AGENCY NOV 19 RECIT GUIDE/NOTES

VI. Dissolution and Winding Up

Winding Up and Liquidation

Right to Wind Up

ARTICLE 1836. Unless otherwise agreed, the partners who have not
wrongfully dissolved the
partnership or the legal representative of the last surviving
partner, not insolvent, has the right to wind up the partnership
affairs, provided, however, that any partner, his legal
representative or his assignee, upon cause shown may obtain
winding up by the court.

Extrajudicial and Judicial Winding-Up

Extrajudicially
o By the partners who have not wrongfully dissolved the partnership
o Or by the legal representative of the last surviving partner (when all
the partners are already dead), provided the last survivor was not
insolvent.
o NOTE: where the managing partners of the partnership has the
necessary authority to liquidate its affairs under its article of copartnership, he may sell the partnership properties even AFTER the life
of the partnership has already expired since he as manager, is
empowered to wind up the business affairs of the partnership.

Judicially
o Under the control and direction of the court, upon proper cause that is
shown to the court.
o NOTE: here the person to wind up must be appointed by the court. And
said appointee should not be the legal representative of a deceased
partner but should be instead a surviving partner.

AGENCY NOV 19 RECIT GUIDE/NOTES

o NOTE: the petition, however, for a judicial winding up can be done by
any partner, his legal representative, or his assignee

Rule if Survivor is not the manager

If the surviving member of the firm is not the general manager or

administrator thereof, he is NOT required to serve as liquidator thereof
without compensation. If he liquidates the affairs upon promise of a certain
compensation by the managing partners, he is naturally entitled to receive
compensation.

Profits

Profits are supposed to accrue only during the existence of the partnership
before dissolution. Of course, profits that will actually enter the firm after
dissolution as a consequence of transactions already made before
dissolution are included because they are considered as profits existing AT
THE TIME OF DISSOLUTION.

Any other income earned after the time, like interest or dividends on stock
owned by the partners or partnership at the time of dissolution should not
be distributed as profits (hence, the agreement here as to the distribution of
profits will not govern), but as merely additional income to the capital (to
be distributed under the rules on co-ownership, that is, to be dividend in
proportion to the amount of capital given)

NOTE: said capital given is computed as to the time of dissolution, that is,
after profits and losses have already been computed

NOTE: indeed said income is not considered as profits for after dissolution,
the firm has ceased to continue the business of the partners together.
o When he acts in behalf and in the name of the partnership.

Settlement of Accounts
ARTICLE 1839. In settling accounts between the partners after
dissolution, the following rules shall
be observed, subject to any agreement to the contrary:

AGENCY NOV 19 RECIT GUIDE/NOTES

(1)

The assets of the partnership are:

a. The partnership property;
b. The contributions of the partners necessary the
payment of all the liabilities specified in No. 2.

(2) The liabilities of the partnership shall rank in order of

payment, as follows:
a. Those owing to creditors other than partners;
b. Those owing to partners other than for capital and
profits;
c. Those owing to partners in respect of capital;
d. Those owing to partners in respect of profits.
(3) The assets shall be applied in the order of their
declaration in No. 1 of this article to the satisfaction of the
liabilities.
(4) The partners shall contribute, as provided by Article
1797, the amount necessary to satisfy the liabilities.
(5) An assignee for the benefit of creditors or any per- son
appointed by the court shall have the right to enforce the
contributions specified in the preceding number.
(6) Any partner or his legal representative shall have the
right to enforce the contributions specified in No. 4, to the
extent of the amount which he has paid in excess of his
share of the liability.
(7) The individual property of a deceased partner shall be
liable for the contributions specified in No. 4.
(8) When partnership property and the individual properties
of the partners are in possession of a court for distribution,
partnership creditors shall have priority on partnership
property and separate creditors on individual property,
saving the rights of lien or secured creditors.
(9) Where a partner has become insolvent or his estate is
insolvent, the claims against his separate property shall
rank in the following order:

AGENCY NOV 19 RECIT GUIDE/NOTES

a. Those owing to separate creditors;
b. Those owing to partnership creditors;
c. Those owing to partners by way of contribution.

