Business Law - Chapter 2: Section 1

Obligations with respect to contribution of property

1. To contribute at the beginning of the partnership or at the stipulated time the money, property, or industry which he may have promised to contribute 2. To answer the for eviction in case the partnership is deprived of the determined property contributed 3. To answer to partnership the fruits of the property the contribution of which is delayed, from the date they should have been contributed up to the time of actual delivery 4. To preserve said property with the diligence of a good father of family pending delivery to the partnership 5. To indemnify the partnership for ay damages caused to it by retention of the same or by the delay in its contribution.

Obligations of the partners with respect of the partnership capital

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

Requisites for application of Article 1801

1. Two or more partners have been appointed as managers 2. There is no specification of their respective duties, 3. There is no stipulation that one of them shall not act without the consent of all the others

In case of goods and property, the appraisal is made

1. in the manner prescribed by the contract of partnership 2. in the absence of stipulation, by experts chosen by the partners and according to current prices

Right of capitalist partner to engage in business

1. the capitalist partner is only prohibited from engaging for his own account in any operation which is the same as or similar to the business in which the partnership is engaged. 2. The law permits him to carry on a business or activity not connected or competing with that of the partnership, as long as the partnership agreement does not prohibit such activity. 3. The law is silent on whether a capitalist partner can engage in the same line business for the account of another.

As a general rule, what is the obligation of capitalist partner to contribute additional capital

A capitalist partner is not bound to contribute to the partnership more than what he agreed to contribute

Subpartner

associate another person with partner's share without the consent of the other partners

Respective duties are specified

if there is a specification of the respective duties of the managing partners, the decision of the partner concerned shall prevail subject only to the limitation that he should act in good faith

Eviction

takes place whenever by a final judgment based on a right prior to the sale or an act imputable to the vendor,the vendee is deprived of the whole or a part of the thing purchased.

No partnership can be said to exist when?

the agreement remains executory

Respective duties are unspecified

the rule in this case is that each one may separately perform acts of administration

As regards capitalist partners, prohibition extends only to

to any operation which is of the same kind of business in which the partnership is engaged unless there is a stipulation to the contrary

Power/right of a partner to terminate partnership

Any one of the partners may, at his sole pleasure, dictate a dissolution of a partnership at will. However, he must act in good faith not that the attendance of bad faith can prevent the dissolution of the partnership but that can result in his incurring liability for damages to other partners

Article 1809

Any partner shall have the right to a formal account as to partnership affairs 1. If he is wrongfully excluded from the partnership business or possession of its property by his co-partners 2. If the right exists under the terms of any agreement 3. As provided by Article 1807 4. Whenever other circumstances render it just and reasonable

Obligation of partner for damages to partnership

Any person guilty of negligence or fault in the fulfillment of his obligation, shall be liable for damages. The partner's fault must be determined in accordance with the nature of the obligation and the circumstances of the person, the time, and the place

Power of managing partner

As a general rule, a partner appointed as manager has all the necessary and incidental powers to carry out the object of the partnership in the transaction of its business.

Exception of the rule of compensation for services rendered

It can be implied from the circumstances that the parties intended a partner to receive additional compensation as where the partner's work was beyond normal partnership functions or in capacity other than that of a partner.

Reason of the sanction when the capitalist partner refuses to contribute additional contribution

It reflects his lack of interest in the continuance of the partnership.

Article 1792

If a partner authorized to manage collects a demandable sum, which was owed to him in his own name, from a person who owed the partnership another sum also demandable, the sum thus collected shall be applied to the two credits in proportion to their amounts, even though he many have given a receipt for his own credit only, but should he have given it for the account of the partnership credit, the amount shall be fully applied to the latter. The provision of this article are understood to be without prejudice to the right granted to the debtor by Article 1252, but only if the personal credit of the partner should be more onerous to him. (1684)

Article 1798

If the partners have agreed to entrust to a third person the designation of the share of each on in the profits and losses, such designation may be impugned only when it is manifestly inequitable. In no case may a partner who has begun to execute the decision of the third person, or who has not impugned the same within a period of three months from the time he had knowledge thereof, complain in such decision. The designation of losses and profits cannot be entrusted to one of the partners. (1690)

Article 1791

If there is no agreement to the contrary, in case of an imminent loss of the business of the partnership, any partner who refuses to contribute an additional share to the capital, except an industrial partner, to save the venture, shall be obliged to sell his interest to the other partners. (n)

Article 1801

If two or more partners have been intrusted with the management of the partnership without specification of their respective duties, or without stipulation that one of them shall not act without the consent of all the others, each one may separately execute all acts of administration, but if any of them should oppose the acts of the others, the decision of the majority shall prevail. In case of tie the matter shall be decided by the partners owning the controlling interest

