How to dissolve a partnership – “divorce and remarriage” of contractors in government projects

Keeping voters in the dark (Daily Tribune, March 16, 2010)

An editorial in the Daily Tribune (March 16, 2010) reports:

“It appears that Smartmatic-TIM no longer exists as a partnership consortium, as TIM has opted out of the partnership in August last year, something that has been kept away from the Filipino people, who are footing the P11.3 billion bill for the 2010 automated polls.

Smartmatic’s original partner, TIM, which was earlier pressured by the poll commissioners to sign on the dotted line, to ensure that Smartmatic gets the P11.3 billion contract, has been replaced by a company called 1920 Business Inc., which is not even listed with the Securities and Exchange Commission, which means that no one knows just who are the stockholders or dummies.

Nothing, it was reported in a newspaper, is publicly known about 1920 Business Inc.”

The above is useful for remembering bar exam pointers relating to partnership.  For example:

What is dissolution? Winding up? Termination?

–          Dissolution is a change in the relations of partners when any partner ceases to be associated with the carrying on of the business.  Art. 1828, Civil Code.

–          Winding up is the settling of the affairs of the partnership so as to terminate the business.

–          Termination is when all the acts of winding up are finalized.

What causes dissolution?

Under Art. 1830 of the Civil Code, the following events may dissolve a partnership:

–          Under the partnership agreement, by:  the termination of the definite term or particular undertaking, express will of any partner acting in good faith, express will of all the partners, or expulsion of a partner.

–          In contravention of the agreement, by: will of any partner.

–          Event that makes the business unlawful.

–          Loss of thing to be contributed before it came to become property of the partnership.

–          Death, insolvency, or civil interdiction of any partner.

–          Court decree for legal or equitable cause.

Applying the above, can we conclude that the Smartmatic-TIM partnership has been dissolved?

It is not clear that the partnership has been dissolved.

One possibility is when TIM did not act in good faith, and  Smartmatic did not want TIM out of the partnership, in which case I believe that the partnership continues to subsist as to third parties, and TIM remains liable as though it remained a partner.

Another possibility is that in contravention of the partnership agreement, TIM opted out.  In such a case, the partnership is dissolved.

Another possibility is when both Smartmatic and TIM agreed to have a new entity replace TIM, and here the partnership is dissolved, and a new partnership is created between Smartmatic and the substituted partner.

The last possibility may be legal.  Substitution of partners would typically require a transfer of shares in the partnership.  There is a provision in the contract between Comelec and Smartmatic-TIM that the co-venturers may not until December 31, 2010 transfer their shares of stock in the joint venture to any third party unless agreed to in writing by Comelec (Art. 24).  But would such approval by Comelec of a substitution be proper?  I believe we do not know enough to make a judgment, but it would seem proper to raise questions regarding the identity and capability of the new partner.

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4 thoughts on “How to dissolve a partnership – “divorce and remarriage” of contractors in government projects

  1. The Daily Tribune editorial which is the source and the basis of this blog is purely speculative, ergo, your whole blog is speculative. We need factual basis otherwise, the end is misleading. This is not the way to educate our young.

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      1. I am privy to the details of the transactions, there happy? You should not believe everything you read and as an educated person, you should know that. Otherwise, it is irresponsible writing.

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        1. You seem more knowledgeable than the Daily Trib. You are most welcome, I’m sure, to write them a proper and polite letter to the editor, pointing out their inaccuracies, etc. But I’m also sure, if you weave in an insult or two, that your letter will go to its proper resting place in heaven (of course).

          Since you’re privy, that could make you astroturf, unless of course you do a nice and fitting disclosure.

          And let freedom of expression ring.

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