Professional Documents
Culture Documents
- Example: P
TOTAL P 60,000.00 6/6 P 15,000.00 P 2,000.00
A partnership is engaged in selling goods and a 17,000.00
customer keeps asking for discounts and an
argument ensues between the customer, C and the The same rules shall apply for losses in the partnership’s
partner A. A gets injured and is brought to the
operations, however the industrial partner shall not share in
hospital. Who shall shoulder the hospital bills?
the losses as there is no way for him to retract his industry
The partnership shall shoulder the hospital bills as it
and in the event of losses, his efforts would have been for
was during A’s time in managing the business that
vain and it can thus be said that he has already shared.
he was injured.
What is the legal effect of having a stipulation that excludes
a partner from sharing in the profits or losses?
Article 1797
Under Article 1799, the stipulation shall be void because
The losses and profits shall be distributed in
there must be mutual sharing of profits and losses.
conformity with the agreement. If only the share of each
Can the partners appoint a 3rd person to designate the
partner in the profits has been agreed upon, the share of
division of their profits and losses?
each in the losses shall be in the same proportion.
Yes and they will not be allowed to question his decisions
In the absence of stipulation, the share of each
unless the designation of shares is manifestly inequitable.
partner in the profits and losses shall be in proportion to
what he may have contributed, but the industrial partner 2 cases where partners ABSOLUTELY cannot question
shall not be liable for the losses. As for the profits, the designated shares by the 3rd parties:
industrial partner shall receive such share as may be (1) When a partner begins to execute the 3rd party’s
just and equitable under the circumstances. If besides decision
his services, he has contributed capital, he shall also (2) When complaints are raised AFTER three months from
receive a share in the profits in proportion to his capital. the point of knowledge of the designation
(1689a) Can the partners designate one of themselves to distribute
profits or losses?
Article 1798 No, the law prohibits this situation because there may be
If the partners have agreed to entrust to a third disparities when it comes to the distribution of net profits.
person the designation of the share of each one in the
profits and losses, such designation may be impugned Article 1800
only when it is manifestly inequitable. In no case may a The partner who has been appointed manager in the
partner who has begun to execute the decision of the articles of partnership may execute all acts of
third person, or who has not impugned the same within administration despite the opposition of his partners,
a period of three months from the time he had unless he should act in bad faith; and his power is
knowledge thereof, complain of such decision. irrevocable without just and lawful cause. The vote of
The designation of losses and profits cannot be the partners representing the controlling interest shall
entrusted to one of the partners. (1690) be necessary for such revocation of power.
A power granted after the partnership has been
Article 1799 constituted may be revoked any time. (1692a)
A stipulation which excludes one or more partners from
any share in the profits or losses is void. (1691) 2 Kinds of Managing Partners:
(1) Appointed DURING the Constitution of the Partnership
Lays out the rules in the distribution of profits and losses - May execute all administrative acts unless he acted in
A, B and C are partners with the following capital bad faith. His power may not be revoked unless
contributions, P30,000.00, P20,000.00 and P10,000.00 there is a JUST and LAWFUL cause and the vote
respectively, where C is a capitalist-industrialist partner. For of the partners with controlling interest
one year of their operations, their partnership had earned net - Even if there are objections as to his decisions
profits of P17,000.00. How shall these profits be divided coming from the partners, his authority will prevail
among the partners? (C is entitled to receive P2,000.00 out UNLESS he has acted in bad faith
of the entire P17,000.00) - Acts of administration: ordinary business and
(1) In accordance with any existing agreement between the administrative transactions
partners as to how they shall share. - Why can he note be revoked for no reason?
Because if you revoke his power, you are in effect
(2) If there was no agreement, then the partners shall share
changing the terms of the contract of partnership.
on a pro-rata basis
(2) Appointed AFTER the Constitution of the Partnership
- May have his power revoked with or without cause
- Decided upon by those partners who own controlling
interest in the partnership
Article 1801 their respective duties, or without stipulation that one of
If two or more partners have been entrusted with the them shall not act without the consent of the others, each
management of the partnership without specification of one may separately execute all acts of administration, but
if any of them should oppose the acts of the others, the Article 1803
decision of the majority shall prevail. In case of tie, the When the manner of management has not been
matter shall be decided by the partners owning the agreed upon, the following rules shall be observed:
controlling interest. (1693a) (1) All of the partners shall be considered agents
and whatever any one of them may do alone
Assume that A, B, C and D are all managing partners. A shall bind the partnership, without prejudice to
appoints E as a secretary but B objects to this. Is the the provisions of article 1801.
appointment of E valid? (2) None of the partners may, without the consent of
Yes since majority votes are first counted by head. If C&D the others, make any important alteration in the
were the ones to object, and they owned a combined total of immovable property of the partnership, even if it
51% of partnership interest, then the appointment will not be may be useful to the partnership. But if the
valid. However, if B was still the one who objected and he refusal of consent by the other partners is
owns 51% of partnership interest, the appointment will still manifestly prejudicial to the interest of the
be valid because majority votes are first counted by head. partnership, the court’s intervention may be
If the partnership cannot make a decision and ends up in a sought. (1695a)
tie (head count and interest), then the partnership is to be
dissolved. This will be the only remedy, unless one of the If there is no agreement as to who will be the managing
other partners will relent. partners, during constitution and after constitution of the
partnership, then the assumption shall be that ALL the
Article 1802 partners are managing partners, without prejudice to Article
In case it should have been stipulated that none of 1801, meaning Article 1801 will then apply to their case.
the managing partners shall act without the consent of
The second paragraph of this article provides that the
the others, the concurrence of all shall be necessary for
partners cannot simply alter immovable property owned by
the validity of the acts, and the absence or disability of
the partnership without the consent of the other partners
any one of them cannot be alleged, unless there is
because this is NOT an act of administration but of
imminent danger of grave or irreparable injury to the
OWNERSHIP.
partnership. (1694)
Note that consent here is no qualified, so it may be
expressed or it may be implied.
This is a case wherein two partners, A and B, stipulate that
Example:
one cannot act without the consent of the other. Thus, there
Suppose A, B, C and D are in a partnership where the
must always be concurrence between the two before any
managing partner is not specified and A decides to put up a
transactions may be entered into, the absence of the other’s
warehouse in a piece of land owned by the partnership
consent shall not be used as an excuse.
without consent of other partners because he believes it to
Illustrative Case:
be useful and beneficial to the partnership. His partners
A sold to B, one of the managing partners of Partnership X,
come over, once the warehouse is finished, to look at it and
the other being C, a certain number of mining claims without
did not object to its existence. Was this valid?
the consent of C. In an action by A to recover the unpaid
Yes, since the partners did not object, then there is IMPLIED
balance of the purchase price against Partnership X, C
consent. Since consent was never qualified in the article, it is
claims that the contract is not binding upon the partnership
assumed that implied consent is enough.
for the reason that under the articles of partnership, there is
Suppose before A builds the warehouse, he asks for the
a stipulation that one of the partners cannot bind the firm by
consent of the other partners, who refuse to give it. When A
a written contract without the consent of others. Is the
tries to convince them and asks why they refuse to give
transaction made by B binding upon the partnership?
consent, they simply say that they do not want it to be there,
According to the Supreme Court, the stipulation applies only
making their objection manifestly prejudicial, meaning, there
to B and C. A has the right to assume that B was authorized
is really no reason for their objection, what then, is the
to complete the transaction. Therefore, the partnership is
remedy of A in this situation?
liable, and since B violated the terms of contract between A may bring the matter to court. If the court finds the other
himself and C, he is required to reimburse C for the amount partners of having no solid reason to object, it may compel
C will be paying A on behalf of the partnership, the reason the other partners to give their consent.
being, it would be unfair to C who had no knowledge of B’s
transaction to have to pay when he never agreed anyway. Article 1804
The only instance in which a partner may transact without Every partner may associate another person with
concurrence is when there is imminent danger of grave or him in his share, but the associate shall not be admitted
irreparable damage to the partnership if he does not do so. into the partnership without the consent of all the other
However, the party involved must be able to prove so else partners, even if the partner having an associate should
he shall become liable for what he has done. be a manager. (1696)
Example:
A and B are in a partnership where they sell fruits, B notices Refers to SUBPARTNERSHIP
that the fruits in the warehouse are starting to rot so, without A, B and C are in a partnership wherein A is the managing
consent of A, he sells them. partner. A enters into a contract with D that states D will
This will be alright because if the fruits rot, then it would have receive 50% of A’s share in partnership profits. Can A do this
been bad on the part of the partnership. even without the consent of the other partners?
Yes, because a sub-partnership will not affect the
composition of the partnership and D will not be able to
interfere with the partnership’s management anyway.
When are you required to share your partnership profits with
3rd persons?
When you contract with 3rd persons because perhaps in share in the partnership profits.
some past event you needed money and they provided you The 3rd person can also opt to receive ALL profits.
with it, and in your contract, it was agreed upon that you will Can D become a partner without the consent of the other
partners, if he associates with the managing partner?
A partner who receives benefits or profits derived without
No, D would need to get the consent of all partners because
consent of others shall account for it as the partnerships.
this would change the partnership composition.
If particular property is mortgaged and foreclose, the partner
who uses personal funds is able to get the property back will
Article 1805
not become the new owner, he will only be its trustee.
The partnership books shall be kept, subject to any
If the partner gets the property back after ONE year from the
agreement between the partners, at the principal place
3rd party involved, then it shall become his as it was a private
of business of the partnership, and every partner shall
transaction, so long as he uses his own funds.
at any reasonable hour have access to and may inspect
and copy any of them. (n) Example:
A and B are partners engaged in the operation of a cinema
business. The theater was mortgaged to C who foreclosed
The partnership books shall be kept in the following places,
the mortgaged debt. A, in his own behalf, redeemed the
in order:
property with his own private funds. Subsequently, A files a
(1) In accordance with partnership agreements
petition for the cancellation of the old title of the partnership
(2) If there were no agreements, then the partnership books
and the issuance of a new title in HIS name alone. Did A
shall be kept in the principal place of business of the
become the absolute owner of the property?
partnership (ex: headquarters)
No, the law says that he will only hold the property as the
Each partner will have access to ALL partnership books.
trustee and will be entitled to reimbursement plus interest
When will the partner be allowed to access the partnership from the time he redeemed the property.
books?
