LECTURE NOTES ON PARTNERSHIPS Articles 1767-1867, NCC

CHARACTERISTICS OF A TRACT OF PARTNERSHIP

CON-

1. Generally since it is a contract it is: STATUTORY DEFINITION - By a contract of partnership, two or more persons bind themselves to contribute money, property or industry to a common fund with the intention of dividing the profits among themselves. Two or more persons may also form a partnership for the exercise of a profession. (Article 1767) A STATUS and a FIDUCIARY RELATION subsisting between persons carrying on a business in common with a view on profit. { Article 1768 Theory of Partnership, PARTNERSHIP is considered as an aggregate of the individual partners } { An exception that Partnership has a juridical personality separate and distinct}. { They continually individually liable }. { ex. PROFITS tax liability, Q. who declares the income? A. Partners not Partnership }. JURIDICAL PERSONALITY Ex. State and political subdivision, Corp. institutions, created by law. PURPOSE OF PARTNERSHIP * generate profits / divide the profits * exercise a profession NB: Partnership is a privilege because you must have the capacity to contract and can only be exercised after compliance with the requirements provided by law. As long as two or more persons bind themselves to contribute, a partnership has already been created. 1. There partnership can be no non-profit Credit such as that evidenced by a promissory note, or even mere good will or commercial credit, which is the ability to obtain funds on credit may be contributed for both credit and good will are properties. But not merely political credit since this may be contrary to good customs. a. consensual perfected by consent b. bilateral/multilateral entered into by two or more persons c. nominate designated by a specific name (PARTNERSHIP) d. onerous contributions are given e. principal its existence does not depend on the life of another contract f. preparatory to carry into effect its purposes, other contracts have or may have to be entered unto (1771-73) 2. There must be a contribution of money, property or industry to a common fund. { utilize to conduct business} { you can contribute-combination of money, property or industry }. { ex. Of limited partnership real estate investment and developers } a. If industry is contributed, it must be physical or intellectual b. 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 partnership. ART. 1845. The contributions of a limited partner may be cash or property, but not services.

3. The object and purpose must be LAWFUL and it must be established for the common benefit or interests of all partners.1770

Means that: object / purpose must be a) Within the commerce of man, & b) Not contrary to morals good customs, public order or public policy.

purpose can be separated from the legal purpose/s. c. Note that while Article 1409, NCC is the basis to hold it as void ab initio, there is no need for a judicial decree to dissolve a partnership that does not exist. The provision applies to an instance where unlawfulness is in dispute or occurs at a later stage. 4. There must be an INTENTION TO DIVIDE PROFITS among the PARTNERS since it is for their benefit. The object must be for profit and not merely for common enjoyment, otherwise, only a coownership has been formed. Pecuniary profit, however, need not be the only aim; it is enough that it is the principal purpose. Thus other ends-like social, moral and spiritual objectives-may also properly exist. (11 Manresa 265)

ART. 1770. A partnership must have a lawful object or purpose, and must be established for the common benefit or interest of the partners. When an unlawful partnership is dissolved by a judicial decree, the profits shall be confiscated in favor of the State, without prejudice to the provisions of the Penal Code governing the confiscation of the instruments and effects of a crime. b. When a partnership is formed for an unlawful purpose, the contract is void ab initio. No partnership is actually formed. * Under Art. 1409 there is actually no need for a judicial decree to dissolve an unlawful partnership as it is void ab initio and therefore never existed from the viewpoint of the law, but it may become necessary and convenient for everybody especially when its unlawfulness is disputed. This is particularly true when the object was lawful at the beginning but has later become unlawful. { cannot allowed to exist / dissolve} { There must be atleast 1 general partner}. { Only the limited partner cannot contribute industry}. THEORY OF PARTNERSHIP Partnership is considered as an aggregate of the individual partners An exception that Partnership has a juridical personality separate and distinct. Ex. Profits tax liability who declares the income? Partner not partnership. Q. How to determine if partnership exist? - definition - characteristics If a partnership has several purposes, one of which is unlawful, the partnership can still validly exist so long as the illegal

5. There must be AFFECTIO SOCIETIS - desire to formulate an active union with and among people in whom mutual confidence and trust exists. { AFFECTIO SOCIETIES Must be present for the existence of partnership} - Just because the terms partnership and partners appear in the contract between certain persons does not necessarily mean that a partnership has been entered into. 6. NEW PERSONALITY{DELICTUS PERSONAE} A juridical person is created, separate and distinct from that of the persons composing it, even in case of failure to comply with the requirements of Article 1772 (Art. 1768) {What is inexistence partnership.} {There is a juridical person} ART. 1768. The partnership has a juridical personality separate and distinct from that of each of the partners, even in case of failure to comply with the requirements of Article 1772 1st paragraph RULE: the partnership has a personality separate and distinct from that of each partner.

ART. 1772. Every contract of partnership having a capital of three thousand pesos or more, in money or property, shall appear in a public instrument, which must be recorded in the Office of the Securities and Exchange Commission (SEC). a. The primary effects of having juridical personality would be to allow it to acquire property, which when so acquired in the partnership name can only be conveyed in the partnership name (Article 1774) and it can sue and be sued under the partnership name. b. The creation of a juridical person takes place even if there is no compliance with 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. The reason is that par. 1 of Art. 1772 is not intended as a prerequisite for the acquisition of a juridical personality by the partnership, but merely a condition for the issuance of license to engage in business or trade. { It does not affect liability to 3rd person} In this way, the tax liabilities of big partnerships cannot be evaded, and the public can also determine more accurately, their membership and capital before dealing with them. c. However, no such personality will result if the articles (of societies or associations) 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 on coownership (Article 1775) EXCEPTION!!! ART. 1775. Associations and societies, whose articles are kept secret among the members, and wherein any one of the members may contract in his own name with third persons, shall have no juridical personality, and shall be governed by the provisions relating to co-ownership. {Applicable for liability - sue the individual not the partnership} Juridical persons (Art. 46), partnerships in general can: (AIBA)

a) acquire and possess property of all kinds b) as well as incur obligations and c) bring civil or criminal actions (in conformity with the laws and regulations of their organization). d) can be adjudged insolvent even if the individual members be each financially solvent. CONSEQUENCE OF THE PARTNERSHIP BEING A JURIDICAL ENTITY 1) its juridical personality is SEPARATE and DISTINCT from that of each partner 2) the partnership can in GENERAL: a) acquire and possess property of all kinds b) incur obligations c) bring civil and criminal actions d) can be adjudged insolvent even if the individual members be each financially solvent 3) unless he is generally sued, a partner has no right to make a separate appearance in court, if the partnership being sued is already represented. Knowing the essential characteristics of a partnership, one can now determine if such actually exists by proving that: a) there was INTENTION to create partnership b) there was a COMMON FUND obtained from contributions c) there was JOINT INTEREST OF PROFITS. ART. 1769. In determining whether a partnership exists, these rules shall apply: (1) Except as provided by Article 1825, persons who are not partners as to each other are not partners as to third persons; Generally, if you are not a partner, no partnership exists. Exception, Art. 1825 1. Partnership by Estoppel

