Partnership Flashcards
What is a partnership?
Art. 1767. By the contract of partnership two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing the profits among themselves.
Allowed?
Partnership ——> Partnership
Partnership ——> Corporation
Corporation ——> Partnership
Corporation ——> Corporation
Yes
Yes
No , xpn = joint venture
Yes
Characteristics of Partnership [8]
Consensual,
Bilateral/Multilateral,
Preparatory,
Nominate,
Onerous,
Commutative,
Profit-oriented, and
Principal
Elements of Partnership [5]
- Valid Contract - delectus personae, COC
- Legal Capacity to enter into a contract
- Mutual contribution
- Object must be lawful
- Primary purpose - profits
delectus personae
Choice of person
- nobody can become a partner without consent of other partners
Fiduciary
Trust and confidence
2 kinds of persons
Art. 1768. Natural and Juridical (Private and public)
Advantages of being a juridical person
- Juridical capacity - fitness to be subject of legal regulations - lahat we have this when we were born
- Capacity to act - power to do acts with legal effects. - when we reach age of majority
General Rule in determining whether a partnership exists [rules]
Art 1769
If 5 elements are present, no doubt.
- Partners who are not partners with each other are not partners as to third persons
- Co-ownership does not establish partnership
- Sharing of Gross returns - because loss is not yet considered
- Receipt of profit shares by a person - prima facie evidence
Person is a partner if
- Has required contribution
- Share in losses
- Say in mgt
Instances where share of the profits received by a person from a business does not mean being a partner in such business (receipts of profit shares)
Art. 1769. NOT A PARTNER
- Debt by installment
- Wages of an employee or rent to landlord
- Annuity to a widow or representative of a deceased partner
- Interest on a loan, through the amount of payment vary with the profits of the business
- consideration for the sale of a goodwill of a business or other property by installments
Art 1770
Must have lawful object (capital) or purpose (business itself)
Must be established for the common benefit or interest of the partners
Effect of unlawful partnership
- Void ab initio (void from the start) and No judicial declaration
- All profits confiscated in favor of the government
- All instrumentalities, proceeds will be confiscated in favor of the government
- Capital is returned to the partner, if illegal is confiscated by the government. BUT CONTRIBUTIONS OF THE PARTNERS WILL NOT BE CONFISCATED UNLESS ILLEGAL
Is there a form required for partnership?
Art. 1771
General Rule: No form is required
XPN: Form is required
Immovable property is contributed (Art. 1773)
Form required: PUBLIC INSTRUMENT + INVENTORY
Effect if not complied: VOID
Art. 1403(2)
More than 1 year
Form required: WRITING
Effect if not complied: UNENFORCEABLE
Art. 1844
Limited Partnership
Form required: PUBLIC INSTRUMENT + REGISTRATION
Effect if not complied: General Partnership
What is required for every contract of partnership having a capital of three thousand pesos or more, in
money or property?
What is the remedy?
Art. 1772
PUBLIC INSTRUMENT + REGISTRATION
Note: Failure to comply with the requirements of the preceding paragraph shall not affect the liability
of the partnership and the members thereof to third persons.
REMEDY: Compel to put in a public instrument
Art 1773 (Inventory)
Inventory made, signed, and attached to the Public Instrument
True or false:
Any immovable property or an interest therein may be acquired in the partnership
name. Title so acquired can be conveyed only in the partners’ name.
FALSE.
Art 1774.
Any immovable property or an interest therein may be acquired in the partnership name. Title so acquired can be conveyed only in the partnership name.
Do secret partnerships or associations have juridical personality?
No.
Art. 1775
Associations and societies, whose articles are kept secret among the members,
and wherein any one of the members may contract in his own name with third persons, shall have no juridical personality, and shall be governed by the provisions relating to co-ownership.
