Professional Documents
Culture Documents
• Considers a case wherein a partner was induced to join the • Considers the case of liquidation and the distribution of
partnership by means of fraud or misrepresentation partnership assets
• The victim can ask for the recision or restitution of the • Liquidation is when all the assets of the partnership is
contract of partnership (return of all his contributions) converted to cash.
• He has the right to the surplus for certain purposes • Total assets will include GOODWILL as well as the original
• He has the rights of a 3rd person or a subrogated creditor CONTRIBUTIONS of the partners.
after the liabilities have already been paid to recollect what • Order of payment during liquidation:
he paid when he entered into the partnership. (1) 3rd persons/outside creditors
• He is entitled to be indemnified for all debts and liabilities (2) Partner creditors (partners who have claims)
that he paid for during his time in the partnership. (3) Normal partners (all partners)
(a) In accordance with the agreement
Article 1839 (b) In proportion to their contribution
In settling accounts between the partners after
dissolution, the following rules shall be observed, Article 1840
subject to any agreement to the contrary: In the following cases, creditors of the dissolved
(1) The assets of the partnership are: partnership are also creditors of the person or
(a) The partnership property partnership continuing the business:
(b) The contributions of the partners necessary (1) When any new partner is admitted into an
for the payment of all the liabilities existing partnership, or when any partner
specified in No. 2 retires and assigns (or the representative of the
(2) The liabilities of the partnership shall rank in deceased partner assigns) his rights in
order of payment, as follows: partnership property to two or more of the
(a) Those owing to creditors other than partners, or to one or more of the partners and
partners one or more third persons, if the business is
(b) Those owing to partners other than for continued without liquidation of the partnership
capital and profits affairs;
(c) Those owing to partners in respect of (2) When all but one partner retire and assign (or
capital the representative of a deceased partner
(d) Those owing to partners in respect of assigns) their rights in partnership property to
profits the remaining partner, who continues the
(3) The assets shall be applied in the order of their business without liquidation of partnership
declaration in No. 1 of this article to the affairs, either alone or with others;
satisfaction of the liabilities (3) When any partner retires or dies and the
(4) The partners shall contribute, as provided by business of the dissolved partnership is
Article 1797, the amount necessary to satisfy continued as set forth in Nos. 1 and 2 of this
the liabilities article, with the consent of the retired partner or
(5) An assignee for the benefit of the cr4editor or the representative of the deceased partner, but
any person appointed by the court shall have without any assignment of his right in
the right to enforce the contributions specified partnership property;
in the preceding number. (4) When all the partners or their representatives
(6) Any partner or his legal representative shall assign their rights in partnership property to
have the right to enforce the contributions one or more third persons who promise to pay
specified in No. 4, to the extent of the amount the debts and who continue the business of the
which he has paid in excess of his share of the dissolved partnership;
liability. (5) When any partner wrongfully causes a
(7) The individual property of a deceased partner dissolution and the remaining partners continue
shall be liable for the contributions specified in the business under the provisions of Article
No. 4 1837, second paragraph, No. 2, either alone or
(8) When partnership property and the individual with others, and without liquidation of the
properties of the partners are in possession of a partnership affairs;
court for distribution, partnership creditors (6) When a partner is expelled and the remaining
shall have priority on partnership property and partners continue the business either alone or
separate creditors on individual property, with others without liquidation of the
saving the rights of lien or secured creditors partnership affairs.
(9) Where a partner has become insolvent or his The liability of a third person becoming a partner in
estate is insolvent, the claims against his the partnership continuing the business, under this
separate property shall rank in the following article, to the creditors of the dissolved partnership
order: shall be satisfied out of the partnership property only,
(a) Those owing to separate creditors unless there is a stipulation to the contrary.
