of partnership X. A agreed that the

Notes on De LeonPartnershipC c,) L L E E N?16


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?Things contributed to be soldpartnership bearsris

of loss for there cannot be any doubt that thepartnershipwas intended to be the owner?Things brought and appraised in the inventorypartnership bears ris

of loss because the intentionof the parties was to contribute to the partnershipthe price of the things contributed with anappraisal (implied sale ma

ing the partnershipowner of the said things, the price beingrepresented by their appraised value)Art. 1796. The partnership shall be responsible to everypartner for the amountshe may have disbursed onbehalf of the partnership and for the correspondinginterest, from the time the expense are made; it shallalso answer to each partner forthe obligations he mayhave contracted in good faith in the interest of thepartnership business, and for ris

s in consequence of itsmanagement.Responsibility of the partnership to the partners?Every partner is an agent of the partnership for thepurpose of its businesso

Partner is not personally liable as long ashe is not at faultoBut the partner is not given the right of retention if he is not reimbursed?Obligations of the partnershipoRefund amount disbursed by the partneris behalf of the partnership with interestfrom the time expenses are madeo

Answer for the obligation the partnermay have contracted in good faithoAnswer for ris

s in consequences of itsmanagementArt. 1797. The losses and profits shall be distributed inconformity with the agreement. If only the share of eachpartner in the profits has been agreed upon, the shareof each in the losses shall be in the same proportion.In the absence of stipulation, the share of each partnerin the profits and losses shall be in proportion to whathe may have contributed, but the industrial partnershall not be liable for the losses. As for the profits, theindustrial partnershall receive such share as may be just and equitable under the circumstances.

If besideshis services he has contributed capital, he shall alsoreceive a sharein the profits in proportion to hiscapital.Rules for distribution of profits and losses?Distribution of profitsoThe partners share the profits accordingto their agreement subject to Art. 1816o


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If there is no such agreement?Share of each capitalist partnershall be in proportion to hiscapital contribution. This rule isbased on the presumed will of the partners?Share of industrial partnermust be satisfied first before thecapitalist partners divide theprofits. Amountwill be basedon what is just and equitableunder the circumstances. Theshare ofan industrial partner inthe profits is not fixed, as in thecase of capitalist partners,because it is very difficult toascertain the value of servicesA partner is entitled to receive only his share of the profitsactually realized by the ventureEven when assurances of huge profits were made by apartner, in the absence offraud, the other partner cannotclaim right to recover profits promised. This isespeciallytrue when the business was highly speculative and turnedout to be a failureHidden ris

s in any business venture have to be considered?Distribution of losses

oAccording to the Agreement of thePartners, subject to Art. 1799oIf no agreement, but the contractprovides for the share of the partners inthe profits, the share of each in the lossesshall be according to the profit-sharingratio?However, the industrial partnershall NOT be liable for losses?

To determine profits or losses,all transactions must beconsidered, not only oneparticular transactionoIf also no profit-sharing stipulated in thecontract, losses shall be borne by thepartners in proportion to their capitalcontributions?But the purely industrial partnershall NOT be liable for thelossesNotes on De LeonPartnership

C c,) L L E E N?17Art. 1798. If the partners have agreed to intrust to athird person the designation of the share of each one inthe profits and losses, such designation may beimpugned only when it is manifestly inequitable. In nocase may a partner who has begun to execute thedecision of the third person, or who has not impugnedthe same


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within a period of three months from the timehe had

nowledge thereof, complainof such decision.The designation of losses and profits cannot beintrusted to one of the partners.Designation by a 3rdperson of share in profits and losses?Delegation to a 3rdpersondesignation of sharesin the profits and losses may be delegate to 3rdperson by common consentoDesignation must be to 3rdperson, andnot to one of the partners. In accordancewith rule in contracts thatfulfilment of contract cannot be left to the will of oneof the contracting partieso

Prohibition in 2ndparagraph necessary toguarantee impartiality?Binding force of designationdesignation by 3rdperson generally binding unless manifestlyinequitableo

Partner who has begun to executedecision of 3rdperson or who fails toimpugn the same within 3 months fromtime he had

nowledgeof it can nolonger complainoIn this case, partner guilty of estoppel ordeemed to have given consent orratification to designationo3 month period only so operations of partnership will not be paralyzedArt. 1799. A stipulation which excludes one or morepartners from any share in the profits or losses is void.