Kinds of partnership as to object
Art. 1776
Universal partnership - broad
Particular partnership - with specific purpose
Kinds of partnership as to liability
Art. 1776
General partnership
Limited partnership
Differentiate Ostensible, Secret, Silent, and Dormant Partners [Known and Manage]
| Partners| Known| Manage |
Partners | Known | Manage|
| ——– | ——- | ——- |
| Ostensible| YES | YES |
| Secret| X | YES |
| Silent| YES| X |
| Dormant | X | X |
Other Kinds of Partnership
- At will v. Fixed
- De Jure v. De Facto
- Ordinary / Real v. Ostensible / Estoppel
- Secret v Open / Notorious
- Commercial v. Professional
Kinds of Partners
- Capitalist v. Industrial
- General v. Limited
- Sub Partner v. SLP
- Silent v. Managing v. Liquidating
Why is it necessary to distinguish a universal and limited partnership?
Because of the husband and wife prohibition
Two kinds of Universal Partnership
All present partnership - ownership is transferred
All profits UP - usufruct
Universal Partnership of ALL Present Property
- ALL properties owned at the time of creation – after creation, properties are not included but can be contributed later on. (Art 1778)
- Profits from properties contributed - ALL, principals and accessories (Art 1779)
- Stipulation for the common enjoyment of any other profits, but the properties which may be subsequently acquired by inheritance, legacy, or donation ARE NOT INCLUDED, except the fruits thereof (Art. 1779) since they are not lucrative of the partnership
Universal partnership of ALL profits [2]
Art 1780
- Industry or work during the existence of the partnership.
-
Usufruct only passing
to the partnership - right to use, JUS UTENDI - with cutoff
If there is a doubt, is it a general or limited partnership?
GENERAL
If there is a doubt as to the type of Universal Partnership, what is the classification?
Universal partnership of ALL profits - least transmission of right, partner remains the owner of the property (Art 1781)
Can persons prohibited enter into a universal partnership?
Art 1782
Persons who are prohibited from giving each other any donation or advantage
cannot enter into universal partnership.
If 1 is incapacitated
Voidable
If 2 are incapacitated
Unenforceable
If both are prohibited
VOID
Can H & W sell to each other?
NO
Exceptions [2]
Before and after marriage
Can H & W donate to each other?
NO
XPN = moderate gift, based on status
Can H & W enter into a universal partnership?
NO.
Art. 1782. Persons who are prohibited from giving each other any donation or advantage
cannot enter into universal partnership.
Can H & W enter into a particular or limited partnership?
YES
ART 739 CC Prohibitions [3]
- Persons who are guilty of adultery (wife sin) or concubinage (husband sin)
- Found guilty - court declaration
- Public officer
cannot enter into a universal partnership
Particular partnership [4 things]
Art. 1783
A particular partnership has for its object determinate things, their use or fruits, or
specific undertaking, or the exercise of a profession or vocation.
- with specific purpose
Distinguish as to juridical personality
Coownership,
Conjugal Partnership of Gains,
Voluntary Association,
Partnership,
Corporation
with Juridical personality
-Partnership
- Corporation
Distinguish as to purpose
Coownership,
Conjugal Partnership of Gains,
Voluntary Association,
Partnership,
Corporation
Purpose
- Coownership - common enjoyment
- Conjugal Partnership of Gains - regulate property relations
- Voluntary Association - purpose varies
- Partnership - profit
- Corporation - profit
Distinguish as to who decides in decision making
Coownership,
Conjugal Partnership of Gains,
Voluntary Association,
Partnership,
Corporation
who decides in decision making
- Coownership - all
- Conjugal Partnership of Gains - either H/W
- Voluntary Association - officer
- Partnership - all if act of ownership
- Corporation - BOD or BOT
Distinguish as to how it is created
Coownership,
Conjugal Partnership of Gains,
Voluntary Association,
Partnership,
Corporation
How is it created?
- Coownership - either by law or agreement
- Conjugal Partnership of Gains - by merge
- Voluntary Association - by agreement
- Partnership - by contract
- Corporation - by law
No partnership in which of the following?
Coownership,
Conjugal Partnership of Gains,
Voluntary Association,
Partnership,
Corporation
Coownership
Conjugal Partnership of Gains,
Voluntary Association,
because of the purpose
When does a partnership begin?
Art. 1784. A partnership begins from the moment of the execution of the contract, unless it is otherwise stipulated.
