Definition, Characteristics, Nature, & General Overview of Partnerships

• What is partnership?
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. There must be two or more persons who bind themselves to contribute
money, property or industry, and they have the intention to divide the properties among
themselves.
• What are the characteristics of a partnership?
The following are the characteristics of a contract of partnership:
1. Consensual - A partnership is a consensual contract meaning it's perfected by mere
consent;
2. Nominate – It has its own name;
3. Bilateral - two or more persons enter into the agreement and gives rise to reciprocal
rights or obligations between or among the parties;
4. Onerous - Each individual desires to procure benefit through his giving of something;
5. Commutative - The undertaking of each of the parties is considered to be the equivalent
of others;
6. Principal contract - it does not need any other contract for it to exist
7. Preparatory contract - a means to an end no in other words uh people will use the
contract of partnership to realize profits and then divide the profits among themselves
8. Fiduciary - it involves trust and confidence
• How can a person become a partner of the partnership?
Under the principle of delectus personae, no one can become a member of the
partnership without the consent of all the others. The fiduciary nature of the partnership
and the liability of each partner for the acts of the others require that each partner be
granted the right to choose with whom he will be associated with.
• Who can dissolve the partnership?
Under the principle of delectus personae, partners have the power to dissolve the
partnership in good faith.
 • Evidence of partnership.
Best evidence to find out if a partnership exists would be the contract of partnership itself
or the articles of partnership. But the mere fact that those documents were executed is
not a guarantee that the partnership indeed exists. The true test is the existence of the
two elements namely: 1) the two or more persons bind themselves to contribute money
property or industry to a common fund; 2) and there is the intention of dividing the profits
among themselves.
• What are the essential features of a partnership?
The following are the essential features of a partnership:
1. A partnership is a contractual relation so there must be a valid contract
2. Legal capacity of parties to enter into the contract of course each party must be capable
of giving consent. If a party is incapable of giving consent he cannot form or be part of a
partnership.
3. It must involve a mutual contribution of money, property or industry to a common fund.
a. Money of must be legal tender.
b. Object must be lawful.
c. Primary purpose of the partnership must be to obtain profits and to divide the
same amongst themselves.
d. There must be at least one general partner.
They must be present for a partnership to exist.
• When a partnership is created by contractual agreement what is the effect?

The partnership gains a juridical personality separate and distinct from that of each of the
partners. much like in a corporation the partnership is a different entity than each of the
partners which compose it. Since the partnership has a separate personality:
a. It may acquire and possess property;
b. It can incur obligations;
c. It can bring actions; and
d. It can even be sued
• What is a joint venture?
It is an association of persons or companies jointly undertaking some commercial
enterprise where generally they all contribute assets and they share in the risks. In other
words there must be a community of interest in the performance of the subject matter and
there must be a right to direct and govern the policy in connection there with as well as a
duty to share the profits and losses.
• How is a partnership created?
It may be created in any form. It can be expressed or implied. It may be informally created
and its existence may be proven by the conduct or acts of the parties, subject to the
application of the statute of frauds.
• A, B, and C decided to enter into a partnership, but only after one year, is
there a partnership?
It has to be in writing in order to be enforceable because it is covered by the statute of
frauds.
• Can members keep secret the articles of partnership?
These articles of partnership, they must not be kept secret from the members. The
association will have no separate legal personality and as such they will simply be
governed by the laws on co-ownership.
• Can a limited partnership be constituted orally?
No, a limited partnership cannot be constituted orally. If it is, then the liability of the limited
partners becomes the same as those of the general partners.
• What partnership requires a special form?
If the capital of the partnership is less than 3,000 pesos then no special form is required.
It can be oral or in writing. But if if the capital is 3,000 pesos or more in money or in
property then it must appear in a public instrument and it must be recorded with the
Security and Exchange Commission or the SEC.
• What is the purpose of registration with the SEC?
The registration is to set a condition for the issuance of licenses to engage in business or
trade and to give notice to third persons that the part partnership exists and is a legitimate
entity.
• What is the effect of non-compliance with the SEC or the concurrence of the
form?
The partners shall be liable to third persons and not the partnership when they enter into
transactions.
• What if immovable property or real rights are contributed to the partnership?
Then the contract of partnership must be in a public instrument. It should be notarized
and an inventory of the property contributed, the real property contributed has to be
attached to the public instrument.
The requirement of an inventory is necessary for the validity of the contract of partnership.
It shows how much is due from each partner, or how much he should contribute to the
common fund, and how much is due in case of liquidation.
Without the inventory, the description and designation of the property cannot be
registered in the registry of property and it will result in fraud upon those who relied upon
it during a transaction with the partnership and who relied on the security represented by
those immovables.
To affect third persons, when the property is finally transferred to the partnership that
transfer must be registered in the corresponding registry of deeds in the province or city
where the property contributed is located.
• The partners must have proprietary or financial interest in the business.
The definition of partnership itself requires the mutual contribution of money, property, or
industry to the common fund.
• May negotiable instruments like bills of exchange checks or promissory
notes be given?
They may be given but they will only produce the effect of payment or they will be treated
as money only when they have been encashed.
• Can services be a valid contribution to the common fund?
Services can be a valid contribution to the common fund.
• The Object of partnership must be lawful.
The object or the purpose must be lawful it should not be contrary to law, morals, public
policy public order or good customs. Otherwise the partnership will be void and the profits
will be confiscated in favor of the state. The partnership is void without need of a judicial
decree in other words it's void by operation of law.
• Is illegality of the object presumed?
The illegality of the partnership is not presumed. It must be shown that the illegal object
or purpose is the essence of the partnership. When it comes to the object or purpose of
the partnership, the partners can choose any business they want as long as it is not illegal.
• Division of profits in a partnership.
There must be an intention to divide the profits and this division does not necessarily have
to be equal in other words the parties or the partners can agree that a person will be
getting a bigger share or a smaller share.
 • What is the effect if there is a stipulation in the partnership that excludes a
party from acquiring profits?
Only the stipulation is void, the partnership existence is not affected and it will still subsist.
• Rules in the creation of partnership.
1. General Rule: Persons who are not partners as to each other are not partners as to
third persons.
Exceptions:
Partnership by estoppel. When a person is estopped from claiming otherwise. Example,
you have Kratos and Boy. They are not partners so if they are not partners in a partnership
then when they transact with Goku, Goku will not treat them as partners because persons
who are not partners as to themselves will not be partners as to third persons.
But when Kratos, with the consent of Boy, transacts with Goku and tells Goku that he is
partners with Boy, then now Goku has every right to treat Kratos and Boy as having a
partnership relation. They will now be treated as partners because of the principle of
estoppel by virtue of Boy’s consent to Kratos statement that they are partners, and they
are precluded from claiming that they are not partners.
2. Partners are co-owners. Co-ownership by itself does not establish a partnership. The
mere fact that people co-own something does not mean that they are partners. However
take, if the co-owned properties or the income derived from those properties are used as
a common fund okay if they're used as a common fund with the intent to produce profit
then it will be treated as an unregistered partnership.
Kratos, Boy and Goku co-owned properties that generate income. If they use the money
they receive and make it into a common fund and they decide to earn profits from it then
they will be treated as an unregistered partnership for the purposes of taxation.
3. The sharing of gross returns alone does not indicate that a partnership exists. Because
the partners will only share profits only after they have satisfied all the liabilities of the
partnership.
4. If a partner receives a share in the profit of the relation then the receipt of the share of
the profits is prima facie evidence that he is a partner in the business. Take note it's only
prima facie evidence and it may be proven otherwise. This will not apply if the profits that
person received were received either in payment of a debt as payment of wages as rent
no rent no by a landlord or as annuity to a widow or representative of a deceased partner
as interest on a loan or as consideration for the sale of goodwill or business or other
property.
• What are the tests to determine whether a partnership exists or not?
The following are the elements of a partnership:
1. There is an agreement to contribute money, property or industry to a common fund;
and
2. There is an intent of the contracting parties to divide the profits amongst themselves
• Who has the burden of proof to prove the existence of partnership?
Burden to prove the existence of the partnership is on the shoulders of the party who is
claiming the affirmative or is claiming that the partnership exists.
• What are the incidents of partnership?
The following are the incidents of a partnership:
1. The partners share in the profits and losses of the business;
2. The partners have equal rights in the management and the conduct of the partnership
business;
3. Every partner is an agent of the partnership. He is entitled to bind the other partners
by his acts for the purpose of their business.
4. All partners are personally liable for the debts of the partnership except that limited
partners are not bound beyond the amount of their investment
5. A fiduciary relationship exists between or among the partners
6. The partnership is not terminated right away but it continues until the winding up of its
affairs

• Are partnerships of law firms subject to tax?

take note that in case the partnership is a general professional partnership such as a law
firm for instance no the general professional partnership is not subject to tax but the
partners composing the partnership will of course be subject to income tax on their
respective income.
Classification of Partnerships & Kinds of Partners

• What are universal partnerships?

