Chapter 2: Obligations of the Partners Among Themselves Flashcards
When does a partnership begins?
A partnership begins from the moment of the execution of the contract.
What will happen if a partnership with a fixed term or particular undertaking continues?
It will turn into a partnership at will.
Who will be liable if a property is evicted due to legal reasons?
The partner who contributed the property.
Is demand necessary when it comes to contributions?
Demand is NOT necessary, the partner is already in default.
What is the remedy in case of failure to deliver the promised contribution?
Specific performance with interest and damages
How should goods be appraised?
Based on the method indicated in the articles of the partnership
How should goods be appraised if the contract doesn’t specify how to appraise it?
Experts chosen by the partners must do it. The value will be determined based on the current market price.
When does the obligation to pay the interest and damages if a partner fails to deliver his promised contribution arises?
From the moment a partner fails to deliver his contribution on the agreed date.
Remedy of the capitalist partners if an industrial partner engages in any other business for themselves.
- Exclude the indutrial partner from the partnership.
- May avail themselves the benefits which the industrial partner may have obtained plus damages.
What will happen if a capitalist partner refuses to contribute additional capital when facing an imminent loss?
The capitalist partner shall be obliged to sell their interest to the other capitalist partner who are willing to contribute additional capital.
Are capitalist partner bound to contribute additional capital?
GENERAL RULE: Capitalist Partners are NOT bound to contribute additional capital.
What happens when a partner, authorized to manage the partnership, collects a payment from someone who owes both the partner and the partnership?
The amount shall be proportionally applied to both debts.
If a partner pays only his personal debt to another partner, how should the collected sum be applied?
The amount must still be divided proportionally to both personal partner and the partnership.
In the case where a partner pays off a debt that is owed only to the partnership, where does the entire payment go?
The entire amount belongs to the partnership.
What are the conditions that must exist for a managing partner to collect debts?
- Existence of at least 2 debts
- Both sums are demandable
What should happen if a partner collects their share of a partnership credit while other partners have not yet received theirs, and the debtor later becomes insolvent?
The partner must bring the amount back to the partnership funds
If a partner causes damage to the partnership due to their fault or misconduct, how should this be handled?
The partner is responsible for the full amount of the damages.
Under what circumstances might a court reduce a partner’s liability for damages caused to the partnership?
If the partner’s extraordinary efforts lead to unusual profits for the partnership.
Items that can be changed with others of the same kind and quality.
Fungible Things
Who bears the risk of loss for specific and determinate things that are not fungible and contributed only the usufruct of the item to the partnership?
The partner who owns them
If a partner contributes fungible items that deteriorate or are intended to be sold, who bears the risk of loss?
The partnership will bear the risk of loss as there was a transfer of ownership
Who will bear the risk of loss for items brought into the partnership and appraised as part of an inventory?
The partnership bears the risk.
If a partnership item that was appraised in the inventory is lost or damaged, what is the limit for compensation claims?
The appraised value recorded in the inventory
What is the obligation of the partnership to every partner for every expenses and obligations they incure while managing the partnership’s affairs?
- To refund the amounts disbursed by the partner plus interest from the time the expenses were made
- To answer to each partner for obligations, he may have contracted into in good faith in the interest of the partnership, and for the risks in consequence of its management
How should profits be distributed among partners?
In accordance with the agreement
How should profits be distributed among partners if there is no agreement?
Capitalist partner
- In proportion to his contribution
Industrial partner
- Just and equitable
- Equivalent to the share of the capitalist partner with the lowest share
What is the status of an industrial partner concerning losses?
Not liable for losses
How should losses be distributed among partners?
- Based on the agreement.
- In case of the absence of agreement:
1.) Based on the profit sharing ratio
2.) Based on the capital contribution of the partners
What is the general rule regarding the validity of a third person designating the shares of partners in profits and losses?
Valid
Under what condition can the designation by a third person be questioned?
If it is manifestly inequitable
What happens if a partner begins to execute the decision of the third person regarding profit and loss designation?
The decision may not be questioned
What is the time limit for a partner to question the decision made by a third person once they become aware of it?
3 months
What are the two exceptions that prevent a partner from questioning the decision made by a third person?
- A partner began to execute the decision of the third person
- A partner has not questioned the decision within three months from the time they had knowledge of it
What is the status of a stipulation that excludes one or more partners from sharing in the profits or losses?
The stipulation is void but not the contract of partnership
How shall profits and losses be distributed if a stipulation excluding partners is void?
Profits and losses shall be distributed as if there was no agreement, based on the partners’ capital contributions
Can a manager’s power be taken away without a lawful reason?
No, the manager’s power is generally irrevocable unless there is a lawful reason.
Under what condition can the power of a managing partner be revoked?
The power is irrevocable without just or lawful cause, but can be revoked with the vote of partners representing the controlling interest (Majority)
What is the procedure to remove a managing partner without just cause?
