San Beda Partnership PDF

150
2005 CENTRALIZED BAR OPERATIONS
PARTNERSHIP
PARTNERSHIP
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. (Art. 1767)
A partnership has a juridical
personality which is separate and
distinct from that of the partners.
A partnership may sue and be sued in
its name or by its duly authorized
representatives. A managing partner
of the partnership may execute all
acts of administration including the
right to sue debtors of the
partnership in the case of their
failure to pay their obligation when
it becomes demandable. (Tai Tong
Chuache & Co. vs.
Insurance
Commission 158 SCRA 336 [1988])
contract is covered by the statute of

frauds and thus requires a written
agreement to be enforceable.
3. Where the contract of partnership
has a capital of 3,000 pesos or more, in
money or property, it shall appear in a
public instrument and must be recorded
in the Office of the Securities and
Exchange Commission. However, a
partnership has a juridical personality
even in case of failure to comply with
this requirement.
FORM OF PARTNERSHIP CONRTRACT

No special form is
required for the validity or existence of
the contract of partnership.
NOTE: With regard to number 2 (legal

capacity
of
contracting
parties),
individuals not legally incapacitated to
contract and partnerships may enter into
a contract of partnership. With respect
to corporations, the court held in
Aurbach
vs.
Sanitary
Wares
Manufacturing Corporation 180 SCRA 130
[1989] that although a corporation
cannot enter into a partnership contract,
it may however engage in a joint venture
with others. A joint venture has been
generally understood to mean an
organization formed for some temporary
purpose.
There is nothing against one
corporation being represented by a
natural or juridical person in a suit in
court, for the true rule is that although
a corporation has no power to enter a
partnership, it may nevertheless enter
into a joint venture with another where
the nature of that venture is in line with
the business authorized by the charter.
(JM Tuazon and Co., Inc vs. Bolanos 95
PHIL 106 [1954])
1. Where immovable property or real

rights are contributed, the partnership
contract shall be void unless:
a. It is reduced to writing in a
public instrument (Art. 1771).
b. An inventory of the property
contributed is made, signed by the
parties and attached to the public
instrument. (Art.1773).
A partnership contract which
states that the partnership is
established to operate a fishpond is
not rendered void because no
inventory of the fishpond was made
(where it did not clearly appear in the
articles of partnership that the real
property had been contributed by
anyone of the partners). (Agad vs.
Mabolo and Mabolo Agad and Co.,
23 SCRA 1223[1968])
2. Where the contract is by its terms not
to be performed within a year from the
making
thereof,
such
partnership
Requisites:
1. intention to create a partnership
2. common fund obtained from the
contributions
3. joint interest in the profits
Essential Features:
1. there must be a valid contract;
2. the parties must have legal capacity
to enter into the contract;
2005 CENTRALIZED BAR OPERATIONS EXECUTIVE COMMITTEE AND SUBJECT CHAIRPERSONS

Maricel Abarentos (Over-all Chairperson), Ronald Jalmanzar (Over-all Vice Chair), Yolanda Tolentino(VC-Acads), Jennifer
Ang(VC- Secretariat), Joy Inductivo (VC-Finance), Elaine Masukat (VC-EDP), Anna Margarita Eres (VC-Logistics) Jonathan
Mangundayao (Political Law), Francis Benedict Reotutar (Labor Law), Romuald Padilla (Civil Law), Charmaine Torres (Taxation Law),
Mark David Martinez (Criminal Law), Garny Luisa Alegre (Commercial Law), Jinky Ann Uy (Remedial Law), Jackie Lou Bautista (Legal
Ethics)
San Beda College of Law
151
MEMORY AID IN CIVIL LAW

3. there must be mutual contribution of
money, property and industry to a
common fund
NOTE: A partnership of a civil nature
was formed because Gatchalian & Co.
put up money to buy a sweepstakes
ticket for the sole purpose of dividing
equally the prize which they may win as
they did
in fact in the amount of
P50,000. (Gatchalian vs. CIR 67 PHIL 666
[1939])
Where the father sold his rights over
2 parcels of land to his 4 children so they
can build their residences, but the latter
after 1 year sold them and paid the
capital gains, they should not be treated
to have formed an unregistered
partnership and taxed corporate income
tax on the sale and on dividend income
tax on their shares of the profits from
the sale. (Obillos Jr. vs. CIR [1985])
4. the object must be lawful; and
5. the primary purpose must be to
obtain profits
KEY: CJP3 - D2AFT
Partnership
Co-ownership
1. Creation
Always created by a Generally created by
contract,
either law, but may exist
express or implied
even
without
a
contract
2. Juridical personality
Has
a
juridical Has
no
juridical
personality separate personality
and distinct from
that of each partner
3. Purpose
Realization
of Common enjoyment
profits
of a thing or right;
does not necessarily
involve sharing of
profits
4. Duration
No limitation upon An agreement to
the duration is set keep
the
thing
by law
undivided for more
than 10 years is not
allowed
5. Transfer of interests
A partner may not A
co-owner
can
dispose
of
his dispose of his share
individual interest in without the consent
the partnership so of the others
as to make the
assignee a partner
without unanimous
consent
6. Power to act with third persons
In the absence of A co-owner cannot
stipulation to the represent the cocontrary, a partner ownership
may
bind
the
partnership
7. Dissolution
Death or incapacity Death or incapacity
of a partner results of a co-owner does
in the dissolution of not
necessarily
partnership
dissolve
the
coownership
8. Agency or representation
As a rule, there is As a rule, there is no
mutual agency
mutual
representation
(although
it
is
enough for a coowner to bring an
action for ejectment
against a stranger)
9. Profits
May be stipulated Must always depend
upon
upon proportionate
shares
and
any
stipulation to the
contrary is VOID
(Art.485)
10. Form
May be in any from No public instrument
except when real is needed even if
property
is real property is the
contributed (here a object of the copublic instrument is ownership
required)
KEY: CNJ PMERET2 - FPG

Partnership
Corporation
1. Creation
Created
by
mere Created by law
agreement
of
the or by operation
parties
of law
2. Number of incorporators
May be organized by at Requires
at
least two persons
least
five
incorporators
(except
a
corporation
sole)
3. Commencement of juridical
personality
Acquires
juridical Acquires
personality from the juridical
moment of execution of personality from
the
contract
of the
date
of
partnership
issuance of the
certificate
of
CIVIL LAW COMMITTEE

CHAIRPERSON: Romuald Padilla ASST.CHAIRPERSON: Vida Bocar, Joyce Vidad EDP: Alnaiza Hassiman, Dorothy Gayon
SUBJECT HEADS: Christopher Rey Marasigan (Persons and Family Relations), Alejandro Casabar(Property), Ma. Rhodora
Ferrer(Wills and Succession), Ian Dominic Pua(Obligations and Contracts), Sha Elijah Dumama(Sales and Lease), John Stephen
Quiambao(PAT), Christopher Cabigao(Credit Transactions), Ligaya Alipao(Torts and Damages), Anthony Purganan(LTD),
Ma. Ricasion Tugadi (Conflicts of Law)
152
incorporation by
the
Securities
and
Exchange
Commission
4. Powers
Partnership
may Corporation can
exercise
any
power exercise
only
authorized
by
the the
powers
partners (provided it is expressly
not contrary to law, granted by law
morals, good customs, or implied from
public order, public those granted or
policy)
incident to its
existence
5. Management
When management is The power to do
not agreed upon, every business
and
partner is an agent of manage
its
the partnership
affairs is vested
in the board of
directors
or
trustees
6. Effect of mismanagement
A partner as such can
sue a co-partner who
mismanages
The suit against

a member of
the board of
directors
or
trustees
who
mismanages
must be in the
name of the
corporation
7. Right of succession
Partnership has no right
of succession
Corporation has
right
of
succession
8. Extent of liability to third persons

Partners
are
liable Stockholders are
personally
and liable only to
subsidiarily (sometimes the extent of
solidarily)
for the
shares
partnership debts to subscribed
by
third persons
them
9. Transferability of interest
Partner cannot transfer Stockholder has
his interest in the generally
the
partnership so as to right to transfer
make the transferee a his
shares
partner without the without
prior
unanimous consent of consent of the
all the existing partners other
because the partnership stockholders
is based on the principle because
of delectus personarum
corporation
is
not based on
this principle
10. Term of existence

partnership
may
be corporation may
established
for
any not be formed
period
of
time for a term in
stipulated
by
the excess of 50
partners
years extendible
to not more
than 50 years in
any
one
instance
11. Firm name
limited partnership is corporation may
required by law to add adopt any name
the word Ltd. To its provided it is
name
not the same as
or similar to any
registered firm
name
12. Dissolution
may be dissolved at any can only be
time by any or all of the dissolved with
partners
the consent of
the State
13. Governing Law
governed
by
the governed by the
contract and the Civil Corporation
Code
Code
JOINT VENTURE
It is hardly distinguishable from
partnership, since their elements are
similar, i.e. community of interest in
the business, sharing of profits and
losses, and a mutual right of control.
The main distinction in common law
jurisdiction is that partnership
contemplates a general business
with some degree of continuity,
while joint venture is formed for the
execution of a single transaction and
is thus of temporary nature
In Kilosbayan, Incorporated vs.
Guingona, Jr 232 SCRA 110 [1994],
the court defined a joint venture as
an association of persons or
companies jointly undertaking some
commercial enterprise; generally all
contribute assets and share risks. Its
requisites are:
a. A community of interest in
the performance of the
subject matter;
b. A right to direct and govern
the policy in connection
therewith;
c. Duty to share profits and
losses.

