aLECTURE NOTES ON PARTNERSHIPS Articles 1767-1867, NCC STATUTORY DEFINITION: By a contract of partnership, two or more persons bind the

mselves to contribute money, property or industry to a common fund with the inte ntion of dividing the profits among themselves. Two or more persons may also form a partnership for the exercise of a pr ofession. (Article 1767) 1. There can be no non-profit partnership

CHARACTERISTICS OF A CONTRACT OF PARTNERSHIP 1. a. b. c. d. e. f. ay have Generally since it is a contract it is: consensual perfected by consent bilateral/multilateral entered into by two or more persons nominate designated by a specific name onerous contributions are given principal its existence does not depend on the life of another contract preparatory to carry into effect its purposes, other contracts have or m to be entered unto (1771-73)

2. There must be a contribution of money, property or industry to a common fund . If industry is contributed, it must be physical or intellectual A limited partner cannot contribute industry (Art. 1845). the value of industry increases over time, hence it runs counter to the concept of a limited partnersh ip. 3.The object and purpose must be lawful and it must be established for the commo n benefit or interests of all partners. When an unlawful partnership is dissolve d by judicial decree, the profits shall be confiscated in favor the State, witho ut prejudice to the application of the Revised Penal Code governing the confisca tion of the instrument and effects of a crime (Art. 1770). Hence, it means that object/purpose must be within the commerce of man, not cont rary to law, morals, good customs, public order or public policy When a partnership is formed for an unlawful purpose, the contract is void ab in itio. No partnership is actually formed. Note that while Article 1409, NCC is the basis to hold it as void ab initio, the re is no need for a judicial decree to dissolve a partnership that does not exis t. The provision applies to an instance where unlawfulness is in dispute or occu rs at a later stage. 4. There must be an intention to divide profits among the partners since it is f or their benefit. 5. There must be AFFECTIO SOCIETIS desire to formulate an active union with and among people in whom mutual confidence and trust exists. 6. A juridical person is created, separate and distinct from that of the person s composing it, even in case of failure to comply with the requirements of Artic le 1772 (Art. 1768) The primary effects of having a juridical personality would be to allow it to ac quire property, which when so acquired in the partnership name can only be conve yed in the partnership name (Article 1774) and it can sue and be sued under the partnership name.

 The creation of a juridical person takes place even if there is no compliance wi th Article 1772 which requires every contract of partnership having a capital of PHP 3000.00 in money or property to appear in a public instrument recorded with the SEC because failure does not affect liability to third persons. Purpose is to set a condition for the issuance of a license. However, no such personality will result if the articles (of societies or associ ations) are kept secret among the members and anyone of the members may contract in his own name with third persons. They are to be governed by the provisions o n co-ownership (Article 1775) OTHER CRITERIA TO DETERMINE PARTNERSHIP EXISTENCE 1.Except as provided in Article 1825 persons who are not partners as to each oth er are not partners as to third persons. Generally, if you are not partner there is no partnership except if you or an en tity may be considered as: PARTNER IN ESTOPPEL when a person represents himself by words spoken or written or by conduct or consents to another representing hi m as a partner in an existing partnership to anyone, he is liable to such person s to whom the representation is made if such person acted or gave credit to such or if the representation is made in a public manner, he is liable to such perso ns whether the representation has or has not been made and relied upon. The liab ility is like that of an actual partner if partnership liability results. If the re is no partnership liability he is liable pro-rata with other persons consenti ng to the contract or representation. The DECEIVER IS A PARTNER BY ESTOPPEL. If a partnership exists and consents, the re is a partnership by estoppel 2. Co-ownership or co-possession does not by itself establish a partnership whether such co-owners or co-possessors do or do not share in any of the profit s made by the use of the property Note the rulings in PASCUAL vs. COMMISSIONER (160 S 60) where a series of trans actions were considered ISOLATED TRANSACTIONS and did not result in a holding th at there is a partnership and in EVANGELISTA vs. COLLECTOR OF INTERNAL REVENUE ( 102 P 140) where a series of transactions were considered as indicative of HABIT UALITY WITH INTENT TO GAIN and resulted in a holding that there is a partnership . 3. Sharing of gross returns does not of itself establish a partnership whether or not the persons sharing them have a joint or common interest in any property from which they are derived. Rules 2 and 3 DO NOT MEET THE CRITERIA THAT: there must be intention to create a partnership; there is a common fund obtained from contributions; there is join t interest in the profits 4. However, receipt by a person of a share of the profits of a business is PRIM A FACIE evidence that he is a partner EXCEPT: (a) debt by installment or otherwi se creditor receives part of the profits of the business in settlement of his cr edit (b) wages of an employee or rent to a landlord employee receives wages depe nding on level of profit or a fixed percentage thereof (c) as an annuity to a wi dow or representative of a deceased partner in lieu of immediate dissolution, th e widow or representative will receive an annuity (d) as interest on a loan, thr ough the amount of the payment varies with the profits of the business- interest payments are taken or paid out from the profits (e) as consideration for the sa le of goodwill or other property- payment is taken out of profits. DISTINGUISHING A PARTNERSHIP FROM:

JOINT VENTURE 1. It has no firm name or separate personality, while a partnership has a f irm name and is considered separate and distinct from the partners composing it 2. Participants are free to transact separately in their own names and be i ndividually liable therefore, while in a partnership, partners cannot transact u nder their own names 3. Activity is usually limited to a single transaction though it may take a longer period to complete, while in a partnership, there are several transactio ns of a certain kind. (Note: Tan Eng Kee vs. CA, 341 SCRA 740- a joint venture a ppears to be a particular partnership due to the fact that a partnership can hav e for its object a specific undertaking (Article 1783), the Supreme Court distin guished between a joint venture and a partnership when it held that while a corp oration cannot be a partner, it may enter into a joint venture) VOLUNTARY ORGANIZATIONS 1. It has no juridical personality, while a partnership has juridical perso nality 2. It may be organized for any lawful purpose, while a partnership is alway s organized for profit 3. Contributions are collected to maintain the organization, while in a par tnership, contributions go to capital 4. There is individual liability, while in a partnership individual liabili ty is not primary CONJUGAL PARTNERSHIP OF GAINS 1. Arises by agreement between spouses, while a partnership is created by v oluntary agreement of two or more partners 2. Governed by law, while a partnership is primarily governed by the stipul ations in the contract 3. Has no juridical personality, while a partnership has juridical personal ity 4. Commences upon marriage, while a partnership commences upon execution of the agreement, unless otherwise stipulated 5. Shares of spouses in profits is equal, while in a partnership it is acco rding to the agreement or in proportion to contributions 6. Management generally is vested in both spouses, while in a partnership i t is vested in all partners 7. Purpose is to regulate property relations between spouses, while in a pa rtnership it is to obtain profits 8. Share of a spouse cannot be disposed while in partnership, the interest of a partner may be disposed. CO-OWNERSHIP 1. It is created by law, while a partnership is created by contract 2. It has no juridical personality, while a partnership has juridical perso nality 3. Purpose is common enjoyment of a right/property, while in a partnership it is realization of profit 4. An agreement to keep to keep a thing undivided in co-ownership for more than 10 years is not allowed (Article 494), while a partnership has no fixed dur ation 5. A co-owner may feely dispose of his interest, while a partner cannot fre ely dispose so as to make his assignee a partner, unless consented to by all 6. A co-owner cannot generally represent a co-ownership, hence any judgment against a co-owner is not a judgment against the co-ownership, while in a partn ership, in the absence of a stipulation, a partner can represent the partnership

