ARTICLE 1857

One of the Characteristics of Limited Partnerships

The limited partners may ask for the return of their capital contributions
under the conditions prescribed by law (1844[h], 1857)

Article 1857 contains the requisites for return of contribution to a limited partner.
These are:
1. The partnerships assets must be sufficient to pay all paid or unpaid
liabilities except the liabilities to limited partners on account of their
contributions and to general partners.
2. The consent of all the members (limited or general) has been obtained
except when the return can be rightfully demanded.
Rightfully demanded means that the return of contribution becomes a
matter of right of the limited partner. When can the limited partner demand
rightfully?
1. Upon the arrival of the date specified in the certificate for the return;
2. After the expiration of 6 months notice in writing given by him to the other
partners if no time is fixed in the certificate for the return of the contribution
or for the dissolution of the partnership.
3. On the dissolution of the partnership
It could be stated in the articles of partnershipby agreement or
stipulation.
It could be demanded by the limited partner asking for return of
contribution himself. Dissolution by judicial decree dissolution
enforced by the court of law
1. He rightfully but unsuccessfully demanded the return of his
contribution.
When his demand for the return of his contribution is denied
although he has a right to such return.
Example?
2. If he was entitled to receive his contribution and the certificate is
already amended but partnership assets are not sufficient to pay
off partnership creditors.
4. The certificate must be cancelled or amended as to set the
withdrawal or reduction of the contribution or as to reflect the return of
contribution to the limited partners.
In other words, the 2nd and 3rd condition is present thats why he
would have been entitled to the return of contribution if not for
the absence of the 1st condition.

Dissolution by the partnership

1. Ask the consent of all partners for dissolution
2. If partners doesnt consent, the limited partner may ask for
dissolution by judicial decree.

Example from book:

After operating for some time as a limited partnership, X & Co.,composed of A, B,
and C, as general partners, who contributed 30,000 each, and D and E, as limited
partners, who contributed 20,000 each, has a total assets of 150,000, and the
following liabilities:
1. For return of contributions of limited partners (D & E)
40,000
2. Due to third party creditors
50,000
3. For loan extended by C (general)
25,000
4. For loan extended by D (LIM)
35,000
5. For taxes
15,000
6. For indemnity to B for damages suffered in consequence of mgt
5,000
Total----------------------------------------------------------------------------------------170,000
May E legally demand the return of his contribution, assuming that all the
partners have given their consent (2nd condition) and are willing to have the
certificate amended as to set forth the withdrawal? (3 rd condition)
Yes. The total assets of 150,000 is sufficient to pay the 100,000 liabilities, the
total of 2,4 and 5. The other liabilities are not considered in determining whether
the contribution E can be returned to him.

ARTICLE 1858
Liabilities of a limited partner
As limited partners are not principals in the transaction of a partnership, their
liability except for known false statement in the partnership (Art 1847), is to the
partnership, not to the creditors of the partnership (art 1866)
1. Liability on unpaid contribution
a. For the difference between his contribution actually made and that stated
in the certificate as having been made.
Not only that but also:
b. Any unpaid contribution he agreed to make at future time and at the
conditions stated in the certificate.

Example: blank A and blank B- limited partners of a partnership

In the certificate, A contributed 20,000 but in fact only contributed 15,000.
Then B promised to give an additional contribution of 5,000 next month.
Which means A must pay his liability of the difference of 5,000 now and B
mas also give the 5,000 liability next month.
2. Liability as a trustee
As defined by other reporters, a trustee is an individual person or member of
a board given control or powers of administration of property in trust with a
legal obligation to administer it solely for the purposes specified.
And in the case of a limited partner wherein:
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.
Note however that under third paragraph, the liabilities of a limited partner may be
waived or compromised provided that:
1. Theres a consent of all the partners
2. The waiver or compromise doesnt prejudice partnership creditors who
extended credit or whose claims arose before the cancellation or
amendment of the certificate.(take note)
Example: before certificate amendment
What if, after? No they cannot enforce the liabilities of A and B.
Going back to liability as a trustee kumbaga these are done wrongfully. Di ba?
What if? Going back to article 1857 wherein the ______lawfully received his return
of contribution but then the partnership needs it to finish paying off ___, a creditor.
Pwede ba yon?
Yes as long as the claim came into existence before the return of contribution.
______ then would be liable for the said amount plus interest but his liability, of
course, cannot exceed the sum received by him with interest.
ARTICLE 1859
One difference
A general partners interest in the partnership may not be assigned as to make the
assignee a new partner without the consent of the other partners (Art 1813)
although he may associate a third person with him in his share (1804) while the
limited partners interest is freely assignable; with the assignee acquiring all the
rights of the limited partner subject to certain qualifications (Art 1859)
The reason behind this is that: A limited partner causes no rupture of the
partnership business by his assignment while a general partners assignment may
cause such a rupture.