Ethics)
153

NOTE: Under the Civil Code, a
partnership may be particular or
universal, and a particular partnership
may have for its object a specific
undertaking. Hence, a joint venture
may be treated like any other contract,
innominate in nature to be regulated and
governed primarily by the stipulations of
the parties thereto and suppletorily by
the general provisions of the Civil Code
on obligations and contracts, by rules
governing the most analogous contracts
(e.g. law on partnership), and by the
customs of the place.
Other Similar Contracts
1. Collaboration- the act of working
together in a joint project.
2. Association- act of a number of
persons uniting together for some special
purpose or business.
RULES TO DETERMINE EXISTENCE OF
PARTNERSHIP (ART 1769)
1. GENERAL RULE: Persons who are
not partners as to each other are not
partners as to third persons.
EXCEPTION:
partnership
by
estoppel
2. Co-ownership of a property does not
itself establish a partnership, even
though the co-owners share in the
profits derived from the incident of
joint ownership.
3. Sharing of gross returns alone does
not indicate a partnership, whether
or not the persons sharing them have
a joint or common right or interest
in any property from which the
returns are derived.
4. Receipt of share in the profits is a
strong presumptive evidence of
partnership. However, no such
inference will be drawn if such
profits were received in payment:
(a) as a debt by installments or
otherwise; (b) as wages of an
employee or rent to a
landlord;
(c) as 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 a goodwill of a business or
other property by installments or
otherwise.
CLASSIFICATION OF PARTNERSHIP
1. as to object:
a) universal partnership
i. universal partnership of all
present property
ii. universal
partnership
profits
of
b) particular partnership
2. as to liability of partners:
a) general partnership
b) limited partnership
3. as to duration:
a) partnership at will
b) partnership with
period
fixed
4. as to legality of existence:
a) de jure partnership
b) de facto partnership
5. as to representation to others:
a) ordinary or real partnership
b) ostensible or partnership by
estoppel
6. as to publicity:
a) secret partnership
b) notorious or open partnership
7. as to purpose:
a) commercial or trading
b) professional or non-trading
UNIVERSAL PARTNERSHIP
1. A universal partnership of all
present property is one wherein the
partners contribute all the property
which actually belong to them to a
common fund, with the intention of
dividing the same among themselves, as
well as all the profits which they may
acquire therewith.
In a universal partnership of all
present property, the property which
belongs to each of the partners at the
time of the constitution of the
partnership, becomes the common
property of all the partners, as well as
CIVIL LAW COMMITTEE

154
the profits which they may acquire

therewith.
A stipulation for the common
enjoyment of any other profits may also
be made; but the properties which the
partners may acquire subsequently by
inheritance, legacy or donation cannot
be included in such stipulation, except
the fruits thereof.
Where the articles of partnership do
not specify the nature of the universal
partnership, whether it is one of
present property or of profits only,
it will be presumed that the parties
intended merely a partnership of profits.
NOTE: Future properties cannot be
contributed.
Thus,
property
subsequently
acquired
by
(1)
inheritance, (2) legacy or (3) donation
cannot be included by stipulation except
the fruits thereof.
2. A universal partnership of profits is
one which comprises all that the
partners may acquire by their industry or
work during the existence of the
partnership and the usufruct of movable
or immovable property which each of
the partners may posses at the time of
the celebration of the contract.
Movable or immovable property
which each of the partners may posses at
the time of the celebration of the
contract shall continue to pertain
exclusively to each, only the usufruct
passing to the partnership.
NOTE: Persons who are prohibited from
giving each other any donation or
advantage cannot enter into a universal
partnership. (Art. 739, Art. 87, Family
Code)
Profits acquired by their partners
through chance (i.e. lottery) without
employment
of
any
physical
or
intellectual efforts are not included.
PARTICULAR PARTNERSHIP
A particular partnership is one
which has for its object determinate
things, their use and fruits, or a specific
undertaking, or the exercise of a
profession or vocation.
GENERAL PARTNERSHIP
A partnership consisting of
general partners who are liable pro rata
and subsidiarily and sometimes solidarily
with their separate property for
partnership debts.
LIMITED PARTNERSHIP
One formed by two or more
persons having as members one or more
general partners and one or more limited
partners, the latter not being personally
liable for the obligations of the
partnership.
PARTNERSHIP AT WILL
A partnership wherein no time is
specified and is not formed for a
particular undertaking or venture and
which may be terminated at anytime by
mutual agreement of the partners, or by
the will of anyone partner alone; or one
for a fixed term or particular
undertaking but has been continued by
the partners after termination of such
term or particular undertaking without
express agreement.
PARTNERSHIP WITH A FIXED TERM
A partnership wherein the term
for which the partnership is to exist is
fixed or agreed upon or one formed for a
particular undertaking, and upon the
expiration of the term or completion or
the
particular
enterprise,
the
partnership
is
dissolved,
unless
continued by the partners.
OTHER KINDS OF PARTNERSHIP
1. De Jure Partnership- one which has
complied
will
all
the
legal
requirements for its establishment.
2. De Facto Partnership- one which
has failed to comply with all the
legal
requirements
for
its
establishment.
3. Ordinary or real partnershipone
which actually exists among the
partners and also as to third persons.
4. Ostensible
partnership
or
partnership de facto- one which in
reality is not a partnership, but is
considered a partnership only in
relation to those who, by their
conduct or admission, are precluded
to deny or disprove its existence.

Ethics)
155

5. Secret partnershipone wherein the
existence of certain persons as
partners is not avowed or made
known to the public by any of the
partners.
6. Open or notorious partnershipone
whose existence is avowed or made
known to the public by the members
of the firm.
7. Commercial or trading partnershipone formed for the transaction of
business.
8. Professional
or
non-trading
partnershipone formed for the
exercise of a profession.
CLASSIFICATION OF PARTNERS
1. as to CONTRIBUTION:
a) Capitalist partner- one who
contributes money or property to the
common fund.
b) Industrial partner- one who
contributes only his industry or
personal service.
2. as to LIABILITY:
a) General partner- one whose
liability to third persons extends to
his separate property, he may either
be a capitalist or industrial partner.
b) Limited partner- one whose
liability to third persons is limited to
his capital contribution.
3. as to MANAGEMENT:
a) Managing partner- one who
manages the business or affairs of
the partnership; he may be
appointed in the articles of
partnership or after constitution of
the partnership.
b) Silent partner- one who does not
take any active part in the business
although he may be known to be a
partner.
c) Liquidating partner- one who
takes charge of the winding up of
the
partnership
affairs
upon
dissolution.
4. Miscellaneous:
a) Ostensible partner- one who
takes active part and known to the
public as a partner in the business,
whether or not he has actual interest
in the firm.
b) Secret partner- one who takes

active part in the business by is not
known to be a partner by outside
parties nor held out as a partner by
the other partners. c) Dormant
partner- one who does not take
active part in the business and is not
known or held out as partner.
KEY: CP2L
Capitalist Partner
Industrial
Partner
1. as to contribution
contributes money contributes his
or property
industry (mental
or physical)
2. as to prohibition to engage in
other business
Cannot
generally cannot engage in
engage in the same any business for
or similar enterprise himself
as that of his firm
3. as to profits
1. shares in the receives a just
profits according and
equitable
to
agreement share
thereon;
2. if none, pro rata
to
his
contribution
4. as to losses
1. first,
the exempted as to
stipulation as to losses
(as
losses;
between
2. if
none,
the partners); but is
agreement as to liable to third
profits;
persons, without
3. if none, pro rata prejudice
to
to contribution
reimbursement
from
the
capitalist
partners
OBLIGATIONS OF PARTNERS AMONG

THEMSELVES:
I.
Obligation
with
respect
to
contribution of property
a) To contribute what had been
promised
b) To answer for eviction in case
the partnership is deprived of
determinate
property
contributed
CIVIL LAW COMMITTEE

156
c) To answer to the partnership for

the fruits of the property the
contribution of which is delayed,
from the date they should have
been contributed to the time of
actual delivery
d) To preserve the property with
the diligence of a good father of
a family pending delivery to the
partnership
e) To indemnify the partners for
any damages caused to it by the
retention of the same or by
delay in its contribution.
II. Obligations
with
respect to
contribution of money and money
converted to personal use
a) To contribute on the date due
the amount he has undertaken to
contribute to the partnership
b) To reimburse any amount he may
have taken from the partnership
coffers and converted to his own
personal use
c) To pay the agreed or legal
interest, if he fails to pay his
contribution on time or in case
he takes any amount from the
common fund and converted to
his own personal use
d) To indemnify the partnership for
the damages caused to it by the
delay in the contribution or the
conversion of any sum for his
personal benefit.
III. Obligation Not to Engage in Other
Business for Himself
1. Industrial partner- cannot engage in
any business for himself unless the
partnership expressly permits him to
do so. The other partners have the
remedy of either excluding the
erring partner from the firm or of
availing themselves of the benefits
which he may have obtained.
Note: The prohibition is absolute and
applies whether the industrial
partner is to engage in the same
business in which the partnership is
engaged or in any kind of business. It
is clear that the reason for the
prohibition exists in both cases,
which is to prevent any conflict of
interest between the industrial
partner and the partnership and to

insure faithful compliance by said
partner
with
his
prestation
(Evangelista & Co. vs. Abad Santos,
51 SCRA 416, 1973)
2. Capitalist partner- The prohibition
extends only to any operation which
is of the same kind of business in
which the partnership is engaged
unless there is a stipulation to the
contrary.
IV. Obligation to Contribute Additional
Capital
As a general rule, a capitalist
partner is not bound to contribute to the
partnership more than what he agreed to
contribute but in case of an imminent
loss of the business, and there is no
agreement to the contrary, he is under
obligation to contribute an additional
share to save the venture. If he refuses
to contribute, he shall be obliged to sell
his interest in the partnership to other
partners.
V. Obligation of Managing Partner who
Collects Debt
Where a person is separately
indebted to the partnership and to the
managing partner at the same time, any
sum received by the managing partner
shall be applied to the two credits in
proportion to their amounts, except
where he received it entirely for the
account of the partnership, in which
case the whole sum shall be applied to
the partnership credit only.
Requisites for the application of the
rule:
1) There exists two debts, one where
the collecting partner is creditor,
the other, where the partnership is
creditor.
2) Both debts are demandable
3) The partner who collects is
authorized to manage and actually
manages the partnership.
VI. Obligation of Partner Who Receives
Share in Partnership Credit
A partner who receives, in whole
or in part, his share in the partnership,
when the others have not collected

Ethics)
157

theirs, shall be obliged, if the debtor
should thereafter become insolvent, to
bring to the partnership capital what he
received even though he may have given
receipt for his share only.
Requisites for application of rule:
1) A partner has received, in whole or
in part, his share in the partnership
credit
2) The other partners have not
collected their shares.
3) The partnership debtor has become
insolvent.
VII. Obligation of Partner for Damages
to Partnership
Every partner is responsible to the
partnership for damages suffered by it
through his fault. He cannot compensate
them with the profits and benefits which
he may have earned for the partnership
by his industry.
VIII. Duty to Render Information
Partners shall render on demand
true and full information of all things
affecting the partnership to any partner
or the legal representative of any
deceased partner of any partner under
legal disability.
IX. Obligation to account for any
benefit
and
hold
as
trustee
unauthorized personal profits
Every partner must account to
the partnership for any benefit, and 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, liquidation
of the partnership or form any use by
him of its property.
RIGHTS OF A PARTNER:
1. Property rights of a partner
a) His rights in the specific
partnership property
b) His interest in the partnership
c) His right to participate in the
management
2. Right to reimbursement for amounts
advanced to the partnership and to
indemnification
for
risks
in
consequence of management
3. Right to associate with another

person in his share
4. Right of access and inspection of
partnership books
5. Right to true and full information of
all things affecting the partnership
6. Right to a formal account of
partnership affairs under certain
circumstances
NOTE: The ten year period to
demand an accounting by a partner
begins at the dissolution of the
partnership.
7. Right to have partnership dissolved
under certain conditions.
RULES FOR DISTRIBUTION OF PROFITS
AND LOSSES
1. Distribution of profits
a) According to their agreement
(but not inequitously to defeat
Art.1799)
b) If none,
1) Share of capitalist partner
shall be in proportion to his
capital contribution
2) Industrial
partner
shall
receive such share as may be
just and equitable under the
circumstances
2. Distribution of losses
a) According to their agreement as
to losses (but not inequitously to
defeat Art.1799)
b) If none, according to their
agreement as to profits
c) If none, in proportion to his
capital contribution, but the
purely industrial partner shall
not be liable for the losses
A stipulation excluding
a partner from any share in the profits or
losses is VOID (Article 1799)
Article 1797(2) excludes an
industrial partner from losses. Thus, a
stipulation excluding an industrial
partner from losses is VALID, but he is
NOT exempted from liability insofar as
third persons are concerned.
NOTE: In general, LIABILITY refers to
responsibility towards third persons, and
LOSSES refers to responsibility as among
partners
CIVIL LAW COMMITTEE

