.

PARTNERSHIP. AGENCY 8: TRUSTS

SAN BEDA MEMéav AID 8018

In view of the separate juridical personality

PARTNERSHIP
Partnership
By the contract of partnership two or more persons
bind themselves to contribute money, property or
, industry to a common fund, with the intention of
dividing the profits among themselves (CIVIL CODE.
Art.1767).
Two (2) or more persons may also‘form a pa
for the exercise of a profession (CIVIL CODE Art
1767) , The practice ofa profession is not a business or an
a.
possessed by a partnership, 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 a fraudulent,
unfair, or illegal purpose (Aguila, Jr. v. CA, 316 SCRA
246 [1 999]).
General Professional Partnership
A profession is defined as “a group of men pursuing
. a, learned art as a common calling in the spirit of
.Woubr‘‘ eryice — no less a public service because it
may incidentally be a means of livelihood" (Id. ).
L
”“‘

Requisites for Existence of Partnerghip
1. There was an intention to create partnership]; ‘_
2. There as a common fund to be [gbtained from
contributions; and
3. There was a joint interest in the profits (it!)
Partnership as Separate Personality . g
A partnership has a juridical personality éepara
it»
distinct from that of each of the partners even meagre
of failure to comply with the requirements of Art?“
1772, par.1 (CIVIL CODE, Art. 1768; DE LEON,“
Comments and Cases on Partnership, Agency and
Trusts, (2014), p. 9) [hereinafter,
JURADO, Civil Law Reviewer, (2006), p.104?)
[hereinafter, JURADO].
As an independent juridical person, a partnership
may enter into contracts, acquire and possess
property of all kinds in its name, as well as incur
obligations and bring civil or criminal actions in
conformity with the laws and regulations of its
organization (CIVIL CODE, Art. 46).
V
. ente‘rp ‘se for profit. However, the law allows the joint
thereof by two or more persons as partners.
‘c‘h, ase,‘rf7i't is the individual partners, and not the
ip, ‘gvvho engage in the practice of the
1 ‘ ‘ . n andare responsible for their own acts as
.mm.dmjm
' 9 While strictly speaking the exercise of a profession is
not a business undertaking nor an enterprise for profit
j ——’the law considers the joint pursuit thereof, for
mutual help, as a partnership. (PARAS, Civil Code of
the Philippines, Volume V, (2016), p. 580)
[hereinafter 5 PARAS].
DE LEOMfi‘? .T'
A Partnership for the Practice of Law
It is not a partnership formed for the purpose of
carrying on trade or business or of holding property
but that which is intimately and peculiarly related to
the administration of justice. Thus, the use of a nom
de plume, assumed, or trade name in law practice is
improper (DE LEON, supra at 11).

EXECUTIVE COMMITTEE SUBJECT COMMITTEE MEMBERS ADVISERS

KATES JASTIN 'E. AGUILAR CZARINA MAYBELLYNE V. FLORAVICK ANA B. ABAYA, DEAN ED VINCENT S.
Overall Chairperson, PACIS Subject Chair, LORETO CAMILLE S. BENEDICTO, ALBANO, ATTY. MANUEL L.
CHRISTINE P. MONDERIN PLACIDO RUDOV JEMIMAH FAYE I. BISDA, CASINO, ATTY. NICASIO C.
Chairperson for Academics, BERNARDEZ Assistant Subject ANDREA D. BRIONES, MARY CABANEIRO, A'I'I‘Y. JOSEPH
CHESKA ARIA C. AGRUPIS Chair, RONIFELLE L. BARRIOS CHERWYN L. CASTRO, BEA FERDINAND M. DECHAVEZ,
Chairperson forI-Iotel Operations, Electronic Data Processing, PATRICIA G. DANGAZO, ATTY. EFREN VINCENT M.
MARA CLARA M. ESTRELLA THERESE ANJELICA M. BUERGO SARAH B. DE GUZMAN, DIZON. A'I'I'Y. CHARLITO
Vice Chairfor Operations, MARY Persons and Family Relations, LIANNE MAE D. ENRIQUEZ, MARTIN R. MENDOZA, ATTY.
CYRIELL C. SUMANQUI Vice K'RISTINE MAE A. CEDINO RONALD A. FLORES, FRANCESCA LOURDES M.
Chair for. Secretariat, ARTLYN Property, JAMES BRYAN GIUSEPPE CHRISTIAN M. SENGA, ATTY. ROWELL D.
GEM G. SENORAN Vice Chair DEANG and CHERISH KIM B. HU'EVOS, KATRISHA ILAGAN
for Finance, ZAIRE XANDRA M. FERRER Obligations and Contracts, ANALINE B. KOK,. MARIA
REYES Vice Chair for Audit, ALYSSA CHRISTINE C. DELA ANGELICA R. LOVERIA,
ASMENAH M. CRUZ Sales and Lease, NINA MARC RUSSEL ANN P.
BARAMBANGAN Vice Chairfor ANDREA D. ALMODAL LUBANGCO, IVAN CHRIS T.
Electronic Data Processing, Partnership, Agency & Trusts, LUZURIAGA, CARMEL MA.
MARTIN ALEC N. BAUTISTA JOSHUA V. CONSTANTINO TARA T. MEDIODIA, KEVIN
Vice Chair for Logistics, MARVIE Credit Transactions, SAMANTHA CHRISTIAN A. PASION, KIM
L. PAGCALIWANGAN Vice MARIE V. CONTRERAS ALYSSA M. REALINO,
Chairfor Membership Succession, JULIA ANTOINETTE S. FRANCES ANGELA‘ V.
UNARCE Land, Titles and Deeds, SALVACION, MARIA
JESHA AINA F. NOBLE Torts and BEATRIZ R. VARONA,
Damages, MIKKAELA BENEDICT ERICA C. VISTA
S. MONES Conflict ofLaws
 PARTNERSHIP, AGENCY a TRUSTS
SAN BEDA
Characteristics of Partnership (P3CZBON)
1. Principal — does not depend for its existence on
other contracts;
2. Preparatory — entered as a means to an end;
3. Profit-oriented — purpose is for profit and not just
common enjoyment;
4. Qommutative — undertaking of each one is
considered equal with the others;
5. gonsensual —— perfected by mere consent;
6. _B_ilateral - entered by two or more persons and
the rights and obligations arising therefrom are
always reciprocal;
7. Qnerous — certain contributions have to be
made; and
8. flominate —- has a special designation in law
(DE LEON, supra at 11-12; PINEDA, Partnership,
Agency & Trusts (2006) p. 53) [hereinafter PINEDA].
A partnership contract, in its essence,
contract of agency (see Art. 1818) (Id. at 12).
Essential Requisites (C30PZSZ) . unanimous assent of the parties at the timi
1. There must be a valid gentract; '“
2. The parties must have legal Qapacity to enter into _
the contract;
3. There must be a gontribution of money, property
or industry to a common fund;
4. The iect must be lawful; .j
5. The intent must be to obtain Erofit and to diyid
g; ,
same among the parties; and a sufienders to the partnership an interest it
6. There must be at least one general" Partner.
7. There must be affection §ocietatis-”‘f:‘fs
8. The articles of partnership must not be kept§ep . ,
among the members.
Essential Requisites (C3OPZSZ)
1. There must be a valid Qontract
a. The partnership relation is fundamentally
contractual. The essential elements”?- ‘-’
(Cause, Object, and Consideration) of a
contract must be present (Id. at 13).
There is no such thing as a partnership
created by law or by operation or
implication of law alone (Id).
Note: The partnership relation is not the
contract itself, but the result of the contract
(Id).
Form
The relation is evidenced by the terms of
the contract which may be oral, written,
express or implied from the acts or
declarations of the parties, subject to the
provisions of Articles 1771 to 1773, and to
the Statute of Frauds.
No formality is required in setting up a
general partnership unless it falls within the
392 | 8018 SAN BEDA CENTRAI |7FD RAP OPERATIONS
MEMéRV AlD 2018
Statute of Frauds (Art. 1403). Howevei
there are formal requirements for creating
a limited partnership (Id.).
Articles of Partnership
No required form is generally necessar
however, it is customary to embody thl
terms of the agreement in a documer
known as "Articles of Partnership" stating
the name, nature or purpose and locatior
of the firm, and defining, among members
the powers, rights, duties, and liabilities c
the partners among themselves, thei
contributions, the manner by'which thn
profits and losses are to be shared, and the
procedure for dissolving the partnershil
(ld.).
is a Later disagreements among the partner:
will not automatically destroy thl
partnership. What is important is th(
Of the agreement to associate as partner:
"at the creation of the relationship (Id).
As in Other cases of contracts, in order it
make an agreement for a partnership valic
" there must be a valid consideration existing
as fbetween the partners. Each partn'e
; . =
histproperty, labor, skills, or energy, ii
a§oordance with the express or impliet
stipulations of their mutual agreement (Id)
b, 4' it is fiduciary in nature.
Partnership is a personal relation in whicl
the element of delectus personae exists.
Delectus Personae (choice of persons) -
the authority of one partner to bind anothe
by contract or otherwise. it involves trus
and confidence between the partners. Nt
one can become a member of th(
partnership association without tht
consent of all the other associates (Id. 6
15).
One selects his partners on the basis 0
their personal qualifications and qualities
such as solvency, ability, honesty, ant
trustworthiness, among others
(BAUT/STA, ESTEBAN B., Treatise 0/
Philippine Partnership Law, 1995, at p. 9:
as cited in VILLANUEVA, Agency, Trusts
Partnerships and Joint Ventures, (2015)
p.446) [hereinaften VILLANUEVA].
 PARTNERSHIP, AGENCY 8: TRUSTS
SAN BEUA MEMéRY A60 2018
Note: Applies only to general partners (DE
LEON, supra at 15; CIVIL CODE, Art.
1866)._
Power to Dissolve Partnership
Any one of the partners may, at his sole
pleasure, dictate a dissolution of the
partnership at will. He must, however, act
in good faith to avoid liability for damages
(DE LEON, supra at 15-16).
c. The principle of estoppel applies (CIVIL
CODE, Art. 1825).
in such case, there is no actual or legal
partnership but merely a partnership
liability imposed by law in favor of third
persons (DE LEON, supra at 16).
Partnership liability may be imposed upon
a person under this principle where
holds himself out or permits himse "
held out as a partnerinan enterpris _
The parties must have legal ygapacity to enter
into the contract / at 20).
Individuals
Any person who cannot give ionsent to'a
contract cannot be a partner (DEELEON, supra .
at 17). . e obgéct is unlawful when it is contrary to law,
A married woman, even if already‘df age, a.
contribute conjugal funds as her contribution to
the partnership, unless she is permitted to do“:
so by her husband (FAMILY CODE,>Art. 125),Or " 1
unless she is the administrator of the conjugate .
partnership, in which case the court must give
its consent or authority (FAMILY CODEflArtiiWi
124). 3 under the General Banking Law of 2000 (RA.
Partnership as Partner
There is no prohibition against a partnership
being a partner in another partnership (ld.).
Corporation as Partner
Unless authorized by a statute or by its charter,
a corporation is without capacity 'or power to
enter into a contract of partnership (Mendio/a v.
CA, GR. No. 159333, July 31, 2006).
Reason: Public Policy — The mutual agency
between the partners, whereby the corporation
would. be bound by the acts of persons who are
not its duly appointed and authorized agents
and officers, would be inconsistent with the
policy of the law that the corporation shall
manage its own affairs separately and
exclusively (Id.). '
3. There must be a mutual gontribution of money,
property, or industry to a common fund
a. Money — must be in legal tender. Checks,
drafts, promissory notes and other
mercantile documents are not money.
There is no contribution of money until they
have been cashed (CIVIL CODE,
Art.1249).
b. Property — may be real, personal, corporeal
or incorporeal property. Thus, credit and
goodwill may be contributed (DE LEON,
supra at 19).
0. Industry — means the active cooperation,
the work of the party associated, which
may be either personal manual efforts or
intellectual, and for which he receives a
share in the profits (not merely salary) of
the business (Id.).
A limited partner in a contract of
partnership cannot contribute mere
industry (CIVIL CODE, Art. 1845).
"Note: Preof .is necessary that there be
contribution of money, property or industry (Id.
he iect or purpose must be lawful (CIVIL
ODE, Art. 1770)
pralsi-gbod customs, public order or public
..<.‘;pc">licy (CIVIL CODE, Art. 1306).
:‘ Subject to this general limitation on contracts, a
partnership may be organized for any purpose
except that it may not engage in an enterprise
‘ sfor'which the law requires a specific form of
business organization, such as banking which
No. 8791, Sec. 8.), only stock corporations may
undertake. (DE LEON, supra at 24).
Instances of unlawful object are: to create illegal
monopolies or combinations in restraint of trade,
to carry on gambling, to engage in smuggling, to
lease furnished apartments to prostitutes, to
prevent competition in bidding for government
contracts, to control the price of a commodity in
the interest of its members, etc. (DE LEON,
supra at 24).
Note: The illegality of the object will not be
presumed. It must appear to be of the essence
of the relationship (Id. at 58).
5. The primary Eurpose must be to obtain profits to
divide the same among the parties (Id. at 12).
2018 SAN BEDA CENTRALIZED BAR OPERATIONS l 393
 PARTNERSHIP, AGENCY 8: TRUSTS
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A partnership is formed to carry on a business provisions of the Civil Code relating to co

for profit. All that is needed is a profit motive. ownership (CIVIL CODE, Art. 1775).
Hence, even an unprofitable business can be a
partnership provided the goal of the business is Partnership v. Voluntary Association(JP-C
to generate profits and to return these profits to ’ " ' , v»-~~Voiuntary"
the partners as owners of the business (Id. at . Association
24). .« .vmurl. ef‘séhality . ’
Its purpose must be for profit and not just for
common enjoyment of the property, money, etc.. . . , . '. gBurposSe , "
or else it is one of co—ownership. Pecuniary
benefit, however, need not be the only purpose. ‘ “rf'gontribution OfMembers- , ,
It may have social, moral or spiritual aims T 3 contribution of Thereis no contr ut r
(PINEDA, supra at 9). capital ' of capital although fees
are usually collectec
Sharing 0f Profits from the members tc
Since the partnership is engaged for the maintain the
common benefit or interest of the partners, there or-anization
must be an intention of dividing the profit among ' iabittty'of Memfiérs
the partners (DE LEON, supra at 25)‘ h The partners ip is H V Mebemrs r
‘able individually liable for
A stipulation which excludes one “ the debts of corporatior
partners from any participation in the profitsor :(DEKLEQN, supra at 52)
losses is void (CIVIL CODE, Art. 1799).

