General Provisions
Art. 1767 Definition:
Partnership a contract whereby 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, or in order to exercise profession.
Profession a group of men pursuing a learned art as a common calling in the spirit of public service no less a public service because it may
incidentally be a means of livelihood.
Characteristics of Partnership
1. Consensual
2. Nominate
3. Bilateral
4. Onerous
5. Commutative
6. Principal
7. Preparatory
Elements
1. consensual;
2. there must be a contribution of money, property or industry to a common fund;
3. the subject must be a lawful one;
4. there must be an intention of dividing the profit among the partners;
5. there must be a desire to formulate an active union (affectio societatis);
6. a new personality, that of the firm must arise, distinct from the separate personality of each of the members
Essential Features of Partnership
1. there must be a valid contract;
2. the parties must have legal capacity to enter into the contract;
3. there must be a mutual contribution of money, property, or industry to a common fund;
4. the object must be lawful; and
5. the primary purpose must be to obtain profits and to divide the same among the parties
Differentiation:
Partnership (P) vs. Corporation (C)
a. creation
P voluntary agreement of parties
C created by the state in the form of a special charter or by a general enabling law
b. how long it exists
P no time limit except agreement by parties
C not more than 50 years; may be reduced, but never extended
c. liability to strangers
P may be liable with their private property beyond their contribution to the firm
C liable only for payment of their subscribed capital stock
d. transferability of interest
P even if a partner transfers his interest to another, the transferee does not become a partner unless all other parties consent
C a transfer of interest makes the transferee a stockholder, even without the consent of the others
e. ability to bind the firm
P generally, partners acting on behalf of the partnership are agents thereof; consequently they can bind both the firm and the partners
C generally, the stockholders cannot bind the corporation since they are not agents thereof
f.
mismanagement
P a partner can sue a partner who mismanages
C a stockholder cannot sue a member of the board of directors who mismanages: the action must be in the name of the corporation
g. nationality
h.
i.
20 years is the maximum if imposed by the testator or donee of the common property
g.
h.
i.
profits
P- may be stipulated upon
CO profits must always depend on proportionate shares (any stipulation to the contrary is VOID)
dissolution
P dissolved by death or incapacity of a partner
CO not dissolved by the death or incapacity of co-owner
form
P may be made in any form except when real property is contributed (here, a public instrument is required)
CO no public instrument needed even if real property is the object of the co-ownership
a.
b.
a partner acts as agent for the partnership whom he represents; the tenant does not represent the landlord.
a partnership is a legal person; no such person is created in the relationship between landlord and tenant.
1.
2.
Purpose:
- to indicate some test to determine if what may seem to be a partnership really is one, or it is not
1.
2.
3.
1.
2.
3.
General Rule:
-for the validity of the contract, as well as for enforceability, no form is required, regardless of the value of the contributions
Exception:
- whenever real properties or real rights in real properties are contributed regardless of the value a public instrument is needed.
Moreover, an inventory of the immovables is needed. This must be signed by the parties and attached to the public instrument
1.
for effectivity of the partnership contract insofar as innocent third persons are concerned, the same must be registered if real properties are
involved.
Art. 1772 Partnership with capital of Php 3,000 or more Registration with the SEC
Effect of non-registration
1. even if not registered, the partnership having a capital of Php 3,000.00 or more is still a valid one, and therefore has legal personality;
2. if registration is needed, or desired, any of the partners of a valid partnership can compel the others to execute the needed public instrument,
and to subsequently cause its registration.
Art. 1773 Where real property is contributed
1.
2.
1.
2.
3.
Applicability
applies regardless of the value of the property;
applies even if only real rights over real property are contributed;
applies also if cash or personal property is contributed
Registration
transfer of the land to the partnership must be duly recorded in the Registration of Property to make the transfer effective insofar as third
persons are concerned
Art. 1774 Acquisition of property under the Partnership name
applicable to immovable as well as personalty because the partnership is a juridical entity, capable of owning and possessing property
alien partners must comply with the requirements as provided for in Sec. 7, Art 12 of the 1987 Constitution
Limitations on Acquisition
a partnership, even if entirely of Filipino capital may not:
1. acquire, lease or hold public agricultural lands in excess of 1,024 hectares;
2. lease public lands adapted to grazing in excess of 2,000
Art. 1775 Secret Partnership
Note:
contracts entered into by a partner in his own name may be sued upon still by him in his own individual capacity, notwithstanding the
absence of partnership
as to object/subject matter
1. Universal Partnership
- may refer to all the present
property or to all the profits
a.
universal of all present property
- that which the partners contribute all the property which actually belongs to them to a common
2.
b.
universal of profits
comprises all that the partners may acquire by their industry or work during the existence of the partnership
Particular Partnership
- object are determinate things, their use or fruits; a specific undertaking or the exercise of a profession or occupation
b.
as to liability of partners
1. General
- they are liable even with respect to their individual properties, in pro rata after the assets of the partnership have been exhausted, for the
contracts which may be entered into in the name and for the account of the partnership, under its signature and by a person authorized to act
for the partnership
2. Limited
formed by two or more persons having as members one or more general partners and one or more limited partners.