ART. 1825. When a person by words spoken or written or by conduct represents himself or consents to another representing him to anyone as a partner in an existing partnership or with one or more persons not actual partners, he is liable to any such persons to whom such representation has been made, who has on the faith of such representation given credit, to the actual or apparent partnership and if he has made such representation or consented to its being made in a public manner he is liable to such person, whether the representation has or has not been made or communicated to such person so giving credit by or with the knowledge of the apparent partner making the representation or consenting to its being made: { To be liable under art. 1825, there must be credit given believing the false representation } (1). When a partnership liability results, he is liable as though he were an actual member of the partnership; (2). When no partnership liability results, he is liable pro rata with the other persons, if any, so consenting to the contract or representation as to incur liability, otherwise separately. If partnership actually exists and (2) consents-partnership by estoppel

c) there is a joint interest in the profits. 4. However, (the) receipt by a person of a share of the profits of a business is prima facie evidence that he is a partner in the business, but no such inference shall be drawn if such profits were received in payment: ( DWAIC ) (a) (b) (c) As a debt by installments or otherwise; As wages of an employee or rent to landlord; As an annuity to a widow or representative of a deceased partner; As interest on a loan, though the amount of payment vary with the profits of the business; As the consideration for the sale of a goodwill of a business or other property by install-ments or otherwise.

(d)

(e)

OTHER CRITERIA TO DETERMINE PARTNERSHIP EXISTENCE 1. Except as provided in Article 1825 persons who are not partners as to each other are not partners as to third persons. a. Generally, if you are not partner there is no partnership except if you or an entity 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 him as a partner in an existing partnership to anyone, he is liable to such persons 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 persons whether the representation has or has not been made and relied upon. The liability is like that of an actual partner if partnership liability results. If there is no partnership liability he is liable pro-rata with other persons consenting to the contract or representation. b. The DECEIVER IS A PARTNER BY ESTOPPEL. If a partnership exists and consents, there is a partnership by estoppel

2. Co-ownership or co-possession does not of itself establish a partnership, whether such co-owners or copossessors do or do not share any profits made by the use of the property; { intent of the parties it is still possible to have partnership, it may be a partnership but alone it is not }. 3. The sharing of gross returns does not of itself establish a partnership, whether or not the persons sharing them have a joint or common right or interest in any property from which the returns are derived; {absent of AFFECTIO SOCIETATIS desire to formulate active union } NOTE: No. 1 & 2 do not meet the criteria that: a) there must be intention to create a partnership b) there was a common fund obtained from contributions

2. Co-ownership or co-possession does not by itself establish a partnership whether such co-owners or copossessors do or do not share in any of the profits made by the use of the property a. Note the rulings in PASCUAL vs. COMMISSIONER (160 S 60) where a series of transactions were considered ISOLATED TRANSACTIONS and did not result in a holding that 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 HABITUALITY 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. a. 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 joint interest in the profits 4. However, receipt by a person of a share of the profits of a business is PRIMA FACIE evidence that he is a partner EXCEPT: (a) debt by installment or otherwise creditor receives part of the profits of the business in settlement of his credit (b) wages of an employee or rent to a landlord employee receives wages depending on level of profit or a fixed percentage thereof (c) as an annuity to a widow or representative of a deceased partner in lieu of immediate dissolution, the widow or representative will receive an annuity (d) as interest on a loan, through 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 sale of goodwill or other property- payment is taken out of profits. BUSINESS TRUSTS When certain persons entrust their property or money to others who will manage the same for the former.

RULES ON CAPACITY TO BECOME A PARTNER 1) In general, a person capacitated to enter into contractual relations may become a partner 2) An UNEMANCIPATED MINOR CANNOT become a partner UNLESS his parent or guardian consents. Without such consent, the partnership contract is voidable unless other partners are in the same situation, in which case the contract is unenforceable. 3) A MARRIED WOMAN cannot contribute community property (ART 96 FC) or conjugal funds (ART 124 FC) as her contribution to the partnership UNLESS she is permitted to do so by her husband OR UNLESS she is the administrator of the conjugal partnership, in which the COURT must give its consent authority. ART. 73. FC The written consent of the other spouse or court authority is required because it is an act of dominion or an encumbrance. { married woman is not barred in entering into partnership} 4) A PARTNERSHIP being a juridical person by itself can form another partnership either with private individuals or with other partnerships, their being no prohibition on the matter. { All powers / business property of Corporation shall be held and exercise by its Board of Corporators } 5) A Corporation, as held by majority view, cannot enter into a contract of partnership on the ground of public policy, otherwise people other than its officers may be able to bind it. { Bec.of Sec.23 of the corporation Code.} 6) For ALIENS, there is no prohibition provided that if the nature of the business requires to be 60% or 100% Filipino-owned,

then it must first be complied with respecting constitutional or statutory limitations. Alien must possess the capacity to enter into a contract as determined by the laws of the country where he is from. Can the Alien enter into any partnership is not reserved for Filipinos and in case of real property consider whether such requires 60% or 100% Filipino owned.

WHAT DO NOT ESTABLISHED A PARTNERSHIP 1) Mere co-ownership or possession Even with profit sharing co-

2) Mere sharing of GROSS returns Even with joint ownership of the properties involved RULES TO DETERMINE THE EXISTENCE OF A PARTNERSHIP 1) Persons who are not partners to each other are not partners as to third persons EXCEPTION: PARTNERSHIP ESTOPPEL BY

LIMITATIONS ON ALIEN PARTNERSHIP 1. If 60% capital is not owned by Filipinos The firm cannot aquire by purchase or otherwise AGRICULTURAL Philippine Lands.

2. Foreign partnership may lease lands provided the period does not exceed 99 years. 3. Foreign partnership may be MORTGAGEES of land Period of 5 years renewable for another 5 years They cannot purchase it in a foreclosure sale.

2) CO-OWNERSHIP of a property does not itself establish a partnership, even though the coowners share in the profits derived from the incident of joint ownership. 3) SHARING OF GROSS RETURNS ALONE does not indicate a partnership whether or not the persons sharing them have a joint or common right or interest in any property from which the returns are derived

RULES IN CASE OF ASSOCIATIONS NOT LAWFULLY ORGANIZED AS PARTNERSHIP 1) It possesses NO LEGAL PERSONALITY? It cannot sue as such HOWEVER, the partners in ther individual capacity CAN. 2) One who enters into a contract with a partnership as such cannot when sued later on for recovery of the debt. Allege the lack of legal personality on the part of the firm, even if indeed it had no personality. ESTOPPEL [Void and rd contracted to 3 person] Whether, a partnership has a juridical personality or not depends on its PERSONAL LAW of the partnership or the law of the place where the partnership was organized.