158
CONTRACT OF SUB-PARTNERSHIP
One formed between a member of a
partnership and a third person for a
division of profits owing to him from
the partnership enterprise.
It is a partnership within a
partnership distinct and separate
from
the
main
or
principal
partnership.
NOTE: In the absence of unanimous
consent of all the partners, a subpartner does not become a member of
the partnership. Hence, a sub-partner
does not acquire the rights of a partner
nor is he liable for its debts
PROPERTY RIGHTS OF A PARTNER
1. Right to specific partnership
property
contemplates tangible property
The specific partnership property
belongs to the partnership as a
separate juridical personality. The
partners have no actual interest in it
until after dissolution.
equal right with other partners to
possess specific partnership property
for partnership purposes
not assignable, except in connection
with the assignment of rights of all
partners in the same property
not subject to attachment or
execution, except on a claim against
the partnership
not subject to legal support
NOTE: Any immovable property or an
interest therein may be acquired in the
partnership name. The title so acquired
may be conveyed only in the partnership
name subject to the provisions of Article
1819 of the Civil Code.
2. Interest in the partnership
share in the profits and surplus
A partner actually owns his
respective share.
Effects of conveyance by a partner of
his interest in the partnership
1. conveyance of his whole interest
partnership may either remain or be
dissolved
2. assignee
does
not
necessarily
become a partner
3. assignee cannot interfere in the

management or administration of
the partnership business or affairs
4. assignee
cannot
demand
information,
accounting
and
inspection of the partnership books
Remedies
of
separate
judgment
creditor of a partner
Application for a charging order
after securing judgment on his credit
to subject the interest of the debtor
partner with payment of unsatisfied
amount of the judgment debt
Redemption of interest charged
1. General partnership
a) with separate property of a
partner; or
b) with partnership property, with
the consent of all the partners
whose interests are not so
charged or sold
2. Limited partnership (interest of
limited partner)
a) with separate property of any
general partner but NOT with
partnership property
3.
Right to
management
participate
in
the
MANAGEMENT OF PARTNERSHIP
I. When the manner of management
has been provided for in the
partnership agreement
A. When a managing partner has
been appointed
1) Appointment in the articles of
partnership
a. Power is irrevocable without
just or lawful cause
i.
ii.
to remove him for JUST

cause, vote of partners
representing
controlling
interest is necessary
to remove him without just
cause or for an UNJUST cause,
there must be unanimity
including his own vote
b. Extent of power
i. if he acts in good faith, he
may
do
all
acts
of
ADMINISTRATION,
despite
opposition of his partners
ii. if in bad faith, he cannot.

Ethics)
159

2) Appointment other than in the
articles of partnership
a. Power to act may be revoked
at any time, with or without
just cause
b. Extent of power: as long as he
remains manager, he can perform
all acts of administration, but if
others oppose and he persists, he
can be removed
B. When two or more managing
partners have been entrusted
with
the
management
of
partnership
1)Without specification of their
respective duties and without
stipulation requiring unanimity of
action
Each managing
partner may execute all acts of
administration
If any of the
managing
partners
should
oppose,
a) Decision of the majority
of the managing partners
shall prevail
b) In case of a tie, decision
of
the
partners
representing
the
controlling interest shall
prevail
2) With
stipulation
unanimity of action
requiring
Unanimous
consent of all the managing
partners shall be necessary for
the validity of the acts and
absence or inability of any
managing partner cannot be
alleged
When there is an
imminent danger of grave or
irreparable
injury
to
the
partnership, partner may act
alone without the consent of the
partner who is absent or under
disability
II. When manner of management has
not been agreed upon
a) All partners shall be considered
managers and agents
b) Unanimous consent required for

alteration of immovable property
OBLIGATIONS OF PARTNERS TO THIRD
PERSONS
I. Liability for contractual obligations
(ART 1816)
1. All partners, including industrial
partners, are personally liable
with all their property. Their
individual liability is pro rata and
subsidiary,
unless
otherwise
stipulated
2. Liability of partnership for acts
of partners
a) Acts for apparently carrying
on in the usual way the
business of the partnership
Act binds
the partnership.
Partnership is
not bound if:
i.
ii.
acting partner has in fact

no authority and
the third person knows
that the acting partner
has no authority
b) Acts of Strict Dominion or

Ownership (acts which are
not apparently for carrying
on in the usual way the
business of the partnership)
Act does
not bind the partnership.
Partnership is
bound if:
i.
ii.
the act is authorized by all

the partners; or
they have abandoned the
business
c) Acts in contravention of a
restriction on authority
i.
Partnership is not liable to

third persons having actual
or presumptive knowledge
of the restrictions
II. Liability arising from partners tort

(ART 1822) or Breach of Trust (ART
1823)
1. Where, by any wrongful act or
omission of any partner acting in
the ordinary course of business
of the partnership or with
authority of his co-partners, loss
or injury is caused to any person,
CIVIL LAW COMMITTEE

160
not being a partner in the

partnership (Article 1822)
2. Where one partner, acting within
the scope of his apparent
authority, receives money or
property of a third person and
misapplies it (Article 1823)
3. Where the partnership, in the
course of its business, receives
money or property and it is
misapplied by any partner while
it is in the custody of the
partnership (Article 1823)
NOTE: All partners are solidarily liable
with the partnership for any penalty or
damage arising from a partnership tort
or breach of trust
III. Criminal liability of partnership
Partnership liability does not extend
to criminal liability where the
wrongdoing is regarded as individual
in character. But where the crime is
statutory, especially when it involves
a fine rather than imprisonment,
criminal liability may be imposed
LIABILITY OF STOCKHOLDERS IN A
DEFECTIVELY FORMED CORPORATION
It is ordinarily held that persons who
attempt but fail to form a
corporation and carry on business
under the corporate name occupy
the position of partners inter se.
Thus where persons
associate
themselves together under articles
to purchase property to carry on a
business, and their organization is so
defective as to come short of
creating a corporation within the
statute, they become in legal effect
partners inter-se.
Exception: One who takes no part
except to subscribe for stock in a
proposed corporation, which was
never legally formed, does not
become a partner with other
subscribers who engage in business
under the name of the pretended
corporation, so as to be liable as
such in an action for settlement of
the
alleged
partnership
and
contribution. (Pioneer Insurance &
Surety Corporation vs. Court of
Appeals, 175 SCRA 668 [1989].)
PRINCIPLE OF DELECTUS PERSONARUM

A rule inherent in every partnership
wherein no one can become a
member of the partnership without
the consent of all the partners.
NOTE: This element of delectus
personae is true only in case of a general
partner, but NOT as regards a limited
partner.
MUTUAL AGENCY
Partnership is a contract of mutual
agency, each partner acting as a
principal on his own behalf, and as
an agent of his co-partners and the
partnership.
Requisites When A Partner Binds The
Partnership
1. when he is expressly or impliedly
authorized
2. when he acts in behalf and in the
name of the partnership
PARTNERSHIP BY ESTOPPEL
Arises when a person, by words
spoken or written or by conduct,
represents himself or consents to
another representing him to anyone,
as partner in an existing partnership,
or with one or more persons not
actual partners; he is liable to any
such
person
to
whom
such
representation has been made, who
has, on the faith of such
representation given credit to the
actual or apparent partnership. (Art
1825)
NOTE: Art. 1825 does not create a
partnership as between the alleged
partners. A contract, express or implied
is essential to the creation of
partnership. The law considers them
partners and the association as a
partnership insofar as it is favorable to
third persons.
However, partnership
liability is created only in favor of
persons who on the faith of such
representation given credit to the actual
or apparent partnership

Ethics)
161

DISSOLUTION
Change in the relation of the
partners caused by any partner
ceasing to be associated in carrying
on the business. (Article 1828)
It is the point in time when the
partners cease to carry on the
business together. It represents the
demise of a partnership.
NOTE: The dissolution of a partnership
must not be understood in the absolute
and strict sense so that at the
termination of the object for which it
was
created
the
partnership
is
extinguished.
(Testate of Mota vs.
Serra, 47 PHIL 464, 1926.) Dissolution
does not automatically result in the
termination of the legal personality of
the partnership, nor the relations of the
partners among themselves who remain
as co-partners until the partnership is
terminated.
WINDING UP
Process of settling the partnership
business or affairs after dissolution.
TERMINATION
Point in time when all partnership
affairs are wound up or completed
and is the end of the partnership
life.
CAUSES OF DISSOLUTION
1. Extrajudicial
dissolution
(ART
1830) - the parties may agree to
expand the grounds provided under
Art 1830 but NOT to delimit them.
The causes enumerated are as
follows:
a. Without
violation
of
the
agreement between the partners
i.
ii.
iii.
By the termination of the

definite term or particular
undertaking specified in
the agreement;
By the express will of any
partner, who must act in
good
faith,
when
no
definite term or particular
undertaking is specified;
By the express will of all
the partners who have not
assigned their interest or
suffered
them
to
be
charged for their separate
iv.
debts, either before or

after the termination of any
specified term or particular
undertaking;
By the expulsion of any
partner from the business
bona fide in accordance
with such power conferred
by the agreement between
the partners;
b. In
contravention
of
the
agreement
between
the
partners,
where
the
circumstances do nor permit a
dissolution under any other
provision of this article by the
express will of any partner at
any time.
c. By any event which makes it
unlawful for the business of the
partnership to be carried on or
for the members to carry it on in
partnership.
d. When a specific thing, a partner
had promised to contribute,
perishes before its delivery. Or
where
the
partner
only
contributed
the
use
or
enjoyment of the thing and has
reserved ownership thereof, its
loss, before or after delivery
dissolves the partnership.
e. By the death of any partner;
f. By the insolvency of any partner
or the partnership;
g. By the civil interdiction of any
partner;
2. Judicial dissolution (ART 1831) when so decreed by the court, the
presiding judge may place the
partnership under receivership and
direct an accounting to be made
towards winding up the partnership
affairs.
On application by or for any partner,
the court shall decree a dissolution
whenever:
a. A partner has been declared
insane in any judicial proceeding
or is shown to be of unsound
mind;
b. A partner becomes in any other
way incapable of performing his
part of the partnership contract;
c. A partner has been guilty of such
conduct as tend to affect
CIVIL LAW COMMITTEE

