Law on Partnership - Obligations of the Partners Among Themselves

Question 1

What are the four juridical relations that arise from a contract of partnership?

Answer 1

1. Relations among the partners themselves (A, B)
2. Relations of the partners with the partnership. (A, B, Px)
3. Relations of the partnership with third persons with whom it contracts. (Px, 3)
4. Relations of the partners with such third persons. (A, B, 3)

Question 2

ART. 1784. A partnership begins from the moment of the _______________, unless it is otherwise stipulated.

Answer 2

Execution of the contract

Question 3

Why is registration in the Securities and Exchange Commission generally not essential to give a partnership juridical personality?

Answer 3

Registration in the Securities and Exchange Commission is not essential to give a partnership juridical personality because a partnership commences from the time of execution of the contract.

Question 4

What distinguishes the time limit for the life of a partnership from that of a corporation?

Answer 4

Unlike a corporation, no time limit is prescribed by law for the life of a partnership.

Question 5

What flexibility do partners have regarding the duration of their partnership?

Answer 5

Partners have the flexibility to fix any term in their contract, and they shall be bound to remain under such a relation for the duration of the term.

Question 6

Partners can fix any term in their contract, except?

Answer 6

When there is an occurrence of any events causing dissolution of the partnership before its expiration.

Question 7

ART. 1785. When a partnership for a fixed term or particular undertaking is __________ after the termination of such term or particular undertaking without any __________, the rights and duties of the partners remain the same as they were at such _________, so far as is consistent with a __________.

A continuation of the business by the partners or such of them as ____________ therein during the term, without any ____________________________________, is _______________ of a continuation of the partnership.

Answer 7

1st paragraph: continued; express agreement; termination; partnership at will

2nd paragraph: habitually acted; settlement or liquidation of the partnership affairs; prima facie evidence

Question 8

What is a partnership with a fixed term?

Answer 8

A partnership with a fixed term is one in which the term of its existence has been agreed upon (1) expressly, such as when there is a definite period, or (2) impliedly, such as when a particular enterprise or transaction is undertaken.

Question 9

How is a partnership with a fixed term agreed upon impliedly?

Answer 9

A partnership with a fixed term is impliedly agreed upon when a particular enterprise or transaction is undertaken.

Question 10

What events lead to the automatic dissolution of a partnership with a fixed term or a particular undertaking specified?

Answer 10

1. The expiration of the fixed term
2. The accomplishment of the particular undertaking specified (or the demonstration of the impossibility of its accomplishment)

Question 11

How can a partnership with a fixed term or particular undertaking be extended or renewed?

Answer 11

The partnership may be extended or renewed by the partners through (1) express agreement, written or oral, or (2) impliedly, by the mere continuation of the business after the termination of such term or particular undertaking (3) without any settlement or liquidation.

Question 12

What happens to the rights and duties of the partners if the partnership is extended or renewed?

Answer 12

In such a case, the rights and duties of the partners REMAIN THE SAME as they were at such termination, but only insofar as is consistent with a partnership at will.

Question 13

What occurs when a partnership with a fixed term or particular undertaking continues its operations beyond its specified term?

Answer 13

The partnership for a fixed term or particular undertaking is dissolved, and a new one—a PARTNERSHIP AT WILL—is created by IMPLIED agreement.

Question 14

Can the presence of a period for its specific duration or the statement of a particular purpose for its creation prevent the dissolution of any partnership by an act or will of a partner?

Answer 14

No.

Question 15

What determines the continued existence of a partnership at will?

Answer 15

It depends upon the mutual desire and consent of the partners.

Question 16

How can a partnership at will be lawfully terminated?

Answer 16

A partnership at will may be lawfully terminated (1) AT ANY TIME by the (2) EXPRESS WILL of all the partners or any of them.

Question 17

How should those who dictate the dissolution of a partnership act?

Answer 17

Those who dictate the dissolution of a partnership must act in good faith.

Question 18

Can bad faith prevent the dissolution of a partnership? What does it result in?

Answer 18

Bad faith cannot prevent the dissolution of a partnership, but it can result in liability for damages to the other partners.

Question 19

What does the concept of good faith regarding dissolution indirectly imply as to its requirements?

Answer 19

The requirement is that the dissolution must NOT be made at an (1) improper or (2) unreasonable time.

Question 20

Can a partnership for a fixed term be terminated before the specified time?

Answer 20

Yes, even a partnership for a fixed term may be terminated by the express will of any partner before the time mentioned.

Question 21

Can there be permanence or indissolubility in partnerships?

Answer 21

There is no such thing as an indissoluble partnership.

Question 22

How can the understanding that a partnership should continue until the accomplishment of a particular undertaking or certain conditions have been met be evidenced?

Answer 22

It can be evidenced by an agreement of the parties.

Question 23

1. What happens when a PARTNER advances a sum of money to a PARTNERSHIP with the understanding that the amount contributed is to be loaned to the partnership and is to be repaid from the prospective profits of the business?
2. When should the repayment happen?

Answer 23

1. The partnership is FOR THE TERM REASONABLY REQUIRED to repay the loan.
2. As soon as feasible

Question 24

What requirement must be met in cases of implied agreement regarding the continuation of a partnership?

Answer 24

The implied agreement must be proved.

Question 25

What is insufficient to create a partnership for a term?

Answer 25

The mere expectation that the business would be successful in its undertaking.

Question 26

ART. 1786. Every partner is a _______ of the partnership for whatever he may have promised to ________ thereto.

He shall also be bound for ________ in case of _________ with regard to specific and determinate things which he may have contributed to the partnership, in the same cases and in the same manner as the _______ is bound with respect to the ________. He shall also be liable for the ________ thereof from the time they should have been delivered, without the need of any ________.

Answer 26

First paragraph: debtor; contribute

Second paragraph: warranty; eviction; vendor; vendee; fruits; demand

Question 27

What are the obligations of partners among themselves and to the partnership concerning the contribution of property, as outlined in Article prescribing the debt of partner contributing to common fund?

