Obligations of Partners PDF

Preview

Summary

LAW ON PARTNERSHIP Chapter II OBLIGATIONS OF PARTNERS CIVIL CODE OF THE PHILIPPINES Art. O E R COMMONS OPEN EDUCATIONAL RESOURCES NS LAW ON PARTNERSHIP Section 1 Obligations of the Partners amongst Themselves Relations created a contract of partnership (1) Relations among the partners themselves (2)...

Description

LAW ON PARTNERSHIP Chapter II OBLIGATIONS OF PARTNERS CIVIL CODE OF THE PHILIPPINES Art. 1784-1827

O

E

R

COMMONS OPEN EDUCATIONAL RESOURCES

LAW ON PARTNERSHIP

Section 1 – Obligations of the Partners amongst Themselves  Relations created by a contract of partnership (1) Relations among the partners themselves (2) Relations of the partners with the partnership (3) Relations of the partnership with third persons (4) Relations of the partners with third persons Article 1784 A partnership begins from the moment of the execution of the contract, unless it is otherwise stipulated. (1679)  Partnership is perfected by mere consent and if ALL the requirements are met  Notwithstanding the fact that the partners have not given their contributions yet  Example: A and B agree to form a partnership that will begin on December 1 and upon the arrival of certain machinery needed by the business. In this situation, are A and B in already in a partnership? As long as the agreement remains executory, then A and B are NOT partners therefore there is no partnership yet.  Partners may agree to form a partnership to take effect in the future  Example: A and B agree to form a partnership 1.5 years later, with contributions of P100,000.00 each. A contributes his share early but when the time comes for B to contribute his share, he refuses and says he no longer wants to partake in the partnership. Can A compel B to contribute his share to the partnership? NO. Because they cannot enforce the contract since it was perfected 1.5 years ago and the contract was only oral. Since the contract was for 1.5 years, it was greater than 1 year and should have been written instead.  The Statute of Fraud does not usually apply but to some particular cases such as the example above, it will.  If the contribution is immovable property, comply with Article 1773 otherwise the partnership will be void. Article 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. (n)  A partnership with a fixed term/particular undertaking is continued without express agreement Rights and duties remain the same as they were at termination.  Example: If A and B form a partnership to last until December 30, 2011 and A is the manager and they share profits 50-50 and after December 30, 2011 they continue with their partnership. What happens? A and B retain their rights, meaning A is still the manager and they still share profits 50-50.  If there was express agreement for the term of existence, then when the term expires, the partnership is dissolved and becomes a partnership at will  Continuation is when there is NO settlement/liquidation. There must be prima facie evidence, meaning it must be seen on first glance. Article 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. (1681a) Article 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,

LAW ON PARTNERSHIP

and in the absence of stipulation, it shall be made by experts chosen by the partners, and according to current prices, the subsequent changes thereof being the account of the partnership. (n) Article 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 shall begin from the time he converted the amount to his own use. (1682)  Suppose A, B and C are partners. A promises to contribute a RED CAR, B promises to contribute GOODS WORTH P50,000.00 and C promises to contribute P50,000.00 IN CASH on October 2011. On October 2011, none of them comply. What happens? A, B and C thus become debtors to the partnership.  Suppose B and C contribute their parts but A does not. Can B and C ask for the recission or annulment of the contract? NO. If one of the partners fails to comply with his requirements, then the others can request for specific performance with damages from the defaulting partner A.  What are the obligations of A before October 2011? (1) To contribute what he promised (2) To be held liable to answer for eviction if the partnership is deprived of his contribution (3) To take care of the contribution with the diligence of a good father of a family.  Suppose A leased the car out and gets it back by December 2011. Then A must deliver the car and the fruits (profits from lease) to the partnership because there was a delay.  Suppose that after A contributes the car, a 3rd person, D claims to the real owner of the car and is able to prove so. Then A is held liable for eviction because the partnership is deprived for a specific thing. A is also held liable for damages to BOTH the partnership and to D.  What about B? Can the partnership determine the value of the goods he contributed? In Article 1787, it clearly states that the goods SHOULD be appraised by the partnership. If there was no agreement/stipulation, then the partnership shall have the goods appraised by an expert.  What if the goods appreciate/depreciate? It will be charged to the partnership’s account.  What will happen if C fails to comply with his obligation? C will be liable for his contribution plus interest and damages from the date he was supposed to contribute. The same rule will apply if the partners take money from the partnership’s funds without everyone’s consent. He will however, not be charged for theft or estafa and his obligation will only be to return the money he took plus interest and damages from the time he took the money.  When will a partner be held criminally liable? Suppose the partners set aside P10,000.00 for payment to one of their creditors. A takes this amount from the fund and is subsequently discovered to have done so. Then A can be charged for estafa since he misappropriated the money ALREADY SET ASIDE. Article 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. (n)  An industrial partner contributes his industry Partnership has the EXCLUSIVE RIGHT to his industry Prohibited from the engaging in business of ANY kind unless the partnership has expressly permitted him to do so.  Example: Suppose that a partnership is engaged in a automobile repair shop. A is the industrial partner (chief mechanic) and works only up to 5PM every working day. Can he go home and work on the partnership’s customers’ autos, even if he says it to the capitalist partners EVERY DAY before he leaves? The law says that there must be EXPRESSED permission, in this situation, all A has is IMPLIED permission. The capitalist partners’ remedy is therefore to either: (only one) (1) Avail of the benefits from A’s “business” (2) Exclude A from the partnership and demand for damages