The limited partners as such shall not be bound by the obligations of the partnership
A limited partner is one whose liability is limited only up to the extent of his contribution
c.
as to duration
1. at will
2. at a fixed term
the term of existence has been agreed upon expressly or impliedly
the expiration of the term thus fixed or the accomplishment of the particular undertaking specified will cause the automatic dissolution of
the partnership
d.
as to legality of existence
1. de jure
2.
de facto
e.
as to representation
1. ordinary/real
2. ostensible/ partnership by estoppel
f.
as to publicity
1. secret
2. open or notorious
g.
as to purpose
1. commercial
2. professional
1.
Kinds of Partners
Capitalist Partners
one who furnishes capital;
not exempted from losses; can engage in other business provided there is no competition between the partner and his business
2.
-
3.
Industrial
one who furnishes industry or labor;
can be a general partner but never a limited partner;
exempted from losses as between the partner; cannot engage in any other business without express consent of the partners, otherwise
- he can be excluded from the firm (plus damage)
- or the benefits he obtains from the other business can be availed of by the other partners (plus damages)
General/Real
one who is liable beyond the extent of his contribution
Managing
one who manages actively the firms affairs
Liquidating
one who liquidates or winds up the affairs of the firm after it has been dishonored
Partner by estoppel/Quasi-partner
one who is not really a partner but who may become liable as such insofar as third persons are concerned
4.
5.
6.
7.
8.
9.
Continuing
Surviving
Subpartner
a.
Other classifications
ostensible partner
one whose connection with the firm is public and open
b.
c.
silent
one who does not participate in the management, though he shares in the profits or losses
d.
e.
f.
g.
secret
one whose connection with the firm is concealed or kept a secret
dormant/sleeping
one who is both a secret and silent partner (not managing)
original
incoming
retiring
Property which the partners may acquire subsequently by inheritance, legacy or donation cannot be included for the stipulation for
common enjoyment
Fruits thereof may be included
B. All profits
comprises all that the partners may acquire by their industry or work during the existence of the partnership
All profits
only the usufruct of the properties of the partners become common property; naked ownership is retained by each of the partners
all profits required by the industry or work of the partners become common property
All present property
all the property actually belonging to the partners are contributed- and said properties become common properties
as a rule, aside from the properties, only the profits of the said contributed common property
Note:
profits from other sources may become common, but only if there is a stipulation to such effect.
Properties subsequently acquired by inheritance, legacy or donation, cannot be included in the stipulation, but the fruits thereof can be
included in the stipulation
note:
future property cannot be included in the stipulation regarding universal partnership of all present property
Reasons:
1. contracts regarding successions rights cannot be made;
2. partnership demands that the contributed things be determinate, known and certain;
3. universal partnership of all present properties really implies a donation and future property cannot be donated
Art. 1782 Persons prohibited by law to give donation- cannot enter into Universal Partnership
Reason: they should not be allowed to do indirectly what the law forbids directly
Art. 1783 Particular Partnership
- it has for its object determinate things, their use of fruits, or specific undertaking, or the exercise of a profession or vocation
Doctrine:
If two (2) individuals form a particular partnership for a deal in reality, it does not necessarily follow that all deals are for the benefit of the
partnership. In the absence of agreement, each particular deal results in a particular partnership. If one of them, on his account, and using his
own funds, should make transactions in the same business, it is his own undertaking
II. Obligations of the Partners among themselves
Art. 1784 When partnership begins
General Rule:
begins from the moment of the execution of the contract
Exception:
unless it is otherwise stipulated
Art 1784 presupposes that there can be a future partnership which at the moment has no juridical existence yet
The agreement for a future partnership does not itself result in a partnership. The intent must be later on actualized by the formation
of the intended partnership
Duration: unlimited in the sense that no time limit is fixed by law; may be agreed upon (expressly or impliedly)
Partnership at will
- 2 kinds
a. when there is no term, express or implied
b. when continued by habitual managers
-
note:
It is called at will because its continued existence really depends upon the will of the partners or even on the will of any of them.
to preserve said property with the diligence of a good father of a family pending delivery to the partnership; and
to indemnify the partnership for any damage caused to it by the retention of the sane or by the delay in its contribution
manner prescribed by the contract of partnership in the absence of stipulation, appraisal shall be made by experts chosen by the
partners and according to current prices
A.
B.
C.
D.