4) The receipt of the share in the profits is a strong presumptive evidence of partnership HOWEVER, no such inference will be drawn if suvh profits were received in payment a. As a DEBT by installments or otherwise b. As WAGES of an employee c. As RENT to a landlord d. As an ANNUITY to a widow or representative of a deceased partner e. As INTEREST on a LAON, though the amount of payment vary with the profits of the business f. As the CONSIDERATION for the sale of a GOOD WILL of a business or other property or otherwise

Creditors are not partners, for their only interest in the sharing of profits is the receipt or payment of their credits In a partnership, the partners are supposed to trust and have confidence in all the partners.

Limited partnership always written

FORMS OF PARTNERSHIP A partnership may be constituted in any form ( oral or written )

PARTNERSHIP BY ESTOPPEL If 2 persons not partners represent themselves as partners to strangers, a partners by estoppel results When 2 persons who are partners, in connivance with a friend who is not a partner inform a stranger that said friend is their partner, a partnership by estoppel also result to the end that the stranger should not be prejudiced. RULE: LAWFUL OBJECT or PURPOSE A partnership must have lawful object or PURPOSE, and must be established for the common benefit or interest of the partners It must be within the commence of man, possible and not contrary to law, morals, good customs, public order or public policy If a partnership has SEVERAL PURPOSES, one of which is UNLAWFUL, the partnership can still validly exist so long as the illegal purpose can be separated from the legal purposes. NO need for JUDICIAL DECREE to dissolve an unlawful partnership VOID AB INITIO One of the causes for the dissolution of a partnership is any event which makes it unlawful for the business of the partnership to be carried on (Art.1830)

Art. 1771. A partnership may be constituted in any form, except where immovable property or real rights are contributed thereto, in which case a public instrument shall be necessary. EXCEPTION: PUBLIC INSTRUMENT 1) IMMOVABLE contributed PROPERTY is

2) REAL RIGHTS are contributed Need for INVENTORY IMMOVABLE FOR EFFECTIVITY of the partnership contract insofar as innocent third persons are concerned the same must be REGISTERED if REAL PROPERTIES are INVOLVED. A partnership contract is NOT COVERED by the STATUTE of FRAUDS. An AGREEMENT TO FORM a partnership does not itself create a partnership. When there are conditions to be fulfilled or when a certain period is to lapse, the partnership is not created till after the fulfillment of the term and this is true even if one of the parties has already advanced his agreed share of the capital. {Second instance that it should be written: Art.1844 (limited partnership) } RULE: If CAPITAL is P3,000 or more {Art. 1772 is only a preferred requirement and not fatal to the existence of the partners}

RULE: When an UNLAWFUL PARTNERSHIP is dissolved by a judicial decree, the PROFITS shall be CONFISCATED in FAVOR of the STATE { How it form?} real right written/inventory Real property

REQUIRED: 1) PUBLIC INSTRUMENT (written) 2) RECORDED S.E.C FAILURE TO COMPLY -shall not affect the liability of the partnership and its members to third persons. IF REAL PROPERTIES have been contributed, regardless of the VALUE, a public instrument is needed for the attainment of legal personality

{Is it a preferred requirement? YES, article 1772 because there is still a partnership that should be held liable} can be partners subject to restrictions on ownership/leases and engaging in nationalized or partially nationalized businesses.

REQUIREMENTS WHERE IMMOVABLE / REAL PROPERTY IS CONTRIBUTED 1) PUBLIC INSTRUMENT 2) INVENTORY - signed and attached to the P.I / Public Instrument Applies regardless of the value of the real property Applies even if only real rights over the real property are contributed Applies if aside from real property cash or personal property is contributed TRANSFER of land to the partnership must be duly recorded in the ROD to make the transfer effective insofar as third persons are concerned RULE: Any immovable property or an interest therein maybe acquired in the partnership name Title so conveyed acquired can be

DISTINGUISHING A PARTNERSHIP FROM: JOINT VENTURE 1. It has no firm name or separate personality, while a partnership has a firm 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 individually liable therefore, while in a partnership, partners cannot transact under 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 transactions of a certain kind. (Note: Tan Eng Kee vs. CA, 341 SCRA 740- a joint venture appears to be a particular partnership due to the fact that a partnership can have for its object a specific undertaking (Article 1783), the Supreme Court distinguished between a joint venture and a partnership when it held that while a corporation cannot be

a partner, it may enter into a joint venture) VOLUNTARY ORGANIZATIONS 1. It has no juridical personality, while a partnership has juridical personality 2. It may be organized for any lawful purpose, while a partnership is always organized for profit 3. Contributions are collected to maintain the organization, while in a partnership, contributions go to capital 4. There is individual liability, while in a partnership individual liability is not primary CONJUGAL GAINS PARTNERSHIP OF

more than 10 years is not allowed (Article 494), while a partnership has no fixed duration 5. A co-owner may feely dispose of his interest, while a partner cannot freely 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 partnership, 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. 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 (Article 1771)

1. Arises by agreement between spouses, while a partnership is created by voluntary agreement of two or more partners 2. Governed by law, while a partnership is primarily governed by the stipulations in the contract 3. Has no juridical personality, while a partnership has juridical personality 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 according to the agreement or in proportion to contributions 6. Management generally is vested in both spouses, while in a partnership it is vested in all partners unless they designate a managing partner 7. Purpose is to regulate property relations between spouses, while in a partnership 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 personality 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

In such a case, an inventory of the immovable property so contributed must be made and attached to the public instrument. Failing in which, the contract of partnership is void. (Article 1773). Note though that while partnerships with capital of PHP 3,000.00 or more are required to be in a public instrument and duly registered with the SEC, non compliance shall not affect liability to third persons (Article 1772) It is however required that the articles of partnership be written if what is to be constituted is a LIMITED PARTNERSHIP (Article 1844) WHAT ARE THE PARTNERSHIPS KINDS OF

1. As to object it is universal or particular a. A particular partnership is one which has for its object a determinate thing, their use or fruits, or specific undertakings, or the exercise of a profession or a vocation (Article 1783).

