Agency, Trust, and Partnership Laws: San Beda University - College of Law

San Beda University – College of Law
Agency, Trust, and Partnership Laws

Term Paper
Brondial, Sofia Monique S.

L-170125 2H
Atty. Bugayong
July 4, 2020
General Partnership
Partnership Name
The partnership will be named Stories Co.
The partners chose the partnership to be named Stories Co., a general
partnership. This New Civil Code is silent on the manner of coming up with a name for a
general partnership as the constitution of the same, as a general rule, does not have
formal requirements. However, the chosen name for the partnership – Stories Co. is in
accordance with Securities and Exchange Commission Memorandum Circular No. 21,
which provides that the partnership name shall bear the word “Company” or “Co.” for a
general partnership and if it is a limited partnership, the word “Limited” or “Ltd.”
Purpose
The purpose of the establishment of the partnership is to form an events
coverage business, wherein the company will offer video and photo coverage packages
for mainly corporate and celebratory events.
Capital
The total capital will be P5,000,000. P3,500,000 or 70% will be contributed by
Faith Lazaro. P1,000,000 or 20% will be contributed by Sunjay Kumar. P250,000 or 5%
will be contributed by Janine Sevalla. P250,000 or 5% will be contributed by myself –
Sofia Brondial.
Composition
The partnership will be composed of Faith Lazaro, Sunjay Kumar, Janine
Sevalla, and Sofia Brondial, who are classified as follows.
Sofia Brondial - Capitalist Partner, Industrial Partner
Sunjay Kumar - Capitalist Partner
Janine Sevalla - Capitalist Partner, Industrial Partner
Faith Lazaro - Capitalist Partner, Industrial Partner, Managing Partner, Majority
Partner
I chose Sunjay Kumar as a partner because he has been working on different
types of businesses and have been looking for more businesses that he can invest his
money on. Being a person of my age also, he knows that an events coverage business
is of high demand and is a type of venture that is rapidly growing and will continue to
grow. It being that not every company and entity has the capability and resources to
document every corporate and celebratory events, most often the coverage team for
these events are outsourced.
I chose Janine Sevalla as a partner because she has the exact skills, experience,
and passion needed for the partnership to succeed. We both graduated with the degree
of Bachelor of Arts in Communication Arts from De La Salle University in the year 2016.
She has been part of the work force since then, and have worked with Viva
Entertainment and other production companies; from which she acquired valuable
experience, knowledge, skills, and insights that she could contribute and apply to the
partnership as an industrial partner. She was also my roommate in college, and
because of this fact I was a witness to how passionate she is with photography and
videography, which are essentially what the partnership is offering to the public. I
witnessed how she would stay up late all night just to get a few frames perfect, to look
for places where we could rent camera and audio equipment for our short films, and to
do casting for the characters in our short films. I chose her also to be a capitalist partner
because she had been saving to start her own events coverage business with her
friends, and because she already has some of the equipment the partnership will need
for events coverage such as Digital Single Lens Reflex Cameras, tripods, lenses, SD
memory cards, reflectors, and the like, all of which the ownership or use thereof she can
contribute to the partnership.
I chose Faith Lazaro, my aunt, as a partner because she has the managing skills
and the capital that the partnership would need to succeed. She has gained valuable
knowledge and experience from her decades of work experience. She graduated with a
degree in Organizational Communication from De La Salle University, and worked with
companies in the communications and events departments. Currently she is an
executive of Resort’s World Manila, wherein she works at the events department. She
also has a small house and lot in Valenzuela, Metro Manila which she offers to be used
by and contributed to the partnership. Another reason that I chose her is because she
has been looking for a business of this sort that she can invest on for years, and she
offered to provide capital before for me to put up an events coverage business but I
never had the chance to.
Nature and Object

The nature or kind of the partnership is a General Partnership. A general
partnership, as can be deduced from the definition of a limited partnership set forth by
Art. 18431 of the New Civil Code, is one formed by two or more persons wherein all the
partners are general partners, and none of the partners is a limited partner. The
constitution of a general partnership can be done orally or through written instruments,
and have the same requisites as an ordinary contract, which are cause, object, and
consent. No formality is required in setting up a general partnership unless it falls within
the ambit of Statute of Frauds.
The classification of the partnership as to its object is Specific or Particular
Partnership. A particular partnership is defined by Art. 1783 of the New Civil Code as
one that has for its object determinate things, their use or fruits, or specific undertaking,
or the exercise of a profession or vocation. 2 As compared to universal partnership, a
particular partnership is limited and well-defined, being confined to an undertaking of a
single, temporary, or ad hoc nature. Universal partnership, on the other hand, is one
wherein the object is vague and indefinite, contemplating a general business with some
degree of continuity.3
The partnership has for its object the use of Digital Single Lens Reflex Cameras,
Osmo cameras, tripods, and other photography, videography, and sound recording
devices, and the skills of some partners, namely Sofia Brondial and Janine Sevalla, on
photography and videography.
The Kinds of Partners in this Partnership as to their Contribution, Rights and