Universal partnerships these are partnerships which expressly or impliedly
encompass either all the present properties of the partners or just all of the profits.
• Who are prohibited to enter into a universal partnership?
The persons who are prohibited from giving each other any donation or advantage
they cannot enter into a universal partnership because to allow them to form a
universal partnership would be permitting them to indirectly do what the law expressly
prohibits. In other words, the law prohibits these people from giving donations or
advantage to each other.
If a universal partnership is entered into by those persons who are prohibited then the
partnership will be void.
They are the following:
1. Legally married spouses cannot enter into a universal partnership but they can
enter into a particular partnership or a limited partnership such as for the exercise of
a profession.
2. Common law spouses or those who are spouses without the benefit of marriage
3. Persons who are guilty of adultery or concubinage. A prior conviction is not
necessary. It simply suffices that they are guilty of adultery or concubinage.
4. A public officer or the wife of the public officer or the descendants or ascendants
of that public officer, they are prohibited from entering into a partnership by reason of
the office of that public officer.
• What are the two kinds of universal partnerships?
The following are the two kinds of universal partnerships:
1. Universal partnership of all present property – in this kind of partnership the
partners contribute all of the property which actually belong to them into a common
fund with the intention of dividing the same among themselves, as well as a ll of the
profits which they may acquire through those properties which are contributed.
2. Universal partnership of profits – It is simply a partnership that comprises all that
the partners may acquire by their industry or work during the existence of the
partnership as well as the usufruct of movable or immovable property which each of
the partners may possess or own at the time they enter into the contract of
partnership.
Unlike the partnership of all present property, movable or immovable property of e ach
of the partners continue to pertain to each of them. What the partners may gain over
the property if any is merely usufruct or use of those properties.
The partners retain the ownership over their present and future property, what passes
to the partnership is merely the profits or income and the usufruct or use of the
property they own.
On dissolution of the partnership the property will now be returned to the respective
partners who own them.
• May future properties be contributed in the partnership fund?
Future properties or those to be acquired subsequent to the creation of the
partnership, cannot be included in the stipulation or in the creation of this universal
partnership. Because to create a partnership the things which are contributed must
be determinate.
• To whom do the profits acquired by the industry of the partners belong?
The profits which the partners may acquire by their industry or work and the use over
the properties during the existence of the partnership belong to the partnership as a
matter of right in order to exclude them from the partnership, a stipulation is
necessary.
• What about the fruits which are subsequently acquired?
They do not belong to the partnership but they may be included by stipulation.
• What if there are several persons who want to create a universal
partnership however in the articles they fail to specify whether it's a
universal partnership of all present property or a universal partnership of
profits?
The law will consider that kind of partnership to be a universal partnership of profits
because it imposes less obligations on the partners since they preserve the
ownership, their ownership over their separate property.
• What is a particular partnership?
It is one which has, for its object determinate things their use or fruits or a specific
undertaking or the exercise of a profession or vocation.
Example should be a partnership that is formed for the purpose of acquiring a piece
of land in order to resell it at a profit or for the common enjoyment for its use and the
benefit of the partners or a partnership may be created to carry out a specific
enterprise like to construct a building.
A partnership may also be created to practice a certain profession, i n which case it
will be known as a professional partnership so a law or accountancy firm is a particular
partnership specifically a general professional partnership.
• Difference of ordinary partnership with particular partnership?
An ordinary partnership will be taxed on its income and each individual partner will
also be taxed on their respective annual individual incomes not but in case of a
general professional partnership, only the partners will be taxed and the general
professional partnership will not be subject to tax on its income as such partnership
• Classification of partnership according to liability of partners.
1. General Partnership - all the partners are liable pro rata, proportionately beyond
the partnership assets for all the contracts which may have been entered into on
behalf of the partnership or in the partnership's name.
Here, the general partners are liable even with their properties for the partnership
liabilities.
2. Limited Partnership – There is one or more general partners whose liability is
unlimited, and it also have one or more limited partners whose liability is only for the
partnership debt to the extent of their stipulated contributions, stipulated in the articles
of partnership.
The name of partnership itself must contain the word limited.
• Classification according to duration.
1. Partnership at will - a partnership at will has no fixed term or there is no particular
undertaking specified for the life of the partnership. The birth and the life of the
partnership depends on the mutual desire and consent of the partners.
Any one of them may at his sole pleasure dissolve the partnership at his will but
provided it should be done in good faith.
If the partnership is dissolved in bad faith, it will not prevent the solution but the
partner who dissolves the firm in bad faith will be liable for damages.
2. Partnership with a fixed term or for a particular undertaking - entered into for a
definite period, fixed by the express agreement or necessarily resulting from the
nature of the particular undertaking.
If the particular undertaking is to build a certain building of course that will not go on
forever and when the building is finished then the partnership will end.
The fixed term or the particular undertaking should be specified in the articles of the
partnership.
If the business of the partnership is continued after the term has expired or after the
undertaking has been completed, then the partnership will now be considered to be
a partnership at will.
• Classification of partnership according to the legality of existence.
1. Partnership - a partnership that has complied with all the legal requirements
2. De facto partnership - has not complied with all of the legal requirements to create
a partnership
• Classification as to how the partnership represents itself to others or
third persons.
1. Ordinary or real partnership – normal and ordinary kind of partnership
2. Ostensible or partnership by estoppel –
A person who is not a partner may become or may be treated as a partner because
of this concept of estoppel and if he is treated as a partner this is for the purpose to
hold him liable to innocent third persons. This is for the protection of third persons.
This person will be treated as a partner when by his words or his conduct he directly
represents himself to anyone as a partner in an existing or non-existing partnership.
Or when the person indirectly represents himself by consenting to another person
who represents himself as a partner in an existing or non-existing partnership
Estoppel is a bar which precludes a person from denying or asserting anything
contrary to that which has been established as the truth, by his own deed, his acts or
by his representation, whether it is expressed or implied.
An admission or representation is rendered conclusive upon the person who made it
and he cannot deny or disprove it against the person who has relied on such
representation.
If all the actual partners in the existing partnership consented to the representation
or they allowed that person to say that he is a partner, even though he is not then it
will now become a partnership liability. The partnership will be liable for the
transaction entered into.
okay now what if uh that case not the case earlier that's a partnership by estoppel no
there's no question now what if there is no existing partnership and all of those are
represented as partners consented to the representation or not all of the partners in
an existing partnership consented to the representation okay what will happen now
then only those who made or consented to the representation will be liable and what's
the nature of their liability they will only be jointly liable only those who have consented
or have made representations will be liable and their liability will be joined finally what
if there is no existing partnership and not all but only some of those represented as
partners consented to the representation or none of the partners in an existing
partnership consented to the representation what's the liability it's not the liability of
the partnership okay the person who will definitely be liable is the person making the
false representation who misrepresented himself to be a partner and if there is anyone
else even if he is just one person who consented to that misrepresentation he will
also be liable the partnership and those who did not consent cannot be held liable
okay so we'll just don't worry you know we'll discuss this more when we get to the
topic no i'll be giving more concrete examples okay so i will we'll talk about the
obligations of the partners with regard to third persons and i will be talking about this
uh partnership by escobel moore just take note that in a partnership by a stopel a true
partnership is not created huh okay it's not created between the alleged partners in
order to create a true partnership a contract is still necessary okay it is a contractual
creation it is just that in a partnership by estoppel the law will consider the persons
who represented themselves to be partners as part of a partnership only for the
purpose of holding them liable for obligations entered into through their
representations no in order to protect the rights of third persons who may have given
credit to the partnership because they relied on those false representations okay now
finally you know the last classification of partnerships they would be asked to purpose
now this is very quick no in commercial or trading partnerships then these are
partnerships made for the transaction of business and uh we have professional or
non-trading partnerships these are made for the practice of a profession okay so now
we can go to the kinds of partners first we have the partners as to nature or of their
contribution okay we have first the capitalist partner and he is the partner who
contributes either money or property okay and the law says that he cannot engage in
any business which is of the same nature as the business of the partnership why
because there is a conflict of interest okay if we have the capital partner we also have
the industrial partner and he is one who only contributes his industry or personal
service and this industrial partner cannot engage in any kind of business for himself
unless the partnership expressly permits him to do so okay why because he has to
devote his full time to the partnership okay he is not liable for the losses of the
partnership but please take note while he is not liable for the losses of the partnership
a third person can still hold that industrial partner liable he can ask the industrial
partner to pay and the industrial partner's remedy is simply to go after his co-partners
his capitalist partners to recover what he may have paid because again the industrial
partner will not be liable for his losses okay don't worry again we'll discuss this more
in the coming episodes okay now the next kind of partners would be partners
according to their liability and first we have the general partner simply put his liability
the liability of a general partner to third persons extends even up to his own separate
property while we have the limited partner whose liability to third persons is only
limited to his capital contribution okay the next kind of partner would be a partner
according to management we have the managing partner who as the name suggests
and manages the business or the affairs of the partnership we also have the silent
partner who does not take an active part in the business whether or not he is known
to be a partner and finally we have the liquidating liquidating partner who takes charge
of the winding up of the partnership upon its dissolution next we have the kinds of
partners according to their exposure to public perception okay we have the ostensible
or apparent partner and he is the partner who takes an active part in the business
and he is known to the public to be a partner in the busines s okay we also have the
secret or dormant partner who takes an active who may take an active part in the
business in case of a secret partner but he is not known by the public to be a partner
either because he's not held out to be a partner or he's not represented as a partner
by the other co-partners okay and in case of the dormant partner he does not take an
active part in the business and he is not known as or is not held out to be a partner
of the partnership the next kind of partners would be as to their membership okay a
real partner is simply one who is really con who is really a contributing member of the
existing partnership okay but we also have a partner by estoppel or a quasi partner
and we discuss this in passing in the partnership by estoppel a partner by estoppel is
not really a partner but he has represented or he is or he is being represented to be
a partner by the other partners or by people who are not actually partners no so uh
just think of it easily as someone who is pretending to be a partner or people have
pretended that he is a partner okay and uh the partner by estoppel is held liable as a
as if he were a partner to protect the innocent third persons who may suffer injury
okay the next kind of partners would be those according to the continuation of the
business affairs after the solution okay first we have the continuing partner and he is
simply one as the name implies who continues the partnership business after the
partnership has been dissolved by reason of admission of a new partner by retirement
death or expulsion of one of the existing partners okay and if we have the continuing
we also have the discontinuing partner and he is simply one who does not participate
in the partnership business after the solution okay the next kind of partners would be
classified according to the value of their contribution the there is the majority partner
whose contribution represents the majority of the controlling interest while the nominal
partner his contribution repre represents only the minorit y interest okay the next kind
of partner would be classified according to the nature of membership first we have
the original partner who is a member of the partnership from the time of the
commencement of the partnership as a juridical person and we also have the
incoming partner who becomes a member of the partnership subsequent or after the
establishment of the firm or the partnership okay or he can be one who is about to be
admitted into the partnership with the consent of all of the members okay the ne xt
kind of partners would be asked to the state of survivorship no a surviving partner
remains alive after one of the partners has died or he is one who continues to be in
the partnership after it's the dissolution by reason of death of one of the partners okay
and of course we have the deceased partner who died while he was a member of the
partnership okay next kind of uh partners would be uh as to the effect of expulsion no
of course an expelled partner has been expelled by the one of the other partner or
the partners for a valid cause while an expelling partner is the one who caused the
expulsion of a partner likewise for a valid cause and finally we have what is known as
a sub partner okay a sub partner is one who is not a member of the partnership okay
he simply contracts with one of the partners with reference to that partner's share in
the profits of the partnership okay he is not a member of the partnership he just has
an arrangement with one of those partners to divide whatever profits that that part ner
may get from his partnership in other words it's a partnership within a partnership
okay he does not the sub partner does not acquire the rights of the partner and he is
not liable for the debts of the partnership okay in other words a uh there is a partner
in a partnership okay uh this is the partnership and these are the partners now this
this is the sub partner he has an arrangement with this guy to divide whatever profits
he may receive from this partnership okay so that's it for uh the classification of
partnerships as well as the different kinds of partners okay and uh next video we'll be
talking about the obligations of the partners no so i hope you may have picked up a
thing or two and i hope to see you see see you next time guys okay see you soon bye
Obligations of the Partners Among Themselves

When we talk about the obligations of the partners amongst themselves no in relation
to each other we first have to to begin with the nature of a partnership with a fixed
term or a particular undertaking and a partnership at will okay so let's just review it
for a bit no so a

• How a partnership begins?

Partnership begins from the moment of the execution of the contract. Even if the
contributions of the partners to the partnership have not yet been made the form of
the partnership already exists.

However of course the partners may stipulate that the partnership will begin to exist
from some other date for the commencement of the partnership relation.

• Are the lifetime of partnerships unlimited?

A partnership may have an unlimited duration. There is no time limit set by the law
unlike in a corporation under the old corporation law. But the parties may stipulate on
a specific term.

When a partnership in fixed term or for a particular undertaking is finished, but is

continued without an express agreement having been made, then the rights and
duties of the partners will remain the same as of termination. The partnership will be
dissolved but if continued, then and implied agreement to create another partnership
is formed.

• What are the relationships created after a partnership is formed?

When a partnership is created there are several relations which are created:

1. Relation among the partners themselves;

2. Relation of the partnership with the partners;
3. Relation of the partnership with third persons

• What does relationship among partners mean?

Talks about the obligation of each partner to each other. The foremost obligation is
the obligation to observe good faith or the fiduciary duties to co-partners.

• What are the obligations of the partners among themselves?

The following are the obligations of partners among the other partners:
1. The obligation with respect to contribution of property;
2. The obligation with respect to contribution of money which is converted by a partner
to personal use
3. The obligation not to engage in other business for himself
4. The obligation of the partner is to contribute capital and if necessary additional
capital
5. The obligation of the managing partner who collects a debt
6. The obligation of a partner who receives his share in the partnership credit
7. The obligation of a partner for damages to the partnership otherwise known as the
duty of diligence
8. The obligation to render information
9. The obligation to account for any benefit and hold as trustee any personal profits
or property

• Obligation with respect to contribution of property.

The contribution of what has been promised. The parties in a partnership obligate
themselves contribute money property or industry to a common fund with the intention
of dividing the profits amongst themselves.

• What is the remedy for failure to contribute?

The following are the remedies:

1. The remedy is not recession but specific performance with damages.

2. To warrant the property in case of eviction
3. To deliver the fruits of the property from the time that they should have been
delivered without need of a demand

• What happens when a partner fails to contribute?

Failure to contribute makes the partner a debtor to the partnership even in the
absence of a demand. Demand is not necessary to put the partner in default.

When the contribution is in the form of goods the amount of the goods must be
determined by the proper appraisal of its value at the time of contribution.

• Why do we have to appraise?

Appraisal is necessary to determine how much has been contributed.

• How appraisal is made?

To determine the partner's share, the manner of appraisal can be agreed upon in the
contract. In the absence of stipulation, after appraisal the partnership bears the risk
of loss and enjoys the benefits of subsequent change in value. In case of immovables
the appraisal will be made in the inventory. Under this same obligation comes the
obligation to preserve the property with the diligence of a good father of a family.

• Obligation when there is delay in the delivery of property.

There is an obligation to indemnify for any damages caused by the retention of the
property or delay in its contribution even if no injury exists.