Sharing of Losses ,
The definition of partnership under Article 1767 '
refers to “profits” only and is silentas to,“lo
The reason is that the object of afpartriers
primarily the sharing 0f profits,“ while the . , e er express or law, but may exist even
distribution of losses is but a “cogsequ no »‘ ‘ ’ without a contract
the same" (DE LEON, supra at 26),, ‘ (i e succession)

Agreement Not Necessary ;

it is not necessary for the parties to agree as a juridical personalityHas no Juridical
a system of sharing losses, for the Obligatio *Separate and distinct from personality
implied from the partnership relation but if on
the share of each partner in the profits hasib
agreed upon, the share ofveach in the losses .
shall be in the same proportion (CIVIL CODE, Realization of profits 2 Common enymntjoe of a
Art. 1797, par. 1). thing or right
flower to Act, WithThirc‘t‘Personsifl . , ,
6. There must be at least one general Eartner
in general, a partner may A co-owner cannot
The law expressly requires that there be at least
bind the partnership represent the co—
one general partner (CIVIL CODE, Art. 1843)
ownership
with unlimited liability. (40 Am. Jur. 477).
Erofits , ._
7. There must be affectio §ocietatis May be stipulated upon Must always depend
it is the desire to formulate an active union with { upon proportionate
people among whom there exist mutual shares and any
confidence and trust (delectuspersonarum) stipulation to the
(PARAS, Civil Code of the Philippines, Volume i contrary is void
V, (2016), p. 582) [hereinafter 5 PARAS]. - - . >

8. The articles of partnership must not be kept limitation upon the An agreement to keep
§_ecret among the members. (duration is set by law the thing undivided for
‘ ‘ more than 10 years is
Otherwise, the association shall have no legal I not allowed
personality and shall be governed by the i
g
394 l 2018 SAN BEDA CENTRALIZED BAR OPERATlONS
 PARTNERSHIP, AGENCY 8: TRUSTS
3;f BEDA MEMO???" AlD £30153

Death or mcapacrty of a Death or IncapaCIty'of a

partner dissolves the co—owner does not A partner, as such, can
partnership necessarily dissolve the
co—ownership mismanages directors or trustees
who mismanages must
be in the name of the
As a rule, there is mutual As a rule, there is no
al r presentation corporation
agency

H
In general, there is no No public instrument is
required form needed even if real
property is the object of Partners are generally Stockholders are liable
the co-ownership. liable for partnership only to the extent of the
debts to third persons shares subscribed by
them
A partner may not dispose A co—owner can dispose
of his individual interest in of his share without the
the partnership so as to consent of the others . . ,.-.. interest .
make the assignee a Partner cannot transfer Stockholder has
partner without unanimous «interest in the generally the right to
consent pa = A»; ' so as to transfer his shares
(Id. at 48-49) make the transferee a without prior consent of
partner _ without the the other stockholders.
Partnership v. Corporation lunanimous consent of all
CNJ PMERET2 FDG) the existing partners.

be Corporation may not be

Creted any formed for a term in
agreement pe ad of fime stipulated excess of 50 years
bythe partners. extendible to not more
than 50 years in any
Requires atieast five5 V einstance.
incorporators (except a
corporation sole) ’
partnership is Corporation may adopt
'- equired by law to add the any name provided it is
From the moenm o From the date of , Ord “Ltd not the same as or
execution of the contract issuance of the to its name. similar to any registered
of partnership certificate of firm name.
incorporation by the 3;.Qigséiinion; , ,
SEC
May be dissolved at any Can only be dissolved
time by any or all of the with the consent of the
May exercise any power Can exercise only the State
. ~>zgovnm
partners
authorized by the powers expressly
partners granted by law or
implied from those Governed by the contract Governed by the
granted or incident to its: and the Civil Code Corporation Code
existence (Id. at 55—57)
f-‘ILtIILéhége Partnership v. Conjugal Partnership of Gains
When management is not Vested in the board of
agreed upon, every directors or trustees
partner is an agent of the
partnership
. 13$
reaed by voluntary Olny betwe
agreement of two or andawoman

2018 SAN BEDA CENTRALIZED BAR OPERATIONS I 395

 PARTNERSHIP, AGENCY Sr TRUSTS SAN BEDA MEMéRY AED 8018

A. Can ""95; Partnership pertain between and

amon- the partners.
; ,- - , f ainFT'i‘
Bepresentation g
mor V I persons Partner binds not only The agent who act:
benonloin to either sex
the other partners and within the scope o
partnership, but also authority does not him
himself in the pursuit of himself to the contrac
the partnership or transaction he enter:
enterrise. into.
, _ _t___i_abitity _
corng he of spouses are
agreement of partners divided equally When a partner enters The agent must ente
or in proportion to their into a contract in his into contracts an(
respective capital own name but in the transactions in the
contributions
pursuit of partnership name ofthe principal fo
ri’dical business, the other the latter to be bount
partners and the thereby.
as juridicl ' H ” juridical partnership would _still
personality personality be bound thereby

Partership v. Joint Venture CF-TransPow)

. "~'t)‘iistrttion of , ‘
Partnership . . ‘ 'Joint venture
Tewhle Itert a he share of
partner may be spouse cannot ‘be erage
disposed of without the disposed of during the ' ' v “center‘mplatesv,f ‘ th Orrdinaily limed to z
consent of other marriage'even with the undertaking eta general single transaction anc
partners consent Of the other .g‘continuous not intended to pursue E
continuous business
Management
it is shared equally by Although 'lame'” ‘. , a
all partners unless one administrai Has no firm name.
or more of them are to both spouses J
appointed managers in the husband's deCisib
the articles of shall prevail in case- he property used The property usec
‘ 7 disa . reement r, becomes the property of remains undividec
governing L w . ' W ’theb siness entity and property of its
of all the contributor.
Governed by the Governed by law-
stipulation of the
uarties
‘P’A partner acting in None of the co-
‘ ' ' gammenceme'nt‘ pursuance of the firm venturers can bind the
Partnership begins Commences precisely business. binds not only joint venture or his co-
from the moment of the on the date of himself as a principal, venturers.
execution of the celebration of the but as their agent as
contract, unless marriage. Any well, also the
otherwise stipulated stipulation to the partnership and his co-
contrary is void artners.
(DE LEON, supra at 50-52) (VILLANUEVA, supra at 451—457)

Partnershi v.Agency (CoRLi) Joint Venture

’ Partnership . Agency” '
celestial .
The agent is merely
Partners are mutual
legal extension of the
agents of one another
personality of
and thereby the control
that a principal has over
principal and thereby
under the complete
his agent does not
control of the principal.
An association of persons or companies jointly
undertaking some commercial enterprise; generally,
all contribute. assets and share risks (Kilosbayan.
Incorporated v. Guingona, Jr., G. R. No. 113375, May
5, 1994).
the it requires a community of interest in the performance
of the subject matter. a right to direct and govern the
policy in connection therewith, and a duty which may
be altered by agreement to share both in profits and