Risk of loss
- after goods have been contributed, the partnership bears the risk of subsequent changes in their value
to contribute on the date due the amount he has undertaken to contribute to the partnership;
to reimburse any amount he may have taken from the partnership coffers and converted to his own use;
to pay the agreed or legal interest, if he fails to pay his contribution on time or in case he takes any amount from the common fund
and converts it for his own use; and
to indemnify the partnership for the damages caused to it by the delay in the contribution or the conversion of any sum for his
personal benefit
Coverage of liability
a. interest at the agreed rate (if none, the legal interest)
b. damages that may be suffered by the partnership
note: even if no actual injury results, the liability exists because Art. 1788 is absolute
c.
as to profits
CP shares in the profits according to the agreement thereon; if none, pro rata to his contribution
IP receives a just and equitable share
d.
as to losses
CP stipulation; if no stipulation, the agreement as to the profits; if none, pro rata contribution
IP exempted as to losses (as between the partners0; but is liable to strangers without prejudice to reimbursement from capitalist partners
Art. 1790 - Contribution
General Rule: Partner shall contribute equal shares to the capital of the partnership
Exception: stipulation to the contrary
Amount of contribution
it is permissible to contribute unequal shares, if there is a stipulation to that effect
To whom applicable
both to industrial as well as to capital partners undoubtedly
Requisites when a capitalist partner is obliged to sell his interest to the other partners:
1. if there is imminent loss of the partnership;
2. he refuses to contribute an additional share to the capital; and
3. there is no agreement to the contrary
note: industrial partner is exempted for he is already giving his entire industry
Requisites:
a. existence of at least two debts;
b. both sums are demandable; and
c. collecting partner is authorized to manage and actually manages the partnership
the partner has the duty to secure benefits for the partnership; on the other hand, he has the duty also not to be at fault
since both are duties, compensation should not take place, the partner being the debtor in both instances
compensation requires 2 persons who are reciprocally debtors and creditors of each other
Mitigation of Liability
equity may mitigate liability if there are extraordinary efforts resulting in unusual profits
Distribution of Profits
a.
partners share the profits according to their agreement subject to Art. 1799
b.
if there is no such agreement:
1. the share of each capitalist partner shall be in proportion to his capital contribution (this rule is based on the presumed will of the
partners)
2. the industrial partner shall receive such share, which must be satisfied first before the capitalist partners shall divide the profits, as
may be just and equitable under the circumstances.
the share of the industrial partner in the profits is not fixed, as in the case of the capitalist partners, as it is very difficult to ascertain
the value of the services of a person
Distribution of Losses
a. the losses shall be distributed according to their agreement subject to Art. 1799
b. if there is no such agreement, but the contract provides for the share of the partners in the profits, the share of each in the losses
shall be in accordance with the profit-sharing ratio, but the industrial partner shall not be liable for losses. The profits or losses of the
partnership cannot be determined by taking into account the result of one particular transaction but of all the transactions had.
c. If there is also no profit-sharing stipulated in the contract, then losses shall be born by the partners in proportion to their capital
contributions, but the purely industrial partner shall not be liable for the losses.
Non-applicability to Strangers
Art. 1797 applies only to the partners, not when liability in favor of strangers are concerned, particularly with reference to the industrial
partner
a.
third person
- in the article, not a partner; to avoid partiality
b.
c.
Art. 1799 (1) Stipulation excluding a partner from any share in profits or losses
General Rule:
a stipulation excluding one or more partners from any share in the profits or losses is void
Reason: partnership is for COMMON BENEFIT
Exception:
in the case of the industrial partner whom the law itself excludes from losses
note: stipulation exempting a partner from losses should be allowed
Distinction between Appointment in Articles of Partnership and Appointment from other Source (other than the articles of partnership)
a.
as to power
Partnership power is irrevocable without just or lawful cause
to justify removal for just cause: controlling partners should vote to oust him
without just cause: there must be unanimity
other source - power to act may be revoked at any time, with or without just cause
-
b.
as to extent of power
Partnership
good faith he may do all acts of administration (not ownership) despite the opposition of his partners
Rules as to Compensation
General Rule:
in the absence of an agreement to the contrary, each member of the partnership assumes the duty to give his time, attention, and skill to
the management of its affairs, so far at least, as may be reasonable necessary to the success of the common enterprise; and for this
service a share of the profits is only his compensation.
Exception:
a.
b.
c.
d.
e.
f.
a partner engaged by his co-partners to perform services not required of him in fulfillment of the duties which the partnership relation
imposes and in a capacity other than that of a partner is entitled to receive the compensation agreed upon therefor;
a contract for compensation may be implied where there is extraordinary neglect on the part of one partner to perform his duties toward
the firms business, thereby imposing the entire burden on the remaining partner;
one partner may employ his co-partner to do work for him outside of and independent of the co-partnership, and become personally liable
therefor;
partners exempted by the terms of partnership from rendering services to the firm may demand pay for services rendered;
where one partner is entrusted with the management of the partnership business and devotes his whole time and attention thereto, at the
instance of the other partners who are attending to their individual business and giving no time or attention to the business of the firm, the
case presents unusual conditions, is taken out of the general rule as to compensation and warrants the implication of an agreement to
make compensation, In such cases, the amount of compensation depends, of course, upon the agreement of the parties, express or
implied, as well as upon the particular circumstances of the case; and
by the contract of partnership, one partner is exempted from the duty of rendering personal services to the concerned, if he afterwards
does render such service at the instance and request of his co-partners, or where the services rendered are extraordinary.
