Notes on De Leon Partnership C c ,) L L E E N ? 4 ?

Exception: if by their acts, consent,representations, third persons were led to believethat they are partners in a non-existing partnership ? Example: A and B are not partners. However, A,with the consent of B, told X that they arepartners. So as to X, A and B are partnersCo-ownership or co-possession : ? Intention to obtain profits o In partnership, the profits must bederived from the operation of a businessor un derta ing and not merely fromproperty ownership o There is no presumption of partnershipbetween co-owners because there mustbe a c lear intention to a partnership ? Existence of fiduciary relationship o There is no fiduciary relationshipbetween co-owners o Persons may become co-owners withouta contract. For example, by inheritance.But they cannot be partners without acontract ? Partnership distinguished from co-ownership Partnership Co-ownershipCreation Generally createdby law. It mayexist without ac ontractAlways created bya contract, eitherexpress or impliedJuridicalpersonality Has a juridicalpersonalityNo juridicalpersonalityPurpose To obtain profit Common enjoyment of athing. Does notnecessarilyinvolve sharing of profitsDuration No li mitation Maximum is 10yearsDisposal of interestA partner cannotdispose his inter estas to ma e thetransferee apartnerMay dispose hisinterestPower to act withthir d personsPartner may bindthe partnership,unless there is astipulation to thecont raryCo-owner cannotrepresent the co-ownershipEffect of death Dissolves thepartne rshipDoes notnecessarilydissolve thepartnership Sharing of gross returns not presumptive evidence of partnership ? Reason: because in a partnership, the partners,being interested in the success a nd failure of thebusiness, share in the profits only after satisfyingall partner

ship liabilitiesSharing of gross profits: ? Prima facie evidence of partnership o Sharing of profits and losses is a strongpresumptive evidence of a partnership.C onversely, lac of such agreementstrongly negates the existence of apartnership o Sharing of profits and losses is notconclusive evidence. This may berebutted by other circumstances ? When existence of partnership will not be inferreddespite share in the profits o Profits received as payment of a debt byinstalment or otherwise ? Example: A is a creditor of apartnership X. A wasauthorized to manage thebusines s. A will receivecompensation, and a share in thenet profits as payment for thed ebt o Profits received as wages of an employeeor rent to a landlord ? Example: A is an employee of partnership X. instead of a fixedsalary, A agreed t o receive acertain percentage of themonthly net profits ? Example: A is the owner of thebuilding where partnership Xholds its office. As p ayment forrent, A will receive a share if thenet profits. o Profits received as an annuity to a widowor representative of a deceased partner ? Example: A is the widow of apartner in Partnership X. A willreceive an annuity b ased on acertain percentage of the netprofits in exchange for thecontinuation of the partnershipwithout liquidation andsatisfaction of the deceased partner?s interest o Profits received as interest on a loan ? Example: A is a creditor of partnership X. A agreed that the Notes on De Leon Partnership C c ,) L L E E N ? 16

? Things contributed to be sold partnership bearsris of loss for there cannot be any doubt that thepartnership was intended to be the owner ? Things brought and appraised in the inventory partnership bears ris of loss because the intentionof the parties was to contr ibute to the partnershipthe price of the things contributed with anappraisal (im plied sale ma ing the partnershipowner of the said things, the price beingrepres ented by their appraised value) Art. 1796. The partnership shall be responsible to everypartner for the amounts he may have disbursed onbehalf of the partnership and for the correspondinginter est, from the time the expense are made; it shallalso answer to each partner for the obligations he mayhave contracted in good faith in the interest of thepartn ership business, and for ris s in consequence of itsmanagement. Responsibility of the partnership to the partners ? Every partner is an agent of the partnership for thepurpose of its business o Partner is not personally liable as long ashe is not at fault o But the partner is not given the right of retention if he is not reimbursed ? Obligations of the partnership o Refund amount disbursed by the partneris behalf of the partnership with interest from the time expenses are made o Answer for the obligation the partnermay have contracted in good faith o Answer for ris s in consequences of itsmanagement Art. 1797. The losses and profits shall be distributed inconformity with the agr eement. If only the share of eachpartner in the profits has been agreed upon, th e shareof each in the losses shall be in the same proportion. In the absence of stipulation, the share of each partnerin the profits and losse s shall be in proportion to whathe may have contributed, but the industrial part nershall not be liable for the losses. As for the profits, theindustrial partner shall receive such share as may be just and equitable under the circumstances. If besideshis services he has contributed capital, he shall alsoreceive a share in the profits in proportion to hiscapital. Rules for distribution of profits and losses ? Distribution of profits o The partners share the profits accordingto their agreement subject to Art. 1816 o

