PARTNERSHIP TITLE IX 1ST ASSIGMENT: ARTICLES 1767 – 1783 [NCC] Art. 1767. By the 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. Two or more persons may also form a partnership for the exercise of a profession. • Partnership’ Defined - It is 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 a profession. (See Art. 1767). It is also a status and a fiduciary relation subsisting between persons car- rying on a business in common with a view on profit. Characteristics of the Contract (a) The contract is consensual, because it is perfected by mere consent, although such consent must be manifested in certain cases by the proper formalities; bilateral or multi-lateral, because it is entered into between two or more persons; nominate, because it is designated by a specific name; principal, because its existence does not depend on the life of another contract; onerous, because certain contributions have to be made; and preparatory, in the sense that after it has been entered into, other contracts essential in the carrying out of its purposes can be entered into. (See 4 Sanchez Roman 519). (b) There must be a contribution of money, property or industry to a common fund (credit, such as that evidenced by a promissory note, or even mere goodwill — economic goodwill or commercial credit, which is the sheer ability to obtain funds on credit — may be contributed for both credit and goodwill are considered properties — but not mere “political credit” or personal influence, since this may be contrary to good customs) (c) The object must be a lawful one. (Art. 1770, Civil Code). (d) There must be an intention of dividing the profit among the partners (Art. 1767) since the firm is for the common benefit or interest of the partners. (Art. 1770, Civil Code). NOTE: The object must be for profit and not merely for common enjoyment; otherwise, only a co-ownership has been formed. However, pecuniary profit need not be the only aim; it is enough that it is the principal purpose. Thus, other ends — like social, moral, or spiritual objectives — may also properly exist (e) There must be the affectio societatis — the desire to formulate an ACTIVE union (Fernandez v. De la Rosa, 1 Phil. 671) with people among whom there exist mutual confidence and trust (delectus personarum). ‘Partnership’ Distinguished from a ‘Corporation’
DISTINGUISHING FACTOR PARTNERSHIP CORPORATIONS
(a) HOW CREATED (b) HOW LONG IT EXISTS (c) LIABILITY TO STRANGERS (d) TRANSFERABILITY OF INTEREST (e) ABILITYTO BIND THE FIRM (a) VOLUNTARY agreement of parties (b) no time limit except agreement of parties (c) may be liable with their private property beyond their contribution to the firm (d) even if a partner transfers his interest to another, the transferee does not become a partner unless all other partners consent (This is due to the principle of mutual trust and confidence - the “delectus personarum.”) (a) created by the state in the form of a special charter or by a general enabling law (The Corporation Code) (b) not more than 50 years; (Sec. 11, Corp. Code), may be reduced, but never extended (c) liable only for payment of their subscribed capital stock (d) a transfer of interest makes the transferee a stockholder, even without the consent of the others (e) generally, the stockholders cannot bind corporation since they are not agents thereof
(f) MISMANAGEMENT (g) NATIONALITY (h) ATTAINMENT OF LEGAL PERSONALITY (i) DISSOLUTION (e) generally, partners acting on behalf of the partnership are agents thereof; consequently they can bind both the firm and the partners (f) a partner can sue a partner who mismanages (g) a partnership is a national of the country it was created (h) the firm becomes a juridical person from the time the contracts begins (i) death, retirement, insolvency, civil interdiction, or insanity of a partner dis- solves the firm (f) A stockholder cannot sue a member of the board of directors who mis-manages: the action must be in the name of the corporation (g) a corporation is a national of the country under whose laws it was incorporated, except for wartime purposes or for the acquisition of land, natural resources and the operation of public utilities in the Philip- pines, in which case the veil of corporate identity is pierced and we go to the nationality of the controlling stockholders (h) the firm be- comes a juridical person from the time it is registered in the Securities and Exchange Com- mission, and all requisites have been complied with (i) such causes do not dissolve a corporation ‘Ordinary Partnership’ Distinguished from the ‘Conjugal Partnership of Gains’
FACTORS ORDINARY PARTNERSHIP CONJUGAL PARTNERSHIP
(a) HOW CREATED (b) LAW THAT GOVERNS (c) LEGAL PERSONALITY (d) COMMENCEMENT OF THE PARTNERSHIP (e) PURPOSE (f) DIVISIONOF PROFITS (g) MANAGEMENT (h) DISSOLUTION (i) LIQUIDATION OF (a) by will or consent of the parties (b) in general, it is the will of the partners that governs matters like object, length of existence, etc.; the law is only subsidiary (c) possesses a legal personality (Art. 1768, Civil Code) (d) begins from the moment of the execution of the contract but a contrary stipulation is allowed (Art. 1784, Civil Code) (e) formed for profit (f) as a rule, profits are divided ac- cording to previous agreement; and if there is no agreement, in proportion to the amount contributed (Art. 1797, Civil Code) (g) as a rule, management is conferred upon the partners so appointed by the others; other- wise, all are equally considered agents of the firm (Art. 1803, Civil Code) (h) there are many grounds for dis- solution (i) there may be division of profits (a) created by operation of law upon the celebration of the marriage (b) in general, it is the law that governs (c) does not possess any legal personality distinct from that of the husband or wife; hence, it cannot sue or be sued as such (d) commences precisely on the date of the celebration of the marriage — no contrary stipulation is allowed (e) not formed particularly for profit (f) as a rule, prof- its are divided equally (but settlement can provide other- wise) (Art. 106, Family Code) (g) as a rule, the administration and enjoyment of the conjugal partnership property belong to both spouses jointly (Art. 124, Family Code)
PROFITS even without dis- solution (h) there are few grounds for dis- solution (i) there will be no liquidation or giving of profits till after dissolution ‘Partnership’ Distinguished from ‘Co-ownership’ (Community of Property; Tenancy in Common)
FACTORS PARTNERSHIP CO-OWNERSHIP
(a) CREATION (b) JURIDICAL (c) PURPOSE (d) AGENCY OR REPRESENTATION (e) TRANSFER OF INTEREST (f) LENGTH OF EXISTENCE IF CREATED BY CONTRACT (g) PROFITS (h) DISSOLUTION (i) FORM (a) created by contract only (express or implied) (b) has legal or juridical personality (c) for profit (d) as a rule, there is no mutual representation (e) cannot substitute another as partner in his place, without unanimous consent (f) no term limit is set by the law (g) may be stipulated upon (h) dissolved by death or incapacity of a partner (i) may be made in any form except when real property is contributed (Here, a public instrument is required.) (a) created by contract, law and other things (b) has no juridical personality (hence, it cannot sue or be sued as such) (c) collective enjoyment (hence, not necessarily for profit) (d) as a rule, there is no mutual representation (although it is enough for one co-owner to bring an action for ejectment against a stranger) (Art. 487, Civil Code) (e) can dispose of his share with- out the consent of the others (f) must not be for more than 10 years (although agreement after termination may be renewed) (hence, if more than 10 years, the excess is VOID) (NOTE: 20 years is the maximum if imposed by the testator or donee of the common property.) (g) profits must always depend on proportion- ate shares (any stipulation to the contrary is VOID) (Art. 485) (h) not dissolved by the death or incapacity of co- owner (i) no public instrument needed even if real property is the object of the co-ownership • Capacity to Become Partner (a) In general, a person capacitated to enter into contractual relations may become a partner. (40 Am. Jur. 140). (b) An unemancipated minor cannot become a partner un- less his parent or guardian consents. Without such con- sent, the partnership contract is voidable, unless other partners are in the same situation, in which case the contract is unenforceable. (Arts. 1327, 1403, and 1407, Civil Code). (c) A married woman,even if alreadyofage, cannot contribute conjugal funds as her contribution to the partnership, unless she is permitted to do so by her husband (See Art. 125, Family Code), or unless she is the administrator of the conjugal partnership, in which latter case, the court must give its consent/authority. (See Art. 124, Family Code). (d) A partnership being a juridical person by itself can, it is believed, form another partnership, either with private individuals or with other partnerships, there being no prohibition on the matter.