Xpn: Future partnership
GR: Consensual - mere consent, from agreement
XPN: Future partnership (Period and Condition)
Note
- Delivery - to transfer ownership
- Public instrument - if real property is contributed
- Registration - if limited partnership
What is the effect if there is no liquidation and the fixed partnership has ended?
Effect: Continues and becomes a partnership AT WILL
Rights of the parties: remains the same
Obligations with respect to the contributions [5]
- Contribute at the beginning or the stipulated time (Art 1786) and in the manner stipulated in (1787)
- Answer for eviction with regard to specific and determinate
things which he may have contributed to the partnership - Answer for the fruits
- Preserve / DGFF
- Liable for damages
Differentiate Sales, Obligations and Partnership with respect to answering for the fruits
Obligation (1169)
- Fruits transfer to buyer after the obligation to deliver arises
- no demand, no delay
Sales (1537)
- Fruits transfer to the buyer at the perfection
Partnership (1786)
- Fruits transfer to the partnership when there is delivery
- automatic delay
Remedy for failure to contribute
- Action for Specific performance
Art 1788.
A partner who has undertaken to contribute a sum of money and fails to do so
becomes a debtor for the interest and damages from the time he should have complied with his
obligation.
The same rule applies to any amount he may have taken from the partnership coffers, and his
liability shall begin from the time he converted the amount to his own use.
- liable for damages
Appraisal v. Inventory
Art 1787
Movable
With or without appraisal and inventory - VALID
Immovable
- with or without appraisal - VALID
- with inventory - VALID
- without inventory - VOID
Valuation of properties contributed
Art. 1787
GR: Stipulation of parties
XPN: Experts chosen + current price
Effects of the instance in Art 1788
1. Failed to contribute
2. Converted for his own use
- Automatically liable from the time it should have been contributed, or failed to contribute
2 From the time he took/misappropriated it
personal –> partnership purpose - OK
partnership –? personal purpose - NOT OK - theft/estafa [if payment for creditors]
Industrial partner
Capitalist partner
Limited partner
when are they allowed to engage in another business?
Industrial partner
- Same business - NO
- Different business - NO
Capitalist partner
- Same business - NO
- Different business - YES
Limited partner
- Same business - YES
- Different business - YES
Is Industrial Partner allowed to engage in other business?
GR: IP is not allowed. Why? Loyalty
XPN: EXPRESSLY allowed
_Effect of violation_: the capitalist may do:
1. Exclusion
2. Availment of benefits
Presumption as to the contribution to partnership
Art 1790
GR: EQUAL contribution
XPN: Stipulation to the contrary
Obligation to give additional capital
Art 1791
GR: In case of imminent loss
XPN: No obligation to give
1. Stipulation
2. Industrial partner
3. Partner is insolvent
Are damages subject to set-off?
Art 1794
GR: Damages are not subject to set-off
XPN: Unusual profits have been realized
Effect: Equitably lessened
Obligations of Managing partner [in case of debt by another person]
Art 1792 Rules
GR: Look at the receipt
- If in the name of MP - proportionate application - not equal
- If in the name of Partnership - SOLELY to partnership
- if no stipulation - partnership
XPN: Rules are not applicable when:
1. NOT the MP (kay sa partner sya)
2. NOT yet due
3. MORE onerous (ang personal credit)
Obligation of partner who receives a share of partnership credit
Art. 1793. A partner who has received, in whole or in part, his share of a partnership credit,
when the other partners have not collected theirs, shall be obliged, if the debtor should thereafter become insolvent, to bring to the partnership capital what he received even though he may have given receipt for his share only.
Risk of loss (RES PERIT DOMINO)
Art 1795
What is contributed?