Stipulation excluding a partner from any share in profits orlosses?Stipulation generally void, but partnershipsubsistsoIn general, law does not allow astipulation excluding one or morepartners from any share in profits andlosses?


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Partnership must exist forcommon benefit and interest of partnersoHence, contract excluding one or morepartners from share contravenes the verypurpose of a partnershipoHowever, although the stipulation isvoid, the partnership is otherwise validandthe profits or losses shall beapportioned as if there was no stipulationon the same?If also no profit-sharingstipulated in the contract, lossesshall be borne by thepartners inproportion to their capitalcontributions (Art. 1797)?Stipulation, a factor to show no partnership existsoWhere parties expressly stipulate thatthere shall be no liability for losses, orwhere from the nature of the contract, itis clear that a party did not intend toshare in the losses, such fact may be anindicator/ factor in determining that nopartnership exists?

Where person excluded not intended by parties tobecome a partneroStipulation is validoWhen one of several persons engaged inan enterprise agreed to assist byadvancingmoney and to share in thelosses but not to receive any part of theprofits, which will be divided among theothers exclusively, is not deemed to be apartneroBut if he represents to others or allowshimself to be held as a partner to a 3

rdperson who enters into a contract withthem believing him to be such partner,heis liable?Where person excluded from losses is industrialpartneroNaturally valid because Art. 1797specifically excludes an industrialpartner fromlossesoBut this is without prejudice to the rightsof 3

rdpersonsoIndustrial partner is excluded because hecannot withdraw his labor or efforts,unli

e a capitalist partner. Also when noprofits are realized, then he would havewor

ed in vain and has alreadycontributed his share in the loss?Where stipulation provides doe unequal shares


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oPartners are allowed to stipulate forunequal shares in the profits or lossesevenif their contributions are equaloUnless inequality is so gross that it is, ineffect, a simulated form or attempttoexclude a partner from any share in theprofits or lossesArt. 1800. The partner who has been appointedmanager in the articles of partnership may execute allNotes on De LeonPartnershipC c,) L L E E N?18acts of administration despite the opposition of hispartners, unless he should act in bad faith; and hispower is irrevocable without just or lawful cause. Thevote of the partners representing the controllinginterest shall be necessary for such revocation of power.

A power granted after the partnership has beenconstituted may be revo

ed at anytime.Rights and obligations with respect to managementTwo distinct cases of appointments?Appointment as a managerinthe Articles of PartnershipoPartner appointed by common agreementin articles of partnership may execute alla

cts of administration, but not those of strict ownership, notwithstanding theopposition of the other partners, unlesshe should act in bad faithoHis power is revocable only upon justand lawful cause and upon vote of thepartners representing the controllinginterestoReason: revocation represents a changein the terms of the contractoIn case of mismanagement, other partnersmay avail of usual remedies, includingapplication for dissolution of partnershipby judicial decree

?Appointment as managerafterthe constitution of the partnershipoManagement granted after partnershiphas been constituted independently of thearticles may be revo

ed at any time forany cause whatsoevero


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Revocation not founded on change of will of partners, the appointment notbeing acondition of the contractoIt is merely a contract of agency, whichmay be revo

ed any timeArt. 1800 refersto a partner appointed as manager, and notto a strangerAs a rule, the partner isnot entitled to compensation for hisservices other than his share of the profitsScope of power if a managing partner?As a general rule, a partner appointed as managerhas all powers of a general agent as well asincidental powers necessary to carry out object of partnership in the transaction of its business?Exception is when the powers of the manager arespecifically restrictedCompensation for services rendered?Partner generally not entitled to compensationoEach partner in ta

ing care of the jointproperty, managing the partnershipaffair

s, and directing the partnershipbusiness is practically ta

ing care of hisown interest or managing his ownbusinessoHe is not, in the absence of a contract,express or implied, entitled tocompensation beyond his share of theprofits for services renderedoIn the absence of any prohibition in thearticles of partnership for the paymentof salaries to general partners, there isnothing to prevent the partners to enterinto a collateral verbal agreement to thateffect?