Specific Rules:
1. Each may separately execute all acts of administration;
2. except if any of the managers should oppose (division of the majority of the managers shall prevail)
if there is a tie, the partners owning the controlling interest prevail; provided they are also managers
Art. 1803 Rule when manner of management has not been agreed upon
a.
b.
b.
c.
alteration
contemplates useful expenses
Associate of Partner
a. for a partner to have an associate in his share, consent of the other partners is not required;
b. for the associate to become a partner, all must consent
such a right is granted to enable the partner to obtain true and fuel information of the partnership affairs
the article presupposes an ongoing partnership
reasonable hour
- contemplates business days throughout the year
Duties of a partner
1. Duty to act for common benefit
2. Duty begins during the formation of partnership
3. Duty continues even after dissolution of partnership
4. Duty to account for secret and similar profits
5. Duty to account for earnings accruing even after termination of partnership
6. Duty to make full disclosure of information belonging to partnership
7. Duty not to acquire interest or right adverse to partnership
Duty to Account
REASON:
the fiduciary relation between the partners are relationships of trust and confidence which must not be abused or used to personal
advantage
trust relations exists only during the life of the partnership, not before nor after
Effect of Violation
a.
the violator shall bring the partner shall of the profits illegally obtained;
b.
he shall personally bear all the losses
b.
as to changes in value
PP variable; its value may vary from day to day with changes in the market value of the partnership assets
PC constant; remains unchanged as the amount fixed by agreement of partners, and is not affected by fluctuations in the value of
partnership property, although it may be increased or diminished by unanimous consent of the partners
as to assets included
PP includes not only the original capital contributions of the partners, but all property subsequently acquired on account of the
partnership or with partnership funds, including partnership name and the good will of the partnership
PC represents the aggregate of the individual contributions made by the partners in establishing or continuing the partnership
Art. 1811 Partnership in Specific Partnership Property
Art. 1812 Partners Interest in the Partnership is his share of the profits and surplus
In general., a partners interest in the partnership (his share in the profits and surplus) may be assigned, attached or be subject to legal
support
Art. 1813 Conveyance of Interest
Rights of Assignee
1.
to get whatever profits the assignor-partner would have obtained;
2.
to avail himself of the usual remedies in case of fraud in the management;
3.
to ask for annulment of the contract of assignment if there was fraud, error, intimidation, force, undue influence;
4.
to demand an accounting
Art. 1814
Charging Interest of a Partner
while a partners interest in the partnership may be charged or levied upon, his interest in a specific firm property cannot as a rule be
attached.
Receivership
a. when the charging order is applied for and granted, the court may at the same time or later appoint a receiver of the partners share in the
profits or money due him
b. the receiver appointed is entitled to any relief necessary to conserve the partnership assets for partnership purposes
Firm Name
name, title or style under which a company transacts business; a partnership of two or more persons; a commercial house
Purpose
necessary to distinguish the partnership which has a distinct and separate juridical personality from the individuals composing the
partnership and from other partnerships and entities.
Partnership Liability
Individual Liability
Agency of a partner
partnership is a contract of mutual agency
each partner acting as a principal on his own behalf and as an agent for his co-partners or the firm
When can a partner bind the partnership
Requisites:
a.
when he is expressly authorized or impliedly authorized; and
b.
when he acts in behalf and in the name of the partnership
When will act not bind the partnership
A. when, although for apparently carrying on in the usual way the business of the partnership, still the partner has in fact NO
AUTHORITY, and the third party knows that the partner has no authority;
B. when the act is not for apparently carrying on in the usual way of the partnership and the partner has no authority
NOTE: The 7 kinds of acts enumerated in Art. 1818 are instances of acts which are NOT for apparently carrying on in the usual way the
business of the partnership.
In the 7 instances, the authority must be unanimous except if the business has been abandoned.
e.
f.
g.