Answer 27

a) To CONTRIBUTE at the beginning of the partnership or at the stipulated time the money, property, or industry promised to contribute.
b) To answer for EVICTION in case the partnership is deprived of the determinate property contributed.
c) To answer to the partnership for the FRUITS of the property the contribution of which is delayed, from the date they should have been contributed up to the time of actual delivery.
d) To PRESERVE said property with the diligence of a good father of a family pending delivery to the partnership.
e) To INDEMNIFY the partnership for any damage caused to it by the retention of the same or by the delay in its contribution.

Question 28

What happens to the money or property contributed by a partner in a partnership?

Answer 28

It becomes the property of the partnership. Consequently, the contributing partner cannot withdraw or dispose of it without the consent or approval of the partnership or the other partners.

Question 29

What consequence does the failure to contribute to the partnership have on the defaulting partner? Does it need demand?

Answer 29

The failure to contribute to the partnership makes the partner ipso jure a debtor of the partnership, even in the absence of any demand.

Question 30

What does “ipso jure” mean?

Answer 30

“Ipso jure” is a Latin phrase that means “by the law itself”. It is used as an adverb to describe legal consequences that occur by the act of the law itself.

Question 31

What remedy is available to the other partner or the partnership in case of a partner’s failure to contribute to the partnership?

Answer 31

The remedy is an action for (1) specific performance (to collect what is owing) along with damages and (2) interest from the defaulting partner from the time he should have complied with his obligation.

Question 32

Under what circumstances can rescission or annulment of a partnership contract be allowed?

Answer 32

They can be allowed on the ground of fraud or misrepresentation committed by one of the parties thereto.

Question 33

What can be allowed on the ground of fraud or misrepresentation committed by one of the parties thereto?

Answer 33

Rescission or annulment of a partnership

Question 34

ART. 1787. When the capital or a part thereof which a partner is bound to contribute consists of _______, their _________ must be made in the manner prescribed in the contract of partnership, and in the absence of stipulation, it shall be made by _______ chosen by the partners, and according to ___________, the subsequent ________ thereof being for the account of the partnership.

Answer 34

goods; appraisal; experts; current prices; changes

Question 35

Why is the appraisal of the value of the goods contributed necessary in a partnership?

Answer 35

It is to determine how much each partner has contributed to the partnership.

Question 36

How is the share of each partner in the profits and losses determined in the absence of a stipulation?

Answer 36

In the absence of a stipulation, the share of each partner in the profits and losses is in proportion to what he may have contributed.

Question 37

What are the methods for appraising the value of contributed goods if not stipulated in the partnership agreement?

Answer 37

The appraisal is made, firstly, in the manner PRESCRIBED by the contract of partnership; secondly, in the absence of stipulation, by EXPERTS chosen by the partners and according to current prices.

Question 38

What risks or benefits do the partners bear or get after they have contributed goods to the partnership?

Answer 38

After the goods have been contributed, the partnership bears the risk or gets the benefit of subsequent changes in their value.

Question 39

How is the appraisal of immovable property conducted in a partnership? How is it made otherwise?

Answer 39

In the case of immovable property, the appraisal is made in the inventory of said property; otherwise, it may be made as provided in the general rule prescribing the appraisal of goods.

Question 40

ART. 1788. A partner who has undertaken to contribute a sum of money and fails to do so becomes a __________ for the ______________from the time he ____________________________.

The same rule applies to any amount he may have taken from the __________, and his _________ shall begin from the time _________________________.

Answer 40

First paragraph: debtor; interest and damages; should have complied with his obligation

Second paragraph: partnership coffers; liability; he converted the amount to his own use

Question 41

What are the two distinct cases contemplated in the rule regarding the sum of money in the partnership?

Answer 41

The first case refers to money promised but not given on time, while the second case refers to partnership money converted to the personal use of the partner.

Question 42

What are the obligations of the partners with respect to the partnership capital under the Article prescribing the sum of money contributed or taken to or from partnership?

Answer 42

The obligations of the partners with respect to the partnership capital under Article 1788 are as follows:

1. To CONTRIBUTE on the date due the amount he has undertaken to contribute to the partnership.
2. To REIMBURSE any amount he may have taken from the partnership coffers and converted to his own use.
3. To PAY the agreed or legal interest if he fails to pay his contribution on time or in case he takes any amount from the common fund and converts it to his own use.
4. To INDEMNIFY the partnership for the damages caused to it by the delay in the contribution or the conversion of any sum for his personal benefit.

Question 43

ART. 1789. An _______ partner cannot engage in business for himself unless the partnership ________ him to do so; and if he should do so, the capitalist partners may either ____________________ or ________________ which he may have obtained in violation of this provision, with a __________________.

Answer 43

Industrial; expressly permits; exclude him from the firm; avail themselves of the benefits; right to damages in either case

Question 44

What is an industrial partner?

Answer 44

An industrial partner is one who contributes his industry, labor, or services to the partnership.

Question 45

When does the industrial partner become a debtor of the partnership for his work or services? What is the exception?

Answer 45

The industrial partner becomes a debtor of the partnership for his work or services from the moment the partnership relation begins, unless the contrary is stipulated.

Question 46

What is the consequence if the industrial partner engages in business for himself?

Answer 46

If the industrial partner engages in business for himself, such act is considered prejudicial to the interest of the other partners.

Question 47

What is not available as a remedy in the case of industrial partner?

Answer 47

An action for specific performance to compel the industrial partner to perform the promised work or service is not available as a remedy.

Question 48

Why is an action for specific performance not available as a remedy in the case of the industrial partner?

Answer 48

It is not available as a remedy because this will amount to involuntary servitude, which is prohibited by the Constitution.

Question 49

What is the reason for the prohibition for an industrial partner to work in a different partnership/business?

Answer 49

The reason for the prohibition for an industrial partner is to prevent any conflict of interest between the industrial partner and the partnership and to ensure faithful compliance by said partner with his prestation.

Question 50

What is the prohibition for capitalist partners? Is it absolute?

Answer 50

The prohibition for capitalist partners extends only to ANY operation which is of the same kind of business in which the partnership is engaged, UNLESS there is a stipulation to the contrary.