When the business of a partnership after
dissolution is continued under any conditions set forth
in this article, the creditors of the dissolved partnership,
as against the separate creditors of the retiring or
deceased partner or the representative of the deceased
partner, have a prior right to any claim of the retired
partner or the representative of the deceased partner business, on account of the retired or deceased partner’s
against the person or partnership continuing the interest in the dissolved partnership or on account of any
consideration promised for such interest or for his right
in partnership property. • Who can demand to know how much his interest is in the
Nothing in this article shall be held to modify any partnership and from whom?
right of creditors to set aside any assignment on the All involved parties can demand to know how much his
ground of fraud. interest is. He can demand to know these from the
The use by the person or partnership continuing the SURVIVING, CONTINUING and WINDING UP partners.
business of the partnership name, or the name of a
deceased partner as part thereof, shall not of itself make CHAPTER 4 – LIMITED PARTNERSHIP
the individual property of the deceased partner liable for
any debts contracted by such person or partnership. (n) Article 1843
A limited partnership is one formed by two or more
• Explains the rights of the creditor in case of partnership persons under the provisions of the following article,
dissolution because of membership changes and the having as members one or more general partners and
business is continued without liquidation. one or more limited partners. The limited partners as
• The membership changes include RETIREMENT, such shall not be bound by the obligations of the
EXPULSION, DEATH or ADDITION. partnership.
• Note that the creditor of the OLD partnership will still be the
creditor of the NEW partnership if there is still an old • Defines what a limited partnership is.
partner/original partner with the NEW partnership. (debt will • It is sufficient that there is 1 general and 1 limited partner in
not be cleared or discharged) a limited partnership.
• The creditor will continue to be the creditor of the • The reason for the existence of a limited partnership is to
remaining/new partnership in all cases except when: address the needs of all those who wish to join a partnership
(1) Rights are assigned to other people (no old partners) without the risk of losing any personal property.
(2) Unless there is a promise to pay debt from the new • Characteristics:
partners or if the creditor can set aside the right of the (1) Comply with the statutory requirements of Article 1824
new partners on the ground of fraud. (2) General partners control the partnership and are
personally liable for partnership debts.
Article 1841 (3) Limited partners contribute capital and are not liable
When any partner retires or dies, and the business personally for partnership debts.
is continued under any of the conditions set forth in the
preceding article, or in Article 1837, second paragraph, Article 1844
No. 2, without any settlement of accounts as between Two or more persons desiring to form a limited
him or his estate and the person or partnership partnership shall:
continuing the business, unless otherwise agreed, he or (1) Sign and swear to a certificate, which shall state
his legal representative as against such person or (a) The name of the partnership, adding thereto
partnership may have the value of his interest at the the word “Limited”
date of dissolution ascertained, and shall receive as an (b) The character of the business
ordinary creditor an amount equal to the value of his (c) The location of the principal place of
interest in the dissolved partnership with interest, or, at business
his option or at the option of his legal representative, in (d) The name and place of residence of each
lieu of interest, the profits attributable to the use of his member, general and limited partners being
right in the property of the dissolved partnership; respectively designated
provided that the creditors of the dissolved partnership (e) The term for which the partnership is to
as against the separate creditors, or the representative exist
of the retired or deceased partner, shall have priority on (f) The amount of cash and a description of
any claim arising under this article, providing by Article and the agreed value of the other property
1840, third paragraph. (n) contributed by each limited partner
(g) The additional contributions, if any, to be
• Suppose that A retires but B and C continue the business made by each limited partner and the times
without liquidation. What are the rights of A? at which or events on the happening of
The rights of A are as follows: which they shall be made
(1) That his interest be ascertained as of dissolution date (h) The time, if agreed upon, when the
(2) Collect his interest in the partnership plus interest or contribution of each limited partner is to be
profits by the use of his right to these as a creditor returned
If A dies, and the same situation occurs (he did not retire), (i) The share of the profits or the other
then his legal representatives have the same rights as compensation by way of income which
mentioned above. each limited partner shall receive by reason
of his contribution
Article 1842 (j) The right, if give, of a limited partner to
The right to an account of his interest shall accrue substitute an assignee as contributor in his
to any partner, or his legal representative as against the place, and the terms and conditions of the
winding up partners or the surviving partners or the substitution
person or partnership continuing the business, at the (k) The right, if given, of the partners to admit
date of dissolution, in the absence of any agreement to additional limited partners
the contrary. (n) (l) The right, if given, of one or more of the
limited partners to priority over other
limited partners, as to contributions or as to
compensation b way of income, and the
nature of such priority
(m) The right, if given, of the remaining general business on the death, retirement, civil
partner or partners to continue the interdiction, insanity or insolvency of a
general partner If the certificate contains a false statement, one who
(n) The right, if given, of a limited partner to suffers loss by reliance on such statement may hold
demand and receive property other than liable any party to the certificate who knew the
cash in return for his contribution statement to be false:
(2) File for record the certificate in the Office of the (1) At the time he signed the certificate
Securities and Exchange Commission. (2) Subsequently, but within a sufficient time
A limited partnership is formed if there has been before the statement was relied upon to enable
substantial compliance in good faith with the foregoing him to cancel or amend the certificate, or to file
requirements. a petition for its cancellation or amendment as
provided in Article 1865.