• What if the thing is specific and determinate but not fungible?

The risk of loss in this case is borne by the partner. Because he remains the owner
of the things. We follow the principle of resperit domino, the owner bears the loss.

• What if the fruits or the use of the thing contributed is lost after delivery?

Then the partner still bears the loss. Because he's still the owner of the thing. they
remember what was contributed was only the fruits or the use of the thing.

• What if the thing is specific and determinate and the ownership and the
thing has already been delivered to the partnership?

Then the partnership bears the loss because respirit domino, owner bears the loss.
Since ownership has been transferred by delivery to the partnership, the partnership
will bear the loss.

• What if the thing is a fungible thing?

The partnership will bear the loss since the use is impossible without the thing being
consumed or impaired.

• In case of things which are contributed to the partnership to be sold?

The partnership bears the risk of loss because there was an intention to make the
partnership the owner of those things.

• What about things which are brought and appraised in the inventory?

The partnership will bear the loss because there is an implied sale it is implied through
the intention to contribute to the partnership the price of the things contributed with
an appraisal in the inventory.

• Obligation with respect to contribution of money converted by a partner

to personal use.
It is the duty of a partner to contribute on the due date the amount which he promised
to give. The liability of the partner to contribute that money arises from the
commencement of the partnership, unless otherwise stipulated.

It is also his duty to reimburse any amount which the partner may have taken from
the partnership coffers and converted to his own use. The partner will be liable for
that amount and the liability begins from the time that he converted that amount to his
own use.

• What is the right of partnership in this case?

The partnership is entitled to demand only the amount converted to the interest of the
partner and the damages but the partnership cannot avail of the profits derived by the
partner from the use of the converted funds.

It also includes the duty to pay the agreed or legal rate of interest in case of failure to
pay the amount that the partner promised to contribute in due time.

Finally there is also the duty to indemnify the partnership for damages which he
caused to the partnership, due to the delay in giving the contribution.

Guilty partner is already in default and he becomes a debtor for the interest and
damages from the time that he should have complied with his obligation.

• Is demand necessary?

No demand is not necessary to place him in default. Because the interest and
damages accrue by operation of law.

The double responsibility for interest and damages is because every partner is
responsible to the partnership for damages suffered by the partnership through the
fault of that partner.

• Obligation not to engage in other business for himself.

Rules for industrial partners:

An industrial partner contributes his services or his industry or his work to the
partnership. He has to devote his time to the business of the partnership as
such the industrial partner cannot engage in any business whatsoever for
himself unless the partnership expressly permits him to do so.

Any business at all is prohibited because he has to devote his time and
attention to the performance of his industry.
 Remedies of the other partners whether they be capital or industrial partners
would be that those partners who have suffered injury can claim the benefits
which the industrial partner may have received.

Rules for capitalist partners:

Capitalist partner is prohibited from engaging in an operation of a business

which is of the same or similar kind. But partner may be allowed if there is a
stipulation to the contrary.

The test is simply if there will be unfair competition. Because the partner
occupies a fiduciary position, one that is imbued with trust and confidence. This
imposes duties of utmost good faith therefore the partner who violates these
rules can be ousted not from the firm on the ground of loss of trust or
confidence, which in turn will lead to the dissolution of the firm.

which is the obligation to contribute capital and when necessary additional

capital okay first no the contribution to the partnership uh the contribution to
the partnership capital rather no it depends on the stipulation of the parties
what they may have agreed upon and of course the parties can agree that a
will give a higher percentage than b which is higher than c etc no and in the
absence of of these stipulation the presumption is that the contribution to
capital will be in equal shares okay now take note that not only holds for
capitalist partners the industrial partner cannot be required to contribute capital
unless there is a stipulation to that effect okay now let's talk about a dditional
capital okay so uh the rule is a partner is not bound to contribute additional
capital except in case of imminent loss to the business okay and uh there is no
agreement to the contrary okay imminent loss and there is no agreement to the
contrary in which case no capitalist partners have an obligation obligation take
nota to contribute an additional share to save the venture okay what if the
capitalist partner refuses then the law says he must sell his share or his interest
to the other partners okay so in order for this rule to apply know that of course
there must be an imminent loss to the business okay next is that of course
majority of the capitalist partners are of the opinion that that an additional
contribution will be able to save the business okay then what happens next the
capital there is a capitalist partner who deliberately refuses to contribute it has
to be deliberate without a valid reason and it should not be a valid cause like
financial difficulty huh okay and uh finally you know there has to be no
agreement that even in the case of imminent laws the the partners will not be
uh obliged to contribute okay now also in this regard please remember that the
industrialist part the industrial partner you know uh he is accepted from this
rule he is not bound to give additional capital why because they're already
giving their entire industry okay all their time for work is already given to the
partnership okay now let's move on to the next obligation the obligation of the
managing partner who collects a debt no now this scenario contemplates a
debtor who has a debt to the managing partner in his personal capacity and
also has a debt to the partnership okay so where a person the debtor is
separately indebted to the partnership and to the managing partner at the same
time any sum received from that debtor should be applied okay to the two
credits no to the partnership and to uh the managing partner in proportion to
their amounts okay even though the managing partner gives a reset receipt for
his credit only okay now uh the only time that i can be applied for uh payment
in full no or at least the debt in full no is where the managing partner receives
it entirely for the partnership not for himself but take note priority is for the
partnership okay in which case the whole sum shall be applied to the
partnership credit only just in this rule just think always this stay key una
partnership the partnership takes priority over the personal affairs of the
managing partner okay this is under 1792 okay the only instance when it may
when the debtor may choose to uh extinguish the liab his liability to the
managing partner the only instance no is the debtor is given the right to apply
payment of credit to that managing partner only if that debt is more onerous t o
the debtor than the debt owing to the partnership it will be the debtor who has
the choice not the managing partner because the duty of the managing partner
is to put the interest of the partnership before his own okay so uh take note
also that the rule that i was just talking about only applies if the partner who is
collecting the amount from the debtor is a managing partner this rule will not
apply to any other normal partner okay and the purpose of course of this rule
is to protect the interest of the partnership from being subordinated to the
interests the personal interests of the managing partner because as i said
earlier the managing partner has to put the interest of the partnership before
his own okay so in order for this rule to apply there must be at least two debts
one to the partnership and one to the managing partner and both debts of
course must be demanded so in this case the managing partner who collects
it should actually be the managing partner he is authorized to manage the firm
and he actually manages the partnership okay now let's go to the sixth uh
obligation okay which is the obligation of the partner who receives his share in
the partnership credit okay in this case in case of a partner who receives his
share in the partnership credit he shall be obliged if in case the debtor becomes
insulted no he the partner will be obliged to bring to the partnership capital what
he has received even though he may have given a receipt only for his share
okay he has to give it to the partnership again because of the fiduciary duties
interesting partnership okay always the partnership first this rule is found in
1793 okay now this the reason behind this rule is that when a death or no
becomes insolvent then the debt in favor of the partnership becomes a bad
death no so it's a loss which must be borne by all the partners so one partner
cannot benefit to the detriment of the others okay so in order for this rule to
apply you know there must have been at least one partner who has received
whether in whole or in part no his share of a partnership credit okay and uh
also the other partners they should not have been able to collect their share as
of yet and then the debtor of the partnership becomes insolvent in that case
the partner who has collected the debt from the debtor or even part of that debt
should now give it to the partnership capital okay because if there is a loss all
the partners should bear it equally okay take note also that this rule only applies
before the solution meaning your it can only apply during the time that the
partnership capital still exists okay because upon the solution and return to
each partner of what they may have contributed then the community of interest
disappears okay so the collecting partner no longer has to bring his share or
what he has received to the partnership capital anymore because the
community of interest is already gone okay now let's go to the seventh
obligation of the partners amongst themselves which is the obligation of a
partner for damages caused to the partnership otherwise known as the duty of
diligence under article 1794 of the civil code every partner is responsible to the
partnership for damages suffered by the partnership through the fault of the
partner now in case that partner cannot compensate the partnership with the
profits and benefits which he may have earned for the partnership by his
industry okay he cannot do that no again every partner is responsible to the
partnership for damages suffered by it through his fault okay and he cannot
say no no i'm not liable for damages i'll just pay you my uh what i received your
profits and benefits i'll just pay pay you that no he cannot believe himself okay
the law expressly says that he cannot compensate the partnership with the
profits and benefits which me he may have earned for the partnership by his
industry okay the courts however you know may mitigate this no he may uh the
courts may equitably lessen his responsibility okay but the condition for
mitigation is that the parties and the partners extraordinary efforts in other
activities of the partnership resulted in unusual uh profits no extra profits okay
not in the normal course of business okay now uh how will we know uh how
much damages should be paid or uh answered to by the partner we will only
know that after uh during liquidation or even after liquidation okay so let's go
now to uh the eighth obligation of the partners amongst themselves it would be
the duty to render information and this is found in article 1806 okay and it simply
says that the partners shall render upon demand a true and full they shall
render uh upon demand no a true and full information of all things affecting the
partnership and they should give that to any partner or the legal representative
representative of any deceased partner of any or or of any partner under legal
disability they simply put no you the each partner has a duty to give information
which affects the partnership no uh legal and compliance matters about
transactions entered into they have to give that information either to the part to
their co-partners directly or to the legal representatives okay and the final
obligation no would be the obligation of a partner to account for any benefit
and hold us a trustee any unauthorized personal profits or property okay and
this is found in article 1807 this article says that every partner must account to
the partnership for any benefit and hold as trustee no account and hold a
strategy for the partnership any profits derived by him without the consent of
the other partners from any transaction connected with the formation conduct
or liquidation of the partnership or from any use by him of its property okay as
long as the partner receives something no this is how it is simply put no if the
 partner receives something which should properly pertain to the partnership he
holds that thing or money as a trustee with an obligation to give it to the
partnership after okay so here in this case the partner cannot use or apply to
his own benefit in any partnership assets or the results of the knowledge or
information which he has gained as a partner and he cannot use those to the
detriment of the partnership again he cannot put his own interests ahead of the
partnership and any uh benefit which should accrue to the partnership should
be for the partnership he should not benefit from that alone okay so uh from
this case is accepted the situation where the taking of the thing or asset or
money is done with the consent of course of all the partners remember no
partnership is easy each partner is an agent of the other so of course you
should be doing things that will help your other partners remember it's a
fiduciary relationship paid trust and confidence do not put yourself ahead of the
interests of the partnership itself or your co-partners so for example let's say
the partnership has a real property which has been mortgaged and then
foreclosed there is a single partner that takes the initiative to redeem that
property does he become the owner of that property because he has redeemed
it no okay that partner holds that redeemed property as a trustee okay he holds
it in trust for his co-partners subject to his right of course to demand
contribution for the amount which he may have spent to redeem that property
okay so the fiduciary duty of the partners prohibits him from acquiring title or
interest which may be adverse to the partnership itself or to his co-partners
now this duty to account continues until the partnership is terminated
specifically the completion of winding up as is the case with the other duties no
once the partnership is terminated then those duties terminate us well okay
now since there is a duty of the partner to hold the profits as a trustee of course
the partnership has a claim to specific property even if that partner
subsequently becomes insolvent okay now uh in case this duty to account is
breached okay then of course it is a ground to seek judicial dissolution of the
partnership under article 1831. okay so let's just uh recap again all the
obligations of the partners amongst themselves no or the inter say no first the
obligation with respect to contribution contribution of property second
obligations with respect to contribution of money and money converted to
personal use third the obligation not to engage in other business for himself
fourth the obligation to contribute capital and additional capital when necessary
okay next fifth no obligation of the managing partner who collects a debt six
the obligation of a partner who receives his share in the partnership credit okay
seventh obligation of a partner for damages to the partnership or the duty of
diligence okay eighth the duty to render information and finally the ninth the
obligation to account for any benefit and hold the same as trustee in favor of
the partnership okay so that's it for the obligations of the partners amongst
themselves or obligations of the partners enter say okay i hope you may have
picked up a thing or two and i hope to see you next time guys see you soon
bye