The partner is allowed to access partnership books during Article 1808
REASONABLE HOURS OF BUSINESS (8am-5pm), The capitalist partners cannot engage for their own
according to the law. The one who is keeping the partnership
account in any operation which is of the kind of
books cannot state when it can be inspected.
business in any operation which is of the kind of
business in which the partnership is engaged, unless
Article 1806
there is a stipulation to the contrary.
Partners shall render on demand true and full
Any capitalist partner violating this prohibition shall
information of all things affecting the partnership to any
bring to the common fund any profits accruing to him
partner or legal representative of any deceased partner
from his transaction, and shall personally bear all the
or of any partner under legal disability. (n)
losses. (n)
The article does not mean that the partners need wait for
The article is with regards to a capitalist partner engaging in
demands before disclosing information, when they get hold
other businesses.
of the information, they should disclose it immediately,
Is the capitalist partner allowed to engage in other
although additional details may be demanded.
businesses aside from the one he has with the partnership?
If information is not disclosed and it is found out later on, the
Yes, as long as the business he engages in is something
partner/s who did not disclose such will be held liable for it
dissimilar or different from the of the partnership’s.
and be charged for misrepresentation.
What will happen if the capitalist partner violates the law
Suppose A, B and C are in a partnership wherein A is sent to
regarding his ability to engage in other businesses?
inspect partnership property in Mindanao. A realizes that the
Then he shall have to bring the profits he gained from the
property contains oil deposits and does not disclose this
other business to the partnership and be liable for losses
information to B and C. He also lies and says that the
suffered by the partnership.
property is completely useless for their business and offers
Why is the capitalist partner not allowed to engage in a
to buy B and C’s interests in the partnership. When A is the
similar line of business?
only one holding the business, he develops the land and
Because he might take advantage of the information in the
gains substantial profits from the oil deposits. B and C later
partnership or of their clients, resulting in a conflict of interest
on learn about the information A kept hidden from them and
between himself and the other partners.
demand that they be given their shares in the oil profits. The
question now is, can B and C, after having sold their The capitalist partner can engage in a business similar to the
interests in the partnership, still share in the profits? partnership if there was a stipulation in the contract of
Yes, they will be allowed to share in the profits because the partnership and if the business he operates exists in a
information regarding oil deposits was present when they different area or place.
sold their share to A, just that it was hidden from them.
Article 1809
Article 1807 Any partner shall have the right to a formal account
as to partnership affairs:
Every partner must account to the partnership for
any benefit, and hold as trustee for it any profits derived (1) If he is wrongfully excluded from the partnership
by him without the consent of the other partners from business or possession of its property by his co-
any transaction connected with the formation, conduct partners
or liquidation of the partnership or from any use by him (2) If the right exists under the terms of any
of its property. (n) agreement
(3) As provided by Article 1807
(4) Whenever other circumstances render it just and
reasonable. (n)
General Rule:
During existence, a partner is not required to demand for an
accounting because his interest is already protected by two
Articles of the law, Article 1805 and Article 1806. But for
specific cases, the law provides that he can DEMAND for an 4 Cases where a partner can demand for an accounting:
accounting of the partnership books. (1) When he is wrongfully excluded from the partnership
operations (business and property possession) Under Article 291, the specific partnership property cannot
(2) If the right exists under their agreement be used as the subject of legal support because it does not
(3) Under Article 1807 belong to any one of the partners.
(4) Other circumstances which render it just and
reasonable. Article 1812
A partner’s interest in the partnership is his share of
Section 2 – Property Rights of a Partner the profits and surplus. (n)
Article 1810 The article defines what the partner’s interest in the
The property rights of a partner are: partnership is.
(1) His rights in specific partnership property
What is the partner’s interest in the partnership?
(2) His interest in the partnership
(1) DURING operations, the partner’s interest is his share in
(3) His right to participate in the management. (n)
profits and losses
(2) AFTER operations/LIQUIDATION/DISSOLUTION, his
The partner has the following rights:
interest is in the surplus of partnership assets after all
(1) Right to the ownership of partnership property debts have been cleared.
(2) Right to his interest in the partnership
Interest can be subject to attachment or execution because it
(3) Right to participate in partnership management
belongs to the partner, not the partnership.
Article 1811
Article 1813
A partner is co-owner with his partners of specific
A conveyance by a partner of his whole interest in
partnership property.
the partnership does not of itself dissolve the partner,
The incidents of this co-ownership are such that:
or, as against the other partners in the absence of
(1) A partner, subject to the provisions of this Title
agreement, entitle the assignee, during the continuance
and to any agreement between the partners, has
of the partnership, to interfere in the management or
an equal right with his partners to possess
administration of the partnership business or affairs, or
specific partnership property for partnership
to require any information or account of partnership
purposes; but he has no right to possess such
transactions, or to inspect the partnership books but it
property for any other purpose without the
merely entitles the assignee to receive in accordance
consent of his partners;
with his contract the profits to which the assigning
(2) A partner’s right in specific partnership
partner would otherwise be entitled. However, in case of
property is not assignable except in connection
fraud in the management of the partnership, the
with the assignment of rights of all the partners
assignee may avail himself of the usual remedies.
in the same property;
In case of dissolution of the partnership, the
(3) A partner’s right in specific partnership
assignee is entitled to receive his assignor’s interest
property is not subject to attachment or
and may require an account from the date only of the
execution, except on a claim against the
last account agreed to by all the partners. (n)
partnership. When partnership property is
attached for a partnership debt the partners, or
any of them, or the representatives of a How can a partner convey his interest in the partnership
deceased partner, cannot claim any right under without getting the partnership dissolved?
(1) By selling it to a 3rd person
the homestead or exemption laws;
(2) By donating it to a 3rd person
(4) A partner’s right in specific partnership
property is not subject to legal support under (3) By using it as security on a loan from a 3rd person
Article 291. (n) Example:
D offers to buy A’s interest of P50,000.00 for P1,000,000.00
and A agrees to sell his interest. What happens now?
The partners are considered co-owners of specific
D becomes the assignee and A becomes the assignor but
partnership property
the partnership will not be dissolved because his interest in
If A, B and C are partners who own specific property under
profits and surplus is the one being sold. A will also continue
the partnership’s name, what are their rights?
to be the partner but D will be the one to receive his profits.
(1) They can use it for partnership business purposes
This is similar to sub-partnerships, so the consent of others
(2) They cannot use it for personal purposes WITHOUT the
consent of others. is not required for interest to be conveyed.
The assignee does not have any say in the management
Why can’t A simply assign his right with respect to the
partnership’s property? Rights of the Assignee:
(1) It doesn’t belong to him (1) He shall get the assignor’s share in profits/surplus
(2) The extent of his interest with regards to the property (2) He may avail of legal remedies of the partners in cases
cannot be determined before dissolution of fraud by the assignor
The partnership can altogether assign a 3 rd party with the (3) He can demand for an accounting upon dissolution but
right to use the property for partnership business purposes. only starting from the date of the last accounting
The right of the partners as to the property is not subject to undertaken by the partnership
attachment unless it is a claim against the partnership due to (4) Can ask for the dissolution of the partnership if it has
the reason that any one partner is not the owner of it. reached the end term or anytime if the partnership is
one at will, because he is interested in the surplus.
The assignee, however, cannot become a partner without
the consent of the other partners because it will entail a
change in the partnership’s composition.
Article 1814 creditor of a partner, the court which entered the
Without prejudice to the preferred rights of a judgment, or any other court, may charge the interest of
partnership creditor under Article 1827, on due the debtor partner with payment of the unsatisfied
application to a competent court by any judgment amount of such judgment debt with interest thereon; and
may then or later appoint a receiver of his share of the Article 1816
profits, and of any other money due or to fall due to him All partners, including industrial ones, shall be
in respect of the partnership, and make all other orders, liable pro-rata with all their property and after all the
directions, accounts and inquiries which the debtor partnership assets have been exhausted, for the
partner might have made, or which the circumstances of contracts which may be entered into in the name and for
the case may require. the account of the partnership under its signature and
The interest charged may be redeemed at any time by a person authorized to act for the partnership.
before foreclosure, or in case of a sale being directed by However, any partner may enter into a separate
the court, may be purchased without thereby causing obligation to perform a partnership contract. (n)
dissolution:
(1) With separate property, by any one or more of Article 1817
the partners Any stipulation against the liability laid down in the
(2) With partnership property, by any one or more of preceding article shall be void, expect as among the
the partners with the consent of all the partners partners. (n)
whose interests are not so charged or sold
Nothing in this Title shall be held to deprive a As to 3rd persons, ALL partners are liable pro-rata and
partner of his right, if any, under the exemption laws, as subsidiary, but as to each other, they are liable in proportion
regards his interest in the partnership. (n) to their capital contribution.
Examples:
Refers to a partner who obtained a loan from a 3 rd person (1) A, B and C are in a partnership where C is the industrial
and was unable to repay such. partner and a sum of P26,000.00 is owed to D. A and B
For example, PARTNER A failed to pay CREDITOR C a contributed P15,000.00 and P5,000.00 respectively.
sum of P50,000.00, so C files against A, knowing that A, How shall the debt be shared?
being a partner, will receive his interest. C wins the case but As to D, the partners will share equally in the debt left
A is still unable to pay, so C asks that A’s interest be after exhausting all assets (P6,000.00) so they will each
attached so that it goes to C and cancels out A’s debt. have to pay P2,000.00 regardless of C being an
- Done to protect C’s interest industrial partner. If C is insolvent, or if B died, or if A
- Attached interest can be redeemed using the property of has left the country, the liability of the partners cannot
the partners or the partnership’s property, as long as all be increased.
partners consent to this, and are given reimbursement As to each other, they are liable in proportion to their
from the defaulting partner capital contribution, so B and C will be reimbursed by A.