and a judgment so issued is generally one against the partnership 7. Death of a co-owner does not necessarily result in dissolution of the co -ownership, while death of a partner results in dissolution of the partnership. WHO CAN BECOME PARTNERS 1. Any person who is capacitated to enter into contracts 2. A married woman may enter into a contract of partnership but the consent of the other spouse is required because it is an act of dominion or an encumbra nce of community or conjugal property , unless court authority is obtained. 3. A partnership in the absence of a prohibition. 4. A corporation cannot enter into a contract of partnership as it is contrary to public policy as it can be bound by its partners and not by an act of its BOARD as required by Section 23 of the Corporation Code 5. Aliens can be partners subject to restrictions on ownership/leases and e ngaging in nationalized or partially nationalized businesses. IN WHAT FORMS MAY A CONTRACT OF PARTNERSHIP BE EXECUTED A partnership may be constituted in any form except where immovable property or real rights are contributed, in which case a public instrument is necessary (Art icle 1771) In such a case, an inventory of the immovable property so contributed must be ma de and attached to the public instrument. Failing in which, the contract of part nership is void. (Article 1773). Note though that while partnerships with capital of PHP 3,000.00 or more are req uired to be in a public instrument and duly registered with the SEC, non complia nce shall not affect liability to third persons (Article 1772) It is however required that the articles of partnership be written if what is t o be constituted is a LIMITED PARTNERSHIP (Article 1844) WHAT ARE THE KINDS OF PARTNERSHIPS 1. As to object it is universal or particular A particular partnership is one which has for its object a determinate thing, th eir use or fruits, or specific undertakings, or the exercise of a profession or a vocation (Article 1783). A universal partnership has two kinds. A universal partnership of ALL PRESENT PR OPERTY or OF PROFITS (Article 1777). A Universal Partnership of All Present Property is one where all partners contri bute ALL PROPERTY which actually belong to them to a common fund with the intent ion of dividing the same as well as all profits which they may acquire therewit h (Article 1778). All present property belonging to the partners at the time of constitution beco mes the common property of all partners as well as all the profits which they ma y acquire therewith. They can also stipulate on the common enjoyment of any othe r profits from other sources BUT, property which the partners may subsequently acquire by inheritance, legacy, or donation cannot be included in such stipulati on except the fruits thereof (Article 1779) The property to be acquired by inheritance, legacy or donation cannot be the obj ect of a stipulation as (1) contracts regarding successional rights are not allo wed. (2) Contributions must be determinate, known and certain (3) since it impl ies a donation, future properties cannot be donated A Universal Partnership of Profits is one where which is comprised of all that t he partners may acquire by their industry or work during the existence of the pa rtnership (Article 1780). Hence, if not so acquired by their industry or work, i

t does not pertain to the partnership Movables or immovables which each of the partners possess at the time of the cel ebration of the contract shall continue to pertain exclusively to each, only the usufruct shall pass. If there is no specification of nature (presupposes a writing), the partnership shall be considered a universal partnership of profits (Article 1781). The reaso n is because it is less onerous that a universal partnership of all present prop erty. If what is desired is that it be a universal partnership of all present pr operty, reformation under Article 1359 is the proper remedy. PERSONS PROHIBITED FROM ENTERING INTO A UNIVERSAL PARTNERSHIP Persons who are prohibited from giving each other donations or advantage like (a) husband and wife (b) those guilty of adultery or concubinage (c) those guilty of the same criminal offense if the partnership was entered into in cons ideration of the same. This prohibition exists because a universal partnership i s virtually a donation, thus persons should not be allowed to do indirectly what they cannot do directly. OTHER KINDS OF PARTNERSHIPS Partnerships may be distinguished as to Liability (General-Limited), Representat ion (Ordinary-Partnership by Estoppel) and Duration (Partnership for a Specific Undertaking/With a Period- At Will) WHEN DOES THE RELATIONSHIP AS PARTNERS BEGIN It begins from the moment of the execution of the contract unless a different pe riod is stipulated. Hence, there can be no partnership if the intention is to cr eate in the future. Agreement to form a partnership does not create a partnership. If there are cond itions to be fulfilled or a certain period is to lapse or to arrive, the partner ship is not formed even if one party without waiting for the fulfillment of the condition or arrival of the term, has already advanced his contribution. Also if they orally agree to form a partnership 1 year from today. It is merely an agreement to form a partnership THERE IS NO PARTNERSHIP YET. ALSO, since it is orally constituted and is not a partnership, the Statute of Frauds apply, he nce it cannot be enforced (Article 1403, Par. 2-a). Note that it cannot be oblig ed because the obligation is to DO not to GIVE, it is a personal act that cannot be compelled (Woodhouse v. Halili L-4811-July 31,1953) The rules are thus as follows: (1) If there is no contrary stipulation, the part nership commences to have existence on the date of execution of the contract (2) If a contract states that it is to be effective at a certain date, the partner ship is to begin on the stipulated date. (3) If a contract states that contribu tions are still to be given on a particular date. There is a partnership as the y have bound themselves to contribute (4) If contract states that we become part ners on the date the contributions are given there is no partnership yet. WHEN DOES A PARTNERSHIP END Generally it ends on the expiration of the fixed term or the accomplishment of a particular undertaking. IF IT DOES NOT END ON THE BASIS OF EITHER TWO It becomes a PARTNERSHIP AT WILL (Article 1785) a. There is also a partnership at will (1) when there is no term, express or implied hence, there is an agreement that it will continue to exist as long a s they will it to exist (2) Partners or such of them who have so acted, habitua lly continues the business without settlement or liquidation of the partnership affairs. SUCH ACT is prima facie evidence of the continuation of the partnership . Consequently, the rights and duties of the partners remain the same as they we

re at such termination WHAT HAPPENS WHEN PERSONS DECIDE AND DO FORM A PARTNERSHIP The formation of a partnership gives rise to the following relationships: (1) Th e persons who have decided to form the partnership become partners as to each ot her. Consequently, they now have to comply with their obligations to be able to exercise their rights as partners (2) Relationship between the partner and the p artnership refers to the obligations of a partnership to the partner (3) Relati onship between the partner and third persons refers to the obligations of the pa rtners to third persons (4) Relationship between the partnership and third pers ons refers to the conduct of the business of the corporation SPECIFIC OBLIGATIONS OF PARTNERS 1. DUTY TO CONTRIBUTE- Every partner is a debtor of the partnership for wh atever he may have promised to contribute thereto. He shall also be bound for wa rranty in case of eviction with regard to specific and determinate things in som e cases and in the same manner as the vendor may be found with respect to the ve ndee. He shall also be liable for the fruits thereof from the time they should h ave been delivered without need of demand (Article 1786). Hence, after the execution of the contract, a partner must (1) deliver what he has promised to contribute, no demand is necessary because time is of the esse nce as without the contribution the partnership cannot function (2). Deliver th e fruits of the specific and determinate things that he promised to contribute , if any, accruing from the time they must have been delivered (3) To warrant aga inst eviction for the objects already delivered. Eviction arises whenever by fin al judgment based on a right prior to the sale or an act imputable to the partne r. The partnership is deprived of the things contributed in whole or in part. T his however may be suppressed, increased or diminished by the partners. The remedy if a partner fails to contribute is bring an action for collection b ecause the defaulting partner is a DEBTOR Properties to be contributed are considered properties of the partner until ACTU AL or CONSTRUCTIVE delivery has been had, it being the operative act to convey o wnership The specific rules that govern the contributions are: (1) If it consists of goo ds, they must be appraised in the manner prescribed (a) in the articles of partn ership (b) by experts chosen at current prices, with charges for the account of the partnership (Article 1787). NOTHING HOWEVER PROHIBITS THE PARTNERS FROM AGRE EING ON THE VALUATION (2) If what is contributed is MONEY, a partner who fails to contribute is liable for interest and damages from the time he should have co mplied (Article 1788) , the same Article also applies to amounts that a partner may have converted to his own use (3) If what is contributed is INDUSTRY, the p artner/s so contributing cannot engage in any other business unless he is EXPRES SLY allowed to do so by the capitalist partner/s. If he does so without consent, he (a) can be excluded from the firm (b) the firm can avail of the benefits whi ch he obtained, plus damages, if any (Article 1789). The article applies whether or not there is competition as all his industry must be given to the partnershi p d.1 DISTINGUISHING BETWEEN CAPITALIST or INDUSTRIAL PARTNERS CP IP Contribution money or industry Property Prohibition as to engaging in business generally can engage as long no competition (Article 1808) cannot engage without consent

Profits contribution Losses

by agreement or pro-rata to There being no agreement

revenues a must and equitable share

stipulation or exempt as between agreement as to partners but liable profits if NONEto 3rd persons subject) prorate to reimbursement