(e) The majority view is that a corporation cannot become a partner on grounds of public policy; otherwise, people other than its officers may be able to bind it. Art. 1768. The partnership has a juridical personality separate and distinct from that of each of the partners, even in case of failure to comply with the requirements of Article 1772, first paragraph. Consequences of the Partnership Being a Juridical Entity (a) Its juridical personality is SEPARATE and DISTINCT from that of each of the partners. (Thus, in the partnership “Sundiang and Castillo,” there are three persons: Sundiang, Castillo, and the firm “Sundiang and Castillo”.) (b) The partnership can, in general: 1) acquire and possess property of all kinds (Art. 46, Civil Code); 2) incur obligations (Art. 46, Civil Code); 3) bring civil or criminal actions (Art. 46, Civil Code); 4) can be adjudged INSOLVENT even if the individual members be each financially solvent. (c) Unless he is personally sued, a partner has no right to make a separate appearance in court, if the partnership being sued is already represented. Rules in Case of Associations Not Lawfully Organized as Partnerships (a) If an association is not lawfully organized as a partnership (though it apparently carries on the business as a partnership), it possesses no legal personality. Therefore, it cannot sue as such. Art. 1769. In determining whether a partnership exists, these rules shall apply: (1) Except as provided by Article 1825, persons who are not partners as to each other are not partners as to third persons; (2) Co-ownership or co-possession does not itself establish a partnership, whether such co-owners or co-possessors do or do not share any profits made by the use of the property; (3) The sharing of gross returns does not of itself establish a partnership, whether or not the persons sharing them have a joint or common right or interest in any property from which the returns are derived; (4) The receipt by a person of a share of the profits of a business is prima facie evidence that he is a partner in the business, but no such inference shall be drawn if such profits were received in payment: (a) As a debt by installments or otherwise; (b) As wages of an employee or rent to a landlord; (c) As an annuity to a widow or representative of a deceased partner; (d) As interest on a loan, though the amount of payment vary with the profits of the business; (e) As the consideration for the sale of a goodwill of a business or other property by installments or otherwise. Purpose of Art. 1769 (Rules for Determining Existence of Partnerships) - To indicate some tests to determine if what may seem to be a partnership really is one, or it is not. Requisites for Existence of Partnership In general, to show the existence of a partnership, all of its essential characteristics must be proved; in particular it must be proved that: (a) there was an intention to create a partnership (b) there was a common fund obtained from contributions (c) there was a joint interest in the profits. (See Fernandez v. De la Rosa, 1 Phil. 669) THEREFORE: (a) mere co-ownership or co-possession (even with profit- sharing) (b) mere sharing of GROSS returns (even with joint ownership of the properties involved) do not establish a partnership. Sharing of Net Profits - Sharing of NET profits is prima facie evidence that one is a partner except in the five instances enumerated under Art. 1769 Proof Needed to Establish the Existence of a Partnership - No definite criterion can be set up except that all the characteristics of the contract must be proved as being present. Partnership by Estoppel - If two persons not partners represent themselves as partners to strangers, a partnership by estoppel results. Simi- larly when 2 persons, who are partners, in connivance with a friend (who is not a partner), inform a stranger that said friend is their partner, a partnership by estoppel may also result to the end that the stranger should not be prejudiced. (See Art. 1769 [No. 1] and Art. 1825, Civil Code)
Art. 1770. A partnership must have a lawful object or purpose, and must be established for the common benefit or interest of the partners. When an unlawful partnership is dissolved by a judi- cial decree, the profits shall be confiscated in favor of the State, without prejudice to the provisions of the Penal Code governing the confiscation of the instruments and effects of a crime. Lawful Object or Purpose - The object or purpose must be LAWFUL, i.e., it must be within the commerce of man, possible, and not contrary to law, morals, good customs, public order or public policy (See also Arts. 1347 and 1348, Civil Code). Otherwise, the partnership contract is VOID AB INITIO. (Art. 1409, Civil Code). NOTE: If a partnership has several purposes, one of which is unlawful, the partnership can still validly exist so long as the illegal purpose can be separated from the legal purposes Instances When a Partnership Is Unlawful (a) A partnership formed to furnish apartment houses which would be used for prostitution. (b) A partnership formed tocreate illegal monopolies or combinations in restraint of trade. (See Art. 186, Rev. Penal Code). (c) A partnership for gambling purposes. (d) A partnership formed for the purpose of acquiring parcels of land much in excess of the maximum allowed by the Friar Lands Act. Consequences of Unlawful Partnership (a) If the firm is also guilty of a crime, the Revised Penal Code governs both the criminal liability and the “forfei- ture of the proceeds of the crime and the instruments or tools with which it was committed. Such proceeds and instruments or tools shall be confiscated and forfeited in favor of the Government, unless they be the property of a third person not liable for the offense, but those articles which are not subject of lawful commerce shall be destroyed.” (Art. 45, Rev. Penal Code). (b) The partners forfeit the proceeds or profits, but NOT their contributions, provided no criminal prosecution has been instituted. (Arbes v. Polistico, 53 Phil. 489). If the contributions have already been made, they can be RETURNED; if the contributions have not yet been made, the partners cannot be made to make the contribution. (See 1 Manresa 279). (c) An unlawful partnership has no legal personality. Art. 1771. A partnership may be constituted in any form, except where immovable property or real rights are contributed thereto, in which case a public instrument shall be necessary. Formalities Needed (a) For VALIDITY of the contract (among the parties) as well as for ENFORCEABILITY, NO FORM is required as a general rule, regardless of the value of the contributions. Therefore, the contract may even be ORAL. (Note that a partnership contract is not one of those covered by the Statute of Frauds.) Exception: Whenever real properties or real rights in real properties are contributed - regardless of the value - a PUBLIC INSTRUMENT is needed. (The contract itself must be in the public instrument; moreover, there must be an INVENTORY of the immovables. This INVENTORY must be signed by the parties and attached to the public instrument.) (See Art. 1773, Civil Code). [NOTE: Without the public instrument, the partnership is VOID. (Art. 1773, Civil Code).] [NOTE: The inventory is important to show how much is due from each partner to complete his share in the common fund and how much is due to each of them in the event of liquidation. Without such inventory, the contract is void. (11 Manresa 278-279 and Art. 1773)]. (NOTE: The rules for limited partnerships are different.) (b) 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. Every contract of partnership having a capital of three thousand pesos or more, money or property, shall appear in a public instrument, which must be recorded in the Office of the Securities and Exchange Commission. Failure to comply with the requirements of the preceding paragraph shall not affect the liability of the partnership and the members thereof to third persons. Purpose of the Registration with the Office of the Securities and Exchange Commission - The registration is to set “a condition for the issuance of licenses to engage in business or trade. In this way, the tax liabilities of big partnerships cannot be evaded, and the public can also determine more accurately their membership and capital before dealing with them.” Effect of Non-Registration (a) Even if not registered, the partnership having a capital of P3,000 or more is still a valid one, and therefore has legal personality. (Art. 1768, Civil Code). (NOTE: Of course if real properties had been contributed, regardless of value, a public instrument is needed for the attainment of legal personality.)