- Amount charged must e sufficient to pay the loan plus (2) A, B, C, D and E are sued in court but E is later cleared
legal interest of his charges. The court orders A, B, C and D to pay
their creditor, but C moves to reconsider that all should
SECTION 3 – Obligations of the Partners as to 3 rd Persons be charged, but this move was denied. Can A, B, C and
D alone be liable for the debt?
Article 1815 According to the Supreme Court, the 4 partners cannot
Every partnership shall operate under a firm name, alone be liable for the debt because in excluding E, they
which may or may not include the name of one or more have increased the other partners’ liability and this is
of the partners. prohibited by the law. The law states that the liability of
Those who, not being members of the partnership, the partners cannot be increased such that they
include their names in the firm name, shall be subject to shoulder the liability of another partner.
the liability of a partner. (n) (3) What if there was an agreement that stated B is only
liable up to P5,000.00? How will A, B and C share in
Firm names are required for partnerships because they are their liability?
juridical persons in need of separate names so that they are The stipulation shall be void as to 3rd persons, so they
distinguishable from the partners and other partnerships. will still share pro-rata. Anyway, B and C will be
The name can come from any of the partners or 3rd persons. reimbursed by A, because as among themselves, the
If a 3rd person’s name is used with his consent, then he shall stipulation is valid and C is an industrial partner.
be liable as a partner without the rights of a partner because
the partnership uses his name. Article 1818
Partnership name must be registered with the (DTI) Every partner is an agent of the partnership for the
DEPARTMENT OF TRADE AND INDSUTRY because if purpose of its business, and the act of every partner,
there was already such an existing name, there might be including the execution in the partnership name of any
cases of duplication. instrument, for apparently carrying on in the usual way
You cannot choose the name of a deceased partner as his the business of the partnership of which he is a member
death caused the partnership’s dissolution. binds the partnership, unless the partner so acting has
Sample General and Limited Partnership Names: in fact no authority to act for the partnership in the
(1) GENERAL – A & Company particular matter, and the person with whom he is
(2) LIMITED – A, Ltd. dealing has no knowledge of the fact that he has no
such authority.
An act of a partner which is not apparently for the
carrying on of business of the partnership in the usual
way does not bind the partnership unless authorized by
the other partners.
Except when authorized by the other partners or
unless they have abandoned the business, one or more
but less than all the partners have no authority to:
(1) Assign the partnership property in trust for (2) Dispose of the goodwill of the business
creditors or o the assignee’s promise to pay the (3) Do any other act which would make impossible
debts of the partnership to carry on the ordinary business of a
partnership Title passes to D, then to E. The partnership cannot
(4) Confess a judgment recover the land once it has transferred to E but if the
(5) Enter into a compromise concerning a land was still with D, they could have recovered it if the
partnership claim or liability contract was not binding .
(6) Submit a partnership claim or liability to (2) What if A sells the property under his name?
arbitration Only the equitable title passes to D.
(7) Renounce a claim of the partnership (3) What if A sells the property and the land title is
No act of a partner in contravention of a restriction registered under his name?
on authority shall bind the partnership to persons Title passes to D because land is registered under the
having knowledge of the restriction. (n) partner’s names. This will hold true if A, B and C are co-
owners of the land, even if only A sold it to D.
Qualifies the authority of partners. (4) Land title belongs to one or more or all of the partners or
Authority must be in the usual course of business. a 3rd person in trust for the partnership.
Transactions beyond a partner’s authority is binding if it is in Only the equitable title will pass to D if the seller had no
the usual course of business because the 3rd person is authority to sell such to D.
assumed to have no knowledge of his lack of authority. (5) A, B and C ALL sell the land to D, with the land title
When are transactions not binding? belonging to ALL of them.
(1) When a transaction is not in the usual course of Title passes to D because ALL partners sell to him.
business and has no consent from all other partners
(2) When the 3rd person had knowledge of the lack of Article 1820
authority of the acting partner An admission or representation made by any
partner concerning the partnership affairs within the
Article 1819 scope of his authority in accordance with this Title is
Where title to real property is in the partnership evidence against the partnership. (n)
name, any partner may convey title to such property by
a conveyance executed in the partnership name; but the Anything a partner says or admits, as long as it is concerning
partnership may recover such property unless the the partnership affairs and it is within the scope of his
partner’s act binds the partnership under the provisions authority, is sufficient evidence against the partnership.
of Article 1818, or unless such property has been This article is a rule of evidence
conveyed by the grantee or a person claiming through In order that admission/representation made can be used as
such grantee to a holder for value without knowledge evidence, the existence of the partnership must be
that the partner, in making the conveyance, has established and proved first.
exceeded his authority. Example:
Where title to real property is in the name of the (1) Partner A borrows money from the bank and declares
partnership, a conveyance executed by a partner, in his that the money borrowed is for the partnership.
own name, passes the equitable interest of the This statement, made by A, is enough evidence against
partnership, provided the act is one within the authority the partnership and the bank may use this in case the
of the partner under the provisions of Article 1818. partnership does not pay back the money borrowed.
Where title to real property is in the name of one or (2) A, B, and C are partners. A told D, a 3rd person, that the
more but not all the partners, and the record does not debtor already paid his obligation to the partnership. Is
disclose the right of the partnership, the partners in this enough evidence against the partnership?
whose name the title stands may convey title to such YES, since it concerns partnership affairs and the
property, but the partnership may recover such property partner has authority to say so.
if the partner’s act does not bind the partnership under
Article 1818, unless the purchaser of his assignee, is a Article 1821
holder for value without knowledge. Notice to any partner of any matter relating to
Where title to real property is in the name of one or partnership affairs, and the knowledge of the partner
more or all partners, or in a 3trd person in trust for the acting in the particular matter, acquired while a partner
partnership, a conveyance executed by a partner in the or then present to his mind, and the knowledge of any
partnership name, or in his name, passes the equitable other partner who reasonably could and should have
interest of the partnership, provided the act is one communicated it to the acting partner, operate his
within the authority of the partner under Article 1818. notice to or knowledge of the partnership, except in the
Where title to real property is in the names of all the case of a fraud on the partnership, committed by or with
partners a conveyance executed by all the partners the consent of that partner. (n)
passes all their rights in such property. (n)
IN SHORT, notice to ANY of the partners is notice to the
Refers to the conveyance of immovable property partnership. (You don't have to notify EVERY partner in
Suppose A, B and C are partners engaged in the buying and relation to partnership affairs).
selling of property, and the following situations occur: Knowledge of a partner acting in a particular manner
(1) A, without authority, sells land to D in the partnership’s (meaning the partner is a managing partner), or knowledge
name but D immediately sells it to E. The land title was of any partner who SHOULD HAVE communicated it to the
originally under the partnership’s name. Can the managing partner, is knowledge to the partnership.
partnership recover the land? This is so EVEN IF the non-managerial partner does not
communicate the information he knows regarding
partnership affairs. The partner SHOULD have
communicated this. Non knowledge by other partners is not
a reason to evade from obligations.
If notice is delivered to a partner, that is an effective
communication to the partnership, notwithstanding the failure
of the partner to communicate such notice or knowledge to the other partners.
Example: Article 1824
(1) A, B, and C are partners where B is the managing All partners are liable solidarily with the partnership
partner. D, a 3rd person, filed a case against the for everything chargeable to the partnership under
partners AND the partnership for some unknown Articles 1822 and 1823. (n)
reason. Does D need to notify all of them?
If this is done, D just needs to notify either A, B, or C, In the following cases, obligation is not pro-rata or equal, but
but doesn't have to notify ALL OF THEM (imagine if a solidary obligation. Any partner MAY pay for the obligation
there are 100 partners, it would be burdensome and (Unlike in article 1816, each partner should only pay for their
costly to notify all 100). So if A is notified about the SHARE):
case, that is considered by D as notice to EVERYONE (1) When by an unlawful act or omission, loss or injury is
even if A is not a managerial partner (since A should caused to 3rd person.
communicate this to all partners). - Example:
(2) Suppose D wants to sell a piece of land to the (a) A, B, and C are partners. A made an act of
partnership and notifies B (the managing partner) about omission with D as the victim. He caused
it, but warns him that the land is under litigation and P50,000 worth of injury to D. What can D do?
there is a possibility of the land to be claimed by E. B D can go to A for the full amount of P50,000
took the risk and purchased the land. Later on, E still OR FROM B OR C.
claimed the land. Can the partners reclaim this? (b) Can D go to B for the whole e P50,000 since B
Even though ALL partners were not informed about the is the richest among the partners?
litigation, the partnership cannot get the land anymore This is allowable since the partners have a
since B was informed about it. Notice to B, the acting solidary obligation through A’s act of omission.
partner, is already notice to the partnership. B will be entitled for reimbursement from the
(3) Suppose before B became a partner, D was able to talk one responsible, A.
to him about the piece of land under litigation. Later on, - Any one of A, B, OR C, or all partners including the
B became a managing partner and purchased the land partnership can pay without prejudice to the rights
D told him about a long time ago. E won the litigation of partners to get reimbursement from the one
and was able to claim the land. Can the partnership responsible for the crime
reclaim the land? (2) A partner, within the scope of his authority, receives
The partnership cannot get it anymore. Even if D was money or property from a third person and misapplies it.
not informed WHILE he was a partner, the information - Example:
was still present in his mind. The issue here would be: If A partnership is engaged in a pawnshop business.
B can still recall the conversation he had with D before D, a 3rd person, pawned his watch to A and A sells
he became a managing partner. it. Who is liable for the watch?
(4) Suppose D informed C (who is not a managing partner) All partners are solidarily liable to D since A
about the land under litigation. Later on, D sold the land misapplies the watch received from D.
to B, the managing partner, without informing him that (3) The partnership, in its ordinary course of business,
the land was under litigation (take note: the information receives money or property from a 3rd person and a
was given to C). Is notice to C, a notice to B? partner misapplies it while in the custody of the
YES, because C should have communicated the partnership.
information. - Example:
In cases (2), (3) and (4), the partnership can't file action The partnership is engaged in a pawnshop
for damages against D since the "partnership had business where it received a watch from D to be
knowledge" about the litigation but the partners still took pawned. The watch is placed in the partnership
the risk of buying the land. VAULT. B, a partner, gets the watch from the vault
and sells it. Who is liable for the watch?