Rights of Partners
hi guys and welcome to another episode of attorneys of vlogger love for the everyday
layman today we continue with our series on partnerships and today we'll be talking about
the relationship of the partnership to the partners as well as the rights of the partners
themselves so if you like my videos and you want to see more please hit the subscribe
button also please remember that this is only for educational purposes and it's not a
substitute for proper legal advice or for studying and understanding the law a like on this
video and all my other videos would also be highly appreciated okay now let's begin now
as i mentioned in the previous video no the contract of partnership creates relations
between among the partners uh between the partnership and the partners now and that
is our focus today you know so one of the relations created by the contract of partnership
partnership is the one that results between the partners now the individual partners and
the partnership itself okay as a result the partnership has certain responsibilities or duties
to the partners which are as follows first the partnership should refund amounts which are
disbursed by the partner in behalf of the partnership okay add to this no the corresponding
interest which must be paid from the time the expenses are made no so uh these refer to
a loans or advances made by the partner on behalf of the partnership other than capital
okay the second would be to answer know the partnership answers for the obligation
obligations rather no which the partner may have contracted in good faith in the interest
of the partnership business and also the partnership has to answer for risks in
consequence of management provided of course that the partner is not at fault and that
he acted within the scope of his authority okay now we can go to the rights of a partner
let's uh breeze through all of them first before i discuss them one by one first of course
under 1810 we have the property rights of the partner and under these property rights we
have the right in specific partnership property we also have the interest in the partnership
or the equity rights and the right to participate in management okay the second right that
a partner has would be the right to reimbursement for amounts advanced to the
partnership as well as indemnification for risks in consequence of management the
another right would be the right to associate with another person in his share otherwise
known as the contract of sub-partnership the fourth right would be the right of access and
inspection of partnership books the fifth right would be a right to a true and full information
okay of all things affecting the partnership next we have the right to a formal account of
partnership affairs under certain circumstances and we also have the right to have the
partnership dissolved under certain conditions okay and additionally let's just add the right
to use a firm or partnership name okay now let's begin with our discussion we begin with
the property rights of a partner and in this regard take note that property is different from
the capital which is contributed no the property or the assets is variable you know the
value may change as the market value likewise changes no and the property when we
talk about property it can include goodwill or it can even include the capital itself the capital
however will always be constant its value is always constant because it is fixed in the
articles of partnership or in the contract of partnership itself and it may consist of money
property or industry so generally when we say property that's bigger it includes the capital
okay under this umbrella of the property rights of a partner as i mentioned earlier we have
three rights no first right in specific partnership property rights to the interest in the
partnership or the equity rights and the right to participate in management when we talk
about the rights in specific partnership property this contemplates of course tangible
property okay and this tangible property this belongs to the partnership remember the
partnership has a separate juridical personality separate and distinct from the partners
this means that the partners have no actual interest in the partnership property until after
the partnership itself is dissolved okay take note that under uh article 1811 a partner is
considered a co-owner with his co-partners over specific partnership property as a result
of this co-ownership there are certain incidents first we have the right of possession in
other words each partner has an equal right with his co-partners to possess specific
partnership property for partnership purposes he has no right to possess that property for
any other purpose without the consent of his partners and if a partner uses that property
for his own profit then he must account to his whole partners for the said profit no second
incident would be that a partner cannot assign his interest in any specific partnership
property i emphasize that because later on when we talk about interest that is assignable
take note first now that the partner cannot assign his interest in any specific partnership
property why because the individual partners have no specific interest in the specific
partnership property which belongs of course to the partnership okay and it is impossible
to determine the extent of a partner's beneficial interest in that property until after
liquidation this also serves the in the purpose no of preserving the interest in the property
after liquidation it protects the rights of the partners and partnership creditors to have the
partnership assets applied to the firm's liabilities or debts and this will prevent interference
by outsiders in partnership affairs okay take note however all of the partners may
collectively know all of them may collectively make an assignment of their entire interest
in any specific partnership property it has to be all of them okay third incident of this co-
ownership is that the specific partnership property is not subject to attachment or
execution against an individual partner again because the part the property does not
belong to the partner it belongs to the partnership okay however no a claim if the claim is
brought against a partnership then that property may now be attached or executed upon
because the claim is against the partnership and the partner owns that property okay
another incident of this co-ownership is that the specific partnership property is not subject
to legal support why because again the partner does not own the property it belongs to
the partnership it is only the partners interest in the partnership that may be subject to
legal support no and finally the last incident would be the partners interest is not a debt
jew from the partnership no in there's no credit or debt or relationship so while creditors
of a single individual partner may go after his interest those creditors cannot go after
specific partnership property again because there is a separate personality what belongs
to the partnership does not necessarily does not necessarily belong to any of the
individual partners no they only have a beneficial interest in the property owned by that
partnership okay now let's go to uh the interest of a partner in the partnership or the equity
rights now the interest of a partner in the partnership refers to a partner's share in the
profits meaning the excess of returns over expenditures in a transaction or series of
transactions or i end rather end the partner share in the profits and the surplus and the
surplus simply refers to the assets of the partnership after its liabilities are paid and the
rights of the partners among themselves are adjusted okay now uh again just to uh make
sure the partner's interest in the partnership would refer to his share in the profits and
surplus no without mentioning any specific property after all debts and liabilities to outside
creditors have been satisfied and their equity is adjusted no it is it is the interest of the
partner after the solution to receive any debts due to him by by way of advances salary
or interest if any his capital contribution and after that his proper share of the remaining
profits if there are any so since the partner's interest in the partnership is his personal
property a partner no an individual partner may assign his whole interest in the partnership
and this will not necessarily result in this solution okay and the assignee know that the
person who receives the interest of the partner no he does not become a partner and he
cannot interfere in the management or in our administration of the partnership he cannot
require information and accounting he cannot inspect partnership books however that
assignee you know he has certain rights he has the right to receive in accordance with
his contract the prophets which the assigning partner would have otherwise been entitled
to he can also avail himself of the usual remedies provided by law in the event of fraud in
management further an assignee has the right to receive his assigners interest in case of
the solution as well as to require an account of the partnership affairs in case the
partnership is dissolved okay the account will cover the period from the date only of the
last account agreed to by all of the parties now uh distinguishing this from the previous
discussion while a partner's right in a specific property is not subject to execution on a
claim against him as an individual a creditor may subject a partner's interest in the
partnership to attachment no when we talk about this what i mean is the share in the
surplus after the firm debts are paid and equities to the partners are adjusted no that is
what the creditor can attach and not a specific property like a car a house etc and how is
this attachment done this is done through what is called a charging order take note also
that while the creditors may ask for attachment and public sale of the share of a partner
it is the creditors of the partnership itself that are preferred over the creditors of each
individual partner when it comes to partnership property the final property right of partner
would be the right to participate in management and i'll talk about that in the next video
okay don't worry it'll be in the next video now let's go on to the second right of the of a
partner no which is the right to reimbursement for amounts advanced to the partnership
and the right to be indemnified for risks in consequence of management under article
1796 except when otherwise stipulated every partner is an agent of the partnership for
the purpose of its business so this means that the partnership must refund amounts which
are disbursed by the partner on behalf of the partnership okay this includes advances for
partnership debts which are due and payable plus interest from the time of demand in
case of loans made to the partnership which are not capital take note they should not be
capital so uh the partnership must answer for the obligation contracted by its partner
which is done in good faith okay as long as it's done on behalf of the partnership the
partner can be is entitled to rather know is entitled to receive reimbursement or
indemnification and the partnership must answer for risk in consequence of its
management let's now go to the third right the third right no of a partner would be the right
to associate with with another person in his share this is otherwise known as a contract
of sub-partnership and the governing rule is article 1804 okay and a contract of
subpartnership is one form between a member of a partnership let's say goku gohan
vegeta are members of a partnership no and then vegeta is a partner as i said no trunks
will agree with vegeta okay the trunks will be the sub partner of vegeta but trunks will not
be a part of this partnership he just has an agreement with vegeta okay so uh it's one
form between a member of a partnership and a third person for the division of profits
owing to the member of the partnership from the partnership enterprise okay so it's like a
partnership within a partnership it is separate and distinct from the main or principal
partnership okay the partnership between talks and vegeta is separate from the
partnership of goku gohan and vegeta the part the some partners are partners among
themselves okay but the sub-partner himself is not a member of the main partnership so
therefore he does not acquire the rights of a partner and he is not liable for partnership
debts in order for trunks the sub-partner to become a member of the main partnership the
original contract of partnership should be modified okay in other words all the other
partners must agree that trunks can now join okay if they do not agree then it's just a
contract of some partnership between vegeta and trunks okay that is based on the
principle of the lectures personae know that the partners have the right to choose who
they will be associated with now while the consent is necessary in order for trunks to join
the partnership consent of the others is not necessary for trunks to become a mere sub-
partner okay vegeta or trunks does not need the consent of gohan and goku for them to
have a sub-partnership relation okay now let's go to the next right of a partner this is the
right of access and to inspect the partnership box now take note now i mentioned in the
previous video that there is an obligation on the part of the partner no or in this case the
duty of the managing partner or the partner who is assigned no or voted upon no they
have the duty to keep a true and correct uh records in the books okay they have to show
accurately the firm's accounts and these books should be open to inspection at all times
no of course within reasonable hours on business days now this implies that there is a if
there is a duty to keep books faithfully then there is the right to inspect the books okay
and that right stems from the from uh from the fact no that a partner is a co-ownership of
partnership properties which of course includes the books no now just take note that when
it comes to this right to access and inspect that right is not absolute and a partner may be
restrained from using the information gathered no in case he uses it for a purpose that is
other than or in conflict with the partnership purpose okay moreover now it is presumed
that the partners have knowledge of the contents of the books and that the books are the
books accurately state the actual state of accounts now let's move on to the next right
now the right to true and full information of all things affecting the partnership this is under
article 1806 no and this was already mentioned in the previous video that each partner
has a duty to render on demand it through render on demand true and full information of
all things affecting the partnership and again by implication each partner has a right to
demand and receive information provided of course it must be used only for partnership
purposes and not in conflict with the partnership business take note that the duty to render
information or the right to demand the same does not arise with regard to matters that are
in the books since they already have the right to inspect the books just check the books
okay so there's no more need to demand the information anymore okay now on to the
next right no the right to a formal account of partnership affairs under certain
circumstances this is under article 1809 now generally a partner is not entitled to a formal
account of partnership affairs during the existence of a partnership why because aside
from being inconvenient and possibly a waste of time the right to know such affairs are
already protected by 1805 on the inspection of books and 1806 on the right to demand
information affecting the partnership okay so this formal account is usually proper only as
a necessary incident of the solution so when a partner asks for the solution he also asks
usually for a formal account of the partnership affairs okay however no 1809 gives us
situations no when a formal account may be demanded namely first if a partner is
wrongfully excluded from the partnership business or from possession of its property by
his co-partners wrongfully excluded second if the right exists under the terms of any
agreement entered into by the partners third if a partner has derived profits from any
transaction connected with the formation conduct or liquidation of the partnership or from
any use by him of property and fourth whenever other circumstances render it just and
reasonable for instance if a partner has been assigned abroad for a long period of time in
connection with the partnership business okay so as long as the partnership exists any
of the partners may demand an accounting of the partnership business under the
circumstances i mentioned okay the next right of a partner is the right to have the
partnership dissolved under certain uh conditions now and i will just uh give i will just
discuss this in a future episode on the solution please just wait for that okay and finally i
just want to discuss the right of the partners to use a firm name no the partnership name
so the law tells us that every partnership shall operate under a firm name which may or
may not include the name of one or more partners for uh law offices we have let's say de
la cruz santos and uh villanueva like that whatever you know so uh or in case of a limited
partnership the word limited must be uh included no like uh velasco and uh reyes limited
okay now uh the rule is persons who not being partners no persons who are not partners
who include their name in the firm name they do not uh acquire the rights of a partner
okay because it's contra a partnership is contractual it has to be agreed upon and the
electors personae affords the partners the right to choose who to be associated with so
the mere fact that you put your name in the partnership name does not make you a partner
but take note okay if they include their name in the partnership name they shall be subject
to the liability of a partner in so far as third persons are concerned okay and so far as third
parties third persons who have no notice of the actual relation are concerned these are
who are known as partners by estoppel now take note that liability is different from losses
now when we talk about liability that's what you uh that's your uh relation to the debtor
when we talk about losses that's the relation of partners among themselves okay uh i'll
talk about that more in the next video now the partners what name can the partners use
the partners can use any firm name that they want okay but of course they cannot use a
misleading name or a name that is identical or deceptively confusing or similar to any
existing partnership or corporation or any other name which is already protected by law
and what about the case where a partner dies no and the partnership is continued can
you still use his name before you could not no okay because uh the partnership should
be dissolved no but uh if you will notice that there are some partnerships in the philippines
today where they use names of people who are already dead and how can this uh take
place no this has been allowed no provided that the firm or the partnership indicates in all
its communications its letters its emails whatever that that part that specific partner is
already deceased and this is usually done by putting a cross uh beside the name no so
you will know that he's there okay you just have to inform the public that said partner is
already deceased okay so one more time let's just go through the rights of a uh partner
we have the property rights of the partner under 1810 which include the rights to specific
partnership property the interest in the partnership or the equity rights and the right to
participate in the management the other rights would be the right to reimbursement for
amounts advanced to the partnership and to be indemnified for risks and consequence
of the management the third is the right to associate with another person in his share
otherwise known as a contract of sub-partnership fourth the right of access and inspection
of partnership books fifth the right to true and full information of all things affecting the
partnership uh sixth the right to a formal account of the partnership affairs under certain
circumstances seventh the right to have the partnership dissolved under certain
conditions and finally the right to use a firm or partnership name okay so i hope you may
have picked up a thing or two and uh i hope to see you next time guys okay see you soon
bye English (auto-generated)
Management of the Partnership & Distribution of Profits and Losses

