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CIVIL LAW REVIEWER

TABLE of CONTENTS

AGENCY
Table of Contents
Chapter I. Nature, Form, and Kinds of Agency
.......................................................................341
I.
Definition [Art. 1868, CC] ..................341
II.
Purpose .............................................341
III. Characteristics [CNPPBF].................342
IV. Essential Elements............................342
V. Determination of Existence of Agency
342
VI. Agency v Similar Contracts ...............343
VII.
Kinds .............................................344

Chapter III. Liabilities of the Agent .............352


I.
Liability to Third Persons...................352
II.
Liability to the Principal .....................352
III. Liability of Two or More Agents.........353
Chapter IV. Obligations of the Principal ...354
I.
To Comply with the obligations
contracted by the agent .............................354
II.
To Advance the Necessary Sums and
Reimburse the Agent .................................355
III. To Indemnify the Agent for Damages355
IV. To Pay the Agents Compensation ...356
V. To Be Solidarily Liable ......................356
Chapter V. Extinguishment of Agency......357
Extinguishment of Agency [EDWARD] ......357
I.
Expiration of the period for which it was
constituted..................................................357
II.
Death,
civil
interdiction,
insanity,
insolvency ..................................................357
III. Withdrawal of the agent ....................357
IV. Accomplishment of the object of the
agency .......................................................357
V. Revocation ........................................357
VI. Dissolution of the firm/corp. Which
entrusted/accepted the agency..................358

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Chapter II. Obligations of the Agent...........348


I.
To Carry Out the Agency ..................348
III. To Advance the Necessary Funds [Art.
1886, CC]...................................................349
IV. To Act in Accordance with Principals
Instructions.................................................349
V. To Prefer Interest of Principal Over
Personal Interest........................................349
VI. To Render Accounts and Deliver Things
Received by Virtue of the Agency..............349
VII.
To Be Responsible for Substitutes350
VIII.
To Pay Interest .............................350
IX. To Answer for His Negligence or Fraud
[Art. 1909, CC] ...........................................350
X. Special
Obligations
of
Factor/
Commission Agents ...................................350

Prof. Roberto N. Dio


Faculty Editor

Genevieve E. Jusi
Lead Writer
Joyce Anne C. Roldan
Writer

CIVIL LAW
Kristine Bongcaron
Patricia Tobias
Subject Editors

ACADEMICS COMMITTEE
Kristine Bongcaron
Michelle Dy
Patrich Leccio
Editors-in-Chief

PRINTING & DISTRIBUTION


Kae Guerrero

DESIGN & LAYOUT


Pat Hernandez
Viktor Fontanilla
Rusell Aragones
Romualdo Menzon Jr.
Rania Joya

LECTURES COMMITTEE
Michelle Arias
Camille Maranan
Angela Sandalo
Heads
Katz Manzano Mary Rose Beley
Sam Nuez Krizel Malabanan
Arianne Cerezo Marcrese Banaag
Volunteers

MOCK BAR COMMITTEE


Lilibeth Perez

BAR CANDIDATES WELFARE


Dahlia Salamat

LOGISTICS
Charisse Mendoza

SECRETARIAT COMMITTEE
Jill Hernandez
Head
Loraine Mendoza Faye Celso
Mary Mendoza Joie Bajo
Members

Chapter I. Nature, Form, and Kinds of


Agency
I.
II.
III.
IV.
V.
VI.
VII.

DEFINITION
PURPOSE
CHARACTERISTICS
ESSENTIAL ELEMENTS
DETERMINATION OF EXISTENCE
AGENCY V SIMILAR CONTRACTS
KINDS

I.

Definition [Art. 1868, CC]

By the contract of agency,


1. a person (agent) binds himself
2. to render some service or to do something in
representation or on behalf of another
(principal),
3. with the consent or authority of the latter.

II. Purpose
The purpose of agency is to extend the
principals personality.
The personality of the principal is extended
through the facility of the agent. In so doing,
the agent, by legal fiction, becomes the
principal, authorized to perform all acts
which the latter would have him do. The
relationship can only be effected with the
consent of the principal, which must not, in
any way, be compelled by law or by any
court. (Litonjua, Jr. v. Eternit Corp.)
What acts may be authorized
1. General Rule: What a man may do in
person, he may do thru another.
2. Exceptions
a. Personal acts
b. Criminal acts
c. Unlawful acts
Theory of Imputed knoweldge
1. General Rule: For knowledge of agent to be
imputed to the principal, there must be:
a. Actual notice to the agent;
b. The notice must pertain to a matter of
fact and not of law; and
c. The fact must be within the scope of the
agents authority.
2. Exceptions
a. Agents interests are adverse to those of
the principal;
b. Agents duty is not to disclose
information;
c. 3rd person claiming the benefit of the
rule colludes with agent to defraud
principal.

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AGENCY & PARTNERSHIP TEAM

Chapter I. NATURE, FORM, and KINDS of AGENCY

AGENCY & PARTNERSHIP

CIVIL LAW REVIEWER

NoteThe theory of imputed knowledge


ascribes the knowledge of the agent, to the
principal, not the other way around. The
knowledge of the principal cant be imputed to its
agent. (Sunace Internatl Mgt. Services v. NLRC,
2006)

III. Characteristics [CNPPBF]


1. Consensual: perfected by mere consent
2. Nominate: has its own name
3. Preparatory: purpose is the execution of a
juridical act in relation to a third person
4. Principal: can stand by itself without need of
another contract
5. Bilateral: gives rise to reciprocal rights and
obligations
6. Fiduciary: since it is based on trust and
confidence

IV. Essential Elements


Essential Elements [CORS] (Rallos v Felix Go
Chan, 1978)
1. Consent, express or implied, of the parties
to establish the relationship
2. Object is the execution of a juridical act in
relation to a third person
3. Agent acts as a Representative and not for
himself
4. Agent acts within the Scope of his authority
Intent to establish agency essential
General Rule
1. On the part of the principal there must be an
intention to appoint or an intention naturally
inferable from his words or actions; and
2. On the part of the agent, there must be an
intention inferable from words or deeds to
accept the appointment and act on it.
Exception
1. Agency by estoppel; and
2. Agency by operation of law
Agency by Estoppel
1. The principal manifested a representation of
the agents authority or knowlingly allowed
the agent to assume such authority;
2. The third person, in good faith, relied upon
such representation;
3. Relying upon such representation, such third
person has changed his position to his
detriment. (Litonjua vs. Eternit Corporation,
G.R. No. 144806)
Apparent Authority
It imposes liability, not as the result of the
reality of a contractual relationship, but
rather because of the actions of a principal
or an employer in somehow misleading the

Chapter I. NATURE, FORM, and KINDS of AGENCY

public into believing that the relationship or


the authority exists.
The principal is bound by the acts of his
agent with the apparent authority which he
knowingly permits the agent to assume, or
which he holds the agent out to the public as
possessing. The question in every case is
whether the principal has by his voluntary
act placed the agent in such a situation that
a person of ordinary prudence, conversant
with business usages and the nature of the
particular business, is justified in presuming
that such agent has authority to perform the
particular act in question. (Professional
Services Inc. vs. Agana, G.R. No. 126297)
One who clothes another with apparent
authority as his agent, and holds him out to
the public as such, cannot be permitted to
deny the authority of such person to act as
his agent, to the prejudice of innocent third
parties dealing with such person in good
faith. (Macke v Camps, 1907)
Capacity of the parties
The principal must be capacitated to give
consent.
The agent must have the capacity to enter
into contracts although he/she may not have
the capacity to enter into the particular
contract subject of the agency
However, as between the principal and the
agent, the agent can set up his incapacity
provided he is not estopped. [Paras, Civil
Code of the Philippines Annotated]

V. Determination of Existence of Agency


Designation by partiesis not controlling.
Fact of existence
If relations that constitute agency exist, there
is agency regardless of whether or not the
parties understood the exact nature of the
relation.
No presumption of existence
1. General Rule: Agency must exist as a fact.
2. Exceptions:
a. When agency arises ipso jure
b. To prevent unjust enrichment
Intention of the parties to create
The nature of the contract depends on the
intention of the parties as gathered from

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Chapter I. NATURE, FORM, and KINDS of AGENCY

their words and actions


circumstances of the case.

and

the

As between principal and 3rd person,


however, agency may exist without the
express consent of the agent.
Keeler Rule (Harry Keeler Electric v
Rodriguez, 1922)
1. Against the principal, the third party has the
obligation to determine existence and scope
of agency and has the burden of proof in
case the principal denies it
2. Against the agent, the third person deals
with him at his own peril. A third person may
require the presentation of the POA or the
principals instructions as regards the
agency (Art. 1902)
3. The person dealing with the agent must also
act with ordinary prudence and reasonable
diligence. If he knows or has good reason to
believe that the agent is exceeding his
authority, he cannot claim protection.

VI. Agency v Similar Contracts


Partnership
1. An agent acts not for himself, but for his
principal; a partner can act for himself, for
his firm, and for his partners
2. Parity of Standing Test
A partnership generally presupposes a
parity of standing between the partners, in
which each party has an equal proprietary
interest in the capital or property contributes
& where each party exercises equal rights in
the conduct of the business. (Sevilla v CA,
1988)
Independent Contractor (IC)
Agency
1. Control
The agent acts under
the
control
and
instruction
of
the
principal.

2. Liability for tort


Principal is liable for
torts committed by the
agent within the scope
of his authority.

IC

The IC is authorized to
do the work according
to his own method,
without being subject
to the other partys
control, except insofar
as the result of the
work is concerned

Employer not liable for


torts committed by the
independent
contractor.

3. Subagents
Agents of the agent
can be controlled by
the principal

Lease of Service
Agency
1. Basis
Basis
is
representation
2. Purpose
Execution of a juridical
act in relation to a
third person
3. Authorized Acts
The agent is destined
to execute juridical
acts
(creation,
modification
or
extinction of relations
with third parties)
4. Discretion
Agent
exercises
discretionary powers.
5. Parties
3 parties: Principal,
agent and the 3rd
person with whom the
agent contracts

Lease of Property
Agency

The employees of
contractor are not
employees
of
employer
of
contractor

the
the
the
the

Lease of Service
Basis is employment

Execution a piece of
work or rendering of
service
Lease of services
contemplate
only
material acts.

Lessor
ordinarily
performs
only
ministerial functions.
2 parties: Lessor and
lessee.

Lease of Property

1. Control
The agent acts under
the
control
and
instruction
of
the
principal.

Lessee
controlled
lessor

2. Things involved
Agency may involve
things
other
than
property

Lease of property only


involves property

3. Binding power
Agent can bind the
principal

Agency to Sell v Sale


Agency to Sell
1. Ownership of goods
Agent receives the
goods as the goods of
the principal
2. Payment
Agent
delivers
proceeds of the sale to
the principal

is
by

Lessee cannot
the lessor

not
the

bind

Sale
Buyer receives
goods as owner

the

Buyer pays the price

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3. Return of goods
Generally, the agent
can return the goods
in case he is unable to
sell them to a third
person
4. Discretion
Agent
exercises
discretionary powers.
5. Parties
Agent in dealing with
thing
received
is
bound to act according
to the instructions of
his principal;

Agency to Buy v Sale


Agency to Buy
1. Ownership of goods
The agent acquires
ownership in behalf of
the principal
2. Changes in price
Generally, any change
in the price should be
borne by the principal
3. Payment
The agent pays the
purchase
price
in
behalf of the principal

Guardianship
Agency
1. Person represented
Agent represents a
capacitated person
2. Source of authority
Agent is appointed by
the principal and can
be removed by the
latter.
3. Control
The agent acts under
the control of the
principal.
4. Discretion
Agent
exercises
discretionary powers.
5. Binding power
Agent can make the
principal
personally
liable.

Chapter I. NATURE, FORM, and KINDS of AGENCY

generally,
buyer
cannot
return the
goods bought

Lessor
ordinarily
performs
only
ministerial functions.
Buyer can deal with
the thing as he
pleases, being the
owner.

Sale
The buyer acquires
ownership for himself.

VII. Kinds
As to Manner of Creation
1. Express
a. Agent has been actually authorized by
the principal
b. Agency may be oral or in writing, unless
the law requires a specific form. [Art.
1869, CC]
2. Implied
a. On the part of the principal:
From his acts
his silence or lack of action;
his failure to repudiate the agency
knowing that another person is
acting on his behalf without authority
[Art. 1869, CC]
b. On the part of the agent:
from his acts which carry out the
agency;
from his silence or inaction
according to the circumstances [Art.
1870, CC]

Buyer cannot adjust


the
price
already
agreed upon.

Acceptance of the Agency


Between persons who are present
Principal delivers his power of
attorney to the agent; and
Agent receives it without
objection [Art. 1871, CC]
Between persons who are absent:
General
Rule:
Acceptance
cannot be implied from the
silence of the agent
Exceptions
i. when the principal transmits
his POA to the agent, who
receives
it
without
any
objection;
ii. when the principal entrusts to
him by letter or telegram a
POA with respect to the
business in which he is
habitually engaged as an
agent, and he did not reply to
the letter [Art. 1872, CC]

Buyer pays the price

Guardianship
A guardian represents
an
incapacitated
person.
Guardian is appointed
by the court or by law.

Guardian is not subject


to the directions of the
ward but must act for
the benefit of the latter.
Lessor
ordinarily
performs
only
ministerial functions.
Guardian
has
no
power
to
impose
personal liability on the
ward.

c.

