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contract of partnership does not affect the liability

PARTNERSHIP, AGENCY` & of the partnership and of the partners to third


TRUST persons. Neither does such failure to register
affect the partnerships juridical personality
(Angeles v. Sec. of Justice, 465 SCRA 106).
PARTNERSHIP
2) However, associations whose
articles are kept secret among the
IN GENERAL members, and wherein any one of
the members may contract in his
own name with third persons, shall
Definition: By the contract of partnership have no juridical personality and
two or more persons bind themselves to shall be governed by the provisions
contribute money, property, or industry to a relating to co-ownership (Art. 1775,
common fund, with the intention of dividing NCC).
the profits among themselves (Art. 1767, 1st
par., NCC). Two or more persons may also The secrecy is not
form a partnership for the exercise of a directed to third persons but to
profession (Art. 1767, 2nd par., NCC). some of the partners (Bautista,
Partnership, 1978 ed., 69).
Requisites: Effects:
1) 2 or more persons bind themselves a) As to the members inter se:
to contribute money, property or There is no partnership.
industry to a common fund; and They are governed by the
2) Intention on the part of the partners rules relating to co-
to divide the profits among ownership (Art. 1775, NCC)
themselves (Tocao v. CA, 342 SCRA 20; b) As to third persons: The
Art. 1767, NCC).
absence of personality
cannot be invoked against
Note: The contribution to such fund need not be
third persons for the
cash or fixed assets; it could be an intangible like
credit or industry (Lim v. Phil. Fishing Gear purpose of exempting
Industries, Inc., G.R. No. 136448, Nov. 3, 1999). themselves from complying
with their obligations
Separate Personality: contracted pursuant to the
stipulations kept secret
1) Partnership has a juridical among themselves. They
personality separate and distinct cannot profit from their own
from the partners (Art. 1768, NCC) wrongdoing.
EVEN IF:
a) It does not appear in a Form of Partnership Contract:
public instrument and its
capital is more than 1) General rule: It is valid and
P3,000.00 (Art. 1772; Art. 1768, enforceable in any form (Art. 1356,
NCC). NCC; Tocao v. CA, supra.).
2) Exception: Whenever immovable
b) It is not recorded in the SEC property is contributed to the
(Art. 1772; Art. 1768, NCC). partnership, an inventory of said
property to be signed by the parties
Note: The fact that there is no record in the SEC and attached to the public
of a public instrument embodying the partnership instrument is indispensable to the
did not cause the nullification of the partnership validity of the partnership. If this
(Tocao v. CA, supra.). Mere failure to register the
requirement is not complied with,
contract of partnership with the SEC does not
invalidate a contract that has the essential the partnership is void (Art. 1773,
requisites of a partnership. The purpose of NCC).
registration of the contract of partnership is to
give notice to third parties. Failure to register the

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iii) Those who cannot
Purpose or Object Must Be Lawful: donate to each other under
Article 739 of the NCC.
1) If the purpose or object is unlawful,
contract of partnership is void (Art. b) A corporation cannot
1409[1], NCC). become a member of a
partnership in the absence of
2) Effects upon partners inter se: express authorization by statute
a) The partners have no right or charter (Mendiola v. CA, G.R. No.
to enforce claims which depend 159333, July 31, 2006; citing J.M.
upon the validity of contract Tuason v. Bolanos, 95 Phil. 106 (1954);
Esteban B. Bautista, Treatise on
(Arbes v. Polistico, 53 Phil. 489) . Philippine Partnership Law, 1978 ed.,
Hence, upon the dissolution of citing 60 A.L.R.2d 917; 6 Fletcher,
the partnership as decreed by Cyclopedia of Corporations, Sec. 2520).
the court, profits shall be
confiscated in favor of the State Note: Under Philippine law, a joint venture is a
(Art. 1770, NCC) and shall not form of partnership and should thus be governed
enrich the partners. by the law of partnerships. The Supreme Court
b) But partners may recover has recognized, however, a distinction between
these two business forms, and has held that
their contributions from the
although a corporation cannot enter into a
manager or administrator partnership contract, it may however engage in a
because such claim does not joint venture with others (Aurbach, et. al. v. Sanitary
depend upon the validity of the Wares Manufacturing Corp., 180 SCRA 130 (1989);
contract (Arbes v. Polistico, supra.). citing Tuazon v. Bolaos, 95 Phil. 906).

3) Effects upon third persons: Particular Partnership vs. Joint Venture:


a) If the third person acted in Usually, but not necessarily, a joint
good faith, he may recover adventure is limited to a single transaction,
indemnity from the partner who although the business of pursuing it to a
dealt with him. successful termination may continue for a
b) If third person acted in bad number of years; a partnership generally
faith, he cannot recover. relates to a continuing business of various
transactions of a certain kind (Heirs of Tan Eng
Kee v. CA, G.R. No. 126881, Oct. 3, 2000).
Who Can Be A Partner:

1) General rule: Anyone who is capable RULES IN DETERMINING


of entering into contractual relations. EXISTENCE OF PARTNERSHIP
2) Exceptions: Requirement of Consent:
a) In universal partnership 1) General rule: Persons who are not
(whether of all present property partners as to each other are not
or all profits), persons who are partners as to third persons (Art.
prohibited from giving each 1769[1], NCC).
other any donation or advantage 2) Exception: Partnership by estoppel
cannot enter into such kind of (Art. 1825, NCC).
partnership (Art. 1782, NCC).
Hence, the following cannot Co-ownership or Co-possession:
become partners in a universal
partnership: 1) Co-ownership or co-possession
i) The spouses during does not of itself establish a
their marriage (Art. 87, FC); partnership, whether such co-
ii) Those cohabiting as owners or co-possessors do or do
husband and wife (Art. 87, not share any profits made by the
FC); and use of the property (Art. 1769[2], NCC).
2) There must be a clear intent to form
a partnership.

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CLASSIFICATIONS OF PARTNERSHIP

Sharing of Gross Returns: 1) As to object:


a) universal partnership; or
1) The sharing of gross returns does b) particular partnership
not of itself establish a partnership,
whether or not the persons sharing 2) As to liability of partners:
them have a joint or common right a) general partnership; or
or interest in any property from b) limited partnership
which the returns are divided (Art.
1769[3], NCC). 3) As to duration:
a) Partnership at will; or
2) There must be a clear intent to form b) Partnership with a fixed
a partnership, the existence of a period
juridical personality different from
the individual partners, and the 4) As to legality of existence:
freedom of each party to transfer or a) De jure partnership
assign the whole property (Pascual v. b) De facto partnership
CIR, supra.).
5) As to representation to others:
Sharing of Profits: a) Ordinary or real partnership;
or
1) Receipt by a person of a share of b) Ostensible or partnership by
the profits of a business is prima estoppel
facie evidence that he is a partner in
the business (Art. 1769[4], NCC). 6) As to publicity:
a) Secret partnership
2) In partnership, profits are shared b) Notorious or open
because the partners are joint partnership
owners of them. If no profits, no
partner is entitled to any share. But 7) As to purpose:
with respect to gross returns, the a) Commercial or trading; or
share is independent of the b) Professional or non-trading
existence of profits, and may be
taken even when there is a loss. UNIVERSAL PARTNERSHIP

3) No such inference can be drawn if Object: It may refer either to --


profits were received in payment as:
a) Debt by installment 1) All present properties of partners; or
b) Wages of an employee 2) All profits.
c) Rent to a landlord
d) Annuity to a widow or Universal Partnership of All Present
representative of a deceased Property:
partner
e) Interest on a loan 1) Concept --- That in which the
f) Consideration for the sale of partners contribute all the property
a goodwill of a business or other which actually belongs to them to a
property by installment (Art. common fund, with the intention of
1769[4], NCC). dividing the same among
themselves, as well as all the profits
they may acquire therewith (Art. 1778,
CLASSIFICATIONS OF NCC).
PARTNERSHIP AND KINDS OF
2) What are included --- The property
PARTNERS which belonged to each of the

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partners at the time of the 1) As to nature of contribution:
constitution of the partnership a) Capitalist ---contributes
becomes the common property of all money or property;
the partners, as well as all the b) Industrialist --- contributes
profits which may be acquired from only his industry or service.
said property (Art. 1779, NCC).
2) As to nature of liability:
3) Not Included ---The inclusion of a) General partner --- He has
property which might thereafter be control and management of the
acquired by each of the partners by business and is personally liable
way of donation, inheritance or for partnership obligations with
legacy cannot be stipulated. his separate properties.
However, the fruits thereof may be b) Limited partner --- He is not
included in the partnership by entitled to participate in the
agreement (Art. 1779, 2nd par., NCC). management and control of the
business, but is exempt from
Universal Partnership of All Profits: personal liability for the
partnership obligations because
1) What are included --- It comprises: his liability is limited only to his
a) All that the partners may capital contribution.
acquire by their industry or work
during the existence of the 3) As to management:
partnership ; and a) Managing partner --- He is
b) The usufruct of their present entitled to manage the business
property (Art. 1780, NCC). or affairs of the partnership.
b) Silent or secret partner ---
2) Not included --- His connection to the
a) Property owned by each at partnership is concealed and he
the time of perfection of does not take any active part in
contract (but the usufruct of it (Art. 1834, NCC).
said property is included); c) Liquidating partner --- He
b) Usufruct of future property takes charge of the winding of
acquired thru means other the partnership affairs upon
than their industry or work dissolution.
(but they may agree to
include said usufruct). 4) As to exposure to public perception:
a) Ostensible partner --- One
Presumption in Favor of All Profits: whose name is made known
Articles of universal partnership entered and who appears or is held to
without specification of its nature (whether it the world as a partner, whether
is universal partnership of all present or not in reality he is such. If in
property or universal partnership of profits), fact he is not a partner, he is a
is presumed to be a universal partnership of partner by estoppel.
profits only (Art. 1781, NCC). b) Nominal partner --- He is
held out to the world as a
PARTICULAR PARTNERSHIP partner but he has no real
interest in the firm. He then
Object: Either becomes a partner by estoppel.
1) Determinate things, their use or c) Dormant or silent or secret
fruits; partner --- His connection to the
2) Specific undertaking; or partnership is concealed and he
3) Exercise of a profession or vocation does not take any active part in
(Art. 1783, NCC). it (Art. 1834, NCC).
d) Partner by estoppel ---
KINDS OF PARTNERS Although not an actual partner,
he has made himself liable as

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such by holding himself out as a partners shall contribute equal
partner or allowing himself to be shares to the capital of
so held out (Art. 1825, NCC). partnership (Art. 1790, NCC);
c) An industrial
5) As to actual membership: partner cannot be required to
a) Actual or real partner --- He contribute capital without
is really a partner by agreement stipulation to that effect.
among the parties.
b) Partner by estoppel --- He is 2) Debtor of
not a real or actual partner but partnership: Every partner is a
he becomes liable as a partner debtor of the partnership for
because he holds himself out as whatever he may have promised to
a partner or allows himself to be contribute thereto (Art. 1786, 1st par.,
so held out. NCC).