Obligations, and Prohibition
a. Capitalist Partner
Contribution
● A capitalist partner is one who contributes money or property to the
partnership. However, a capitalist partner may also be an industrial
partner at the same time, in which case he is bound to contribute both
money or property and his industry or personal service.
● Unless there is a stipulation to the contrary, the partners shall contribute
equal shares to the capital of the partnership in accordance with Art. 1790
of the New Civil Code.4
This principle is just and reasonable and is consistent with the rule
that partners are deemed to have equal rights and obligations found in Art.
1770 of the New Civil Code which states that a partnership must have a
1
Art. 1843, NCC. 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.
2
Art. 1783, NCC. A particular partnership has for its object determinate things, their use or fruits, or a specific undertaking, or the
exercise of a profession or vocation.
3
De Leon, Hector. (2010). Comments and Cases on Partnership, Agency, and Trust.
4
Art. 1790, NCC. Unless there is a stipulation to the contrary, the partners shall contribute equal shares to the capital of the
partnership.
lawful object or purpose, and must be established for the common benefit
or interest of the partners.
● A capitalist partner is obliged to contribute an additional share to the
capital in case of an imminent loss of the business of the partnership, if
there is no agreement to the contrary, to save the venture.
This obligation, however, is subject to the provision Art. 1791 of the
New Civil Code, which states that any capitalist partner who refuses to
contribute an additional share to the capital to save the venture shall be
obliged to sell his interest to the other partners. 1
Rights
● To convey his interests in the partnership to an assignee without the need
for consent of any or all of the partners2
A partner’s right in specific partnership property cannot be
assigned. He may, however, assign his interest in the partnership to any
of his co-partners or to a third person without the need of consent of the
other partners as a general rule. The partners may, however, stipulate that
consent be required in the assigning of interest of any or all of the
partners.
● To inspect and copy partnership books3
Any partner has the right to inspect partnership books at any
reasonable time even after dissolution, which are kept at the principal
place of business as a general rule. The duty to keep true and correct
books showing the firm’s accounts, such books being at all times open to
inspection of all members of the firm, primarily rests on the managing or
active partner.
The partners’ inspection rights, however, are not absolute. He can be
restrained from using the information gathered for other than partnership
purpose.4 The partners’ right to access the partnership books shall only be
at reasonable hours, as provided by Art. 1805. Reasonable hours has
been defined in the case of Pardo vs. The Hercules Lumber Co., as the
reasonable hours on business days throughout the year, and not merely
during some arbitrary period of a few days chosen by the directors. 5
● To have a formal account as to partnership affairs. 6
The provisions Art. 1805 and 1806 are somewhat connected for the
reason that Art. 1806 provides for the right of partners to have true and full
information on all things affecting the partnership, and Art. 1805 is one
way to make sure that this right of every partner is protected – by granting
them access to the partnership books at any reasonable time.
● To receive a share in the profits of the partnership
The capitalist partner has the right to receive his share in the profits
of the partnership which shall be distributed in conformity with the
agreement of the partners. However, if such agreement does not exist the
share of the capitalist partner in the profits shall be computed in proportion
to what he may have contributed as capital. This right is evidenced by the
provision Art. 1797 of the New Civil Code.
● To have equal voice in the conduct and management of the partnership
business
In the absence of stipulation to the contrary or an appointment by
the partnership of a managing partner, each partner has the right to an
equal voice in the conduct and management of the partnership business.
1
Art. 1791, NCC. If there is no agreement to the contrary, in case of an imminent loss of the business of the partnership, any
partner who refuses to contribute an additional share to the capital, except an industrial partner, to save the venture, shall he
obliged to sell his interest to the other partners.
2
Art. 1813, NCC. A conveyance by a partner of his whole interest in the partnership does not of itself dissolve the partnership, or,
as against the other partners in the absence of agreement, entitle the assignee, during the continuance of the partnership, to
interfere in the management or administration of the partnership business or affairs, or to require any information or account of
partnership transactions, or to inspect the partnership books
3
Art. 1805, NCC. The partnership books shall be kept, subject to any agreement between the partners, at the principal place of
business of the partnership, and every partner shall at any reasonable hour have access to and may inspect and copy any of them.
4
5
G.R. No. L-22442 August 1, 1924 Antonio Pardo vs. The Hercules Lumber Co., Inc., and Ignacio Ferrer
6
Art. 1806. Partners shall render on demand true and full information of all things affecting the partnership to any partner or the
legal representative of any deceased partner or of any partner under legal disability.
This right is not dependent on the amount or size of the partner’s capital
contribution or services to the business.1
Obligations
● To be liable pro rata with all their property and after all the partnership
assets have been exhausted2
The liability of partners to third persons with regard contractual debts is
only subsidiary or secondary, which means that it will only arise once
partnership assets have been exhausted. The partners are liable as
guarantors in favor of partnership creditors to the extent that the assets of
the firm are not sufficient to meet its obligations. 3
● To contribute to the partnership at the commencement or at a stipulated
time money, property, or industry which he may have promised to
contribute4
The partners must have a proprietary interest in the business or
undertaking, that is, they must contribute capital which may be money or
property, or their services, or both, to the common business. 5 In the case
of a capitalist partner, such contribution must be in either money or
property.
Contribution must be made, as a general rule, at the commencement
of the partnership or at a stipulated time, in accordance with Art. 1786 of