(Article 1816 Risk of loss is borne as follows: (1) Prior to delivery, it is borne by the part ner (2) If what is contributed is the use or fruits of specific or determinate t hings, it is borne by the partner/s who own them NOT APPLICABLE TO A UNIVERSAL P ARTNERSHIP OF ALL PRESENT PROPERTY, AT THE ONSET PROPERTY BELONGS TO THE PARTNER SHIP (3) If things contributed is FUNGIBLE or cannot be kept with deteriorating -risk of loss is borne by the partnership as ownership is transferred upon deli very otherwise use is impossible (4) If thing is contributed to be sold- partner ship bears risk as it cannot be sold unless ownership has passed to it (Article 1795) Unless there is a contrary stipulation, a partner shall contribute an equal sha re to the capital of the partnership. Consequently, there may be unequal contrib utions. If however, there is no proof as to the extent of the contribution, the presumption is that they contributed equally (Article 1790) A partner may also be obliged to contribute an additional amount, there being n o stipulation to the contrary, in case of an imminent loss. If he refuses (it mu st be deliberate) the partner is obliged to sell his interest to the other partn ers. The REASON is that his apparent lack of interest should warrant that he lea ve the partnership. The EXCEPTION is that it does not apply to an industrial par tner/s because he has already given his entire industry. 2. DUTY TO CREDIT TO THE FIRM PAYMENT MADE A DEBTOR WHO OWES HIM AND THE FI RM AND TO SHARE HIS RECEIPT OF PARTNERSHIP CREDIT ALREADY COLLECTED a. If a partner authorized to manage collects a demandable sum, which was o wed to him in his own name, from a person who owed the partnership another sum a lso demandable, the sum thus collected shall be applied to the two credits in pr oportion to their amounts, even though he may have given a receipt for his own c redit only; but should he have given it for the account of the partnership credi t, the amount shall be fully applied to the latter.The provisions of this articl e are understood to be without prejudice to the right granted to the debtor by a rticle 1252, but only if the personal credit of the partner should be more onero us to him. (Article 1792) 1. The requisites for the application of the article are: (a) There are two debts from the same debtor (b) Both debts are due and demandable (c) The c ollecting partner is a managing partner IF NOT THERE IS NO BASIS FOR THE SUSPICI ON THAT THE PARTNER IS ACTING FOR HIS OWN BENEFIT. ALSO, HE DOES NOT OCCUPY OR I S IN A POSITION TO GIVE PREFERENCE. 2. The rules of application are: (a) If the partner gives credit for t he firm, it is the firms credit that is extinguished (b) If partner gives recei pt for his debt, the amount collected shall be applied in proportion (c) By way of exception, the debtor may exercise the right of application if the debt to p artner is more onerous to him. b. A partner receiving in whole or in part of his share of partnership cred it, shall, if the other partners have not collected their share and the debtor b ecomes insolvent, bring to the partnership capital what he may have received eve n if he gave receipt for his share only (Article 1793)

1. The provision applies to any partner. If however, the firm is dissolved, the obligation does not exist. 3. DUTY TO PAY FOR DAMAGES CAUSED BY HIS FAULT Every partner is liable for damages suffered by the partnership through his faul t. In so being responsible, it cannot be compensated with the profits and benefi ts which he may have earned for them with his industry. HOWEVER, courts may equi tably lessen his responsibility if through the partners EXTRAORDINARY efforts in other partnership activities, unusual PROFITS have been realized (Article 1794) . o The damages cannot be offset because a partner has a duty to secure ben efits. Since it is a duty (it has to be done) compensation cannot take place as compensation presupposes two persons who are reciprocally debtor and creditors o f each other. o The obligation to pay damages also exists in relation to the liability a rising from conversion of amounts taken from partnership coffers and is computed from the time the partner converts it to his own use (Article 1788) 4. OBLIGATION TO ACCOUNT FOR AND HOLD AS TRUSTEE ANY UNAUTHORIZED PROFITS

Every partner must account for any benefit and hold as trustee any profits deriv ed by him without consent of the others from any transaction connected with the formation, conduct or liquidation of the partnership or from any use by him of p artnership property without consent (Article 1807) o The reason for the obligation is that a partner has a fiduciary obligati on not to abuse the trust and confidence bestowed upon each other. o The article covers the period from formation to liquidation. Profits are unauthorized if they are realized without the consent of the partnership. 5. OBLIGATION NOT TO ENGAGE IN BUSINESS

The obligation applies specifically to a capitalist partner who engages in a bus iness similar to or like the business the partnership is engaged in UNLESS (1) I t is expressly stipulated that he can engage in business (2) when other partner s expressly or impliedly allow him to do so (3) partnership ceases to engage in the competing business (4) participation in other business is that of a limited partner (Article 1808) The EFFECT OF ENGAGING IN BUSINESS is that (1) he shall bring to the partnership all profits he obtained (2) he shall bear all the losses, if any (3) he can als o be ousted from the firm for loss of trust and confidence

SPECIFIC RIGHTS OF A PARTNER 1. PROPERTY RIGHTS OF A PARTNER

a. The property rights of a partner are (1) right to specific partnership p roperty (2) his right to his interest (3) right to participate in management b. A partners right to specific partnership property makes him a co-owner of all partnership property (Article 1811). The incidents of such are: (1) partner s, subject to provisions of law and any agreement between partners has an EQUAL right with his co-partner to possess SPECIFIC PARTNERSHIP property for PARTNERSH IP PURPOSES, but he has no right to possess them for any other purpose without t

he consent of the partners (2) a partner cannot assign his rights to specific pa rtnership property except in connection with an assignment of rights of all the partners. Any assignment in violation is VOID as the value of the interest cann ot be determined until after liquidation. (3) a partners right is not subject to attachment or execution EXCEPT on a claim against the partnership. Neither can t he partners claim ( or the representatives of a deceased partner) claim any righ t under homestead or exemption laws under Section 12, Rule 39 of the Rules of Co urt because it is property of the partnership. It cannot be attached because t o allow it would be to let the partner do what he cannot do (assign it) directly (4) the right is not subject to legal support (Article 1811). c. A partners interest consists of his share in the profits and surplus (Art icle 1812). Profit referring to his share of the net income from business, surpl us referring to his share of assets after settlement of debts and liabilities. A partners interest may be conveyed to another (Article 1813). The effects are (1 ) Partnership may either remain, if it is the intention of the partners concern ed not to withdraw on account of the change of partners OR dissolved, but the m ere conveyance does not by itself dissolve the partnership, hence there is a nee d for action on the part of the partners as such constitutes a change in the rel ations of the partners as the conveying partner shall cease to be associated in carrying on of business (2) Assignee does not become a partner in the absence of any agreement to the contrary. Consequently, the assignor is still recognize d as the partner with the right to demand accounting and settlement (3) Assigne e cannot interfere in management or administration of partnership business or af fairs (4) Assignee cannot demand information, accounting or inspection of book s The rights of the assignee are (1) To receive whatever profits the assignor woul d have obtained. He is not considered an outside creditor who is preferred, so h e can have no better right than the assignor partner (2) He can avail of the usu al remedies in case of fraud- interfere in management, inspect books, require in formation or accounting (3) In case of dissolution, he may demand an accounting but only from the date of the last accounting (4) He may ask for annulment of th e assignment if he has induced though any of the vices of consent or that he has incapable of giving it. A partners interest may also be charged (Article 1814). It applies without prejud ice to Article 1827 giving preference to partnership creditors. The manner of ch arging is as follows: (1) due application with a court of competent jurisdiction by a judgment creditor of a partner MOTION FOR EXECUTION (2) court charges the interest of the debtor partner with the payment of the unsatisfied amount of the judgment debt plus interest OR an order is given to the partnership/partners to refrain from paying the partner (c) the court may appoint (then or later) a rec eiver for partners share of the profits or any money due or to fall due to him. T he receiver may perform all acts that the court may authorize him to do (d) the court may make all other orders, directions, accounts and inquiries which the de btor may have made or which circumstances of the case require. IF THE INTEREST IS SO CHARGED IT MAY BE REDEEMED (meaning the charge is extingui shed) BEFORE FORECLOSURE ( when subjected to a mortgage), OR IN CASE OF SALE UPO N ORDER OF THE COURT, IT MAY BE PURCHASED WITHOUT THEREBY CAUSING DISSOLUTION (p artner may become insolvent, which is a cause for dissolution) WITH: (1) with se parate property by one or more of the partners (2) With partnership property by one or more of the partners, with the consent of the partner/s whose interest h as not been charged or sold BUT nothing shall be held to deprive a partner of hi s right, if any, under exemption laws as regards his interest IT HIS OWN PROPERT Y The DETERMINATION OF PROFIT/LOSS IS AS FOLLOWS: (1) In conformity with the agree ment and if only share of the profits have been agreed upon, it will be distribu ted in the same proportion (2) In the absence of an agreement ,it shall be in p roportion to what they may have contributed BUT FOR AN INDUSTRIAL PARTNER (a) h e is not liable for the net loss (b) he receives a just and equitable share of