6) As to timing of membership: 3) Contribution of


a) Original partner --- One who money:
becomes a member of a a) A
partnership at the time of its partner who has undertaken to
organization. contribute a sum of money and
b) Incoming partner ---- One fails to do so becomes a debtor
who became as such as a new for the INTEREST AND
member of an existing DAMAGES from the time he
partnership. As to old should have complied with his
obligations (incurred prior to his obligation (Art. 1788, NCC).
admission), his individual or b) Note
separate property is not liable. that no demand is necessary.
His liability thereto is to be The interest and damages
satisfied only out of partnership accrue ipso jure.
property unless he stipulates c) In case
otherwise (Arts. 1826 and 1840, 2nd of default by a partner, the non-
par., NCC). defaulting partner cannot resort
to rescission under Article 1191
7) As to continuation of business of the NCC, for the law has
affairs after dissolution: established a special rule for
a) Continuing partner --- One partners (Sancho v. Lizarraga, 55
who continues the partnership Phil. 601).
business after the dissolution of
the partnership due to reasons 4) Contribution of
stated in Article 1840. property:
b) Discontinuing partner --- a) The
One who does not participate in partner shall also be liable for
the partnership business after the fruits of the specific and
its dissolution. determinate things which he
may have promised to
RIGHTS AND OBLIGATIONS OF contribute from the time they
PARTNERS INTER SE should have been delivered,
without the need of any demand
Obligation to Contribute to Capital (Art. 1786, 2nd par., NCC).
b) He shall
1) Proportion of also be bound for warranty in
capital due from partners: case of eviction with regard to
a) That which is specific and determinate things
stipulated in the contract; which he may have contributed
b) In the to the partnership (Id.).
absence of contrary stipulation,

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5) Contribution of b)
additional capital to save venture: Rules:
a) In case
of imminent loss of the business (i)
of the partnership, the partners The sum collected shall be
can be compelled to contribute applied to both credits, in
an additional share to the capital proportion to their amounts,
to save the venture, except an even though the managing
industrial partner (Art. 1791, NCC). partner may have given a
b) Effect of receipt for his own credit
refusal to contribute: The only (Art. 1792, 1st par., NCC). In
partner who refuses to short, he may not apply all
contribute shall be obliged to of it to his own credit.
sell his interest to the other (ii)
partners, except if there is an But he may apply the whole of it
agreement to the contrary (Art. to the credit owed to the
1791, NCC). partnership (Art. 1972, 1st par.,
NCC).
Obligation to Observe Good Faith (iii)
If the credit is more onerous to
1) Private use of partnership money --- the debtor, the latter may,
If a partner uses partnership money however, exercise the right
for his own use, he is liable to pay to declare, at the time of
interest and damages to the making the payment, that
partnership from the time he the same be applied entirely
converted said amount to his own or in a greater part to the
use (Art. 1788, 2nd par., NCC). individual credit of the
managing partner (Art.
2) Individual transactions in connection 1972, 2nd par., NCC).
with partnership affairs or involving
use of firm property: 4) Amounts collected as share in the
a) Every partner is required to firm credit ahead of co-partners:
account to the partnership any
benefit derived by him without a) Situation: One of the
the consent of the other partners receives, wholly or
partners from any transaction partly, his share of the credit
connected with the formation, without the knowledge and
conduct or liquidation of the consent of the other, and
partnership or from any use by the firm fails to collect the
him of its property (Art. 1807, full balances of the credit
NCC). because the debtor
b) He is holding any such profit becomes insolvent.
only as a trustee for the
partnership (Art. 1807, NCC). b) Rule: The partner who
receives his share is obliged
3) Payment collected from debtor of to return to the firm what he
both managing partner and the has received for division
partnership: among all, even though he
may have given receipt for
a) his share only (Art. 1793,
Situation: The managing partner NCC).
collects a credit from a debtor
who owes him and the 5) Engagement in individual business:
partnership, and both debts
being demandable. a) By an industrial partner:

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1) Prohibition: Prohibited from
engaging in any kind of Obligation for Damages Suffered By
business, unless expressly Partnership Thru His Fault
permitted by all partners
(Art. 1789, NCC). 1) Rule: A partner is liable for damages
to the partnership for damages
2) Effect of violation: The suffered by it through his fault (Art.
capitalist partner may 1794, NCC).
either: (i) exclude the
industrial partner from the 2) No compensation: He cannot
firm OR (ii) avail compensate such damages with the
themselves of the benefits profits and benefits which he may
which he may have have earned for the partnership by
obtained in violation of the his industry (Art. 1794, NCC).
prohibition, with a right to
damages in either case (Art. 3) Mitigation of responsibility: However,
1789, NCC). the court may lessen his
b) By a capitalist partner: responsibility if thru the partners
EXTRAORDINARY efforts in other
1) Prohibition: Prohibited from activities of the partnership,
engaging in business of UNUSUAL PROFITS have been
same nature as that of realized (Id.).
partnership, unless there is
a stipulation to the contrary Right to Recover Expenses Incurred For
(Art. 1808, 1st par., NCC). Firm

2) Effect of violation: He is 1) Right to reimbursement: Each


required to bring to the member of a partnership is entitled
common funds any profits to reimbursement therefrom for all
derived by him from his expenditures made by him on behalf
transactions. But he shall of the partnership plus interest (Art.
personally bear all the 1796, NCC).
losses (Art. 1808, 2nd par., NCC).
2) Right to interest: The partnership
6) Equal knowledge of partnership shall be responsible for the
affairs: corresponding interest from the time
the expenses are made (Art. 1796,
a) Right to examine NCC).
partnership books: Every
partner shall at any 3) Obligations contracted in good faith:
reasonable hour have The partnership is also liable to a
access to and may inspect partner for contractual obligations
and copy the partnership incurred by the latter in good faith in
books (Art. 1805, NCC). the interest of the partnership
business, and for risks in
b) Matters affecting consequence of its management
partnership: Partners shall (Art. 1796, NCC).
render ON DEMAND true
and full information of all
things affecting the Distribution of Profits and Losses
partnership to any partner
or the legal representative 1) Determined by agreement:
of any deceased partner or
of any partner under legal a) The losses and profits shall
disability (Art. 1806, NCC). be distributed in conformity with

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the agreement (Art. 1797, 1st par., 3) If designation entrusted to third
NCC). persons:
b) However, none of them can
be excluded from participation in a) The
the profits and losses. A partners may agree to entrust to
stipulation which excludes one a third person the designation of
or more partners from any share the share of each one in the
in the profits or losses is void profits and losses (Art. 1798, 1st
(Art. 1799, NCC). par., NCC).
b) Suc
2) In the absence of agreement: h designation may be impugned
only when it is manifestly
a) As to profits: inequitable (Id.).
i) The c) A
profits shall be divided in partner cannot complain of the
proportion to their decision of a third person if: (i)
respective contribution, he has begun to execute said
except that in the case of decision; or (ii) he fails to
the industrial partner he impugn the same within a period
shall receive such share as of three (3) months from the
may be just and equitable time he had knowledge thereof
under the circumstances (Id.).
(Art. 1797, NCC).
ii) If the 4) Designation by one partner,
industrial partner has also prohibited: The designation of
contributed capital aside losses and profits cannot be
from his service, he shall entrusted to one of the partners (Art.
also receive a share in the 1798, 2nd par., NCC).
profits in proportion to his
capital (Id.). Right to Enter Into Sub-partnership

b) As to losses: 1) Rig
i) If there ht to enter into sub-partnership: The
is no agreement as to the law authorizes each partner of a firm
share of each partner in the to make a stranger a partner with
losses, but there is an him in his share of the profits and
agreement as to the share losses of that firm (Art. 1804, NCC).
in the profits, the loss shall The contract between them is called
be borne in the same a sub-partnership.
proportion as that in which
they share in the profits (Art. 2) Rel
1797, 1st par., NCC). ation of sub-partner: The sub-
ii) In the partners are partners inter se.
absence of agreement in However, the sub-partner does not
respect of profits as well as become a member of the original
losses, then the share of the partnership in the absence of the
partners in losses shall be assent of all the other partners],
in proportion to their even if the partner having an
respective contributions (Art. associate should be a manager (Art.
1797, 2nd par., NCC). But the 1804, NCC).
industrial partner shall not
be liable for the losses, in
the absence of a contrary Management of Partnership
stipulation (Id.).
No agreement as to manner of
management:

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2) When 2 or more managing partners
1) All the partners shall be considered have been entrusted with
agents and whatever any one of management:
them may do alone shall bind the
partnership (Art. 1803[1], NCC). a) Without
specification of their respective
2) But if any of them should oppose duties, or without stipulation that
the acts of the others, the decision one of them shall not act without
of the majority shall prevail, and in the consent of all the others ---
case of a tie, the matter shall be i) Each one may execute
decided by the partners owning the all acts of administration;
controlling interest (Art. 1803, in relation ii) But if any of them
to Art. 1801, NCC). should oppose the acts of
the others: (1) Decision of
3) In case of alteration of immovable majority prevails; and (2) In
property, unanimous consent is case of tie, matter shall be
required even if the same is useful decided by partners owning
to partnership (Art. 1803[2], NCC). the controlling interest (Art.
1801, NCC).
When manner of management has been
agreed upon: b) With stipulation
requiring unanimous consent ---
1) When a managing partner has been i) Unanimous
appointed: consent is required for the
a) Appointment is made in the validity of the acts
articles of partnership (Art. ii) Except: when
1800, NCC) --- there is imminent danger of
i) Power is irrevocable grave or irreparable injury to
without just or lawful the partnership (Art. 1802,
cause; NCC).
ii) To remove him for JUST
cause, vote of partners
having controlling PROPERTY RIGHTS OF A
interest is necessary; PARTNER
iii) To remove him without
just cause, unanimous Property Rights of a Partner:
vote is necessary, 1) his rights in specific partnership
including his own vote. property;
iv) If he acts in good faith, 2) his interest in the partnership; and
he may execute all acts 3) his right to participate in the
of administration management (Art. 1810, NCC).
despite the opposition
of his partners. Rights in Specific Partnership Property
(Art. 1811, NCC):
b) Appointment was made
after the constitution of 1) Nature of right --- A partner is co-
partnership --- owner with his partners of specific
i) Power of administration partnership property.
may be revoked at any
time; 2) Right to posses --- Has equal right
ii) If he acts in good faith, to possess specific partnership
he may execute all acts property for partnership purposes
of administration (without the consent of others); but
despite the opposition has no right to possess for any other
of his partners. purpose without the consent of his
partners.

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are not so charged or sold
3) Cannot be assigned, except in (Art. 1814, 2nd par., NCC).
connection with the assignment of
rights of all the partners in the same c) Preferred rights of
property. partnership creditors: The
creditors of the partnership shall
4) Not subject to attachment or be preferred to those of each
execution, except on a claim against partner as regards the
the partnership. partnership property (Art. 1827,
NCC).
5) Not subject to legal support.
3) Effect of conveyance of his whole
Partners Interest in Partnership: interest in partnership (Art. 1813,
NCC):
1) Concept: A partners interest in the
partnership is his share of the profits a) Right to convey Since a
and surplus (Art. 1812, NCC). This is partners interest in the
personal property. partnership is his personal
property, he can convey the
2) A partners interest in the same.
partnership can be subjected to
attachment or execution by his b) Such conveyance does not
judgment creditor. necessarily effect a dissolution
of the partnership. However, the
purchaser of a partners interest
may secure from the court a
Procedure for enforcement: decree of dissolution in two
instances:
a) Charging Order: Any i) After the
judgment creditor of a partner termination of the specified
may apply in court for a term or particular
charging order. In said order, the undertaking; or
court may charge the interest of ii) In case of
the debtor partner with payment partnership at will, when the
of the unsatisfied amount of interest was assigned or
such judgment debt with interest when the charging order
thereon (Art. 1814, 1st par., NCC). was issued.

b) Redemption of interest c) The assignee does not become


charged: The interest charged a partner without the
may be redeemed at any time concurrence of the other
before foreclosure, or in case of partners. Hence, he does not
a sale being directed by the acquire, during the continuance
court, may be purchased of the partnership:
without thereby causing a i) the right to interfere in
dissolution: the management or
i) with administration of the
separate property, by any partnership business or
one or more of the partners; affairs;
or ii) the right to require any
ii) with information or account of
partnership property, by any partnership transactions; or
one or more of the partners iii) the right to inspect the
with the consent of all the partnership books (Art. 1813,
partners whose interests NCC).