hi guys and welcome to another episode of attorneys of vlogger love for the everyday
layman today we continue with our series on partnerships and we'll be talking about
the management of the partnership as well as the distribution of profits and losses so
if you like my videos and you want to see more please hit the subscribe button also
please remember that this is only for educational purposes and it's not a substitute
for proper legal advice or for studying and understanding the law hitting the like butt on
on this video and any of my other videos will also be highly appreciated okay now if
you remember from my previous video i said that a partner has certain rights coming
from the contract of partnership this includes the interest in the partnership as well as
the right to participate in management okay when we talk about the interest in the
partnership we are talking about the distribution of profits and losses okay but first
let's begin with a discussion on the right to participate in management now this right
to participate in management springs from the proposition that every partner is an
agent of the partnership okay for the purpose of partnership business therefore the
act of every partner including the execution of any instrument in the partnership name
for carrying on the partnership business in the usual way it binds the partnership okay
therefore when it comes to management these are the following rules no first when
the manner of managing the partnership has not been agreed upon okay there is no
agreement whether in the contract of partnership or in the articles okay if there are
the manner of management has not been agreed upon then all of the partners shall
be considered as agents of the partnership and therefore what any of them may do
alone shall bind the partnership okay because they are agents now if there is an
agreement on management then it depends i'll be giving you the rules now first rule
when only one partner is appointed as a managing partner then that managing partner
may execute all acts of administration despite the opposition of his partners except
of course if that managing partner acts in bad faith okay now take note there are two
sub-scenarios under this scenario if the managing partner was appointed manager in
the articles no meaning in the contract of partnership then his power is irrevocable
without just or lawful cost he cannot be removed unless there is just or lawful cause
now to remove that managing partner for just cause then the vote of the partners
representing the controlling interest is necessary they still have to vote okay if there
are one or there are more than one uh partners who have the controlling interest of
course if the partner was the controlling interest is only one then his vote will be the
the deciding vote okay now what if there is no just cause but uh the partners want to
remove him can he be removed okay it is submitted that yes he can be removed but
the vote must be unanimous why can he be removed because it is submitted that this
represents a change in the will of the parties so all of them have to give their consent
to modifying the contract of partnership to remove him as a managing partner okay
now so second uh scenario no what if the power to manage no or the appointment of
that partner as a managing partner was granted after the creation of the partnership
meaning it's not written in the contract of partnership or in the articles okay then being
the managing partner he may be removed no or the power granted to him may be
revoked by the partners having controlling interest or such composition as may be
prescribed no in the articles or in the by-laws at any time okay for any cause okay
you just follow the bylaws the articles or upon agreement by the controlling other
parties having controlling interest okay why because take note his appointment as a
managing partner took place after the creation of the partnership therefore it is a mere
delegation of power you are given the power to manage after we have created a
partnership okay and it is not a condition for the for the contract of partnership unlike
in the previous sub scenario okay so there is no more need to modify the contract of
partnership okay now as to compensation generally the managing partner is not
entitled to compensation however of course the parties may expressly grant it to him
in writing or it may be implied from circumstances such as when he has gone above
and beyond his duties or etc okay now the second rule in case there is agreement is
what if two or more persons or partners are entrusted with management and without
specification of their respective duties or without stipulation that one of them shall not
act without the consent of all the others no this situation now you take note the
partners of course can uh can uh agree that if they appoint two uh partners one of
them is in charge of only these acts and uh one of them is in charge of only these
acts it's just managing partner of these acts and managing for that okay but this
situation contemplates a scenario where it was not said what is what are the
responsibilities of each okay or there is uh no stipulation here that one of them shall
not act without consent of all of the others okay so that's the situation here if that's
the situation then each one of those managing partners may separately execute all
acts of administration but if any of them of those managing partners should oppose
the acts of the others then how do we resolve that conflict it will be resolved by
majority decision okay they will have to vote now what if the deci sion results in a tie
okay then if it's a tie it will be decided by the partners owning the controlling interest
and what if in that case there is still a deadlock no in the tie okay you still cannot
resolve it then those who vote against the contract will prevail as it is considered
entered into without authority okay now third rule okay if it is stipulated that none of
the managing partners shall act without the consent of the others meaning in order to
perform an act you need to get the consent of everybody then every one of the
partners must consent for the acts to be valid and further they cannot allege that one
of them cannot vote because he is absent or disabled the only time they can say no
let's proceed with this because uh this partner is absent or disabled the only time they
can do that is if there is immediate danger of a grave or irreparable injury to the
partnership okay now this requirement of previous approval by everyone applies only
to the execution of formal contracts okay it does not apply to routine transactions no
which uh you can do date uh on a day-to-day basis without the consent of others
finally please just take note that when it comes to immovable property we also have
a rule none of the parties may without the consent of the others make any important
alteration no important alteration meaning useful expenses not necessary expenses
because necessary expenses can still be done none of the parties partners without
the consent of the others may make any important alteration in the immov able
property of the partnership even if it may be a useful to the partnership okay because
the immovable property goes into at the very heart of the partnership relation and the
rights of everyone will be affected okay now if the refusal of consent by uh one or
more of the other partners is manifestly prejudicial to the interest of the partnership
then the remedy is they simply go to the court and ask for the court to resolve the
issue okay now those rules that i just mentioned okay they are not imposed upon and
they are therefore they do not affect a third person okay they do not apply to a third
person those are rules that affect the relation among the partners okay it doesn't
affect a third person who does not need to verify who is the managing partner o r
whether the consent of other partners have have been obtained as the case may be
you know a third person who transacts with one of the partners doesn't have to ask
oh are you the managing partner oh did you get one cent of everyone he does not
have to do that he has the right to presume that the partner with whom he contracts
has in the ordinary course of business he has the consent of his co-partners in other
words okay these rules govern only the relationship among the partners themselves
and a breach of any of these rules results only in a cause of action against the partner
who is at fault okay these rules will not invalidate transactions or contracts entered
into with third persons in good faith okay now let's give some examples of how to
apply the rules so let's say goku gohan vegeta and trunks these four people organized
a general partnership with goku and vegeta as industrial partners okay now uh gohan
contributes 30 000 pesos and trunks contributes 10 000 pesos okay coco and vegeta
were also both appointed managing partners without specification of their uh
respective duties so now they both appointed frieza as an accountant okay one year
later vegeta wanted to dismiss frieza but goku opposed he said i know i don't want to
dismiss frieza okay so how do you resolve that conflict okay now as i mentioned
earlier the rule is decided by the majority of the managing partners in this case the
managing partners are goku and vegeta but there are only two so there's no majority
there they're opposing each other okay so there is a tie so the rule now says that it
will be decided by the vote of the partner who has the controlling interest which is
gohan why why because he has the biggest share thirty thousand okay so his vote
will now govern as to whether or not frieza will stay okay now in that same example
okay the partnership of uh goku gohan vegeta and trunks no no one is appointed as
managing partner okay so frieza was also hired as an accountant when vegeta wants
to remove him and goku opposes okay again no one is appointed this time as
managing partner how will the conflict be resolved then the decision of the majority
will prevail if it's three versus one then of course the majority will prevail in case of a
tie again controlling interest gohan will decide okay now we can move on to the next
topic the next topic i want to talk about is the right of the partners to share in the
profits as well as their obligation to share in the law says okay the rules when it comes
to distribution of profits would first depend upon the agree the existence of an
agreement if there is an agreement then the profits will be distributed according to
the agreement of the parties even without regard to their respective contributions the
determination of the share may even be uh entrusted to a third person okay however
this is subject to the rule no to the prohibition of prohibition against pactum leonina in
other words again leonina lionshare okay uh in other words a stipulation which
excludes one or more partners from any share in the profits or losses is void no so
let's say uh these four are partners they make a stipulation that gohan the capitalist
partner is excluded from sharing in the losses that's not allowed okay and take note
only the stipulation is void it the existence of such stipulation will simply be considered
as not written it will not affect the existence of the partnership the partnership will still
go on okay now that's the rule in case there is an agreement no you just follow the
agreement if the agreement says 30 for goku uh 10 for trunks then uh 30 each for
vegeta and gohan then you follow that even if their contribution is different okay but
what if there is no agreement no these are the rules first the industrial partner will
receive a share as may be just and equitable okay will be just an equitable of course
in comparison to the in relation to the work or output he has given okay and this share
of the industrial partner must be paid before the capitalist partners are paid okay the
industrial partner must first receive his share before the capitalist partners can divide
the profits now what if the industrial partner has also contributed capital then he shall
also in addition he shall also receive a share in the profits in proportion to his capital
so he can stand to receive the biggest chair possibly you know okay now when it
comes to the capitalist partner his share of course shall be in proportion to his capital
contribution okay if he contribute to contributed 20 then he gets 20 of the profits okay
so that's it for distribution of the profits what about sharing of the losses of course if
there is an agreement follow the agreement okay if you answer for 10 of the loss then
that's what you answer for but if there is no agreement okay as to the sharing of
losses then you follow if there is an agreement as to the profits you follow that okay
there's no agreement as to the losses and there is an agreement as to sharing on the
profits you follow the sharing of the profits if it says that goku will receive 20 profit but
it's quiet about the losses then he shares in 20 of the losses okay now if there's
nothing absolutely no sharing an agreement as to losses no agreement as to profits
then uh what will be the distribution of the losses then losses will be distributed in
proportion to their capital contribution okay if goku gave 20 then he shares in the
losses at twenty percent finally where a designation of the share of profits or losses
is made by a third person okay if you remember i just mentioned that the
determination of the partner's share or a lot in profits or losses can be given to a third
person or frieza can determine what what their sharing will be when that third person
makes a determination that decision of the third person is binding the only time it can
be challenged or impugned is if the decision of the third person is manifestly
inequitable okay that's the only time it can be challenged but a partner cannot
complain of or cannot challenge the decision of the third person if he has begun
executing it or if he fails to impugn it within three months from gaining knowledge of
the decision of the third person okay now take note again i just want to emphasize
that generally a stipulation excluding a partner from any share in the profits or losses
is void and only the stipulation is void the partnership should subsists and the profits
or losses shall be apportioned as if there was no stipulation that's part of just take
note that even though that is the rule remember there is also another rule when it
comes to an industrial partner the industrial partner shall not be liable for losses and
take note liability is different from loss okay liability refers to your responsibility toward
a third person a creditor okay you have to pay that creditor losses refers to the
responsibility among the partners okay liability to third person losses among them
okay why do i mention this okay because let's say vegeta is the industrial partner he
is not he's accepted from sharing the losses okay if the partnership suffers a loss he
does not have to answer for the laws but can frieza hold him liable yes okay liability
is different and vegeta must pay okay now what is the remedy of vegeta he can go
after his co-partners for payment of what he may have paid to frieza because vegeta
is not supposed to share in the losses okay now let's just give some examples okay
so let's say uh goku gohan and vegeta form a general partnership and goku gives 20
000 gohan gives 40 000 and vegeta 60 000 20 40 60 okay and now there is no
agreement on the division of profits or apportionment of losses okay so after a few
years the assets of their partnership dwindled to 30 000 only okay okay and all of
them agreed to stop the business however the partnership has a debt to frieza frieza
is the creditor for how much 120 000 it's bigger than 30k so how can frieza get paid
now the debt to frieza is a partnership obligation so the rule is all of the partners shall
be liable pro rata or proportionately with all their properties after all the partnership
assets have been exhausted so in other words frieza can get the remaining 30 000
of the partnership and compel goku gohan and vegeta to pay the balance of 90 000
in proportion of their contributions remember 20 40 60 right so the ratio is 2 is to 4 is
to 6 or 1 is to 2 is to 3 okay so for how much is goku liable for goku is liable for 1 6 of
90 000 or fifteen thousand okay gohan is liable for two six okay or one third no of
ninety thousand which is thirty thousand and vegeta is liable for three sixths or one
half of ninety thousand which is forty five thousand from their own personal properties
