ABSTRACT
An ordinary partnership is established by two or more real or legal persons, congregating in order to achieve a common goal, without being bound with any restriction in terms of the goal, and combining their assets and endeavors. Ordinary partnership is a type of partnership which has been generally recognized in Civil Law. In our article, liabilities of partners between each other and against third parties engaging in a transaction with the partnership are analyzed and, on a theoretical basis German and Swiss law doctrines are embraced as a source.
I. INTRODUCTION
Ordinary Partnership is the most basic type of partnerships and it is defined in Article 620 of Turkish Code of Obligations (“TCO”) as follows: “the ordinary partnership agreement is an agreement by which two or more persons undertake to combine their assets and endeavors in order to achieve a common goal.”
Ordinary partnerships, which are not subject to ascertain form requirement, are a type of a partnership that can be encountered in a various relations in daily life since it is applicable both in a very basic daily works and complicated relations. An ordinary partnership is possible to be existent between those who manage a shop or a store, or buy a lottery ticket, and in case of winning, share the money1.
In this study, the meaning and the place of ordinary partnerships in Turkish law and the responsibilities of the partners of ordinary partnerships against each other and third parties are scrutinized.
II. ORDINARY PARTNERSHIP
There is no clear definition of ordinary partnership which is regulated between the Articles 620-645 of TCO2. However, in order for an ordinary partnership (“Ordinary Partnership”)3 to be established five different factors should congregate4 in accordance with the Article 620 of TCO. First of all, the existence of two partners and an agreement whereby two or more persons undertake to merge their assets endeavors in order to achieve a common purpose and which is called ordinary partnership agreement (“Ordinary Partnership Agreement”)5 in doctrine, , is required for an Ordinary Partnership to emanate6. In Turkish law, it is acknowledged that it is not possible for one person to establish an ordinary partnership solely7. But it is possible that the partners can be real or legal persons8. However, in legislation, there is no upper limit in terms of the numbers of partners9. Nevertheless, the existence of the possibility of inadequate organizational structure holding a large number of persons together in the Ordinary Partnership and also the lack of legal entity status in Ordinary Partnership, constitute a natural upper limit in practice in terms of the number of the partners in the partnership10.
In the second place, the matter of allocating capital byeach of the partners of the partnership arises. In parallel with Article 621 of TCO, the shares of the capital that the partners are obliged to bring together constitute the capital by congregating them in the capital of the partnership owned by the partners through joint ownership11.
In the formation of ordinary partnerships, the third factor to be fulfilled is forming an Ordinary Partnership agreement12. An Ordinary Partnership is a unity of persons13 formed by an agreement and it emanates as the agreement is implemented14. Additionally, persons involved in the Ordinary Partnership relationship should rally aiming to achieve a common goal15. In this respect, the relation of Ordinary Partnership is simply a collocation of a goal16. Therewithal, in Ordinary Partnership, only the gathering of the partners around a common goal is not sufficient. Concurrently, in order to achieve the common goal, the partners should possess the will and intention to join the partnership activities equally and make an effort therein, collaborating with other partners, without any hierarchical relation between each other17. This obligation is a primary obligation in terms of Ordinary Partnership agreements and is continuous, complying with the nature of Ordinary Partnerships being a continuous obligation18.
Pursuant to Article 638 of TCO, due to the debts of the Ordinary Partnership, the partners are held personally and jointly responsible and this provision applies in German law as well19. However, in Ordinary Partnership, the responsibilities of the partners against each other precede their responsibilities against third parties engaging in transaction with the partnership20. Therefore, in research of the scope of the liability of the partners, firstly the responsibilities of the partners against each other are scrutinized in our article.
III. THE LIABILITY OF PARTNERS AGAINST EACH OTHER
A. The Obligation of Allocating Share of Capital
In an Ordinary Partnership, each partner is obliged to allocate a share of capital to the partnership, in a sufficient amount and manner to help achieve the goal of the partnership. This obligation of the partners is stipulated in Article 621 of TCO21. The nature of the capital to be allocated in the Ordinary Partnership may be cash, property, or various rights or endeavor22. In case the amount of the share of the capital is not designated in Ordinary Partnership agreement, the shares of capital should have the importance and quality necessitated by the goal of the partnership and furthermore the shares should be equal to each other23.
