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VIII. Rights of a Partner - IX. Partnership's Obligation to Partners -…
VIII. Rights of a Partner - IX. Partnership's Obligation to Partners - X. Rights of Assignees
A. To associate another in his share – ART. 1804
B. To access, inspect and copy partnership books – ART. 1805
C. To have a formal account – ART. 1809, 1842
D. Property rights – ART. 1810
E. To possess specific partnership property – ART. 1811
F. To convey partnership interest – ART. 1812, 1813
- Refers to the equity rights of the partners.
G. To ask for dissolution – ART. 1830 (2), 1831
GR - Not required to undergo a judicial dissolution.
XCPN - 1831 circumstances apply.
Dissolution (1830(2)
- Caused by
In contravention of the agreement between the partners, where the circumstances do not permit a dissolution under any other provision of this article, by the express will of any partner at any time;
Dissolution by Order (1831)
- The grounds for dissolution here constitute substantial breach of the obligations assumed by the partners.
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Withdrawing from the partnership is asking for a dissolution.
Definition (1812) -
A partner's interest in the partnership is his share of the profits and surplus. The partner's interest is the net balance remaining to him after all partnership debts, claims are paid and equities and accounts of other partners are adjusted.
Role of Interest
- the partner's interest defines his equity position as a co-proprietor of the partnership enterprise. This entitles him to the share in the profits and losses.
Profits/Surplus -
Profits
- The excess of receipts over expenses or the excess of the value of returns over the value of advances.
Surplus
- the excess of assets over liabilities.
Conveyance of Partnership Interest (1813)
-
A conveyance by a partner of his whole interest in the partnership does not of itself dissolve the partnership,
Does not entitle the assignee, during the continuance of the partnership, to interfere in the management or administration of the partnership business or affairs, or to require any information or account of partnership transactions, or to inspect the partnership books
2a. UNLESS there is agreement to the contrary
Effect of Conveyance
- It merely entitles the assignee to receive in accordance with his contract the profits to which the assigning partner would otherwise be entitled.
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Assignment's by way of Security
- Void, being pactum commissorium. This is because you automatically appropriate the property of the partner(?) But, valid in US laws this is because these provisions are carried over.
Scope
- a partner is deemed a co-owner with the other partners of specific partnership property.
Effects of Co-Ownership -
POSSESSION
-
GR
: A partner has an equal right with his partners to possess specific partnership property for partnership purposes; but he has no right to possess such property for any other purpose without the consent of his partners;
XCPN
- subject to the provisions of this Title and to any agreement between the partners
NON-ASSIGNMENT
-
GR
: A partner's right in specific partnership property is not assignable
XCPN
- except in connection with the assignment of rights of all the partners in the same property;
ATTACHMENT/EXECUTION
-
GR
: A partner's right in specific partnership property is not subject to attachment or execution,
XCPN
- except on a claim against the partnership.
Effect of Attachment-
When partnership property is attached for a partnership debt the partners, or any of them, or the representatives of a deceased partner, cannot claim any right under the homestead or exemption laws;
LEGAL SUPPORT
- A partner's right in specific partnership property is not subject to legal support under article 291. (n)
Sir says this may provide remedies when illegally eased out of the partnership.
Enumeration (1810)
- The property rights of a partners are:
CO-OWNERSHIP POWER
- His rights in specific partnership property;
MANAGEMENT POWER
- His right to participate in the management
EQUITY INTEREST
- His interest in the partnership;
Commentary
- Villanueva says that the property rights of a partner defines the three-fold role that every partner assumes. As an investor, a manager, and as an agent of the partnership. This multi-level position leads to conflicts of interest. Thus need to resolve them.
Delectus Personae
- The law on partnerships treats the contractual relationship between and among the partners as of the highest fiduciary and personal level. This eliminates circumstances where strangers are allowed to join the group without their unanimous consent.
Separability
- the property rights of partners under 1810 is divisible. Capable of being treated and transacted separately.
Q. In exam, partner was expelled. If illegally expelled, does partner cease to have property rights?
Right to Demand Accounting as to Partnership Affairs (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
PROFITS WITHOUT CONSENT 1807
- Profits derived without consent of the other partners from use or transaction connected with formation, conduct or liquidation of the partnership or use of the partnership property.
ANY OTHER
- circumstances that render it just and reasonable
Winding Up (1842)
- Held by partner or their legal representative. Accrues In the absence of stipulation to the contrary, partner has the right to receive an accounting of his interest at the date of dissolution as against:
5a.
Winding-up
partners,
5b.
Surviving
Partners
5c.