(b) 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. 1357, Civil Code). [NOTE: This right cannot be availed of if the part- nership is void. (Art. 1356 and Art. 1357, Civil Code).] Art. 1773. A contract of partnership is void, whenever immovable property is contributed thereto, if an inventory of said property is not made, signed by the parties, and attached to the public instrument. Requirements Where Immovable Property is Contributed (a) There must be a public instrument regarding the partnership. (See Art. 1773). (b) The inventory of the realty must be made, signed by the parties, and attached to the public instrument. (Art. 1773). Applicability of the Article (a) Art. 1773 applies regardless of the value of the real property. (b) Art. 1773 applies even if only real rights over real properties are contributed. (c) Art. 1773 applies also if, aside from real property, cash or personal property is contributed. (But here, the inventory need not include the personality.) Registration in the Register of Property - The transfer of the land to the partnership must be duly recorded in the Register of Property to make the transfer effective insofar as third persons are concerned. Art. 1774. Any immovable property or an interest therein may be acquired in the partnership name. Title so acquired can be conveyed only in the partnership name. Acquisition of Property Under the Partnership Name Though the Article speaks only of immovable, same can apply also to personality because the partnership is a juridical entity, capable of owning and possessing property. (Art. 46). Alien Partners If the partnership has aliens, it cannot own lands, whether public or private, or whether agricultural or commercial, except thru hereditary succession (by the partners who in turn convey the same to the partnership) or when 60% of the capital is owned by Filipinos (or Americans during the duration of the Parity Amendment) Limitations on Acquisition - A partnership, even if entirely of Filipino capital may not: (a) acquire, lease, or hold public agricultural lands in excess of 1,024 hectares. (b) lease public lands adapted to grazing in excess of 2,000 hectares. Art. 1775. Associations and societies, whose articles are kept secret among the members, and wherein any one of the members may contract in his own name with third persons, shall have no juridical personality, and shall be governed by the provisions relating to co-ownership. If Articles Are Kept Secret (a) The association here is certainly not a partnership and therefore not a legal person, because “anyone of the members may contract in his own name with third persons” and not in the name of the firm. (b) Although not a juridical entity, it may be sued by third persons under the “common name” it uses; otherwise, said innocent third parties may be prejudiced. (Rule 3, Sec. 15, Rules of Court). (c) However, it cannot sue as such, because it has no legal personality and, therefore, cannot ordinarily be a party to a civil action. (Rule 3, Sec. 1, Rules of Court). Moreover, the fact that it has no legal personality as a partnership cannot be invoked by the “partners” for the purpose of evading compliance with obligations contracted by them, because they who caused the nullity of a contract are prohibited from availing of its benefits. Therefore, insofar as innocent third parties are concerned, the partners can be considered as members of a partnership; but as between themselves, or insofar as third persons are prejudiced, only the rules on co-ownership must apply. (See Art. 1775). The same rule applies in the case of a partnership by estoppel. (See Art. 1825, Civil Code). Effect of Certain Transactions - Thus, contracts entered into by a “partner” in his own name may be sued upon still by him in his individual capacity, notwithstanding the absence of a partnership. Art. 1776. As to its object, a partnership is either universal or particular. As regards the liability of the partners, a partnership may be general or limited. Classification of Partnerships (a) According to manner of creation:
1) orally constituted 2) constituted in a private instrument 3) constituted in a public instrument 4) registered in the Office of the Securities and Ex- change Commission (b) According to object: 1) universal a) with all present property b) with all profits (the individual properties here continue to be owned by the partners, but the usufruct thereof passes to the firm) 2) particular here the object are determinate things, their use or fruits; a specific undertaking, or the exercise of a profession or occupation (Art. 1783, Civil Code). (c) According to liability: 1) limited partnership — that where at least one part- ner is a general partner, and the rest are limited partners. (NOTE: A general partner is liable beyond his contribution; a limited partner is liable only to the extent of his contribution.) 2) general partnership — that where all the partners are general partners. (d) According to legality: 1) lawful or legal 2) illegal or unlawful (e) According to duration: 1) for a specific period or till the purpose is accomplished 2) partnership at will a) here, no period, express or implied, is given and so its duration depends on the will of the partners; b) if the period has expired, but the partnership continued, without liquidation, by the partners who habitually acted as such during the term. (Art. 1785, Civil Code). (f) According to representation to others: 1) ordinary partnership 2) partnership by estoppel Classification Into General and Limited (a) A general partnership is one where all the partners are general partners (that is, they are liable even with respect to their individual properties, after the assets of the partnership have been exhausted). (b) A limited partnership is one where at least one partner is a general partner and the others are limited partners. (A limited partner is one whose liability is limited only up to the extent of his contribution.) (NOTE: A partnership where all the partners are “limited partners” cannot exist as a limited partnership; it will even be refused registration. If at all it continues, it will be a general partnership, and all the partners will be general partners.) Formalities Needed for the Creation of a Partnership (a) Personal property 1) less than P3,000 (total) — may be oral 2) P3,000 or more — must be in a public instrument and registered in the Securities and Exchange Com- mission. But even if this is not complied with, the partnership is still valid and possesses a distinct personality. (Arts. 1772, 1768, Civil Code). Evidently, the requirement is merely for administrative and licensing purposes. (b) Real property — Regardless of the value contributed, a public instrument is needed, with an attached inventory; otherwise the partnership is VOID and has NO juridical personality even as between the parties. (Art. 1773, Civil Code). Moreover, to be effective against third parties, the partnership must also be registered in the Registry of Property of the province where the real property con- tributed is found. After all, there is an alienation here of a real right on real property.