Exceptionsin proper cases, the law may imply acontract for compensationoEmployment of a co-partner in a capacityother than that of a partner.e.g. toperform clerical servicesoExtraordinary neglect on the part of onepartner to perform his duties, imposingthe entire burden on the remainingpartnero

To do wor

for a co-partner outside andindependent of the co-partnership, andshall become personally liable thereforeoPartners exempted by terms of partnership from rendering servicesoWhere one partner is entrusted withmanagement and devotes his whole timetheretowhile the other partners attend totheir individual business giving no timeor att


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ention to the business of the firmoWhen one partner is exempt fromrendering personal services and he doesrender such service or where servicesrendered are extraordinaryArt. 1801. If two or more partners have been intrustedwith the management of thepartnership withoutspecification of their respective duties, or without astipulation that one of them shall not act without theconsent of all the others, eachone may separatelyexecute all acts of administration, but if any of themshould oppose the acts of the others, the decision of themajority shall prevail. In caseof a tie, the matter shallbe decided by the partners owning the controllinginterest.Notes on De LeonPartnershipC c,) L L E E N?19Where respective duties of two or more managing partnersnot specified?

Each one may separately perform acts of administrationoIf one or more managing partners opposeacts of others, decision of majority of themanaging partners shall prevail?Right to oppose can beexercised only by thoseentrusted with management of partnership and not by anypartneroIn case of tie, matter shall be decided byvote of partners owning controllingint

erest (more than 50% capitalinvestment)oIf articles do not specify duties of partners and limitations of management ,onepartner has no more powers than theothers in the conduct and management of thebusiness?Requisites for application of ruleoTwo or more partners have beenappointed as managerso

There is no specification of theirrespective dutiesoThere is no stipulation that one of themshall not act without the consent of alltheothersArt. 1802. In case it should have been stipulated thatnone of the managing partners shall act without theconsent of the others, the concurrence of all shall benecessary for the validity of the acts, and the absence ordisability of any one of them cannot be alleged, unlessthere is imminent danger of grave or irreparable


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injuryto the partnership.Where unanimity of action stipulated?Concurrence necessary for validity of actsoPartners may stipulate that none of managing partners shall act withoutconsent of the othersoConsent can be so indispensable thatneither absence nor disability of anypartnercannot be used to dispenserequirement?The only exception is whenthere is imminent danger of grave and irreplaceable injury tothe partnership under Art. 1794?Rule where there is opposition by a managingpartneroRule that in cases of imminent danger of grave or irreparable injury, a managingpartner may proceed alone withoutconsent of others, does not apply when amanagin

g partner objects to the proposedact?Consent of managing partners not necessary inroutine transactionsoThe authority to purchase carries with itthe implied authority to purchase oncreditoThe requirement of written authorityrefers to formal and unusual writtencontractArt. 1803. When the manner of management has notbeen agreed upon, the followingrules shall be observed:

(1) All the partners shall be considered agentsand whatever any one of them maydo aloneshall bind the partnership, without prejudice tothe provisions of Article 1801.(2) None of the partners may, without theconsent of the others, ma

e any importantalteration in the immovable property of thepartnership, even if it may be useful to thepartnership. But if the refusal of consent by theother partners is manifestly prejudicial to theinterest of the partnership, the court'sintervention may be sought.

Notes on De Leon

PartnershipC c,) L L E E N?52Dissolution of a limited partnership?


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CausesoMisconduct of a general partneroFraud practiced on the limited partner bythe general partneroRetirement, death, etc. of a generalpartneroWhen all the limited partners ceased tobe suchoExpiration of the term for whichpartnership was to existoMutual consent of the partners before theexpiration of the firm?s original term?