162
prejudicially the carrying on of

the business;
d. A partner willfully or persistently
commits a breach of the
partnership
agreement,
or
otherwise so conducts himself in
matters
relating
to
the
partnership business that it is
not reasonably practicable to
carry on the business in
partnership with him.
e. The business of the partnership
can only be carried on in a loss;
f. Other circumstances render a
dissolution equitable.
On application of the purchaser of a
partners interest under Article 1813
or 1814:
a. After the termination of the
specified term or particular
undertaking;
b.
At any time if the
partnership was a partnership at
will when the interest was
assigned or when the charging
order was issued.
EFFECTS OF DISSOLUTION
A. As to partners authority to act for
the partnership
Dissolution terminates
all authority of any partner to act for the
partnership
1. Acts
necessary
to
wind
up
partnership affairs
2. Acts
necessary
to
complete
transactions begun but not then
finished
Note: Thus, dissolution terminates
the ACTUAL authority of a partner to
undertake NEW business for the
partnership
QUALIFICATIONS TO THE GENERAL
RULE:
1. With respect to the partners (in so
far as partners themselves are
concerned)
a) Dissolution is not by act,
insolvency or death of a partner:
General Rule applies. Hence,
dissolution
terminates
the
ACTUAL authority of a partner to
undertake NEW business for the
partnership
b) Dissolution is by act, insolvency

or death of a partner:
Authority of
partners inter se to act for the
partnership is NOT deemed
terminated. Thus, each partner
is liable to his co-partners for his
share of any liability created by
any partner acting for the
partnership as if the partnership
has not been dissolved
1) The cause of dissolution is
the ACT of a partner and the
acting
partner
had
KNOWLEDGE
of
such
dissolution
2) The cause of dissolution is
the DEATH or INSOLVENCY of
a partner and the acting
partner had KNOWLEDGE or
NOTICE of such dissolution
2. With respect to persons not
partners (third persons)
a) When partnership is bound to
third persons after dissolution
1) Act appropriate for winding
up partnership affairs
2) Act
appropriate
for
completing
unfinished
transactions
3) Completely NEW transaction
which would
bind the
partnership if dissolution had
not taken place provided:
the other party is in good
faith, meaning:
i. Previous creditor (had
previously
extended
credit) AND he had NO
KNOWLEDGE or NOTICE
of the dissolution, OR
ii. NOT a previous creditor
AND
the
fact
of
dissolution had not been
published in a newspaper
of general circulation
b) When partnership is NOT bound
to third persons after dissolution
1) Where
partnership
was
dissolved because it was
unlawful to carry on the
business, except when the
act is for winding up

Ethics)
163

2) Where the acting partner in
the transaction has become
insolvent
3) Where
the
partner
is
unauthorized to wind up,
except if the transaction is
with third persons in good
faith (under the same
circumstances as defined
above)
4) Where
act
is
NOT
appropriate for winding up
partnership affairs or for
completing
unfinished
transactions
5) completely NEW transaction
which would
bind the
partnership if dissolution had
not taken place with third
persons in bad faith
B. As to partners existing liability
Dissolution does not
automatically discharge the existing
liability of any partner
A partner may be relieved
from all existing liabilities upon
dissolution ONLY by an agreement
between:
1. Partner concerned
2. Other partners
3. Partnership creditors
Note: The consent of the partnership
creditors and the other partners to
the novation may be implied from
their conduct.
RIGHTS
OF
A
PARTNER
UPON
DISSOLUTION
1. Where dissolution is NOT in
contravention of the partnership
agreement
a) To have partnership property
applied to discharge partnership
liabilities
b) To receive in cash his share of
the surplus
2. Where
dissolution
is
in
contravention of the partnership
agreement
a) Rights of a partner who has not
caused the dissolution wrongfully
1) To have partnership property
applied
to
discharge
partnership liabilities
2) To receive in cash his share

of the surplus
3) To be indemnified for
damages caused by the
partner
guilty
of
the
wrongful dissolution
4) To continue the business in
the same name during the
agreed
term
of
the
partnership, by themselves
or jointly with others
5) To
possess
partnership
property should they decide
to continue the business
b) Rights of a partner who has
wrongfully caused the dissolution
1) If the business is not
continued by the other
partners
i.
ii.
To
have
partnership
property
applied
to
discharge
partnership
liabilities
To receive in cash his share
of the surplus less damages
caused by his wrongful
dissolution
2) If the business is continued

i.
ii.
To have the value of his

interest in the partnership
at the time of the
dissolution, surplus less
damages caused by his
wrongful dissolution to his
co-partners,
ascertained
and paid in cash or secured
by a bond approved by the
court; AND
To be released from all
existing
and
future
liabilities
NOTE: The value of the

goodwill of the business is
not
considered
in
ascertaining the value of the
interest
of
the
guilty
partners.
RIGHTS OF A PARTNER WHERE
PARTNERSHIP CONTRACT IS RESCINDED
ON THE GROUND OF FRAUD OR
MISREPRESENTATION
(NOTE: The following are the rights of
the partner entitled to rescind)
1. Right of LIEN on, or RETENTION of,
the surplus of partnership property
after satisfying partnership liabilities
CIVIL LAW COMMITTEE

164
for any sum of money paid or

contributed by him
2. Right of SUBROGATION in place of
the partnership creditors after
payment of partnership liabilities;
and
3. Right of INDEMNIFICATION by the
guilty partner against all debts and
liabilities of the partnership
MANNER OF WINDING UP
1. Extrajudicial by the partners
themselves without the intervention
of the court
2. Judicial under the control and
direction of the court upon proper
cause shown by any partner, his
legal representative or his assignee
PERSONS AUTHORIZED TO WIND UP
1. partners
designated
by
the
agreement
2. in the absence of such agreement,
all partners who have not wrongfully
dissolved the partnership
3. legal representative of last surviving
partner not insolvent
ORDER OF PAYMENT IN WINDING UP
1. General Partnership (ART 1839 (2))
a) those owing to creditors other
than partners
b) those owing to partners other
than for capital or profits
c) those owing to partners in
respect of capital
d) those owing to partners in
respect of profits
2. Limited Partnership (ART 1863)
a) those owing to creditors, except
those to limited partners on
account of their contribution,
and to general partners
b) those owing to limited partners
in respect of their share of the
profits and other compensation
by way of income
c) those owing to limited partners
in respect of their capital
contributions
d) those owing to general partners
other than for capital and profits
e) those owing to general partners
in respect of profits
f) those owing to general partners
in respect of capital
DOCTRINE OF MARSHALLING OF ASSETS

(Article 1839(8))
1. Partnership
creditors
have
preference in partnership assets
2. Separate or individual creditors have
preference in separate or individual
properties
3. Anything left from either goes to the
other
PARTNERS LIEN
Right of every partner to have the
partnership property applied to
discharge partnership liabilities AND
to have the surplus assets, if any,
distributed in cash to the respective
partners, after deducting what may
be due to the partnership from them
as partners.
LIMITED PARTNERSHIP
One formed by two or more persons
having as members one or more
general partners and one or more
limited partners, the latter not being
personally liable for partnership
debts.
NOTE: The Supreme Court, declared a
firm to be a general partnership in a
case where it appears that the inclusion
of Ltd. (limited) in the firm was only a
subterfuge resorted to by the partners in
order to evade liability for possible
losses, while assuming their enjoyment
of advantages to be derived from the
relation. Jo Chung Cang vs. Pacific
Commercial Co. 45 PHIL 142 [1923]). In
other words if the parties intended a
general partnership, they are general
partners although their purpose is to
avoid the creation of such a relation.
Characteristics of Limited Partnership
1. Limited partnership is formed by
substantial compliance in good faith
with the statutory requirements
2. One or more general partners control
the business and are personally
liable to creditors
3. One or more limited partners
contribute to the capital and share
in the profits but do not participate
in the management of the business
and are not personally liable for

Ethics)
165

partnership obligations beyond the
amount of their capital contributions
4. The limited partners may ask for the
return of their capital contributions
under the conditions prescribed by
law
5. The partnership debts are paid out
of the common fund and the
individual properties of the general
partners
Limited
Partner/Partnership
General
Partner/
Partnership
1. Extent of liability
Limited
partners General
liability extends only to partner
is
his capital contribution
personally
liable
for
partnership
obligations
2. Right to participate in the
management of partnership
Limited partner has no General
share
in
the partners have
management
of
a an equal right
limited partnership and in
the
renders himself liable to management of
partnership creditors as the
business
a general partner if he (when
the
takes part in the control manner
of
of the business
management
has not been
agreed upon)
3. Contribution
Limited partner must General
contribute
cash
or partner
may
property
to
the contribute
partnership but not money,
services
property
or
industry to the
partnership
5. Transferability of interest
Limited
partners
interest
is
freely
assignable,
with
assignee acquiring all
the rights of the limited
partner
subject
to
certain qualifications
General
partners
interest in the
partnership
may not be
assigned as to
make
the
assignee a new
partner without
the consent of
the
other
partners,
although
he
may associate a
third
person
with him in his
share
6. Inclusion of partners name in the
firm name
As a general rule, name

of a limited partner
must not appear in the
firm name
7. Prohibition to engage in other

business
No such prohibition in
the case of a limited
partner
who
is
considered
a
mere
contributor
to
the
partnership
4. Proper party to proceedings by or

against the partnership
Limited partner is not a
proper
party
to
proceedings
by
or
against a partnership
Unless:
1. he is also a general
partner, or
2. where the object of
the proceeding is to
enforce a limited
partners
right
against or liability to
the partnership
General
partner is the
proper party to
proceedings by
or against a
partnership
Name
of
a
general partner
may appear in
the firm name
General
partner
is
prohibited from
engaging in a
business which
is of the SAME
kind of business
in which the
partnership is
engaged, if he
is a capitalist
partner, or in
ANY of business
for himself if
he
is
an
industrial
partner
8. Effect of retirement, death, insanity

or insolvency
Retirement,
death,
insanity or insolvency of
a limited partner does
not
dissolve
the
partnership
for
his
executor
or
administrator shall have
the rights of a
limited partner for the
purpose of selling his
estate
Retirement,
death, insanity
or insolvency of
a
general
partner
dissolves
the
partnership
CIVIL LAW COMMITTEE