Rules for Settling Accounts

Commissioners comment on No. (1) subdivision (b) the contributions of the

partners necessary for the payment of all liabilities..
o The adoption of this clause will end the present (under the old law)
confusion as to whether the contribution of the partners toward the
losses of the partnership are partnership assets or not. The
Commissioners believe that the opinion that such contributions as
assets is supported by the better reasoning.
o Art 1839 speaks of the methods of settling the accounts of the
partnership, that is to say its LIQUIDATION

NOTE: before liquidation is made, no action for accounting of a

partners share in the profit or for a return of his capital assets
can properly be made, since it is essential to first pay-off the
creditors. Thus, a partner who has retired must first ask for the
liquidation before he can recover his proportionate share of the
partnership assets.

NOTE: the managing partner for a firm is not a debtor of the

other partners for the capital embarked by them in the business;
thus, he can only be made liable for the capital, when upon
liquidation of the business, there are found to be assets in his
hands applicable to the capital account.

o Art 1839 can apply only if there is a contrary agreement. Of course,

such agreement cannot prejudice innocent third parties

The assets of the Partnership

The partnership property (including goodwill)

The contributions of the partners, which are made to pay off the partnership
liabilities.

AGENCY NOV 19 RECIT GUIDE/NOTES

Order of Payment of Firms liabilities

First give to creditors (who are strangers), otherwise they may be

prejudiced.

Second give to partners who are also creditors (they should be placed in a
subordinate position to outside creditors for otherwise they may prefer their
own interests)
o NOTE: example of credits owing to partners which are neither capital
nor profits, are those for reimbursement of business expenses.

Third give to the partners their capital

o NOTE: capital should be given ahead of profit for it is only the surplus
profit after capital that should be considered as the gain or the profit
of the firm
o NOTE: an industrial partner, who has not contributed money or
property at all is, in the absence of stipulation, not entitled to
participate in the capital. He shares in the profits, however.

Last profits must be distributed

o NOTE: if, during the liquidation of a firm, the profits for a certain period
of time cannot be exactly determined because no evidence or
insufficient evidence thereof is available, the court should determine
the profit for the period by finding the average profits during the
period BEFORE and AFTER the period of time in question.

New Contributions

If the partnership assets are insufficient, the other partners must contribute
more money or property. Who can enforce these contributions?
o In general, any assignee for the benefit of the creditor; or any person
appointed by the court (like a receiver).

Reason: enforced contributions may be considered as

partnership assets, and should therefore be available to the
creditors.

AGENCY NOV 19 RECIT GUIDE/NOTES

Preference with Respect to the Assets

Suppose both the partnership property and the individual properties of the
partners are in the possession of the court for distribution, who should be
preferred?
o It Depends

Regarding partnership property, partnership creditors have

preference

Regarding individual properties of the partners, the individual

creditors are preferred.

Rule if Partner is Insolvent

If a partner is insolvent, how will his individual properties be distributed?

o 1st give to individual or separate creditors
o 2nd give to partnership creditors
o last give those owing to the other partners by way of contribution

SISON v McQUAID
94 Phil 201.

PO YEND CHEO v LIM KA YAM

44 Phil 172

VILLAREAL v RAMIREZ
GR No. 144214, 14 July 2003

Rights of Creditors

AGENCY NOV 19 RECIT GUIDE/NOTES

ARTICLE 1827. The creditors of the partnership shall be preferred to
those of each partner as regards
the partnership property. Without prejudice to this right, the
private creditors of each partner may ask the attachment and
public sale of the share of the latter in the partnership asset.

ARTICLE 1839. In settling accounts between the partners after

dissolution, the following rules shall
be observed, subject to any agreement to the contrary:
(10) The assets of the partnership are:
a. The partnership property;
b. The contributions of the partners necessary the
payment of all the liabilities specified in No. 2.
(11) The liabilities of the partnership shall rank in order of
payment, as follows:
a. Those owing to creditors other than partners;
b. Those owing to partners other than for capital and
profits;
c. Those owing to partners in respect of capital;
d. Those owing to partners in respect of profits.
(12) The assets shall be applied in the order of their
declaration in No. 1 of this article to the satisfaction of the
liabilities.
(13) The partners shall contribute, as provided by Article
1797, the amount necessary to satisfy the liabilities.
(14) An assignee for the benefit of creditors or any per- son
appointed by the court shall have the right to enforce the
contributions specified in the preceding number.
(15) Any partner or his legal representative shall have the
right to enforce the contributions specified in No. 4, to the
extent of the amount which he has paid in excess of his
share of the liability.