Article 1822 All partners are solidarily liable.
Where, by any wrongful act or omission of any
partner acting in the ordinary course of the business of Article 1825
the partnership or with the authority of his co-partner, When a person, by words spoken or written or by
loss or injury is caused to any person, not being a conduct, represents himself, or consents to another
partner in the partnership, or any penalty is incurred, the representing him to anyone, as a partner in an existing
partnership is liable therefore to the same extent as the partnership or with one or more persons not actual
partner so acting or omitting to act. (n) partners, he is liable to any such persons to whom such
representation has been made, who has, on the faith of
Article 1823 such representation, given credit to the actual or
The partnership is bound to make good the loss: apparent partnership, and if he has made such
(1) Where one partner acting within the scope of his representation or consented to its being made in a
apparent authority receives money or property of public manner he is liable to such person, whether the
a third person and misapplies it; and representation has or has not been made or
(2) Where the partnership in the course of its communicated to such person so giving credit by or
business receives money or property of a third with the knowledge of the apparent partner making the
person and the money or property so received is representation or consent to its being made:
misapplied by any partner while it is in the (1) When a partnership liability results, he is liable
custody of the partnership. (n) as though he were an actual member of the
partnership;
(2) When no partnership liability results, he is liable
pro rata with the other persons, if any, so
consenting to the contract or representation as
to incur liability, otherwise separately.
When a person has been thus represented to be a persons not actual partners, he is an agent of the persons
partner in an existing partnership, or with one or more consenting to such representation to bind them to the
same extent and in the same manner as though he were Article 1827
a partner in fact, with respect to persons who rely upon The creditors of the partnership shall be preferred
the representation. When all the members of the existing to those of each partner as regards the partnership
partnership consent to the representation, a partnership property. Without prejudice to this right, the private
act or obligation results; but in all other cases it is the creditors of each partner may ask for the attachment
joint act or obligation of the person acting and the and public sale of the share of the latter in the
persons consenting to the representation. (n) partnership assets. (n)
2 things being mentioned: Partnership creditors have BETTER RIGHTS to partner
(1) PARTNERSHIP by estoppels obligation WITH REGARD TO PARTNERSHIP PROPERTY.
- There is an existing partnership, and partners Personal creditors of partners have BETTER RIGHT than a
misrepresent themselves together with a 3rd
partnership creditor with regards to PERSONAL PROPERTY
person.
of the partner.
- EXAMPLE:
EXAMPLE:
(a) Suppose there is a partnership, X, with
(1) A, B, and C are partners. A OWES E P6,000.00. The
partners A, B, and C. D told E that he is a
PARTNERSHIP OWES D P28,000.00. The total
partner of A, B, and C. E verified from the
partnership assets amount to P40,000.00. Who has
actual partners of X partnership if D is really a
better right to the partnership property?
partner, A, B, and C consented. E entered in a
In this case, D, the partnership creditor, has a better
contract with D, believing he was a partner.
right to the partnership property. When obligation to D
This is partnership by estoppels since A, B,
is paid, what will be left for the partners to share is
and C verified D as a partner. In this case, E
P4,000.00. If E, the personal creditor of A, demands
can go after A, B, and C.
to be paid out of partnership property, he will only get
(b) Suppose only A and B consented, is there a
P4,000.00 from it since the priority is the partnership
partnership by estoppels?
creditor. The P2,000.00 will be paid out from A’s
There will be no partnership by estoppels since
personal property.
only A and B, not all partners, consented to D’s
(2) If total partnership assets is only P28,000.00, and the
misrepresentation.
liability of the partnership is P40,000,, how shall the
(2) PARTNERS by estoppels
debt be paid?
- 2 or more persons pretend to be partners in the eyes
A, B, and C will have to pay E P6,000.00 each.
of 3rd persons.
(3) If A only had P6,000.00 of personal property, who will
- Example:
have the better right to this?
A, B, AND C said they were partners to D and
A’s priority is his personal creditor, E. So D cannot
entered in a contract with the “partners”. When it
collect A’s share of P4,000.00. D cannot, also,
was time for them to pay D for their obligation, they
increase the obligation of the other partners to be able
cannot for the reason that they are not partners.
to collect their debt.
What is their obligation to D?
Their obligation to D will be pro rata, as if they were
partners (since they are partners by estoppels)
Chapter 3 – Dissolution and Winding Up
Article 1826
Article 1828
A person admitted as a partner into an existing
The dissolution of a partnership is the change in the
partnership is liable for all the obligation of the
relation of partners caused by any partner ceasing to be
partnership arising before his admission as though he
associated in the carrying on as distinguished from the
had been a partner when such obligation were incurred,
winding up of business. (n)
except that this liability shall be satisfied only out of
partnership property, unless there is a stipulation to the
Article 1829
contrary. (n)
On dissolution, the partnership is not terminated,
but continues until the winding up of partnership affairs
A new partner admitted to an existing partnership is also
is completed. (n)
liable to the obligations existing before he was admitted, but
his liability only extends to his contribution to the partnership
Article 1830
UNLESS stipulated. Dissolution is caused:
A new partner is liable to his separate property when the (1) Without violation of the agreement between the
obligation was incurred when he was already a partner. partners:
Example (2) In contravention of the agreement between the
A, B, and C are the original partners of the partnership X partners, where the circumstances do not
with contributions of P10,000.00 each. X partnership owes permit a dissolution under any other provision
D P40,000.00. Later on, E entered the partnership and of this article, by the express will of any partner
contributed P4,000.00. How shall the debt be paid? at any time;
P34,000.00 will be paid to D out of the partnership assets, (3) By any event which makes it unlawful for the
and the P6,000 will be paid through A, B, and C’s personal business of the partnership to be carried on or
assets. The P6,000.00 will be divided among the 3 original the members to carry it on in partnership;
partners pro rata. (4) When a specific thing, which a partner had
promised to contribute to the partnership,
perishes before the delivery; in any case by the
loss of the thing, when the partner who
contributed it having reserved the ownership
thereof, has only transferred to the partnership
the use or enjoyment of the same; but the the thing when it occurs after the partnership has
partnership shall not be dissolved by the loss of acquire the ownership thereof;
(5) By the death of any partner; otherwise so conducts himself in matters
(6) By the insolvency of any partner or of the relating to the partnership business that it is not
partnership reasonably practicable to carry on the business
(7) By the civil interdiction of any partner; in partnership with him;
(8) By degree of court under the following article. (5) The business of the partnership can only be
(1700a and 1701a) carried on at a loss
(6) Other circumstances that will render dissolution
Dissolution is usually caused by change a change of relation equitable
between partners. On the application of the purchaser of a partner’s
If there is dissolution, no new partnership business may be interest under Article 1813 or 1814:
undertaken (1) After the termination of the specific term or
Upon dissolution, partnership continues until winding up and particular undertaking
liquidation is completed. (2) At any time the partnership was a partnership at
CAUSES OF DISSOLUTION: will when the interest was assigned or when the
(1) WITHOUT VIOLATION OF AGREEMENT charging order was issued. (n)
(a) Termination/expiration of term or specific
undertaking When can a partnership be dissolved judicially?
(b) Upon express will of any partner if there is no term (1) When a partner is DECLARED insane
or specific undertaking AS LONG AS PARTERS (2) When he becomes incapable of performing his part in
ACT IN GOOD FAITH. the partnership
(c) Upon the will of the partners whose interest is not (3) Misconduct of a partner prejudicially to the business
assigned or charged. (4) Persistent breach of partnership agreement
- Example: (5) The business can only be carried out on a loss
A sold his interest to E, and B’s interest is (6) Other circumstances:
charged to F because he borrowed P50,000 (a) Abandonment of the business
from him. C and D are the only ones who can (b) Fraud
ask for dissolution since their interest is not (c) Refusal to render an accounting
assigned or charged. (7) On application of 3rd parties’ (who purchased or have
(d) Expulsion bona fide of a partner (a partner is charged a partner’s interest) right as per Articles 1813
expelled in good faith in accordance with and 1814
agreement.
(e) Expulsion has the effect of decreasing the # of Article 1832
partners. Except so far as may be necessary to wind up
(2) IN VIOLATION OF THE AGREEMENT partnership affairs or to complete transactions begun
- Example: but not then finished, dissolution terminates all
A, B, and C agreed that the term of their authority of any partner to act of the partnership:
partnership is only until Dec. 31, 2011. A goes to (1) With respect to the partners
premature resignation (resigns early from (a) When the dissolution is not by the act,
partnership). No one can prevent A from resigning, insolvency or death of a partner
but the partners can ask for damages for not (b) When the dissolution is by such act,
staying with the agreement. insolvency or death of a partner, in cases
(3) When it becomes unlawful for a partnership to carry on where Article 1833 so requires
the business or partner to carry on his role (2) With respect to persons not partners, as
(4) When specific thing is contributed, and before deliver, it declared in Article 1834
is lost.
- If it is lost after delivery, partnership is not dissolved. General Rule:
- If use is contributed, it is lost before or after delivery (it When partnerships are dissolved, partners cannot engage in
doesn’t matter when it was lost), partnership is new business transactions because their authority to do so
dissolved. terminates upon the occurrence of dissolution.
- If what is to be contributed is generic, and it is lost, 2 Cases with are Contrary to the General Rule:
there is no dissolution. (1) During the WINDING UP of Business
- Transactions relating to the winding up of business
Article 1831 such as the liquidation of partnership assets can be
On application by or for a partner, the court shall entered into because the partners’ authorities to do
decree dissolution whenever: so shall continue.
(1) A partner has been declared insane in any (2) To complete unfinished transactions during dissolution
judicial proceeding or is shown to be of unsound - Example:
mind; A and B are in a partnership where they have
(2) A partner becomes in any other way incapable of contracted with C to deliver goods in two
performing his part of the partnership contract; installments. B resigns after the first delivery is
(3) A partner has been guilty of such conduct as made, thus dissolving the partnership. Can A and B
tends to affect prejudicially the carrying on of the cease to continue with their obligation?
business; NO. A and B must continue on with their obligation
(4) A partner willfully or persistently commits to complete unfinished transactions.
breach of the partnership agreement, or If dissolution is not by an act, insolvency or death, the
authority of partners as among themselves is terminated.
