NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION

Kenneth and King C. Hizon _________________________________________________________________________________________________________________

UNIVERSITY OF SANTO TOMAS

Faculty of Civil Law
BAR REVIEW

NOTES ON CIVIL LAW REVIEW II:

PARTNERSHIP, AGENCY, TRUSTS
LEASE AND PRESCRIPTION

TITLE IX
PARTNERSHIP NOTE: Persons who attempt but fail to form a corporation and who
carry on business under the corporate name occupy the position of
CHAPTER 1 partnership inter se. Such a relation does not necessarily exist
General Provisions however for ordinarily persons cannot be made to assume the
relation of partners as between themselves when their purpose is
Article 1767. By the contract of partnership two or more persons that no partnership shall exist. No de facto partnership was created
bind themselves to contribute money, property, or industry to a among the parties which would entitle the petitioner to a
common fund, with the intention of dividing the profits among reimbursement of the supposed losses of the proposed corporation.
themselves.
PARTNERSHIP BETWEEN HUSBAND AND WIFE: The better view is
Two or more persons may also form a partnership for the exercise that they can enter into a partnership, so long as it does not violate
of a profession. (1665a) the fundamental provisions on conjugal partnerships, and so long as
the partnership is not universal.
Q: What is a (Business) Partnership?
NATURE OF PARTNERSHIP, A MERE PRIVILEGE
A: It is a contract between 2 or more persons who bind themselves
to contribute money, property or industry to a common fund with The organization of a partnership is not a matter of absolute right
the intention of dividing the profits among themselves (Pineda, but a privilege which may be enjoyed only under such terms as the
2006). State may impose (Pineda, 2006).

Q: What is a Professional Partnership? NOTE: Before the NCC, there are 2 kinds of partnerships: (1) civil;
and (2) commercial or mercantile partnership. Now, they are
A: It is a contract where two or more persons who do not contribute governed by the NCC. There is no more distinctions between them
money or property may also form a partnership for the exercise of a (Pineda, 2006).
profession (Pineda, 2006).
KINDS OF PARTNERSHIPS (Pineda, 2006)
REQUISITES FOR A CONTRACT OF PARTNERSHIP
As to nature Commercial Organized for the pursuit of
1. Mutual contribution to a common stock business or trade
2. A joint interest in the profits Professional Organized for the exercise of
profession
NOTE: Without a common fund, there can be no partnership
(Pineda, 2006). As to With a fixed Organized for a specific period.
duration term Upon its expiration, it is
NOTE: The consent to contribute to a common fund cannot be dissolved unless continued by all
implied from the mere fact that a man and a woman lived together the partners or by some of them
in a state of concubinage (Art. 1830, 1785)
At will Organized without any definite
COMMERCIAL CREDIT MAY ALSO BE CONTRIBUTED: Provided that period; not formed for a specific
the notice thereof is given the debtor. However, political credit undertaking and is terminable at
cannot be contributed to the partnership. anytime by the agreement or
consent of the parties.
INTENT CONTROLLING: Although the fact that parties to an
agreement may refer to their relationship as one of a partnership is As to legality De jure One which has complied with all
a circumstance entitled to great weight in determining whether of its partnership the necessary requisites for its
partnership really exists, it is not conclusive. organization lawful establishment.
De facto One which has failed to observe
In determining whether or not a particular transaction constitutes a partnership the requisites for its lawful
partnership, their intention as disclosed by the entire transaction, establishment.
and as gathered from the facts and from the language employed by
them, as well as their conduct should be ascertained.
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
As to Real partnership One which really exists between Principal Its life does not depend on the existence of another
exercise and and among partners themselves contract unlike a mortgage which depends upon a
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its relation and also as to 3 persons. contract of loan
to third Partnership by Not really a partnership but is Onerous Requires consideration consisting in the contribution
persons estoppel deemed a partnership only in of money, property or industry
relation to transacting third Preparatory After its constitution, another contract essential in
persons. the accomplishment of its purposes may be entered
into by the partners
It arises from acts of Capable of It is endowed with legal personality unless it is an
misrepresentation which may be suit unlawful partnership. It can sue and be sued.
oral or written or by conduct. Profit It is for the common benefit or interest of the
oriented partners (Art. 1770); its purpose must be for profit
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BASIS: To protect 3 persons and not just for the common enjoyment of the
who have relied on the property, money, etc. or else it is one of co-
misrepresentation of the alleged ownership.
partners who are called partners
by estoppel. KINDS OF PARTNERSHIP UNDER THE NCC

As to public Open One whose existence is made AS TO Real partner One who is really a
perception partnership known to the public MEMBERSHIP contributing member of an
Secret One whose existence is not existing legal partnership like
partnership made known to the public a general, limited or
industrial partner
As to its Universal One which has for its object all Partner by One who is not really a
object the present property or all the estoppel or partner but represents
profits (Art. 1778 and 1780) quasi-partner himself as one. He is liable as
Particular One which has for its object a partner so that innocent
determinate things, their use or third persons who relied on
fruits or the exercise of s his representation shall not
profession or vocation or be prejudiced
specific undertaking (Art. 1783)
AS TO Continuing One who continues the
NATURE OF THE RELATIONSHIP BETWEEN PARTNERS CONTINUATION partner partnership business after
OF THE the dissolution of the
It is essentially fiduciary. They are required to exercise the highest BUSINESS partnership due to the
degree of good faith. Each is a confidential agent of the other. Thus, AFFAIRS AFTER reasons stated in Art. 1840
a partner cannot, to the detriment of the other apply to his own DISSOLUTION
benefit the results of the knowledge and information gained in the Discontinuing One who does not participate
character of a partner (Pineda, 2006). partner in the partnership business
after its dissolution
PRINCIPLE OF DELECTUS PERSONAE
AS TO VALUE OF Majority One whose contribution
This means that no one become member of the partnership without CONTRIBUTION partner represents the majority or
the consent of all partners (Pineda, 2006). controlling interest
Nominal One whose contribution
JURIDICAL RELATIONS ARISING FROM THE PARTNERSHIP partner represents only a minority
interest
1. Between and among the partners themselves;
2. Between partners and the firm; AS TO EXPOSURE Secret partner One who participates in the
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3. Between the firm and 3 persons who may have TO PUBLIC profits and losses of the firm
contracted with it; and PERCEPTION but is not publicly known as a
4. Between the partners and such third persons (Pineda, partner. He participates in
2006). the affairs of the firm but his
involvement is not ostensible
CHARACTERISTICS OF A CONTRACT OF PARTNERSHIP Silent partner One who does not take any
(Pineda, 2006). active part in the partnership
although he may be known
Fiduciary Based on trust and confidence to be a partner. However, he
Nominate It has a specific name shares in the profits and
Consensual Perfected by mere consent although in certain cases, losses
formalities are required for validity (Art. 1771) Ostensible One who publicly takes active
Bilateral or 2 or more persons must be involved in the contract partner part in the business of the
multilateral
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
firm and at the same time is
publicly known as a partner
Dormant One who does not take active
partner part in the partnership
business and is not publicly
known as a part.
AS TO NATURE Original One who is a member of the
OF MEMBERSHIP partner partnership from the time of
its commencement as a
juridical person
Incoming One who is not an original
partner member of the partnership.
He becomes a member
subsequent to the
establishment of the firm or
one who is to be admitted by
the consent of all the
members
AS TO STATE OF Surviving One who remains alive while
SURVIVORSHIP partner one of the partners dies or
one who continues to be in
the partnership after its
dissolution by reason of the
death of a partner
Deceased One who died while being a
partner member of the partnership.
He shares in the partnership
will be paid to his legal
representatives
AS TO THE Expelled One who is expelled from the
EFFECT OF partner partnership by the other
EXPULSION partner/s for a valid cause
Expelling Partner who caused the
partner expulsion of a partner for a
valid cause
AS TO THE Capitalist One who contributes capital
NATURE OF partner (money or property). He
CONTRIBUTION cannot engage in other
business which competes
with the business of the firm
unless there is a stipulation
to the contrary. He is liable
for the for the losses
Industrial One who does not contribute
partner capital but only his industry
or labor. He cannot engage in
any other business without
the express consent of the
other partners. His industry
or labor is supposed to be for
the firm alone
partner or persons only to the extent of
special partner his contribution. His liability
is limited to a fixed amount,
that is, only up to his capital
contribution unlike the
general partner
Capitalist- One who contributes both
industrial capital and industry
partner
AS TO Managing One who actively manages
MANAGEMENT partner the business or affairs of the
firm. He may be designated
in the articles or after the
constitution of the firm by
agreement of the partners
Silent partner One who does not participate
in the management of the
business or affairs of the firm
through he may be known as
a partner. He shares in the
profits and losses
Liquidating One who liquidates or winds
partner up the affairs of the firm
after its dissolution.
OTHER SPECIAL Subpartner One who associates with a
CLASSIFICATIONS real partner in connection
with the latter’s share in the
partnership, but he is not a
member of the said
partnership. A subpartner is
related only to the regular
partner but not to the
partnership itself. He may be
admitted only with the
consent of all the other
partners
Retiring One who withdraws or
partner retires from the partnership
Quasi-partners Those who represent
or partners by themselves as partners
estoppel although there is really no
organized partnership.
Nevertheless, they are bound
as partners in fact with
respect to third persons who
deal with them and who
relied on the former’s
representation
TEST OF EXISTECE OF PARTNERSHIP: What determines whether the
transaction between the parties constitutes a partnership is their
intention as manifested by the entire transaction, attendant facts,
language used and conduct of the parties (Pineda, 2006)

AS TO LIABILITY General One whose liability to third

partner or real persons extends to his
partner separate property when the
assets of the firm had been
exhausted
Limited One who is liable to third
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________

PARTNERSHIP v. CORPORATION (Pineda, 2006) PARTNERSHIP v. CO-OWNERSHIP (Pineda, 2006)

PARTNERSHIP CORPORATION PARTNERSHIP CO-OWNERSHIP

As to creation or establishment As to creation or establishment
By agreement of the parties By law or by incorporation under Created or established by It may be created without
the Corporation Code contract only whether expressly contract such as by law, other
As to commencement of legal personality or impliedly by conduct generating incidents like
It becomes a juridical person It becomes a juridical person confusion (Arts. 472, 473, 2170)
from the time the contract from the date of issuance of and succession (Art. 1078)
begins to exist Certificate of Registration by the As to Juridical personality
SEC It has a legal or juridical It has no legal or juridical
As to Lifetime personality from the time of personality
No time limit provided by law Not more than 50 years establishment
As to the power to bind As to lifetime
Partners, as a rule, are agents of It is the Board of Directors The law does not fix a time limit Term of co-ownership must not
the partnership. They can bind (Trustees) which binds the exceed 10 years
the partnership and their corporation. stockholders are As to effect of transfer of interest
partners not agents of the corporation Transferee cannot be a partner Co-owner can dispose of his
As to nationality as a juridical person without the consent of all the share in the property and the
It is a national of the country GR: It is a national of the partners transferee becomes a co-owner
where established country under whose laws it was without need of the consent of
incorporated except in time of the others
war where nationality of the As to purpose
controlling stockholders Intended for profit Intended for collective
prevails. The exception applies enjoyment
also in the acquisition of land, As to power to represent
natural resources and ownership GR: There is mutual power to GR: There is no mutual power to
or operation of public utilities. represent one another represent the co-owners except
As to extent of liability in ejectment cases as plaintiffs
Partners are liable with their Incorporators are liable only for As to effect of death
private property beyond the the amount of their subscribed It dissolves the partnership It does not dissolve the
amount of their contributions capital stocks, unless they act partnership
except limited partners unless with fraud
there is stipulation PARTNERSHIP v. AGENCY
As to management
When management is not Power to do business and An agent does not act for himself but only for his principal. However,
agreed upon, every partner is an management of its affairs are a partner is both a principal and an agent. He is a principal for his
agent of the partnership vested in the board of directors own interests but an agent for the partnership and for other
As to suit for mismanagement partners (Pineda, 2006).
A partner may sue as a A stockholder cannot sue in his
mismanaging partner name members of the BOD who PARTNERSHIP v. JOINT ADVENTURE
mismanage the corporation. The
suit must be in the name of the The outstanding difference is that a joint adventure relates to a
Corporaiton single transaction, although it may comprehend a business to be
As to Transferrability of Interest continued over several years, while a partnership relates to a
Transferee does not become a Transfer makes the transferee a general and continuing business of a particular kind. (Pineda, 2006)
partner unless all other partners stockholder. Consent of others is
give their consent not required CORPORATION CANNOT ENTER INTO A PARTNERSHIP: A
As to causes of dissolution corporation cannot enter into a partnership with another person or
a. Death Said causes are not grounds for entity. The reason is that if it be so allowed, it can be bound by
b. Insanity termination of the corporation persons who do not constitute the BOD. Corporations are bound
c. Retirement only by their BOD. However, they may engage in joint ventures with
d. Insolvency others (Pineda, 2006).
e. Civil interdiction
f. Termination of period Article 1768. The partnership has a juridical personality separate
or purpose of the and distinct from that of each of the partners, even in case of
partnership failure to comply with the requirements of article 1772, first
g. Expulsion paragraph. (n)