If there is no such agreement ? Share of each capitalist partner shall be in proportion to hiscapital contribution. This rule isbased on the pre sumed will of the partners ? Share of industrial partner must be satisfied first before thecapitalist partners divide theprofits. Amount will be basedon what is just and equitableunder the circumstances. Theshare of an industrial partner inthe profits is not fixed, as in thecase of capitalist pa rtners,because it is very difficult toascertain the value of servicesA partner i s entitled to receive only his share of the profitsactually realized by the vent ureEven when assurances of huge profits were made by apartner, in the absence of fraud, the other partner cannotclaim right to recover profits promised. This is especiallytrue when the business was highly speculative and turnedout to be a f ailureHidden ris s in any business venture have to be considered ? Distribution of losses o According to the Agreement of thePartners, subject to Art. 1799 o If no agreement, but the contractprovides for the share of the partners inthe pr ofits, the share of each in the lossesshall be according to the profit-sharingra tio ? However, the industrial partnershall NOT be liable for losses ? To determine profits or losses,all transactions must beconsidered, not only onep articular transaction o If also no profit-sharing stipulated in thecontract, losses shall be borne by th epartners in proportion to their capitalcontributions ? But the purely industrial partnershall NOT be liable for thelosses Notes on De Leon Partnership C c ,) L L E E N ? 17 Art. 1798. If the partners have agreed to intrust to athird person the designati on of the share of each one inthe profits and losses, such designation may beimp ugned only when it is manifestly inequitable. In nocase may a partner who has be gun to execute thedecision of the third person, or who has not impugnedthe same

within a period of three months from the timehe had nowledge thereof, complain of such decision. The designation of losses and profits cannot beintrusted to one of the partners. Designation by a 3 rd person of share in profits and losses ? Delegation to a 3 rd person designation of sharesin the profits and losses may be delegate to 3 rd person by common consent o Designation must be to 3 rd person, andnot to one of the partners. In accordancewith rule in contracts that fulfilment of contract cannot be left to the will of oneof the contracting parti es o Prohibition in 2 nd paragraph necessary toguarantee impartiality ? Binding force of designation designation by 3 rd person generally binding unless manifestlyinequitable o Partner who has begun to executedecision of 3 rd person or who fails toimpugn the same within 3 months fromtime he had nowledge of it can nolonger complain o In this case, partner guilty of estoppel ordeemed to have given consent orratifi cation to designation o 3 month period only so operations of partnership will not be paralyzed Art. 1799. A stipulation which excludes one or morepartners from any share in th e profits or losses is void. Stipulation excluding a partner from any share in profits orlosses ? Stipulation generally void, but partnershipsubsists o In general, law does not allow astipulation excluding one or morepartners from a ny share in profits andlosses ?