398 I 8018 SAN BEDA CENTRALIZED BAR OPERATIONS

 PARTNERSHIP, AGENCY a TRUSTSSAN BEDA MEMéRY
losses (InformatioriTechno/ogy Foundation v.
COMELEC, GR. No. 159139, January 13, 2004).
A joint venture, being a form of partnership, is to be
governed by the laws on partnership (Marsman
Drysdale Land, Inc. v. Philippine Geoana/ytics, Inc.,
GR. No. 183374, June 29, 2010).
Requisites: (CRiSp)
1. A Community of interest in the performance of the
subject matter;
2. A fight to direct and govern the policy in
connection therewith; and
3. Duty to _S_hare profits and losses (DE LEON,
supra at 84).
Note: A partnership may be particular or universal
(CIVIL CODE, Art. 1776) and a particular partnership
may have for its object a specific undertaking. Hence,
falling under the second kind of partnership, joint
venture is a form of partnership with a leg
personality, separate and distinct from the ' ’
composing it, and should thus be governed
of partnership (DE LEON, supra at 84).
Effect of Failure to Comply with Statutory -
Requirements ; r
1. Under Art. 1772 — Even in case. of failu/rfemto
execute a public instrument and, registergthe'
same with the Securities any Exchange
Commission in cases when thé;lpaftnersihip
capital exceeds P3,000, suchj’itjpa
acquiresjuridical personality (DE LEON, s
27). . .. . , persons sharing them have a joint or common
2. Under Articles 1773 and 1775 — The .partn (sh
' shall not acquire any juridical persona,
because the contract itself is void (Id.). ,
Rules to Determine the Existence of a Partnership
(CIVIL CODE, Art. 1769) (NOR-Share)
1. General Rule: Persons who are Not partners as
to each other are not partners as to third
persons.
Exception: Partnership by estoppel (CIVIL
CODE, An‘. 1825).
illustration: If A and B are not partners as to
each other, neither will they be partners with
respect to C, a third person. But if A, with the
consent of B, represents to C that they are
partners, then A and B will be considered
partners as to C even if they are not really
partners (DE LEON, supra at 31).
2. Qo—ownership or co—possession of a property
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.
Ali} 2018
Reason: The law does not imply a partnership
between co—owners or co-possessors because
of the fact that they develop or operate a
common property, since they may rightfully do
this by virtue of their respective titles or common
dominion over the property (DE LEON, supra at
31).
illustration: A and J inherited from their father
an apartment which is leased to third persons.
They are merely co-owners and not partners.
There must be a clear intent to form a
partnership (Id. at 32).
Co-ownership Converted into Partnership
The co—ownership of inherited properties is
automatically converted into an unregistered
partnership the moment said common
properties and/or the income derived therefrom
are used as a common fund with intent to
produce profits for the heirs in proportion to their
pective shares in the inheritance as
‘ ined in a project partition (Ofia v. CIR,
. No. L-19342, May 25, 1972).
7 Note:‘ The; property of a man and a woman who
ive‘together as husband and wife without the
fit of 'r'narriage or under a void marriage
begoverned by the rules on co—ownership
CODE, Art. 147).
V;ari of gross Returns alone does not
'aiiinbicatéla partnership, whether or not the
' _gright or interest in any property from which the
returns are derived.
Reason: When a business is carried on in
, 9 w,
WWW i, " rébehalf of a given person as a partner, he is
conceived as being interested in its failures as
well as its successes; it is the chance of gain or
loss, which characterizes a business. Take note
that in a partnership, the partners share profits
after satisfying all of the partnership‘s liabilities
(DE LEON, supra at 36).
“Gross returns” may be paid over as
commission, wages, rents, interest on a loan.
Illustration: A, owner of a passenger jeepney,
agrees with J, a driver, that the latter shall have
full control and use of the jeepney to carry
passengers, pay for gasoline and oil, and
shoulder the cost of repairs, and that the gross
receipts are to be divided between them. No
partnership is established as no sharing of
profits is contemplated (Id. at 37).
Note: To regard the petitioners as having
formed an unregistered partnership would result
2018 SAN BEDA CENTRALIZED BAR OPERATlONS | 397
 PARTNERSHIP. AGENCY 8 TRUSTS
SAN BEDA MEMéeY AID
in oppressive taxation. Their original purpose
was to divide the lots for residential purposes,
but they were compelled to resell because of the
high cost of construction. There must be an
unmistakable intention to form a partnership or
joint venture (Pascua/ v. CIR, GR. No. 78133,
October 18, 1988).
4. Receipt by a person of Share in the profits is a
prima facie evidence that he is a partner in the
business; sharing in the net profits presupposes
sharing in the losses.
However, no such inference will be drawn if such
profits were received in payment: (DAWIC)
a. As a et by installments or otherwise;
b. As an Annuity to a widow or representative
of a deceased partner;
0. As flages of an employee or rent to a
landlord;
d. As interest on a loan, though the amount of
payment varies with the profits ’3?
business; and ,. ; _ rtnership (DE LEON, supra at 46-47).
e. As the Consideration for the sale of a
goodwill of a business or other property'by "1
installments or otherwise 'i,(CIVIL CODE,
Art. 1769, par.4). :. W r exist as to third persons if no contract 0'
Disputable Presumption of Partnership '1 i!
The sharing of profits and losses l§ prirg'a'" fa
evidence of an intention to form a partnershi‘ ’ ership by estoppel. Thus, where persons by
conclusive evidence. The presumptiigh rig;
rebutted by other circumstances (DE LEON, s ra
37). ‘ ~ {the former are partners in a non-existing
Test of Partnership Existence ‘ .
1. Whether or not there is an agreement to Contriete
money, property, or industry to a common’fu,nd;;a;nd
2. Whether or not there is intent of the contractififi‘v‘wtiitwf
parties to divide the profits among themselves (Id, “at"
45-46).
Burden of Proof
The burden of proving the existence of a partnership
rests on the party having the affirmative of that issue
(Id. at 45).
Incidents of a Partnership
1. The partners’ share in profits and losses (CIVIL
CODE, Arts. 1767,1797, 1798, and 1799);
2. They have equal rights in the management and
conduct of the partnership business '(CIVIL
CODE, Art. 1803);
3. Every partner is an agent of the partnership, and
entitled to bind the other partners by his acts, for
the purpose of its business (CIVIL CODE, Art.
1818);
4. All partners are personally liable for the debts of
the partnership with their separate property
(CIVIL CODE, Arts. 1816and 1822-24) except
398 l 2018 SAN BEDA CENTRALIZED BAR OPERATIONS
.2018
that limited partners are not bound beyond thr
amount of their investment (CIVIL CODE, An
1843);
5. The books of the partnership shall be kept
subject to any agreement between the partners
at the principal place of business of the
partnership (CIVIL CODE, Art. 1805);
6. A fiduciary relation exists between the partner:
(CIVIL CODE, Art. 1807); .
7. A capitalist partner cannot carry on an}
competing business venture unless there is a
stipulation to the contrary (CIVIL CODE, Art
1808), while an industrial partner is absolutel)
prohibited from engaging in any kind of business
(CIVIL CODE, Art. 1789); and
8. On dissolution, the partnership is no
terminated, but continues until the winding up 0
partnership affairs is completed (CIVIL CODE
Art. 1828).
Note: These may be modified by stipulation of the
yr? 1 Subject to the rights of third persons dealing
Persons Not Partners as To Each Other
Partnership by estoppel — A partnership car
ershgp, express or implied, has beer
ed xfnto between the parties themselves
ILQQQDE, Art. 1834, last par.) except ir
their .‘aég‘t's,’ consent, or representations have
tmi‘sled third persons or parties into believing the
partnership, such persons become subject tc
,3” liabilities of partners to all who, in good faith, dea
,with‘9 them in their apparent relations (CIVIL
CODE, Art. 1825; Id.).
~
““2; Persons living together_ without benefit of
marriage
Their wages and salaries shall be owned by them
in equal shares and the property acquired by both
of them through their work or industry shall be
governed by the rules on co-ownership (FAMILY
CODE, Art. 147).
Partnership viz. Co-ownership
The law does not imply a partnership between co-
owners or co-possessors because of the fact that
they develop or operate a common property, SlnFe
they may rightfully do this by virtue of their respeCtIve
titles.
Co-ownership can be converted into a partnership)"
case where the heirs, who are engaged in a 10'"t
venture, agreed that the income from the cornmc’n
properties be contributed to a common fund (0’73 V‘
 PARTNERSHIP, AGENCY 8: TRUSTS
saw BEDA MEMéev AID
Commissioner of Internal Revenue, 45 SCRA 74
[1972]).
Object or Purpose of Partnership
A partnership must have a lawful object and must be
established for the common benefit or interest of the
partners. , legal may be had; and
When an unlawful partnership is dissolved by a
judicial decree, the profits shall be confiscated in
favor of the state (CIVIL CODE, Art. 1770).
The provision of the first paragraph Article 1770
reiterates two essential elements of a contract of
partnership: " Effect of Subsequent lllegality
1. Legality of the object; and
2. Community of benefit or interest of the partners
(see, Art. 1767); (DE LEON, supra at 58).
Effects of Unlawful Partnership (V-PIC)
1. The contract is Void ab initio (CIVIL CODE, Art
1409, par. 1); "W
2. The Erofits shall be gonfiScated in fav,
government (REVISED PENAL CODE"?! . 5);
3. The instruments or tools and proceeds of: the
crime shall be forfeited in ‘. favor of the
government; (REVISED PENAL CODE,’Ai12’45);
4. The gontributions of the partne‘r'slg'shalt got 5
gonfiscated unless they fall under N03 (DE
LEON, supra at 59). , n5§tm 1403, par. 2 [a]).
A partnership is dissolved by operationgof la
the happening of an event which makes it unla \_
the business of the partnership to be carried on,“
the members to carry it on in partnership (C
CODE, Art. 1830 [3]). ‘ »_ag:ré’ement, can A enforce the agreement?
Note: A partnership is dissolved by operation 0 w:
upon the happening of an event which makesli
unlawful for the business of the partnership to be
carried on, or for the members to carry it on in
partnership (CIVIL CODE, Art. 1830 [3]).
Decree of Dissolution
A judicial decree is not necessary to dissolve an
unlawful partnership. However, it may sometimes be
advisable that a judicial decree of dissolution be
secured for the convenience of the parties (DE
LEON, supra at 59—60).
The partners must be reimbursed the amount of their
respective contributions. Any other solutions would
be immoral (Amber v. Polistico, GR. No. 31057,
September 7, 1929).
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
2018 .
instruments and effects of a crime (CIVIL CODE, Art.
1770).
Effects of Partial Illegality: >
1. Where a part of the business of a partnership is
legal and part illegal, an account of that which is
2. Where, without knowledge or participation of the
partners, the firm’s profits in a lawful business
have been increased by wrongful acts, the
innocent partners are not precluded as against
the guilty partners from recovering their share of
the profits (DE LEON, supra at 62).
The happening of an event subsequent to the making
of a valid partnership contract which would render
illegal the business of the partnership will not nullify
the contract (Id. at 63).
F m of Partnership Contract
._ fiule: A partnership may be constituted in
, y?” pr validity and enforceability of the contract
among partiesi'regardless of the value of the
‘ Contribution (CIVIL CODE, An‘. 1771).
Exceptions: (SLR)
| property or real right is contributed (CIVIL
Agt 1771); and
’ covered by the _S_tatute of Frauds (CIVIL
Q; Tofay‘, A and J orally agreed to form a
, partnership one and one half years from today,
~eachlbfte to contribute P1,000. If at the arrival of
the ;.%pe"'jribd, J refuses to go ahead with the
No. Since the agreement is to be enforced after
one year from the making thereof, the same
should be in writing under the Statute of Frauds
(5 PARAS, supra at 610).
3. A Limited partnership, however, cannot be
constituted orally. The requirements of the
statute must be substantially complied with
(CIVIL CODE, Art. 1844); otherwise, the liability
of the limited partners becomes the same as that
of general partners (DE LEON, supra at 284).
Note: Partnership’s existence may be implied
from the acts or conducts of the parties, as well
as other declarations. In determining whether or
not a particular transaction constitutes
partnership, as between the parties, the intention
should be ascertained (Id. at 65).
Registration of Partnership
Failure to comply with the requirements does not
prevent the'formation _of partnership or affect its
2018 SAN BEDA CENTRALIZED BAR OPERATIONS l 399
 PARTNERSHIP, AGENCY a TRUSTS
SAN' BEDA MEMéRv AlD acts
liability and that of the partners to third persons (CIVIL
CODE, Art. 1772).
Purpose of Registration: To set a condition for the
issuance of licenses to engage in business or trade
and to give notice to third parties. It can be assumed .
that the members themselves knew of the contents of
their contract (TOLENTlNO, Civil Code of the
Philippines, Volume V (1992) p.326) [hereinafter 5
TOLENTlNO]).
The business purpose of the requirements under
Arts. 1771 and 1772 is to prevent evasion of tax
liabilities by big partnerships and to protect the public
by enabling those who deal with partnerships to
determine more accurately the membership and
capital contributions (VILLANUEVA, supra at 499).
Recording of Articles of Partnership is not for the
purpose of giving the partnership juridical personality
(DE LEON, supra at 67).
Effectivity of Registration
Registration is effective from the date the partnership
papers are presented to and left ‘forrecord in the
Securities and Exchange Commission (SEC Opinion, 3 '
February 8, 1962 and February 5, 196MB).
Partnership With Contribution
Property > ;
A contract of partnership is v4
immovable property is contributed. . s
inventory of said property is not made; signed
parties, and attached to the public instrument Y
CODE, Art. 1773). ’ 254010.51 34569, December 9, 1999).
1. Form if Personal Property is Contributed I;
a. if capital is less than P3,000 — No special form
is required for its validity or existence.
b. Where the contract of partnership has‘.a
capital of 3,000 pesos or more, in money or
property— it shall appear in a public instrument
and must be recorded in the Office of the
Securities and Exchange Commission (Id. at
66).
2. Form if Real Property is Contributed (WIP)
Where immovable property or real rights are
contributed, regardless of the value thereof:
a. The contract itself must be in Writing in a
Eublic instrument; and
b. An inventory of the property contributed,
signed by the parties, is attached to the
public instrument (CIVIL CODE, Art. 1773).
If there is no inventory, the contract of partnership is
void and has no juridical personality. Moreover, to
be effective against third parties, the partnership
must also be registered in the Registry of Property
400 l 2018 SAN BEDA CENTRALIZED BAR OPERATIONS
of the province where the real property contribute
is found (DE LEON, supra at 68).
Note: Inapplicable to immovable property which me
be possessed or even owned by the partnership bl
not contributed by any of the parties (DE LEOI
supra at 68).
Adverse Effect of Failure to Comply wit
Registration Requirements of Article 1773
Partners cannot avail of any advantage that th
partnership medium affords them. The primal
advantage that the partners have under a de jur
partnership setting is that their personal liability to th
partnership creditors for assets that have not bee
contributed to the firm is only joint and subsidian
since they have the benefit of exclusio
(VILLANUEVA, supra at 508).
When they do not comply with the formalities unde
,. Art. 1773, the partnership is void in the sense that th
”@antnegs,,,are deemed to be acting for themselve
M entered into the partnership contracts an
ransacrons. Thus. partners can be held 'directl
(liable by partneiShip creditors for all contract
«enteredinto, and all obligations assumed, in th
name‘éofthe partnership which is declared void (Id.)
forinalities mandated under Art. 1773 ar
Ir th‘é protection of the partnership creditor:
théfdeclaration that the partnership is voi
ot; affect the intra—partnership relationshi
1 tbehrvefien and among the partners and between th
j partners and the partnership itself (Torres v CA, G]
Acquismon or Conveyance of Property b
Partnership
. Any immovable property or an interest therein ma
be acquired in the partnership name. Title s
acquired can be conveyed only in the partnershi
name (CIVIL CODE, Art. 1774).
Transparency of Articles of Partnership
It is also required that the articles of partnership mus
not be kept secret among the members; otherwise
the association shall have no legal personality an
shall be governed by the provisions of the Civil Cod
relating to co-ownership (CIVIL CODE, Art. 1775).
Secret Partnerships Without Juridical Personalit
It is essential that the partners are fully informed nc
only of the agreement but of all matters affecting th
partnership (CIVIL CODE, Art. 1806). A partner l
considered the agent of his co—partners and of th
partnership in respect of all partnership transaction
(CIVIL CODE, Art. 1803).
Associations, whose articles or agreements are key
secret among the members and wherein anyone C
 PARTNERSHIP, AGENCY 8t TRUSTS
SAN BEDA MEMQRY
them may contract in his own name with third persons
are, by this article, deprived of juridical personality for
evidently such associations are not partnerships. As
among themselves, they shall be governed by the
provisions relating to co—ownership (DE LEON, supra
at. 70).
While they cannot sue for lack of judicial personality,
they may, however be sued by third persons under
the “common name" they use. This is to protect
innocent third persons who might deal with them
(PINEDA, supra at 40).
It is essential that the articles of partnership be given
publicly for the protection not only of the members
themselves but also of third persons from fraud and
deceit to which otherwise they would be easy victims.
(DE LEON, supra at 70)
Classification of Partnership
As to its object, a partnership is either universal o
particular. As regards the liability of the pa W CIVIL CODE, Art. 1825)
partnership may be general or Timited (CIVI
Art. 1776). ' '
Classifications of Partnership: (OLDERl-sv 1.
1. As to iect: t.
a. Universal partnership
i. Of all present property {CIVIL ODE
Art. 1778); and - r .
ii. Of profits (CIVIL CODE}
b. Particular partnership— one
its object: (D-FUSE)
i. Qeterminate things;
ii. Their gse or fruits; - a, ,
iii. A §pecific undertaking; and. ’
iv. The Exercise of a prefession on:
occupation (CIVIL CODE, Art; 3).
2. As toLiability of partners:
a. ‘ General partnership (CIVIL CODE, Art.
1816) — where all the partners are liable pro
rate with all their property after the
partnership assets have'been exhausted;
and
b. Limited partnership (CIVIL CODE, Art.
1843) —— where the limited partners shall not
be bound by the obligations of the
partnership in excess of his capital
contribution. ' November 3, 1999).
3. As to Quration:
a. Partnership at will;
Note: A partnership that does not fix its term is
a partnership at will. The birth and life of a
partnership at will is predicated on the mutual
desire and consent of the partners. Ven'ly, any
one of the partners may, at his sole pleasure,
dictate the dissolution of the partnership at will.
All) 2018
He must, however, act in good faith, not that
the attendance of bad faith can prevent the
dissolution of the partnership but that it can
result in a liability for damages (Ortega v. CA,
GR. No. 109248, July 3, 1995).
b. Partnership with a fixed period; and
c. Partnership for a particular undertaking —
automatically dissolved upon the
achievement of the particular undertaking
stipulated in the contract of partnership
(VILLANUEVA, supra at 534).
4. As to legality of Existence:
a. De jure partnership (CIVIL CODE, Arts.
1772, par. 2 and 1773); and
b. De facto partnership (DE LEON, supra at
72).
5. As to Bepresentation to others:
a. Ordinary or real partnership; and
b. Ostensible or partnership by estoppel
rgubiicityz;
a. Secret/partnership; and
A b. ’Notbribus or open partnership (DE LEON,
supréat 73).
Eqrpose:
ogtimercial or-trading (CIVIL CODE, Art.
I": 7675
Co-owneirshrp by the partners of the property and
_Aiusines‘s’of the partnership and which implies joint
p“ ’ ‘i‘sof management and control of the partnership
\ sz:&~ft§rifl,;'in“sharing of the profits and losses (DE LEON,
“Supra at 61).
A partnership may be deemed to exist among parties
who agree to borrow money to pursue a business and
to divide the profits or losses that may arise
therefrom, even if it is shown that they have not
centributed any capital of their own to a “common
fund,” as their contribution to such fund could be
intangible like credit or industry (Lim Tong Lim v. Phil.
Fishing Gear Industries, Inc., GR. No. 136448,
Salient'Features of Ordinary Partnership:
1. Community of interest in profits and losses;
Note: Mere sharing of profits itself does not of
necessity constitute a partnership (Id. supra at
62).
2. Community of interest in the capital employed;
and
3. Community of power in administration (Id. at 63).
8018 SAN BEDA CENTRALIZED BAR OPERATIONS | 401
 PARTNERSHIP, AGENCY 8 TRUSTS
SAN BEDA MEMéR’Y
Universal Partnership
A universal partnership may refer to all the present or
to all the profits (CIVIL CODE, Art. 1777).
A. Universal Partnership of All Present
Property
One wherein the partners contribute all the
property which actually belong to them to a
common fund, with the intention of dividing the
same among themselves, as well as all the
profits which they may acquire therewith (CIVIL
CODE, Art. 1778).
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 be made; but the property whlelwgtfis
partners may acquire subseqdently by in
legacy, or donation cannot b’eViM'included in such ‘
stipulations, except the fruits thereof (CIVIL CODE,“ ‘
Art. 1779). ‘ ,3: _ E:.
The following become the common propény ofgall
partnersL‘ Q, * ; ”wf‘fwi
1. Property which belonged to each“,f“offthqn‘iat§the* '
time of the constitution of the pafiiiershig arid
2. Profits which they may acquire frofi the ' ' 1‘
contributed (DE LEON, supra at 76377).
Rule on After-acquired Properties , ggfartners retain their ownership over their present ant
As a rule, aside from the contributed properties 0
the profits of the contributed common property (it
other profits) are included. Thus, should a, partner
subsequently acquire a property as remunerationforwa
his work, such property and its fruits are not to ”be
enjoyed by the universal partnership of all present
property (5 PARAS, supra at 619).
However, profits from other sources may become
common, only if there is a stipulation to such effect
(Id).
Properties subsequently acquired by inheritance,
legacy or donation, cannot be included in the
stipulation but the fruits thereof can be included in the
stipulation (Id. at 620).
QUESTION: A and B entered into a universal
partnership of all present property. No stipulation was
made regarding other properties. Subsequently, A
received a parcel of land by inheritance from his
father; and another parcel of land from the San Beda ~
University as remuneration for A’s work as a
professor therein. Are the two parcels of land and
their, fruits to be enjoyed by the partnership?
402 l 2018 SAN BEDA CENTRALIZED BAR OPERATIONS
AID 2018
ANSWER: No, because there was no stipulatio
- regarding future properties or their fruits. If there we
a stipulation, the land acquired as salary as well a
its fruits will belong to the firm; but the land acquire
later by inheritance will not belong to the partnershi
since this cannot be stipulated upon (Id.).
Universal Partnership of Profits
One which comprises all that the partners ma
acquire by their industry or work during the existenc
of the partnership and the usufruct of movable c
immovable property which each of the partners ma
possess at the time of the celebration of the contrac
(CIVIL CODE, Art. 1780).
Coverage
A universal partnership of profits comprises all the
the' partners may acquire by their industry or work;
becomes common property e.g. commission in .
transaction, salary or wages. The acquisition must bi
during the existence of the partnership (PINED.A
‘ ‘ ~ 44).
qursrtron not by industry or work are not include
' egf‘wi'nning a‘lotto,‘ legacy of interests derived fror
a bank deposit.
ye law speaks only of profits which thr
:maygéacquire by their industry or work, profit
by their partners through chance (i.e
' wittgout employment of any physical o
I e e uai “sirens are not included (DE LEON, supra
'at78)."
futUre property. What passes to the partnership an
, Q~>theprofits and the use of the same (Id).
QUESTION: A and B entered into a universe
partnership of profits. Later, A purchased a parcel 0
land. Will the fruits of said land belong to thr
partnership? '
ANSWER: As a rule, NO, because the usufruc
granted to the firm under Art. 1780, par. 2, refers onl:
to that of the property possessed by the partner at thr
time of the celebration of the contract. It follows tha
fruits of after-acquired property do not belong to the
firm as a matter of right (5 PARAS; supra at 621 -622)
Presumption: Articles of Universal Partnership
entered into without specification of its nature, only
constitute a Universal Partnership of Profits (CIV/l
CODE, Art. 1781).
Reason: A universal partnership of profits imposes
less obligations on the partners, since they preserve
the ownership of their separate property (DE LEON
supra at 79).
 PARTNERSHIP, AGENCY 8: TRUSTS
3AN eEDAMEMém AH) 2018