Question 51

What rights do capitalist partners have if the industrial partner engages in business for himself without permission?

Answer 51

The capitalist partners have the right either to (1) exclude the industrial partner from the firm or to (2) avail themselves of the benefits which he may have obtained. (3) In either case, the capitalist partners have a right to damages.

Question 52

What is required for the permission to engage in business for himself granted to the industrial partner?

Answer 52

The permission granted to the industrial partner must be express.

Question 53

Does mere toleration by the partnership exempt the industrial partner from liability?

Answer 53

No, mere toleration by the partnership does not exempt the industrial partner from liability.

Question 54

Are industrial partners entitled to the same remedy as capitalist partners? Why?

Answer 54

It is believed that industrial partners are also entitled to the remedy granted, for they are equally prejudiced by the act of their co-partner engaging in business for himself.

Question 55

ART. 1790. Unless there is a stipulation to the ________, the partners shall contribute ________ shares to the capital of the partnership.

Answer 55

contrary; equal

Question 56

Can partners stipulate unequal shares to the common fund?

Answer 56

Yes, partners can stipulate the contribution of unequal shares to the common fund.

Question 57

What is the presumption in the absence of a stipulation regarding shares in the common fund?

Answer 57

In the absence of such stipulation, the presumption is that the partners’ contribution shall be in equal shares.

Question 58

Why is the presumption of equal shares considered just and reasonable?

Answer 58

It is consistent with the rule that partners are deemed to have equal rights and obligations.

Question 59

Is the rule of equal shares applicable to industrial partners? What is the exception?

Answer 59

No, the rule of equal shares is not applicable to an industrial partner unless, besides his services, he has contributed capital pursuant to an agreement to that effect.

Question 60

ART. 1791. If there is no agreement to the ______________, in case of an ________________ of the business of the partnership, any partner who ________ to contribute an additional share to the capital, except an _______________, to save the venture, shall be obliged to ______________ to the other partners.

Answer 60

contrary; imminent loss; refuses; industrial partner; sell his interest

Question 61

What is the general rule regarding the contribution of a capitalist partner to the partnership?

Answer 61

The general rule is that a capitalist partner is not bound to contribute to the partnership more than what he agreed to contribute.

Question 62

Under what circumstance is a capitalist partner obligated to contribute an additional share to save the venture? Is this absolute?

Answer 62

In case of an imminent loss of the business, a capitalist partner is obligated to contribute an additional share to save the venture, IN THE ABSENCE of an agreement to the contrary.

Question 63

What are the requisites before a capitalist partner may be obliged to sell his interest to the others?

Answer 63

The requisites are:
(a) There is an IMMINENT LOSS of the business of the partnership;
(b) The MAJORITY of the capitalist partners believe that an additional contribution to the common fund would save the business;
(c) The capitalist partner REFUSES deliberately (not due to financial inability) to contribute an additional share to the capital; and
(d) There is NO AGREEMENT stating that partners are not obliged to contribute even in case of an imminent loss of the business.

Question 64

What condition must be met before a capitalist partner may be compelled to sell his interest to others regarding his refusal to contribute an additional share?

Answer 64

Refusal to contribute must be (1) DELIBERATE and (2) NOT due to financial inability.

Question 65

What exemption does the industrial partner have regarding contributing an additional share? What’s the reason?

Answer 65

The industrial partner is exempted from the requirement to contribute an additional share. Since the industrial partner has already contributed his entire industry, he cannot do anything further.

Question 66

ART. 1792. If a partner authorized to __________ collects a ______________, which was ___________ in his own name, from a person who __________________________________, the sum thus collected shall be ___________ to the two credits ___________ to their amounts, even though he may have given a receipt __________ only; but should he have given it for the account of the ______________, the amount shall be fully applied to the latter.

The provisions of this article are understood to be without prejudice to the right granted to the debtor by _____________, but only if the personal credit of the partner should be ___________ to him.

Answer 66

First paragraph: manage; demandable sum; owed to him; owed the partnership another sum also demandable; applied; in proportion; for his own credit; partnership credit

Second paragraph: Article 1252; more onerous

Question 67

What are the requisites for the rule regarding the application of credits?

Answer 67

(a) There must be AT LEAST TWO debts: one owed to the collecting partner and the other to the partnership.
(b) Both debts must be DEMANDABLE.
(c) The partner who collects must be authorized to MANAGE the partnership and must actually manage it.

Question 68

In a scenario where A, the managing partner of X and Co., collects a sum of P1,500.00 from debtor C, who owes P2,000.00 to A and P4,000.00 to the partnership, how is the payment distributed if A issues a receipt indicating that the payment is for his credit? What if A issues a receipt for the partnership credit only?

Answer 68

If A issues a receipt indicating that the payment is for his credit, P500.00 will be applied to A’s credit, and the partnership is entitled to the remaining P1,000.00. However, if A issues a receipt for the partnership credit only, the full amount of P1,500.00 will be applied to the partnership’s debt.

Question 69

What is the purpose of the rule regarding the application of at least two credits?

Answer 69

The purpose of the rule is to safeguard the interests of the partnership by preventing the managing partner from subordinating the partnership’s interests to his own, to the detriment of the other partners.

Question 70

How does good faith play a role in the rule regarding the application of at least two credits?

Answer 70

Good faith demands that the managing partner prioritize the interests of the partnership over his own. He should not intentionally fail to collect the partnership’s credit in favor of collecting his own, as this would be prejudicial to the other partners.

Question 71

In what situation does the rule regarding the application of at least two credits not apply? Why?

Answer 71

The rule does not apply when the partner collecting for his own credit is not authorized to manage the partnership. For there would otherwise be no ground for suspicion of improper conduct to create an advantage for himself.

Question 72

What would happen if the manner of management has not been agreed upon and all partners participate in the management of the partnership with regard to the rule on application of credits?

Answer 72

Every partner is to be considered a managing partner for the purposes of applying the rule regarding the collection of at least two credits IF the manner of management has not been agreed upon.

Question 73

What right is granted to the debtor regarding the application of payment?