- Example:
A partnership was dissolved due to the expiration of the
term. If C transacts with D after this and he defaults, he
will be the only one liable AS TO THE PARTNERS. If A
& B are to pay D, C shall reimburse them. Article 1833
Where the dissolution is caused by the act, death or (2) So far unknown and inactive in partnership
insolvency of a partner, each partner is liable to his co- affairs that the business reputation of the
partners for his share of any liability created by any partnership could not be said to have been in
partner acting for the partnership as if the partnership any degree due to his connection with it
had not been dissolved unless: The partnership is in no case bound by any act of a
(1) The dissolution being by act of any partner, the partner after dissolution:
partner acting for the partnership had (1) Where the partnership is dissolved because it is
knowledge of the dissolution unlawful to carry on the business, unless the
(2) The dissolution being by death or insolvency of act is appropriate for winding up partnership
a partner, the partner acting for the partnership affairs; or
had knowledge or notice of the death or (2) Where the partner has become insolvent; or
insolvency (3) Where the partner had no authority to wind up
partnership affairs; except by a transaction with
If dissolution is caused by an act, insolvency or death, then one who –
each partner shall share in the liability of the partnership due (a) Had extended credit to the partnership prior
to the actions of a partner, unless he had knowledge of an to dissolution and had no knowledge or
act, insolvency or death, or notice of the insolvency or death. notice of his want of authority; or
Example: (b) Had not extended credit to the partnership
(1) B told A that he is resigning TODAY. The partnership is prior to dissolution, and, having no
thus dissolved. Should A enter into a contract with D, knowledge or notice of his want of
who shall be liable? authority, the fact of his want of authority
As among themselves, only A because he had has not been advertised in the manner
knowledge of B’s resignation, thus knowing that they are provided for advertising the fact of
no longer in a partnership. dissolution in the first paragraph, No. 2 (b).
(2) If B texts his resignation to A because A is in Mindanao Nothing in this article shall affect the liability under
and A contracts with D, was his authority terminated article 1825 of any person who after dissolution
when the text arrived? represents himself or consents to another representing
No, A’s authority was not terminated as he has only him as a partner in a partnership engaged in carrying on
received a NOTICE. Mere notice cannot terminate the business (n)
authority of partners because the grounds are BY AN
ACT, and because of this it should be PERSONALLY Partners may still bind the partnership to transactions even
KNOWN by the acting partner. after dissolution if the transactions are with respect to the
(3) If C texts A that B had died, does their authority winding up or the completion of unfinished transactions.
terminate once A gets the text message? The transaction will be binding if:
Their authority is terminated because in this case, the (1) Credit was extended without knowledge of the
cause of dissolution is death. Mere notice is sufficient to dissolution before the dissolution
terminate authority if the grounds are due to the (2) No credit was extended but there was knowledge of the
insolvency or to the death of a partner. partnership’s existence and none of the dissolution
The partnership is required to have the dissolution be
Article 1834
announced in general circulation newspapers of the place of
After dissolution, a partner can bind the
operations. As long as they do this, then it is sufficient notice
partnership, except as provided in the third paragraph of to all third persons. (If you don’t read broadsheets, that’s
this article:
your fault, not the partnership’s)
(1) By an act appropriate for winding up
Liabilities shall be satisfied out of partnership assets alone if
partnership affairs or completing transactions
the partner being dealt with is a DORMANT partner.
unfinished at dissolution
Upon dissolution, the partnership is no longer bound by
(2) By any transaction which would bind the
partnership is dissolution had not taken place, transactions :
provided the other party to the transaction: (1) When it becomes unlawful to carry on the business
(2) Insolvency of a partner
(a) Had extended credit to the partnership prior
(3) Unauthorized winding up, except when
to dissolution and had no knowledge or
(a) Credit was extended and there was no knowledge
notice of the dissolution; or
of the lack of authority
(b) Though he had not so extended credit, had
(b) No credit was extended and there was no
nevertheless known of the partnership prior
knowledge of the dissolution because there was no
to dissolution, and, having no knowledge or
advertisement of such
notice of dissolution, the fact of dissolution
had not been advertised in a newspaper of In the case wherein “A” still represents himself as a partner
general circulation in the place (or in each even if the partnership has already been dissolved, then he
is a PARTNER BY ESTOPPEL.
place if more than one) at which the
partnership was regularly carried on.
The liability of a partner under the first paragraph, Article 1835
The dissolution of the partnership does not of itself
No. 2, shall be satisfied out of partnership assets alone
discharge the existing liability of any partner.
when such partner had been prior to dissolution:
A partner is discharged from any existing liability
(1) Unknown as a partner to the person with whom
upon dissolution of the partnership by an agreement to
the contract is made; and
that effect between himself, the partnership creditor and
the person or partnership continuing the business; and
such agreement may be inferred from the course of
dealing between the creditor having knowledge of the
dissolution and the person or partnership continuing be liable for all obligations of the partnership incurred
the business. while he was a partner, but subject to the prior payment
The individual property of a deceased partner shall of his separate debts. (n)
during the agreed term for the partnership and
Dissolution does not discharge the partnership and/or the for that purpose may possess the partnership
partners from existing liabilities property, provided they secure the payment by
EXAMPLE: bond approved by the court, or pay to any
Suppose A, B and C are in a partnership (X & Co.) and owe partner who has caused the dissolution
D a sum of P 26,000.00. Total partnership assets equate to wrongfully, the value of his interest in the
a sum of P 20,000.00. partnership at the dissolution, less any
(1) What if C dies and his total assets are worth P2,000.00? damages recoverable under the second
The law says that C’s individual property shall be used paragraph, No. 1 (b) of this article, and in like
to clear his liabilities when he was still alive. In all cases, manner indemnify him against all present or
the PERSONAL CREDITOR has priority. future partnership liabilities.
(2) What if A resigns? Can he ask to be discharged from his (3) A partner who has caused the dissolution
obligation to pay D? wrongfully shall have:
A can only be discharged from his obligation to pay D (a) If the business is not continued under the
the sum of P2,000.00 if it was agreed upon by all provisions of the second paragraph, No. 2,
concerned parties. Agreement can be EXPRESSED or all the rights of a partner under the first
IMPLIED, based on our interpretation of the law. paragraph, subject to liability for damages
in the second paragraph, No. 1 (b), of this
Article 1836 article.
Unless otherwise agreed, the partners who have not (b) If the business is continued under the
wrongfully dissolved the partnership or the legal second paragraph, No. 2, of this article, the
representative of the last surviving partner, not right as against his co-partners and all
insolvent, has the right to wind up the partnership claiming through them in respect of their
affairs, provided, however, that any partner, his legal interests in the partnership, to have the
representative or his assignee, upon cause shown, may value of his interest in the partnership, less
obtain winding up by the court. (n) any damage caused to his co-partners by
the dissolution ascertained and paid to him
Who can wind up partnership affairs? in cash, or the payment secured by a bond
(1) Whoever is so assigned by the agreement approved by the court, and to be released
(2) Partners who did not wrongfully cause the dissolution from all existing liabilities of the
(3) Legal representatives of the last surviving partner (who partnership; but in ascertaining the value of
is not insolvent) the partner’s interest the value of the
(4) The court in a judicial winding up of partnership affairs. goodwill of the business shall not be
considered. (n)
Article 1837
When dissolution is caused in any way, except in Suppose there is a situation wherein A, B and C are in a
contravention of the partnership agreement, each partnership, X & Co., with total assets of P 26,000.00 and
partner, as against his co-partners and all persons liabilities to D amounting to P 20,000.00. If the partnership is
claiming through them in respect of their interests in the dissolved WITHOUT VIOLATION OF ANY AGREEMENTS,
partnership, unless otherwise agreed, may have the naturally, the liability will be cleared because the partnership
partnership property applied to discharge its liabilities, assets are more than enough, and the surplus will be given
and the surplus applied to pay in cash the net amount to each of the partners in proportion to their interest in the
owing to the respective partners. But if dissolution is partnership or as per their agreement.
caused by expulsion of a partner, bona fide under the What if the partnership was dissolved due to EXPULSION?
partnership agreement and if the expelled partner is Suppose that A was the one expelled from the partnership,
discharged from all partnership liabilities, either by then he can only get a share in the NET PROCEEDS of the
payment or agreement under the second paragraph of surplus that would have originally been his.
Article 1835, He shall receive in cash only the net
What if the partnership was dissolved due to VIOLATION
amount due him from the partnership.
OF AGREEMENTS?
When dissolution is caused in contravention of the
Determine the rights of the INNOCENT and GUILTY parties.
partnership agreement the rights of the partners shall be
Suppose that in this situation, A was the one guilty of
as follows:
violating an agreement. Then B and C will be allowed the
(1) Each partner who has not caused dissolution
following rights:
wrongfully shall have:
(1) Apply partnership assets to partnership liabilities and
(a) All the rights specified in the first
distribute the cash surplus amongst themselves.
paragraph of this article, and
(2) To be indemnified for the damages that A has caused.
(b) The right, as against each partner who
(3) To continue the business up to the agreed term.
caused the dissolution wrongfully to
(4) To possess partnership property.
damages for breach of the agreement
While A will have the following rights:
(2) The partners who have not caused the
(1) Partners decide not to continue the business
dissolution wrongfully, if they all desire to
(a) Right to claim his share in the cash surplus, but
continue the business in the same name either
only the net proceeds of such meaning, the cash
by themselves or jointly with others, may do so,
surplus less damages.
(2) Continue the business
(a) Ascertain his interest in the business.
(b) Freedom from existing and future liabilities of the
partnership.