LAW ON PARTNERSHIP

 Capitalist partners are prohibited from engaging in SIMILAR businesses only.  Industrial partners have the same remedies as capitalist partners. Article 1790 Unless there is a stipulation to the contrary, the partners shall contribute equal shares to the capital of the partnership. (n)  The partners shall contribute to the capital of the partnership as per their agreement, except if there was no agreement in the first place, in which case, they shall contribute equally.  Example: A and B decide to form a partnership and agree to contribute to the capital in the ratio of 60:40, how much should the partners contribute to the partnership? The partners shall contribute in the ratio of 60:40, meaning if their partnership capital is a combined total of P10, 000.00 then A contributed P6, 000.00 and B contributed P4, 000.00. A and B decide to form a partnership but did not say how much the other should contribute, how much should each partner contribute to the partnership? Since the partners did not give any sort of agreement as to the ratio of their capital contribution, we shall assume that they will contribute in equal proportions, meaning if the partnership capital is a combined total of P10, 000.00, then each partner contributed P5, 000.00. Article 1791 If there is no agreement to the contrary, in case of 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 sav4e the venture, shall be obliged to sell his interest to the other partners. (n)  If there is an imminent loss in the partnership, the partner who refuses to contribute additional funds, IF HE IS CAPABLE TO DO SO, shall sell his share TO THE PARTNERS, unless he is an industrial partner. Imminent Loss  There is a need for the capitalist partners to contribute additional funds to save the partnership  The industrial partner need not do so because he has already given 100% of his efforts  If the capitalist partner is WILLING but NOT FINANCIALLY CAPABLE, the article will NOT apply to him because he is already insolvent Selling of interest  Refusal to contribute additional funds to save the partnership means that the partner no longer has any interest in the partnership  He should not be allowed to reap the benefits that the other partners have worked hard for because he had not done anything to help anyway  He cannot complain of being removed from the partnership because he will be paid what is due to him for his share in the interest of the partnership Agreement that the partner need not contribute additional funds in cases of loss  The capitalist partner will not be required since it was in their agreement in the first place.  Note that more contribution to the partnership capital would mean you share more in the profits but this should be voluntary  Things to consider: (1) There must be an IMMINENT LOSS (2) The partner who is unwilling to contribute must be SOLVENT/FINANCIALLY CAPABLE (3) There was no agreement that the partners will not have to contribute additional funds in cases of loss  If the purpose of additional contribution is simply to raise capital, then this article will not apply. Article 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 that partner should be more onerous to him. (1684)  A and B are in a partnership where A is the managing partner. C owes A a sum of P5,000.00 and the partnership a sum of P10,000.00. The credit to A is due on September 1 while the partnership’s