Answer 73

The debtor is given the right to preferentially apply payment to the credit of the partner if it is more burdensome for him, in accordance with his right to the application of payment.

Question 74

In a scenario where the obligation in favor of partner A bears 18% interest per annum, while the obligation in favor of the partnership bears 16% interest per annum, what does the law allow C to do regarding the payment in this scenario?

Answer 74

The law allows C, the debtor, to preferentially pay the credit of partner A if he desires to do so, considering partner A’s credit to be more burdensome.

Question 75

ART. 1793. A partner who has received, ____________, his share of a ________, when the other partners ________, shall be ____________, if the debtor should thereafter become ________, to bring to the partnership capital ________ even though he may have given receipt _____________.

Answer 75

in whole or in part; partnership credit; have not collected theirs; obliged; insolvent; what he received; for his share only

Question 76

According to the rule regarding the collection of the share of the partnership credit whereby other partners hadn’t, does it matter whether the partner who receives their share of the partnership credit is authorized to manage the partnership?

Answer 76

No, the rule regarding the partnership credit applies regardless of whether the partner who receives their share of the partnership credit is authorized to manage the partnership or not.

Question 77

If partner A received a share of P1,500.00 from debtor D ahead of the other partners B and C, and D was already insolvent when B and C attempted to collect, what is the implication for partner A?

Answer 77

In this case, even if partner A had given a receipt for his share only, he can be required to share the P1,500.00 with partners B and C.

Question 78

What is the SUPPORTING argument regarding the collection of partnership credits by individual partners after a partnership dissolves?

Answer 78

Some argue that if one partner collects their portion of partnership credits before the debtor goes insolvent, the collected amount should be brought back into the partnership fund and divided among all partners based on their shares, to maintain community and equality among partners.

Question 79

What are the opposing argument reasons regarding the collection of partnership credits after dissolution?

Answer 79

(a) It would not be just for a diligent partner who collected their quota to suffer the consequences of the negligence of their associates.
(b) After dissolution and the return of each partner’s contribution, the community of interest between them ceases entirely.

Question 80

ART. 1794. Every partner is responsible to the partnership for _______ suffered by it through his fault, and he cannot compensate them with the __________ which he may have earned for the partnership by his _________. However, the courts may ________ this responsibility if through the partner’s ___________ in other activities of the partnership, ______________ have been realized.

Answer 80

damages; profits and benefits; industry; equitably lessen; extraordinary efforts; unusual profits

Question 81

What is the general rule regarding the offsetting of damages caused by a partner to the partnership with profits earned for the partnership by their industry?

Answer 81

As a general rule, damages caused by a partner to the partnership CANNOT be offset by the profits or benefits they may have earned for the partnership through their industry.

Question 82

Why is it stated that there cannot be any compensation between damages caused by a partner and profits earned for the partnership?

Answer 82

Compensation requires the negligent partner to be both a creditor and a debtor of the partnership. A partner is a debtor to the partnership for their industry and, at the same time, is obliged to repair any injury they might have caused through their fault.

Question 83

What is the exception to the general rule regarding the disallowed compensation between damages and profits in a partnership?

Answer 83

The exception is that if unusual profits are realized through the extraordinary efforts of the partner at fault, the courts may equitably mitigate or lessen their liability for damages.

Question 84

How is the concept of “unusual profits” defined in the context of the rule regarding disallowed compensation between damages and profits in a partnership?

Answer 84

The law does not specify when profits may be considered “unusual.” The determination depends upon the circumstances of the particular case and is based on principles of equity.

Question 85

What restriction is placed on a partner at fault even when courts mitigate their liability due to unusual profits?

Answer 85

Even when courts mitigate the liability of a partner at fault due to unusual profits, they are not allowed to compensate for damages with the profits earned FOR THE PARTNERSHIP.

Question 86

How does the presence of insurance affect the liability of an erring partner for damages caused to the partnership?

Answer 86

The amount of insurance, if any, received by the partnership, should be deducted from the liability of the erring partner.

Question 87

ART. 1795. The risk of specific and determinate things, which are ___________, contributed to the partnership so that only their ___________ may be for the common benefit, shall be _______________________________________.

If the things contributed are __________, or _______________, or if they were ___________________, the risk shall be borne by the _____________. In the _____________, the risk of the things brought and ________________ shall also be borne by the _______________, and in such case the claim shall be limited to ___________________________.

Answer 87

First paragraph: not fungible; use and fruits; borne by the partner who owns them

Second paragraph: fungible; cannot be kept without deteriorating; contributed to be sold; partnership; absence of stipulation; appraised in the inventory; partnership; the value at which they were appraised

Question 88

What would “fungible” mean?

Answer 88

Consumable

Question 89

What are the five cases contemplated by the rule regarding the determination of the risk of things contributed to the partnership?

Answer 89

1. Specific and determinate things which are not fungible where only the use is contributed.
2. Specific and determinate things, the ownership of which, is transferred to the partnership.
3. Fungible things or things which cannot be kept without deteriorating, even if they are contributed only for the use of the partnership.
4. Things contributed to be sold.
5. Things brought and appraised in the inventory.

Question 90

What does the rule regarding the determination of the risk of things contributed to the partnership presuppose?

Answer 90

The rule presupposes that the things contributed have been delivered actually or constructively to the partnership.

Question 91

Who bears the risk of loss before delivery of contributed items to the partnership?

Answer 91

Before delivery, the partner bears the risk of loss since they remain the owner of the contributed items. They are also a debtor of the partnership for whatever they may have promised to contribute.

Question 92

What happens when any of the partners is responsible for the loss of contributed items due to their fault? What rule governs it?

Answer 92

If the loss is due to the fault of any of the partners, they shall be liable for damages to the partnership, as per the provision of the rules regarding disallowed compensation between damages and profits earned for a partnership.

Question 93

Who bears the risk of loss for specific and determinate things which are not fungible where only the use is contributed?

Answer 93

The risk of loss is borne by the PARTNER because they remain the owner of the things contributed, such as a car.