(c) Limited partnership — must be registered AS SUCH in the Office of the Securities and Exchange Commission; otherwise, it is not valid as a limited partnership. (NOTE: However, even without such registration, it may still be considered a general partnership, and as such, possesses juridical personality). (See Arts. 1843, 1844, Civil Code). Art. 1777. A universal partnership may refer to all the present property or to all the profits. Kinds of Universal Partnerships (a) Partnership of all present property (b) Partnership of all profits Art. 1778. A partnership of all present property is that in which the partners contribute all the property which actually belongs to them to a common fund, with the intention of dividing the same among themselves, as well as all the profits which they may acquire therewith. Definition of Universal Partnership of All Present Property The contribution here consists of: (a) All the properties actually belonging to the partners (b) The profits acquired with said properties. Art. 1779. In a universal partnership of all present property, the property which belonged to each of the partners at the time of the constitution of the partnership, becomes the common property of all the partners, as well as all the profits which they may acquire therewith. A stipulation for the common enjoyment of any other profits may also be made; but the property which the partners may acquire subsequently by inheritance, legacy, or donation cannot be included in such stipulation, except the fruits thereof. Art. 1780. A universal partnership of profits comprises all that the partners may acquire by their industry or work during the existence of the partnership. Movable or immovable property which each of the partners may possess at the time of the celebration of the contract shall continue to pertain exclusively to each, only the usufruct passing to the partnership. Universal Partnership of Profits - The Article speaks of the universal partnership of profits. (NOTE: This Article and the three preceding ones speak of the two kinds of universal partnership.) Distinctions ALL PROFITS ALL PRESENT PROPERTY (a) Only the USUFRUCT of the properties of the partners becomes COM- MON PROPERTY (owned by them and the partnership); NAKED OWNER- SHIP is retained by each of the partners. (b) ALL PROFITS acquired by the INDUSTRY or WORK of the partners become COMMON PROPERTY (regardless of whether or not said profits were obtained through the usufruct contributed). (a) All the property actually belonging to the partners are CONTRIBUTED — and said properties become COMMON PROP- ERTY (owned by all the partners and by the partnership). (b) As a rule, aside from the contributed properties, only the PROFITS of said contributed COMMON PROPERTY (not other profits). (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.) Future Property - Reasons why future (by inheritance, legacy, donation) property cannot be included in the stipulation regarding the universal partnership of all present property: (a) First, as a rule, contracts regarding successional rights cannot be made. (b) Secondly, a partnership demands that the contributed things be determinate, known, and certain.
(c) Thirdly, a universal partnership of all present proper- ties really implies a donation, and it is well-known that generally, future property cannot be donated. Art. 1781. Articles of universal partnership, entered into without specification of its nature, only constitute a universal partnership of profits. Presumption in Favor of Partnership of Profits (a) The Article applies only when a universal partnership has been entered into. (b) Reason for the Article. Less obligation is imposed in the universal partnership of profits because their real and personal properties are retained by them in naked ownership. (c) If however a universal partnership of all present proper- ties is desired, REFORMATION is the proper remedy Art. 1782. Persons who are prohibited from giving each other any donation or advantage cannot enter into universal partnership. Persons Who Together Cannot Form a Universal Partnership -Examples of people prohibited: (a) Husband and wife — as a rule. (Art. 133, Civil Code). (b) Those guilty of adultery or concubinage. (Art. 739, Civil Code). (c) Those guilty of the same criminal offense, if the partnership was entered into in consideration of the same. (Art. 739, Civil Code). Reason for the Article - A universal partnership is virtually a donation to each other of the partner’s properties (or at least, their usufruct). Therefore, if persons are prohibited to donate to each other, they should not be allowed to do indirectly what the law forbids directly. Effect of Violation The partnership violating Art. 1782 is null and void, and its nullity may be raised anytime. No legal personality was ever acquired Art. 1783. A particular partnership has for its object determinate things, their use or fruits, or specific undertaking, or the exercise of a profession or vocation. ‘Particular Partnership’ Defined - The Article defines a “particular” partnership. (NOTE: A husband and his wife may enter into a particular partnership.) Doctrine - If two individuals form a particular partnership for a deal in realty, 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 own account, and using his own funds, should make transactions in the same business, it is his own undertaking Chapter 2 OBLIGATIONS OF THE PARTNERS Section 1 : OBLIGATIONS OF THE PARTNERS AMONG THEMSELVES Different Relationships - When two persons, A and B, form a partnership, different relations may arise: (a) Relations between A and B; (b) Relations between A and B on the one hand, and the partnership on the other hand; (c) Relations between A and B on the one hand, and third persons on the other hand; (d) Relations between the partnership and the third persons. Some Obligations of a Partner (a) To give his contribution. (Arts. 1786, 1788, Civil Code). (b) Not to convert firm money or property for his own use. (Art. 1788, Civil Code). (c) Not to engage in unfair competition with his own firm. (Art. 1808, Civil Code). (d) To account for and hold as trustee, unauthorized personal profits. (Art. 1807, Civil Code). (e) Pay for damages caused by his fault. (Art. 1794, Civil Code). (f) Duty to credit to the firm, payment made by a debtor who owes him and the firm. (Art. 1792, Civil Code). (g) To share with the other partners the share of the partnership credit which he has received from an insolvent firm debtor. (Art. 1743, Civil Code). Some Rights of a Partner (a) property rights. (Art. 1810, Civil Code). 1) rights in specific partnership property (example —rights in a car contributed to the firm). 2) interest in the partnership (share in the profits and surplus). (Art. 1812, Civil Code). 3) right to participate in the management. (Art. 1810, Civil Code). [NOTE: This right is not given to the limited partner. (Art. 1848, Civil Code).] (b) right to associate with another person in his share. (Art. 1804, Civil Code). (c) right to inspect and copy partnership books. (Art. 1805, Civil Code). (d) right to demand a formal account. (Art. 1809, Civil Code). (e) right to ask for the dissolution of the firm at the proper time. (Arts. 1830-1831, Civil Code).