166
9. Creation
Limited partnership is General
created by the members partnership, as
after
substantial a general rule,
compliance
in
good may
be
faith
with
the constituted in
requirements set forth any form by
by law
contract
or
conduct of the
partnership
10. Members of the partnership
Composed of one or Composed only
more general partners of
general
and one or more limited partners
partners
11. Firm name
Firm name must be No
such
followed by the word requirement
Limited
12. Rules governing dissolution and
winding up
Governed by Art. 1839
Governed
by
Art. 1863
ESSENTIAL
REQUIREMENTS
FOR
FORMATION OF LIMITED PARTNERSHIP
1. A certificate or articles of limited
partnership which states the matters
enumerated in Article 1844, which
must be signed and sworn;
2. Such certificate must be filed for
record in the Office of the Securities
and Exchange Commission.
NOTE: A strict compliance with the legal
requirements is not necessary. It is
sufficient that there is substantial
compliance in good faith. If there is no
substantial compliance, the partnership
becomes a general partnership as far as
third persons are concerned, in which all
the members are liable as general
partners. (Jo Chung Cang vs. Pacific
Commercial Co., 45 PHIL 142 [1923].)
However, a firm which fails to
substantially comply with the formal
requirements of a limited partnership is
a general partnership only as to its
relations to third persons. The firm is a
limited partnership, subject to all rules
applicable to such partnership; and as
between the partners they are bound by
their agreement; and that all the limited
partners relations to his co-partners and
their obligations to him growing out of
the relation remain unimpaired.
As to third persons or creditors

guilty of estoppel, the firm shall not be
treated as a general partnership despite
lack of substantial compliance to the
requirements of a limited partnership. If
creditors deal with the firm as a limited
partnership, they will be estopped from
insisting that there is no such
partnership, or that the terms of the
partnership were not sufficiently stated
in the notice of its formation. (40 Am.
Jur. 476.)
CONTENTS OF THE CERTIFICATE OR
ARTICLES OF LIMITED PARTNERSHIP
1. Name of the partnership, adding
thereto the word limited;
2. Character of the business;
3. Location of the principal place of
business;
4. Name and place of residence of each
member,
general
and
limited
partners
being
respectively
designated;
5. Term for which the partnership is to
exist;
6. Amount of cash and description of
and the agree value of the other
property contributed by each limited
partner;
7. Additional contributions to be made
by each limited partner and the
times at which or events on the
happening of which they shall be
made;
8. Time, if agreed upon, when to
contribution of each limited partner
is to be returned;
9. Share in the profits or other
compensation by way of income
which each limited partner shall
receive
by
reason
of
his
contribution;
10. Right, if given, of a limited partner
to substitute an assignee as
contributor in his place, and the
terms and conditions of the
substitution;
11. Right, if given, of the partners to
admit additional partners;
12. Right, if given, of one or more of the
limited partners to priority over
other limited partners, as to
contributions or as to compensation
by way of income, and the nature of
such priority;

Ethics)
167

13. Right, if given, of the remaining
general partner or partners to
continue the business on the death,
retirement,
civil
interdiction,
insanity or insolvency of a general
partner; and
14. Right, if given, of a limited partner
to demand and receive property
other than cash in return of his
contribution.
LIABILITY FOR FALSE STATEMENT IN
CERTIFICATE
Any partner to the certificate
containing a false statement is liable to
one who suffers loss by reliance on such
certificate provided the following
requisites are present:
1. He knew the statement to be false
at the time he signed the
certificate, or subsequently having
sufficient time to cancel or amend
it or file a petition for its
cancellation or amendment, he
failed to do so;
2. The person seeking to enforce
liability has relied upon the false
statement in transacting business
with the partnership;
3. The person suffered a loss as a
result of reliance upon such false
statement.
MANAGEMENT
OF
LIMITED
PARTNERSHIP
A general partner in a limited
partnership is vested with the entire
control of the firms business and
has all the rights and powers and is
subject to all the liabilities and
restrictions of a partner in a general
partnership.
A general partner in a limited
partnership
however
has
no
authority, without written consent
or ratification of all limited partners,
to:
1. Do any act in contravention of
the certificate;
2. Do any act which would make it
impossible to carry on the
ordinary
business
of
the
partnership;
3. Confess judgment against the
partnership;
4. Possess partnership property, or

assign their rights in specific
partnership property, for other
that a partnership purpose;
5. Admit a person as a general
partner;
6. Admit a person as a limited
partner, unless the right to do so
is given in the certificate
7. Continue the business with the
partnership property on the
death, retirement, insanity, civil
interdiction or insolvency of a
general partner, unless the right
to do so is given in the
certificate.
A limited partner is liable as a
general partner for the firms
obligations if he takes part or
interferes in the management of the
business.
RIGHTS OF A LIMITED PARTNER
KEY: BIF2AR2
1. To have the partnership books kept
at the principal place of business of
the partnership
2. To inspect, at a reasonable hour,
partnership books and copy any of
them
3. To demand true and full information
of
the
things
affecting
the
partnership
4. To demand a formal account of the
partnership
affairs
whenever
circumstances render it just and
reasonable
5. To ask for dissolution and winding up
by decree of court
6. To receive a share in the profits or
other compensation by way of
income
provided:
that the partnership
assets are in excess of partnership
liabilities after such payment
7. To receive the return of his
contribution provided:
a) All the liabilities of the
partnership have been paid
OR the partnership assets
are
sufficient
to
pay
partnership liabilities
b) The consent of all the
members
(general
and
limited partners) has been
obtained
CIVIL LAW COMMITTEE

168
When the return of the

contribution
may
be
rightfully demanded:
1) On the dissolution of the
partnership
2) Upon the arrival of the
date specified in the
certificate for the return
3) After he has given 6
months notice in writing
to all other partners, if
no time is specified in
the certificate their for
the
return
of
the
contribution or for the
dissolution
of
the
partnership
c) The certificate is cancelled
or so amended as to set
forth the withdrawal or
reduction
LIABILITIES OF A LIMITED PARTNER
1. Liability for unpaid contribution
a) For the difference between his
contribution as actually made
and that stated in the certificate
as having been made; AND
b) For any unpaid contribution
which he has agreed in the
certificate to make in the future
at the time and the conditions
stated in the certificate
2. Liability as trustee
a) Specific property stated in the
certificate as contributed by
him, but which was not
contributed or which has been
wrongfully returned; AND
b) Money
or
other
property
wrongfully paid or conveyed to
him
on
account
of
his
contribution
NOTE: These liabilities can be waived or
compromised only by consent of all the
members; but a waiver or compromise
shall NOT affect the right of a creditor of
a partnership who extended credit or
whose claim arose after the filling and
before the cancellation or amendment of
the certificate, to enforce such
liabilities.
SUBSTITUTED LIMITED PARTNER

A person admitted to all the rights of
a limited partner who has died of has
assigned his interest
in the
partnership.
RAL RULE: He has all, the rights
and powers, and is subject to all the
restrictions and liabilities of his assignor.
Those liabilities which he
was ignorant at the time he became a
limited partner AND which could not be
ascertained from the certificate.
REQUISITES IN ORDER THAT THE
ASSIGNEE MAY BECOME A SUBSTITUTED
LIMITED PARTNER
1. All the members must consent to the
assignee becoming a substituted
limited partner, OR the limited
partner, being empowered by the
certificate must give the assignee
the right to become a limited
partner
2. The certificate must be amended in
accordance with Art.1865
3. The certificate as amended must be
registered in the Securities and
Exchange Commission
ALLOWABLE TRANSACTIONS OF A
LIMITED PARTNER
Being merely a contributor to the
partnership is not prohibited from:
1. granting loans to the partnership
2. transacting other business with the
partnership
3. receiving a pro rata share of the
partnership assets with the general
creditors if he is NOT also a general
partner
NOTE: In transacting a business with the
partnership as a non-member, the
limited partner is considered a nonpartner creditor
PROHIBITED TRANSACTIONS OF A
LIMITED PARTNER
1. receiving or holding as collateral
security any partnership property; or
2. receiving any payment, conveyance,
or release from liability if it will
prejudice the partnership creditors

Ethics)
169

NOTES:
Violation of the prohibition will give
rise to the presumption that it has
been made to defraud partnership
creditors
The prohibition is NOT ABSOLUTE,
there is no such prohibition if the
partnership assets are sufficient to
discharge partnership liabilities to
persons not claiming as general or
limited partners.
AGENCY
CONTRACT OF AGENCY
A contract whereby a person (agent)
binds himself to render some service
or to do something in representation
or on behalf of another (principal),
with the consent or authority of the
latter. (Article 1868)
The parties to the contract are:
1. Principal- one whom the agent
represents and from whom he
derives authority; he is the
person represented.
2. Agent- one who acts for and
represents another; he is the
person acting in a representative
capacity.
AGENCY
LEASE OF
SERVICES
1.
Principle
of
representation
is
applied.
2. Extinguished at
will of the principal.
3. Agent exercise
discretionary power
to attain an end for
which
he
was
appointed.
4.
Preparatory
Contract
1.
Principle
of
employment
is
applied.
2. Concurrence of
parties is necessary.
3. Employee exercise
ministerial functions
only.
4. Principal Contract
AGENCY TO SELL
SALE
1. Agent receives the

goods as the goods of
the principal.
2. Agent delivers the
proceeds of the sale
1.
The
buyer
receives goods as
owner
2. Buyer pays the
price.
3. Agent can return

the object in case he
is unable to sell the
same
4. Bound to act
according to the
instructions of his
principal.
3. the buyer, as a
rule, cannot return
the object sold
4. The buyer can
deal with the thing
as he please being
the owner.
PURPOSE OF AGENCY
The purpose of agency is to extend
the personality of the principal
through the facility of the agent. It
enables the activity of man which is
naturally limited in its exercise by
the impositions of his physiological
conditions to be legally extended by
permitting him to be constructively
present in many different places and
to perform diverse juridical acts and
carry on many different activities
through another when physical
presence is impossible or inadvisable
at the same time. (11 Manresa 434)
ELEMENTS OF AGENCY
A. Consent
Any person or entity having juridical
capacity and capacity to act and not
otherwise disqualified, may enter
into an agency.
But as regards the party with whom
the agent acts or contracts, the legal
capacity of the principal rather than
the agent, is of the greater import.
B. Object
the services to be undertaken by the
agent
may cover all acts pertaining to a
business of the principal (general
agency) or one or more specific
transactions (special agency)
the extent of the agents authority
to act, whether it be a general or a
special agency, depends on how the
agency is couched.
C. Cause
May be onerous or gratuitous but
presumed for compensation
NOTE: The agent may not be deprived
of his right to compensation by an
unjustified revocation of the agency
CIVIL LAW COMMITTEE