AGENCY NOV 19 RECIT GUIDE/NOTES

(16) The individual property of a deceased partner shall be
liable for the contributions specified in No. 4.
(17) When partnership property and the individual properties
of the partners are in possession of a court for distribution,
partnership creditors shall have priority on partnership
property and separate creditors on individual property,
saving the rights of lien or secured creditors.
(18) Where a partner has become insolvent or his estate is
insolvent, the claims against his separate property shall
rank in the following order:
a. Those owing to separate creditors;
b. Those owing to partnership creditors;
c. Those owing to partners by way of contribution.

Reason for the Preference of Partnership Creditors

After all, the partnership is a juridical person with whom the creditors have
contracted. Moreover, the assets of the partnership must first be exhausted

Reason Why Individual Creditors May Still Attach the Partners Share

After all, the remainder (after paying partnership obligations) really belongs
to the partners

NOTE: the purchaser at the public sale does not necessarily become a
partner

Sale by a Partner of His Share to a Third Party

If a partner sells his share to a third party, but the firm itself remains
solvent, creditors of the partnership cannot assail the validity of the sale by
alleging that it is made in fraud of them, since they have not really been
prejudiced.

Order of Payment of Firms liabilities

AGENCY NOV 19 RECIT GUIDE/NOTES

First give to creditors (who are strangers), otherwise they may be

prejudiced.

Right of Expelled Partner

ARTICLE 1837. When dissolution is caused in any way, except in
contravention of the partnership
agreement, each partner, as against his co-partners and all
persons claiming through them in respect of their interests in
the partnership, unless otherwise agreed, may have the
partnership property applied to discharge its liabilities, and
the surplus applied to pay in case but the net amount owing to
the respective partners. But if dissolution is caused by
expulsion of a partner, bona fide under the partnership
agreement and if the expelled partner is discharged from all
partnership liabilities, either by payment or agreement under
the second paragraph of Article 1835, he shall receive in cash
only the net amount due him from the partnership.
When dissolution is caused in contravention of the partnership
agreement the rights of the partners shall be as follows:
(1) Each partner who has not caused dissolution wrongfully
shall have:
a. All the rights specified in the first paragraph of this
article, and
b. The right, as against each partner who has caused the
dissolution wrongfully, to damages for breach of the
agreement.
(2) The partners who have not caused the dissolution
wrongfully, if they all desire to continue the business in the
same name either by themselves or jointly with others, may
do so, during the agreed term for the partnership and for
that purpose may possess the partnership property,
provided they secure the payment by bond approved by the
court, or pay to any partner who has caused the dissolution
wrongfully, the value of his interest in the partnership at
the dissolution, less any damages recoverable under the
second paragraph, No. 1(b) of this article, and in like
manner indemnify him against all present or future
partnership liabilities.

AGENCY NOV 19 RECIT GUIDE/NOTES

(3) A partner who has caused the dissolution wrong- fully
shall have:
a. If the business is not continued under the pro- visions
of the second paragraph, No. 2, all the rights of a
partner under the first paragraph, subject to liability
for damages in the second paragraph, No. 1(b), of this
article.
b. If the business is continued under the second
paragraph, No. 2, of this article, the right as against
his co-partners and all claiming through them in
respect of their interests in the partnership, to have
the value of his interest in the partnership, less any
damage caused to his co-partners by the dissolution,
ascertained and paid to him in cash, or the payment
secured by a bond approved by the court, and to be
released from all existing liabilities of the partnership;
but in ascertaining the value of the partners interest
the value of the goodwill of the business shall not be
considered.

Two Aspects of Causes of Dissolution

although the partnership contract is NOT VIOLATED

o the rights of partners are governed by the First Paragraph of this
article

because the partnership contract is VIOLATED

o the rights of the partners here are governed but the second paragraph
of the article

Better Rights for Innocent Partners

Note that innocent partners have better rights than guilty partners and that
the latter are required to indemnify for the damages caused.

Right of Innocent Partners to Continue

AGENCY NOV 19 RECIT GUIDE/NOTES

Note also that the innocent partners may continue the business (but this
time, ther eis really a new partnership)

They can even use the same firm name if they wish to; moreover, they can
ask new members to join, BUT always the right granted to the guilty
partners are safeguarded by:
o A BOND approved by the court
o A PAYMENT of his interest at the time of dissolution minus damages
(moreover, the guilty partner who is excluded will be indemnified
against all PRESENT or FUTURE partnership liabilities. This is because
he is no longer a partner.