- If ownership - Partnership bears the loss
- If usufruct - Partner bears the loss
Responsibilities of Partnership to partners [3]
Art 1796
1. To refund amounts disbursed by partner
2. Answer for obligations contracted in good faith
3. Answer for risks in consequence of management
Differentiate Liability and Losses
- Liability - responsibility to third parties
- Losses - responsibility among partners
Distribution of Profits (1797)
GR and XPN
GR: Stipulation
XPN: Capital contribution
Distribution of Losses (1797)
GR and XPN
GR: Stipulation (loss sharing) - equal
XPN: No loss sharing - based on Profit sharing
XPN to XPN: No loss sharing or profit sharing - Capital contribution
Industrial partner
Share in Profit GR and XPN
GR: Stipulation
XPN: No stipulation - Just and equitable
Note:
IP has no share in LOSS, but liable for contractual liability
Industrial partner is also a capitalist partner
GR and XPN
GR: Stipulation
XPN: No stipulation -
CC + Just and Equitable
Designation of share in profits and losses by a third person
GR and XPn
GR: Third parties are not allowed. Only partners are allowed to decide - mutuality principle
XPN: TP was allowed
Effect: VALID
If agreed upon, can the partners question the TP’s decision?
GR: NO, decision is binding on them
XPN: If decision of TP is manifestly inequitable
Effect: not valid
NOTE: It can be questioned within 3 months from knowledge of decision of the official partner
XPN to XPN: if it has
1. Lapsed (3 months)
2. Decision has been Executed (no reklamo)
Pactum Leonina
Art 1799
A stipulation which excludes one or more partners from any share in the profits or losses is void.
If made at the:
Start - partnership is VOID.
after the creation - Partnership is valid, but stipulation is VOID
Acts of Administration v. Acts of Ownership
Art 1800
Acts of Administration
- usual course of business, day-to-day
- Managing partner
Acts of Ownership
- Alteration
- Strict dominion
- about properties
- ALL the partners are involved
Controlling interest v. Majority of partners
Art. 1800
Controlling interest
- based on capital contribution
- mas importante
Majority of partners
- based on number of partners
Can we remove the Managing partner?
Art 1800
IT DEPENDS
If MP is appointed at the start (in articles of partnership)
GR: IRREVOCABLE
XPN: If removal is
1. Just and lawful cause
2. Vote of Controlling interest
If MP is appointed after - YES, revocable because mere agent
Can a TP who is a Managing partner be removed?
YES, anytime since he is not a partner.
2 or more Managing partners without specification of their respective duties
- unanimity is not required
Art 1801
GR: Each one may separately execute all acts
of administration
XPN: If one of the MP opposes, decision of majority of the MPs will prevail
XPN TO XPN: In case of tie, Vote of controlling interest of partners
2 or more Managing partners
- unanimity is required
Art 1802
GR: Unanimous consent of ALL MPs
XPN: Imminent danger of grave or irreparable injury to the partnership.
What happens when the partnership did not agree about the manner of management?
(No MP was appointed)
Art 1803
GR: ALL are MPs
Follow the rules of 1801
- majority of the MPs
- vote of controlling interest of partners
GR: Consent of ALL partners is needed for alteration in the immovable property of the partnership, even if it may be useful to the
partnership.
XPN: refusal - manifestly prejudicial to the
interest of the partnership
Effect: Court intervention
Is sub-partnership allowed?
Yes, but the sub-partner is not admitted into the partnership without the consent of the other partners
Art. 1804. Every partner may associate another person with him in his share, but the associate shall not be admitted into the partnership without the consent of all the other partners,
even if the partner having an associate should be a manager.
Where to keep the partnership books?
Art 1805
GR: Stipulation/ agreement between the partners
XPN: Principal place of business of the partnership
GR: Right of inspection at any
reasonable hour
XPN: Unreasonable hour/day
Is there a duty to render information to the other partners?
Yes. Duty to voluntary Disclosure of material facts
Why? Because of fiduciary relationship
Ex:
1. Buyer buying partnership lands
2. Gold mine in area
Partner accountable as fiduciary
Art 1807
Secret profit/commission - NOT ALLOWED
Case: Catalan v Gatchalian
- if within 1 year and a partner buys property from his personal property, property belongs to the partnership
- if 1 year has lapsed, property belongs to the partner
Effect if violated:
1. must account to the partnership
2. holds as trustee
Is a capitalist partner allowed to engage in another business?
Art 1808
GR: Same business not allowed
XPN: There is consent of the partners / stipulation to the contrary
Effect if violated:
- Bring to the common funds any profits accruing to him
- Personally bear all the losses
Is right to formal accounting allowed?