SO Article 1859 discusses about these certain qualification

We have an assignee who doesnt become a substituted limited partner and an
assignee who becomes a substituted limited partner.
An assignee who doesnt become a substituted limited partner is only
entitled to receive the share of the profits or other compensation by way of income,
or return of his contribution, to which the assignor would otherwise be entitledHis
rights are similar to those of a person to whom a partner conveyed his whole
interest in the partnership. Hence, he has no right to require any information or
account of partnership transactions or to inspect the partnership books.
While a substituted limited partner is admitted to all the rights of a limited
partner who has died or has assigned his interest in the partnership.
General rule: the substituted limited partner has, all the rights and powers and is
subject to all the restrictions and liabilities of his assignor.
Exception: Those liabilities which he was ignorant at the time he became a limited
partner and which could not be ascertained from the certificate.
Note that: Similarly, assignor is not released from liability to persons who suffered
damage by reliance on a false statement in the certificate (Art 1847) and to the
creditors who extended credit or whose claims arose before the substitution. (Art
1858)
A mere assignee however can become a substituted limited partner if:
1. All the members consent to the assignee becoming a substituted limited
partner, OR the limited partner being empowered by the certificate must give
the assignee right to become a limited partner.
2. The certificate must be amended in accordance with Art 1865
3. The certificate as amended must be registers in the Securities and Exchange
Commission.
Antonio C. Goquilay, ET AL. vs. Washington Z. Sycip, ET AL.
Antonio C. Goquilay, ET AL. vs. Washington Z. Sycip, ET AL. GR NO. L-11840,
December 10, 1963
FACTS:
Tan Sin An and Goquiolay entered into a general commercial partnership
under the partnership name Tan Sin An and Antonio Goquiolay for the
purpose of dealing in real estate. The agreement lodged upon Tan Sin An the
sole management of the partnership affairs. The lifetime of the partnership
was fixed at ten years and the Articles of Co-partnership stipulated that in the

event of death of any of the partners before the expiration of the term, the
partnership will not be dissolved but will be continued by the heirs or assigns
of the deceased partner. But the partnership could be dissolved upon mutual
agreement in writing of the partners. Goquiolay executed a GPA in favor of
Tan Sin An. The plaintiff partnership purchased 3 parcels of land which was
mortgaged to La Urbana as payment of P25,000. Another 46 parcels of land
were purchased by Tan Sin An in his individual capacity which he assumed
payment of a mortgage debt for P35K. A downpayment and the amortization
were advanced by Yutivo and Co. The two obligations were consolidated in an
instrument executed by the partnership and Tan Sin An, whereby the entire
49 lots were mortgaged in favor of Banco HipotecarioTan Sin An died
leaving his widow, Kong Chai Pin and four minor children. The widow
subsequently became the administratrix of the estate. Repeated demands
were made by Banco Hipotecario on the partnership and on Tan Sin An.
Defendant Sing Yee, upon request of defendant Yutivo Sons , paid the
remaining balance of the mortgage debt, the mortgage was cancelled Yutivo
Sons and Sing Yee filed their claim in the intestate proceedings of Tan Sin An
for advances, interest and taxes paid in amortizing and discharging their
obligations to La Urbana and Banco Hipotecario. Kong Chai Pin filed a
petition with the probate court for authority to sell all the 49 parcels of land.
She then sold it to Sycip and Lee in consideration of P37K and of the vendees
assuming payment of the claims filed by Yutivo Sons and Sing Yee. Later,
Sycip and Lee executed in favor of Insular Development a deed of transfer
covering the 49 parcels of land.When Goquiolay learned about the sale to
Sycip and Lee, he filed a petition in the intestate proceedings to set aside the
order of the probate court approving the sale in so far as his interest over the
parcels of land sold was concerned. Probate court annulled the sale executed
by the administratrix w/ respect to the 60% interest of Goquiolay over the
properties Administratrix appealed.The decision of probate court was set
aside for failure to include the indispensable parties. New pleadings were
filed. The second amended complaint prays for the annulment of the sale in
favor of Sycip and Lee and their subsequent conveyance to Insular
Development. The complaint was dismissed by the lower court hence this
appeal.
ISSUE/S: Whether or not a widow or substitute become also a general partner
or only a limited partner. Whether or not the lower court err in holding that
the widow succeeded her husband Tan Sin An in the sole management of the
partnership upon Tans death Whether or not the consent of the other
partners was necessary to perfect the sale of the partnership properties to
Sycip and Lee?
HELD:

Kong Chai Pin became a mere general partner. By seeking authority to

manage partnership property, Tan Sin Ans widow showed that she desired to
be considered a general partner. By authorizing the widow to manage
partnership property (which a limited partner could not be authorized to do),
Goqulay recognized her as such partner, and is now in estoppel to deny her
position as a general partner, with authority to administer and alienate
partnership property. The articles did not provide that the heirs of the
deceased would be merely limited partners; on the contrary, they expressly
stipulated that in case of death of either partner, the co partnership will
have to be continued with the heirs or assignees. It certainly could not be
continued if it were to be converted from a general partnership into a limited
partnership since the difference between the two kinds of associations is
fundamental, and specially because the conversion into a limited association
would leave the heirs of the deceased partner without a share in the
management. Hence, the contractual stipulation actually contemplated that
the heirs would become general partners rather than limited ones.