Question 94

Who bears the risk of loss for specific and determinate things the ownership of which is transferred to the partnership?

Answer 94

The risk of loss is for the account of the PARTNERSHIP since they become the owner of the contributed items.

Question 95

For fungible things or those that cannot be kept without deteriorating, what entity bears the risk of loss if they are contributed only for the use of the partnership?

Answer 95

The risk of loss is borne by the PARTNERSHIP because the ownership is evidently being transferred, as the use of such items is impossible without them being consumed or impaired (e.g., oil, wine).

Question 96

In the case of items contributed to be sold, who bears the risk of loss?

Answer 96

The partnership bears the risk of loss because it is intended to be the owner, enabling the partnership to effect the sale.

Question 97

Who bears the risk of loss for things brought and appraised in the inventory?

Answer 97

The partnership bears the risk of loss because the intention is to contribute to the partnership the price of the items, implying a sale where the partnership becomes the owner represented by their appraised value.

Question 98

Art. 418. ______________ property is either ________________. To the first class belong those ________which cannot be used in a manner appropriate to their nature without their being ___________; to the second class belong all the others.

Answer 98

Movable; consumable or non-consumable; movables; consumed

Question 99

ART. 1796. The partnership shall be responsible to every partner for the amounts he may have ___________________ and for the ________________, from the time the ______________; it shall also answer to each partner for the _______________ in the __________ of the partnership business, and for ___________ in consequence of its ____________.

Answer 99

disbursed on behalf of the partnership; corresponding interest; expense are made; obligations he may have contracted in good faith; interest; risks; management

Question 100

What obligations does a partnership have to a partner acting on its behalf, according to the Article prescribing rules on disbursements and obligations made on behalf or in the interest of the partnership?

Answer 100

a. To refund amounts disbursed by the partner on behalf of the partnership, plus corresponding interest from the time expenses are made.
b. To answer for obligations the partner may have contracted IN GOOD FAITH in the interest of the partnership business.
c. To answer for risks resulting from its management.

Question 101

Is a partner personally liable for actions undertaken on behalf of the partnership?

Answer 101

No, a partner is not personally liable if they acted within the scope of their authority and are free from fault.

Question 102

Does a partner have the right of retention if not reimbursed or indemnified?

Answer 102

A partner does not have the right of retention if not reimbursed or indemnified.

Question 103

What is the right of retention?

Answer 103

The right of retention is a creditor’s right to keep a debtor’s property until the debtor pays their debt.

Question 104

Can a partner be compensated for their services without the consent of all partners?

Answer 104

GENERALLY, no partner is entitled to compensation for their services without the consent of all partners, UNLESS implied from the circumstances that additional compensation was intended for work beyond normal partnership functions.

Question 105

The articles of a trading partnership composed of A, B, and C provides that any purchase in excess of P5,000.00 must first be approved by all the partners. This rule was strictly observed in all transactions of the partnership. C made a purchase of goods out of his personal funds for P7,000 without the knowledge of A and B. The partnership incurred a loss.

Is C entitled to be reimbursed?

Answer 105

No, partners in a partnership are typically only entitled to reimbursement for expenses made on behalf of the partnership if those expenses were incurred within the scope of the partnership.

Question 106

ART. 1797. The losses and profits shall be distributed in conformity with the ____________. If only the share of each partner in the profits has been agreed upon, the share of each in the losses shall be in the _____________.

In the absence of stipulation, the share of each partner in the profits and losses shall be in proportion to what ____________, but the industrial partner shall ________________________. As for the profits, the industrial partner shall receive such share as may be ________________ under the circumstances. If besides his services he has contributed capital, he shall also receive a share in the profits _____________________.

Answer 106

First paragraph: agreement; same proportion

Second paragraph: he may have contributed; NOT be liable for the losses; just and equitable; in proportion to his capital

Question 107

What determines the order of receipt of share in a partnership?

Answer 107

The industrial partner shall receive such share, which must be satisfied first before the capitalist partners shall divide the profits, as may be just and equitable under the circumstances.

Question 108

Why is the share of an industrial partner in the profits not fixed?

Answer 108

The share of an industrial partner in the profits is not fixed because it is very difficult to ascertain the value of the services of a person.

Question 109

How is the industrial partner’s position in distribution determined according to the Code of Commerce?

Answer 109

Under the Code of Commerce, the industrial partner was “placed in the distribution in the same position as the capitalist partner having the smallest interest.”

Question 110

Can the Supreme Court ever rule for equal sharing of profits between a capitalist partner and an industrial partner?

Answer 110

Yes, the Supreme Court can for equal sharing of profits if justice and equity dictate equal sharing, the same way it happened in a case where it transpired that it was through the “industry and geniuses” of the industrial partner that the property of the venture was developed and improved into a valuable asset worth more than P22 million.

Question 111

In case of the absence of any agreement, how would be a capitalist-industrial partner share in the PROFITS of a partnership?

Answer 111

The partners may determine, considering all the circumstances, that the capitalist-industrial partner may be entitled to an amount. The amount will be deducted from the profit first, and the remaining balance will then be divided according to their capital contribution, including the capitalist-industrial partner’s capital.

Question 112

In case of the absence of any agreement, how would be a capitalist-industrial partner share in the LOSSES of a partnership?

Answer 112

The capitalist-industrial partner shall only be liable for his capital contribution. The losses will be divided according to their capital contribution.

Question 113

ART. 1798. If the partners have agreed to intrust to a _________ the designation of the share of each one in the profits and losses, such designation may be impugned only when it is _______________. In no case may a partner who has begun to ____________ of the third person, or who has ________ the same within a period of ____________ from the time he had knowledge thereof, __________ of such decision.

The designation of losses and profits cannot be intrusted to __________.

Answer 113

First paragraph: third person; manifestly inequitable; execute the decision; not impugned; three months; complain

Second paragraph: one of the partners

Question 114

What is the reason regarding the prohibition to entrust the designation of losses and profits to any of the partners?

Answer 114

It is necessary to guarantee the utmost impartiality in the distribution of shares in the profits and losses.

Question 115

What is the implication if a partner fails to challenge a decision made by a third person within three months?