Person or partnership
continuing the business.
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.
XCPN
- Unless, agreement to the contrary.
Property in Possession of Other Partners (Lim Tanhu v. Ramolete)
- A partner's right to accounting of property in control/custody of other partners arises only when there is proof that such properties have been acquired from the use of partnership funds
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
Rationale
- Villanueva says analogous to right of a stockholder/member to inspect and copy corporate records. This is critical to safeguarding all other rights in the corporation held by such persons.
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.
Effect
- X recruits Z for XY partnership --> XZ partnership arises. But, no XYZ partnership.
Entry Level Position
- An associate is an employee. Not a partner. Thus, outside the scope of 1804.
IX. Partnership's Obligation to the Partners
To reimburse; to answer for obligations contracted – ART. 1796
Reimbursement/Obligations (1796)
-
Reimbursement
- The partnership is responsible to every partner for the amounts they may have disbursed on behalf of the partnership and for the corresponding interest.
Obligations
- The partnership shall answer to every partner for the:
2a. OBLIGATIONS they have contracted in GOOD FAITH in the INTEREST of the partnership business AND
2b. RISKS in consequence of its management.
When Accrued
- From the time the expenses are made.
Agency
- Parallels NCC 1912 of the law of agency i.e. duty to reimburse the agent. Stems from the mutual agency of the partners.
X. Rights of Assignees
To receive the interest – ART. 1813
To require an account – ART. 1813
To ask for dissolution (ART. 1831)
- Does not preclude dissolution by will.
Dissolution by Order (1831)
- The grounds for dissolution here constitute substantial breach of the obligations assumed by the partners.
On application by or for a partner
-
INSANE PARTNER
- A partner has been declared insane in any judicial proceeding or is shown to be of unsound mind;
INCAPABLE PARTNER
- A partner becomes in any other way incapable of performing his part of the partnership contract;
PREJUDICIAL CONDUCT
- A partner has been guilty of such conduct as tends to affect prejudicially the carrying on of the business;
BREACH/UNREASONABLE CONDUCT
- A partner willfully or persistently commits a breach of the partnership agreement, or otherwise so conducts himself in matters relating to the partnership business that it is not reasonably practicable to carry on the business in partnership with him;
LOSS TO BUSINESS
- The business of the partnership can only be carried on at a loss;
OTHER
- Other circumstances render a dissolution equitable.
Insanity/Incapable
- the law recognizes that an insane partner still has an estate that has a right to benefit from the properties and rights which a partner is entitled to, the other partners are given the option to allow the estate.
Q. Effect of a judicial declaration of insanity of a partner? Article suggests that the discretion is given to the other partners to seek its dissolution.
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Other Grounds
- relate to circumstances prevailing in the partnership setting that endanger or undermine the viability of the partnership enterprise.
Assignment is to deal with gap in the law. Expulsion v. Dissolution.
Application By Purchaser of Interest
-
TERMINATION OF TERM/UNDERTAKING
- After the termination of the specified term or particular undertaking;
PARTNERSHIP AT WILL
- At any time if the partnership was a partnership at will when the interest was assigned or when the charging order was issued.
1831 is not expulsion. It is dissolution of the partnership. Expulsion must be expressly provided in the articles of partnership.
Conveyance of Partnership Interest (1813)
-
A conveyance by a partner of his whole interest in the partnership does not of itself dissolve the partnership. Assignment of interest does not mean intent to dissolve partnership.
Does not entitle the assignee, during the continuance of the partnership, to interfere in the management or administration of the partnership business or affairs, or to require any information or account of partnership transactions, or to inspect the partnership books
2a. UNLESS there is agreement to the contrary
Effect of Conveyance
- It merely entitles the assignee to receive in accordance with his contract the profits to which the assigning partner would otherwise be entitled.
Effect of Dissolution
- In case of a dissolution of the partnership, the assignee is entitled to receive his assignor's interest and may require an account from the date only of the last account agreed to by all the partners. (n)
Remedies of Transferee/Assignee -
In case of fraud in the management of the partnership, the assignee may avail himself of the usual remedies.
Rights of the Transferor Partner
- Because only the equity rights are transferred, the transferor partner still has the right to manage the partner affairs and act as the agent of the other partners.
Assignment's by way of Security
- Void, being pactum commissorium. This is because you automatically appropriate the property of the partner(?) But, valid in US laws this is because these provisions are carried over.
Q. Does this Apply to Pledge? - Yes, similar to pledge i.e. to secure debt. Intent for creditor to receive profits out of the share of partnership interests. Again, like a pledge.