170
KINDS OF AGENCY
1. as to manner of creation
a) express- one where the agent
has been actually authorized
by the principal, either orally
or in writing;
b) implied- one which is implied
from the
i.
ii.
acts of the principal- from

his silence or lack of action,
or his failure to repudiate
the agency knowing that
another person is acting on
his behalf without authority.
Acts of the agent- when he
carries out the agency, or
from his silence or inaction
according
to
the
circumstances.
2. as to its character
a) gratuitous- one where the
agent
receives
no
compensation for his services.
b) compensated or onerousone where the agent receives
compensation for his services.
3. as to extent of business covered
a) general- one which comprises
all the business of the
principal;
b) special- one which comprises
one
or
more
specific
transactions.
4. as to authority conferred
a) couched in general termsone which is created in
general terms and is deemed
to comprise only acts of
administration;
b) couched in specific termsone authorizing only the
performance of a specific act
or acts.
5. as to its nature and effects
a) ostensible
or
representative- one where
the agent acts in the name
and in representation of the
principal.
b) simple or commission- one
where the agent acts in his
own name but for the
account of the principal.
ACTS WHICH MAY BE DELEGATED TO AN

AGENT
person, he may do thru another.
1. Personal
actsif
personal
performance is required the doing of
an act by a person on behalf of
another
does
not
constitute
performance by the latter.
a) Voting during an election;
b) Making a will;
c) Making statements which are
required to be done under oath;
d) A member of the board of
directors or trustees in a
corporation cannot validly act as
such by proxy
e) An agent cannot delegate to
a sub-agent the performance of
acts which he has been
appointed to perform in person.
2. Criminal Acts or Acts not allowed by
law- There can be no agency in the
perpetration of a crime or unlawful act.
Examples:
a) An alien principal using an
agent to acquire lands;
b) Persons who, because of their
position and relation with the
persons under their charge or
property under control, are
prohibited from acquiring said
property and cannot do so through
an agent.
FORM OF AGENCY
Agency may be express or implied
from the acts of the principal, from
his silence or lack of action, or his
failure to repudiate the agency,
knowing that another person is
acting on his behalf without
authority. (Article 1869)
NOTE:
In an implied agency, the
principal is still bound by the acts of the
agent just as in case of express agency
There are no formal
requirements governing the appointment
of an agent. The agents authority may
be oral or written. It may be in a public
or private writing.
When the law requires a
specific form

Ethics)
171

IMPLIED
ACCEPTANCE
1. De Jure Agent
2.
Binds
the
principal for acts
within the scope
of his authority.
AGENCY BY
ESTOPPEL
1. Not really an
agent
2.
Only
the
purported agent is
liable.
Example: Sale of a piece of land or

any interest therein through an
agent:
NOTES:
authority to sell must be in writing;
otherwise the sale is VOID (Art.1874)
the sale itself should be in writing in
order to be enforceable.
The authority of an agent to execute
a contract of sale of real estate must
be conferred in writing and must
give him specific authority, either to
conduct the general business of the
principal or to execute a binding
contract containing terms and
conditions which are in the contract
he did execute. (Dizon et al. vs. CA
et al., GR 124741, January 28, 2003)
FORM OF ACCEPTANCE BY AGENT
Acceptance by the agent may also be
express or implied from his acts
which carry out the agency, or from
his silence or inaction according to
the circumstances
and he did not reply to the letter

or telegram
RULE ON AGENCY BY ESTOPPEL
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 in good
faith, and in the honest belief that
he is what he appears to be. (Cuison
vs. CA, GR.88531, October 26, 1993)
CLASSES AND KINDS OF AGENTS
1. Universal Agent- one employed to do
all acts that the principal may
personally do, and which he can
lawfully delegate to another the
power of doing.
2. General Agent- one employed to
transact all the business of the
principal, or all the business of a
particular kind or in a particular
place, or in other words to do all
acts, connected with a particular
trade, business or employment.
3. Special or Particular Agent- one
authorized to act in one or more
specific transactions, or to do one or
more specific acts, or to act upon a
particular occasion.
General Agent
Special Agent
1. Scope of Authority
Kinds of Implied Acceptance

1. Where persons are present
Acceptance may be implied if:
a. principal delivers his power of
attorney to the agent and
b. agent receives it without any
objection
2. Where persons are absent
Acceptance cannot
be implied from silence of the agent
1. principal transmits his power of
attorney to the agent, who
receives
it
without
any
objection;
2. principal entrusts to him by
letter or telegram a power of
attorney with respect to the
business
in
which
he
is
habitually engaged as an agent,
Usually authorized to
do all acts connected
with the business or
employment in which
he is engaged.
Authorized to
do only acts in
pursuance
of
particular
instructions or
with
restrictions
necessarily
implied
from
the acts to be
done
2. Continuity
Conducts a series of
transactions involving
a
continuity
of
service.
Usually involves
a
single
transaction or a
series
of
transactions not
involving
continuity
CIVIL LAW COMMITTEE

172
3. Extent by which agent may bind

principal
Binds his principal by Cannot bind his
an act within the principal in a
scope of his authority manner beyond
although it may be or outside the
contrary to his special specific
acts
instructions
which he is
authorized
to
perform
on
behalf of the
principal
4. Termination of Authority
Apparent
authority Mere revocation
does not terminate by is effective to
the mere revocation terminate the
of
his
authority authority as to
without notice to the third
persons
third party
because
the
third person has
a
duty
to
inquire
5. Construction of Instructions of
Principal
Statement
of Authority of agent
principal
with must be strictly
respect to
the pursued
agents authority
would
ordinarily
regarded
as
advisory only
SPECIAL POWER OF ATTORNEY (SPA)

An instrument in writing by which
one person, as principal, appoints
another as his agent and confers
upon him the authority to perform
certain specified acts or kinds of acts
on behalf of the principal.
NOTE: It need not be notarized; except
where it is executed in a foreign
country, must be certified in accordance
with the Rules of Court.
INSTANCES WHERE SPA IS NECESSARY
(ART 1878) (PECWEM- LLB- BOCARO)
1. To make such payments as are not
usually considered as acts of
administration;
2. To effect novation which put an end
to obligations already in existence at
time the agency was constituted;
3. To 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;
4. To waive any obligation gratuitously;

5. To enter into any contract by which
the ownership of an immovable is
transmitted or acquired either
gratuitously or foe a valuable
consideration;
6. To make gifts, except customary
ones for charity or those made to
employees in the business managed
by the agents;
7. To loan or borrow money, unless the
latters
act
be
urgent
and
indispensable for the preservation of
the things
which are
under
administration;
8. To lease any real property to
another person for more than one
year;
9. To bind the principal to render some
service without compensation;
10. To bind the principal in a contract of
partnership;
11. To obligate the principal as
guarantor or surety;
12. To create or convey real rights over
immovable property;
13. To
accept
or
repudiate
an
inheritance;
14. To ratify or recognize obligations
contracted before the agency;
15. Any other act of strict dominion.
NOTE: a third person with whom the
agent wishes to contract on behalf of the
principal may require the presentation
of the power of attorney or the
instructions as regards the agency;
except private or secret orders.
NOTE: 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. Third persons cannot be
adversely affected by an understanding
between the principal and his agent as
to the limits of the latters authority. In
the same way, third persons need not
concern themselves with instructions
given by the principal to his agent
outside the written power of attorney.
(Siredy Enterprises, Inc. vs. CA, et al.
GR 129039, September 27, 2002)

Ethics)
173

NOTES:
SPA to sell does not include the
power to mortgage; and vice versa.
SPA to mortgage includes the power
to allow the extrajudicial foreclosure
of the mortgaged property.
SPA to compromise does not
authorize submission to arbitration
SPA for an agent to institute any
action in court to eject all persons in
the principals lots so that the
principal
could
take
material
possession thereof, and for this
purpose, to appear at the pre-trial
and enter into any stipulation of
facts and/or compromise agreement
but only insofar as this is protective
of the rights and interests of the
principal in the property, does not
grant any power to the agent to sell
the subject property nor a portion
thereof. (Cosmic Lumber Corp vs. CA
265 SCRA 168)
EFFECT OF LACK OF SPA WHERE ONE IS
REQUIRED: UNENFORCEABLE
When principal bound by act of agent
1. Agent must act within the scope of
his authority
2. Agent must act in behalf of the
principal
NOTE: The limits of the agents
authority shall not be considered
exceeded should it have been performed
in a manner more advantageous to the
principal than that specified by him.
When a person NOT bound by act of
another
1. Latter acts without or beyond the
scope of his authority in the formers
name; and
2. Latter acts within the scope of his
authority but in his own name
(UNDISCLOSED PRINCIPAL), except
when the transaction involves a
thing belonging to the principal. In
such case, the contract is deemed as
entered between the principal and
the third person.
EFFECTS OF AGENTS ACTS

1. With Authority
a. in principals name valid;
principal is bound; agent not
personally liable unless he bound
himself (Article 1897)
b. in his own name Apply Article
1883; generally not binding on
the
principal;
agent
and
stranger are the only parties,
except
regarding
things
belonging to the principal or
when the principal ratifies the
contract or derives benefit
therefrom.
2. Without Authority
a. in
principals
name
unauthorized
and
unenforceable but may be
ratified, in which case, may be
validated retroactively from the
beginning (Article 1407)
b. in his own name valid, whether
or not the subject matter
belongs
to
the
principal,
provided that at the time of
delivery, the agent can
transfer legally the ownership of
the thing. Otherwise, he will be
held liable for breach of
warranty
against
eviction;
Article 1883 does NOT apply
OCCASIONS WHEN PRINCIPAL IS BOUND
BY THE ACTS OF THE AGENT BEYOND
THE LATTERS POWERS
General Rule: The principal is not bound
by the acts of the agent beyond his
limited powers.
Exceptions:
1. Where the principals acts have
contributed to deceive the third person
in good faith;
2. Where the limitations upon the
power created by him could not have
been known by the third person;
3. Where the principal has placed in
the hands of the agent instruments
signed by him in blank (Strong vs.
Gutierrez Repide 6 PHIL 680 [1906])
4. Where the principal has ratified the
acts of the agent.
CIVIL LAW COMMITTEE