Agency by estoppel
If a person specially informs another
or states by public advertisement
that he has given a power of
attorney to a third person, the latter
becomes a duly authorized agent,
even if previously there was never a
meeting of minds between them.
The power shall continue to be in
full force until the notice is rescinded
in the same manner in which it was
given. [Art. 1869, CC]

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d. In Litonjua, Jr. v. Eternit Corp. (2006),


the following must be present for agency
by estoppels to exist:
the
principal
manifested
a
representation of the agents
authority or knowingly allowed the
agent to assume such authority;
the third person, in good faith, relied
upon such representation;
relying upon such representation,
such third person has changed his
position to his detriment.
As to Formalities
General Rule
Agency may be oral or in writing [Art. 1869,
CC]
Exceptions
a. When the law requires a specific form
[Art. 1869, CC]
b. Sale of a piece of land or any interest
therein
When a sale of a piece of land or any
interest therein is through an agent, the
authority of the latter shall be in writing;
otherwise, the sale shall be void. [Art.
1874, CC]
It is not necessary that the real property
to be sold be precisely described in the
written authority of the agent. It is
sufficient if the authority is so expressed
as to determine without doubt the limits
of the agents authority. [Jimenez v
Rabot, 1918]
As to Cause or Consideration
Agency may be onerouse or gratuitous
a. General RuleAgency is presumed to
be for compensation [Art. 1875, CC]
b. ExceptionThere is proof to the
contrary [Art. 1875, CC]
As to Extent of Business Covered
1. Universal
A universal agent is one authorized to
do all acts for his principal which can
lawfully be delegated to an agent.
[Siasat v. IAC (1985)]
2. General
It comprises all the business of the
principal [Art. 1876, CC]
3. Special
It comprises one or more specific
transactions [Art. 1876, CC]

Chapter I. NATURE, FORM, and KINDS of AGENCY

General Agency

Special Agency

1. Scope of authority
All acts connected with
the
business
or
employment in which he
is engaged.

Specific
acts
in
pursuance of particular
instructions
or
with
restrictions
necessarily
implied from the act to be
done.
2. Nature of service authorized
Involves continuity of No continuity of service.
service.
3. Extent to which agent may bind principal
May bind his principal by Cannot bind his principal
an act within the scope of in a manner beyond or
his authority although it outside the specific acts
may be contrary to the which he is authorized to
latters
special perform.
instructions.
4. Termination of authority
Apparent authority does Duty imposed upon the
not terminate by the mere 3rd party to inquire
revocation of his authority makes termination of the
without notice to the 3rd relationship as between
party.
the principal and agent
effective as to such 3rd
party, unless the agency
has been entrusted for
the
purpose
of
contracting with such 3rd
party.
5. Construction of principals instructions
Merely advisory in nature. Strictly construed as they
limit the agents authority.

As to Authority Conferred
1. Agency may be couched in general or
specific terms
a. Couched in general terms [Art. 1877,
CC]
If couched in general terms, it comprises
only acts of administration, EVEN IF:
the principal states that he withholds
no power; or
he states that the agent may
execute such acts as he may
consider appropriate; or
the agency should authorize a
general and unlimited management
b. Couched in specific termsauthorizing
only the performance of specific act/acts
2. Power of Attorney
Definition
Written authorization to an agent to
perform specified acts in behalf of his
principal which acts, when performed,
shall have binding effect on the principal
[2 Am. Jur. 30]
Purpose
Not to define the agents authority, but to
evidence such authority to 3rd parties

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Interpretation
General Rule: Power of Attorney should
be strictly construed
Exception: When strict construction will
destroy the very purpose of the power
Special Power of Attorney
A special power of attorney is an
authority granted by the principal to the
agent where the act for which it is drawn
is expressly mentioned. [Strong v.
Repide, 1906]
A special power can be included in a
general power of attorney, either by
giving authority for all acts of a particular
character or by specifying therein the
act/transaction for which a special power
is needed. [Tolentino]
3. When special powers are necessary [Art.
1878, CC] (PNC-WIG-LLB-PORIRS):
a. to make such Payments as are not
usually considered acts of administration
b. to effect Novations which put an end to
obligations already in existence at the
time the agency was constituted
a. Compromise, to submit questions to
arbitration, to renounce the right to
appeal from a judgment, to waive
objections to the venue of an action or to
abandon a prescription already acquired
b. to Waive any obligation gratuitously
c. to enter into any contract by which the
ownership of an Immovable is
transmitted
or
acquired
either
gratuitously
or
for
a
valuable
consideration
d. to make Gifts, except customary ones
for charity or those made to employees
in the business managed by the agent;
e. to Loan or borrow money, unless the
latter act be urgent and indispensable
for the preservation of the things which
are under administration
f. to Lease any real property to another
person for more than one year
g. to Bind the principal to render some
service without compensation
h. to bind the principal in a contract of
Partnership
i. to Obligate the principal as a guarantor
or surety
j. to create or convey Real rights over
immovable property
k. to accept or repudiate an Inheritance
l. to Ratify or recognize obligations
contracted before the agency
m. any other act of Strict dominion

Chapter I. NATURE, FORM, and KINDS of AGENCY

Note
a. Art. 1878 refers to the nature of the
authorization, not to its form. Even if a
document is titled as a general power of
attorney, the requirement of special
power of attorney is met if there is a
clear mandate from the principal
specifically authorizing the performance
of the act (Bravo-Guerrero v Bravo,
2005)
b. What SPA to sell/mortgage does not
include [Art. 1879, CC]
A special power to sell excludes the
power to mortgage;
Special power to mortgage does not
include the power to sell.
c. A special power to compromise does not
authorize submission to arbitration. [Art.
1880, CC]
d. The power to legally compel the
payment of debts owing to the principal
is an express grant of the right to bring
suit for the collection of such debts.
(Germann & Co v Donaldson, 1901)
e. A power of attorney to loan and borrow
money and to mortgage the principals
property does not carry with it or imply
that that the agent has a legal right to
make the principal liable for the personal
debts of the agent. (BPI v De Coster,
1925)
f. Unless the contrary appears, the
authority of an agent must be presumed
to include all the necessary and usual
means of carrying the agency into effect.
(Macke v Camps, 1907)
g. If agent is empowered to borrow
moneythe agent may be the lender at
the current rate of interest.
h. If agent is empowered to lend money at
interestthe agent cannot borrow the
money without the consent of the
principal
i. Effect of lack of SPA where one is
required It is neither accurate not
correct to conclude that the absence of
SPA (where one is required by law)
renders the contract entered into by
virtue of said SPA void. The contract is
merely
unenforceable.
(Dungo
v
Lopena, 1962, citing Art. 1403(1), CC)
As to Nature and Effects
1. Ostensible or Representativeagent acts in
the name and representation of the principal
2. Simple or Commissionagent acts in his
own name but for the principals account
3. Agency by Estoppelthere is no agency,
and the alleged agent seemed to have

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Chapter I. NATURE, FORM, and KINDS of AGENCY

apparent or ostensible, but


authority to represent another

not

real,

Apparent Authority

Agency by Estoppel

Though
not
actually
granted,
principal
knowingly permits or
holds out the agent as
possessing
the
necessary powers to act
in a certain way.

Where the principal, by


his acts or omission,
permits his agent to
exercise
powers
not
granted to him, even
though the principal may
have
no
notice
or
knowledge of the conduct
of the agent.

Implied Agency
Principal alone is liable.

Agency by Estoppel
If caused by the principal,
he is responsible. If
caused by the agent, he
is responsible. Provided,
rd
3 person in good faith.

4. When the principal ratifies the acts of the


agent
a. Conditions for ratification (CaP-DECK)
i. The principal must have Capacity
and Power to ratify
ii. The act must be Done in behalf of
the principal
iii. He must ratify the acts in its Entirety
iv. The act must be Capable of
ratification
v. He must have had Knowledge of
material facts.
b. Effects of ratification
i. With respect to the agent: It relieves
the agent from liability. He may also
recover compensation
ii. With respect to the principal: He
assumes responsibility for the
unauthorized act, as fully as if the
agent had acted under original
authority; but he is not liable for acts
outside the authority approved by
his ratification.
iii. With respect to 3rd persons: They
are bound by ratification. They
cannot question agents authority.
Ratification

Estoppel

Rests on intention
Affects
the
entire
transaction
from
the
beginning.

Rests on prejudice
Affects only relevant
parts of the transaction.

The
substance
of
ratification is confirmation
of unauthorized acts or
conduct after it has been
done.

The
substance
of
estoppel is the principals
inducement to another to
act to his prejudice.

As to Kinds of Principal
1. Principal may be:
a. Disclosed
b. Partially disclosedthird persons are
unaware of principals identity
c. Undisclosedagent acts in his own
name
2. General Rule [Art. 1883, CC]
If the principal is undisclosed (agent acts in
his own name):
a. the agent is the one directly bound in
favor of the person with whom he has
contracted, as if the transaction were his
own
b. the principal has no right of action
against the persons with whom the
agent has contracted; neither have such
persons against the principal.
Exception [Art. 1883, CC]
a. When the contract involves things
belonging to the principal
b. Exception qualified by National Bank v
Agudelo, 1933
For the principal to be bound by the
act of an agent who contracted in
his [agents] own name, it is not
sufficient that the contract involved
things belonging to the principal.
The agent should also have acted
within his scope of authority.
[National Bank v Agudelo, 1933;
Rural Bank of Bombon v CA, 1992]
3. Agent may still be sued even if principal is
undisclosed and contract involved things
belonging to the principal.
Even if the principal is undisclosed and
the contract involved things belonging to
the principal, the third person who
contracted with the agent has a right of
action not only against the principal but
also against the agent, when the rights
and obligations which are the subject
matter of the litigation cannot be legally
and juridically determined without
hearing both of them. In such case, the
agent being a necessary party to the full
and complete determination of the case
which originated from his act should be
included in the case as defendant.
[Beaumont v Prieto, 1921]

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Chapter II. Obligations of the Agent


I.
II.

TO CARRY OUT THE AGENCY


TO ACT WITHIN THE SCOPE OF HIS
AUTHORITY
III. TO ADVANCE NECESSARY FUNDS
IV. TO
ACT
IN
ACCORDANCE
WITH
INSTRUCTIONS
V. TO PREFER PRINCIPALS INTEREST OVER
PERSONAL INTEREST
VI. NOT TO LOAN TO HIMSELF WITHOUT
PRINCIPALS CONSENT
VII. TO RENDER ACCOUNT AND DELIVER
THINGS RECEIVED BY VIRTUE OF AGENCY
VIII. TO BE RESPONSIBLE FOR SUBSTITUTES
IX. TO PAY INTEREST
X. TO ANSWER FOR HIS FRAUD/NEGLIGENCE
XI. SPECIAL
OBLIGATIONS
OF
FACTOR/COMMISSION AGENTS

I.

To Carry Out the Agency

Obligation to carry out the agency he


accepted [Art. 1884, CC]
1. The agent is bound by his acceptance to
carry out the agency own
2. He shall be liable for damages that the
principal may suffer due to his nonperformance [Art. 1884, CC]
Exception: An agent shall not carry out an
agency if its execution would manifestly result in
loss or damages to the principal. [Art. 1888, CC]
Obligation to finish business began on
principals death [Art. 1884, CC]
The agent must finish the business already
begun on the death of the principal, should
delay entail any danger
Obligation should he decline the agency [Art.
1885, CC]
1. He is bound to observe the diligence of a
good father of a family in the custody and
preservation of the goods forwarded to him
by the owner until the latter should appoint
an agent or take charge of the goods
2. However, the owner must act as soon as
practicable either by appointing an agent or
by taking charge of the property
Obligation to continue agency should he
withdraw [Art. 1929, CC]
The agent, even if he should withdraw from
the agency for a valid reason, must continue
to act until the principal has had reasonable
opportunity to take the necessary steps to
meet the situation.

Chapter II. OBLIGATIONS of the AGENT

II. To Act Within the Scope of His


Authority [Art. 1881, CC]
Authority is the power of the agent to affect the
legal relations of his principal by acts done in
accordance with the principals manifestations of
consent.
When agent acting within the scope of his
authority
1. When he is performing acts which are
conducive to the accomplishment of the
purpose of the agency [Art. 1881, CC]
2. If the agency has been performed in a
manner more advantageous to the principal
than that specified by him [Art. 1882, CC]
3. Insofar as third persons, when the agents
act is within the terms of the power of
attorney, as written, even if the agent has in
fact exceeded the limits of his authority
according to an understanding between the
principal and the agent. [Art. 1900, CC]
Note:
rd
1. A 3 person with whom the agent wishes to
contract on behalf of the principal may
require the presentation of a power of
attorney or the principals instructions [Art.
1902, CC]
2. The scope of the agents authority is what
appears in the written terms of the power of
attorney. While third persons are bound to
inquire into the extent or scope of the
agents authority, they are not required to go
beyond the terms of the written power of
attorney. [Siredy Enterprises, Inc. v CA,
2002]
Effect when agent acts within the scope of
his authority
1. General Rule The agent who acts as such
is not personally liable to the party with
whom he contracts
2. Exceptions
a. If he expressly bound himself [Art. 1897,
CC]
b. If he exceeds the limits of his authority
without giving such party sufficient
notice of his powers [Art. 1897, CC]
c. If he acted in his own name; except if
the contract involves things belonging to
the principal [Art. 1883, CC]

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Chapter II. OBLIGATIONS of the AGENT

III. To Advance the Necessary Funds


[Art. 1886, CC]
General Rule
The agent is bound to advance necessary
funds, should there be a stipulation to do so.
Exception
When the principal is insolvent

IV. To Act in Accordance with Principals


Instructions
Obligation to act in accordance with
principals instructions
In the execution of the agency, the agent
shall act in accordance with the instructions
of the principal. [Art. 1887, CC]
Obligation in the absence of instructions
Agent shall do all that a good father of a
family would do, as required by the nature of
the business [Art. 1887, CC]
When private orders and instructions not
binding to third persons
Private or secret orders and instructions of
the principal do not prejudice third persons
who have relied upon the power of attorney
or instructions shown them. [Art. 1902, CC]
Effect when agent acts in accordance with
principals orders
Principal cannot set up the ignorance of the
agent as to circumstances whereof he
himself was, or ought to have been aware
[Art. 1899, CC]
Authority v Instructions
Authority
The sum total of the
powers committed or
permitted to the agent
Relates to the subject
(biz/transaction) with
which the agent is
empowered to deal or
act.
Limits of authority to
operate vs those who
have/are charged with
knowledge of them.

Instructions
Only a private rule of
guidance to the agent
Refers to the manner
or mode of agents
action with respect to
matters within the
permitted scope of
action.
Binding only on the
principal and agent

V. To Prefer Interest of Principal Over


Personal Interest
Rule in case of conflict of interest
1. General Rule
The agent shall be liable for damages if,
there being a conflict between his
interests and those of the principal, he
should prefer his own. [Art. 1889, CC]
2. Exceptions
a. The principal waives the benefit of the
rule, provided he does so with full
knowledge of the facts.
b. The interests of the agent are superior,
ex., agency coupled with an interest.
Agent prohibited from purchasing property
of principal
1. General Rule
The agent cannot acquire by purchase,
even at a public or judicial auction,
either in person or through the mediation
of
another
property
whose
administration or sale may have been
entrusted to them.
2. Exception
The principal has consented to the
purchase. [Art. 1491(2), CC]

VI. To Render Accounts and Deliver


Things Received by Virtue of the
Agency
Obligation to account and deliver [Art. 1891,
CC]
Every agent is bound to:
1. render an account of his transactions; and
2. deliver to the principal whatever he may
have received by virtue of the agency, even
though it may not be owing to the principal.
Effect of failure to comply
If he fails to do so or uses the
money/property for his own use, the agent is
liable for estafa [Art. 315, RPC]
Contrary stipulation void
Every stipulation exempting the agent from
the obligation to render an account shall be
void [Art. 1891, CC]
When not applicable (LIM)
1. A right of Lien exists in favor of the agent.
2. The agent or broker Informed the principal of
the gift or bonus or profit he received from
the vendee, and the principal did not object.