JURIDICAL PERSONALITY OF PARTNERSHIP: In case of suit against a

partnership, a partner, being represented by the firm, has no right to
appear or be made a party as an individual separate from the firm.
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
If a partnership commits an act of insolvency, it may be adjudged
insolvent although its members may not be insolvent.
It may sue and be sued in its own name.
CASES FILED AGAINST PARTNERSHIP WILL NOT BE DISMISSED BY
REASON OF DEATH OF A PARTNER: A case will not be dismissed
because of the death of a partner, where a partnership possessing a
personality distinct from any of the partners (Pineda, 2006).
CONTRACT OF PARTNERSHIP IS CONSENSUAL; IF ENTERED ORALLY,
IT IS AS GOOD AS A WRITTEN ONE: Partnership exists as long as its
requisites are present:
1. Two or more persons bind themselves to contribute
money, property or industry to a common fund
2. Intention on the part of the partners to divide the profits
among themselves (Pineda, 2006).
NOTE: It may be constituted in any form; a public instrument is
necessary only when immovable property or real rights are
contributed thereto.
Article 1769. In determining whether a partnership exists, these
rules shall apply:
(1) Except as provided by article 1825, persons who are
not partners as to each other are not partners as to third
persons;
(2) Co-ownership or co-possession does not of itself
establish a partnership, whether such-co-owners or co-
possessors do or do not share any profits made by the
use of the property;
(3) The sharing of gross returns does not of itself
establish a partnership, whether or not the persons
sharing them have a joint or common right or interest in
any property from which the returns are derived;
(4) The receipt by a person of a share of the profits of a
business is prima facie evidence that he is a partner in
the business, but no such inference shall be drawn if such
profits were received in payment:
(a) As a debt by installments or otherwise;
(b) As wages of an employee or rent to a
landlord;
(c) As an annuity to a widow or representative
of a deceased partner;
(d) As interest on a loan, though the amount of
payment vary with the profits of the business;
(e) As the consideration for the sale of a
goodwill of a business or other property by
installments or otherwise. (n)
JOINT OWNERSHIP OF PROPERTY: Joint ownership of business or
property, does not itself create a partnership, notwithstanding that
profits are shared.
SHARING IN PROFITS: The presumption of partnership arising from a
participation in profits is prima facie, and may be rebutted or
outweighed by other circumstances, such as evidence that the
participation was referable to some other reasons such as
compensation for services rendered as agent, broker, salesman or
otherwise.
Article 1770. A partnership must have a lawful object or purpose,
and must be established for the common benefit or interest of the
partners.
When an unlawful partnership is dissolved by a judicial decree, the
profits shall be confiscated in favor of the State, without prejudice
to the provisions of the Penal Code governing the confiscation of
the instruments and effects of a crime. (1666a)
ILLEGAL PURPOSE SEPARABLE: When a partnership is sought to be
formed for several purposes, and only one of the purposes of the
partnership is illegal, the partnership will be sustained if the illegal
object can be separated from legal objects of the partnership.
JURIDICAL DISSOLUTION OF UNLAWFUL PARTNERSHIP: No
confiscation can be lawfully effected without due process of law. an
action is therefore necessary to give the partners the opportunity to
defend themselves (Pineda, 2006).
COVERAGE OF CONFISCATION: Article 1770 authorizes only the
confiscation of profits but not the contributions of the partners
which constitute the capital of the partnership (Pineda, 2006).
RIGHT TO DEMAND CAPITAL: Only the fruits of an unlawful
partnership are confiscated. The partners may recover the capital
contributed by them because the action for that purpose does not
have to be based on the existence of the partnership.
Article 1771. A partnership may be constituted in any form, except
where immovable property or real rights are contributed thereto,
in which case a public instrument shall be necessary. (1667a)
FORM OF CONTRACT: An oral contract of partnership is perfectly
valid and binding between the parties, if the contribution of the
partners is not in the form of immovables or rights in immovables,
even if the amount of the capital contributed is in excess of P500.00.
NOTE: If personal property or money is contributed, the partnership
is valid even if it is orally agreed or organized (Pineda, 2006)
REQUISITE TO BIND THIRD PERSONS: Where immovable property
had been constituted and the inventory properly made, to bind third
persons, the contract of partnership must be registered with the
Registry of Property where the immovable is located.
Article 1772. Every contract of partnership having a capital of three
thousand pesos or more, in money or property, shall appear in a
public instrument, which must be recorded in the Office of the
Securities and Exchange Commission.
Failure to comply with the requirements of the preceding
paragraph shall not affect the liability of the partnership and the
members thereof to third persons. (n)
EFFECT OF FAILURE TO REGISTER: Partnerships with a capital of less
than P3,000.00 because the article requires only those with capital
of P3,000.00 or more to register with the SEC.
But the mere failure to register the contract of partnership does not
invalidate the same as among the partners, so long as the contract
has the essential requisites, because the main purpose of
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registration is to give notice to the 3 parties, and it can be assumed
that the members know the contents of the contract.
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
Their failure to register does not affect the liability of the
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partnership and the members to 3 persons.
Also, the partnership still has juridical personality even if it fails to
register.
Article 1773. A contract of partnership is void, whenever
immovable property is contributed thereto, if an inventory of said
property is not made, signed by the parties, and attached to the
public instrument. (1668a)
EFFECT OF OMISSION: The execution of the public instrument would
be useless if there is no inventory of the property contributed,
because without its designation and description, they cannot be
subject to inscription in the Registry of Property, and their
contribution cannot prejudice third persons.
The contract is declared void by law when no such inventory is
made.
ORAL CONTRACT OF PARTNERSHIP: An oral contract of partnership
is void if immovable property is contributed to the partnership.
Being void, the partners cannot invoke Article 1357 to compel the
others to execute the articles of partnership (Pineda, 2006):
Article 1357. If the law requires a document or
other special form, as in the acts and contracts
enumerated in the following article, the
contracting parties may compel each other to
observe that form, once the contract has been
perfected. This right may be exercised
simultaneously with the action upon the
contract. (1279a)
Article 1774. Any immovable property or an interest therein may
be acquired in the partnership name. Title so acquired can be
conveyed only in the partnership name. (n)
ACQUISITION UNDET PARTNERSHIP NAME: All property of
whatever nature contributed to the partnership becomes the
property of such partnership. Such property acquired by the firm
may be conveyed only in the partnership name (Pineda, 2006).
NOTE: The present article will not apply if the firm has no name. In
case of conveyance, it must be in the name of the partner/s (Pineda,
2006).
IMPLICATION OF REFERENCE TO IMMOVABLE: The article expressly
refers to immovable property. Impliedly, personal property need not
be conveyed in the name of the partnership (Pineda, 2006).
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RECONCILIATION BETWEEN THE 2 SENTENCE OF ART. 1774 &
ART. 1819: “Real property” should be considered strictly
“immovable property”. Art. 1819 (pars. 3, 4&5) recognizes the
possibility that title to real property may be in the name of the
partner, or some of the partners or all of the partners. To reconcile
Art. 1819 with the present Article, the rule to follow should be: If the
“immovable property” is in the name of the firm, it must be
alienated in the name of the firm; if it is in the name of the partner
or partners, it must be alienated in the name of the said partner or
partners. In both, title is passed to the buyer or grantee. However, if
the immovable property is in the name of the firm but conveyed by
a partner or some in his or their names, only the equitable interest is
passed to the buyer or grantee who acted in good faith (Pineda,
2006).
Article 1775. Associations and societies, whose articles are kept
secret among the members, and wherein any one of the members
may contract in his own name with third persons, shall have no
juridical personality, and shall be governed by the provisions
relating to co-ownership. (1669)
ASSOCIATIONS AND SOCIETIES, WHOSE ARTICLES ARE KEPT
SECRET: Where the articles of such groups are kept secret among
the members and where anyone of them may contract in his own
name with third persons, the same shall have no legal personality to
sue. The law on co-ownership and not partnership shall govern.
(Pineda, 2006).
While they cannot sue for lack of judicial personality, they may,
however, be sued by third persons under the “common name” they
use (Pineda, 2006).
Article 1776. As to its object, a partnership is either universal or
particular.
As regards the liability of the partners, a partnership may be
general or limited. (1671a)
UNIVERSAL v. PARTICULAR PARTNERSHIP
As to object
Universal One which has for its object all the present property
or all the profits (Art. 1778 and 1780)
Particular One which has for its object determinate things,
their use or fruits or the exercise of s profession or
vocation or specific undertaking (Art. 1783)
As to liability of partners
General One where all the partners are general partners.
partnership General partners are liable even with their
individual and separate properties to partnership
creditors after the assets of the firm had been
exhausted
Limited One where there is one or more general partners,
partnership and one or more limited partners. A limited partner
is one whose liability is limited only to the extent of
his contribution to the partnership (Pineda, 2006)
Article 1777. A universal partnership may refer to all the present
property or to all the profits. (1672)
CLASSIFICATION OF UNIVERSAL PARTNERSHIP:
1. Universal partnership of all the present property of the
partners
2. Universal partnership of all the profits derived by the
partners in their business (Pineda, 2006).
Article 1778. A partnership of all present property is that in which
the partners contribute all the property which actually belongs to
them to a common fund, with the intention of dividing the same
among themselves, as well as all the profits which they may
acquire therewith. (1673)
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
Article 1779. In a universal partnership of all present property, the
property which belonged to each of the partners at the time of the
constitution of the partnership, becomes the common property of
all the partners, as well as all the profits which they may acquire
therewith.
A stipulation for the common enjoyment of any other profits may
also be made; but the property which the partners may acquire
subsequently by inheritance, legacy, or donation cannot be
included in such stipulation, except the fruits thereof. (1674a)
Reasons why subsequently acquired inheritance, legacy, devise, or
donation cannot be included in the stipulation in universal
partnership of present property:
1. They are not present property. They are future property at
the time of the constitution of the partnership
2. Things to be contributed to the partnership must be
determinate, known and certain
3. A universal partnership of all present property constitutes
a donation of property but future property cannot be
donated.
Article 1780. A universal partnership of profits comprises all that
the partners may acquire by their industry or work during the
existence of the partnership.
Movable or immovable property which each of the partners may
possess at the time of the celebration of the contract shall
continue to pertain exclusively to each, only the usufruct passing
to the partnership. (1675)
PARTNERS’ PRIVATE PROPERTY: It might happen in partnerships
that no one of the partners would have any private property, and
that if they did, the usufruct would be inconsiderable. If they have,
such continues to be his private property, only the usufruct passing
to the partnership.
UNIVERSAL PARTNERSHIP OF ALL PRESENT PROPERTY v.
UNIVERSAL PARTNERSHIP OF ALL PROFITS
UNIV. PARTNERSHIP OF ALL UNIV. PARTNERSHIP OF ALL
PRESENT PROPERTY PROFITS
Coverage
All the present property actually Property which the partners
belonging to the partners are owned at the time of the
contributed to the partnership celebration of the contract shall
which become common continue to pertain to them.
property of all the partners and Only the usufruct (use and
the partnership fruits) shall become common
property.
Profits
Only the profits derived from All profits acquired through the
the property contributed “industry or work” of the
common property but not partners become common
profits arising from other property (Pineda, 2006).
property of the partners. The
latter profits, however, may by
stipulation be considered as
common property for the
enjoyment of all
Article 1781. Articles of universal partnership, entered into without
specification of its nature, only constitute a universal partnership
of profits. (1676)
Ratio: There is less obligation in universal partnership of profits
considering that the properties owned by the partners are retained
by them in naked ownership. To consider the partnership as one of
the universal partnership of present property would be onerous or
more burdensome (Pineda, 2006).
Article 1782. Persons who are prohibited from giving each other
any donation or advantage cannot enter into universal
partnership. (1677)
PERSONS DISQUALIFIED FROM ENTERING INTO UNIVERSAL
PARTNERSHIP:
1. Legally married spouses (however, spouses may enter into
a particular partnership like the exercise of a profession or
vocation
2. Common law spouses
3. Parties guilty of adultery or concubinage
4. Criminals convicted for the same offense in consideration
of the same
5. A person and a public officer (or his wife, descemdants,
ascendants) by reason of his office (Pineda, 2006).
PARTICULAR PARTNERSHIPS-one composed of entirely industrial
partners, as in the case of 2 or more lawyers associating themselves
in the practice of law.
When 2 individuals have not formed a general relation of
partnership but they have been jointly associated in various real
estate deals, it must be considered as a particular partnership for
each deal. When one of them makes a transaction while the other is
away, without using any funds of the latter, and without the latter
having agreed to be a party to such deal, it cannot be said that this
particular deal is for their joint account but must be held only for the
account of the individual who executes it.
Article 1783. A particular partnership has for its object determinate
things, their use or fruits, or a specific undertaking, or the exercise
of a profession or vocation. (1678)
Examples:
1. Determinate thing- to buy and sell a particular lot and
house
2. Profession- practice of law by lawyers; practice of
medicine by doctors. Hence, there is a partnership of
industrial partners
3. Specific undertaking- to paint a building or develop a
subdivision
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
CHAPTER 2
Obligations of the Partners
SECTION 1
Obligations of the Partners Among Themselves
Article 1784. A partnership begins from the moment of the
execution of the contract, unless it is otherwise stipulated. (1679)
COMMENCEMENT OF EXISTENCE 0F A PARTNERSHIP- Being a
consensual contract, it exists from the declaration of the celebration
of the contract even if no contributions had been made yet as long
as the elements of a contract are present (Pineda, 2006).
AGREEMENT TO FORM PARTNERSHIP: A partnership in fact cannot
be predicated on an agreement to enter into a co-partnership at a
future day unless it is shown that such agreement was actually
consummated. So long as an agreement remains executor, the
partnership is inchoate.
Article 1785. When a partnership for a fixed term or particular
undertaking is continued after the termination of such term or
particular undertaking without any express agreement, the rights
and duties of the partners remain the same as they were at such
termination, so far as is consistent with a partnership at will.
A continuation of the business by the partners or such of them as
habitually acted therein during the term, without any settlement
or liquidation of the partnership affairs, is prima facie evidence of a
continuation of the partnership. (n)
NOTE: Dissolution is not termination because there is still a winding
up of the partnership affairs authorized by law. After the partnership
affairs have wound up, the partnership is said to have terminated
(Pineda, 2006).
PARTNERSHIP AT WILL- The actual continuation of the affairs of the
partnership, after the termination of its period or accomplishment
of its purposes, by the habitual managers is prima facie evidence of
its continuation as such partnership. The resulting partnership as
continued is called “partnership at will” because the existence
depends upon the will of the partners or on the will of any one of
them (Pineda, 2006).
Article 1786. Every partner is a debtor of the partnership for
whatever he may have promised to contribute thereto.
He shall also be bound for warranty in case of eviction with regard
to specific and determinate things which he may have contributed
to the partnership, in the same cases and in the same manner as
the vendor is bound with respect to the vendee. He shall also be
liable for the fruits thereof from the time they should have been
delivered, without the need of any demand. (1681a)
DUTIES OF CONTRIBUTING PARTNERS:
1. To deliver what he has undertook to contribute
2. To answer for his breach of warranty
3. To answer for the undelivered or delayed fruits (Pineda,
2006)
WARRANTIES OF A PARTNER
1. Warranty against eviction
2. Warranty against hidden defects
CONTRIBUTION OF CREDIT: The partner warrants only its existence;
he does not warrant the solvency of the debtor unless expressly so
provided
REASON FOR WARRANTY: The obligation of warranty against
eviction is the necessary consequence of the nature of the
partnership which is an onerous contact like a contract of sale. A
partner shall not contribute something that he does not own at the
time of the delivery. When the thing is delivered to the firm, the
latter shall from the time of delivery have the right to enjoy the legal
peaceful possession of the thing (Pineda, 2006).
NOTE: There is still warranty if the thing delivered only for the “use”
of the firm (Pineda, 2006).
REMEDY FOR BREACH:
1. In case of eviction, the proper remedy is to recover the
proper indemnity from the partner
2. And, if the partners can prove that they would not have
entered into the partnership contract, had it not been for
the contribution which has been lost through the eviction,
they may ask for the dissolution of the partnership
RULE WHEN CREDIT IS CONTRIBUTED: If what is contributed is
credit, the contributing partner will only warrant its existence but
not the solvency of the debtor unless there is a contrary stipulation
(Pineda, 2006).
Article 1787. When the capital or a part thereof which a partner is
bound to contribute consists of goods, their appraisal must be
made in the manner prescribed in the contract of partnership, and
in the absence of stipulation, it shall be made by experts chosen by
the partners, and according to current prices, the subsequent
changes thereof being for account of the partnership. (n)
RULE WHEN CONTRIBUTION IS IN GOODS: When a partner
contributes goods as capital, the amount thereof must be
determined by proper appraisal of the value thereof at the time of
contribution (Pineda, 2006).
If there is a mode of appraisal agreed upon, same must be complied
with. If there is none, same must be determined by experts chosen
by the partners (Pineda, 2006.
SUBSEQUENT CHANGES IN VALUE: Any subsequent increase or
decrease in value of the property contributed will be for the account
of the firm (Pineda, 2006.
Article 1788. A partner who has undertaken to contribute a sum of
money and fails to do so becomes a debtor for the interest and
damages from the time he should have complied with his
obligation.
The same rule applies to any amount he may have taken from the
partnership coffers, and his liability shall begin from the time he
converted the amount to his own use. (1682)
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
EFFECT OF FAILURE TO PAY CONTRIBUTION: Such will make the
partner indebted to it, with interest and any damages occasioned
thereby, but does not entitle the other partner or partner to
demand rescission of the partnership contract.
Ex: A partner in a construction venture who failed to stand by his
commitment to the partnership will be ordered to reimburse to his
co-partner whatever the latter invested and spent for the projects of
the venture.
INDEMNIFICATION FOR DAMAGES: Includes:
1. Losses suffered
2. Profits the obligee failed to obtain
ACCOUNTING FOR PARTNERSHIP FUNDS: Where a partner, without
any authority, takes and use the money of the partnership in the
purchase and acquisition of property which he later registers in his
own name, he will be required, in a suit for the dissolution of the
partnership, to account to his partners for the money which he used
in such purchase.
Article 1789. An industrial partner cannot engage in business for
himself, unless the partnership expressly permits him to do so; and
if he should do so, the capitalist partners may either exclude him
from the firm or avail themselves of the benefits which he may
have obtained in violation of this provision, with a right to
damages in either case. (n)
PARTNERSHIP OWNS SERVICES: The industry partner does not
contribute money or property but only his industry. The partnership,
therefore, is considered the owner of his services.
The industrial partner himself cannot exploit his own services for his
profit without the express permission of the partnership.
Ratio for the prohibition: To prevent any conflict of interest between
the industrial partner and the partnership, and to insure faithful
compliance by said partner with his prestation. Hence, during the
existence of the partnership, the industrial partner must devote his
full time to such partnership.
Exception: The prohibition will not apply if the other partners give
the industrial partner express permission to do so (Pineda, 2006).
TOLENTINO: Nature of the prohibition: It is absolute and extends to
all business outside of the partnership, even if the partnership is
engaged in only one trade, because if the industrial partner is
allowed to engage in the other business, the partnership will be
prejudiced because of the reduction of the time or the effort which
he will have for it.
SANCTION AGAINST INDUSTRIAL PARTNER WHO VIOLATES THE
PROHIBITION:
1. Exclude the industrial partner from the partnership with
damages
2. Recover the benefits which the industrial partner has
gained in the business where he had engaged himself
without the express consent of the firm or of the partners,
with damages (Pineda, 2006).
Article 1790. Unless there is a stipulation to the contrary, the
partners shall contribute equal shares to the capital of the
partnership. (n)
Article 1791. If there is no agreement to the contrary, in case of an
imminent loss of the business of the partnership, any partner who
refuses to contribute an additional share to the capital, except an
industrial partner, to save the venture, shall he obliged to sell his
interest to the other partners. (n)
GR: CAPITALIST PARTNERS NOT OBLIGED TO CONTRIBUTE
ADDITIONAL CAPITAL IN CASE OF IMMINENT LOSS OF THE
BUISNESS
XPN: Unless there is an agreement to the contract. In such case, he
is obliged to make additional contribution in accordance with the
agreement (Pineda, 2006).
NOTE: General partners, in case of impending loss of the business
are also obliged to make additional contribution to save the
business. If he unjustly refuses, he must sell his interest in the
partnership to the other partners
Ratio: His lack of cooperation and interest should not be rewarded
(Pineda, 2006).
Article 1792. If a partner authorized to manage collects a
demandable sum which was owed to him in his own name, from a
person who owed the partnership another sum also demandable,
the sum thus collected shall be applied to the two credits in
proportion to their amounts, even though he may have given a
receipt for his own credit only; but should he have given it for the
account of the partnership credit, the amount shall be fully applied
to the latter.
The provisions of this article are understood to be without
prejudice to the right granted to the other debtor by article 1252,
but only if the personal credit of the partner should be more
onerous to him. (1684)
APPLICATION OF THE ARTICLE: Requisites:
1. There are 2 separate credits which are both demandable
2. One credit is owing to the partnership
3. Another credit is owing to the collecting partner who must
be a managing partner of the firm (Pineda, 2006).
NOTE: If the collecting partner is not a managing partner, the law
will not apply (Pineda, 2006).
Article 1793. A partner who has received, in whole or in part, his
share of a partnership credit, when the other partners have not
collected theirs, shall be obliged, if the debtor should thereafter
become insolvent, to bring to the partnership capital what he
received even though he may have given receipt for his share only.
(1685a)
Ratio: When the debtor becomes insolvent, the debt in favor of the
partnership becomes a bad debt and is a loss which must be borne
by all the partners, including the partner who has already received
his share in the partnership credit, because they have a community
of interest and a proportionate share in profits and losses.
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
Article 1794. Every partner is responsible to the partnership for
damages suffered by it through his fault, and he cannot
compensate them with the profits and benefits which he may have
earned for the partnership by his industry. However, the courts
may equitably lessen this responsibility if through the partner's
extraordinary efforts in other activities of the partnership, unusual
profits have been realized. (1686a)
NOTE: Damages caused by the faulting partner cannot be offset or
compensated with the profits and benefits which he may have
earned for the partnership by his industry.
Compensation cannot apply because a partner is both a debtor in his
duty to secure profits and benefits for the partnership and also in his
duty to observe diligence in the performance of his obligations as a
partner. In compensation, it is required that 2 persons in their own
rights are creditors and debtors of each other (Pineda, 2006).
Necessity of Liquidation
For the purpose of adjudicating to a partner damages alleged to
have been suffered by reason of the supposed fraudulent
management of the partnership business by another partner, it is
first necessary that a liquidation of the business be made so that the
profits and the losses may be known and the causes of the latter and
the responsibility of the managing partner, as well as the damages
which each partner may have suffered, may be determined.
Claim against Deceased Partner
Any claim against a deceased partner or his estate, for a sum of
money due the partnership by reason of any misappropriation of its
fund by him, or for damages resulting from his wrongful acts as
manager, should be prosecuted against his estate in administration
as provided for in the Rules of Court.
Article 1795. The risk of specific and determinate things, which are
not fungible, contributed to the partnership so that only their use
and fruits may be for the common benefit, shall be borne by the
partner who owns them.
If the things contribute are fungible, or cannot be kept without
deteriorating, or if they were contributed to be sold, the risk shall
be borne by the partnership. In the absence of stipulation, the risk
of the things brought and appraised in the inventory, shall also be
borne by the partnership, and in such case the claim shall be
limited to the value at which they were appraised. (1687)
NOTE: The owner bears the risk. The rule on res perit domino
applies to determine who bears the risk of loss of property held by
the partnership, except as to fungible things and those under
appraisal.
Although the law refers to appraisal in the inventory, the same
solution applies even when the appraisal is separate from the
inventory.
Article 1796. The partnership shall be responsible to every partner
for the amounts he may have disbursed on behalf of the
partnership and for the corresponding interest, from the time the
expense are made; it shall also answer to each partner for the
obligations he may have contracted in good faith in the interest of
the partnership business, and for risks in consequence of its
management. (1688a)
Reimbursement
The managing partner may be allowed funds borrowed or advanced,
and necessary for the completion of the work, within the scope of
the business and expressly provided for by the agreement among
partners.
Example: Where the land tax levied on real property owned by the
partnership is paid by a partner out of his private funds, such
partner is entitled to be reimbursed therefor.
NOTE: The article does not apply where no money other than that
contributed as capital is involved.
NOTE: Even in the case of failure of the business entered into by the
partnership with third persons, reimbursement must be made to the
paying partner, as long as he is not at fault. The paying partner
should not be liable personally because he is a mere agent of the
partnership (Pineda, 2006).
PAYING PARTNER HAS NO RIGHT OF RETENTION: There is a
difference between an ordinary agent and a paying partner. The
former, if not refunded, may exercise the right of retention of the
things which are the objects of the agency. The paying partner is not
given such authority (Pineda, 2006).
Article 1797. The losses and profits shall be distributed in
conformity with the agreement. If only the share of each partner in
the profits has been agreed upon, the share of each in the losses
shall be in the same proportion.
In the absence of stipulation, the share of each partner in the
profits and losses shall be in proportion to what he may have
contributed, but the industrial partner shall not be liable for the
losses. As for the profits, the industrial partner shall receive such
share as may be just and equitable under the circumstances. If
besides his services he has contributed capital, he shall also receive
a share in the profits in proportion to his capital. (1689a)
SCOPE: It relates exclusively to the settlement of partnership affairs
among the partners themselves and has nothing to do with the
liability of the partners to third persons.
Profits and losses: Where there is an agreement as to the manner of
sharing profits, the losses will be divided in the same proportion.
The parties can validly stipulate a distribution of losses different
from that of the profits, so long as nobody is excluded from the
profits or the losses.
NOTE: An industrial partner cannot claim for himself of any part of
the property contributed; he can share only in the profits and
benefits in conformity with this article, if the contrary is not
stipulated.
Hibberd v. Estate of McElroy (25 Phil 164)
Where a partner has paid certain expenses which represent a loss to
the partnership and there is no income from the partnership to
reimburse him, he has a right to look to the estate of his other
partner for such reimbursement.
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
LIABILITY OF INDUSTRIAL PARTNER FOR LOSSES: Although under
the provisions the industrial shall not be liable for the losses, he may
nevertheless be held liable, if by stipulation, he is specially made to
participate in the losses (People v. Tenorio, 53 O.G. 8577).
“PROFITS” REFER TO NET PROFITS- The profits distributable to the
partners should be reduced by the amounts of the income tax
assessed against partnership (Pineda, 2006).
Article 1798. If the partners have agreed to in trust to a third
person the designation of the share of each one in the profits and
losses, such designation may be impugned only when it is
manifestly inequitable. In no case may a partner who has begun to
execute the decision of the third person, or who has not impugned
the same within a period of three months from the time he had
knowledge thereof, complain of such decision.
The designation of losses and profits cannot be intrusted to one of
the partners. (1690)
Ratio: A partner will have conflict of interest (Pineda, 2006).
Article 1799. A stipulation which excludes one or more partners
from any share in the profits or losses is void. (1691)
Prohibited stipulation: The essence of partnership is that the
partners share in the profits and losses. The law does not prohibit a
stipulation in which the distribution of the losses is not in proportion
to that of the profits; what is prohibited is the exclusion of one or
more partners from the profits or losses.
Effect of such stipulation: The profits and losses will be distributed
in accordance with par. 2 of Art. 1797:
xx
In the absence of stipulation, the share of each
partner in the profits and losses shall be in
proportion to what he may have contributed,
but the industrial partner shall not be liable for
the losses. As for the profits, the industrial
partner shall receive such share as may be just
and equitable under the circumstances. If
besides his services he has contributed capital,
he shall also receive a share in the profits in
proportion to his capital. (1689a)
xx
NOTE: French jurisprudence and writers consider that a violation of
the present article nullifies, not only the particular stipulation of the
profits and losses, but the entire contract of partnership. This
conclusion is maintained by analogy to obligations based on illicit
condition, which annuls the obligation dependent on it.
There is, however, no reason why a stipulation to exempt the
industrial partner from losses should be void.
NOTE: A stipulation exempting the industrial partner from losses is
valid because it is just an affirmation of the law. The prohibition
applies only to capitalist partners (Pineda, 2006).
Article 1800. The partner who has been appointed manager in the
articles of partnership may execute all acts of administration
despite the opposition of his partners, unless he should act in bad
faith; and his power is irrevocable without just or lawful cause. The
vote of the partners representing the controlling interest shall be
necessary for such revocation of power.
A power granted after the partnership has been constituted may
be revoked at any time. (1692a)
POWERS OF MANAGING PARTNER
A managing partner can be presumed to have all the incidental
powers to carry out the object of the partnership in the transaction
of business subject to the exception, however, that when the
powers are specifically restricted, he cannot exercise the powers
expressly denied him.
When the articles of association do not specify the powers of a
managing partner, he has the powers of a general agent, and even
more; and when the object of the company is determined, the
manager has all the powers necessary for the attainment of such
object.
NOTE: Power of managing partner is generally irrevocable. The
power granted after the partnership had been already constituted
may be revoked at any time and for any cause. It can be reovoked:
1. Upon showing of just and lawful cause
2. Upon the vote of the partners representing the controlling
interest (Pineda, 2006).
THE POWER GRANTED AFTER CONSTITUTION OF PARTNERSHIP IS
REVOCABLE AT ANY TIME. It is a simple contract of agency. It may
be revoked any time by the partners representing the controlling
interest (Pineda, 2006).
Q: Is the managing partner entitled to compensation for his
services as such?
A: It depends. If there is an agreement stipulating that he shall
receive compensation, he shall be so entitled to the compensation
agreed upon for his services as managing partner. The details of the
compensation will be fixed in the agreement. If there is no
agreement, the managing partner, as a rule, is not entitled to
compensation. He is expected to render free service to the
partnership for the common benefit of all partners (Pineda, 2006).
Article 1801. If two or more partners have been intrusted with the
management of the partnership without specification of their
respective duties, or without a stipulation that one of them shall
not act without the consent of all the others, each one may
separately execute all acts of administration, but if any of them
should oppose the acts of the others, the decision of the majority
shall prevail. In case of a tie, the matter shall be decided by the
partners owning the controlling interest. (1693a)
REQUISITES:
1. Two or more partners are appointed managing partners
2. In their appointment papers, there is no specification of
their respective duties
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
3. There is no stipulation that one of them shall not act
without the unanimous consent of all the other partners
(Pineda, 2006).
NOTE: If there is a designation of the respective duties of the
appointed managing partners, the article finds no application
(Pineda, 2006).
SOLIDARY MANAGEMENT
See Art. 1803
OPPOSITION
Generally, each manager may execute any acts of administration
without asking for the consent of the other managers.
Each manager, however, has the right to object to any act or
operation before it is celebrated. Such opposition by one partner to
the projected act by another is sufficient to prevent it; and if the
latter, ignoring such objection, goes ahead and executes the acts, it
shall be void, not only as among the members but also to third
persons, who had knowledge, or who could have known, of such
opposition.
NOTE: It will be valid with respect to the third person who
contracted with a partner, if such third person was not informed of
the opposition, and the contract is one within the scope of the
administration of the partnership.
Ratio: The partner contracting is an agent of the partnership, and
within the scope of his authority, his contract with an innocent third
person binds the principal.
Time for the opposition: It must be made before the particular act
of administration has become effective.
TIE: In case of tie in the votes, then the controversy shall be decided
by the partners owning the controlling interest. This is a new
provision in the Code. Note that it is only in case of a tie or deadlock
that the partner owning the controlling interest will decide in the
controversy (Pineda, 2006).
Article 1802. In case it should have been stipulated that none of
the managing partners shall act without the consent of the others,
the concurrence of all shall be necessary for the validity of the acts,
and the absence or disability of any one of them cannot be alleged,
unless there is imminent danger of grave or irreparable injury to
the partnership. (1694)
JOINT MANAGEMENT
The obligation to secure the consent of the other partner rests upon
the partner entering into the contract. It is not required to verify
whether the partner entering into the contract. It is not imposed
upon third person who enters into the contract and who is not
required to verify whether the partner entering into the contract has
previously obtained the consent of the other. It is presumed that
such consent has been given, unless the contrary has been
previously manifested to the third person.
NOTE: But even if the contract entered into by one partner is made,
not only without the consent of the other but even against his will, if
the third person acted in good faith and the transaction refers to
matters within the business of the partnership, the contract cannot
be annulled, without prejudice to the liability of the guilty partner ot
his co-partner.
Ratio: The necessity of protecting third person from fraud and
deceit.
Application of the requirement of previous approval by the other
partner: It only refers to the execution of formal contracts in writing,
and not to routine transactions, such as ordinary purchases and
sales for a firm engaged in the business if buying and selling
merchandise of all kinds, naturally come within the scope of the
general authority of the manager of a business.
Article 1803. When the manner of management has not been
agreed upon, the following rules shall be observed:
(1) All the partners shall be considered agents and
whatever any one of them may do alone shall bind the
partnership, without prejudice to the provisions of article
1801.
(2) None of the partners may, without the consent of the
others, make any important alteration in the immovable
property of the partnership, even if it may be useful to
the partnership. But if the refusal of consent by the other
partners is manifestly prejudicial to the interest of the
partnership, the court's intervention may be sought.
(1695a)
NOTE: The article applies only where the articles of partnership
made no provision for the management of the business of the firm
(Pineda, 2006).
PARTNERS ARE PARTNERSHIP AGENTS: When the articles of
partnership make no provision for the management of the
partnership business, one partner is empowered to contract in the
name of the partnership, and under such circumstances, all the
partners are considered as agents of the partnership.
ACTS REQUIRING UNANIMITY: For acts of disposition or any
modification of the partnership articles, unanimous consent is
required; even a majority will not suffice.
Example: A partner cannot validly sell or convey the partnership
business without the consent of all the other partners forming the
partnership.
JUDICIAL INTERVENTION, WHEN PROPER: When an important
alteration of the property is necessary and the unanimous consent
cannot be obtained, resort to the court may be pursued to secure
the total consent, in order to avoid an impending prejudice to the
partnership (Pineda, 2006).
Article 1804. Every partner may associate another person with him
in his share, but the associate shall not be admitted into the
partnership without the consent of all the other partners, even if
the partner having an associate should be a manager. (1696)
SUBPARTNERSHIP: Any partner may form a partnership with
another person with respect to his share. Their association is called
subpartnership. A subpartnership is a sort of partnership within an
existing partnership separate and distinct from the original or main
partnership (Pineda, 2006).
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
NOTE: The terms of the subpartnership are immaterial to the
original partnership as such terms are mere internal arrangements
between the partner and his subpartner (Pineda, 2006).
Article 1805. The partnership books shall be kept, subject to any
agreement between the partners, at the principal place of business
of the partnership, and every partner shall at any reasonable hour
have access to and may inspect and copy any of them. (n)
Keeping books in place of business
This article refers to a going partnership, and on dissolution, in the
absence of other agreement, express or implied, the books to all the
partners but no one partner is obliged to continue the place of
business to preserve the books for the benefit of the others, nor is
there a duty on the part of the purchaser of goodwill and business of
a firm to store the books so that the former partners may inspect
them.
RIGHT TO INSPECT
GR: Each partner should have free access to the partnership books
for the purpose of inspecting them
XPN: Equity will intervene to prevent one partner from keeping or
concealing the books
“Reasonable Hours”- means at reasonable hours on business days
throughout the year; and not merely during some arbitrary period fo
a few days chosen by the managers.
PLACE WHERE THE BOOKS SHOULD BE KEPT: The books shall be
placed and kept in a place agreed upon by the partners. In the
absence of any agreement, the books shall be kept at the principal
place of business of the firm whereat each partner may come, have
access, inspect or copy entries in the books for valid purposes
(Pineda, 2006).
LACK OF BOOKS: Absence of any formal books of the partnership
does not affect the validity of the contract of partnership nor its
contracts
Article 1806. Partners shall render on demand true and full
information of all things affecting the partnership to any partner or
the legal representative of any deceased partner or of any partner
under legal disability. (n)
DUTY TO MAKE DISCLOSURE
Good faith not only requires that a partner should not make any
false concealment to his partner, but also that he should abstain
from all concealment.
Article 1807. Every partner must account to the partnership for any
benefit, and hold as trustee for it any profits derived by him
without the consent of the other partners from any transaction
connected with the formation, conduct, or liquidation of the
partnership or from any use by him of its property. (n)
Relation of Partners: Partners are required to exhibit towards each
other the highest degree of good faith. The relation between the
partners is essentially fiduciary, each are confidential agent of the
other.
NOTE: The partners cannot derive a secret profit from partnership
transactions unknown to the others.
Duration of the fiduciary relation: No fiduciary relation exists
between persons negotiating for the formation of a partnership
contract. Such fiduciary relation exists only during the existence of
the partnership.
It ends at the termination of the partnership. Termination is the
stage when all partnership affairs are wound up or completed. It is
different from dissolution (Pineda, 2006)
Article 1808. The capitalist partners cannot engage for their own
account in any operation which is of the kind of business in which
the partnership is engaged, unless there is a stipulation to the
contrary.
Any capitalist partner violating this prohibition shall bring to the
common funds any profits accruing to him from his transactions,
and shall personally bear all the losses. (n)
NOTE: A capitalist partner cannot engage in the business for his own
account or benefit in a business which is similar to the business of
the partnership (Pineda, 2006).
XPN TO THE PROHIBITION: The other partners may agree to
stipulate that the capitalist partners may engage in the same
business as that of the partnership if it is perceived that no
destructive competition will arise such as when the place of
operation is far away from the sphere of influence of the
partnership, or when the business will enhance healthy competition
with the business of the partnership (Pineda, 2006).
ACQUISITION OF REALTY: No prohibition on any of the partners,
even though an active member in the partnership, from acquiring
realty, on his own private account, and the acquisition of realty does
not give the other partners interest therein.
Article 1809. Any partner shall have the right to a formal account
as to partnership affairs:
(1) If he is wrongfully excluded from the partnership
business or possession of its property by his co-partners;
(2) If the right exists under the terms of any agreement;
(3) As provided by article 1807;
(4) Whenever other circumstances render it just and
reasonable. (n)
RIGHT TO FORMAL ACCOUNT
GR: A partner is not entitled to a formal account
XPN: Dissolution
NOTE: There is no reason why they should constantly render him
accounts in the formal sense of the word. When, however, he is
excluded from the business or the possession of partnership
property, without any express agreement authorizing such
exclusion, he should have the right to demand a formal account
from his partners, without necessarily requiring him to dissolve the
partnership.
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
The right to demand an accounting exists as long as the partnership
exists.
Effect of approval of account: The approval of the last and final
statement of accounts precludes any right on the part of the
complaining partners to a further liquidation, unless the latter can
show there was fraud, deceit, error or mistake in said approval.
Q: Is there a duty to account for acquisition of earnings and
property after termination of the partnership?
A: It depends. If the earnings and acquisitions of a partner are
obtained from transactions unrelated to the partnership affairs or
business, there is no duty to account. Otherwise, he has no account.
Thus, it is a recognized principle that a former partner’s duty to
share profits with his former co-partner may extend to earnings and
acquisitions accruing after the termination of the partnership
(Pineda, 2006)
SECTION 2
Property Rights of a Partner
Article 1810. The property rights of a partner are:
(1) His rights in specific partnership property;
(2) His interest in the partnership; and
(3) His right to participate in the management (n)
PROPERTY RIGHTS: The property rights of a partner are those
enumerated under this article. They constitute property being
susceptible of appropriation or exercise by the owner. To distinguish
these rights from others, they are referred to as principal rights.
PRINCIPAL RIGHTS:
1. Right to demand reimbursement for amounts he advanced
to the partnership and to indemnity for the burdens
arising from risks in management (Art. 1796)
2. Right to have access and to inspect partnership books (Art.
1805)
3. Right to demand true and full information of all things
affecting the partnership affairs (Art. 1806)
4. Right to demand a formal account of partnership affairs
under the circumstances in Art. 1809
5. Right to dissolve the partnership under certain conditions
(Pineda, 2006)
Extent of property right: A partnership has 3 distinct interests
arising from his partnership:
1. His co-ownership in the specific property of the
partnership
2. His interest in the partnership as such
3. His right to participate in the management
PARTNERSHIP CAPITAL v. PARTNERSHIP PROPERTY
PARTNERSHIP CAPITAL PARTNERSHIP PROPERTY
Susceptibility to change in value
Its value is constant. It does not Its value varies from time to
change. It is not affected by time in accordance with the
fluctuations in the value of the fluctuations of the market value
property of the partnership assets
Extent
It includes only actual It includes not only the original
contributed and promised to the capital contributed but also all
partnership property subsequently acquired
on account of the partnership
(Pineda, 2006).
Article 1811. A partner is co-owner with his partners of specific
partnership property.
The incidents of this co-ownership are such that:
(1) A partner, subject to the provisions of this Title and to
any agreement between the partners, has an equal right
with his partners to possess specific partnership property
for partnership purposes; but he has no right to possess
such property for any other purpose without the consent
of his partners;
(2) A partner's right in specific partnership property is not
assignable except in connection with the assignment of
rights of all the partners in the same property;
(3) A partner's right in specific partnership property is not
subject to attachment or execution, except on a claim
against the partnership. When partnership property is
attached for a partnership debt the partners, or any of
them, or the representatives of a deceased partner,
cannot claim any right under the homestead or
exemption laws;
(4) A partner's right in specific partnership property is not
subject to legal support under article 291. (n)
PARTNER’S INTEREST IN ASSETS
A partner has no individual property in any specific assets of the
firm, but each partner’s interest in partnership property is his share
in the surplus after partnership debts are paid and the partnership
accounts have been settled.
NOTE: The interest of one partner in the assets of a partnership
does not entitle him to any particular portion of such assets, but
merely confers upon him a right to an accounting with other
members of the partnership, and when affairs of the partnership are
settled, such partner shall receive the share to which he is entitled.
A partner, however, subject to agreement between the partners,
has an equal right with his partners to possess specific partnership
property for partnership purposes, but has no right to possess such
property for his personal or other purposes without the other
partners’ consent.
Transfer of rights: The right of a partner as a co-owner in specific
partnership property is not separately assignable or subject to
attachment and execution. This peculiarity of tenancy in partnership
is a necessary consequence of the partnership relation.
Rationale: This is intended to prevent interference by outsiders in
partnership affairs and to protect the right of other partners and
partnership creditors to have partnership assets applied to firm
debts (Pineda, 2006)
Example: If A and B are partners and A attempts to assign all his
right in some partnership property, to C, and the law recognizes the
possibility of such a transfer C, would pro tanto become a partner
with B; for the rights of A in the chattel are to possess the chattel for
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
a partnership purpose. But partnership is a voluntary relation. B
cannot have a partner thrust upon him by A without B’s consent.
Hence, a creditor of one of the partners cannot be forced into the
partnership by involuntary assignment thru attachment and
execution.
Article 1812. A partner's interest in the partnership is his share of
the profits and surplus. (n)
INTEREST OF PARTNER
The interest of a partner in partnership property and business is the
net balance found to be due him after payment of partnership dents
and adjustment of partnership accounts between himself and his co-
partner.
Such interest is “property” and is susceptible of being seized under
legal process, or of being sold and conveyed, as well as of being
made liable for his separate debts.
The partner’s share in the undistributed profits and surplus
constitutes his interest in the partnership. Profit refers to excess of
revenues over expenses for a transaction; sometimes used
synonymously with net income for the period. It is gain realized
from business or investment over and above expenditures. While
surplus refers to remains of a fund appropriated for a particular
purpose (Pineda, 2006).
Loss, on the other hand, is the difference that results when the
liabilities of the partnership are more than the assets (Pineda, 2006).
NOTE: Unlike the partner’s interest in specific partnership property,
the partner’s interest in the partnership may be assigned, attached
and subject to payment of legal support (Pineda, 2006).
NOTE: The interest of a partner in an ongoing partnership business
where there has been no settlement of his account is not a debt due
to the partner by the partnership and, therefore, is not subject to
attachment or execution on a judgment recovered against the
individual partner.
Article 1813. A conveyance by a partner of his whole interest in the
partnership does not of itself dissolve the partnership, or, as
against the other partners in the absence of agreement, entitle the
assignee, during the continuance of the partnership, to interfere in
the management or administration of the partnership business or
affairs, or to require any information or account of partnership
transactions, or to inspect the partnership books; but it merely
entitles the assignee to receive in accordance with his contract the
profits to which the assigning partner would otherwise be entitled.
However, in case of fraud in the management of the partnership,
the assignee may avail himself of the usual remedies.
In case of a dissolution of the partnership, the assignee is entitled
to receive his assignor's interest and may require an account from
the date only of the last account agreed to by all the partners. (n)
Effect of assignment of Interest
The assignment or conveyance of a partner’s interest in the
partnership does not act of itself operate as a dissolution of the
partnership, in the absence of any showing of an intent that it
should operate; but the remaining partners may refuse to recognize
the right of the assignee to join in the conduct of the business, and
make such refusal a ground for dissolution.
RIGHTS OF ASSIGNEE: The transfer by a partner of his partnership
interest does not make the assignee of such interests a partner in
the firm, nor entitle the assignee to interfere in the management of
the partnership business or to receive anything except the
assignee’s profits.
The assignment does not purport to transfer an interest in the
partnership, but only a future contingent right to a portion of the
ultimate residue as the assignor may become entitled to receive by
virtue of his proportionate interest in the capital.
In case of dissolution of the partnership, the assignee is entitled to
receive his assignor’s interest and may require an account from the
date only of the last account agreed to buy all the partners (Pineda,
2006).
OTHER RIGHTS OF ASSIGNEE OR CONVEYANCE:
1. To receive the profits accruing to the assigning partner as
per contract
2. To avail himself of the ordinary remedies provided by law
in the event of fraud in the management of the
partnership
3. To demand an accounting of partnership affairs, but only
in case the partnership is dissolved, and such account shall
cover the period from the date only of the last account
agreed to by all the partners (Pineda, 2006).
Article 1814. Without prejudice to the preferred rights of
partnership creditors under article 1827, on due application to a
competent court by any judgment creditor of a partner, the court
which entered the judgment, or any other court, may charge the
interest of the debtor partner with payment of the unsatisfied
amount of such judgment debt with interest thereon; and may
then or later appoint a receiver of his share of the profits, and of
any other money due or to fall due to him in respect of the
partnership, and make all other orders, directions, accounts and
inquiries which the debtor partner might have made, or which the
circumstances of the case may require.
The interest charged may be redeemed at any time before
foreclosure, or in case of a sale being directed by the court, may be
purchased without thereby causing a dissolution:
(1) With separate property, by any one or more of the
partners; or
(2) With partnership property, by any one or more of the
partners with the consent of all the partners whose
interests are not so charged or sold.
Nothing in this Title shall be held to deprive a partner of his right, if
any, under the exemption laws, as regards his interest in the
partnership. (n)
Enforcement of Judgment
The proper method of reaching a judgment debtor’s interest in a
partnership is by applying for a charging order, and for the
appointment of a receiver under this article rather than by attaching
any particular partnership property.
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
POWERS OF RECEIVER
1. He is entitled to any relief necessary to conserve the
partnership assets for partnership purposes and
particularly to a decree nullifying unlawful efforts of a
partner to assign or encumber his interest in specific
partnership property
2. He may be authorized to enforce any personal liability of
partners for firm debts because such liability constitutes
partnership assets.
SECTION 3
Obligations of the Partners with Regard to Third Persons
Article 1815. Every partnership shall operate under a firm name,
which may or may not include the name of one or more of the
partners.
Those who, not being members of the partnership, include their
names in the firm name, shall be subject to the liability of a
partner. (n)
CHANGE OF FIRM NAME
Where the partners of a general partnership doing business under
the firm name of “Sharruf &Co.” obtained insurance policies issued
to said firm, but later the firm name was changed to “Sharruf &
Eskenazi” which are the names of the same and only partners of the
firm “Sharruf &Co.” continuing the same business, it was held that
the new firm retained the rights of the former firm under the same
policies, and therefore, had juridical personality to sue.
FIRM- Implies a partnership of 2 or more persons who bind
themselves to contribute money, property, or industry to a common
fund, with the intention of dividing the profits among themselves. It
may be formed for the exercise of a profession or vocation. The
word “firm” is also used to refer to the name, style or title under
which the company or concern transacts its business (Pineda, 2006).
Article 1816. All partners, including industrial ones, shall be liable
pro rata with all their property and after all the partnership assets
have been exhausted, for the contracts which may be entered into
in the name and for the account of the partnership, under its
signature and by a person authorized to act for the partnership.
However, any partner may enter into a separate obligation to
perform a partnership contract. (n)
Against whom action filed: In order to enforce the liability of the
partners for partnership debts and obligations, both the partnership
and the separate partners may be joined in the same action, but the
private property of the latter cannot be taken in payment of the
partnership debt until the common property of the concern is
exhausted. Where the partnership has no visible assets, the partners
individually must respond for its debts.
NOTE: A withdrawing partner is not liable for debts and obligations
of the partnership after he has ceased to be a member of the
partnership and has only the position of a creditor unless the
withdrawal was with intent to defraud existing creditors, in which
case, he is still liable as a partner.
Industrial Partner also Liable: An industrial partner is liable to the
same extent and in the same way as a capitalist partner for the
debts and obligations of the partnership (although under Art. 1797,
industrial partners shall not be liable for loss).
When he has paid such debts out of his private property during the
life of the partnership, then, when its affairs are settled, he is
entitled to credit for the amount so paid, and if it results that there
is not enough property in the partnership, then the capitalist
partners must pay him.
NOTE: The liability of the partners for the partnership debts is pro
rata, if their contributions are unequal. Pro rata means in proportion
or ratably, or a division according to share, interest, or liability of
each (Pineda, 2006).
PARTNER MAY ACT HIS OWN NAME: A partner may enter into a
separate obligation to perform a partnership contract. He is then
acting in his own name for the benefit of the partnership.
Consequently, he is the only one bound for his own acts (Pineda,
2006).
Article 1817. Any stipulation against the liability laid down in the
preceding article shall be void, except as among the partners. (n)
GR: Any stipulation by and among the partners contradicting the pro
rata liability of partners provided in Art. 1816 is void.
XPN: Such stipulation is valid by and among the partners
themselves.
Article 1818. Every partner is an agent of the partnership for the
purpose of its business, and the act of every partner, including the
execution in the partnership name of any instrument, for
apparently carrying on in the usual way the business of the
partnership of which he is a member binds the partnership, unless
the partner so acting has in fact no authority to act for the
partnership in the particular matter, and the person with whom he
is dealing has knowledge of the fact that he has no such authority.
An act of a partner which is not apparently for the carrying on of
business of the partnership in the usual way does not bind the
partnership unless authorized by the other partners.
Except when authorized by the other partners or unless they have
abandoned the business, one or more but less than all the partners
have no authority to:
(1) Assign the partnership property in trust for creditors
or on the assignee's promise to pay the debts of the
partnership;
(2) Dispose of the good-will of the business;
(3) Do any other act which would make it impossible to
carry on the ordinary business of a partnership;
(4) Confess a judgment;
(5) Enter into a compromise concerning a partnership
claim or liability;
(6) Submit a partnership claim or liability to arbitration;
(7) Renounce a claim of the partnership.
No act of a partner in contravention of a restriction on authority
shall bind the partnership to persons having knowledge of the
restriction. (n)
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
AUTHORITY OF PARTNER
Where the express and avowed purpose of the partnership is to buy
and sell real estate, the immovables acquired form part of the stock-
in-trade and thus within the ordinary powers of the partner.
RATIFICATION OF UNAUTHORIZED ACT
The principle of agency that one who accepts or retains benefits of
unauthorized acts of agents, with knowledge of material facts
surrounding the transaction, will be deemed to have ratified those
acts will be applicable to a question of ratification of unauthorized
acts of partmer.
LAW ON PARTNERSHIP IS A BRANCH OF THE LAW ON AGENCY:
There is more than mutual agency among the partners. They are not
agents of one another but they are also of the partnership. Each
partner is acting as principal on his own behalf and as agent for his
co-partners.
2 KINDS OF ACTS OF A PARTNER CONTEMPLATED IN THE ARTICLE:
1. Acts which apparently are for the carrying of the business
of the partnership
2. Acts which do not apparently for carrying on the business
of the partnership in the usual way (Pineda, 2006).
“USUAL WAY”- The term “usual way” means it is an ordinary activity
for the particular partnership or similar partnership. Example, a
partnership engaged in real estate is usually involved in the sale and
purchase of lands and buildings.
Article 1819. Where title to real property is in the partnership
name, any partner may convey title to such property by a
conveyance executed in the partnership name; but the partnership
may recover such property unless the partner's act binds the
partnership under the provisions of the first paragraph of article
1818, or unless such property has been conveyed by the grantee or
a person claiming through such grantee to a holder for value
without knowledge that the partner, in making the conveyance,
has exceeded his authority.
Where title to real property is in the name of the partnership, a
conveyance executed by a partner, in his own name, passes the
equitable interest of the partnership, provided the act is one
within the authority of the partner under the provisions of the first
paragraph of article 1818.
Where title to real property is in the name of one or more but not
all the partners, and the record does not disclose the right of the
partnership, the partners in whose name the title stands may
convey title to such property, but the partnership may recover
such property if the partners' act does not bind the partnership
under the provisions of the first paragraph of article 1818, unless
the purchaser or his assignee, is a holder for value, without
knowledge.
Where the title to real property is in the name of one or more or all
the partners, or in a third person in trust for the partnership, a
conveyance executed by a partner in the partnership name, or in
his own name, passes the equitable interest of the partnership,
provided the act is one within the authority of the partner under
the provisions of the first paragraph of article 1818.
Where the title to real property is in the name of all the partners a
conveyance executed by all the partners passes all their rights in
such property. (n)
CONVEYANCE INCLUDE MORTGAGE
The right to mortgage is included in the right to convey.
APPLICABILITY OF THE ARTICLE: The article applies only to real
property which refers to immovable like land or building because of
the use of the words “title to real property, equitable interest and
conveyances” (Pineda, 2006).
EQUITABLE INTEREST- An equitable interest or title is one
cognizable in equity alone; it is a right or interest in property which
is imperfect, uncognizable, and unenforceable at law, but which
under well-recognized equitable principles should be and is
convertible into a legal right or title (Pineda, 2006).
PARTNERSHIP, NOT ITS OFFICERS OR AGENTS SHOULD BE
IMPLEADED IN LITIGATION INVOLVING PROPERTY REGISTERED IN
ITS NAME: The partners cannot be held liable for the obligations of
the partnership unless it is shown that the legal fiction of a different
juridical personality is being used for fraudulent, unfair or illegal
purposes (Pineda, 2006).
Article 1820. An admission or representation made by any partner
concerning partnership affairs within the scope of his authority in
accordance with this Title is evidence against the partnership. (n)
ADMISSIONS AFTER DISSOLUTION
Partnership is not bound by admissions or statements made by a
former partner after the latter has withdrawn from the partnership
as to what took place during the period of partnership.
REQUISITES TO MAKE A PARTNER’S ADMISSION OR
REPRESENTATION ADMISSIBLE AGAINST THE PARTNERSHIP:
1. The admission or representation must be connected with
partnership affairs
2. It is within the scope of the partner’s authority
3. It is made during the existence of the firm (Pineda, 2006).
ADMISSION AFTER DISSOLUTION: An admission made by a partner
after the dissolution of the firm will be binding upon the partnership
only if connected with the winding up affairs of the firm (Pineda,
2006).
Article 1821. Notice to any partner of any matter relating to
partnership affairs, and the knowledge of the partner acting in the
particular matter, acquired while a partner or then present to his
mind, and the knowledge of any other partner who reasonably
could and should have communicated it to the acting partner,
operate as notice to or knowledge of the partnership, except in the
case of fraud on the partnership, committed by or with the consent
of that partner. (n)
NOTICE
When notice is given to the partner while he is a partner, the effect
is the same as if notice was had by all the partners. Where the
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
knowledge or notice has been received by one before he became a
partner, and his partners are ignorant of this, and he is not the
partner acting in the particular matter, there is no doubt that there
has been neither knowledge of nor notice to the partnership. Yet, if
the partner acting in the particular matter acquired knowledge
before he became a partner, and the knowledge is then present in
his mind, and partnership should be charged with knowledge.
Article 1822. Where, by any wrongful act or omission of any
partner acting in the ordinary course of the business of the
partnership or with the authority of his co-partners, loss or injury is
caused to any person, not being a partner in the partnership, or
any penalty is incurred, the partnership is liable therefor to the
same extent as the partner so acting or omitting to act. (n)
LIABILITY FOR WRONGFUL ACTS
Under the principle of mutual agency, the partnership, or every
member of a partnership, is liable for torts committed by one of the
members acting in the scope of the firm business, although they do
not participate in, ratify or have knowledge of such torts. Such
liability is not dependent on the personal wrong of the individual
member of the partnership against which the liability is asserted.
The test of liability: whether the wrong was committed in behalf of
and within the reasonable scope of the business of the partnership.
If it was so, the partners are liable as joint tort-feasors.
LIABILITY FOR WANTON OR WILLFUL ACT
GR: If the injury results from a wanton or willful act of one of the
parties committed outside the agency or common business, then the
person doing the act and causing the injury is alone responsible.
XPN: If the act was authorized by the members of the partnership or
subsequently ratified by them.
REQUISITES FOR APPLICATION OF THE LAW:
1. Partner committed a wrongful act or omission (crime or
quasi-delict)
2. The guilty partner is acting in the ordinary course of the
business of the partnership or with authority of the co-
partners even if the act is not connected with the
partnership business
3. Loss or injury is suffered by third person as a result of the
wrongful act or omission
4. The aggrieved third person is not a partner in the firm
5. There is no pre-existing contract between the partnership
and the third person; if there is, but it was grossly and
deliberately violated, this itself constitutes quasi-delict
(Pineda, 2006).
DEFENSES AGAINST THE SUIT: To be exercised from liability, the
partnership and the co-partner/s must prove that the erring partner
committed the complained act while acting for purposes of his own
and not for the benefit of the partnership, or acted not in the course
of the business of the partnership (Pineda, 2006).
REMEDY OF INNOCENT PARTNERS: The innocent partners who were
made liable solidary with the offending partner is to seek recovery
against the latter for what they have paid with interest (Pineda,
2006).
Article 1823. The partnership is bound to make good the loss:
(1) Where one partner acting within the scope of his
apparent authority receives money or property of a third
person and misapplies it; and
(2) Where the partnership in the course of its business
receives money or property of a third person and the
money or property so received is misapplied by any
partner while it is in the custody of the partnership. (n)
Article 1824. All partners are liable solidarily with the partnership
for everything chargeable to the partnership under articles 1822
and 1823. (n)
NATURE OF LIABILITY
The liability of a partner for the wrongful act of another partner is
analogous to that of a principal for the acts of his agent since each
partner acts both as principal and as agent of the other as to acts
done within the apparent scope of business and purpose of the
partnership and for its benefit.
SOLIDARY LIABILITY: All partners are liable jointly and severally for
everything chargeable to the partnership by reason of the partner’s
wrongful act or breach of trust wherein a third person is adversely
affected.
While the liability of the partners are merely joint in transactions
entered into by the partnership, a third person who transacted with
said partnership can hold the partners solidarily for the whole
obligation if the case involves loss or injury caused to any person
not a partner in the partnership, and misapplication of money or
property of a third person received by a partner or the partnership.
RATIONALE: The law protects the latter who in good faith relied
upon the authority of a partner, whether such authority is real or
apparent.
ART. 1824 IS AN EXCEPTION TO ARTICLE 1816: Under Art. 1816, the
liability of the partners, including industrial partners, is pro rata.
However, under Art. 1824, the liability of all partners is declared to
be solidary under Articles 1822 and 1823. The reason being that the
violation of these two articles constitutes torts, hence, the solidary
liability of the partners (Pineda, 2006).
Article 1825. When a person, by words spoken or written or by
conduct, represents himself, or consents to another representing
him to anyone, as a partner in an existing partnership or with one
or more persons not actual partners, he is liable to any such
persons to whom such representation has been made, who has, on
the faith of such representation, given credit to the actual or
apparent partnership, and if he has made such representation or
consented to its being made in a public manner he is liable to such
person, whether the representation has or has not been made or
communicated to such person so giving credit by or with the
knowledge of the apparent partner making the representation or
consenting to its being made:
(1) When a partnership liability results, he is liable as
though he were an actual member of the partnership;
(2) When no partnership liability results, he is liable pro
rata with the other persons, if any, so consenting to the
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
contract or representation as to incur liability, otherwise
separately.
When a person has been thus represented to be a partner in an
existing partnership, or with one or more persons not actual
partners, he is an agent of the persons consenting to such
representation to bind them to the same extent and in the same
manner as though he were a partner in fact, with respect to
persons who rely upon the representation. When all the members
of the existing partnership consent to the representation, a
partnership act or obligation results; but in all other cases it is the
joint act or obligation of the person acting and the persons
consenting to the representation. (n)
PERSONS PROTECTED
The article is for the benefit of third persons who are misled by the
representation holding out an individual as a partner, and who act to
their detriment; but it does not create a partnership as between the
alleged partners or as respect third persons who have not in facr
been misled.
Where a former partner entered into an agreement with the
remaining partners to continue the business, and third parties were
misled into believing that they are dealing with the same old
partnership, that partner who has withdrawn is still liable for
partnership liabilities.
DOCTRINE OF PARTNERSHIP BY ESTOPPEL
A partnership, not duly organized, which has been recognized as
such in its dealings with third persons shall be considered as
“partnership by estoppel” as far as third persons are concerned.
ESTOPPEL- It may be said that estoppel is a bar which precludes a
person from denying or asserting anything contrary to that which
has been, in contemplation of law, established as the truth either by
acts of judicial or legislative officers, or by his own deed or
representations either express or implied (Pineda, 2006).
Mirasol v. Municipality of Tabaco
The admission or representation must be plain and clear. Estoppel
cannot be sustained on doubtful or ambiguous inferences (Pineda,
2006).
ESTOPPEL OF THIRD PERSONS: He who enters or contract with a
partnership as such, is stopped in a suit by the partnership against
him growing out of such contract, to claim that the partnership was
no properly organized (Pineda, 2006).
Requisites to make a person a partner by estoppel:
1. The person must represent himself as a partner of an
existing partnership, when in fact he is not a partner or
consents to another representing him to anyone as a
partner in an existing partnership or with one or more
persons not actual partners
2. Third person relied on the said misrepresentation not
being aware of the deception
3. On the faith of such representation, the third person has
given credit to the actual or apparent partnership
4. The alleged partner cannot disallow liability by claiming he
is not actually a partner. He is estopped from making a
disclaimer. He is bound as a “partner”, although, he is
actually not a partner (Pineda, 2006).
NO REAL PARTNERSHIP IS CREATED BY ESTOPPEL: Art. 1825 does
not create or establish a real partnership as between the alleged
partners. It must be stressed, a real partnership is formed by virtue
of a contract, express or implied, between the parties. It is only
insofar as third persons are involved and for the purpose of giving
them protection that the equitable principle of estoppel is
recognized in the law (Pineda, 2006).
PROOF OF ESTOPPEL: Whoever alleges the existence of a partner or
partnership by estoppels has the burden of proof. The existence of
the misrepresentation and the innocent reliance on it must be
established (Pineda, 2006).
Article 1826. A person admitted as a partner into an existing
partnership is liable for all the obligations of the partnership
arising before his admission as though he had been a partner when
such obligations were incurred, except that this liability shall be
satisfied only out of partnership property, unless there is a
stipulation to the contrary. (n)
NOTE: The article eliminates the difficulty which arises when a new
partner is admitted without liquidation of firm debts. This is
illustrated by the case where all the property of the existing
partnership is taken over, without notice of any break in the conduct
of business, by the new partnership and the incoming partner;
thereby depriving the existing partnership of all its property.
In this case, both the existing and subsequent creditors may believe
it is one and the same partnership. Existing and subsequent CRs
have equal rights as against partnership property and the separate
property of all the previous existing members of the partnership,
while only the subsequent CRs have the rights against the separate
estate of the newly admitted partner.
Article 1840. In the following cases creditors of the dissolved
partnership are also creditors of the person or partnership
continuing the business:
(1) When any new partner is admitted into an existing
partnership, or when any partner retires and assigns (or
the representative of the deceased partner assigns) his
rights in partnership property to two or more of the
partners, or to one or more of the partners and one or
more third persons, if the business is continued without
liquidation of the partnership affairs;
(2) When all but one partner retire and assign (or the
representative of a deceased partner assigns) their rights
in partnership property to the remaining partner, who
continues the business without liquidation of partnership
affairs, either alone or with others;
(3) When any partner retires or dies and the business of
the dissolved partnership is continued as set forth in Nos.
1 and 2 of this article, with the consent of the retired
partners or the representative of the deceased partner,
but without any assignment of his right in partnership
property;
(4) When all the partners or their representatives assign
their rights in partnership property to one or more third
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
persons who promise to pay the debts and who continue property of all original partners while only the subsequent creditors
the business of the dissolved partnership; have rights against the separate property of the newly admitted
(5) When any partner wrongfully causes a dissolution and partner. Hence, the old creditors do not lose their preference as
the remaining partners continue the business under the partnership creditors because they are recognized as the creditors of
provisions of article 1837, second paragraph, No. 2, the new firm (Pineda, 2006).
either alone or with others, and without liquidation of
the partnership affairs; Reason for making new partner liable for obligations contracted
(6) When a partner is expelled and the remaining before admission: To eliminate the difficulty which arises when by
partners continue the business either alone or with his admission, the existing partnership is dissolved and all properties
others without liquidation of the partnership affairs. of the said partnership are taken over by the new partnership. Old
creditors lose their preference as partnership creditors. By making
The liability of a third person becoming a partner in the the new partner liable even to old creditors, the problem is solved
partnership continuing the business, under this article, to the (Pineda, 2006).
creditors of the dissolved partnership shall be satisfied out of the
partnership property only, unless there is a stipulation to the Article 1827. The creditors of the partnership shall be preferred to
contrary. those of each partner as regards the partnership property. Without
prejudice to this right, the private creditors of each partner may
When the business of a partnership after dissolution is continued ask the attachment and public sale of the share of the latter in the
under any conditions set forth in this article the creditors of the partnership assets. (n)
dissolved partnership, as against the separate creditors of the
retiring or deceased partner or the representative of the deceased PARTNERSHIP CREDITORS PREFERRED TO CREDITORS OF
partner, have a prior right to any claim of the retired partner or the INDIVIDUAL PARTNERS: The reason for this grant of priority of
representative of the deceased partner against the person or payment is that the partnership has a separate and distinct
partnership continuing the business, on account of the retired or personality from the individual partners. The partnership should
deceased partner's interest in the dissolved partnership or on apply its property to the payment first of its debts to its own
account of any consideration promised for such interest or for his creditors. Conversely, the private property of the partners cannot be
right in partnership property. taken as payment for partnership debts until the common property
of the firm had been exhausted (Pineda, 2006).
Nothing in this article shall be held to modify any right of creditors
to set aside any assignment on the ground of fraud. CHAPTER 3
The use by the person or partnership continuing the business of Dissolution and Winding Up
the partnership name, or the name of a deceased partner as part
thereof, shall not of itself make the individual property of the Article 1828. The dissolution of a partnership is the change in the
deceased partner liable for any debts contracted by such person or relation of the partners caused by any partner ceasing to be
partnership. (n) associated in the carrying on as distinguished from the winding up
of the business. (n)
NOTE: Article 1826 and 1840 are based on the principle that where
there has been one continuous business, the fact that Ayel has been DISSOLUTION TERMINATION WINDING UP
admitted to the business, or Bebeng ceased to be connected with it, Designates the point Is the point in time Is the process of
should not be allowed to cause endless confusion as to the claims of in time when the when all the settling partners
CRs on the property employed in the business; but all the CRs of the partners cease to partnership affairs affairs after
business, irrespective of the times when they became CRs and the carry on the are wound up. dissolution.
exact combinations of persons then owning the business, should business together.
have equal rights to the property. The change in the The process of It is the state which
relation of the settling the business follows after all the
LIABILITY OF NEWLY ADMITTED PARTNER: The incoming partner or partners caused by affairs of the partnership affairs
newly admitted partner is liable for all the obligations of the firm any partner ceasing partnership (Pineda, have been wound
contracted before his admission. On the surface, this appears to be to be associated in 2006). up or concluded.
harsh for the incoming partner. However, his liability is limited. It is the carrying on of Officially, it is the
only up to his share in the partnership property, unless there is a the business of the end of the
contrary stipulation. His separate property will not be reached by partnership (Pineda, partnership (Pineda,
partnership creditors (Pineda, 2006). 2006). 2006).