the profits. In addition, if he contributes a sum, he receives a proportionate s hare of profits (3) they can agree to entrust it to a third person not a partner . However, the designation can be impugned if it is manifestly inequitable, exce pt when (a) the aggrieved partner has began to execute the designation (b) the designation was not impugned within three months from time he had knowledge. Not e that a PARTNER BENEFITED CAN IMPUGN as long as the designation is manifestly e quitable. there being no distinction (Articles 1797, 1798). In determining the s hare in profit or loss, note that any stipulation excluding one or more partners in the profit or loss is void (Article 1799). An exception is the INDUSTRIAL PA RTNER as stated in Article 1797. d. Right to participate in management is exercised by becoming a managing p artner or consenting to the appointment of one or more of the partners as managi ng partners. An appointment as managing partner can be done by means of a designation in (1) Articles of Partnership- (a) it is generally irrevocable without just or lawful cause. If there is cause, the vote of the partners holding controlling interest is necessary. If there is no cause, the vote of all, including the managing par tner is necessary, as it partakes of the nature of a change in the contract (b) He can perform all acts of administration. In case of opposition, if he acts in good faith, he can proceed to act. If he is in bad faith he can ousted (2) Subs equent to the Articles, in another instrument or orally- (a) it is revocable at any time, with or without cause, as it is a mere delegation (b) He can perform a ll acts of administration. In case of opposition, he can be ousted if he continu es to act (Article 1800). There can be TWO OR MORE MANAGERS: (a) If there is no designation and unanimity is not required (1) each may execute acts of administration (2) any of the manag ers may oppose, if there is an opposition majority governs. If there is a tie, i t is to be resolved by the partner holding controlling interest as he stands wit h the most to lose. NOTE not all partners can oppose, as those who have appoint ed cannot oppose as they have stripped themselves of the right to participate in management by voting to appoint a managing partner/s (Article 1801) (b) IF UNAN IMITY IS REQUIRED: (1) neither of the managers may act without the consent of th e other (2) the concurrence of all shall be necessary for the validity of acts ( 3) the absence or disability of one cannot be alleged to defeat the agreement E XCEPT if there is imminent danger of grave or irreparable injury to the partners hip but the requirement should be held to apply only to those acts that are not routine or are undertaken casually in the regular course of business operations (Article 1802). IF THERE ARE NO APPOINTED MANAGERS OR THE MANNER OF MANAGEMENT IS NOT AGREED UP ON : (1) all partners are considered agents of the partnership and any one of th em can bind the firm except when opposed. In such case, the provisions of Articl e 1801 will apply (2) none of the partners may, without the consent of the other s, make any important alteration on the immovable property of the partnership ev en if it be USEFUL. If the refusal is manifestly prejudicial, court intervention may be sought (Article 1803). 2. A PARTNER HAS A RIGHT TO ASSOCIATE

A partner is allowed to associate another person with him in his share, but the associate cannot be admitted into the partnership without the consent of all the partners, even if the one having an associate is the managing partner (Article 1804) An ASSOCIATE just shares in the NET PROFITS as it does not constitute and an ass ignment of interest 3. INSPECT BOOKS AND RECORDS, REQUIRE INFORMATION Partnership books shall be kept subject to any agreement between the partners at

the principal place of business of the partnership and any partner shall at any reasonable hour have access to and may inspect or copy them (Article 1805). Rea sonable hour refers to any hour during a business day throughout the year not ju st any day which the managing partner may arbitrarily set. Partners are obligated to render on demand, true and full information of all thi ngs affecting the partnership to any partner or legal representative of a deceas ed partner or any partner under a legal disability (Article 1806) 4. RIGHT TO A FORMAL ACCOUNT A partner has the right to a formal account if (1) He is wrongfully excluded fro m the partnership business or possession of its property by the other partners ( 2) If the right exists under the terms of the agreement (3) As provided in Artic le 1807 if a partner derives unauthorized profits (4) Whenever circumstances ren der it just and reasonable, like when a traveling partner returns (Article 1806) . THIS RIGHT IS TO BE EXERCISED ONLY IF ANY OF THE CIRCUMSTANCES ARE PRESENT BY WH ICH THERE IS ACCESS TO BOOKS ALREADY 5. RIGHT TO DISSOLVE THE PARTNERSHIP A Partner has an absolute right to cause the dissolution of the partnership for any reason (Article 1830) subject to the liability for damages (Article 1837) an d loss of the right to participate in winding up (Article 1836) OBLIGATIONS OF THE PARTNERSHIP TO THE PARTNERS Upon the creation of the partnership, the partnership shall be responsib le for: (a) all amounts that a partner may have disbursed on behalf of the part nership and for the corresponding interest from the time the expenses were made (b) answer to each partner for obligations he may have entered into good faith i n the interest of the partnership business and for risks in the consequence of m anagement (Article 1796), and (c) in relation to Articles 1804 and 1805, it must allow an associate and maintain books and records. OBLIGATIONS OF PARTNERSHIP AND OF THE PARTNERS WITH REGARDS TO THIRD PERSONS 1. OPERATE UNDER A FIRM NAME

Every partnership must operate under a firm name which may or may not include th e name of one or more partners. Those not being partners who include their name s in the partnership name shall be subject to the liability of a partner. o Note the use of the phrase: may or may not include the name of one or mor e partners indicates that not all partners are required to have their names appea r in the firm name if it were otherwise, all should have been utilized. o If a person allows his name to be utilized in the firm name but he is no t a partner, all liabilities of a partner will be imposed on him. o If it is a limited partnership, the LIMITED PARTNERS NAME SHOULD NOT APPE AR (Article 1846) unless he has the same name as a general partner or prior to h is becoming a limited partner the business was carried out under a name in which his surname appeared. RELEVANCE so third persons may know who they are dealing with IT IS THE NAME OF THE JUDICIAL ENTITY THAT IS CREATED UPON EXECUTION OF THE CONTRACT/ARTICLES OF P ARTNERSHIP. Note that if in the course of its business operations it changes its name, it retains all its rights under the old name 2. LIABILITY OF PARTNERSHIP AND PARTNERS

a. All partners including industrial ones are liable pro-rata with all t heir property, after all partnership assets are exhausted, FOR: (a) contracts en

tered into in the name of the partnership and for its account under its signatur e by a person authorized to act for the partnership. Note that , any partner may enter into a separate obligation to perform a partnership contract under Articl e 1796 those entered into in good faith (Article 1816). o THIS LIABILITY REFERS TO THAT INCURRED IN FAVOR OF 3RD PERSONS, hence, a n industrial partner is not exempt. o A withdrawing partner is not liable for those contracted after his withd rawal. Subsequent to withdrawal, he is not liable as it is presumed that the par tnership has taken all liabilities into account before allowing withdrawal. o Any stipulation against the liability laid down shall be void, except as among partners (Article 1817). a. Note that the partners can therefore agree as to the extent of their lia bilities, but such will not affect third persons. b. Thus, it is possible for a capitalist partner to be exempt from liabilit y. YES, if liability will extend only to the contribution, the provisions of Art icle 1799 stipulation excluding a partner from profit or less is not violated. o THE LIABILITY WILL APPLY when the act of the partner is considered as APPARENTLY CARRYING ON IN THE USUAL WAY THE BUSINESS OF THE PARTNERSHIP as every partner is an agent of the partnership for the purpose of its business and ever y act, including the execution in the partnership name of any instrument binds t he partnership EXCEPT WHEN: (a) partner so acting has in fact no authority to a ct for the partnership in the particular matter, and (b) person with whom he dea ls has knowledge of the fact that he has no such authority. ANY OTHER ACT NOT APPARENTLY FOR THE CARRYING ON OF THE BUSINESS OF THE PARTNERS HIP DOES NOT BIND UNLESS AUTHORIZED BY THE PARTNERS Usual way depends on the nature of the partnership business and if it is essenti al or reasonably necessary to the furtherance of partnership business o THE LIABILITY WILL NOT APPLY OR THE PARTNERSHIP IS NOT BOUND WHEN: (a) partner has no authority and it is known to third person with whom he contracts (b) act is not apparently carrying on in the usual way the business of the part nership (c) acts are the following EXCEPT WHEN AUTHORIZED BY ALL OR THE BUSINES S IS ABANDONED, ONE OR MORE BUT LESS THAN ALL OF THE PARTNERS HAVE NO AUTHORITY TO (1) Assign property in trust for creditors or on assignees promise to pay deb ts of the partnership (2) dispose of the goodwill (3) do any act which makes i t impossible to carry on the ordinary business of the partnership (4) confess j udgment (5) enter into a compromise concerning a partnership claim or liability (6) submit a partnership claim or liability to arbitration (7) renounce a par tnership claim (d) no act with the partner in contravention of a restriction or authority shall bind the firm to persons having knowledge of the restriction b. As regards dealings regarding immovables, the rules are as follows: o If property is in the partnership name, any partner may convey it in the partnership name. It is recoverable unless Article 1818 applies or the grantee or person claiming through such grantee has conveyed the property to a holder f or value without knowledge that the partner so conveying has exceeded his author ity TITLE PASSES o If property is in partnership name is conveyed by a partner in his own n ame EQUITABLE TITLE PASSES provided it is one within the authority of a partner under Article 1818. If not applicable, no interest will pass. The remedy of the buyer is reformation of the contract. o If property is in the name of one or more of the partners but not all an d the records do not disclose the right of the partnership, the partners named m ay convey title but it may be recovered if the partners act does not bind as pro vided by Article 1818 unless the purchaser or his assignee is a holder for value without knowledge o If property is in the name of one or more or all or a third person in tr

