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VII - Obligations of the Partners - Coggle Diagram

- - - - A3. To compensate – ART. 1794 - Stems from duty of diligence of the partner.
        
        A4. To be loyal; fiduciary duty – ART. 1807 - Stems from various legal provisions e.g. delectus personae.
        
        Twin Duties - Every partner must
        
        ACCOUNT - to the partnership ANY benefit
        
        HOLD - as a trustee ANY benefit derived by him without consent from other partners from any transaction connected with the formation, conduct or liquidation of the partnership OR from any use by him of the partnership property.
        
        So long as partnership agreed to in principle, fiduciary duty arises even in the absence of an express article of partnership.
        
        Duty to Compensate - Every partner responsible to the partnership for damages suffered through their fault.
        
        Compensation -
        
        GR - Tort Partner cannot compensate the damages with the profits and benefits which they may have earned the partnership through their industry.
        
        XCPNish - If, through the partner's extraordinary efforts in the other activities of the partnership unusual profits have been realized, courts may equitably lessen the responsibility.
      - Application of Sums - Any sum collected shall be applied to the two credits in proportion to their amounts.
        
        AUTHORIZED PARTNER, collects demandable sum from person who owes them personally and;
        
        PARTNERSHIP OWED - the SAME debtor owers the partnership ANOTHER demandable sum.
        
        Receipt -
        
        OWN CREDIT - If the collecting partner was given a receipt for his own credit, 1792 applies.
        
        PARTNERSHIP CREDIT - If receipt was for partnership credit, then the amount is fully applied to partnership credit.
        
        Article 1252. He who has various debts of the same kind in favor of one and the same creditor, may declare at the time of making the payment, to which of them the same must be applied. Unless the parties so stipulate, or when the application of payment is made by the party for whose benefit the term has been constituted, application shall not be made as to debts which are not yet due.
        If the debtor accepts from the creditor a receipt in which an application of the payment is made, the former cannot complain of the same, unless there is a cause for invalidating the contract.
    - - Rationale for Debtor - Expressly provided because the essence of partnership is to contribute to a common fund. Thus, breach of this is breach of bond i.e. delectus personae.
        
        Distinguished;Corporations - Unlike corporations, no need to consider capital accounts and promised contributions as a trust fund for the creditors of the partnership.
        
        Applicability of Trust Fund Doctrine (1826) - Applies in a limited sense, creditors of the partnership are preferred to the partners as regards partnership property under 1826.
      - Obligation to Warrant (1786) - Every partner
        
        EVICTION - bound for warranty in case of eviction with regard to the specific and determinate thing they contributed to the partnership. Liability here is same manner as vendor (Implied warranties).
        
        FRUITS - Liable for fruits of thing WITHOUT need of demand, from the date they obliged themselves to deliver.
        
        Contribution of Determinate Things (1795) - Who bears the risk of the thing contributed to the partnership depends if the thing is fungible or not.
        
        Non-Fungible - So that ONLY use and fruits may be for the common benefit, risk shall be born by the PARTNER who owns them.
        
        Fungible/Can't Be Kept Without Deterioration/To be Sold - the risk shall be borne by the partnership.
        
        Things in Inventory - IF NO STIPULATION Things brought and appraised in inventory, risk shall be borne by partnership. Here, claim limited to the value appraised.
        
        Risk Prior to Delivery - Partner who promised to deliver. This is because prior to delivery, they are the owner of the thing. res perit domino
        
        Effect of Thing Perishing (1829 par. 4) - Partnership is dissolved.
      - Contribution of Goods as Capital (1787) - When capital or part of capital which partner is bound to contribute consists in goods. the appraisal of goods must be made in the manner prescribed in the contract of partnership. In the absence of stipulation, shall be made by experts chosen by the partners according to current prices. Subsequent changes thereof being for the account of the partnership.
        
        Contribution of a Sum of Money (1788) - Partner who undertakes contribution of sum of money and fails to do so, becomes a debtor for
        
        INTEREST and
        
        DAMAGES
        From the time they should have complied.
        