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Chapter II. OBLIGATIONS of the AGENT

3. If the agent or broker acted only as a


Middleman with the task of merely bringing
together the vendor and vendee (Domingo v
Domingo)
2.

VII. To Be Responsible for Substitutes


The agent shall be responsible for the acts of
his substitute:
1. when he was not given the power to appoint
one; or
2. when he was given such power, but without
designating the person, and the person
appointed was notoriously incompetent or
insolvent.

3.

The agent may appoint a substitute if the


principal has not prohibited him from doing so.
All acts of the substitute appointed against the
prohibition of the principal shall be void
Principal may also bring an action against the
substitute with respect to the obligations which
the latter has contracted under the substitution.
[Art. 1893, CC]

VIII.

4.

To Pay Interest

The agent owes interest on:


1. the sums he has applied to his own use from
the day on which he did so
2. those
which
he
owes
after
the
extinguishment of the agency

5.

IX. To Answer for His Negligence or


Fraud [Art. 1909, CC]
The agent is responsible not only for fraud, but
also for negligence
Liability shall be judged with more or less rigor
by the courts, according to whether the agency
was or was not for a compensation

X. Special
Obligations
Commission Agents

of

Factor/

Definition
one whose business is to receive & sell
goods for a commission, and is entrusted by
the principal with its possession [Mechem
on Agency]
Obligations of a commission agent
1. For goods received [Art. 1903, CC]
a. He shall be responsible for the goods
received by him in the terms and
conditions and as described in the
consignment

6.

b. To avoid liability, he should make a


written statement of the damage and
deterioration suffered by the same upon
receiving them
When handling goods of the same kind and
mark with different owners [Art. 1904, CC]
He should distinguish the goods by
countermarks, and designate the
merchandise respectively belonging to
each principal.
Not to sell on credit without express consent
[Art. 1905, CC]
The commission agent cannot, without
the express or implied consent of the
principal, sell on credit.
Should he do so:
a. the principal may demand from him
payment in cash
b. but the commission agent shall be
entitled to any interest or benefit,
which may result from such sale
To inform the principal of sale made on
credit, if authorized to do so [Art. 1906,
CC]
a. Should the commission agent, with
authority of the principal, sell on credit,
he shall so inform the principal, with a
statement of the names of the buyers
b. Should he fail to do so, the sale shall be
deemed to have been made for cash
insofar as the principal is concerned.
To indemnify principal for damages for
failure to collect the credits of his principal
when they fall due [Art. 1908, CC]
General Rule:
The commission agent who does not
collect the credits of his principal at the
time when they become due and
demandable shall be liable for damages
Exception
If he proves that he exercised due
diligence for that purpose
When he receives a guarantee commission
(del credere commission) [Art. 1907, CC]
a. Bear the risk of collection
b. Pay the principal the proceeds of the
sale on the same terms agreed upon
with the purchaser

Ordinary Agent v Commission Agent


Ordinary Agent
Commission Agent
Acts for and in
behalf
of
the
principal.
Need
not
have
possession of the
goods
of
the
principal.

Acts in his own name or


in that his principal.
Must be in possession
of the goods of the
principal.

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CIVIL LAW REVIEWER

CIVIL LAW REVIEWER

Chapter II. OBLIGATIONS of the AGENT

Broker v Commission Agent (Pacific


Commercial v Yatco, 1939)
Broker
Commission Agent
Engaged
in
the
purchase and sale, for
a principal, of personal
property which has to
be placed in his
possession
and
disposal.
Has a relation with the
principal (buyers or
sellers)
and
the
property which is the
object
of
the
transaction.

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AGENCY

Has no custody or
possession of the
thing he disposes;
merely acts as an
intermediary between
the sellers and the
buyer.
Maintains no relation
with the thing which
he purchases or sells.

CIVIL LAW REVIEWER

Chapter III. Liabilities of the Agent


I. LIABILITITY TO THIRD PERSONS
II. LIABILITY TO THE PRINCIPAL
III. LIABILITY OF TWO OR MORE AGENTS

Chapter III. LIABILITIES of the AGENT

2. the two contracts are incompatible with each


other
3. the agent acted in bad faith
4. agent shall be liable for damages to third
person whose contract must be rejected

II. Liability to the Principal


Liability to Third Persons

Agent not personally liable as a general


rule
General Rule
An agent who acts as such is not personally
liable to the party with whom contracts [Art.
1897, CC]
Exceptions
1. When he acts in his own name, except when
the contract involves things belonging to the
principal [Art. 1883, CC]
2. If he expressly binds himself [Art. 1897, CC]
3. If he exceeds the limits of his authority
without giving such party sufficient notice of
his powers [Art. 1897, CC]
NoteWhen an agent contracts in his
own name and without the express
authority of his principal, the obligation
so contracted by him is personal and is
not binding on his principal. [PNB v.
Agudelo]
BUT Third persons cannot set up the
fact that the agent has exceeded his
powers if the principal has ratified, or
has signified his willingness to ratify the
agents acts [Art. 1901, CC]
4. Under Art. 1898, CC
a. Agent contracts in the name of the
principal;
b. He exceeds the scope of his authority;
c. The party with whom he contracted with
is aware of the limits of his powers; AND
d. The agent undertook to secure the
principals ratification.
Note Under Art. 1898, CC, the contract
shall be void if the principal does not ratify
the contract and the party with whom the
agent has contracted is aware of the limits of
the powers granted by the principal.
Agent liable for damages to third persons
under Art. 1916 & 1917, CC
1. When two persons contract with regard to
the same thing, one of them with the agent
and the other with the principal;

Agent is liable for damages


1. Due to non-performance of agency
The agent is liable for the damages which,
thru his non-performance, the principal
may suffer [Art. 1884, CC]
2. For preferring personal interest to that of
principal
The agent shall be liable for damages if,
there being a conflict between his interests
and those of the principal, he should
prefer his own. [Art. 1889, CC]
3. Damages due to his withdrawal [Art. 1928,
CC]
The agent must indemnify the principal for
any damage that the principal may suffer
by reason of the withdrawal of the agent;
Exception: The agent should base his
withdrawal upon the impossibility of
continuing the performance of the agency
without grave detriment to himself.
Liability of agent for acts of substitute under
Art. 1892, CC
The agent shall be responsible for the acts of the
substitute:
1. when he was not given the power to appoint
one; or
2. when he was given such power, but without
designating the person, and the person
appointed was notoriously incompetent or
insolvent.
Principal may bring an action against the
substitute with respect to the obligations which
he has contracted under the substitution. [Art
1893, CC]
All acts of the substitute appointed against the
prohibition of the principal is void. [Art 1893, CC]
Responsibility for fraud or negligence
The agent is responsible not only for fraud,
but also for negligence, which shall be
judged with more or less rigor by the courts,
according to whether the agency was or was
not for compensation. [Art. 1909, CC]

352
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I.

CIVIL LAW REVIEWER

Chapter III. LIABILITIES of the AGENT

Interest under Art. 1896, CC


The agent owes interest on:
1. the sums he has applied to his own use from
the day on which he did so
2. those
which
he
owes
after
the
extinguishment of the agency
a. If he converted for personal use, his
liability is without prejudice to a criminal
action that may be brought against him.
b. If for the sum he owes after
extinguishment,
demand
is
not
necessary because the agent is required
to deliver to the principal whatever he
may have received by virtue of the
agency. [Art 1891, CC]
Liablity of Commission Agents
1. For any damage or deterioration of the
goods in the terms and conditions and as
described in the consignment
Exception: Upon receiving the goods, the
agent makes a written statement of the
damage and deterioration suffered [Art
1903, CC]

III. Liability of Two or More Agents


Liability is joint as a general rule [Art. 1894,
CC]
General Rule: Responsibility of two or more
agents, even though they have been appointed
simultaneously, is joint
Exception: Solidarity is expressly stipulated
Liability of two or more agents [Art. 1895,
CC]
If solidarity has been agreed upon, each of the
agents is responsible for:
1. the non-fulfillment of agency; and
2. for the fault or negligence of his fellows
agents, except: When the fellow agents
acted beyond the scope of their authority in
case of fault or negligence.

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AGENCY

2. For commingling goods belonging to


different owners [Art 1904, CC]
3. For selling on credit without the express or
implied consent of the principal [Art 1905,
CC]

Chapter IV. OBLIGATIONS of the PRINCIPAL

Chapter IV. Obligations of the Principal


I.

TO COMPLY WITH THE OBLIGATIONS


CONTRACTED BY THE AGENT
II. TO ADVANCE NECESSARY SUMS AND
REIMBURSE THE AGENT
III. TO INDEMNIFY AGENT FOR DAMAGES
IV. TO PAY THE AGENTS COMPENSATION
V. BE SOLIDARILY LIABLE

General Rule: THE ACT OF THE AGENT IS


THE ACT OF THE PRINCIPAL
Principal is bound by the acts of his agent.
He has an obligation to deal fairly and in
good faith with his agent
SPECIFIC OBLIGATIONS OF THE PRINCIPAL
[CARICS]
3.
4.
5.
6.
7.

I.

to Comply with the obligations contracted by the


agent
To Advance necessaty sums and Reimburse the
agent
To Indemnify agent for damages
To pay the agents Compensation
be Solidarily liable

To Comply with the


contracted by the agent

obligations

Obligations principal is bound to comply


with
1. obligations which the agent may have
contracted within the scope of his authority
[Art. 1910, CC]

3. When an agent acts in his own name, but


the contract involves things belonging to the
principal, the contract must be considered
as entered into between the principal and
the third person. [Art. 1883, CC; Sy-Juco
and Viardo v Sy-Juco, 1920]
4. The principal is solidarily liable with the
agent who has exceeded his authority if the
former allowed the latter to act as though he
had full power. [Art. 1911, CC]
5. If two persons contract simultaneously with
agent & principal for the same thing:
a. Contract of prior date prevails
b. If applicable, follow the rule on double
sales in Art. 1544, CC. [Art. 1916, CC]
Liability of Principal for Tort of Agent [Art.
1910, CC]
The principal is civilly liable to third persons
for torts of an agent if he commit such in the
course and within the scope of the agency.
Agents negligence or disobedience to the
principal does not relieve him from liability,
even if he had no knowledge about the tort.
Agent and principal are solidarily liable to
third persons.
Liability of Joint Principals: Solidary [Art
1915]
Each principal may be sued by the agent for
the entire amount due, not just for
proportionate shares.
Any of the principals may revoke the agency

Note: Principal is directly liable to creditor for


debt incurred by agent acting within the
scope of his authority. That the agent also
bound himself personally does not relieve
principal from liability if the debt was
incurred for his benefit. [Tuason v. Orozco]
2. obligations which the agent may have
contracted beyond the scope of his authority
but were ratified expressly or tacitly by the
principal [Art. 1910, CC]
Note: Conditions for ratification (CaP-DECK)
a. The principal must have Capacity and
Power to ratify.
b. The act must be Done in behalf of the
principal
c. He must ratify the acts in its Entirety
d. The act must be Capable of ratification
e. He must have had Knowledge of
material facts.

Requisites of Solidary Liability:


a. Two or more principals
b. All
principals
concurred
in
the
appointment of the same agent
c. Agent was appointed for a common
undertaking
Rules on Double Sale by Principal and Agent
[Art. 1916-1917]
General Rule:
1. When two persons contract with regard to
the same thing, one of them with the agent
and the other with the principal
2. two contracts are incompatible with each
other
3. the agent acted in good faith
4. the principal shall be liable for damages to
the third person whose contract must be
rejected
In case of double sale, which contracts are
incompatible with each other, that of PRIOR

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CIVIL LAW REVIEWER

DATE shall be preferred, without prejudice to Art


1544.
Art. 1544 provides that:
a. If the same movable property is sold to
different
persons,
ownership
is
transferred to whoever first took
possession in good faith.
b. If it be immovable, ownership belongs to
the person who in good faith first
recorded it in the Registry of Property.
c. If there is no inscription, ownership shall
belong to the person who, in good faith
was first in possession; and in the
absence of such, to the one who
presents the oldest title, provided there
is good faith.
Principal not liable in the following cases
1. Void or inexistent contracts under Art. 1409,
CC
2. Sale of a piece of land or any interest
therein & the authority of the agent is not in
writing [Art. 1874, CC]
3. Acts of the substitute appointed against the
prohibition of the principal [Art. 1892, CC]
4. Art. 1898, CC
Requisites:
a. agent contracts in the name of the
principal
b. he
exceeds the scope of the his
authority
c. the principal does not ratify the contract
d. the party with whom the agent
contracted is aware of the limits of the
powers granted by the principal; and
i. the agent did not undertake to
secure the principals ratification
5. Agent has no authority or acted beyond the
scope of his authority [Arts. 1403(1); 1910,
CC; Dungo v Lopena, 1962]
6. When the agent acts in his own name,
persons with whom the agent has
contracted have no right of action against
the principal, except when the contract
involves things belonging to the principal.
[Art. 1883, CC]
7. Unenforceable contracts under Art. 1403,
CC

II. To Advance the Necessary Sums and


Reimburse the Agent
Obligation to advance sums [Art. 1912, CC]
The principal must advance to the agent,
should the latter so request, the sums
necessary for the execution of the agency.