okay now uh another example in the same i know goku gohan and vegeta form a
partnership goku 40 gohan 40 vegeta 20 okay goku and gohan supply the entire
capital okay so their capitalist partners and go and vegeta is the managing partner
okay he'll be manager for five years without compensation so what is he he's also an
industrial partner because he did not give anything okay take note even if i said earlier
vegeta 20 he did not give anything so what is he he is a he's an industrial partner
okay so let's say their partnership now becomes bankrupt okay can vegeta be
removed as a manager okay first no goku or gohan alone cannot remove him it has
to be the vote of the partners representing controlling controlling interest to revoke
vegeta's power and can vegeta be held personally liable for the deaths of the
partnership which are not satisfied with the assets of the partnership okay like in the
example earlier uh where they owe 120 000 to frieza but the partnership only has 30
000 can vegeta's industrial partner be held liable yes okay he can be held liable by
frieza okay take note i'll explain it first no the liability first of vegeta is join okay
because all partners are jointly liable okay and while it is true that uh the law prohibits
spoke to leonina or a stipulation excluding uh vegeta from losses no that will not apply
to him because he is an industrial partner he will not share in the law says okay the
20 stipulation on vegeta's share only applies to the profits he may receive because
under the law an industrial industrial partner will not be liable for losses okay but again
remember i mentioned earlier when we talk about losses that's that goes into the
relationship of the partners amongst themselves which is different from liability to a
third person so again frieza can hold vegeta liable okay can hold vegeta liable and
then vegeta will just have to claim reimbursement from goku or and or gohan for what
they may owe the partnership okay because again an industrial partner does not
share in the losses okay so uh that's it for uh management of the partnership as well
as the distribution of profits and losses i hope you may have picked up a thing or two
and i hope to see you next time guys see you soon bye
Obligations of the Partnership & the Partners to Third Persons
No transcription in youtube.
Dissolution, Winding Up, & Termination
hi guys and welcome to another episode of attorney general vlogger law for the
everyday layman today we'll talk about the topic of partnership specifically the
solution winding up and termination okay so if you like my videos and you want to see
more please hit the subscribe button also please remember that this is only for
educational purposes and it's not a substitute for proper legal advice or for studying
and understanding the law okay now we go into the final stages of the partnership life
namely the solution winding up and termination so what is the solution okay it is simply
the change in the relation of the partners caused by any partner ceasing or stopping
to be associated with the carrying on off the business okay it is that point in time when
the partners cease to carry on the business together okay the significance of the
solution is that no new partnership business should be undertaken okay but affairs
should be liquidated and distribution of the partnership interest should be made to
those who are entitled there too okay in other words the partnership continues until
winding up is completed now what is winding up winding up is the process of settling
the business or the partnership affairs after the solution okay which is different also
from termination okay termination is that point in time when all the partnership affairs
are completely wound up and finally settled in other words termination marks the end
of the partnership life okay so those three stages are different not this the solution
winding up and termination okay because article 20 1828 of the civil code states that
the solution must be distinguished from winding up okay in 1829 states that on the
solution the partnership is not terminated but continues until the winding up of the
partnership affairs is completed okay the solution does not automatically result in the
termination of the legal personality of the partnership nor the relations of the partners
among themselves okay these partners they will remain as co-partners until the
partnership is terminated and when again when is it terminated when the winding up
process or distribution and settlement of affairs has been completed okay now the
partnership although it has been dissolved it continues to exist for winding up to take
place and after winding up is completed the partnership is terminated but take note
that even if a partnership is dissolved the same partners may form a new partnership
to continue the business under the same terms okay now let's go into the causes of
the solution the solution may be extrajudicial or judicial okay when we talk about
extrajudicial dissolution the enumeration provided for by law is exclusive and any
other ground is not a legal cause for the solution okay and these grounds provided
for by law will also result in the automatic dissolution of the partnership now let's go
through the grounds one by one okay under extrajudicial dissolution no this can take
place either without violation of the partners agreement meaning the contract of
partnership no in which case it is voluntary or it can take place in contravention of the
agreement okay it can be again it can be either without violating their partnership
contract or it can be in violation or in contravention of the partnership contract now
when it comes to the causes of the solution without violating or contravening the
partner's agreement we have the several grounds first of course we have termination
of the definite term or completion of the particular undertaking which is specified in
the agreement of course if that happens then there is no violation of the partnership
contract second in case of a partnership at will no if it is dissolved by express will of
any partner in good faith okay if there is no definite term or particular undertaking take
note however that if a partner lives in bad faith the partnership will still be dissolved
but the partner who dissolves the firm may be liable for damages because of his bad
faith okay next ground by express will of all the partners who have not assigned their
interests or allowed them to be charged for separate debts either before or after the
termination of the term or undertaking now for this to work the agreement not to
dissolve must be unanimous and not just a majority okay but the consent of those
who have assigned their interests or had their interests charged is not necessary to
affect the solution okay because their interest is no longer with them anymore no
meaning the interest in partnership no the remaining partners in that case may simply
dissolve the firm okay the next ground now without violating the partners agreement
would be by expulsion no when a partner is expelled not by expulsion of any partner
from the business bonafide no in accordance with such a power conferred by the
agreement between the partners in other words the agreement must have granted
the power to expel to the partners because if a partner is expelled in bad faith there
can also be an eventual dissolution because there will be apparent lack of confidence
but there may be liability for damages in case of bad faith in such expulsion okay now
if the partners continue the partnership after the term or undertaking has arrived or
has been completed respectively then it will become a partnership as well i discussed
this already in my previous episodes no so that's it for the process without violating
their agreement now let's move on to the causes for the solution in contravention of
the agreement between the partners or the partnership contract okay so uh in case
of a contravention of the agreement between the partners where the circumstances
do not permit a dissolution under any other progressions in this article no then it may
be the partnership may be dissolved by the express will of any partner at any time
and this is available even if the partnership was entered into for a definite term or
undertaking okay and this can be done at any time and for any cause without the
consent of the other partners because a partner cannot be compelled to stay in the
partnership however take note okay if a partner unjustly or without justifiable cause
this helps the firm he may be liable for damages take note may okay depends on the
circumstances okay so those causes that i have previously mentioned are voluntary
causes for the solution because they come out of the impetus or the will or the desire
of a partner now we'll go into the involuntary causes for the solution because they are
by operation of law okay first ground here would be 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 remember a partnership is a contract so the essential
elements have to be there and one of those is the object if you remember in oblicon
the object must not be contrary to law morals etc okay so if the ob ject of the
partnership was unlawful from the beginning the partnership never acquired juridical
personality or if it was lawful from the beginning then it becomes subsequently
unlawful then the partnership will be dissolved by operation of law okay next ground
when a specific thing which a partner had promised to contribute to the partnership
perishes before delivery for you to remember this just remember respect domino
which we discussed in sales no in respiratomino it just means no that the owner bears
the loss no the thing uh the thing perishes with the owner no whoever owns the thing
there's the laws in case of uh thing no that is lost no so in any case by the loss of the
thing when the partner who contributed it reserved the ownership thereof has only
transferred to the partnership the use or enjoyment of the same so under this ground
either the specific thing which has been uh delivered to the partnership and the
partnership is now the owner it's lost no that's a one ground for the solution or in case
the partner contributed only the use or enjoyment of that thing but the ownership is
still with the partner then that will also be a cost for the the solution why because what
he has contributed no whether it be the thing itself or the use or enjoyment it' s no
longer there no the partnership can no longer take advantage of it okay take note the
partnership will not be dissolved by the loss of the thing if it occurs after the
partnership has acquired the ownership of the thing okay the partnership is dissolv ed
because the partner has not or is deemed to have not given his contribution it's
because it will be deemed as the partner did not give what he was supposed to as
agreed upon in the partnership contract now if the loss takes place after the delivery
of the thing to the partnership it is not dissolved no the partnership is not dissolved
and the partnership will simply bear the loss okay if if it is only the use or enjoyment
of the thing that is contributed then the partner owner of the thing bears the loss and
he is bound to make good his contribution okay next ground would be by the death of
any partner no if a partner dies then the firm is dissolved but the other partners can
still continue we'll know about that later on next ground would be by the insolv ency of
any partner or even of the partnership why in the case of insolvency of a single partner
his credit is impaired and it is impossible for him to pay for partnership liabilities in
case the partnership assets have been exhausted remember that partner s are liable
pro rata and subsidiarily for partnership debts no or liabilities no in case the
partnership assets are insufficient so if he's insolvent he will no longer be able to
answer for those liabilities when he is called upon to do so in the case of insolvency
of the partnership that is a ground because it results in the inability to continue the
business which of course if you cannot continue the business that has the effect of
the solution okay next ground by the civil interdiction of any partner wh y civil
interdiction because one who has no capacity to manage his own property should not
be allowed to manage partnership property okay now we can go on to judicial
dissolution okay now in judicial dissolution this may be ordered after hearing upon
application someone has to apply you know and who can apply either a partner or the
purchaser of a purchaser or assignee of a partners interest okay so when a partner
files an application or the application is filed on behalf of a partner the court may order
the solution in the following cases first if a partner has been declared insane in any
judicial proceeding or is shown to be of unsound mind take note it has to be the
insanity has to be previously declared judicially or if not okay the insanity must be
duly proven and such anxiety must materially affect the capacity of the partner to
perform his contractual duties next okay a partner becomes in any other way
incapable of performing his part of the partnership contract okay this should be of
such nature that there is very little to no chance that he will recover okay or he will
recover his ability to perform his part no next a partner has been guilty of such conduct
as tends to affect prejudicially the carrying on of the business okay next a partner
willfully or persistently commits a breach of the partnership agreement or otherwise
so conducts himself in matters relating to the partnership business that it is not
reasonably practicable to carry on the business in partnership with him why because
the purpose of the partnership is defeated or it is materially affected or it's obstructed
okay next ground the business of the partnership can only be carried on at a loss
because the purpose of a partnership take note again from the very start is to earn
profit okay and this purpose to earn profit is defeated that's why this is a ground and
finally a judicial decree may also be obtained for other circumstances which render a
dissolution equitable some examples would be abandonment of the business fraud in
management refusal without just costs to render an accounting of the partnership
affairs etc okay so uh that's uh the case where those are the grounds for obtaining a
judicial decree when it's the partner or someone on behalf of the partner who files the
application next a part a purchaser or assignee of a partner's interest may also file an
application as i mentioned earlier okay but i will give you the grounds no for which
you can file an application after the termination of the specified term or particular
undertaking or at any time if the partnership was a partnership at will when the interest
was assigned or when the charging order was issued okay now in all these grounds
now these causes for judicial dissolution that i mentioned no why is a judicial order
necessary why because the facts involved improving these grounds may be open to
dispute no one party would like to uh allege it the other party would like to counter it
or defend against it so you there is a need for judicial determination to do to find out
if indeed the solution is war on death so we leave that up to the court okay now let's
go to the effects of the solution okay first with regard of course to the partnership
existence no is the partnership dead not yet not yet because the solution does not
terminate the partnership life those are different with uh in case of the solution the
partnership continues and its legal personality is retained until the winding up process
is completed and upon which the partnership will only be terminated after again after
the winding up process is completed now another effect of the solution with regard to
the partners authority to act for the partnership remember that every partner is
considered the agent of the partnership with authority to bind both the partnership
and the partners with respect to transaction of partnership business therefore as a
general rule since this solution results in the partnership ceasing to be a going
concern it also terminates all authority of any partner to act for the partnership or to
represent it okay terminated no welcome authority you cannot act for me anymore
because it's uh the partnership is now dissolved okay except in two instances first ah
the authority is retained for acts necessary to wind up partnership affairs of course