Answer 115

In such a case, the partner is guilty of estoppel or is deemed to have given consent or ratification to the designation.

Question 116

Why is there a relatively short period of three months to challenge a designation?

Answer 116

The reason for the three-month period is to forestall any paralysis in the operations of the partnership.

Question 117

ART. 1799. A stipulation which excludes one or more partners from any share in the profits or losses is _______.

Answer 117

void

Question 118

What happens to the partnership if a stipulation excluding partners from sharing in profits and losses is deemed void?

Answer 118

Although the stipulation is void, the partnership, if otherwise valid, continues to exist, and the profits or losses are apportioned as if there were no stipulation to the contrary.

Question 119

Can a party’s stipulation not to share in losses or their lack of intention to do so affect the determination of a partnership’s existence?

Answer 119

Yes, such factors may impact the determination of whether a partnership exists, suggesting a lack of partnership.

Question 120

When is a stipulation excluding someone from any share in the profits or losses considered valid?

Answer 120

The stipulation is valid if the excluded party is not intended by the parties to become a partner.

Question 121

In what scenario would a person not be considered a partner, despite agreeing to share in losses but not in profits?

Answer 121

Yes, if one person agrees to assist by advancing money and sharing in losses but not in profits, they are not considered a partner as per the agreement among the others and themselves.

Question 122

What does a person incur if they allow themselves to be perceived as a partner by a third party, leading to a contract based on that belief?

Answer 122

They are liable on such contract.

Question 123

Can exempting the industrial partner from losses lead to a prejudice to the rights of third persons?

Answer 123

This exemption is without prejudice to the rights of third persons.

Question 124

Why is the industrial partner not liable for losses in the partnership?

Answer 124

The industrial partner is not liable for losses because they cannot withdraw the work or labor already contributed, unlike capitalist partners who can withdraw their capital. If the partnership fails to realize profits, the industrial partner has already contributed their labor, thus effectively sharing in the loss by laboring in vain.

Question 125

Can partners stipulate for unequal shares in profits or losses even if their contributions are equal? Is this absolute?

Answer 125

Yes, partners can stipulate for unequal shares in profits or losses, unless the inequality is so extreme that it effectively simulates an attempt to exclude a partner from any share in profits or losses.

Question 126

Can partners stipulate to exempt some partners from sharing in losses?

Answer 126

That stipulation is void.

Question 127

ART. 1800. The partner who has been appointed __________ in the articles of partnership may execute all acts of administration despite ________________, unless he should ___________; and his power is __________ without __________. The __________ of the partners representing the _____________ shall be necessary for such ______________________.

A power granted after the partnership has been constituted may be ______________.

Answer 127

First paragraph: manager; the opposition of his partners; act in bad faith; irrevocable; just or lawful cause; vote; controlling interest; revocation of power

Second paragraph: revoked at any time

Question 128

What right does each partner in a general partnership generally have in the management of the business?

Answer 128

Each partner in a general partnership typically has a right to an equal voice in the conduct and management of the partnership business, unless the partnership agreement appoints someone to be the managing partner.

Question 129

Is the right of each partner to participate in the management of the partnership business dependent on their capital contribution or services?

Answer 129

No

Question 130

What are the two distinct cases of article regarding the revocation of a managing partner’s powers?

Answer 130

The article distinguishes between two cases of appointments:
(1) Appointment as manager in the articles of partnership
(2) Appointment as manager after the constitution of the partnership

Question 131

What authority does a partner appointed by common agreement in the articles of partnership have in the management of the partnership business? Is this rule absolute?

Answer 131

A partner appointed by common agreement in the articles of partnership may execute all acts of administration despite opposition from other partners, unless acting in bad faith.

Question 132

Under what circumstances can the power of a partner appointed in the articles of partnership be revoked?

Answer 132

The power of a partner appointed in the articles of partnership can only be revoked upon just and lawful cause and with the vote of partners representing the controlling interest.

Question 133

Why is the revocation of a partner appointed in the articles of partnership subject to stringent conditions?

Answer 133

The revocation represents a change in the terms of the contract, and such appointment is presumed to be one of the conditions of the contract. Thus, revocation should not occur without the consent of all partners, including the appointed partner.

Question 134

What is the effect of the management granted by partners after the partnership’s constitution in terms of revocability?

Answer 134

The management granted by partners after the partnership’s constitution, independently of the articles of partnership, can be revoked at any time for any cause whatsoever.

Question 135

What does vote for revocation represent?

Answer 135

It is believed that the vote for revocation represents the controlling interest.

Question 136

What compensation is a partner generally entitled to for their services?

Answer 136

As a rule, a partner is not entitled to compensation for their services other than their share of the profits.

Question 137

What reason is the revocation of management granted after the partnership’s constitution based on?

Answer 137

The revocation of management granted after the partnership’s constitution is not founded on a change of will on the part of the partners, as it is not considered a condition of the contract but rather a simple CONTRACT OF AGENCY, revocable at any time.

Question 138

Is the power to issue receipts considered within the general powers of a manager in a partnership?

Answer 138

Yes, the minor power to issue receipts is generally included in the general powers of the manager.

Question 139

Does the manager of a partnership engaged in buying and selling typically REQUIRE approval from other partners to make purchases on credit?

Answer 139

No, the manager of a partnership engaged in buying and selling is typically authorized to purchase on credit without the approval of other partners, as buying and selling on credit is customary.

Question 140

What authority does the managing partner have regarding securing loans for partnership purposes?

Answer 140

The managing partner typically has the authority to secure loans to complete the construction of property for use in the business, as long as it is necessary to carry out the express objectives of the partnership.

Question 141

What action can a managing partner take if an employee engages in abusive behavior towards them in front of customers?

Answer 141

The managing partner can dismiss the employee if there is justifiable cause, such as hurling abusive remarks in front of customers.

Question 142

Can a partnership sue or be sued in its name?

Answer 142

Yes, a partnership may sue or be sued in its name or by its duly authorized representative, which includes the managing partner who can execute acts of administration, including suing debtors.

