ART.

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 cancelation or
amendment, as provided in Article 1865.

Under said provision, any partner to the certificate containing false

statement is liable provided the following requisites are present:
a. He knew the statement to be false at the time he signed the
certificate, or subsequently, but having sufficient time to cancel or
amend it or file a petition for its cancelation or amendment, he failed
to do so.
b. The person seeking to enforce liability has relied upon the false
statement in transacting business with the partnership;
c. The person suffered loss as a result of reliance upon such false
statement.

Article 1847 does not say that the guilty partner shall be
liable as a general partner. The liability imposed by Article
1847 is merely a statutory penalty and does not make the
limited partner a general partner for all purposes, even as
to third persons.

Examples:
(1)Jenny, a limited partner, appeared as a general partner in the certificate. If
Article 1847 is applicable, she cannot raise the defense that she is merely a
limited partner to escape personal liability to innocent persons in case the
other general partners are insolvent.
(2)The contribution of Anne, a limited partner, is erroneously stated in the
certificate as Php15,000 instead of Php10,000. if Article 1847 is applicable, she
may be made liable to innocent third persons for the difference of
Php5,000.00.
In the above examples, Jenny and Anne are not liable and are merely
limited partners with respect to their co-partners with knowledge of the
falsity.

ART. 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.

A limited partner is liable as a general partner for the firms obligations if he

takes part or interferes in the management of the firms business.
His abstinence from participation in fact in the transaction of the business of the
firm is essential to his exemption from liability for the debts of the firm.
The bare grant of apparent control to a limited partner is not sufficient to make
him liable as a general partner where he has not actually participated in the
control of the partnership.
Whether the limited partner has participated in the management is to be
determined by whether he has exercised a controlling power in the firms
transactions.

The limited partner takes part in the management of the business and is liable
generally for the firms obligations where:
a. The business of the partnership is in fact carried on by a board of directors
chosen by the limited partners;
b. By the terms of the contract between the parties, an appointee of the limited
partner becomes the directing manager of the firm;
c. The limited partner purchases the entire property of the partnership, taking title
in himself and then carries on the business in his own and for his own exclusive
benefit; or
d. He makes or is a party to a contract with creditors of an insolvent firm with
respect to the disposal of the firms assets in the payment of the firms debts.

ART. 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.

After a limited partnership has been formed, additional limited

partners may be admitted, provided there is proper amendment to
the certificate which must be signed and sworn to by all of the
partners, including the new limited partners, and filed in the
Securities and Exchange Commission pursuant to the requirements
of Article 1865.

ART. 1850
A general partner shall have 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 partnership purpose;
(5)Admit a person as a general partner;
(6)Admit a person as a limited partner, unless the right to do so is given in the certificate;
(7)Continue the business with partnership property on the death, retirement, insanity, civil
interdiction or insolvency of a general partner, unless the right to do so is given in the
certificate

RIGHT OF CONTROL/UNLIMITED PERSONAL LIABILITY

A general partner in a limited partnership is vested with the
entire control of the firms business and has all the rights
and powers and is subject to all the liabilities and restrictions
of a partner in a partnership. He may bind the partnership by
any act of administration, but has no power to do specific
acts (as enumerated in Article 1850) without the written
consent or at least ratification of ALL the limited partners.

ACTS OF ADMINISTRATION/ACTS OF STRICT DOMINION

The acts of strict dominion or ownership, which are beyond the
scope of the authority of a general partner, are as follows:
a. Do any act in contravention of the certificate
This is in violation of the agreement of the partners as
contained in the certificate

ACTS OF ADMINISTRATION/ACTS OF STRICT DOMINION

b. Do any act which would make it impossible to carry on the
ordinary business of the partnership;
c. Confess a judgment against he partnership;
d. Possess a partnership property, or assign their rights in
specific partnership property, for other than a partnership
purpose;
These acts are prejudicial to the interests of the limited
partners.

ACTS OF ADMINISTRATION/ACTS OF STRICT DOMINION

e. Admit a person as a general partner;
f. Admit a person as a limited partner, unless the right to do so
is given in the certificate;
These are based on the highly fiduciary nature of the
partnership relation.

ACTS OF ADMINISTRATION/ACTS OF STRICT DOMINION

g. Continue the business with partnership property on the
death, retirement, insanity, civil interdiction or insolvency of a
general partner, unless the right to do so is given in the
certificate.
Any of the events mentioned therein results in the dissolution
of the partnership.

ACTS OF ADMINISTRATION/ACTS OF STRICT DOMINION

The general partner who violates the requirement imposed by Article 1850 is
liable for damages to limited partners.
The general partners, likewise, have no power to bind the limited partners
beyond the latters investment. Neither do they have the power to act for the
firm beyond the purpose and scope of the partnership, and they have no
authority to change the nature of the business without the consent of the
limited partners.
Duties and disabilities arising out of the firms transactions with third persons
rest solely on the general partners.

ART. 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.