ust, a conveyance executed by a partner in the partnership name or his own name passes equitable interest, provided the act is within the authority of the partn er as laid down in Article 1818. o When all partners are named as owners, a conveyance executed by all pass es all rights to the property c. In enforcing the liability of the partnership and the partners, note that: An admission or representation made by any partner convening partnership attains within the scope of his authority in accordance with this title is evidence aga inst the partnership (Article 1820). Note that IT MUST CONCERN PARTNERSHIP AFFAIRS and IT MUST BE WITHIN THE SCOPE OF HIS AUTHORITY. (a) Admissions made before dissolution are binding only if the partners has auth ority to act on the matter (b) Admissions made after dissolution are binding on ly if necessary to wind up the affairs/business as dissolution terminates all au thority to act (c) Admissions made after one ceases to be partner are not bindi ng (d) Previous admission after one ceases to be a partner, if made within scop e of authority of the partner and during its existence is binding provided exist ence if partnership is proven by other evidence. NOTICE (a) to a partner relating to partnership affairs (b) knowledge of a par tner acting on a particular matter (he is managing partner or assigned a particu lar task) acquired WHILE A PARTNER OR THEN PRESENT TO HIS MIND (c) Knowledge of a partner (ACQUIRED WHILE ALREADY A PARTNER) who reasonably (so situated as to be able to give notice) could and should have communicated it to the acting part ner, shall operate as notice to or knowledge of the partnership EXCEPT, in case of fraud on the partnership committed by or with the consent of the partner (Ar ticle 1821). d. The partnership is liable to the same extent as the partner acting or om itting to act for loss or injury to any person, not a partner, or any penalty in curred for (1) Wrongful act, or (2) Omission in the ordinary course of business or with the authority of his co-partners (Article 1822). This extends to liabil ity for TORTS and INJURIES TO EMPLOYEES. The is NOT LIABLE though for (1) wrongf ul act or omission which was not done within the scope of the partnership busine ss (2) act or omission is not wrongful (3) although wrongful, partner is not hel d liable (4) act is committed after the firm is dissolved and was not in connect ion with the process of winding up e. The partnership is also bound to make good the loss arising from (1) a p artner misapplying money or property received from third person while acting wit hin the scope of his apparent authority. There is NO LIABILITY if without author ity ( Apparent Authority is that which appears to a third person as the basis fo r the partner to accept money or property) (2) where the partnership in the cour se of its business receives money or property from a third person and the money or property so received is misapplied by any partner while in the custody of the partnership (Article 1823) Under Article 1824, all partners are solidarily liable with the partnership for everything chargeable to the partnership under Articles 1822 and 1823. Hence, the partner or firm can be held liable. f. If the partnership/partner consents to a representation made by a person by words, spoken or written, by conduct that he is a A PARTNER IN AN EXISTING P ARTNERSHIP OR AS A PARTNER WITH ONE OR MORE PERSONS NOT PARTNERS, it/they will b e liable to any such persons upon whom the representation was made who on the fa ith of which has given credit to the actual or apparent partnership. If the repr esentation was made or consented to its being made in public manner, there is li

ability even if the representation has not been made directly or communicated to the person giving credit or with the knowledge of the apparent partner making the representation or consenting to its being made (Article 1825). WHEN A PERSON IS THUS REPRESENTED TO BE A PARTNER IN AN: existing partnership or with one or more persons not partners, he (person making representation) is an agent of the person consenting to such representation to find them to the same e xtent or in the same manner as though he were a partner in fact which respect to persons who rely on the representation. ARE PERSONS WHO BECOME PARTNERS AFTER INCURRING LIABILITIES LIABLE FOR THEM A person admitted as a partner into an existing partnership is liable for all ob ligators of the partnership arising before his admission as though he was a part ner at the time they were incurred, except that the liability shall be satisfied out of partnership property only unless there is a contrary stipulation (Articl e 1826). It is so because, a person who enters into a partnership is presumed to have exercised the reasonable diligence to verify the status of its affairs. In effect, a new firm is created and should not affect partnership creditors as pe r Article 1840 which provides that the creditors of the old firm are still the c reditors of the new firm continuing the business. WHAT IS THE PREFERENCE ENJOYED BY PARTNERSHIP CREDITORS Creditors of the partnership are preferred as regards partnership property, ALTH OUGH it is without prejudice to the right of private creditors of each partner t o ask for the attachment and public sale of the share with the partner in partne rship assets. DISSOLUTION AND WINDING UP DISSOLUTION DEFINED: Is the charge in the relation of the partners caused by a partner ceasing to be associated with the carrying on of the business as disting uished from winding up (Article 1828). It designates the point in time when the partners cease to carry on the business together. The partnership is not conside red terminated, as it continues until all or the winding up of partnership affai rs is completed (Article 1829). This is the process of WINDING UP or the settlem ent of affairs after dissolution. EFFECT ON OBLIGATIONS: Those that are validly contracted have to be paid and can not be avoided. Obligations that are new CANNOT BE CONTRACTED unless it is ess ential to winding up partnership business. CAUSES OF DISSOLUTION 1. Without violation of the agreement of the partners (1) by the terminatio n of the definite term or undertaking specified in the agreement (2) by the expr ess will of the partner who must act in good faith when no particular term or un dertaking is specified (dissolution of a partnership at will) Here, good faith m ust attend the dissolution and that adequate notice is given to all partners (3) by express will of all partners who have not assigned their interest or suffered then to be charged for their separate debts, either before or after termination of the term or particular undertaking. Here, there must be an express desire to dissolve which is manifested orally, written or by words or acts indicating an intention to dissolved and with unanimity of the concerned partners (4) expulsio n in good faith in accordance with such power conferred by agreement of the part ners 2. In contravention of the agreement of the partners where circumstances do not permit a dissolution under any provision of this article, by express will o f any partner at any time. This refers to the INDEFEASIBLE right of a partner to

cause dissolution but this action is not without SANCTION as there is liability for damages ( Article1837) and loss of right to participate in winding up ( Ar ticle 1836) 3. By any event which makes it unlawful for the business of the partnership to be carried on or for the members to carry it on in the partnership. NOTE und er Article 1770, if business is unlawful from the beginning there is nothing t o dissolve 4. When a specific thing, which a partner had promised to contribute perish es before delivery. In any case by the loss, when the partner who contributed i t had reserved ownership having just transferred use or enjoyment. BUT, dissolu tion does not result through loss if it occurs after the partnership has acquire d ownership. BUT NO DISSOLUTION OCCURS IF (1) partners agree to substitute (2) thing contributed is generic 5. Death of a partner means that the partnership continues to liquidation, but a stipulation allowing a substitute is allowable. If the partnership continu es, the partnership so continuing the business is to be regarded as a new partn ership 6. Insolvency of the partner or the partnership. A judicial decree is not necessary as the fact that assets are less than liabilities is sufficient 7. Civil Interdiction as it results in incapacity to enter into contract 8. By decree of the court in cases where Article 1831 applies upon applicat ion by a partner or by one acting in his behalf in the following cases: (1) part ner has been declared insane in a judicial proceeding or is shown to be of unsou nd mind. An action for dissolution at which time is insanity is proven is allowe d (2) a partner in anyway becomes incapable of performing his part of the partne rship contract. This refers to any inability that will render a partner incapabl e (3) a partner has been guilty of such conduct as tends to affect prejudicially the carrying on of the business. This encompasses failure to act in the appropr iate manner for the benefit of the partnership or negligent actions. (4) a p artner willfully or persistently commits a breach of the partnership agreement o r otherwise conducts himself in matters relating to the partnership business tha t it is not reasonably practicable to carry on the business of the partnership w ith him. Examples: fraud or misuse of partnership assets (5) the partnership ca n only be carried on at a loss (6) other circumstances that will render dissolu tion equitable. As opposed to prevailing situation, dissolution is preferred (7) on application of the purchaser of a partners interest under Articles 1813 and18 14 (a) after termination of period or expiration of a particular undertaking, or (2) at any time, if the partnership is one at will when the interest was assign ed or charged. IN THESE INSTANCES, dissolution comes into being upon finality of judgment in cases where judicial intervention is had. WHAT HAPPENS WHEN THERE IS DISSOLUTION Dissolution terminates all authority of a partner to act for the partnership. Th is means that the general agency between partners is automatically terminated. T he partners cannot create any new obligation for the partnership and partners ar e NOT LIABLE FOR LIABILITIES EXCEPT (1) as between partners ( meaning they must contribute) (a) The act is necessary to wind up partnership affairs (b) It is necessary to complete transactions began but not then finished (Article 1832) (c ) When the dissolution is by act, insolvency or death (AID) of a partner (each p artner is liable to his co-partners for his share of liability as if the partner ship had not been dissolved UNLESS (1) dissolution be by act, the partner acting for the partnership had knowledge of the dissolution (2) dissolution being by d eath or insolvency, the partner acting had knowledge or notice of the death or i nsolvency (Article 1833). a. WITH RESPECT TO OTHERS or persons not partners, a partner can bi nd the partnership (1) In any act appropriate for winding up partnership affairs or completing transactions unfinished at dissolution (2) Any act which would bi nd the partnership if dissolution had not taken place, PROVIDED, the other party