LAW ON PARTNERSHIP









is due on September 15, both debts are due and demandable. A collects from C a total of P3,000.00 only and A subsequently issues a receipt in his name. Is the partnership entitled to share in the P3,000.00? Yes but in proportion to their respective debts so A gets P1,000.00 and the partnership gets P2,000.00. Supposing there was no mention as to who the managing partner is, will the requisites of Article 1792 still be present? Yes, in the absence of information relating to the identity of the managing partner, the assumption shall be that ALL partners are managing partners. If A issues a receipt on the name of the partnership instead, to whose credit will the P3,000.00 be put? The entire P3,000.00 will go to the partnership. Supposing the credit of A carries 18% while that of the partnership carries only 10%. C pays A and says that the P3,000.00 shall be applied to A’s credit. Is the partnership entitled to share in the P3,000.00 still? No, the debtor is given the right to apply payment to whichever debt is more onerous. Things to remember: The two conditions should be both present in order for the Article to apply, otherwise, the entire amount will go to whoever collects payment from the debtor. (1) 2 debts and both are due and demandable (2) The one collecting should be the managing partner

Article 1793 A partner who was 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. (1685a)  In this case, there is only ONE debt but 2 or more debtors, both of which are partners.  Example: A and B are partners and C owes the partnership a sum of P10,000.00. B is the managing partner but A collects his share in the P10,000.00 and C pays A P5,000.00 to which A issues a receipt in his name. When B’s turn to collect comes, C is already insolvent. What should A do? A shall return his P5,000.00 to the partnership and split it with B because C has already become insolvent.  Take not that whoever collects doesn’t matter as it doesn’t make a difference  If you get your share early and the other parties cannot get theirs because the debtor has become insolvent, then you must return YOUR share to the partnership so that no one gets more than he should have. Article 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 this responsibility if through the partner’s extraordinary efforts in other activities of the partnership, unusual profits have been realized. (1686a)  Why compensation will not apply: Compensation will not apply because in compensation, you should be both a debtor and a creditor at the same time. However, the partner here is only a DEBTOR for damages and he cannot compensate using his profits and benefits earned for the partnership because it IS HIS DUTY to do so in the first place.  Responsibility may be equitably mitigated by the courts if, through extraordinary efforts of the partner, unusual profits are recognized/realized.  Example: A partnership between A and B is engaged in an autoshop business. A customer brought his car in to be painted YELLOW but A bought RED paint instead and the car is painted RED. Damages are suffered by the partnership for P30,000.00 due to the repainting. Can A compensate this loss using the profits he earned for the partnership? A cannot compensate it with the profits he earned because it is his obligation to bring profits in the first place. The responsibility of the P30,000.00, however, may be mitigated by the court if by other activities, A is able to bring about unusual or extraordinary profits, meaning, he may be allowed by the courts to pay back just P15,000.00 instead.  Follows that if the partner is guilty of fraud or damages, he shall be liable for that.

LAW ON PARTNERSHIP

Article 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 at which they were appraised. (1687)  Refers to rules as to who bears the risks made by contributions  If the contribution is determinate and non-fungible but only the use is contributed, when it is lost, then the one who contributes it is liable for it.  If fungible things are contributed, the partnership shall be the one to shoulder the risks  The partnership shall also be the one to bear the risk for items brought for sale in inventory for appraisal for the value at which they were appraised. Article 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 the risks in consequence of its management. (1688a)  Refers to the obligation of the partnership to the partners  The partners are merely agents so they are not personally liable except if they are at fault or if they exceeded their expressed authority  Obligations of the Partnership: (1) To reimburse any amount disbursed by the partners in behalf of the partnership Example: A partnership borrows from the bank a sum of P10,000.00 for additional funds but cannot pay it back when it is due to be paid back. A pays back the P10,000.00 using his personal funds. Should he be reimbursed by the partnership? Yes, the partnership should reimburse A for the sum of P10,000.00 PLUS legal interest starting from the date A disbursed the P10,000.00. (2) To answer for any obligation contracted in good faith Example: A partnership needs office supplies so B contracts for P10,000.00 worth of supplies. Who will pay for the contract price of P10,000.00? The partnership shall be the one to shoulder the cost as it was made in good faith and B did not overstep his authority. If it was stated that the partners cannot contract for more than P5,000.00 worth of supplies and B still contracts for P10,000.00, how much will the partnership pay? The partnership will only pay what was allowed, that is, P5,000.00 and B will pay the remaining balance since B overstepped his authority. (3) To answer for risks in management Example: A partnership is engaged in selling goods and a customer keeps asking for discounts and an argument ensues between the customer, C and the partner A. A gets injured and is brought to the hospital. Who shall shoulder the hospital bills? The partnership shall shoulder the hospital bills as it was during A’s time in managing the business that he was injured. Article 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. (1689a)

LAW ON PARTNER...