Question 143

What limitation applies to a partner designated to manage the purchase of specific commodities and supplies for the partnership?

Answer 143

A partner designated for specific purchases cannot purchase anything else not considered supplies or property for the partnership business.

Question 144

Does a managing partner require the consent of all partners to undertake actions not agreed upon or beyond the partnership’s original purpose?

Answer 144

Yes, a managing partner needs the consent of all partners to undertake actions not agreed upon or different from the partnership’s original purpose.

Question 145

Is a managing partner permitted to bind the partnership with a contract unrelated to its business?

Answer 145

No, a managing partner cannot bind the partnership with a contract wholly foreign to its business, such as executing a mortgage on the firm’s property for a third party’s debt not owed by the partnership.

Question 146

ART. 1801. If two or more partners have been intrusted with the management of the partnership without ___________________________, or without a stipulation that ___________________________________, each one may _______________________________, but if any of them should_______________________, the _______________________ shall prevail. In case of a tie, the matter shall be decided by the partners _____________________.

Answer 146

specification of their respective duties; one of them shall not act without the consent of all the others; separately execute all acts of administration; oppose the acts of the others; decision of the majority; owning the controlling interest

Question 147

What happens if one or more managing partners oppose the acts of others in a partnership?

Answer 147

The decision of the majority (per head) of the managing partners prevails if one or more managing partners oppose the acts of others.

Question 148

Who has the right to oppose the acts of other managing partners in a partnership?

Answer 148

The right to oppose can only be exercised by those entrusted with the management of the partnership, not by any partner.

Question 149

What happens in the case of a tie among managing partners?

Answer 149

In the case of a tie, the matter is decided by the vote of the partners owning the controlling interest.

Question 150

How are partners owning the controlling interest defined?

Answer 150

Partners owning the controlling interest have more than 50% of the capital investment in the partnership.

Question 151

What powers do partners have when the articles of partnership don’t specify their duties and limitations of management?

Answer 151

When the articles of partnership are silent on duties and limitations, one partner has no more powers than the others in conducting and managing the firm’s business.

Question 152

Whose decision prevails when there is a specification of respective duties of managing partners in the articles of partnership? What is their limitation?

Answer 152

When there is a specification of respective duties, the decision of the partner concerned prevails, subject only to the limitation that they must act in good faith.

Question 153

What are the requisites for the rule regarding respective duties of two or more managers not being specified?

Answer 153

(a) Two or more partners have been appointed as managers
(b) There is no specification of their respective duties
(c) There is no stipulation that one of them shall not act without the consent of all the others

Question 154

The respective interests of the partners in a partnership are as follows: A — 5%; B — 10%; C — 15%; D — 15%; E — 20%; and F — 35%.

A entered into a contract. In a partnership where A, B, and E are managing partners without specified duties, is a contract entered into by A valid if B conforms to it despite objection from E?

Answer 154

Yes, in such a partnership, a contract entered into by A is valid if B conforms to it, even if it’s against the objection of E.

Question 155

The respective interests of the partners in a partnership are as follows: A — 5%; B — 10%; C — 15%; D — 15%; E — 20%; and F — 35%.

A entered into a contract. If A sided with B, and C sided with E, and subsequently, the matter was put to a vote of all the partners, with A, B, and D in favor, and with C, E, and F against, what is the outcome regarding the contract’s validity?

Answer 155

The contract is not valid, as the partners against it have more than 50% of the partnership interest.

Question 156

The respective interests of the partners in a partnership are as follows: A — 5%; B — 10%; C — 15%; D — 15%; E — 20%; and F — 35%.

A entered into a contract. If the managing partners are A, B, C, and E, and A and E were the ones who voted in favor of the contract and subsequently, after the matter was put to a vote of all the partners, F sided with them, what is the outcome regarding the contract’s validity?

Answer 156

The transaction is deemed ratified by the controlling interest in the partnership.

Question 157

The respective interests of the partners in a partnership are as follows: A — 5%; B — 10%; C — 15%; D — 15%; E — 20%; and F — 35%.

A entered into a contract. Suppose after a tie, the voting is as follows: A, B, and F — in favor, and C, D, and E — against, both sides representing 50% of the interest, with neither side willing to give way to the other, what shall be the rule?

Answer 157

The law is silent on this point. It is believed that in such case the contract should be considered as having been entered into without authority.

In other words, when the partners are equally divided, those who vote AGAINST the contract or who resist change must PREVAIL.

Question 158

Can a proposed contract be immediately entered into?

Answer 158

It may or may not be entered into depending upon the decision of the majority of the managing partners or of the controlling interest

Question 159

What’s the best solution for the situation where both in favor and against a contract entered into each represent 50% of the interest?

Answer 159

The best solution is for the partners to dissolve the partnership. A shall be responsible for damages if it is found that he was at fault.

Question 160

ART. 1802. In case it should have been stipulated that none of the managing partners shall act without the consent of the others, the ____________________ shall be necessary for the validity of the acts, and the ________ or _________ of any one of them cannot be alleged, unless there is ____________ of grave or irreparable ____________ to the partnership.

Answer 160

concurrence of all; absence; disability; imminent danger; injury

Question 161

When does the rule allowing a managing partner to act alone without consent from others not apply, even in cases of imminent danger of injury to the partnership?

Answer 161

The rule doesn’t apply if one managing partner exercises the right to oppose and objects to the proposed act.

Question 162

If unanimous consent of all managing partners is stipulated in a partnership, what can’t a managing partner allege?

Answer 162

Absence or disability of any of the managing partners

Question 163

What presumption does a third person have regarding managing partners when entering into a contract?

Answer 163

A third person may presume that the managing partner with whom they contract has the consent of their co-partner in the ordinary course of business, as otherwise, they would not enter into the contract.

Question 164

What is the purpose behind the presumption regarding managing partners contracted with having the consent of their co-partner in the ordinary course of business in contracts?

Answer 164

The purpose is to protect a third person who contracts with one managing partner from fraud or deceit, as they could easily become victims without such protection.