to the transaction (a) had extended credit (previous creditor) to the partnersh ip prior to dissolution and had no knowledge or notice of dissolution (b) though no credit (new creditor) is extended had nevertheless known of the partne rship prior to dissolution, and having no knowledge or notice of dissolution, th e fact of dissolution not having been advertised in a newspaper of general circu lation in the place (each place where the partnership conducts its business if m ore than 1) at which partnership business is carried out (Article 1834) BUT in b oth instances, the liability of a partner under the provision shall be satisfied out of partnership assets alone if such partner prior to dissolution is (1) un known as a partner to the person with whom the contract is made (2) so far unkn own or inactive in partnership affairs that the business reputation of the partn ership could not be said to have been in any degree due to his connection with i t. (THE OBJECT IS TO PREVENT FRAUD ON OTHER PARTNERS) Example: Known partner wit h no means to pay will use the others to settle their share of liability. BUT UNDER THE FOLLOWING, the partnership is not bound when (1) the partnership i s dissolved because it is unlawful to carry on the business except when the act is appropriate for winding up (2) the partner acting has become insolvent (3) w here the partner has no authority to wind-up partnership affairs (must be in con nection with the process of winding-up) except by a transaction with one who mus t be connection with (a) extends credit prior to dissolution and had no knowled ge or notice of his want of authority (b) had not extended credit prior to diss olution and having no knowledge or notice of the want of authority, the fact of his want of authority has not been advertised in a newspaper of general circulat ion in the place of business LASTLY, nothing in Article 1834 shall affect the liability of any person under A rticle 1825 if any person who after dissolution represents himself or consents t o another representing himself as a partner in a partnership engaged in carrying on the business. MEANS if a stranger represents himself AFTER DISSOLUTION to be a partner although he is not one, is still liable as a partner by estoppel. WHEN IS A PARTNER CONSIDERED AS HAVING NO LIABILITY Under Article 1835, the dissolution of the partnership does not of itself discha rge the liabilities of any partner. The DISCHARGE is effective only upon agreeme nt to such effect between the partner, creditor and the person or partnership co ntinuing the business, if any. The agreement can be one that is orally constitut ed as it can be inferred from the course of the dealing between the creditor hav ing knowledge of the dissolution and the person or partnership continuing the bu siness The individual property of a deceased partner shall be liable for partnership ob ligations incurred while a partner, but subject to prior payment of his separate debts. RIGHTS OF PARTNERS UPON DISSOLUTION 1. The partners can participate in the process of winding up (collating ass ets paying creditors, delivering and distributing profit/surplus) the affairs of the partnership as long as (a) they have not wrongfully dissolved the partnersh ip (b) he is the legal representative of the last surviving partner, not insolve nt, or (c) any partner, his legal representative or assignee, upon cause, may ob tain winding up from the court (Article 1836) BUT a designation as contained in the ARTICLES or a subsequent agreement is binding. 2. (a) If dissolution is caused in any manner other than in contravention o f the agreement , a partner or person claiming rights under them and UNLESS OTHE RWISE AGREED, shall have the right to have PARTNERSHIP PROPERTY APPLIED TO DISCH ARGE LIABILITIES AND THE SURPLUS applied to pay in cash the NET amount owing to

respective partners (b) if it be through EXPULSION, and the partner expelled is discharged from all partnership liabilities either by payment or agreement (Arti cle 1835) he shall receive in cash the net amount due him (c) If the dissolution be in contravention of the agreement, a partner who has not caused dissolution shall have the right to - LIQUIDATION, PAYMENT, DAMAGES FOR BREACH OF AGREEMENT. They can also continue the business in the SAME NAME either by themselves or wi th others during the agreed term of the partnership and possess partnership prop erty PROVIDED - they secure payment by bond approved by the court or pay to the partner who has wrongfully caused dissolution, the value of his interest less da mages and in the like manner indemnify him for present or future liabilities BUT for ascertaining the interest, the value of the GOODWILL is not to be included as consequence of his action/bad faith. The partner who has caused dissolution is entitled to (a) if the business is not continued, he is entitled to liquidati on and payment but subject to payment of damages (b) if the business is continue d, he has the right against partners or those claiming rights under them in resp ect to their interest, to have his interest in the partnership LESS damage ascer tained and paid to him in cash and be released from all existing liabilities. If payment cannot be made, to secure it by bond (Article 1837). NOTE: That in the enforcement of their rights, a right to an account accrues ag ainst winding-up partners/surviving partners/persons or partnership continuing t he business at the DATE OF DISSOLUTION in the absence of a contrary stipulation (Article 1842) 3. If the partnership is dissolved on account of the exercise of the right to rescind (properly annulment as fraud or misrepresentation are not grounds for rescission) the partnership contract on the ground of fraud or misrepresentatio n, without prejudice to his other rights shall have the following rights: (a) lien or right of retention of the surplus, after paying partnership liabilities for the sum paid by him to purchase interest or capital or advances contributed (b) to stand, after all liabilities to third persons are paid or satisfied, in p lace of creditors for any payment made by him in respect to partnership liabilit ies (c) to be indemnified by the person guilty of fraud or misrepresentation aga inst all debts or liabilities of the partnership RULES TO SETTLE ACCOUNTS AFTER DISSOLUTION SUBJECT TO ANY AGREEMENT TO THE CONTR ARY Note though that any agreement must give way to the preferred right of partnersh ip creditors EXCEPT when it involves property of deceased partner used to pay li abilities, in which case his separate creditors are preferred. (1) partnership ASSETS are partnership property, contribution of partners neces sary to pay liabilities (2) ORDER OF PAYMENT of liabilities partnership creditor s, partners other than for capital/profit, partner capital, then partner profits (3) APPLICATION OF ASSETS shall be partnership properties, followed by contribu tions to settle liabilities (4) partners must contribute as provided by Article 1797 (proportion of profit/loss) the amount necessary to satisfy liabilities in accordance with the agreement or pro-rata (5) an assignee for the benefit of c reditors or any person appointed by the court shall have the right to enforce co ntributions in items 1 to 4 (6) any partner or legal representative shall have the right to enforce contributions specified in item 4 to the extent of what he has paid in excess of his share (7) the individual property of a deceased part ner is liable for the contribution in item 4 SUBJECT to the condition that the l iabilities where incurred while a partner and that his separate debts are paid (Note: Art. 1835) (8) when partnership property and individual properties are i n the possession of the court for distribution- partnership property- partnershi p creditors are preferred, individual property- individual creditors are preferr ed IN BOTH INSTANCES saving the right of liens for secured creditors (9) when a partner is insolvent or his estate is insolvent, claims against his property s