Instances when the firm and other partners are not liable:
a. if the wrongful act or omission was not done within the scope of the partnership business and for its benefit;
b. if the act or omission was not wrongful;
c. if the act or omission, although wrongful, did not make the partner concerned liable himself; and
d. if the wrongful act or omission was committed after the firm had been dissolved and the same was not in connection with the process of
winding up
Estoppel
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 or representation, either express or implied
the rule of holding the new partner liable for previous obligations of the firm is not harsh on the said new partner. After all the incoming
partner partakes of the benefit of the partnership, property and an established business
after all, the partnership is a juridical person with whom the creditors have contracted; moreover the assets of the partnership must first be
executed
Reason why industrial creditors may still attach the partners share
-
if a partner sells his share to a third party, but the firm itself still remains solvent, creditors of the partnership cannot assail the validity of
the sale by alleging that it is made in fraud of them, since they have not really been prejudiced
In contravention of the agreement between the partners, where the circumstances do not permit a dissolution under any other provision of
this article, by the express will of any partner at any time;
when a specific thing, which a partner had promised to contribute to the partnership, perishes before delivery
by the death of any partner;
by the insolvency of any partner or of the partnership;
by the civil interdiction of any partner; and
by decree of court
note: partners in their contract cannot limit the cause for dissolution
this article speaks of a dissolution by decree of court. In a suit for dissolution proof as to the existence of the firm must be given
Who may sue for dissolution:
a. a partner for any of the causes given under 1831
b. the purchaser of a partners interest in the partnership under Art. 1813/1814, provided that the period has expired or if the firm was a
partnership at will when the interest was assigned or changed
note: if period is not yet over, said purchaser cannot sue for dissolution
Insanity of a partner
a. even if a partner has not yet been previously declared insane by the court, dissolution may be asked, as long as the insanity is duly
proved in court;
b. insanity is a cause since the partner will be incapacitated to contract
Appointment of a receiver
In a suit for dissolution, the court may appoint a receiver at its own discretion but a receiver is not needed when practically all the firm
assets are in the hands of a sheriff under a writ of replevin, or when the existence of a partnership with the plaintiff is denied, particularly if the
business of the firm is being conducted successfully
Time of Dissolution
a firm becomes a dissolved partnership at the time the judicial decree become s a final judgment
Act-Insolvency-Death
Other things like termination
Effect of AID
all partners are still bound to each other generally, except:
a.
if the partner had knowledge (as distinguished by NOTICE without actual knowledge)
- if dissolution is caused by an act (e.g. withdrawing, retiring)
b.
if the partner acting had knowledge or notice, if dissolution was caused by death or insolvency
note:
Death or insolvency being more ordinary than an act, notice is enough. Hence, the law provides knowledge or notice.
However, it is still essential that there be knowledge or notice of the fact of death or insolvency to justify non-liability of the other partners
to the parties acting.
profits are supposed to accrue only during the existence of the partnership before dissolution;
profits that will actually enter the firm after dissolution as a consequence of transactions already made before dissolution are included
because they are considered as profits existing at the time of dissolution; and
any other income earned after the time should not be disturbed as profits, but merely as additional income to the capital
if the partnership assets are insufficient the other partners must contribute more money or property
such contributors may be enforced by:
any assignee for the benefit of the creditor, or any person appointed by the court;
any partner or his legitimate representative
Prescription
begins to run only upon the dissolution of the partnership when the final accounting is done
Limited Partnership
Art. 1843 Limited Partnership
Characteristics:
a. formed by compliance with the statutory requirements;
b. one or more general partners control the business and are personally liable to creditors
c. one or more limited partners contribute to the capital and share in the profits but do not participate in the management of the
business and are not personally liable for partnership obligations beyond the amount of their capital contributions;
d. the ;limited partners may ask for the return of their capital contributions under the conditions prescribed by law; and
e. the partnership debts are paid out of common fund and the individual properties of the general partners
Limited Partnership
one formed by two or more persons under the provisions of Art. 1844, having as members one ore more general partners and one or more
limited partners. The limited partners as such shall not be bound by the obligations of the partnership
Art. 1844 Requirements for the Formation of Limited Partnership
Presumption of General Partnership
a partnership transacting business is prima facie, a general partnership and those who seek to avail themselves of the protection of the
laws prevailing the creation of limited partnership must show due compliance with such laws
Requisites:
a.
b.
Art. 1846 Effect where surname of limited partner appears in partnership name
-
the limited partner violating this article is liable, as a general rule, to partnership creditors without, however, the rights of a general partner.
Of course, such limited partner shall not be liable as a general partner with respect to third persons with actual knowledge that he is only a
limited partner.
a limited partner is liable as a general partner for the firms obligations if he takes part or interfere in the management of the firms
business.
The following do not constitute taking part in the control of the business:
a. mere dealing with a customer;
b. mere consultation on one occasion with the general partners
even after a limited partnership has already been formed, the firm may still admit new limited partners, provided there is a proper
amendment to the certificate
failure to amend the certificate does not necessarily mean the dissolution of the limited partnership
Under the acts enumerated (under Art. 1850), the general partners (even if unanimous) must still get the written consent of all the limited
partners.
If a general partner in a limited partnership goes abroad, his capacity to bind the firm is governed by the law of the place where the limited
partnership was formed.
a contributor who erroneously believes he has become a limited partner and thereupon exercises the rights of a limited partner, he should
not be considered as a general partner
however, he can be held liable as a general partner:
unless in ascertaining the mistake, he promptly renounces his interest in the profits of the business or other compensation by way of
income;
unless, even if no such renouncing is made, partnership creditors are not prejudiced
Art. 1853 A person may be both a general partner and a limited partner
a person may be a general and a limited partners at the same time, provided the same is stated in the certificate
generally, his rights are those of a limited partner
exception:
regarding his contribution, he would be considered a limited partner, with the rights of a limited partner insofar as the other partners are
concerned
Art. 1854 Loan and other business transactions with limited partners
Right of a limited partner to lend money and transact other business with the firm
a.
the parties are always given preferential rights insofar as the firms assets are concerned
b.