because if you don't have authority how can you perform winding up no so you need
authority to wind up partnership affairs and two acts necessary to complete
transactions which are begun but unfinished in other words to complete unfinished
business no so uh the authority will only exist authority to act will only continue to
exist in those two cases okay in other words no the right of a partner to bind the
partnership to new contracts obligations or business is terminated upon the solution
except for winding up or to complete unfinished business okay now we'll go into the
more complicated parts okay 1832 qualifies that general rule that i talked about earlier
into two rules okay first if the solution is not by act insolvency or or death of a partner
okay 1832 33 and 34 qualifies that forgoing rule and its exceptions no into the
following scenario okay first as among the partners no the partners okay if this
solution is not due to the act insolvency or death of a partner such as expiration of
the term or completion of the particular undertaking then we follow the general rule
that this solution terminates the actual authority of a partner to undertake new
business for the partnership okay again as among the partners if the dissolution is
not due to act okay someone acting or due to the insolvency of one partner or death
of one partner then we follow the general rule that this solution terminates the actual
authority of a partner to undertake new business for the partnership okay now if the
dissolution is by insolvency or death of a partner a partner acted or he became
insolvent or he died then the termination of his authority okay authority to act will
depend on whether the partner had knowledge or notice of the dissolution under 1833
okay and the rules are as follows generally if the dissolution is by act insolvency or
death of a partner each partner is liable to his co-partners for his share of any liability
created by any partner acting for the partnership as if it had not been dissolved so in
other words okay authority is not terminated and a partner can bind the partnership
to third persons that's in general huh that's in general but if the dissolution is caused
by the act of any partner the partner who had knowledge who had knowledge of the
dissolution or if the dissolution is by death or insolvency of a partner the partner who
had knowledge or notice of the death or insolvency okay if he had knowledge no okay
then the authority to act for the partnership is deemed terminated and a partner
cannot therefore bind the partnership to third persons for a new transaction okay it
might seem complicated because the word the words of the law know are precise and
they have to explain everything but just use common sense okay to make it easier for
you if you did not know that a partner died then you can buy the pa uh yes i'll make it
simpler again no if you do if a partner did not know that a partner died then if the
partnership in his mind still exists he has a reason to act and bind the partnership but
common sense but if he knew that his partner had died then by logical uh operation
in his mind the effect of the death of my partner this solves a partnership therefore i
cannot bind someone else i cannot mind the partnership within transaction with
someone else okay do you get it i hope you get it it's just not simple no okay finally
1834 governs the rule uh gives us the rule with regard to third persons remember
upon the solution among the partners the power of one partner to act and bind the
partners is generally terminated okay why this was nothing firm you cannot act for
something that does that that has no power that does not give you power no or
authority okay upon the solution among the partners the power of one partner to act
and bind the partners is generally terminated but the authority may continue to bind
the partnership to third persons who extend credit on the assumption that the
partnership is still existing why because in the absence of anything to indicate the
termination of the partnership it is presumed okay it is presumed to exist for the
protection of innocent third persons as such the law imposes the duty to inform or
give notice of dissolution upon the partners to the third persons okay again let's make
it simpler you know a third person when he transacts business he doesn't have to ask
all the time oh is a partner dead oh it's a partner in solvent and that will result in
business getting slower or even stopping no so he has every right to presume that
the partnership is still existing okay and if if he gives credit to the partnership then the
partnership is bound this rule is like this to protect innocent third persons who in good
faith transact with the partnership okay so uh it is the duty of the partners to inform
that third person hey we're dissolved why someone died someone's insolvent
someone left whatever okay that's how simple it is okay so let's break it down into
when the partnership is bound to third persons after the solution and when it is not
okay a partnership is bound to third persons after the solut ion for apps for winding up
the partnership affairs for acts to complete unfinished business no which is consistent
with everything i've been saying but this is the more important one the partnership is
bound to third persons after the solution for completely new transactions so take note
not always completely new transactions only if the third person was in good faith
meaning that he was either a previous creditor who had extended prior credit no credit
prior to the dissolution no prior credit no without knowledge or notice of the dissolution
okay or he is not a previous creditor and the fact of the solution has not been
published in a newspaper of general circulation okay in other words that creditor does
not have uh constructive knowledge yet the key here no in order for the third person
to be able to hold the partnership liable even if the partnership has been dissolved
it's knowledge did the third person know that the the partnership was dissolved if he
knew then he cannot hold the partnership liable because he is in bad faith but if he
did not know okay and he is in good faith then the partnership may be bound okay
now the partnership will not be bound to third persons after the solution first where
the partnership was dissolved because it was unlawful to carry or to carry on the
business okay except of course for acts for winding up second where the partner who
acts in the transaction becomes insolvent third where the partner is unauthorized to
wind up except if the transaction is with third persons in good faith who have no
knowledge of the dissolution fourth the act is not appropriate for winding up or for
completing unfinished transactions and fifth for completely new transactions which
would bind the partnership if the solution had not taken place with third persons in
bad faith okay so in those cases the partnership is not bound to third persons after
the solution so how do we apply the rules no if the partnership is dissolved because
the term arrives no and it is a partnership with a term then it is not an act insolvency
or death of a partner so if a partner enters into a new contract with a third person it
should not mind the partnership but only the partner who acted why because his
authority to act on behalf of the partnership is terminated okay now if the partnership
is dissolved because of the act death or insolvency of the partner and the partner had
knowledge of this then the partner cannot bind the partnership also okay but if the
partner and the third person had no knowledge of the act death or insolvency of the
other partner then the partnership is bound even if the firm is dissolved okay and as
i mentioned earlier notice of the solution must be given to the following persons first
persons who extended credit to the firm prior to the solution and second persons who
while they did not extend credit to the firm they had knowledge of its existence they
know that the partnership exists otherwise if they are not given notice they shall be
entitled to presume that the partnership continues until such notice of the solution is
given to them okay if no such notice is given the partnership shall continue to be liable
to such third persons for acts of any partner within the apparent scope of the
partnership business or his authority okay even if this solution had in fact taken place
until of course notice is given okay now uh what kind of note is no for those third
persons who are previously extended credit to the partnership prior to the solution
actual notice must be given and to all others who are just aware of the partnership
existence simple publication by advertisement in a newspaper of general circulation
at a place where the partnership business was regular regularly carried on that is
sufficient no that will work as constructive knowledge no now uh the giving of such
notice that will terminate the implied power of every partner to bind the partnership or
the other partners to new obligations okay take note also that notice is not necessary
in case the partnership is dissolved because it is unlawful to carry on the business or
where the partner has become insolvent no this is not required in those cases okay
finally 1834 gives us the rule as to the liability of a dormant or unknown partner which
serves as an exception to the rule that partners shall be liable with all their separate
property for partnership liabilities after the partnership assets have been exhausted
under 1816 okay so if the partner is unknown or a dormant partner his liability with
with respect to obligations incurred after the solution shall be satisfied out of
partnership assets only okay or only up to his extent of his share in the partnership
assets okay finally let's just talk about the effects of the solution with regard to a
partner's existing liability the general rule under 1835 is that the solution does not
automatically discharge the existing liability of any partner okay and this rule applies
to the continuing partners okay continuing those who continue the business so i'll give
you the rules no as to the retiring partner or one who ceases to be a part of the
partnership no he's the one who's leaving okay he will be discharged from all existing
liabilities upon the solution only by an agreement between the partner concerned the
other partners who are continuing the partnership and partnership creditors okay
provided he has given necessary notice of withdrawal no from the partnership a
retiring partner will not be liable for subsequent partnership obligations why because
he's no longer a part of the partnership okay now what if a partner has died okay 1835
provides that the individual property of a deceased partner shall be liable for all
obligations of the partnership incurred while he was a partner of course not after no
while he was a partner but of course subject to the payment the prior payment of his
separate debts in other words his individu the individual creditors of that deceased
partner are preferred over the partnership creditors with regard to the separate
property of that deceased partner okay uh so uh it looks like i've reached the time
limit and i'll just continue the discussion in part two of this same episode okay so i
hope you may have picked up a thing or two and i hope to see you soon guys okay
bye
Dissolution, Winding Up, & Termination Part 2
hi guys and welcome to part two on the discussion on dissolution winding up and
determination so if you like my videos and you want to see more please hit the
subscribe button also please remember that this is only for educational purposes and
it's not a substitute for proper legal advice or for studying and understanding the law
okay also a like on my videos would be greatly appreciated okay so let's begin with
part two and we'll begin with the rights of a partner upon the solution okay first uh let's
talk about a rightful dissolution meaning that there is no contravention of the partners
the partnership agreement okay the partnership contract was not violated okay so in
case of a rightful dissolution then of course a partner has the right to receive what is
known as a partner's lien okay first he has the right to have partnership property
applied to discharge partnership liabilities and second he shall receive in cash his
share of the surplus okay now uh of course this is subject to a contrary agreement
and in the case of an expelled partner or a partner who was expelled from the firm he
shall receive in cash only the net amount okay the net amount due to him from the
partnership okay and if the solution is proper then no partner is liable for any loss
arising from the dissolution okay other losses of course he will be liable but losses
arising from the dissolution no okay now in case of a wrongful dissolution no the
dissolution was wrongful nor in contravention of the agreement then first these are
the rights of the partner who did not cause the wrongful dissolution meaning the rights
of an innocent partner okay first to have partnership property applied to partnership
liabilities second to receive in cash his share of the surplus and third to be indemnified
for damages caused by the partner who caused the wrongful dissolution okay fourth
to continue the business in the same name during the agreed term of the partnership
either by themselves or jointly with others and fifth to possess partnership property if
they continue the business okay now let's go to the rights of a partner who did gus he
was the one who caused the wrongful dissolution okay now this has uh two scenarios
now first if the other parties do not continue the business no meaning uh uh you
caused the wrongful dissolution i overnight okay then his right will be uh to receive
only the partner's lien okay in other words to apply the partnership property to the
liabilities and to receive in cash his share of the surplus less we subtract the damages
he is liable for byron because of his uh wrongful dissolution of the partnership okay
second scenario if the other partners continue the business then the right of the
partner who caused the wrongful dissolution would be to have the value of his interest
in the partnership at the time of the dissolution and the surplus less some trap
damages caused by his wrongfully dis wrongful dissolution ascertained okay we
determine now what uh what is the value of his interest in the partnership and his
surplus less damages no an invaluable after it's a certain to have that paid to him or
secured by a bond approved by the court likewise he is also entitled to be released
from all existing and future liabilities after of course he pays the damages now take
note that the goodwill of the business is not considered in ascertaining the value of
the interest of the guilty partners because goodwill is property you know you can
ascertain its value and receive the monetary equivalent of that that's not included for
the guilty partners okay now a partner may have the contract of partnership dead
okay remember i discussed this earlier you know failure to contribute the property pro
or money promised is not a gown for a station the only time that recession may be
had in partnership that i'm meeting apart in the first place no failure to contribute the
remedy there is specific performance here recession can only exist no in favor of a
partner if he was induced by fraud or misrepresentation to become a partner okay in
such a case the contract of partnership is voidable and the partner can have that
contract of partnership annulled if he succeeds in having that contract annulled okay
then and in the case of uh uh he in the case of announcement of that contract of
partnership then that partner will be entitled to restitution okay meaning he will get
what he what he has given as a consequence of course of recession remember also
that in the case of avoidable contracts no these contacts are valid until they are a null
okay and in the case of a partnership the partnership relations exist until the contract
is annulled so therefore the defrauded partner is liable for all obligations to third
persons no because before he has the contract of partnership and all he was a partner
the contract was valid so while it was valid uh while the contract was valid and
obligations were uh contracted then he will be liable for those obligations okay in the
case in case the contract of partnership is rescinded on the ground of fraud or
misrepresentation the rights of the partner who asks for recession are as follows first