In case one of the partners does not fulfill the obligation of allocating share of capital, there is no legal regulation in legislation related to what kind of sanctions shall be applied to the related partner24. Supreme Court acknowledges that an Ordinary Partnership Agreement is not an agreement burdening each party with debt and the provisions pertaining to exceptio non adimpleti contractus and recalcitrance cannot be applied with respect to Ordinary Partnership Agreements, but nonetheless abolition of partnerships can be requested due to valid grounds25. It is also stated in doctrine that provisions pertaining to the agreements burdening each party with debts cannot be applied to Ordinary Partnership Agreements and for this reason the provisions of TCO regarding recalcitrance cannot be referred26. However, the fact that the provisions about recalcitrance in related act cannot be referred does not abolish the liability of the partner not fulfilling his obligation against other partners. Specifically, if a penal clause is incorporated into the Ordinary Partnership Agreement, the fulfillment of this penal clause can be requested from the partner not fulfilling his obligation of allocating share of capital27. Furthermore, an action for fulfillment can also be used as an alternative way. Partners can bring an action for fulfillment against the partner not fulfilling his obligation of allocating share of capital to make him fulfill his obligation28.
B. The Obligation of Sharing the Loss
The partners in an Ordinary Partnership are obliged to share the damages caused by the transactions made by the partnership29. Spontaneous participation in damages of partners is an imperative rule in ordinary partnerships30. Due to the debts of the Ordinary Partnership, the partners are personally and jointly responsible31. It should also be noted that in parallel with Article 623 of TCO, even if there is a provision incorporated into the Ordinary Partnership Agreement regarding the partner allocating his endeavor as share of capital shall not share the loss of the partnership; the related partner cannot escape from being jointly and unlimitedly responsible against the third parties. Hence, the creditors of the partnership, without being bound with the provisions of the Ordinary Partnership Agreement, may demand their rights and claims from the partner having allocated his endeavor as share of capital as well. In this case, the partner, allocating his endeavor as share of capital and having the privilege and sharing the profit but not the loss of the partnership with a provision incorporated into the agreement, shall fulfill the demands made by third parties but has the opportunity to have recourse against other partners for the amount he paid32. The responsibilities of the partners against the creditors of the partnership are scrutinized in detail in the section “The Liability of The Partners Against Third Parties” of our article.
C. The Obligation of Managing the Partnership
The management of the partnership in the Ordinary Partnership means the arrangement of the relations between the partners in order to achieve the common goal of the Ordinary Partnership and the conduct of ordinary and extraordinary transactions of the partnership33. The management of the partnership belongs to the partners pursuant to Article 625 of TCO34. Accordingly the management of the partnership is a right for the partners and an obligation at the same time35. Because the partners are obliged to combine their common effort and tools to use such in favor of the relevant common goal in the framework of the Ordinary Partnership Agreement36. For this reason, the failure of the partners to fulfill their obligations to manage the partnership shall result in their responsibilities to other partners.
D. Prohibition of Competition
In Article 626 of TCO, the prohibition of competition related to the Ordinary Partnerships is regulated. Pursuant thereto, the partners cannot, in the interest of themselves or third parties, engage in any transaction that prevents or harms the common goal of the partnership. The objective of the relevant regulation is to protect the goal of the partnership. Herewith, the legislator aims the prevention of any damage to the common goal and facilitation of achievement of the common goal designated by the partners37.
E. Duty of Care
The obligation of duty of care of the partners in an Ordinary Partnership is basically an obligation of the managing partners of the Ordinary Partnership38. The extent of the obligation of duty of care varies whether or not a remuneration is being awarded since the managing partner fulfills the partnership obligations pursuant to Article 628 of TCO. The extent of duty of care and attention of the managing partners, who are not paid for their managerial duties, while performing their duties of the partnership, is equal to the amount of the care and attention that they have in their own works. In this respect, Supreme Court expressed its opinion as: “Each of the partners is obliged to have the care they apply to their own work while managing the partnership affairs. If the necessary due care is not exercised to the works, the managing partner shall be deemed defective and liable against other partners for the damages arising from such actions and transactions39. Notwithstanding, the managing partners who are awarded for the works they perform for the partnership are obliged to demonstrate an objective measure and during the execution of the partnership’s business such as a proxy under Article 506 of TCO or an employee under Article 396 of TCO40.