Question 165

In a partnership where the business involves buying and selling merchandise, can an industrial partner authorized to manage and direct partnership affairs purchasing goods on credit?

Answer 165

Yes, an industrial partner, authorized to manage and direct partnership affairs, can purchase on credit in the name of the firm goods regularly purchased by the company without prior approval from capitalist partners, since it’s customary to buy and sell on credit, as the authority to purchase implies the authority to purchase on credit.

Question 166

ART. 1803. When the manner of management has not been agreed upon, the following rules shall be observed:

(1) All the partners shall be considered __________ and whatever any one of them may do alone shall ______ the partnership, without prejudice to the provisions of ______________.

(2) None of the partners may, without _____________________________________, make any important alteration in the _______________ of the partnership, even if it may be ________________. But if the refusal of consent by the other partners is manifestly __________________ of the partnership, the _________________ may be sought.

Answer 166

1 - agents; bind; Article 1801

2 - the consent of the others; immovable property; useful to the partnership; prejudicial to the interest; court’s intervention

Question 167

The partners may fail to designate who among them shall act as manager, either when their contract is perfected or subsequently. What shall all partners have equal rights in?

Answer 167

The management and conduct of partnership affairs, regardless of the amount of their capital contributions or extent of their services to the partnership

Question 168

What is necessary for any important alteration in the immovable property of the partnership?

Answer 168

The unanimous consent of all the partners is necessary for any important alteration in the immovable property of the partnership.

Question 169

Does the unanimous consent of all the partners for any important alteration in the immovable property of the partnership need to be express?

Answer 169

No, the consent need not be express. It may be presumed from the fact of knowledge of the alteration without interposing any objection.

Question 170

Under what circumstances can intervention by the court be sought for authority to make necessary alterations in a partnership?

Answer 170

If the refusal to give consent by other partners is manifestly prejudicial to the interest of the partnership, intervention by the court may be sought.

Question 171

Can consent for alterations in a partnership be presumed from the silence of other partners?

Answer 171

Yes, consent may be presumed if other partners, despite knowing about the alteration, do not oppose it.

Question 172

A, B, and C organized a partnership for the purpose of engaging in the transportation business. Without a previous express authority, A contracted an indebtedness for automobile supplies and accessories. Are the partnership and the partners liable for said indebtedness?

Answer 172

Yes. There being no agreement with regard to the manner of management, all the partners are considered agents. A must be deemed to have authority to contract the indebtedness in question inasmuch as it was incurred in the prosecution of the partnership business.

Question 173

Veterans Army was organized to perpetuate the spirit of patriotism and fraternity among its members, and to promote the welfare of each member. It was provided in its articles that it shall be composed of a department and two or more posts, with a commander for the department and each post and that the members of the department shall constitute a quorum for the transaction of business. CRM brought an action against Veterans Army to recover unpaid rent under a contract of lease entered into by it with one of Veterans Army’s posts, known as Lawton Post.
Is the contract of lease binding upon Veterans Army?

Answer 173

No, since the articles of partnership so declare what the duties of the several officers are, the power of making contracts is not expressly given to any officers. The department could not be bound unless by resolution adopted at some meeting where at least there was a quorum.

Question 174

A and B are partners. X is a creditor of the debt of A, who later died. B assumed his late partner’s debt. Is AB partnership liable for the debt?

Answer 174

A’s debt is purely personal and unrelated to the partnership’s business or obligations, so the AB partnership would not be liable for that debt, regardless of whether B assumes it or not.

Question 175

ART. 1804. Every partner may _________ another person with him in his share, but the associate shall not be admitted into the partnership without the _______________, even if the partner having an associate should be a ____________.

Answer 175

associate; consent of all the other partners; manager

Question 176

A partner may associate another person with him in his share without the consent of the other partners. What is the associate sometimes referred to as?

Answer 176

A subpartner

Question 177

Define subpartnership.

Answer 177

It is the partnership formed between a member of a partnership and a third person for a division of the profits coming to him from the partnership enterprise.

Question 178

Does the division of profits among members of a subpartnership affect the formation of the subpartnership?

Answer 178

No, the division of profits among members of a subpartnership is immaterial, and even if one member receives all the profits, it does not prevent the formation of a subpartnership.

Question 179

How is a subpartnership related to the main or principal partnership?

Answer 179

A subpartnership is distinct and separate from the main or principal partnership; it is essentially a partnership within a partnership.

Question 180

Do subpartnership agreements affect the composition, existence, or operations of the main partnership?

Answer 180

Subpartnership agreements do not affect the composition, existence, or operations of the main partnership.

Question 181

Are subpartners automatically considered members of the main partnership?

Answer 181

No, subpartners are partners among themselves, but they do not become members of the main partnership unless all parties mutually assent, even if the agreement is known to other members of the main partnership.

Question 182

A, B, and C are partners. A may contract with D, whereby the latter will participate in his (A’s) share in the profits of the partnership.

Can this be possible without altering the original partnership agreement? What principle is this scenario based on?

Answer 182

Yes, partner A can independently contract with individual D to share A’s profits without altering the original partnership agreement. This is in accordance with the principle of freedom to contract.

Question 183

A, B, and C are partners. A may contract with D, whereby the latter will participate in his (A’s) share in the profits of the partnership.

What is the status of individual D in relation to the partnership of A, B, and C?

Answer 183

Individual D is considered merely a creditor of partner A who associated him in A’s share of the profits, and D has no right to intervene in the partnership, being a mere stranger to it.

Question 184

A, B, and C are partners. A may contract with D, whereby the latter will participate in his (A’s) share in the profits of the partnership.

What can’t D do in relation to the partnership business and management?

Answer 184

Like an assignee, individual D cannot interfere in the management or administration of the partnership business, require information or account, or inspect partnership books.

Question 185

A, B, and C are partners. A may contract with D, whereby the latter will participate in his (A’s) share in the profits of the partnership.

Is individual D considered a partner in the partnership, and what liability does D have for partnership debts?

Answer 185

Individual D does not become a partner in the partnership, and D is not liable for partnership debts, even if the agreement between A and D is known and assented to by partners B and C. D is considered an investor.