b. A universal partnership has two kinds. A universal partnership of ALL PRESENT PROPERTY or OF PROFITS (Article 1777). b.1 A Universal Partnership of All Present Property is one where all partners contribute ALL PROPERTY which actually belong to them to a common fund with the intention of dividing the same as well as all profits which they may acquire therewith (Article 1778). b.2 All present property belonging to the partners at the time of constitution becomes the common property of all partners as well as all the profits which they may acquire therewith. They can also stipulate on the common enjoyment of any other profits from other sources BUT, property which the partners may subsequently acquire by inheritance, legacy, or donation cannot be included in such stipulation except the fruits thereof (Article 1779) b.3 The property to be acquired by inheritance, legacy or donation cannot be the object of a stipulation as (1) contracts regarding successional rights are not allowed. (2) Contributions must be determinate, known and certain (3) since it implies a donation, future properties cannot be donated b.4 A Universal Partnership of Profits is one where which is comprised of all that the partners may acquire by their industry or work during the existence of the partnership (Article 1780). Hence, if not so acquired by their industry or work, it does not pertain to the partnership b.5 Movables or immovables which each of the partners possess at the time of the celebration of the contract shall continue to pertain exclusively to each, only the usufruct shall pass. b.6 If there is no specification of nature (presupposes a writing), the partnership shall be considered a universal partnership of profits (Article 1781). The reason is because it is less onerous that a universal partnership of all present property. If what is desired is that it be a universal partnership of all present property, 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 consideration of the same. This prohibition exists because a universal partnership is virtually a donation, thus persons should not be allowed to do indirectly what they cannot do directly. OTHER KINDS OF PARTNERSHIPS Partnerships may Liability Representation by Estoppel) and for a Specific Period- At Will) be distinguished as to (General-Limited), (Ordinary-Partnership Duration (Partnership Undertaking/With a

WHEN DOES THE RELATIONSHIP AS PARTNERS BEGIN It begins from the moment of the execution of the contract unless a different period is stipulated. Hence, there can be no partnership if the intention is to create in the future. a. Agreement to form a partnership does not create a partnership. If there are conditions to be fulfilled or a certain period is to lapse or to arrive, the partnership 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. b. 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, hence it cannot be enforced (Article 1403, Par. 2-a). Note that it cannot be obliged 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) c. The rules are thus as follows: (1) If there is no contrary

stipulation, the partnership 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 partnership is to begin on the stipulated date. (3) If a contract states that contributions are still to be given on a particular date. There is a partnership as they have bound themselves to contribute (4) If contract states that we become partners 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 as they will it to exist (2) Partners or such of them who have so acted, habitually 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 were 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) The persons who have decided to form the partnership become partners as to each other. 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 partnership refers to the obligations of a partnership to the partner (3) Relationship between the partner and third persons refers to the obligations of the partners to third persons (4) Relationship between the partnership and third persons refers to the conduct of the business of the corporation SPECIFIC PARTNERS OBLIGATIONS OF

1. DUTY TO CONTRIBUTE- 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 in some cases and in the same manner as the vendor may be found with respect to the vendee. He shall also be liable for the fruits thereof from the time they should have been delivered without need of demand (Article 1786). a. 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 essence as without the contribution the partnership cannot function (2). Deliver the 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 against eviction for the objects already delivered. Eviction arises whenever by final judgment based on a right prior to the sale or an act imputable to the partner. The partnership is deprived of the things contributed in whole or in part. This however may be suppressed, increased or diminished by the partners. b. The remedy if a partner fails to contribute is bring an action for collection because the defaulting partner is a DEBTOR c. Properties to be contributed are considered properties of the partner until ACTUAL or CONSTRUCTIVE delivery has been had, it being the operative act to convey ownership d. The specific rules that govern the contributions are: (1) If it consists of goods, they must be appraised in the manner prescribed (a) in the articles of partnership (b) by experts chosen at current prices, with charges for the account of the partnership (Article 1787). NOTHING HOWEVER PROHIBITS THE PARTNERS FROM AGREEING 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 complied (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 partner/s so contributing cannot engage in any other business unless he is EXPRESSLY 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 which 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 partnership d.1 DISTINGUISHING BETWEEN CAPITALIST/INDUSTRIAL PARTNERS CP IP Contribution money or industry Property Prohibition as generally can cannot engage without to engaging in engage as long consent business no competition (Article 1808) Profits by agreement revenues a must pro-rata to and equitable share contribution there being no agreement or

f. Unless there is a contrary stipulation, a partner shall contribute an equal share to the capital of the partnership. Consequently, there may be unequal contributions. If however, there is no proof as to the extent of the contribution, the presumption is that they contributed equally (Article 1790) g. A partner may also be obliged to contribute an additional amount, there being no stipulation to the contrary, in case of an imminent loss. If he refuses (it must be deliberate) the partner is obliged to sell his interest to the other partners. The REASON is that his apparent lack of interest should warrant that he leave the partnership. The EXCEPTION is that it does not apply to an industrial partner/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 FIRM AND TO SHARE HIS RECEIPT OF PARTNERSHIP CREDIT ALREADY COLLECTED a. 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 may 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 provisions 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. (Article 1792)

Losses stipulation or exempt as between partners agreement as to but liable to 3rd persons subject profits if NONEto reimbursement (Article 1816) prorata e. Risk of loss is borne as follows: (1) Prior to delivery, it is borne by the partner (2) If what is contributed is the use or fruits of specific or determinate things, it is borne by the partner/s who own them NOT APPLICABLE TO A UNIVERSAL PARTNERSHIP OF ALL PRESENT PROPERTY, AT THE ONSET PROPERTY BELONGS TO THE PARTNERSHIP (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 delivery otherwise use is impossible (4) If thing is contributed to be sold- partnership bears risk as it cannot be sold unless ownership has passed to it (Article 1795)

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 collecting partner is a managing partner IF NOT THERE IS NO BASIS FOR THE SUSPICION THAT THE PARTNER IS ACTING FOR HIS OWN BENEFIT. ALSO, HE DOES NOT OCCUPY OR IS IN A POSITION TO GIVE PREFERENCE.