EFFECT OG ADMISION OF NEW PARTNER ON THE STATUS OF YJE Dissolution is descriptive of that change in the partnership relation
EXISTING PARTNERSHIP: The admission of the new partner dissolves which ultimately culminates in its termination. It is not the
the old partnership (Pineda, 2006). termination of the partnership or of the rights and powers of
partners.
All the properties of the existing partnership are assumed by the
new firm without notice of any discontinuance in the conduct of the EFFECTS OF DISSOLUTION
business, now under the new firm composed of all the original
members and the newly admitted one. In effect, the old partnership On the partners 1. As to previous obligations, the
is deprived of all its properties. Under Art. 1826, existing and dissolution does not necessarily mean
subsequent creditors shall have equal rights as against partnership that a partner can evade previous
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
obligations entered into by the
partnership
2. As to new obligations:
GR: Dissolution spares the former
partners from new obligations entered
into by the partnership to which they
did not consent either expressly or
impliedly
XPN: These new obligations are
essential for the winding up of the
partnership affairs
On membership 1. Any change in the membership of the
partnership will result in its dissolution
and in the formation of a new
partnership so long as the course of its
business is materially interrupted
2. All partners constituting new
partnership are considered incoming
partners if there is admission of the
new partner even if the business had
been theretofore conducted by the
others through the previous
partnership
3. A change in the relation of the
partners will cause the dissolution of
the partnership but this will not
disturb the continuance of the
business of the partnership under the
original articles of partnership by the
remaining partners or by them and the
new partners
Article 1829. On dissolution the partnership is not terminated, but
continues until the winding up of partnership affairs is completed.
(n)
PARTNERSHIP IS NOT TERMINATED
Dissolution affects only future obligations of the business, and as to
past transactions the partnership continues until it satisfies all its
pre-existing obligations. Dissolution does not abrogate its contracts
which continue until performed or otherwise become inoperative. It
has no effect on debts due from the partnership to third parties
except that partners may not act for each other any further than
may joint debtors.
During dissolution, the partnership will be reputed as existing until
the juridical relations arising out of the contract are dissolved.
Article 1830. Dissolution is caused:
(1) Without violation of the agreement between the
partners:
(a) By the termination of the definite term or
particular undertaking specified in the
agreement;
(b) By the express will of any partner, who must
act in good faith, when no definite term or
particular is specified;
(c) By the express will of all the partners who
have not assigned their interests or suffered
them to be charged for their separate debts,
either before or after the termination of any
specified term or particular undertaking;
(d) By the expulsion of any partner from the
business bona fide in accordance with such a
power conferred by the agreement between
the partners;
(2) In contravention of the agreement between the
partners, where the circumstances do not permit a
dissolution under any other provision of this article, by
the express will of any partner at any time;
(3) By any event which makes it unlawful for the business
of the partnership to be carried on or for the members to
carry it on in partnership;
(4) When a specific thing which a partner had promised
to contribute to the partnership, perishes before the
delivery; in any case by the loss of the thing, when the
partner who contributed it having reserved the
ownership thereof, has only transferred to the
partnership the use or enjoyment of the same; but the
partnership shall not be dissolved by the loss of the thing
when it occurs after the partnership has acquired the
ownership thereof;
(5) By the death of any partner;
(6) By the insolvency of any partner or of the partnership;
(7) By the civil interdiction of any partner;
(8) By decree of court under the following article. (1700a
and 1701a)
AUTHORITY AND POWERS OF PARTNERS
TERMINATION OF TERM OR PURPOSE
If a fixed duration is agreed on, partnership is dissolved by the lapse
of time on the expiration of such period. Irrespective of any
agreement as to the period of duration of a partnership, it is
dissolved on the completion of the enterprise for which it was
formed.
EXPRESS WILL OF ANY PARTNER
If no time prescribed by the agreement for the duration of a general
partnership, it may be dissolved totally by the express will of any
partner. A partnership may be dissolved by one partner
unequivocally bringing home notice to the other partners that he no
longer intends to be a partner.
In contravention of agreement
Any partnership, whether under the articles of partnership it is to
exist for a definite period of time or for the accomplishment of a
particular purpose, or whether those articles contain any stipulation
as to the time of existence, may be dissolved by the act of any
partner alone in accordance with his own pleasure and will.
The difference between a partnership for an indefinite period and
one for a specified term is that in case of a partnership for a definite
term, a dissolution before the expiration of the stipulated time is a
breach of agreement which subjects such partner to a claim for
damages for breach of contract if the dissolution is not justified. On
the other hand, the dissolution of partnership at will affords the
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
other partner no ground for complaint. In either case the action is of
one partner actually dissolves the partnership.
This is because a contract of partnership is a contract of agency
based on the assent of each of the partners, which may be retracted
at any time as to future dealings although the term of the
partnership may not have expired. All that is required is that notice
of the dissolution must be communicated forthwith to the other
members of the firm. By such notice the partnership is dissolved.
The rights of the parties upon dissolution are safeguarded by Art.
1837, subdivision (2).
Article 1831. On application by or for a partner the court shall
decree a dissolution whenever:
(1) A partner has been declared insane in any judicial
proceeding or is shown to be of unsound mind;
(2) A partner becomes in any other way incapable of
performing his part of the partnership contract;
(3) A partner has been guilty of such conduct as tends to
affect prejudicially the carrying on of the business;
(4) A partner wilfully or persistently commits a breach of
the partnership agreement, or otherwise so conducts
himself in matters relating to the partnership business
that it is not reasonably practicable to carry on the
business in partnership with him;
(5) The business of the partnership can only be carried on
at a loss;
(6) Other circumstances render a dissolution equitable.
On the application of the purchaser of a partner's interest under
article 1813 or 1814:
(1) After the termination of the specified term or
particular undertaking;
(2) At any time if the partnership was a partnership at
will when the interest was assigned or when the charging
order was issued. (n)
Misconduct, gross neglect, or breach of duty
GR: Gross misconduct, want of good faith, willful neglect of
partnership obligations, and such other causes as are productive of
serious and permanent injury to the partnership concern, or which
render it impracticable to carry on the partnership business, are
proper grounds for the dissolution of the partnership by a court of
equity at the instance of the innocent partner.
Also, habitual drunkenness, great extravagance or unwarranted
negligence on the part of the partner in conducting the business of
the partnership justifies a judicial dissolution of the partnership at
the instance of the other partner, although such facts do not
authorize the other, of his own motion, to treat the partnership as
ended and take to himself all the benefits of the joint labors and
property.
DISSENSION, LACK OF CONFIDENCE
Where the purpose of the partnership can no longer be
accomplished harmoniously or profitably because of serious
dissensions, personal ill-will, irreconcilable differences, and lack of
confidence between partners, courts of equity can consider these
grounds for the dissolution of the partnership.
Yet, the partner who caused the want of confidence or is the author
of the ill-feeling between himself and his partners will not be
permitted to make the strained relation he has induced the ground
for the dissolution of the partnership.
The complaining partner must show that the things relied upon are
of serious and permanent character as to prevent the profitable
continuance of the partnership business.
Not grounds for dissolution:
a. trifling and minor grievances involving no permanent
mischief;
Remedy: Injunction
b. Friction among the partners
Article 1832. Except so far as may be necessary to wind up
partnership affairs or to complete transactions begun but not then
finished, dissolution terminates all authority of any partner to act
for the partnership:
(1) With respect to the partners,
(a) When the dissolution is not by the act,
insolvency or death of a partner; or
(b) When the dissolution is by such act,
insolvency or death of a partner, in cases where
article 1833 so requires;
(2) With respect to persons not partners, as declared in
article 1834. (n)
AUTHORITY AND POWERS OF PARTNERS: The dissolution of a
partnership terminates the general agency of one partner for his co-
partners, but leaves each of the partners with an equal duty and an
equal power to do whatever is necessary to collect the debts due
the partnership, and to adjust, settle and pay its debts, including
authority as before to represent his firm in all acts necessary to
complete partnership contracts.
When the conversion of property into cash is necessary for the
completion of the winding-up process, each partner is deemed to
have power after dissolution to dispose of such firm property.
NOTE: A member of a dissolved partnership cannot, however, by
borrowing money, bind his co-partners, except when such power
has been expressly or impliedly conferred upon him, inasmuch as
such borrowing, whether to meet pre-existing obligations or not, is
generally considered as a new contract.
Article 1833. Where the dissolution is caused by the act, death or
insolvency of a partner, each partner is liable to his co-partners for
his share of any liability created by any partner acting for the
partnership as if the partnership had not been dissolved unless:
(1) The dissolution being by act of any partner, the
partner acting for the partnership had knowledge of the
dissolution; or
(2) The dissolution being by the death or insolvency of a
partner, the partner acting for the partnership had
knowledge or notice of the death or insolvency.
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
SCOPE OF THIS ARTICLE: Where the dissolution has been caused by
the act of one of the parties, if the partner acting is subject to a
liability to third persons, he can call on his co-partners to contribute
towards this liability to the same extent as if there has been no
dissolution, provided he had no knowledge of the dissolution, at the
time of the act.
Example: A, B, and C are partners. A, in accordance with his right, or
in contravention of the partnership. B, subsequently, makes a
contract for the partnership in ignorance of the dissolution. B under
this article would have the right to call upon A and C to assume their
share of the burden. The same principle applies when the
dissolution is caused by the death or insolvency of a partner, and
that fact was unknown to the partner who subsequently makes a
contract of partnership.
NOTE: The article applies when the partnership is dissolved by:
1. Act
2. Death
3. Insolvency of a partner
In such case, despite dissolution, a partner remains liable to his co-
partners for his share of any liability incurred by any partner acting
for the partnership as if there is no dissolution
XPNs:
1. The dissolution being by an act of the partner, the
representing partner had knowledge of the dissolution
2. The dissolution is caused by the death or insolvency of a
partner, the representing partner who acts for the
partnership, had knowledge or notice of such death or
insolvency and still transacts business for the partnership,
he alone is responsible for the liability incurred (Pineda,
2006).
UNIFORM PARTNERSHIP ACT
1. A person has knowledge of a fact within the meaning of
the Act not only when he has actual knowledge thereof,
but also when he has knowledge of such other facts as in
the circumstances shows bad faith
2. A person has notice of a fact within the meaning of this Act
when the person who claims the benefit of the notice,
states the fact to such person, or delivers through the
mail, or by other means of communication, a written
statement of the fact to such persons or to a proper
person at his place of business or residence.
Article 1834. After dissolution, a partner can bind the partnership,
except as provided in the third paragraph of this article:
(1) By any act appropriate for winding up partnership
affairs or completing transactions unfinished at
dissolution;
(2) By any transaction which would bind the partnership
if dissolution had not taken place, provided the other
party to the transaction:
(a) Had extended credit to the partnership prior
to dissolution and had no knowledge or notice
of the dissolution; or
(b) Though he had not so extended credit, had
nevertheless known of the partnership prior to
dissolution, and, having no knowledge or notice
of dissolution, the fact of dissolution had not
been advertised in a newspaper of general
circulation in the place (or in each place if more
than one) at which the partnership business
was regularly carried on.
The liability of a partner under the first paragraph, No. 2, shall be
satisfied out of partnership assets alone when such partner had
been prior to dissolution:
(1) Unknown as a partner to the person with whom the
contract is made; and
(2) So far unknown and inactive in partnership affairs
that the business reputation of the partnership could not
be said to have been in any degree due to his connection
with it.
The partnership is in no case bound by any act of a partner after
dissolution:
(1) Where the partnership is dissolved because it is
unlawful to carry on the business, unless the act is
appropriate for winding up partnership affairs; or
(2) Where the partner has become insolvent; or
(3) Where the partner has no authority to wind up
partnership affairs; except by a transaction with one who
-
(a) Had extended credit to the partnership prior
to dissolution and had no knowledge or notice
of his want of authority; or
(b) Had not extended credit to the partnership
prior to dissolution, and, having no knowledge
or notice of his want of authority, the fact of his
want of authority has not been advertised in
the manner provided for advertising the fact of
dissolution in the first paragraph, No. 2 (b).
Nothing in this article shall affect the liability under article 1825 of
any person who after dissolution represents himself or consents to
another representing him as a partner in a partnership engaged in
carrying on business. (n)
ACCEPTANCE OF BILL: After the dissolution of a partnership, a
partner cannot bind the partnership or his co-partners by accepting
a bill drawn on the firm, unless he has a special authority to do so.
LIABILITY LIMITED BY NOTICE OF DISSOLUTION: The liability of
partnership property for partnership debts does not extend to debts
contracted by one partner after a dissolution with one having
knowledge of dissolution.
Persons dealing with a surviving partner with notice of the co-
partner’s death are bound to recognize the limitation on his
authority, and act at their peril when they give credit to the survivor
in a new transaction.
NOTICE OF DISSOLUTION: Since a partnership once established is, in
the absence of anything to indicate its termination, presumed to
continue to exist, the law, for the protection of innocent third
persons, imposes upon partners, when they dissolve the partnership
relation or when dissolution is effected by the retirement or
withdrawal of one of the partners, the duty of giving notice of the
dissolution of the partnership.
The members of a partnership after dissolution continue to be liable
to those with whom they have previously dealt as partners who
have no notice or knowledge of the dissolution of the firm and who
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
in good faith continue to act in the belief that the firm is still in
existence.
Article 1835. The dissolution of the partnership does not of itself
discharge the existing liability of any partner.
A partner is discharged from any existing liability upon dissolution
of the partnership by an agreement to that effect between himself,
the partnership creditor and the person or partnership continuing
the business; and such agreement may be inferred from the course
of dealing between the creditor having knowledge of the
dissolution and the person or partnership continuing the business.
The individual property of a deceased partner shall be liable for all
obligations of the partnership incurred while he was a partner, but
subject to the prior payment of his separate debts. (n)
CONTINUATION OF LIABILITY: Dissolution of partnership does not
discharge the existing contractual liability of any partner without
express or implied agreement between himself, the partnership
creditor, and the partnership continuing the business or without
novation; and in the absence of such factors, a retiring partner’s
liability on contracts of the partnership made before dissolution,
continues as that of a principal or as a co-principal debtor.
NOTE: A partner who has withdrawn from the partnership is
released from liability only when there has been liquidation and his
withdrawal has been published.
Article 1836. Unless otherwise agreed, the partners who have not
wrongfully dissolved the partnership or the legal representative of
the last surviving partner, not insolvent, has the right to wind up
the partnership affairs, provided, however, that any partner, his
legal representative or his assignee, upon cause shown, may obtain
winding up by the court. (n)
KINDS OF WINDING UP
JUDICIAL EXTRA-JUDICIAL
When there is a court When the dissolution is
intervention initiated by any voluntary without any court
partner, a legal representative intervention (Pineda, 2006).
or assignee of a partner
WHO CAN INITIATE WINDING UP:
1. The partner who is expressly authorized by agreement to
initiate the winding up
2. If there is no such agreement, all the partners may
institute the winding up
3. The legal representative of the last surviving partner who
must not be insolvent
4. Assignee (Pineda, 2006).
POWERS OR PREROGATIVES OF THE LUQUIDATING PARTNER:
1. He is the sole agent of the partnership for the purpose of
winding up of the firm’s affairs. The authority is only with
the respect to the winding up of the business affairs
2. He may borrow money to meet accruing liabilities of the
firm or may sell property to raise money to pay its debts
3. He may incur obligations necessary to complete existing
contracts or to preserve partnership assets
4. He may engage the services of counsel for reasonable fees
to prosecute or defend cases of the firm; he may also incur
obligations for litigation expenses (Pineda, 2006).
Article 1837. When dissolution is caused in any way, except in
contravention of the partnership agreement, each partner, as
against his co-partners and all persons claiming through them in
respect of their interests in the partnership, unless otherwise
agreed, may have the partnership property applied to discharge its
liabilities, and the surplus applied to pay in cash the net amount
owing to the respective partners. But if dissolution is caused by
expulsion of a partner, bona fide under the partnership agreement
and if the expelled partner is discharged from all partnership
liabilities, either by payment or agreement under the second
paragraph of article 1835, he shall receive in cash only the net
amount due him from the partnership.
When dissolution is caused in contravention of the partnership
agreement the rights of the partners shall be as follows:
(1) Each partner who has not caused dissolution
wrongfully shall have:
(a) All the rights specified in the first paragraph
of this article, and
(b) The right, as against each partner who has
caused the dissolution wrongfully, to damages
breach of the agreement.
(2) The partners who have not caused the dissolution
wrongfully, if they all desire to continue the business in
the same name either by themselves or jointly with
others, may do so, during the agreed term for the
partnership and for that purpose may possess the
partnership property, provided they secure the payment
by bond approved by the court, or pay any partner who
has caused the dissolution wrongfully, the value of his
interest in the partnership at the dissolution, less any
damages recoverable under the second paragraph, No. 1
(b) of this article, and in like manner indemnify him
against all present or future partnership liabilities.
(3) A partner who has caused the dissolution wrongfully
shall have:
(a) If the business is not continued under the
provisions of the second paragraph, No. 2, all
the rights of a partner under the first
paragraph, subject to liability for damages in
the second paragraph, No. 1 (b), of this article.
(b) If the business is continued under the
second paragraph, No. 2, of this article, the
right as against his co-partners and all claiming
through them in respect of their interests in the
partnership, to have the value of his interest in
the partnership, less any damage caused to his
co-partners by the dissolution, ascertained and
paid to him in cash, or the payment secured by
a bond approved by the court, and to be
released from all existing liabilities of the
partnership; but in ascertaining the value of the
partner's interest the value of the good-will of
the business shall not be considered. (n)
DISCHARGE OF LIABILITIES: Generally, partnership property must
first be applied to the payment of partnership debts, and the co-
partners or their creditors are entitled to only such property as
remains after satisfaction of partnership debts.
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
Upon the dissolution of a partnership by death of a partner, all
members of the firm are entitled to a division of the surplus of the
assets over the amount necessary to discharge the liabilities of the
partnership.
CAUSES OF DISSOLUTION UNDER THIS ARTICLE:
1. Dissolution not in contravention of partnership agreement
2. Dissolution in contravention of partnership agreement
(Pineda, 2006)
GOODWILL OF PARTNERSHIP: The guilty partner is not entitled to a
proportionate share of the value of the goodwill if the firm. This is a
penalty for his bad faith in wrongfully dissolving the firm (Pineda,
2006).
Article 1838. Where a partnership contract is rescinded on the
ground of the fraud or misrepresentation of one of the parties
thereto, the party entitled to rescind is, without prejudice to any
other right, entitled:
(1) To a lien on, or right of retention of, the surplus of the
partnership property after satisfying the partnership
liabilities to third persons for any sum of money paid by
him for the purchase of an interest in the partnership and
for any capital or advances contributed by him;
(2) To stand, after all liabilities to third persons have
been satisfied, in the place of the creditors of the
partnership for any payments made by him in respect of
the partnership liabilities; and
(3) To be indemnified by the person guilty of the fraud or
making the representation against all debts and liabilities
of the partnership. (n)
RESCISSION DUE FRAAUD
Where one is induced to form a partnership by reason of fraud or
misrepresentation, the court, upon prompt application of injured
party after deceit becomes known, rescind the contract of
partnership.
NOTE: Since the ground indicated in the article to set aside the
contract of partnership is fraud or misrepresentation, the
appropriate technical word for the setting aside of the contract
should be “annulled” and not “rescinded” (Pineda, 2006).
The deceit must be material and mere exaggerations as to the
prospects of an enterprise or the value of the property which he has
put into the firm as capital is not a ground for dissolution.
When fraud is established, court will compel the repayment of
whatever sums may have been improperly obtained.
RIGHTS OF PARTIES ENTITLED TO ANNUL:
1. Right of lien on the surplus of the partnership property
after satisfaction of the partnership liabilities to third
persons for any sum paid for any capital or advances
contributed by him. This is right of retention of the
surplus.
2. Right to subrogate partnership creditors after his payment
of partnership liabilities to them
3. Right to be indemnified by the supposed partner guilty of
the fraud or misrepresentation against all debts and
liabilities of the partnership (Pineda, 2006).
Article 1839. In settling accounts between the partners after
dissolution, the following rules shall be observed, subject to any
agreement to the contrary:
(1) The assets of the partnership are:
(a) The partnership property,
(b) The contributions of the partners necessary
for the payment of all the liabilities specified in
No. 2.
(2) The liabilities of the partnership shall rank in order of
payment, as follows:
(a) Those owing to creditors other than
partners,
(b) Those owing to partners other than for
capital and profits,
(c) Those owing to partners in respect of
capital,
(d) Those owing to partners in respect of
profits.
(3) The assets shall be applied in the order of their
declaration in No. 1 of this article to the satisfaction of
the liabilities.
(4) The partners shall contribute, as provided by article
1797, the amount necessary to satisfy the liabilities.
(5) An assignee for the benefit of creditors or any person
appointed by the court shall have the right to enforce the
contributions specified in the preceding number.
(6) Any partner or his legal representative shall have the
right to enforce the contributions specified in No. 4, to
the extent of the amount which he has paid in excess of
his share of the liability.
(7) The individual property of a deceased partner shall be
liable for the contributions specified in No. 4.
(8) When partnership property and the individual
properties of the partners are in possession of a court for
distribution, partnership creditors shall have priority on
partnership property and separate creditors on individual
property, saving the rights of lien or secured creditors.
(9) Where a partner has become insolvent or his estate is
insolvent, the claims against his separate property shall
rank in the following order:
(a) Those owing to separate creditors;
(b) Those owing to partnership creditors;
(c) Those owing to partners by way of
contribution. (n)
LIQUIDATION NECESSARY BEFORE RECOVERY OF SHARE: A partner
who has retired must first ask for liquidation of the partnership
before he can recover his proportionate share of the partnership
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
assets. The reason is that the creditors of the partnership must be
paid first as they enjoy priority of payment (Pineda, 2006).
CONVERSION OF ASSETS INTO CASH
GR: After taking an accounting on dissolution of partnership, the
court should require a sale of the partnership property and
distribute the proceeds to the partners after payment of costs and
expenses and debts.
XPNs:
1. Where there are no debts and division in kind may be
fairly and equitably made;
2. If sale of assets would be prejudicial to an innocent
partner who has not consented to the sale; and
3. Where dissolution of the partnership is had on suit of a
partner upon violation of a partnership agreement, and a
judicial sale of the assets would amount to confiscation.
AGREEMENT AS TO DISTRIBUTION OF ASSETS
Co-partners may agree in what proportion assets of the partnership
may be divided between them upon dissolution.
Where there is no fraud, an agreement of dissolution and
settlement will not be set aside merely because one partner has
made an improvident agreement and settlement is on the basis
different from that provided by the articles.
Partner’s share cannot be returned without first dissolving and
liquidating the partnership, for the return is dependent on the
discharge of the creditors whose claims enjoy preference over those
of the partners. It is self-evident that all partners of the partnership
are interested in its assets and business, and are entitled to be heard
in the matter of the firm’s liquidation and the distribution of its
property.
PREFERENCES OF PAYMENT:
1. Those owing the creditors other than partners
2. Those owing to partners other than capital and profits
3. Those owing to partners in respect of capital
4. Those owing to partners in respect of profits (Pineda,
2006)
RULE IN CASE OF INSOLVENCY OF A PARTNER OR THAT OF HIS
ESTATE IN CASE OF HIS DEATH:
Order:
1. Separate creditors
2. Partnership creditors
3. Partners who gave contributions (Pineda, 2006)
Article 1840. In the following cases creditors of the dissolved
partnership are also creditors of the person or partnership
continuing the business:
(1) When any new partner is admitted into an existing
partnership, or when any partner retires and assigns (or
the representative of the deceased partner assigns) his
rights in partnership property to two or more of the
partners, or to one or more of the partners and one or
more third persons, if the business is continued without
liquidation of the partnership affairs;
(2) When all but one partner retire and assign (or the
representative of a deceased partner assigns) their rights
in partnership property to the remaining partner, who
continues the business without liquidation of partnership
affairs, either alone or with others;
(3) When any partner retires or dies and the business of
the dissolved partnership is continued as set forth in Nos.
1 and 2 of this article, with the consent of the retired
partners or the representative of the deceased partner,
but without any assignment of his right in partnership
property;
(4) When all the partners or their representatives assign
their rights in partnership property to one or more third
persons who promise to pay the debts and who continue
the business of the dissolved partnership;
(5) When any partner wrongfully causes a dissolution and
the remaining partners continue the business under the
provisions of article 1837, second paragraph, No. 2,
either alone or with others, and without liquidation of
the partnership affairs;
(6) When a partner is expelled and the remaining
partners continue the business either alone or with
others without liquidation of the partnership affairs.
The liability of a third person becoming a partner in the
partnership continuing the business, under this article, to the
creditors of the dissolved partnership shall be satisfied out of the
partnership property only, unless there is a stipulation to the
contrary.
When the business of a partnership after dissolution is continued
under any conditions set forth in this article the creditors of the
dissolved partnership, as against the separate creditors of the
retiring or deceased partner or the representative of the deceased
partner, have a prior right to any claim of the retired partner or the
representative of the deceased partner against the person or
partnership continuing the business, on account of the retired or
deceased partner's interest in the dissolved partnership or on
account of any consideration promised for such interest or for his
right in partnership property.
Nothing in this article shall be held to modify any right of creditors
to set aside any assignment on the ground of fraud.
The use by the person or partnership continuing the business of
the partnership name, or the name of a deceased partner as part
thereof, shall not of itself make the individual property of the
deceased partner liable for any debts contracted by such person or
partnership. (n)
SCOPE
The article deals with the right of CRs when a new partner is
admitted or a partner retires, is expelled or dies and the business is
continued without liquidation of all debts of the partnership
dissolved by the change in personnel.
This does not alter the rule that any change in membership dissolves
a partnership and creates a new partnership; neither does it alter
the rule that on any change of personnel, the property of the
dissolved partnership becomes the property of the partnership
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
continuing the business. Hence, CRs of the dissolved partnership
become CRs of the new partnership.
SIX SITUATIONS WHERE THERE IS DISSOLUTION BY REASON OF
CHANGE IN MEMBERSHIP CAUSED BY ANY OF THE FF:
1. Admission of a new partner
2. Retirement of a partner
3. Assignment of rights in partnership property
4. Death of a partner
5. Expulsion
Article 1841. When any partner retires or dies, and the business is
continued under any of the conditions set forth in the preceding
article, or in article 1837, second paragraph, No. 2, without any
settlement of accounts as between him or his estate and the
person or partnership continuing the business, unless otherwise
agreed, he or his legal representative as against such person or
partnership may have the value of his interest at the date of
dissolution ascertained, and shall receive as an ordinary creditor an
amount equal to the value of his interest in the dissolved
partnership with interest, or, at his option or at the option of his
legal representative, in lieu of interest, the profits attributable to
the use of his right in the property of the dissolved partnership;
provided that the creditors of the dissolved partnership as against
the separate creditors, or the representative of the retired or
deceased partner, shall have priority on any claim arising under
this article, as provided article 1840, third paragraph. (n)
AGREEMENTS AS TO LIQUIDATION
No specific amounts or properties may be adjudicated to the heirs of
the deceased partner without the liquidation being first terminated.
Agreements between the partners with respect to liquidation of the
partnership on the death of one of the members are binding. All
rights against the surviving partners are merged in said agreement
and deceased partner’s representatives have no rights outside said
agreement.
GR: When a partner retires from the firm, he is entitled to payment
of what may be due him after a liquidation.
But liquidation is not necessary where there is already a settlement
or agreement as to what the retiring partner shall receive. Where
the return of the contributions of the retiring partners was
understood and intended by all the parties as a final settlement of
whatever rights or claim the withdrawing partners might have in the
dissolved partnership, the acceptance of such payment precludes
the retiring partners from later on claiming their supposed share in
the profit of the firm at the time of dissolution.
Article 1842. The right to an account of his interest shall accrue to
any partner, or his legal representative as against the winding up
partners or the surviving partners or the person or partnership
continuing the business, at the date of dissolution, in the absence
of any agreement to the contrary. (n)
PRESCRIPTION OF ACTION
Prescription begins to run only upon dissolution of the partnership
when the final accounting is done.
Applying the general law on prescription of actions, the period of
prescription is 10 years if the contract of partnership is in writing;
and if not, it is 6 years from dissolution (Pineda, 2006).
CHAPTER 4
Limited Partnership (n)
Article 1843. A limited partnership is one formed by two or more
persons under the provisions of the following article, having as
members one or more general partners and one or more limited
partners. The limited partners as such shall not be bound by the
obligations of the partnership.
LIMITED PARTNERSHIP; NATURE OF LIABILITY
It is one in which the liability of the members is limited (but not all).
Such is formed under laws permitting an individual to contribute to
a specified sum to the capital of a firm and then limiting his liability
for losses to that amount on the parties complying with certain
established requirements. Their liability is limited to a fixed amount,
that is, to the amount they have contributed or invested in the
partnership (Pineda, 2006).
SUCCESSION TO GENERAL PARTNER
Mere acceptance of the inheritance does not make the heir of a
general partner a general partner himself.
But by authorizing the widow of a managing partner to manage
partnership property which is a limited partner could not be
authorized to do, the other general partner recognized her as a
general partner, and is now in estoppel to deny her position as a
general partner with authority to administer and alienate
partnership property.
CALLING A PARTNERSHIP AS LIMITED DOES NOT NECESSARILY
MAKE IT ONE: The legal intention deducible from the acts of the
parties controls in determining the existence of a partnership
(Pineda, 2006).
CHARACTERISTICS OF LIMITED PARTNERSHIP:
1. There must be compliance with the statutory requirement
of form under Art. 1844 which is mandatory
2. Partnership business is under the control of one or more
of general partners who are personally liable to
partnership creditors
3. One or more limited partners contribute to the
partnership capital who share in the profits but do not
take part in the management of the business
4. The limited partner/s are not personally liable for the
partnership obligations beyond the amount of their
contributions or investments
5. The partnership debts or obligations are paid out of the
partnership assets and the separate properties of the
general partners
6. The limited partners may get back their capital
contribution prescribed by law (Pineda, 2006).
ADVANTAGES OF A LIMITED PARTNERSHIP:
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
1. On the part of the general partners: They can secure
capital from others for purposes of their business while
retaining the control and supervision of the partnership
business.
2. On the part of limited partner: The limited partner shares
on the profits without risk of personal liability (Pineda,
2006)
PURPOSE OF STATUTE AUTHORIZING LIMITED PARTNERSHIP: To
encourage those having capital to become partners with those
having skills, by limiting the liability of the former to the incidental
amount actually contributed by them (Pineda, 2006).
Article 1844. Two or more persons desiring to form a limited
partnership shall:
(1) Sign and swear to a certificate, which shall state –
(a) The name of the partnership, adding thereto
the word "Limited";
(b) The character of the business;
(c) The location of the principal place of
business;
(d) The name and place of residence of each
member, general and limited partners being
respectively designated;
(e) The term for which the partnership is to
exist;
( f ) The amount of cash and a description of
and the agreed value of the other property
contributed by each limited partner;
(g) The additional contributions, if any, to be
made by each limited partner and the times at
which or events on the happening of which
they shall be made;
(h) The time, if agreed upon, when the
contribution of each limited partner is to be
returned;
(i) The share of the profits or the other
compensation by way of income which each
limited partner shall receive by reason of his
contribution;
( j) The right, if given, of a limited partner to
substitute an assignee as contributor in his
place, and the terms and conditions of the
substitution;
(k) The right, if given, of the partners to admit
additional limited partners;
(l) The right, if given, of one or more of the
limited partners to priority over other limited
partners, as to contributions or as to
compensation by way of income, and the
nature of such priority;
(m) The right, if given, of the remaining general
partner or partners to continue the business on
the death, retirement, civil interdiction, insanity
or insolvency of a general partner; and
(n) The right, if given, of a limited partner to
demand and receive property other than cash
in return for his contribution.
(2) File for record the certificate in the Office of the
Securities and Exchange Commission.
A limited partnership is formed if there has been
substantial compliance in good faith with the foregoing
requirements.
COMPLIANCE WITH LAW
A partnership transacting business is prima facie a general
partnership and those who seek to avail themselves of the
protection of laws permitting the creation of a limited partnership
must show due compliance with such laws.
Hence, to obtain the privilege of limited liability, one must conform
to the statutory requirements regulating the formation of limited
partnership. A limited partnership that has not complied with the
law is not considered as a limited partnership but a general
partnership in which all the members are liable.
REQUISITES IN THE ESTABLISHMENT OF A LIMITED PARTNERSHIP:
1. The required certificate containing all the 14 enumerated
data, must be signed and sworn by all the partners, that is,
both general and limited
2. The certificate must be filed with the Office of the SEC
(Pineda, 2006)
NOTE: Strict compliance is not required. Mere substantial
compliance in good faith will suffice (Pineda, 2006).
DEFECTIVE CERTIFICATE
If the certificate of formation of a limited partnership is defective
and shows on its face that the statutory requirements have not been
complied with, a court can of its motion hold that a limited
partnership has not been formed.
XPN: If attaching CRs recognize and deal with a firm as a limited
partnership, they will be estopped from insisting that there is no
such partnership or that the terms of the partnership were not
sufficiently stated in the notice of its formation.
Article 1845. The contributions of a limited partner may be cash or
property, but not services.
NOTE: If he contributes services, he shall be considered an industrial
and general partner. A limited partner who contributes services will
take active part in the management of the partnership. This means
he will be exercising some controlling power in the business which is
not supposed to be exercised by a limited partner (Pineda, 2006).
Article 1846. The surname of a limited partner shall not appear in
the partnership name unless:
(1) It is also the surname of a general partner, or
(2) Prior to the time when the limited partner became
such, the business has been carried on under a name in
which his surname appeared.
A limited partner whose surname appears in a partnership name
contrary to the provisions of the first paragraph is liable as a
general partner to partnership creditors who extend credit to the
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
partnership without actual knowledge that he is not a general
partner.
SURNAME OF LIMITED PARTNER: Partnerships are required to have
a firm name. In a limited partnership, the surname of a limited
partner shall not appear in the partnership name because he is
exempted from general liability. His liability is limited, that is why, he
is referred to as a limited partner. Otherwise, he becomes a general
partner (Pineda, 2006).
Article 1847. If the certificate contains a false statement, one who
suffers loss by reliance on such statement may hold liable any
party to the certificate who knew the statement to be false:
(1) At the time he signed the certificate, or
(2) Subsequently, but within a sufficient time before the
statement was relied upon to enable him to cancel or
amend the certificate, or to file a petition for its
cancellation or amendment as provided in article 1865.
REQUISITES FOR PARTY’S KNOWLEDGE OF FALSE STATEMENT:
1. At the time of the signing of the certificate
2. Subsequently, but within a sufficient time before the
statement was relied upon to enable him to cancel or
amend the certificate, or to file a petition for its
cancellation or amendment as provided in Art. 1865
(Pineda, 2006)
Article 1848. A limited partner shall not become liable as a general
partner unless, in addition to the exercise of his rights and powers
as a limited partner, he takes part in the control of the business.
GR: A limited partner is not liable as a general partner
XPN: If he takes part in the control of the business which
contemplates active participation in the business of the partnership,
he becomes liable as a general partner (Pineda, 2006).
Article 1849. After the formation of a lifted partnership, additional
limited partners may be admitted upon filing an amendment to the
original certificate in accordance with the requirements of article
1865.
Article 1850. A general partner shall have all the rights and powers
and be subject to all the restrictions and liabilities of a partner in a
partnership without limited partners. However, without the
written consent or ratification of the specific act by all the limited
partners, a general partner or all of the general partners have no
authority to:
(1) Do any act in contravention of the certificate;
(2) Do any act which would make it impossible to carry
on the ordinary business of the partnership;
(3) Confess a judgment against the partnership;
(4) Possess partnership property, or assign their rights in
specific partnership property, for other than a
partnership purpose;
(5) Admit a person as a general partner;
(6) Admit a person as a limited partner, unless the right
so to do is given in the certificate;
(7) Continue the business with partnership property on
the death, retirement, insanity, civil interdiction or
insolvency of a general partner, unless the right so to do
is given in the certificate.
Article 1851. A limited partner shall have the same rights as a
general partner to:
(1) Have the partnership books kept at the principal place
of business of the partnership, and at a reasonable hour
to inspect and copy any of them;
(2) Have on demand true and full information of all things
affecting the partnership, and a formal account of
partnership affairs whenever circumstances render it just
and reasonable; and
(3) Have dissolution and winding up by decree of court.
A limited partner shall have the right to receive a share of
the profits or other compensation by way of income, and
to the return of his contribution as provided in articles
1856 and 1857.
POWER TO CONTRACT
A limited partner has no power to bind the partnership by a
contract.
Article 1852. Without prejudice to the provisions of article 1848, a
person who has contributed to the capital of a business conducted
by a person or partnership erroneously believing that he has
become a limited partner in a limited partnership, is not, by reason
of his exercise of the rights of a limited partner, a general partner
with the person or in the partnership carrying on the business, or
bound by the obligations of such person or partnership, provided
that on ascertaining the mistake he promptly renounces his
interest in the profits of the business, or other compensation by
way of income.
NOTE: A person advancing money to a limited partner and who deny
that they are partners are within the protection of the provision. It
covers all cases where one has contributed to the capital of a
business conducted by the partnership or person erroneously
believing that he is a limited partner.
Relate to 1848 which seems to be the only XPN to the right of a
partner to take advantage of the provisions of the article.
Article 1853. A person may be a general partner and a limited
partner in the same partnership at the same time, provided that
this fact shall be stated in the certificate provided for in article
1844.
A person who is a general, and also at the same time a limited
partner, shall have all the rights and powers and be subject to all
the restrictions of a general partner; except that, in respect to his
contribution, he shall have the rights against the other members
which he would have had if he were not also a general partner.
NOTE: A person may be both a general partner and a limited partner
in the same partnership at the same time subject to the condition
that this fact be stated in the certificate provided for in Art. 1844
(Pineda, 2006).
Right of such person: Such person shall have all the rights and
powers and be subject to all restrictions of a general partner. Thus,
he is liable with his private property to the creditors of the
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
partnership. As regards his contribution, he shall have the rights as a
limited partner as against the other members. If he was ordered to
rd
pay 3 persons, he would be entitled to recover what he has paid;
further, he shall have priority over general partners in the return of
their respective contributions (Pineda, 2006).
Article 1854. A limited partner also may loan money to and
transact other business with the partnership, and, unless he is also
a general partner, receive on account of resulting claims against
the partnership, with general creditors, a pro rata share of the
assets. No limited partner shall in respect to any such claim:
(1) Receive or hold as collateral security any partnership
property, or
(2) Receive from a general partner or the partnership any
payment, conveyance, or release from liability if at the
time the assets of the partnership are not sufficient to
discharge partnership liabilities to persons not claiming
as general or limited partners.
The receiving of collateral security, or payment, conveyance, or
release in violation of the foregoing provisions is a fraud on the
creditors of the partnership.
NOTE: The relationship between a limited partner and the
partnership is not based on trust and confidence. A limited partner is
not prohibited from engaging in business for himself is not
prohibited from engaging in business for himself even if such
business will complete with the one being conducted by the
partnership (Pineda, 2006).
SHARING PRO RATA WITH GENERAL CREDITORS:
GR: A limited partner is entitled to a pro rata share of the
partnership assets together with the creditors of the partnership
XPN: Unless he is also a general partner
TRANSACTIONS PROHIBITED OF LIMITED PARTNERS (Presumption
of Fraud):
1. Receiving or holding as collateral security any partnership
property
2. Receiving any payment, conveyance, or release from
liability if it will prejudice the right of third persons
(Pineda, 2006)
Article 1855. Where there are several limited partners the
members may agree that one or more of the limited partners shall
have a priority over other limited partners as to the return of their
contributions, as to their compensation by way of income, or as to
any other matter. If such an agreement is made it shall be stated in
the certificate, and in the absence of such a statement all the
limited partners shall stand upon equal footing.
NOTE: The article applies only when there are several limited
partners. It finds no applicability if there is only one.
SCOPE OF PREFERENCES:
1. The return of contributions
2. Compensation by way of income
3. Other matters where some benefit is granted (Pineda,
2006)
Article 1856. A limited partner may receive from the partnership
the share of the profits or the compensation by way of income
stipulated for in the certificate; provided, that after such payment
is made, whether from property of the partnership or that of a
general partner, the partnership assets are in excess of all liabilities
of the partnership except liabilities to limited partners on account
of their contributions and to general partners.
Article 1857. A limited partner shall not receive from a general
partner or out of partnership property any part of his contributions
until:
(1) All liabilities of the partnership, except liabilities to
general partners and to limited partners on account of
their contributions, have been paid or there remains
property of the partnership sufficient to pay them;
(2) The consent of all members is had, unless the return
of the contribution may be rightfully demanded under
the provisions of the second paragraph; and
(3) The certificate is cancelled or so amended as to set
forth the withdrawal or reduction.
Subject to the provisions of the first paragraph, a limited
partner may rightfully demand the return of his
contribution:
(1) On the dissolution of a partnership; or
(2) When the date specified in the certificate for
its return has arrived, or
(3) After he has six months' notice in writing to
all other members, if no time is specified in the
certificate, either for the return of the
contribution or for the dissolution of the
partnership.
In the absence of any statement in the certificate to the contrary or
the consent of all members, a limited partner, irrespective of the
nature of his contribution, has only the right to demand and
receive cash in return for his contribution.
A limited partner may have the partnership dissolved and its
affairs wound up when:
(1) He rightfully but unsuccessfully demands the return of
his contribution, or
(2) The other liabilities of the partnership have not been
paid, or the partnership property is insufficient for their
payment as required by the first paragraph, No. 1, and
the limited partner would otherwise be entitled to the
return of his contribution.
LIABILITY AFTER WITHDRAWAL
If the assets are not sufficient to pay debts, the limited partner is
liable for all sums withdrawn by him, but insufficiency of assets must
be alleged in an action against him.
The obligation of a limited partner who has withdrawn from the
partnership to CRs of the firm in which he was a partner can be
discharged by nothing less than payment, notwithstanding that at
the time of his withdrawal the assets left with the general partners
were insufficient to discharge the outstanding liabilities.
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
Liability is limited to the capital contribution as long as it is left at the
risk of the business. When withdrawn, the interest presumably
earned must be included as part of the sum available to CRs.
TIME WHEN RETURN OF CONTRIBUTION MAY BE DEMANDED:
1. On the dissolution of the limited partnership
2. On the arrival of the date specified in the certificate
3. On the lapse of 6 months from notice in writing to all other
members if no time is specified for the date of the return
or dissolution (Pineda, 2006).
GR: Return of the contribution should be in cash
XPN: He may receive his contribution in another form, if there is a
statement to that effect in the certificate, or even if none, if all the
partners give their consent (Pineda, 2006).
Article 1858. A limited partner is liable to the partnership:
(1) For the difference between his contribution as
actually made and that stated in the certificate as having
been made, and
(2) For any unpaid contribution which he agreed in the
certificate to make in the future at the time and on the
conditions stated in the certificate.
A limited partner holds as trustee for the partnership:
(1) Specific property stated in the certificate as
contributed by him, but which was not
contributed or which has been wrongfully
returned, and
(2) Money or other property wrongfully paid or
conveyed to him on account of his contribution.
The liabilities of a limited partner as set forth in
this article can be waived or compromised only
by the consent of all members; but a waiver or
compromise shall not affect the right of a
creditor of a partnership who extended credit
or whose claim arose after the filing and before
a cancellation or amendment of the certificate,
to enforce such liabilities.
When a contributor has rightfully received the return in whole or
in part of the capital of his contribution, he is nevertheless liable to
the partnership for any sum, not in excess of such return with
interest, necessary to discharge its liabilities to all creditors who
extended credit or whose claims arose before such return.
EXCEPTIONS TO THE GENERAL RULE ON THE NON-LIABILITY:
1. When he contributes services instead of only money or
property
2. When his surname appears in the firm name
3. When there is a false statement in the certificate or
articles of partnership which he knows and failed to
correct on time
4. When he participates and takes part in the control of the
business of the firm
5. When he commits fraud on the creditors of the
partnership under Art. 1854
6. When there is failure to comply with the requisites for the
formation of limited partnership (Pineda, 2006)
RESPONSIBILITIES OF A LIMITED PARTNER:
1. Difference between his actual contribution and that stated
in the certificate as having been made
2. Unpaid contributions which he agreed to make at specified
future time and on the conditions stated in the certificate
(Pineda, 2006)
NOTE: The liabilities of a limited partner may be waived by the
partnership if all the members of the partnership give their consent.
If one disagrees, no waiver can be effected (Pineda, 2006).
Article 1859. A limited partner's interest is assignable.
A substituted limited partner is a person admitted to all the rights
of a limited partner who has died or has assigned his interest in a
partnership.
An assignee, who does not become a substituted limited partner,
has no right to require any information or account of the
partnership transactions or to inspect the partnership books; he is
only entitled to receive the share of the profits or other
compensation by way of income, or the return of his contribution,
to which his assignor would otherwise be entitled.
An assignee shall have the right to become a substituted limited
partner if all the members consent thereto or if the assignor, being
thereunto empowered by the certificate, gives the assignee that
right.
An assignee becomes a substituted limited partner when the
certificate is appropriately amended in accordance with article
1865.
The substituted limited partner has all the rights and powers, and
is subject to all the restrictions and liabilities of his assignor, except
those liabilities of which he was ignorant at the time he became a
limited partner and which could not be ascertained from the
certificate.
The substitution of the assignee as a limited partner does not
release the assignor from liability to the partnership under articles
1847 and 1858.
SUBSTITUTED LIMITED PARTNER: A person admitted to all the rights
of a limited partner who has died or has assigned his interest in a
partnership (Pineda, 2006)
NOTE: Limited partner’s interest in the partnership is assignable. On
the other hand, a general partner cannot assign his interest in the
partnership as to make the assignee a new partner without the
consent of the other partner/s (Pineda, 2006).
Q: When may an assignee become a substituted partner?
A:
1. If all the members of the partnership consent thereto; or
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
2. When the assignor who is empowered in the Articles of
Partnership gives the assignee the right to become a
substituted limited partner.
Yet, it is still required that the certificate or articles of partnership be
properly amended in accordance with Art. 1865.
After the amendment, the assignee becomes a substituted limited
partner.
Rights of substituted limited partner
1. To acquire any information or account of the partnership
transactions; and
2. To inspect the partnership books (Pineda, 2006).
Liability of the substituted limited partner
He shall be subject to all restrictions and liabilities of the assigning
limited partner (Pineda, 2006).
XPN: Those liabilities he was ignorant at the time he became a
limited partner and could not be ascertained in the certificate or
th
articles of partnership (Art. 1859, 6 par.) (Pineda, 2006).
The fact that the assignee has become a substituted limited partner
does not relive the limited partner of all liabilities to the partnership
vis-à-vis a person who relied on a false statement in the certificate
of partnership.
Neither is the assignor relieved of his responsibility under Art. 1858
which states that the liabilities of a limited partner specially to all
CRs who extended credit to the partnership or whose claims arose
before the return of his capital (Pineda, 2006).
Status and rights of an assignee who did not become a substituted
limited partner
He shall remain a mere assignee. Thus, he cannot require, as a
matter of right, information or account of the partnership
transactions or affairs, neither can he inspect the partnership books.
He has the right to receive the share of the profits or other
compensation by way of income or the return of his contribution to
which his assignor would otherwise be entitled (Pineda, 2006).
Article 1860. The retirement, death, insolvency, insanity or civil
interdiction of a general partner dissolves the partnership, unless
the business is continued by the remaining general partners:
(1) Under a right so to do stated in the certificate, or
(2) With the consent of all members.
This article applies to the retirement, death, insolvency, insanity or
civil interdiction of a general partner. The limited partnership is
dissolved by the retirement, death, insolvency, insanity or civil
interdiction of a general partner.
But if the partner involved is a limited partner, the presence of any
of the said circumstances will not dissolve the partnership.
XPN: The limited partnership is not dissolved even if a general
partner is involved in any of the above 5 circumstances provided the
business is conducted by the remaining general partners under a
right stated in the certificate or even if not so stated, when all the
members have given their consent to the continuation of the
business (Pineda, 2006).
In any event, the certificate must be amended to reflect the
continuation of the business by the remaining general partners
(Pineda, 2006).
Article 1861. On the death of a limited partner his executor or
administrator shall have all the rights of a limited partner for the
purpose of setting his estate, and such power as the deceased had
to constitute his assignee a substituted limited partner.
The estate of a deceased limited partner shall be liable for all his
liabilities as a limited partner.
The article applies if one who died is a limited partner.
Rights of executor or administrator of the estate of the deceased
limited partner
He shall acquire all the rights of a limited partner for the purpose of
settling the estate (Pineda, 2006).
Liability of the estate of deceased limited partner
It shall be liable for all his obligations or liabilities to the partnership
as a limited partner (Pineda, 2006).
Article 1862. On due application to a court of competent
jurisdiction by any creditor of a limited partner, the court may
charge the interest of the indebted limited partner with payment
of the unsatisfied amount of such claim, and may appoint a
receiver, and make all other orders, directions and inquiries which
the circumstances of the case may require.
The interest may be redeemed with the separate property of any
general partner, but may not be redeemed with partnership
property.
The remedies conferred by the first paragraph shall not be deemed
exclusive of others which may exist.
Nothing in this Chapter shall be held to deprive a limited partner of
his statutory exemption.
The partner’s interest in the partnership consists of his share in the
profits and surplus.
Rights of CRs of limited partners to charge the interest of the
indebted limited partner
The CR may file a petition to charge the interest of the latter in the
partnership with the payment of the unsatisfied amount of the CRs
claim. This is a sort of a foreclosure of the interest of the indebted
limited partner for the satisfaction of the creditor’s claim (Pineda,
2006).
Redemption of charged interest
The charged interest may be redeemed with the separate property
of any general partner. It may not however be redeemed by any one
or more partners using partnership property, unless it is with the
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
consent of all partners whose interests are not charged (Pineda,
2006).
Charging of interest is not an exclusive remedy.
Article 1863. In settling accounts after dissolution the liabilities of
the partnership shall be entitled to payment in the following order:
(1) Those to creditors, in the order of priority as provided
by law, except those to limited partners on account of
their contributions, and to general partners;
(2) Those to limited partners in respect to their share of
the profits and other compensation by way of income on
their contributions;
(3) Those to limited partners in respect to the capital of
their contributions;
(4) Those to general partners other than for capital and
profits;
(5) Those to general partners in respect to profits;
(6) Those to general partners in respect to capital.
Subject to any statement in the certificate or to subsequent
agreement, limited partners share in the partnership assets in
respect to their claims for capital, and in respect to their claims for
profits or for compensation by way of income on their contribution
respectively, in proportion to the respective amounts of such
claims.
The article applies to liquidation of a limited partnership.
The article applies only after the limited partnership had been
dissolved.
The following are the causes of dissolution:
1. Retirement, death, insolvency, insanity or civil interdiction
of a general partner;
2. When all limited partners ceased to be such;
3. Expiration of the term or period of existence of the
partnership;
4. By agreement of all partners before the lapse of the period
of existence;
5. Misconduct of a general partner or fraud committed by a
general partner against limited partner/s; and
6. When the limited partner demanded the return of his
contribution but the same was unjustifiably denied.
7. Other causes: Art. 1830 and 1831.
Settling of accounts/liabilities after dissolution of a limited
partnership
(1) Those to creditors, in the order of priority as provided by law,
except those to limited partners on account of their contributions,
and to general partners;
The pertinent laws on concurrence and preference of credit shall be
applicable.
(2) Those to limited partners in respect to their share of the profits
and other compensation by way of income on their contributions;
(3) Those to limited partners in respect to the capital of their
contributions;
(4) Those to general partners other than for capital and profits;
(5) Those to general partners in respect to profits;
(6) Those to general partners in respect to capital.
It is notable that limited partners are given priority over general
partners.
Winding up of the limited partnership affairs
It is the general and not the limited partners who have the duty and
power to wind-up the partnership’s affairs.
Proportionate sharing by limited partners
If there is no agreement in the certificate, the limited partners shall
share in the partnership assets and profits in proportion to the
respective amounts of their claims.
Priority of claims among the limited partners
The members of limited partners may include in the partnership
articles an agreement for priority of distribution on the winding up
of partnership affairs. Such agreement becomes controlling as
between the partners themselves. In the absence of such an
agreement, all limited partners shall stand on equal footing.
Creditors are given priority of payment over both limited and
general partners in case of insolvency of the partnership (Pineda,
2006).
Article 1864. The certificate shall be cancelled when the
partnership is dissolved or all limited partners cease to be such.
A certificate shall be amended when:
(1) There is a change in the name of the partnership or in
the amount or character of the contribution of any
limited partner;
(2) A person is substituted as a limited partner;
(3) An additional limited partner is admitted;
(4) A person is admitted as a general partner;
(5) A general partner retires, dies, becomes insolvent or
insane, or is sentenced to civil interdiction and the
business is continued under article 1860;
(6) There is a change in the character of the business of
the partnership;
(7) There is a false or erroneous statement in the
certificate;
(8) There is a change in the time as stated in the
certificate for the dissolution of the partnership or for the
return of a contribution;
(9) A time is fixed for the dissolution of the partnership,
or the return of a contribution, no time having been
specified in the certificate, or
(10) The members desire to make a change in any other
statement in the certificate in order that it shall
accurately represent the agreement among them.
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
EFFECT OF FAILURE TO AMEND
Failure to amend the certificate under this article and business is
continued after the time fixed, the limited partner is liable generally.
Cancellation of Certificate or Articles of Partnership
Q: When shall the certificate be cancelled?
A:
1. When the partnership is dissolved; and
2. When all limited partners cease to be such. There can be
no limited partnership if there is no limited partner
(Pineda, 2006).
Amendment of certificate of articles of partnership
The certificate or articles will not be cancelled but shall only be
amended in case any of the 10 changes and circumstances has
transpired or is present.
The purpose of the cancellation or amendment is to put on inquiry
all persons who may deal with the partners or with the partnership
itself about the status of the partnership so they cannot claim later
that they were misled.
Article 1865. The writing to amend a certificate shall:
(1) Conform to the requirements of article 1844 as far as
necessary to set forth clearly the change in the certificate
which it is desired to make; and
(2) Be signed and sworn to by all members, and an
amendment substituting a limited partner or adding a
limited or general partner shall be signed also by the
member to be substituted or added, and when a limited
partner is to be substituted, the amendment shall also be
he signed by the assigning limited partner.
The writing to cancel a certificate shall be signed by all
members.
A person desiring the cancellation or amendment of a
certificate, if any person designated in the first and
second paragraphs as a person who must execute the
writing refuses to do so, may petition the court to order a
cancellation or amendment thereof.
If the court finds that the petitioner has a right to have the writing
executed by a person who refuses to do so, it shall order the Office
of the Securities and Exchange Commission where the certificate is
recorded, to record the cancellation or amendment of the
certificate; and when the certificate is to be amended, the court
shall also cause to be filed for record in said office a certified copy
of its decree setting forth the amendment.
A certificate is amended or cancelled when there is filed for record
in the Office of the Securities and Exchange Commission, where the
certificate is recorded:
(1) A writing in accordance with the provisions of the first
or second paragraph, or
(2) A certified copy of the order of the court in
accordance with the provisions of the fourth paragraph;
(3) After the certificate is duly amended in accordance
with this article, the amended certified shall thereafter
be for all purposes the certificate provided for in this
Chapter.
REQUISITES FOR THE AMENDMENT OF THE CERTIFICATE OF
PARTNERSHIP:
1. The amendment must conform with Art. 1844 setting forth
clearly the change desired in the certificate. The
amendment must be in writing and under oath
2. It must be signed and sworn to by all the members
including the new members if some are added; in case of
substitution, the assigning limited partner must also sign
3. The amended certificate must be filed with the SEC
(Pineda, 2006).
REQUISITES FOR THE CANCELLATION OF CERTIFICATE OF
PARTNERSHIP:
1. The instrument of cancellation must be signed by all the
members
2. The instrument of cancellation must be recorded with the
SEC. If the cancellation is by order of the court, a
certification of the final order of the court must be filed
with the SEC (Pineda, 2006).
Q: When is a certificate deemed amended or cancelled?
A: It is deemed amended or cancelled by the filing of the amended
certificate or the instrument of cancellation with the SEC (Pineda,
2006).
Article 1866. A contributor, unless he is a general partner, is not a
proper party to proceedings by or against a partnership, except
where the object is to enforce a limited partner's right against or
liability to the partnership.
LIMITED PARTNER IS A MERE CONTRIBUTOR: The article referred to
the limited as a mere contributor to stress the point that as a
general rule, he cannot be a proper party in a case for or against the
partnership. The reason for this is that a limited partner is not a
principal party in the partnership transactions. His liability is not to
the creditors of the partnership but to the partnership itself (Pineda,
2006).
Q: When can a limited partner be a proper party in a suit as such?
A: If the object of the action is to enforce his individual rights against
the partnership as authorized in Art. 1851. He can be a defendant in
an action filed against him by the partnership to enforce his liability
to the latter (Pineda, 2006).
Article 1867. A limited partnership formed under the law prior to
the effectivity of this Code, may become a limited partnership
under this Chapter by complying with the provisions of article
1844, provided the certificate sets forth:
(1) The amount of the original contribution of each
limited partner, and the time when the contribution was
made; and
(2) That the property of the partnership exceeds the
amount sufficient to discharge its liabilities to persons
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
not claiming as general or limited partners by an amount
greater than the sum of the contributions of its limited
partners.
A limited partnership formed under the law prior to the
effectivity of this Code, until or unless it becomes a
limited partnership under this Chapter, shall continue to
be governed by the provisions of the old law.