Suit for dissolutionoA limited partner may bring a suit for thedissolution of the firm, an accounting,and the appointment of a receiver whenthe misconduct of a general partner or theinsolvency of the firm warrants it.Similarly, creditors of a limitedpartnershipare entitled to such relief where the firm is insolventoA limited partner may have thepartnership dissolved and its affairswound up whenhe rightfully butunsuccessfully demands the return of hiscontribution, or the other liabilities of thepartnership, except liabilities to generalpartners and tolimited partners onaccount of their contributions, have notbeen paid, or the pa

rtnership property isinsufficient for their payment, and thelimited partner would otherwise beentitled to the return of his contribution?Notice of dissolutionoWhen the firm is dissolved by theexpiration of the term fixed in thecertificate,notice of the dissolution neednot be given since the papers filed andrecorded in the SEC are notice to all theworld of the term of the partnership.Where, however, the dissolution is by theexpress will of the partners, thecertificate shallbe cancelled, and adissolution of the partnership is noteffected until there hasbeen compliancewith the requirements in this respect

?Winding upoWhen a limited partnership has been dulydissolved, the general partners have theright and power to wind up its affairs. Itis not the duty of the limited partneror of the representatives of a limited partner tocare for or collect the assetsof the firmPriority in the distribution of partnership assets?


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The partnership liabilities shall be settled in thefollowing order:oThose due to creditors, including limitedpartners, except those on account of theircontributions, in the order of the priorityas provided by law;oThose due to limited partners in respectto their share of the profits and othercompensation by way of income on theircontributions;oThose due to limited partners for thereturn of the capital contributed;oThose due to general partners other thanthat for capital and profits;oThose due to general partners in respectto profits;oThose due to general partners for thereturn of the capital contributed?

Partnership creditors are entitled to foistdistribution, followed by limited partners whota

e priority over general partners?Note that in general partnership, the claims of thegeneral partners in respect of capital enjoypreference over those in respect of profitsShares of limited partners in partnership assets?In the absence of any statement in the certificateas to the share of the profitswhich each partnershall receive by reason of his contribution andsubject to anysubsequent agreement, limitedpartners share in the partnership assets in respectto their claims for capital and profits in proportionto the respective amounts

of such claims?This proportional sharing by the limited partnersta

es place where the partnership assets areinsufficient to pay such claimsPriority of claims of limited partners?The members of a limited partnership, as amongthemselves, may include in the partnership articlesan agreement for priority of distribution on thewinding up of partnership affairs. Such agreementordinarily becomes controlling as between thepartners themselves. In the absence of anycontrary agreement, all the limited partners standupon equal footing

?The claims of limited partners for profits and othercompensation by way of income and return of capital contributions rate ahead with respect to allclaims of general partners. For claims arisingfrom individual loans to, or other businesstransactions with, the partnership, other than forcapital contributions, the limited partner is placedin the same category as a non-member creditor. If return is made to a limited partner of hiscontribution before creditors are paid, he is under


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Notes on De LeonPartnershipC c,) L L E E N?53an obligation to reimburse such payments, withinterest, so far as necessary to satisfy claims of creditors?In the event of insolvency of the partnership, itscreditor ta

es preference overboth general andlimited partnersArt. 1864. The certificate shall be cancelled when thepartnership is dissolved or all limited partners cease tobe such.A certificate shall be amended when:(1) There is a change in the name of thepartnership or in the amount or character of the contribution of any limited partner;(2) A person is substituted as a limited partner;

(3) An additional limited partner is admitted;(4) A person is admitted as a general partner;(5) A general partner retires, dies, becomesinsolvent or insane, or is sentencedto civilinterdiction and the business is continuedunder Article 1860;(6) There is a change in the character of thebusiness of the partnership;(7) There is a false or erroneous statement inthe certificate;(8) There is a change in the time as stated in thecertificate for the dissolutio

n of the partnershipor for the return of a contribution;(9) A time is fixed for the dissolution of thepartnership, or the return of a contribution, notime having been specified in the certificate, or(10) The members desire to ma

e a change inany other statement in the certificate in orderthat it shall accurately represent the agreementamong them.When certificate shall be cancelled or amended?The certificate shall be cancelled, not merelyamended:o

When the partnership is dissolved otherthan by reason of the expiration of theterm of the partnershipoWhen all the limited partners cease to besuch. A limited partnership cannot existas such if there are no more limitedpartners (Art. 1843)?In all other cases, only an amendment of thecertificate is required (Art. 1864,Nos. 1-10)