2. The rules of application are: (a) If the partner gives credit for the firm, it is the firms credit that is extinguished (b) If partner gives receipt 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 partner is more onerous to him. b. A partner receiving in whole or in part of his share of partnership credit, shall, if the other partners have not collected their share and the debtor becomes insolvent, bring to the partnership capital what he may have received even 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 a. Every partner is liable for damages suffered by the partnership through his fault. In so being responsible, it cannot be compensated with the profits and benefits which he may have earned for them with his industry. HOWEVER, courts may equitably lessen his responsibility if through the partners EXTRAORDINARY efforts in other partnership activities, unusual PROFITS have been realized (Article 1794). 1. The damages cannot be offset because a partner has a duty to secure benefits. 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 of each other. 2. The obligation to pay damages also exists in relation to the liability arising 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 a. Every partner must account for any benefit and hold as trustee any profits derived 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 partnership property without consent (Article 1807) 1. The reason for the obligation is that a partner has a fiduciary obligation not to abuse the trust and confidence bestowed upon each other. 2. 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 a. The obligation applies specifically to a capitalist partner who engages in a business similar to or like the business the partnership is engaged in UNLESS (1) It is expressly stipulated that he can engage in business (2) when other partners 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) b. 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 also be ousted from the firm for loss of trust and confidence SPECIFIC RIGHTS OF A PARTNER 1. PROPERTY PARTNER RIGHTS OF A

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

partner cannot assign his rights to specific partnership 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 cannot 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 the partners claim ( or the representatives of a deceased partner) claim any right under homestead or exemption laws under Section 12, Rule 39 of the Rules of Court because it is property of the partnership. It cannot be attached because to 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 (Article 1812). Profit referring to his share of the net income from business, surplus referring to his share of assets after settlement of debts and liabilities. c.1 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 concerned not to withdraw on account of the change of partners OR dissolved, but the mere conveyance does not by itself dissolve the partnership, hence there is a need for action on the part of the partners as such constitutes a change in the relations 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 recognized as the partner with the right to demand accounting and settlement (3) Assignee cannot interfere in management or administration of partnership business or affairs (4) Assignee cannot demand information, accounting or inspection of books c.2 The rights of the assignee are (1) To receive whatever profits the assignor would have obtained. He is not considered an outside creditor who is preferred, so he can have no better right than the assignor partner (2) He can avail of the usual remedies in case of fraud- interfere in management, inspect

books, require information 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 the assignment if he has induced though any of the vices of consent or that he has incapable of giving it. c.3 A partners interest may also be charged (Article 1814). It applies without prejudice to Article 1827 giving preference to partnership creditors. The manner of charging 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 receiver for partners share of the profits or any money due or to fall due to him. The 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 debtor may have made or which circumstances of the case require. IF THE INTEREST IS SO CHARGED IT MAY BE REDEEMED (meaning the charge is extinguished) BEFORE FORECLOSURE ( when subjected to a mortgage), OR IN CASE OF SALE UPON ORDER OF THE COURT, IT MAY BE PURCHASED WITHOUT THEREBY CAUSING DISSOLUTION (partner may become insolvent, which is a cause for dissolution) WITH: (1) with separate 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 has not been charged or sold BUT nothing shall be held to deprive a partner of his right, if any, under exemption laws as regards his interest IT HIS OWN PROPERTY c.4 The DETERMINATION OF PROFIT/LOSS IS AS FOLLOWS: (1) In conformity with the agreement and if only share of the profits have been agreed upon, it will be distributed in the same proportion (2) In the absence of an agreement ,it shall be in proportion to what they may have contributed BUT FOR AN INDUSTRIAL PARTNER (a)

he 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 share 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, except 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. Note that a PARTNER BENEFITED CAN IMPUGN as long as the designation is manifestly equitable. there being no distinction (Articles 1797, 1798). In determining the share 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 PARTNER as stated in Article 1797. d. Right to participate in management is exercised by becoming a managing partner or consenting to the appointment of one or more of the partners as managing partners. d.1 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 partner 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) Subsequent 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 all acts of administration. In case of opposition, he can be ousted if he continues to act (Article 1800). d.2 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 managers may oppose, if there is an opposition majority governs. If there is a tie, it is to be resolved by the partner holding controlling interest as he stands with the most to lose. NOTE not all partners can

oppose, as those who have appointed 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 UNANIMITY IS REQUIRED: (1) neither of the managers may act without the consent of the 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 EXCEPT if there is imminent danger of grave or irreparable injury to the partnership 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). d.3 IF THERE ARE NO APPOINTED MANAGERS OR THE MANNER OF MANAGEMENT IS NOT AGREED UPON : (1) all partners are considered agents of the partnership and any one of them can bind the firm except when opposed. In such case, the provisions of Article 1801 will apply (2) none of the partners may, without the consent of the others, make any important alteration on the immovable property of the partnership even 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. 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) b. An ASSOCIATE just shares in the NET PROFITS as it does not constitute and an assignment of interest 3. INSPECT BOOKS AND RECORDS, REQUIRE INFORMATION a. 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). Reasonable hour refers to any hour during a business day

throughout the year not just any day which the managing partner may arbitrarily set. Partners are obligated to render on demand, true and full information of all things affecting the partnership to any partner or legal representative of a deceased partner or any partner under a legal disability (Article 1806) b.

interest of the partnership business and for risks in the consequence of management (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 NAME UNDER A FIRM

4. RIGHT ACCOUNT

TO

FORMAL

a. A partner has the right to a formal account if (1) He is wrongfully excluded from 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 Article 1807 if a partner derives unauthorized profits (4) Whenever circumstances render 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 WHICH THERE IS ACCESS TO BOOKS ALREADY 5. RIGHT TO PARTNERSHIP DISSOLVE THE

a. Every partnership must operate under a firm name which may or may not include the name of one or more partners. Those not being partners who include their names in the partnership name shall be subject to the liability of a partner. 1. Note the use of the phrase: may or may not include the name of one or more partners indicates that not all partners are required to have their names appear in the firm name if it were otherwise, all should have been utilized. 2. If a person allows his name to be utilized in the firm name but he is not a partner, all liabilities of a partner will be imposed on him. 3. If it is a limited partnership, the LIMITED PARTNERS NAME SHOULD NOT APPEAR (Article 1846) unless he has the same name as a general partner or prior to his 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 PARTNERSHIP. 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 their property, after all partnership assets are exhausted, FOR: (a) contracts entered into in the name of the

a. 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) and 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 responsible for: (a) all amounts that a partner may have disbursed on behalf of the partnership 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 in the

partnership and for its account under its signature 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 Article 1796 those entered into in good faith (Article 1816). 1. THIS LIABILITY REFERS TO THAT INCURRED IN FAVOR OF 3RD PERSONS, hence, an industrial partner is not exempt. 2. A withdrawing partner is not liable for those contracted after his withdrawal. Subsequent to withdrawal, he is not liable as it is presumed that the partnership has taken all liabilities into account before allowing withdrawal. 3. 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 liabilities, but such will not affect third persons. b. Thus, it is possible for a capitalist partner to be exempt from liability. YES, if liability will extend only to the contribution, the provisions of Article 1799 stipulation excluding a partner from profit or less is not violated.

essential or reasonably necessary to the furtherance of partnership business 5. 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 partnership (c) acts are the following EXCEPT WHEN AUTHORIZED BY ALL OR THE BUSINESS 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 debts of the partnership (2) dispose of the goodwill (3) do any act which makes it impossible to carry on the ordinary business of the partnership (4) confess judgment (5) enter into a compromise concerning a partnership claim or liability (6) submit a partnership claim or liability to arbitration (7) renounce a partnership 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: 1. 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 for value without knowledge that the partner so conveying has exceeded his authority TITLE PASSES 2. If property is in partnership name is conveyed by a partner in his own name 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.