Art 1809
GR: NOT allowed, because it disrupts the flow of operations
XPN: [4] Instances when it is allowed
- Wrongfully excluded from the partnership business or possession of its property by his co-partners;
- Stipulation or agreement
- 1807- secret profits
- Just and reasonable - other circumstances
What are the property rights of a partner? [3]
Art. 1810. The property rights of a partner are:
(1) His rights in specific partnership property (SPP);
(2) His interest in the partnership (only assignable right) - Profit and Surplus (during dissolution); and
(3) His right to participate in the management (n)
What are the incidents where a partner is co-owner with his partners of specific partnership property? [4]
Art 1811
-
Possession
- For partnership purpose? YES
- For personal purpose? NO
- XPN: Consent of all -
Assignment of right SPP
GR: NOT allowed
XPN: Consent of all -
Attachment/Execution - attach (beginning), execute (end)
GR: NOT allowed
XPN: Consent of all
Note
- Separate creditor can attach to the separate property and the partnership interest of the partner, but not to the partnership property
- Charging order-interest attached
- Separate creditor = preferred in separate property (1814)
- Partnership creditor = preferred in partnership property
- Legal support - NOT subject
How is charging order removed? [2]
- Partnership property - consent of all partners
- Separate property of other partners
Effect of assignment of partner’s whole interest
How?
Three ways of becoming an assignee
1. Selling interest to TP
2. Donating interest to TP
3. Using interest as a security for loan
Rights NOT given
- Manage
- Inspect
- Ask information
Rights given
- profit / surplus (INTEREST - 1812)
Where to register the partnership?
SEC (partnership and corp) and DTI (business name and sole prop), CDA - coop
Firm name rules
- may or may not include the names of the partners
Note:
Art. 1815. Every partnership shall operate under a firm name, which may or may not include
the name of one or more of the partners.
Those who, not being members of the partnership, include their names in the firm name, shall be
subject to the liability of a partner.
Firm name rules
Art 1815.
a. Liability of Third person’s name if included - liability only, not a partner to the partnership
b. Death of a partner -
GR : cannot use the firm name
XPN: If informed to the public
c. Inclusion of a Limited partner’s name - if included, will be liable like a general partner
d. Should not be similar to another name
Liability for contractual obligations
Art. 1816. All partners, including industrial ones, shall be liable pro rata with all their property and after all the partnership assets have been exhausted, for the contracts which may be entered into in the name and for the account of the partnership, under its signature and by a person authorized to act for the partnership. However, any partner may enter into a separate obligation to perform a partnership contract.
Note:
- PRO RATA - Equally, jointly, based on number of partners
- SUBSIDIARY - only after the partnership assets have been exhausted
Is industrial partners liable for losses? for contractual liability?
- losses - NO
- contractual liability - YES
Stipulation against liability
Art. 1817. Any stipulation against the liability laid down in the preceding article shall be void, except as among the partners.
Summary
- As to partners - VALID
- As to TPs - VOID
Art 1818 first par.
Acts of administration
GR: Every partner is an agent of the partnership.
XPN:
1. TP knows
2. Partner is not authorized
Art 1818 2nd par
Acts of ownership
An act of a partner which is not apparently for the carrying on of business of the partnership in the usual way does not bind the partnership unless authorized by the other partners.
Consent of ALL PARTNERS [7 instances]
(1) Assign the partnership property in trust for creditors or on the assignee’s promise to pay
the debts of the partnership;
(2) Dispose of the good-will of the business;
(3) Do any other act which would make it impossible to carry on the ordinary business of a
partnership;
(4) Confess a judgment;
(5) Enter into a compromise concerning a partnership claim or liability;
(6) Submit a partnership claim or liability to arbitration;
(7) Renounce a claim of the partnership.
No act of a partner in contravention of a restriction on authority shall bind the partnership to persons having knowledge of the restriction.
Admission of a partner (1820)
During existence of partnership [requisites] - binding against partnership if:
1. concern of partnership affairs
2. scope of authority
3. must be ??