Article 1838 prejudice to any other right, entitled:
Where a partnership contract is rescinded on the (1) To a lien on, or right of retention of, the surplus
ground of the fraud or misrepresentation of one of the of the partnership property after satisfying the
parties thereto, the party entitled to rescind is, without partnership liabilities to third persons for any
sum of money paid by him for the purchase of court for distribution, partnership creditors
an interest in the partnership and for any capital shall have priority on partnership property and
or advances contributed by him; separate creditors on individual property,
(2) To stand, after all liabilities to third persons saving the rights of lien or secured creditors
have been satisfied, in the place of the creditors (9) Where a partner has become insolvent or his
of the partnership for any payments made by estate is insolvent, the claims against his
him in respect of the partnership liabilities; and separate property shall rank in the following
(3) To be indemnified by the person guilty of the order:
fraud or making the representation against all (a) Those owing to separate creditors
debts and liabilities of the partnership. (n) (b) Those owing to partnership creditors
(c) Those owing to partners by way of
Considers a case wherein a partner was induced to join the contribution (n)
partnership by means of fraud or misrepresentation
The victim can ask for the recision or restitution of the Considers the case of liquidation and the distribution of
contract of partnership (return of all his contributions) partnership assets
He has the right to the surplus for certain purposes Liquidation is when all the assets of the partnership is
He has the rights of a 3rd person or a subrogated creditor converted to cash.
after the liabilities have already been paid to recollect what Total assets will include GOODWILL as well as the original
he paid when he entered into the partnership. CONTRIBUTIONS of the partners.
He is entitled to be indemnified for all debts and liabilities Order of payment during liquidation:
that he paid for during his time in the partnership. (1) 3rd persons/outside creditors
(2) Partner creditors (partners who have claims)
Article 1839 (3) Normal partners (all partners)
In settling accounts between the partners after (a) In accordance with the agreement
dissolution, the following rules shall be observed, (b) In proportion to their contribution
subject to any agreement to the contrary:
(1) The assets of the partnership are: Article 1840
(a) The partnership property In the following cases, creditors of the dissolved
(b) The contributions of the partners necessary partnership are also creditors of the person or
for the payment of all the liabilities partnership continuing the business:
specified in No. 2 (1) When any new partner is admitted into an
(2) The liabilities of the partnership shall rank in existing partnership, or when any partner
order of payment, as follows: retires and assigns (or the representative of the
(a) Those owing to creditors other than deceased partner assigns) his rights in
partners partnership property to two or more of the
(b) Those owing to partners other than for partners, or to one or more of the partners and
capital and profits one or more third persons, if the business is
(c) Those owing to partners in respect of continued without liquidation of the partnership
capital affairs;
(d) Those owing to partners in respect of (2) When all but one partner retire and assign (or
profits the representative of a deceased partner
(3) The assets shall be applied in the order of their assigns) their rights in partnership property to
declaration in No. 1 of this article to the the remaining partner, who continues the
satisfaction of the liabilities business without liquidation of partnership
(4) The partners shall contribute, as provided by affairs, either alone or with others;
Article 1797, the amount necessary to satisfy (3) When any partner retires or dies and the
the liabilities business of the dissolved partnership is
(5) An assignee for the benefit of the cr4editor or continued as set forth in Nos. 1 and 2 of this
any person appointed by the court shall have article, with the consent of the retired partner or
the right to enforce the contributions specified the representative of the deceased partner, but
in the preceding number. without any assignment of his right in
(6) Any partner or his legal representative shall partnership property;
have the right to enforce the contributions (4) When all the partners or their representatives
specified in No. 4, to the extent of the amount assign their rights in partnership property to
which he has paid in excess of his share of the one or more third persons who promise to pay
liability. the debts and who continue the business of the
(7) The individual property of a deceased partner dissolved partnership;
shall be liable for the contributions specified in (5) When any partner wrongfully causes a
No. 4 dissolution and the remaining partners continue
(8) When partnership property and the individual the business under the provisions of Article
properties of the partners are in possession of a 1837, second paragraph, No. 2, either alone or
with others, and without liquidation of the
partnership affairs;
(6) When a partner is expelled and the remaining
partners continue the business either alone or
with others without liquidation of the
partnership affairs.
The liability of a third person becoming a partner in
the partnership continuing the business, under this
article, to the creditors of the dissolved partnership unless there is a stipulation to the contrary.
shall be satisfied out of the partnership property only, When the business of a partnership after dissolution
is continued under any conditions set forth in this If A dies, and the same situation occurs (he did not retire),
article, the creditors of the dissolved partnership, as then his legal representatives have the same rights as
against the separate creditors of the retiring or mentioned above.
deceased partner or the representative of the deceased
partner, have a prior right to any claim of the retired Article 1842
partner or the representative of the deceased partner The right to an account of his interest shall accrue
against the person or partnership continuing the to any partner, or his legal representative as against the
business, on account of the retired or deceased winding up partners or the surviving partners or the
partner’s interest in the dissolved partnership or on person or partnership continuing the business, at the
account of any consideration promised for such interest date of dissolution, in the absence of any agreement to
or for his right in partnership property. the contrary. (n)
Nothing in this article shall be held to modify any
right of creditors to set aside any assignment on the Who can demand to know how much his interest is in the
ground of fraud. partnership and from whom?
The use by the person or partnership continuing the All involved parties can demand to know how much his
business of the partnership name, or the name of a interest is. He can demand to know these from the
deceased partner as part thereof, shall not of itself make SURVIVING, CONTINUING and WINDING UP partners.
the individual property of the deceased partner liable for
any debts contracted by such person or partnership. (n)
Explains the rights of the creditor in case of partnership CHAPTER 4 – LIMITED PARTNERSHIP
dissolution because of membership changes and the
business is continued without liquidation. Article 1843
The membership changes include RETIREMENT, A limited partnership is one formed by two or more
EXPULSION, DEATH or ADDITION. persons under the provisions of the following article,
Note that the creditor of the OLD partnership will still be the having as members one or more general partners and
creditor of the NEW partnership if there is still an old one or more limited partners. The limited partners as
partner/original partner with the NEW partnership. (debt will such shall not be bound by the obligations of the
not be cleared or discharged) partnership.
The creditor will continue to be the creditor of the
remaining/new partnership in all cases except when: Defines what a limited partnership is.
(1) Rights are assigned to other people (no old partners) It is sufficient that there is 1 general and 1 limited partner in
(2) Unless there is a promise to pay debt from the new a limited partnership.
partners or if the creditor can set aside the right of the The reason for the existence of a limited partnership is to
new partners on the ground of fraud. address the needs of all those who wish to join a partnership
without the risk of losing any personal property.
Article 1841
Characteristics:
When any partner retires or dies, and the business
(1) Comply with the statutory requirements of Article 1824
is continued under any of the conditions set forth in the
(2) General partners control the partnership and are
preceding article, or in Article 1837, second paragraph,
personally liable for partnership debts.
No. 2, without any settlement of accounts as between
(3) Limited partners contribute capital and are not liable
him or his estate and the person or partnership
personally for partnership debts.
continuing the business, unless otherwise agreed, he or
his legal representative as against such person or
Article 1844
partnership may have the value of his interest at the Two or more persons desiring to form a limited
date of dissolution ascertained, and shall receive as an partnership shall:
ordinary creditor an amount equal to the value of his (1) Sign and swear to a certificate, which shall state
interest in the dissolved partnership with interest, or, at (a) The name of the partnership, adding thereto
his option or at the option of his legal representative, in the word “Limited”
lieu of interest, the profits attributable to the use of his (b) The character of the business
right in the property of the dissolved partnership; (c) The location of the principal place of
provided that the creditors of the dissolved partnership business
as against the separate creditors, or the representative (d) The name and place of residence of each
of the retired or deceased partner, shall have priority on member, general and limited partners being
any claim arising under this article, providing by Article respectively designated
1840, third paragraph. (n) (e) The term for which the partnership is to
exist
Suppose that A retires but B and C continue the business (f) The amount of cash and a description of
without liquidation. What are the rights of A? and the agreed value of the other property
The rights of A are as follows: contributed by each limited partner
(1) That his interest be ascertained as of dissolution date (g) The additional contributions, if any, to be
(2) Collect his interest in the partnership plus interest or made by each limited partner and the times
profits by the use of his right to these as a creditor at which or events on the happening of
which they shall be made
(h) The time, if agreed upon, when the
contribution of each limited partner is to be
returned
(i) The share of the profits or the other
compensation by way of income which
each limited partner shall receive by reason (j) The right, if give, of a limited partner to
of his contribution substitute an assignee as contributor in his
place, and the terms and conditions of the
substitution The surname of the limited partner should not appear except
(k) The right, if given, of the partners to admit if it is also the surname of a general partner or if at the time
additional limited partners of his admission, it was already being used.
(l) The right, if given, of one or more of the If the limited partner allows that his surname be used, then
limited partners to priority over other he shall be held liable as a general partner as to 3rd persons
limited partners, as to contributions or as to who extended credit not knowing he was a limited partner.
compensation b way of income, and the
If the creditor has knowledge of his being a limited partner,
nature of such priority
then this rule shall not apply.
(m) The right, if given, of the remaining general
partner or partners to continue the
Article 1847
business on the death, retirement, civil
If the certificate contains a false statement, one who
interdiction, insanity or insolvency of a
suffers loss by reliance on such statement may hold
general partner
liable any party to the certificate who knew the
(n) The right, if given, of a limited partner to
statement to be false:
demand and receive property other than
(1) At the time he signed the certificate
cash in return for his contribution
(2) Subsequently, but within a sufficient time
(2) File for record the certificate in the Office of the
before the statement was relied upon to enable
Securities and Exchange Commission.
him to cancel or amend the certificate, or to file
A limited partnership is formed if there has been
a petition for its cancellation or amendment as
substantial compliance in good faith with the foregoing
provided in Article 1865.
requirements.
If there are false statements in the certification and 3rd
Two requirements in a limited partnership:
persons should suffer loss due to these, then he can hold
(1) Sign and swear to a certificate containing the data
liable all those who had knowledge of the false statement at
mentioned in the article (a) to (n)
the time certification was signed.