hall rank as follows: separate creditors, then partnership creditors, then part nership contributions (Article 1839) PREFERENCES OF PARTNERSHIP CREDITORS Note that partnership creditors have the right to have their credits preferred i n payment and that creditors do not lose their preferred rights upon dissolution as they are also considered as creditors of the partnership/person continuing t he business in the following instances: 1. A new partner is admitted into an existing partnership, or when any part ner retires and assigns (or the representative of the deceased partner assigns) his right to partnership property to two or more partners/one or more of the par tners/ one or more third persons, if business is continued without liquidation o f the partnership affairs 2. All but one partner retires or assigns (or the representative of the dec eased partner assigns) their rights in partnership property to the remaining par tner without liquidation of partnership affairs, either alone or with others 3. Partner retires/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 r etired partners or the representative of the deceased partner but without assign ment of his right to partnership property 4. All partners or their representatives assign their rights to partnership property to one or more third persons who promise to pay debts and continue the business of the dissolved partnership 5. When a partner wrongfully dissolves the partnership and the remaining pa rtners continue the business under Article 1837, 2nd paragraph either alone or w ith others and without liquidation of the partnership affairs 6. A partner is expelled and the remaining partners continue the business e ither alone or with others without liquidation of partnership affairs. NOTE: ABSENCE OF LIQUIDATION THE LIABILITY OF A THIRD PERSON BECOMING A PARTNER in the partnership continuing the business under this article shall be satisfied out of partnership property only, unless there is a stipulation to the contrary. PREFERENCE is also given to creditors of the dissolved partnership as against cr editors of a retiring/deceased partner or his representative to any claim which the retiring/deceased partner may have against the person partnership continuing the business on account of said partners interest or on account of any considera tion promised for such interest or for his right to partnership property. MEANIN G that is a partner retires/dies, his claim for the payment of his interest cann ot defeat the preference of partnership creditors. NOTHING in Article 1840 shall be held to modify any right of creditors to set as ide any assignment on the ground of fraud. The use of a person or partnership continuing the business of the PARTNERSHIP NA ME or THE NAME of a deceased partner as part thereof, shall NOT BY ITSELF make t he individual property of the deceased partner liable for any debts contracted b y such person or partnership. This constitutes an exception to Article 1815 as t he situation presupposes dissolution and business is continued under any of the above-mentioned instances. When any partner DIES/RETIRES, and the business is continued under Article 1840 or Paragraph 2 of Article 1837 (partners who do not cause dissolution) withou t settlement of accounts as between him/his estate and the person/partnership co ntinuing the business, the partner or his legal representative shall have the ri ght to (1) to have the value of his interest at the date of dissolution ascertai

ned and he shall receive as an ordinary creditor an amount equal to the value of his interest, with interest OR at his/legal representatives OPTION the profits a ttributable to the use of his right in the property in lieu of his interest PROV IDED that partnership creditors are nevertheless preferred (Article 1841) LIMITED PARTNERSHIPS DEFINED: Is one formed by two or more persons under the provisions of Article 1 844 having as members one or more general partners and one or more limited partn ers. The limited partners as such shall not be bound by the obligators of the p artnership (Article 1843) 1. If all want to be limited partners, the remedy is to form a corporation 2. The existence of a general partner is the assurance to creditors that if partnership property be insufficient, their credits may still be satisfied out of personal property of the general partner. ALSO for management purposes and t o enable and encourage persons with capital not desiring to engage in a particu lar business to invest and become partners with those possessed with business sk ill and to enjoy profits without liability as a general partner. STATUTORY REQUIREMENTS The members must sign and swear to a certificate stating the following a. NAME of the partnership, adding LTD. If not appended it is presumed to be a general partnership. Under Article 1846, the name of a limited partner must no t appear unless (1) it is also the name of a general partner (2) Prior to the t ime when he became a limited partner, the business has been carried under name carrying his surname. If a limited partner name appears, he is liable as general partner to partnership creditors who extend credit without actual knowledge tha t he is not a general partner b. CHARACTER OF THE BUSINESS c. (c) LOCATION OF THE PRINCIPAL BUSINESS d. NAME AND RESIDENCE OF EACH MEMBER, GENERAL AND LIMITED PARTNERS BEING RE SPECTIVELY DESIGNATED. Note that under Article 1853, a person can be both a gene ral partner or limited partner at the same time provided such fact is stated in the certificate. As such, he shall have the rights and powers of a general part ner and be subject to all restrictions EXCEPT that with respect to his contribut ion he shall have the right against all other members which he would have if he were not also a general partner. MEANS that if he is held answerable by third pe rsons, he is entitled to recover what he has paid from general partner. ALSO, he would have preference in the distribution of partnership assets to the extent o f his contribution e. TERM FOR WHICH THE PARTNERSHIP IS TO EXIST. There can be no limited part nership as will as Paragraph 9, Article 1864 states that there is need to amend the certificate when no time for dissolution is fixed, if not done, there is lia bility for a false statement under Article 1847 f. AMOUNT OF CASH, DESCRIPTION OF AND AGREED VALUE OF THE PROPERTY CONTRIBU TED BY A LIMITED PARTNER. Note the prohibition on industry. If services are contributed, the limited partner is an industrial partner and t he value of service that he contributes increases, thus it runs counter to th e concept of limited (Article 1845) g. additional contributions to be given by limited partners, the time or ev ent at which they will be made h. the time if agreed, when the contribution of a limited partner will be r eturned i. the share of profits or other compensation by way of income which a limi ted partner will receive by reason of his contribution j. the right, if given of a limited partner to substitute an assignee as co ntributor in his place and its terms and conditions k. the right if given of the partners to admit other limited partner NOTE-

admission becomes effective upon the filing of an amendment to the original cert ificate (Article 1849) as there is a need to designate who the limited partners are. If there is no amendment there is a false statement l. the right if given of one or more limited partners to priority over othe r limited partners to their contribution, compensation by way of income and the nature of such priority. Under Article 1855, if not contained, the presumption i s that they stand on equal footing m. the right if given, of the remaining general partner to continue the bus iness on the Death,Retirement, Insolvency, Insanity or Civil Interdiction of a g eneral partner n. the right if given, of a limited partner to demand and receive property other than cash in return of his contribution Said certificate or articles must be filed for the record with the SEC. NOTE THAT 1. It must be duly sworn to as one who suffers loss by reliance on a statem ent may hold a party who knew the statement to be false at (a) the time it is si gned (b) subsequently, but within a sufficient time before the statement is reli ed upon, to enable him to CANCEL or AMEND or to file a Petition for its CANCELLA TION/AMENDMENT under Article 1865 may bring an action for damages (Article 1847) 2. If not filed with the SEC, it is presumed to be a general partnership, b ut the liability as a General Partner applies to third persons as between them t he limited liability stays 3. Substantial compliance in GOOD FAITH gives rise to the formation of a li mited partnership but the absence of the following will bar it (a) Certificate i s not sworn to as it is necessary to impress upon the partners that the contents of the Articles are true and correct so that third persons are not misled (b) I ts articles are not registered (c) The identity of Limited Partners is not disclo sed If a limited partnership is formed under the law effective prior to the NCC (Cod e of Commerce/old Civil Code), it may become a limited partnership under the Ne w Civil Code by complying with Article 1844. Further, it must set forth the (a) amount of original contribution of each limited partner and time contribution wa s made (b) that the property of the partnership exceeds the amount sufficient to discharge liabilities to persons not claiming as General Partners or Limited Pa rtners by an amount greater than the sum of the contributions of Limited Partner s. If they dont do anything, they continue to be governed by old law under which they were formed (Article 1867). WHAT ARE RIGHTS, POWERS, RESTRICTIONS AND LIABILITIES OF PARTNERS 1. A General Partner has the (a) Right and power to control the affairs of the partnership, as such he is the sole person who can act for the partnership i n consideration of his personal liability for debts without limitation (b) Excep t with the written consent or ratification of the specific act by all Limited Pa rtners, he cannot perform the following (because they are acts of dominion and c annot be considered essential or in the ordinary course of business) (1) do any act in contravention of the agreement, this refers to other business (2) do any act that would make it impossible to carry on the ordinary business of the partn ership (3) confess judgment (4) possess partnerhsip property or assign rights to specific partnership property other than for partnership purpose (5) admit a pe rson as a General Partner (6) admit a Limited Partner unless expressly allowed i n the certificate (7) continue the partnership with partnership property on the DRIII of a General Partner unless allowed in the certificate (Article 1850). In the same manner as a limited partner, he shall also have the right to (1) have partnership books kept at the principal place of business of the partnership, an d at a reasonable hour, to inspect and copy them (2) have on demand, true and fu ll information of all things affecting the partnership, and a formal account of partnership affairs whenever circumstances render it just and equitable, and (3)

have dissolution and winding up by decree of the court (Article 1851) 2. A Limited Partner on the other hand, is (a) Not bound by partnership ob ligations unless he (1) participates in management under Article 1848 (2) allows his name to be used under Article 1846 (3) he is also a general partner under A rticle 1853 and (4) he is liable under Article 1852 when he contributes capital to a business erroneously believing that he has become a limited partner is not by reason of such exercise of his rights as a limited partner, a general partne r with the person or partnership carrying on the business or is bound by their o bligations PROVIDED That on ascertaining the mistake, he promptly renounces his interest in the profits of the business or compensation by way of income and cr editors are not prejudiced. MEANING- that since he has not been designated as a limited partner, he appears as a general partner. Hence, he is so liable unless he renounces. Note though that this provision is without prejudice to Article 18 48. MEANING: that if the limited partner has already participated in management , he cannot avail of the provisions of Article 1852 to limit his liability by re nouncing. If the exceptions DO NOT APPLY, a limited partner is liable only up to the extent of his contributions. (b) a limited partner also has the rights pres cribed under Article 1851 as discussed, and in addition, the right to receive a share of the profits or other compensation by way of income, and to the retur n of contributions as per Article 1856 and 1857. WHEN IS A LIMITED PARTNER ENTITLED TO RECEIVE HIS SHARE OF THE PROFITS OR COMPEN SATION BY WAY OF INCOME A limited partner is entitled to his share of the profits/compensation by way income on the date stipulated in the certificate. Said amounts may come from he property of the partnership or that of the general partner. PROVIDED, that ter payment, partnership assets are in excess of liabilities except liability both limited and general partners for their contributions (Article 1856) of t af to