REFERENCES:

 DE LEON, HECTOR S., The Law on Sales, Agency, and Credit

Transactions, Rex Bookstore, Inc., 2005
 PINEDA, ERNESTO L., Partnership, Agency and Trusts, Central
Book Publishing, Co., Inc., 2006
 TOLENTINO, ARTURO M., Commentaries and Jurisprudence on
the Civil Code of the Philippines, Vol. V., Central Book
Publishing, Co., Inc. 1991
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________

Title X. - AGENCY Q: What is the purpose of agency?

CHAPTER 1 A: It is to extend the personality of the principal.

NATURE, FORM AND KINDS OF AGENCY
Q: Who are the parties to the contract?
Art. 1868. By the contract of agency a person binds himself to
render some service or to do something in representation or on A:
behalf of another, with the consent or authority of the latter.
(1709a) 1. Principal—one whom the agent represents and from
whom he derives his authority; he is the person
Q: What is a contract of agency? represented; and
2. Agent—one who acts for and represents another; he is the
A: It is a relationship which implies a power in an agent to contract person acting in a representative capacity.
with a third person on behalf of a principal.
CAPACITY OF THE PARTIES
It is this power to affect the principal’s contractual relations with
third persons that differentiates the agent from the EE, the servant, Any person who is capacitated to act in his own right may be a
and the independent contractor. principal.

Q: What are the characteristics of a contract of agency? In case of an agent, since he assumes no personal liability, he does
not have to possess full capacity to act insofar as third persons are
A: The contract of agency is a: concerned.

a. Consensual contract; But persons who are absolutely incapacitated, such as insane
b. Principal because it can stand by itself without the need of persons cannot be agents. Insofar as his obligations to his principal
another contract; are concerned, agent must be competent to bind himself.
c. Nominate because it has its own name;
d. Unilateral if it is gratuitous because it creates obligations Q: What are the acts that may be delegated to agents?
for only one of the parties—the agent; or bilateral if it is
for compensation because it gives rise to reciprocal rights A:
and obligations; and
e. Preparatory because it is entered into as a means to an G.R: What a man may do in person, he may do thru another.
end—creation for other contracts.
XPN:
Q: What are the essential elements of agency?
1. Personal acts—if personal performance is required by law
A: or public policy or the agreement of the parties, the doing
of the act by a person on behalf of another does not
1. There is consent, express or implied, of the parties to constitute performance by the latter.
establish the relationship;
2. The object is the execution of a juridical act in relation to E.g. right to vote, making of a will, statements which are
third persons; required to be made under oath should be made
3. The agent acts as representative and not for himself; and personally.
4. The agent acts within the scope of his authority.
2. Criminal acts or acts not allowed by law—an attempt to
NATURE, BASIS AND PURPOSE OF AGENCY delegate to another authority to do an act which, if done
by the principal would be illegal, is void.
 Agency is both a contract and a representation.
 As a contract, the following requisites must concur: E.g. aliens cannot purchase land through a Filipino agent.
a. Consent of the contracting parties;
b. Object which is the subject matter of the contract; Q: What are the distinctions between agency and loan contracts?
and
c. Cause which is established. A:

 As a representative relation—the agent renders some service AGENCY LOAN

or does something in representation or on behalf of another. An agent is given funds by Barrower is given money for
 Representation constitutes the basis of agency. principal to advance the latter’s purposes of his own and he
 The acts of the agent on behalf of the principal within the scope business must generally return it whether
of his authority produce the same legal effect as if they were or not his own business is
personally done by the principal. successful;
 The relation of an agent to his principal is fiduciary in character
since it is based on trust and confidence. Q: What is the difference between agency and lease of service?
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
Q: What is the difference between agency and negotiorum gestio?
A:
A:
AGENCY LEASE OF SERVICE
The agent executes a juridical Lessor of services performs a AGENCY NEGOTIORIUM GESTIO
act on behalf of another material act for the benefit of In both cases, there is representation
another. Representation is expressly It is only without the authority
Basis is representation Basis is service, it is conferred; of the owner of the business but
employment; is without his knowledge;
Agent exercises discretionary The servant ordinarily performs Agent acts according to the Gestor acts according to the
powers only ministerial functions express will of the principal; presumed will of the owner by
exercising all the diligence of a
TOLENTINO: The legal possibility of an agency without good father of a family.
representation may be inferred from the provisions of Article 1883, A contract A quasi-contract
particularly the last paragraph: Implied agency is founded on There is no simultaneous
the lack of contradiction or consent, either express or
Art. 1883. If an agent acts in his own name, the opposition which constitutes the implied, but fiction or
principal has no right of action against the simultaneous agreement on the presumption of consent because
persons with whom the agent has contracted; part of the presumed principal of the benefits received.
neither have such persons against the principal. to the execution of the contract

In such case the agent is the one directly bound Q: What is the difference between agency and brokerage?
in favor of the person with whom he has
contracted, as if the transaction were his own, A:
except when the contract involves things
belonging to the principal. AGENCY BROKERAGE
A commission agent is engaged Has no relation with the thing he
The provisions of this article shall be
in the purchase or sale for buys or sells; merely an
understood to be without prejudice to the
another of personal property intermediary between the
actions between the principal and agent. (1717)
which, for this purpose is placed purchaser and the vendor.
in his possession and at his
The existence of an agency is perfectly consistent with the
disposal. His only office is to bring
circumstances that the agent acts exclusively in his own name. The
together the parties to the
true essence of the distinction in such case, between lease of
He maintains a relation not only transaction.
services and agency, lies in that the agent enters or is designed to
with his principal and the
enter into juridical relations, with or without representation of the
purchaser or vendor, but also
principal.
with the property which is the
subject matter of the
Q: What is the difference between agency and independent
transaction.
contract?
NO AGENCY IN IMPERSONATION: There is no agency in
A:
impersonation.
AGENCY INDEPENDENT CONTRACT
Illustration: Thus, if Juan pretends to be Pedro, and enters into a
Agent is subject to the control Where one part undertakes to
contract with Jose, who thinks he is contracting actually with Pedro,
and direction of the principal accomplish a certain result
there is no agency. The element of representation is absent. On the
whom he represents. according to his own methods
part of Jose, there is no knowledge that the contract is on behalf of a
and without being subject to
person other than the one before him or with whom he is
other party’s control except as
negotiating. And on the part of Juan, he is not acting in another’s
to the result of the work—the
name, but under another name. This is Juan’s own contract, binding
contract is one for a piece of
upon him, unless it is annulled on the ground of error or fraud on
work.
the part of Jose.
Q: What is the difference between agency and partnership? ACTS SUSCEPTIBLE OF AGENCY:
A: GR: Agency is admissible in all contracts or acts

AGENCY PARTNERSHIP XPNs:

Agent acts only for his principal Partner acts not only for his co-
partners and the partnership but 1. Entering into a marriage contract
also as principal of himself. 2. Making of wills and testaments
3. The presence of the accused during trial of a criminal case
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
NOTE: The spouses, as between themselves, can enter into a
contract of agency.
CREATION OF AGENCY: The testimony of the person who drafted
the contract that his purpose was to establish an agency does not
determine its nature; the parties did not perform the contract in
accordance with its terms and conditions with its terms and a
contract must be considered, not as the parties stipulated, but as
they performed it. The mere use of the term “agency” in one clause
cannot dominate the whole contract.
CAPACITY OF PARTIES: Both parties must have capacity to give
consent. If any special capacity is required for the act entrusted to
the agent, it is the principal and not the agent who must have
special capacity in addition to the general capacity to contract.
Ratio: It is the principal who will receive the benefits and incur the
obligations or losses arising therefrom.
CAPACITY OF AGENT: No particular capacity is required for the
agent, so long as he has sufficient intelligence and freedom of will.
But with respect to his obligations and responsibilities towards the
principal, the agent must have the capacity to bind himself.
NOTE: An incapacitated agent can set up his incapacity against his
principal, and such agent would be liable to the principal only in
cases of illicit acts and unjust enrichment. The law does not sanction
such fraudulent acts.
RELATION OF PRINCIPAL AND AGENT: The relations of an agent to
his principal are fiduciary and in regard to the property forming the
subject matter of an agency, he is stopped from acquiring or
asserting title adverse to that of the principal.
Art. 1869. Agency may be express, or implied from the acts of the
principal, from his silence or lack of action, or his failure to
repudiate the agency, knowing that another person is acting on his
behalf without authority.
Agency may be oral, unless the law requires a specific form.
(1710a)
Q: What are the kinds of agency?
A:
1. As to the manner of its creation:
a. Express-the agent has been actually authorized by the
principal either orally or in writing;
b. Implied- implied from the acts of the principal, from his
silence or lack of action or his failure to repudiate the
agency, knowing that another person is acting on his
behalf without authority.
2. As to its character:
a. Gratuitous- one where the agent receives no
compensation for his services; or
b. Compensated or onerous- one where the agent receives
compensation for his services.
3. As to extent of business covered:
a. General-one which comprises all the business of the
principal; or
b. Special-one which comprises one or more specific
transactions.
4. As to authority conferred:
a. Couched in general terms-one which is created in general
terms and is deemed to comprise only acts of
administration;
b. Couched in specific terms-one authorizing only the
performance of a specific act or acts.
5. As to its nature and effects:
a. Ostensible or representative- one where the agent acts in
the name and representation of the principal;
b. Simple or commission- one where the agent acts for the
account of the principal but in his own name.
Q: What is the required form of agency?
A: There are no formal requirements governing the appointment of
an agent. It may be oral or written. It may even be implied from the
circumstances.
Art. 1870. Acceptance by the agent may also be express, or implied
from his acts which carry out the agency, or from his silence or
inaction according to the circumstances. (n)
Q: What is the required form of acceptance by agent?
A: As a contract, there must be consent by both parties. It can be
express or implied.
Art. 1871. Between persons who are present, the acceptance of
the agency may also be implied if the principal delivers his power
of attorney to the agent and the latter receives it without any
objection. (n)
PRESUMPTION: This article presumes the acceptance of the agency;
but such presumption is only prima facie, and may be defeated by
proof to the contrary.
NOTE: As regards implied acceptance by agent, the law distinguishes
between cases:
a. Where persons are present; and
b. Where persons are absent.
An agency is impliedly accepted if the agent receives a power of
attorney from the principal himself personally without any
objection, both being present.
Q: What is a power of attorney?
A: It is a written authorization to an agent to perform specified acts
in behalf of his principal which acts, when performed, shall have
binding effect on the principal.
Art. 1872. Between persons who are absent, the acceptance of the
agency cannot be implied from the silence of the agent, except:
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
(1) When the principal transmits his power of attorney to the
agent, who receives it without any objection;
(2) When the principal entrusts to him by letter or telegram a
power of attorney with respect to the business in which he is
habitually engaged as an agent, and he did not reply to the letter
or telegram. (n)
NOTE: In the cases contemplated by this article, the acceptance of
the agency is not compulsory; but the agent wants to refuse it, he
must act immediately, so that his silence may not be interpreted as
an acceptance, and so he may not incur responsibilities.
If both the P and the A are absent, acceptance by the agent is not
implied from his silence or inaction. Yet, in 2 cases under Art. 1872,
agency is implied.
Q: When is there an implied acceptance?
A: If the agent writes a letter acknowledging receipt of power of
attorney but offers no objection to the creation of the agency.
NOTE: His failure to give reply however does not mean that the
agency has been accepted unless the power of attorney is with
respect to the business on which he is habitually engaged as an
agent or the acceptance could be inferred from his acts which carry
out the agency as when he begins to act under the authority
conferred upon him.
In 1872, the principal transmits the power of attorney to the agent
while in 1871 he personally delivers the power of attorney to the
agent.
RECEIPT WITHOUT OBJECTION: Under the first paragraph, the mere
fact that the agent does not answer refusing the agency, cannot be
interpreted as an acceptance. The retention of the power of
attorney is not a clear proof of acceptance in this case as when it is
delivered personally; the failure to answer may be merely due to
negligence on the part of the agent, or to his desire to deliberate on
whether to accept or not.
Under the second paragraph, the acceptance is implied from the
failure to reply to the letter or telegram; therefore, in cases falling
outside of par.2. more than mere failure to reply is required. The
court should consider all the special circumstances of each case to
determine whether there has been an acceptance or not.
Art. 1873. If a person specially informs another or states by public
advertisement that he has given a power of attorney to a third
person, the latter thereby becomes a duly authorized agent, in the
former case with respect to the person who received the special
information, and in the latter case with regard to any person.
The power shall continue to be in full force until the notice is
rescinded in the same manner in which it was given. (n)
Q: What are the ways of giving notice of agency?
A:
1. If by special information, the person appointed as agent is
considered such with respect to the person to whom it was
given;
2. If by public advertisement, the agent as such with regard to any
person.
Q: What is the manner of revocation of agency?
A: A Power Of Attorney (POA) must be revoked in the same manner
in which it was given.
NOTE: If the agency has been entrusted for the purpose of
contracting with specified persons, its revocation shall not prejudice
the latter if they were not given notice thereof.
Art. 1874. When a sale of a piece of land or any interest therein is
through an agent, the authority of the latter shall be in writing;
otherwise, the sale shall be void. (n)
NOTE: Sale for a piece of land or any interest thereon like usufruct,
mortgage, etc. through an agent is void unless the authority of the
agent is in writing.
This article speaks only of an agency for sale of a piece of land or any
interest therein.
Illustration: Where the owner of certain parcels of land left them in
the care of his sister as his agent, and later, while absent, wrote to
her to sell one parcel of land which she did, it has been held that the
latter containing the authority to sell was sufficient.
Art. 1875. Agency is presumed to be for a compensation, unless
there is proof to the contrary. (n)
NOTE: The principal must pay the agent the compensation agreed
upon, or the reasonable value of the agent’s services if no
compensation was specified. This presupposes however that the
agent has complied with his obligation as such to the principal.
But a broker, not having quite succeeded in bringing the minds of
the buyer and seller to an agreement in regard to the terms of the
sale, is not entitled to the commission, nor if his exclusive authority
to such has expired. To be entitled to commission, it is not sufficient
for him to find a buyer but to find one who will actually buy the
property on the terms and conditions imposed by the owner.
EFFICIENT-AND-PROCURING CLAUSE: That special condition in a
contract entitling the broker to the stipulated commission when the
property is sold within a certain period following the expiration of
the agency agreement to a purchase procured by the broker during
the life of such agency, does not justify a departure from the rule
that the broker must be the efficient agent or procuring cause of the
sale.
The efficient-and-procuring clause is synonymous with the ready-
willing-and-able rule, and these words provide off the test in
determining whether the agent was the procuring cause of the sale.
Art. 1876. An agency is either general or special.
The former comprises all the business of the principal. The latter,
one or more specific transactions. (1712)
Q: What are the classifications of agents?
A:
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
1. Universal agent or one authorized to do all acts that the
principal may personally do, which he can lawfully delegate to
another the power of doing;
2. A general agent or one authorized to transact alld the business
of the principal, or all business of a particular kind or in a
particular place, or in other words to do all acts, connected with
a particular trade, business, or employment;
3. A special or particular agent or one authorized to act with one
or more specific transactions or to act upon a particular
occasion.
Art. 1877. An agency couched in general terms comprises only acts
of administration, even if the principal should state that he
withholds no power or that the agent may execute such acts as he
may consider appropriate, or even though the agency should
authorize a general and unlimited management. (n)
Q: What is an agency couched in general terms?
A: It includes only acts of administration and an express power is
necessary to perform any act of strict ownership even if the principal
states:
a. That he withholds no power;
b. That the agent may execute such acts as he may consider
appropriate; or
c. That he authorizes a general or unlimited management.
Q: What is the meaning of acts of administration?
A: Those which do not imply the authority to alienate for the
exercise of which an express power is necessary.
Unless the contrary appears, the authority of the agent is presumed
to include all the necessary and usual means to carry out the agency
into effect.
Examples:
1. The right to commence suits to collect debts owing to the
principal
2. To appoint servants or employees of a firm
Art. 1878. Special powers of attorney are necessary in the
following cases:
(1) To make such payments as are not usually considered as acts of
administration;
(2) To effect novations which put an end to obligations already in
existence at the time the agency was constituted;
(3) To compromise, to submit questions to arbitration, to renounce
the right to appeal from a judgment, to waive objections to the
venue of an action or to abandon a prescription already acquired;
(4) To waive any obligation gratuitously;
(5) To enter into any contract by which the ownership of an
immovable is transmitted or acquired either gratuitously or for a
valuable consideration;
(6) To make gifts, except customary ones for charity or those made
to employees in the business managed by the agent;
(7) To loan or borrow money, unless the latter act be urgent and
indispensable for the preservation of the things which are under
administration;
(8) To lease any real property to another person for more than one
year;
(9) To bind the principal to render some service without
compensation;
(10) To bind the principal in a contract of partnership;
(11) To obligate the principal as a guarantor or surety;
(12) To create or convey real rights over immovable property;
(13) To accept or repudiate an inheritance;
(14) To ratify or recognize obligations contracted before the
agency;
(15) Any other act of strict dominion. (n)
SPECIAL POWERS: The power of attorney, as required by this article,
should expressly mention the act for which it is drawn. But such
special power can be included in a general power of attorney, either
by giving authority for all acts of a particular character or by
specifying therein the act or transaction for which a special power is
needed.
Illustration: When in a general power of attorney the agent is
authorized to sell the principal’s immovable property, such agent is
empowered to sell any real property of the principal, without the
necessity of a special power to sell for every specific property.
Q: Under what circumstances is a special power of attorney
necessary?
A: The following are general acts of strict dominion or ownership
and thus a special power of attorney is necessary for their execution
through an agent.
1. To make payment;
Q: What is payment?
A: It is the delivery of money or the performance in any other
manner of an obligation.
 An act of ownership because it involves conveyance of
ownership of money or property.
 But if payment is made in the ordinary course of management
it is considered as mere act of administration.
2. To effect novation;
Q: What is novation?
A: It is the extinction of an obligation through the creation of new
one which substitutes it by changing the object or principal
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
conditions thereof, substituting a debtor, or subrogating another in 10. To bind the principal in a contract of partnership;
the right of the creditor.
A contract of partnership creates an obligation and the fulfillment of
3. To compromise; which requires an act of strict ownership.

Q: What is a compromise? 11. To obligate the principal as guarantor or surety;

A: It is a contract whereby parties, by making reciprocal concessions, Q: What is a contract of guaranty?

avoid a litigation or put an end to one already commenced.
Q: What is arbitration?
A: It is where the parties submit their controversies to one or more
arbitrators for decision.
It is an act of ownership since they involve the possibility of
disposing of the thing or right subject of the compromise or
arbitration.
A: It is one where the guarantor binds himself to fulfill the obligation
of the principal debtor in case the latter should fail to do so. If the
person binds himself solidarily, he is a surety and the contract is
called suretyship.
A contract of guaranty is unenforceable unless it is made in writing.
12. To create or convey real rights over immovable property
belonging to his principal without special power;

The same applies with respect to the authority of the agent to 13. To accept or repudiate an inheritance;
waive:
14. To ratify obligations contracted before the agency;
a. The right to appeal from a judgment;
b. Objections to the venue of an action;
NOTE: Agent cannot effect novation of obligations existing at the
c. Prescription already acquired.
time of constitution of the agency unless he be especially authorized
to do so.
4. To waive an obligation gratuitously—condonation or
remission;
Similarly, he cannot ratify or recognize obligations contracted before
the agency without special power from the principal.
5. To convey or acquire immovable;
15. Any other act of strict dominion;
6. To make gifts;
NOTE: Sale or purchase of personal property;
Q: What are gifts or donation?
A power of attorney is valid although no notary public intervened in
A: It is an act of liberality whereby a person disposes gratuitously of its execution.
a thing or right in favor of another who accepts it.
Art. 1879. A special power to sell excludes the power to mortgage;
NOTE: But the making of customary gifts for charity, or those made and a special power to mortgage does not include the power to
to employees in the business managed by the agent are considered sell. (n)
as acts of administration.
POWER TO SELL: A power to sell must be understood as for cash,
7. To loan or borrow money; and not on credit, unless the latter is expressly authorized. If the sale
is for cash the agent is also considered authorized to receive the
 In loan of money, the barrower is bound to pay the creditor an price.
equal amount of the same kind and quality.
 The agent is empowered to barrow money. By the nature of things, an agent cannot sell in a foreign country
 No. 7 refers to money and not to other fungible things. without making some kind of a contract, and if he had power to sell,
it would carry with it the authority to make and enter into the usual
8. To lease realty for more than 1 year; and customary contract for its sale.

In case of lease, the lessor gives to the lessee the enjoyment or use
of a thing for a price certain, and for a period which may be definite
or indefinite.
An unrecorded lease of real estate is not binding upon third persons.
An agreement for the leasing of real property for a longer period
than 1 year is unenforceable unless made in writing.
POWER TO RAISE MONEY: If the power is to raise a sum of money
for which purpose the agent is authorized to sell a particular real
property, or to avail himself of any other means, the agent is
considered as employed to mortgage the property. In this case the
real object of the agency is to raise the sum of money, and the sale
is merely one of the means indicated for attaining that object. But a
special power to mortgage real estate does not include the power to
contract loans for the principal.