(2) Have the certificate recorded with the SEC
The same shall apply if the partners concerned had sufficient
Can a limited partnership be formed orally?
No. A limited partnership contract is not perfected by mere time to have the certificate cancelled but did not do so.
agreement as it requires formal proceedings.
Article 1848
Partnership must SUBSTANTIALLY comply with the
A limited partner shall not become liable as a
requirements.
general partner unless, in addition to the exercise of his
What if the partnership does not comply with the
rights and powers as a limited partner, he takes part in
requirements? Will it be void?
the control of the business.
No, it will only become a GENERAL PARTNERSHIP.
Why is it that the certificate must be registered?
The limited partner who, aside from his powers, participates
Registration is the notice, to all 3 rd persons who will be
in the management of the partnership becomes liable as a
dealing with or are dealing with the partnership, that there
general partner.
are partners with limited liability.
The presumption is that when a partnership deals with a 3 rd Article 1849
person, the partnership is a GENERAL partnership. After the formation of a limited partnership,
additional limited partners may be admitted upon filing
Article 1845 an amendment to the original certificate in accordance
The contributions of a limited partner may be cash with the requirements of Article 1865.
or other property, but not services.
Suppose that in a limited partnership, there are only 2
Limited partners can only contribute cash or other property, general partners and 1 limited partner. Can you add another
not services because if he does so, then he shall become a limited partner?
GENERAL INDUSTRIAL PARTNER. Yes, amend the certificate under Article 1865 and do so.
Contribution must be given immediately. If he has promised
additional contribution, then it should be given on the date Article 1850
promised or agreed upon. A general partner shall have all the rights and
powers and be subject to all the restrictions and
Article 1846 liabilities of a partner in a partnership without limited
The surname of a limited partner shall not appear in partners. However, without the written consent or
the partnership name unless: ratification of the specific act by all the limited partners,
(1) It is also the surname of a general partner a general partner or all of the general partners have no
(2) Prior to the time when the limited partner authority to:
became such, the business had been carried on (1) Do any act in contravention of the certificate
under a name in which his surname appeared (2) Do any act which would make it impossible to
A limited partner whose surname appears in a carry on the ordinary business of the
partnership name contrary to the provisions of the first partnership
paragraph is liable as a general partner to partnership (3) Confess a judgment against the partnership
creditors who extend credit to the partnership without (4) Possess partnership property, or assign their
actual knowledge that he is not a general partner. rights in specific partnership property, for other
than a partnership purpose
(5) Admit a person as a general partner
(6) Admit a person as a limited partner, unless the
right to do so is given in the certificate
(7) Continue the business with partnership property on the death, retirement, insanity, civil
interdiction or insolvency of a general partner, erroneously believing that he has become a limited
unless the right to do so is given in the partner in a limited partnership, is not, by reason of his
certificate exercise of the rights of a limited partner, a general
partner with the person or in the partnership carrying on
Refers to the power, liabilities and limitations of general the business, or bound by the obligations of such
partners in a limited partnership. person or partnership, provided that on ascertaining the
A general partner has the same rights, powers and mistake he promptly renounces his interest in the
limitations in a limited partnership as when he would have profits of the business, or other compensation by way of
been in a general partnership. income.
A general partner, without written consent from ALL limited
partners, cannot: Refers to a failure to create a limited partnership.
(1) Do any act in contravention of the certificate Suppose A, B and C form a limited partnership, with C being
(2) Do any act which would make it impossible to carry on the limited partner with a contribution of P20,000.00. The
the ordinary business of the partnership certificate that they sign says that C is a general partner.
(3) Confess a judgment against the partnership What, then, if C, believing himself to be a limited partner,
(4) Possess partnership property, or assign their rights in begins to exercise his rights as such?
specific partnership property C cannot be held liable, as a general partner, if upon his
(5) Admit a person as a general partner realization of the error, he promptly renounces his
(6) Admit a person as a limited partner, unless the right to involvement with the partnership, except:
do so is given in the certificate (1) If he participates in the management of the partnership
(7) Continue the business with partnership property on the (2) If his surname is used in the partnership name
death, retirement, insanity, civil interdiction or insolvency Consider the situation above, but this time, C’s name is not
of a general partner, unless the right to do so is given in mentioned at all. What happens then?
the certificate
If that is the case, then there is no limited partnership
If there are 100 general partners and 1 dies, the partnership because there is no limited partner mentioned .
will be dissolved. However, this rule will not apply in the case The law anticipates a situation where in the person is a
of limited partners. If there are 5 limited partners and 1 dies, limited partner but his name is not mentioned as such or not
then the partnership will still continue. mentioned at all in the certificate.
A limited partnership will continue (not dissolve) even in
cases of the death of a limited partner as long as there is still Article 1853
ONE surviving limited partner in the partnership. A person may be a general partner and a limited
partner in the same partnership at the same time,
Article 1851 provided that this fact shall be stated in the certificate
A limited partner shall have the same rights as a provided for in Article 1844.
general partner to: A person who is a general, and also at the same
(1) Have the partnership books kept at the principal time a limited partner, shall have all the rights and
place of business of the partnership, and at a powers and be subject to all the restrictions of a general
reasonable hour to inspect and copy any of partner; except that, in respect to his contribution, he
them shall have the rights against the other members which
(2) Have on demand true and full information of all he would have had if he were not also a general partner.
things affecting the partnership, and a formal
account of partnership affairs whenever A partner can be a limited and general partner at the same
circumstances render it just and reasonable time provided that this fact is STATED IN THE
(3) Have dissolution and winding up by decree of CERTIFICATE that he signs.
court Who are they to 3rd persons then?
A limited partner shall have the right to receive a
They are general partners as to 3rd persons but as amongst
share of the profits or other compensation by way of
the partners themselves, they are seen as limited partners
income and to the return of his contribution as provided
with regards to their contribution.
in Articles 1856 and 1857.
Article 1854
This Article is important as far as the limited partner is A limited partner also may loan money to and
concerned as it shows them what rights they have. transact with other businesses with the partnership,
A limited partner is given the same rights as the general and, unless he is also a general partner, receive on
partner, that is: account of resulting claims against the partnership, with
(1) They can require that the partnership books be kept at general creditors, a pro rata share of the assets. No
the principal place of business. limited partner shall in respect to any such claim:
(2) Inspect and copy partnership books. (1) Receive or hold as collateral security any
(3) Demand true and full information regarding all matters partnership property
concerning the partnership. (2) Receive from a general partner or the
(4) Demand for legal winding up or dissolution partnership any payment, conveyance, or
(5) Share in profits, other compensation by way of income release from liability, if at the time the assets of
and the return of contributions. the partnership are not sufficient to discharge
partnership liabilities to persons not claiming
Article 1852 as general or limited partners.
Without prejudice to the provisions of Article 1848, The receiving of collateral security, or a payment,
a person who has contributed to the capital of a conveyance or release in violation of the foregoing
business conducted by a person or partnership provisions is a fraud on the creditors of the partnership.
Provides that a limited partner can extend credit or transact but it cannot be used as collateral from the partnership.
with partnerships that he is part of. Suppose X & Co. owes D a sum of P20,000.00 and C, a
He is also entitled to partnership assets pro rata to creditors limited partner, P20,000.00. The total assets of the
partnership is P50,000.00. How shall these be settled?
Both C and D can simultaneously collect from the Subject to the provisions of the first paragraph, a
partnership as partnership assets are sufficient to cover limited partner may rightfully demand the return of his
BOTH. However, if partnership assets are only P20,000.00, contribution:
C cannot share in it because it would prejudice D’s claim. (1) On the dissolution of a partnership
(2) When the date specified in the certificate for its
Article 1855 return has arrived
Where there are several limited partners the (3) After he has given six months’ notice in writing
members may agree that one or more of the limited to all other members, if no time is specified in
partners shall have a priority over other limited partners the certificate, either for the return of the
as to the return of their contributions, as to their contribution or for the dissolution of the
compensation by way of income, or as to any other partnership.
matter. If such an agreement is made, it shall be stated In the absence of any statement in the certificate to
in the certificate, and in the absence of such a the contrary or the consent of all members, a limited
statement, all the limited partners shall stand upon partner, irrespective of the nature of his contribution,
equal footing. has only the right to demand and receive cash in return
for his contribution.
Suppose that there are three limited partners. These A limited partner may have the partnership
partners can agree (because there are more than 1) that one dissolved and its affairs wound up when:
of them can have priority over the others provided that such (1) He rightfully but unsuccessfully demands the
SHOULD BE STATED IN THE CERTIFICATE. return of his contribution
(2) The other liabilities of the partnership have not
Article 1856 been paid, or the partnership property is
A limited partner may receive from the partnership insufficient for their payment as required by the
the share of the profits or the compensation by way of first paragraph, No. 1, and the limited partner
income stipulated for in the certificate; provided, that would otherwise be entitled to the return of his
after such payment is made, whether from the property contribution.
of the partnership or that of a general partner, the
partnership assets are in excess of all liabilities of the What are the requisites for the limited partner to be entitled
partnership except liabilities to limited partners on to the return of his contribution?
account of their contributions and to general partners. (1) When, after deducting partnership liabilities, partnership
assets are sufficient to do so.
The limited partner is entitled to share in payment by share (2) If he has the consent of all partners unless the right can
in profits or other compensation by way of income provided be demanded.
that the partnership assets are sufficient to meet such. (3) The certificate must be amended to reflect the return of
To determine total liability, do not deduct contributed capital. his contribution.
Liabilities owed to general partners are not considered part When may a limited partner rightfully demand the return of
of the partnership’s total liabilities. his contribution?
The ability of the limited partner to share is based on the (1) During dissolution
total liability, which must be known. (2) Upon arrival of the date of return of his contribution
Suppose that A, B and C are in partnership wherein C is the (3) After he has given 6 months’ notice, WRITTEN, and
limited partner and total assets are P50,000.00. They owe D there was no date of return nor dissolution
a sum of P10,000.00, C P15,000.00 and A P50,000.00, is C The limited partner is only entitled to the return of his
still entitled to share in the surplus after clearing liabilities? contribution, IN CASH, except:
Yes, because total liabilities in this case is only P25,000.00 (1) If it was agreed upon
and the assets are still sufficient to pay out the surplus. (2) He has the consent of all the partners
When can a limited partner ask for dissolution?