Universal Partnership of all Present Property v. , personality was ever acquired (5 PARAS, supra at
Universal Partnership of all Profits 623).
Of All
;. Ofiall9rofitsl In a universal partnership, the object is vague and
, indefinite, contemplating a general business with
age some degree of continuity. In particular partnership,
All presen property Property, which the
actually belonging to partners owned at the the object is well defined and limited, being confined
the partners are time of the celebration to an undertaking of a single, temporary or ad hoc
contributed to the of the contract, shall nature(DE LEON, supra at 82).
partnership, which continue to pertain to
become common them. Only the Examples: To construct a building; to buy and sell
property of all the usufruct (use and real estate; to practice the law profession. '
partners and the fruits) shall become , Here in a sense, it is as if all the members are
partnership. common property. -. industrial partners (Id).

Universal Partnership v. Particular Partnership

. , ASto ,rpfitsf : 7 “» , #{Universai Partnership . Particular
Ony profits derived All profits acquired
‘ g ' . . . Partnership
from the property through the “industry
__ . : tMa‘tter'
contributed become orwork”ofthe partners
common property but become Encompasses all the Determinate things,
common
not profits arising from property. present properties of the their use or fruits, or a
other property of the rs or to all of the specific undertaking, or
partners. The latter ~ the exercise of a
profits, however may profession or vocation.
by stipulation be r-jn of Eatistencé " .
considered as If there is no
common property for stipulation, a
the enjoyment of ail. a es of partnership is
(CIVIL CODE, Arts. 1779 and 1780) ' fish ‘éhat they are presumed to be a
" fa universal particular partnership.
Persons Prohibited from Engagin g
and Universal partnership(Cl.i2iLl
Art.1782): '
1. Legally married spouses (FAM/L COD PraétiCal and Legal Importance of
87). However, spouses may enter}, in Istinguishing between Universal and Particular
particular partnership like the exercise 0“ Partnerships
profession or vocation (CIR v. William .wSutenS’. >- The usefulness of the distinction is that persons who
CTA, GR No. L—25532, February 28, 1969) are disqualified from donating to another cannot enter
0- a universal partnership of any sort. Also, the
2. Common law spouses (FAMILY CODE, Art. 87); rights and obligations that may arise from subsequent
ventures pursued by the partners would be
determined whether they are bound under a universal
3. Parties guilty of adultery or concubinage; and
or particular type of partnership. (Id. at 532).
Note: Conviction not required, the guilt of the
May spouses validly enter into a partnership
parties may be proved by preponderance of
relation? Spouses cannot enter into a Universal
evidence (CIVIL CODE, Art. 739).
Partnership. Art. 1782 of the Civil Code provides that,
“persons who are prohibited from giving each other
4. Criminals convicted for the same offense in
any donation or advantage cannot enter into
consideration of the same (CIVIL CODE, Art.
universal partnership." It has thus been opined that
739).
since under Art. 87 of the Family Code, “every
donation between spouses during the marriage shall
Reason: To allow them will be like permitting
be void" (VILLANUEVA, supra at 539).
them to do indirectly what the law expressly
, prohibits. -
Professional Partnership
Under Art. 1767, two or more persons may also form
Effect of Violation 7
a partnership for the exercise of a profession. A
The partnership violating Art. 1782 is null and void,
“profession" has been defined as “a group of men.
and its nullity may be raised anytime. No legal
pursuing a learned art as a common calling in the
spirit of public service" (DE LEON, supra at 9). This

2018 SAN BEDA CENTRALIZED BAR OPERATIONS l 403

 PARTNERSHIP, AGENCY 8r TRUSTS
SAN BEDA MEMéRY AED 2018

is one case where a partnership is composed entirely 2. As to Liability:

of industrial partners (5 TOLENTINO, supra at 329). a. General partner — liability to third persons
extends to his separate property (CIVIL
A partnership that has for its object the exercise of a CODE, Art. 1816); or
profession is a particular partnership (CIVIL CODE, b. Limited partner - liability to third persons is
Art. 1783). limited to his capital contribution (CIVIL
CODE, Art. 1843).
Kinds of Partners
1. As to the Nature of Contribution (CIVIL CODE, 3. As to Management:
Art. 1767): a. Managing partner ~ manages the business
a. Capitalist partner — contributes money or or affairs of the partnership (CIVIL CODE
property; or Art. 1800);
b. Industrial ' partner — contributes only his b. Silent partner ~ does not take any active par
industry or personal service. ,A
in the business although he may be knowr
to be a partner; thus, he need not be a secre
Capitalist Partner v. Industrial Partner (CPZL) partner (DE LEON, supra at 75); or
Capitalist Partner lndustriai Partner ' c.‘ Liquidating partner — takes charge of the
winding up of the partnership affairs upor
(gentribution- ‘ ' dissolution (CIVIL CODE, Art. 1836).
Contributes money or Contributes hrs industry.
or personal service As to Exposure to Public Perception (DE LEON
Sgpfggnm’m CODE (CIVIL CODE at at 75):
1 789,, 21,767). stensible partner — one who takes active
_, ‘1 , grommmnto Ehgégerin‘orher Byéinés's rt and known to the public as a partner ir
the diness, whether or not he has actua
Cannot generally engage ’
in the same or similar
Cannotengage
,- . in . a" interest in the firm;
business'f'for (himself, . ecret partner — takes active part in the
enterprise as that of his unless "1., pa finer5,11
usi‘rt‘es‘s but is not known'to be a partner by
firm, unless there is a .
outs e parties nor held out as a partner by
stipulation to the expressiy éermrgs
contrary(ClV/L CODE, do “(C opE, rt. " ‘ her partners; or
ant partner — does not take active pan
Art. 1808). - , ”business and is not known or held out
as yanner; he would be both a silent and e
{Shares in the profits sebret partner (CIVIL CODE, Art. 1834,
according to agreement Receives aijjust , ’r.2).
thereon; if none, pro rata equitable share.(CIV
to his contribution (CIVIL CODE, Art. 1797) embershi’p:
CODE, Art. 1797). Real partner — one who is really a
contributing member of an existing lega
partnership; or
Exempted as to losses b. Partner by Estoppel — or quasi-partner
as between partners; One who is not really a partner bu1
1. First, the stipulation but is liable to third represents himself as one (CIVIL CODE,
as to losses; persons, without Art. 1825).
2. If none, the prejudice to
agreement as to reimbursement from the 6. As to the Value of Contribution:
profits; and capitalist partners a. Majority partner — one whose contributior
3. If none, pro rata to (CIVIL CODE, Art. . represents the majority or controlling
contribution (CIVIL 1816; La interest; or
CODE, Art. 1797). CompaniaMaritima v. b. Nominal partner — one whose contributior
Munoz, GR. 3704, represents only a minority interest (5
December 12, 1907). PARAS, supra at 630).

