Hi guys and welcome to another episode of Attorney Ja Vlogger, Law for the Everyday Layman. Today we continue with our series on partnerships and today we'll be talking about the relationship of the partnership to the partners as well as the rights of the partners themselves. So if you like my videos and you want to see more, please hit the subscribe button. Also please remember that this is only for educational purposes and is not a substitute for proper legal advice.
or for studying and understanding the law. A like on this video and all my other videos would also be highly appreciated. Okay, now let's begin.
Now, as I mentioned in the previous video, the contract of partnership creates relations between among the partners, between the partnership and the partners, and that is our focus today. So one of the relations created by the contract of partnership is the one that results between the partners, the individual partners and the partnership itself. As a result, the partnership has certain responsibilities or duties to the partners, which are as follows.
First, the partnership should refund amounts which are disbursed by the partner in behalf of the partnership. Add to this the corresponding interest which must be paid. from the time the expenses are made. So these refer to loans or advances made by the partner on behalf of the partnership other than capital.
The second would be to answer the partnership answers for the obligations which the partner may have contracted in good faith in the interest of the partnership business. And also the partnership. has to answer for risks in consequence of management provided of course that the partner is not at fault and that he acted within the scope of his authority okay now we can go to the rights of a partner let's uh breeze through all of them first before i discuss them one by one first of course under 1810 we have the property rights of the partner and under these property rights We have the right in specific partnership property. We also have the interest in the partnership or the equity rights and the right to participate in management.
The second right that a partner has would be the right to reimbursement for amounts advanced to the partnership as well as indemnification for risks in consequence of management. Another right would be the right... to associate with another person in his share otherwise known as the contract of sub-partnership the fourth right would be the right of access and inspection of partnership books the fifth right would be a right to a true and full information okay of all things affecting the partnership next we have the right to a formal account of partnership affairs under certain circumstances.
And we also have the right to have the partnership dissolved under certain conditions. And additionally, let's just add the right to use a firm or partnership name. Now let's begin with our discussion.
We begin with the property rights of a partner. And in this regard, take note that property is different from the capital which is contributed. The property or the assets is variable.
The value may change as the market value likewise changes. And the property, when we talk about property, it can include goodwill or it can even include the capital itself. The capital, however, will always be constant. Its value is always constant because it is fixed in the articles of partnership or in the contract of partnership itself. And it may consist.
of money, property, or industry. So generally, when we say property that's bigger, it includes the capital, okay? Under this umbrella of the property rights of a partner, as I mentioned earlier, we have three rights, no? First, right in specific partnership property, rights to the interest in the partnership or the equity rights, and the right to participate in management. When we talk about rights in specific partnership property, this contemplates, of course, tangible property.
Okay? And this tangible... property, this belongs to the partnership. Remember, the partnership has a separate juridical personality, separate and distinct from the partners. This means that the partners have no actual interest in the partnership.
partnership property until after the partnership itself is dissolved. Okay? Take note that under Article 1811, a partner is considered a co-owner with his co-partners over specific partnership property as a result of this co-ownership there are certain incidents first we have the right of possession in other words each partner has an equal right with his co-partners no to possess specific partnership property for partnership purposes he has no right to possess that property for any other purpose without the consent of his partners and if a partner uses that property for his own profit then he must account to his co-partners for the said profit no second incident would be that a partner cannot assign his interest in any specific partnership property i emphasize that because later on when we talk about interest that is assignable take note first now that the partner cannot assign his interest in any specific partnership property Why? Because the individual partners have no specific interest in the specific partnership property which belongs, of course, to the partnership.
And it is impossible to determine the extent of a partner's beneficial interest in that property until after liquidation. This also serves the purpose of preserving the interest in the property after liquidation. It protects the rights of the partners and partnership creditors to have the partnership assets applied to the firm's liabilities or debts. And this will prevent interference by outsiders in partnership affairs.
Okay? Take note, however, all of the partners may collectively, not all of them, may collectively make an assignment of their entire interest in any specific partnership property. Okay? has to be all of them okay third incident of this co-ownership is that the specific partnership property is not subject to attachment or execution against an individual partner again because the part the property does not belong to the partner it belongs to the partnership okay however no a claim if the claim is brought against the partnership then that property may now be attached or executed upon because the claim is against the partnership and the partner owns that property okay another incident of this co-ownership is that the specific partnership property is not subject to legal support why because again the partner does not own the property it belongs to the partnership it is only the partner's interest in the partnership that may be subject to legal support no And finally, the last incident would be the partner's interest is not a debt due from the partnership. There's no creditor-debtor relationship.
So while creditors of a single individual partner may go after his interest, those creditors cannot go after specific partnership property. Again, because there is a separate personality, what belongs to the partnership does not necessarily... belong to any of the individual partners. They only have a beneficial interest in the property owned by that partnership.
