OBLIGATIONS OF THE PARTNERS AMONG THEMSELVES AND AS TO THE PARTNERSHIP

AND IN CASE OF NON-PERFORMANCE OF THE OBLIGATION

3 Obligations of the partners:

1.) To make good his promised contribution; 2.) Fiduciary duties; and

3.) To participate in the losses incurred by the partnership business.

1. To make good his promised contribution: A. Money:

In order to know the remedies that may be availed of by the non-defaulting partners and the partnership, it must be known first what was promised by the partner, whether he promised to contribute money, property or industry.

If the partner promised to contribute money, for instance, the partners agreed to contribute 1 Million with 4 partners, without an agreement as to respective amount to be contributed, the law provides that they will have to share equally. Thus, in this example, 1 Million will have to be divided into 4 or the respective contribution will be 250,000. If one partner failed to make good his promised contribution which is a sum of money, he can be held liable by the non- defaulting partners up to the amount promised plus interest. If no rate was stipulated by the parties, it will be the legal rate of 12%, because this is forbearance in money. Aside from paying the interest, which is unusual, not only will that defaulting party be held liable to pay interest, he will also be liable to pay damages.

Normally, in obligations involving money, in case of damage incurred by another party, the liability will only be payment of interest. In partnership, not only will he be liable to pay interest, but also of damages.

Remedies that may be invoked by the non- defaulting partners:

1.) Specific performance - the other partners can compel him to make good his promised contribution.

2.) Dissolution - may be an option by the non-defaulting partners, if that is the only amount that they are expecting for the partnership.

Q: Can a non-defaulting partner rescind the partnership agreement?

A: In a SC decision, it held that rescission is not a remedy of the non-defaulting partners. Under the law, the defaulting partners are treated as a debtor

of the partnership by specific provision of the law. Therefore, the SC held that provision prevails over the general rule in obligations and contracts under Art. 1191, wherein rescission may be a remedy in case of serious breach.

B. Property:

If a partner promised to contribute property, it must be determined as to what was really contributed: was it the property itself or the use of the property.

If it was the ownership of the property that was contributed then he would have the obligation to deliver and transfer ownership, aside from that, under the law, he would have the obligation to warrant the thing.

Before the delivery of the thing to the partnership, who will bear the loss? The partner will bear the loss. The partnership will bear the loss when the thing is already in its possession

If what was contributed was merely the use of the property, the risk of loss will be with the contributing partner for there was no transfer of ownership in this case. Under the res perit domino rule, even if possession of the thing is with the partnership, so long as there is no fault on the part of the partnership, then the contributing partner- owner will bear the loss.

EXCEPTIONS:

1.) When the thing contributed is fungible; 2.) or it cannot be kept without

deteriorating;

3.) If contributed by the partner to be sold; and

4.) When it has an appraised value of such property.

In all these circumstances, it is the partnership which will bear the loss if the thing was lost or destroyed while in the possession of the partnership.

Again, if the contributing partners fails to make good his promise to contribute property, he will be treated as a debtor of the partnership, thus specific performance will likewise be a remedy.

C. Industry

If a partner fails to render service as promised, will specific performance be a remedy? Ans.: Definitely not. It would be a violation of his rights against involuntary servitude. The remedy would be to demand for the value of the service plus damages. It can be easily done because there is an industry rate.

2. Fiduciary Duties:

The duty to observe utmost good faith, honesty, fairness, integrity in being with each other. This

duty commences even during the negotiation stage.

Test to determine whether there was a violation of this duty:

Whether the partner has an advantage himself at the expense of the partnership. If he has such advantage at the expense of the partnership, then there is a breach of the fiduciary duty. There need not be a proof of evil motive so long as he has this advantage at the expense of the partnership.

This duty lasts, normally, until the termination of the partnership.

Q: May a partner may be held liable for breach of fiduciary duty even after the termination of the partnership?

A: Yes. The SC held that even if the act of a partner was made after the termination of the partnership, if the foundation of that act was made during the existence of the partnership that can still be considered as a breach of fiduciary duty. In other words, pinaghandaan na nya yun act during the existence of the partnership, however, it was executed only after the termination of the partnership.

