Limited Partnership

Art. 1843
Limited partnerships are formed by two or more persons
o Must have one or more general partners
o Must have one or more limited partners
Minimum Requirement = 1 GP + 1 LP
Limited partners are not bound by the obligations of the partnership

Art. 1844
Persons desiring to form a limited partnership shall do the following:
o Signing under oath of the required certificate enumerated in 1844
o File for record the certificate in the SEC
A limited partnership is formed so long as there is substantial compliance in good faith
with the requirements
If there is no substantial compliance, it shall not be considered a limited partnership;
HOWEVER, it shall still be considered a general partnership
The presumption is that a firm transacting business as a partnership is a general
partnership
Stating the aggregate contribution of the limited partners is not much. The law requires
that each limited partner must state their contribution.

Art. 1845
The limited partner can contribute either cash or property
However, he is not allowed to contribute industry or services
An industrial partner can become a general partner in a limited partnership, but never a
limited partner.

Art. 1846
The surname of a limited partner shall not appear in the partnership name
Exceptions to the rule:
o It is also the surname of a general partner
o Before he became limited partner, the business was under a name in which his
surname appeared
If the surname of a limited partner appears in a partnership name, the limited partner is
liable as a general partner with regard to partnership creditors who do not know that he
is only a limited partner.
The limited partner does not gain the rights of a partner despite appearing in the firm
name. Only his liability is affected.

Art. 1847
A person who suffers loss due to a false statement in the certificate which he relied on
may hold any party liable to the certificate, so long as he knew the statement was false:
o He knew it was false at the time he signed the certificate
 o After signing the certificate, he found out of its falsity and had sufficient time to
cancel or amend the certificate

Art. 1848
A limited partner can also be a general partner in the same time
This happens when the limited partner, aside from exercising his rights and powers, takes
part in the control of the business
o Dealing with a customer or mere consultation in one occasion does not constitute
part in the control of the business
o Selection of who will be the managing partners or supervision over a
superintendent of the business constitutes part in the control of the business
The limited partners participation does not confer him the general partners rights. He
simply becomes liable as a general partner.

Art. 1849
By simply amending the original certificate, additional limited partners may be admitted
in the already existing limited partnership.
Failure to amend does not ipso facto dissolve the limited partnership.

Art. 1850
Under the circumstances in 1850, the general partners, despite unanimity, must still get
the written consent or ratification of ALL the limited partners.
Acts of strict dominion need the consent of all partners, regardless if general or limited.

Art. 1851
A limited partner shall have the same rights as a general partner to do the following:
o 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
o 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
o Have dissolution and winding up by decree of court
A limited partner has lesser rights than the general partner.
Still, he has a right to judicial dissolution and winding up of the firm.
He cannot bind the firm to a contract.
He is entitled to receive a share of the profits by way of income and to the return of his
contribution.

Art. 1852
A person who has contributed to the capital of the business but erroneously believed that
he is a limited partner, even exercising the rights of such, cannot be held liable as a
general partner
However, he may still be held liable as a general partner if:
 o He promptly renounces his interest in the profits of the business, or other
compensation by way of income
o Even if no such renouncement is made, partnership creditors are not prejudiced

Art. 1853
A person may be both a general and limited partner at the same time, provided that this
is stated in the certificate.
He shall have the rights, powers and restrictions of a general power; however, his
contribution shall be considered that of a limited partner, insofar as the other partners
are concerned.

Art. 1854
A limited partner may loan money to and transact other business with the partnership
Unless he is a general partner, he is entitled to receive on account of resulting claims
against the partnership, with general creditors, a pro rata shares of the assets.
The limited partner is not allowed to receive or hold as collateral security any partnership
property.

Art. 1855
Limited partners may agree that one or more of the limited partners shall have a priority
over other limited partners: (1) as to return of their contributions; (2) as to their
compensation by way of income, or (3) as to any other matter
Such agreement must be stated in the certificate; without it, the limited partners are in
equal footing with one another.