Unanimity is required, including the vote of the managing partner themselves
What happens if a partner is given managerial power after the partnership is formed?
This power can be revoked at any time, with or without just cause
What is the presumption regarding the actions of a managing partner?
The law presumes that the manager is acting in good faith unless proven otherwise.
If there is no agreement on management, who manages the partnership?
Management is vested in all partners
How does the appointment of a manager in the articles of partnership differ from a manager appointed in other instruments?
The appointment in the articles provides stronger protection and is more difficult to revoke, while an appointment in another instrument is more flexible and easier to revoke.
What happens when two or more partners are entrusted with the management of the partnership without specified duties?
Each partner may separately execute all acts of administration
In the event of a disagreement among managing partners, whose decision prevails?
The decision of the majority shall prevail
What occurs in the case of a tie among partners when making a decision?
The matter shall be decided by the partners owning the controlling interest
Can the absence or disability of any managing partner be used to bypass the requirement for unanimous consent?
No, the absence or disability of any partner cannot be alleged to bypass this requirement
What is the exception to the requirement for unanimous consent among managing partners?
In cases of imminent danger of grave or irreparable injury to the partnership, a managing partner may act without the others’ consent
Does Article 1802’s requirement for unanimous consent affect third parties contracting with the partnership?
No, the requirement applies only to the partners themselves and does not impose any obligations on third parties
What presumption do third parties have when dealing with a managing partner regarding authority?
Third parties are entitled to presume that the managing partner they are dealing with has the necessary authority and has followed the internal rules of the partnership.
What is required for the validity of acts when it has been stipulated that none of the managing partners can act without the consent of the others?
The concurrence of all partners is necessary for the validity of the acts
What happens when the partnership agreement does not specify how management should be conducted?
All partners are treated as agents of the partnership, meaning any partner can act on behalf of the partnership, and their actions will bind the partnership
What is required before making significant changes to the partnership’s immovable property?
Consent from all partners is needed for major changes
Can partners make significant changes to immovable property even if they believe those changes would be beneficial?
No, they still require the agreement from all partners before making such changes
What can affected partners do if one partner refuses to consent to changes that are harmful to the partnership’s interests?
Affected partners can seek intervention from the court
Under what condition is court intervention available to the affected partners?
Court intervention is available if it can be shown that the refusal to consent is detrimental to the partnership’s well-being
Can a partner bring in another person to share in their share of the partnership’s profits and losses?
Yes, every partner may associate another person with them in their share but that person can’t become an official partner without the consent of all the other partners
What must happen for the associate to be admitted as a partner into the partnership?
The consent of all the other partners is required for the associate to be admitted.
An arrangement where an existing partner in a partnership brings in another person (an “associate” or “sub-partner”) to share in their own share of the partnership’s profits and losses.
Contract of Sub-Partnership
Does an associate in a sub-partnership have the same rights as a full partner in the original partnership?
No, the associate does not have the right to make decisions or manage the partnership. They only share in the sub-partner’s portion of profits and losses.
Where should the partnership books be kept?
At the principal place of business of the partnership
Can the location of the partnership books be changed?
Yes, the location can be adjusted if the partners agree otherwise
What rights do partners have concerning the partnership books?
Every partner has the right to access, inspect, and copy the partnership books
A time during regular business hours or an agreed-upon time that does not interfere with the normal functioning of the partnership.
Reasonable Hour
The act of deliberately hiding or withholding important information about the partnership that is required to be shared with other partners or their legal representatives.
Concealment
Who can request information about the partnership?
Any partner, the legal representative of any deceased partner, or the legal representative of any partner under legal disability can request information
Refers to a partner who must manage and safeguard any profits or benefits they receive from partnership-related transactions, ensuring these are held for the benefit of the partnership rather than for personal gain.
Trustee
What must partners do if they receive profits without the consent of the other partners?
They must hold those profits as a trustee for the partnership and manage them for the benefit of the partnership
What happens if a partner uses partnership assets for personal gain?
Any profits derived from the use of partnership assets must be accounted for and managed for the partnership’s benefit
What kind of business is a capitalist partners prohibited from partaking?
Similar line of business as the partnership
Effects if a capitalist partner engage in a similar line of business as the partnership.
- Capitalist partner must bring any profits to the partnership
- Must personally bear all the losses
What is the rationale behind prohibiting capitalist partners from engaging in similar businesses?
It is considered unfair for a capitalist partner to engage in a similar business since they have already acquired knowledge of the partnership’s business secrets
What can a partner do if they are wrongfully excluded from the partnership business?
A partner can demand a formal account if they are wrongfully excluded from the partnership business or denied possession of its property by their co-partners
What is the general rule regarding formal accounting in a partnership?
GENERAL RULE: No formal accounting is demandable until after the dissolution of the partnership.