Right to Get Cash

in case of non-continuance of the business, the interest of the partner should

if he desires by given in CASH

NOTE: The right given to each partner, where no agreement to the contrary
has been made to have his share of the surplus paid to him in CASH makes
certain an existing uncertainty. At present it is not certain whether a partner
remaining after third persons have been paid.

No Share in Goodwill for Guilty Partner

A guilty partner, in ascertaining the value of his interest is NOT entitled to a

proportionate share of the value of the GOODWILL. (this is necessary
consequence of his bad faith)

NOTE: The deprivation of his share in the goodwill is not unconstitutional and
cannot be considered as unlawful taking of property without due process of
law

Partner Wrongfully Excluded

When a partner is excluded wrongfully, he should be considered as the

innocent partner, and the others as the guilty partners. It is now said that
other partners must account not only for that is due to him at the date of
the dissolution but also for damages or for his share of the profits realized
from the appropriation of the partnership business and good will. It is

AGENCY NOV 19 RECIT GUIDE/NOTES

otherwise if the excluded partner had substantially broken the partnership
agreement.

Indeed he has a pecuniary interest in every existing contract that was

incomplete and in the trade name of the co-partnership and assets at the
time he was wrongfully expelled.

Division of Losses

Although such things as depreciation, obsolescence or diminished market

value of capital assets are not strictly speaking to be considered losses
because they merely constitute a decrease in capital assets (and not the
result of business transactions) still they should in fairness be considered as
losses, and the rules on losses must apply, provided that their real market
values at the time of liquidation are the values considered.

LICHUACO v LICHUACO
33 Phil 350

SINGSONG v ISABELA SAWMILL

88 SCRA 623

VII.

Limited Partnership

ARTICLE 1843. A limited partnership is one formed by two or more

persons under the provisions of
the following article, having as members one or more general
partners and one or more limited partners. The limited
partners as such shall not be bound by the obligations of the
partnership.
ARTICLE 1844. Two or more persons desiring to form a limited
partnership shall:
(1) Sign and swear to a certificate which shall state

AGENCY NOV 19 RECIT GUIDE/NOTES

a. The name of the partnership, adding thereto the word
Limited;
b. The character of the business;
c. The location of the principal place of business;
d. The name and place of residence of each member,
general and limited partners being respectively
designated;
e. The term for which the partnership is to exist;
f. The amount of cash and a description of and the
agreed value of the other property contributed by
each limited partner;
g. The additional contributions, if any, to be made by
each limited partner and the times 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 of his contribution;
j. The right, if given, of a limited partner to substitute an
assignee as contributor in his place, and the terms and
conditions of the substitution;
k. The right, if given, of the partners to admit additional
limited partners;
l. The right, if given, of one or more of the limited
partners to priority over other limited partners, as to
contributions or as to compensation by way of income,
and the nature of such priority;
m.The right, if given, of the remaining general partner or
partners to continue the business on the death,
retirement, civil interdiction, insanity or insolvency of
a general partner; and
n. The right, if given, of a limited partner to demand and
receive property other than cash in return for his
contribution.
(2)File for record the certificate in the Office of the Securities
and Exchange Commission.
A limited partnership is formed if there has been substantial
compliance in good faith with the foregoing requirements.
ARTICLE 1845. The contributions of a limited partner may be cash or
other property, but not
services.
ARTICLE 1846. The surname of a limited partner shall not appear in the
partnership name unless:
(1) It is also the surname of a general partner, or
(2) Prior to the time when the limited partner became such,