the New Civil Code.
● To answer for eviction in case the partnership is deprived of the
determinate property contributed6
With regard to property contributed to the partnership, the partners
are liable on the same in case of eviction. The nature of the partner’s
liability is the same as that of the vendor’s under the law on sales.
● To answer to the partnership for the fruits of the property the contribution
of which he delayed, from the date they should have been contributed up
to the time of actual delivery.
As the essence of the contract of partnership is the contribution to a
common fund, the failure or delay of a partner to deliver what he had
promised to contribute and the fruits thereof makes him a debtor of the
partnership whether or not there was demand, in accordance with Art.
1169 of the New Civil Code.7
● To indemnify the partnership for any damage caused to it by the retention
of the same or by the delay in its contribution
The indemnity the defaulting partner owes the partnership includes not
only damages for such delay but also interest on the same until the day he
complies with his obligation to give his contribution in money or property.
Art. 1788 of the New Civil Code provides that a partner who has
undertaken to contribute a sum of money and fails to do so becomes a
debtor for the interest and damages from the time he should have
1
2
Art. 1816, NCC. All partners, including industrial ones, shall be liable pro rata with all their property and after all the partnership
assets have been exhausted, for the contracts which may be entered into in the name and for the account of the partnership,
under its signature and by a person authorized to act for the partnership. However, any partner may enter into a separate
obligation to perform a partnership contract.
3
4
Art. 1767, NCC. By the contract of partnership two or more persons bind themselves to contribute money, property, or industry to
a common fund, with the intention of dividing the profits among themselves.
5
6
Art. 1786, NCC. He shall also be bound for warranty in case of eviction with regard to specific and determinate things which he
may have contributed to the partnership, in the same cases and in the same manner as the vendor is bound with respect to the
vendee. He shall also be liable for the fruits thereof from the time they should have been delivered, without the need of any
demand.
7
Art. 1169, NCC. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially
demands from them the fulfillment of their obligation.
complied with his obligation. This is also in accordance with the basic
principle on obligations stated in Art. 1170 of the New Civil Code. 1
● To preserve the property he promised to contribute to the partnership with
the diligence of a good father of a family pending delivery to partnership 2
This obligation is in accordance with the general provision on
obligations provided by Art. 1163 of the New Civil Code which states that
every person obliged to give something is also obliged to take care of it
with the proper diligence of a good father of a family.
Prohibition
● The capitalist partners cannot engage for their own account in any
operation which is of the kind of business in which the partnership is
engaged, unless there is a stipulation to the contrary.
Art. 1808 of the New Civil Code provides for this prohibition which is
relative – meaning that the prohibition is not absolute as the capitalist
partner may still engage for his own account in an operation which is not
of the kind of business that the partnership is engaged in.
The other partners’ remedy in case the capitalist partner violates this
prohibition, provided a stipulation to the contrary is inexistent, is bring to
the common fund any profits derived by such capitalist partner from his
transactions, and any losses that the capitalist partner may acquire from
such other business in violation of this provision is to be borne by him
alone.
● A partner cannot misappropriate partnership money or property.
A partner who has applied any amount he may have taken from the
partnership coffers becomes a debtor for the interest and damages, and
his liability shall begin from the time he converted the amount to his own
use.3 This is in accordance with Art. 1788 of the New Civil Code. If a
partner misappropriates partnership money or property received by him for
a specific purpose of the partnership he is guilty of estafa as the Court
held in the case of Liwanag vs. Court of Appeals. 4
b. Industrial Partner
Contribution
● An industrial partner is one who contributes only his industry or personal
service. However, an industrial partner can be a capitalist partner at the
same time, in which case he is bound to contribute to the partnership both
his industry or personal service and money or property.
● In case of an imminent loss of the business of the partnership, an
industrial partner does not have to contribute an additional share to the
capital to save the venture as provided by Art. 1791 of the New Civil Code.
Only the capitalist partners are to be held liable for such additional share
to the capital
Rights
1
Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in any manner
contravene the tenor thereof, are liable for damages.
2
Art. 1163, NCC. Every person obliged to give something is also obliged to take care of it with the proper diligence of a good father
of a family, unless the law or the stipulation of the parties requires another standard of care.
3
Art. 1788, NCC. A partner who has undertaken to contribute a sum of money and fails to do so becomes a debtor for the interest
and damages from the time he should have complied with his obligation. The same rule applies to any amount he may have taken
from the partnership coffers, and his liability shall begin from the time he converted the amount to his own use.
4
GR. No. 114398. October 24, 1997. Carmen Liwanag vs. The Hon. Court of Appeals and The People of the Philippines.
5
An industrial partner also does not have the right, as any partner, to
assign his rights in specific partnership property. He may, however, assign
his interest in the partnership to any of his co-partners or to a third person
without the need of consent of the other partners as a general rule. The
partners may, however, stipulate that consent be required in the assigning
of interest of any or all of the partners.
 To inspect and copy partnership books
Just like a capitalist partner or any partner, the industrial partner
also has the right to inspect partnership books at any reasonable time
even after dissolution, which are kept at the principal place of business as
a general rule. The duty to keep true and correct books showing the firm’s
accounts, such books being at all times open to inspection of all members