Art. 1856
A limited partner may receive from the partnership the compensation by way of income
provided that after such payment is made, the partnership assets are in excess of all
liabilities of the partnership.
For profit or compensation by way of income be made to limited partners, the
partnership assets must be in excess of partnership liabilities as to third persons

Art. 1857
A limited partner will not receive from the general partner or partnership property any of
his contributions until any of the following happens:
o All liabilities of the partnership have been paid or there remains property of the
partnership sufficient to pay them
o Consent of all members is had
o Certificate is cancelled or so amended as to set forth the withdrawal or reduction
A limited partner may rightfully demand the return of his contributions, subject to the
aforementioned situations:
o Dissolution of the partnership
o When the date specified for its return in the certificate has arrived
 o After giving a months notice to the members either for the return of the
contribution or for the dissolution of the partnership
A limited partner, irrespective of the nature of his contributions, has only the right to
demand and receive cash in return for his contributions. Even if the limited partner
contributed property, he may demand to receive cash in return.
A limited partner may have the partnership dissolved when:
o He rightfully but unsuccessfully demand the return of his contributions
o The other liabilities of the partnership have not been paid, or the partnership
property is insufficient for their payment
There are instances when the limited partner successfully withdraws his contributions
and it may be used as a trust fund for the discharge of the liabilities of the partnership
due to its insolvency.

Art. 1858
A limited partner is liable to the partnership for the following:
o For the difference between his contribution stated in the certificate and that
actually made
o For any unpaid contribution which he agreed in the certificate which he wil make
in the future time
A limited partner holds as trustee for the partnership:
o Specific property stated in the certificate as contributed by the limited partner
but which was not contributed
o Money or other property wrongfully paid or conveyed to him on account of his
contribution
The liabilities of the limited partner may be waived or compromised only by the consent
of all members; however, this shall not affect the right of a creditor who extended credit
or whose claim arose after the filing and before cancellation to enforce such liabilities
Q: A, a limited partner, received the return of his contribution on the date stated in the
certificate. It was discovered that the remaining assets were insufficient to pay two
creditors, X and Y. Xs claim arose before the return; Ys claim arose after the return.
Should A be compelled to give back what he had received?
A: We must distinguish:
o Xs claim should be satisfied out of what has been re- turned to A.
Reason: Xs claim arose before the return. If there is a balance, it should
be returned to A. If there is a deficit, A is not liable for this because he is
only a limited partner.
o Ys claim does not have to be satisfied from what has been returned to A as
contribution.
Reason: His claim arose after the return. Ys claim should be directed
against the general partners.
Art. 1859
A limited partners interest may be assigned to another.
A substituted limited partner is a person admitted to all the rights of a limited partner
who has either died or has assigned his interest in a partnership.
 An assignee may or may not be a limited partner. It would depend.
The assignee will be a substituted limited partner if all the members consent or if the
assignor gives the assignee that right.
An assignee becomes a substituted limited partner when the certificate is properly
amended.
If he is just a mere assignee, he will not have the rights of the limited partner. However,
he has the right to receive the share or profits or compensation by way of income to
which his assignor would otherwise be entitled.
A substituted limited partner is responsible for the liabilities of his assignor except
those which he was ignorant to and which he cannot ascertain through the certificate
A limited partner who assigns his interest shall be relieved from liability except as to
Articles 1847 and 1858.

Art. 1860
DRICI
o Death
o Retirement
o Insolvency
o Civil Interdiction
o Insanity
The DRICI of the general partner dissolved the partnership unless the business is
continued by the remaining general partners. This must be clearly indicated in the
certificate. Furthermore, it must be consented by all the members.
The limited partner cannot continue the business.

Art. 1861
On the death of the limited partner, his executor or administrator shall have the rights
of a limited partner for the purpose of settling his estate
He shall also have the power 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.