Chapter IV. OBLIGATIONS of the PRINCIPAL

Obligation to reimburse [Art. 1912, CC]


1. Should the agent have advanced sums, the
principal must reimburse him even if the
business or undertaking was not successful,
provided the agent is free from all fault.
2. The reimbursement shall include interest on
the sums advanced, from the day on which
the advance was made.
Exceptions to obligation to reimburse
[Art.1918] (FCKS)
1. When the expenses were due to the Fault of
the agent;
2. If the agent acted in Contravention of the
principal's instructions, unless the latter
should wish to avail himself of the benefits
derived from the contract;
3. When the agent incurred them with
Knowledge that an unfavorable result would
ensue, if the principal was not aware
thereof;
4. When it was Stipulated that the expenses
would be borne by the agent, or that the
latter would be allowed only a certain sum.
Note: Under Art. 1236(2), CC:
whoever pays for another may demand
from the debtor what he has paid, except
that if he paid without the knowledge or
against the will of the debtor, he can recover
only insofar as the payment has been
beneficial to the debtor.
Agents right to retain in pledge object of
agency should principal fail to reimburse him
1. The agent may retain in pledge the things
which are the object of the agency until the
principal:
a. effects the reimbursement set forth in
Art. 1912, CC; and
b. pays indemnity set forth in Art. 1913, CC
2. But agent is not entitled to the excess in
case the thing was sold to satisfy his claim,
and the proceeds are more than his claim
[Arts. 2115, 2121, CC]. Also he must
possess the thing lawfully in his capacity as
agent [2 C.J.S. 457]

III. To Indemnify the Agent for Damages


Obligation to pay indemnity for damages
[Art. 1913, CC]
The principal must indemnify the agent for
all the damages which the execution of the
agency may have caused the latter, without
fault or negligence on his part.

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CIVIL LAW REVIEWER

The agents has the right to retain in pledge the


object of the agency should principal fail to pay
the indemnity set forth in Art. 1913, CC.

IV. To Pay the Agents Compensation


Agency is presumed to be for a compensation,
unless there is proof to the contrary. [Art. 1875,
CC]

Chapter IV. OBLIGATIONS of the PRINCIPAL

act as though he had full powers. [Art. 1911,


CC]
With person who appointed an agent with
him for a common transaction
If two or more persons have appointed an
agent for a common transaction or
undertaking, they shall be solidarily liable to
the agent for all the consequences of the
agency. [Art. 1915, CC]

General Rule on Commission


The agent must be the efficient procuring
cause in order to be entitled to
compensation [Inland Realty v. Court of
Appeals]. His efforts must have resulted in
finding a ready, able and willing buyer of the
goods.
But for equity purposes, commission may be
granted if the agent, even if he is not the
procuring cause, nonetheless took diligent
steps to bring back the parties which led to
the consummation of the sale [Prats v. Court
of Appeals]

Doctrine of Procuring Cause


When a party is not the efficient
procuring cause in bringing about a sale,
he is not entitled to the stipulated
brokers commission. [Inland Realty v
CA, 1997]
If the principal breaks off from negotiations
with a buyer brought by the agent in order to
deliberately deal later with the buyer
personally, this is evident bad faith. In such
case, justice demands compensation for the
agent. [Infante v Cunanan, 1953]

V. To Be Solidarily Liable
With agent, if agent acted beyond scope of
authority and principal allowed him to act as
though he had full powers
Even when the agent has exceeded his
authority, the principal is solidarily liable with
the agent if the former allowed the latter to

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Compensation of Brokers
Since the brokers only job is to bring
together the parties to a transaction, it
follows that if the broker does not succeed in
bringing the mind of the purchaser and the
vendor to an agreement with reference to
the terms of a sale, he is not entitled to a
commission. [Rocha v Prats, 1922]

Chapter V. EXTINGUISHMENT of AGENCY

Chapter V. Extinguishment of Agency


I.

EXPIRATION OF THE PERIOD FOR WHICH IT


WAS CONSTITUTED
II. DEATH, CIVIL INTERDICTION, INSANITY,
INSOLVENCY
III. WITHDRAWAL OF THE AGENT
IV. ACCOMPLISHMENT OF THE OBJECT OF THE
AGENCY
V. REVOCATION
VI. DISSOLUTION OF THE FIRM/CORPORATION
WHICH
ENTRUSTED/ACCEPTED
THE
AGENCY

Extinguishment of Agency [EDWARD]


1. Expiration of the period for which it was
constituted
2. Death, civil interdiction, insanity, insolvency
3. Withdrawal of the agent
4. Accomplishment of the object of the agency
5. Revocation
6. Dissolution of the firm/corp. Which
entrusted/accepted the agency

I.

Expiration of the period for which it


was constituted
If created for fixed period, expiration of the
period extinguishes agency even if the
purpose was not accomplished
If no time is specified, Art. 1197 shall apply.
The courts may fix the period as under the
circumstances
have
been
probably
contemplated by the parties.
Period may be implied from terms of
agreement, purpose of agency, and the
circumstances of the parties

II. Death, civil


insolvency

interdiction,

insanity,

Death extinguishes agency


General Rule: Death extinguishes agency
Exceptions:
1. Agency coupled with an interest
a. Interest common to principal and agent;
or
rd
b. Interest of a 3
person who has
accepted the stipulation in his favor. [Art.
1930, CC]
2. Anything done by the agent, without
knowledge of the death of the principal or of
any other cause which extinguishes the
agency, is valid and fully effective with
rd
respect to 3 persons who may have

contracted with him in good faith. [Art. 1931,


CC]
3. Agent must finish business already begun
on the death of the principal, should delay
entail any danger. [Art. 1884, CC]
Obligation of heirs of agent upon agents
death [Art. 1932, CC]
1. They must notify the principal of the agents
death
2. They should adopt such measures as the
circumstances may demand in the interest
of the principal in the meantime.
3. The law does not impose a duty on the
principals heirs to notify the agent of the
principals death. [Rallos vs Felix Go Chan]

III. Withdrawal of the agent


1. General Rule: Agent may withdraw from the
agency by giving due notice to the principal
[Art. 1928, CC]
But: If the principal should suffer any
damage by reason of the withdrawal, the
agent must indemnify him;
Exception: If the agent based his withdrawal
upon the impossibility of continuing
performance of the agency without grave
detriment to himself. [Art. 1928, CC]
2. The agent, even if he should withdraw from
the agency for a valid reason, must continue
to act until the principal has had reasonable
opportunity to take the necessary steps to
meet the situation. [Art. 1929, CC]

IV. Accomplishment of the object of the


agency
Between principal and agent, the fulfilment
of the purpose for which agency was
created ipso facto terminates agency even if
it be expressly made irrevocable. If the
purpose has not been accomplished, the
agency continues indefinitely for as long as
the intent to continue is manifested through
words or actions of the parties

V. Revocation
Principal may revoke the agency at will as a
general rule
General Rule:
The principal may revoke the agency at will,
and compel the agent to return the
document evidencing the agency. Such

357
AGENCY

CIVIL LAW REVIEWER

CIVIL LAW REVIEWER

Chapter V. EXTINGUISHMENT of AGENCY

Exceptions:
1. The right of the principal to terminate the
authority of his agent is absolute and
unrestricted, except only that he may not do
so in bad faith [Danon v Brimo, 1921]
2. Agency is coupled with an interest [Art.
1927, CC]
a. A bilateral contract depends upon it
b. It is the means of fulfilling an obligation
already contracted;
c. Partner is appointed manager of a
partnership in the contract of partnership
and his removal from the management
is unjustifiable.
Note:
1. Powers of attorney falling under 1927
cannot be revoked at the pleasure of the
principal, but may be revoked for a just
cause, such as when the attorney-in-fact
betrays the interest of the principal.
(Coleongco v Claparols, 1964)
2. A mere statement in the power of attorney
that it is coupled with an interest is not
enough. In what does such interest consist
must be stated in the power of attorney. (Del
Rosario v Abad, 1958)
3. Irrevocability of the contract cannot affect
3rd persons and is obligatory only on the
principal who executed the agency. (New
Manila Lumber v Republic, 1960)
Revocation may be express or implied
1. Expressprincipal clearly and directly
makes a cancellation of the authority of the
agent in writing or orally
2. Implied
a. The appointment of a new agent for the
same business or transaction revokes
the previous agency from the day on
which notice thereof was given to the
former agent, without prejudice to the
provisions Art. 1921 and Art. 1922, CC
[Art. 1923, CC]
b. The agency is revoked if the principal
directly manages the business entrusted
to the agent, dealing directly with third
persons. [Art. 1924, CC]
c. A general power of attorney is revoked
by a special one granted to another

agent, as regards the special matter


involved in the latter [Art. 1926, CC]
d. In all three cases, there is implied
revocation only where the new
appointment is incompatible with the
previous one.
When revocation makes principal liable for
damages
1. If there is a period stipulated in the agency
contract, the agent may still revoke the
agents authority at will; but principal will be
liable for damages.
2. No period fixed: principal liable if the agent
can prove the former acted in bad faith.
Effect of revocation with respect to 3
persons [Arts. 1921-1922,CC]
Agency to contract
with specific
persons
rd
Wont prejudice 3
persons until notice is
given them.
Notice
must
be
personal.

rd

Agency to contract
with general public
Wont prejudice those
in good faith & w/o
knowledge.
Notice
must
be
published (Arts. 1873,
1922).

Revocation in case of solidary principals


[Art. 1925, CC]
When two or more principals have granted a
power of attorney for a common transaction,
any one of them may revoke the same
without the consent of others.
Notice of Revocation as against third
persons
1. If agent had general powers:
Revocation DOES NOT prejudice third
persons who acted in good faith and
without knowledge of the revocation
Notice of revocation in a newspaper of
general circulation is a sufficient warning
to third persons
2. If agency is for the purpose of contracting
specified persons: to prejudice persons
specified, they must be given actual notice.

VI. Dissolution of the firm/corp. Which


entrusted/accepted the agency

- end of Agency -

358
AGENCY

revocation may be express or implied. [Art.


1920, CC]

CIVIL LAW REVIEWER

TABLE of CONTENTS

PARTNERSHIP
Table of Contents

Chapter
II.
Obligations
of
the
Partnership/Partners Among Themselves 366
CRRAMP-LS..............................................366
I.
Make Contributions as Promised ......366
III. Manage the Partnership....................367
IV. Render Full Information.....................368
V. Account for benefits ..........................368
VI. Reimburse expenses ........................368
VII.
Liable for Partnership Contracts ...368
VIII.
Solidarily Liable with Partnership.369
Chapter
III.
Obligations
of
the
Partnership/Partners as to Third Persons.370
LANN .........................................................370
I.
Operate Under a Firm Name (Art. 1815,
CC) 370
II.
Bound by Partnership Admission......370
III. Bound by Notice Partner ...................370
IV. Liable for Acts of the Partnership......370
Chapter IV. Rights of Partners ...................371
I.
Share in Losses and Profits ..............371
II.
Associate Another in His Interest......371
III. Access to Partnership Books ............371
IV. Obtain Formal Account .....................371
V. Property Rights .................................371
VI. Convery Real Property (Art. 1819, CC)
372
Chapter V. Rights of the Partnership ........374
I.
Acquire Immovables..........................374
II.
Preference of Creditors .....................374
Chapter VI. Dissolution and Winding Up ..375
I.
Definitions .........................................375
II.
Causes for Dissolution ......................375
III. Consequences of Dissolution ...........375
IV. Partners Liability...............................376
Chapter VII.
Rights of Partners Upon
Dissolution....................................................377
I.
Right to Wind Up ...............................377
II.
Right to Damages for or to Continue
Business on Wrongful Dissolution .............377

III. Right to Lien or Retention, to Stand in


Place of Creditor, to be Indemnified .......... 377
IV. Right of Retiring/Deceased Partner (Art.
1841, CC) .................................................. 377
V. Right of Account (Art. 1842, CC) ...... 378
Chapter VIII. Rules on Settlement (Art. 1839,
CC)................................................................. 379
Chapter IX. Limited Partnership ................ 380
I.
Definition ........................................... 380
II.
Forming/Amending
a
Limited
Partnership (Art. 1844, CC) ....................... 381
III. Limited Partner.................................. 382
IV. General Partner ................................ 384
V. Dissolution ........................................ 384
VI. Settling Accounts for Dissolution ...... 385

360
PARTNERSHIP

Chapter I. Nature, Creation, Kinds of


Partnership ...................................................361
I.
Essential Features ............................361
II.
Characteristics ..................................362
III. Distinctions ........................................362
IV. Rules to Determine Existence...........363
V. How Partnership is Formed ..............363
VI. Partnership Term ..............................363
VII.
Kinds of Partnerships....................363

Prof. Roberto N. Dio


Faculty Editor

Genevieve E. Jusi
Lead Writer
Joyce Anne C. Roldan
Writer

CIVIL LAW
Kristine Bongcaron
Patricia Tobias
Subject Editors

ACADEMICS COMMITTEE
Kristine Bongcaron
Michelle Dy
Patrich Leccio
Editors-in-Chief

PRINTING & DISTRIBUTION


Kae Guerrero

DESIGN & LAYOUT


Pat Hernandez
Viktor Fontanilla
Rusell Aragones
Romualdo Menzon Jr.
Rania Joya

LECTURES COMMITTEE
Michelle Arias
Camille Maranan
Angela Sandalo
Heads
Katz Manzano Mary Rose Beley
Sam Nuez Krizel Malabanan
Arianne Cerezo Marcrese Banaag
Volunteers

MOCK BAR COMMITTEE


Lilibeth Perez

BAR CANDIDATES WELFARE


Dahlia Salamat

LOGISTICS
Charisse Mendoza

SECRETARIAT COMMITTEE
Jill Hernandez
Head
Loraine Mendoza Faye Celso
Mary Mendoza Joie Bajo
Members

Chapter I. Nature, Creation, Kinds of


Partnership
I. ESSENTIAL FEATURES
II. CHARACTERISTICS
III. DISTINCTIONS
IV. RULES TO DETERMINE EXISTENCE
V. HOW PARTNERSHIP IS FORMED
VI. PARTNERSHIP TERM
VII. CLASSES OF PARTNERS
VIII.KINDS OF PARTNERSHIPS

Art. 1767. 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.
Two or more persons may also form a
partnership for the exercise of a profession.
(1665a)

I.