174
Doctrine of Agency by Necessity

By virtue of the existence of an
emergency, the authority of an agent is
correspondingly enlarged in order to
cope with the exigencies or the
necessities of the moment
Requisites:
1.
Real existence of an emergency
2.
Inability of the agent to
communicate with the principal
3.
Exercise of the additional
authority for the principals own
protection
4.
Adoption of fairly reasonable
means, premises duly considered
NOTE: Agency can never be created by
necessity; what is created is additional
authority in an agent appointed and
authorized before the emergency arose.
GENERAL OBLIGATIONS OF AGENT TO
PRINCIPAL:
1. To act with utmost good faith and
loyalty for furtherance of principals
interests
2. To obey all lawful orders and
instructions of principal within the
scope of the agancy
3. To exercise reasonable care, skill
and diligence
SPECIFIC OBLIGATIONS OF AGENT TO
PRINCIPAL
1. To carry out the agency which he has
accepted
2. To answer for damages which
through
his
performance
the
principal may suffer
3. To finish the business already begun
on the death of the principal should
delay entail any danger
4. To observe diligence of a good father
of a family in the custody and
preservation of the goods forwarded
to him by the owner in case he
declines an agency, until an agent is
appointed
5. To advance the necessary funds
should there be a stipulation to do so
6. To act in accordance with the
instructions of the principal, and in
default thereof, to do all that a good
father of a family would do
7. Not to carry out the agency if its

execution would manifestly result in
loss or damage to the principal
8. To answer for damages if there being
a conflict between his interest and
those of the principal, he should
prefer his own
9. Not to loan to himself if he has been
authorized to lend money at interest
10. To render an account of his
transactions and to deliver to the
principal whatever he may have
received by virtue of the agency
11. To distinguish goods by countermarks
and designate the merchandise
respectively belonging to each
principal, in the case of a
commission agent who handles goods
of the same kind and mark, which
belong to different owners
12. To be responsible in certain cases for
the acts of the substitute appointed
by him
13. To pay interest on funds he has
applied to his own use
14. To inform the principal, where an
authorized sale of credit has been
made, of such sale
15. To bear the risk of collection, should
he receive also on sale, a guarantee
commission
16. To indemnify the principal for
damages for his failure to collect the
credits of his principal at the time
that they become due
17. To be responsible for fraud or
negligence
NOTE: A stipulation exempting the agent
from the obligation to render an account
shall be VOID.
Knowledge of agent is
knowledge of principal.
1. Agents interests are adverse to
those of the principal
2. Agents duty is not to disclose the
information
(confidential
information)
3. Where the person claiming the
benefit of the rule colludes with the
agent to defraud the principal

Ethics)
175

SUB-AGENT
A person to whom the agent
delegates, as his agent, the
performance of an act for the
principal which the agent has been
empowered to perform through his
representative.
NOTE: The agent may appoint a
substitute (sub-agent) except when he
has been prohibited by the principal.
(ART 1892)
Instances when agent shall be
responsible for the acts of the
substitute:
1. when he was not given the power to
appoint; or
2. when he was given such power but
without designating the person, and
the
person
appointed
was
notoriously
incompetent
or
insolvent.
3. in these two cases the principal may
further bring an action against the
substitute with respect to the
obligations which the latter has
contracted under the substitution.
NOTE: All acts of the substitute
appointed against the prohibition of the
principal shall be VOID.
JOINT AGENTS
Agents appointed by one or more
principals under such circumstances
as to induce the inference that it
was the principals intent that all
should act in conjunction in
consummating the transaction for
which they were appointed.
Their responsibility is JOINT; except
if solidarity has been expressly
stipulated.
If solidarity has been agreed upon,
each agent is responsible for the:
a. non-fulfillment of the agency
b. fault or negligence of his fellow
agents; except when the fellow
agents acted beyond the scope
of their authority.
NOTE: innocent agent has a right later
on to recover from the guilty or
negligent agent (ART 1217(2))
Instances when agent may incur

personal liability:
1. When the agent expressly binds
himself
NOTE: The individual liability of the
agent can be considered a further
security in favor of the creditor and
does not affect or preclude the
liability of the principal; both are
liable
2. When agent exceeds his authority
3. When agent by his acts prevents
performance on the part of the
principal
4. When a person acts as an agent
without authority or without a
principal
5. A person who acts as an agent of an
incapacitated principal unless the
third party was aware of the
incapacity at the time of the making
of the contract
FACTOR/COMMISSION AGENT
- one engaged in the purchase and sale
for a principal of personal property,
which for this purpose, has to be placed
in his possession and at his disposal.
If the commission agent received
goods consigned to him, he is
responsible for any damage or
deterioration suffered by the same
in the terms and conditions and as
described in the consignment.
The commission agent who handles
goods of the same kind and mark,
which belong to different owners,
shall
distinguish
them
by
countermarks, and designate the
merchandise respectively belonging
to each principal.
A commission agent can sell on
credit only with the express or
implied consent of the principal. If
such sale is made without authority,
the
principal
is
given
two
alternatives:
i.
ii.
He may require payment in cash,

in which case any interest or
benefit from the sale on credit
shall belong to the agent since the
principal cannot be allowed to
enrich himself at the agents
expense;
He may ratify the sale on credit in
which case it will have all the
risks and advantages to him.
CIVIL LAW COMMITTEE

176
If the commission agent is authorized

to sell on credit, he shall inform the
principal with a statement of the
names of the buyers. With such
statement, the sale shall be deemed
to be for cash as far as the principal
is concerned.
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, unless he proves the
exercise of due diligence for that
purpose.
BROKER
A middleman or intermediary who, in
behalf of others and for a
commission or fee, negotiates
contracts/transactions relating to
real or personal property.
Factorage
Compensation of
commission agent.
factor
or
Ordinary Commission
Compensation for the sale of goods
which are placed in his possession or
at his disposal.
Guaranty Commission (Del credere)
Fee that is given in return for the
risk, which the agent has to bear in
the collection of credits.
An agent with a del credere
commission is liable to the principal
if the buyer fails to pay or is
incapable of paying.
GENERAL OBLIGATIONS OF PRINCIPAL
TO AGENT
Duties and liabilities of the principal
are primarily based upon the
contract and the validity of the
contract between them
SPECIFIC OBLIGATIONS OF PRINCIPAL
TO AGENT (CARIP)
1. To comply with all the obligations
which
the
agent
may
have
contracted within the scope of his
authority and in the name of the
principal
2. To advance to the agent, should the

latter so request, the sums necessary
for the execution of the agency
3. To reimburse the agent for what the
latter has advanced (plus interest),
even if the business was not
successful, provided the agent was
free from fault
4. To 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
NOTE: The agent may retain in
pledge the things which are the
object of the agency until the
principal effects this reimbursement
and pays the indemnity.
5. To pay the agent the compensation
agreed upon, or if no compensation
was specified, the reasonable value
of the agents services
LIABILITY OF PRINCIPAL FOR TORT OF
AGENT RULE: The principal is civilly
liable to third persons for torts of an
agent committed at the principals
direction or in the course and within the
scope of the agents authority.
Reason for liability: The rule is based
upon the principle that he who does an
act through another does it himself.
CONDITIONS FOR RATIFICATION
1. principal must have capacity and
power to ratify
2. principal must have had knowledge
of material facts
3. principal must ratify the acts in its
entirety
4. act must be capable of ratification
5. act must be done in behalf of the
principal
ESTOPPEL BY PRINCIPAL
Even when the agent has
exceeded his authority, the principal is
solidarily liable with the agent if the
former allowed the latter to act as
though he had full powers.
JOINT PRINCIPALS
Two or more persons who appoint an
agent for a common transaction or
undertaking.

Ethics)
177

Liability: solidarily liable to the
agent for all the consequences of the
agency.
Requisites of solidary liability:
1. There are two or more principals
2. The principals have all concurred
in the appointment of the same
agent; and
3. The agent is appointed for a
common
transaction
or
undertaking
NOTE: Any one of them may revoke the
agency
RULES ON DOUBLE SALE BY PRINCIPAL
AND AGENT
1 When two persons contract with
regard to the same thing, one of
them with the agent and the other
with the principal, and the two
contracts are incompatible with each
other, that of prior date shall be
preferred, without prejudice to
Article 1544(double sale).
2 If the agent has acted in good faith,
the principal shall be liable in
damages to the third person whose
contract must be rejected. If the
agent is in bad faith, he alone shall
be responsible.
Instances when principal is not liable
for the expenses incurred by the
agent:
1. if the agent acted in contravention
of the principals instructions, unless
the latter should wish to avail
himself of the benefits derived from
the contract;
2. when the expenses were due to the
fault of the agent;
3. when the agent incurred them with
knowledge that an unfavorable
result would ensure, 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.
MODES
OF
EXTINGUISHMENT
OF
AGENCY (EDWARD)
1. Expiration of the period
2. Death, civil interdiction, insanity or
insolvency of the principal or of the
agent
3. Withdrawal of the agent

agent may withdraw by giving
notice to the principal, but must
indemnify the principal for
damages that he may suffer by
reason of such withdrawal.
4. Accomplishment of the object or the
purpose of the agency
5. Revocation
6. Dissolution
of
the
firm
or
corporation, which entrusted or
accepted the agency.
Instances when death of principal does
not terminate agency
1. If the agency has been constituted in
the common interest of the principal
and the agent
2. If it has been constituted in the
interest of a third person who has
accepted the stipulation in his favor
Revocation of Agency by Principal
will of the principal, regardless of the
term of the agreement.
1. If a bilateral contract depends upon
it;
2. If it is the means of fulfilling an
obligation already contracted;
3. If a partner is appointed manager of
a partnership and his termination is
unjustifiable; and
4. If it is created not only for the
interest of the principal but also for
the interest of third persons, who
have accepted the stipulation in
their favor
Agency coupled with an interest
An agency wherein the agent has
acquired some interest of his own in
the execution of the authority
granted to him, in addition to his
mere interest in the contract of
employment with the resulting gains.
The agency becomes merely a part
of another obligation or agreement,
or an incidental element thereof so
it cannot be unilaterally revoked.
NOTE: However, in Coleongco vs.
Claparals (10 SCRA 577), the SC made a
sweeping statement that coupled with
an interest or not, the authority (agency)
CIVIL LAW COMMITTEE

178
can certainly be revoked for a just

cause.
Implied Revocation may be effected:
1. By the act of the principal in
appointing another agent for the
same business or transaction;
2. By the act of the principal in directly
managing the business entrusted to
the agent; or
3. By the act the principal in
subsequently granting a special
power of attorney as regards the
same business to another agent,
where he had previously granted a
general power of attorney to one
agent.
TRUSTS
TRUST
A legal relationship between one
person
having
an
equitable
ownership in property and another
owning the legal title to such
property.
CLASSIFICATIONS
1. Effectivity - from the viewpoint of
whether they become effective after
the death of the trustor or during his
life, it may be either:
a. testamentary trusts
b. trusts inter vivos (sometimes
called living trusts)
2. Creation - from the viewpoint of the
creative force bringing them into
existence, it may be either:
a) Express trust - created by the
intention of the trustor or of the
parties
b) Implied trust - one which comes
into being by operation of law.
This may be either:
1) Resulting trust - one in which
the intention to create a trust
is presumed by law to exist
from the transaction and facts
of the case
2) Constructive trust - one
imposed by law irrespective of
and even contrary to the
intention of the parties. It is
designed to promote justice,
frustrate fraud and prevent
unjust enrichment.
TRUST
CONTRACT
Always
involves
owner-ship,
embracing a set of
rights and duties
fiduciary
in
character which may
be created by a
declaration without
consideration.
A legal obligation
based
on
an
undertaking
supported
by
a
consideration,
which
obligation
may or may not be
fiduciary
in
character.
TRUST
DONATION
1. An existing legal
relationship
and
involves
the
separation of legal
and equitable title
There is a transfer
of property as well
as the disposition of
both
legal
and
equitable ownership
except in cases of
gifts in trust.
2. The beneficiary
of a trust may
demand
performance of the
obligation without
having
formally
accepted
the
benefit of the trust
in public document,
upon
mere
acquiescence in the
formation of the
trust
and
acceptance
under
the
second
paragraph of article
1311(stipulations
pour autrui).
2. The donee must

comply with the
legal requirements
in
accepting
donations.
Persons involved in the creation of a

trust:
1. Trustor - the one who intentionally
creates a trust
2. Trustee - the person who holds the
legal title to the trust property for
the benefit of another and with
certain powers and subject to
certain duties
3. Beneficiary or the cestui que trust
- the one who has the equitable
interest in the property and enjoys
the benefit of administration by the
trustee. He may be a natural person
or a legal entity. The trustor may
establish a trust with himself as the
beneficiary (usual case).