AGENCY NOV 19 RECIT GUIDE/NOTES

the business had been carried on under a name in which his
surname appeared.
A limited partner whose surname appears in a partner- ship
name contrary to the provisions of the first paragraph is liable
as a general partner to partnership creditors who extend
credit to the partnership without actual knowledge that he is
not a general partner.
ARTICLE 1847. If the certificate contains a false statement, one who
suffers loss by reliance on such
statement may hold liable any party to the certificate who
knew the statement to be false:
(1) At the time he signed the certificate, or
(2) Subsequently, but within a sufficient time before the
statement was relied upon to enable him to cancel or amend
the certificate, or to file a petition for its cancellation or
amendment as provided in Article 1865.
ARTICLE 1848. A limited partner shall not become liable as a general
partner unless, in addition to
the exercise of his rights and powers as a limited partner, he
takes part in the control of the business.
ARTICLE 1849. After the formation of a limited partnership, additional
limited partners may be
admitted upon filing an amendment to the original certificate
in accordance with the requirements of Article 1865.
ARTICLE 1850. A general partner shall have all the rights and powers and
be subject to all the
restrictions and liabilities of a partner in a partnership without
limited partners. However, without the written consent or
ratification of the specific act by all the limited partners, a
general partner or all of the general partners have no
authority to: (1) Do any act in contravention of the certificate;
(2) Do any act which would make it impossible to carry on the
ordinary business of the partnership;
(3) Confess a judgment against the partnership;
(4) Possess partnership property, or assign their rights in
specific partnership property, for other than a partner- ship
purpose;
(5) Admit a person as a general partner;
(6) Admit a person as a limited partner, unless the right so to
do is given in the certificate;
(7) Continue the business with partnership property on the
death, retirement, insanity, civil interdiction or in- solvency of
a general partner, unless the right so to do is given in the
certificate.

AGENCY NOV 19 RECIT GUIDE/NOTES

ARTICLE 1851. A limited partner shall have the same rights as a general
partner to:
(1) Have the partnership books kept at the principal place of
business of the partnership, and at a reasonable hour to
inspect and copy any of them;
(2) Have on demand true and full information of all things
affecting the partnership, and a formal account of
partnership affairs whenever circumstances render it just
and reasonable; and
(3) Have dissolution and winding up by decree of court.
A limited partner shall have the right to receive a share of the
profits or other compensation by way of income, and to the
return of his contribution as provided in Articles 1856 and
1857.
ARTICLE 1852. Without prejudice to the provisions of article 1848, a
person who has contributed to
the capital of a business conducted by a person or partnership
erroneously believing that he has become a limited partner in
a limited partnership, is not by reason of his exercise of the
rights of a limited partner, a general partner with the person
or in the partnership carrying on the business, or bound by the
obligations of such person or partnership, provided that on
ascertaining the mistake he promptly renounces his interest in
the profits of the business, or other compensation by way of
income.
ARTICLE 1853. A person may be a general partner and a limited partner
in the same partnership at
the same time, provided that this fact shall be stated in the
certificate provided for in Article 1844.
A person who is a general, and also at the same time a limited
partner, shall have all the rights and powers and be subject to
all the restrictions of a general partner; except that, in respect
to his contribution, he shall have the rights against the other
members which he would have had if he were not also a
general partner.
ARTICLE 1854. A limited partner also may loan money to and transact
other business with the
partnership, and, unless he is also a general partner, receive
on account of resulting claims against the partnership, with
general creditors, a pro rata share of the assets. No limited
partner shall in respect to any such claim:
(1) Receive or hold as collateral security any partner- ship
property, or;
(2) Receive from a general partner or the partnership any

AGENCY NOV 19 RECIT GUIDE/NOTES

payment, conveyance, or release from liability, if at the time
the assets of the partnership are not sufficient to discharge
partnership liabilities to persons not claiming as general or
limited partners.
The receiving of collateral security, or payment, conveyance,
or release in violation of the foregoing provisions is a fraud on
the creditors of the partnership.
ARTICLE 1855. Where there are several limited partners the members
may agree that one or more
of the limited partners shall have a priority over other limited
partners as to the return of their contributions, as to their
compensation by way of income, or as to any other matter. If
such an agreement is made it shall be stated in the certificate,
and in the absence of such a statement all the limited partners
shall stand upon equal footing.
ARTICLE 1856. A limited partner may receive from the partnership the
share of the profits or the
compensation by way of income stipulated for in the
certificate; provided, that after such payment is made,
whether from the property of the partnership or that of a
general partner, the partner- ship assets are in excess of all
liabilities of the partnership except liabilities to limited
partners on account of their contributions and to general
partners.
ARTICLE 1857. A limited partner shall not receive from a general partner
or out of partnership
property any part of his contributions until:
(1) All liabilities of the partnership, except liabilities to
general partners and to limited partners on account of their
contributions, have been paid or there remains property of
the partnership sufficient to pay them;
(2) The consent of all members is had, unless the re- turn of
the contribution may be rightfully demanded under the
provisions of the second paragraph; and
(3) The certificate is canceled or so amended as to set forth
the withdrawal or reduction.
Subject to the provisions of the first paragraph, a limited
partner may rightfully demand the return of his contribution:
(1) On the dissolution of a partnership, or
(2) When the date specified in the certificate for its return
has arrived, or
(3) After he has given a months notice in writing to all other
members, if no time is specified in the certificate, either for
the return of the contribution or for the dissolution of the
partnership.

