Partnership, Agency and Trusts

Atty. Leilanie Bernadette C. Cabras Article 1834 - When partnership is bound to strangers - Business is for winding up - Completely new business with innocent third parties - Business is to complete unfinished transactions When partnership is NOT bound to strangers - When dissolution was due to the business becoming unlawful - Partner who acted in the transaction has become insolvent - Partner is not authorized to wind up Article 1835 Gen. Rule: Dissolution ordinarily does not discharge existing liability of any partner. Partners liability is discharged through agreement of the following: partner concerned, the other partners and the creditors, Deceased partners estates liable for his share in the partnership obligations but individual creditor/s are preferred Article 1836 Extrajudicial winding-up (a) by the partners who have not wrongfully dissolved the partnership OR (b) by the legal representative of the last surviving partner provided the latter was not insolvent Judicial winding-up petition can be filed by any partner, legal representative or assignee, although the one to wind-up is appointed by the court (must be surviving partner) Article 1838 Rescission or Annulment of Partnership contract on the ground of fraud or misrepresentation Rights of innocent partners: 1. LIEN or RETENTION 2. SUBROGATION 3. INDEMNIFICATION Art. 1839 RULES FOR SETTLING ACCOUNTS (LIQUIDATION) Art. 1839 applies only if there is contrary agreement Assets of the partnership are (1) partnership property including goodwill; and (2) contributions of the partners which are made to pay off partnership liabilities Order of Payment: 1. Creditors who are strangers 2. Partners who are creditors of the partnership 3. Capital given to partners based on shares 4. Distribution of profits

NOTE: If partnership assets are insufficient, partners to contribute more money or property, as enforced by any assignee for the benefit of the creditor; the receiver; any partner or his legal representative (only to the extent of the amount which he has paid in excess of the share of liability. Preference with Respect to Assets - If partnership property, partnership creditors have preference - If properties or assets of individual partners, individual creditors are preferred Preference of Credit IF PARTNER IS INSOLVENT: 1. Individual or separate creditors 2. Partnership creditors That owing to partners as contribution Art. 1840 Old creditors have right to be creditors of new firm/partnership Art. 1841 A retiring/deceased partner is entitled to payment of what may be due him after a liquidation except if there is already a prior settlement. No need for statement of accounts. Art. 1842 RIGHT TO ACCOUNTING accrues at the date of dissolution if no stipulation to the contrary (except as stated in 1807 and 1809)

- Action for accounting can be against winding-up partner/s; surviving partners; person or partnership continuing the business.

LIMITED PARTNERSHIP
Formed by two or more persons 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 obligations of the partnership. (Art. 1843) Art. 1844 Requisites - signing under oath of the required certificate - filing for record of certificate with the SEC - Lack of substantial compliance with Art. 1844 results in the partnership being considered a general partnership Art. 1845 - Industry/services cannot be a contribute. Art. 1846 Name of limited partner cannot be included, if so, he will be liable as a general partner to innocent third parties but without the rights of a general partner. Art. 1847 Person/party who relies on false statement and suffers loss can sue for damages

Art. 1848 Effect of limited partner taking part in control of business: he becomes liable as a general partner. Art. 1849 Additional limited partner/s may be admitted through amendment of certificate. Art. 1850 before a general partner can perform acts of strict dominion under this article, there must be written consent/ratification of ALL limited partners. Art. 1851 rights of LIMITED PARTNER (1) to inspect/copy partnership books (2) Demand information on partnership affairs and formal accounting if JUST and REASONABLE (3) To ask for judicial dissolution (4) To receive share of the partnership profits or income (5) To return of his contribution (6) Art. 1852 A contributor who erroneously believed that he has become a limited partner does not become liable as a general partner provided he promptly renounces his interest/income upon knowing the mistake. (7) Art. 1853 A person may be both a general and a limited partner at the same time as long as stated in the certificate. He has rights and liabilities of a general partner, but as to his contribution, he is considered only to be a limited partner. (8) Art. 1854 limited partner may lend money and transact other business with firm. But he is not a preferred creditor and cannot hold as collateral partnership property. (9) Art. 1855 some limited partners may be given preference, as to return of contributions, compensation and similar matters, over the others but the same must be stated in the certificate. (10) Art. 1856 (profit or compensation BY WAY OF INCOME) vs. Art. 1857 (RETURN OF CONTRIBUTIONS) (11) Art. 1857 Conditions for/Time of return of contributions: NOTE: Even if a limited partner contributed property, he can demand cash in return If conditions are violated, previous creditors can sue but they must allege and prove nonexistence of the conditions LIABILITIES OF A LIMITED PARTNER (Art. 1858) As to the firm, for (1) difference between his actual and agreed contribution; and (2) unpaid contribution which he agreed to make in the future at the time and conditions as stated in the certificate Limited partner is a trustee for the partnership for (1) specific property stated in certificate as contributed by him but which was not contributed or wrongfully returned; and (2) money or other property wrongfully paid or conveyed to him on account of his contribution.

*These liabilities can be waived or compromised but only with consent of all members, and the same shall not affect creditors after filing and before cancellation or amendment of certificate.

*Even after return of contributions, limited partner still liable for discharge of partnership liability to all creditors ART. 1859 Limited partners interest may be assigned but the assignee does not automatically become a substitute partner ART. 1860 CAUSES OF DISSOLUTION OF LIMITED PARTNERSHIP (unless business is continued by remaining general partners as provided in certificate or with consent of all members) 1. Retirement 2. Death 3. Insolvency 4. Insanity 5. Civil Interdiction ART. 1863 LIQUIDATION Preference of credits 1. Creditors, as provided by law except those to limited partners on account of their contributions, and to general partners 2. Those to limited partners as to profits and other compensation/income 3. Those to limited partners as to capital 4. Those to general partners except as to capital and profits 5. Those to general partners as to profits 6. Those to general partners as to capital Art. 1864/1865 cancellation/amendment of certificate