Partnership must exist forcommon benefit and interest of partners o Hence, contract excluding one or morepartners from share contravenes the verypur pose of a partnership o However, although the stipulation isvoid, the partnership is otherwise validand the profits or losses shall beapportioned as if there was no stipulationon the s ame ? If also no profit-sharingstipulated in the contract, lossesshall be borne by the partners inproportion to their capitalcontributions (Art. 1797) ? Stipulation, a factor to show no partnership exists o Where parties expressly stipulate thatthere shall be no liability for losses, or where from the nature of the contract, itis clear that a party did not intend to share in the losses, such fact may be anindicator/ factor in determining that no partnership exists ? Where person excluded not intended by parties tobecome a partner o Stipulation is valid o When one of several persons engaged inan enterprise agreed to assist byadvancing money and to share in thelosses but not to receive any part of theprofits, whic h will be divided among theothers exclusively, is not deemed to be apartner o But if he represents to others or allowshimself to be held as a partner to a 3 rd person who enters into a contract withthem believing him to be such partner,he is liable ? Where person excluded from losses is industrialpartner o Naturally valid because Art. 1797specifically excludes an industrialpartner from losses o But this is without prejudice to the rightsof 3 rd persons o Industrial partner is excluded because hecannot withdraw his labor or efforts,un li e a capitalist partner. Also when noprofits are realized, then he would havew or ed in vain and has alreadycontributed his share in the loss ? Where stipulation provides doe unequal shares

o Partners are allowed to stipulate forunequal shares in the profits or losseseven if their contributions are equal o Unless inequality is so gross that it is, ineffect, a simulated form or attempt toexclude a partner from any share in theprofits or losses Art. 1800. The partner who has been appointedmanager in the articles of partners hip may execute all Notes on De Leon Partnership C c ,) L L E E N ? 18 acts of administration despite the opposition of hispartners, unless he should a ct in bad faith; and hispower is irrevocable without just or lawful cause. Thevo te of the partners representing the controllinginterest shall be necessary for s uch revocation of power. A power granted after the partnership has beenconstituted may be revo ed at any time. Rights and obligations with respect to managementTwo distinct cases of appointme nts ? Appointment as a manager in the Articles of Partnership o Partner appointed by common agreementin articles of partnership may execute alla cts of administration, but not those of strict ownership, notwithstanding theopp osition of the other partners, unlesshe should act in bad faith o His power is revocable only upon justand lawful cause and upon vote of thepartne rs representing the controllinginterest o Reason: revocation represents a changein the terms of the contract o In case of mismanagement, other partnersmay avail of usual remedies, includingap plication for dissolution of partnershipby judicial decree ? Appointment as manager after the constitution of the partnership o Management granted after partnershiphas been constituted independently of theart icles may be revo ed at any time forany cause whatsoever o

Revocation not founded on change of will of partners, the appointment notbeing a condition of the contract o It is merely a contract of agency, whichmay be revo ed any timeArt. 1800 refers to a partner appointed as manager, and notto a strangerAs a rule, the partner is not entitled to compensation for hisservices other than his share of the profit sScope of power if a managing partner ? As a general rule, a partner appointed as managerhas all powers of a general age nt as well asincidental powers necessary to carry out object of partnership in t he transaction of its business ? Exception is when the powers of the manager arespecifically restrictedCompensati on for services rendered ? Partner generally not entitled to compensation o Each partner in ta ing care of the jointproperty, managing the partnershipaffair s, and directing the partnershipbusiness is practically ta ing care of hisown in terest or managing his ownbusiness o He is not, in the absence of a contract,express or implied, entitled tocompensat ion beyond his share of theprofits for services rendered o In the absence of any prohibition in thearticles of partnership for the payment of salaries to general partners, there isnothing to prevent the partners to ente rinto a collateral verbal agreement to thateffect ? Exceptions in proper cases, the law may imply acontract for compensation o Employment of a co-partner in a capacityother than that of a partner. e.g. toperform clerical services o Extraordinary neglect on the part of onepartner to perform his duties, imposingt he entire burden on the remainingpartner o To do wor for a co-partner outside andindependent of the co-partnership, andsha ll become personally liable therefore o Partners exempted by terms of partnership from rendering services o Where one partner is entrusted withmanagement and devotes his whole timethereto while the other partners attend totheir individual business giving no timeor att