AGENCY NOV 19 RECIT GUIDE/NOTES

In the absence of any statement in the certificate to the
contrary or the consent of all members, a limited partner,
irrespective of the nature of his contribution has only the right
to demand and receive cash in return for his contribution.
A limited partner may have the partnership dissolved and its
affairs wound up when:
(1) He rightfully but unsuccessfully demands the re- turn of his
contribution, or
(2) The other liabilities of the partnership have not been paid,
or the partnership property is insufficient for their payment as
required by the first paragraph, No. 1, and the limited partner
would otherwise be entitled to the return of his contribution.
ARTICLE 1858. A limited partner is liable to the partnership:
(1) For the difference between his contribution as actually
made and that stated in the certificate as having been
made, and
(2) For any unpaid contribution which he agreed in the
certificate to make in the future at the time and on the
conditions stated in the certificate.
A limited partner holds as trustee for the partnership:
(1) Specific property stated in the certificate as contributed
by him, but which was not contributed or which has been
wrongfully returned, and
(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 shall not affect the
right of a creditor of a partnership who extended credit or
whose claim arose after the filing and before a cancellation or
amendment of the certificate, to enforce such liabilities.
When a contributor has rightfully received the return in whole
or in part of the capital of his contribution, he is nevertheless
liable to the partnership for any sum, not in excess of such
return with interest, necessary to discharge its liabilities to all
creditors who extended credit or whose claims arose before
such return.
ARTICLE 1859. A limited partners interest is assignable. A substituted
limited partner is a person
admitted to all the rights of a limited partner who has died or
has as- signed his interest in a partnership.
An assignee, who does not become a substituted limited
partner, has no right to require any information or account of
the partnership transaction or to inspect the partnership
books; he is only entitled to receive the share of the profits or
other compensation by way of income, or the return of his

AGENCY NOV 19 RECIT GUIDE/NOTES

contribution, to which his assignor would otherwise be
entitled.
An assignee shall have the right to become a substituted
limited partner if all the members consent thereto or if the
assignor, being thereunto empowered by the certificate, gives
the assignee that right.
An assignee becomes a substituted limited partner when the
certificate is appropriately amended in accordance with Article
1865.
The substituted limited partner has all the rights and powers,
and is subject to all the restrictions and liabilities of his
assignor, except those liabilities of which he was ignorant at
the time he became a limited partner and which could not be
ascertained from the certificate.
The substitution of the assignee as a limited partner does not
release the assignor from liability to the partner- ship under
Articles 1847 and 1858.
ARTICLE 1860. The retirement, death, insolvency, insanity or civil
interdiction of a general partner
dissolves the partnership, unless the business is continued by
the remaining general partners:
(1) Under a right so to do stated in the certificate, or
(2) With the consent of all members.
ARTICLE 1861. On the death of a limited partner his executor or
administrator shall have the rights
of a limited partner for the purpose of settling his estate and
such power as the deceased had to constitute his assignee a
substituted limited partner.
The estate of a deceased limited partner shall be liable for all
his liabilities as a limited partner.
ARTICLE 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.

AGENCY NOV 19 RECIT GUIDE/NOTES

ARTICLE 1863. In settling accounts after dissolution the li- abilities of the
partnership shall be
entitled to payment in the following order:
(1) Those to creditors, in the order of priority as pro- vided
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 to 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 proportion to the respective
amounts of such claims.
ARTICLE 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 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 a 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 partner- ship, 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.

AGENCY NOV 19 RECIT GUIDE/NOTES

ARTICLE 1865. The writing to amend a certificate shall:
(1) Conform to the requirement 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 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 filed for record in
said office a certified copy of its decree setting forth the
amendment.
A certificate is amended or cancelled when there is filed 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 of court 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.
ARTICLE 1866. A contributor, unless he is a general partner, is not a
proper party to proceeding by or
against a partnership, except where the object is to enforce a
limited partners 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 pro- visions 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

AGENCY NOV 19 RECIT GUIDE/NOTES

(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.
Requisites in the Formation of a Limited Partnership

Signing under oath of the required certificate (with all the enumerated
items; and

Filing for the record of the certificate in the office of the SEC

Non-Fulfillment of the requisites

If the proposed limited partnership has not conformed substantially with the
requirements of this article, as when the name of not one of the general
partners appear in the firm name, it is not considered a limited partnership
but a general partnership.