while a limited partner, in the case of claims referred to in the article, is prohibited to receive or hold as collateral security any partnership
property, still he is not prohibited to purchase partnership assets which are used to satisfy partnership obligations towards third parties
Allowable transactions
a. granting loans to the partnership;
b. transacting other business with it; and
c. receiving a pro rata share of the partnership assets with general creditors if he is not also a general partner
Prohibited transactions
a. receiving or holding collateral security any partnership property
b. receiving any payment, conveyance, or release from liability if it will prejudice the right of third persons
Art. 1855 Preferred limited partners
Preference to some limited partners:
such preference must be stated in the certificate
Preference involves:
return of contribution
compensation
other matters
Art. 1856 Compensation of limited partners
For this article to apply, partnership assets must be in excess of partnership liabilities to third persons, not liabilities to partners
Art. 1857 Requisites for return of contribution of limited partner
a.
b.
c.
all liabilities of the partnership have been paid or if they have not yet been paid, the assets of the partnership are sufficient to pay such
liabilities
the consent of all the members has been obtained except when the return may be rightfully demanded; and
the certificate is cancelled or so amended as to set forth the withdrawal or reduction of the contribution
Par. 1 deals with the conditions that must exist before contribution by a limited partner can be returned to him
Par. 2 deals with the time when such contributions can be returned, provided that the conditions are complied with
even if a limited partner has contributed property, he has the right to demand and receive cash in return
if par. 1 is violated, previous creditors can sue, but they must allege and prove the non-existence of the conditions
new provision
source: Sec. 20 Uniform Limited Partnership Act
new provision
source: Sec. 21 Uniform Limited Partnership Act
new provision
source: Sec. 22 Uniform Limited Partnership Act
new provision
source: Sec. 23 Uniform Limited Partnership Act
new provision
source: Sec. 24 Uniform Limited Partnership Act
Cancellation
when the partnership is dissolved, or when all the limited partners cease to be limited partners, the limited partners shall be cancelled, not
merely amended. The writing to cancel a certificate shall be signed b y all the members
Art. 1865 Requisites for amending or canceling the certificate
-
new provision
source: Sec. 25 Uniform Limited Partnership Act
Art. 1866 When contributors (other than general partners) should be made parties to proceedings
Art. 1867 Transitional provision on Limited Partnership
-
new provision
source: Sec. 30 Uniform Limited Partnership Act
principal
- he whom the agent represents and from whom he derives authority; he is the one primarily concerned in the contract
b.
-
agent
he who acts or stands for another
usually, he is given full or partial discretion, but sometimes he acts under a specific command
Elements of Agency
a.
b.
c.
d.
insofar as third persons are concerned, however, it is enough that his principal be the one capacitated, for generally an
agent assumes no personal liability
Distinctions
Agency (A) vs. Partnership (P)
An agent acts not for himself, but for his principal; a partner acts for himself, for his firm, and for his partners. It may be even said that
partnership is a branch of the law on agency.
Agency vs. Loan
An agent may be given funds by the principal to advance the latters business, while the borrower is given money for purposes of his own,
and he must generally return it, whether or not his own business is successful. A lot however depends on the intent of the
parties.
Agency vs. Guardianship
1. The agent represents a capacitated person while the guardian represents an incapacitated person
2. The agent is appointed by the principal and can be removed by the latter while the guardian is appointed by the court and stands in locos parentis
3. The agent is subject to the directions of the principal while the guardian is not subject to the directions of the ward, but must of course act for the
benefit of the ward.
4. The agent can make the principal personally liable while the guardian has no power to impose personal liability on the ward.
Agency vs. Judicial Administration
(1) The agent is appointed by the principal while the judicial administrator (JA) is appointed by the court.
(2) The agent represents the principal while the JA represents not only the court but also the heirs and creditors of the estate.
(3)Agent generally does not file a bond while the JA files a bond.
(4)The agent is controlled by the principal thru their agreement while the acts of the JA are subject to the specific orders from the court.
Agency from Lease of property
(1)The agent is controlled by the principal while the lease is not controlled by the lessor
(2) The agency may involve things other than property while, obviously, a lease of property involves property only.
(3) The agent can bind the principal while the lessee, as such, cannot bind the lessor.
Agency from Lease of Services
1. The agent represents the principal while the lessor of services does not represent his employer
2. relationship can be terminated at the will of either principal or agent while in lease, generally, the relationship can be terminated only at
the will of the both
3. agent exercises discretionary powers while the employee has ministerial functions
4. in agency, it usually involves 3 persons: the principal, the agent, and a stranger while lease of services usually involves only two persons
NOTE: it should be understood however that an agent may incidentally render acts of service, while a lessor of services or employee may
incidentally make contracts
Agency vs. Contract with an independent contractor
a.
the agent acts under the control of the principal, while the independent contractor is authorized to do the work according to his own
method, without being subject to the other partys control, except insofar as the RESULT of the work is concerned
b.
c.
d.