Rights, in general, of a limited partner

The limited partner is viewed as a partner only to a certain extent. His powers,
actual or implied, are much more limited than those of a general partner.

Wrongdoing or improper acts on the part of general partners may not give a
limited partner greater rights than the law and what his contract grants him.

The rights of a limited partner are necessarily lesser than those of a general
partner. He cannot take part in the control of the business, which is left to the
general partner or partners. But whenever the liability of a general partner is
imposed on a limited partner, he is given the corresponding rights of a general
partner.

ART. 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 1852 grants exemption from liability in favor of one

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, or in a
general partnership thinking that it is a limited partnership. It
introduces a substantial modification of liability where there
has been a failure to create a limited partnership.

 Said person is not personally liable as a general partner by reason of his

exercise of the rights of a limited partner, provided that:
(1) On ascertaining the mistake, he promptly renounces his interest in the
profits of the business or other compensation by way of income (Art. 1852);
(2) His surname does not appear in the partnership name (Art. 1846); and
(3) He does not participate in the management of the business (Art. 1848).

STATUS OF HEIRS OF A DECEASED GENERAL PARTNER

ADMITTED AS PARTNERS
An heir of a deceased general partner (in a general or a limited partnership),
admitted as a partner under the articles of partnership providing for such
admission, ordinarily (not necessarily) becomes a limited partner for his
own protection.
However, the right to elect to become a general partner may be exercised.
Said choice pertains exclusively to the heir and does not require the assent of
the surviving partner or partners.

ART. 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 all the rights against the other
members which he would have had if he were not also a general
partner.

ONE PERSON, BOTH A GENERAL PARTNER AND A LIMITED

PARTNER
A Person may be a general and a limited partner at the same time in the
same partnership, provided that this fact is stated in the certificate signed,
sworn to, and recorded in the Office of the Securities and Exchange
Commission (SEC).
Generally, his rights and powers are those of a general partner. Hence, he is
liable with his separate property to third persons. However, with respect to
his contribution as a limited partner, he would have the right of a limited
partner in so far as the other partners are concerned.

ONE PERSON, BOTH A GENERAL PARTNER AND A LIMITED

PARTNER
In short, a person who is both a general and limited partner is
not relieved from personal liability to third persons for
partnership debts, however, he is entitled to recover from the
general partners the amount he has paid to such third
persons; and in settling accounts after dissolution, he shall
have priority over general partners in the return of their
respective contributions (Art. 1863).

ART. 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 partnership property, or
(2) Receive from
a general partner or the partnership any 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.

ALLOWABLE AND PROHIBITED TRANSACTIONS FOR A

LIMITED PARTNER UNDER ART. 1854:
Allowable transactions:
1. Granting loans to the partnership;
2. Transacting other business with the partnership; and
3. Receiving a pro rata share of the partnership assets with general creditors if he is not
also a general partner.
Prohibited transactions:
4. Receiving or holding as collateral security any partnership property; (modified by the
requirement of sufficient assets to discharge the obligation of the partnership when
any payment or conveyance is made or release is given to the limited partner by, or
when he receives security from the partnership); or
5. Receiving any payment, conveyance, or release from liability if it will prejudice the
right of third persons.

PREFERENTIAL RIGHTS OF THIRD PERSONS:

Third persons always enjoy preferential rights in so far as partnership assets
are concerned in view of the natural tendency of the partners to give
preference to each other.
Such rule is designated to prevent illegal competition between the limited
partner and creditors of the partnership for the assets of the latter, in case
there is insufficiency of partnership assets, with which to discharge
partnership liabilities to non-partner creditors.
Such competition, however, is not a threat if the partnership has sufficient
assets to discharge its liabilities to non-member creditors.

ART. 1855
Where there are several limited partners, the members
may agree that one or more of the limited partners shall
have 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.

PREFERRED LIMITED PARTNERS

By an agreement of all the members (general and limited partners) stated in the
certificate, priority or preference may be given to some limited partners over
other limited partners as to the:
(1) Return of their contributions,;
(2) Their compensation by way of income; or
(3) Any other matter.
In the absence of such statement in the certificate, even if there is an
agreement, all the limited partners shall stand on equal footing in respect of
these matters.

ART. 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
partnership assets are in excess of all liabilities of the
partnership except liabilities to limited partners on
account of their contributions and to general partners.

COMPENSATION OF LIMITED PARTNER

The right of the limited partner to receive his share of the profits or compensation
by way of income stipulated for in the certificate is subject to the condition that
partnership assets will still be in excess of partnership liabilities after such payment.
In other words, third-party creditors have priority over limited partners rights.
In determining the liabilities of the partnership, the liabilities to the limited partners
for their contributions and to general partners, whether for contributions or not, are
not included (Art. 1857).
Liabilities to limited partners, other than on account of their contributions arising
from business transactions by them with the partnership, enjoy protection, subject
to the preferential rights of partnership creditors (Art. 1854).