4. 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 every act, including the execution in the partnership name of any instrument binds the partnership EXCEPT WHEN: (a) partner so acting has in fact no authority to act for the partnership in the particular matter, and (b) person with whom he deals 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 PARTNERSHIP DOES NOT BIND UNLESS AUTHORIZED BY THE PARTNERS Usual way depends on the nature of the partnership business and if it is

3. If property is in the name of one or more of the partners but not all and the records do not disclose the right of the partnership, the partners named may convey title but it may be recovered if the partners act does not bind as provided by Article 1818 unless the

purchaser or his assignee is a holder for value without knowledge 4. If property is in the name of one or more or all or a third person in trust, 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 partner as laid down in Article 1818. 5. When all partners are named as owners, a conveyance executed by all passes all rights to the property c. In enforcing the liability of the partnership and the partners, note that: 1. An admission or representation made by any partner convening parnership attains within the scope of his authority in accordance with this title is evidence against the partnership (Article 1820). Note that IT MUST CONCERN PARTNERSHIP AFFAIRS and IT MUST BE WITHIN THE SCOPE OF HIS AUTHORITY. 2. (a) Admissions made before dissolution are binding only if the partners has authority to act on the matter (b) Admissions made after dissolution are binding only if necessary to wind up the affairs/business as dissolution terminates all authority to act (c) Admissions made after one ceases to be partner are not binding (d) Previous admission after one ceases to be a partner, if made within scope of authority of the partner and during its existence is binding provided existence if partnership is proven by other evidence. 3. NOTICE (a) to a partner relating to partnership affairs (b) knowledge of a partner acting on a particular matter (he is managing partner or assigned a particular 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 partner, 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 (Article 1821).

d. The partnership is liable to the same extent as the partner acting or omitting to act for loss or injury to any person, not a partner, or any penalty incurred for (1) Wrongful act, or (2) Omission in the ordinary course of business or with the authority of his copartners (Article 1822). This extends to liability for TORTS and INJURIES TO EMPLOYEES. The is NOT LIABLE though for (1) wrongful act or omission which was not done within the scope of the partnership business (2) act or omission is not wrongful (3) although wrongful, partner is not held liable (4) act is committed after the firm is dissolved and was not in connection with the process of winding up e. The partnership is also bound to make good the loss arising from (1) a partner misapplying money or property received from third person while acting within the scope of his apparent authority. There is NO LIABILITY if without authority ( Apparent Authority is that which appears to a third person as the basis for the partner to accept money or property) (2) where the partnership in the course 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) 1. 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 PARTNERSHIP OR AS A PARTNER WITH ONE OR MORE PERSONS NOT PARTNERS, it/they will be liable to any such persons upon whom the representation was made who on the faith of which has given credit to the actual or apparent partnership. If the representation was made or consented to its being made in public manner, there is liability 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 extent 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 obligators of the partnership arising before his admission as though he was a partner at the time they were incurred, except that the liability shall be satisfied out of partnership property only unless there is a contrary stipulation (Article 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 per Article 1840 which provides that the creditors of the old firm are still the creditors of the new firm continuing the business. WHAT IS ENJOYED CREDITORS THE BY PREFERENCE PARTNERSHIP

on the business together. The partnership is not considered terminated, as it continues until all or the winding up of partnership affairs is completed (Article 1829). This is the process of WINDING UP or the settlement of affairs after dissolution. EFFECT ON OBLIGATIONS Those that are validly contracted have to be paid and cannot be avoided. Obligations that are new CANNOT BE CONTRACTED unless it is essential to winding up partnership business. CAUSES OF DISSOLUTION a. Without violation of the agreement of the partners (1) by the termination of the definite term or undertaking specified in the agreement (2) by the express will of the partner who must act in good faith when no particular term or undertaking is specified (dissolution of a partnership at will) Here, good faith must 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) expulsion in good faith in accordance with such power conferred by agreement of the partners b. In contravention of the agreement of the partners where circumstances do not permit a dissolution under any provision of this article, by express will of 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 ( Article 1836) c. 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 under Article 1770, if business is unlawful from the beginning there is nothing to dissolve

Creditors of the partnership are preferred as regards partnership property, ALTHOUGH it is without prejudice to the right of private creditors of each partner to ask for the attachment and public sale of the share with the partner in partnership 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 distinguished from winding up (Article 1828). It designates the point in time when the partners cease to carry

d. When a specific thing, which a partner had promised to contribute perishes before delivery. In any case by the loss, when the partner who contributed it had reserved ownership having just transferred use or enjoyment. BUT, dissolution does not result through loss if it occurs after the partnership has acquired ownership. BUT NO DISSOLUTION OCCURS IF (1) partners agree to substitute (2) thing contributed is generic e Death of a partner means that the partnership continues to liquidation, but a stipulation allowing a substitute is allowable. If the partnership continues, the partnership so continuing the business is to be regarded as a new partnership f. Insolvency of the partner or the partnership. A judicial decree is not necessary as the fact that assets are less than liabilities is sufficient g. results in contract Civil Interdiction as it incapacity to enter into

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 assigned 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. This means that the general agency between partners is automatically terminated. The partners cannot create any new obligation for the partnership and partners are 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 partner is liable to his co-partners for his share of liability as if the partnership 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 death or insolvency, the partner acting had knowledge or notice of the death or insolvency (Article 1833). a. WITH RESPECT TO OTHERS or persons not partners, a partner can bind the partnership (1) In any act appropriate for winding up partnership affairs or completing transactions unfinished at dissolution (2) Any act which would bind the partnership if dissolution had not taken place, PROVIDED, the other party to the transaction (a) had extended credit (previous creditor) to the partnership prior to dissolution and had no knowledge or notice of dissolution (b) though no credit (new creditor) is extended had nevertheless known of the partnership prior to dissolution, and having no knowledge or notice of dissolution, the fact of dissolution not having been advertised in a newspaper of general circulation in the place (each place where the partnership conducts its business if more than 1) at which partnership business is carried out (Article 1834) BUT in both instances, the liability of a partner under the provision shall be satisfied out of partnership

h. By decree of the court in cases where Article 1831 applies upon application by a partner or by one acting in his behalf in the following cases: (1) partner has been declared insane in a judicial proceeding or is shown to be of unsound mind. An action for dissolution at which time is insanity is proven is allowed (2) a partner in anyway becomes incapable of performing his part of the partnership contract. This refers to any inability that will render a partner incapable (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 appropriate manner for the benefit of the partnership or negligent actions. (4) a partenr willfully or persistently commits a breach of the partnership agreement or otherwise conducts himself in matters relating to the partnership business that it is not reasonably practicable to carry on the business of the partnership with him. Examples: fraud or misuse of partnership assets (5) the partnership can only be carried on at a loss (6) other circumstances that will render dissolution equitable. As opposed to prevailing situation, dissolution is preferred (7) on application of the purchaser of a partners interest under Articles 1813 and1814 (a) after

assets alone if such partner prior to dissolution is (1) unknown as a partner to the person with whom the contract is made (2) so far unknown or inactive in partnership affairs that the business reputation of the partnership could not be said to have been in any degree due to his connection with it. (THE OBJECT IS TO PREVENT FRAUD ON OTHER PARTNERS) Example: Known partner with no means to pay will use the others to settle their share of liability.