Art. 1862
The creditor/s of a limited partner, through court application, may charge the interest
of the latters debt with the separate property of any general partner but not of the
partnership property.

Art. 1863
After dissolution, the liabilities of the limited partnership shall be paid in the following
order:
o Creditors in the order of priority under the law
o Limited partners in respect to their profits
o Limited partners in respect to the capital of their contributions
o General partners other than to capital and profits
 o General partners in respect to profits
o General partners in respect to capital

Art. 1864
Upon dissolution of the partnership, the certificate shall be cancelled
The certificate shall be amended among those enumerated in Art. 1864

Art. 1865
Under this provision, the requisites for amending or cancelling the certificate is present.

Art. 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

Art. 1867
A limited partnership formed before the effectivity of the Civil Code may be considered
a limited partnership under the new law so long as they comply with the requirements
Should they not desire to transition, the old law shall apply.

AGENCY

Nature, Form and Kinds of Agency

Art. 1868
By the contract of agency, a person binds himself to render some service or to do
something in representation or on behalf of another, with the consent or authority of
the latter.
An agency may be defined as a contract either express or implied upon a consideration,
or a gratuitous undertaking, by which one of the parties confides to the other, the
management of some business to be transacted in his name or on his account, and by
which that other assumes to do the business and renders and account of it.
A contract of agency is principal, nominate, bilateral, preparatory, commutative,
and generally onerous.
It is based on a fiduciary relation since it is based on trust and confidence.
Two parties to the contract are principal and agent.
The principal is whom the agent represents and from whom he derives authority; he is
the one primarily concerned in the contract
The agent is who acts or stands for another. Usually, he is given full or partial discretion,
but sometimes he acts under a specific command.
The principal must have capacity to act for himself so that he can act thru an agent. If
any special capacity is needed, it is the principal who must possess it and not the agent.
The principal may either be a natural or juridical person.
 It is enough that the principal is the one who has capacity, for generally, an agent
assumes no personal liability.
Even if a stranger contracted with a minor, it is valid so long as the principal is
capacitated.
Agency vs. Partnership
o An agent acts not for himself but for his principal
o A partner acts for himself, for himself, for his firm, and for his partners.
Agency vs. Loan
o An agent may be given funds by the principal to advance the principals business
o A borrower is given money for purposes of his own and he must generally return
it, whether or not his own business is successful.
Agency vs. Guardianship
o The agent represents a capacitated person.
o A guardian represents an incapacitated person.
Agency v. Judicial Administration
o Agent is appointed by the principal
o Judicial administrator is appointed by the court

Art. 1869
Agency may be express or implied
Implied is based from the acts of the principal, from his silence or lack of action, or his
failure to repudiate the agency, knowing that another person is acting on his behalf
without authority
Agency may be oral, unless otherwise provided by law

Art. 1870
Agents acceptance may either be express or implied

Art. 1871
Acceptance of the agency may also be implied if the principal delivers his power of
attorney to the agent and the latter receives it without any objection

Art. 1872
With persons who are absent, the acceptance of the agency cannot be implied from the
silence of the agent except when:
o When the principal transmits his power of attorney to the agent, who receives it
without any objection
o When the principal entrusts to him by letter or telegram a power of attorney
with respect to the business in which is engaged as an agent, and he did not
reply to the letter or telegram

Art. 1873
Other people may be informed of the existence of agency through either:
o Special information
 o Public advertisement
If the principal leads a third person to believe that he has an agent when a matter of
fact it is not true, and the agent acts on such misrepresentation, the principal cannot
disclaim liability for he has created an agency by estoppel

Art. 1874
The authority of the agent should be in writing if it involves a sale of a piece of land
otherwise, the sale is void.

Art. 1875
Agency is presumed to be onerous

Art. 1876
An agency may either be general or special.
A general agency comprises all the business of the principal.
A special agency comprises one or more specific transactions.