9. To bind the principal to render service gratuitously; NOTE: The agent cannot sell or mortgage the property belonging to
the principal without special power;
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
In the absence of special authority, the sale of mortgage will be
unenforceable against the principal as the agent acted beyond his
powers.
Art. 1880. A special power to compromise does not authorize
submission to arbitration. (1713a)
While the principal may have confidence in the agent’s judgment,
the arbitrator may not possess the trust of the principal.
Art. 1881. The agent must act within the scope of his authority. He
may do such acts as may be conducive to the accomplishment of
the purpose of the agency. (1714a)
LIMITATION ON AUTHORITY: The powers and duties of an agent are
confined and limited to those which are specified and defined in his
power of attorney, which limitation is a notice to, and is binding
upon, the person dealing with such agent.
EFFECT OF UNAUTHORIZED ACTS: Where an agent or
representative, in entering into a contract on behalf of his principal,
exceeds his authority, the contract is not an absolute nullity, but
only voidable at the instance of the party who has been improperly
misrepresented.
When the agent exceeds the scope of his authority, only the
principal is prejudiced and the latter is the only one who can impugn
the former’s act. The agent becomes personally liable for the
damages.
NOTE: But where the powers of attorney are forged by an agent,
purporting to have been executed by the owners of certain
registered lands, and mortgages were made by such agent by virtue
thereof, it was held that such powers of attorney were without force
and effect, and the registration of the mortgages executed
thereunder were likewise null and void and could not in any way
prejudice the rights of the registered owners of the property in
question.
Art. 1882. The limits of the agent's authority shall not be
considered exceeded should it have been performed in a manner
more advantageous to the principal than that specified by him.
(1715)
Q: What is an authority of an agent?
A: It is the power of the agent to affect the legal relations of the
principal by acts done in accordance with the principal’s
manifestation of consent to him.
NOTE: The condition of the agency can be improved but not made
worse. The agent, therefore, is not deemed to have exceeded his
authority when he acts in a manner more advantageous to the
principal that that specified by the latter, because it is assumed that
if the principal were the one acting, he would have also followed the
more advantageous course.
This article refers to an advantage which can be obtained without
modifying the conditions, the form, or the object of the agency.
Thus, if an agent is empowered to sell for cash, and he sells on credit
at a higher price, he cannot allege the advantage of the higher price
to escape liability to the principal if the latter demands that the cash
price paid by him.
Q: Distinguish between power and authority.
A: Power is considered as the source or cause and the latter is the
effect.
NOTE: An agent with authority to do act has also the power to bind
the principal but the power may exist without authority.
So far as third persons are concerned, no distinction exists. An act
within the power of the agent is deemed within the scope of his
authority even if the agent has in fact exceeded the limits of his
authority.
Q: What are the different kinds of authority?
A:
1. Express-when it is conferred by words;
2. Implied-when it is incidental to the transaction or
reasonably necessary to accomplish the purpose of the
agency;
3. Apparent or ostensible-conferred by conduct or silence.
Ostensible authority is another name for authority by
estoppel;
4. General- refers to all the business of the principal;
5. Special- when it is limited only to one or more specific
transactions;
6. Authority by necessity-when it is demanded by virtue of
the existence of an emergency.
Q: What are the requisites in order that the principal may be
bound to third persons by the act of the agent?
A:
1. The agent must act within the scope of his authority; and
2. The agent must act on behalf of the principal.
Q: What if the agent acts without the authority or in excess or
beyond the scope of authority?
A: Such act shall be unenforceable, unless it is ratified, expressly or
impliedly, by the person on whose behalf it has been executed,
before it is revoked by the other contracting party.
NOTE: But the agent is not deemed to have exceeded the limits of
his authority should he perform the agency in a manner more
advantageous to the principal than that indicated by him. He is
authorized to do such acts as may be conducive to the
accomplishment of the purpose of the agency.
Q: When is the principal bound by the acts of the agent beyond his
powers?
A:
G.R: The principal is not bound by the acts of an agent beyond his
limited powers.
XPN:
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
1. Where the principal’s acts have contributed to deceive
third persons in good faith;
2. Where the limitations upon the power created by him
could not have been known by third persons;
3. Where the principal has placed in the hands of the agent
instruments signed by him in blank;
4. Where the principal has ratified the acts of the agent.
Art. 1883. If an agent acts in his own name, the principal has no
right of action against the persons with whom the agent has
contracted; neither have such persons against the principal.
In such case the agent is the one directly bound in favor of the
person with whom he has contracted, as if the transaction were his
own, except when the contract involves things belonging to the
principal.
The provisions of this article shall be understood to be without
prejudice to the actions between the principal and agent. (1717)
SCOPE OF THIS ARTICLE: The rule contained is applicable only to
cases where it is material to the third person to know with whom he
is contracting. But there are cases where it is immaterial to the third
person to know with whom he contracts. Thus, when a person
contracts with the driver of an ordinary vehicle for hire, he does not
trouble himself to find out who owns the vehicle.
PERSONAL LIABILITY OF AGENT: When the agent transacts business
in his own, it shall not be necessary for him to state the name of his
principal, and shall be directly liable, as if the business were for his
own account, to the persons with whom the transacts the same,
said persons not having any right of action against the principal nor
the latter against them.
Q: What are the different kinds of principal?
A:
1. Disclosed principal- where the other party thereto has
notice that the agent is acting for a principal and of the
principal’s identity;
2. Partially disclosed principal-if the other party has notice
that the agent is or may be acting for a principal but has
no notice of the principal’s identity;
3. Undisclosed principal-if the other party has no notice that
the agent is acting for a principal.
Q: To what circumstances is Art. 1883 applicable?
A:
1. Where the agent being authorized to act on behalf of the
principal;
2. He acts instead in his own name
NOTE: In such case, the agent is the one directly liable to the person
with whom he had contracted as if the transaction were his own.
Accordingly, there is no representation of the principal when the
agent acts in his own name.
Hence, the principal does not have the right of action against the
third person nor the third person against him.
Q: What is the exception to such rule?
A: It is when the contract involves things belonging to the principal.
In such case, the contract is considered as entered into between the
principal and the third person.
JUDGMENT AGAINST AGENT: A judgment, for or against an agent, in
no way binds the real party in interest. Am action is brought for a
practical purpose, to obtain actual and positive relief. If the party
sues upon is not the proper party, any decision that may be
rendered against him would be futile, for it cannot be enforced or
executed.
CHAPTER 2
OBLIGATIONS OF THE AGENT
Art. 1884. The agent is bound by his acceptance to carry out the
agency, and is liable for the damages which, through his non-
performance, the principal may suffer.
He must also finish the business already begun on the death of the
principal, should delay entail any danger. (1718)
Q: What are the specific obligations of the agent?
A:
1. To carry out the agency in accordance with its terms;
2. To answer for the damages which through his nonperformance
the principal may suffer;
3. To finish the business already begun on the death of the
principal, should delay detail any danger;
4. To observe the diligence of a good father of a family in the
custody and preservation of the goods forwarded him by the
owner in case he declines n agency, until an agency is
appointed;
5. To advance the necessary funds should there be a stipulation to
that effect;
6. To act in accordance with the instructions of the principal;
7. Not to carry out the agency if its execution would manifestly
result in loss or danger to the principal;
8. To answer for damages should he prefer in case of conflict, his
own interests to those of the principal.
9. Not to loan to himself without the consent of the principal
when he has been authorized to lend at interest;
10. To render an account of his transactions and to deliver to the
principal whatever he may have received by virtue of the
agency;
11. To distinguish goods by countermarks and designate the
merchandise respectively belonging to each principal;
12. To be responsible in certain cases for the acts of the substitute;
13. To pay interest on funds he has applied to his own use;
14. To inform the principal, where an authorized sale of credit has
been made, of such sale;
15. To bear the risk of collection, should he receive also on a sale, a
guarantee commission;
16. To indemnify the principal for damages for his failure to collect
the credits of his principal at the time that they become due;
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
17. To answer for his fraud or negligence.
NOTE: A person is free to refuse to be an agent but once he accepts
the agency, he is bound to carry it out in accordance with its terms
in good faith.
Upon his failure to do so, he is liable for the damage which the
principal may suffer. Having accepted the agency, when he was free
to refuse it, the agent betrays the confidence reposed on him if he
does not fulfill the mandate.
Obligation to finish business upon principal’s death
NOTE: Although the death of the principal extinguishes the agency,
the agent has an obligation to conclude the business already begun
on the death of the principal. But the duty exists only should delay
entail any danger.
Art. 1885. In case a person declines an agency, he is bound to
observe the diligence of a good father of a family in the custody
and preservation of the goods forwarded to him by the owner until
the latter should appoint an agent or take charge of the goods. (n)
NOTE: This rule is based on equity. In such case, the owner must act
as soon as practicable either:
1. By appointing an agent; and
2. By taking charge of the goods.
Art. 1886. Should there be a stipulation that the agent shall
advance the necessary funds, he shall be bound to do so except
when the principal is insolvent. (n)
G.R: The principal must advance to the agent, should the latter
request, the sums necessary for the execution of the agency.
NOTE: Yet, they may stipulate that the agent shall advance the
necessary funds. In such case, the agent is bound to furnish such
funds except when the principal is insolvent.
Art. 1887. In the execution of the agency, the agent shall act in
accordance with the instructions of the principal.
In default thereof, he shall do all that a good father of a family
would do, as required by the nature of the business. (1719)
Q: Distinguish between authority and instructions.
A: Authority is the extent of the limitation of the agent’s power to
represent the principal. Instructions are directions which the
principal may give the agent to follow in the discharge of his duties
as such agent.
INTERPRATIONS OF INSTRUCTIONS: Instructions of the principal
must be interpreted in accordance with his presumed will and
usages of trade.
EFFECT OF INSTRUCTIONS: The instructions of the principal to the
agent form part of the agency; they constitute the means or the
orders carrying out the power granted; hence, to depart from them
is to exceed the authority conferred on the agent.
NOTE: Persons dealing with the agent do so at their own risk and are
duty bound to investigate his authority because if the fact is done
outside the scope of his authority the principal is not bound. Yet,
they need not verify or investigate the instructions of the principal
since they concern only the P and the A.
It is the responsibility of the agent to obey the reasonable and lawful
instructions given to him by his principal.
If the agent exceeds, violates or fails to act upon such instructions,
he will be liable to the principal for any loss or damage resulting
therefrom.
Q: What is the rule where there are no specific instructions?
A: In the absence of the specific instructions of the P, the A shall do
all that a good father of a family would do as required by the nature
of the business.
Art. 1888. An agent shall not carry out an agency if its execution
would manifestly result in loss or damage to the principal. (n)
RESULT IN LOSS: In order that this article may apply, the possible
loss or damage must not be a matter of appreciation; it is necessary
that to anyone the transaction is undoubtedly prejudicial.
NOTE: The agent is not bound in all cases to carry out the agency as
when its execution would manifestly result in the loss or damage to
the principal. Accordingly, the duty of the agent is to render service
for the benefit of the P and not to act to his detriment.
Art. 1889. The agent shall be liable for damages if, there being a
conflict between his interests and those of the principal, he should
prefer his own. (n)
NOTE: Agency is fiduciary in character—agent is required to observe
utmost good faith and loyalty towards his principal. The rule applies
whether the agency is onerous or gratuitous.
Q: What is the basis for such rule?
A: The reason for prohibiting the agent from engaging in self-dealing
is to shut the door against temptation on his part and to ensure that
he places the rights and welfare of his principal above his own in
performing his agency.
Art. 1890. If the agent has been empowered to borrow money, he
may himself be the lender at the current rate of interest. If he has
been authorized to lend money at interest, he cannot borrow it
without the consent of the principal. (n)
NOTE: The agent cannot, without a special power of attorney, loan
or borrow money.
In the second sentence of the article, the A cannot barrow without
the consent of the P because the agent may prove to be bad debtor.
There is a possible conflict of interest. The transaction may thus be
prejudicial to the P.
Art. 1891. Every agent is bound to render an account of his
transactions and to deliver to the principal whatever he may have
received by virtue of the agency, even though it may not be owing
to the principal.
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
Every stipulation exempting the agent from the obligation to
render an account shall be void. (1720a)
NOTE: It is the duty of the A to account for and deliver to the P all
the money and property which may have come into his hands by
virtue of or as a result of the agency.
It is immaterial whether such money or property is the result of the
performance or violation of the A’s duty since A cannot be permitted
to derive advantage from his own neglect or violation of duty.
SCOPE: This article, however, does not apply to over-payment by
mistake. If a debtor, by mistake, pays to the agent more than what is
owing to the principal, such agent may keep the excess, because he
is the one against who an action may be brought by the payor to
recover the excess amount paid.
DOMINGO v. DOMINGO
42 SCRA 131
An agent who takes a secret profit in the nature of a bonus, gratuity
or personal benefit from the vendee without revealing the same to
his principal is guilty of a breach of his loyalty to the latter and
forfeits his right to collect the commission that may be due him,
even if the principal does not suffer any injury by reason of such
breach.
OBLIGATION TO ACCOUNT
SCOPE: The duty of the agent to account to his principal for all
money and property which may have come into his hands during
and by virtue of the agency embraces not only such money and
property as may be received directly from the principal, but also that
which comes into the agent’s hands as the result of his agency.
TRANSMISSIBILITY: The obligation or the agent to render an account
is transmissible to his heirs. The right of a principal to an accounting
is also transmissible to his heirs.
Art. 1892. The agent may appoint a substitute if the principal has
not prohibited him from doing so; but he shall be responsible for
the acts of the substitute:
(1) When he was not given the power to appoint one;
(2) When he was given such power, but without designating the
person, and the person appointed was notoriously incompetent or
insolvent.
All acts of the substitute appointed against the prohibition of the
principal shall be void. (1721)
USE OF EMPLOYEES: The use of employees by the agent is different
form a substitution. The agent can make use of his employees in
carrying out the agency, unless this is expressly prohibited by the
principal, or excluded by the nature and purpose of the agency. The
agent, however, shall always be liable to the principal for the fault or
negligence of such employees.
Art. 1893. In the cases mentioned in Nos. 1 and 2 of the preceding
article, the principal may furthermore bring an action against the
substitute with respect to the obligations which the latter has
contracted under the substitution. (1722a)
Q: What is a subagent?
A: He is a person to whom the agent delegates as his agent, the
performance of an act for the principal which the agent has been
empowered to perform through his representative.
NOTE: Unless prohibited, the agent may appoint a subagent or
substitute. The right of action against the substitute is an exception
to the general rule that contracts are binding only between the
contracting parties, assigns, and heirs.
Q: What are the different effects of substitution?
A:
1. If the substitute is appointed by the agent against the
express prohibition of the P, the agent exceeds the limits
of his authority. In such case, the acts of the substitute
shall be void.
2. If the substitution is authorized, the substitution has the
effect of releasing the agent from his responsibility unless
the person appointed is notoriously incompetent or
insolvent.
3. If the substitution is not authorized but not prohibited—
the law recognizes the validity of the substitution if the
same is beneficial to the P. If the substitution has
occasioned damage to the P, the A shall be primarily
responsible for the acts of the substitute as he himself
executed them. The P has also a right of action against the
substitute.
Art. 1894. The responsibility of two or more agents, even though
they have been appointed simultaneously, is not solidary, if
solidarity has not been expressly stipulated. (1723)
JOINT AGENCY
This article has reference to the relation of the agents to the
principal; each agent is responsible for his own acts to the principal.
It does not regulate joint agency in relation to third persons with
whom the agents may contract.
Under joint agency, several agents are appointed to act collectively.
The declaration of one of them to a third person in relation to the
agency does not become effective until the others make the same
declaration to the same person or ratify the declaration already
made by the first agent.
In other words, whether they act together or separately, they are
considered as a single unit; all must act towards the same end to
bind the principal. But the knowledge of a fact by one of them is
considered as knowledge of all.
LIABILITY IS PERSONAL
If the agents are charged with a joint undertaking, so that one
cannot act without the others, and the agency is not performed due
to the omission of the agent, then he alone bears the entire
responsibility for the injury caused. But if each one can act
separately, then he is liable only for his own omission or fault.
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
Art. 1895. If solidarity has been agreed upon, each of the agents is
responsible for the non-fulfillment of agency, and for the fault or
negligence of his fellows agents, except in the latter case when the
fellow agents acted beyond the scope of their authority. (n)
G.R: The presumption is that an obligation is joint.
XPN: If solidarity has been agreed upon, each of the agents becomes
solidarily liable:
1. For the non-fulfillment of the agency;
2. For the fault or negligence of his fellow agents provided
the latter acted within the scope of their authority.
SOLIDARY AGENCY
The article governs solidarity in the relation of the agents to the
principal and not in relation to third persons.
Q: What is solidary agency?
A: It is one in which there being several agents for the same
purpose, each one acts independently of the others, and can bind
the principal without the intervention of the others.
When a person appoints 2 agents independently, the consent of one
will not be required to validate the acts of the other, unless that
appears positively to have been the principal’s intention.
This governs a joint agency where the agency act collectively as a
unit in relation to third persons but where it is stipulated that they
shall be solidarily liable to the principal.
Both Article 1894 and this article apply to a joint or collective agency
but are limited to the liability of the agents to the principal. The
relations of agents to third persons are governed by other principles.
ACTS BEYOND POWERS
An act of one agent beyond the scope of the agency does not
concern the other agents; they have no power to prevent it and they
should be held liable for it.
Yet, the mere fact that one agent oversteps the limits of his
authority does not exempt the others from discharging the agency,
nor does it deprive the principal of the guaranty arising from the
stipulated solidarity.
Illustrations:
1. Two agents are authorized solidarily to sell a parcel of land
No. 1 at P10,000.00. One of the agents sells parcel land
No. 2 instead. The other agent cannot be held liable for
this act. But if parcel land No. 1 has been sold for P6,000
instead of P10,000 this irregular performance of the
agency makes both agents solidary liable to the principal
for damages.
2. The agents empowered to sell an immovable are
authorized to receive only part of the price. One agent
collects the entire price. The other agents are not liable to
the principal for the excess collected, because as to that
excess the act is beyond the scope of the agency.
Art. 1896. The agent owes interest on the sums he has applied to
his own use from the day on which he did so, and on those which
he still owes after the extinguishment of the agency. (1724a)
NOTE: The present article contemplates 2 distinct cases:
a. Sums belonging to the P which the A applied to his
own use; and
b. Sums which the agent still owes the P after the
expiration of the agency.
The agent who converted to his personal use the funds of the P is
liable for interest as compensation or indemnity from the day on
which he did so.
Q: Is it necessary that demand be made by the P?
A: It is clear that if by provision of law the agent is bound to deliver
to the P whatever he may have received by virtue of the agency
demand is no longer necessary.
Art. 1897. The agent who acts as such is not personally liable to the
party with whom he contracts, unless he expressly binds himself or
exceeds the limits of his authority without giving such party
sufficient notice of his powers. (1725)
NOTE: The agent is precluded from doing any positive act that could
prevent performance on the part of his principal.
An agent who acts as such within the scope of his authority
represents the P so that his contract is really the principal’s. The A is
not personally liable to the party whom he contracts.
In case the A acts in excess of his authority, the P is not bound unless
he ratifies the act.
When the A expressly binds himself, he thereby obligates himself
personally and by his own act.
If he exceeds in his authority, the agent becomes personally liable
because by his wrong or omission he deprives the third person with
whom he contracts of any remedy against the P.
But if the A gave sufficient notice of his power to third persons
dealing with him and such person nevertheless contract with him,
neither the P nor the A are bound.
Art. 1898. If the agent contracts in the name of the principal,
exceeding the scope of his authority, and the principal does not
ratify the contract, it shall be void if the party with whom the
agent contracted is aware of the limits of the powers granted by
the principal. In this case, however, the agent is liable if he
undertook to secure the principal's ratification. (n)
NOTE: The agent is precluded from doing any positive act that could
prevent performance on the part of his principal. The effect of
representation is to bind the P as though he personally entered into
the contract. If the agent acts in excess of his authority, the A is the
one personally liable unless there is subsequent ratification by the P.
Yet, the A will not be liable if he gave notice of his powers to the
person with whom he has contracted nor in case such person is
aware of the limits of the powers granted by the P.
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
EXCESS OF AUTHORITY: The liability of an agent who has exceeded
the scope of his authority, if the principal does not ratify his act,
depends upon whether or not the third person knows the limits of
the agent’s power. If he knows such limits, he is to blame and he is
not entitled to recover damages from the agent, unless the latter
undertook to secure the principal’s ratification. But if the third
person is unaware of the limits of the authority conferred, he has
been deceived, and the agent is liable for damages to him. This is
implied under Art. 1897.
RATIFICATION: The acts of an agent beyond the scope of his
authority does not bind the principal, unless, he ratifies them:
1. Expressly
2. Impliedly
Only the principal can ratify; the agent cannot ratify his own
unauthorized acts. And the principal must have knowledge of the
acts he is to ratify.
NOTE: If the principal receives the benefits from the unauthorized
acts of the agent, it is evident that he tacitly ratifies them.
Art. 1899. If a duly authorized agent acts in accordance with the
orders of the principal, the latter cannot set up the ignorance of
the agent as to circumstances whereof he himself was, or ought to
have been, aware. (n)
Q: What is the effect of the ignorance of the agent?
A: If the P appoints an A who is ignorant, the fault is his alone and he
must suffer the consequences of his acts.
Art. 1900. So far as third persons are concerned, an act is deemed
to have been performed within the scope of the agent's authority,
if such act is within the terms of the power of attorney, as written,
even if the agent has in fact exceeded the limits of his authority
according to an understanding between the principal and the
agent. (n)
Q: What is the effect of an unwritten authority?
A: Every person dealing with the A is under obligation, to make an
inquiry not only as to the existence of the agency but also as to the
nature and extent of authority of the agent.
Q: What if the authority is written?
A: If the authority is in writing, the third party is not required to
inquire further than the terms of the written power of attorney. An
act of the A within the terms of the POA within the scope of the
agent’s authority although the agent has in fact exceeded the limits
of his actual authority.
Art. 1901. A third person cannot set up the fact that the agent has
exceeded his powers, if the principal has ratified, or has signified
his willingness to ratify the agent's acts. (n)
NOTE: The third person cannot set up the fact that the A exceeded
his authority to disaffirm his contract not only after the P has ratified
the A’s acts but even before such ratification where he has signified
his willingness to ratify.
Art. 1902. A third person with whom the agent wishes to contract
on behalf of the principal may require the presentation of the
power of attorney, or the instructions as regards the agency.
Private or secret orders and instructions of the principal do not
prejudice third persons who have relied upon the power of
attorney or instructions shown them. (n)
NOTE: Ignorance of the agent’s authority is not an excuse.
It is the duty of the third person to require the A to produce his POA
to ascertain the scope of his authority.
Q: Is the third person bound by the P’s private instructions?
A: The third person is chargeable with knowledge of the terms of the
POA as written and the instructions disclosed to him. Yet he is not
bound by the secret orders and instructions of the P.
Art. 1903. The commission agent shall be responsible for the goods
received by him in the terms and conditions and as described in
the consignment, unless upon receiving them he should make a
written statement of the damage and deterioration suffered by the
same. (n)
Q: Who is a factor or commission agent?
A: He is one whose business is to receive and sell the goods for
commission and who is entrusted by the P with the possession of
the goods to be sold.
Q: What is the liability of such agent as to the goods received?
A: He will be responsible for any damage or deterioration suffered
by the same. To avoid liability, such agent should make a written
statement of the damage or deterioration if the goods received by
him do not agree with the description in the consignment.
Art. 1904. The commission agent who handles goods of the same
kind and mark, which belong to different owners, shall distinguish
them by countermarks, and designate the merchandise
respectively belonging to each principal. (n)
Art. 1905. The commission agent cannot, without the express or
implied consent of the principal, sell on credit. Should he do so, the
principal may demand from him payment in cash, but the
commission agent shall be entitled to any interest or benefit,
which may result from such sale. (n)
NOTE: A commission agent can sell on credit only with the express
or implied consent of the P. Otherwise, the P has 2 alternative
remedies:
1. He may require payment in cash and any interest or
benefit from the sale shall belong to the A since the P
cannot be allowed to enrich himself at the A’s expense; or
2. Ratify the sale on credit in which case it will have all the
risks and advantages to him.
Art. 1906. Should the commission agent, with authority of the
principal, sell on credit, he shall so inform the principal, with a
statement of the names of the buyers. Should he fail to do so, the
sale shall be deemed to have been made for cash insofar as the
principal is concerned. (n)
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
Art. 1907. Should the commission agent receive on a sale, in
addition to the ordinary commission, another called a guarantee
commission, he shall bear the risk of collection and shall pay the
principal the proceeds of the sale on the same terms agreed upon
with the purchaser. (n)
Q: What is a guarantee commission?
A: It is one where in consideration of an increased commission the
factor or commission agent guarantees to the P the payment of
debts arising through his agency.
Art. 1908. The commission agent who does not collect the credits
of his principal at the time when they become due and
demandable shall be liable for damages, unless he proves that he
exercised due diligence for that purpose. (n)
NOTE: The agent who has made an authorized sale on credit must
collect the credits due the P at the time they become due and
demandable. Otherwise, he shall be liable for damages unless he can
show that the credit should not be collected notwithstanding the
exercise of due diligence on his part.
Art. 1909. The agent is responsible not only for fraud, but also for
negligence, which shall be judged with more or less rigor by the
courts, according to whether the agency was or was not for a
compensation. (1726)
BREACH OF TRUST: The agent may not, without the permission of
the principal, directly or indirectly buy for himself what he has
commissioned to sell, or sell what he has been commissioned to
buy. This prohibition ceases upon the termination of the agency.
NOTE: The A is responsible to the P not only for fraud committed by
him but also for negligence.
It is held that the failure of a subagent with whom film has been left
for safekeeping to insure against loss by fire does not constitute
negligence or fraud on its part when it has received no instruction to
that effect from its principal.
CHAPTER 3
OBLIGATIONS OF THE PRINCIPAL
Art. 1910. The principal must comply with all the obligations which
the agent may have contracted within the scope of his authority.
As for any obligation wherein the agent has exceeded his power,
the principal is not bound except when he ratifies it expressly or
tacitly. (1727)
Q: What are the specific obligations of the P?
A:
1. To comply with all the obligations which the agent may
have contracted within the scope of his authority and in
the name of the P;
2. To advance to the A, should the latter so request, the sums
necessary for the execution of the agency;
3. To reimburse the A for all the advances made by him
provided the A is free from fault;
4. To indemnify the A for all the damages which the
execution of the agency may have caused the latter
without fault or negligence on his part;
5. To pay the agent the compensation agreed upon or
otherwise, the reasonable value of the agent’s services.
NOTE: Representation is the essence of agency. It is not enough that
the A should act within the scope of his authority, the A must also
act in a representative capacity.
LIABILITY FOR AGENT’S ILLICIT ACTS: When the agent is in the
performance of an obligation of the principal, the fault of the agent
is attributable to the principal; this is culpa contractual. The rule is
the same even if the illicit of the agent amounts to a crime.
GR: But if the fault or crime committed by the agent is not in the
performance of an obligation of the principal, the latter generally is
not bound by the illicit act of the agent, even if it is done in
connection with his functions.
XPNs:
1. When the delict or quasi-delict was committed by the
agent because of defective instructions from the principal,
or due to the lack of necessary vigilance or supervision on
his part, the principal is liable because of his own
negligence
2. When the agent secures a contract through fraud, or
makes a fraudulent alienation, or executes a simulated
contract, all of these acts are imputable to the principal as
if done by him, because the illicit act is inseparable from
the transaction executed for him
3. When the crime consists in the performance of an act
which is within the powers of the agent, but becomes
criminal only because of the manner in which the agent
has performed it, then principal is liable to third persons
who act in good faith.
Art. 1911. Even when the agent has exceeded his authority, the
principal is solidarily liable with the agent if the former allowed the
latter to act as though he had full powers. (n)
BASIS OF LIABILITY: The basis is the failure to adopt the necessary
measures to prevent third persons from being deceived by the
apparent authority of the agent. The liability extends only to third
persons who have lawfully supposed the existence of the authority.
Q: What is estoppel?
A: It is a bar which precludes a person from denying or asserting
anything contrary to that which has been established as the truth by
his own deed or representation.
Q: Distinguish between apparent authority and authority by
estoppel?
A:
Apparent authority Authority by estoppel
Authority by estoppel arises in
Apparent authority is that those cases where the P by his
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
which though not actually culpable negligence permits his In such case however, the agent is not entitled to the excess in case
granted, the principal agent to exercise powers not the things are sold to satisfy his claim and the proceeds thereof are
knowingly permits the agent to granted to him, even though the more than the amount due.
exercise or holds out as P may have no notice or
possessing. knowledge of the conduct of the Art. 1915. If two or more persons have appointed an agent for a
A. common transaction or undertaking, they shall be solidarily liable
to the agent for all the consequences of the agency. (1731)

Q: Distinguish between implied agency and agency by estoppel? Q: What are the 3 requisites for the application of the above
article?
A:
A:
IMPLIED AGENCY AGENCY BY ESTOPPEL
There is an actual agency; The authority of the agent is not 1. There are 2 or more principals;
real but only apparent 2. The P have all concurred in the appointment of the same
agent; and
The principal alone is liable If the estoppel is caused by the
3. The agent appointed for a common transaction or
P, he is liable to any third person
undertaking.
who relied on the
misrepresentation; if the
SOLIDARITY OF PRINCIPALS
estoppels is caused by the
agent, then only the agent is
The article applies even when the appointments were made by the
liable.
principals in separate acts, provided that they are for the same
transaction.
Art. 1912. The principal must advance to the agent, should the
latter so request, the sums necessary for the execution of the
The solidarity arises from the common interest of the principals and
agency.
not from the act of constituting the agency.
Should the agent have advanced them, the principal must
By virtue of this solidarity, the agent can recover from any principal
reimburse him therefor, even if the business or undertaking was
the whole compensation and indemnity owing to him by others. But
not successful, provided the agent is free from all fault.
the parties may agree to negate such solidarity.
The reimbursement shall include interest on the sums advanced,
The solidarity does not disappear by the mere partition affected by
from the day on which the advance was made. (1728)
the principals after the accomplishment of the agency.
 The P must advance to the A upon his request the sums
If the undertaking is one in which several are interested, but only
necessary for the execution of the agency.
some create the agency, only the latter are solidarily liable, without
 If the P fails to do so, the A will not be liable for the damage
prejudice to the effects of negotiorum gestio with respect to others.
which the P may suffer.
And if the power granted includes various transactions some of
which are common and others are not, only those interested in each
Art. 1913. The principal must also indemnify the agent for all the
transaction shall be liable for it.
damages which the execution of the agency may have caused the
latter, without fault or negligence on his part. (1729)
Art. 1916. When two persons contract with regard to the same
thing, one of them with the agent and the other with the principal,
The liability of the P for damages is limited only to that which the
and the two contracts are incompatible with each other, that of
execution of the agency has caused the agent.
prior date shall be preferred, without prejudice to the provisions of
Article 1544. (n)
PROFESSIONAL SERVICES
Art. 1544. If the same thing should have been sold to different
The principal must reimburse the agent for amounts the latter may
vendees, the ownership shall be transferred to the person who
have paid as reasonable compensation for professional services
may have first taken possession thereof in good faith, if it should
rendered by third persons in the execution of the agency.
be movable property.
Art. 1914. The agent may retain in pledge the things which are the
Should it be immovable property, the ownership shall belong to
object of the agency until the principal effects the reimbursement
the person acquiring it who in good faith first recorded it in the
and pays the indemnity set forth in the two preceding articles.
Registry of Property.
(1730)
Should there be no inscription, the ownership shall pertain to the
Q: Is the A authorized to retain the object of the agency in pledge?
person who in good faith was first in the possession; and, in the
absence thereof, to the person who presents the oldest title,
A: If the P fails to reimburse or indemnify the A, the A has the right
provided there is good faith. (1473)
to retain in pledge the things which are the object of the agency.
This is a pledge created by operation of law.
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
Art. 1917. In the case referred to in the preceding article, if the
agent has acted in good faith, the principal shall be liable in
damages to the third person whose contract must be rejected. If
the agent acted in bad faith, he alone shall be responsible. (n)
Art. 1918. The principal is not liable for the expenses incurred by
the agent in the following cases:
(1) If the agent acted in contravention of the principal's
instructions, unless the latter should wish to avail himself of the
benefits derived from the contract;
Q: Are the modes mentioned exclusive?
A: No, agency may also be extinguished by the modes of
extinguishment of obligations when applicable lime loss of the thing
and novation.
 Other causes include change in law affecting the subject matter
or transaction involved like if it makes illegal the required act;
or change in the conditions not anticipated by the parties like
the outbreak of war, preventing or making impossible the
accomplishment of the purpose of the agency.

(2) When the expenses were due to the fault of the agent; Death of principal

(3) When the agent incurred them with knowledge that an
unfavorable result would ensue, if the principal was not aware
thereof;
(4) When it was stipulated that the expenses would be borne by
the agent, or that the latter would be allowed only a certain sum.
(n)
Agency is terminated by the death of the principal, even if the
agency is for a definite period, and the period has not yet expired.
The authorization by a principal to another to furnish necessaries to
the former’s grandson could not be made to extend after his death,
not only because the obligation to furnish support is personal and is
extinguished upon the death of the person obliged to give support
but also because death of a principal terminates the agency.

XPNs:

CHAPTER 4 1. Article 1930; and

MODES OF EXTINGUISHMENT OF AGENCY
Art. 1930. The agency shall remain in full force
Art. 1919. Agency is extinguished: and effect even after the death of the principal,
if it has been constituted in the common
a. By its revocation; interest of the latter and of the agent, or in the
b. By the withdrawal of the agent; interest of a third person who has accepted the
c. By the death, civil interdiction, insanity or insolvency of stipulation in his favor. (n)
the principal or of the agent;
d. By the dissolution of the firm or corporation which 2. Article 1931
entrusted or accepted the agency;
e. By the accomplishment of the object or purpose of the Art. 1931. Anything done by the agent, without
agency; knowledge of the death of the principal or of
f. By the expiration of the period for which the agency was any other cause which extinguishes the agency,
constituted. (1732a) is valid and shall be fully effective with respect
to third persons who may have contracted with
Q: What are the different modes of extinguishing an agency? him in good faith. (1738)

A: Art. 1920. The principal may revoke the agency

at will, and compel the agent to return the
1. By agreement; document evidencing the agency. Such
2. By the subsequent acts of the parties which may be either: revocation may be express or implied. (1733a)

a. By the act of both parties or by mutual consent; or  Revocation-when the agency is terminated by the principal;
b. By the unilateral act of one of them.  Renunciation- when the same is done by the agent.
 Confidence is the cardinal basis of the relation, it stands to
3. By operation of law. reason that it should cease when such confidence disappears.
 While the P may have the absolute power to revoke the A at
 Agency requires the existence and capacity of both the P and anytime, he must respond to damages in those cases wherein
the A. not having the right to do so, he should discharge the agent.
 The death, civil interdiction, insanity, or insolvency of either
party terminates the agency. Q: What are the kinds of revocation?