ention to the business of the firm o When one partner is exempt fromrendering personal services and he doesrender suc h service or where servicesrendered are extraordinary Art. 1801. If two or more partners have been intrustedwith the management of the partnership withoutspecification of their respective duties, or without astipul ation that one of them shall not act without theconsent of all the others, each one may separatelyexecute all acts of administration, but if any of themshould o ppose the acts of the others, the decision of themajority shall prevail. In case of a tie, the matter shallbe decided by the partners owning the controllinginte rest. Notes on De Leon Partnership C c ,) L L E E N ? 19 Where respective duties of two or more managing partnersnot specified ? Each one may separately perform acts of administration o If one or more managing partners opposeacts of others, decision of majority of t hemanaging partners shall prevail ? Right to oppose can beexercised only by thoseentrusted with management of partne rship and not by anypartner o In case of tie, matter shall be decided byvote of partners owning controllingint erest (more than 50% capitalinvestment) o If articles do not specify duties of partners and limitations of management ,one partner has no more powers than theothers in the conduct and management of the business ? Requisites for application of rule o Two or more partners have beenappointed as managers o There is no specification of theirrespective duties o There is no stipulation that one of themshall not act without the consent of all theothers Art. 1802. In case it should have been stipulated thatnone of the managing partn ers shall act without theconsent of the others, the concurrence of all shall ben ecessary for the validity of the acts, and the absence ordisability of any one o f them cannot be alleged, unlessthere is imminent danger of grave or irreparable

injuryto the partnership. Where unanimity of action stipulated ? Concurrence necessary for validity of acts o Partners may stipulate that none of managing partners shall act withoutconsent o f the others o Consent can be so indispensable thatneither absence nor disability of anypartner cannot be used to dispenserequirement ? The only exception is whenthere is imminent danger of grave and irreplaceable in jury tothe partnership under Art. 1794 ? Rule where there is opposition by a managingpartner o Rule that in cases of imminent danger of grave or irreparable injury, a managing partner may proceed alone withoutconsent of others, does not apply when amanagin g partner objects to the proposedact ? Consent of managing partners not necessary inroutine transactions o The authority to purchase carries with itthe implied authority to purchase oncre dit o The requirement of written authorityrefers to formal and unusual writtencontract Art. 1803. When the manner of management has notbeen agreed upon, the following rules shall be observed: (1) All the partners shall be considered agentsand whatever any one of them may do aloneshall bind the partnership, without prejudice tothe provisions of Articl e 1801. (2) None of the partners may, without theconsent of the others, ma e any importa ntalteration in the immovable property of thepartnership, even if it may be usef ul to thepartnership. But if the refusal of consent by theother partners is mani festly prejudicial to theinterest of the partnership, the court'sintervention ma y be sought. Notes on De Leon Partnership C c ,) L L E E N ? 52 Dissolution of a limited partnership ?

Causes o Misconduct of a general partner o Fraud practiced on the limited partner bythe general partner o Retirement, death, etc. of a generalpartner o When all the limited partners ceased tobe such o Expiration of the term for whichpartnership was to exist o Mutual consent of the partners before the expiration of the firm?s original term ? Suit for dissolution o A limited partner may bring a suit for thedissolution of the firm, an accounting ,and the appointment of a receiver whenthe misconduct of a general partner or th einsolvency of the firm warrants it.Similarly, creditors of a limitedpartnership are entitled to such relief where the firm is insolvent o A limited partner may have thepartnership dissolved and its affairswound up when he rightfully butunsuccessfully demands the return of hiscontribution, or the o ther liabilities of thepartnership, except liabilities to generalpartners and to limited partners onaccount of their contributions, have notbeen paid, or the pa rtnership property isinsufficient for their payment, and thelimited partner woul d otherwise beentitled to the return of his contribution ? Notice of dissolution o When the firm is dissolved by theexpiration of the term fixed in thecertificate, notice of the dissolution neednot be given since the papers filed andrecorded i n the SEC are notice to all theworld of the term of the partnership.Where, howev er, the dissolution is by theexpress will of the partners, thecertificate shall be cancelled, and adissolution of the partnership is noteffected until there has been compliancewith the requirements in this respect ? Winding up o When a limited partnership has been dulydissolved, the general partners have the right and power to wind up its affairs. Itis not the duty of the limited partner or of the representatives of a limited partner tocare for or collect the assets of the firmPriority in the distribution of partnership assets ?