Note: Only in the difference representing the net 7. As to the Nature of Membership:
profits does the industrial partner share. But if, on the a. Original partner - one who is a member 01
contrary, the losses exceeded the income, the the partnership from the time of its
industrial partner does not share in the losses commencement as a juridical person (DE
(Santos v. Sps. Reyes, GR. No. 135813, October 25, LEON, supra at 75); or
2001). b. Incoming partner — one who becomes a
member subsequent to the establishment

404 l 2018 SAN BEDA CENTRALIZED BAR OPERATlONS

 PARTNERSHIP, AGENCY 8: TRUSTS
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of the firm or one who is about to be
admitted by the consent of all the members
(CIVIL CODE, Art. 1826 and 1828);
Note: In the case of an incoming partner, his
liability with respect to the partnership
obligationswhich were incurred prior to his
admission into the partnership shall be
satisfied only out of partnership property.
unless it is otherwise stipulated (CIVIL CODE,
Art.1826).
0. Continuing partner — one who continues
the partnership business after the
dissolution of the partnership due to the
reasons stated in Art. 1840 (DE LEON,
supra at 74); or
d. Retiring Partner — one withdrawn from the
partnership or a withdrawing partner (CIVIL
CODE, Art. 1840 and 1841).
8. As to the State of Survivorship:
a. Surviving partner — one‘RtO rem , ‘i‘ve
while one of the partnersrdies or oneifiwho [ A I 331:;
continues to be in the partnership aftériits
dissolution by reason offt‘fhe deathro’fy’a
partner (CIVIL CODE, Art.;1f§42); gor 5
b. Deceased partner — one who diiadj'T/Vifi‘ilé
being a member of the pa" hérséifiClyV/L
CODE, Art. 1840).
9. As to the Effect of Expulsion: : , ,
a. Expelled partner — one who 5 e-
from the partnership by the other part
’ it.
or
b. Expelling partner - partner who caused:the
expulsion of a partner for a valid“‘c§t§§
(CIVIL CODE, Art. 1837).
OBLIGATIONS OF THE
PARTNERS
Relations Created by A Contract of Partnership
1. Relations among the partners themselves;
2. Relations of the partners with the
partnership;
3. Relations of the partnership with third
persons with whom it contracts; and
Relations of the partners with such third
4.
persons.
Some Obligations of a Partner
1. To give his contribution (CIVIL CODE, Arts.
1786, 1788). _ _
2. Not to convert firm money or property for his
own use (CIVIL CODE, Art. 1788).
AiD 2018
3. Not to engage in unfair competition with his
own firm (CIV/L CODE, Art. 1808).
4. To account for and hold as trustee,
unauthorized personal profits (CIVIL CODE,
Art. 1807).
5. Pay for damages caused by his fault (CIVIL
CODE, Art. 1794).
6. Duty to credit to the firm, payment made by a
debtor who owes him and the firm (CIVIL
CODE, Art. 1792).
7. To share with the other partners the share of
the partnership credit which he has received
from an insolvent firm debtor (CIVIL CODE,
Art. 1743).
Some Rights of A Partner
1. Property Rights (CIVIL CODE, Art. 1810)
rights in specific partnership property
interest in the partnership (share in the profits
and surplus) (CIVIL CODE, Art. 1812);
\ Right to participate in the management (CIVIL
IDE, Art. 1804);
t to associate with another person in his
., s are (CIVIL'CODE, Art. 1804);
T A
Right to inSpect and copy partnership books
(CIVIL CODE, Art. 1805);
"ght, to demand a formal account (CIVIL
U DE,§{'Art. 1809),“
ht to ask for the dissolution of the firm at the
opeé‘tirne (cre CODE, Arts. 1830-1831).
~1=reoDE,,Ar1'. 1784).
,9
The birth and life of a partnership is
,y M ,/i‘c"ated on the mutual desire and consent of the
patties (Ortega v. CA, supra).
Hence, as a rule, even if contributions have not been
made, the firm already exists, for partnership is a
consensual contract (5 PARAS, supra at 627).
Exception: Partners may stipulate some other date
for the commencement of the partnership (CIVIL
CODE, Art. 1784).
Agreement to Establish Future Partnership
The contracting parties are authorized by way of
~ exception to stipulate on the date the contract of
partnership shall begin to exist, However, if the
contracting parties agreed to become partners not at
the time of the execution of the contract but at the
same future time, they do not become partners until
the appointed time has arrived(P/NEDA, Id. at 49).
2018 SAN BEDA CENTRALIZED BAR OPERATIONS | 405
 PARTNERSHIP. AGENCY 8.‘ TRUSTS
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Partnership with a Fixed Term
One which the term of its existence has been agreed
upon expressly or impliedly. The expiration of the
term or the accomplishment of the particular
undertaking will cause the automatic dissolution of
the partnership (DE LEON, supra at 89).
Rights and Duties of Partners
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 (CIVIL
CODE, Art. 1785, par. 1). "
New Partnership is Created (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 (CIVIL CO
1785, par. 2). " ei' ipso jure a debtor of the partnership ever
With such continuation, the partnership forafixed
term is dissolved and a new one is created by implied !
agreement (DE LEON, supra at 90).
33 r
Kinds of Partnership at Will (VILLA IgUEWl
' at 534)
1. When at the onset, there is no t, express or
implied; and a ;
2. Prime facie evidence of firm's ,cofihtinu'
When it is continued by the habitual mafifi
although-the period has ended or the‘pu‘
has been accomplished (CIVIL ’V’C‘QDE, ~
1785). ’ ’
» Dissolution
Anyone of the partners may dictate dissolution of the
partnership at will but he must act in good faith (DE
LEON, supra at 90).
There is no such thing as an indissoluble partnership
(Id.at 90). ‘ Note: The warranty referred to includes that c
Note: Presence of bad faith can still cause
dissolution but results in liability for damages to other
partners (Id.at 90).
Obligations of Partners among Themselves
A. Obligation With Respect to Contribution of
Property (CoW-DADI)
‘1. To Qntribute what had been promised (CIVIL
CODE, An‘. 1786);
Reason: The mutual contribution to a common
fund is the essence of partnership, for without the
contributions the partnership is useless (DE
LEON, supra at 93).
406 I 2018 SAN BEDA CENTRALIZED BAR OPERATIONS
MEMérzsv ASD ac
The money or property contributed becomes the
property of the partnership. Hence, it cannot bi
withdrawn or disposed of by the contributing
partner without the consent or approval of th(
partnership or other partners (Id.).
When specific and determinate things had beer
contributed, the contributing partner is bound t<
warrant the things against eviction; but, warrant:
is not applicable where the contribution of the
partner (industrial) is personal services. However
he is liable for damages if he refuses or neglect:
to render the services without valid justification
(PINEDA, supra at p. 53).
He cannot, however, be compelled to render hi:
personal service by specific performanrx
because that is tantamount to involuntan
servitude (Id.)
Effect of Failure to Contribute Property
;sed: The failure to contribute is to make thr
”absence of demand. In case of failure, the
{remedy is not rescission but an action for specifir
performance with damages and interest (Sanchr
i“zarr'aga, GR No. L-33580, February 6
. ,pever, if the defaulting partner i:
suprw ‘ ,dy déad: rescission may prosper (Pabalan v
RNQ L~5953, February 24, 1912).
ra t specific and determinate propert:
cofitrTbijted to the partnership in case of evictior
(CIVIL‘LCODE, Art. 1786);
Reason: The obligation of warranty agains
’_.eyiction is the necessary consequence of thr
mature of the partnership which is an onerou:
- . contract (PINEDA, supra at 53).
Remedy for Breach: The partnership maj
recover the proper indemnity from thi
contributing partner (Id. at 54).
against hidden defects; the contribution to thi
partnership is an onerous contract of alienation
and the provisions of the law on sales, so far a:
pertinent, should be applied (5 TOLENTINC
supra at 331).
Warranty is not applicable where the contribution
of the partner (industrial) is personal services
However, he is liable for damages if he refuses o
neglects to render the services without valii
justification. He cannot, however, be compelled ti
render his personal services by specrfu
performance because that is tantamount tr
involuntary servitude (PINEDA, supra at 53)
 PARTNERSHIP,AGENCY s TRUSTS
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Enforceability of Warranty
The warranty cannot be enforced until a final
judgment has been rendered whereby the
vendee losses the thing acquired or part thereof
(CIVIL CODE, Art. 1557).
'The partners shall not be obliged to make good
the proper warranty, unless he is summoned in
the suit for eviction at the instance of the vendee
(PINEDA, supra at 53).
To Qeliver the fruits of the propertyfrom the time
they should have been delivered, without the
need of any demand (CIVIL CODE, Art. 1786);
Note: No demand is necessary to put the partner
in default (Id at 95).
a. If property has been promised, the fruits thereof
should also be given. The fruits referred to are
those arising from the time they should have been
delivered, without need of any den; ‘ “t
PARAS, supra at 629). ’ J «$331 (PINEDA, supra at 55).
- if the partner is in bad 'faith, he'is liableinotpniy
for the fruits actually produced, but also for‘lthosé
that could have been produced '(5gPARAS,"'SUpra' ’
at 629). _ ,
b. If money has been promisediinte‘iest and
damages from the time he shouldgffgve éompiied
with his obligation should be givenfiyv ,
Art. 1788). Here, again, no demand%sxne
put the partner in default (5 PARAjS, su
629). - ' Afterth’e appraisal, the partnership bears the risk
If what is promised is only the “use” '0 Qspecif‘
thing which does not include its ownershipgthe
contributing partner must still warrant thawing»
against eviction. The situation is akin to a “lease”
agreement (PINEDA, supra at. 54).
if what is contributed is credit, the contributing
partner will only warrant its existence but not the
solvency of the debtor unless there is contrary
stipulation (Id.).
Remedy For Breach Of Warranty
The partnership may recover the proper
indemnity from the contributing partner. If the
partnership would not have been constituted had
it not been for the property contributed, the other
partners may seek the dissolution of the firm (Id.).
When contribution is in goods, the amount thereof
must be determined by proper Appraisal of the
value thereof at the time of contribution (CIVIL
CODE, Art. 1787); _ -
Reason: To determine how much has been
contributed (5 PARAS, supra at 630).
Manner of Appraisal:
a. That which is prescribed by the contract; or
b. In the absence of stipulation, by experts
' chosen by the partners according to current
prices (DE LEON, supra at 97).
Necessity of Inventory-Appraisal
Proof is needed to determine how much goods or
money had been contributed. An inventory is
therefore useful (Tablazon v. Bollozos, CA, 51
O.G. 1966)
Risk of Loss
After goods have been contributed, the
partnership bears the risks of subsequent
changes in their value (CIVIL CODE, Art. 1787).
_ Any subsequent increase or decrease in value of
operty contributed will be for the account of
ropei‘ty sUbject to appraisal
; tnz‘casé of i’r’nmovable property, the appraisal is
‘ Q. in theinventory of said property (see Arts.
V, 1795); otherwise, it may be made as
”ded :g‘n Article 1787. There is no reason why
, Ieiiji Article 1787 should not also apply with
ectftovjother kinds of property (DE LEON,
t: .7)
‘ EffectilrSf Appraisal
jg‘orlgets the benefit of subsequent'changes in its
,v‘aiuekfld.)
Note: in case of immovable property, appraisal is
u made in the inventory of said property (Id.).
5. To preseNe the property with the Qiligence of a
good father of a family pending delivery to the
partnership (CIVIL CODE, Art. 1163); and
6. To indemnify for any interest and damages
caused by the retention of the property or by
delay in its obligation to contribute a sum of
money (CIVIL CODE, Arts. 1788 & 1170).
Note: The guilty partner is liable from the time he
should have complied with his obligation (DE
LEON, supra at 97). Even if no actual injury
results, the liability exists because Art. 1788 is
absolute (5 PARAS, supra at 632).
2018 SAN BEDA CENTRALIZED BAR OPERATlONS | 407
 PARTNERSHIP, AGENCY 8r TRUSTS
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B. Obligations with Respect to Contribution of
Money and Money Converted to Personal Use
(CRIP)
1. To _C_ontribute on the date due the amount
promised to be given (CIVIL CODE, Art. 1786)
Note: Liability arises from the commencement of
partnership, that is, upon perfection of the
contract, unless otherwise stipulated (DE LEON,
supra at 98).
2. To fleimburse any amount he may have taken
from the partnership coffers and converted to his
own personal use (CIVIL CODE, Art. 1788);
3. To indemnify the partnership for the damages
caused to it by the delay in the contribution (CIVIL
CODE,.Art. 1788); and
4. To Bay the agreed or legal interest, if he fails to
pay in due time (CIVIL CODE, An‘. 1788).
Sanctions
The sanctions are:
1. The partner becomes a debtgrépf the fin’iififgr the, .
interest and damages from the time ofhjs failurej
to contribute, or from the time ofzcon‘i/e'rs“ n, ’as‘
the case may be; and g5 - ‘*’
2. The payment of 12% interesti'as gthqe“ aw
contemplates interest on a forbearance of one
(PINEDA, supra at 56). > U' 3 ‘11.
Coverage of Liability ;
Liability covers also interest and damag s:
-
1. Interest at the agreed rate; if non, at t. e le
of 6% per annum; ' benefit without the permission of the firn
2. Damages that may be suffered by the .
(5 PARAS, supra at 631). ' b
Double ReSponsibility ~ ‘
This double responsibility (interest and damages)§cif
a partner is in harmony with the principle that every
partner is responsible to the partnership for damages
suffered by it through his fault and is justified by the
nature of the contract of partnership. This double
responsibility of the partner is an exception to the
general rule in damages that in obligations consisting
in the payment of a sum of money, the indemnity for
damages shall be only the payment of interest agreed
upon or, in the absence of a stipulation, the legal
interest as stated in Art. 2209 of the Civil Code (DE
LEON, supra at 98).
C. Obligation Not to Engage in Other Business
for Himself
1. Industrial partner — contributes his industry or
labor. The partnership therefore becomes the owner
of such services. The partnership will be prejudiced if
the industrial partner will be allowed to engage in
separate business for himself as there will be
408 l 2018 SAN BEDA CENTRALIZED BAR OPERATIONS
dimunition of his time needed in the rendition of hi
services (PINEDA, supra at. 58).
Industrial partner cannot engage in any business fc
himself unless the partnership expressly permits hir
to do so. The other partners have the remedy of eithe
excluding the erring partner from the firm or c
availing themselves of the benefits which he ma
have obtained (CIVIL CODE, Art. 1789).
2. Capitalist partner ~ the prohibition extends only t
any operation which is of the same or similar kind c
business in which the partnership is engaged, unles
there is a stipulation to the contrary (CIVIL CODE
Art. 1808). The test is the possibility of unfal
competition.
1. Business Prohibition On Industria
Partners
Note: The permission given must be express
hence, mere toleration by the partnership will nc
“ {erupt the industrial partner for liability (DI
b supra at 101).
" 1' 'An‘action for. specific performance to compel thl
partner to perform the promised work is no
available as a remedy because this will amount tr
ntary servitude, which as a rule is prohibiter
constitution (CONST. Art. III, Sec. 18, Par
To prevent the industrial partner fron
exfloiting his services ,for his own persona
(PINEDA, supra at 58).
{To prevent conflict of interest and to ensure
”compliance by said partner with his
prestation (DE LEON, supra at 100).
NatUre of the prohibition
In the absence of any permission. the prohibitior
is absolute. it covers all kinds of business outside
of the partnership even if the firm is engaged only
in one trade, otherwise, the firm will be prejudicec
as the industrial partner will be using his time anc
expertise which are intended exclusively for the
firm (Limuco v. Ca/inao (CA), GR. No. 10099-R.
September 30, 1953).
2. Business'Prohibition On Capitalist Partners
The capitalist partners cannot engage for their owr
account in any operation which is of the kind 01
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 transaction, and shall personally bear all the
losses (CIVIL CODE, An‘. 1808).
 PARTNERSHIP, AGENCY a TRUSTS
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Prohibition Against Partner Engaging In
Business
Prohibition relative: The prohibition against the
capitalist partner to engage in business is relative,
unlike the industrial partner who is absolutely
prohibited from engaging in any business for himself
(DE LEON, supra at 144).
The law aims to prevent a partner from availing
himself personally of information obtained by him in
the course of the transactions of the partnership
business or by reason of his connection with the firm
regarding the business secrets and A partner
occupies a fiduciary position with respect to his co-
partners imposing duties of utmost good faith and he
‘ may not carry on any other business in rivalry with the
business of the partnership whether in his own name
or for the account of another at the expense of the
partnership (DE LEON, supra at 144).
The violator can be ousted from the firm on. the
ground of loss of trust and confidence. This: ’ ’ W
course result in the dissolution bathe firm (5
supra at 662). ' ' .
Although Art. 1789 mentions only the capitalist
partners, the industrial partners are also entitledftd‘
the remedy since they are equally prejudiced fipythg
act of their co—partner engaging inribusrhesswoi 7
himself (DE LEON, supra at 101).
D. Obligation to Contribute Capitala
Additional Capital ; «
1. Contribution to Partnership Capital ' t,
General Rule: The partners shalt; cont
equal shares(C/VIL CODE, Art. 1790);
Exceptions:
a. When there is a stipulation to the Loon rat‘s?»
(CIVIL CODE, Art. 1790); ,
b. industrial partners - This rule only applies t
capitalist partners (PINEDA, supra at 59),
unless besides his services, he has
contributed capital pursuant to an agreement.
to that effect.
Applicability
The article applies only to capitalist partners (Id.).
2. Contribution of Additional Capital
General Rule: A partner is not bound to
contribute additional capital (CIVIL CODE, Art.
1791).
Exceptions:
a. When there is an agreement to the contrary;
and
b. In case of an imminent loss of the business,
and there is no agreement to the contrary,
capitalist partners are under the obligation to
contribute an additional share to save the
venture. If he refuses to contribute, he shall
be obliged to sell his interest in the
partnership to other partners (CIVIL CODE,
Art. 1791).
Reason: The refusal of the partner to contribute his
additional share reflects his lack of interest in the
continuance of the partnership (DE LEON, supra at
102).
Requisites: (RIMA)
a. Capitalist partner Refuses deliberately (not
due to financial difficulty) to contribute;
b. There is imminent loss to be suffered by the
business;
0. Majority of thecapitalist partners are of the
opinion that an additional contribution would save
the business; and
d. There is no Agreement that even in case of
an imminent loss of the business the partners are
obliged to contribute (Id.).
Note An industrial partner is exempted as he is
“already giving his entire industry. Having
contributédfihis entire industry, he can do nothing
‘_r (Id
I?
eneral Rgile: Where a person is separately
'ridebtédtd'the partnership and to the managing
* partner at fittesame time, any sum received by the
,attet, shaliibe applied to the two credits in proportion
tugstgheir, ainoums even though he may have given a
.orirec,eiptjifor> his own credit only (CIVIL CODE, Art.
179 ‘nhis is an instance of application of payment
:i « 252, Civil Code).
Exceptions:
b. Where he received it entirely for the account of
the partnership, in which case the whole sum
shall be applied to the partnership credit only;
and -
c. If the collecting partner is not a managing
partner. There is no basis for the suspicion that
the " partner is in bad faith
(5 PARAS, supra 638).
The debtor is given the right to prefer payment of the
credit of the partner only if it should be more onerous
to him (CIVIL CODE, Art. 1792; DE LEON, supra at
104).
Requisites for Application of Rule: (T-DAm)
1. There exists at least Iwo debts, one due to
partnership and one due to the managing partner;
2. Both debts are Qemandable; and
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 PARTNERSHIP. AGENCY 8: TRUSTS
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3. The partner who collects is Authorized to manage
and actually manages the partnership (DE LEON,
supra at 103).
Reason: To protect the interest of the partnership
from being subordinated by the managing partner's
own interest(ld. at 104).
Illustration: A and B are partners in X and Co., with
A as the managing partner. 0 is indebted in the sum
of P2,000 and is also indebted to the partnership in
the sum of P4,000. Both debts are demandable. A
collects the amount of P1,500 from C.
if A issues a receipt to the effect that it is irt‘payment
of his (A's) credit, P500 will be applied only to his
credit, the partnership being entitled to a
proportionate amount of P1 ,000 in the payment made
by C. But if A gives a receipt for the account of the
partnership credit, the amount of P1,500 will be fully
applied to the latter (Id. at 103)
F- Obligation of Partner whofiecei
.. _
ves
Partnership Credit
Such partner is obliged, if the debtor should become ' ’ ., 1540)}
insolvent, to bring to the partnershipcapital‘iwhat he
received even though he may have given receipt for
his share only (CIVIL CODE, Art. 1793). i wg‘does, not specify as to when profits may be
Requisites: (RIC) . mstafnces of the particular case (DE LEON
1. A partner has Beceived, in whol,"
share of a partnership credit; ,
2. The partnership debtor has become _
and ii:
3. The other partners have not Collecte ,
shares (DE LEON, supra at 105).
partnership and the return to each principal of wha
he contributed, the community of interest betweei
them disappears altogether (Manresa and Ricci, a
cited in DE LEON, supra at 106).
G. Obligation of Partner for Damages ti
Partnership
Every partner is responsible to the partnership fc
damages suffered by it through his fault and hi
cannot compensate them with the profits and benefit
which he may have earned for the partnership by hi
industry (CIVIL CODE, Art. 1794).
However, the courts may equitably lessen thh
responsibility if through the partner’s extraordinar
efforts in other activities of the partnership, unusue
profits have been realized (CIVIL CODE, Art. 1794).
Need for Liquidation
Before a partner sues another for alleged fraudulen
management and resultant damages, a liquidatior
st be effected to know the extent of th(
damage “’Soncuya v- De Luna, GR. No. L—4546‘4
April 28, 1939, as cited in 5 PARAS, supra at 639
flqusual Profits
d, “unusual.” The question depends upor
108).
\“ Mitigation Of Liability When Allowed
The liability'of the faulting partner may be mitigated i
:gfithrOUgh his extraordinary efforts in other activities 0
his partnership, unusual profits have been realizet

