Trust, Partnership & Agency

ART. 1862-1867
ART. 1862
On due application to a court of competent
jurisdiction by any creditor of a limited partner, the
court may charge the interest of the indebted limited
partner 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
limited partner of his statutory exemption.
Rights of creditors of limited
partner
The creditor of a limited partner may apply to the proper court for an
order charging the limited partner’s interest in the partnership for the
payment of any unsatisfied amount of his claim. The interest so charged
may be redeemed with the separate property of any general partner but
not with partnership property.
Under Article 1814, paragraph 2, No. (1), the interest of the debtor
partner charged with the payment of the unsatisfied amount of the
judgment debt may be redeemed with partnership property with the
consent of all the partners whose interests are not so charged.
The limited partner’s right under the exemption laws is also preserved
under this article since his interest in the partnership (see Art. 1812.) is
actually his property.
ART. 1863
In settling accounts after dissolution the liabilities of the partnership
shall be entitled to payment in the following order:
(1) Those to creditors, in the order of priority as provided by law, except
those to limited partners on account of their contributions, and to
general partners;
(2) Those to limited partners in respect to their share of the profits and
other compensation by way of income on their contributions;
(3) Those to limited partners in respect to the capital of their
contributions;
(4) Those to general partners other than for capital and profits;
(5) Those to general partners in respect to profits;
(6) Those to general partners in respect to capital.
Subject to any statement in the certificate or to subsequent
agreement, limited partners share in the partnership assets in respect
to their claims for capital, and in respect to their claims for profits or for
compensation by way of income on their contribution respectively, in
Dissolution of a limited
partnership
Causes. — A limited partnership is dissolved in much the same way
as an ordinary partnership. It may be dissolved for the
a. misconduct of a general partner,
b. for fraud practiced on the limited partner by the general partner
(68 C.J.S. 1042.), or
c. on the retirement, death, etc. of a general partner (Art. 1860.), or
d. when all the limited partners ceased to be such (Art. 1864, par.
1.), or
e. on the expiration of the term for which it was to exist (Art. 1844[1,
e].), or
f. by mutual consent of the partners before the expiration of the
firm’s original term.
Dissolution of a limited
partnership
Suit for dissolution. — A limited partner may bring a suit for the
dissolution of the firm, an accounting, and the appointment of a
receiver when the misconduct of a general partner or the
insolvency of the firm warrants it. Similarly, creditors of a limited
partnership are entitled to such relief where the firm is insolvent.

A limited partner may have the partnership dissolved and its

affairs wound up when he rightfully but unsuccessfully demands
the return of his contribution, or the other liabilities of the
partnership, except liabilities to general partners and to limited
partners on account of their contributions, have not been paid, or
the partnership property is insufficient for their payment, and the
limited partner would otherwise be entitled to the return of his
contribution.
Dissolution of a limited
partnership
Notice of dissolution. — When the firm is dissolved by the
expiration of the term fixed in the certificate, notice of the
dissolution need not be given since the papers fi led and
recorded in the Securities and Exchange Commission are
notice to all the world of the term of the partnership. Where,
however, the dissolution is by the express will of the
partners, the certificate shall be cancelled, and a dissolution
of the partnership is not effected until there has been
compliance with the requirement in this respect.
Priority in the distribution of
partnership assets
Article 1863 expressly provides for priority in the distribution of the assets after
dissolution. The partnership liabilities shall be settled in the following order:
(1) Those due to creditors, including limited partners, except those on account of their
contributions, in the order of priority as provided by law (Arts. 1854, 1856, 1857[1].);
(2) Those due to limited partners in respect to their share of the profits and other
compensation by way of income on their contributions;
(3) Those due to limited partners for the return of the capital contributed;
(4) Those due to general partners other than for capital and profits;
(5) Those due to general partners in respect to profits; and
(6) Those due to general partners for the return of the capital contributed.
Partnership creditors are entitled to first distribution, followed by limited partners who
take priority over general partners.
Note that in a general partnership, the claims of the general partners in respect of
capital enjoy preference over those in respect of profits.
Share of limited partners in
partnership assets
In the absence of any statement in the certificate as to the
share of the profits which each partner shall receive by
reason of his contribution (Art. 1844, par. 1[1].) and subject to
any subsequent agreement, limited partners share in the
partnership assets in respect to their claims for capital and
profits in proportion to the respective amounts of such claims.
This proportional sharing by the limited partners takes
place where the partnership assets are insufficient to pay
such claims.
Priority of claims of limited
partners
The members of a limited partnership, as among themselves, may include in
the partnership articles an agreement for priority of distribution on the winding up
of partnership affairs. (68 C.J.S. 1024.) Such agreement ordinarily becomes
controlling as between the partners themselves. (Ibid., 1043.) In the absence of any
contrary agreement, all the limited partners stand upon equal footing.
The claims of limited partners for profits and other compensation by way of
income and return of capital contributions rate ahead with respect to all claims of
general partners. For claims arising from individual loans to, or other business
transactions with, the partnership, other than for capital contributions, the limited
partner is placed in the same category as a non-member creditor. (Art. 1854, par.
1.) If return is made to a limited partner of his contribution before creditors are
paid, he is under an obligation to reimburse such payments, with interest, so far as
necessary to satisfy the claims of creditors. (see Art. 1858, last par.)
In the event of insolvency of the partnership, its creditors take preference over
both general and limited partners.
ART. 1864
The certificate shall be cancelled when the partnership is dissolved or all limited partners cease to
be such.
A certificate shall be amended when:
(1) There is a change in the name of the partnership Art. 1864 317 or in the amount or character
of the contribution of any limited partner;
(2) A person is substituted as a limited partner;
(3) An additional limited partner is admitted;
(4) A person is admitted as a general partner;
(5) A general partner retires, dies, becomes insolvent or insane, or is sentenced to civil
interdiction and the business is continued under article 1860;
(6) There is change in the character of the business of the partnership;
(7) There is a false or erroneous statement in the certificate;
(8) There is a change in the time as stated in the certificate for the dissolution of the partnership
or for the return of a contribution;
(9) A time is fixed for the dissolution of the partnership, or the return of a contribution, no time
having been specified in the certificate; or
(10) The members desire to make a change in any other statement in the certificate in order
that it shall accurately represent the agreement among them.
When certificate shall be cancelled
or amended
(1) The certificate shall be cancelled, not merely amended:
(a) When the partnership is dissolved other than by reason of the
expiration of the term of the partnership; or
(b) When all the limited partners cease to be such. A limited
partnership cannot exist as such if there are no more limited partners.
(Art. 1843.)