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iv) However, in case of
fraud in the management of 1) Rule --- All partners, including
the partnership, the industrial ones, shall be liable pro
assignee may avail himself rata with their property and after all
of the usual remedies. the partnership assets have been
exhausted, for partnership
d) During the continuance of the obligations arising from contract (Art.
partnership, the assignee is 1816, NCC).
entitled to receive in accordance
with his contract the profits to 2) Stipulation against liability --- Any
which the assigning partners stipulation against the foregoing
would otherwise be entitled. liability is:
a) Void, in so far as
e) In case of dissolution of third persons are
partnership, the assignee is concerned;
entitled to receive his assignors b) Valid, as among
interest and may require an the partners (Art. 1817, NCC).
account from the date only of
the last account agreed to by all 3) Nature of liability --- Only secondary
the partners. or only after exhaustion of
partnership assets.

OBLIGATIONS OF PARTNERS 4) Extent of liability --- Only pro rata (or


TO THIRD PERSONS in proportion to his interest in the
partnership). Hence, he is not
Use of Partnership Name: solidarily liable.

1) Requirement of firm name: Every 5) Separate obligation by a partner ---


partnership is required to operate If a partner undertakes in his
under a firm name (Art. 1815, NCC). individual capacity and on his
individual credit to perform a
2) Name to be adopted: partnership contract, he becomes
a) It can adopt any primarily (not secondarily) liable for
name, which may or may not the same (Art. 1816, NCC).
include the name of one or more
of the partners (Art. 1815, NCC). Right of Representation/To Bind
b) In case of limited Partnership
partnership, it is required that
the word limited be included in General rule: Every partner is an agent of
the name of the partnership (At. the partnership and his act binds the
1844[1][a], NCC). partnership if it is for apparently carrying on
in the usual way the business of the
3) Use of Name of Non-Partner: Article partnership, unless:
1825 of the Civil Code prohibits a 1) the partner so acting has in fact no
third person from including his name authority to act for the partnership in
in the firm name under pain of the particular matter; and
assuming the liability of a partner (In 2) the person with whom he is dealing
re: Petition for Authority to Continue Use of has knowledge of the fact that he
the Firm Name Sycip, July 30, 1979) . has no such authority (Art. 1818, NCC).
Those who, not being members of
the partnership, include their names Partnership is not bound by act of a
in the firm name, shall be subject to partner if:
the liability of a partner (Art. 1815, 2nd
par., NCC). 1) Act is not apparently for the carrying
on of business of the partnership in
Liability For Contractual Obligations:

11
the usual way, unless authorized by authorized, the partnership may
other partners (Art. 1818, 2nd par., NCC). recover the property unless the
same has been conveyed by the
2) Although the act is for apparently grantee to a holder for value
carrying on in the usual way the without knowledge that the
business of the partnership, the partner has exceed his authority
partner so acting has no authority to (Art. 1819, 1st par., NCC).
act in the particular matter and the c) If conveyed in his
person with whom he dealt with had own name and the act is one
knowledge of such fact (Art. 1818, 1st within the authority of the
par., NCC). partner pursuant to Article 1818,
it passes the equitable interest
3) Act is in contravention of a of the partnership (Art. 1819, 2nd
restriction on authority and the par., NCC).
person he dealt with had knowledge
of the restriction (Art. 1818, last par., Where title is in name of one or more but
NCC). not all the partners and the record does
not disclose the right of the partnership:
Acts Requiring Unanimous Consent of 1) The
All Partners (if business has not been partners in whose name the title
abandoned): stands may convey title to such
1) Assignment of partnership property property.
in trust for creditors or on the 2) But the
assignees promise to pay the debts partnership may recover such
of the partnership; property if the partners act does not
2) Disposition of goodwill of the bind the partnership under the
business; provisions of Article 1818, unless
3) Doing any other act which would the purchaser or his assignee, is a
make it impossible to carry on the holder for value, without knowledge
ordinary business of partnership; (Art. 1819, 3rd par., NCC).
4) Confession of judgment;
5) Entering into a compromise Where title is in name of one or more or
concerning partnership claim or all partners, or in a third person in trust
liability; for the partnership:
6) Submission of partnership claim or 1) A conveyance executed by a partner
liability to arbitration; and in the partnership name, or in his
7) Renunciation of a partnership claim own name, passes the equitable
(Art. 1818, 3rd par., NCC). interest of the partnership, provided
the act is one within the authority of
Conveyance of Real Property the partner under the provisions of
the first paragraph of Article 1818
Where title is in partnerships name: (Art. 1819, 4th par., NCC).

1) Rule: Can be conveyed only in the Where title is in names of all partners: A
partnership name (Art. 1774, NCC). conveyance executed by all the partners
passes all their rights in such property (Art.
2) Effect of conveyance by a single 1819, 5th par., NCC).
partner:
a) If conveyance is
in the usual course of business, Effect of Admission and Representation
the same is within the scope of By A Partner: It binds the partnership when
the partners apparent authority, ---
therefore binding upon the 1) Concerns partnership affairs; and
principal. 2) It is within the scope of his authority
b) If conveyed in (Art. 1820, NCC).
partnership name but not

12
When Notice To A Partner Binds acting or omitting to act (Art. 1822,
Partnership: 1823, NCC).
b) But all the partners are liable
1) When solidarily with the partnership for
Binding: In the following cases --- everything chargeable to the
a) If notice is on any matter partnership in the above-
relating to partnership affairs mentioned instances (Art. 1824,
acquired while transacting NCC).
business for the firm and
relating thereto; Partnership by Estoppel
b) Knowledge acquired by a
partner acting in that particular When partnership by estoppel exist: It
matter; exists when a non-partner, by words spoken
c) Knowledge of any other or written or by conduct, represents himself,
partner who reasonably could or consents to another representing him to
and should have communicated anyone, as a partner in an existing
it to the acting partner (Art. partnership or with one or more persons not
1821, NCC). actual partners (Art. 1825, NCC).

2) When Not Requisites for liability: In order for


Binding: In case of fraud on the estoppel to apply, it is necessary that the
partnership, committed by or with third person must have knowledge of the
the consent of that partner (Art. 1821, representation and acted in reliance upon
NCC). the same.

Who shall be liable:


Liability Arising From Partners Tort or
Breach of Trust: 1) A partnership liability results when
1) Instances giving rise to liability: all members of the existing
a) Where a partner, partnership consent to the
by any wrongful act or omission representation, in which case, the
and acting in the ordinary partner by estoppel (or ostensible
course of the business of the partner) is liable as though he were
partnership or with the authority an actual member of the partnership
of his co-partners, causes loss (Art. 1825, NCC).
or injury to a non-partner (Art.
1822, NCC). 2) When no partnership liability results
b) Where a partner because not all the members of an
acting within the scope of his existing partnership consent to the
apparent authority receives representation ---
money or property of a third a) The person acting and persons
person and misapplies it (Art. consenting to the representation
1823[1], NCC). shall all be liable as partners to
c) Where the a third person who deal with
partnership in the course of its them upon the faith of such
business receives money or representation, the transaction
property of a third person and being considered their joint act
the money or property so or obligation.
received is misapplied by any b) The partner by estoppels is
partner while it is in the custody liable pro rata with the other
of the partnership (Art. 1823[2], persons so consenting to the
NCC). contract or representation, if any
(Art. 1825, NCC).
2) Who shall be liable:
a) The partnership is liable to the
same extent as the partner so

13
Liability of Incoming Partner for circumstances which do not permit
Obligations Arising Prior to His dissolution.
Admission: 3) Any event which makes it unlawful
for the partnership business to be
1) He is liable as though he had been carried on or for the members to
a partner when such obligations carry it on.
were incurred. 4) When specific thing, which a partner
2) But his obligations shall be satisfied had promised to contribute to the
only out of partnership property. partnership, perishes before the
3) His own property shall not be liable, delivery.
unless there is a stipulation to the 5) By the loss of the thing in any case,
contrary (Art. 1826, NCC). when the partner who contributed it
having reserved the ownership
thereof, has only transferred to the
DISSOLUTION AND WINDING UP partnership the use or enjoyment of
the same.
[Note: But the loss of the thing after
Dissolution: Change in the relation of the
the partnership has acquired
partners caused by any partner ceasing to
ownership shall not result in
be associated in the carrying on of the
dissolution].
business (Art. 1828, NCC).
6) By death of any partner.
7) By insolvency of any partner or of
Winding Up: Process of settling the
the partnership.
partnership business or affairs after
8) By civil interdiction of any partner.
dissolution.
9) By decree of the court:
Termination: Point in time when all
a) On application by any partner by
partnership affairs are wound up or
reason of ---
completed and is the end of the partnership
i) Insanity of any partner;
life.
ii) Incapability of any partner in
performing his part;
Causes of Dissolution (Art. 1830, NCC):
iii) Being guilty of any conduct
1) Without violation of agreement
tending to affect prejudicially
between partners:
the carrying on of business;
a) By termination of definite term
iv) Willful or persistent
or particular undertaking
commission of breach of
specified in the agreement;
partnership agreement
b) By express will of any partner in
v) Business of partnership can
partnership at will, acting in
only be carried on at a loss.
good faith; and
c) By express will of all partners
b) On application of purchaser of a
who have not assigned their
partners interest ---
interests or suffered them to be
i) After termination of
charged for their separate
specified term or particular
debts, either before or after
undertaking.
termination of any specified
ii) At any time in case of
term or particular undertaking.
partnership at will when
d) By expulsion of any partner from
interest was assigned or
the business bona fide in
when the charging order
accordance with such a power
was issued.
conferred by agreement
between the partners.
Reminders:
1) In dissolution by express will of any
2) In contravention of agreement, by
partner, without violation of the
express will of any partner under
agreement, the good faith
requirement is not a limitation upon

14
the right to dissolve but upon the i) The general rule and
rule of non-liability for damages exceptions mentioned
caused by the dissolution. In other above will apply.
words, whether the right is ii) Thus, dissolution terminates
exercised in good faith or in bad the authority of any partner
faith, this will result in the dissolution to undertake new business
of the partnership except that if the for the partnership.
right is exercised in bad faith, the
partner exercising it is answerable b) Dissolution is by act, insolvency
for losses caused by the dissolution. or death of a partner:
i) Rule --- each partner is
2) In dissolution by express will of any liable to his co-partners for
partner but in contravention of the his share of any liability
agreement, the partner who caused created by any partner
the dissolution is liable to pay acting for the partnership as
damages caused to the partnership if the partnership had not
and his co-partners by reason of been dissolved.
such breach. ii) Exceptions: The foregoing
rule does not apply if ---
3) In case of expulsion: In the absence aa) Dissolution being by act
of agreement, a partner cannot be of any partner, the
expelled except an industrial partner partner acting for the
who engages in business for himself partnership had
without express permission from the knowledge of the
partnership (Art. 1789, NCC). However, dissolution.
even if a power of expulsion is bb) Dissolution being by the
conferred by agreement, such death or insolvency of a
power may not be exercised in bad partner, the partner
faith. Note, however, that acting for the
misconduct on the part of a partner partnership had
may furnish ground for dissolution knowledge or notice of
by the court on the application of the the death or insolvency
other partner (Art. 1831, par. 1(3), NCC). (Art. 1833, NCC).