Art. 1784. A partnership begins from the moment of the execution of the contract, unless it is otherwise stipulated. When a Partnership Begins (a) Generally, from the moment of the execution of the con- tract. (b) Exception — When there is a contrary stipulation. Intent to Create a Future Partnership - The Article 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 of itself result in a partnership. The intent must later on be actualized by the formation of the intended partnership. Rule if Contributions Have Not Yet Been Actually Made - Generally, even if contributions have not yet been made, the firm already exists, for partnership is a consensual contract (of course all the requisite formalities for such consent must be present). Art. 1785. When a partnership for a fixed term or particular undertaking is continued after the termination of such term or particular undertaking without any express agreement, the rights and duties of the partners remain the same as they were at such termination, so far as is consistent with a partnership at will. A continuation of the business by the partners or such of them as habitually acted therein during the term, without any settlement or liquidation of the partnership affairs, is prima facie evidence of a continuation of the partnership. Duration of a Partnership : A partnership is unlimited as to its duration in the sense that no time limit is fixed by law. The duration may be agreed upon — expressly (as when there is a definite period) or impliedly (as when a particular enterprise is undertaken — it being understood that the firm ends as soon as its purpose has been achieved). Partnership “At Will” - There are two kinds of a partnership “at will.” (a) 1st kind — when there is no term, express or implied (b) 2nd kind — when it is continued by the habitual man- agers — although the period has ended, or the purpose has been accomplished. (NOTE: This is “prima facie” evidence of the firm’s continuation.) [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. (40 Am. Jur., Sec. 19, 139).] Art. 1786. Every partner is a debtor of the partnership for whatever he may have promised to contribute thereto. He shall also be bound for warranty in case of eviction with regard to specific and determinate things which he may have contributed to the partnership, in the same cases and in the same manner as the vendor is bound with respect to the vendee. He shall also be liable for the fruits thereof from the time they should have been delivered, without the need of any demand. Three Important Duties of Every Partner - The Article speaks of three things: (a) the duty to contribute what had been promised; (b) the duty to deliver the fruits of what should have been delivered; and (c) the duty to warrant. The Duty to Contribute (a) The contribution must be made ordinarily at the time the partnership is entered into, unless a different period is stipulated. In either case, no demand is needed to put the partner in default, because in a partnership the obliga- tion to contribute is one where time is of the essence (for without the contribution, the partnership is useless). (b) The partner must exercise due diligence in preserving the property to be contributed, before he actually con- tributes the same; otherwise, he can be held liable for losses and deterioration. (See 11 Manresa 344; see also Art. 1794, Civil Code). The Duty to Deliver the Fruits (a) If property has been promised, the fruits thereof should also be given. The fruits referred to are those arising from the time they should have been delivered, without need of any demand. If the partner is in bad faith, he is liable not only for the fruits actually produced, but also for those that could have been produced. (See 11 Manresa 344). (b) If money has been promised, “interest and damages from the time he should have complied with his obligation” should be given. (Art. 1788). Here again, no demand is needed to put the partner in default. Query: Who owns the property before it is deliv- ered? ANS.: It is submitted that both in the case of money or property, it is the partner who still owns the same before delivery, for it is delivery, actual or constructive, that transfers ownership. The Duty to Warrant (a) The warranty in case of eviction refers to “specific and determinate things” already contributed. (See Art. 1786, Civil Code). (b) There is “eviction” whenever by a final judgment based on a right prior to the sale or an act imputable to the partner, the partnership is deprived of the whole or a part of the thing purchased. The parties may however uppress, increase, or diminish this
legal obligation. (See Art. 1548, Civil Code). The partner who made the contribution should be summoned in the suit for eviction, at the instance of the partnership. (Art. 1558, Civil Code). Art. 1787. When the capital or a part thereof which a partner is bound to contribute consists of goods, their appraisal must be made in the manner prescribed in the contract of partnership, and in the absence of stipulation, it shall be made by experts chosen by the partners, and ac- cording to current prices, the subsequent changes thereof being for the account of the partnership. When Contribution Consists of Goods - Appraisal of value is needed to determine how much has been contributed. How Appraisal Is Made (a) Firstly, as prescribed by the contract. (b) Secondly, in default of the first, by EXPERTS chosen by the partners, and at CURRENT prices. Necessity of the Inventory-Appraisal - Proof is needed to determine how much goods or money had been contributed. An inventory is therefore useful. Risk of Loss - After goods have been contributed, the partnership bears the risks of subsequent changes in their value. (Art. 1787). Art. 1788. A partner who has undertaken to contribute a sum of money and fails to do so becomes a debtor for the interest and damages from the time he should have complied with his obligation. The same rule applies to any amount he may have taken from the partnership coffers, and his liability stroll begin from the time he converted the amount to his own use. Rules of Failure to Contribute and for Conversion - Cases covered by the Article: (a) when money promised is not given on time; (b) when partnership money is converted to the personal use of the partner. Coverage of Liability - Liability covers ALSO interest and damages: (a) Interest at the agreed rate; if none, at the legal rate of 6% per annum. (b) Damages that may be suffered by the partnership. Why No Demand Is Needed to Put Partner in Default (a) In the case of the contribution, because time is of the essence, a partnership is formed precisely to make use of the contributions, and this use should start from its for- mation, unless a different period has been set; otherwise the firm is necessarily deprived of the benefits thereof. Thus, the injury is constant. (11 Manresa 332-335). (b) In the case of conversion, because the firm is deprived of the benefits of the money, from the very moment of conversion. [NOTE: Even if no actual injury results, the liability exists, because the article is absolute. Art. 1789. An industrial partner cannot engage in business for himself, unless the partnership expressly permits him to do so, and if he should do so, the capitalist partners may either exclude him from the firm or avail themselves of the benefits which he may have obtained in violation of this provision, with a right to damages in either case. Classification of Partners Capitalist partner — one who furnishes capital. (He is not exempted from losses; he can engage in other busi- ness provided there is NO COMPETITION between the partner and his business.) (See Art. 1808, Civil Code). Industrial partner — one who furnishes industry or labor. [He is exempted from losses as between the partner; he cannot engage in any other business without the express consent of the other partners; otherwise: 1) he can be EXCLUDED from the firm (PLUS DAM- AGES); 2) OR the benefits he obtains from the other businesses can be availed of by the other partners (PLUS DAMAGES). (Art. 1789, Civil Code).] [NOTE: The rule remains true whether or not there is COMPETITION. Reason: All his industry is supposed to be given only to the partnership. ] Capitalist-industrial partner — one who contributes both capital and industry. General partner — one who is liable beyond the extent of his contribution. Limited partner — one who is liable only to the extent of his contribution. [NOTE: An industrial partner can only be a general partner, never a limited partner. (See Art. 1845, Civil Code).] Managing partner — one who manages actively the firm’s affairs. Silent partner — one who does not participate in the management (though he shares in the profits or losses).