• Two requirements in a limited partnership:
(1) Sign and swear to a certificate containing the data • If there are false statements in the certification and 3 rd
mentioned in the article (a) to (n) persons should suffer loss due to these, then he can hold
(2) Have the certificate recorded with the SEC liable all those who had knowledge of the false statement at
• Can a limited partnership be formed orally? the time certification was signed.
No. A limited partnership contract is not perfected by mere • The same shall apply if the partners concerned had sufficient
agreement as it requires formal proceedings. time to have the certificate cancelled but did not do so.
• Partnership must SUBSTANTIALLY comply with the
requirements. Article 1848
• What if the partnership does not comply with the A limited partner shall not become liable as a
requirements? Will it be void? general partner unless, in addition to the exercise of his
No, it will only become a GENERAL PARTNERSHIP. rights and powers as a limited partner, he takes part in
• Why is it that the certificate must be registered? the control of the business.
Registration is the notice, to all 3rd persons who will be
dealing with or are dealing with the partnership, that there • The limited partner who, aside from his powers, participates
are partners with limited liability. in the management of the partnership becomes liable as a
• The presumption is that when a partnership deals with a 3rd general partner.
person, the partnership is a GENERAL partnership.
Article 1849
Article 1845 After the formation of a limited partnership,
The contributions of a limited partner may be cash additional limited partners may be admitted upon filing
or other property, but not services. an amendment to the original certificate in accordance
with the requirements of Article 1865.
• Limited partners can only contribute cash or other property,
not services because if he does so, then he shall become a • Suppose that in a limited partnership, there are only 2
GENERAL INDUSTRIAL PARTNER. general partners and 1 limited partner. Can you add another
• Contribution must be given immediately. If he has promised limited partner?
additional contribution, then it should be given on the date Yes, amend the certificate under Article 1865 and do so.
promised or agreed upon.
Article 1850
Article 1846 A general partner shall have all the rights and
The surname of a limited partner shall not appear in powers and be subject to all the restrictions and
the partnership name unless: liabilities of a partner in a partnership without limited
(1) It is also the surname of a general partner partners. However, without the written consent or
(2) Prior to the time when the limited partner ratification of the specific act by all the limited partners,
became such, the business had been carried on a general partner or all of the general partners have no
under a name in which his surname appeared authority to:
A limited partner whose surname appears in a (1) Do any act in contravention of the certificate
partnership name contrary to the provisions of the first (2) Do any act which would make it impossible to
paragraph is liable as a general partner to partnership carry on the ordinary business of the
creditors who extend credit to the partnership without partnership
actual knowledge that he is not a general partner. (3) Confess a judgment against the partnership
(4) Possess partnership property, or assign their
• The surname of the limited partner should not appear except rights in specific partnership property, for other
if it is also the surname of a general partner or if at the time than a partnership purpose
of his admission, it was already being used. (5) Admit a person as a general partner
• If the limited partner allows that his surname be used, then (6) Admit a person as a limited partner, unless the
he shall be held liable as a general partner as to 3rd persons right to do so is given in the certificate
who extended credit not knowing he was a limited partner. (7) Continue the business with partnership
• If the creditor has knowledge of his being a limited partner, property on the death, retirement, insanity, civil
then this rule shall not apply. interdiction or insolvency of a general partner,
unless the right to do so is given in the
Article 1847 certificate
Article 1863
In settling accounts after dissolution, the liabilities following order:
of the partnership shall be entitled to payment in the (1) Those to creditors, in the order of priority as
provided by the law, except those to limited (1) Upon DISSOLUTION
partners on account of their contributions, and (2) When ALL limited partners cease to be such
to general partners • When should the certificate be amended?