Effects of Dissolution 2) With respect to third persons:

I. As to partners authority to act for a) When partnership is bound to


partnership third persons by an act of a
partner after dissolution:
1) General rule: It terminates all i) Act appropriate for winding
authority of any partner to act for the up partnership affairs;
partnership. ii) Act for completing
2) Exceptions: transactions unfinished at
a) Acts necessary to wind up dissolution;
partnership affairs; and iii) Any NEW transaction which
b) Acts necessary to complete would bind the partnership if
transactions begun but not then dissolution had not taken
finished (Art. 1832, NCC). place, provided third party
acted in good faith ---
Qualifications to General Rule: aa) Other party to transaction
had extended credit to
1) With respect to partners (inter se): partnership prior to
dissolution and had no
a) Dissolution is not by act, knowledge or notice of
insolvency or death of a partner: dissolution; or

15
bb) Although not prior creditor, II. As to partners existing
he has known of the liability
partnership and has no
knowledge or notice of General rule: Dissolution of the partnership
dissolution because the does not of itself discharge the existing
fact of dissolution had not liability of any partner (Art. 1835, NCC).
been advertised in a
newspaper of general Exception: A partner may be relieved from
circulation in the place at any existing liability upon dissolution of the
which the partnership partnership only by an agreement to that
business was regularly effect between:
carried on (Art. 1834,1st par., 1) Himself (partner concerned)
NCC). 2) Other partners
3) Partnership creditor
Liability of Silent or Dormant Partner for New
Transactions: A partners liability for new III. Rights of Partner Upon
transactions shall be satisfied out of Dissolution
partnership assets alone when he had been
prior to dissolution --- In Case of Rightful Dissolution:
1) Unknown as a partner to the person
with whom the contract is made; 1) In general --- Unless otherwise
and agreed, each partner, as against his
2) So far unknown and inactive in co-partners and all persons claiming
partnership affairs that the business through them in respect of their
reputation of the partnership could interest in the partnership, has the
not be said to have been in any right:
degree due to his connection with it i) To have the partnership property
(Art. 1834, 2nd par., NCC). applied to the payment of firm
debts and liabilities; and
b) When partnership is NOT bound ii) To have the surplus assets
to third persons by an act of a divided among the members of
partner after dissolution: the firm (Art. 1837, 1st par., NCC).
i) Partnership is dissolved This is known as the partners
because it is unlawful to lien
carry on the business,
except when act is for 2) In case of expulsion of a partner
winding up bona fide, if he is discharged from
ii) Partner has become all partnership liabilities, he shall
insolvent. receive in cash only the net amount
iii) Partner has no authority to due him from the partnership (Art.
wind up partnership affairs, 1837, 1st par., NCC).
except by a transaction with
third party who acted in In Case of Dissolution in Contravention
good faith (mentioned of Partnership Agreement:
above). 1) Rights of partner who has not
iv) Act is not appropriate for caused dissolution wrongfully is
winding up or for completing entitled:
unfinished transactions; and a) Rights mentioned above.
v) Completely new b) In addition, right to recover
transactions which would damages against the partner
bind the partnership if who wrongfully caused the
dissolution had not taken dissolution.
place and the other party to c) Right to continue the business
the transaction did not act in under same name either by
good faith. themselves or jointly with
others.

16
d) If they decide to continue the 2) He is entitled to
business, they have the right to be indemnified by the guilty partner
possess the partnership against all debts and liabilities of the
property, provided they secure firm (Art. 1838, NCC).
payment by bond approved by
court, or pay the partner who
wrongfully caused the RIGHTS OF CREDITORS
dissolution, the value of his
interest in the partnership at the I. Partnership Creditors
dissolution, less any damages
recoverable from him by reason 1) Over
of the wrongful dissolution (Art. partnership assets:
1837, 2nd par., NCC). a) Creditors of
the partnership shall be
2) Rights of a partner who has preferred to those of each
wrongfully caused the dissolution: partner as regards the
partnership property.
a) If the business is not continued: b) Hence,
i) He shall have the right to when a partnership becomes
what is known as partners insolvent, the partners become
lien, subject to his liability to trustees for the creditors of the
other partners for damages partnership, and it is their duty
due to breach of agreement. to manage the firms property
and assets with strict regard to
b) If business is not continued: the interests of the said creditor.

i) To have the value of his 2) Over assets


interest in the partnership of individual partners:
less any damage caused to a) If there are
his co-partners by the sufficient partnership assets to
dissolution, ascertained and satisfy firm debts, the separate
paid to him in CASH OR properties of the partners do not
secured by a bond become liable for the payment
approved by the court; and of the firms obligations.
ii) To be released from all b) Where
existing and future liabilities there are no firm assets or after
of the partnership (Art. 1837, exhaustion of firm assets, the
2nd par., No. 3, NCC). partners are liable PRO RATA
with their individual assets for
Note: In ascertaining the value of his interest in firm debts.
the firm, the value of the goodwill of the business c) However, in
shall not be considered (Id.). case of insolvency of a partner,
his individual or separate
Rights of Partners In Case of Rescission creditors shall have preference
of Partnership Contract Due to Fraud or over his individual assets than
Misrepresentation: the creditors of the partnership
(Art. 1839, No. 9, NCC).
1) He is entitled to a
lien on the surplus of the partnership II. Individual Creditors
assets after discharge of firm 1) Over partnership assets:
liabilities for moneys paid into the a) The rights
firm by him for the purchase of an of the creditor of an individual
interest in the partnership and for partner in firm assets are
any capital or advances contributed confined to the share or interest
by him. of his debtor in such assets, and
since a partners share thereof

17
can be ascertained only after 1) Who is entitled to demand
the firm debts have been paid, accounting:
an individual creditor is entitled a) Any partner;
to be paid only out of the b) The legal representative of
debtors share in the surplus a deceased partner.
which remains after the firm
debts have been paid, and the 2) Persons liable; against whom the
equities between the partner demand is made: The winding up
and his co-partners have been partners or the surviving partners in
adjusted, and the partners the absence of an agreement to the
share has been ascertained and contrary.
set apart.
b) Foregoing 3) Date of accounting: The right to an
rule applies although a partner account accrues at the date of
has assigned his interest as dissolution.
security for his individual
creditors. 4) Property and transactions to be
c) Under this included in the accounting:
rule partnership property cannot
be subjected to the payment of a) In general,
individual creditors, where it is all property and transactions
insufficient to pay partnership belonging to the firm and
creditors, especially where it forming part of its assets.
appears that the partner has b) A partner
individual property. should be credited in respect of
any advances properly made by
2) Over assets of individual partners: him.
c) He shall be
a) In charged with overdrafts which
distributing the private estate of may be collected from his
an individual partner, his personally if his share in the firm
individual creditors are entitled assets is insufficient.
to be first paid in preference to d) Goodwill of
general firm creditors (Art. 1839, the firm is ordinarily a part of the
No. 9, NCC). firm assets.
b) Hence, e) Claims
where the individual debts between partners and the firm
exceed the value of the should be included.
individual property, the f) The same
individual creditors take the rule applies to claims between
whole of such property. the parties, which are veritable
partnership transactions.

Rules to be Followed in Accounting


(Subject to Contrary Agreement):

1) What are considered as assets of


the firm:
ACCOUNTING AND
SETTLEMENT BETWEEN OR a) Partnership property; and
b) Contributions of the partners
AMONG PARTNERS necessary for the payment of all
the liabilities (Art. 1839, No. 1,
Right to Accounting After Dissolution: NCC).

18
The partners shall 1.
contribute the amount Partnership creditors shall
necessary to satisfy the have priority on
liabilities, in the proportion partnership property.
mentioned in Article 1797 2.
(distribution of losses and Separate creditors shall
profits) (Art. 1839, No. 4, NCC). have priority on
The individual property of a individual property.
deceased partner shall be liable 3.
for the foregoing contributions Rule is without prejudice to
(Art. 1839, No. 7, NCC). the rights of lien or
Who may enforce the secured creditors (Art.
collection of said contributions? 1839, No. 8, NCC).
(i) an assignee for the benefit of
creditors or any person ii) Priority between claims
appointed by the court; or (ii) against partners individual
any partner or his legal assets in case of
representative, to the extent of insolvency: In case a
the amount which he has paid in partner has become
excess of his share of the insolvent, the claims against
liability (Art. 1839, Nos. 5 and 6, his separate property shall
NCC). rank in the following order:
2) Method of distribution: 1. Those owing to
a) Firm separate creditors.
Assets: 2. Those owing to
i) Order of payment of partnership creditors.
liabilities in winding up: 3. Those owing to partners
1.Those owing to creditors by way of contribution
other than partners; (Art. 1839, No. 9, NCC].
2.Those owing to partners
other than for capital and
profits; LIMITED PARTNERSHIP
3.Those owing to partners
in respect of capital;
4. Those owing to partners Definition: One formed by two or more
in respect of profits (Art. persons, having as members one or more
1839, No. 2, NCC). general partners and one or more limited
partners (Art. 1843, NCC). Otherwise defined, a
ii) Order of application of limited partnership is one in which the
assets: The assets shall be liability of one or more, but not all, of the
applied in the order of their partners is limited to the amount contributed
declaration in Article 1839, by him or them to the firm capital at the time
No. 1 to the satisfaction of of the formation of the partnership.
the liabilities. (Art. 1839, No. 4,
NCC). Characteristics of Limited Partnership:

b) Firm and 1) Organization in compliance


Individual Assets In Custody of with the terms of the statute
Court: governing the relation.
2) One or more general
i) Doctrine of Marshalling of partners who control the business
Assets: When partnership and personally liable to creditors.
property and the individual 3) One or more special or
properties of the partners limited partners, who contribute to
are in possession of a court its capital and who share in its
for distribution ---- profits, but who have no powers in

19
the control of the business, and who (i) It is
are not personally liable for its also the surname of a
debts. general partner; or
4) Limitation of the rights of its (ii) Prior to
creditors to the partnership fund and the time when the limited
to the general partners. partnership became as
such, the business had
Distinguished from Ordinary Partnership: been carried on under a
The following are absent in a limited name in which his surname
partnership but present in a general appeared (Art. 1846, 1st par.,
partnership --- NCC).
1) Liability of all
partners for the debts of the firm. b) A limited partner
2) Agency of each whose surname appears in a
partner for the firm. partnership name contrary to
3) Dissolution of the the foregoing is liable as a
firm upon the death of any partner. general partner to partnership
creditors who extend credit to
Essential Requirements for Formation of the partnership without actual
LP: knowledge that he is not a
general partner (Art. 1846, NCC).
1) Necessary member: There
must be at least one general partner c) The addition of
and one limited, or special, partner the world limited to partnership
(Art. 1843, NCC). name is required by the Code
[Art. 1844(1)(a), NCC].
2) Contribution by limited
partner: 4) Certificate or articles of
incorporation:
a) Requirement: The Code
does not require that the a) The Code
general partner shall make requires a certificate to be
any contribution to the firm signed and sworn to by the
capital, but it so requires the partners, specifying therein the
special partner [Art. 1844 (1)(f); matters enumerated in Article
Art. 1845, NCC]. 1844.
b) Medium of contribution: The b) The Code
contributions of a limited likewise requires that such
partner may be cash or certificate be filed for record in
other property, but not the SEC.
services (Art. 1845, NCC).
c) Time for contribution: The 5) Compliance with foregoing
contribution must be paid requirements for formation:
prior to the filing of the
certificate required to be a) Requirement: A limited
filed before the SEC (Art. partnership is formed if there
1844, NCC). has been substantial
compliance in good faith with
3) Partnership name: the requirements of the Code
(Art. 1844, last par., NCC).
a) The surname of a
limited partner SHALL NOT b) Effect of failure to comply:
appear in the partnership name A limited partnership that has
UNLESS: not complied with the law of its
creation is not considered a
limited partnership at all, but a

20
general in which all the (7) Continue the
members are solidarily liable (Jo business with partnership
Chung Cang v. Pacific Commercial Co., property on the death,
45 Phil. 142). retirement, insanity, civil
interdiction or insolvency of
c) Qualification: a general partner unless the
i. The partnership is right so to do is given in the
considered a general certificate (Art. 1850, NCC).
partnership only as to its
relation to third persons. II. Rights and Powers of Limited
ii. As between the Partners
partners, they are bound by
their agreement. 1) Management of the business: He
has no right to participate in the
RIGHTS AND POWERS OF PARTNERS management of the firms business.