the right of lean palin lean on or retention of the surplus of partnership property after
satisfying partnership liabilities for any sum of money paid for the purchase of an
interest in the partnership or for any capital or advances contributed by him second
the right to be subrogated in place of partnership creditors after payment of
partnership liabilities for any payments he may have made no for those partnership
liabilities and third the right of indemnification by the guilty partner against all debts
and liabilities of the partnership okay so uh now we can move on to the winding up
process no and what is winding up it is simply the process of settling the business or
the partnership affairs after the solution okay now winding up can be judicial or
extrajudicial and in the process of finding in winding up the business of the partnership
is not continued okay instead the process of winding up consists of reducing the
property to cash and distributing the proceeds in other words the property must be
liquidated and distributed to those entitled there too now partners have the implied
authority to sell partnership property and collect obligations due to the partnership but
this authority may be delegated to one or more partners who will be known as the
liquidating partner or partners okay now of course the persons authorized to wind up
are either the partners designated in the agreement or the contract of partnership but
in the absence of an agreement then those who have not wrongfully dissolved the
partnership or the legal representative of the last surviving partner who is not
insolvent in other words the law says that first in the absence of agreement the
partners who have not wrongfully dissolved the partnership or the legal representative
of the last surviving partner who is not insolvent they have the right to wind up the
partnership affairs second but if there is an agreement it is the partner stated in the
agreement who has the right to wind up the partnership affairs and others know the
other partners have no right to participate in the settlement of partnership affairs okay
so if partnership affairs are settled by a partner who had no authority to wind up then
the partnership is not bound by his acts except of course if he transacted with a third
person who had extended credit and had no knowledge of the dissolution or if he had
transacted with a third person who despite having had no knowledge or notice of the
solution is charged with constructive notice through advertisement in a newspaper of
general circulation in the place of business meaning the third person is in good faith
okay remember also not under 1842 a partner has the right to demand an accounting
of his interest okay in the partnership against the partner in charge of winding up or
against the surviving partners or those continuing the partnership as of the date of
the solution except of course if there is an agreement to the contrary okay so what
are the powers of a liquidating partner first he can make new contracts but for
liquidation purposes only second he can raise money to pay partnership debts third
okay he can incur obligations to complete existing contracts or to preserve partnership
assets fourth he may incur expenses necessary in the conduct of litigation no meaning
a case in court okay so what are the assets of the partnership no first of course the
partnership property no including the goodwill and second the contributions of the
partners necessary for the payment of all liabilities remember that the partnership
obligations will be satisfied out of partnership assets before the separate property of
each partner may be processed proceeded against now this is the order okay the
order of payment when it comes to winding up okay first you pay those uh liabilities
owing to creditors who are not partners okay those owing to creditors other than
partners second in line no those owing to partners other than for capital or profit okay
third those owing to partners in respect of capital and finally those owing to partners
in respect of profits okay now if the assets of the partnership are insufficient meaning
there is an overall loss no then the deficit is a capital loss which requires a contribution
just like any other loss meaning the partners have to contribute to meet that loss no
so the partners shall contribute the amount necessary to satisfy the liability according
to the agreement that they have an agreement no if they have an agreement okay an
agreement as to the distribution of uh profits and losses but if there is no agreement
to follow no they did not make one then of course pro rata and this may be enforced
no the the liability you know the liability may be enforced by an assignee for the benefit
of creditors any person appointed by the court any partner or his legal representative
okay to the extent of the amount which he has paid in excess of his share of the
liability in case of a deceased partner his individual property shall be liable for the
contribution again now if the assets of the partnership are insufficient okay so before
the partners can be paid their shares no the creditors of the partnership must first be
compensated after all the creditors have been paid whatever is left of the partnership
assets becomes available for payment of the partners shares okay since we're on the
topic of creditors let's talk about the rights of partnership creditors and individual
creditors okay so when it comes to partnership creditors meaning remember the
partnership has a separate juridical personality different from the partners which
compose it okay so uh the partnership creditors they enjoy preference over the
creditors of each individual partner with respect to partnership property and individual
creditors know the creditor of each partner they are entitled to be paid only out of the
individual debtors part at the individual debt or partners share in the surplus which
remains after the firm debts have been paid in other words the individual uh creditor
of this partner will have to wait until after the partnerships debts have been paid okay
so they have to wait for that and they have to wait after uh the equities among the
partners have been adjusted no and uh he has to wait also until that debtor partners
share has been ascertained and set apart because until the winding up process has
been completed an individual partner will not yet know exactly how much he will be
getting it no you have to uh pay first the liabilities adjust the equities amongst
themselves and then that's only time you can determine i'm getting one thousand
pesos like that okay so with regard to man to the separate part property of each
partner no again the partnership itself can own property each individual partner can
own their own property as well know which they did not contribute to the partnership
with regard to his separate property it is the individual creditor of each partner that
enjoys preference over the cred the creditors of the partnership itself okay again
partnership partnership as a creditor they enjoy preference as to partnership property
okay an individual creditor can only get the partnership property after the partnerships
liabilities have been paid after uh the equities have been adjusted amongst the
partners and after each partner's share has been ascertained but if an individual
creditor has a claim against some individual partner then he has preference as to his
separate property which he owns not the partnership owns okay now if the partnership
property okay partnership property and the individual properties of the partners are
under possession of the court for distribution we follow what is known as the doctrine
of marshaling of assets no this is under 1839 paragraph nine no 1839 i'm nine no first
partnership creditors have preference in partnership assets second separate or
individual creditors have preference in separate or individual properties and anything
left from either goes to the other okay and this of course this these uh rules now are
subject to the rights of lien of secured creditors okay uh like if there's a mortgage etc
where a partner has become insolvent on the other hand or his estate is insolvent
then the claims against his separate property may order dunya no first that which is
owing to separate creditors then that's the only time you can satisfy the liabilities
owing to partnership creditors and after that that which is owing to partners by way of
contribution okay now i want to talk about uh 1840 if this will go now which speaks of
a dissolution of the partnership by a change in membership okay so when a new
partner is admitted to the partnership or when a partner retires he dies withdraws is
expelled or when the other partners assign their rights to the sole remaining partner
or when all the partners assign their rights in the partnership property to a third person
all of these now that i just mentioned these constitute a change in the membership of
the partnership and this change this solves the partnership and creates a new
partnership okay so 1840 it deals with the rights of creditors when the partnership is
dissolved by a change of membership okay and this and also no as part of the
scenario it's dissolved by a change of membership and the business is continued by
a former partner either alone or with new partners and no liquidation of the partnership
has taken place okay in such a case the law makes the creditors of the dissolved
partnership also the creditors of the persons or the partnership which is continuing
the business creditor if there is no liquidation and it is continued in other words both
classes of creditors the old and the new are treated alike they are given equal rights
in partnership property and the purpose of the law is to maintain the preferential rights
of the old creditors to the partnership property as against the separate creditors of
each individual partner okay preference so uh i just want to read the coda no of 1840
very quickly you know because since it's cool that you can do this on your own no but
just this one time i'll spoon feed you narendra so 1840 says that in the following cases
creditors of the dissolved partnership are also creditors of the person or partnership
continuing the business okay first when any new partner is admitted into an existing
partnership or when any partner retires and assigns or the representative of the
deceased partner assigns his rights in partnership property to two or more partners
or to one or more of the partners and one of one or more third persons if the business
is continued without liquidation of partnership affairs okay second when all but one
partner retire and assign or the representative of a deceased partner assigns their
rights in partnership property to the remaining partner okay who continues the
business without liquidation of the partnership affairs either alone or with others also
on this matter please remember that in 1826 the liability of the new or incoming
partner shall be satisfied out of partnership property unless there is a stipulation to
the quantity third when any partner retires or dies and the bus iness of the dissolved
partnership is continued as set forth in the first two paragraphs i mentioned with the
consent of the retired partners or the representative of the deceased partner but
without assignment of his right in partnership property fourth when all the partners or
the representatives assign their rights in partnership property to one or more third
persons who promise to pay the debts and who continue the business of the dissolved
partnership okay so this rule in the fourth item no applies only when the third person
promises to pay the debts of the partnership otherwise creditors of the resolve
partnership have no claim on the partnership that is continuing the business or its
property unless the assignment can be set aside as a fraud on creditors okay fifth
when any partner wrongfully causes a dissolution and the remaining partners
continue the business okay either alone or with others and without liquidation of the
partnership affairs and sixth when a partner is expelled and the remaining part ners
continue the business either alone or with others without liquidation of the partnership
affairs okay so just take note that when the business of the old partnership was simply
continued by the new partners without the old partnership undergoing the procedures
relating to this solution and winding up the not only the retiring partners but also the
new partnership itself which continued the business of the old dissolved ones are are
liable for the depths of the oil partnership okay now when the business of a
partnership after the solution is continued under those grounds i mentioned about uh
i know earlier no the creditors of the retiring or deceased partner or the representative
of the deceased partner they have a prior right to any claim of the retired or deceased
partner or his representative against the person or partnership continuing the
business on account of the retired or deceased partners interest in the dissolved
partnership or on account of any consideration promised for such interest or for h is
right in partnership property okay now the remaining partners know by themselves or
with new partners they can continue the business by simply taking over the business
enterprise and continuing the use of the old name without liquidating the partnership
no in case of deceased partners remember i discussed in my other video no just put
a cross by the name or indicate in all your communications that he is dead no take
note however that the use by the person or partnership continuing the business of the
partnership name or the name of a deceased partner as part thereof no it shall not of
itself make the individual property of the deceased partner liable for any debts
contracted by such person or partnership okay take note of that that's codal no
however the creditors of the the dissolved and the new partnership are given equal
rights no in the partnership property now under 1841 when any partner retires or dies
and the business is continued under the conditions i mentioned earlier you know in
1840 or or in the case of 1837 meaning uh wrongful dissolution without any settlement
of accounts as between him okay or his estate and the person or partnership
continuing the business then these are the rules okay this will be the rules unless
there is an agreement to the contrary the rules are first the partner or his legal
representative as against such person or his partnership or the partnership no may
have the value of his interest at the date of the solution ascertain no aluminum value
interest and second the partner or his legal representative shall receive as an ordinary
creditor okay parashat ordinary creditor he will receive an amount equal to the value
of his interest in the dissolved partnership with option 2 either receive interest or in
lieu of interest the profits attributable to the use of its right in the property of the
dissolved partnership okay the creditors of the resolved partnership shall have priority
on any claim arising under article 1841 as against the separate creditors or the
representative of the retired or deceased partner okay so uh to sum it all up no just
remember nah the solution winding up and termination while they all are part of the
last stages of the life of a partnership these three are different okay the solution has
to be for the courses mentioned in the law or under the agreement can be extrajudicial
or generation okay but our partnership will still continue to exist even though it has
been dissolved okay because the significance of the solution is only uh to put a stop
to the partnership relation meaning uh insert depending on the rules i mentioned
earlier each partner's authority to act for each other and for the partnership may be
terminated okay because the firm is dissolved however the separate juridical
personality of the dissolved partnership will continue to exist for winding up okay
meaning this is the process that you should settle now all your obligations pay them
and then after it's paid you adjust the equities of the partners and then you uh give
them all the surplus if any okay and after all that is done that's uh the stage of
termination the partnership is now dead okay okay so that's it three stages and that's
the solution winding up and termination so i hope you may have picked up a thing or
two and i hope to see you next time on my episode on limited partnerships okay so
uh see you soon guys bye