Q: What is civil interdiction?
A: It is a form of disqualification which deprives the offender during
the period of his sentence of the right to manage his property and
dispose of such property by any act or any conveyance inter vivos.
A: It may be express or implied as when the P appoints a new agent
for the same business and transaction or when the P manages the
business entrusted to the agent.
If the authority of the agent is in writing, the P can compel the A to
return the same so as to prevent the A from making use of the
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
power and thus avoid liability to third persons who may
subsequently deal with the A on the faith of the instrument.
POWER TO REVOKE
BASIS: It is the will of the person represented that may put an end to
the representation. Otherwise, the representation would be
converted into a true alienation of the personality, either in
perpetuity or for a definite period.
This is an XPN to the general rules of contract.
The agent has no power to oppose such termination even if there
was a definite period fixed for the agency. The rule applies whether
the agency is gratuitous or remuneratory.
INDEMNITY TO AGENT
GR: The principal is not liable for damages for having made use of
his power to revoke the agency.
XPN: If the revocation was made in such a manner as to constitute
an abuse of right, the agent can recover damages from the principal.
The principal cannot revoke the agency in BF and as a means to
avoid paying compensation to the agent.
Stipulation on irrevocability
Parties may validly stipulate that the agency shall be irrevocable for
a certain period.
There is no reason why it cannot become irrevocable by agreement
so long as the agreement is according to the agency and not
contrary to morals. The agreement may take 2 forms:
1. A renunciation of a right to revoke, in which case, the
principal cannot revoke the agency; or
2. A mere obligation of the principal not to revoke, in which
case the agency may be revoked but the principal
becomes liable for breach of contract.
Even an irrevocable power however, does not prevent the principal
from executing the delegated act himself.
AGENCY IS NOT EXCLUSIVE
An agency conferred to carry out certain transaction is not exclusive;
it does not prevent the principal from concluding the transaction
himself or naming other persons with the same authority. agent
cannot prevent third persons from exercising their right to deal
directly with the principal, even when the agency is granted as
exclusive because the principal cannot renounce future acts.
Art. 1921. If the agency has been entrusted for the purpose of
contracting with specified persons, its revocation shall not
prejudice the latter if they were not given notice thereof. (1734)
Accordingly, since the third persons have been made to believe that
the A is authorized to deal with them, they have a right to presume
that the representation continues in the absence of notification by
the P.
SCOPE OF THE ARTICLE: It is the duty of the principal on the
termination of the agency to give due and timely notice thereof to
third persons to whom he has given special invitation to deal with
his agent and failure to do so renders him liable to them for
whatever may have been in good faith and without negligence sent
to the agent without knowledge, actual or constructive, of the
termination of the agency.
The article also applies to cases where the authority of the agent has
been communicated to particular persons, even if they were not
rd
indicated at the time the agency was created. If 3 persons have
knowledge of the revocation, this is equivalent to notification.
Art. 1922. If the agent had general powers, revocation of the
agency does not prejudice third persons who acted in good faith
and without knowledge of the revocation. Notice of the revocation
in a newspaper of general circulation is a sufficient warning to
third persons. (n)
NOTE: Publication constitutes notice to third persons and this is true
whether or not they have read the newspaper concerned.
Under 1921, the notice must be personal; under 1922, it may be
personal.
APPLICATION OF THE ARTICLE
The article refers to agency in which the person with whom the
agent is to contract, is not specified.’
Art. 1923. The appointment of a new agent for the same business
or transaction revokes the previous agency from the day on which
notice thereof was given to the former agent, without prejudice to
the provisions of the two preceding articles. (1735a)
NOTE: Revocation does not become effective as between the P and
the A until it is in same way communicated to the latter;
Rights of third persons who acted in good faith and without
knowledge of the revocation will not be prejudiced thereby.
INCOMPATIBILITY OF POWERS
A new agency revokes an existing one only when 2 are incompatible
with each other or when the principal makes known to the first
agent that his powers have ceased by the appointment of the new
agent.
Where there is no incompatibility, the new agency may only mean a
division of the agency and the 2 agencies can co-exist. Hence, an
agent may be appointed to buy lands in certain locality without
specification of the particular properties, his powers being limited to
the amount stated in his powers. If a second agent is appointed to
buy lands in same locality, this is not necessarily incompatible with
the first agency, which is not thereby revoked.
NOTICE TO THE FIRST AGENT
The grant of a new power of attorney to the new agent must be
made known to the first agent in order to revoke the power granted
to the latter. Otherwise, it must be considered that the first agent
acted under a valid power of attorney which had not been legally
revoked.
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
EXCLUSIVE AGENCY
In cases where the agency is for compensation, and the
compensation depends upon the success of the transaction
entrusted to the agent, it is usual to stipulate that the agency shall
be exclusive. Thus, the principal is deprived of the right to appoint a
new agent for the same transaction whether jointly with the
exclusive agent or by way of revocation of his powers. This
stipulation is valid provided that it is limited to the transaction or
with respect to time; otherwise, it will be contrary to the revocability
of the agency.
Art. 1924. The agency is revoked if the principal directly manages
the business entrusted to the agent, dealing directly with third
persons. (n)
NOTE: Direct management of the business by the P himself; If the
purpose is to avoid payment of his agent’s commission, the implied
revocation is deemed made in bad faith, and cannot be sanctioned
without the commission which is due to the A.
DIRECT INTERVENTION BY PRINCIPAL
The direct intervention by the principal will revoke the agency only
when such intervention is incompatible with the agency.
According to Sec. Tolentino, the rule under Argentine Code applies
to our jurisdiction: even when there is incompatibility the agency
still subsists if the principal expressly manifests that he has no
intention of revoking the agency. The express intention must prevail
over that which is merely presumed by law.
Art. 1925. When two or more principals have granted a power of
attorney for a common transaction, any one of them may revoke
the same without the consent of the others. (n)
Art. 1926. A general power of attorney is revoked by a special one
granted to another agent, as regards the special matter involved in
the latter. (n)
NOTE: A specific power naturally prevails over the general power.
SUBSEQUENT GENERAL POWER
In the Argentine Code, it is expressly provided that the special power
of attorney is not revoked by a subsequent general power of
attorney given to another agent, unless the latter refers also to the
act authorized under the special power. This is applicable in our
jurisdiction.
Art. 1927. An agency cannot be revoked if a bilateral contract
depends upon it, or if it is the means of fulfilling an obligation
already contracted, or if a partner is appointed manager of a
partnership in the contract of partnership and his removal from
the management is unjustifiable. (n)
G.R: The P may revoke an agency at will.
XPN:
1. When the agency is created not only for the interest of the
P but also for the interest of third person;
2. When the agency is created for the mutual interest of both
the P and the A.
Agency coupled with interest
NOTE: An agency coupled with interest cannot be terminated by the
sole will of the P although it is so revocable after the interest ceases.
Yet, it is essential that the interest of the agent shall be in the
subject matter of the power conferred and not merely an interest in
the exercise of the power because it entitles him to compensation
therefor.
Such as when the A parted with value or incurred liability at the P’s
request, looking to the exercise of the power as the means of
reimbursement or indemnity.
CONDITION IN BILATERAL CONTRACT
Example: Ayel buys a piece of land from Bebeng, with part of the
price on credit, but stipulating that he appoints Bebeng as agent, to
collect a certain amount from CJ and to apply the same to the
unpaid price. In this case, A cannot revoke the agency of B.
MEANS OF FULFILLMENT
If, in a contract of loan with a mortgage or pledge, the CR is
appointed as an agent to sell the property given as security or to
collect the fruits therefrom, the agency is irrevocable.
OTHER CASES OF IRREVOCABILITY
1. When there is an express stipulation to that effect; and
2. When the agency is for the benefit of the agent.
Stipulation of irrevocability:
Irrevocable agency is not perpetual. It must be limited to a particular
transaction or to a determinate period because public order is
against indefinite or irrevocable obligations.
EFFECT OF IRREVOCABLE AGENCY:
Irrevocability of agency does not merely insure an indemnity to the
agent or third persons prejudiced by the revocation; except when
otherwise stipulated, it extends the agency even against the will of
the principal in the sense that the acts of the agent will bind the
principal notwithstanding the untimely revocation.
Art. 1928. The agent may withdraw from the agency by giving due
notice to the principal. If the latter should suffer any damage by
reason of the withdrawal, the agent must indemnify him therefor,
unless the agent should base his withdrawal upon the impossibility
of continuing the performance of the agency without grave
detriment to himself. (1736a)
NOTE: The A may withdraw from the agency at any time. This is
based on constitutional prohibition against involuntary servitude.
If the same is without just cause-the A has the duty to give notice to
the P and if the withdrawal is without just cause, to indemnify the P
should the latter suffer damage by reason of such withdrawal.
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
If the same is with just cause- as when it is based on the
impossibility of continuing with the agency without grave detriment
to himself, or is due to a fortuitous event, the A cannot be held
liable.
WHAT CONSTITUTE WITHDRAWAL
When an agent informs his principal that for reasons of health he is
about to depart from the place where he is exercising his agency,
abandons his property, turns it over to third party, renders his
accounts, and asks his principal to execute a power of attorney to
third party, it is shown that he renounced his agency but must turn
over any balance of money to the principal.
Filing of complaint by an agent against his principal for the collection
of a balance in his favor resulting from a liquidation of the agency
accounts between them, and his rendering of a final account of his
operations are equivalent to an express renunciation of the agency
and terminate the juridical relation between them.
WAIVER OF RIGHT TO WITHDRAW
Agent may renounce his right to withdraw from the agency but even
in such case, the relationship may be terminated in case of an
impossibility of continuing the agency without serious injury to
himself.
Art. 1929. The agent, even if he should withdraw from the agency
for a valid reason, must continue to act until the principal has had
reasonable opportunity to take the necessary steps to meet the
situation. (1737a)
Art. 1930. The agency shall remain in full force and effect even
after the death of the principal, if it has been constituted in the
common interest of the latter and of the agent, or in the interest of
a third person who has accepted the stipulation in his favor. (n)
G.R: Agency is terminated by the death of the P.
XPN:
1. If the agency has been constituted in the common interest
of the P and the A.
2. If it has been constituted in the interest of third persons.
COMMON INTEREST
This is illustrated by a case where a DR has authorized his CR to sell
certain properties of the DR upon non-payment of the debt. The
power of sale given in a mortgage has been held to be a power
coupled with interest which survives the death of the grantor.
BENEFIT OF THIRD PERSON
This is illustrated by a case where a DR in selling his land, authorizes
the buyer to deliver part of the purchase price to his CR.
Art. 1931. Anything done by the agent, without knowledge of the
death of the principal or of any other cause which extinguishes the
agency, is valid and shall be fully effective with respect to third
persons who may have contracted with him in good faith. (1738)
NOTE: Presupposes that the A acted without knowledge of the
death of the principal or any other cause which extinguishes the
agency.
The law requires good faith not only as to third persons but also the
agent.
GOOD FAITH OF A THIRD PERSON
rd
This article extends to 3 persons contracting in GF with the agent,
even if the agent has knowledge of the cause of revocation. Where
the revocation of power is unknown to a third person, there being a
basis for confidence previously created by the Principal and on
which the third person can rely, it is proper to impute the risk to the
principal. GF of a third person is sufficient basis in itself for his
protection.
DEATH OF PRINCIPAL
Law does not impose a duty on the heirs of the principal to notify
the agent of the death of the principal; but if the agent dies, his heirs
must notify the principal thereof.
Art. 1932. If the agent dies, his heirs must notify the principal
thereof, and in the meantime adopt such measures as the
circumstances may demand in the interest of the latter. (1739)
WHEN NOTICE IS IMPOSSIBLE
When the heirs of the agent cannot give notice required by the
article because the whereabouts of the principal is unknown, they
should consign the things object of the agency to the court.
The law imposes upon the heirs of the deceased A not only the
obligation to notify the P to enable the latter reasonable
opportunity to take such steps as may be necessary to meet the
situation but also to adopt such measures as the circumstance may
demand for the interest of the P.
REFERENCES:
 PINEDA, ERNESTO L., Partnership, Agency and Trusts, Central
Book Publishing, Co., Inc., 2006
 TOLENTINO, ARTURO M., Commentaries and Jurisprudence on
the Civil Code of the Philippines, Vol. V., Central Book
Publishing, Co., Inc. 1991
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________

TITLE V- TRUSTS TRUST v. STIPULATION POUR AUTRUI

CHAPTER 1 TRUST STIPULATION POUR AUTRUI

General Provisions As to origin
It can arise either by virtue of a It can arise only by virtue of a
Article 1440. A person who establishes a trust is called the trustor; contract or by a legal provision contract and never by operation
one in whom confidence is reposed as regards property for the of law
benefit of another person is known as the trustee; and the person As to object
for whose benefit the trust has been created is referred to as the The object of a trust is always a The object of a stipulation pour
beneficiary. specific property, whether real autrui could either be a specific
or personal, including an property or other things
CONCEPT OF TRUST (FIDEICOMMISSO): It is a fiduciary relationship undivided interest therein as in
created by agreement or by law where the trustor of the property co-ownership or choses in action
has the equitable title while the legal title is vested in another As to form
(trustee). It is either express or implied. It It is always express and must be
rd
continues to exist unless accepted by the 3 person
The trustee holds the property for the benefit of another repudiated before the grant stipulated in his
(beneficiary) who could be the trustor himself or a third person. favor is mutually revoked by the
parties (Pineda, 2006)
Trust is a fiduciary relationship involving a property whereby the
fiduciary holds it for the benefit of another (Pineda, 2006). TRUST v. TRUST RECEIPT
TRUST, defined: In its technical sense, a trust is defined as the right,
TRUST TRUST RECEIPT
enforceable solely in equity, to be the beneficial enjoyment of
The right to the beneficial It involves a security transaction
property, the legal title to which is vested in another, but the word
enjoyment of a property but the intended to aid in financing
“trust” is frequently employed to indicate duties, relations, and
lehal title to which is vested in importers and retail dealers who
responsibilities which are not strictly technical trusts (Pineda, 2006).
another. It is a legal relationship do not have sufficient funds or
which is fiduciary in nature resources to finance the
It is a legal relationship between one person having an equitable
whereby a person called trustee importation or purchase of
ownership in property and another person owning the legal title to
is holding the propeprty for the merchandise, and who may not
suhc property, the equitable ownership of the former, entitling him
benefit of another called the be able to aqcuire credit except
to the performance of certain duties and the exercise of certain
beneficiary through utilization, as collateral,
powers by the latter (Pineda, 2006).
of the merchandise imported or
purchased (Pineda, 2006)
CHARACTERISTICS OF TRUST:
Article 1441. Trusts are either express or implied. Express trusts are
1. It is a relationship
created by the intention of the trustor or of the parties. Implied
2. It us a relationship of fiduciary character
trusts come into being by operation of law.
3. It is a relationship with respect to property, not one
involving merely personal duties
KINDS OF TRUST AS TO MANNER OF CREATION
4. It involves the existence of equitable duties inposed upon
the holder of the title to the property to deal with it for
EXPRESS TRUST IMPLIED TRUST
the benefit of another
5. It arises as a result of manifestation of intention to create As to Creation
the relationship (Pineda, 2006) One created by the express One which is not created
agreement of the parties, or by expressly by the parties or by
PARTIES IN A TRUST: the intention of the trustor the trustor, but by operation of
law, there being a law creating it
1. Trustor who establishes the trust As to manner of creation
2. Trustee (fiduciary), the one in whom the confidence is Created by the direct and the It is merely deducible from the
reposed as regards the property for the benefit of another positive acts of the parties, by nature of the transaction
person some writing, deed or by words,
3. Beneficiary (cestui que trust) is the person for whose either expressly or inpliedly,
benefit the trust has been created (Pineda, 2006) evincing an intention to create a
trust
NOTE: The cestui que trust need not be named at the time the trust As to proof needed when immovable or interest therein is involved
is created. It is enough that the cestui que trust is sufficiently certain Imprescriptible Prescribes after 10 years from
or identifiable (Pineda, 2006). registration of the title;
otherwise barred
Prescription of action
Property cannot be acquired by Property can be acquired by
prescription because the prescription (Pineda, 2006)
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
possession of the trustee is not If there is no substitute, and the trustor did not provide that the
adverse trust will be rendered ineffective in case of the death, resignation,
removal or refusal of the designated trustee to assume the
KINDS OF IMPLIED TRUSTS respobsibility, the court will appoint a new trustee (Pineda, 2006).

RESULTING TRUST CONSTRUCTIVE TRUST PREFERENCE IN THE DESIGNATION OF TRUSTEE BY THE COURT:
A resulting trust is a species of A constructive trust is one Between the mother and the uncle, the former is preferred to the
implied trust that is presumed created not by any word or trustee of the proceeds of the insurance policy in the absence of any
always to have been phrase, either expressly or showing that the former is incompetent (Pineda, 2006).
contemplated by the parties, the impliedly, evincing a direct
intention as to which can be intention to create a trust, but Article 1446. Acceptance by the beneficiary is necessary.
found in the nature of their one which arises in order to Nevertheless, if the trust imposes no onerous condition upon the
transaction although not satisfy the demands of justice. It beneficiary, his acceptance shall be presumed, if there is no proof
expressed in a deed or does not come about by to the contrary.
instrument of conveyance. A agreement or intention but in
resulting trust is based on the the main by operation of law, NO ACCEPTANCE, NO TRUST CREATED: It is essential that the
equitable doctrine that it is the construed against one who, by beneficiary accepts the trust. However, the acceptance in trust does
more valuable consideration fraud, duress or abuse of not have follow the stringent requisites of acceptance of a
than the legal title that confidence, obtains or holds the donation—as this is not so provided. Even if the real property is
determines the equitable legal right to property which he involved, the acceptance need not be in a public instrument (Pineda,
interest in property. ought not, in equity and good 2006).
conscience, to hold (Pineda,
2006). XPN: There is a presumption of acceptance if the trust is purely
gratuitous, that is, it imposes no condition whatsoever upon the
Article 1442. The principles of the general law of trusts, insofar as beneficiary.
they are not in conflict with this Code, the Code of Commerce, the
Rules of Court and special laws are hereby adopted. EXTINGUISHMENT OF AN EXPRESS TRUST

1. Accomplishment of the aims of the trust

2. Expiration of the agreed term
3. Mutual agreement of all the parties
CHAPTER 2
4. Happening of the resolutory condition if one had been
Express Trusts
imposed
5. Total loss of the object of trust
Article 1443. No express trusts concerning an immovable or any
6. Annulment or rescissiion of the trust
interest therein may be proved by parol evidence.
7. Decision of the court declaring it as terminated
8. Merger of the rights of the trustor and the trustee, as
EXPRESS TRUST: Express trusts are those which are created by the
when the trustor waived his beneficiak rights in favor of
direct and positive acts of the parties, by some writing or deed, or
the trustee, or vice-versa
will, or by words evincing an intention to create a trust.
9. Prescription which arises when there is an express
repudiation of the trust, and continuous possession which
PROOF NECESSARY TO ESTABLISH AN EXPRESS TRUST WHEN
is public, adverse and peaceful in the concept of an owner
PROPERTY IS IMMOVABLE AND MOVABLE: There must be a
for the required period
statement or mention of a written instrument to evidence the trust.
No express trust over a realty can be proved by parol evidence
ACQUISITIVE PRESCRIPTION AS A MODE OF ACQUIRING
(Pineda, 2006).
OWNERSHIP:
Article 1444. No particular words are required for the creation of
EXPRESS TRUST IMPLIED TRUST
an express trust, it being sufficient that a trust is clearly intended.
GR: A trustee cannot acquire by Same rule when it comes to the
CREATION OF AN EXPRESS TRUST: What is important is that there prescriptiion the ownership of operation of prescription as a
must be a clear intent to establish it. There must direct and positive property entrusted to him mode of acquisition
acts of the parties, by some writing or deed, or will, or by words
evincing an intention to create a trust (Pineda, 2006). XPN: Provided the ff. requisites
are present:
Article 1445. No trust shall fail because the trustee appointed 1. The trustee has
declines the designation, unless the contrary should appear in the performed
instrument constituting the trust. unequivocal acts if
repudiation amounting
NOTE: If the designated trustee, upon whom confidence is reposed, to an ouster of the
has declined the appointment as such, the designated substitute- cestui que trust
trustee, if there is any, and who accepts the appointment will take 2. Such positive acts of
over. repudiation have been
made known to the
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
ceatui que trust
3. The evidence thereon BASIS OF IMPLIED TRUST: It is based on equity. It applies to cases
is clear and conclusive where injustice would result if the legal title of the trustees will
4. The adverse prevail over the equitable right of the beneficiary (Pineda, 2006).
possession of the
trustee together with KINDS OF IMPLIED TRUSTS
other elements of
prescription, must be RESULTING TRUSTS CONSTRUCTIVE TRUSTS
at least 10 years in the Resulting trusts are based on the Constructive trusts are created
concept of an owner. equitable doctrine that valuable by the construction of equity in
It begins to run from consideration and not legal title order to satisfy the demands of
the time the determines the equitable title or justice and prevent unjust
beneficiary, or trustor interest and are presumed enrichment. They arise contrary
gained knowledge of always to have been to intention against one who, by
the repudiation by the contemplated by the parties. fraud, duress or abuse of
trustee (Pineda, 2006). They arise from the nature or confidence, obtains or holds the
circumstances of the legal right to property which he
ACTS WHICH WERE HELD INSUFFICIENT TO CONSTITUTE consideration involved in a ought not, in equity and good
REPUDIATION: transaction whereby one person conscience, to hold.
thereby becomes invested with
1. A mere silent possession without acts amounting to ouster legal title but is obliged in equity
2. Mere reciept of rents and profits by the trustee and the to hold his legal title for the
building benefit of another.
3. Declaration of the property in the trustee’s name for
taxation purposes does not constitute acts of repudiation Q: May an implied trust be converted into an express trust?

PRESCRIPTION OF ACTION FOR RECOVERY OF PROPERTY HELD IN A: Yes, if the implied trustee recognizes the right of the owner over
TRUST the property (Pineda, 2006).

EXPRESS TRUST IMPLIED TRUST PROOF REQUIRED: While implied trusts may be proved by oral
GR: An action to recover a. Resulting trust: evidence, the evidence must be trustworthy and received by the
property held in trust does not courts with extreme caution, and should not be made to rest on
prescribe. However, if there is GR: The action does not loose, equivocal or indefinite declarations. Trustworthy evidence is
repudiation and no action had prescribe required because oral evidence can easily be fabricated. In order to
been filed within 10 years from establish an implied trust in real property by parol evidence, the
the tine the beneficiary had XPN: There is repudiation proof should be as fully convincing as if the acts giving rise to the
been inforned of the trust obligation are proven by an authentic document. An implied
repudiation, the action for b. Constructive trust trust, in fine, cannot be established upon vague and inconclusive
recovery will prescribe proof.
It prescribes if no action is filed
within 10 years from the NOTE: The enumerated causes of implied trusts are not excluisve
registration of the property in (Pineda, 2006).
the name of the trustee.
Article 1448. There is an implied trust when property is sold, and
NOTE: The 10 year prescriptive period applies only when the cestui the legal estate is granted to one party but the price is paid by
que trust is not in possesion of the property. Otherwise, there is no another for the purpose of having the beneficial interest of the
prescription (Pineda, 2006). property. The former is the trustee, while the latter is the
beneficiary. However, if the person to whom the title is conveyed
is a child, legitimate or illegitimate, of the one paying the price of
the sale, no trust is implied by law, it being disputably presumed
CHAPTER 3 that there is a gift in favor of the child.
Implied Trusts
CASE WHERE PURCHASER PAID FOR THE PRICE BUT THE LEGAL
Article 1447. The enumeration of the following cases of implied TITLE OR ESTATE IS GRANTED TO ANOTHER: The Article refers to an
trust does not exclude others established by the general law of implied resulting trust as there is a clear intent to create a trust but
trust, but the limitation laid down in article 1442 shall be short of the ordinary instrument to reflect it. There is a principle
applicable. recognized in law that a person who pays for something generally
does so for his own ineterest and benefit (Pineda, 2006).
IMPLIED TRUST: Implied trusts are those which, without being
expressed, are deducible from the nature of the transaction as XPN: If the person who receives the legal title is a legitimate or
matters of intent or, independently, of the particular intention of illegitimate child of the one paying the price, there is no trust
the parties, as being superinduced on the transaction by operation implied by law. instead, there is a presumption that there is gift
of law basically by reason of equity (Pineda, 2006).
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
given in favor of the child. The reason is that the donation is void for
being an indirect donation (Pineda, 2006).
NOTE: Even if there is already a legal presumption that there is a gift
granted to the child, there is still a need to follow the formalities of a
donation required by law (Pineda, 2006).
XPNs:
1. Article 1448. There is an implied trust when property is
sold, and the legal estate is granted to one party but the
price is paid by another for the purpose of having the
beneficial interest of the property. The former is the
trustee, while the latter is the beneficiary. However, if
the person to whom the title is conveyed is a child,
legitimate or illegitimate, of the one paying the price of
the sale, no trust is implied by law, it being disputably
presumed that there is a gift in favor of the child.
2. Where the actual contrary intention is proved (Pineda,
2006).
PURCHASE MONEY RESULTING TRUST: The trust created under the
st
1 sentence of Art. 1448 is referred to as a purchase money
resulting trust.
Requisites:
1. An actual payment of money, property or services or an
equivalent, consulting valuable consideration
2. Such consideration must be furnished by the alleged
beneficiary of a resulting trust (Pineda, 2006).
NOTE: No implied trust is created when purchase is made in
violation of law (Pineda, 2006).
Article 1449. There is also an implied trust when a donation is
made to a person but it appears that although the legal estate is
transmitted to the donee, he nevertheless is either to have no
beneficial interest or only a part thereof.
A CO-OWNERSHIP IS A FORM OF A TRUST: A co-ownership is a form
of a trust, with each owner being a trustee for each other and
possession of a co-owner shall not be regarded as adverse to other
co-owners but in fact is beneficial to them. Mere actual possession
by one will not give rise to the inference that the possession was
adverse because a co-owner is, after all, entitled to possession of
the property.
NOTE: A mere silent possession by a co-owner, his receipt of rents,
fruits or profits from the property, the erection of buildings and
fences and the planting of trees thereon and the payment of land
taxes, cannot serve as proof of exclusive ownership, if it is not borne
out by clear and convincing evidence that he exercised acts of
possession which unequivocably constituted an ouster or
deprivation of the rights of the other co-owners.
The elements in order that a co-owner’s possession may be deemed
adverse to the cestui que trust or the co-owner are:
1. that he has performed unequivocal acts of repudiation
amounting to ouster cestui que trust or other co-owners
2. that such positive acts or repudiation have been made
known to the cestui que trust or other co-owners and
3. that the evidence thereon must be clear and convincing
(Pineda, 2006)
Article 1450. If the price of a sale of property is loaned or paid by
one person for the benefit of another and the conveyance is made
to the lender or payor to secure the payment of the debt, a trust
arises by operation of law in favor of the person to whom the
money is loaned or for whom its is paid. The latter may redeem the
property and compel a conveyance thereof to him.
Article 1451. When land passes by succession to any person and he
causes the legal title to be put in the name of another, a trust is
established by implication of law for the benefit of the true owner.
NOTE: The article provides for a resulting trust there being a clear
intention to establish a trust. The law refers to inherited land. There
is no good reason why the principle cannot apply to personal
properties (Pineda, 2006).
Article 1452. If two or more persons agree to purchase property
and by common consent the legal title is taken in the name of one
of them for the benefit of all, a trust is created by force of law in
favor of the others in proportion to the interest of each.
NOTE: A resulting trust arises in the instant situation because of the
intention to create one. The purchasers are co-owners of the
property. In the absence of any specific agreement to the contrary,
their shares are presumed equal (Pineda, 2006).
Article 1453. When property is conveyed to a person in reliance
upon his declared intention to hold it for, or transfer it to another
or the grantor, there is an implied trust in favor of the person
whose benefit is contemplated.
NOTE: In this situation, an implied resulting trust is created because
of the declared intention of the grantee or to another person
(Pineda, 2006).
Article 1454. If an absolute conveyance of property is made in
order to secure the performance of an obligation of the grantor
toward the grantee, a trust by virtue of law is established. If the
fulfillment of the obligation is offered by the grantor when it
becomes due, he may demand the reconveyance of the property to
him.
NOTE: An implied resulting trust is created in this situation. There is
a clear intention to create a trust, although, it was not reflected in
the deed of conveyance. This is like a sale with the right to
repurchase, except that the right is not stated in the document. The
seller is the benefiicary and the buyer, the trustee. When the seller
offers to pay his obligation when due, the buyer must reconvey the
property (Pineda, 2006).
Article 1455. When any trustee, guardian or other person holding a
fiduciary relationship uses trust funds for the purchase of property
and causes the conveyance to be made to him or to a third person,
a trust is established by operation of law in favor of the person to
whom the funds belong.
CASE WHERE FIDUCIARY USED TRUST FUNDS IN PURCHASING
PROPERTY IN HIS NAME: An impled constructive trust is created in
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
this situtation to prevent unjust enrichment on the part of the
fiduciary (Pineda, 2006).

PERSONS COVERED BY THE ARTICLE:

1. trustee
2. guardian
3. agent
4. partner
5. confidential employee
6. persons holding a fiduciary position (Pineda, 2006)

Rationale behind the article: To prevent the fiduciart from

temptation of putting his own self-interest above that of his
principal whom he is supposed to protect. Further, the law is
intended to keep and encourage the fiduciary to remain honest, and
loyal to his principal (Pineda, 2006).

Article 1456. If property is acquired through mistake or fraud, the

person obtaining it is, by force of law, considered a trustee of an
implied trust for the benefit of the person from whom the property
comes.

NOTE: This trust is created to prevent unjust enrichment on the part

of the acquirer to the prejudice of the true owner. The mistake must
be committed by a third person. If made by a party, there is no trust
(Pineda, 2006).

NOTE: There can be an implied trust in the absence of mistake or

fraud (Pineda, 2006).

The article does not cover case of violation of a condition in

donation (Pineda, 2006).

Article 1457. An implied trust may be proved by oral evidence.

NOTE: As a rule, the burden of proving the existence of a trust is on

the party asserting its existence, and such proof must be clear and
satisfactorily show the existence of the trust and its elements. While
implied trusts may be proved by oral evidence, the evidence must
be trustworthy and received by the courts with extreme caution,
and should not be made to rest on loose, equivocal or indefinite
declarations. Trustworthy evidence is required because oral
evidence can easily be fabricated.

REFERENCES:

 PINEDA, ERNESTO L., Partnership, Agency and Trusts, Central

Book Publishing, Co., Inc., 2006
 TOLENTINO, ARTURO M., Commentaries and Jurisprudence on
the Civil Code of the Philippines, Vol. V., Central Book
Publishing, Co., Inc. 1991
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________

TITLE VIII DEPOSIT LEASE

LEASE If the price is to be paid whether
or not the objects are actually
CHAPTER 1 kept in the premises or safe,
General Provisions there is a lease because deposit
is a real contract which is
ARTICLE 1642. The contract of lease may be of things, or of work perfetced only by delivery of the
and service. (1542) object.
When the owner of the place or
Q: Distinguish between sale and lease. safe ha no obligation to take
care of the things kept therein,
A: the contract is likewise lease.
Hence, the locking up of an
PURCHASE AND SALE LEASE automobile ina garage, upon
There is transmission of Only the use or enjoyment of of paymnet of a fixed amount
ownershio of the thing sold the thing is transferred and only daily, without special
for a determinate period stipulations, or the use of a
Transmission is permanent safety deposit box in a bank, has
unless subject to a resolutory been held to be a lease.
condition
Q: Distinguish lease from simple loan.
In case of doubt, the intention of the parties should be the guide in
determining the contract entered into. RENT SIMPLE LOAAN
The owner of the property does The thing loaned becomes the
Contracts in the form of leases either with options to the buyer to not lose its ownership. He property of the obligor.
purchase for a small consideration at the end of the term, provided simply loses his control oveer
the so-called rent has been duly paid, or with stipulation that if the the property rented during the
rent throughout the term is paid, title shall thereupon vest upon the period of the contract.
lessee, are lessees in name only. The rents must be regarded as The relationship between the The relation between the parties
paymnet of the price in instllments since the due payment of the parties is that of landlord and is that of the obligor and
agrred amount results in the transfer if tilte to the lessee. tenant. obligee.

Q: Distinguished lease from usufruct. ARTICLE 1643. In the lease of things, one of the parties binds
himself to give to another the enjoyment or use of a thing for a
A: price certain, and for a period which may be definite or indefinite.
However, no lease for more than ninety-nine years shall be valid.
USUFRUCT LEASE (1543a)
Always a real right A real right by exception
To constitute a usufruct, one Ownership is not required in LEASE OF THINGS
must be the owner of the thing order to give an object in lease
Owner allows the usufructuary Lessor places and maintains the The subject matter of lease must be within the commerce of men.
to use and enjoy the property lessee in the paymnet of the Otherwise, it is void.
thing
Includes all possible uses and May be limited to particular uses NOTE: The lease of a building includes the lease of the lot.
manner of enjoyment of the by the contract
property Q: What are the special characteristics of a lease of things?
May be for an indefinite peruod Must be for a determionte
of time period; otherwise, the court A:
must fix seuch period in an
action brought for such purpose. 1. Its essential purpose is to transmit the use or enjoymnet of
a thing;
Q: Distinguish lease from commodatum. 2. It is consensual;
3. It is onerous;
A: 4. Its price is fixed in relation to the period of use or
enjoymnent; and
COMMODATUM LEASE 5. It is temporary.
Consist in the cession of the use of the thing to another
Essentially gratuitous onerous EXTENT OF ENJOYMENT

Q: Distinguish lease from deposit. It is noy indispensable that the use or enjoyment granted to the
lessee be total or exclusive; within the freedom of contract
A: authorized by law, the parties may establish the terms they deemed
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
convenient, subjecting the manner of use or enjoyment to
limitations and conditions.
A lease of things during the lifetime of one of the parties is
FORM OF RENT considered valid. When the lease is for such time as the lessor or
lessee may please, it is considered as one for lofe, ending upon the
Unlike in sale where it is required that the price must be in money or death of the party who could have terminated the contract.
its equivalent, the price in lease may be in money or in fruits or in
some other useful things. It may even be in some other prestation. BEYOND 99 YEARS

When it consists in fruits or products, it may be a determinate or Our Code, allows leases of property for more than 99 years.
fixed quantity or an aliquot part or percentage of the produce of the According to Sen. Tolentino, a lease made for more than 99 years
tenement. It may be variable at different periods within the duration shall be considered as terminated after the end of 99 years. After
of the lease. that period, it will be a lease for an indeterminate term.

When the price consists of a certain percentage of the fruits
obtaining from the thing, the contract is to be regarded as a tenancy
contract which is generally regarded as an important variation of the
contract of lease. But under our law, land tenancy on shares is
regarded more as a partnership than as a lease contract.
LEASE OF MOVABLES
Code makes no special provisions for the lease of movables. In the
absence of special law, the provisions of the NCC are applicable to
leases of personal property.

Amount of rent
The price of lease must be serious or substantial. It should not be so
insignificant as to indicate an intention of liberality on the part of the
owner; otherwise, the contract would not be a lease but a
commodatum.
ARTICLE 1644. In the lease of work or service, one of the parties
binds himself to execute a piece of work or to render to the other
some service for a price certain, but the relation of principal and
agent does not exist between them. (1544a)
CONTRACT FOR WORK

The price must be determined by the parties or at least susceptible
fo determination under the contract. If the parties are not able to fix
the price, the contract is absolutely VOID.
INCREASES OF RENT
Where there is no statute fixing a ceiling on rentals, the landowner
has a right to demand an increase thereof upon the expiration of the
contract.
Q: What are the factors in determining reasonableness of rental
increases of buildings?
By such contract, one of the parties binds himself to produce a result
of work or labor and the other party to pay a remuneration.
The contract of surgeon to make an operation, that of an artist to
give a concert and that of a contractor to construct a building are
contracts for work.
LEASE OF SERVICES
By such contract, one of the parties binds himself to render some
service that is his own activity or labor and the other party binds
himself to pay some remuneration.

A: The party obligated to render service does not lease his person or
his power or energy for work but a free activity within the limits set
1. Location of the apartment incluing the neighborhood; forth by by the contract and by good faith.
2. The area per floor or storey;
3. Number of rooms, bedrooms, kitchen, closet, facilites Q: Distinguish between lease and contract of work.
provided therefor;
4. Description of the buildig, its type and construction as well A:
as the age of the building.
LEASE OF SERVICE (LOCATIO LEASE OF WORK (LOCATIO
PERIOD OF LEASE OPERARUM) OPERIS)
The object of the contract is the The result is the object to be
The law excludes perpetual lease. There must always be a period serivce itslef and not the result delivered without considering
which may be definite or indefinite. whoch it produces the labor that produces it.
e.g: contract of carpenter e.g: contract of architect to build
When the period is indefinite, and the thing leased is a rural land, a house for another
article 1682 shall apply. Even if the result intended is not The risk is upon the promissor so
attained, without fault on the that if the result promised is not
If it is a rural land, article 1687 governs. part of the parties, the accomplished he is not entitled
remuneration is due for the to demand the compensation
Otherwise, these 2 articles should be applied by analogy. services remdered.
The direct object of the contract The lessor’s labor although an
In principle, if the thing is fruit-producing, article 1682 should govern is the lessor’s labor; the acts in important factor is not the direct
and if it is not fruit-producing, article 1687 should be applied. which such labor consists, object of the contract of the
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
performed for the benefit of the contract not is immediately
lessee are taken into taken into consideration;
consideration immediately
The object which the parties
consider is not the labor but its
result, the complete and
finsihed work
Law does not speak of risks for The price is stipulated taking
the workmen never assumes into consideration not the labor
them; workmen is paid for the but the fimished work; the price
labor he performs, whatwever is not payable until the work is
the result of the work assignes completed and accepted, amd
to him, and even should it be the same cammot lawfully be
destroyed by accident demanded if the work is
destroyed before it is finished
and accepted.
PROFESSIONALS
NOTE: These are leases of services.
COMPENSATION
This may consist of money or some other thing or of fixed sum or
certain percentage of the product of the work.
CHAPTER 2
Lease of Rural and Urban Lands
SECTION 1
General Provisions
Q: Distinguish between rural and urban tenements.
A: If the principal purpose is for habitation, it is urban, even if it has
gardens or orchards; and if the principal purpose is the direct
exploitation of the soil, it is rural even if ut has some structures
thereon.
Article 1646. The persons disqualified to buy referred to in articles
1490 and 1491, are also disqualified to become lessees of the
things mentioned therein. (n)
CAPACITY OF FOREINERS
Notwithstanding the contitutional prohibition on foreigners to
acquire lands in the Philippines, they can lease real or immovable
property in the Philippines because Art. 1491 refers only to those
persons who, by special relations they have with the property
should not be allowed to purchase.

Although no fixed amount may have been determiend as the
consideration for the contract of hiring, the contract is nevertheless
valid if the amiunt of the implied compensarion can be determined
by custom or frequent use in the place where the services were
rendered.
Article 1647. If a lease is to be recorded in the Registry of Property,
the following persons cannot constitute the same without proper
authority: the husband with respect to the wife's paraphernal real
estate, the father or guardian as to the property of the minor or
ward, and the manager without special power. (1548a)

Hence, where there has been fixed for the services rendered by a
physician to a sick person the latter is obliged to pay to the former a
reasonable and equitable compensation, the amount of which shall
be fixed by the courts according to the uses and customs of the
place and the evidence in the case, with or without the testimony of
experts.
ARTICLE 1645. Consumable goods cannot be the subject matter of
a contract of lease, except when they are merely to be exhibited or
when they are accessory to an industrial establishment. (1545a)
LEASE OF CONSUMMABLE GOODS
GR: Consumable goods cannot be the subject matter of a contract of
lease.
XPNs:
1. Lease of consumable property, not for the purpose of
consuming it but for purposes of display or advertising
such as wine to be placed in a showcase of a store but not
to be drunk. This is known as ad pompam et
ostentationem.
2. Lease of consumables which constitute accessories in the
lease of an industrial establishment such as the coal in a
factory.
EFFECT OF WANT OF SPECIAL POWER
Under the NCC, the husband with respect to the property of his
wife, the father and guardian with respect to the property of the
child or minor, and an administrator with respect to property under
his administration, cannot lease without special power, if the lease is
to be recorded in the Registry of Property. Hence, a lease executed
by said persons is valid, if the lease is not to be recorded in the
registry even withiut special power. But if the lease of real property
is to be for a period or more than 1 year, par. 8 of Art. 1878 of the
new Code requires a special power of attorney, irrespective of
whether the lease will be recorded or not. It is submitted that this
requirement applies to the persons mentioned in this article.
MANAGER UNDER THE NEW CODE: Applies to a judicial
administrator, an administrator of a deceased’s property, as well as
one of conjugal property. It also applies to apply to the
administrator or manager of property owned in common and to an
administrator of patrimonial or private property of the State.
Article 1648. Every lease of real estate may be recorded in the
Registry of Property. Unless a lease is recorded, it shall not be
binding upon third persons. (1549a)
LEASE IS A PERSONAL RIGHT: Lease is a personal right although its
inscription in the Registry of Property gives it a certain effect against
rd
3 person; but this does not modify the nature of the juridical
relation because the lease right has a life of its own independent of
the registration. The rights of the lessee are not altered by its
rd
registration; they are merely guaranteed as against 3 persons.
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
GR: Writ of possession is issuable in foreclosure of mortgage,
despite possessesion of a lessee of the premises and the lease has GR: The power to sublease
not yet terminated. Exceptions are where the lease had been
registered or prior knowledge of the mortgagee of the existence and XPN: Where there is an express prohibition
duration of the lease.
NOTE: The prohibition, to be express, must be stated or declared
EFFECT OF ACTUAL NOTICE: Where the lesse’s contract of lease with positively, in clear and direct language. It cannot be left to
the former owner was not recorded on the title, said contract inferences or implication.
cannot bind the purchaser.
The term of the sublease, however, cannot exceed that of the lease,
But where a purchaser of land at the time of the purchase has full and so the sublease terminates upon the termination of the lease.
knowledge of the fact that the land has been leased to a third
person and is informed of the terms of such lease, he is bound to REMEDY: When the lessee subleases the property inspite of a
respect said lease, although it is not entered upon the certificate of prohibition to do so, he violates the contract, and the lessor can ask
title. for rescission and damages, or damages only, unnder Art. 1659.

DELIVERY OF TITLE: The landowner may be compelled by the court WHEN DOES VIOLATION TAKE PLACE: Not upon the execution of
to deliver the certificate of title to the lessee so that the lease can be the contract of sublease but when the lessee places the thing at the
recorded therein. disposal of the sublessee.

Article 1649. The lessee cannot assign the lease without the The lessee cannot justify the breach of contract by proof that the
consent of the lessor, unless there is a stipulation to the contrary. sublease is solvent and of good standing.
(n)
Article 1651. Without prejudice to his obligation toward the
ASSIGNMENT OF LEASE: The assignment of the lease by the lessee sublessor, the sublessee is bound to the lessor for all acts which
would involve the transfer, not only of rights but also of obligations; refer to the use and preservation of the thing leased in the manner
hence, the consent of the lessor is necessary. It constitutes novation stipulated between the lessor and the lessee. (1551)
by a substitution of the person of one of the parties. The assignee
becomes the lessee of the property by assignment, entitled to all the LIABILITY OF LESSOR TO SUBLEASE: The lessor is liable to the lessee
rights of a lessee, and said rights are enforceable only against the for such damages as may be caused to the latter by reason of breach
owners of the property leased, and not against the assignors of the of the contract by the lessor, but is not directly liable to the
lease. sublessee, whose damages are included in whatvever damages the
lessee may recover from the lessor, said lease, as sublessor, being
TRANSFER OF RIGHTS: A mere transfer of rights of the lessee, and the one directly liable to the sublessee.
not of the contract itself, would not require the lessor’s consent,
unless there is an express stipulation to the contrary. Article 1652. The sublessee is subsidiarily liable to the lessor for
any rent due from the lessee. However, the sublessee shall not be
ASSIGNMENT OF THE LEASE v. SUBLEASE responsible beyond the amount of rent due from him, in
accordance with the terms of the sublease, at the time of the
ASSIGNMENT OF THE LEASE SUBLEASE extra-judicial demand by the lessor.
A transfer of a third person of Merely another contract of
the rights and obligations arising lease, where the original lease Payments of rent in advance by the sublessee shall be deemed not
from the lease contract becomes in turn a lessor to have been made, so far as the lessor's claim is concerned, unless
In fact, a sale of the lessee’s Even when the lessor consents said payments were effected in virtue of the custom of the place.
rights, and when the lessor gives to the sublease, the original (1552a)
his consent to it, the original lease contract subsists and is
lessee is released from his binding on the lessee. OWNER’S DEMAND ON SUBLESSEE TO PAY: It does not exempt the
obligations under the contract latter from his obligation to pay the sublessor (lessee) the rents
The personality of the original There is a juxtaposition of 2 which he failed to pay the sublessor.
lessee disappears and there only leases which are 2 distinct
remains the juridical relation juridical relations although This article does not annul the contractual relation between the
between the lessor and the related to each other lessee and sublessee, but simply helps the owner of the property to
assignee, who becomes the new collect the rentals of the same.
lessee ND
There is a succession of Sublessee does not have any RATIO FOR 2 PAR.: It is a precaution to avoid collusion between
particular title to one contract direct action against the lessor the lessee and the sublessee, because with a supposed payment of
lease on the contract with the lessee, rents in advance by the sublessee and the insolvency of the lessee,
or vice-versa the lessor’s rights would be prejudiced.