Article 1802

In case it should have been stipulated that none of the meaning partners shall act without the consent of the others, the concurrence of all shall be necessary for the validity of the acts, and the absence or disability of any one of them cannot be alleged, unless there is imminent danger of grave or irreparable injury to the partnership

Right of partner to formal account

In general, during the existence of the partnership, a partner is not entitled to a formal account of partnership affairs. The reason is that the rights of the partner to know partnership affairs are amply protected in Articles 1805 and 1806. Furthermore, to entitle any partner to the right to constantly demand or ask for a formal accounting will cause much inconvenience and unnecessary waste of time.

Rule of compensation for services rendered

In the absence o agreement, no partner is entitled to compensation for his services to the partnership without the consent of all the partners

A and B were partners in the operation o a cinema business. The theatre was mortgaged to C who forclosed the mortgage debt. A, in his own behalf, redeemed the property with his own private funds. Subsequently, A filed a petition for the cancellation of the old title of the partnership and the issuance of another title in his name alone. Did A become absolute owner of the property?

No. In this case, when A redeemed the property in question, he became a trustee for the benefit of his co-partner, B, subject to his right to demand from the latter his contribution o redemption plus legal interest.

Partnership with a fixed term

One in which the term or period for which the partnership is to exist is agreed upon.

Industrial Partner

One who contributes his knowledge or personal service to the partnership.

Article 1806

Partners shall render on demand true and full information of all things affecting the partnership to any partner or the legal representative of any deceased partner or of any partner under legal disability.

Right of person associated with partner's share

Subpartner does not require the rights of a partner nor is he liable for its debts.

Article 1808

The capitalist partners cannot engage for their own account in any operation which is of the kind of business in which the partnership is engaged, unless there is stipulation to the contrary. Any capitalist partner violating this prohibition shall bring to the common fund any profits accruing to him from his transactions, and shall personally bear all the losses.

Remedies when industrial partner engages in business without the express permission of the partnership

The capitalist partners have the right either to exclude him from the firm or to avail themselves of the benefits which he may obtained

The respective interests of the partners in a partnership are as follows: A-5%, B-10%, C-15%, D-15%, E-20%, and F-35% If the managing partners are A,B,C, and E. A contract entered by A, with the conformity of B although against the objection of E. What will happen if C sided with E so that there was a tie and when the matter was put to a vote of all the parties , A, B, and D were in favor, with C, E, and F against.

The contract is not valid. If A and E were the ones who originally vote in favor o the contract and subsequently, F sided with them, the transaction is deemed ratified by the controlling interest in the partnership.

The respective interests of the partners in a partnership are as follows: A-5%, B-10%, C-15%, D-15%, E-20%, and F-35% A, B, and E were appointed as managing partners without specification of their respective duties. What will happen if a contract entered by A, with the conformity of B although against the objection of E

The contract is valid

Right of debtor to application of payment

The debtor is given the right to prefer payment of the credit of the parter if it should be more onerous to him in accordance with his right to application of payment

Article 1797

The losses and profits shall be distributed in conformity with the agreement. If only the share of each person in the profits has been agreed upon, the share of each in the losses shall be in the same proportion. In the absence of stipulation, the share of each partner in the profits and losses shall be in proportion to what he may have contributed, but the industrial partner shall not be liable for the losses. As for the profits, the industrial partner shall receive such share as may be just and equitable under the circumstances. If besides his services he has contributed capital, he shall also receive a share in the profits in proportion to his capital. (1689a)

Duty to act for common benefit

The obligation of a partner to act for the common benefit of all in all transactions relating to the partnership business. He cannot, at the expense or to the detriment of the other partners, use or apply exclusively to his own individual benefit partnership assets or the results of the knowledge and information gained by him in the character of partner.

Article 1800

The partner who has been appointed manager in the articles of partnership may execute all acts of administration despite the opposition of his partners, unless he should act in bad faith; and his power is irrecoverable without just or lawful cause. The vote of the partners representing the controlling interest shall be necessary for such revocation of power. A power granted after the partnership has been constituted may be revoked at any time.

Article 1805

The partnership books shall kept, subject to any agreement between the partners, at the principal place of business of the partnership, and every partner shall at any reasonable hour have access to and may inspect and copy any of them

Subpartnership

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

Rights and duties of partners when they agreed to continue a partnership with fixed term

The rights and duties of the partners remain the same as they were at such termination but only insofar as it is consistent with a partnership at will

Can persons enter into a contract to become a partners at some future time or on the happening or fulfillment of some condition or future contingency?