the agent of the agent may be controlled by the principal while the employees of the contractor are not the employees of the
employer of the contractor
agent can bind the principal while ordinarily, the independent contractor cannot bind the employer by tort
the negligence of the agent is imputable to the principal while the negligence if the independent contractor is generally not imputable
to his employer
in agency there is a contract caused by a meeting of the minds, expressly or impliedly while in negotiorum gestio, there is only a
quasi-contract, there having been no meeting of minds. Hence, the representation was not agreed upon
agent is controlled by the principal while the officious manager follows his judgment and the presumed will of the owner
in agency the legal relation is created by the parties while in negotiorum gestio the legal relationship is created by law (occasioned of
course by the acts of the manager)
an agent usually holds no title at all while the trustee may hold legal title to the property
usually, agent acts in the name of the principal while the trustee may act in his own name
usually, agency may be terminated or revoked at any time while the trusty is usually ended by the accomplishment of the purposes
for which it was formed
agency may not be connected at all with property while trust involves control over property
agent has authority to make contracts which will be binding on his principal while trustee does not necessarily or even possess such
authority to bind the trustor or the cestui que trust
agency is really a contractual relation while a trust may be the result of the contract or not: it may be created also by law
b. according to form
oral
written
c. as to character
gratuitous
- one where the agent receives no compensation for his services
compensated or onerous
- one where the agent receives compensation for his services
d. as to extent of business covered
couched in general terms one which is created in general terms and is deemed to comprise only acts of administration
couched in specific terms one authorizing only the performance of a specific act or acts
f. as to its nature and effects
ostensible or representative one where the agents acts in the name and representation of the principal
simple or commission one where the agent acts in his own name but for the account of the principal
Form of agency
In general, there are no formal requirements governing the appointment of an agent. The agents authority may be oral or written. It may
be in public or private writing.
Agency may even be implied from words and conduct of the parties and the circumstances of the particular case. But agency cannot be
inferred from mere relationship or family ties.
Appointment of agent
It is not essential that an agent be appointed directly by the principal, but the appointment may be made through another, as by referring
an applicant to another and representing that he has authority to act, or the relation may arise out of an agent to employ the agent of the first party.
An agent appointed by the directors of a corporation to act for the corporation is an agent of the corporation and not of the directors.
Presumption of agency
General Rule:
- agency is generally not presumed. The relationship between the principal and the agent must exist as a fact.
Exception:
- a presumption of agency may arise, however, in those few cases where an agency may arise by operation of law or to prevent unjust
enrichment
Art. 1870 Form of acceptance by agent
Forms:
a.
b.
express
implied
a.
b.
c.
d.
e.
Contracts of agency as well as general powers of attorney must be interpreted in accordance with the language used by the parties
The real intention of the parties is primarily to be determined from the language used and gathered from the whole instrument.
In case of doubt, resort must be had to the situation surroundings, and relations of the parties.
The intention of the parties must be sustained rather that be defeated.
The acts of the parties in carrying out the contract will be presumed to have been done in good faith and in conformity with and not
contrary to the intent of the contract.
To make payment
To effect novation
To compromise, etc
To waive an obligation gratuitously
To convey or acquire immovable
To make gifts
To loan or borrow money
To lease realty for more than 1 year
To bind the principal to render service gratuitously
To bind the principal in a contract of partnership
To obligate principal as guarantor or surety
To create or convey real rights over immovable property
actual
express
implied
apparent or ostensible
general
special
Disclosed Principal
if at the time of the transaction contracted by the agent, the other party thereto has known that the agent is acting for a
principal and of the principals identity.
This is the usual type of agency
b. Partially Disclosed Principal
if the other part knows or has reason to know that the agent is or may be acting for a principal but is unaware of the
principals identity.
The par6tially disclosed partner may enforce against the third person the contract of the agent like any disclosed principal.
Similarly, the third has the right of action against the principal
c. Undisclosed Principal
if the party has no notice of the fact that the agent is acting as such for a principal
When authorized agent buys in his own name but really in behalf of principal
- seller has the option to look to either for payment unless:
a.
he trusted the agent exclusively;
b.
by usage and understanding of business, the agent only is held;
c.
unless the special circumstances of the case reveal that the agent was intended to be bound and the seller knew it, or was
chargeable with knowledge of it
When authority of agent is doubtful
- the action must be directed against both the principal and agent
sudden emergency
ambiguous instructions
insubstantial departure
b.
basis:
-
c.
the underlying basis of the rule is to shut the door against temptation and keep the agents eye single to the rights and
welfare of his principal
if he is expressly empowered to borrow money, he may himself be the lender at the current rate of interest for there is no danger of
the principal suffering any damage since the current rate of interest would have to be paid in case if the loan were obtained from a
third person.