I. Rights and Powers of General 2) Examination of firm books: He has


Partners the same rights as a general partner
to have the partnership books kept
a) General rule: He shall have at the principal place of business of
all the rights and powers and be the partnership, and at a reasonable
subject to all the restrictions and hour to inspect and copy any of
liabilities of a partner in a them (Art. 1851, 1st par., No. 1, NCC).
partnership without limited partners.
(Art. 1850, NCC). 3) Requiring information and formal
account: He has the same rights as
b) Particular limitations on his a general partner to have on
authority: Without the written demand true and full information of
consent or ratification of the specific all things affecting the partnership,
act by all the limited partners, a and a formal account of partnership
general partner or all of the general affairs whenever circumstances
partners HAVE NO authority to: render it just and reasonable (Art.
1851, 1st par., No. 2, NCC).
(1) Do any act in
contravention of the 4) Secure decree dissolution and
certificate. winding up: He has the same rights
(2) Do any act which as a general partner to have
would otherwise make it dissolution and winding up by
impossible to carry on the decree of court (Art. 1851, 1st par., No. 3,
ordinary business of the NCC).
partnership.
(3) Confess a 5) Right to share of profits or other
judgment against the compensation:
partnership.
(4) Possess a) In general: He
partnership property, or has the right to receive a share
assign their rights in specific of the profits or other
partnership property, for compensation by way of income
other than a partnership (Art. 1851, last par., NCC).
purpose.
(5) Admit a person as b) When entitled to
a general partner. receive: Only if, after such
(6) Admit a person as payment, the partnership assets
a limited partner, unless the will be in excess of all liabilities
right so to do is given in the of the partnership (except
certificate. liabilities to limited partners on

21
account of their contributions amended as to set forth
and to general partners) [Art. the withdrawal or
1856, NCC]. reduction (Art. 1857, 3rd
par., NCC).
6) Right of return to contribution: A
limited partner shall have the right to c) For
the return of his contribution [Art. m in which contribution may be
1851, last par., NCC] returned: Only in the form of
cash, unless contrary is
a) Wh provided in the certificate or
en may rightfully demanded: A agreement of all members (Art.
limited partner may rightfully 1857, 3rd par., NCC).
demand the return of his
contribution: 7) Rights, powers and liabilities of a
i. On the dissolution of a limited partner who is also a general
partnership; or partner:
ii. When the date specified
in the certificate for its a) Rul
return has arrived; or e: A person can be a general
iii. After he has given six partner and a limited partner in
months' notice in writing same partnership, provided that
to all other members, if this fact is stated in the
no time is specified in certificate (Art. 1853, NCC).
the certificate, either for b) He
the return of the has the same rights, powers
contribution or for the and subject to all restrictions of
dissolution of the a general partner.
partnership (Art. 1857, 2nd c) But
par., NCC). with respect to his contribution,
his rights shall be that of a
b) Lim limited partner (as if he is not
itations: A limited partner shall also a general partner) [Art. 1853,
not receive from a general NCC).
partner or out of partnership
property any part of his
contributions until: LIABILITIES OF LIMITED PARTNER
i. All liabilities of the
partnership, except I. In Relation To Firm
liabilities to general
partners and to limited 1) Liabilities in respect of contribution:
partners on account of A limited partner is liable to the
their contributions, have partnership
been paid or there
remains property of the a) For the difference between
partnership sufficient to his contribution as actually
pay them; made and that stated in the
ii. The consent of all certificate.
members is had, unless b) For any unpaid contribution
the return of the which he agreed in the
contribution may be certificate to make in the future
rightfully demanded at the time and on the
under the provisions of conditions stated in the
the second paragraph; certificate.
and c) A limited partner holds as
iii. The certificate is trustee for the partnership:
cancelled or so

22
(i) Specific property b) Restrictions: No limited
stated in the certificate as partner shall in respect to any
contributed by him, but such claim:
which was not contributed i. Receive or hold as collateral
or which has been security and partnership
wrongfully returned, and property, or
(ii) Money or other ii. Receive from a general
property wrongfully paid or partner or the partnership
conveyed to him on account any payment, conveyance,
of his contribution (Art. 1858, or release from liability if at
1st and 2nd pars., NCC). the time the assets of the
partnership are not sufficient
2) Waiver or compromise: to discharge partnership
a) The foregoing liabilities of a liabilities to persons not
limited partner can be waived or claiming as general or
compromised only by the limited partners (Art. 1854,
consent of all members. NCC)
b) But a waiver or compromise
shall not affect the right of a c) Effect of violation of
creditor of a partnership who restrictions: The receiving of
extended credit or whose claim collateral security, or payment,
arose after the filing and before conveyance, or release in
a cancellation or amendment of violation of the foregoing
the certificate, to enforce such provisions is a fraud on the
liabilities (Art. 1858, 3rd par., NCC). creditors of the partnership (Art.
1854, NCC).
3) Liabilities after rightful receipt of
return of contribution with regard to II. In Relation To Third Persons
firm debts: When a contributor has
rightfully received the return in 1) In general: The special partner has
whole or in part of the capital of his none of the attributes of an agent,
contribution, he is nevertheless and he cannot bind the firm by his
liable to the partnership for any sum, acts in any way.
not in excess of such return with
interest, necessary to discharge its 2) Liability to third persons:
liabilities to all creditors who
extended credit or whose claims a) In general: A limited partner
arose before such return (Art. 1858, does not become liable as a
last par., NCC). general partner unless, in
addition to the exercise of his
4) Loans and other business rights and powers as a limited
transactions: partner, he takes part in the
control of the business (Art. 1848,
a) In general: A limited partner NCC).
also may loan money to and
transact other business with the b) Effect of taking part in
partnership, and, unless he is management of business: He
also a general partner, receive becomes liable as a general
on account of resulting claims partner for the firms obligations
against the partnership, with (Art. 1848, NCC).
general creditors, a pro rata
share of the assets (Art. 1854, c) Effect of inclusion of
NCC). surname in partnership name: A
limited partner whose surname
appears in a partnership name
contrary to the provisions of the

23
first paragraph of Article 1846 is b) Then difference between his
liable as a general partner to contribution as actually
partnership creditors who made and that stated in the
extend credit to the partnership articles.
without actual knowledge that c) Any unpaid contribution
he is not a general partner (Art. which he agreed in the
1846, NCC). certificate to make in the
future (see Art. 1859, last par.,
d) Effect of false statements in NCC).
certificate: If the certificate
contains a false statement, one 2) The substituted limited partner has
who suffers loss by reliance on all the rights and powers of the
such statement may hold liable assignor (Art. 1859, 6th par., NCC).
any party to the certificate who
knew the statement to be false: 3) The substituted limited partner is
subject to all the restrictions and
(i) At the liabilities of the assignor, except
time he signed the those liabilities of which he was
certificate, or ignorant at the time he became a
(ii) Subsequ limited partner and which could not
ently, but within a sufficient be ascertained from the certificate
time before the statement (Art. 1859, 6th par., NCC).
was relied upon to enable
him to cancel or amend the If Assignee Does Not Become SLP:
certificate, or to file a 1) He has no right to require any
petition for its cancellation information or account of the
or amendment as provided partnership transactions.
in Article 1865 (Art. 1847, 2) He has no right to inspect the
NCC). partnership books.
3) He is only entitled to receive the
Substituted Limited Partner share of the profits or other
compensation by way of income, or
Concept: He is admitted to all the rights of a the return of his contribution, to
limited partner who has either died or has which his assignor would otherwise
assigned his interest in a partnership (Art. be entitled (Art. 1859, 3rd par., NCC).
1859, 2nd par., NCC).
DISSOLUTION AND LIQUIDATION
Requisites for Assignee to Become SLP:
1) Either all the members consented Dissolution of Limited Partnership:
thereto OR the assignor, being 1) Retirement, death, insolvency,
empowered by the certificate, gives insanity or civil interdiction of a
the assignee that right. GENERAL PARTNER, unless
2) The certificate is appropriately business is continued by remaining
amended in accordance with Article general partners:
1865. a) Under a right to do so
3) The amended certificate is stated in the certificate; or
registered in the SEC. b) With the consent of all
members (Art. 1860, NCC).
Effects of Substitution: 2) When all limited partners ceased to
be as such (Art. 1864, par. 1, NCC).
1) It does not release the assignor 3) Expiration of term or period of
from the following liabilities: existence of partnership.
a) Those arising from a 4) By agreement of all the partners
certificate containing false before the lapse of period of
statement under Article existence.
1847.

24
5) Misconduct of a general partner or 8) Change in the time as stated in the
fraud committed by a general certificate for the dissolution of the
partner against the limited partner/s. partnership or for the return of a
6) When the limited partner demanded contribution.
the return of his contribution but the 9) A time is fixed for the dissolution of
same was unjustifiably denied. the partnership, or the return of a
contribution, no time having been
Liquidation of Limited Partnership: Order specified in the certificate.
of priority in the payment of liabilities of the 10) Members desire to make a change
limited partnership ---- in any other statement in the
1) Those owing to creditors, in the certificate in order that it shall
order of priority as provided by law, accurately represent the agreement
except those to limited partners on among them.
account of their contributions, and to
general partners.
2) Those owing to limited partners in
respect to their share of the profits
AGENCY
and other compensation by way of
income on their contributions. NATURE AND DISTINCTION FROM
3) Those owing to limited partners in OTHER RELATIONS
respect to the capital of their
contributions. Definition: Contract whereby a person
4) Those owing to general partners (agent) binds himself to render some service
other than for capital and profits. or to do something in representation or on
5) Those owing to general partners in behalf of another (principal), with the
respect to profits. consent or authority of the latter (Art. 1868,
NCC).
6) Those owing to general partners in
respect to capital (Art. 1863, NCC).
Elements of Agency: The essence of
agency is representation. For a contract of
Cancellation of Certificate or Articles of
agency to exist, it is essential that the
Partnership:
principal consents that the other party, the
1) When partnership is dissolved; or
agent, shall act on its behalf, and the agent
2) When all limited partners cease to
consents so as to act. In the case of Yu Eng
be as such (Art. 1864, NCC). Cho v. Pan American World Airways, Inc.,
(328 SCRA 717) the Court had the occasion
Amendment of Certificate or Articles of to set forth the elements of agency:
Partnership: (1) Co
1) Change in the name of partnership nsent, express or implied, of the
or in the amount or character of the parties to establish the relationship.
contribution of any limited partner. (2) Obj
2) A person is substituted as a limited ect is the execution of a juridical act
partner. in relation to a third person.
3) An additional limited partner is (3) Age
admitted. nt acts as a representative and not
4) A person is admitted as a general for himself.
partner. (4) Age
5) A general partner retires, dies, nt acts within the scope of his
becomes insolvent or insane, or is authority (Apex-Mining Co., Inc. v.
sentenced to civil interdiction and Southeast Mindanao Gold Mining Corp., 492
the business is continued under SCRA 355).
Article 1860.
6) Change in the character of the Characteristics of Agency Contract:
business of the partnership. Preparatory
7) False or erroneous statement in the Fiduciary
certificate. Bilateral
Onerous (generally)