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Art. 1865. The writing to amend a certificate shall:(1) Conform to the requirements of Article1844 as far as necessary to set forthclearly thechange in the certificate which it is desired toma

e; and(2) Be signed and sworn to by all members, andan amendment substituting a limited partneror adding a limited or general partner shall besigned also by the member to be substituted oradded, and when a limited partner is to besubstituted, theamendment shall also be signedby the assigning limited partner.The writing to cancel a certificate shall besigned by all members.A person desiring the cancellation oramendment of a certificate, if any person designated inthe first and second paragraphs as a person who mustexecute the writing refuses to do so, may petition thecourt to order a cancellation or amendmentthereof.If the court finds that the petitioner has a rightto have the writing executed by a person who refuses todo so, it shall order the Office of the Securities andExchange Commission where the certificate is recorded,to record the cancellationor amendment of thecertificate; and when the certificate is to be amended,the court shall also cause to be filed for record in saidoffice a certified copy of its decree setting forth theamendment.

A certificate is amended or cancelled whenthere is filed for record in the Office of the Securitiesand Exchange Commission, where the certificate isrecorded:(1) A writing in accordance with the provisionsof the first or second paragraph,or(2) A certified copy of the order of the court inaccordance with the provisionsof the fourthparagraph;(3) After the certificate is duly amended inaccordance with this article, the amendedcertified shall thereafter be for all purposes thecertificate provided forin this Chapter.Requirements for amendment and cancellation of certificate

?Requirements to amendoAmendment must be in writing;oIt must be signed and sworn to by all themembers; andoThe certificate, as amended, must be filedfor record in the SEC?

Requirements to canceloThe same as the requirements to amendoIf cancellation is ordered by the court,certified copy of such order shall be filedwith the SEC?


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Approval by Commission is not required for eithercaseNotes on De LeonPartnershipC c,) L L E E N?54Art. 1866. A contributor, unless he is a general partner,is not a proper party to proceedings by or against apartnership, except where the object is to enforcealimited partner's right against or liability to thepartnership.Limited partner, a mere contributor?A limited partner is a mere contributor. He ispractically a stranger in the limited partnershipwhose liability is limited to his interest in the firm,without any right and power to participate in themanagement and control of the business.Relationship between limited partner andpartnership is not one of trust and confidenceParties to action by or against partnership?

Since limited partners are not principals inpartnership transactions, their liability, as ageneral rule, is to the partnership, not the creditorsof the partnership. For the same reason, they haveno right of action against 3rdpersons againstwhom the partnership has any enforceable claimWhen limited partner a proper party?Where the object to enforce limited partner?sindividual rights against the partnership, and torecover damages for violation of such right

?When it is a proceeding to enforce his liability tothe partnership?Creditors may go against him if he had withdrawnsums from the capital of the firm with outstandingdebts on a voluntary dissolutionNature of limited partner?s interest in form?Limited partner?s contributions are not a loan andhe is not a creditor of the firm because of suchcontribution

?Limited partner?s contributionis not a mereinvestment?Limited partner is, in a sense, an owner, which ininterest in the capital if thefirm and its business assuch, but he has no property right in the firm?sassets; but in accordance with statutoryprovisions, a limited partner may be a c


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o-ownerwith his partners of partnership property, holdingas a tenant in partnership and his interest may bedefined as a tenancy in partnership?Limited partner?s interest is in personal property,and it is immaterial whether the firm?s assetsconsist of realty or tangible or intangiblepersonality?The nature of the limited partner?s interest in thefirm amounts to a share in the partnership assetsafter its liabilities have beendeducted and abalance struc

. The interest isa chose in action,and hence intangible personal propertyArt. 1867. A limited partnership formed under the lawprior to the effectivity ofthis Code, may become alimited partnership under this Chapter by complyingwiththe provisions of Article 1844, provided thecertificate sets forth:(1) The amount of the original contribution of each limited partner, and the time when thecontribution was made; and(2) That the property of the partnershipexceeds the amount sufficient to discharge itsliabilities to persons not claiming as general orlimited partners by an am

ount greater than thesum of the contributions of its limited partners.A limited partnership formed under the law prior to theeffectivity of this Code,until or unless it becomes alimited partnership under this Chapter, shall continueto be governed by the provisions of the old law.Provisions for existing limited partnerships?A limited partnership formed under the formerlaw may become a limited partnership bycomplying with the provisions of Art. 1844,provided the certificate sets forth the informationrequired by Art. 1867. until or unless it becomes alimited partnership under this chapter, it shallcontinue to be governed by the provisions of theold law

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