Liquidating partner — one who liquidates or winds up the affairs of the firm after it has been dissolved. Ostensible partner — one whose connection with the firm is public and open (that is, not hidden). (Usually his name is included in the firm name.) Secret partner — one whose connection with the firm is concealed or kept a secret. Dormant partner — one who is both a secret (hidden) and silent (not managing) partner. Nominal partner — one who is not really a partner but who may become liable as such insofar as third persons are concerned. (Example: a partner by estoppel.) Distinctions Between a ‘Capitalist’ and an ‘Industrial Partner’ (a) As to contribution: 1) the capitalist partner contributes money or property 2) the industrial partner contributes his industry (mental or physical) (b) As to prohibition to engage in other business: 1) the capitalist partner cannot generally engage in the same or similar enterprise as that of his firm (the test is the possibility of unfair competition). (Art. 1808, Civil Code). 2) the industrial partner cannot engage in any business for himself (Reason: all his industry is supposed to be contributed to the firm). (Art. 1789, Civil Code). (c) As to profits: 1) the capitalist partner shares in the profits according to the agreement thereon; if none, pro rata to his contribution. (Art. 1797, Civil Code). 2) the industrial partner receives a just and equitable share. (Art. 1797, Civil Code). (d) As to losses: 1) capitalist a) first, the stipulation as to losses b) if none, the agreement as to profits c) if none, pro rata to contribution 2) the industrial partner is exempted as to losses (as between the partners). But is liable to strangers, without prejudice to reimbursement from the capi- talist partners. (Art. 1816, Civil Code). Art. 1790. Unless there is a stipulation to the contrary the partners shall contribute equal shares to the capital of the partnership. Amount of Contribution (a) It is permissible to contribute unequal shares, if there is a stipulation to this effect. (b) In the absence of proof, the shares are presumed equal. To Whom Applicable -The rule applies to capitalist partners apparently; how- ever, the share of the industrial partner is undoubtedly also available, for his industry may be worth even more than the entire capital contributed. Art. 1791. If there is no agreement to the contrary, in case of an imminent loss of the business of the partnership, any partner who refuses to contribute an additional share to the capital, except an industrial partner, to save the venture, shall be obliged to sell his interest to the other partners. When a Capitalist Partner Is Obliged to Sell His Inter- est to the Other Partners (a) If there is imminent loss of the business of the partner- ship; (b) and he refuses (deliberately and not because of poverty, otherwise this would be unjust) to contribute an addi- tional share to the capital; (c) and provided further that there is no agreement to the contrary. Reason Because of his apparent lack of interest, and granting that he sincerely believes that efforts to save the firm would be futile, the capitalist partner referred to should get out of the firm. Rule for the Industrial Partners Note that the industrial partner is exempted. Reason: He is already giving his entire industry. Art. 1792. If a partner authorized to manage collects a demandable sum, which was owed to him in his own name, from a person who owed the partnership another sum also demandable, the sum thus collected shall be applied to the two credits in proportion to their amounts, even though he may have given a receipt for his own credit only, but should he have given it for the account of the partnership credit, the amount shall be fully applied to the latter. The provisions of this article are understood to be without prejudice to the right granted to the debtor by Article 1252, but only if the personal credit of the partner should be more onerous to him. Rule if Managing Partner Collects a Credit - For this Article to apply the following requisites must concur:
(a) The existence of at least 2 debts (one where the firm is the creditor; 2-where the partner is creditor). (b) Both sums are demandable. (c) The collecting partner is a managing partner. When Article Does Not Apply - Art. 1792 does not apply if the partner collecting is not a managing partner. Here there is no basis for the suspicion that the partner is in BAD FAITH. Art. 1793. A partner who has received, in whole or in part, his share of a partnership credit, when the other partners have not collected theirs, shall be obliged, if the debtor should thereafter become insolvent, to bring to the partnership capital what he received even though he may have given receipt for his share only. Art. 1792 Compared With Art. 1793 (Where a Partner Receives His Share of a Partnership Credit) Art. 1792 Art. 1793 (a) two debts
(b) applies only to managing partner (a) one debt only (firm credit) (b) applies to any partner
Art. 1794. Every partner is responsible to the partnership for damages suffered by it through his fault, and he cannot compensate them with the profits and benefits which he may have earned for the partnership by his industry. However, the courts may equitably lessen his responsibility if through the partner’s extraordinary efforts in other activities of the partnership, unusual profits have been realized. Why General Damages Cannot Be Offset by Benefits (a) Firstly, 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. (b) Secondly, since both are duties, compensation should not take place, the partner being the debtor in both instances. (See 11 Manresa 377). Compensation requires 2 persons who are reciprocally debtors and creditors of each other. Mitigation of Liability - Note however that equity may mitigate liability if there be “extraordinary efforts” resulting in “unusual profits.” Need for Liquidation - Before a partner sues another for alleged fraudulent management and resultant damages, a liquidation must first be effected to know the extent of the damage. Effect of Death of the Negligent Partner - If a negligent partner is already dead, suit for recovery may be had against his estate. Art. 1795. The risk of specific and determinate things, which are not fungible, contributed to the partnership so that only their use and fruits may be for the common benefit, shall be borne by the partner who owns them. If the things contributed are fungible, or cannot be kept without deteriorating, or if they were contributed to be sold, the risk shall be borne by the partnership. In the absence of stipulation, the risk of things brought and appraised in the inventory, shall also be borne by the partnership, and in such case the claim shall be limited to the value of which they were appraised. Risk of Loss (a) Specific and determinate things (NOT fungible) — whose usufruct is enjoyed by a firm — like a car — partner who owns it bears loss for ownership was never transferred to the firm. (b) Fungible or Deteriorable — Firm bears loss for evidently, ownership was being transferred; otherwise, use is im- possible. (c) Things Contributed to be Sold — Firm bears loss for evidently, firm was intended to be the owner; otherwise, a sale could not be made. (d) Contributed under Appraisal — Firm bears loss because this has the effect of an implied sale Art. 1796. The partnership shall be responsible to every partner for the amounts he may have disbursed on behalf of the partnership and for the corresponding interest, from the time the expenses are made, it shall also answer to each partner for the obligations he may have contracted in good faith in the interest of the partnership business, and for risks in consequence of its management. Responsibility of Firm (a) To refund amounts disbursed on behalf of firm plus