(2) Those to limited partners in respect to their In all cases other than those that will cause the certificate to
share of the profits and other compensation by be cancelled.
way of income on their contributions
(3) Those to limited partners in respect to the Article 1865
capital of their contributions The writing to amend a certificate shall:
(4) Those to general partners other than for capital (1) Conform to the requirements of Article 1844 as
and profits far as necessary to set forth clearly the change
(5) Those to general partners in respect to profits in the certificate which it is desired to make
(6) Those to general partners in respect to capital (2) Be signed and sworn to by all members, and an
Subject to any statement in the certificate or to amendment substitution a limited partner or
subsequent agreement, limited partners share in the adding a limited or general partner shall be
partnership assets in respect to their claims for capital, signed also by the member to be substituted or
and in respect to their claims for profits or for added, and when a limited partner is to be
compensation by way of income on their contribution substituted, the amendment shall also be
respectively, in proportion to the respective amounts of signed by the assigning limited partner.
such claims. The writing to cancel a certificate shall be signed by
all members.
• Who has priority over distribution of assets in a limited A person desiring the cancellation or amendment of
partnership? a certificate, if any person designated in the first and
(1) Creditors, including limited partners who have a claim second paragraphs as a person who must execute the
against the partnership. writing refuses to do so, may petition the court to order
(2) Limited partners’ share in profits a cancellation or amendment thereof.
(3) Limited partners’ return of capital contribution If the court finds that the petitioner has a right to
(4) General partners who have claims against the have the writing executed by a person who refuses to do
partnership so, it shall order the Office of the Securities and
(5) General partners’ share in profits Exchange Commission where the certificate is recorded,
(6) General partners’ return of capital contribution to record the cancellation or amendment of the
• The difference of this with general partnerships is that in a certificate; and when the certificate is to be amended,
general partnership, capital contributions are returned the court shall also cause to be filed for record in the
BEFORE profits from surplus are shared. said office a certified copy of its decree setting forth the
amendment.
Article 1864 A certificate is amended or cancelled when there is
The certificate shall be cancelled when the filed for record in the Office of the Securities and
partnership is dissolved or all limited partners cease to Exchange Commission where the certificate is recorded:
be such. (1) A writing in accordance with the provisions of
A certificate shall be amended when: the first or second paragraph
(1) There is a change in the name of the (2) A certified copy of the order of court in
partnership or in the amount or character of the accordance with the provisions of the fourth
contribution of any limited partner paragraph
(2) A person is substituted as a limited partner (3) After the certificate is duly amended in
(3) An additional limited partner is admitted accordance with this article, the amended
(4) A person is admitted as a general partner certificate shall thereafter be for all purposes
(5) A general partner retires, dies, becomes the certificate provided for in this Chapter.
insolvent or insane, or is sentenced to civil
interdiction and the business is continued • What are the requisites for certificates to be amended or
under Article 1860 cancelled?
(6) There is a change in the character of the (1) It must be in writing
business of the partnership (2) It must be signed AND sworn by ALL concerned parties
(7) There is a false or erroneous statement in the (3) It must be registered with the SEC
certificate
(8) There is a change in the time as stated in the Article 1866
certificate for the dissolution of the partnership A contributor, unless he is a general partner, is not
or for the return of a contribution a proper party to proceedings by or against a
(9) A time is fixed for the dissolution of the partnership, except where the object is to enforce a
partnership, or the return of a contribution, no limited partner’s right against or liability to the
time having been specified in the certificate partnership.
(10) The members desire to make a change in any
other statement in the certificate in order that it • A limited partner is a mere contributor, meaning, he is
shall accurately represent the agreement practically a stranger. This is because he has no
among them. participation in management and control and is only liable to
the partnership, not to 3rd persons and if he is filed against
• When should a certificate be cancelled? as a general partner, he can file a counterclaim for wrongful
inclusion.
• 2 exceptions to this rule:
(1) To enforce his right against the partnership
(2) If he refuses to restore his contribution when the
partnership assets are not sufficient to pay creditors
Article 1867
A limited partnership formed under the law prior to
the effectivity of this Code, may become a limited
partnership under this Chapter by complying with the
provisions of Article 1844, provided the certificate sets
forth:
(1) The amount of the original contribution of each
limited partner and the time when the
contribution was made\
(2) That the property of the partnership exceeds
the amount sufficient to discharge its liabilities
to persons not claiming as general or limited
partners by an amount greater than the sum of
the contributions of its limited partners.
A limited partnership formed under the law prior to
the effectivity of this Code, until or unless it becomes a
limited partnership under this Chapter, shall continue to
be governed by the provisions of the old law.