of the firm, primarily rests on the managing or active partner.
The partners’ inspection rights, however, are not absolute. He can
be restrained from using the information gathered for other than
partnership purpose.1 The partners’ right to access the partnership books
shall only be at reasonable hours, as provided by Art. 1805. Reasonable
hours has been defined in the case of Pardo vs. The Hercules Lumber
Co., as the reasonable hours on business days throughout the year, and
not merely during some arbitrary period of a few days chosen by the
directors.2
 To a formal account as to partnership affairs
Art. 1806 of the New Civil Code provides for this right of any
partner, which states that partners shall render on demand true and full
information of all things affecting the partnership to any partner or the legal
representative of any deceased partner or of any partner under legal
disability.
 To receive such share as may be just and equitable under the
circumstances
The industrial partner must receive just and equitable share in the
profits of the partnership as evidenced by Art. 1797 of the New Civil Code.
“As for the profits, the industrial partner shall receive such share as may
be just and equitable under the circumstances.” If the industrial partner is
at the same time a capitalist partner, he must also receive a share in the
profits in proportion to his contributions as capitalist partner as a general
rule. However, the partners may stipulate a different division of shares of
the profits amongst themselves.
 To be exempted from the losses suffered by the partnership
The second main difference between an industrial partner and a
capitalist partner, after the difference in the nature of their contribution in
the partnership, is that the industrial partner has the right to be exempted
from the losses suffered by the partnership. Art. 1797 of the New Civil
Code also provides for this right of the industrial partner. The provision
states that in the absence of stipulation, the share of each partner in the
profits and losses shall be in proportion to what he may have contributed,
but the industrial partner shall not be liable for the losses. Losses, in this
sense, does not equate to the amount owing to creditors and third persons
after all assets of the partnership have been exhausted wherein the
industrial partner is also held liable pro rata to his contributions. Losses, in
this case, is to be viewed in the context of assessment of the share in
profits and losses between and among the partners.
 To have equal voice in the conduct and management of the partnership
business
1
2
Obligations
contribute2
Just like any partner, the industrial partner must have a proprietary
interest in the business or undertaking, that is, he must contribute capital
which may be money or property, or his services, or both, to the common
business.3 In the case of an industrial partner, such contribution must be in
industry or services. Such ccontribution must be made, as a general rule,
at the commencement of the partnership or at a stipulated time, in
accordance with Art. 1786 of the New Civil Code.
● To be liable for delay in rendering his service or industry to the partnership
Art. 1786 of the New Civil Code provides that every partner is a
debtor of the partnership for whatever he may have promised to contribute
thereto. In the case of an industrial partner, he is liable in the same
manner as that of a capitalist partner to the partnership for the delay and
damages incurred from such delay in rendering his promised contribution,
which is his service or industry.
Prohibition
● An industrial partner cannot engage in business for himself, unless the
partnership expressly permits him to do so; and if he should do so, the
capitalist partners may either exclude him from the firm or avail
themselves of the benefits which he may have obtained in violation of this
provision, with a right to damages in either case. The prohibition must be
express, and mere toleration by the partnership will not exempt the
industrial partner from liability. 4 Art. 1798 of the New Civil Code provides
for this prohibition.
c. Managing Partner
Contribution
 A managing partner can be either a capitalist partner or an industrial
partner or even both. Thus, his contributions are governed by the same
provisions and principles as those of a capitalist and/or an industrial
partner.
Rights
1
2
3
4
5
6
partners.
active partner.
The managing partner has the right to receive his share in the
profits of the partnership which shall be distributed in conformity with the
share of the each partner in the profits shall be computed either in
proportion to what he may have contributed to the partnership as capital if
the managing partner is a capitalist partner or a just and equitable share
therefrom if the managing partner is an industrial partner.
● To execute all acts of administration
Art. 1800 of the New Civil Code grants the managing partner the
power to execute all acts of administration despite opposition of the
partners, as a general rule, unless he acts in bad faith. There are two
instances provided in Art. 1800. First is the managing partner being
appointed as such at the constitution of the partnership or in the articles of
partnership. The second is the managing partner being appointed as such
after the partnership has been constituted. 6
If the managing partner is appointed as such in the articles of
partnership his power to execute all acts of administration is generally
irrevocable. The power is revocable only if there is just and lawful cause
and upon concurrence of the controlling interest. This is for the reason that
the revocation of powers of the managing partner constitutes a change of
1
2
3
4
5
Art. 1806, NCC. Partners shall render on demand true and full information of all things affecting the partnership to any partner or
the legal representative of any deceased partner or of any partner under legal disability.
6
Art. 1800. The partner who has been appointed manager in the articles of partnership may execute all acts of administration
despite the opposition of his partners, unless he should act in bad faith; and his power is irrevocable without just or lawful cause.
The vote of the partners representing the controlling interest shall be necessary for such revocation of power. A power granted after
the partnership has been constituted may be revoked at any time.
will of the partners or a condition of the contract. However, this power may
still be revoked in the absence of just cause by the concurrence or all
partners including the managing partner himself and shall award the
managing partners compensation for damages.
In the second instance, revocation may be made at anytime and for
any cause by the concurrence of the partners holding the controlling