They do not become partners until or unless the agreed time has arrived or the condition has happened. Hence, there can be future partnership which at the moment has no juridical existence yet.

Reason behind the comparatively short period of three months within to impugn the designation

To forestall any paralyzation in the operations of the partnership

Reason of the prohibition against engaging in business as regards an industrial partner

To prevent any conflict of interest between the industrial partner and the partnership and to insure faithful compliance by said partner with his obligation

Rights and obligations with respect to management

Unless tha partnership agreement provides otherwise, each partner in a general partnership has a right to an equal voice in the conduct and management of the partnership business. Of course, the partners may select a managing partner or make an allocation of functions as the needs of the business dictate especially in a large partnership

Article 1790

Unless there is a stipulation to the contrary, the partners shall contribute equal shares to the capital of the partnership.

Article 1785

When a partnership for a fixed term or particular undertaking is continued after the termination of such term or particular undertaking without any express agreement, the rights and duties of the partners remain the same as they were at such termination, so far as is consistent with a partnership at will. A continuation of the business by the partners or such of them as habitually acted therein during the term, without any settlement of liquidation of the partnership affairs, is /prima facie/ evidence of a continuation of the partnership. (n)

Article 1787

When the capital or a part thereof which a partner is bound to contribute consists of goods, their appraisal must be made in the manner prescribed in the contract of partnership, and in the absence of stipulation, it shall be made by experts chosen by the partners, and according to current prices, the subsequent changes thereof being for the account of the partnership. (n)

Article 1803

When the manner of management has not been agreed upon, the following rules shall be observed: 1. All of the partners shall be considered agents and whatever any one of them may do alone shall bind the partnership, without prejudice to the provisions of Article 1801. 2. None of the partners may, without the consent of the others, make any important alternation in the immovable property of the partnership, even if it may be useful to the partnership. But if the refusal of consent by the other partners is manifestly prejudical to the interest of the partnership, the court's intervention may be sought

The respective interests of the partners in a partnership are as follows: A-5%, B-10%, C-15%, D-15%, E-20%, and F-35% Suppose after a tie, the voting is as follows: A, B, and F - in favor, and C, D, and E - against, both sides representing 50% of the interest, with neither side willing to give way to the other, what shall be the rule?

When the partners are equally divided, those who vote against the contract o who resist change must prevail. The best solution is for the partners to dissolve the partnership. A shall be responsible for damages if it is found that he was at fault.

Exceptions of the power of managing partner

When the powers of the managers are specifically restricted or expressly withheld. A managing partner cannot also exercise power which are neither necessary nor incidental to carry out the object of the partnership.

Exception of the rule that managing partners shall act with the consent of the others

When there is an imminent danger of grave or irreparable injury to the partnership. And also , necessary in routine transactions e.g. engaged in buying and selling merchandise of goods regularly purchased by the partnership

Duty to account for secret and similar profits

A partner, therefore, who makes a secret profit out of the operation of the partnership, or who accepts a secret commission from a third person dealing with the partnership, is duty bound to account such profit or commission with his co-partners

Article 1784

A partnership begins from the moment of the execution of the contract, unless it is otherwise stipulated. (1679)

Requisites for application of Article 1793

1. A partner has received, in whole or in part, his share of the partnership credit 2. The other partners have not collected their share 3. The partnership debtor has become insolvent

Rules when manner of management has not been agreed upon

1. All partners considered managers - The matter shall first be decided by the majority vote for the presumed intent is for all the partners to manage. In case of tie, then the matter shall be decided by the vote of the partners representing the controlling interest 2. The unanimous consent of all the partners is necessary for any important alternation in the immovable property of the partnership.

Two distinct cases of appointments

1. Appointment as manager in the articles of partnership 2. Appointment as manager after constitution of the partnership

Effects of failure to contribute property promised

1. Partner automatically a debtor of the partnership even in the absence of any demand 2. The remedy of the other partners or the partnership not rescission or cancellation of the contract of the partnership but an action for specific performance with damages and interest from the defaulting partner.

Relations created by a contract of partnership

1. Relations among partner themselves 2. Relations of the partners with the partnership 3. Relations of the partnership with third persons with whom it contracts 4. Relations of the partners with such third persons

Powers of two or more managing partners

1. Respective duties are unspecified 2. Respective duties specified

Stipulation excluding partner from any share in profit or losses

1. Stipulation generally void, but partnership, if otherwise valid, subsists and the profit or losses shall be apportioned as if there were no stipulation on the time. 2. Stipulation, a factor to show no partnership exists 3. Where partner excluded is industrial partner from the losses, it is naturally valid 4. If the unequality is so gross that it is, in effect, a simulated form or attempt t exclude a partner from any share in the profits or losses, the stipulation shall be void.