dissolution and the person partnership continuing the business

or

The individual property of a deceased partner shall be liable for partnership obligations incurred while a partner, but subject to prior payment of his separate debts. RIGHTS OF DISSOLUTION PARTNERS UPON

BUT UNDER THE FOLLOWING, the partnership is not bound when (1) the partnership is 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) where the partner has no authority to wind-up partnership affairs (must be in connection with the process of winding-up) except by a transaction with one who must be connection with (a) extends credit prior to dissolution and had no knowledge or notice of his want of authority (b) had not extended credit prior to dissolution 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 circulation in the place of business LASTLY, nothing in Article 1834 shall affect the liability of any person under Article 1825 if any person who after dissolution represents himself or consents to 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 discharge the liabilities of any partner. The DISCHARGE is effective only upon agreement to such effect between the partner, creditor and the person or partnership continuing the business, if any. The agreement can be one that is orally constituted as it can be inferred from the course of the dealing between the creditor having knowledge of the

1. The partners can participate in the process of winding up (collating assets paying creditors, delivering and distributing profit/surplus) the affairs of the partnership as long as (a) they have not wrongfully dissolved the partnership (b) he is the legal representative of the last surviving partner, not insolvent, or (c) any partner, his legal representative or assignee, upon cause, may obtain 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 of the agreement , a partner or person claiming rights under them and UNLESS OTHERWISE AGREED, shall have the right to have PARTNERSHIP PROPERTY APPLIED TO DISCHARGE 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 (Article 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 with others during the agreed term of the partnership and possess partnership property 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 damages 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 liquidation and payment but subject to payment of damages (b) if the business is continued, he has the right against partners or those claiming rights under them in respect to their interest, to have his interest in the partnership LESS damage ascertained 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 against winding-up partners/surviving partners/persons or partnership continuing the 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 misrepresentation, 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 place of creditors for any payment made by him in respect to partnership liabilities (c) to be indemnified by the person guilty of fraud or misrepresentation against all debts or liabilities of the partnership RULES TO SETTLE ACCOUNTS AFTER DISSOLUTION SUBJECT TO ANY AGREEMENT TO THE CONTRARY Note though that any agreement must give way to the preferred right of partnership creditors EXCEPT when it involves property of deceased partner used to pay liabilities, in which case his separate creditors are preferred. (1) partnership ASSETS are partnership property, contribution of partners necessary to pay liabilities (2) ORDER OF PAYMENT of liabilities partnership creditors, partners other than for capital/profit, partner capital,

then partner profits (3) APPLICATION OF ASSETS shall be partnership properties, followed by contributions 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 prorata (5) an assignee for the benefit of creditors or any person appointed by the court shall have the right to enforce contributions 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 partner is liable for the contribution in item 4 SUBJECT to the condition that the liabilities where incurred while a partner and that his separate debts are paid (Note: Art. 1835) (8) when partnership property and individual properties are in the possession of the court for distribution- partnership property- partnership creditors are preferred, individual property- individual creditors are preferred 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 shall rank as follows: separate creditors, then partnership creditors, then partnership contributions (Article 1839) PREFERENCES OF PARTNERSHIP CREDITORS Note that partnership creditors have the right to have their credits preferred in payment and that creditors do not lose their preferred rights upon dissolution as they are also considered as creditors of the partnership/person continuing the business in the following instances: 1. A new partner is admitted into an existing partnership, or when any partner 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 partners/ one or more third persons, if business is continued without liquidation of the partnership affairs 2. All but one partner retires or assigns (or the representative of the deceased partner assigns) their rights in partnership property to the remaining partner 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 retired partners or the representative of the deceased partner but without assignment 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 partners continue the business under Article 1837, 2nd paragraph either alone or with others and without liquidation of the partnership affairs 6. A partner is expelled and the remaining partners continue the business either 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 creditors 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 consideration promised for such interest or for his right to partnership property. MEANING that is a partner retires/dies, his claim for the payment of his interest cannot defeat the preference of partnership creditors. NOTHING in Article 1840 shall be held to modify any right of creditors to set aside any assignment on the ground of fraud. The use of a person or partnership continuing the business of the PARTNERSHIP NAME or THE NAME of a deceased partner as part thereof, shall NOT BY ITSELF make the individual property of the deceased partner liable for any debts contracted by such person or partnership. This constitutes an exception to Article 1815

as the 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) without settlement of accounts as between him/his estate and the person/partnership continuing the business, the partner or his legal representative shall have the right to (1) to have the value of his interest at the date of dissolution ascertained 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 attributable to the use of his right in the property in lieu of his interest PROVIDED that partnership creditors are nevertheless preferred (Article 1841)

LIMITED PARTNERSHIPS DEFINED Is one formed by two or more persons under the provisions of Article 1844 having as members one or more general partners and one or more limited partners. The limited partners as such shall not be bound by the obligators of the partnership (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 to enable and encourage persons with capital not desiring to engage in a particular business to invest and become partners with those possessed with business skill 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 not appear unless (1) it is also the name of a general partner (2) Prior to the time 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 that he is not a general partner (b) CHARACTER OF THE BUSINESS (c) LOCATION OF THE PRINCIPAL BUSINESS (d) NAME AND RESIDENCE OF EACH MEMBER, GENERAL AND LIMITED PARTNERS BEING RESPECTIVELY DESIGNATED. Note that under Article 1853, a person can be both a general 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 partner and be subject to all restrictions EXCEPT that with respect to his contribution 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 persons, 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 of his contribution (e) TERM FOR WHICH THE PARTNERSHIP IS TO EXIST. There can be no limited partnership 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 liability for a false statement under Article 1847 (f) AMOUNT OF CASH, DESCRIPTION OF AND AGREED VALUE OF THE PROPERTY CONTRIBUTED BY A LIMITED PARTNER. Note the prohibition on industry. If services are contributed, the limited partner is an industrial partner and the value of service that he contributes increases, thus it runs counter to the concept of limited (Article 1845) ( g) additional contributions to be given by limited partners, the time or event at which they will be made (h) the time if agreed, when the contribution of a limited partner will be returned (i) the share of profits or other compensation by way of income which a limited partner will receive by reason of his contribution (j) the right, if given of a limited partner to substitute an assignee