interest of the partnership. The process of revocation is relaxed because
revocation of the powers of the managing partner in this case does not
constitute a change of will of the partners or change of condition of the
contract, the power or appointment being vested to the managing partner
after the constitution of the partnership.
Obligations
contribute3
property.
the New Civil Code.
1
2
3
4
5
demand.
6
● To apply demandable sums collected by him from debtors owing both him
and the partnership to the credits of both him and the partnership in
proportion to their amounts3
A managing partner who is a creditor of a person who owes the
partnership and collects from such person is obliged, as a general rule, to
apply the payment to both his and the partnership’s credit pro rata but only
in cases wherein both debts are demandable. This rule applies even if
such collecting managing partner had given receipt only for his credit.
The exception to this rule is if the debt of the person owing to the
managing partner is more onerous to him than that of his debt to the
partnership. In this case the debtor may make use of his right in
application of payments provided under Art. 1252 of the New Civil Code. 4
Prohibition
 The prohibitions are the same as those of the capitalist and industrial
partners’.
d. Majority Partner
Contribution
● A majority partner is one whose contribution represents the majority or
controlling interest.
● Unless there is a stipulation to the contrary, the partners shall contribute
equal shares to the capital of the partnership. (Art. 1790, NCC)
● If there is no agreement to the contrary, in case of an imminent loss of the
business of the partnership, any partner who refuses to contribute an
additional share to the capital, except an industrial partner, to save the
venture, shall be obliged to sell his interest to the other partners. (Art.
1791, NCC)
Rights
1
2
3
Art. 1792, NCC. If a partner authorized to manage collects a demandable sum which was owed to him in his own name, from a
person who owed the partnership another sum also demandable, the sum thus collected shall be applied to the two credits in
proportion to their amounts, even though he may have given a receipt for his own credit only; but should he have given it for the
account of the partnership credit, the amount shall be fully applied to the latter.
4
Art. 1252, NCC. He who has various debts of the same kind in favor of one and the same creditor, may declare at the time of
making the payment, to which of them the same must be applied. Unless the parties so stipulate, or when the application of
payment is made by the party for whose benefit the term has been constituted, application shall not be made as to debts which are
not yet due.
partners.
active partner.
● To have equal voice in the conduct and management of the partnership
business
Obligations
5
1
2
3
4
5
6
contribute2
property.
the New Civil Code.
Prohibition
1
2
3
4
demand.
5
6
7
● The capitalist partners cannot engage for their own account in any
operation which is of the kind of business in which the partnership is
engaged, unless there is a stipulation to the contrary.
alone.
Liability
If, in the course of the operations of the partnership, it incurred a liability of P5
million pesos, all the partners – namely Faith Lazaro, Sunjay Kumar, Janine Sevalla,
and Sofia Monique are all liable. However, such liability shall only be distributed among
the partners after the assets and properties of the partnership have been exhausted –
their liability being only subsidiary.
Their liability shall be divided pro rata, which in the context of liabilities acquired
as contractual debts as compared to losses, is to be computed in consideration of the
number of the partners and not their contribution in the partnership’s capital. 3 With this
in mind, the total liability of P5 million is to be divided among the four partners, each
shouldering ¼ portion of the total. Each of the four partners is liable to pay P1,250,000
to answer for the P5 million liability of the partnership.
The industrial partners, however, have the right to recover the amount they paid
from the capitalist partners in the absence of a stipulation to the contrary because they
are exempted from bearing the losses of the partnership as provided by Art. 1797 of the
New Civil Code.
Dissolution
The cause of the dissolution of the partnership is the declaration as insolvent of
the partnership by a court. According to Sec. 4 (p) of the Financial Rehabilitation and
Insolvency Act (FRIA) of 2010, an insolvent shall refer to the financial condition of a
debtor that is generally unable to pay its or his liabilities as they fall due in the ordinary
course of business or has liabilities that are greater than its or his assets.
A partnership becoming insolvent brings with it the fact that it can no longer
answer for its liability owing to its creditors and third persons arising from contractual
obligations and debts acquired in the operation of such partnership. The insolvency of
the partnership renders its property in the hands of the partners liable for the
satisfaction of partnership obligations resulting in their inability to continue the business,
which practically amounts to a dissolution.4
Liquidation
1
2
3
4
Art. 1836 of the New Civil Code provides for the persons who have the right to
wind up the partnership affairs. In the absence of an agreement by the partnership,
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. 1
In this case, as the partnership assigned a liquidating partner, the manner of
winding up of the affairs of the partnership will be done extrajudicially; as compared to
judicially, wherein the authority to wind up the partnership affairs emanates from the
court upon cause shown by any partner, his legal representative, or assignee.
The assets of the partnership is composed of the partnership property acquired
by the partnership during its operation period, which are the small house and lot in
Valenzuela, Metro Manila used as the office valued at P1 million, and the equipment
valued in total at P1 million as well, and the share in the liabilities of the partners.
As the liquidating partner, according to Art. 1839 of the Civil Code, I should first
satisfy the liabilities owing to creditors other than partners. To be able to cover the
losses in the total amount of P10 million I will begin by selling properties of the
partnership – the land. If, after partnership property has been all sold and a total sum of
P2 million is realized, the losses left needed to be shouldered by the partners will be
only P8 million.
In dividing the share in the losses of each partner, Art. 1797 of the New Civil
Code shall govern as evidenced by Art. 1839. In the absence of stipulation, the share of
each partner in the profits and losses shall be in proportion to what he may have