        Taking of Money - same rule if partner takes any amount from partnership coffers, liability begins from the time the partner converts sum to own use.
        
        Recovery (Uy v. Puzon) - For compensatory damages, can cover lost opportunity but there must be a clear showing that the partnership would have profited.
        
        Default Contribution (1790) - In the absence of stipulation, partners shall contribute equal shares to the capital of the partnership.
        
        Imminent Business Loss 1791 - In case of an imminent loss of the business of the partnership, partner who refuses to contribute an additional share to the capital to save the venture, shall be obliged to sell his interest to the other partners IF:
        
        NO AGREEMENT - to the contrary,
        
        CAPITAL PARTNER - i.e. not industrial partner
        
        Additional Contribution - In the absence of stipulation, a partner cannot be made to contribute more than what was originally stipulated. 1791 is the remedy in case of imminent business loss.
        
        Disposition of Property (Lozana v. Depakabibo) - Property contributed by a partner becomes property of the partnership. Thus, cannot be disposed without the consent of the others.
        
        Remedies (Uy v. Puzon & Sancho v. Uzarraga) -
        As a rule, failure to contribute can lead to the following remedies:
        
        DAMAGES - Covers interest and damages. Compensatory damages for share in profits that the company could have earned.
        
        SPECIFIC PERFORMANCE - to compel partner to deliver the property promised.
        
        DISSOLUTION - The partners cannot rescind, instead must dissolve. This means that no obligation to return the property to the partner, instead such sums are used for the creditors before the partner can recover from the net assets.
  - - - B2. To share in the profits/losses – ART. 1797, 1798, 1799
        
        B3. Render true and full information – ART. 1806
        
        B4. Not to engage in another business – ART. 1789, 1808
        
        Industrial Partner (1789) -
        
        GR - An industrial partner cannot engage in business for himself.
        
        XCPN - Express permission from the partnership.
        
        Effect of Breach - Capitalist partners may avail of two alternative remedies, with damages in either case.
        
        EXCLUDE - the IP in breach from the firm or'
        
        AVAIL - themselves of the benefits which IP may have obtained in violation of the provision.
        
        Capitalist Partners (1808) -
        
        GR - Capitalist partners cannot engage for their own account in any operation of the same kind of business that the partnership is engaged in.
        
        XCPN - There is stipulation to the contrary.
        
        Effect of Breach - capitalist shall bring to the common fund any profits accruing to him from his transactions. Shall also bear all the losses.
        
        Rationale - This is to avoid conflict-of-interest and anti-competition. Otherwise, the capitalist partner could have undue leverage over the industrial partners. Must be the same kind of business i.e. magnetite v. gold mining the prohibition does not apply.
        
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        Industrial Partner in a Professional Partnership - If you admit an industrial partner exists in a professional partnership you admit that there is a capitalist partner. Capitalist partners are not bound to participate in the business. Sir thinks this not not possible/ethical. Sir says that capitalist-industrial permissible.
        
        Rationale for prohibition - Because industrial partner expected to contribute his entire time and labor as that is his sole contribution.
        
        Capitalist-Industrial - Prohibition of engaging in business for himself still applies to the capitalist-industrial. This is because ratio of the provision is Industrial partner must devote unique talents to the partnership.
        
        B5. Other Provisions
        
        Partnership Books (1805) - Unless there is prior agreement by the partners, Books shall be kept at the principal place of business of the partnership. Every partner shall, at any reasonable hour have access to and may inspect and copy any one of them.
        
        Books on Accounting (Garrido v. Asencio) - when the books of account of the partnership are kept by a partner in his custody, such partner is bound by the entries in such books of account which constitute an admission of the facts stated therein, especially on the claims and interests of the partners in the partnership
        
        Right to Demand Accounting (1809) - Any partner has right to a formal account as to partnership affairs under any of the following circumstances:
        
        WRONGFUL EXCLUSION - from the partnership business or possession of its property by his co-partners.
        