3. Participate in the Losses:

Q: What will be the share of the partner in the losses incurred in the partnership?

A: Consider first whether there was a stipulation as to losses or there was no stipulation.

If there was a stipulation as to losses, the first scenario would pertain to, for instance, A, B and C agreed to share 50%, 30% and 20% of the losses. This will be a valid and binding stipulation among the partners.

Q: Would this still be a valid stipulation if one of them is an industrial partner?

Atty. Uribe: Yes, this would still be a valid stipulation. If the industrial partner agreed to share in the losses, then who are we to deny him that? Q: What if in the stipulation regarding losses, one or more of the partners is excluded in sharing with the same, what will be the status of the stipulation?

A: It depends on who was excluded. If the excluded partner is a capitalist partner, that stipulation is definitely void, 100%.

If the partner excluded is an industrial partner, it depends. As among the partners, this stipulation is valid, however, this is void among third persons. In other words, despite the stipulation among partners, in excluding the industrial partner in sharing in the losses, the creditors of the partnership can still hold such industrial partner liable for his contractual

obligations. The remedy of the industrial partner, if held liable, is to go after his partners, for the agreement is valid among themselves.

Q: What if there is no stipulation as to the sharing of the losses, or that the stipulation in void?

The first scenario is, there is an agreement as to profits. If there is an agreement as to profits, then the sharing in the profits will be the same basis in the sharing of the losses which is a very reasonable rule. Thus, for instance, if A, in the agreement, is entitled to 90%, B-% and C-5%, then it would also be reasonable that A share 90% of the loss, B&C 5% of the loss respectively. The last scenario, there is no stipulation as to losses and there is also no stipulation as to profits. In this case, it would depend on their capital contribution. Their share in the losses would depend on their capital contribution.

Thus, in this scenario, would the industrial partner share in the losses?

A: Wala, kasi wala syang capital contribution. Note: Under Art. 1816, even if he is excluded by the partners/partnership in sharing in the losses, that is a void stipulation as to third persons and can still hold the industrial partner liable as to the contractual obligation of the partnership.

Q: If indeed a partner, assuming that the assets of the partnership are not sufficient to cover the obligations of the partnership, what would be the nature of the obligation of the partner? Would the partners be held solidarily liable? Or would they only be held jointly liable?

A: It would depend on the nature of the liability. For contractual obligations, as a rule, the partners would only be jointly liable, unless they bound themselves solidarily, for contractual obligations. However, under Art. 1824, if the obligation arose from a tortuous act or a wrongful act under Arts. 1822 and 1823, for example, while in the performance of his obligation, a partner received a sum of money from one of its clients which sum of money was misappropriated that partner, such partner will be held solidarily liable with his partners and with the partnership. Also, if a sum of money was delivered, even if it was delivered to the partnership, however, one of the partners misappropriated the same, all the partners will be considered solidarily liable among themselves and with the partnership.

In the United Pioneers General Construction Case, the creditor filed a collection suit impleading the 5 general partners. During the pendency of the case, the creditor asked for the dismissal of the action as against one of the partners. Ultimately, the court decided in favor of

the plaintiff. Assuming the amount which was found to be the liability of the partnership was Php100,000, the court ruled that the partnership will have to pay the said amount and in case that the assets of the partnership will not be sufficient to cover this indebtedness, the partners will be liable to pay equally. So, naging issue yung “equally,” meaning silang apat na lang? for the case as against one of the partners was dismissed. If the amount of the obligation is 100,000, should they be liable 25,000 each or 20,000 each including the 5th partner?

The SC ultimately held, in this case, that the liability of the partners is only joint, therefore, the condonation of the liability of one partner will not increase the liability of the other partners. Even if the partnership has no assets remaining, each partner shall only be held liable up to his share in the partnership indebtedness. Thus, if the debt is 100,000 and there is no agreement as the share in the losses, they have to share in the losses, equally into 20,000, yung apat na lang na defendants, kasi yung isa, condoned na yung obligation.

OBLIGATIONS OF PARTNER RE: 3RD _PERSONS