Ethics)
179

ELEMENTS OF EXPRESS TRUST
1. Competent trustor and trustee;
2. Ascertainable trust res; and
3. Sufficiently certain beneficiaries.
TRUST PROPERTY
The concept of a trust arises from or is
the result of a fiduciary relation
between the trustee and the cestui que
trust as regards certain property- real,
personal, funds or money, choses in
action held by the trustee. (Pacheco vs.
Arro, 85 PHIL 505 )
The trust property is owned by two
or more persons at the same time, the
relation between the two owners being
such that one of them is under an
obligation to use his ownership for the
benefit of the other.
The trustee is not a mere agent

but an owner. But his ownership is a
mere matter of form rather than
substance, and nominal rather than real.
PROOF OF TRUST
or implied may be proved by parol or
oral evidence
immovable property or any interest
therein.
This latter requirement
however is not for validity but only for
purposes of proof.
NOTES:
Trusts cannot be established in
violation of law. Trust is founded in
equity such that it cannot result
from a contract formed for an illegal
purpose.
Neither may a trust be created for
the purpose of evading a legal
prohibition. Example: there cannot
be a trust created for the purpose of
obtaining homestead patents, in
favor of a person already disqualified
to obtain additional homesteads.
Necessity of Acceptance to the
creation
and
validity
of
trust
relationship
1. Acceptance of the trustee
The acceptance of the trustee is not
necessary to its existence and
validity since if he declines, the
courts will appoint a trustee to fill

the office that he declines. (see
Sec.3 Rule 98 of the Rules of Court).
NOTE: But a trustees acceptance of the
trust is necessary to charge him with the
office of the trustee and the
administration of the trust and to vest
the legal title in him.
2. Acceptance of the beneficiary
The acceptance by the beneficiary is
essential to the creation and validity
of a trust.
However, such
acceptance is presumed if there is
no proof to the contrary and the
trust does not impose any onerous
condition upon the beneficiary.
Requisites for a Trustee to claim title
by prescription:
1. He has performed open and
unequivocal acts of repudiation
2. Such positive acts of repudiation
have been made known to the
beneficiary or the cestui que trust
3. The evidence thereon should be
clear and convincing and
4. The period fixed by law has expired.
(10 years from the time that the
repudiation is made known to the
beneficiary in cases of express trust
or resulting trust while 10 years from
the time a constructive trust arises).
In order that a trustee may sue or be
sued alone, it is essential that his
trust should be express, that is a
trust created by the direct and
positive acts of the parties, by some
writing deed or will, or by
proceedings in court. Rule 3, sec 3
does not apply in cases of implied
trust that is, a trust which may be
inferred merely by the acts of the
parties or from other circumstances.
(PAL vs. Heald Lumber Co.)
NOTES:
the 10-year prescriptive period in
case of implied trust begins to run
from the date the trustee repudiates
the express trust. In the case Sps.
Pascual, et al. vs. CA, et al. GR
115925, August 15, 2003, it was held
that repudiation takes place when
the adverse party registers the land.
CIVIL LAW COMMITTEE

180
the 4-year prescriptive period under
2. As to proof of trust
Article 1391 applies only if the fraud

does not give rise to an implied
trust, and the action is to annul a
voidable contract under Article
1390.
An express trust over

an immovable property
or any interest therein
cannot be proved by
parol evidence
TRUST PURSUIT RULE

Equity will pursue property that is
wrongfully converted by the fiduciary, or
otherwise compel restitution to the
beneficiary.
A trust will follow the
property through all changes in its state
and form, provided its product or
proceeds are capable of identification.
An express repudiation
made known to the
beneficiary
is
necessary in order that
laches or acquisitive
prescription may bar
an action to enforce an
express trust.
IMPLIED TRUST
Are those, without being express,
are deducible from the nature of the
transaction as matters of intention, or
which are
superinduced on
the
transaction by operation of law, as
matters of equity independently of the
particular intention of the parties.
RESULTING
CONSTRUCTIVE
TRUST
TRUST
1. Intention to create trust:
The intent of The trust is created
the parties to irrespective of or even
create a trust contrary
to
the
is presumed or intention of the parties
implied by law to promote justice,
from
the frustrate fraud and to
nature of their prevent
unjust
transaction
enrichment.
2. Prescriptive period:
The 10 year The
10
year
prescriptive
prescriptive
period
period shall be shall be counted from
counted from the time that the
the
time constructive
trust
repudiation is arises.
made known
to beneficiary.
3. Examples:
Illustrated in Illustrated in Articles
Articles 1448, 1450, 1454, 1455, 1456
1449,
1451,
1452, 1453
EXPRESS TRUST
IMPLIED TRUST
1. As to creation
Created
by
the
intention of the parties
An implied trust
over an immovable
or any interest
therein may be
proved
by
oral
evidence.
3. As regards repudiation of trust

In
constructive
trusts,
even
if
there
is
no
repudiation, laches
may bar an action
to
enforce
an
implied trust.
KINDS OF IMPLIED TRUSTS

1. Purchase money resulting trust
(Article 1448) There is a resulting
trust when property is sold, and the
legal estate is granted to one party
but the price is paid by another
party for the purpose of having the
beneficial interest of the property.
To give rise to a purchase money
resulting trust, it is essential that
there be:
a)
an actual payment of money,
property
or
services
or
an
equivalent, constituting valuable
consideration;
b) and such consideration must be
furnished by the alleged beneficiary
of a resulting trust.
EXCEPTIONS:
a) Where A pays the purchase
money and title is conveyed by
absolute deed to As child or to a
person to whom A stands in loco
parentis and who makes no express
promise, a trust does not result, the
presumption being that a gift was
intended;
b) Where
an
actual contrary
intention is proved;
c) Where the purchase is made in
violation of an existing statute and
in evasion of its express provision, no
trust can result in favor of the party
who is guilty of fraud. (Tigno vs.
Court of Appeals 280 SCRA 262
[1997])
Come into being by

operation of law.

Ethics)
181

2.
Donations made to a person but the

beneficial interest is vested in
another. The donee is the trustee
while the designated third person is
the beneficiary. (ART 1449).
3. Purchase with borrowed funds and
the conveyance is made to lender to
secure payment of debt. ART 1450 )
4. Legal title to land inherited by heir
placed in the name of another.
(Article 1451)
5. Legal title to property purchased
taken in one co-owner. (ART 1452)
6. Conveyance under a promise to hold
for, or transfer to another. (ART
1453)
7. Absolute conveyance to a person to
secure performance of grantors
obligation.
8. (ART 1454)
9. Purchase of property with use of
trust funds (ART 1455)
10. Acquisition of property through
mistake or fraud. (ART 1456).
NOTE: An action for reconveyance of
a parcel of land based on an implied
or constructive trust prescribes in
ten years, the point of reference
being the date of registration of the
deed or the date of the issuance of
the certificate of title over the
property. BUT, this rule applies only
when the plaintiff (or person
enforcing the trust) is not in
possession of the property, since if a
person claiming to be the owner
thereof is in actual possession of the
property,
the
right
to
seek
reconveyance, which in effect seeks
to quiet title to property, does not
prescribe.
Requisites
before
period
or
prescription may start in regard to
an action based on an implied
trust:
a) the trustee has performed
unequivocal acts of repudiation
amounting to an ouster of the cestui
que trust.
b) Such positive acts of repudiation
have been made know to the cestui
que trust; and
c) Evidence thereon is clear and
positive. (Vda. De Cabrera vs. Court
of Appeals 267 SCRA 339 [1997].)
NOTE: The enumeration is not exclusive.
Other examples of implied trust:
1. The registration of land under
torrens in the name of one person do
not bar evidence to show it was only
held in trust for another.
2. Certificate of registration of vehicle
placed in the name of a person
although the price was not paid by
him but by another.
3. One arising from the agents willful
violation of the trust reposed in him
by the principal by buying for
himself the property he was
supposed to buy for the principal
who designated and appointed him
to negotiate with the owner.
4. In consonance with the trust fund
doctrine in Corporation Law, the
assets of the corporation, as
represented by the capital stock, are
regarded as trust fund to be
maintained unimpaired for the
payment of corporate creditors.
CIVIL LAW COMMITTEE


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150

2005 CENTRALIZED BAR OPERATIONS

contract is covered by the statute of

FORM OF PARTNERSHIP CONRTRACT

NOTE: With regard to number 2 (legal

1. Where immovable property or real

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MEMORY AID IN CIVIL LAW

KEY: CNJ PMERET2 - FPG

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The suit against

8. Extent of liability to third persons

10. Term of existence

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(e) as the consideration for the sale

CIVIL LAW COMMITTEE

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the profits which they may acquire

2005 CENTRALIZED BAR OPERATIONS EXECUTIVE COMMITTEE AND SUBJECT CHAIRPERSONS

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MEMORY AID IN CIVIL LAW

b) Secret partner- one who takes

OBLIGATIONS OF PARTNERS AMONG

CIVIL LAW COMMITTEE

2005 CENTRALIZED BAR OPERATIONS

c) To answer to the partnership for

partner and the partnership and to

2005 CENTRALIZED BAR OPERATIONS EXECUTIVE COMMITTEE AND SUBJECT CHAIRPERSONS

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MEMORY AID IN CIVIL LAW

3. Right to associate with another

CIVIL LAW COMMITTEE

2005 CENTRALIZED BAR OPERATIONS

3. assignee cannot interfere in the

to remove him for JUST

2005 CENTRALIZED BAR OPERATIONS EXECUTIVE COMMITTEE AND SUBJECT CHAIRPERSONS

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MEMORY AID IN CIVIL LAW

b) Unanimous consent required for

acting partner has in fact

b) Acts of Strict Dominion or

the act is authorized by all

Partnership is not liable to

II. Liability arising from partners tort

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2005 CENTRALIZED BAR OPERATIONS

not being a partner in the

PRINCIPLE OF DELECTUS PERSONARUM

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By the termination of the

debts, either before or

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2005 CENTRALIZED BAR OPERATIONS

prejudicially the carrying on of

b) Dissolution is by act, insolvency

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