Essential Features

1. A mutual contribution of money, property, or


industry to a common fund;
2. With the intention of dividing profits among
themselves
Note: The object must be for profit and
not merely for common enjoyment;
otherwise only a co-ownership has been
formed.
3. The parties must have legal capacity.
Exception: corporation cannot become a
partner on grounds of public policy.
4. It has a separate juridical personality (Art.
1768, CC) apart from the separate
personality of each of the member.
Note: Associations and societies, whose
articles are kept secret among the
members, and wherein any one of the
members may contract in his own name
with third persons, shall have no
juridical personality, and shall be
governed by the provisions relating
to co-ownership. (Art. 1775, CC)
Although not a juridical entity, it may still
be sued by third persons under the
common name it uses. (Sec. 15, Rule 3,
Rules of Court)

361
PARTNERSHIP

AGENCY & PARTNERSHIP TEAM

Chapter I. NATURE, FORM, and KINDS of AGENCY

AGENCY & PARTNERSHIP

CIVIL LAW REVIEWER

Chapter I. NATURE, FORM, and KINDS of AGENCY

5. Has a lawful object (Art. 1770, CC)


a. A partnership must have a lawful object
or purpose, and must be established for
the common benefit or interest of the
partners.
Note: When an unlawful partnership
is dissolved by a judicial decree, the
profits shall be confiscated in favor
of the State, without prejudice to the
provisions of the Penal Code
governing the confiscation of the
instruments and effects of a crime

II. Characteristics
1.
2.
3.
4.

Fiduciary
Nominate designated by a specific name
Consensual perfected by mere consent
Bilateral/Multilateral entered into between
two or more persons
5. Principal - existence does not depend on
another contract
6. Onerous money, property or industry must
be contributed
1. Preparatory other contracts essential in
the carrying out of its purposes can be
entered into

III. Distinctions
Partnership
Created by mere
agreement of the
parties;
May be organized by
only two persons
Juridical personality
commences
from
the
moment
of
execution of the
contract
of
partnership
May exercise any
power authorized by
the partners as long
as it is not contrary
to law, etc.
If no agreement as
to mgt. - every
partner is an agent
of the partnership
A partner as such
may sue a copartner
who
mismanages
Has no right of
succession
The partners are
liable personally and
subsidiarily
for
partnership debts

Partnership
Based on delectus
personam*
May be established
for any period of
time stipulated
May be dissolved at
anytime by the will of
any or all partners
Governed by the
Civil Code

Creation

Juridical
Personality

Power to do business is
vested in the board of
directors/ trustees
Suit against the board/director
who mismanages must be
brought in the corp.s name

Partnership
Always
created by a
contract

Has
a
separate,
distinct
juridical
personality
Realization of
profits
No limitation
upon
the
duration is set
by law

Transfer of
Interests

Need
unanimous
consent
of
partners
to
make
assignee
of
interest
a
partner
A partner may
bind
the
partnership

Power
to
act
with
Third
Persons
Dissolution

Has right of succession


The stockholders are liable to
the extent of the shares
subscribed by them

Governed by the Corporation


Code

Duration

Requires
at
least
5
incorporators;
Personality commences from
SECs
issuance of the
certificate of incorporation

Can exercise such powers


expressly granted by law or
incident to its existence

May be dissolved only with


the consent of the state

*Delectus personam: the right of partners to


exercise their choice and preference as to the
admission of any new members to the
partnership, and as to the persons to be so
admitted, if any.

Purpose
Corporation
Created by operation of law

Corporation
Not based on delectus
personam
May not be formed for a
period exceeding 50 years

Representation

Death
or
incapacity of a
partner
dissolves the
partnership
There
is
mutual agency

Co-ownership
General,
created by law,
may exist even
without
a
contract
Has no juridical
personality

Common
enjoyment of a
thing or right
An agreement
to keep the
thing
undivided, not
exceeding ten
years, shall be
valid. (Art. 494,
CC)
A co-owner can
dispose of his
share without
the consent of
the others

A
co-owner
cant represent
the
coownership
Death
or
incapacity of a
co-owner does
not dissolve the
co-ownership
There is no
mutual agency

362
PARTNERSHIP

CIVIL LAW REVIEWER

CIVIL LAW REVIEWER

Profits

Partnership
Must
be
stipulated
upon

Chapter I. NATURE, FORM, and KINDS of AGENCY

Co-ownership
Must
always
depend upon
proportionate
shares and any
stipulation
to
the contrary is
void.

IV. Rules to Determine Existence


Art. 1769. In determining whether a partnership
exists, these rules shall apply:
1. General Rule: Persons who are not partners
to each other are not partners as to third
persons

in the Securities and Exchange


Commission (SEC). (Art. 1772, CC)
ii. FAILURE to comply with this
requirement shall NOT affect the
liability of the partnership and the
members to third persons.

VI. Partnership Term


Commencement of the partnership
1. General Rule: A partnership begins from the
moment of the execution of the contract
2. Exception: When otherwise agreed upon by
the parties (Art. 1784, CC)
A Partnership may either be for
1. Fixed term or particular undertaking
2. at will

Exception: partnership by estoppel.

3. Prima facie evidence of partnership: receipt


of a share of the business profits
Except if received in payment as:
a. A debt by instalment or otherwise;
b. As wages to an employee or rent to a
landlord;
c. An annuity to a widow or representative
of a deceased partner;
d. As Interest on a loan, though the
amount of payment vary with the profits
of the business; and
e. As the consideration for the sale of
goodwill of a business or other property
by instalment or otherwise.

Note: Prima facie evidence of continuation


a. Continuation of the business by the
partners without any settlement or
liquidation of the partnership affairs
(1785)
b. Effect: The rights and duties of the
partners remain the same as they were
at such termination, so far as is
consistent with a partnership at will
(1785)

VII. Kinds of Partnerships


V. How Partnership is Formed
1. Form of Contract
General Rule: The contract may
constituted in any form (Art. 1771, CC)

be

Exceptions
a. Where immovable property or real rights
are contributed (Art. 1771, CC)
i. The contract must appear in a public
instrument (1771)
ii. It must have an inventory of such
immovable property signed by the
parties and attached to the
instrument (1773)
b. Where the capital is at least P3,000, in
money or property
i. The contract must appear in a public
instrument which must be recorded

As to legality of existence
1. De jure has complied with all the
necessary
requisites
for
lawful
establishment (Arts. 1772, 1773, CC)
2. De facto failed to comply with the
requisites
As to its object
1. Universal (Art. 1777, CC)
a. As to all present property (Art. 1778,
CC)
Partners contribute all their properties to
a common fund with the intention of
dividing them among themselves as well
as all the profits they may acquire
Includes all properties which belonged
to each partner at the time of the

363
PARTNERSHIP

2. Co-ownership or co-possession and sharing


of gross returns DO NOT establish a
partnership

Extension of Life of Partnership


1. By express renewal of the agreement
2. By implied renewalRequisites:
a. A partnership is for a fixed term or
particular undertaking
b. It is continued after the termination of
such term or particular undertaking
without any express agreemen

CIVIL LAW REVIEWER

Chapter I. NATURE, FORM, and KINDS of AGENCY

constitution of the partnership


Partners may stipulate that all may enjoy
all other profits made except those
properties which may be acquired
subsequently
through
inheritance,
legacy or donation
b. As to profits (Art. 1780, CC)
Partners contribute all that they may
acquire by their industry or work during
the existence of the partnership
Does not include properties which each
partner may possess at the time of the
celebration of the contract
Articles of Universal Partnership
If the Articles of a universal partnership
do not state its nature, it only constitutes
a universal partnership of profits. (Art.
1781, CC)

2. Particular (Art. 1783, CC)


The object may be determinate things, their
use or fruits, or specific undertaking or the
exercise of a profession or vocation.

364
PARTNERSHIP

Persons prohibited to enter into a universal


partnershipThose persons who are
prohibited from giving donation (Art. 133
and 739, CC):
a. Between husband and wife
b. Those guilty of adultery or concubinage
c. Those guilty of a criminal offense, if the
partnership was entered into in
consideration of the same
d. A person and a public officer (or his
wife, descendants, ascendants) by
reason of his office

CIVIL LAW REVIEWER

Chapter I. NATURE, FORM, and KINDS of AGENCY

c.

General
All partners are general
partners
liable
for
partnership
obligations
pro rata with all their
property after exhaustion
of partnership assets

Limited
Formed by two or more
partners, with one or
more general partners
and one or more limited
partners

Industrialist Partner v Capitalist Partner


Industrialist
Capitalist
Partner
Partner
Contribution
Contributes his
Contributes
industry
money or
property
Prohibition to Cannot engage
Cannot
engage
in in any business engage in
other
for himself
the same or
business
similar
enterprise
Profits
Receives a just
Shares in
and equitable
profits
share
according to
agreement
thereon; if
none, pro
rata to his
contribution
Losses
Exempted as to 1. stipulation
losses as
as to losses
between
partners but it
2. if none,
is liable to 3rd
the
persons without agreement
prejudice to
as to profits
reimbursement
from the
3. if none,
capitalist
pro rata to
partners
contribution
Partnership by Estoppel
1. Requisites of Partner By Estoppel:
a. The person
represents himself as a partner of
an existing partnership or of two or
more persons not actual partners, or
consents to another representing
him as a partner of an existing
partnership or of two or more
persons not actual partners
b. Third
person
relied
on
the
misrepresentation, unaware of the
deception.

On the faith of the misrepresentation,


rd
the 3
person gave credit to the
actual/apparent partnership.
d. The person representing or consenting
to the representation is liable:
as an actual member if a
partnership liability results
pro rata with other persons when no
partnership liability results (Art.
1825, CC)
2. No real partnership is created by estoppel. It
rd
is only insofar as 3 persons are involved
and for the purpose of protecting them that
the principal of estoppel is recognized.
3. As
to
liability
resulting
from
the
representation:
a. when all the members consent,
partnership obligation results
b. if not all consent, only a joint obligation
of the one representing and of those
who consented results
Note: Corporation by estoppel
All persons are liable as general partners
(Sec. 21, Corp. Code). A de facto
partnership is created.

365
PARTNERSHIP

As to partners liability
1. General
2. Limited

Chapter
II.
Obligations
of
the
Partnership/Partners Among Themselves
I. MAKE THE CONTRIBUTIONS AS PROMISED
II. PAY DAMAGES
III. MANAGE THE PARTNERSHIP
IV. RENDER FULL INFORMATION
V. ACCOUNT BENEFITS
VI. REIMBURSE EXPENSES
VII. LIABILITY FOR PARTNERSHIP CONTRACTS
VIII. SOLIDARY LIABILITY WITH PARTNERSHIP

CRRAMP-LS
1.
2.
3.
4.
5.
6.
7.

Make Contributions as promised


Render full information
Account benefits
Manage the partnership
Pay damages
Liability for partnership contracts
Solidary liability with partnership

I.

Make Contributions as Promised

A partner is a debtor: for whatever he had


promised to contribute thereto (Art. 1786, CC)
When promised contribution is property: in
general
1. Partner is a warrantor in case of eviction
with regard to specific and determinate
things he may have contributed (Art. 1786,
CC)
Note: If breached
Partnership may recover indemnity from
contributing partner.
2. Liable for fruits from the time they should
have been delivered without need of any
demand (Art. 1786, CC)
3. Other duties of contributing partners:
a. to preserve the property with the
diligence of a good father of a family
(Art. 1163, CC)
b. to indemnify the partnership for
damages caused to it by delay in
contribution of property (Art. 1170, CC)
4. Risk of loss of things contributed (Art. 1795,
CC)
a. Borne by the partner who owns them
If they are not fungible, so that only
their use and fruits may be for the
common benefit
b. Borne by the partnership
If the things contributed are:
i. fungible;
ii. cannot be kept without deteriorating;

Chapter II. OBLIGATIONS of the PARTNERSHIP

iii. if they were contributed to be sold


But in the absence of stipulation, the risk
of things brought and appraised in the
inventory, shall also be borne by the
partnership, and in such case the claim
shall be limited to the value at which
they were appraised.
When promised contribution is goods (Art.
1787, CC)
1. Appraisal must be made in a manner
prescribed in the contract of partnership
2. In the absence of stipulation
a. Made by experts chosen by the partners
b. Made by experts chosen by the partners
When promised contribution is immovable
property (Art. 1771-1773, CC)
1. An inventory of the property is signed by the
parties, and attached to the public
instrument
2. The public instrument must be filed with the
SEC if the capital is more than P3,000.00.
When promised contribution is a sum of
money
Sanctions:
1. Partner becomes the firms debtor for
interest and damages from the time of his
failure to contribute or from time of
conversion (Art. 1788, CC)
2. When money or property has been received
by a partner for a specific purpose and he
later misappropriated it, such partner is
guilty of estafa. (Liwanag v CA, 2008)
Bring to partnership capital credit received
Equal contribution by general partners:
capitalist partners shall contribute equal
shares to the capital of the partnership (Art.
1790, CC).
Obligation of capitalist partner to contribute
additional capital
1. To contribute additional capital in case of
imminent loss, requisites:
a. There is an imminent loss of the
business
b. There is a need to contribute additional
capital to save the venture
c. Capitalist partner refuses deliberately to
contribute an additional share
d. There is no agreement to the contrary
2. If refused to contribute: the partner must sell
his interest in the partnership to the other
partners (Art. 1791, CC)
3. Industrial partner is exempted from
contributing.