Rules in distribution of losses

1. The losses shall be distributed according to their agreement subject to Article 1799 2. If there is no agreement, but the contract provides for share of the partners in the profits, the share of each in the losses shall be in accordance with the profit-sharing ratio 3. If there is no profit-sharing stipulated in the contract, then losses shall be borne by the partners in proportion to their capital contributions, but the purely industrial partner shall not be liable for the losses

Rules in distribution of profits

1. The partners share the profits according to their agreement subject to 1799 2. No agreement; a. The share of each capitalist partner shall be in proportion to his capital contribution: b. The industrial partner shall receive such share which must be satisfied fist before the capitalist partners shall divide the profits, as may be just and equitable under the circumstance.

Requisites for application of Article 1792

1. There exist at least 2 debts, one where the collecting partner is creditor; and where the partnership is the creditor 2. Both debts are demandable 3. The partner who collects is authorize to manage and actually manages the partnership

Requisites before a capitalist partner may be obliged to sell his interest to the others

1. There is imminent loss of the business of the partnership 2. The majority of the capitalist partners are of the opinion that an additional contribution to the common fund would save the business 3. The capitalist partner refuses, deliberately not because of his financial inability to do so, to contribute an additional share to the capital 4. There is no agreement that even in case of an imminent loss of the business the partners are not obliged to contribute

Remedies when capitalist partner engages in the same kind of business without stipulation allowing him to engage in that business

1. To ask the guilty capitalist partner to bring to the common fund any profits accruing to him from the said transaction; 2. To ask the guilty capitalist partner to bear all the losses from the said transaction.

Article 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. (1685a)

Article 1788

A partner who undertakes 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 obligations. 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. (1682)

Reason why a partner may terminate the partnership whenever he wishes

A partnership relationship is a personal one; thus, the law will not force any one to continue as a partner or to become a partner

Article 1789

An industrial partner cannot engage in business for himself, unless the partnership expressly permits him to do so, and if he should do so, the capitalist partners may either exclude him from the firm or avail themselves of the benefits which he may have obtained in violation of this provision, with a right to damages in either case. (n)

In case of imminent loss of the business, what is the obligation of capitalist partner to contribute additional capital

Capitalist partner is under obligation to contribute an additional share to save the venture. if he refuses to contribute, he shall be obliged to sell his interest to the other partners.

Article 1786

Every partner is a debtor of the partnership for whatever he may have promised to contribute thereto. He shall also be bound for warranty in case of eviction with regard to specific and determinate things which he may have contributed to the partnership, in the same cases and in the same manner as the vendor is bound with respect to eh vendee. He shall be liable for the fruits thereof from the time they should have been delivered, without the need of any demand. (1681a)

Article 1794

Every partner is responsible to the partnership for damages suffered by it through his fault, and he cannot compensate them with the profits and benefits which he may have earned for the partnership by his industry. However, the courts may equitably lessen this responsibility if through the partner's extraordinary efforts, unusual profits have been realized. (1686a)

Article 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

Article 1807

Every partner must account to the partnership for any benefit, and hold a trustee for it any profits derived by him without the consent of the other partners from any transaction connected with the formation, conduct, or liquidation of the partnership or from any use by hime of its property.

Reason for the rule of Article 1804

For a subpartner to become a partner, all the other partners must consent even if the partner who associated the subpartner should be the manager because a partnership is based on mutual trust and confidence among the partners.

Reason for exemption of industrial partner from losses

He cannot withdraw the work or labor already done by hime. Also, if the partnership fails to realize any profits, then he has labored in vain and in a real sense, he has already contributed his share in the loss.

Reason why capitalist partner can't engaged with same kind or similar to the business in which the partnership engaged.

Since the relationship of partners is fiduciary and imposes upon them the obligation of the outmost good faith in their dealing with one another with respect to partnership affairs, one partner will not be permitted to retain for himself alone as against his co-partners benefits from partnership relation.

A and B are partners engaged in the real estate business. a learned that C was interested in buying a certain parcel of land owned by the partnership, even for a high price. Without informing B, A was able to make B sell to him [A] his [B's] share in the partnership. Then, A sold the land at a big profit. Is a liable to B?

Yes. A is liable to B for the latter's share in the profits. When A purchased B's interests, A was under the duty to make disclosure of facts having a bearing on the value of such interests which were not known to B.

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

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

In case of immovable property, the appraisal is made

in the inventory of said property

In the absence of stipulation, the share of each partner in the profits and losses is in

proportion to what he may have contributed