Reason: When a debtor becomes insolventithegebt m, ,

in favor of the partnership becomes a bad debt a’nd‘zisrm *‘f‘f‘fii'ibuty to Render Information
a loss which must be borne by all the partners»'(5 Partners shall render on demand true and ful
TOLENT/NO, supra at 335). information of all things affecting the partnership tc
any partner or the legal representative of an)
Art. 1792 Art. 1793 deceased partner of any partner under legal disability
As to Number of Credits (CIVIL CODE, Art. 1806).
Two distinct credits — Even without demand, honesty demands the giving
one in favor of the of vital information; the refraining from all kinds of
Only one credit — in favor
partnership and another concealment (5 PARAS, supra at 655).
of the partnership
in favor of the managing
‘partner Note: The duty to give information is distinct from the
As to Applicability . . duty to account under Art. 1807 (Id. at 656).
Applies whether the
Applies if the partner is a I. Obligation to Account for Any Benefit and Hold
partner is authorized to
managing partner as Trustee Unauthorized Personal Profits
manage or not
Eve‘ry partner must account to the partnership for any
(DE LEON, supra at 105).
benefit, and hold as trustee for it any profits derived
by him without the consent of the other partners from
Credit Collected After Dissolution
any transaction connected with the formation,
The collecting partner need not bring the same to the conduct, or liquidation of the partnership. or from any
partnership capital. Art. 1793 presupposes that there use by him of its property (CIVIL CODE, Art. 1807).
exists a partnership capital. Upon dissolution of the