366
PARTNERSHIP

CIVIL LAW REVIEWER

Obligation of managing partner who is also a


creditor of the same partnership debtor
1. Requisites:
a. 2 separate credits, both demandable,
b. one credit is owed to the partnership,
c. the other to the collecting partner whos
a managing partner.
2. Managing partner should:
a. If issued receipt for own account only
apply the sum to the 2 credits in
proportion to their amounts
b. Issued receipt for partnerships account
apply whole sum to partnerships
credit (Art. 1792, CC)
When the partner who has received, in whole
or in part, his share of a partnership credit
Partner shall give to the partnership what he
received if:
1. a debtor made a partial payment of his debt
to the partnership
2. a partner received his share of the credit
and the others havent
3. the debtor later becomes insolvent, (Art.
1793, CC).
4. Cf. 1792: in 1793 theres only 1 debt where
the partnership is the creditor

II. Pay Damages


Liability for damages due to partners fault
The damages cannot be compensated with
the profits and benefits he may have earned
for the partnership by his industry (Art.
1794, CC).
Mitigation of liability
The courts may equitably lessen his
responsibility if through his extraordinary
efforts in other activities unusual profits have
been realized (Art. 1794, CC)
Before a partner may sue another for
alleged
fraudulent
management
and
resultant damages, a liquidation must first
be effect to determine the extent of the
damage. Without liquidation of partnership
affairs, partner cannot claim damages.
(Soncuya v. De Luna)

III. Manage the Partnership


General Rules
1. Right of management is primarily governed
by agreement of the partners as provided in
the articles of partnership (Art. 1800, CC)

Chapter II. OBLIGATIONS of the PARTNERSHIP

2. Right to manage may either be:


a. exercised by all the partners, or
b. limited to a certain number of partners
called managing partners
If a specific person has been appointed as
manager (Art. 1800, CC)
1. If right is conferred in the articles of
partnership
a. Manager may execute all acts of
administration despite the opposition of
other partners unless he is in bad faith
b. Power is irrevocable without just or
lawful cause.
Note: The vote of the controlling
interest of the partners is necessary
for revocation.
2. If power is granted after constitution of
partnership, it may be revoked at anytime
If two or more partners are appointed as
managers
1. Without specification of their duties or
without a stipulation of how each one will
act-- (Art. 1801, CC)
a. Each one may separately execute all
acts of administration
b. If opposed, decision of majority prevails
c. In case of a tie, the matter is to be
decided by the controlling interest.
2. If there is a stipulation that managers must
act jointly (Art. 1802, CC)
a. The concurrence of all managers is
necessary for validity of the acts
b. Their absence or disability cannot be
alleged as a defense unless there is
imminent danger or grave or irreparable
injury to the partnership.
If the manner of management has not been
agreed upon (Art. 1803, CC)
1. All partners are considered agents and the
act of anyone bind the partnership without
prejudice to Art. 1801
2. To make important alterations in the
immovable property of the partnership, even
if useful, need the consent of all the partners
If refusal to give consent is manifestly
prejudicial to the partnership, the courts
intervention may be sought
Every partner is considered an agent (Art.
1818, CC)
General Rule:
Every partner is considered an agent of the
partnership for the purpose of its business
and any act of the agent for apparently

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carrying on the usual business of the


partnership binds the partnership.
Exception:
If the partner has no authority to act; AND
the third person dealing with him knew that
the partner had no authority

If the acts are not for carrying out the


business of the partnership(Art. 1818, CC)
General Rule:
Acts of the partner not apparently for
carrying out the business of the partnership
do not bind the partnership.
Exceptions:
When authorized by other partners; OR other
partners have abandoned the business
Acts not usual in the business of partnership
(Art. 1818, CC) [ADD-CRES]
1. Assign the partnership property in trust for
creditors or on the assignee's promise to
pay the debts of the partnership;
2. Dispose of the good-will of the business;
3. Do any other act which would make it
impossible to carry on the ordinary business
of a partnership;
4. Confess a judgment;
5. Renounce a claim of the partnership.
6. Enter into a compromise concerning a
partnership claim or liability;
7. Submit a partnership claim or liability to
arbitration;

IV. Render Full Information


Duty to give information:
1. On demand, to give true and full information
of all things affecting the partnership to any
partner or their legal representatives (Art.
1806, CC).
2. Voluntary disclosure of material facts within
his
knowledge
relating
to/affecting
partnership affairs (Art. 1821, CC).

V. Account for benefits


Duty to account (Art. 1807, CC)
Every partner must:
1. Account to the partnership for any benefit;
AND
2. Hold as trustee for it any profits derived by
him without the consent of the other partners
from any transaction connected with the
formation, conduct or liquidation of the
partnership

Chapter II. OBLIGATIONS of the PARTNERSHIP

VI. Reimburse expenses


The partnership is responsible to every
partner for:
1. Amounts disbursed on behalf of the
partnership plus interest from the time the
expense is made
2. Obligations contracted in good faith in the
interest of the business
3. Risks in consequence of management

VII. Liable for Partnership Contracts


Liability of partnership and partners for
partnership contracts-- (Art. 1816, CC)
1. All partners shall be liable pro rata with all
their property but
The private property of the partners
cannot be seized for satisfaction of
partnership
debts
until
all
the
partnership assets have been exhausted
2. For the contracts which may be entered into:
a. in the name and for the account of the
partnership
b. under its signature and
c. by a person authorized to act for the
partnership.
The exemption of an industrial partner from
paying losses relates exclusively to the
settlement of the partnership affairs among the
partners themselves, and not to the partners
rd
subsidiary liability to 3 persons (La Compania
Maritima v Munoz, 1907).
While the liability of the partners is joint in
transactions entered into by the partnership, a
rd
3 person who transacted with the partnership
can hold partners solidarily liable for the whole
rd
obligation if the 3 persons case falls under
Arts. 1822-1823 (Muasque v. CA, 1985)
However, any party may enter into a separate
obligation to perform a partnership contract.
(Art. 1816, CC)
Stipulation against pro-rata liability void
1. General Rule: Stipulation against pro rata
liability is void
2. Exception:such stipulation is valid among
the partners (Art. 1817, CC)
Art. 1817 vs. 1799
it is permissible to stipulate among partners
that a capitalist partner will be exempted
from liability in excess of the original capital
contributed; but wont be exempted insofar
as his capital is concerned (Paras).

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Liability of a newly-admitted partner


1. Obligations contracted before his admission:
liable only up to his share in the partnership
property unless theres a contrary stipulation
(Art. 1826, CC).
2. Obligations contracted after admission:
liable as an ordinary original partner

Chapter II. OBLIGATIONS of the PARTNERSHIP

The liability of partners under the Workmens


Compensation Act also solidary. If their
responsibility was merely joint and one became
insolvent, the amount awarded would only be
partially satisfied, which is contrary to the laws
purpose
(Liwanag
v.
Workmens
Compensation Commission, 1959)

Liability of outgoing partner


1. When he gives notice of his retirement or
withdrawal, hes freed from liability on
contracts entered into thereafter but still
liable on existing incomplete contracts
2. He is liable for goods sold and delivered
after his retirement/withdrawal if the sale
was pursuant to a contract made before
such retirement/withdrawal

Solidarily Liable with Partnership

The partnership and the partner are solidarily


liable in the following cases
1. Vicarious liability, requisites:
a. the partner committed a wrongful
act/omission;
b. he acted in the ordinary course of the
partnership business or with the
authority of the co-partners even if the
act
wasnt
connected
with
the
partnership business;
rd
c. loss/injury is caused to a 3 person by
the wrongful act/omission;
rd
d. 3 person is not a partner (Art. 1822,
CC);
2. Misappropriation of one partner (Art. 1824,
CC)
a. partner acts within the scope of his
apparent authority
b. when partner in the course of business,
receives money or property and the
same is misapplied by the partner while
in the custody of the said partner.
Exceptions are without prejudice to the guilty
partner being liable to the other partners, but as
far as third partners are concerned, the
partnership is answerable.
Liability for money misappropriated covers
1. Interest
2. Damages
Extent of liability
firm is liable to the same extent as the
partner (Art. 1822, CC) and all partners are
solidarily liable with the firm (Art. 1824, CC)

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VIII.

CIVIL LAW REVIEWER

Chapter III. OBLIGATIONS as to THIRD PERSONS

Chapter
III.
Obligations
of
the
Partnership/Partners as to Third Persons
I.
II.
III.
IV.

OPERATE UNDER A FIRM NAME


BOUND BY PARTNERSHIP ADMISSION
BOUND BY NOTICE TO PARTNER
LIABLE FOR ACTS OF THE PARTNERSHIP

III. Bound by Notice Partner

LANN
1.
2.
3.
4.

Liable for acts of the Partnership


Bound by partnership Admission
Operate under a Firm name
Bound by Notice to partner

Notice to the partner relating partnership


affairs
Knowledge acquired by a partner who is
acting in a particular matter (acting partner),
acquired while he was still a partner or then
present in his mind
Knowledge of a partner who reasonably
could and should have communicated it to
the acting partner (Art. 1821, CC)
Exception: In case of fraud on the
partnership, committed by or with the
consent of the partner (Art. 1821)

IV. Liable for Acts of the Partnership


Operate Under a Firm Name (Art.
1815, CC)

The firm name may or may not include the name


of one or more of the partners.
Persons, not being members of the partnership,
who include their names in the firm name, are
liable as partners (Art. 1825, CC)
Use of deceased partners name in law firm
permissible as long as its indicated in the firms
communications that the partner is deceased
(Rule 3.02, CPR)
Limited partners surname shall not appear
in the firm name unless
1. It is also the surname of a general partner
2. Before the limited partner became such, the
business had been carried on under a name
in which his surname appeared (Art. 1846,
CC)

II. Bound by Partnership Admission


Requisites to be admissible against the
partnership
1. it must be connected with partnership affairs
2. it is within the scope of the partners
authority (Art. 1820, CC)
3. it is made during the firms existence
Exception:
when
a
partner
admissions for himself only
purporting to act for the partnership

makes
without

Admission by a former partner not admissible in


evidence against the partnership. (Congco vs.
Trillana, 1909)

All partners, including the industrial partner,


are liable pro rata with their own properties
after partnership properties have been
exhausted (Art. 1816, CC)
1. General Rule: liability is joint
2. However, liability is solidary in the following:
a. Wrongful acts and omissions causing
loss to a non-partner.
b. Conversion or misappropriation of funds
committed in the usual course of
business or consented to by all partners

Any stipulation against this liability is void as


against third persons but valid among the
partners (Art. 1817, CC)
An industrial partner is liable to third persons
but as between the partners, he is not liable
for losses (Art. 1797, CC)
Partners are individually liable after
partnership assets are exhausted

Contracts for which partners are liable pro


rata with their individual property
1. those entered into in the name and account
of the partnership
2. entered into under its signature
3. entered into by a person authorized to act
for the partnership
Exception: partner may enter into a
separate obligation to perform a
partnership contract.

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PARTNERSHIP

I.

Chapter IV. RIGHTS of PARTNERS

Chapter IV. Rights of Partners


I.
II.
III.
IV.
V.
VI.

SHARE IN LOSSES AND PROFITS


ASSOCIATE ANOTHER IN HIS SHARE
ACCESS PARTNERSHIP BOOKS
OBTAIN FORMAL ACCOUNT
PROPERTY RIGHTS
CONVEY REAL PROPERTY

BASCOP
1. Access to partnership Books
2. Associate another in his share
3. Share in losses and profits
4. Convey real property
5. Obtain formal account
6. Property rights

I.

Share in Losses and Profits

The distribution shall be in conformity with the


agreement. (Art. 1797, CC)

With
agreement
Without
agreement

Stipulation excluding one or more partners from


any share in the profits or losses is void. (Art.
1799, CC)

II. Associate Another in His Interest


Every partner may associate another person
with him in his share, but the associate shall not
be admitted into the partnership without the
consent of all the other partners, even if the
partner having an associate should be a
manager. (Art. 1804, CC)

III. Access to Partnership Books


Partnership books: open to inspection of all the
partners at a reasonable hour (Art. 1805, CC).
The books shall be kept at:
1. The place agreed upon
2. If without agreement, at principal place of
business (Art. 1805, CC)

PROFITS
According
to
agreement
1.
Share
of
capitalist partner
is in proportion
to his capital
contribution

LOSSES
According
to
agreement
1. If sharing of
profits
is
stipulated - apply
to sharing of
losses

Reasonable hours on business days throughout


the year, not merely during some arbitrary period
of a few days chosen by the managing partners
(Pardo v. Lumber Co., 1924)

2.
Share
of
purely industrial
partner is not
fixed - as may
be
just
and
equitable under
the
circumstances

2.If no profit
sharing
stipulated
losses shall be
borne according
to
capital
contribution

Any partner shall have the right to a formal


account as to partnership affairs
1. If he is wrongfully excluded from the
business/possession of the property by his
co-partners
2. If the right exists by agreement
3. When the partner derives any profit as
provided in Art. 1807
4. Whenever other circumstances render it just
and reasonable (Art. 1809, CC)

3.Purely
industrial partner
not liable for
losses

If the partners agreed to entrust to a third


person the designation of the share in profits
and losses (Art. 1798, CC)
Designation may only be impugned if
manifestly inequitable
Even
if
manifestly inequitable,
the
designation cannot be impugned in the
following instances:
a. The aggrieved partner has already
begun to execute the decision
b. If he has not impugned within three
months from the time he had knowledge
of it

IV. Obtain Formal Account

The right of a partner to demand an accounting


exists as long as the partnership exists. The
prescription period begins to run only upon the
dissolution when the final accounting is done
(Fue Leung v. IAC,1989).

V. Property Rights
Property rights (Art. 1810, CC)
1. In the specific partnership property
2. In the partnership, and
3. To participate in the management

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capital

Capital
With a constant value

Includes only the actual


capital contributed and
promised
to
the
partnership

vs.

partnership

Property
Value
varies,
in
accordance with market
value
Includes the contribution
and all property later
acquired
on
the
partnerships account

Partners
are
co-owners
of
specific
partnership property: the incidents are
1. A partner has an equal right with his copartners to possess specific property for
partnership purposes
if excluded from this, can seek a formal
accounting (Art. 1809, CC) or judicial
dissolution (Art. 1831, CC)
2. A partners right in specific property cant be
assigned except when all partners assign
their rights in that property
3. A partners right in specific property is not
subject to attachment/execution except on a
claim against the partnership
4. A partners right in specific property is not
subject to support payment (Art.1811, CC)
Property used by the partnership: a partner
may
1. contribute only the use of property
2. allow partnership to use his separate
property
3. hold the title to partnership property in his
own name without having it belong to him
Property acquired by a partner with
partnership funds
General Rule: partnership property
Exceptions:
1. contrary intention appears
2. property was acquired after dissolution but
before winding up
Partners interest in the partnership
his share in the profits and surplus (Art. 1812,
CC). This may be assigned, attached, subject to
payment of support as there was already a
liquidation of the partnership affairs. The
assignee is only entitled to the profits assigned.
Conveyance of partners entire interest
It does not dissolve the partnership (Art. 1813,
CC)

Rights
of
the
transferee
or
assignee
To
receive
in
accordance with his
contract the profits
accruing
to
the
assigning partner
To avail of the usual
remedies provided by
law in the event of
fraud
in
the
management
To
receive
the
assignors interest in
case of dissolution;
may require an account
from the date only of
the last account agreed
to by all the partners.

What
cannot do

assignees

Interfere
in
management;

the

Require any information


or account

Inspect any of
partnership books.

the

Enforcement of a judgment vs. a debtorpartners interest (Art. 1814, CC)


The judgment creditor may:
1. Apply for an order charging the partners
interest with payment of the unsatisfied
amount of the final judgment with interest
2. Have a receiver appointed
3. Have the court make an order as the
circumstances render it necessary
Redemption
A partner or more may redeem the interest
charged at any time before the foreclosure with:
1. their separate property
2. with partnership property, with the consent
of all partners whose interests are not
charged/sold (Art. 1814, CC)

VI. Convery Real Property (Art. 1819, CC)


Title in
partnership
name:
Any partner
may convey
under
partnership
name

Conveyance passes title but


partnership can recover unless:
1. The partner who sold it
was carrying on in the
usual way the business of
the partnership hence
binding the partnership; or
2.