Article 1650. When in the contract of lease of things there is no TERMINATION OF SUBLEASE
express prohibition, the lessee may sublet the thing leased, in
whole or in part, without prejudice to his responsibility for the Under Art. 1606 of the said Code, when the lease ceases, the
performance of the contract toward the lessor. (1550) sublease is also terminated, but when the extinguishment of the
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
lease is due to non-payment of rents by the lessee, the sublease may
maintain the contract by complying with what is incumbent upon
the lessee.
Under Art. 1607, the termination of the lease by confusion or
merger in the rights of lessor and lesee, does not terminate the
sublease, because the sublease is an independent contract and not
merely an accessory to the original lease.
EJECTMENT OF LESSEE: A judgment of eviction against a lessee
affets his sublessees, even if the latter are not sued in the ejectment
case. The subkessees can only assert such right of possession as
could have been granted them by their sublessors, their right of
possession depending entirely upon that of the latter.
Article 1653. The provisions governing warranty, contained in the
Title on Sales, shall be applicable to the contract of lease.
In the cases where the return of the price is required, reduction
shall be made in proportion to the time during which the lessee
enjoyed the thing. (1553)
WARRANTY OF LESSOR: The warranties implied in contracts of
purchase and sale are also implied in contracts of lease.
Under Arts. 1561 and 1566, the lessor is liable for the warranty of
the thing leased against any hidden defects it may have, even when
unknown to said lessor, but this liability for warranty of the thing
leased does not amount to an obligation to indemnify the tenant for
damages, which is only to be allowed when there is proof that the
lessor acted with fraud amd in bad faith by concealing the defect in
the thing leased and in not revealinhg it to the lessee.
SECTION 2
Rights and Obligations of the Lessor and the Lessee
Article 1654. The lessor is obliged:
(1) To deliver the thing which is the object of the contract in such a
condition as to render it fit for the use intended;
(2) To make on the same during the lease all the necessary repairs
in order to keep it suitable for the use to which it has been
devoted, unless there is a stipulation to the contrary;
(3) To maintain the lessee in the peaceful and adequate enjoyment
of the lease for the entire duration of the contract. (1554a)
DELIVERY OF PROPERTY: When a lessee rents a building which turns
out, however, to be occupied by another person, and the former
cannot obtain possession, his (lessee’s) cause of action is against the
lessor for breach of contract in that the latter violated the obligation
of delivering to him the peaceful possession of the leased premises.
CONDITION FOR USED INTENDED: The thing need not be in a
condition that will satisfty every whim or caprice of the lessee. It is
enough that it can be used by him from the moment of delivery. The
parties may validly stipulate that the thingh will be delivered in the
condition in which it might be at the time of perfectioon of the
contract.
DUTY TO MAKE REPAIRS: Since the lessor is bound to deliver and
keep the thing suitable for the use intended, he must remedy all
defects which impede or impair such use, whether such defects
existed before the delivery or came into existence later.
Repairs does not include reconstruction.
WAIVER: The lessee may, expressly or tacitly waive the right to
repairs to keep the thing suitable for the use intended, or to
particular kinds of repairs, in which case, the lessor is relieved of his
duty to make such repairs.
A stipiulation that the thing shall be delivered to and returned by the
lessee in the condition in which it is at the time, is a tacit waiver of
repairs.
LIABILITY: If the lessor, upon formal notification by the lessee to
make the necessary repairs undertook and completed the repairs,
the lessee has no right to cancel the lease contract for its unexpired
term, in the absence of any provision in the contract to the contrary.
It is only when the owner fails to perform his duty after due notice,
that the action would lie.
PEACEFUL, ADEQUATE POSSESSION: It is the duty of the lessor to
place the lessee in legal possession of the premises and to maintain
him in the peaceful possesison of the property during the entire
term of lease.
The non-fulfillment by the lessor of this obligation, as when his non-
payment of the land tax results in the eviction of the lessee, releases
the ;essee from the obligation to pay what is stipulated in the
contract from the date he ceased to occupy the premises.
The duty to maintain the lessee in the peaceful and adequate
enjoyment of the lease for the duration of the contract is merely a
warranty by the lessor that the lessee shall not be disturbed in his
legal, not physical possession.
Article 1655. If the thing leased is totally destroyed by a fortuitous
event, the lease is extinguished. If the destruction is partial, the
lessee may choose between a proportional reduction of the rent
and a rescission of the lease. (n)
SCOPE OF THIS ARTICLE: This article refers to destruction, total or
partial, and to the deteriorations or damages, which must be
repaired by the lessor under Art. 1654, par. (2). In case of
destruction, therefore, Art. 1654 is not applicable, the present
article governs, and under it the lessee is not entitled to ask that the
thing lost be reconstructed totally or partially by the lessor. This is
the rule even when the thing is insured and the lessor has recovered
on the policy.
NOTE: The total destruction of a building, a room of which is leased
by a lessee, terminates the latter’s lease.
PARTIAL DESTRUCTION: The lessee may choose between
proportional reduction of rents and rescission of the lease. The
election is given by law to the lessee, not to the lessor. Once the
choice of the lessee has been accepted by the lessor, however, the
former cannot change it, because it becomes binding on both. If the
reductiion of rent is chosen, the reduction retroacts to the moment
of partial destruction.
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
It is submitted that rescission will be allowed by the court only whe
the destruction is substantial; but if it is insignifant, only a
proportional reduction of rent will be decreed.
Article 1656. The lessor of a business or industrial establishment
may continue engaging in the same business or industry to which
the lessee devotes the thing leased, unless there is a stipulation to
the contrary. (n)
NOTE: When the lessor leases a part of a building for commercial
purposes, he may use the other parts, or lease them to others, for
the same purposes, unless there is a stipulation to the contrary. The
lessor warrants only the peaceful and adequate enjoyment of the
lease; he does not warrant the successful results of the business of
the lessee in the premises.
Article 1657. The lessee is obliged:
(1) To pay the price of the lease according to the terms stipulated;
(2) To use the thing leased as a diligent father of a family, devoting
it to the use stipulated; and in the absence of stipulation, to that
which may be inferred from the nature of the thing leased,
according to the custom of the place;
(3) To pay expenses for the deed of lease. (1555)
PAYMENT OF RENT
The obligation imposed upon the lessee to pay rent in the manner
agreed upon arises only where the contract has been actually
carried into effect by the delivery of the things leased to the lessee
for the purposes stipulated in the contract.
Where the lessor has refused to accept the rent being paid by the
lessee, the latter should make a monthly tender of payment and
notice of consignation for the monthly rentals.
WHO FIXES THE RENT: Only the owner has the right to fix the rent.
The court cannot determine the rent and compel the lessor or
owner to conform thereto and allow the lessee to occupy the
premises on the basis of the rent fixed by it. If the lessee disagrees
with the rent fixed by the lessor, his duty is to vacate the premises;
he has absolutely no right to have the court fix the rent and continue
occupyingh the premises pending judicial determination of said
rents.
INCREASE AND DECREASE OF RENTS: The owner of leased property
ha no absolute right to increase the rents. Where the ground relied
upon for the increase of rent is the increase in assessment of the
property, the rent will be increased in the proportion of the increase
in assessment.
NOTE: A devaluation or depreciation of the currency justifies
increase in rentals.
FAILURE TO PAY; INTEREST
The tenant who fails to pay the rent, in the absence of some
agreement to the contrary, will entitle the lessor to evict the tenant
and recover the unpaid rent; and in addition to the rent due, the
tenant is liable for the accrued legal interest thereon at the rate of 6
per cent per annum.
ILLICIT USE OF THE THING: The use of the thing for an illicit purpose
invalidates the contract. If such use was stipulated, no action can be
maintained to enforce the contract, which shall be absolutely void. If
it was stipulated, but the lessee later devotes the thing to such illicit
use, such as when he uses it for gambling or prostitution, the lessor
may demand the termination of the contract.
USE INFERRED FROM THE NATURE OF THINGS: When a thing by its
nature is susecptible of various uses, the lessee may use it for any of
the purposes for which it may be suitable. The lessee need not to
limit himself to the use to which the thing was devoted at the time
of the lease.
NOTE: When the lease is for a commercial establishment dedicated
to a particular business, such as a bakery or a grocery, the lessee
cannot change the pupose of such establishment.
Article 1658. The lessee may suspend the payment of the rent in
case the lessor fails to make the necessary repairs or to maintain
the lessee in peaceful and adequate enjoyment of the property
leased. (n)
NOTE: A tenant is released from the obligation to pay rents from the
time he is unlawfully dispossessed.
FORCE MAJEURE: If force majeure or fortuitous event deprives the
lessee of the use or enjoyment of the property, the situation would
be similar to total or partial destruction of the property, governed by
Art. 1655. The lessee may ask for the rescission of the contract, or
the suspension of the payment of rents during the period of
interruption.
Article 1659. If the lessor or the lessee should not comply with the
obligations set forth in articles 1654 and 1657, the aggrieved party
may ask for the rescission of the contract and indemnification for
damages, or only the latter, allowing the contract to remain in
force. (1556)
ALRTERNATIVE REMEDIES
Upon failure of the lessee to pay the stipulated rent at the time
agreed upon, the lessor may elect between the remedies of:
1. Performance
2. Resolution of the lease contract
NOTE: In either case, the lessee is entitled to such damages as are
appropriate to the particular remedy chosen, but may not, upon
resolution of the contract, recover damages that are appropriate
only where performance is demanded.
Where both parties defaulted in the performance of their
corresponding duties, but it could not be determined with
definiteness who of them committed the first infraction of the terms
of the contract, the parties are in pari delicto and the contract is
deemed extinguished, with the parties suffering their respective
losses.
RESCISSION OF CONTRACT
Where the lessee, in possession of land, fails to pay on time the
prooper rents, the lessor has a right to rescind the contract, recover
the unpaid rents and eject the tenant from the land.
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
A lessor may seek rescission of lease contract and ejectment of
lessee simultaneously in a single action for illegal detainer.
Where rescission is the action taken, the rule is that both demands
to pay rent and to vacate are necessary to make a lessee a
deforciant in order that an ejectment suit may be filed. Payment of
the arrearages in rental after demand to pay and to vacate does not
extinguish the cause of action for ejectment.
NOTE: Rescission will not be permitted for a slight or casual breach
of the contract, but only for such breaches as are so substantial and
fundamental as to defeat the object of the parties in making the
agreement. Neither can rescission be availed of by the wrongdoer,
because the same is a remedy granted only to the injured party.
NECESSITY OF JUDICIAL ACTION: A contract of lease is a bilateral
one and should its resolution be sought it cannot be decided by one
party alone. A judicial action is necessary.
ARTICLE 1191 and ARTICLE 1659 COMPARED
ARTICLE 1191 ARTICLE 1659
Courts have the discretion to No such discretion is granted to
refuse the resolution or the courts
rescission of contracts in their
judgment the circumstances of
the case warrant the fixing of a
term within which the obligor
may fulfill or perform his
overdue obligation
RECOVERY OF DAMAGES
An action which has for its object the recovery of damages is quite
different from an action for ejectment, which has for its purpose the
recovery of the possession of the leased property. A breach of rental
contract entitles the other party to demand imdemnity for damages.
But an action for damages against an occupant of buildings, who
unlawfully detains the same, will not lie in favor of a lessee of said
buildings who has never entered into possession under his lease,
because there is no privity between the parties.
ENFORCEMENT OF LEASE
Where the lessor resumes possession of his leased property for its
protection after the lessee has abandoned the same, the lessor has
still the right, if he elects, to hold the lessee responsible under his
contract until the termination of the lease.
Article 1660. If a dwelling place or any other building intended for
human habitation is in such a condition that its use brings
imminent and serious danger to life or health, the lessee may
terminate the lease at once by notifying the lessor, even if at the
time the contract was perfected the former knew of the dangerous
condition or waived the right to rescind the lease on account of
this condition. (n)
Article 1661. The lessor cannot alter the form of the thing leased in
such a way as to impair the use to which the thing is devoted under
the terms of the lease. (1557a)
CHANGES IN FORM AND SUBSTANCE: The lessee of a building under
a long term lease has the right to make such changes as the business
established therein requires, provided thaty neither the value nor
the solidity of the building is impaired.
Article 1662. If during the lease it should become necessary to
make some urgent repairs upon the thing leased, which cannot be
deferred until the termination of the lease, the lessee is obliged to
tolerate the work, although it may be very annoying to him, and
although during the same, he may be deprived of a part of the
premises.
If the repairs last more than forty days the rent shall be reduced in
proportion to the time - including the first forty days - and the part
of the property of which the lessee has been deprived.
When the work is of such a nature that the portion which the
lessee and his family need for their dwelling becomes
uninhabitable, he may rescind the contract if the main purpose of
the lease is to provide a dwelling place for the lessee. (1558a)
URGENT REPAIRS
A lessor cannot do anything which may disturb the lessee in the
enjoyment of the thing leased. But he cannot be obliged to leave the
thing to perish for lack of repairs during the term of the lease. So
when urgent repairs are required, the lesssee will have to bear the
inconvenience they may cause. The lessor has the burden of proving
the urgency of the repair; if they are not really urgent, he will be
liable for damages suffered by the lessor.
NOTE: Modifications or improvements which the lessor may want to
make on the thing prior to the expiration of the lease, so as to insure
another lease, cannot be considered as urgent repairs.
REMEDIES OF LESSEE
If the repairs last more than 40 days, the lessee can ask for a
proportionate reduction of rents. If the portion used by the lessee
becomes uninhabitable, even for a short time, he can ask for
rescission of the contract; but he cannot ask for the reduction of
rents in this case if the repairs do not last more than 40 days.
If the repars do not last for more than 40 days, and they do not
make the portion used by the lessee as adwelling uninhabitable, he
has no right at all to rescission, reduction of rents, or damages.
Article 1663. The lessee is obliged to bring to the knowledge of the
proprietor, within the shortest possible time, every usurpation or
untoward act which any third person may have committed or may
be openly preparing to carry out upon the thing leased.
He is also obliged to advise the owner, with the same urgency, of
the need of all repairs included in No. 2 of article 1654.
In both cases the lessee shall be liable for the damages which,
through his negligence, may be suffered by the proprietor.
If the lessor fails to make urgent repairs, the lessee, in order to
avoid an imminent danger, may order the repairs at the lessor's
cost. (1559a)
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
USURPATION OR UNTOWARD ACT; PURPOSE OF NOTICE
The purpose of requiring the lessee to bring to the knowledge of the
owner of the property leased every usurpation and untoward act
which any third person may have committed or may be openly
preparing to carry out upon the thing leased, is to enable the owner
to maintain his civil possession, by suit if necessary.
RIGHT OF OWNER-LESSOR: Upon ouster of the tenant the owner
may commence summary proceedings to recover possession. And
summary possessory action will lie against him who disturbs another
in his possession whether acting in his own behalf or under direction
of another.
The owner is entitled to defend his property from any aggression in
order to prevent serious injury to his interests, which would happen
if this was left to the tenant who has no interests and has no real
right in the property leased.
NOTICE OF NEED OF REPAIRS: As during the peiod of the lease, the
lessee maintains a relation more direct and proximate to the thing
leased, he has the obligation to notify the lessor of the necessity of
making the repairs for he cannot allege that he does not know them.
It is not the duty of the lessor to constantly inspect the premises to
see if there are repairs to be made.
The lessee, however, is not entitled to reimbursement for the costs
of repairs and improvements undertaken by him on the leased
premises without the lessor’s knowledge and consent, which was
required in their lease contract, which also stipulated that, even
when the lessor had previously comsented thereto, they shall be for
the sole account of the tenant.
OWNER FAILS TO MAKE REPAIRS
The remedy of tenants where lessor refuses to make an urgent
repair of the leased premises is not to suspend rental payments but
to make the urgent repair themselves and charge the costs thereof
to lessor.
Article 1664. The lessor is not obliged to answer for a mere act of
trespass which a third person may cause on the use of the thing
leased; but the lessee shall have a direct action against the
intruder.
There is a mere act of trespass when the third person claims no
right whatever. (1560a)
TRESASS IN FACT
If the act of trespass is not accompanied or preceded by anything
which reveals a really juridic intention on the part of the trespasser,
in such wise that the lessee can only distinguish the material fact,
stripped of all legal form or reason, the trespass is in fact only (de
mero hecho). The lessor is not liable for trespass of this kind,
although he is liable for trespasses in law (de derecho), pursuant to
par. 3 of Art. 1654. Trespass in fact affects only the use of the
property leased, and therefore, it is incumbent upon the lessee to
repel it.
Disturbance in Fact vs. Disturbance in Law
DISTURBANCE IN FACT DISTURBANCE IN LAW
Takes place when the enjoyment Takes place when by jurdicial or
of the lease is physically reduced extra-judicial acts of third
or impeded, the intruder not person questions the right of the
claiming any right to the thing or lessee to enjoy the property or
to its enjoyment. the lease, and claims it for
himself by virtue of a right
pertaining to him.
The lessor is not liable to the The lessor is liable to the lessee
lessee, who has a direct action for the disturbance in the
against the intruder latter’s possession
Article 1665. The lessee shall return the thing leased, upon the
termination of the lease, as he received it, save what has been lost
or impaired by the lapse of time, or by ordinary wear and tear, or
from an inevitable cause. (1561a)
NOTE: At the expiration of the lease, the lessee is obliged to vacate
and return the premises leased—the whole of the thing subject of
thr lease and not only a part thereof—to the lessor, the owner of
the land has the right to cause the building erected on his estate to
be taken down without incurring any obligation to return the estate
in the same condition in which he received it, unless an agreement
was executed prior to the construction of the building.
NOTE: The expenses incurred by the lessee in placing the thing at
the disposal of the lessor, cannot be charged against the lessor,
because it is his obligation to return the subject matter of the lease.
HOW RETURN MADE: This article does not, and no other legal
provision does, specify the manner in which the possession of leased
property should be returned. By its very nature, the relinquishment
of possession need no be accomplished by physical delivery or any
other prescribed form.
In order to return the thing leased to the lessor, however, it is not
enough that the lessee vacates it. It is necessary that he place the
thing at the disposal of the lessor, so that the latter can receive it
without any obstacle. He must return the keys and leave no sub-
lessees or other persons in the property; otherwise, he shall
continue to be liable for the payment of rents.
EFFECT OF LESSOR’S LENIENCY: The owner may allow a defaulting
tenant to remain in the rented property onee month, one year or
even more, and that consent, no matter how long it may last, makes
the tenant’s possession lawful.
Article 1666. In the absence of a statement concerning the
condition of the thing at the time the lease was constituted, the
law presumes that the lessee received it in good condition, unless
there is proof to the contrary. (1562)
PRESUMPTION: In the absence of proof that when the lessees
accepted the building leased, the same was uninhabited and
inadequate for the use for which it was leased, the legal
presumption that the lessee received the thing leased in good
condition applies.
Article 1667. The lessee is responsible for the deterioration or loss
of the thing leased, unless he proves that it took place without his
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
fault. This burden of proof on the lessee does not apply when the
destruction is due to earthquake, flood, storm or other natural
calamity. (1563a)
DESTRUCTION OF PROPERTY: When leased property is destroyed by
fire, there arises a presumption against the lessee, which makes him
responsible to the owner for the resulting damages, in the absence
of proof that the loss happened without the lessee’s fault.
NOTE: Under the contractual stipulation whereby the lessee
undertakes to make the necessary repairs on the building leased,
failure by the lessee to make the repairs which causes the
destruction of the building renders him liable to the lessor.
Article 1668. The lessee is liable for any deterioration caused by
members of his household and by guests and visitors. (1564a)
rd
BASIS OF LIABILITY: The liability of the lessee for the acts of 3
persons is based on the contract itself, under which the lessee has
assumed the custody of the thing of which the lessor has been
dispossessed. There is no need of proving that he was negligent in
selecting and supervising his household helpers, visitors and guests.
He is liable from the mere fact of having allowed them into the
immovable leased.
Article 1669. If the lease was made for a determinate time, it
ceases upon the day fixed, without the need of a demand. (1565)
LEASE FOR DEFINITE PERIOD
Where the lease is for a definite period, the tenancy expires with the
term and no notice to quite is necessary. Upon the expiration of the
term, the tenant thenceforth becomes a deforciant withholding the
property unlawfully.
NOTE: The court is completely devoid of authority to extend the
lease after the period stipulated has expired.
INCREASE OF RENT: At the end of the period of the lease, the
landlord has the right to increase the rent, and the tenant has the
option to pay the new rent or to vacate the premises in order to
avoid paying the higher rent. If he agrees to pay the new rent, he
cannot be ejected until he defaults in said obligation.
EXTENSION: When a contract contains a provision that the term of
the lease may be extended for a further similar period, the
extension is to be understood as having been promised to the
lessee, and the latter, without need of further consent of the lessor,
(unless he breaks the terms of the contract), can continue the lease
and occupy the premises on notice to the lessor.
A stipulation that the lease is extendible for 6 years “agreed upon by
both parties” gives to the lessee the right to take additional period
or to quit upon the expiration of the term. In construing provisions
of this character the tenant is favored, in case of uncertainty in the
term of the lease, and not the landlord. Stipulatioons for the
extension of the period of lease at the exclusive option of the lessee,
are valid.
A covenant to renew a lease which makes no provision as to the
terms of the renewal or extension implies an extension or renewal
upon the same terms as provided in the original lease contract.
Continued possession of the premises by the lessee after the
expiration of the period of the lease, creates an implied new lease,
the period of which is established nu Art. 1687 of the NCC.
TERMINATION OF THE LEASE
The lease may terminate:
1. By the expiration of the period
2. By the total loss of the thing
3. By the resolution of the right of the lessor, such as when
the lessor is a usufructuary and the usufruct is terminated
4. By the will of the purchaser or transferee of the thing
5. By rescission due to non-performance of the obligation of
one of the parties
NOTE: An agreement of the parties that either of them may
terminate tge lease on a 30-dat notice is valid. When the agreement
between the lessor and the lessee is that the lease is only temporary
may be terminated when the former needs it for his business or
when his children need the same, the lease is terminated when the
condition happens and the lessee is notified accordingly.
Article 1670. If at the end of the contract the lessee should
continue enjoying the thing leased for fifteen days with the
acquiescence of the lessor, and unless a notice to the contrary by
either party has previously been given, it is understood that there
is an implied new lease, not for the period of the original contract,
but for the time established in articles 1682 and 1687. The other
terms of the original contract shall be revived. (1566a)
NOTE: The 15-day clause of this article is not applicable to
successive renewals under Art. 1687. Thus, the lease of a dwelling
house at a monthly rentak terminable upon 30 days’ written notice
terminates at the expiration of thirty days from receipt of such
notice, whether or not such termination coincides, with a day on
which rent is payable.
TACIT RENEWAL
DURATION: When the tenant, with the acquiesence of the landlord,
holds over after the expiration of the term the tacit renewal of the
lease is not for the same term of that of the original contract but for
the periods established by Arts. 1682-1687, according to the
character of the property and the periods of payment of the rent.
However, there can be no renewal, if the lessor, before the
expiration of the term, gives the lease a notice to vacate.
NOTE: Implied new lease revives only those terms of the original
contract germane to the lesse’s right of enjoyment of possession of
leased premises. Special agreements foreign to right of occupancy
are excluded.
Article 1671. If the lessee continues enjoying the thing after the
expiration of the contract, over the lessor's objection, the former
shall be subject to the responsibilities of a possessor in bad faith.
(n)
Article 1672. In case of an implied new lease, the obligations
contracted by a third person for the security of the principal
contract shall cease with respect to the new lease. (1567)
Article 1673. The lessor may judicially eject the lessee for any of
the following causes:
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
(1) When the period agreed upon, or that which is fixed for the
duration of leases under articles 1682 and 1687, has expired;
(2) Lack of payment of the price stipulated;
(3) Violation of any of the conditions agreed upon in the contract;
(4) When the lessee devotes the thing leased to any use or service
not stipulated which causes the deterioration thereof; or if he does
not observe the requirement in No. 2 of article 1657, as regards the
use thereof.
The ejectment of tenants of agricultural lands is governed by
special laws. (1569a)
TERMINATION OF PERIOD: Upon the termination of the period of
lease, the lessor is entitled to recover possession and dispose of the
leased property to another lessee.
INCREASE OF RENT: Where after the notice of increased rental, the
lessee elects to stay, he thereby merely assumes the obligation of
paying the new rental, and could not be ejected until he defaults in
said obligation.
A lessor has the right to increase the rent from and after the
expiration of the period of lease; and if the tenant thereafter
remains in possession without agreeing to the increase, he is bound
to pay the reasonable value of the use and occupation.
REASONABLENESS OF RENT: It was held that the determination of
what is to be paid for leasing municipal property lies within the
power and discretion of the city or municipal board, and unless the
ordinance passed by the board on the matter is ultra vires or clearly
unreasonable, courts should not interfere with it.
NON-PAYMENT OF RENT
Mere failure to pay rents, or a breach of contract to pay rents, does
not render the possession of the lessee per se unlawful. It is not the
failure of the lessee to pay rents as agreed upon in a contract, but
the failure of the lessee to pay rents after a demand therefor that
entitles the lessor to bring an action of unlawful detainer.
Failure or refusal of the lessor to receive the rent is not a valid
defense in ejectment cases; in such instances the debtor-lessee
must consign the amount due from him.
VIOLATION OF CONTRACT: The landlord has the right to terminate a
contract of lease under Art. 1673 of the NCC par. 3 which provides
that the lessor may judicially eject the lessee for violaiton of any of
the conditions agreed upon in the contract.
The lessorsare not in law required to bring first an action for
rescission, but could ask the court to do so and simultaneously seek
the ejection of the lessee in a single action for illegal detainer.
Definite or indefinite, the lessor has the right to terminate the
contract of lease upon violation of its terms and conditions.
EXTRAJUDICIAL REMEDY
A stipulation in a lease contract authorizing the lessor to take
possession of the leased premises, without resorting to judicial
action, upon failure of the lessee to comply with the terms and
conditions of the contract, is valid and binding.
Article 1674. In ejectment cases where an appeal is taken the
remedy granted in article 539, second paragraph, shall also apply,
if the higher court is satisfied that the lessee's appeal is frivolous or
dilatory, or that the lessor's appeal is prima facie meritorious. The
period of ten days referred to in said article shall be counted from
the time the appeal is perfected. (n)
SCOPE OF THE ARTICLE: The present article applies not only to the
lease of lands, but also to the buildings standing thereon, on the
principle that the accessory follows the principal.
Prior physical possession by the plaintiff of the property in litigation
in an unlawful detainer case is not indispensable for the issuance of
the writ of preliminary mandatory injunctionn where said plaintiff is
the vendee of the property. For the purpose of this article, it is
enough that the plaintiff is the owner of the land and the defendant
is in temporary occupancy thereof whether under a lease contract,
or on mere tolerance or under a temporary permit. This article is
applicable where after the termination of the lease contract, or the
revocation of the permit, the lessee or occupant unlawflly prolongs
his occupation of the premises.
HIGHER COURT- The issuance of the writ of preliminary mandatpry
injunction as authorized by the present article, in an ejectment case,
is expressly vested in the appellate court, because the law employs
the phrase “higher court” and it is the higher court with must
satisffy itself that the appeal is either frivolous or dilatory, in the
case of the lessee, or prima facie meritorious, in the case of the
lessor.
PERIOD OF 1O DAYS: The period of 10 days within which to file a
petition for a writ of preliminary mandatory injunction should be
counted from the date when the petitioning party is notified of the
perfection of the appeal.
Article 1675. Except in cases stated in article 1673, the lessee shall
have a right to make use of the periods established in articles 1682
and 1687. (1570)
Article 1676. The purchaser of a piece of land which is under a
lease that is not recorded in the Registry of Property may
terminate the lease, save when there is a stipulation to the
contrary in the contract of sale, or when the purchaser knows of
the existence of the lease.
If the buyer makes use of this right, the lessee may demand that he
be allowed to gather the fruits of the harvest which corresponds to
the current agricultural year and that the vendor indemnify him for
damages suffered.
If the sale is fictitious, for the purpose of extinguishing the lease,
the supposed vendee cannot make use of the right granted in the
first paragraph of this article. The sale is presumed to be fictitious
if at the time the supposed vendee demands the termination of
the lease, the sale is not recorded in the Registry of Property.
(1571a)
SCOPE OF THIS ARTICLE: Although this article makes express
reference only to sales, its intent and reason justify its application to
any other form of alienation.
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
SALE OF LEASED PROPERTY; RIGHT OF VENDEE: A contract of lease
of real property exeucted by the vendor, unless recorderd, ceases to
have effect when the property is sold, in the absence of contrary
agreement. The purchaser of said property is not bound by an
unrecorded lease thereof which is not mentioned in the deed of
conveyance. The new owner may terminate both the lease and any
subleases made by the lessee.
NOTE: The act of the new owner of giving notice of an increase of
rent, when the original period has expired, constitutes a notice of
termination of the original lease.
Upon purchase of the leased property, the lessee must pay to the
new owner, and if after due notice from the latter, he pays to the
former owner may still recover the amount of rent from him.
APPLICATION OF THIS ARTICLE: The provisions of the present article
apply only to the leases for a fixed term, and not to those from
month to month. Where the lease is on month to month basis, and
the purchaser seeks to recover from the lease the property which
said lessee has leased from the vendor, the purchaser’s right is not
based onn the present article, but on his right as the owner or
vendee to recover possession from a tenant holding-over after the
termination of the right to hold possession.
WHEN AVAILED OF: No special period for its exercise. It may be
asserted at any time before the action prescribes. But when a new
relation is created between the vendee and the lesee, thus,
excluding that which existed between the vendor and the lessee,the
vendee cannot avail himself of the right granted by this article.
EFFECT OF ACTUAL NOTICE: A purchaser of land who has full
knowledge of the fact that the land has been leased to a third
person and is informef of the terms of such lease at the time of the
purchase, is bound to respect said lease, allthough it is not tendered
upon the certificate of title. The lease in effect become part of the
contract of sale.
But where land registered in the name of the landlord is subject to
an existing lease not recorded on the title, and the terms of the
lease are not known to a person dealing subsequently with the
property, but who was informed that the lease was to terminate at a
certain time, it was held that the latter’s knowledge that a lessee
was in possession of the land was not sufficient to charge him with
notice of the duration of the lease, which was longer than the period
made known to him, for he had a right to rely on the certificate of
title and was not bound to make further inquiries.
PURCHASER IN FORECLOSURE: When an immovable is mortgaged,
the puchaser thereof in foreclosure proceedings is not bound to
respect a lease which was recorded subsequent to yje registration of
the mortgage.
RARTIFICATION: The termination of the existing lease is optional to
the vendee; if he does not make use of his right, the lease continues
in force. The vendee may be barred from terminating the lease
when he expressly accepts or ratifies it, or when he tacitly
renounces his right to terminate it by the collection of rents under
the lease contract or by other similar acts.
RIGHT OF THE LESSEE TO GATHER FRUITS; RECOVER DAMAGES: The
law grants the purchaser of a leased estate the right to terminate
the lessee, reserving to the lessee only the right to gather the fruits
of the crop corresponding to the current agricultural year. The
lessee, however, may recover his damages from the vendor, his
lessor.
The right granted to a lessee to gather the fruits of the crop
corresponding to the current agricultuaral year, does not extend to
the gathering of fishers which require 2 years before they are of any
commercial value.
Article 1677. The purchaser in a sale with the right of redemption
cannot make use of the power to eject the lessee until the end of
the period for the redemption. (1572)
SCOPE AND LIMITATION: The provision of this article is not
applicable to a case where the vendor, on disposing of real property
under the right of repurchase, continues nevertheless in possession
thereof by virtue of a special agreement, not as owner, but as tenant
of the purchaser by the payment of rent. The limitation contained in
said article refers to the tenant or lessee who has contracted with
the vendor and who has had no relation whatever with the
purchaser under an agreement of redemption; such tenant is a third
person with respect to said vendor and purchaser, because, if the
vendor should by redemption recover property, the lessee would
again be entitled to the enjoyment of the lease; wherefore, the
limitation of the puchaser’s right is proper and just.
VENODR AS LESSEE: But where the vendor remains in possession as
a tenant, and he fails to pay the agreed rent, he may be evicted by
the vendee even before the period of redemption has expired. After
the title has been consolidated in the vendee, the vendor-lessee
may also be ejected for breach of the lease agreement.
Article 1678. If the lessee makes, in good faith, useful
improvements which are suitable to the use for which the lease is
intended, without altering the form or substance of the property
leased, the lessor upon the termination of the lease shall pay the
lessee one-half of the value of the improvements at that time.
Should the lessor refuse to reimburse said amount, the lessee may
remove the improvements, even though the principal thing may
suffer damage thereby. He shall not, however, cause any more
impairment upon the property leased than is necessary.
With regard to ornamental expenses, the lessee shall not be
entitled to any reimbursement, but he may remove the
ornamental objects, provided no damage is caused to the principal
thing, and the lessor does not choose to retain them by paying
their value at the time the lease is extinguished. (n)
Article 1679. If nothing has been stipulated concerning the place
and the time for the payment of the lease, the provisions or article
1251 shall be observed as regards the place; and with respect to
the time, the custom of the place shall be followed. (1574)
PLACE OF PAYMENT OF RENT: The rent should be paid in the place
designated in the obligation. In the absence of an agreement
between the parties as to the place of the payment, the rent is
payable at the domicile of the lessees. And where the failure of the
lessee to pay rent is attributable to the lessor’s omission or neglect
to collect at his domicile, the same cannot be a ground for their
ejectment.
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
SECTION 3
Special Provisions for Leases of Rural Lands
Article 1680. The lessee shall have no right to a reduction of the
rent on account of the sterility of the land leased, or by reason of
the loss of fruits due to ordinary fortuitous events; but he shall
have such right in case of the loss of more than one-half of the
fruits through extraordinary and unforeseen fortuitous events,
save always when there is a specific stipulation to the contrary.
Extraordinary fortuitous events are understood to be: fire, war,
pestilence, unusual flood, locusts, earthquake, or others which are
uncommon, and which the contracting parties could not have
reasonably foreseen. (1575)
RIGHT TO REDUCTION
Requisites:
1. The land leased must be of rural character
2. More than ½ of the fruits must have been lost
3. The loss must have occurred through extraordinary and
unforseen fortuitous event; and
4. There must be no stipulation against the application of the
article
FORTUITOUS EVENT: Depradation of strangers is a fortuitous event
which constitutes a justification for the reduction of rental due from
the lessee. The violence of robbers though not independent of
human will; and war, although dependent upon the will of the
combatants; is caso fortuito. So is the will of a third person who
prevents performance of the obligation.
NOTE: Typhoons are not extra-ordinary fortuitous event events,
under the present article, because in the Philippines, it cannot be
said that they are uncommin and not be reasonably foreseen by the
contracting parties.
PERCENTAGE OF REDUCTION: The rent stipulated should be
reduced in the same ration that the actual receipts are to the normal
income obtainable from the leased tenement.
XPN: Where by the terms of the contract of lease, the rent is fixed at
an aliquot part of the crops, the tenant cannot demand a reduction
on account of loss of more than ½ of the crop by fortuitous events,
and the failure to deliver the stipulated proportion of the crop
gathered entitles the landlord to evict the tenant.
Article 1681. Neither does the lessee have any right to a reduction
of the rent if the fruits are lost after they have been separated
from their stalk, root or trunk. (1576)
Article 1682. The lease of a piece of rural land, when its duration
has not been fixed, is understood to have been for all the time
necessary for the gathering of the fruits which the whole estate
leased may yield in one year, or which it may yield once, although
two or more years have to elapse for the purpose. (1577a)
EFFECT OF IMPROVEMENTS MADE: The duration of a lease depends
upon the stipulation in the contract of rental and cannot be affected
by the more or less valuable improvements voluntarily made by the
lessee upon the property.
Article 1683. The outgoing lessee shall allow the incoming lessee or
the lessor the use of the premises and other means necessary for
the preparatory labor for the following year; and, reciprocally, the
incoming lessee or the lessor is under obligation to permit the
outgoing lessee to do whatever may be necessary for the gathering
or harvesting and utilization of the fruits, all in accordance with the
custom of the place. (1578a)
OWNERSHIP OF FRUITS: This article does not determine the
ownership of the fruits existing on the tenement at the termination
of the lease. It only requires the incoming lessee or lessor to permit
the outgoing lessee to do whatever is necessary for the gathering or
harvesting and enjoyment of the fruits in accordance with the
customs of the place; this refers to the fruits which under the other
provisiobs pertain to the lessee.
Article 1684. Land tenancy on shares shall be governed by special
laws, the stipulations of the parties, the provisions on partnership
and by the customs of the place. (1579a)
REQUISITES OF TENANCY SHARES:
1. The parties are the landowner and the tenant
2. The subject is agricultural land
3. There is consent
4. The purpose is agricultural production
5. There is personal cultivation
6. There is sharing of harvests
AGRICULTURAL LAND- a fishpond is also an agricultural land. Where
the land is officially classified and assessed as residential, it cannot
be considered agricultural. Where the land is within the poblacion,
the presumption is that is residential.
Article 1685. The tenant on shares cannot be ejected except in
cases specified by law. (n)
SECTION 4
Special Provisions for the Lease of Urban Lands
Article 1686. In default of a special stipulation, the custom of the
place shall be observed with regard to the kind of repairs on urban
property for which the lessor shall be liable. In case of doubt it is
understood that the repairs are chargeable against him. (1580a)
Article 1687. If the period for the lease has not been fixed, it is
understood to be from year to year, if the rent agreed upon is
annual; from month to month, if it is monthly; from week to week,
if the rent is weekly; and from day to day, if the rent is to be paid
daily. However, even though a monthly rent is paid, and no period
for the lease has been set, the courts may fix a longer term for the
lease after the lessee has occupied the premises for over one year.
If the rent is weekly, the courts may likewise determine a longer
period after the lessee has been in possession for over six months.
In case of daily rent, the courts may also fix a longer period after
the lessee has stayed in the place for over one month. (1581a)
APPLICATION: This article refers to a “lessee”, i.e, one who has a
contract of lease with the owner. It does not contemplate
sublessees having no contractual relations with such owner, much
less a mere occupant.
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
A tenancy from day to day, month to month, or year to year under Article 1688. When the lessor of a house, or part thereof, used as a
this article may arise in either of 2 ways: dwelling for a family, or when the lessor of a store, or industrial
establishment, also leases the furniture, the lease of the latter
1. If the parties say nothing in the contract of lease as to its shall be deemed to be for the duration of the lease of the
duration and make no provision for its termination upon premises. (1582)
notice, the duration is determined by the agreement as to
the period at which the rent is payable. If the tenant is
permitted to commence a new period, there is a tacit
renewal of the lease for a like term REFERENCE:
2. If at the expiration of a lease for a definite period, the
tenant is permitted to hold over for 15 days, i.e., if by the  TOLENTINO, ARTURO M., Commentaries and Jurisprudence on
terms of the lease the period of its duration was 5 years, the Civil Code of the Philippines, Vol. V., Central Book
for instance, and a monthly, quarterly, or yearly rental was Publishing, Co., Inc. 1991
reserved, and upon its expiration the tenant, with the
acquiescence of the landlord, holds over for 15 days, this
does not bring about a tacit renewal of the lease for
another term of 5 years, but creates a tenancy, from
month to month, quarter to quarter, or from year to year,
as the case may be, governed thereafter, as to duration
and renewal by this article.