contributed. Faith Lazaro, having contributed 70% of the total capital of the partnership,
shall contribute P5,600,000 for the losses. Sunjay Kumar, having contributed 20% of the
total capital of the partnership, shall contribute P1,600,000 for the losses. Janine
Sevalla, having contributed 5% of the total capital of partnership, shall contribute
P400,000 for the losses. I, Sofia Brondial, having contributed 5% of the total capital of
partnership, shall contribute P400,000 for the losses. These additional contributions
when computed in total amounts to P8 million, which shall be enough to cover the
liabilities of the partnership.
Art. 1839 of the New Civil Code also provides for the order of payment of
liabilities in the context of winding up of the affairs of the partnership, which is 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 the partners in respect to capital;
(d) Those owing to partners in respect to profits.2
New Transaction
If, in the event that one of the partners entered into a new transaction with a third
person, the rules set forth by Art. 1834 of the New Civil Code must govern. I, being the
liquidating partner, all other partners is subject to the third paragraph of such provision
which states that where a partner has no authority to wind up partnership affairs but
contracts a new obligation or transaction under the partnership name after it has been
dissolved, as a general rule, cannot bind neither the partnership nor the partners with
regard such new transaction.
There are two exceptions to this rule, however, in which cases the partnership
shall still be bound. One is when the partner, other than the liquidating partner,
transacts with one who had extended credit to the partnership prior to dissolution and
had no knowledge or notice of his want of authority, and the other one is when the
partner, other than the liquidating partner, transacts with one who had not extended
credit to the partnership prior to dissolution, and, having no knowledge or notice of his
want of authority, the fact of his want of authority has not been advertised in the manner
provided for advertising the fact of dissolution in a newspaper of general circulation in
the place (or in each place if more than one) at which the partnership business was
regularly carried on.
Limited Partnership
1
Art. 1836, NCC. 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.
2
Villanueva, Cesar Lapuz (2011). Agency, Trusts, Partnerships & Joint Ventures.
Partnership Name
The partnership will be named Stories Ltd.
Instead of Stories, Co., the partnership will be named Stories Ltd. in a limited
partnership. This is in accordance with Art. 1844 of the New Civil Code, which states
that the certificate of limited partnership shall contain the partnership name, adding
thereto the word “Limited.” This is also in accordance with Securities and Exchange
Commission Memorandum Circular No. 21, which provides that the partnership name
shall bear the word “Company” or “Co.” and if it is a limited partnership, the word
“Limited” or “Ltd.”
Purpose
The purpose of the establishment of the partnership is to form an events
coverage business, wherein the company will offer video and photo coverage packages
for mainly corporate and celebratory events.
Capital
The total capital will be P5,000,000. P3,500,000 or 70% will be contributed by
Faith Lazaro. P1,000,000 or 20% will be contributed by Sunjay Kumar. P250,000 or 5%
will be contributed by Janine Sevalla. The other P250,000 or 5% will be contributed by
myself – Sofia Brondial, a limited partner.
Composition
The partnership will be composed of Faith Lazaro, Sunjay Kumar, Janine
Sevalla, and Sofia Brondial, who are classified as follows.
Sofia Brondial – Limited Partner, Capitalist Partner
Sunjay Kumar – General Partner, Capitalist Partner, Silent Partner
Janine Sevalla – General Partner, Capitalist Partner, Industrial Partner,
Ostensible Partner
Faith Lazaro – General Partner, Capitalist Partner, Industrial Partner, Managing
Partner, Majority Partner
I chose Sunjay Kumar as a partner because he has been working on different
types of businesses and have been looking for more businesses that he can invest his
money on. Being a person of my age also, he knows that an events coverage business
is of high demand and is a type of venture that is rapidly growing and will continue to
grow. It being that not every company and entity has the capability and resources to
document every corporate and celebratory events, most often the coverage team for
these events are outsourced.
I chose Janine Sevalla as a partner because she has the exact skills, experience,
and passion needed for the partnership to succeed. We both graduated with the degree
of Bachelor of Arts in Communication Arts from De La Salle University in the year 2016.
She has been part of the work force since then, and have worked with Viva
Entertainment and other production companies; from which she acquired valuable
experience, knowledge, skills, and insights that she could contribute and apply to the
partnership as an industrial partner. She was also my roommate in college, and
because of this fact I was a witness to how passionate she is with photography and
videography, which are essentially what the partnership is offering to the public. I
witnessed how she would stay up late all night just to get a few frames perfect, to look
for places where we could rent camera and audio equipment for our short films, and to
do casting for the characters in our short films. I chose her also to be a capitalist partner
because she had been saving to start her own events coverage business with her
friends, and because she already has some of the equipment the partnership will need
for events coverage such as Digital Single Lens Reflex Cameras, tripods, lenses, SD
memory cards, reflectors, and the like, all of which the ownership or use thereof she can
contribute to the partnership.
I chose Faith Lazaro, my aunt, as a partner because she has the managing skills
and the capital that the partnership would need to succeed. She has gained valuable
knowledge and experience from her decades of work experience. She graduated with a
degree in Organizational Communication from De La Salle University, and worked with
companies in the communications and events departments. Currently she is an
executive of Resort’s World Manila, wherein she works at the events department. She
also has a small house and lot in Valenzuela, Metro Manila which she offers to be used
by and contributed to the partnership. Another reason that I chose her is because she
has been looking for a business of this sort that she can invest on for years, and she
offered to provide capital before for me to put up an events coverage business but I
never had the chance to.
Nature and Object