Title in
partnership
name:
Conveyance in
partner's name

Buyer had no knowledge


of the lack of authority of
the seller

Conveyance does not pass title


but only equitable interest.
Provided that: The partner who
sold it was carrying on in the
usual way the business of the
partnership hence binding the
partnership

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PARTNERSHIP

Partnership
property

Chapter IV. RIGHTS of PARTNERS

CIVIL LAW REVIEWER


Conveyance passes title but
partnership can recover unless:
1. he partner who sold it was
carrying on in the usual
way the business of the
partnership hence binding
the partnership; or
2.
3. Buyer had no knowledge
of the lack of authority of
the seller
Conveyance does not pass title
but only equitable interest.
Provided that: The partner who
sold it was carrying on in the
usual way the business of the
partnership hence binding the
partnership

Passes all their rights in such


property

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PARTNERSHIP

Title in the
name of one or
more but not all
the partners and
the record does
not disclose the
right of the
partnership The partners in
whom the title
stands may
convey
Title in the
name of one or
more or all
partners or in
third person in
trust for the
partnership Conveyance in
partner's name
or in partners
name
Title in the
names of all the
partners
Conveyance by
all partners

Chapter IV. RIGHTS of PARTNERS

CIVIL LAW REVIEWER

Chapter V. RIGHTS of the PARTNERSHIP

Chapter V. Rights of the Partnership


I.
II.

ACQUIRE IMMOVABLES
PREFERENCE OF CREDITORS

I.

Acquire Immovables

An immovable property or any interest


therein may be acquired in the partnership
name, and title so acquired can only be
conveyed in the partnership name (Art.
1774, CC).
Cf Art. 1819: see table

II. Preference of Creditors

Preference: partnership creditors preferred


to creditors of individual partners (Art. 1827,
CC).
Remedy of private creditors of partners:
seek the attachment/public sale of the
shares

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PARTNERSHIP

Chapter VI. Dissolution and Winding Up


I.
II.
III.
IV.

I.

DEFINITIONS
CAUSES FOR DISSOLUTION
CONSEQUENCES OF DISSOLUTION
PARTNERS LIABILITY

Definitions

Dissolution (Art. 1828, CC)


Change in the partners relation caused by
any partner ceasing to be associated in the
carrying on of the business
Winding Up (JBL Reyes)
Process of liquidation of partnership affairs,
between dissolution and termination
Termination (JBL Reyes)
When all the affairs of the partnership are
liquidated and the partnership is definitely
ended. It is the final settlement of accounts
of the partnership
Effect of dissolution
Partnership continues until winding up is
completed (Art. 1829, CC).
Effect of dissolution on the partners
1. they cannot evade prior obligations
2. Generally, they are spared from new
obligations to which they didnt consent,
unless these are essential for the winding up
(Testate Estate of Mota v. Serra, 1925)

II. Causes for Dissolution


Voluntary
1. without violation of the agreement between
the partners (Art. 1830, CC)
a. termination of the term or particular
undertaking
b. express will of any partner in good faith,
when the partnership is at will
c. express will of all partners who have not
assigned their interests or suffered them
to be charged
d. bona fide expulsion of any partner in
accordance with the agreement
2. in contravention of the agreement, by
express will of one partner
effects partner is liable for damages;
other partners may continue the
business
Involuntary (Grounds)
1. business becomes unlawful
2. specific thing promised perishes before
delivery to the partnership, the use and

Chapter VI. DISSOLUTION and WINDING UP

enjoyment of which has been transferred to


the partnership
3. death of a partner
4. insolvency of any partner or the partnership
5. civil interdiction of any partner
Judicial
1. Decree of court upon application (Art. 1831,
CC)
a. application by partner (grounds)
insanity of any partner
incapacity of any partner to perform
his part of the contract
partner guilty of conduct prejudicial
to the partnership business
wilfull breach of agreement by any
partner
business can only be carried out
with loss
b. application by purchaser of partnership
interest may be allowed in the following
cases:
termination of term or undertaking
partnership is at will and interest of
partnership is assigned

III. Consequences of Dissolution


Except as necessary for winding up, dissolution
terminates all authority of the partners to act for
the partnership (Art. 1832, CC)
Partnership is not bound by any act of a
partner when
1. dissolution is not by the act, insolvency or
death of a partner
2. dissolution is by such act, insolvency or
death and the partners acting have
knowledge thereof
3. acts not connected with winding up
Partnership is not bound with respect to
third persons (Art. 1834, CC)
1. business becomes unlawful
2. partner dealing with third party becomes
insolvent
3. partner has no authority to wind up
Partner can bind the partnership even after
dissolution (Art. 1834, CC)
1. acts appropriate to winding up
2. third person is in good faith and without
knowledge of dissolution:
a. third person who extended credit to the
partnership
b. third person who knew the existence of
the partnership

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CIVIL LAW REVIEWER

IV. Partners Liability


If partner transacts business with third
persons notwithstanding death or insolvency
of a co-partner, liability shall be satisfied out
of partnership assets alone if
1. Partner was unknown as partner to third
person
2. Partner is unknown and inactive in
partnership affairs

Chapter VI. DISSOLUTION and WINDING UP

5. Not only the retiring partners but also the


new partnership itself which continued the
business of the dissolved one, are liable for
the debts of the prior partnership. A
rd
withdrawing partner remains liable to a 3
party creditor of the old partnership
(Singsong vs. Isabela Sawmill, 1979).

A partner still has existing liabilities to the


partnership at the time of the dissolution
(Art. 1835, CC)
1. Dissolution does not discharge a partner
2. Discharged only by agreement
among
partner, creditor and the person or
partnership continuing the business
3. In case of death:
Individual property is liable for obligation
of the partnership incurred while he was
a partner, subject to prior payments of
individual debts.

2. When applicable: a partnership is dissolved


due to change in membership but the
remaining partners continue the business
without liquidation.
3. Effect: unpaid old creditors of the dissolved
partnership automatically become creditors
of the new partnership.
4. New partners liability: satisfied out of
partnership property only, unless with a
contrary stipulation

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PARTNERSHIP

Liability of partner or partnership continuing


the business (Art. 1840,CC)
1. Contemplates seven situations:
a. When any partner is admitted into an
existing partnership
b. When any partner retires and assigns
his rights in partnership property to two
or more partners or third persons
c. When all but one partner retire and
assign their rights to the remaining
partner
d. Any partner retires or dies without any
assignment of his right in partnership
property
e. All the partners or their representatives
assign their rights in partnership
property to one or more third persons
who promise to pay the debts and who
continue the business of the dissolved
partnership
f. Any partner wrongfully causes a
dissolution
g. When a partner is expelled

Chapter VII.
Dissolution

Rights of Partners Upon

I.
II.

RIGHT TO WIND UP
RIGHT TO DAMAGES FOR/TO CONTINUE
BUSINESS ON WRONGFUL DISSOLUTION
III. RIGHT TO LIEN OR RETENTION, TO STAND
IN
PLACE
OF
CREDITOR,
TO
BE
INDEMNIFIED
IV. RIGHT OF RETIRING/DECEASED PARTNER
V. RIGHT TO ACCOUNT

I.

Right to Wind Up

Who has the right to wind up?


1. By agreement
2. If there is no agreement
a. Partners who have not wrongfully
dissolved the partnership
b. The legal representative of the last
surviving partner, not insolvent
Any partner, his legal representative or his
assignee, upon cause shown, may obtain
winding up by the court.

II. Right to Damages for or to Continue


Business on Wrongful Dissolution
General Rule
1. Each partner may have the partnership
property applied to the payment of the firms
debt
2. Surplus is applied to payment in cash of the
net amount owed to the respective partners

Each partner who has not caused


dissolution wrongfully shall have the right, as
against each partner who has caused the
dissolution wrongfully, to damages for
breach of the agreement.

The partners who have not caused the


dissolution wrongfully, if they all desire to
continue the business in the same name
either by themselves or jointly with others,
may do so, during the agreed term for the
partnership and for that purpose may
possess the partnership property, provided
a. they secure the payment by bond
approved by the court, or
b. pay any partner who has caused the
dissolution wrongfully, the value of his
interest in the partnership at the
dissolution,
less
any
damages
recoverable
c. In like manner indemnify him against all
present or future partnership liabilities.

Chapter VII. RIGHTS of PARTNERS upon DISSOLUTION

A partner who has caused the dissolution


wrongfully shall have the right to
1. If the business is not continued
a. Each partner may have the partnership
property applied to the payment of the
firms debt
b. Surplus is applied to payment in cash of
the net amount owed to the respective
partners subject to payment of damages
2. If the business is continued
a. the right as against his co-partners and
all claiming through them in respect of
their interests in the partnership,
b. to have the value of his interest in the
partnership, less any damage caused to
his co-partners by the dissolution,
ascertained and paid to him in cash, or
the payment secured by a bond
approved by the court,
c. to be released from all existing liabilities
of the partnership; but in ascertaining
the value of the partner's interest the
value of the good-will of the business
shall not be considered.

III. Right to Lien or Retention, to Stand in


Place of Creditor, to be Indemnified

Where a partnership contract is rescinded


on the ground of the fraud or
misrepresentation of one of the parties
thereto, the party entitled to rescind is,
without prejudice to any other right, entitled:
a. To a lien on, or right of retention of, the
surplus of the partnership property after
satisfying the partnership liabilities to
third persons for any sum of money paid
by him for the purchase of an interest in
the partnership and for any capital or
advances contributed by him;
b. To stand, after all liabilities to third
persons have been satisfied, in the
place of the creditors of the partnership
for any payments made by him in
respect of the partnership liabilities; and
c. To be indemnified by the person guilty of
the fraud or making the representation
against all debts and liabilities of the
partnership.

IV. Right of Retiring/Deceased Partner


(Art. 1841, CC)
Factual Situation
1. any partner retires or dies, and
2. the business is continued without any
settlement of accounts as between him or

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CIVIL LAW REVIEWER

Chapter VII. RIGHTS of PARTNERS upon DISSOLUTION

his estate and the person or partnership


continuing the business
Rights
1. he or his legal representative as against
such person or partnership may have the
value of his interest at the date of dissolution
ascertained
2. either:
a. receive as an ordinary creditor an
amount equal to the value of his interest
in the dissolved partnership with
interest; or,
b. at his option or at the option of his legal
representative, receive in lieu of interest,
the profits attributable to the use of his
right in the property of the dissolved
partnership;
The provision shall not apply if there is an
agreement between the parties.

V. Right of Account (Art. 1842, CC)

When right accrues


At the date of dissolution, in the absence of
any
agreement
to
the
contrary.

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PARTNERSHIP

The right to an account of his interest shall


accrue to any partner, or his legal
representative as against
1. the winding up partners or the surviving
partners or
2. the person or partnership continuing the
business,

CIVIL LAW REVIEWER

Chapter VIII.
1839, CC)

Chapter VIII. RULES on SETTLEMENT

Rules on Settlement (Art.

The rules for distribution will not apply if there is


a contrary agreement between the partners.
Rule of preference in the payment of
partnership liabilities
1. those owed to creditors other than partners
2. those owed to partners other than capital
and profits
3. those owed to partners in respect of capital
4. those owed to partners in respect of profits
When assets are insufficient to satisfy
liabilities
1. If refuses to contribute a petition in court
may be filed for its enforcement.
2. If partner is dead contribution may be
enforced against his private property
through the administrator

Order in case of insolvency of a partner or


his estate (in case of death)
1. Separate creditors
2. Partnership creditors
3. Partners who gave contributions
Liquidation needed
The business profits cant be determined by
taking into account the result of 1 transaction
instead of all the transactions had, thus the need
for a general liquidation before a partner may
claim a specific sum as his share of the profits
(Sison v. McQuaid, 1953).
No return of shares without dissolution and
liquidation
Because the firms outside creditors have
preference over the firms assets and the firms
property cant be diminished to their prejudice
(Magdusa v. Albaran, 1962).

379
PARTNERSHIP

Doctrine of Marshalling of Assets


If there are claims over both partnership assets
and partners individual properties, both in
custody of the court for distribution:
1. Partnership creditors are preferred with
regard to partnership property
2. Individual creditors are preferred with
respect to individual properties of partners.
3. Anything left from either goes to the other.

CIVIL LAW REVIEWER

Chapter IX. LIMITED PARTNERSHIP

I. DEFINITION
II. FORMING/AMENDING
A
LIMITED
PARTNERSHIP
III. LIMITED PARTNER
A. CONTRIBUTION
B. LIABILITIES OF A LIMITED PARTNER
1. TO THE PARTNERSHIP
2. AS
TRUSTEE
FOR
THE
PARTNERSHIP
3. LIABILITIES TO PARTNERSHIP
CREDITORS
AND
OTHER
PARTNERS
i. CONTRIBUTES SERVICES
ii. SURNAME IN FIRM NAME
iii. FALSE STATEMENT
iv. CONTROL OF BUSINESS
v. PROHIBITED TRANSACTIONS
vi. NON-COMPLIANCE
WITH
REQUISITES
FOR
FORMATION
4. LIABILITIES
TO
SEPARATE
CREDITORS
C. RIGHTS OF LIMITED PARTNERS
1. COMMON RIGHTS OF LIMITED
AND GENERAL PARTNERS
2. LOAN MONEY AND TRANSACT
BUSINESS
3. RETURN OF CONTRIBUTION
4. SHARE OF PROFITS
5. ASSIGN INTERESTS
6. EFFECT OF DEATH OF A LIMITED
PARTNER
7. PERSON
ERRONEOUSLY
BELIEVING
HES A LIMITED
PARTNER
IV. GENERAL PARTNER
V. DISSOLUTION
VI. SETTLING
OF
ACCOUNTS
AFTER
DISSOLUTION

I.

Definition

Limited Partnership
1. formed by two or more persons;
2. in accordance with the requirements of law;
and
3. composed of one or more general partners
and one or more limited partners (Art. 1843,
CC).
Limited partners are not bound by
partnerships obligations (Art. 1843, CC).