IV. THE LIABILITY OF THE PARTNERS AGAINST THIRD PARTIES
Ordinary Partnerships do not have a legal personality and are not subject to any rights41. Therefore the debts arising from the transactions of the partnership belong to the partners, not to the partnership itself42. So the partners are subject to joint, primary and unlimited liability for debts of the partnership43. In this context, the liability of the partners in Ordinary Partnerships is scrutinized under three titles.
A. Joint Liability
Pursuant to Article 638 of TCO, the partners in an Ordinary Partnership are jointly responsible for the debts of the partnership44. However, joint liability comes into question when debt is related to a deed available to be paid by only a partner himself such as indemnification or a pecuniary debt. Otherwise, joint liability will not be able to be mentioned in debts related to a deed which the partners cooperatively dispose. When it comes to such deeds, it is required to demand it from all partners45. In doctrine, it is stated that joint indebtedness is more convenient to be applied to joint right ownership considering the nature of the legal transaction; however, it is stipulated that a partner is responsible for whole debt of the partnership, in favor of the creditor to redeem him from demanding his claim from all partners and engaging in prosecution against all of them, in order to make him attain his all claims and consolidate the security of commerce46.
As a requirement of joint liability in Ordinary Partnerships, in cases joint liability is applied to the transaction, each partner will be liable for all debts of the partnership47. Pursuant to Article 163 of TCO, according to his choice, the creditor will be able to claim his debts from all or any partners. As a specific case, if one of the partners is a creditor of the partnership, other partners in the partnership will be jointly responsible for the respective debt. Especially the case in which a partner lends assets or money to the partnership is considered an example to the before-mentioned case.
It is acknowledged in the doctrine that joint responsibility of the partners does not arise only from legal transactions48. In addition to the legal transactions, the partners shall be held accountable jointly, within the scope of Article 61 of TCO, due to the torts they have jointly committed as well. Accordingly if the tort has been committed by a single partner, then other partners will have no responsibility for the related tort. In addition, joint responsibility of the partners can arise on the basis of absolute liability. For example, pursuant to Article 66 of TCO, in respect to employer liability being a type of absolute liability, the partners shall be held jointly responsible for the actions of their employees or other people helping the employees do the work. On the other hand, the responsibility of Article 66 of TCO shall not come out, as regards to the relation between the partners and the partnership. Yet, the adhesion between the partners and the partnership does not exist within the internal relationship in the partnership49. In this respect it should not be forgotten that as a result of the nature of Ordinary Partnerships, there cannot be any hierarchy between the partners.
While the type of liability regulated in the legislation is joint liability, within the scope of Article 638 of TCO, it is possible to prevent joint liability of the partners by drawing up an agreement between the partnership and its creditor. However, it is out of question to prevent this liability by incorporating a provision into the Ordinary Partnership Agreement50.
B. Primary Liability
Despite the fact that it is not explicitly stated in Article 638 of TCO, the responsibilities of the partners to the third parties are a primary responsibility at the same time due to the absence of legal personality of the Ordinary Partnership51. The existence of sufficient assets of the partnership in order to meet the obligations of the partnership shall not affect the liability of the partner52. Yet, by the force of primary liability, in Ordinary Partnerships the partners are personally responsible with their own assets for the debts of the partnership.
C. Unlimited Liability
In Ordinary Partnerships, the primary and joint liability of the partners is an unlimited liability as well53. Moreover, even if the authorization of the partner authorized to represent the partnership is limited in terms of the amount of the transactions, the restrictions decided by the partnership shall not bind the third parties54. Such a limitation shall not redeem the partners from unlimited and joint liability. Doubtlessly the partners entitle to have recourse to the representative partner exceeding the limit of authorization granted to him. In other words, it is possible to hold the representative partner responsible due to exceeding the limit of authorization55.
V. CONCLUSION
Ordinary Partnerships are a type of partnership that does not have any legal personality and can be established by minimum two real or legal persons congregating and executing an Ordinary Partnership Agreement which is not subject to any formal type regulated in legislation. Due to not having a legal personality, Ordinary Partnerships are not subject to any right. Therefore, the debts and claims arising from all legal transactions the Ordinary Partnership committed with third parties are emanating upon the partners of the partnership. The liability of the partners is not limited to the transactions between the partnership and third parties; additionally the partners are liable for obligations such as allocating share of capital, sharing the loss, managing the partnership, prohibition of competition and duty of care against each other.