410 l 2018 SAN BEDA CENTRALIZED BAR OPERATIONS

 PARTNERSHIP, AGENCY 8: TRUSTS
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General Rule: The partner cannot use or apply
exclusively to his own benefit partnership assets or
results of the knowledge or information gained by him
as a partner to the detriment of the partnership (DE
LEON, ‘supra at 136).
Exception: If the taking by the partner is with the
consent of all the other partners (Lim Tanhu v.
Rama/ere, GR. No. L-40098, August 29, 1975).
The duty to account continues until the partnership
relation is teminated, Le. the winding up of
partnership affairs is completed (CIVIL CODE, Art.
1829; DE LEON, supra at 136).
The words “and hold as trustee" in Art. 1787 indicate
that the partnership can claim as its own any property
or money that can be traced. Thus, should the partner
be insolvent, the partnership claim against him is a
claim to specific property. in this case, the
partnership is not regarded as an ordinary creditor
(Id. at 134).'
Risk of Loss of Things Contributed
1. Specific and determinate things which arenot
fungible; only the usufruct is contributed—4Tb '
risk of loss is borne by the partner be¢auséjpe
remains the owner of the thingS; , A A:
2. Specific and determinate f ' , g
ownership of which is trans wired; t” :he
partnership— The risk of loss is.f8§jthe§accdunt
of the partnership, being the owner, “' '
3. - Fungible things — The risk of loss i <
partnership since use is impossible‘f‘with
things being consumed or impaired; ‘:i:4 .. .
4. Things Contributed to be sold ‘- ‘T
partnership bears risk of loss for there cannot b‘
any doubt that the partnership was intended to b
the owner; and U
5. Things brought and appraised in the
inventory — The partnership bears the risk of loss
because the intention of the parties was to
contribute to the partnership the price of the
things contributed with an appraisal in the
inventory. There is thus an implied sale(CIV/L
CODE, Art. 1795; DE LEON, supra at 108-109).
Note: The above presupposes that the things
contributed have been delivered actually or
constructively to the partnership. Before the delivery,
the risk of loss is borne by the partner (Id. at 109).
Responsibility of the Partnership to Partners
(ROR)
1. To Befund amounts disbursed by the partner in
behalf of the partnership plus the corresponding
interest from the time the expenses are made.
This refers to loans and advances made by the
partner other than capital.
Ala 2018
2. To answer for the ligations that the partner
may have contracted in good faith in the interest
of the partnership business
3. To answer for Bisks in consequence of
management (CIVIL CODE, Art. 1796).
Note: The partner is not personally liable, provided
however that he is free from all fault, and he acted
within the scope of his authority(DE LEON, supra at
1 10).
In the absence of an agreement tothe’ contrary, no
partner is entitled to compensation for his services to
the partnership without the consent of all the partners
unless it can be implied from the circumstances that
the parties intended a partner to receive additional
compensation where the partner‘s work was beyond
normal partnership function (Id. ).
The paying partner cannot exercise the right of
retention if he is not reimbursed because, unlike an
dine gent, a paying partner is not given the
k retainthe thing which are the objects of.
_,pénnershrp (PINEDA, supra at 69).
’ "
Rules far Distribution of Profits and Losses
" ' " "fbutig’n of Profits
here is an agreement —
, , enegal Rule: The partners shall share in the
‘rofitg‘and losses in accordance with the
erm<3 thereof (but not iniquitously to defeat
‘ ‘EArf.j~§797) subject to Art. 1799. However, they
cannot stipulate that one or more partners
.2 shaii be excluded from the profits and losses
$334125 (Art. 1691).
, ‘X'gii'kéeason: The firm is constituted for the
.555; r; partners’ common benefit.
Exception: An industrial partner, by express
provision of Article 1797, is exempted from
losses.
b. If there is no agreement —
i. Share of capitalist partner shall be in
proportion to his capital contribution
ii. Industrial partner shall receive such
share, which must be satisfied first before
the capitalist partners shall divide the
profits, as may be just and equitable
under the circumstances (CIVIL CODE,
Art. 1797).
c. If the industrial partner also contributed
money or property, he is considered a
“double contributor” or a “capitalist industrial
partner." As far as his contribution of capital
is concerned, he shall, in addition, also
receive share in the profits in proportion 'to
2018 SAN BEDA CENTRALIZED BAR OPERATIONS I 411
 PARTNERSHIP, AGEcs TRUSTSSAN secs MEMéRv A?
the amount of the capital he had contributed
to the firm (PINEDA, supra at 71).
Note: A partner is entitled to receive only his share of
the profits actually realized by the venture(Moran, Jr.
v. CA, GR. No. L-59956, October 31, 1984).
Non-applicability to Strangers
Article 1797 applies only to the partners, not when
liability in favor of strangers are concerned,
particularly with reference to the industrial partner Cia
Maritima v. Munoz, 9 Phil. 326).
2. Distribution of losses ‘ General Rule: The designation in the share of th
a. According to agreement subject to Art. 1799;
b. if none, based on their profit sharing
agreement; and
c. No profit sharing agreement, in proportion to
his capital contribution (CIVIL CODE, Art.
1797). - unreasonable.
Stipulation Excluding a Partner from anySh
Profits or Losses ’. g, * _ ,
General Rule: A stipulation excluding a partner from .
any share in the profits or losses is void (CIVIL'
CODE, Art. 1799). Note that only the stipulation is ‘
void but the partnership ‘subsists and' the
profits/losses shall be apportioned as if there was ,no
stipulation on the same. - nation of losses and profits cannot be
Note: ' ,.
Liability — responsibility towards third p’erso
Losses — reSponsibility as among partners.
Exception: Art. 1797 _Par.2exc|udes an 'industria
partner from losses, but he is not exempted from
liability insofar as third persons are concerned.
may, however. recover what he has given ‘to;.tljird
persons from the other partners, for he is exemptEd-‘Z 1‘?
by law from losses (CIVIL CODE, Art. 1817).
Reason Why IndUStrial Partner is Generally
Exempted From Losses: While capitalist partners
can withdraw their capital, the industrial partner
cannot withdraw any labor or industry he had already
exerted. Moreover, in a certain sense, he already has
shared in the losses in that, if the partnership shows
no profit, this means that he has labored in vain (5
PARAS, supra at 644).
Note: The exemption of the industrial partner to pay
losses (relates exclusively to the settlement of the
partnership affairs among the partners themselves
and has nothing to do with the liabilities of the
partners to third persons. (DE LEON, supra at 175).
Problem: A and J are partners, the former being an
industrial partner. During the first year of operation,
the firm made a profit of P20,000. In the second year
of operation, a loss of P10,000 was sustained.
412 l 2018 SAN BEDA CENTRALIZED BAR OPERATlONS
Should the agreement state that A would get ‘/2 of th
profits, how much is he entitled to receive?
Answer: P5,000. Take note that the net profit for th
two years is only P10,000. While it is true that a
industrial partner does not share in the losses, thi
only means that he will not share in the net losses.
is understood that he shares in the losses insofar a
these can be accommodated in the profits (5 PARAE
supra at 641).
Designation by a Third Person of Share in Profit:
and Losses
profits and losses may be delegated to a third perSOI
by common consent; such delegation is generall
binding.
Exception: When manifestly inequitable o
to the exception:
the partner has begun to execute thi
decision of a third person, or
'2.) who has not impugned the same within a perior
of "three (3) months from the time he hat
" ledge thereof, complain of such decision.
t ne of the partners (CIVIL CODE, Art
Reason: ltfis necessary in order to guarantee the
utmost impartiality in the distribution of shares in the
ftprofits and losses (11 Manresa 375).
. ‘Nlanagetnent of Partnership
tWhen the Manner of Management Has Beer
Provided For in the Partnership Agreement
A. When a Managing Partner Has Been
Appointed .
1. In the Articles of Partnership (CIVIL CODE, Art
1800).
General Rule: Power is irrevocable without jus1
or lawful cause
Exceptions:
a. To remove him forjust cause, vote of partners
having controlling interest is necessary
b. To remove him withoutjust cause or for unjust
cause, there must be unanimity including his
own vote (CIVIL CODE, Art. 1800).
. Reason for (b): This represents a change in
the will of the parties, or novation of their
contract, requiring unanimity (11 Manresa
380).
 p
PARTNERSHIP. AGENCY 8: TRUSTS
SAN BEDA
Extent of Power:
a. If he acts in good faith, he may perform all
acts of administration, despite opposition of
his partners; ' PARA 8, supra at 647-648).
b. if in bad faith, he cannot.
The power of the managing partner
appointed in the Articles of Partnership is
generally irrevocable. it can be revoked only:
1. upon showing of just and lawful cause
(CIVIL CODE, Articles 1800 and 1920); and
2. upon the vote of the partners representing
the controlling interest (CIVIL CODE, Art.
1800). '
* 2. After the Constitution of the Partnership
Power to act may be revoked at any time for
any cause whatsoever (CIVIL CODE,
Art1800).
Reason: Such appointment is ,a;
delegation of power, not Tounded on 5
of will on the part of ~‘the~ partners, the. , ,
appointment not being a’bonditionflofftheé ‘
contract. It is merely a simple Contractiot -
agency, which may be revoke’fd'at anytime?“
Removal, however, should also’flgge done byjtlle
partners having the controlli ”a inteées’t (DE
LEON, supra at 119). it ‘13
WM
Extent of Power: As long The
manager, he can perform in
administration, but if others opp‘ése a
persists, he can be removeéIITai
Chuache & Co. v. Insurance Corri‘mis ion, 6;
No. L-55397 February 29, 1988).
Note: The partner generally is not enti ta
compensation, other than his share in the)
profits. Although in proper cases, the law may
imply a contract for compensation (DE LEON,
supra at 121).
B. When 2 or More Managing Partners Have Been
Entrusted With the Management (CIVIL CODE, Art.
1801)
1. Without specification of their respective
duties and without stipulation that one of
them shall not act without the consent of all the
others:
General Rule: Each one may execute all acts
of administration
Exceptions: lf ANY such partner should
oppose,
a. Decision of the majority (per head) of the
managing partners shall prevail; or
b. In case of a'tie, decision of the partners
havingthe controlling interest (holds more
MEMéQV Aiifi 2618
than 50% of capital investment) shall
prevail, provided that they are also
managers (CIVIL CODE, Art. 1801; 5
Requisites:
a. Two or more partners have been
appointed as managers;
b. There is no specification of their
respective duties; and
c. There is no stipulation that one of them
shall not act without the consent of all the
others (DE LEON, supra at 125).
Note: The right to oppose is not given to non-
managers because in appointing their other
partners as managers, they have stripped
themselves of all participation in the
administration (5 PARAS, supra at 648).
Note: The other managers should make the
cpppsition before the acts produce legal
acts insofar as third persons are concerned
(Id).
"Reason: For them to delay or for them to
btest after third parties are affected would be
fair to Said parties. Moreover, the acts of the
would be unstable (11 Manresa 387).
. ecojiC'ilable Deadlock
n casebr an irreconcilable deadlock, those
, 3}t 'sioté against the contract shall prevail, the
{same having been entered into without
» authority (DE LEON, at 126).
‘ 2.Wi_ttzt,'Stipulation Requiring Unanimity of
:1 SAction
General Rule: Unanimous consent of all the
“managing partners (even if one of the managers is
absent or incapacitated) shall be necessary for the
validity of the acts and absence or disability of any
managing partner cannot be alleged (CIVIL CODE,
Art. 1802).
Exception: When there is an imminent danger of
grave or irreparable injury to the partnership (CIVIL
CODE, Art. 1802). ‘
Applicability; Joint Management
The article applies only if there is a stipulation that
none of the managing partners shall act without the
consent of the others. In other words, unanimity is
required in the execution of the intended act of a
managing partner. Only managing partners are
supposed to concur. There is, therefore, a joint
management (PINEDA, supra at 81).
2018 SAN BEDA CENTRALIZED BAR OPERATIONS | 413
 PARTNERSHIP. AGENCY a TRUSTS
SAN BEDA MEMéaY Ail} ems
General Authority of Managing Partner
A third person may, and has the right to, presume
that the managing partners with whom he contracts
has, in the ordinary and usual course of business,
the consent of his co—partner for otherwise he
would not enter into the contract (Goquiolay v.
Washington Sycip, et aI., GR. No. L-11840, July
26, 1960).
Reason: To protect a third person who contracts
with one of the managing partners from fraud or
deceit.
Note: The requirement of written authority refers
evidently to formal and unusual written ”contracts,
such as ordinary purchases and sales for a firm
engaged in the buying and selling merchandise of
all kinds, which naturally come within the scope of
the general authority of the manager of a business
(5 TOLENTINO, supra at 342).
Absence 0r Disability Of A Managing Part r
Even if a manager is absent or incapacitate
rule is still one of unanimity on the part of all the . , the propérty, it would seem that the consent of th
managers. The absence or incapacity of a manager
is no excuse except only when there is imminent '
danger of grave or irreparable injury to the firm‘
(PINEDA, supra at 81). , ‘
ll. When Manner of Management HasNo-l- Been
f; , .
Agreed Upon
A. All partners shall be considerediagen
whatever any one of them may do alone binds
the partnership subject to Art. 1801 (Cliff!
CODE, Art. 1803, Par. 1).
This is true regardless of the amountbf their
capital contributions or extent of their servicestd
the partnership (DE LEON, supra at 129).
B. Unanimous consent is required for any