The nature of the partnership is a limited one. Art. 1843 of the New Civil Code
provides for the definition of a limited partnership, which states that 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. A
limited partnership, unlike a general partnership, needs formalities to be valid. Art. 1844
provides for such formal requirements, which are the preparation of a Certificate of
Limited Partnership, and that the same shall be filed with the Securities and Exchange
Commission.
The classification of the partnership as to its object is Particular Partnership. A
particular partnership is defined by Art. 1783 of the New Civil Code as one that has for
its object determinate things, their use or fruits, or specific undertaking, or the exercise
of a profession or vocation.1 As compared to universal partnership, a particular
partnership is limited and well-defined, being confined to an undertaking of a single,
temporary, or ad hoc nature. Universal partnership, on the other hand, is one wherein
the object is vague and indefinite, contemplating a general business with some degree
of continuity.2
The partnership has for its object the use of Digital Single Lens Reflex Cameras,
Osmo cameras, tripods, and other photography, videography, and sound recording
devices, and the skills of Janine Sevalla on photography and videography.
The Kinds of Partners in this Partnership as to their Contribution, Rights and

Obligations, and Prohibition
a. General Partner
Contribution
 A general partner who is an industrial partner is one who contributes only
his industry or personal service. However, an industrial partner can be a
capitalist partner at the same time, in which case he is bound to contribute
to the partnership both his industry or personal service and money or
property.
 A capitalist partner is one who contributes money or property to the
partnership. However, a capitalist partner may also be an industrial
partner at the same time, in which case he is bound to contribute both
money or property and his industry or personal service.
 Unless there is a stipulation to the contrary, the partners shall contribute
equal shares to the capital of the partnership in accordance with Art. 1790
of the New Civil Code.3
1
Art. 1783, NCC. A particular partnership has for its object determinate things, their use or fruits, or a specific undertaking, or the
exercise of a profession or vocation.
2
3
Art. 1790, NCC. Unless there is a stipulation to the contrary, the partners shall contribute equal shares to the capital of the
partnership.
Rights
 To convey his interests in the partnership to an assignee without the need
partners.
 To inspect and copy partnership books2
active partner.
 To have a formal account as to partnership affairs. 5
 To receive a share in the profits of the partnership
 To have equal voice in the conduct and management of the partnership
business
Obligations
1
2
3
4
5
6
7
contribute2
property.
the New Civil Code.
complies with his obligation to give his contribution in money, property, or
industry. Art. 1788 of the New Civil Code provides that a partner who has
Prohibition
1
2
3
4
demand.
5
6
7
● The general partners who are capitalist partners cannot engage for their
own account in any operation which is of the kind of business in which the
partnership is engaged, unless there is a stipulation to the contrary.
alone.
● A general partner who is an industrial partner cannot engage in business
for himself, unless the partnership expressly permits him to do so; and if
he should do so, the capitalist partners may either exclude him from the
firm or avail themselves of the benefits which he may have obtained in
violation of this provision, with a right to damages in either case. The
prohibition must be express, and mere toleration by the partnership will
not exempt the industrial partner from liability. 1 Art. 1798 of the New Civil
Code provides for this prohibition.
 A general partner, cannot, without the written consent or ratification of the
specific act by all the limited partners do the following acts.
Art. 1850 of the Civil Code provides for another prohibition on the
general partners. General partners, without the written consent or
ratification of the specific act by all the limited partners, do not have the
authority to do any act in contravention of the certificate, do any act which
would make it impossible to carry on the ordinary business of the
partnership, confess a judgment against the partnership, possess
partnership property, or assign their rights in specific partnership property,
for other than a partnership purpose, admit a person as a general partner,
admit a person as a limited partner, unless the right so to do is given in the
certificate, and continue the business with partnership property on the
death, retirement, insanity, civil interdiction or insolvency of a general
partner, unless the right so to do is given in the certificate.
b. Limited Partner
Contribution
 Art. 1845 of the New Civil Code provides that the contributions of a limited
partner may be cash or other property, but not services.
Rights
 To contribute cash or property to the partnership but not services
Art. 1845 of the New Civil Code states that the contributions of a
limited partner may be cash or property, but not services. This stems from
the fact that limited partners do not have authority in the management and
control of the partnership business and are exempted from liability on
obligations of the partnership.
1
2
3
 To be liable only to his capital contribution
The essence of limited partnership is the limited liability granted to
limited partners. The case Hoefer vs. Hall, which was cited in the book on
partnerships of the author Hector De Leon, says that a limited partnership
is so called because the liability to third persons of one or more of its
members referred to as limited (or special) partners is limited to a fixed
amount, their capital contributions or the amount they have invested in the
partnership.
 To loan money to and transact other business with the partnership 1
A limited partner is not prohibited from loaning money to and
transact other business with the partnership so long as he is not also a
general partner, being merely a contributor to the partnership without the
right to participate in its management.
 To have his interest assigned
A limited partner, just like a general partner, has the right to assign
his interests in the limited partnership. The assignee of the limited
partner’s rights in the partnership has the same rights as those of
an assignee in a general partnership, and only becomes a
substituted limited partner only either upon consent of all the
members of the limited partnership or by the giving of such right to
become one by the assignor, whose power to do such is stated in
the Certificate of Limited Partnership. This is in accordance with
Art. 1859 of the new Civil Code.
Obligations
 To give his contributions to the limited partnership before its formation
Art. 1844 provides for the requirements for the formation of the
limited partnership. Under the first paragraph it says that the certificate to
be signed and sworn by the partners, which is to be submitted to the
Securities and Exchange Commission, needs to state the amount of cash
and a description of and the agreed value of the other property contributed
by each limited partner. It is then to be deduced from this provision that
contributions by the limited partners must be paid before the formation of
the limited partnership.
 To be liable to creditors as a general partner if he takes part in the control
of the business
A limited partner, having his liability on partnership obligations
limited to the extent of his capital contribution, shall not, as a general rule
become liable to third persons and the partnership as a general partner.
However, if a limited partner, in addition to the exercise of his rights and
powers as a limited partner, takes part in the control of the business of the
partnership, he shall then be liable as a general partner.
Prohibition
 The limited partner has no share in the management of a limited
partnership
If a limited partner decides to take part in the management or
control of the business of the limited partnership, he subsequently
becomes a general partner, and therefore liable as such as provided by
Art. 1848 of the New Civil Code.
 The surname of a limited partner shall not appear in the partnership
name.2
A limited partner’s surname shall not appear in the partnership
name as a general rule. This is, according to the author Villanueva,
1
ART. 1854, NCC. 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.
2
ART. 1846, NCC. 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, the business has been carried on under a name in
which his surname appeared.
A limited partner whose surname appears in a partnership 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.
because of the fact that to be accorded their limited liability rights, limited
partners practically must become invisible to the public when it comes to
partnership dealings. They are mere passive investors in the partnership
business, and they do not participate in its management nor are they
agents of the partners and of the partnership.
Limited partners do not have authority in the management or
control of the partnership, and an act in contravention of this principle in
limited partnerships becomes a basis by which such limited partners shall
be stripped of their limited liability right.1
A limited partner who violates this prohibition is to be deemed liable
as a general partner to partnership creditors who extend credit to the
partnership without actual knowledge that he is not a general partner.
There are, however, exceptions to this rule provided under Art.
1846 of the New Civil Code. The surname of a limited partner may appear
in the partnership name if it is also the surname of a general partner, or if
prior to the time when the limited partner became such, the business has
been carried on.
The contribution, rights, obligations, and prohibitions of the industrial and