        PRIOR AGREEMENT - if right exists under the terms of any agreement
        
        1807 - Profits derived without consent of the other partners from use or transaction connected with formation, conduct or liquidation
        
        ANY OTHER - circumstances that render it just and reasonable
        
        When Right Accrues (Fue Leung v. IAC) - Right exists so long as partnership exists. Prescription period runs only upon dissolution of the partnership and termination of final accounting.
        
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        Association/Admission (1804) - Every partner may associate another person as regards their share. But, no admission of associate into partnership without consent of all other partners, even if associate is a manager.
        
        Roman Law - My partner's partner is not my partner.
        
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        MANAGING PARTNER (1800) -
        
        GR - Partner who is appointed managing partner may execute all acts of administration EVEN if partners oppose.
        
        XCPN - Acts in bad faith AND his power is irrevocable without just or lawful cause. Here, vote of the partners representing the controlling itnerest shall be necessary for revocation of power.
        
        POWER OF REVOCATION - A power granted after the partnership has been constituted may be revoked at any time.
        
        MULTIPLE MANAGING PARTNERS (1801) - Two or more partners AND either without:
        
        SPECIFICATION of their respective duties OR
        
        STIPULATION that one of them shall not act without the consent of all others
        Each one may separately execute all acts of administration.
        
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        If the managing partner has controlling interest sorry nalang.
        
        MUTUAL AGENCY (1803) -
        
        GR - Each of the partners is an agent of the partnership and all other partners in pursuit of partnership affairs OR not usual business BUT authorized.
        
        XCPN - unless the partner so acting has in fact no authority to act for the partnership in the particular matter, and the person with whom he is dealing has knowledge of the fact that he has no such authority OR not for carrying on usual business in the usual way WITHOUT authorization.
        
        Alteration of Immovable (1803 par. 2) - None of the partners may, without the consent of the others, make any important alteration in the immovable 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.
        
        Coverage - Every partner or their legal representative (if dead P or disabled P) has right to demand true and full information on ALL things affecting the partnership.
        
        Distribution of Losses and Profits (1797) -
        
        GR - Losses and Profits shall be distributed according to prior agreement. If only share in profits stipulated, losses shall be distributed in same proportion.
        
        XCPN - If no stipulation, share shall be in proportion to what they have contributed.
        
        Industrial partner (1797) - IP receives just and equitable share, based on services contributed + share in the profits in proportion to his capital.
        
        GR - Shall not be liable for losses.
        
        XCPN - But, you may stipulate that the industrial partner shall bear some of the loss.
        
        Sir says if person represented as employee, but you notice indispensable to business then argue that they are an industrial partner.
        
        Industrial-Capitalist - if the industrial partner contributes capital they are treated as capitalist partner. Thus, receiving a share in the profits in proportion to his capital.
        
        Designated Third Persons (1798) - When partners agree to intrust to a third person the designation of their individual shares in loss/profits, this designation may be impugned ONLY when manifestly inequitable. No partner may be tasked with designation. Otherwise, stipulation void.
        
        Exemption/Exclusion 1799 - any stipulation that exempts one or more i.e. ANY partner from ANY share in the profits or losses is void.
        
        Lumabas daw to sa exam. Q. was determine status of the stipulation.
        
        Execution - Partner may not complain of such decision.If partner has
        
        BEGAN EXECUTION - of the decision of the third person and same partner has
        
        NOT IMPUGNED - the decision within a (3) month period from the time they had knowledge thereof,
        
        Sir says this is not common but may apply to joint-venture agreements.
        
        Guarantee of Profits (Moran, Jr. v. CA) - Each partner must share in profits and losses of the venture. Similarly, even with assurance of profit, in the absence of fraud, no recovery can be made against partner assuring profit.
        
        Right to Profit (Sison v. McQuaid) - Right to share in profits refers to net profits. This means that there must first be proper accounting of income and expenses pertaining to business UNLESS there is dissolution/liquidation or specific stipulation on periodic distribution of profits.
        