Now, let's go to the interest of a partner in the partnership or the equity rights. Now, the interest of a partner in the partnership refers to a partner's share in the profits, meaning the excess of returns. over expenditures in a transaction or series of transactions or i end rather end the partner share in the profits and the surplus and the surplus simply refers to the assets of the partnership after its liabilities are paid and the rights of the partners among themselves are adjusted okay now again just to make sure the partner's interest in the partnership would refer to his share in profits and surplus no without mentioning any specific property after all debts and liabilities to outside creditors have been satisfied and their equities adjusted no it is it is the interest of the partner after dissolution to receive any debts due to him by by way of advances salary or interest if any his capital contribution and after that his proper share of the remaining profits if there are any so since the partner's interest in the partnership is his personal property a partner no an individual partner may assign his whole interest in the partnership and this will not necessarily result in this solution okay and the assignee no the risk the person who receives the interest of the partner no he does not become a and he cannot interfere in the management or administration of the partnership.
He cannot require information and accounting. He cannot inspect partnership books. However, that assignee, he has certain rights.
He has the right to receive, in accordance with this contract, the profits which the assigning partner would have otherwise been entitled to. He can also avail himself of the usual remedies provided by law in the event of fraud in management. Further, an assignee has the right to receive his assignor's interest in case of dissolution as well as to require an account of the partnership affairs in case the partnership is dissolved. The account will cover the period from the date only of the last account agreed. to by all of the parties.
Now, distinguishing this from the previous discussion, while a partner's right in a specific property is not subject to execution on a claim against him as an individual, a creditor may subject the partner's interest in the partnership to attachment. When we talk about this, what I mean is the share in the surplus after after the firm debts are paid and equities to the partners are adjusted. That is what the creditor can attach and not a specific property like a car, a house, etc.
And how is this attachment done? This is done through what is called a charging order. Take note also that while the creditors may ask for attachment and public sale of the share of a partner, it is the creditors of the partnership itself that are preferred over the creditors of each individual partner when it comes to partnership property.
The final property right of a partner would be the right to participate in management, and I'll talk about that in the next video, okay? Don't worry, it'll be in the next video. Now let's go on to the second right of a partner, which is the right to reimbursement. for amounts advanced to the partnership and the right to be indemnified for risks in the consequence of management.
Under Article 1796, except when otherwise stipulated, every partner is an agent of the partnership for the purpose of its business. So this means that the partnership must refund amounts which are disbursed by the partner on behalf of The partnership, okay? This includes advances for partnership debts, which are due and payable, plus interest from the time of demand in case of loans made to the partnership, which are not capital, ha? Take note, they should not be capital.
So, the partnership must answer for the obligation contracted by its partner, which is done in good faith, okay? As long as it's done on behalf of the partnership, the partner is entitled to receive reimbursement or indemnification, and the partnership must answer for risk in consequence of its management. Let's now go to the third right.
The third right of a partner would be the right to associate with another person in his share. This is otherwise known as a contract of sub-partnership and the governing rule is article 1804 okay and a contract of sub-partnership is one formed between a member of a partnership say go go go han vegeta are members of a partnership no and then vegeta is a partner as i said no trunks will agree with vegeta okay the trunks will be the sub-partner of vegeta but trunks will not be a part of this partnership he just has an agreement with vegeta okay so uh it's one between a member of a partnership and a third person for the division of profits owing to the member of the partnership from the partnership enterprise okay so it's like a partnership within a partnership it is separate and distinct from the main or principal partnership okay the partnership between trucks and vegeta is separate from the partnership of goku gohan and vegeta the part the sub partners are partners among themselves But the sub-partner himself is not a member of the main partnership So therefore, he does not acquire the rights of a partner And he is not liable for partnership debts In order for Trunks, the sub-partner, to become a member of the main partnership The original contract of partnership should be modified In other words, all the other partners must agree that Trunks can now join Thank you If they do not agree, then it's just a contract of sub-partnership between Vegeta and Trunks. That is based on the principle of delectus personae, that the partners have the right to choose who they will be associated with. Now, while the consent is necessary in order for Trunks to join the partnership, consent of the others is not necessary for Trunks to become a mere sub-partner.
okay vegeta or trunks does not need the consent of gohan and goku for them to have a sub-partnership relation okay now let's go to the next right of a partner this is the right of access and to inspect the partnership books now take note no i mentioned in the previous video that there is an obligation on the part of the partner or in this case, the duty of the managing partner or the partner who is assigned or voted upon, they have the duty to keep true and correct records in the books. They have to show accurately the firm's accounts. And these books should be open to inspection at all times, of course, within reasonable hours on business days. Now, this implies that there is...
is a if there is a duty to keep books faithfully then there is the right to inspect the books okay and that right stems from the from from the fact no that a partner is a co-ownership of partnership properties which of course includes the books no now just take note that when it comes to this right to access and inspect that right is not absolute and a partner may be restrained from using the information gathered in case he uses it for a purpose that is other than or in conflict with the partnership purpose. Moreover, it is presumed that the partners have knowledge of the contents of the books and that the books accurately state the actual state of accounts. Now let's move on to the next right.