Characteristics
1. Complied with the statutory requirement of
form (Art. 1844 CC)
2. The business is controlled by one or more
general partners who are personally liable to
creditors (Arts. 1848, 1850 CC)
3. One or more limited partners contribute to
the capital and share in the profits but do not
manage the business
4. The limited partners are not personally liable
for obligations beyond their contribution
(Arts. 1845, 1848, 1856 CC)
5. Obligations or debts are paid out of
partnership assets and the general partners
separate assets
6. Limited partners may get back their capital
contributions
subject
to
conditions
prescribed by law (Arts. 1844, 1857 CC)
Advantages of limited partnerships
1. For general partners: secure capital from
others
while
retaining
control
and
supervision of the business
2. For limited partners: share in the profits
without the risk of personal liability

Extent of
liability

Right to
participate in
management

Contribution

General
Partner
Personally
liable for
partnership
obligations
If manner of
mgt. not agreed
upon, all
general
partners have
an equal right in
business mgt
Cash, property
or industry

Proper party
to
proceedings
by or against
the
partnership

Proper party to
proceedings
by/against
partnership

Name in firm
name

Name may
appear in firm
name

the

Limited Partner
Only to the
extent of his
capital
contributions
No participation
in management

Cash or
property only,
not industry
Not proper party
to proceedings
by/against
partnership
unless:
1. he is also a
general partner
2. where the
object of the
proceedings is
to enforce a
limited partner's
right against or
liability to the
partnership
Name must
appear in firm
name

380
PARTNERSHIP

Chapter IX. Limited Partnership

CIVIL LAW REVIEWER

Creation

General
Partner
Prohibited

Limited Partner

Dissolves the
partnership

Different effect;
rights
transferred to
legal rep.
Assignable

Not assignable

General
Partnership
May be constituted
in any form, except
where immovable
property or real
rights are
contributed, a
public instrument
shall be necessary

Compos
ition

Only general
partners

Firm
name

Must contain the


word Company
(SEC Memo Circ.
#14-00) unless its
a professional
partnership

Every partnership
shall operate under
a firm name, which
may or may not
include the name of
one or more of the
partners.

No prohibition

Limited
Partnership
Partners must:
(1) Sign and swear
to a certificate
which shall state
the items
enumerated in Art.
1844 and
(2) File for record
the certificate in the
Office of the
Securities and
Exchange
Commission
1/more general
partners and
1/more limited
partners
Name must include
the word Limited
(SEC Memo Circ.
#14-00)

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.

Dissoluti
on and
Winding
Up

General
Partnership
Rules governing
are Art. 1828-1842

Limited
Partnership
Rules governing
are Art. 1860-1863

II. Forming/Amending
a
Partnership (Art. 1844, CC)

Limited

Two or more persons desiring to form a


partnership shall
1. Sign and swear to a certificate which shall
state the following items enumerated in Art.
1844
2. File for record the certificate in the Office of
Securities and Exchange Commission
A limited partnership is formed if there has been
substantial compliance in good faith with Art.
1844
When the cert. of partnership may be
amended (CSAAG CFCTM)
1. Change in partnership name or in the
amount/character of contribution of any
limited partner
2. Substitution of a limited partner
3. Additional limited partner is admitted
4. Admission of a general partner
5. General partner retires, dies, becomes
insolvent or insane, or under civil interdiction
and the business is continued:
a. Under a right so to do stated in the
certificate, or
b. With the consent of all members
6. Change in the character of business
7. False/erroneous statement in the cert.
8. Change in the time as stated in the cert. for
the dissolution of the partnership or return of
a contribution
9. Time is fixed for dissolution or return of a
contribution
10. The Members want to change a statement in
the cert. to make it more accurate (Art.
1864, CC)
Requirements to amend
1. Must be in writing, under oath, and set forth
clearly the change desired
2. Signed and sworn to by all the members,
including the new members and assigning
members
3. The cert., as amended, must be filed in the
SEC (Art. 1865, CC)

381
PARTNERSHIP

Prohibition to
engage in
other
business
Effect of
retirement
death insanity
or insolvency
Assignability
of interest in
partnership

Chapter IX. LIMITED PARTNERSHIP

When the certificate shall be cancelled


1. When the partnership is dissolved
2. When all limited partners cease to be such
(Art. 1864, CC)
Requirements to cancel
1. Must be in writing
2. Signed by all the members
3. Filed with the SEC; if cancellation is courtordered, a certified copy of the order shall
also be filed (Art.1865, CC)

III. Limited Partner


Who may be limited partners
1. A partnership no
2. A general partnership may be changed into
a limited one, and a partner in the former
general partnership may be a limited partner
in the limited partnership formed.
Contribution
May be cash or property, but not services.
Liabilities of a Limited Partner
General rule: He is not liable as a general
partner. His liability is limited to the extent of
his contribution to the partnership.
Liabilities to the partnership (Art. 1858, CC)
1. Difference between his actual contribution
and that stated in the certificate as having
been made
2. Unpaid contributions which he agreed to
make at specified future time and on the
conditions stated in the certificate
Liabilities as Trustee for the Partnership
1. Specific property which he committed but
did not contribute, or which he contributed
but was wrongfully returned to him
2. Money or property wrongfully paid or
conveyed to him

Liabilities of a limited partner can be waived


or compromised only by the consent of all
the members. However, this too shall not
affect the right of the creditor who:
a. Extended credit; or
b. Whose claim arose after the filing and
before a cancellation or amendment of
the certificate.
Even if a limited partner rightfully received
back his contribution to capital, he remains
liable to the partnership for any sum
necessary to discharge the liabilities of the
partnership to creditors who:
a. Extended credit or

Chapter IX. LIMITED PARTNERSHIP

b. Whose claims arose before such return.


Liabilities to partnership creditors and other
partners
1. Contributes services (Art. 1845, CC); Effect
a. The limited partner:
o Will be considered an industrial and
general partner; or
o If the certificate states that hes a
limited partner, he will be a general
partner and limited partner at the
same time.
b. He divests himself of the privilege of
limited liability and will be exposed to all
the liabilities of a general partner.
2. Surname in firm name (Art.1846, CC)
General rule: the surname of a limited
partner shall not appear in the partnership
name
If used in firm name, he is liable as a
general partner to creditors who did
not know that he is not a general
partner.
3. False statement (Art. 1847, CC)
If a person suffers loss by reliance on the
false statement in the certificate, he may
hold liable any party to the certificate who
knew the statement to be false:
a. At the time he signed the certificate, or
b. Subsequently but within a sufficient time
before the reliance to enable him to
amend or cancel the certificate
4. Control of business (Art. 1848, CC)
a. He becomes liable as a general partner
without acquiring the rights of one.
b. Control here contemplates active
participation in the business and not just
having the option to exercise control.
5. Prohibited Transactions (Art. 1854, CC)
a. Prohibited transactions of limited
partners:
Receiving or holding as collateral
security any partnership property
Receiving
any
payment,
conveyance, or release from liability
rd
if it will prejudice the rights of 3
persons
b. If prohibited acts are performed
Presumption of fraud on the
creditors.
But the law does not absolutely
prohibit the taking as collateral
security of the property, as the
prohibitions are modified by the
requirement of sufficient assets to
discharge
the
partnership
obligations.

382
PARTNERSHIP

CIVIL LAW REVIEWER

6. Non-compliance with requisites for formation


(Art. 1844 par.2, CC)
If there is no substantial compliance:
The partnership becomes a general
rd
partnership with respect to 3
persons
The members are liable as general
partners.
Liabilities to separate creditors
1. Right of creditors of a limited partner to
petition a court of competent jurisdiction to:
a. Charge the interest of the indebted
limited partner with the payment of the
unsatisfied amount of the claim
b. Appoint a receiver to preserve the
interest
c. Make all other orders as the
circumstances would require
2. The interest may be redeemed with the
separate property of any general partner but
not with partnership property. (Art. 1862,
CC)
This is different from the rule in general
partnership where the interest can also
be redeemed with partnership property.
(Art. 1814, CC)
Rights of Limited Partners
1. Common rights of limited and general
partners (Art. 1851, CC)
a. Demand that partnership books be kept
at the principal place of business
b. Inspect and copy any of the books
c. Demand true and full info of all things
affecting the partnership
d. Demand a formal account whenever
circumstances render it just and
reasonable
e. Resort to the court for the dissolution
and winding up of the business
f. Receive a share of the profits or other
compensation by way of income
g. Demand the return of his contribution
provided assets are more than the
liabilities
2. Loan money and transact business (Art.
1854, CC)
a. Limited partner allowed to loan money,
transact
business
because
the
relationship between the limited partner
and partnership is not based on trust
and confidence. There is no conflict of
interests.
b. Unless he is also a general partner, he
is entitled to a pro rata share of the
partnership assets together with the
general creditors.

Chapter IX. LIMITED PARTNERSHIP

3. Return of contribution (Art.1857,CC)


a. Conditions for return:
All liabilities to non-partner creditors
had been paid, or there are
sufficient assets to satisfy them, or
All members consent, unless the
limited partner desiring the return
has lawfully demanded the return of
his contribution, or
The certificate had been cancelled
or amended as to reflect the
withdrawal
or
reduction
of
contribution.
b. When return may be demanded:
On the dissolution of the partnership
On the arrival of the date specified
in the certificate
On the lapse of 6 months from
notice in writing to all other
members if no time is specified
c. General rule: return of contribution is in
cash, except:
if there is a statement to that effect
in the certificate or all partners
consent
d. Dissolution, upon petition of limited
partner:
When
he
rightfully
but
unsuccessfully demands the return
of his contribution
The
other
liabilities
of
the
partnership have not been paid pr
property is insufficient for payment
and the limited partner would
otherwise be entitled to the return of
his contribution
e. In case of several limited partners:
Members may agree to give priority
to one or more limited partners, and
This must be stated in the certificate
of partnership. The preference
covers
o Return of contributions;
o Compensation; and
o Other matters where some
benefit is granted (Art. 1855,
CC).
f. In the absence of such statement, all the
limited partners shall stand upon equal
footing.
4. Share of profits (Art. 1856, CC)
When the assets exceed liabilities
(except those to limited and general
partners), a limited partner may recover
his share in the profits or compensation
by way of income stipulated in the
certificate.
5. Assign interests (Art. 1859, CC)
a. A limited partners interest is assignable.

383
PARTNERSHIP

CIVIL LAW REVIEWER

CIVIL LAW REVIEWER

7. Person erroneously believing he is a limited


partner (Art. 1852, CC)
a. A person who has contributed capital
erroneously believing that he has
become a limited partner:
Does not become a general partner,
or
Become bound by the obligations of
the partnership, if:
o he exercises the rights of a
limited partner
o on ascertaining his mistake he
promptly renounces his interest
in the profits of the business

IV. General Partner


A general partner shall have all the rights and
powers and is subject to all the restrictions and
liabilities of a partner in a partnership without
limited partners.
General partners cannot, without the written
consent or written ratification of all limited
partners, do the ff. (ACAP-ACA)
1. Any act in contravention of the certificate
2. Confess judgment
3. Any act which would make it impossible to
carry on the partnership business
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. Continue the business with partnership
property on the death, retirement, insanity,
civil interdiction or insolvency of a general
partner, unless the power is granted in the
certificate
7. Admit a person as a limited partner, unless
the right is granted in the certificate (Art.
1850, CC)

V. Dissolution
When a limited partnership may be
dissolved
1. The misconduct of a general partner
2. Fraud on the limited partner by the general
partner
3. The retirement, death, insolvency, insanity,
or civil interdiction of a general partner,
except: if the business is continued by the
remaining general partners
a. Under a right stated in the certification
b. When all members consented to the
continuation (Art. 1860, CC)
4. When all the limited partners ceased to be
such (Art. 1864, CC)

384
PARTNERSHIP

b. Substituted limited partner: a person


admitted to all the rights of a limited
partner who has died or assigned his
interest in a partnership
He has all the rights and powers of
a limited partner
Subject to all restrictions and
liabilities of his assignor except:
o those he was ignorant of when
he became a limited partner and
could not be ascertained in the
certificate
c. An assignee who does not become a
substituted limited partner has:
No right to require any information
or
account
of
partnership
transactions
No right to inspect partnership
books
Only entitled to receive the
assignors share of the profits or
other compensation by way of
income
Only entitled to the return of the
assignors contribution
d. The assignee shall have the right to
become a substituted limited partner if
All the members consent, or
The assignor is empowered in the
articles of partnership, and he gave
the assignee the right to be a
substituted limited partner.
In either case, it is still required that the
certificate be amended (Art. 1865, CC)
and registered with the SEC.
e. That the assignee has become a
substituted limited partner does not
relieve the assignor from liabilities to the
partnership under Art. 1858, as a
trustee, or for false statement in the
certificate.
6. Effect of death of a limited partner (Art.
1861, CC)
a. Rights of executors or administrators:
All the rights of a limited partner for
the purpose of settling the estate
If the deceased had assigned his
interest in the partnership, the
executor or administrator may
constitute the assignee a substituted
limited partner if the deceased was
empowered to do so
b. The deceased limited partners estate is
liable for all the deceaseds obligations
and liabilities to the partnership as a
limited partner

Chapter IX. LIMITED PARTNERSHIP

CIVIL LAW REVIEWER

Chapter IX. LIMITED PARTNERSHIP

5. End of the term for which it was to exist (Art.


1844, CC)
6. By mutual consent of the partners before the
end of the firms original term
7. When the limited partner demanded the
return of his contribution but was
unjustifiably denied (Art. 1857, CC)
8. The causes in Arts. 1830 and 1831.
If dissolved by expiration of the fixed term, the
notice of dissolution need not be given since the
papers filed in the SEC are notice to the world.
If dissolved by express will of the partners, the
certificate should be cancelled, and dissolution is
not effected until there has been compliance
with this requirement.

VI. Settling Accounts for Dissolution

General partners have the duty and power to


wind up the partnerships affairs
If there is no agreement, the limited partners
shall share in the partnership assets and
profits in proportion to the respective
amounts of their claims (Art. 1863, CC)

- end of Partnership -

385
PARTNERSHIP

Order of priority in the payment of liabilities


(Art. 1863, CC)
1. Those owed to creditors, in the order of
priority provided by law (Arts. 2236-2251,
CC), except those to limited partners on
account of their contribution and to general
partners
2. Those to limited partners in respect to their
share of the profits and other compensation
by way of income in their contributions
3. Those to limited partners in respect of their
capital contributions
4. Those to general partners other than for
capital and profits
5. Those to general partners in respect to
profits
6. Those to general partners in respect to
capital