A firm transacting business as a partnership is presumed to be a general

partnership.

Effect of only aggregate contribution is stated

The law says the contribution of each limited partner must be stated.
Therefore if the aggregate sum given by two or more limited partners is
given, the law has not been complied with.

Effect of Omitting the Term limited in the Firm name

the law requires the firm name to have the word Limited

if this provision is violated, the name cannot be considered the firm name of
a limited partnership

What the Limited Partner Can Contribute

AGENCY NOV 19 RECIT GUIDE/NOTES

not allowed to contribute industry or services alone

Industrial Partner can Join

an industrial partner can become a general partner in a limited partnership,

for the article speaks only of a limited partner

Non-inclusion of Name of the Limited Partner

a limited partner violating article 1846 is liable as a general partner to

innocent third parties, without however the rights of a general partner.

Liability for a False Statement

the person who suffers loss can sue for damages

Effect of Taking part in the control of the business

The ff acts do not constitute taking part in the control of the business
o Mere dealing with a customer
o Mere consultation on one occasion with the general partners

The ff have been held to constitute taking part in the control of the
business
o Selection of who will be the managing partners
o Supervision over a superintendent of the business of the firm

Participation in the control of the business makes the limited partner liable
as a general partner without however getting the latters rights

When additional limited partners may be admitted

AGENCY NOV 19 RECIT GUIDE/NOTES

Note that even after a limited partnership has already been formed, the firm
may still admit new limited partners, provided there is a proper amendment
to the certificate

Effect of Failure to Amend

If additional limited partners are takin in, without proper amendment of

certificate with the SEC, this does not necessarily mean the dissolution of
the limited partnership

Acts of Strict Dominion

Note that as a rule, in the instances enumerated, the general partners must
still get the written CONSENT or RATIFICATION of ALL the limited partners

Reason: in a sense the acts are acts of strict dominion or ownership, and are
not generally essential for the routine or ordinary conduct of the firms
business

Conflicts Rule Governing Capacity of the Limited Partner

If a general partner in a limited partnership goes abroad, his capacity to bind

the firm is governed by the law of the place where the limited partnership
was formed.

Rights of a Limited Partner

A limited partner necessarily has lesser rights than a general partner. There
rights are enumerated in the article

Note however that among other things he also has the right to have
dissolution and winding up by decree of the court

He cannot however bind the firm by a contract.

When he becomes liable as a general partner

AGENCY NOV 19 RECIT GUIDE/NOTES

Unless on ascertaining the mistake, he promptly renounces his interest in

the profit of the business, or other compensation by way of income; or

Unless even if no such renouncing is made, partnership creditors are NOT

prejudiced

Limited Partner Who Participates in the Control Cannot Take Advantage

of the Article

The person referred to under Art 1848 cannot take advantage, naturally, of
Art 1852.

General Limited Partner

Note that a person may be a general and a limited partner at the same time,
provided same is stated in the certificate.

Rights

Generally, his rights are those of a general partner

EXCEPTION: Regarding his contribution he would be considered a limited

partner, with the rights of a limited partner, insofar as the other partners are
concerned.

Right of Limited Partner to Lend Money and Transact Other Business with
the Firm

Note that 3rd parties are always given preferential rights insofar as the firms
assets are concerned

Note also that while the limited partner, in the case of a claim referred to in
the article, is prohibited to receive or hold as COLLATERAL SECURITY any
partnership property, still he if not prohibited to purchase partnership
assets which are used to satisfy partnership obligations towards third
parties.

AGENCY NOV 19 RECIT GUIDE/NOTES

Preference to some limited partners

Note that preference can be given to some limited partners over the other
limited partners

However, the preference must be stated in the certificate

Nature of the Preference

Preference may involve:

o The return of contributions;
o Compensation
o Other matters

Profit or Compensation of Limited Partners

Whereas Art 1856 speaks of profit or compensation by way of income, Art

1857 deals generally with the return of the contributions.

Note that Art 1856 to apply, partnership assets must be in excess of

partnership liabilities to 3rd persons, not liabilities to partners.