WHEN ARE CONTRIBUTIONS SUPPOSE TO BE RETURNED The contributions of a limited partner as coming from partnership property or th at of a general partner cannot be returned UNLESS (a) all partnership liabilitie s except liabilities to (contributions of) general or limited partners, have be en paid or assets set aside to satisfy them (b) the consent of all members is ha d unless return has been rightfully demanded. IT IS RIGHTFULLY DEMANDED: (1) on the dissolution of the partnership (2) when t he date stated in the certificate for its return has arrived (3) when 6 months w ritten notice has been given to all members, if no time is stipulated for return or dissolution. (c) Certificate is amended or cancelled to reflect withdrawal o r reduction. HOW PAID a limited partner, in the absence of a contrary stipulation or the cons ent of all members, shall, irrespective of the nature of his contribution, have the right to demand and receive CASH in return for his contribution IN ADDITION a limited partner has the right to have the partnership dissolved an d its affairs wound-up when (1) he rightfully but unsuccessfully demands the ret urn of his contribution (2) other liabilities have not been paid or partnership property is insufficient for their payment AND the limited partner is or would o therwise be entitled to the return of his contribution (Article 1857) RIGHT TO TRANSACT BUSINESS WITH THE PARTNERSHIP A limited partner may (1) Loan money to the partnership, OR (2) transact other business with the partnership and (3) unless he is also a general partner, receive on account of resulting claims against the partnership, together with general creditors, a pro-rata share or as sets

(NOTE THAT WHEN HE TRANSACTS BUSINESS, the limited partner is treated as a nonmember creditor) BUT INSOFAR AS CLAIMS AGAINST THE PARTNERSHIP HE CANNOT: (1) receive or hold as collateral any partnership property, OR (2) receive from a general partner or the partnership, any PAYMENT, CONVEYANCE, OR RELEASE FROM L IABIITY, if at that time, the assets of the partnership are not sufficient to di scharge liabilities to persons not claiming as general or limited partners. HEN CE, the receiving of collateral, security, payment or conveyance or release , in violation of the provision is FRAUD on creditors of the partnership (Article 18 54). RIGHT TO ASSIGN INTEREST A limited partners interest is assignable. The effects of an assignment is to (a) constitute the assignee as a Substituted Limited Partner (SLP). This occurs whe n the assignee is admitted to all the rights of a limited partner who has died ( See Article 1861 giving the executor or administrator of the deceased partner th e right to exercise all rights as a limited partner to settle his estate and suc h power as the deceased had to constitute an assignee as a SLP) or has assigned his interest in the partnership (the assignor partner must have the right to con stitute the assignee as a SLP). As a consequence, he has all the rights of a lim ited partner and is subject to all liabilities and restrictions on the ASSIGNOR EXCEPT, those which he was ignorant of at the time he became a limited partner a nd which could not be ascertained from the certificate. BUT, the ASSIGNOR is not released from liability under Articles 1847 (False statements) and 1858, The EF FECTIVITY IS ON AMENDMENT OF CERTIFICATE, OR (b) he is a mere assignee. As such he has no right to require information or an account/s of partnership transact ions or to inspect the books. HE HAS RIGHT TO (1) receive his share of profits o r compensation by way of income OR the return of contribution, to which the ass ignor would otherwise be entitled. HE CAN BECOME A SLP, if (a) all the members consent OR (b) the assignor is given the right by or in the certificate to cons titute him as a SLP. It is possible that if ASSIGNOR does not desire, the assign ee cannot be a SLP (Article 1859). BUT, the constitution of the assignee as a SLP becomes effective only, in both c ases WHEN THE CERTIFICATE IS AMENDED. Note: If no consent is given, DISSOLUTION MAY TAKE PLACE WHILE THE INTEREST IS ASSIGNABLE, IT MAY ALSO BE CHARGED. The procedures is as f ollows: (a)due application of a court of competent jurisdiction but exemption la ws apply (b) court may then appoint a receiver, make any orders, directions or i nquiries. IN THE IMPLEMENTATION OF THE CHARGING ORDER, the (a) the limited partn er cannot interpose that prior resort has been had to other remedies as it is no t deemed exclusive (b) the interest may be redeemed with the separate property o f any general partner but not with partnership property (as it constitutes an un timely return of contribution and gives a limited partner a concession that is i nconsistent with limited liability). Dissolution may result by the express will if the members whose interest have not been charged (Article 1862) A LIMITED PARTNER ALSO HAS THE RIGHT NOT TO BE IMPLEADED AS A PARTY TO AN ACTIO N AS contributor unless he is a general partner cannot be a proper party in a pr oceeding by or against the partnership except when the object is to enforce the limited partner right against or liability of the partnership (Article 1866). WHAT ARE THE LIABILITIES OF LIMITED PARTNERS A limited partner is liable to the partnership for (1) the difference between his contribution as actually made and that stated in the certificate as having b een made (2) the unpaid contribution which he agreed in the certificate to make in the future, at the time and on the conditions stated in the certificate. HE ALSO HOLDS AS TRUSTEE (1) specific property stated in the certificate as contrib

uted but has not been contributed or was wrongfully returned (2) money or other property wrongfully paid or conveyed to him on account of his contribution. THE LIABILITIES OF A LIMITED PARTNER may be WAIVED or COMPROMISED with the conse nt of all members, but the waiver or compromise shall not affect creditors who e xtend credit or whose claim arose after the filing and before a cancellation or amendment of the certificate, to enforce such liabilities. A limited partner is also liable, if he has rightfully received the return in w hole or in part of his contribution, to the partnership for any sum, not in exc ess of what he received, with interest, necessary to discharge liabilities to al l creditors who extend credit or whose claim arose before such return (Article 1 858). This applies to all transactions validly incurred but not considered at th e time the return is made DISSOLUTION The grounds/causes for dissolution as provided for by Articles 1830 and 1831 app ly. The additional grounds are those provided for under Article 1857 (when the l imited partner rightfully demands for return of contributions but is unsuccessfu l, or, there is non-payment of liabilities) and Article 1860, upon the DRIII of a general partner, which as a rule dissolves the partnership UNLESS, the busine ss is continued by the remaining general partner under (a) right granted in the certificate , OR (b) consent of all members is obtained THE ORDER OF SETTLING ACCOUNTS IS: (1) creditors in the order provided for by la w, except those owing general or limited partners by way of contribution (2) tho se owned to limited partners in respect to their share of profits and other comp ensation by way of income on their contribution (3) limited partners contribution s (4) general partner other than for capital or profits (5) general partners prof its (6) general partners capital. Subject to agreements, a limited partner shares in proportion to his contribution (Article 1863). WHEN MUST THE CERTIFICATE BE CANCELLED OR AMENDED The certificate is to be cancelled when the partnership is to be dissolved or l imited partners cease to be such. It is to be amended when: (1)change in name, c haracter of the partnership or contribution of a limited partner (2) a person i s substituted as a limited partner (3) an additional limited partner is admitted (4) a person is admitted as a general partner (5) a general partner DRIII and b usiness is continued (6) there is a change in the character of the business (7) there is a false or erroneous statement contained in the certificate (8) there is a change in time for dissolution or return of contribution (9) the time for d issolution or return of contribution is fixed (10) the members desire a change i n order to accurately represent their agreement (Article 1864). ANY WRITING TO AMEND SHALL (1) conform to Article 1844 and as far as necessary m ust set forth clearly the change in the agreement/certificate (2) it must be sig ned and sworn to by all members, and if amendment is to add a partner (he must s ign) or if it pertains to a SLP (assigning partner and substitute must sign). IF IT IS TO BE CANCELLED, it should be signed by all partners. A person desiring cancellation or amendment may petition the court to order canc ellation/amendment if the person designated refuses to execute the writing. If f ound meritorious, the court will order the SEC to cause cancellation or amendmen t THE CERTIFICATE IS AMENDED OR CANCELLED WHEN (1) The writing in compliance with Articles 1864 and 1865 is filed with the SEC, and (2) IF COURT ACTION IS INITIA TED, a copy of the ORDER of the court must be filed also. The Amended certificat e then takes the place of the original certificate. NOTE: that the SEC has discr

etion to pass upon compliance with Article 1844.