BIBLIOGRAPHY
Alfred Hueck, Das Recht der offenen Handelsgesellschaft, 4th Ed. Berlin 1971.
Karl Heinsheimer, Handels- und Wechselrecht, 1st Ed. Berlin 1924.
Marcus Lutter, Die Gründung einer Tochtergesellschaft im Ausland, 3rd Ed. Berlin 1995.
Klaus Peter Berger/ Ernst Heymann, Handelsgesetzbuch (ohne Seerecht): Zweites Buch., 2nd Ed. Berlin 1996.
Oruç Hami Şener, Ortaklıklar Hukuku, 1st Ed. Ankara 2012.
Nami Barlas, Adi Ortaklık Temeline Dayalı Sözleşme İlişkileri, 3rd Ed. Istanbul 2012.
Claus-Wilhelm Canaris, Handelsgesetzbuch Grosskommentar, Erster Band, 4th Ed. Berlin 1995.
Arthur Brand/ Viktor Marowski, Die Registersachen in der gerichtlichen Praxis, 4. Edition, Berlin 1956.
Hasan Pulaşlı, 6102 Sayılı Türk Ticaret Kanununa Göre Şirketler Hukuku Şerhi, Vol.1, 1st Ed. Ankara 2011.
Cevdet İlhan Günay, Türk Borçlar Kanunu Şerhi, 2nd Ed. Ankara 2015.
Heinrich Megow, Die offene Handelsgesellschaft, Wiesbaden, 2013.
Cazibe Ebru Yücel, Adi Ortaklıkta Temsil, Bahçeşehir Üniversitesi Özel Hukuk Anabilim Dalı, Istanbul 2011.
Fatih Bilgili, Adi Ortaklığın Fiil Ehliyeti ve Alman Federal Mahkemesinin Verdiği Yeni Karar Karşısında Ortaya Çıkan Durum, Prof. Dr. Ömer Teoman’a 55. Yaş Günü Armağanı, Vol. 1 Istanbul 2002.
FOOTNOTE
1 Mehmet Bahtiyar, Ortaklıklar Hukuku, Beta Yayınevi, Istanbul, 2016, p. 27.
2 Hasan Pulaşlı, 6102 Sayılı Türk Ticaret Kanununa Göre Şirketler Hukuku Şerhi, Vol. 1, 1st Ed. Ankara 2011, p. 29.
3 Ordinary partnerships which are regulated in Turkish Code of Obligations in Turkish legislation are regulated both in Code of Obligations and Commercial Code in German legislation. See also: Alfred Hueck, Das Recht der offenen Handelsgesellschaft, 4. Edition, Berlin 1971, transfered from p. 1, Geiler in Düringer-Hachenburg HGB 3. Aufl., Bd. II, 1. Hälfte, Allg. Einleitung, Gesellschaftsrecht des bürg. Rechts, 1932; Flechtheim ebendort Bd. II, 2. Hälfte, Handelsgesellschaften und stille Gesellschaft, 1932; Otto Weipert, RGR-Komm. Z. HGB, Bd. II, 2. Auflage, 1950.
4 In German doctrine, it is acknowledged that three different factors should congregate for the establishment of an ordinary partnership: 1. Existence of a common goal, 2. Existence of the will to establish a partnership, 3. Limitlessness of the liability of the partners. See also: Hueck, p. 2-18.; Heinrich Megow, Die offene Handelsgesellschaft, Wiesbaden, 2013, p. 1.
5 Hueck, p. 2; See also: Handelsgesetzbuch (HGB) § 105; Bürgerliches Gesetzbuch (BGB) § 705; Cevdet İlhan Günay, Türk Borçlar Kanunu Şerhi, 2nd Ed. Ankara 2015, p. 1619.