The partnership liabilities shall be settled in thefollowing order: o Those due to creditors, including limitedpartners, except those on account of th eircontributions, in the order of the priorityas provided by law; o Those due to limited partners in respectto their share of the profits and otherc ompensation by way of income on theircontributions; o Those due to limited partners for thereturn of the capital contributed; o Those due to general partners other thanthat for capital and profits; o Those due to general partners in respectto profits; o Those due to general partners for thereturn of the capital contributed ? Partnership creditors are entitled to foistdistribution, followed by limited par tners whota e priority over general partners ? Note that in general partnership, the claims of thegeneral partners in respect o f capital enjoypreference over those in respect of profitsShares of limited part ners in partnership assets ? In the absence of any statement in the certificateas to the share of the profits which each partnershall receive by reason of his contribution andsubject to any subsequent agreement, limitedpartners share in the partnership assets in respec tto their claims for capital and profits in proportionto the respective amounts of such claims ? This proportional sharing by the limited partnersta es place where the partnersh ip assets areinsufficient to pay such claimsPriority of claims of limited partne rs ? The members of a limited partnership, as amongthemselves, may include in the par tnership articlesan agreement for priority of distribution on thewinding up of p artnership affairs. Such agreementordinarily becomes controlling as between thep artners themselves. In the absence of anycontrary agreement, all the limited par tners standupon equal footing ? The claims of limited partners for profits and othercompensation by way of incom e and return of capital contributions rate ahead with respect to allclaims of ge neral partners. For claims arisingfrom individual loans to, or other businesstra nsactions with, the partnership, other than forcapital contributions, the limite d partner is placedin the same category as a non-member creditor. If return is m ade to a limited partner of hiscontribution before creditors are paid, he is und er

Notes on De Leon Partnership C c ,) L L E E N ? 53 an obligation to reimburse such payments, withinterest, so far as necessary to s atisfy claims of creditors ? In the event of insolvency of the partnership, itscreditor ta es preference over both general andlimited partners Art. 1864. The certificate shall be cancelled when thepartnership is dissolved o r all limited partners cease tobe such. A certificate shall be amended when: (1) There is a change in the name of thepartnership or in the amount or characte r of the contribution of any limited partner; (2) A person is substituted as a limited partner; (3) An additional limited partner is admitted; (4) A person is admitted as a general partner; (5) A general partner retires, dies, becomesinsolvent or insane, or is sentenced to civilinterdiction and the business is continuedunder Article 1860; (6) There is a change in the character of thebusiness of the partnership; (7) There is a false or erroneous statement inthe certificate; (8) There is a change in the time as stated in thecertificate for the dissolutio n of the partnershipor for the return of a contribution; (9) A time is fixed for the dissolution of thepartnership, or the return of a co ntribution, notime having been specified in the certificate, or (10) The members desire to ma e a change inany other statement in the certificat e in orderthat it shall accurately represent the agreementamong them. When certificate shall be cancelled or amended ? The certificate shall be cancelled, not merelyamended: o When the partnership is dissolved otherthan by reason of the expiration of thete rm of the partnership o When all the limited partners cease to besuch. A limited partnership cannot exis tas such if there are no more limitedpartners (Art. 1843) ? In all other cases, only an amendment of thecertificate is required (Art. 1864, Nos. 1-10)