Art. 1877
A general agency comprises only acts of administration, even if the principal states that
he withholds no power or that the agent may execute such acts as he may consider
appropriate, or even authorize unlimited management
Acts of strict dominion require a special power of attorney. Acts of administration
cannot be covered by an agency couched in general terms.
Examples of Acts of Mere Administration:
o To sue for the collection of debts
o To employ workers or servants and employees needed for the conduct of a
business
o To engage counsel to preserve the ownership and possession of the principals
property
o To lease real property to another person for one year or less
In order to sell, an agent must have a special power of attorney, unless the act of selling
itself is part of administration, as in the case of the sale of goods in a retail store

Art. 1878
Special power of attorney is necessary in the following cases:
o Acts of strict dominion or ownership
o Gratuitous contracts
o Contracts where personal trust or confirdence is of the essence of the
agreement

Art. 1879

Obligations of the Agent

Art. 1884
The agent is bound by his acceptance to carry out the agency
He is also liable for the damages that the principal may suffer due to his non-
performance
If the principal dies, the agent must finish the business which he has been engaged to
do

Art. 1885
If the owner delivers to a certain person goods hoping that he becomes his principal and
he declines the agency, the person is bound to observe the diligence of a good father in
the custody and preservation of the goods until the owner is able to appoint an agent
The new agent or the owner shall take charge of the goods as soon as possible.

Art. 1886
If in the contract of agency, it says that the agent shall advance the funds needed, he is
bound to do so.
Exception: When the principal is insolvent.

Art. 1887
The agent shall always act in accordance with the principals instructions.

Art. 1888
An agent will not carry out the agency if the execution will result to loss or damages to
the principal.

Art. 1889
Should there be a conflict between the interests of the principal and the agent, the
latter shall be liable if he chooses his.

Art. 1890
If the agency was to borrow money, the agent may himself be the lender to the
principal.
If the borrowing of money involves interest, he cannot borrow from himself without the
consent of the principal.

Art. 1891
Every agent is bound to render an account of his transactions
He is also bound to deliver to the principal whatever he may have received because of
the agency, even though it may not be owing to the principal
Stipulations exempting the agent from rendering an account shall be void

Art. 1892
 The agent may appoint a substitute if the principal did not prohibit him
The agent shall be responsible for the acts of the substitute if:
o He was not given the power to appoint one
o When he was given such power, but without designating the person, and the
person appointed was notoriously incompetent or insolvent

Art. 1893
The principal may sue both the agent and the substitute for any obligations he has
contracted under the substitution.

Art. 1894
The responsibility of two or more agents is joint, unless otherwise provided.
This rule applies even if the appointment was done simultaneously.

Art. 1895
If there is solidarity between the agents, each of them is responsible for the non-
fulfillment of the agency and for the fault of his fellow agents provided it was within the
scope of his authority.
If the act performed which resulted to the non-fulfillment of the agency was done in
excess of his authority, he shall be solely liable.

Art. 1896
The agent owes interest on the sums he has applied to his own use from the day on
which he did so, and on those which he still owes after the extinguishment of the
agency.

Art. 1897
An agent is not liable so long he acts within the scope of his authority.
In case of acts by the agent in excess of authority, the principal cannot be bound unless
he ratifies the act.
If the agent obligates himself personally, aside from acting in behalf of his principal,
both are bound.

Art. 1898
If the agent contracts in the name of his principal and exceeds the scope of authority
provided, it shall be void if the third party is aware of the limits of the powers granted by
the principal.
The agent will be liable if he undertook to secure the principals ratification.

Art. 1899
If the principal was aware of the circumstances present, he cannot hold the agent liable
for ignorance.

Art. 1900
 As to third persons, an act made by the agent is deemed to have been performed within
the scope of his authority if such act was within the scope of the agents authority
Such act must be within the terms of the power of attorney
Must be written
The act is valid even if it exceeds the limits of his authority according to the
understanding between the principal and the agent

Art. 1901
A third person cannot set up excess of authority if the principal has ratified the same

Art. 1902