25
Representative Relation Exception: There are, however, instances
Nominate where, independently of the question
whether or not an actual agency has been
Distinguished From Assignment: Agency created, persons are, by reason of their acts
is distinct from assignment. In agency, the or conducts, deemed to sustain the relation
agent acts not on his own but on behalf of of principal and agent for the protection of
his principal. In assignment, however, there third parties. In apparent or ostensible
is a total transfer or relinquishment of right agency, a person, whether authorized or not,
by the assignor to the assignee. The appears to third persons, because of the
assignee takes the place of the assignor and manifestations of another, to be authorized
is no longer bound to the latter (Apex-Mining to act as agent for such other.
Co., Inc. v. Southeast Mindanao Gold Mining Corp.,
492 SCRA 355). II. Actual Agency

Distinguished From Lease of Service: 1) There must be consent: In the case


of the principal, consent consists in
1) In agency, the basis is the grant of mandate or authority by
representation; while in lease of him to the agent and, in the case of
service, it is employment. the agent, in his acceptance.
2) In agency, the agent exercises
discretionary powers; while in lease 2) How mandate is manifested:
of service, the lessor ordinarily a) Expressly; or
performs only ministerial functions b) Impliedly from the acts of the
(Nielson & Co., Inc. v. Lepanto Consolidated
principal, from his silence or
Mining Co., 26 SCRA 540).
lack of action, or his failure to
3) In agency, three persons are repudiate the agency, knowing
involved: the principal, the agent that another person is acting on
and the third persons with whom the his behalf without authority
agent has contracted; while in lease (Art.1869, NCC).
of service, only two persons are
involved: the lessor (master or 3) Express Mandate: Form Required---
employee) and the lessee (servant
or employee). a) Rule: Agency may be oral,
unless the law requires a
Acts Which May Be Delegated To An specific form (Art. 1869, 2nd
Agent (Subject Matter of Agency): par., NCC).
b) Exception: When a sale of a
General rule: What may do in person, he piece of land or any interest
may do thru another (Qui facit per alium therein is through an agent,
facit per se). the authority of the latter
shall be in writing;
Exceptions: otherwise, the sale shall be
1) Peculiarly personal acts; and void (Art. 1874, NCC).
2) Illegal acts
4) Implied Conferment of Mandate:
CREATION AND EXISTENCE OF AGENCY a) Implied from acts of the
principal:
I. In General i) By actively holding out
another as his agent or
General rule: Since agency is a contract, thereby investing him with
fundamentally, it comes into existence just apparent or ostensible
as any other contract; consent, subject authority as agent.
matter and cause must concur in order that ii) By habit and course of
it may arise. dealing, as where the
alleged principal has

26
previously employed the as an agent, and which
alleged agent as such in he did not reply to the
transactions of similar letter or telegram (Art.
nature to the one in 1872, NCC).
question.
III. Apparent or Ostensible
b) Implied from his silence, Agency
inaction or failure to repudiate;
requisites: : (1) The principal 1) Nature: An agency is apparent, or
knew that another person is ostensible, where a person, whether
acting on his behalf without authorized or not, appears to third
authority; and (2) he kept silent, persons, because of the
did not act or did not repudiate manifestations of another, to be
the agency. authorized to as agent for such
other.
5) How acceptance is manifested:
a) Expressly; or 2) How it arises:
b) Impliedly from the agents acts
which carry out the agency, or a) By special information: If
from his silence or inaction a person specially informs
according to the circumstances another that he has given a
(Art. 1870, NCC). power of attorney to a third
person, the latter becomes a
6) Implied acceptance by agent: duly authorized agent with
respect to the person who
a) Implied from his acts which received the special
carry out the agency. information (Art. 1873, NCC).
b) Implied from his silence or
inaction: b) By public advertisement:
If a person states by public
i) Rule as between persons advertisement that he has
who are present: The given a power of attorney to a
acceptance of agency is third person, the latter
implied if the principal becomes a duly authorized
delivers his power of agent with regard to any
attorney to the agent and person (Art. 1873, NCC).
the latter receives it without
any objection (Art. 1871, NCC). 3) Termination of the agency: The
ii) Rule as between persons power shall continue to be in full
who are absent: The force until the notice is rescinded in
acceptance of the agency the same manner in which it was
cannot be implied from the given (Art. 1873, 2nd par., NCC).
silence of the agent, except:
IV. Agency By Estoppel
(aa) When the principal
transmits his power of 1) Definition: There is agency by
attorney to the agent, estoppel where a person, by words
who receives it without or conduct, represents or permits it
any objection. to be represented that another
person is his agent. In such a case,
(bb) When the principal he is estopped to deny the agency
entrusts to him by letter as against third persons who have
or telegram a power of dealt, on the faith of such
attorney with respect to representation, with the person so
the business in which held out as agent, even if no agency
he is habitually engaged existed in fact.

27
by one, as a result of out an apparent
2) Elements: the representations authority.
a) Representation by the of fact by the other.
principal; The liability of a
b) Reliance upon such principal on the
representation by a third person; ground of estoppel
and therefore can be out
c) Change of position by only upon a showing
such third person in reliance that the third party
upon such representation. has relied upon the
principals
3) Implied Agency and Agency by representations to
Estoppel: the third partys
detriment.
This is limited to Apparent authority is
Implied Agency Agency by cases in which there not limited to cases
Estoppel is no real agency. in which there is no
This is an acted This is limited to real agency. It may
agency and is a fact cases in which there be actual as well as
to be proved by is no real agency. ostensible.
deductions or
inferences from
other facts. EXTENT OF AUTHORITY OF AGENT
As to third persons: The agency by
Although the estoppel can be
I. With
principal is equally invoked only when
reference to quantity of
liable in both, in here the third person
transactions comprised (Art.
the third person knew and relied on
1876, NCC):
need have no the conduct of the
knowledge of the principal.
General Agency --- Comprises all the
principals acts nor
business of the principal.
have relied on the
same. The agent by
Special Agency --- Comprises of one or
implied authority
more specific transactions.
being an actual
agent, the principal
is liable for his acts
II. With
the same as though
reference to nature of acts
the authority had
authorized:
been express.
As between the An agent by estoppel
Agency couched in general terms ---
principal and agent: is no agent at all
Comprises only acts of administration, even
An agent by implied and, as against the
if the principal should state that he withholds
appointment is a real principal, has none
no power or that the agent may execute
agent with all his of the rights of an
such acts as he may consider appropriate,
rights and liabilities. agent.
or even though the agency should authorize
a general and unlimited management (Art.
1877, NCC).
4) Agency by Estoppel and Apparent
Agency:
1) Distinguished from general agency:
Agency by Apparent Agency
General Agency Agency Couched in
Estoppel
General Terms
Estoppel The presence of
Classification Classification relates
comprehends a such reliance is
concerns the to the nature of the
detrimental reliance unnecessary to spell

28
number of the acts juridical act which he c) Comprom
or transactions can realize. ise, Submission of questions to
conferred on the arbitration, Renunciation of right
agent. to appeal from a judgment,
Hence, a general Waiver of objections to venue of
agency may be an action or Abandonment of
couched not in prescription already acquired.
general terms but in d) Waiver of
definite ones any obligation gratuitously.
authorizing particular e) Entering
juridical acts other into any contract by which
than mere ownership of immovable is
administration. transmitted or acquired either
gratuitously or for a valuable
2) Effect: The authority conferred in consideration.
general terms is confined to acts of f) Making
administration. They are those that gifts, except customary ones for
do not involve acts of dominion, charity or those made to
such as alienations, except where employees in the business
these are incidental to the authority managed by the agent.
to administer. g) Lending
or borrowing money, unless the
3) Not affected by other statements of latter act be urgent and
principal: If the mandate conferred indispensable for the
by the principal is couched in preservation of the things which
general terms, the fact that the are under administration.
principal made the following h) Leasing
statements will not extend the any real property to another
authority beyond the performance of person for more than one year.
mere acts of administration: (1) he i) Binding
withholds no power; (2) the agent the principal to render some
may execute such acts as he may service without compensation.
consider appropriate; (3) that the j) Binding
mandate authorizes a general and the principal in a contract of
unlimited management. partnership;.
k) Obligating
Agency couched in specific terms --- One the principal as a guarantor or
which explicitly indicates the particular surety.
function/s which the agent is authorized to l) Creation
exercise, be it performance of mere acts of or conveyance of real rights
administration or execution of definite acts of over immovable property.
dominion. m) Accepting
or repudiating an inheritance.
1) Cases where special power is n) Ratificatio
necessary (Art. 1878, NCC): n or recognition of obligations
contracted before the agency.
a) Making o) Any other
payments which are not usually act of strict dominion.
considered as acts of
administration. 2) Powers not included:
b) Effecting
novations putting an end to a) Spe
obligations already in existence cial power to sell excludes the
at the time the agency was power to mortgage; and a
constituted. special power to mortgage does

29
not include the power to sell (Art. emergency, provided the following
1879, NCC). requisites exist:
b) Spe
cial power to compromise does a) Emergency really exist.
not authorize submission to b) Agent is unable to
arbitration (Art. 1880, NCC). communicate with the
principal.
3) Agency couched in specific terms c) Agents enlarged power is
and special agency: exercised for the principals
protection.
Agency couched in Special Agency d) Means adopted are
specific terms reasonable under the
Special power Has reference to the circumstances.
referred to in Article number of
1878 means transactions the
mandate which agency embraces. EXECUTION OF AGENCY
explicitly indicates
whether expressly or
Requisites In Order to Bind Principal By
impliedly, the
Agents Acts:
particular functions
1. Agent must act within the scope of
or transactions the
his authority (Art. 1881, NCC); and
agent is authorized
2. Agent must act in the name of the
to perform.
principal.

Acts Considered Still Within Scope of


III. Inciden
Agents Authority:
tal Authority:
1. Acts that may be conducive to the
accomplishment of purpose of the
Authority included ---- Unless contrary is
agency (Art. 1881, NCC).
expressed, a general or special power
2. Acts which are performed in a
carries with it, by implication, the incidental
manner more advantageous to the
authority to perform:
principal than that specified by him
a) whatever acts necessary
(Art. 1882, NCC).
and proper to effectuate main
authority;
Effect of Acting Beyond Scope of
b) acts that are made
Authority:
appropriate attributes of main
authority by some particular custom
General rule: Principal is not bound. A
or usage; and
contract entered into by an agent who has
c) acts that are rendered
acted beyond his powers is unenforceable,
essential by some special necessity
unless it is ratified by the principal (Art. 1317
or emergency.
and 1403{1], NCC).