Art. 1865. The writing to amend a certificate shall: (1) Conform to the requirements of Article1844 as far as necessary to set forth clearly thechange in the certificate which it is desired toma e; and (2) Be signed and sworn to by all members, andan amendment substituting a limite d partneror adding a limited or general partner shall besigned also by the membe r to be substituted oradded, and when a limited partner is to besubstituted, the amendment shall also be signedby the assigning limited partner. The writing to cancel a certificate shall besigned by all members. A person desiring the cancellation oramendment of a certificate, if any person d esignated inthe first and second paragraphs as a person who mustexecute the writ ing refuses to do so, may petition thecourt to order a cancellation or amendment thereof. If the court finds that the petitioner has a rightto have the writing executed b y a person who refuses todo so, it shall order the Office of the Securities andE xchange Commission where the certificate is recorded,to record the cancellation or amendment of thecertificate; and when the certificate is to be amended,the co urt shall also cause to be filed for record in saidoffice a certified copy of it s decree setting forth theamendment. A certificate is amended or cancelled whenthere is filed for record in the Offic e of the Securitiesand Exchange Commission, where the certificate isrecorded: (1) A writing in accordance with the provisionsof the first or second paragraph, or (2) A certified copy of the order of the court inaccordance with the provisions of the fourthparagraph; (3) After the certificate is duly amended inaccordance with this article, the am endedcertified shall thereafter be for all purposes thecertificate provided for in this Chapter. Requirements for amendment and cancellation of certificate ? Requirements to amend o Amendment must be in writing; o It must be signed and sworn to by all themembers; and o The certificate, as amended, must be filedfor record in the SEC ? Requirements to cancel o The same as the requirements to amend o If cancellation is ordered by the court,certified copy of such order shall be fi ledwith the SEC ?

Approval by Commission is not required for eithercase Notes on De Leon Partnership C c ,) L L E E N ? 54 Art. 1866. A contributor, unless he is a general partner,is not a proper party t o proceedings by or against apartnership, except where the object is to enforce alimited partner's right against or liability to thepartnership. Limited partner, a mere contributor ? A limited partner is a mere contributor. He ispractically a stranger in the limi ted partnershipwhose liability is limited to his interest in the firm,without an y right and power to participate in themanagement and control of the business.Re lationship between limited partner andpartnership is not one of trust and confid enceParties to action by or against partnership ? Since limited partners are not principals inpartnership transactions, their liab ility, as ageneral rule, is to the partnership, not the creditorsof the partners hip. For the same reason, they haveno right of action against 3 rd persons againstwhom the partnership has any enforceable claimWhen limited partne r a proper party ? Where the object t o enforce limited partner?s individual rights against the partnership, and torecover damages for violation o f such right ? When it is a proceeding to enforce his liability tothe partnership ? Creditors may go against him if he had withdrawnsums from the capital of the fir m with outstandingdebts on a voluntary dissolution Nature of limited partner?s interest in form ? Limited partner?s contributions are not a loan and he is not a creditor of the firm because of suchcontribution ? Limited partner?s contribution is not a mereinvestment ? Limited partner is, in a sense, an owner, which ininterest in the capital if the firm and its business as such, but he has no property right in the firm?s assets; but in accordance with statutoryprovisions, a limited partner may be a c

o-ownerwith his partners of partnership property, holdingas a tenant in partners hip and his interest may bedefined as a tenancy in partnership ? Limited partner?s interest is in personal property , and it is immaterial whether the firm?s assets consist of realty or tangible or intangiblepersonality ? The nature of the limited partner?s interest in the firm amounts to a share in the partnership assetsafter its liabilities have been deducted and abalance struc . The interest is a chose in action ,and hence intangible personal property Art. 1867. A limited partnership formed under the lawprior to the effectivity of this Code, may become alimited partnership under this Chapter by complyingwith the provisions of Article 1844, provided thecertificate sets forth: (1) The amount of the original contribution of each limited partner, and the tim e when thecontribution was made; and (2) That the property of the partnershipexceeds the amount sufficient to dischar ge itsliabilities to persons not claiming as general orlimited partners by an am ount greater than thesum of the contributions of its limited partners. A limited partnership formed under the law prior to theeffectivity of this Code, until or unless it becomes alimited partnership under this Chapter, shall conti nueto be governed by the provisions of the old law. Provisions for existing limited partnerships ? A limited partnership formed under the formerlaw may become a limited partnershi p bycomplying with the provisions of Art. 1844,provided the certificate sets for th the informationrequired by Art. 1867. until or unless it becomes alimited par tnership under this chapter, it shallcontinue to be governed by the provisions o f theold law