as contributor 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 certificate (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 other limited partners to their contribution, compensation by way of income and the nature of such priority. Under Article 1855, if not contained, the presumption is that they stand on equal footing (m) the right if given, of the remaining general partner to continue the business on the Death,Retirement, Insolvency, Insanity or Civil Interdiction of a general 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 statement may hold a party who knew the statement to be false at (a) the time it is signed (b) subsequently, but within a sufficient time before the statement is relied upon, to enable him to CANCEL or AMEND or to file a Petition for its CANCELLATION/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, but the liability as a General Partner applies to third persons as between them the limited liability stays (3) Substantial compliance in GOOD FAITH gives rise to the formation of a limited partnership but the absence of the following will bar it (a) Certificate is 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) Its articles are not registered (c) The identity of Limited Partners is not disclosed If a limited partnership is formed under the law effective prior to the NCC (Code of Commerce/old Civil Code), it may become a limited partnership under the New 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 was made (b) that the property of the partnership exceeds the amount sufficient to discharge liabilities to persons not claiming as General Partners or Limited Partners by an amount greater than the sum of the contributions of Limited Partners. 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 in consideration of his personal liability for debts without limitation (b) Except with the written consent or ratification of the specific act by all Limited Partners, he cannot perform the following (because they are acts of dominion and cannot 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 partnership (3) confess judgment (4) possess partnerhsip property or assign rights to specific partnership property other than for partnership purpose (5) admit a person as a General Partner (6) admit a Limited Partner unless expressly allowed in 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, and at a reasonable hour, to inspect and copy them (2) have on demand, true and full 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 obligations 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 Article 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 partner with the person or partnership carrying on the business or is bound by their obligations PROVIDED That on ascertaining the mistake, he promptly renounces his interest in the profits of the business or compensation by way of income and creditors are not prejudiced. MEANINGthat 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 1848. 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 renouncing. 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 prescribed 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 return of contributions as per Article 1856 and 1857. WHEN IS A LIMITED PARTNER ENTITLED TO RECEIVE HIS SHARE OF THE PROFITS OR COMPENSATION BY WAY OF INCOME A limited partner is entitled to his share of the profits/compensation by way of income on the date stipulated in the certificate. Said amounts may come from the property of the partnership or that of the general partner. PROVIDED, that after payment, partnership assets are in excess of liabilities except liability to both limited and general partners for their contributions (Article 1856) WHEN ARE CONTRIBUTIONS SUPPOSE TO BE RETURNED The contributions of a limited partner as coming from partnership property or that of a general partner cannot be returned UNLESS (a) all partnership liabilities except liabilities to (contributions of) general or limited partners, have been paid or assets set aside to satisfy them (b) the consent of all members is had unless return has been rightfully

demanded. IT IS RIGHTFULLY DEMANDED: (1) on the dissolution of the partnership (2) when the date stated in the certificate for its return has arrived (3) when 6 months written 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 or reduction. HOW PAID a limited partner, in the absence of a contrary stipulation or the consent 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 and its affairs wound-up when (1) he rightfully but unsuccessfully demands the return 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 otherwise 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 assets (NOTE THAT WHEN HE TRANSACTS BUSINESS, the limited partner is treated as a non-member 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 LIABIITY, if at that time, the assets of the partnership are not sufficient to discharge liabilities to persons not claiming as general or limited partners.HENCE, the receiving of collateral, security, payment or conveyance or release , in violation of the provision is FRAUD on creditors of the partnership (Article 1854). 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 when

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 the right to exercise all rights as a limited partner to settle his estate and such 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 constitute the assignee as a SLP). As a consequence, he has all the rights of a limited 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 and which could not be ascertained from the certificate. BUT, the ASSIGNOR is not released from liability under Articles 1847 (False statements) and 1858, The EFFECTIVITY 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 transactions or to inspect the books. HE HAS RIGHT TO (1) receive his share of profits or compensation by way of income OR the return of contribution, to which the assignor 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 constitute him as a SLP. It is possible that if ASSIGNOR does not desire, the assignee cannot be a SLP (Article 1859). BUT, the constitution of the assignee as a SLP becomes effective only, in both cases 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 follows: (a)due application of a court of competent jurisdiction but exemption laws apply (b) court may then appoint a receiver, make any orders, directions or inquiries. IN THE IMPLEMENTATION OF THE CHARGING ORDER, the (a) the limited partner cannot interpose that prior resort has been had to other remedies as it is not deemed exclusive (b) the interest may be redeemed with the separate property of any general partner but not with partnership property (as it constitutes an untimely return of contribution and gives a limited partner a concession that is inconsistent 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 ACTION AS contributor unless he is a general partner cannot be a proper party in a proceeding 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 been 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 contributed 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 consent of all members, but the waiver or compromise shall not affect creditors who extend 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 whole or in part of his contribution, to the partnership for any sum, not in excess of what he received, with interest, necessary to discharge liabilities to all creditors who extend credit or whose claim arose before such return (Article 1858). This applies to all transactions validly incurred but not considered at the time the return is made DISSOLUTION The grounds/causes for dissolution as provided for by Articles 1830 and 1831 apply. The additional grounds are those provided for under Article 1857 (when

the limited partner rightfully demands for return of contributions but is unsuccessful, 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 business 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 law, except those owing general or limited partners by way of contribution (2) those owned to limited partners in respect to their share of profits and other compensation by way of income on their contribution (3) limited partners contributions (4) general partner other than for capital or profits (5) general partners profits (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 limited partners cease to be such. It is to be amended when: (1)change in name, character of the partnership or contribution of a limited partner (2) a person is 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 business 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 dissolution or return of contribution is fixed (10) the members desire a change in order to accurately represent their agreement (Article 1864). ANY WRITING TO AMEND SHALL (1) conform to Article 1844 and as far as necessary must set forth clearly the change in the agreement/certificate (2) it must be signed and sworn to by all members, and if amendment is to add a partner (he must sign) 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 cancellation/amendment if the person designated refuses to execute the writing. If found meritorious, the court will order the SEC to cause cancellation or amendment 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 INITIATED, a copy of the ORDER of the court must be filed also. The Amended certificate then takes the place of the original certificate. NOTE: that the SEC has discretion to pass upon compliance with Article 1844.