6 Marcus Lutter, Die Gründung einer Tochtergesellschaft im Ausland, 3rd Ed. Berlin 1995, p. 631.
7 Oruç Hami Şener, Ortaklıklar Hukuku, 1st Ed. Ankara 2012, p. 1.
8 Klaus Peter Berger/ Ernst Heymann, Handelsgesetzbuch (ohne Seerecht): Zweites Buch., 2. Edition, Berlin 1996, p. 15.
9 In Civil Law, generally, there is no upper limit for the number of the partners in ordinary partnerships and it is widely accepted that two or more partners can establish an ordinary partnership. See also: Lutter, p. 631.
10 Nami Barlas, Adi Ortaklık Temeline Dayalı Sözleşme İlişkileri, 3rd Ed. Istanbul 2012, p. 18.
11 Berger/ Heymann, p. 10; See also: BGB, § 706.
12 Hueck, p. 9
.
13 Berger/ Heymann, p. 2.
14 Karl Heinsheimer, Handels- und Wechselrecht, 1. Edition, Berlin 1924, p. 26.
15 Arthur Brand/ Viktor Marowski, Die Registersachen in der gerichtlichen Praxis, 4. Edition, Berlin 1956, p. 143; Heinsheimer, p. 26.; Berger/ Heymann, p. 11.
16 See also: Schweizerisches Zivilgesetzbuch (ZGB), Art. 530.
17 Barlas, p. 38.
18 Pulaşlı, p. 29.
19 See also: HGB § 105.
20 Hueck, p. 35.
21 See also: BGB § 706.
22 Heinsheimer, p. 24.
23 Pulaşlı, p. 39.
24 Pulaşlı, p. 40.
25 Yargıtay HGK, 11.12.1963, E. 4/26, K. 96.
26 Şener, p. 36.
27 Şener, p. 37.
28 See also: ZGB, Art. 82.
29 See also: BGB § 722.
30 Pulaşlı, p. 40.
31 Berger/ Heymann, p. 209.
32 Pulaşlı transfered from p. 4, Soysal Özenli, Uygulamada Adi Ortaklık ve Neden Olduğu Davalar, Ankara, 1988, p. 65.
33 Claus-Wilhelm Canaris, Handelsgesetzbuch Grosskommentar, Erster Band, 4. Edition, Berlin 1995, p. 180.
34 See also: BGB § 709.
35 Şener, p. 46.
36 Canaris, p. 163; Megow, p. 2.
37 Şener, p. 53.
38 Pulaşlı, p. 42.
39 Yargıtay, 13. HD., 7.3.1986, E. 1986/356, K. 1986/1345.
40 Pulaşlı, p. 42.
41 Cazibe Ebru Yücel, Adi Ortaklıkta Temsil, Bahçeşehir Üniversitesi Özel Hukuk Anabilim Dalı, Istanbul 2011, p. 120.
42 Supreme Court states that all legal proceedings should be brought into action against the partners but not against the partnership, due to the lack of legal personality of ordinary partnerships. (Yargıtay 12. HD., 22.02.2008, E. 2008/2359, K. 2008/3191).
43 Şener, p. 82.
44 See also: Berger/ Heymann, p. 209.
45 Şener, p. 82.
46 Yücel, transfered from p. 121, Hüseyin Hatemi/ Rona Serozan/ Abdülkadir Arpacı, Borçlar Hukuku Özel Bölüm, Istanbul, 1992, p. 585-586.
47 Heinsheimer, p. 26.
48 Şener, p. 83.
49 Fatih Bilgili, Adi Ortaklığın Fiil Ehliyeti ve Alman Federal Mahkemesinin Verdiği Yeni Karar Karşısında Ortaya Çıkan Durum, Prof. Dr. Ömer Teoman’a 55. Yaş Günü Armağanı, Vol. 1, Istanbul 2002, p. 204; Barlas, p. 79.
50 Şener, transfered from p. 84, Fritz Funk, Kommentar des Obligationenrechtes, Aarau, 1931, Art. 544, No. 4.
51 Berger/ Heymann, p. 216.
52 Şener, transfered from p. 84, Theo Guhl/ Jean Nicolas Druey, Das Schweizerische Obligationenrecht, 9. Auf, Zürih, 2000, § 62, No. 49.
53 Megow, p. 1; Hueck, p. 35.
54 Hueck, p. 35.
55 Şener, transfered from p. 85, İrfan Baştuğ, Şirketler Hukukunun Temel İlkeleri, Izmir, 1974, p. 38