After dissolution - binding against the partners
- winding up of partnership affairs
Notice to, or knowledge of, a partner of matter affecting partnership affairs (1821)
Cases of knowledge of a partner
1. Knowledge of the partner acting in the particular matter acquired while a partner;
2. Knowledge of the partner acting in the particular matter then present to his mind; and
3. Knowledge of any other partner who reasonably could and should have communicated it to the acting partner.
Effect of conveyance of real property
Art 1819
GR: Property purchased with partnership funds belongs to the partnership
Ownership v interest
Art 1819 1st par
Partnership name + Partnership name + No authority to sell (only one partner)
What is transferred?
- ownership to TP
Can partnership recover?
GR: YES
XPN:
- 1818 - Acts of administration (agent)
- TP buyer is in good faith
Art 1819 2nd par
Partnership name + Own name + No authority to sell (only one partner)
What is transferred?
- Equitable interest
Can partnership recover?
GR: YES
Art 1819 3rd par
One or more partner + One or more partner + sold by them
What is transferred?
- ownership to TP
Can partnership recover?
GR: YES
XPN:
- 1818 - Acts of administration (agent)
- TP buyer is in good faith
Art 1819 4th par
One or more in trust+ One or more in trust+ sold by them
What is transferred?
- Equitable interest
Can partnership recover?
GR: YES
Art 1819 5th par
Name of all + Name of all + ALL
Can partnership recover?
NO
Solidary liability of partnership and partners
1822
Wrongful act or omission / torts/ quasi-delict
Who is liable
- if loss - agreement, profit sharing, capital contribution
- if torts - SOLIDARILY liable (partners + partnership)
1823
Breach of trust (Misapplied) - ex. MP used for personal use
Liability: SOLIDARY liable ang Partners and Partnership
1824
Nature of liability: SOLIDARY
Partnership by Estoppel v Partner by Estoppel
1825
Partnership by Estoppel
If all partners agreed
- Who is liable? Partners, Partner who contracted with TP, and the Partnership
_Partner/s by Estoppel__
If few or none partners agreed / partnership is not legit and all partners did not agree / partnership is not legit and few partners agreed
- Who is liable? Partners who agreed, and the Partner who contracted with TP
Partnership is not liable
Partner by estoppel - tp lang liable
Liability of Incoming partners
Art. 1826. A person admitted as a partner into an existing partnership is liable for all the
obligations of the partnership arising before his admission as though he had been a partner when such obligations were incurred, except that this liability shall be satisfied only out of partnership property (not personal property), unless there is a stipulation to the contrary.
Preference of Partnership creditors in partnership property
Art 1827
Separate C - Separate Prop
Part C - Part prop
note: private creditors of each
partner may ask the attachment and public sale of the share of the latter in the partnership assets.
Is partnership terminated when there is dissolution?
NO. Art 1829
Exception to Art 1831
On the application of the purchaser of a partner’s interest under article 1813 or 1814:
(1) After the termination of the specified term or particular undertaking;
(2) At any time if the partnership was a partnership at will when the interest was assigned or when the charging order was issued.
1832
GR: Dissolution terminates the actual authority of partners to undertake a business/
XPN:
- Necessary to wind up
- Complete transaction began but not yet finished
1. With respect to PARTNERS (1833)
- Not Act Insolvency Death - notice on knowledge is immaterial
- AID -notice or knowledge is immaterial
- liability of partners - separate prop
2. With respect to TP (1834)
- liability of partnership
Right of contribution from partners
(dissolved na, can partners still be liable?)