interest (legal) from the time expenses were made (and not from demand, since after all, a partner is an agent, and the rule on agency applies to him). [NOTE: Refund must be made even in case of failure of the enterprise entered into, provided the partner is not at fault. Reason: Being a mere agent, the partner should not assume personal liability. (See Arts. 1897 and 1912). Moreover, conversion by the partner results in liability from the moment of conversion. [NOTE: The “amounts disbursed” referred to in the Article does not refer to the original capital. ] [NOTE: A partner who advances funds from his own pocket for taxes on partnership land, must be reimbursed the same from partnership assets. If the firm is insolvent, the other partners must reimburse the paying partner except for the latter’s proportionate share in the taxes. ] (b) To answer to each partner for obligations, he may have entered into in good faith in the interest of the partner- ship, as well as for RISKS in consequence of its management. (Reason: The partner is an AGENT.) Art. 1797. The losses and profits shall be distributed in conformity with the agreement. If only the share of each partner in the profits has been
agreed upon, the share of each in the losses shall be in the same proportion. In the absence of stipulation, the share of each partner in the profits and losses shall be in proportion to what he may have contributed, but the industrial partner shall not be liable for the losses. As for the profits, the industrial partner shall receive such share as may be just and equitable under the circumstances. If besides his services he has contributed capital, he shall also receive a share in the profits in proportion to his capital. How Profits Are Distributed (a) according to agreement (but not inequitously to defeat). (Art. 1799). (b) if none, according to amount of contribution. How Losses are Distributed (a) according to agreement — as to losses (but not inequitously) (b) if none, according to agreement as to profits (c) if none, according to amount of contribution. Industrial Partner’s Profits - A just and equitable share (under the old law, a share equivalent to that of the capitalist partner with the least capital). Industrial Partner’s Losses - While he may be held liable by third persons, still he can recover whatever he is made to give them, from the other partners, for he is exempted from LOSSES, with or without stipulation to this effect. 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. Art. 1798. If the partners have agreed to intrust to a third person the designation of the share of each one in the profits and losses, such designation may be impugned only when it is manifestly inequitable. In no case may a partner who has begun to execute the decision of the third person, or who has not impugned the same within a period of three months from the time he had knowledge thereof, complain of such decision. The designation of losses and profits cannot be intrusted to one of the partners. Designation by Third Person of Shares in Profits and Losses (a) The Article speaks of a “third person,” not a partner. Reason: To avoid partiality. (11 Manresa 375). (b) When designation by 3rd party may be impugned — “when it is MANIFESTLY INEQUITABLE.” (c) When designation by third party cannot be impugned even if manifestly inequitable: 1) if the aggrieved partner has already begun to execute the decision; 2) or if he has not impugned the same within a period of three months from the time he had knowledge thereof (not from the time of making). Art. 1799. A stipulation which excludes one or more partners from any share in the profits or losses is void. Stipulation Excluding a Partner from Profits or Losses (a) The general rule is that a stipulation excluding one or more partners from any share in the profits or losses is void. Reason: The partnership is for COMMON BENEFIT. (b) One exception is in the case of the industrial partner whom the law itself excludes from losses. (Art. 1797, par. 2). If the law itself does this, a stipulation exempting the industrial partner from losses is naturally valid. (Of course, it is permissible to stipulate that even the industrial partner shall be liable for losses.) Reason Why Industrial Partner Is Generally Exempted from Losses - While capitalist partners can withdraw their capital, the industrial partner cannot withdraw any labor or industry he had already exerted. Moreover, in a certain sense, he already has shared in the losses in that, if the partnership shows no profit, this means that he has labored in vain. Art. 1800. The partner who has been appointed manager in the articles of partnership may execute all acts of administration despite the opposition of his partners, un- less he should act in bad faith; and his power is irrevocable without just or lawful cause. The vote of the partners representing the controlling interest shall be necessary for such revocation of power. A power granted after the partnership has been constituted may be revoked at any time. Appointment of Manager - Art. 1800 speaks of two modes of appointment: (a) appointment as manager in the articles of partnership; (b) appointment as manager made in an instrument other than the articles of partnership or made orally. Appointment in Articles of Partnership (a) Power is irrevocable without just or lawful cause. THEREFORE: 1) to remove him for JUST cause, the controlling partners (controlling financial interest) should vote to OUST HIM. 2) to remove him WITHOUT CAUSE, or FOR AN UNJUST CAUSE, there must be UNANIMITY (including his own vote). Reason: This represents a change in the will of the parties: a change in the terms of the contract; a novation, so to speak, requiring
unanimity. (b) Extent of power: 1) if he acts in GOOD faith, he may do all acts of ADMINISTRATION (not ownership) despite the opposition of his partners. 2) if in BAD faith, he cannot (however, he is presumed to be acting in good faith; moreover, if he really is in bad faith the controlling interest should remove him.) Appointment Other Than in the Articles of Partnership (a) Power to act may be revoked at any time, with or without just cause. [Reason: Such appointment is a mere delegation of power, revocable at any time.] [NOTE: Of course, removal should also be done by the controlling interest]. Moreover, the controlling partners should not abuse this right, otherwise damages are recoverable from them under Arts. 19 & 20. (b) Extent of power: As long as he remains manager, he can perform all acts of ADMINISTRATION, but of course, if the others oppose and he persists, he can be removed. Scope of Powers of a Manager - Unless his powers are specifically restricted, he has the powers of a general agent, as well as all the incidental powers needed to carry out the objectives of the partnership, such as, for example, the power to issue official receipts, in the transaction of business; otherwise, this would not be in keeping with present day business dealings. Indeed, when the object of a partnership has been determined, the manager has all the powers necessary for the attainment of such objective. Art. 1801. If two or more partners have been intrusted with the management of the partnership without specification of their respective duties, or without a stipulation that one of them shall not act without the consent of all the others, each one may separately execute all acts of administration, but if any of them should oppose the acts of the others, the decision of the majority shall prevail. In case of a tie, the matter shall be decided by the partners owning the controlling interest. Rule When There Are Two or More Managers - Art. 1801 applies when: (a) two or more partners are managers; (b) there is NO specification of respective duties; (c) there is no stipulation