        Termination (Sison) - Receipt of a partner of contributions to the partnership IF no liqiuidation/termination of the partnership does not extinguish right of that partner to the profits or right to an accounting.
        If there has been accounting and liquidation and partners have received the accounting without objection, only fraud/error,deceit or mistake in giving approval will allow them to further recover.
      - Collate, Share, Render, Business
    - - C1. To have his partnership interest charged for personal debts (primary) ART. 1814, 1827
        
        C2. To be liable pro-rata for partnership debts (subsidiary & joint) – ART. 1816, 1817, 1835
        
        C3. Tort liability; breach of trust liability (primary & solidary) – ART. 1822 to 1824
        
        C5. Liability of new partners (subsidiary) – ART. 1826
        
        Scope of Liability (1826)
        
        GR - A new partner is liable for all obligations of the partnership prior to his admission, as though he was a partner prior. But, liability shall be satisfied out of partnership property.
        
        XCPN - If there is an express stipulation to the contrary.
        
        C4. Liability in case of estoppel – ART. 1825; Corporation Code, Sec. 21 - Here, third person becomes liable for the partnership debt and obligation
        
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        Tort Liability (1822) - Partnership liable to the same extent as partner that committed for any loss or injury caused by a partner/penalty incurred by reason of wrongful act or omission:
        
        IN THE ORDINARY- course of business of the partnership OR
        
        WITH AUTHORITY - of the co-partners
        
        Fraud /Misapplication (1823) - Partnership is bound to make good the loss in case of misapplication IF:
        
        APPARENT AUTHORITY - partner within scope of apparent authority receives money or property of 3rd person and misapplies it
        
        COURSE OF BUSINESS - Partnership in the course of business receives money/property of third person and the same is misapplied by any partner while it is in the custody of the partnership
        
        Nature of Liability (1824) - All partners are solidarily liable with the partnership for everything chargeable to the partnership.
        
        UNLIMITED LIABILITY (UNLESS LMIITED PARTNER) (1816-1817) -
        
        GR (1816) - All partners, including industrial ones, shall be liable pro rata (in proportion i.e. joint liability) with all their property and after all the partnership assets have been exhausted, for the contracts which may be entered into in the name and for the account of the partnership, under its signature and by a person authorized to act for the partnership
        
        XCPN (1817) - However, any partner may enter into a separate obligation to perform a partnership contract. | Any stipulation against the liability laid down in the preceding article shall be void, except as among the partners.
        
        Ratio - Partners are collective owners of the business enterprise. Via mutual agency, they are collective managers of the partnership affairs. As such, despite the separate juridical personality they wholly own, manage and control the business. Thus, they must also be the ones who bear the liability. Otherwise, partnerships creditors would take risks when they draw no benefit.
        
        Effect of Dissolution (1835) -
        
        GR - Dissolution of the partnership does not of itself discharge the existing liability of any partner.
        
        XCPN - Partner discharged from any existing liability upon dissolution only by agreement between partnership creditor, himself and the person or partnership continuing business. This may be inferred from course of dealing between creditor HAVING KNOWLEDGE of the dissolution and continuer.
        
        Deceased Individual Property - Deceased partner's individual property shall be liable for all obligations of the partnership incurred while he was a partner, subject to prior payment of separate debts.
        
        When Applicable (1814) - Applies upon due application before a competent court by a judgment creditor of a partner.
        
        This is without prejudice to the preferred rights of partnership creditors under 1827. Does not deprive partner of right re: interest in the partnership.
        
        Effect - The Court charges the interest of the judgment debtor(partner) with payment of the unsatisfied amount of such judgment debt, with interest. Court may appoint a receiver of the partner's share of the profits/other money due by virtue of the partnership.
        
        Redemption - The interest charged may be redeemed at any time before foreclosure or if sale directed by the court, may be purchased without causing a dissolution of the partnership.
        
        Separate Property - may be purchased by any one or more of the partners.
        
        Partnership Property - may be purchased by any one or more of the partners WITH CONSENT of all the partners whose interests are not charged/sold
        
        Preference of Creditors (1827) - The creditors of the partnership shall be preferred to those of each partner as regards the partnership property. Without prejudice to this right, private creditors of each partner may ask for the attachment and public sale of the share of the latter in the partnership assets.
        
        Can be done either through the appointment of a receiver or through the issuance of a charging order.