The right to true and full information. of all things affecting the partnership. This is under Article 1806. And this was already mentioned in the previous video that each partner has a duty to render on demand true and full information of all things affecting the partnership. And again, by implication, each partner has a right to demand and receive information provided.
Of course, it must be used only for partnership. purposes and not in conflict with the partnership business take note that the duty to render information or the right to demand the same does not arise with regard to matters that are in the books since they already have the right to inspect the books just check the books okay so there's no more need to demand the information anymore okay now on to the next right no the right to a formal account of partnership affairs under certain circumstances. This is under Article 1809. Now generally, a partner is not entitled to a formal account of partnership affairs during the existence of a partnership. Why? Because aside from being inconvenient and possibly a waste of time, the right to know such affairs are already protected by 1805 on the inspection of books and 1806 on the right to demand information affecting the partnership.
Okay? So this formal account is usually proper only as a necessary incident of dissolution. So when a partner asks for dissolution, he also asks usually for a formal account of the partnership affairs.
However, 1809 gives us situations when a formal account may be demanded. Namely, first, if a partner is wrongfully excluded from the partnership business or from possession of its property by his co-partners. Wrongfully excluded. Second, if the right exists under the terms of any agreement entered into by the partners.
Third, if a partner has derived profits from any transaction connected with the formation, conduct, or liquidation of the partnership or from any use by him of property. And fourth, whenever other circumstances render it just and reasonable. For instance, if a partner has been assigned abroad for a long period of time in connection with a partnership business.
Okay? So as long as the partnership exists, any of the partners may demand an accounting of the partnership business under the circumstances I mentioned. Okay? The next right of a partner, is the right to have the partnership dissolved under certain conditions.
And I will just discuss this in a future episode on dissolution. Please just wait for that. And finally, I just want to discuss the right of the partners to use a firm name, the partnership name.
So the law tells us that every partnership shall operate under a firm name. which may or may not include the name of one or more partners. For law offices, we have, let's say, De La Cruz, Santos, and Villanueva, like that, whatever.
So, or in case of a limited partnership, the word limited must be included, like Velasco and Reyes Limited. Now, the rule is, Persons who are not partners who include their name in the firm name, they do not acquire the rights of a partner. Because a partnership is contractual, it has to be agreed upon. And electus personae affords the partners the right to choose who to be associated with. So the mere fact that you put your name in the partnership name does not make you a partner.
But take note, okay? If they include their name in the partnership name, They shall be subject to the liability of a partner insofar as third persons are concerned. Okay? Insofar as third persons who have no notice of the actual relation are concerned.
These are who are known as partners by Estopel. Now, take note that liability is different from losses. When we talk about liability, that's what you... That's your relation to the debtor. When we talk about losses, that's the relation of partners among themselves.
I'll talk about that more in the next video. Now, the partners, what name can the partners use? The partners can use any firm name that they want.
But of course, they cannot use a misleading name or a name that is identical or deceptively confusing or similar to any existing. partnership or corporation or any other name which is already protected by law. And what about the case where a partner dies and the partnership is continued?
Can you still use his name? Before, you could not because the partnership should be dissolved. But if you will notice that there are some partnerships in the Philippines today where they use... Names of people who are already dead.
And how can this take place? This has been allowed, provided that the firm or the partnership indicates in all its communications, its letters, its emails, whatever, that specific partnership. partner is already deceased and this is usually done by putting a cross beside the name so you will know that he's dead okay you just have to inform the public that said partner is already deceased okay so one more time let's just go through the rights of a partner we have the property rights of the partner under 1810 which include the rights to specific partnership property the interest in the partnership or the equity rights, and the right to participate in the management. The other rights would be the right to reimbursement for amounts advanced to the partnership and to be indemnified for risks in consequence of the management.
The third is the right to associate with another person in his share, otherwise known as a contract of sub-partnership. Fourth, the right of access and inspection of partnership. books fifth the right to true and full information of all things affecting the partnership six uh sixth the right to a formal account of the partnership affairs under certain circumstances seventh the right to have the partnership dissolved under certain conditions and finally the right to use a firm or partnership name okay so i hope you may have picked up a thing or two and uh I hope to see you next time guys. Okay, see you soon.
Bye.