If the agent has been authorized to lend money at interest, he cannot be the borrower without the consent of the principal because
the agent may prove to be a bad debtor.
if the agent or broker acted only as a middleman with the task of merely bringing together the vendor and the vendee, who
themselves thereafter will negotiate on the terms and conditions of the transaction
if the agent or broker had informed the principal of the gift or bonus or profit he received from the purchaser and his principal did not
object thereto
where the right of lien exists in favor of the agent
Definition of Sub-agent
A person to whom the agent delegates, as his agent, the performance of an act for the principal which the agent has been empowered to
perform through his representative.
Power of agent to appoint sub-agent
Unless prohibited by the principal, the agent may appoint a sub-agent. The agent, in this situation is a principal with respect to the
substitute.
Effects of Substitution.
a.
b.
c.
When the substitute is appointed by the agent against the express prohibition of the principal, the agent exceeds the limits of his authority.
All acts of the substitute in such case is VOID.
If the agent is given the power to appoint a substitute and the principal did not designate any person to be appointed, the substitution has
the effect of releasing the agent from his responsibility unless the person appointed is notoriously incompetent or insolvent.
If the agent appoints a substitute when he was not given the power to appoint one, the substitution is valid if the same is BENEFICIAL to
the principal.
The presumption is that an obligation is joint. The rule in 1894 follows the general principle respecting solidarity.
If solidarity has been agreed upon, each of the agents becomes solidarily liable:
a. For the non-fulfillment of the agency even though in this case, the fellow agents acted beyond the scope of their authority; and
b. For the fault or negligence of his fellow agents provided the latter acted within the scope of their authority.
An agent who exceeds his powers does not act as such agent, and therefore, the principal assumes no liability to third person.
When the agent contracts in his own name for an undisclosed principal.
Where the agent possesses a beneficial interest in the subject matter of the agency
Where the agent pays money of his principal to a third party by mistake or under a contract which proves subsequently to be illegal, the
agent being ignorant with respect to its illegal nature; and
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 or representation either express or implied.
When the Principal is in estoppel, therefore innocent third persons should not be prejudiced.
RATIFICATION vs ESTOPPEL
Ratification differs from estoppel mainly in that the former rests on intention, express or implied, regardless of prejudice to another,
whereas estoppel rests on prejudice rather than intention.
Apparent authority vs. authority by estoppel
Apparent authority is that which though not actually granted, the principal knowingly permits the agent to exercise or holds him out as
possessing. Authority by estoppel arises in those cases where the principal , by his culpable negligence, permits his agent to exercise powers not
granted to him, even though the principal may have no notice or knowledge of the conduct of the agent.
Liability of Principal because of Estoppel
-instance when solidarity is imposed by la
-principal is in estoppel and therefore innocent third parties should not be prejudiced
Art. 1912
In the absence of stipulation that the agent shall advance the necessary funds, the principal must advance to the agent upon his request
the sums necessary for the execution of the agency
.
Even if the agency is gratuitous,1912 will also apply; hence, the agent will still be entitled to reimbursement
Art. 1913
Obligation of the principal to reimburse agent for damages
Article is based on equity, and applies even if the agency is gratuitous.
Art.1914
Right of agent to retain by way of pledge
-speaks of one kind of pledgepledge by operation of law
Nature of agents right of lien
(1)Right limited to subject matter of agency
(2)
Right acquires possession by agent of subject matter
(3)
In the absence of a ratification of a sub-agents acts by the principal, right generally only in favor of the agent.
Art.1915
Solidarity liability of principals
Solidarity is the rule under 1915 because of the common transaction (even if the agent have been appointed
separately).
Requisites for solidarity liability
(1)There are two or more principals;
(2)The principals have all concurred in the appointment of the same agent; and
(3)The agent is appointed for a common transaction or undertaking.
Art.1916
-the article is subject, however, to the rules under art. 1544.
Art. 1917
Liability to third persons of agent or principal who contracts separately
-if agent is in good faith, the principal shall be liable in damages to third persons whose contract must be rejected.
-agent alone in bad faith is solely responsible
Art.1918
In four cases provided in this article, the principal I not liable for expenses incurred by the agent.
Reasons :
Under no.1, is to punish the agent; for the exception, the acceptance of benefits is implied ratification;
Under no.2, it is self-evident;
Under no.3 the agent is guilty of bad faith and lack of diligence; and
Under no.4, an express stipulation which is not contrary to law, morals, good customs, public order, or public policy is binding between the
parties
IV. Modes of Extinguishment of Agency
Art. 1919 How agency is extinguished
a.
b.
c.
d.
e.
f.
revocation;
withdrawal of the agent;
death, civil interdiction, insanity or insolvency of the principal or agent;
dissolution of the firm or corporation
accomplishment of the object or purpose of the agency;
expiration of the period
a.
appointment of new agent is an IMPLIED REVOCATION of the previous agency from the day on which notice was given
thereof.
in case of true inconsistency, the agency is revoked, for there would no lo0nger be any basis therefore
another case of implied revocation
the general power is impliedly revoked as to matters covered by the special power.
It is indispensable that notice of the revocation be communicated in some way to the agent
when the agency is created not only for the interest of the principal and the agent; and
when the agency is created for the mutual interest of both the principal and the agent