(2) In all other cases, only an amendment of the certificate is

required. (Art. 1864, Nos. 1-10.)
ART. 1865
The writing to amend a certificate shall:

(1) Conform to the requirements of article 1844 as far as necessary to set forth clearly the change in the certificate
which it is desired to make; and

(2) Be signed and sworn to by all members, and an amendment substituting a limited partner or adding a limited or
general partner shall be signed also by the member to be substituted or added, and when a limited partner is to be
substituted, the amendment shall also be signed by the assigning limited partner.

The writing to cancel a certificate shall be signed by all members.

A person desiring the cancellation or amendment of a certificate, if any person designated in the first and second
paragraphs as a person who must execute the writing refuses to do so, may petition the court to order a cancellation or
amendment thereof.

If the court finds that the petitioner has a right to have the writing executed by a person who refuses to do so, it shall
order the Office of the Securities and Exchange Commission where the certificate is recorded, to record the cancellation or
amendment of the certificate; and when the certificate is to be amended, the court shall also cause to be fi led for record in
the said office a certified copy of its decree setting forth the amendment.

A certificate is amended or cancelled when there is fi led for record in the Office of the Securities and Exchange
Commission, where the certificate is recorded:

(1) A writing in accordance with the provisions of the first or second paragraph; or

(2) A certified copy of the order in accordance with the provisions of the fourth paragraph;

(3) After the certificate is duly amended in accordance with this article, the amended certificate shall thereafter be for all
purposes the certificate provided for in this Chapter.
Requirements for amendment and
cancellation of certificate
(1) The following are the requirements to amend a certificate:
(a) The amendment must be in writing;
(b) It must be signed and sworn to by all the members including the new members,
and the assigning limited partner in case of substitution or addition of a limited or general
partner; and
(c) The certificate, as amended, must be fi led for record in the Securities and Exchange
Commission.
From the moment the amended certificate or a certified copy of a court order granting the
petition for amendment has been fi led, such amended certificate shall thereafter be for all
purposes the certificate of the partnership under Article 1844.

(2) The cancellation of a certificate must also be in writing and signed by all the members and
fi led with the Office of the Securities and Exchange Commission. If the cancellation is ordered
by the court, certified copy of such order shall be fi led with the Commission.
The approval by the Commission of the amendment or cancellation is not required.
ART. 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.
Limited partner, a mere
contributor
A limited partner is referred to in Article 1866 as mere
contributor. (see also Arts. 1846, 1848, 1854, 1857, 1858,
1860.) He is practically a stranger in the limited partnership
whose liability is limited to his interest in the firm (Art. 1843.),
without any right and power to participate in the management
and control of the business.
Unlike in the case of a general partner, the relationship
between a limited partner, on the one hand, and the other
partners and the partnership, on the other hand, is not one of
trust and confidence. A limited partner is, therefore, not
prohibited from engaging in business for himself even in
competition with that conducted by the partnership (see Arts.
1789, 1808.) and may transact business with the partnership
for ordinary purposes as though he were a stranger.
Parties to action by or against
partnership
Since limited partners are not principals in partnership
transactions, their liability, as a general rule, is to the
partnership, not to the creditors of the partnership. (see Art.
1858.) For the same reason, they have no right of action
against third persons against whom the partnership has any
enforceable claim.
Hence, unless a limited partner is also a general partner, or
has become liable as a general partner, he is not a proper
party to proceedings by or against the partnership.
ART. 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; and
(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.
Provisions for existing limited
partnerships
A limited partnership formed under the former law (Articles 145-150,
Code of Commerce.) may become a limited partnership under Chapter 4 by
complying with the provisions of Article 1844, provided the certificate sets
forth the information required by Article 1867. Until or unless it becomes a
limited partnership under this chapter, it shall continue to be governed by
the provisions of the old law.
By way of illustration, the requisite in No. (2) is satisfied by a limited
partnership formed under the old law, with assets worth P100,000.00,
liabilities to third persons in the amount of P70,000.00, and to limited
partners on account of their contributions in the amount of P20,000.00, the
difference of P30,000.00 being greater than the sum of P20,000.00; but if
such difference is only P20,000.00 or less, it cannot become a limited
partnership under the Code.
END
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