requiring unanimity. THEREFORE: Art. 1801 does not apply if unanimity is required; or when there is a designation of respective duties. Specific Rules (a) Each may separately execute all acts of administration (unlimited powers to administer). (b)Except if any of the managers should oppose. (Here the decision of the MAJORITY of the managers shall prevail.) (Suppose there is a tie, the partners owning the CONTROLLING INTEREST prevail — provided they are also managers.) [NOTE: The rights to oppose is not given to non- managers because in appointing their other partners as managers, they have stripped themselves of all participation in the administration. When Opposition May Be Made - When must the other managers make the opposition? ANS.: Before the acts produce legal effects insofar as third persons are concerned. Reason — For them to delay or for them to protest after third parties are affected would be unfair to said third parties. Moreover, the acts of the firm would be unstable Art. 1802. In case it should have been stipulated that none of the managing partners shall act without the consent of the others, the concurrence of all shall be necessary for the validity of the acts, and the absence or disability of any one of them cannot be alleged, unless there is imminent danger of grave or irreparable injury to the partnership. When Unanimity Is Required (a) This Article applies when there must be unanimity in the actuations of the managers. (b) Suppose one of the managers is absent or incapacitated, is unanimity still required? ANS.: Yes, for absence or incapacity is no excuse. EXCEPTION — when there is imminent danger of grave or irreparable injury to the partnership. (Art. 1802). Duty of Third Persons - The rule that third persons are not required to inquire as to whether or not a partner with whom he transacts has the consent of all the managers, for the presumption is that he acts with due authority and can bind the partnership applies only when they innocently deal with a partner apparently carrying on in the usual way the partnership business (See Art. 1818) because under Art. 1802, it is imperative that if unanimity is required it is essential that there be unanimity; otherwise, the act shall not be valid, that is, the partnership is not bound. (Art. 1802, first clause). It would be wise therefore if the third person could inquire whether or not unanimity is required, and if so, if such unanimity is present. This is for his own protection. Thus, it has been held that a sale by a partner of partnership assets without the consent of the other managers is not valid. Art. 1803. When the manner of management has not been agreed upon, the following rules shall be observed: (1) All the partners shall be considered agents and what- ever any one of them may do alone shall bind the partner- ship, without prejudice to
the provisions of Article 1801. (2) None of the partners may, without the consent of the others, make any important alteration in the immov- able property of the partnership, even if it may be useful to the partnership. But if the refusal of consent by the other partners is manifestly prejudicial to the interest of the partnership, the court’s intervention may be sought. Rules to Be Observed When Manner of Management Has Not Been Agreed Upon (a) Generally, each partner is an agent. (b) Although each is an agent, still if the acts of one are opposed by the rest, the majority should prevail (Art. 1801) for the presumed intent is for all the partners to manage, as in Art. 1801. (c) When a partner acts as agent, it is understood that he acts in behalf of the firm; therefore when he acts in his own name, he does not bind the partnership generally. Generally, a sale made by a partner of partnership property is not binding on the firm if not authorized. However, said transaction may be ratified as when the proceeds thereof are spent for the benefit of the firm. (d) On the other hand, paragraph 1 or the authority to bind the firm does not apply if somebody else had been given authority to manage in the articles of organization or thru some other means. Of course, proof on this point that somebody else was authorized must be given; otherwise, the gen- eral rule — “all are agents” — prevails. (e) Alterations require unanimity. (Art. 1803, No. 2). Rule on Alterations (a) Par. 2 deals with “important alterations” in “immovable property of the partnership.” Why is the reference only to immovables? ANS.: First, because of their comparative greater importance than personalty. Second, because, in a proper case, they should be returned to the partners in the same condition as when they were delivered to the partnership. (11 Manresa 393). (b) “Alteration” here contemplates useful expenses, not nec- essary ones. (c) Consent of the others may be express or implied (as when the partners had knowledge of the alteration and no opposition was made by them). Art. 1804. Every partner may associate another person with him in his share, but the associate shall not be admitted in the partnership without the consent of all the other partners, even if the partner having an associate should be a manager. 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 (whether the partner having the associate is a manager or not). Reasons: 1) mutual trust is the basis of partnership; 2) change in membership is a modification or novation of the contract. Art. 1805. The partnership books shall be kept, subject to any agreement between the partners, at the principal place of business of the partnership, and every partner shall at any reasonable hour have access to and may inspect and copy any of them. Partnership Books (a) The right in this Article is granted to enable the partner to obtain true and full information of the partnership affairs (Art. 1806), for after all, he is a co-owner of the properties, including the books. (Art. 1811). (b) However, the Article presupposes a “going partnership,” not one pending dissolution, for here the right depends on the court’s discretion; nor to one already dissolved, for here, although the books belong to all the partners (in the absence of a contrary agreement), still no single partner is duty-bound to continue the place of business for the benefit of the others. Neither is a purchaser of the firm’s goodwill duty-bound to keep the books for the inspection of the former partners. (c) Art. 1806 says a reasonable hour.” What is this? Our Supreme Court has held that the reasonable hour should be on business days throughout the year, and not merely during some capricious or arbitrary period selected by the managers. Value of Partnership Books of Account as Evidence - They constitute an admission of the facts stated therein, an admission that can be introduced as evidence against the keeper or maker thereof. And this is true even if the books are kept strictly in accordance with the provision of the law. The only way out is to prove that the entries had been placed therein as a result of fraud or mistake, which of course must be proved. Art. 1806. Partners shall render on demand true and full information of all things affecting the partnership to any partner or the legal representative of any deceased partner or of any partner under legal disability. Duty of Partners to Give Information Reason for the law — There must be no concealment between partners in all matters affecting the firm’s interest. This is required by good faith. Thus, this duty to give on demand “true and full information.” NOTE: Even without the demand, honesty demands the giving of vital information, the refraining from all kinds of concealment. Errors in the Books - If partnership books contain errors, but said errors have not been alleged, the books must be considered entirely correct insofar as the keeper of said books of account is concerned.