If AID (acts, insolvency, death), each
partner is liable to his co-partners for his share of any liability created by any partner acting for the partnership as if the partnership had not been dissolved
XPN: partners liable
- If Act - had knowledge of the dissolution
- If Death/ insolvency - had knowledge OR notice
- GR: liable
- XPn: no knowledge
- XPn to XPN: with knowledge or notice (personal liability)
if no knowledge not liable
“if a partner did not know that a partner died, then the partnership in his mind still exists, he has reason to act and bind the partnership. But if he knew that his partner had died then the effect of the death of the partner dissolves the partnership therefore he cannot bind the partnership with the transaction with someone else”
1834 Power of partner to bind the dissolved partnership to TPs
1st par
Instances when partnership is liable
1. Winding up
2. Complete transactions began but not yet finished
3. Existing creditors - actual knowledge or notice
- TP - newspaper publication
2nd par
Dormant partner is not liable - out of partnership assets alone
3rd par
Partnership NOT bound to liability
- unlawful to carry on the business
- partner has become insolvent (void)
- partner had no authority to wind up
Note:
- if partnership creditors - personal notice
- if TP - newspaper publication
Art 1835 Effect of dissolution on partners existing liability
GR: dissolution does not of itself discharge the existing liability of any partner
XPn: agreement between ALL parties, creditor himself, deceased partner
Manner of winding up
Art 1836
Types
- Judicial
- Extrajudicial
Order
- if w stipulation - WP or LP
- not wrongfully dissolved - only innocent partners, not guilty partner
- legal representative of the last surviving partner not insolvent
1837
Rights where dissolution NOT in contravention of agreement
- Partnership properties will be APPLIED
- Surplus distribution
Rights where dissolution in contravention of agreement
innocent partner rights
- Partnership properties will be applied for payment of liabilities
- to be indemnified for damages
- continue business
- possess partnership properties
guilty partner rights
1. If business is continued
- interest is ascertained, paid in cash,
- released from all liabilities, pay damages
- If biz not continued
- Apply
- Surplus less damage
1838 Rights of injured partner where partnership contract RESCINDED
Ground: fraud or misrepresentation
Rights
- lien or retention, but priority ang partnership creditors
- subrogation in place of partnership creditors, but partnership creditors ang priority
- indemnification of damages by guilty partners
1839 Liquidation and distribution of assets
- Assets of partnership
- partnership property
- addtl contribution
- Order of payment
General partnership
- partnership creditors
- partner - creditor
- GP - capital
- GP - profits
Limited partnership
- partnership creditors
- LP - profit
- LP - capital
- partner - creditor
- GP - profits
- GP - capital
If partner is insolvent - separate creditor
In case of loss - right to enforce contribution
Dissolution of partnership by change in membership [6]
- equal ang existing and subsequent creditors
Art 1840
(1) When any new partner is admitted into an existing partnership, or when any partner
retires and assigns (or the representative of the deceased partner assigns) his rights in partnership
property to two or more of the partners, or to one or more of the partners and one or more third
persons, if the business is continued without liquidation of the partnership affairs;
(2) When all but one partner retire and assign (or the representative of a deceased partner
assigns) their rights in partnership property to the remaining partner, who continues the business
without liquidation of partnership affairs, either alone or with others; cd
(3) When any partner retires or dies and the business of the dissolved partnership is
continued as set forth in Nos. 1 and 2 of this article, with the consent of the retired partners or the
representative of the deceased partner, but without any assignment of his right in partnership
property;
(4) When all the partners or their representatives assign their rights in partnership property to
one or more third persons who promise to pay the debts and who continue the business of the
dissolved partnership;
(5) When any partner wrongfully causes a dissolution and the remaining partners continue
the business under the provisions of article 1837, second paragraph, No. 2, either alone or with
others, and without liquidation of the partnership affairs;
(6) When a partner is expelled and the remaining partners continue the business either alone
or with others without liquidation of the partnership affairs.
The liability of a third person becoming a partner in the partnership continuing the business,
under this article, to the creditors of the dissolved partnership shall be satisfied out of the
partnership property only, unless there is a stipulation to the contrary.
When the business of a partnership after dissolution is continued under any conditions set forth
in this article the creditors of the dissolved partnership, as against the separate creditors of the
retiring or deceased partner or the representative of the deceased partner, have a prior right to
any claim of the retired partner or the representative of the deceased partner against the person or
partnership continuing the business, on account of the retired or deceased partner’s interest in the
dissolved partnership or on account of any consideration promised for such interest or for his
right in partnership property.
Incoming partner
Deceased partner
- out of partnership assets
- no liability
Rights of legal representative of deceased / retiring partner
Art 1841
1. Interest is ascertained
2. Receive it
Persons liable to render account
Art 1842
1. Winding up partner
2. Surviving partner
3. Person or partnership continuing the business