Article 1857 (1) He rightfully but unsuccessfully demanded the return
A limited partner shall not receive from a general (2) If he was entitled to receive his contribution and the
partner or out of partnership property any part of his certificate was already amended but partnership assets
contribution until: are not sufficient to pay off partnership creditors.
(1) All liabilities of the partnership, except liabilities
to general partners and to limited partners on Article 1858
account of their contributions, have been paid A limited partner is liable to the partnership:
or there remains property of the partnership (1) For the difference between his contribution as
sufficient to pay them actually made and that stated in the certificate
(2) The consent of all members is had, unless the as having been made
return of the contribution may be rightfully (2) For any unpaid contribution which he agreed in
demanded under the provisions of the second the certificate to make in the future of the time
paragraph and on the conditions stated in the certificate
(3) The certificate is cancelled or so amended as to A limited partner holds as trustee for the
set forth the withdrawal or reduction partnership:
(1) Specific property stated in the certificate as
contributed by him, but which was not
contributed or which has been wrongfully
returned
(2) Money or other property wrongfully paid or
conveyed to him on account of his contribution
The liabilities of a limited partner as set forth in this
article can be waived or compromised only by the
consent of all members; but a waiver or compromise who extended credit or whose claim arose after the filing
shall not affect the right of a creditor of a partnership and before a cancellation or amendment of the certificate,
to enforce such liabilities. A substituted limited partner is the person admitted and has
When a contributor has rightfully received the all the rights of a limited partner who dies or has assigned
return in whole or in part of the capital of his his interest.
contribution, he is nevertheless liable to the partnership
What if the person is not qualified to be a substituted limited
for any sum, not in excess of such return with interest,
partner?
necessary to discharge its liabilities to all creditors who Then he shall remain an assignee with the following rights
extended credit or whose claims arose before such and limitations:
return. (1) Receive share in profits, other compensation by way of
income or return of contribution
Suppose A promises to contribute P20,000.00 but only pays (2) Cannot demand information on partnership activities nor
P15,000.00. What is his obligation to the partnership? inspect partnership books.
Then A must pay the P5,000.00 difference NOW. When will the assignee become a substituted limited
Suppose C, the limited partner, promises to contribute partner?
P20,000.00 more. What should be done? (1) If consent from all other partners was given
It should be paid on the date he promised to pay it. (2) If the limited partner is empowered by the certificate to
When can a limited partner be held as trustee? constitute a substituted limited partner, and the
(1) When he promises specific things but does not follow certificate is amended under Article 1865
through with the promise of delivery What are the rights of a substituted limited partner?
(2) In circumstances of wrongful returns He has all the powers, limitations and liabilities as his
(3) In cases of money and/or property that is wrongfully assignor except those which he was ignorant of at the time
conveyed he became a limited partner and those that could not be
Can the partnership waive the difference of contributions? ascertained from the certificate.
(EX: the first situation) What about the assignor?
Yes, as long as it will not affect creditors who had extended The assignor is still liable for false statements and claims
credit before the waiver of such. before the admittance of a substitute limited partner, as in
Can the partnership reclaim the returns if it is needed? (EX: Articles 1847 and 1858.
C’s contribution was already returned but the partnership
needs it to finish paying off D, a creditor) Article 1860
Yes, as long as the claim came into existence before the The retirement, death, insolvency, insanity or civil
return of contribution. interdiction of a general partner dissolves the
partnership, unless the business is continued by the
Article 1859 remaining general partners:
A limited partner’s interest is assignable. (1) Under a right so to do stated in the certificate
A substituted limited partner is a person admitted to (2) With the consent of all the members
all the rights of a limited partner who has died or has
assigned his interest in a partnership. Again, this does not apply to limited partners because as
An assignee, who does not become a substituted long as there is ONE limited partner still living, then the
limited partner, has no right to require any information partnership is continued.
or account of the partnership transactions or to inspect General partners can only continue the business if:
the partnership books; he is only entitled to receive the (1) The right was stated in the certificate
share of the profits or other compensation by way of (2) All partners consent to such.
income, or return of his contribution, to which his
assignor would otherwise be entitled. Article 1861
An assignee shall have the right to become a On the death of a limited partner, his executor or
substituted limited partner if all the members consent administrator shall have the rights of a limited partner
thereto or if the assignor, being thereunto empowered for the purpose of settling his estate, and such power as
by the certificate, gives the assignee that right. the deceased had to constitute his assignee a
An assignee becomes a substituted limited partner substituted limited partner.
when the certificate is appropriately amended in The estate of a deceased limited partner shall be
accordance with Article 1865. liable for all his liabilities as a limited partner.
The substituted limited partner has all the rights and
powers, and is subject to all the restrictions and
The executor/administrator has the power to settle the dead
liabilities of his assignor, except those liabilities of
partner’s estate and those to constitute his assignee as a
which he was ignorant at the time he became a limited
substituted limited partner, if the limited partner originally had
partner and which could not be ascertained from the
the power to do so, or was allowed such.
certificate.
The estate of a limited partner will pay for all his liabilities as
The substitution of the assignee as a limited partner
a limited partner.
does not release the assignor from liability to the
partnership under Articles 1847 and 1858.
Article 1862
On due application to a court of competent,
The interest of a limited partner can be assigned. His interest
jurisdiction by any creditor of a limited partner, the court
is his share in profits, other compensation by way of income
may charge the interest of the indebted limited partner
or his return.
with payment of the unsatisfied amount of such claim,
and may appoint a receiver, and make all other orders,
directions, and inquiries which the circumstances of the
case may require.
The interest may be redeemed with the separate
property of any general partner, but may not be
redeemed with partnership property.
The remedies conferred by the first paragraph shall not be deemed exclusive of others which may exist.
Nothing in this Chapter shall be held to deprive a (7) There is a false or erroneous statement in the
limited partner of his statutory exemption. certificate
(8) There is a change in the time as stated in the
Similar to Article 1814 for general partnerships. certificate for the dissolution of the partnership
If a 3rd person files a case against the limited partners for or for the return of a contribution
non-payment or non-compliance with their contract, he can (9) A time is fixed for the dissolution of the
ask for the partners’ interests to be attached. partnership, or the return of a contribution, no
The attached interest may be redeemed using separate time having been specified in the certificate
general partners’ property but not partnership property (10) The members desire to make a change in any
UNLESS all partners have consented to such. other statement in the certificate in order that it
shall accurately represent the agreement
Article 1863 among them.
In settling accounts after dissolution, the liabilities
of the partnership shall be entitled to payment in the When should a certificate be cancelled?
following order: (1) Upon DISSOLUTION
(1) Those to creditors, in the order of priority as (2) When ALL limited partners cease to be such
provided by the law, except those to limited When should the certificate be amended?
partners on account of their contributions, and In all cases other than those that will cause the certificate to
to general partners be cancelled.
(2) Those to limited partners in respect to their
share of the profits and other compensation by Article 1865
way of income on their contributions The writing to amend a certificate shall:
(3) Those to limited partners in respect to the (1) Conform to the requirements of Article 1844 as
capital of their contributions far as necessary to set forth clearly the change
(4) Those to general partners other than for capital in the certificate which it is desired to make
and profits (2) Be signed and sworn to by all members, and an
(5) Those to general partners in respect to profits amendment substitution a limited partner or
(6) Those to general partners in respect to capital adding a limited or general partner shall be
Subject to any statement in the certificate or to signed also by the member to be substituted or
subsequent agreement, limited partners share in the added, and when a limited partner is to be
partnership assets in respect to their claims for capital, substituted, the amendment shall also be
and in respect to their claims for profits or for signed by the assigning limited partner.
compensation by way of income on their contribution The writing to cancel a certificate shall be signed by
respectively, in proportion to the respective amounts of all members.
such claims. A person desiring the cancellation or amendment of
a certificate, if any person designated in the first and
Who has priority over distribution of assets in a limited second paragraphs as a person who must execute the
partnership? writing refuses to do so, may petition the court to order
(1) Creditors, including limited partners who have a claim a cancellation or amendment thereof.
against the partnership. If the court finds that the petitioner has a right to
(2) Limited partners’ share in profits have the writing executed by a person who refuses to do
(3) Limited partners’ return of capital contribution so, it shall order the Office of the Securities and
(4) General partners who have claims against the Exchange Commission where the certificate is recorded,
partnership to record the cancellation or amendment of the
(5) General partners’ share in profits certificate; and when the certificate is to be amended,
(6) General partners’ return of capital contribution the court shall also cause to be filed for record in the
The difference of this with general partnerships is that in a said office a certified copy of its decree setting forth the
general partnership, capital contributions are returned amendment.
BEFORE profits from surplus are shared. A certificate is amended or cancelled when there is
filed for record in the Office of the Securities and
Article 1864 Exchange Commission where the certificate is recorded:
The certificate shall be cancelled when the (1) A writing in accordance with the provisions of
partnership is dissolved or all limited partners cease to the first or second paragraph
be such. (2) A certified copy of the order of court in
A certificate shall be amended when: accordance with the provisions of the fourth
(1) There is a change in the name of the paragraph
partnership or in the amount or character of the (3) After the certificate is duly amended in
contribution of any limited partner accordance with this article, the amended
(2) A person is substituted as a limited partner certificate shall thereafter be for all purposes
(3) An additional limited partner is admitted the certificate provided for in this Chapter.
(4) A person is admitted as a general partner
(5) A general partner retires, dies, becomes What are the requisites for certificates to be amended or
insolvent or insane, or is sentenced to civil cancelled?
interdiction and the business is continued (1) It must be in writing
under Article 1860 (2) It must be signed AND sworn by ALL concerned parties
(6) There is a change in the character of the (3) It must be registered with the SEC
business of the partnership
Article 1866
A contributor, unless he is a general partner, is not
a proper party to proceedings by or against a
partnership, except where the object is to enforce a
limited partner’s right against or liability to the
partnership.
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.