IV. Agenc
Exceptions: Principal is liable in the following
y by Necessity:
situations even if the agent acted beyond
the scope of his authority ---
1) Important note: An agency can
1. When the principal ratifies the
never be created by necessity; what
agents act, either expressly or
is created is additional authority in
impliedly (Art. 1910, NCC).
an agent appointed and authorized
2. Principal is solidarily liable if he
before the emergency arose.
allowed the agent to act as though
the latter had full powers (Art. 1911,
2) Requisites: The existence of an
NCC).
emergency or other unusual
3. If the limitations to the agents
condition may operate to invest in
authority is known only between the
an agent authority to meet the

30
agent and principal and not to third i. But principal did not
persons (Art. 1900, NCC). designate a particular
4. Where the principal placed in the person: Agent is responsible
hands of the agent instruments for the acts of the substitute
signed by him in blank. if the substitute appointed
was notoriously
Effect of Agent Acting In His Own Name: incompetent or insolvent
(Art. 1892[2], NCC).
1. Principal has no right of action ii. But principal
against the third person with whom designated a particular
the agent has contracted (Art. 1883, 1st person: Substitution is the
par., NCC). act of the principal himself
2. Third person has no right of action rather than of the agent.
against the principal (Id.). Consequently, the agent is
3. Agent is the one directly bound in totally and absolutely
favor of the third person with whom exempt from responsibility
he has contracted with as if the for the acts of the sub-
transaction were his own, except agent.
when the contract involves things
belonging to the principal (Art. 1883, c) If agent is prohibited from
2nd par., NCC). appointing substitute: The agent
acts beyond the scope of his
Delegation of Authority (Sub-Agent): authority and shall be held liable
for whatever damage that may
1) When permissible: Agent may result.
appoint a substitute if the principal
has not prohibited him from doing so 4) Effect as between principal and
(Art. 1892, NCC). substitute: Both substitute and agent
are directly and personally liable to
2) Effect as between principal and the principal for the acts of
third person: substitute if ---
a) Agent appoints a substitute
a) If substituted not prohibited: The although not empowered to do
acts of the substitute will so; or
produce the same effect b) Even if empowered, agent
between the principal and third selects a substitute notoriously
persons as if they were those of incompetent or insolvent (Art.
the agent himself. 1893, NCC).

b) If substitution prohibited: All acts OBLIGATIONS OF AGENT TO PRINCIPAL


of the substitute appointed
against the prohibition of the
If Agency Was Declined --- In case a
principal shall be void (Art. 1892,
person declines an agency:
last par., NCC).

1. Such
3) Effects as between principal and
person is bound to observe the
agent:
diligence of a good father of a family
in the custody and preservation of
a) If agent not empowered to
the goods forwarded to him by the
appoint a substitute but not
owner until the latter should appoint
prohibited: Agent shall be
an agent or take charge of the
responsible for the acts of the
goods (Art. 1885, NCC).
substitute (Art. 1892[1], NCC).
2. The
owner, as soon as practicable, must
b) If agent is empowered:

31
either appoint an agent or take as required by the nature of the business
charge of the goods (Art. 1885, NCC). (Art. 1887, NCC).

If Agency Was Accepted --- IV. Obligation to observe good faith


and loyalty
I. Obligation to carry out agency
In general: An agent is a fiduciary with
What constitutes carrying out --- it respect to the matters within the scope of his
means to perform whatever acts may be agency.
necessary to bring the business to
conclusion. Conflict of interest: If, there being a conflict
between his interests and those of the
Effect of principals death --- Death of the principal, he should prefer his own, he shall
principal extinguishes the agency (Art. 1919[3], be liable for damages (Art. 1889, NCC).
NCC). However, the agent is obligated to
finish the business already begun on the If authorized to borrow money: If the
death of the principal, should delay entail agent has been empowered to borrow
any danger (Art. 1884, 2nd par., NCC). money, he may himself be the lender at the
current rate of interest (Art. 1890, NCC).
Liability for damages in case of non-
performance ---- Agent is liable for If authorized to lend money: If he has
damages which, through his non- been authorized to lend money at interest,
performance, the principal may suffer (Art. he cannot borrow it without the consent of
1884, 1st par., NCC). But if, after non- the principal (Art. 1890, NCC).
performance, the principal confers a second
mandate for the same purpose, this will bar Prohibition against buying property of
an action for damages as it constitutes a principal: An agent cannot, without his
tacit assent to the conduct of the agent principals consent purchase, whether
under the first agency. directly or indirectly, and even at public or
judicial sale, property which he is authorized
Cases when agent is not bound to carry to sell or administer (Art. 1491, NCC).
out the agency ---- If its execution would
manifestly result in loss or damage to the V. Duty to render account
principal (Art. 1888, NCC).
In general: Every agent is bound:
II. Obligation to advance funds
1) To render an account of his
General rule: Agent is not bound to transactions; and
advance the necessary funds to carry out 2) To deliver to the principal whatever
the agency. he may have received by virtue of
the agency, even though it may not
Exception: Unless there is a stipulation to be owing to the principal (Art. 1891,
that effect. NCC).

Exception to exception: Even if there is a


stipulation that agent should advance the Effect of stipulation exempting agent:
necessary funds, he is not obliged to do so if Every stipulation exempting the agent from
the principal is insolvent (Art. 1886, NCC). the obligation to render an account shall be
III. Obligation to obey instructions void (Art. 1891, 2nd par., NCC).

Rule: In the execution of the agency, the VI. Obligation to pay interest
agent shall act in accordance with the
instructions of the principal (Art. 1887, NCC). The agent shall pay interest to the principal:

In default of instructions: Agent shall do


all that a good father of a family would do,

32
1) On sums he has applied to his own the principal, sell on credit (Art. 1905,
use from the day on which he did NCC).
so; and
2) On those which he still owes after 2) Effect of sale on credit:
the extinguishment of the agency
(Art. 1896, NCC). a) If not authorized: The
principal may demand from him
VII. Obligation to observe diligence payment in cash, but the
commission agent shall be
Observance of diligence: entitled to any interest or
1) Diligence required is bonus pater benefit, which may result from
familias. such sale (Art. 1905, NCC).
2) The agent is responsible not only for
fraud, but also for negligence (Art. b) If authorized: Should the
1909, NCC). commission agent, with
3) The negligence of the agent shall be authority of the principal, sell on
judged with more or less rigor by the credit, he shall so inform the
courts, according to whether the principal, with a statement of the
agency was or was not for a names of the buyers. Should he
compensation (Art. 1909, NCC). fail to do so, the sale shall be
deemed to have been made for
Duty of Commission Agent (Factor): cash insofar as the principal is
concerned (Art. 1906, NCC).
Definition: One engaged in the purchase
and sale for a principal of personal property, Obligation to collect credits:
which for this purpose, has to
1) Effect of failure to collect credits
Care and custody of goods: when due and demandable:
a) Commission agent
1) The commission agent shall becomes liable to principal
be responsible for the goods for damages.
received by him in the terms and b) Unless: he proves that he
conditions and as described in the exercised due diligence for
consignment, unless upon receiving that purpose (Art. 1908, NCC).
them he should make a written
statement of the damage and 2) Del Credre Agent:
deterioration suffered by the same
(Art. 1903, NCC). a) Definition: He is a
2) If the commission agent commission agent who receives
handles goods of the same kind and on sale a guaranty commission,
mark belonging to different owners, in addition to the ordinary
he has the obligation to distinguish commission. The guaranty
them by countermarks, and to commission is given in return for
designate the merchandise the risk of collecting the credit.
respectively belonging to each b) Effects:
principal (Art. 1904, NCC). i. He guarantees
the risk of collection and he
Care of cash: He is not the insurer of the shall pay the principal the
safety of the money. But he must observe proceeds of the sale on the
diligence of a good father of a family. same terms agreed upon
with the purchaser, if the
As to authority to sell on credit: latter is not able to pay (Art.
1907, NCC).
1) Duty not to sell on credit: A ii. Either the
commission agent cannot, without principal or the del credere
the express or implied consent of agent may sue the

33
purchaser and the suit of
one will bar the subsequent Instances where principal is not liable for
suit of the other. expenses incurred by agent:
1. If agent acted in contravention of
Doctrine of Procuring Cause --- If the principals instructions, unless the
agent is the procuring cause of the sale latter should wish himself to avail
that the measures employed by him and the himself of the benefits derived from
efforts he exerted resulted in the sale he is the contract.
entitled to the payment of the commission 2. When expenses were due to fault of
(Ramos v. CA, G.R. No. 25463, April 4, the agent.
1975). 3. When agent incurred them with
knowledge that an unfavorable
result would ensue, if the principal
In Case of Two or More Agents (Joint was not aware thereof.
Agents): The responsibility of two or more 4. When it was stipulated that the
agents, even though they have been expenses would be borne by the
appointed simultaneously is merely joint and agent, or that the latter would be
not solidary, unless solidarity has been allowed only a certain sum (Art. 1918,
expressly stipulated (Art. 1894, NCC). NCC).

III. Obligation to indemnify agent


OBLIGATIONS OF PRINCIPAL TO AGENT for damages

Requisites:
I. Obligation to pay
1. Agent suffers damage as a result of
compensation
the execution of agency.
2. The agent is free from fault or
General rule: Agency is presumed to be for
negligence (Art. 1913, NCC).
compensation (Art. 1875, NCC).

Exception: Unless there is proof to the


Agents Lien:
contrary (Art. 1875, NCC).
1) Agent may retain in pledge the
things which are the object of the
II. Obligation to advance funds
agency until the principal effects the
reimbursement and pays:
Rule: Principal is obliged to advance funds
a) the advances made by the
necessary for the execution of the agency
agent; and
upon the request of the agent (Art. 1912, NCC).
b) the damages suffered by
the agent in executing the
When agent is obliged to advance funds:
agency (Art. 1914, NCC).
1. If there is a stipulation to that effect.
2. But notwithstanding such stipulation,
2) The enforcement of the lien is the
he cannot be obliged to do so if the
same as that required in foreclosing
principal is insolvent (Art. 1886, NCC).
a pledge.
Right of agent who made such advances:
If There Be Several Principals (Joint
1. He is entitled to be reimbursed,
Principals): If there be several principals
even if the business or undertaking
who have appointed the agent for a common
was not successful, provided the
transaction or undertaking, they shall be
agent was free from all fault (Art.
solidarily liable to the agent for all the
1912, 2nd par., NCC).
consequences of the agency (Art. 1915, NCC).
2. Such reimbursement shall include
interest on the sums advanced, from
the day on which the advance was
RIGHTS AND LIABILITIES AS BETWEEN
made (Art. 1912, 3rd par., NCC).
PRINCIPAL AND THIRD PERSON

34
but the nature and extent of the
A. For Contracts Contracted By authority of the agent.
Agent As Such (In Behalf Of
Principal) (2) And contract is beyond
the scope of agents authority:
(1) And contract is within
scope of agents authority: a) Principal is not
bound except when he ratifies it
a) Principal is bound. He must comply expressly or tacitly (Art. 1910, 2nd
will the obligations which the agent par., NCC). The contract is
may have contracted (Art. 1910, NCC). unenforceable (Art. 1317 and
b) Agent is not personally liable to third 1403[1], NCC).
person with whom he contracts,,
unless he expressly binds himself b) Exceptions:
(Art. 1897, NCC). Principal is bound
c) The cause of action of third person notwithstanding the fact that
is against the principal, unless the agent exceeded his authority ---
agent expressly binds himself.
1. If the limits
When agent deemed to have acted within of the agents authority is
scope of his authority as to third known only to the principal
persons: and agent and the party
with whom the agent
a) If authority is in writing --- contacted is not aware of
the limits of the powers
1. Act is deemed to have been granted by the principal (Art.
performed within the scope of 1898 and 1900, NCC).
the agents authority if the same 2. If the
is within the terms of the power principal allowed the agent
of attorney as written, even if to act as though the latter
the agent has in fact exceeded had full powers, in which
the limits of his authority case, principal is solidarily
according to an understanding liable with the agent (Art.
between the principal and the 1911, NCC).
agent (Art. 1900, NCC).
2. Private or secret orders and c) Agent is
instructions of the principal do personally liable to the person
not prejudice third persons who he contracted with if ---
have relied upon the written
power of attorney or instructions 1. He exceeds
shown them (Art. 1902, NCC). his authority, without giving
3. For this purpose, a third person such party sufficient notice
with whom the agent wishes to of his powers (Art. 1897, NCC).
contract on behalf of the 2. He exceeds
principal may require the his authority and he
presentation of the power of undertook to secure the
attorney or the instructions as principals ratification (Art.
regards the agency (Art. 1902, 1898, NCC).
NCC).