capitalist partners in a limited partnership are generally the same as they wherein a
general partnership. If a capitalist partner is at the same time a limited partner such
contributions, rights, obligations, and prohibitions shall, be qualified by the provisions
governing the circumstance of limited partner abovementioned. An industrial partner
and a managing partner cannot be at the same time a limited partner as this entails a
contribution of his service to the partnership expressly prohibited under Art. 1845 of the
New Civil Code and an exercise of control or management of the partnership from such
doing he is also prohibited by law.
Liability
If, in the course of the operations of the limited partnership, it incurred a liability of
P5 million pesos, all the partners – namely Faith Lazaro, Sunjay Kumar, Janine Sevalla,
and Sofia Monique are liable. However, the limited partner, Sofia Brondial, is to be held
liable only to the extent of her contribution to the capital, which is P250,000. Such
liability shall only be distributed among the liable partners after the assets and
properties of the partnership have been exhausted – their liability being only subsidiary.
Subtracting P250,000 from the P5 million, the partners, excluding the limited
partner, will bear the remaining liability amongst themselves. A total of P4,750,000 shall
be divided among the three general partners.
Their liability shall be divided pro rata, which in the context of liabilities acquired
as contractual debts as compared to losses, is to be computed in consideration of the
number of the partners and not their contribution in the partnership’s capital. 2 With this
in mind, the total remaining liability of P4,750,000 is to be divided among the three
partners, each shouldering 1/3 portion of the total. Each of the three partners is liable to
pay P1,583,333.33, and the limited partner is liable for P250,000 to answer for the P5
million liability of the partnership.
Dissolution
The cause of the dissolution of the partnership is the declaration as insolvent of
Janine Sevalla, a general partner, by a court. According to Sec. 4 (p) of the Financial
Rehabilitation and Insolvency Act (FRIA) of 2010, an insolvent shall refer to the financial
condition of a debtor that is generally unable to pay its or his liabilities as they fall due in
the ordinary course of business or has liabilities that are greater than its or his assets.
A partner becoming insolvent brings with it the fact that he can no longer answer
for his liability owing to the creditors of the partnership and third persons arising from
contractual obligations and debts acquired in the operation of such partnership. A
general partner who subsequently becomes insolvent cannot participate no longer in a
partnership. Because of this, there will be, in essence, a change in the structure of the
1
Villanueva, Cesar Lapuz (2011). Agency, Trusts, Partnerships & Joint Ventures.
2
partnership and will of the partners, which will warrant a need to dissolve the
partnership.1
Liquidation
Art. 1836 of the New Civil Code provides for the persons who have the right to
wind up the partnership affairs. In the absence of an agreement by the partnership,
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. 2
In this case, as the partnership assigned a liquidating partner, the manner of
winding up of the affairs of the partnership will be done extrajudicially; as compared to
judicially, wherein the authority to wind up the partnership affairs emanates from the
court upon cause shown by any partner, his legal representative, or assignee.
The assets of the partnership is composed of the partnership property acquired
by the partnership during its operation period, which are the small house and lot in
Valenzuela, Metro Manila used as the office valued at P1 million, and the equipment
valued in total at P1 million as well, and the share in the liabilities of the partners.
As the liquidating partner, according to Art. 1863 of the Civil Code, I should first
satisfy the liabilities owing to creditors other than partners. To be able to cover the
losses in the total amount of P10 million I will begin by selling properties of the
partnership – the land. If, after partnership property has been all sold and a total sum of
P2 million is realized, the losses left needed to be shouldered by the partners will be
only P8 million.
In dividing the share in the losses of each partner, Art. 1797 of the New Civil
Code shall govern as evidenced by Art. 1839. In the absence of stipulation, the share of
each partner in the profits and losses shall be in proportion to what he may have
contributed. However, the limited partner is not of the obligation to contribute to the
losses of partnership, as his liability is only up to the extent of his contribution to the
capital. Therefore, the P250,000 contribution to the capital of Sofia Brondial, the sole
limited partner, shall be subtracted from the P8 million remaining amount of losses.
This, in turn, releases the limited partner from any liability on the partnership.
The total remaining losses in the amount of P7,750,000 shall be borne by the
remaining three general partners, computed in accordance with Art. 1797 plus each
partners’ share in the difference between the supposed liability of the limited partner in
the losses and his contribution to the capital. Faith Lazaro, having contributed 70% of
the total capital of the partnership, shall now shoulder approximately 73.68% or
P5,711,326 for the losses. Sunjay Kumar, having contributed 20% of the total capital of
the partnership, shall now contribute 21.1% or P1,627,924 for the losses. Janine
Sevalla, having contributed 5% of the total capital of partnership, shall now contribute
5.3% or P410,750 for the losses. These additional contributions when computed in total
amounts to P8 million, which shall be enough to cover the liabilities of the partnership.
Art. 1839 of the New Civil Code also provides for the order of payment of
liabilities in the context of winding up of the affairs of the limited partnership, which is 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. The main differences between the orders of
payment in a general partnership and in a limited partnership is that in the latter, the
payment to limited partners shall be made first before payment to general partners, and
profits are given priority over capital.3
New Transaction
1
2
Art. 1836, NCC. 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.
3
Paras, Edgardo L. (2016). Civil Code Annotated. Special Contracts.
If, in the event that one of the partners entered into a new transaction with a third
person after the dissolution of the limited partnership, the rules set forth by Art. 1834 of
the New Civil Code must still govern as the provisions on limited partnership is silent as
to this matter. Just like in a general partnership, all other partners aside from the
liquidating partner is subject to the third paragraph of such provision which states that
where a partner has no authority to wind up partnership affairs but contracts a new
obligation or transaction under the partnership name after it has been dissolved, as a
general rule, cannot bind neither the partnership nor the partners with regard such new
transaction.
There are two exceptions to this rule, however, in which cases the partnership
shall still be bound. One is when the partner, other than the liquidating partner,
transacts with one who had extended credit to the partnership prior to dissolution and
had no knowledge or notice of his want of authority, and the other one is when the
partner, other than the liquidating partner, transacts with one who had not extended
credit to the partnership prior to dissolution, and, having no knowledge or notice of his
want of authority, the fact of his want of authority has not been advertised in the manner
provided for advertising the fact of dissolution in a newspaper of general circulation in
the place (or in each place if more than one) at which the partnership business was
regularly carried on.

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San Beda University – College of Law

Agency, Trust, and Partnership Laws

Brondial, Sofia Monique S.

Nature and Object

The Kinds of Partners in this Partnership as to their Contribution, Rights and

Nature and Object

The Kinds of Partners in this Partnership as to their Contribution, Rights and

The contribution, rights, obligations, and prohibitions of the industrial and

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