When Contributions of Limited Partners Can be Returned (Art 1857)

1st paragraph deals with CONDITIONS that must exist before contributions
(or part thereof) by a limited partner can be returned to him

2nd paragraph deals with the TIME when such contributions can be returned,
provided that the conditions are complied with.

Note that as a rule, even if a limited partner has contributed property, he

has the right to demand and receive CASH in return.

If 1st paragraph is violated, previous creditors can sue, but they must allege
and prove the non-existence of the CONDITIONS. Among these in the same
category as previous creditor is the assignee in insolvency of a bankrupt
limited partnership.

AGENCY NOV 19 RECIT GUIDE/NOTES

Liability of a Limited Partner Who Has Withdrawn

Future creditors cannot make use of the principle enunciated in the abovecited case in view of the recorded amended certificate, except of course if
the money had been wrongfully returned to the limited partner.

Liabilities of a Limited Partner

A and B are limited partners of a partnership. In the certificate, it was stated

that A contributed P1.8 million when as a matter of fact he had given only
P1.5 million. In the certificate too is a promise made by B to pay P200,000
additional contribution on Dec 1, 20014. Should A and B make good the
P300,000 and P200,000 respectively?
o Yes, A should pay now; B on Dec 1, 2004

May the liabilities in the preceding problem be waived or compromised?

o Yes, but two conditions must be followed:

All the other partners must agree

Innocent third party creditors must not be prejudiced. They are

innocent when their claim for extension of credit was before the
cancellation or amendment of the certificate.

Assignment of a Limited Partners Interest

Does the assignee of the interest of the limited partner become necessarily
a substitute partner?
o No.

In some cases, he becomes one.

In others, he remains a mere assignee.

Substituted Limited Partner

AGENCY NOV 19 RECIT GUIDE/NOTES

he is a person admitted to all the rights of a limited partner who has died or
has assigned his interest in a partnership.

Some Causes for the Dissolution of a Limited Partnership

DRICI
o D death
o R retirement
o I insolvency
o C civil interdiction
o I insanity of a GENERAL partner

Death of a Limited Partner

A, a limited partner, while still alive contracted certain liabilities as such. Is

his estate liable for them?
o Yes. (2nd par. Art 1861)

Payment of Liabilities of the Limited Partnership

Notice that profits are given priority over capital.

Cancellation

When the partnership is dissolved, or when all the limited partners cease to
be limited partners, the certificate shall be cancelled, not merely amended.
This is obvious for if there be no more limited partners, the limited
partnership cannot exist as such. The writing to cancel a certificate shall be
signed by all members.

SEC OPINION ADDRESSED TO ROMULO MABANTA

AGENCY NOV 19 RECIT GUIDE/NOTES

NAJIM v DE MESA

TRUST

I.

DEFINITION

ARTICLE 1442. The principles of the general law of trusts, insofar as they
are not in conflict with this Code, the Code of Commerce, the Rules of
Court and special laws are hereby adopted

Suppletory Effect of the General Law of Trusts

The principles of the general law of trusts are merely suppletory

Comment of the Code Commission

This Article incorporates a large part of the American law on trusts, and
thereby the Philippine Legal System will be amplified and will be rendered
more suited to a just and equitable solution of many questions.

Anglo-American Precedents

II.

As the law of trust has been much more frequently applied in the UA and in
England than it has in Spain, such may be drawn freely upon AngloAmerican precedents. This is particularly so, because Anglo-American trusts
are derived from Roman and Civil Law nations.

PARTIES

AGENCY NOV 19 RECIT GUIDE/NOTES

ARTICLE 1440. A person who established a trust is called the trustor; one
in whom confidence is reposed as regards the property for the benefit of
another person is known as the trustee; and the person for whose
benefit the trust has been created is referred to as the beneficiary.

Trustor

The person who establishes a trust (referred to in common-law

parlance as grantor settlor or founder

Trustee

The person in whom confidence is reposed as regards the property

placed in trust (referred to as the corpus); it is the trustee who
assumes certain duties relating to the res or the trust property
with respect to the person for whose benefit the trust is created

Beneficiar
y

The person for whose benefit the trust has been created (Cestui
que trust)

Elements of a Trust

Parties to the trust

the trust property or the trust estate or the subject matter of the trust

SALAO v SALAO
70 SCRA 168

MINDANAO DEVELOPMENT AUTHORITY v CA

113 SCRA 429

AGENCY NOV 19 RECIT GUIDE/NOTES

ROA, JR v CA
123 SCRA 3