b) If authority is not in writing --- rule B. For Contracts Executed By Agent


is that every person dealing with an In His Own Name
assumed agent is put upon inquiry
and must discover upon his peril, if a) Principal has no
he would hold the principal liable, right of action against the
not only upon the fact of the agency person with whom the agent has

35
contracted, except when the Liability of Principal for Delict/Quasi-
contract involves things delict Committed by Agent: The principal
belonging to principal (Art. 1883, may be held liable if 2 conditions are present
NCC). ---
b) Such third person
likewise has no cause of action 1. Person sought to be held must
against the principal, except stand in the relation of principal to
when the contract involves the one committing the act; and
things belonging to principal (Art. 2. Act of the agent must have been
1883, NCC).
done within the scope of his
c) Agent is the one authority.
directly bound to the person
whom he contracted with,
except when the contract
MODES OF EXTINGUISHMENT OF
involves things belonging to
AGENCY
principal (Art. 1883, NCC).
d) The exception
.1 Revocation by principal
does not apply when the agent
.2 Withdrawal of the agent
acted beyond the scope of his
.3 Death, civil interdiction,
authority.
insanity or insolvency of the
e) If the principal
principal or of the agent
ratifies the contract or has
.4 Dissolution of the firm or
signified his willingness to ratify
corporation which entrusted or
the agents acts, the same
accepted the agency
becomes enforceable between
.5 Accomplishment of the
the parties and the third person
object or purpose of the agency
with whom the agent contacted
.6 Expiration of the period for
with cannot set up the fact the
which the agency was constituted
agent exceed his powers (Art. (Art. 1919, NCC).
1901, NCC).
.I Revocation of
agency by principal
DOUBLE SALE BY PRINCIPAL AND
AGENT
Revocable at will: The principal may
Situation: Two persons contract with regard revoke the agency at will, and compel the
to the same thing, one of them with the agent to return the document evidencing the
agent and the other with the principal, and agency (Art. 1920, NCC). When two or more
the two contracts are incompatible with each principals have granted a power of attorney
other. for a common transaction, any one of them
may revoke the same without the consent of
Whose contract is preferred: That of prior the others (Art. 1925, NCC).
date shall be preferred, without prejudice to
the provisions of Article 1544 on double sale Exceptions: The agency is not revocable at
(Art. 1916, NCC). will if ---
1. If a bilateral contract depends upon
Who is liable to the person whose it.
contracted is rejected: 2. If the agency is a means of fulfilling
1. If the has agent acted in good faith, an obligation already contracted.
the principal is liable. The agent is 3. if a partner is appointed manager of
not liable. partnership in the contract of
2. If the agent has acted in bad faith, partnership and his removal from
only the agent is liable for damages. the management is unjustifiable (Art.
The principal is not liable (Art. 1917, 1927, NCC).
NCC).

36
Manner of revocation: Either express or continuing the performance of the
implied (Art. 1920, NCC). There is implied agency without grave detriment to
revocation in the following --- himself (Art. 1928, NCC).

1. When a new agent is appointed for 2. If the withdrawal is for valid reason,
the same business or transaction agent must continue to act until
(Art. 1923, NCC). principal has had reasonable
2. When the principal directly manages opportunity to take necessary steps
the business entrusted to the agent, to meet the situation (Art. 1929, NCC).
dealing directly with third persons
(Art. 1924, NCC). .III Death of principal
3. When a special power of attorney is
granted to another, it revokes the Rule: Death of principal results in the
general power of attorney as extinguishment of agency (Art. 1919[3], NCC).
regards the special matter involved
in the general power (Art. 1926, NCC). Exceptions:
1. It agency has been
Necessity and sufficiency of notice of constituted in the common
revocation: interest of both principal and
agent.
a) Between principal and third 2. If agency has been
person --- constituted in the interest of
a third person who has
If Agent had general powers: accepted the stipulation in
1. Notice of revocation in a newspaper his favor (Art. 1930, NCC).
of general circulation is a sufficient
warning to third persons (Art. 1922, Obligation of agent upon extinguishment
NCC). of agency b y reason of death of
2. Without such notice, revocation principal: He must finish the business
does not prejudice third persons already begun on the death of the principal,
who acted in good faith and without should delay entail any danger (Art. 1884, 2nd
knowledge of the revocation (Art. par., NCC).
1922, NCC).
Acts done by agent prior to notice of
If Agency is for contracting with specified death of principal or of any other cause
persons: The specified persons are not which extinguishes agency: Considered
prejudiced by the revocation unless they valid and fully effective with respect to third
were given notice thereof (Art. 1921, NCC). persons who may have contracted with the
agent in good faith (Art. 1931, NCC).
b) Between principal and agent ---
Agent must be notified. TRUST
Definition: Trust is the legal relationship
.II Withdrawal by
between one person having an equitable
agent
ownership in property and another person
owning the legal title to such property, the
Manner: By giving due notice to the
equitable ownership of the former entitling
principal (Art. 1928, NCC).
him to the performance of certain duties and
the exercise of certain powers by the latter
Liabilities of agent incident to
(Heirs of Maximo Labanon v. Heirs of Constancio
withdrawal: Labanon, 530 SCRA 97; Vda. De Esconde v. CA, .R.
No. 103635, February 1, 1996, 253 SCRA 66).
1. If the principal suffers damage by
reason of withdrawal, agent is liable Persons involved in a trust:
for damages unless he based his
withdrawal upon the impossibility of

37
Trustor --- the one who establishes a Elements of Express Trust:
trust. 1. A trustor or settlor who executes the
instrument creating the trust.
Trustee --- the one in whom confidence 2. A trustee, who is the person
is repose as regards property for the expressly designated to carry out
benefit of another. the trust.
3. The trust res, consisting of duly
Beneficiary --- the one for whose identified and definite real
benefit the trust has been created. properties.
4. The cestui que trust, or beneficiaries
Kinds of Trusts: Trusts are either express whose identity must be clear (Canezo
or implied (Art. 1441, NCC). v. Rojas, 538 SCRA 242).

Express Trusts --- Those which are Rules on Express Trust:


created by the direct and positive acts of
the parties, by some writing or deed, or No particular words are required for
will, or by words evincing an intention to the creation of an express trust, it
create a trust (O Lao v. Co Cho Chit, 220 being sufficient that a trust is clearly
SCRA 656). intended (Art. 1444, NCC).

Implied Trust --- Those which, without Express trust concerning an


being express, are deducible from the immovable or any interest therein
nature of the transaction as matters of cannot be proved by parol evidence
intent, or which are superinduced on the (Art. 1443, NCC).
transaction by operation of law as
matters of equity, independently of the No trust shall fail because the
particular intention of the parties (O Lao v. trustee appointed declines the
Co Cho Chit, 220 SCRA 656). designation, unless the contrary
should appear in the instrument
Distinctions: constituting the trust (Art. 1445, NCC).
Express Trust Implied Trust Acceptance by the beneficiary is
Created by the Come into being by necessary. Nevertheless, if the trust
intention of the operation of law. imposes no onerous condition upon
trustor or of the the beneficiary, his acceptance shall
parties. be presumed, if there is no proof to
Express trust Implied trust in real the contrary (Art. 1446, NCC).
involving immovable property may be
or any interest may proved by oral The rule that a trustee cannot
not be proved by evidence (O Lao v. Co acquire by prescription the
parol evidence (Art. Cho Chit, supra.).
ownership of property entrusted to
1443, NCC) However, the proof
him applies squarely to express
should be as fully
trusts. The basis of the rule is that
convincing as if the
the possession of a trustee is not
acts giving rise to the
adverse. Not being adverse, he
trust obligation were
does not acquire by prescription the
proven by an
property held in trust. (Ramos v.
authentic document.
Ramos, 61 SCRA 284).
It cannot be
established upon
Acquisitive prescription may bar the
vague and
inconclusive proof action of the beneficiary against the
(Id.). trustee in an express trust for the
recovery of the property held in trust
where (a) the trustee has performed
unequivocal acts of repudiation

38
amounting to an ouster of the cestui
qui trust; (b) such positive acts of The action to The right to seek
repudiation have been made known recover property reconveyance based
to the cestui qui trust and (c) the held in trust is on constructive trust
evidence thereon is clear and imprescriptible as is subject to
conclusive (Ramos v. Ramos, supra.) long as the trustee extinctive
has not repudiated prescription (Ramos v.
the trust (Ramos v. Ramos, supra; Pilapil v.
2 Kinds of Implied Trusts: Ramos, supra.; O Lao v. Heirs of Maximino
Co Cho Chit, supra., Briones, supra., Sps.
Resulting trust --- It is a trust raised by Pilapil v. Heirs of Bejoc v. Cabreros, 464
implication of law and presumed always Maximino Briones, 514 SCRA 78).
to have been contemplated by the SCRA 699).
parties, the intention as to which is to be Examples are: Examples are:
found in the nature of their transaction, Art. 1448 Art. 1450
but not expressed in the deed or Art. 1449 Art. 1454
instrument of conveyance (Ramos v. Art. 1451 Art. 1455
Ramos, 61 SCRA 284). Art. 1452 Art, 1456
Art. 1453
Constructive trust --- It is a trust not
created by any words, either expressly or
impliedly evincing a direct intention to create
a trust, but by the construction of equity in Whether the trust is resulting or constructive,
order to satisfy the demands of justice. It its enforcement may be barred by laches
does not arise by agreement or intention but (Ramos v. Ramos, supra., cited in Pilapil v. Heirs of
by operation of law (Ramos v. Ramos, supra.). Maximino Briones, 514 SCRA 699).

Specific examples of constructive trust


under the Civil Code: Prescription of action based on
1. Art. 1450 constructive trust: In constructive implied
2. Art. 1454 trusts, prescription may supervene even if
3. Art. 1455; and the trustee does not repudiate the
4. Art. 1456, NCC. relationship. Necessarily, repudiation of the
said trust is not a condition precedent to the
running of the prescriptive period (Canezo v.
Resulting Trust Constructive Trust Roxas, supra.). An action for reconveyance
based on implied or constructive trust
Presumed always to Created by the prescribes in 10 years. This period is
have been construction of reckoned from the date of issuance of the
contemplated by the equity in order to transfer certificate of title which operates as
parties, the intention satisfy the demands constructive notice to the whole world
as to which can be of justice and (Rodrigo v. Ancilla, 492 SCRA 514).
found in the nature prevent unjust
of their transaction enrichment. They Repudiation of resulting trust: As
although not arise contrary to differentiated from constructive trusts, where
expressed in a deed intention against one the settled rule is that prescription may
or instrument of who, by fraud, supervene, in resulting trust, the rule of
conveyance (Canezo duress or abuse of imprescriptibility may apply for as long as
v. Rojas, supra.) confidence, obtains the trustee has not repudiated the trust (Heirs
or holds the legal of Candelaria v. Romero, 109 Phil. 500; cited in O Lao
right to property v. Co Cho Chit, supra.) . Once the resulting trust
which he ought not, is repudiated, however, it is converted into a
in equity and good constructive trust and is subject to
conscience, to hold prescription (O Lao v. Co Cho Chit, supra.).
(Lopez v. CA, 574 SCRA
26).

39
Requisites for repudiation of resulting
trust: A resulting trust is repudiated if the
following requisites concur:
1. The trustee has performed
unequivocal acts of repudiation
amounting to an ouster of the cestui
qui trust;
2. Such positive acts of repudiation
have been made known to the
cestui qui trust; and
3. The evidence thereon is clear and
convincing (Ramos v. Ramos, 61 SCRA
284).

40