DURATION OF LEASE: Where the lease is for a definite period the

tenancy expires with the term and no notice to quit is necessary. But
when there is no agreement as to the duration of the lease and rent
is paid monthly, it is understood that it shall terminate without
necessity of special notice, upon the expiration of the term, even if
there has been no violation of the contract, unless prior thereto, the
extension of said term has been sought by appropriate action, and
judgment, is eventually granted therein granting relief.

A verbal contract of lease, however, without a definite period fixed,

wherein the lessees have agreed to pay monthly rentals, should be
considered as one existing from month to month, and beingh
renewed by tacit approval of the parties, until the lessor signified his
intention to terminate the lease.

FIXING LONGER PERIOD: The court may fix a longer term for such
the lease after the leasen has been in occupation of the premises for
a certain time. The action in this respect is not in accordance with
Art. 1197, but in accordance with the present article. This court
merely gives the court discretion to extend the period of the lease.

The discretionary power of the court to fix the duration of the

contract contemplates of a situation where neither of the parties
being at fault, the lessor decided to terminate the contract of lease.

DURATION LEFT TO THE LESSEE: The present article fixing the legal
terms for leases in which no conventional term is stipulated, has no
application to a lease whose termination is expressly left to the will
of the lessee.

NOTE: Art. 1197 is not applicable, however, where the duration of

the lease is left to the will of the lessor, because in a lease, the lessor
is the creditor and the lessee the debtor.

A stipulatioon authorizing the lessees to continue occupying the

leased premises indefinitely as long as they should faithfully fulfill
the obligation with respect to the payment of rentals, has been held
invalid, since that would have leave to the sole and exclusive will of
one of the contracting parties, the validity and fulfillment of the
contract, within the meaning of Art. 1308.
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
TITLE V
PRESCRIPTION
CHAPTER 1
General Provisions
Prescription is generally used with reference to acquisition of a right
by the lapse of time. On the other hand, the word “limitation” as
applied to actions under the common law, has reference to the time
within which an action must be brought after the right of action has
accrued.
2 KINDS OF PRESCRIPTIONS:
1. The acquisition of a right by the lapse of time, known as
acquisitive prescription or adverse possession and
usucapcion
2. The loss of a right of action by the lapse of time known as
extinctive prescription or limitation of actions.
Article 1106. By prescription, one acquires ownership and other
real rights through the lapse of time in the manner and under the
conditions laid down by law.
In the same way, rights and conditions are lost by prescription.
(1930a)
BASIS OF PRESCRIPTION: By abandonment, negligence or
carelessness, owners provided with the most perfect title may be
deprived and dispossessed of their properties by usurpers who, by
lapse of time specified by law, acquire the same by prescription.
PRESCRIPTION AS A MATTER OF DEFENSE: It must be explicitly
relied upon in the pleadings. It cannot be availed of unless it is
specially pleaded in the answer; and it must be proved or
established with the same degree of certainty as any essential
obligation in the civil action.
Article 1107. Persons who are capable of acquiring property or
rights by the other legal modes may acquire the same by means of
prescription.
Minors and other incapacitated persons may acquire property or
rights by prescription, either personally or through their parents,
guardians or legal representatives. (1931a)
CAPACITY FOR PRESCRIPTION
GR: Capacity to acquire property or rights by other legal modes is
required for prescription.
XPN: Minors and other incapacitated persons may also, under
certain circumstances, acquire by prescription. For them to acquire
by prescription, it is necessary that they must have discernment,
because the intent to appropriate the thing as one’s own is an
essential element of the possession. When discernment is wanting,
they can acquire by prescription only throug their legal
representatives.
When the prescription requires just title, the capacity to prescribe
will be the same capacity required for the particular title in question.
Article 1108. Prescription, both acquisitive and extinctive, runs
against:

ACQUISITIVE PRESCRIPTION EXTINCTIVE PRESCRIPTION (1) Minors and other incapacitated persons who have parents,
Acquisitive prescription is based Based on the probability, born of guardians or other legal representatives;
on the assertion by a usurper of experience, that the alleged
an adverse right for such a long right which accrued in the (2) Absentees who have administrators, either appointed by them
time, uncontested by the true distant past never existed or has before their disappearance, or appointed by the courts;
owner of the right, as to give the already been extinguished; or if
presumption that the latter has it exists, the inconvenience (3) Persons living abroad, who have managers or administrators;
given up such right in favor of caused by the lapse of time
the former. should be borne by the party (4) Juridical persons, except the State and its subdivisions.
negligent in the assertion of his
right. Persons who are disqualified from administering their property
Based on negligence or presumed abandonment by the owner of a have a right to claim damages from their legal representatives
right, whether patrimonial or remedial whose negligence has been the cause of prescription. (1932a)

EFFECT OF ACQUISITIVE PRESCRIPTION
Our law considers an obligation barred by extinctive prescription as
a natural one, and the same consideration can be given to the duty
to return the thing to its true owner after its has been acquired by
prescription.
Whatever is paid or delivered due to the promptings of conscience
cannot be recovered.
Article 1109. Prescription does not run between husband and wife,
even though there be a separation of property agreed upon in the
marriage settlements or by judicial decree.
Neither does prescription run between parents and children,
during the minority or insanity of the latter, and between guardian
and ward during the continuance of the guardianship. (n)
BETWEEN HUSBAND AND WIFE

RETROACTIVITY OF PRESCRIPTION: The acquisition of ownership or
other real rights through the prescription is retroactive; once the
period is completed, the new owner is considered as having
acquired the thing or right from the moment the period began to
run.
The law does not permit prescription to run between the spouses
during the marriage, because reasons of influence or affection may
often prevent one from bringing an action against the other. These
reasons exist even if there is a separation of property between
them.
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
Article 1110. Prescription, acquisitive and extinctive, runs in favor
of, or against a married woman. (n)
Article 1111. Prescription obtained by a co-proprietor or a co-
owner shall benefit the others. (1933)
NEED FOR RATIFICATION: In the language used by the article, it
seems ratification is not necessary. This article will apply only when
the prescription has a relation to the property owned in common.
For instance, if 3 persons own in common a parcel of land with an
area of 100 hectares, and the co-owner who is managing the land
occupies more than the area owned, then the excess may be
acquired by prescription for all, because there is no doubt that the
assertion of ownership over such excess is but an extention of the
co-ownership ober 100 hectares really owned by the 3 co-owners.
The co-owner in adverse possession clearly possesses in
representation of the co-ownership.
In order that he may acquire possession for the other co-owners,
they must ratify his act, pursuant to Art. 532. And because
possession must be in the concept of an owner in order to ripen into
ownership by prescription, it seems juridically incompatible wthat
co-owners who do not ratify and may not even know the possessory
acts of another co-owner, should be considered also in possession in
the concept of owner.
Article 1112. Persons with capacity to alienate property may
renounce prescription already obtained, but not the right to
prescribe in the future.
Prescription is deemed to have been tacitly renounced when the
renunciation results from acts which imply the abandonment of
the right acquired. (1935)
RENUNCIATION IS UNILATERAL: Renunciation of prescription
already acquired is a unilateral act, and does not require the
acceptance of the person to be benefited by it. No formality is
required for it; it may even be tacit.
TACIT RENUNCIATION: Where a party acknowledges the correctness
of a debt and promises to pay it after the same has prescribed and
with full knowledge and with full knowledge of the prescription, he
waives the benetif of prescription.
NOTE: A simple acknowledgment, which contains no new and
positive promise to pay the debt which has prescribed, such as a
promise to pay only ½, or even a part of payment, does not amount
to a renunciation of the prescription.
RENUNCIATION VOID: A renunciation of prescription in advance is
void. Thus, no renunciation can be made, at the time of entering
into contract, of the right of pleading a prescription which may
thereafter be acquired.
RENUNCIATION BY REPRESENTATIVES: Only persons with capacity
to alienate property can renounce prescription already obtained.
Hence, an administrator or executor is without the power to
renounce or waive prescription after it has been acquired in favor of
the estate he represents.
Article 1113. All things which are within the commerce of men are
susceptible of prescription, unless otherwise provided. Property of
the State or any of its subdivisions not patrimonial in character
shall not be the object of prescription. (1936a)
OBJECT OF PRESCRIPTION: Under Art. 530, only things susceptible
of being appropriated may be the object of possession. Since
possession is an essential element of prescription, it follows that
things which are not susceptible of appropriation cannot be
acquired by prescription. Thus, common things, property of public
dominion, and the intransmissible rights, cannot be acquired by
prescription.
XPNS TO THE RULE: The following cannot be acquired by
prescription:
1. Movables possessed through a crime
2. Lands registered under the Torrens System
NOTE: Under Art. 1108, prescription does not run against the State
and its subdivisions. There is inconsistency between Art. 1108 and
the present article, as to prescription against the State and its
subdivisions. While under the present article, patrimonial property
may be the object of prescription, under Art. 1108, prescription does
not run against the State and its subdivisions (irrespective of the
kind of property).
The intent of the law is to exclude patrimonial patrimony from the
operation of acquisitive prescription, it is likewise clear that the
congress intended that only property “not patrimonial in character”
should be free from prescription. Patrimonial property can be
acquired by prescription against the State or any of its subdivisions.
Article 1114. Creditors and all other persons interested in making
the prescription effective may avail themselves thereof
notwithstanding the express or tacit renunciation by the debtor or
proprietor. (1937)
CREDITORS MAY PLEAD PRESCRIPTION: A current creditor of a
corporation may interpose the plea of prescription to prevent the
corporation from payig prescribed debts ahead of the current
creditor.
NOTE: But prescription pleaded by one creditor does not inure to
the benefit of another creditor.
Article 1115. The provisions of the present Title are understood to
be without prejudice to what in this Code or in special laws is
established with respect to specific cases of prescription. (1938)
Article 1116. Prescription already running before the effectivity of
this Code shall be governed by laws previously in force; but if since
the time this Code took effect the entire period herein required for
prescription should elapse, the present Code shall be applicable,
even though by the former laws a longer period might be required.
(1939)
CHAPTER 2
Prescription of Ownership and Other Real Rights
Article 1117. Acquisitive prescription of dominion and other real
rights may be ordinary or extraordinary.
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
Ordinary acquisitive prescription requires possession of things in
good faith and with just title for the time fixed by law. (1940a)
REQUISITES OF ACQUISITIVE PRESCRIPTION:
1. Capacity to acquire by prescription
2. A thing capable of acquisition by prescription
3. Possession of the thing under certain conditions
4. Lapse of time provided by law
REQUISITES OF ORDINARY PRESCRIPTION:
1. Possession of things in good faith
2. With the just title for the time fixed by law
CONVERSION OF POSSESSION:
Q: When the possession begins in good faith, but later on is
converted into bad faith, how long should the prescription be,
ordinary or extra-ordinary?
A: There are possible solutions:
1. The supervening bad faith erases the former possession in
good faith, and extra-ordinary prescription will run from
the date of possession in bad faith
2. The prescription will be extraordinary but the period will
be counted form the time the possession began
3. The prescription will be extraordinary but the possession
in good faith shall be computed in the proportion that the
period of extraordinary prescription bears to that of
ordinary prescription.
NOTE: The last solution appears to be the most acceptable, because
it reflects the difference betweenb the 2 kinds of prescription and
gives the proper value to possession in good faith.
The first is inadmissible because it places a possessor who began in
goof faith in a worse position than the one who began in bad faith
The second is likewise unacceptable because possession in good
faith and possession in bad faith are given identical effects.
Article 1118. Possession has to be in the concept of an owner,
public, peaceful and uninterrupted. (1941)
Article 1119. Acts of possessory character executed in virtue of
license or by mere tolerance of the owner shall not be available for
the purposes of possession. (1942)
CONCEPT OF OWNER
Acts of a possessory character which are merely tolerated by bthe
possessor or which are due to his license, do not constitute
possession.
TOLERANCE v. LICENSE
LICENSE TOLERANCE
A positive act of the owner in The passive acquiescense of the
favor of the holder of the thing owner to acts being performed
by another which appear to be
contrary to the rights of the
former.
In both cases, the possessor acts in recognition of the rights of the
owner.
NOTE: From the moment the possessor disgards the owner and
exercise rights in opposition to that of the latter, the possession is
converted into one in concept of owner and can be the basis of
prescription.
WHEN POSSESSION CONSIDERED PUBLIC: Public means the acts of
enjoyment are executed in such a manner as to be manifest or
visible to all, especially to the person against whom the possessopm
is being adversely asserted. It must be known to the owner of the
thing. If the possession is publicly known, it is presumed that the
owner knows it, unless there is clear proof to the contrary.
PEACEFUL: When it is acquired and maintained without violence,
physical or moral. The possession continues to be peaceful even if
the possessor should use such force as is reasonably necessary to
repel or prevent an actual or threatened unlawful physical invasion
of the property (Art. 429).
UNINTERRUPTED: It is continuous when the possessor has never
ceased to manifest with external acts his intention to exercise a right
over the thing, whcin presupposes that he has never in fact ceased
to exercise the right. It need no be absolute but only in relation to
the nature of the right exercised. It is interrupted if there has been
no act of deprivation of enjoyment of the things by a third person or
any other act which interrupts prescription.
Article 1120. Possession is interrupted for the purposes of
prescription, naturally or civilly. (1943)
EFFECT OF INTERRUPTION: When prescription is uninterrupted, all
the benefits acquired so far from the possession cease; when
prescption runs again, it will be entirely a new one. This
distinguishes interruption from suspension of prescription.
SUSPENSION OF PRESCRIPTION: In suspension, the past period is
included in the computation, being added to the period after
prescription is resumed.
Examples of suspension: when a child becomes insane, or a ward is
placed under guardianship, the cases contemplated in Art. 1109.
Article 1121. Possession is naturally interrupted when through any
cause it should cease for more than one year.
The old possession is not revived if a new possession should be
exercised by the same adverse claimant. (1944a)
Article 1122. If the natural interruption is for only one year or less,
the time elapsed shall be counted in favor of the prescription. (n)
Article 1123. Civil interruption is produced by judicial summons to
the possessor. (1945a)
Article 1124. Judicial summons shall be deemed not to have been
issued and shall not give rise to interruption:
(1) If it should be void for lack of legal solemnities;
(2) If the plaintiff should desist from the complaint or should allow
the proceedings to lapse;
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
(3) If the possessor should be absolved from the complaint.
In all these cases, the period of the interruption shall be counted
for the prescription. (1946a)
Lacuesta v. Guerrero
The general rule declared in Article 1124 of the Civil Code is to the
effect that a suit brought and abandoned or decided against the
plaintiff, is considered as never having been commenced.
EFFECT OF RECOVERY OF POSSESSION: Under Articles 1121 and
1122, in case of natural prescription, the old possession loses all its
juridical effects, and even if the possession is reacquired, the old
possession cannot be tackled to the new possession for purposes of
prescription.
But in case of civil interruption, if the possession is recovered, it can
be connected to the time that has elapsed as if it were in fact
continuous, the period of interruption is to be counted for the
prescription.
The use of the phrase “period of interruption” is misleading because
there is really no interruption, as shown by the opening paragraph.
The possession is deemed continuous.
Article 1125. Any express or tacit recognition which the possessor
may make of the owner's right also interrupts possession. (1948)
RECOGNITION BY THE POSSESSOR: In order to interrupt
prescription, the recognition of the owner’s right mut be made by
the possessor. The declaration of a third person that the property
does not belong to the possessor, when such declaration has not
been authorized or ratfied by the possessor, does not interrupt the
possession of prescription.
Article 1126. Against a title recorded in the Registry of Property,
ordinary prescription of ownership or real rights shall not take
place to the prejudice of a third person, except in virtue of another
title also recorded; and the time shall begin to run from the
recording of the latter.
As to lands registered under the Land Registration Act, the
provisions of that special law shall govern. (1949a)
RECORDED TITLES OF THIRD PERSONS: The owner of the thing at
the beginning of the prescriptive period is not considered as a third
person within the meaning of this rule. But those who acquire their
right subsequently, relying on the registration of ownership in the
Registry, must be considered as third persons, and they cannot be
prejudiced by the period of possession prior to the date of their
acquisition.
The third, persons, however, must comply with the ff:
1. That the acquisition is by onerous title
2. That the acquisition is from one who, according to the
Registry, can transmit title
3. That the acquisition is registered
4. That such third person has no knowledge of the
prescription
NOTE: While the registered owner who executed the title which is
the basis for prescription, is not considered a third person, he is
however, regarded as a third person with respect to a title executed
by another who is not registered owner. When the title of first
transferee of a real right over the things is considered as a third
person if his tilte is recorded.
The time for prescription to the prejudice of those who are not
considered as third persons with recorded titles, shall be counted
from the commencement of the possession under title of
ownership, although the title by virtue of which it is held may not
have been registered.
REGISTERED LANDS: Adverse possession may not be allowed to
defeat the owner’s right to possessopn of land registered under the
Torrens system; otherwise, loss of the land by prescription would be
indirectly approved, in violation of Sec. 46 of the Land Registration
Act. Neither can prescriprion be allowed against the registered
owner’s hereditary successors because the latter merely step into
the shoes of the decedent and merely the continuation of the
personality of their predecessor in interest.
NOTE: Laches, not prescription may be set up as to the registered
land.
Article 1127. The good faith of the possessor consists in the
reasonable belief that the person from whom he received the thing
was the owner thereof, and could transmit his ownership. (1950a)
Article 1128. The conditions of good faith required for possession
in articles 526, 527, 528, and 529 of this Code are likewise
necessary for the determination of good faith in the prescription of
ownership and other real rights. (1951)
POSSESSION IN GOOD FAITH
Under the Civil Code, a prescriptive title to real state is not acquired
by the mere possession thereof, under claim of onwership, for a
period of 10 years, unless it was originally acquired “with just title
and good faith”. Good faith in this connection, while it is always to
be presumed in the absence of proof to the contrary, requires a
well-founded belief that the person from whom title was received
was himself the owner of the land with the right to convey. And
unless the contrary is shown, the possessor of the land must be
presumed to be in good faith.
GOOD FAITH: The possessor muts believe that the title for his
acquisition is sufficient; it is not enough that he knows of no defect
in it. This belief must be founded and there is sufficient basis when
he believes that the transferor was the owner of the thing anc could
transmit the owneship thereof.
The good faith must exist, not only at the beginning of the
possession, but throughout the entitre period required for
prescription. The Code rejetcs Roman Law principle that supevening
bad faith does not prejudice the prescription, and follows the
contrary rule of the common law.
Article 1129. For the purposes of prescription, there is just title
when the adverse claimant came into possession of the property
through one of the modes recognized by law for the acquisition of
ownership or other real rights, but the grantor was not the owner
or could not transmit any right. (n)
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
Article 1130. The title for prescription must be true and valid.
(1953)
Article 1131. For the purposes of prescription, just title must be
proved; it is never presumed. (1954a)
TITLE FOR PRESCRIPTION: For purposes of prescription, the title of
the possessor must be just, true, valid, and proved.
JUST TITLE-An act which has for its purpose the transmission of
ownership, and which would have actually transferred ownership if
the grantor had been the owner. This vice or defect is the one cured
by prescription.
Examples:
a. sale with delivery
b. exchange
c. donation
d. succession
e. dation in payment
However, the ff. do not constitute title:
a. lease of things
b. loan
c. deposit
d. all contracts which do not transmit property rights
e. partition
f. compromise
g. court decisions
Ratio: All the abovementioned are all declaratory of property rights
but do not transmit them.
TRUE TITLE- The title for prescription must be true. To be true, the
title must exist actually, and not merely in the mind of the
possessor. A legally non-existent title is without value. Thus, a will
cannot be a sufficient title if it has been revoked by an unknown
subsequent will which is later discovered. So is a title that is
absolutely simulated. But where there is only relative simulation, the
true title hidden behind the fictitious one will suffice. However, a
simulated title, which conceals a prohibited act, cannot be the basis
for prescription.
FALSE TITLE:- One which does not exist but is believed by the
possessor to exist, may or may not be sufficient. The false belief may
be based on an error of fact or of law:
a. If the mistake of fact refers to an act of a third person, the
title is sufficient for prescription;
b. if it refers to an act of a third person, the title is sufficient
for prescription
c. if it refers to an act of the possessor himself, it is not
sufficient
d. if the error of law refers to the validity of the act, then the
title is not adequate
e. if the mistake refers to a fact in the application of a rule of
law, there will be an adequate title
NOTE: If one buys from an insane party, believing that an insane
person can validly alienate property, the title is not sufficient; but if
he did not know that the vendor was insane, then the title is
sufficient.
REVOCABLE TITLE- One in which the transferor has made a
reservation by virtue of which the right of the possessor may
disappear, cannot serve as a basis for a prescription; but once the
reservation becomes ineffective, the period that has run can be
counted for the prescription.
Ex: a sale witht the right to repurchase
NOTE: A voidable title, so long as it has not been annulled, can be
the basis of ordinary prescription.
When the title is subject to a suspensive condition, the period of
prescription begins tot run from the fulfillment of the condition; if
the condition is resolutory the period begins at once, without
prejudice to the effect of the resolution by the condition which may
later happen.
TITLE MUST BE PROVED: The requirement that just title must be
proved for purposes of prescription, is an exception to the general
rule embodied in article 541, which presumes a just title for every
possessor in the concept of owner. The exception is based on the
offensive, and not merely defensive, character of prescription, which
requires greater guarantees.
Article 1132. The ownership of movables prescribes through
uninterrupted possession for four years in good faith.
The ownership of personal property also prescribes through
uninterrupted possession for eight years, without need of any
other condition.
With regard to the right of the owner to recover personal property
lost or of which he has been illegally deprived, as well as with
respect to movables acquired in a public sale, fair, or market, or
from a merchant's store the provisions of articles 559 and 1505 of
this Code shall be observed. (1955a)
Article 1133. Movables possessed through a crime can never be
acquired through prescription by the offender. (1956a)
Article 1134. Ownership and other real rights over immovable
property are acquired by ordinary prescription through possession
of ten years. (1957a)
Article 1135. In case the adverse claimant possesses by mistake an
area greater, or less than that expressed in his title, prescription
shall be based on the possession. (n)
CONSTRUCTIVE POSSESSION: The possession upon which
prescription is based, is not limited to the area actually occupied,
but covers the area over which the possession is asserted.
The doctrine of constructive possession applies when the possession
is under title calling for the whole. The actual possession of part of
the property is deemed to extend to the whole as shown by the
limits or boundaries described in the title. The actual possession of a
part of the property may be through a tenant. It does not apply,
however, where the possession is without title.
Article 1136. Possession in wartime, when the civil courts are
not open, shall not be counted in favor of the adverse claimant. (n)
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
Article 1137. Ownership and other real rights over immovables also
prescribe through uninterrupted adverse possession thereof for
thirty years, without need of title or of good faith. (1959a)
WHEN TTILE VOID: Even when title of the possessor is void such as
an oral donation of real property, he may acquire ownership by
prescription under the provisions of this title.
Article 1138. In the computation of time necessary for prescription
the following rules shall be observed:
(1) The present possessor may complete the period necessary for
prescription by tacking his possession to that of his grantor or
predecessor in interest;
(2) It is presumed that the present possessor who was also the
possessor at a previous time, has continued to be in possession
during the intervening time, unless there is proof to the contrary;
(3) The first day shall be excluded and the last day included.
(1960a)
TACKING OF POSSESSION
In order that there cab be a tacking of possession, the present
possessor must have obtained his possession from the previous
possessor. There must be privity between them. Tacking is possible
only when there is succession of rights between the predecessor and
the successor. A mere usurper cannot invoke the possession of any
previous possessor.
DIFFERENT CHARACTER OF POSSESSION:
1. When the predecessor is in good faith, and the successor
is in bad faith, the latter can assert only extra-ordinary
prescription. The more reaosonable view in computing the
period is that the tacking of the possession should be
permitted in such case. The period should be computed in
the same manner as where the character of the possession
of a person changes while the period is running; that is,
the period of possession in good faith should be computed
in the proportion that the period of extra-ordinary
prescription bears that of ordinary prescription.
2. If the possession of the predecessor was in bad faith and
that of the successor is in good faith, the present
possessor can claim under ordinary prescription, but in
this case, the posession of the predecessor cannot be
counted. The period of bad faith possession cannot be
availed of for ordinary prescription. The present possessor
in good faith, however, should not be limited to ordinary
prescriptioon. The period of possession of the
predecessor, although in bad faith, may have been so long
that it would be beneficial
CHAPTER 3
Prescription of Actions
Prescription of actions or limitation of actions refer to the time
within which an action may be brought, or some act done, to
preserve a right. It is a legal and not a natural cause of the
extinguishnent of obligations.
Statute of limitations: These are acts limiting the time withinwhich
actions shall be brought. It does not confer any right of action but
are enacted to restrict the period within which the right, otherwise
unlimited, might be asserted. They are not matters of substantive
rights but are available only as defenses.
The purpose of the statute is to protect the diligent and vigilant not
those who sleep on their rights. However, the basic prinicple most
genereally relied upon by the authoritties is that statute of
limitations are statutes of repose, the object of which is to suppress
fraudulent and stale claims from springing up at great distances of
time and surprising the parties or their representatives when all the
proper vouchers and evidences are lost or the facts have become
obscure from the lapse of time or the defective memory or death or
removal of witness.
The prescription of actions in CC contemplates civil actions and not
criminal actions.
Prescription and laches: The defense of laches applies
independently of prescription. It is different from statute of
limitations.
Prescription Laches
Concerned with the fact of delay Concerned with the effect of
delay
A matter of time A quesrtion of inequity of
permitting a claim to be
enforced, this inequity being
founded on some change of
condition of the property or the
relation of parties.
Statutory Not statutory
Applies to law Applies to equity
Based on fixed time Not
Article 1139. Actions prescribe by the mere lapse of time fixed by
law. (1961)
Leap year in period: Febraury 28 and 29 should be counted as
separate days not as one day.
Effect of lapse of time: It has the effect of extinguishing the action.
But there is no extinctive prescription unless the period provided by
law expires. Mere delay in the enforcement of a claim does not
result in any reduction or loss of right, unless the full period required
by law for prescription has expired.
Prescription to be pleaed: The bar of statute of limitations cannot
be asserted as a defense unless it is specifically pleaded in the
answer and proven with the same degree of certainty by which any
essential allegation in the pleadings is established. Since it is a
defense which the DR alone can plead, and the obligation subsists
until he avails himself thereof, the courts of justice cannot supply
the defense if the DR himself does not do so. It is thus error to
permit proof of prescription if it has not been defensively pleaded
and such proof is objected to.
The right may be waived or renounced. It is deemed waived if not
timely raised or pleaded before or during the hearing of the case.
Howerver, if it is apparent on the face of the complaint, it may be
favorably considered even after evidence is adduced.
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
Article 1140. Actions to recover movables shall prescribe eight
years from the time the possession thereof is lost, unless the
possessor has acquired the ownership by prescription for a less
period, according to articles 1132, and without prejudice to the
provisions of articles 559, 1505, and 1133. (1962a)
Article 1141. Real actions over immovables prescribe after thirty
years.
This provision is without prejudice to what is established for the
acquisition of ownership and other real rights by prescription.
(1963)
Article 1142. A mortgage action prescribes after ten years. (1964a)
Not imprescriptible: The fact that a mortgage is registered does not
make the action to foreclose it imprescriptible.
Effect of interest: It is not possible to separate legally the interest or
any part thereof from the principal itself; hence, if the action to
recover the mortgage debt itslef has prescribed, the action to
recover the interest must also be prescribed.
Article 1143. The following rights, among others specified
elsewhere in this Code, are not extinguished by prescription:
(1) To demand a right of way, regulated in article 649;
(2) To bring an action to abate a public or private nuisance. (n)
Other Imprescritible actions: Among actions that have been held as
imprescriptible are:
a. Action by the government or government entity;
b. Action for mandamus;
c. Action to enforce an express trust, as long as the trustee
does not repudiate the trust;
d. Action to quiet title to property in one’s possession;
e. Action or defense to declare a contract or judgment void
ab initio; and
f. Action of the registered owner to recover his land.
Article 1144. The following actions must be brought within ten
years from the time the right of action accrues:
(1) Upon a written contract;
(2) Upon an obligation created by law;
(3) Upon a judgment. (n)
Implied trusts: When property is registered in another’s name, an
implied or constructive trust is created by law in favor of the true
owner. The action for reconveyance of the title to the rightful owner
prescribes in 10 years from the issuance of the title. But if fraud has
been committed, and this is the basis of action, not implied trust,
the action will be barred after 4 years.
Article 1145. The following actions must be commenced within six
years:
(1) Upon an oral contract;
(2) Upon a quasi-contract. (n)
Article 1146. The following actions must be instituted within four
years:
(1) Upon an injury to the rights of the plaintiff;
(2) Upon a quasi-delict;
However, when the action arises from or out of any act, activity, or
conduct of any public officer involving the exercise of powers or
authority arising from Martial Law including the arrest, detention
and/or trial of the plaintiff, the same must be brought within one
(1) year. (As amended by PD No. 1755, Dec. 24, 1980.)
Injury to rights: The 1-year period fixed by the rules of court within
which a petition for quo warranto should be filed, counted from the
date of ouster does not apply to a case where P is separated from
his employment for unjustifibale causes. Such unjustified separation
from employment is an injury to the rights of the P and the action
may be brought within 4 years under this article.
Action on fraud: It prescribes in 4 years from discovery of the fraud.
Upon a quasi-delict: where real property which belongs in
ownershio to D and over which he was amd has always been in
possession but by mistake of the cadastral clerk came to be titled in
1935 in the name of L, who had never claimed it and who knew all
along that he was not the owner thereof but had only a paper title
thereto, never bothered to disturb D’s pssession save only in 1948
when he sought to do so, therafter filing his reinvindicatory action to
recover the land from D in 1949, the counterclaim fro reconveyance
contained in the answer of D filed in 1951 should be held to have
been filed within the prescriptive period to recover on a quasi-delict
is 4 years.
Article 1147. The following actions must be filed within one year:
(1) For forcible entry and detainer;
(2) For defamation. (n)
Article 1148. The limitations of action mentioned in articles 1140 to
1142, and 1144 to 1147 are without prejudice to those specified in
other parts of this Code, in the Code of Commerce, and in special
laws. (n)
Article 1149. All other actions whose periods are not fixed in this
Code or in other laws must be brought within five years from the
time the right of action accrues. (n)
Right to collect taxes: Limitations upon the right of the government
to assess and collect taxes will not be presumed in the absence of
clear legislation to the contrary, and where the government has not
by express statutory provision provided a limitation upon its right to
assess unpaid taxes, such right is imprescriptible.
Article 1150. The time for prescription for all kinds of actions, when
there is no special provision which ordains otherwise, shall be
counted from the day they may be brought. (1969)
r
Time from which period computed: The principal and most
important point when we examine the character, conditions and
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
consequences of prescription of actions under Code is the time from
which we are to compute the period fixed by law for the
extinguishment of the abandoned right of action.
In cases where there is no special provision for such computation,
recourse must be had to the rule that the period must be counted
from the day on which the corresponding action could have been
instituted. It is the legal possibility of bringing the action which
determines the starting point for the computation. The period
should not be made to retroact to the date of execution of the
contract.
Accrual of cause of action: It arises when that which should have
been done is not done or that which should not have been done is
done.
Essential elements:
1. Existence of a legal right in the P;
2. With a corresponding legal duty in the defendant;
3. A violation or breach of that right or duty with
consequential injury of damage to the plaintiff, for which
he may maintain an action for appropriate relief.
From that moment, the period of prescription of action accrues or
begins to run.
Prescriptive periods
1. When windows were opened in the building of a neighbor
in violation of law, the period of prescription for the action
to close the same must be counted from the day they
were opened.
2. In an obligation to pay upon receipt of an inheritance by
the debtor, prescription beins to run from the date of suhc
receipt because when the obligation is subject to a
suspensive condition, prescription runs only from the
happening of the condition.
3. But where the obligation is without date of maturity, or a
note is payable on demand, prescription begins to run
from the date of the note or obligation and not from
demand. This last rule does not apply to liability for the
unpaid balance of a subscription to shares of a
corporation; in this case, the liability of the subscriber
does not arise until call or demand for payment by the
board of directors, and therefore, prescription would run
only from such demand.
4. When a contract provides for the payment of money
within a year, with the privilege of extension for another
year at the option of the creditor, a delay by the debtor, or
the failure of the creditor to insist upon payment, does not
import a tacit renewal, and prescription will run from the
end of the first year.
5. When an action is based on fraud, deceit, the period of
prescription will begin to run on the date of the discovery
of the fraud or deceit.
6. In case of quasi-delict, the prescriptive period starts from
the day the quasi-delict occurred or was committed.
7. When the action is for partition, and reconveyance based
on implied or constructive trusts, the time for prescription
begins to run from the date of issuance of the original
certificate of title because the registration of an
instrument in the office of the Register of Deeds
constitutes constructive notice to the whole world. The
period begins to run from the time a possessor was made
aware of a claim adverse to his own.
8. The period of prescription of the right of the nearest
relative, as intestate heir to some properties, to question
the validity of a purported will or donation mortis causa
made by the decedent, does not commence to run until a
third person claims a right under such instrument where in
the meantime the intestate heir has been in possession of
the properties and there was no occasion to seek judicial
annulment of the instrument.
9. The prescriptive period within which to bring action to set
aside a simulated written deed of pacto de retro sale starts
only when the alleged vendees made known their
intention by overt acts not to hide by the true agreement,
and not from the date of execution of the contract.
Article 1151. The time for the prescription of actions which have
for their object the enforcement of obligations to pay principal
with interest or annuity runs from the last payment of the annuity
or of the interest. (1970a)
OBLIGATIONS WITH INTEREST: The rule in this article that the
period of prescription in obligations with interest runs only from the
last payment of interest, is applicable only to cases where the
principal debt is already due.
Where there is a period for the principal obligation which is not yet
due, payment of interest at stipulated intervals does not cause the
running of interest at stipulated intervals does not cause the running
of the period of prescription, which will commence only after the
maturity of debt.
But where the existence of a past due mortgage was recognized by
payments of interest, prescription ran only from the past payment
of interest.
Article 1152. The period for prescription of actions to demand the
fulfillment of obligation declared by a judgment commences from
the time the judgment became final. (1971)
WHEN JUDGMENT BECOMES FINAL:
Trial court Upon the expiration of the period for appeal,
thereafter prescription begins to run
Supreme Court The true judgment is that entered by the clerk of
or Court of court pursuant to the dispositive part of its
Appeals decision, and the period of prescription is
therefore computed from the date such
judgment is entered. The period is 10 years
according to Art.1144
Article 1153. The period for prescription of actions to demand
accounting runs from the day the persons who should render the
same cease in their functions.
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
The period for the action arising from the result of the accounting
runs from the date when said result was recognized by agreement
of the interested parties. (1972)
ACTION TO COMPEL ACCOUNTING
The period of prescription of an action to compel an accounting by
joint account partner begins to run from the date of retirement of
the members from whom accounting is demanded. It begins to run
from the dissolutionof a partnership when the final accounting is
done.
CURRENT ACCOUNTS: There is a distinction as to the time when the
period of prescription begins to run in mutual current accounts and
in simple current open accounts. In the former, the statute of
limitatiions begins to run on the date of the last item; while in the
latter, the statute begins to run from the date of each particular
item.
When there is a mutual, open, and current account between 2
parties it is said that it implies that they have mutually consented
that each item shall not constitute an independent debt
immediately, to be paid or enforced at once but that the items
occuring from time to time, in favor of the respective parties, shall
operate as mutual set-offs, and that the shifting balance, when
either or both shall call for it, shall be the debt, and run for this
reason the statute of limitations does not run during such a state of
mutual dealings, but only from the date of the last item.
When an accounting has been made betweeb the parties in their
current account dealings, the right of action accrues, and the period
of prescription begins to run, on the date when the last balance was
struckm and not when the business relations terminated.
Article 1154. The period during which the obligee was prevented
by a fortuitous event from enforcing his right is not reckoned
against him. (n)
EFFECT OF DESTRUCTION OF JUDICIAL RECORDS: All terms or
periods fixed by law or regulations shall cease to run from the date
of destruction of the records of the case, and shall only begin to run
again onn the date when the parties or counsel shall have received
notice to the effect that the records have been constituted.
Article 1155. The prescription of actions is interrupted when they
are filed before the court, when there is a written extrajudicial
demand by the creditors, and when there is any written
acknowledgment of the debt by the debtor. (1973a)
FILING OF ACTION IN COURT
1. The filing of an action interrupts extinctive prescription as
to the parties defendants therein. The interruption lasts
during the pendency of the action. The prescription period
runs anew after the dismissal of the first action to revive
judgment.
2. Filing a motion for reconsideration continues the
suspension of the running of the period of prescription,
which runs again after the court proceedings have been
finally terminated.
3. When prescription is interrupted by a judicial demand, the
full period for the prescription must be reckoned from the
cessation of the interruption.
NOTE: Although an option is started within the prescriptive period, if
the plaintiff desists in its prosecution or judgment is unconditionally
stayed for one reason or another, the running of the period of
limitations is not suspended. The parties are exactly in the same
position as if no action had been commenced at all.
WRITTEN EXTRA-JUDICIAL DEMAND: Since extinctive prescription is
based on presumed abandonment of a right, it is obvious that the
running of the period shall be interrupted when a demand is made
by the creditor upon the debtor before the lapse of the period fixed
by law. The burden of proof to show such demand is upon the
creditor. The law requires that such demand be in writing, hence, a
verbal demand upon the debtor is not sufficient to interrupt or
renew the prescriptive period.
WRITTEN ACKNOWLEDGMENT OF DEBT:
a. In extinctive prescription, the interruption through
acknowldgment of the creditor’s right can take place only
when such acknowledgment is in writing.
b. There must always be a writing but the recognition of the
debt may be either expressly stated therein or may be
implied therefrom. The law does not require express
acknowledgment.
Examples:
1. A promise to pay a debt can be considered in no other
light but an acknowledgment of its existence, and
interrupts prescription
2. The listing of a mortgage indebtedness by the debtor in his
schedule of liabilities filed in insolvency proceedings, is
sufficient acknowledgment of such indebtedness for the
purpose of interrupting prescription.
Examples of insufficient acknowledgment:
1. Mere offer to compromise a suit upon a supposed debt
2. Denial of the correctness of the account claiming that the
same is exorbitant.
NOTE: The acknowledgment of the debt may be made by a legal
representative. Thus, a guardian, executor, or administrator, may
acknowledge a debt so as to interrupt prescription.
Effect of acknowledgement: By acknowledging a debt, a DR may
renew the obligation and interrupt the prescription, so as to make it
run only from the date of the acknowledgement. Thus, where a
decedent attempted to make a will, which was not valid because of
its form, but which contained acknowledgment of a debt in favor of
another, it was held that prescription ran against the claim, not from
the death of the decedent but from the date of the invalid will.
Effect of part payment: It cannot interrupt the period of
prescritpion. A partial payment before the period has elapsed is
undoubtedly an implied acknowledgement of the debt. Our present
CC requires that the acknowledgement, in order to interrupt
prescription, must be written; hence, the legal impossibility of
NOTES ON PARTNERSHIP AGENCY, TRUSTS, LEASE AND PRESCRIPTION
Kenneth and King C. Hizon _________________________________________________________________________________________________________________
considering payment as an acknowledgement sufficient to interrupt
prescription.

Other causes not interrupting:

The death of DR does not interrupt the running of the statute of

limitations because the CR has at his disposal appropriate means for
the prosecution of an action to enforce the collection of his claim.

The transfer of the right to another person does not suspend the
running of the period of prescritpion because once it begins to run,
it never stops until legally interrupted.

The institution of criminal action cannot have the effect of

interrupting the institution of a civil action based on a quasi-delict.

An order to stay execution of a judgment does not suspend the

running of the prescription against it.

Confinement in jail is not one of the grounds by which prescription

of an action may be interrupted.

The extinction of the debt of one of various joint DRs does not
necessarily affect the debt of the others, and the acknowledgment
of the debt by him will not stop the running of the statute of
limitations as to them.

REFERENCE:

 TOLENTINO, ARTURO M., Commentaries and Jurisprudence on

the Civil Code of the Philippines, Vol. V., Central Book
Publishing, Co., Inc. 1991