important alteration of immovable property,
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 (CIVIL CODE, Art. 1803, Par. 3).
The consent need “not be express. It may be
presumed from the fact of knowledge of the alteration
without interposing any objection (DE LEON, supra at
130). ’ Art. 1796);
Reason: In comparison with personalty, immovable
property is of greater importance. In a proper case,
immovables should be returned to partners in the
same condition as when they are delivered to the
partnership (5 PARAS, supra at 652). Any important
414 [2018 SAN BEDA CENTRALIZED BAR OPERATIONS
alteration in the immovable property of th
partnership is an act of strict dominion.
“Alteration" contemplates ruseful expenses, nt
necessary ones. (DE LEON, supra at 130).
In case of conflict, the rules provided by Art. 180
shall govern.
Any important alteration in the immovable property (
the partnership is an act of strict dominion. Hence
even the managing partner cannot make suc
alteration, notwithstanding that it is useful to th
partnership, without the consent of all the partner
(Id.).
If the refusal to give consent by the other partner i
manifestly prejudicial to the. interest of th
partnership, the intervention of the court may b
sought for authority to make the necessary alteratio
(Id)
:6 ration is necessary for the preservation c
’ ,i other partners is, not required (Id. )
‘ ct of sub-Partnership
ner‘3may associate another person with hir
refifmt the associate shall not be admitte
a‘rtnesrship without the consent of all th
artnéts, even if the partner having a
te._sl;iould be a manager (CIVIL CODE, Ar
1304),."
tflfiights ot‘ia Partner: (PRA3ID)
1,.fi’Eroperty Rights of a Partner (CIVIL CODE, Ar
“ .1810) (SIM); .
- _, ..»af,"‘_:§pecific Partnership Property
’ " ‘ ” Illustration: A and J each contributed a ca
‘ 32%; «
to the partnership. The two cars are specifi
partnership property.
b. Interest in the Partnership
Illustration: The partner’s share of the profit
and losses (without mentioning any specifi
property)
0. Management Participation
2. Right to Reimbursement for amounts advance:
to the partnership and to indemnification for risk:
in consequence of management (CIVIL CODE
3. Right to Associate with another person in his
share (CIVIL CODE, Art. 1804);
4. Right of Access and inspection of partnershi|
books;
Note: The partnership books shall be kept
subject to the agreement between the partners
 PARTNERSHIP, AGENCY 8r TRUSTS
SAN BEDA MEMéRY
at the principal place of business _of the
partnership, and every partner may inspect and
copy them at any reasonable hour (CIVIL CODE,
Art. 1805).
Person In Charge Of Keeping Partnership Books
The duty and obligation to keep true and correct
partnership books showing the partnership account
primarily rest on the managing or active partner. The
partners are presumed to know the contents of the
books and it is further presumed that the books
accurately state the partnership account (PINEDA,
supra at 87).
Each partner has a right to free access to them and
to inspect or copy as he sees fit any of them at any
reasonable time, even after dissolution. A partner is
a co-owner of the partnership properties, which
include the books of the partnership, and has a right
to participate equally in the management of its affairs.
They should not, therefore, be in the exclusive:
custody or control of any one partner , and s;
be removed from the principal‘place of bu,
the partnership without the conseritofsall the’ partners
(DE LEON, supra at 133-134). , =~ _ - 76.
Access to Books Must Be At Reasqnéble’l-Iou’rs
“Reasonable Hours” means reasonable hours; on
business days throughout the year Qaiéid not mérély
during some arbitrary period of a fewdéys clips'en by
the managing partners (Pardo v. HeriuleséLun'iber
Co. and Ferrer, GR. No. L-22442, Au "t 1 ’ ‘ 4 ‘
5. Right to a formal Account of partnership"'a;ffairs, _
under certain circumstances (CIVIL @005 It?
1809) (WAPO); " Gottlieb,,:;7 93 N. Y. S. 418).
a. If he is flrongfully excluded-from the»-
partnership business or possesSidnirjof its
property by his co-partners;
b. If the right exists under the terms of any
Agreement;
c. If a partner has derived _P_rofits from any
transaction connected with the formation,
conduct, or liquidation of the partnership or
from any use by him of its property as
provided for by Art. 1807;0r
d. Whenever cer circumstances render it
just and reasonable (e.g. if a partner has
been assigned abroad for a long period of
time in connection with partnership
business).
Note: As long as the partnership exists, any of the
partners may demand an accounting of the
partnership business. Prescription of the said right
starts to run only upon the dissolution of the
partnership when the final accounting is done
(Emnace v. CA, GR. No. 126334, November 23,
2001).
AND 2018
General Rule: No formal 'accounting is
demandable until after dissolution.
Reason: After all, there is access to the books.
Exceptions:
1. In No. 1: so that he may have access to the
books '
2. In No. 2: there is no express stipulation;
3. In No. 3: It is unfair if other partners can take
undue advantage of partnership funds or
partnership transaction (see Art. 1807).
4. In No. 4: as when one partner has been
travelling for a long period of time on a
business involving the firm.
Prescriptive Period
The right to demand an accounting exists as long
as the partnership exists. The period of prescription
shall begin to run only upon the dissolution of the
partnership when the final accounting is done (Dan
’ ung v. IAC, GR. No. 70926, January 31,
Right to demand true and full Information of all
things affecting the partnership (CIVIL CODE,
‘ Art 1806); and
,le True And Full Information
r,is§under duty, of voluntary disclosure of
fact? even without demand (Id.).
:Gdod faith not only requires that a partner should not
make'any false concealment to his partner, but also
{Sgthat'he should abstain from all concealment (Poss v.
[\IVhoi‘Cfan Demand Information
a ‘Any partner;
5.- Legal representative of a dead partner;
0. Legal representative of any partner under legal
disability (5 PARAS, supra at 656). -
Note: The duty to give information is distinct from the
duty to account under Article 1807 (Id.).
7. Right to have partnership Qissolved under certain
conditions.
Property Rights of a Partner (SIP) (CIVIL CODE,
Art. 1810).
1. Right to _S_pecific property
2. Interest in the partnership
3. Right to Participate in the management
These constitute property being susceptible of
appropriation or exercise by the owner. These are
also referred to as principal rights (PINEDA, supra at
101).,
2018 SAN BEDA CENTRALIZED BAR OPERATIONS I 415
 PARTNERSHIP, AGENCY 8: TRUSTS
SAN BEDA
1. Right to §pecific Property (CIVIL CODE, Art.
181 1)
a. Contemplates tangible property;
b. The specific partnership property belongs to
the partnership. The partners have no actual
interest in it until after dissolution; and
c. The right over a specific partnership property
is not subject to attachment or execution
except if it is based on a claim against the
partnership itself (DE LEON, supra at 153).
A partner is co-owner with his partners of
specific partnership property (Id.).
Non-Principal Rights Of A Partner " all partnership properties applied directly to thr
The principal rights of a partner are the three rights
indicated in Article 1810. A partner has other rights
(no—principal) granted in other provisions of the la on
partnership such as the following:
1. Right to demand reimbursement for amounts he
advanced to the partnership and to indemnify for
the burdens arising from risks in man an:
(CIVIL CODE, Art. 1796); ’ t "
2. Right to have access and to inspect partnership .
books (CIVIL CODE, Art. 1805);.
3. Right to demand true and full information of all
things affecting the partnership,affairs (CIVIL
CODE, Art. 1806); f;
4. Right to demand a formal accountidf patt,
affairs under the circumstances 1
and
5. Right to dissolve the partnershipvjtmde
condition '(PINEDA, supra at 101). x:
Ownership Of Certain Property .-
1. Property used by the partnership: Where ther
no express agreement the property Used by'
partnership constitutes partnership property,
such use does not make it partnership property?“
and whether it is so or not depends on the
intention of the parties (DE LEON, supra at 151).
To solve the confusion that may arise, the intent
of the parties — whether the property in question
shall belong to the partnership or themselves — is
the controlling factor (Id. at 152).
2. Property acquired by a partner with partnership
funds: Unless a contrary intention appears,
property acquired by a partner in his own name
with partnership funds is presumed to
partnership property (Id.).
Incidents of this co-ownership (CIVIL CODE, Art.
1811): (REAL)
3. Equal flight with other partners to possess
specific partnership property for partnership
purposes;
b. Not subject to attachment or Execution, except
on a claim against the partnership; and
418 l 2018 SAN BEDA CENTRALIZED BAR OPERATIONS
MEMéRV AID E2018
0. Not Assignable, except in connection with th
assignment of rights of all partners in the sam
property;
d. Not subject to Legal support.
Reasons for non-assignability of rights of .
partner:
a. It would effectively allow a third party ti
participate in the affairs of the partnership an<
would basically have a stranger become 2
partner without the consent of all othe
partners;
b. it would interfere with the rights of the othe
partners and the partnership creditors to haw
payment of partnership debts; and
it would indirectly go against the principle the
partner’s right in specific partnership propertj
cannot be attached or leviei
upon(V/LLANUEVA, supra at 574).
39350": The property belongs to the partnershij
a' to the partners. His interest in thr
partnership, however, is subject to legal suppor
- (DE LEON, supra at 158).
" ces When Assignment Of interest it
e’rship Property ls Allowed
-
r'siv’right in a specific partnership property
not assignable. This is different from a
arrest in the partnership which may be
Signed finder certain conditions.
L Thus, in {he’following cases, the partner’s interes
in partnership property is assignable:
‘ 1 When any new partner is admitted in ar
" existing partnership or when any partner retire:
and assigns his rights in partnership property
”I - 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 liquidatior
of the partnership affairs.
2. When all but one partner retire and assign thei
rights in partnership property to the remaining
partner who continues the business withou
liquidation of partnership affairs, either alone 0
with others;
3. When all the partners on their representatives
assign their rights in partnership property tc
one or more third persons who promise to pa)
be the debts and who continue the business of the
dissolves partnership (CIVIL CODE, Art. 1840)
Nature Of Specific Partnership Property
A specific partnership property contemplates a
tangible property such as a building or a parcel 01
land. it down not cover an intangible thing like the
beneficial right to a fishpond (De/uso v. Castiel, 25
SCRA 350).
 PARTNERSHIP, AGENCY a TRUSTS
saw BEDA MEMéav A20 2018
Title under Partnership Name
Any immovable property or an interest therein may
be acquired in the partnership name (CIVIL CODE,
Art. 1774). In relation to Art. 1819 of the Civil Code,
the title so acquired may be conveyed only in the
partnership name.
Partnership Capital v. Partnership Property
. Partnership CapitaI-~ iiPartnershiiafiltering“???
Susceptibilitytochang'eint/aide?‘
Its value is constant. It Its value varies from
is not affected by time to time in
fluctuationsinthevalue accordance with the
of the property. fluctuations in the
market value of the
partnership assets.
It includes only the It includes not only .the
actual ‘ capita|~ original ' capitat
contributed and contributed butgat"
promised to the property subSéfiflémlyt
partnership. acquired on account of
the partnership. , '
(DE LEON, supra at 151).
Note: A partner’s interest in partnership propertyts
assignable under Art. 1840.
interest in the Partnership 3 ,
a. A partner’s interest in the partrie’ir'shi
share of the profits and surplus (CIVIL
Art. 1812). ‘_ - agreement, the profits which the assigning
Profit - excess of returns over expendittjres";
in a transaction or series of transaction; or the"
net income of the partnership for a“ giver},
period of time(DE LEON, supra at 159). " ~
Surplus— assets of the partners after
partnership liabilities are paid and the rights
of the partners among themselves are
adjusted (Id).
Loss — the difference that results when the
liabilities of the partnership are more than the
assets (PINEDA, supra at 107).
While in general, a partner's interest in
specific partnership property cannot be
assigned and attached, and is not subject to
legal support, a partner’s interest in the
partnership (his share in the profits and
surplus) can in general be assigned,
attached, and be subject to legal support (5
PARAS, supra at 667).
b. A partner’s interest is not a debt due from
partnership and therefore, not subject to
attachment or execution on a judgment
recovered against the individual
partner(Northampton Brewery v. Lande, 2A.
2d 553.).
Nature Of The Partner’s Interest in The
Partnership
The partner’s share in the undistributed profits and
surplus constitutes his interest in the partnership.
‘
Effect of Assignment of Partner’s Whole
interest in the Partnership (CIVIL CODE, Art.
1813)
A conveyance by a partner of his whole interest in
the partnership does not of itself dissolve the
partnership.
In the absence of agreement, the assignee
cannot (lRl):
a. interfere in the management or administration;
b. Require information and accounting;
inspect the partnership books (DE LEON,
fire at 161).
Status and Rights Of Assignee
"The assignee does not become a partner in the
' partnership; He is only entitled to the profits to
' he asSigning partner would otherwise be
to (PINEDA, supra at 108).
e;_l§ssignee is Entitled To The Following
I9 ,tS-JIB'ARA)
To, 'rfie’ceive in accordance With their
.. partner would otherwise be entitled;
(b. To Avail himself of the usual remedies
(provided by law in the event of fraud in the
-,. ’management;
" c. To Receive the assignor’s interest in case of
,1 dissolution; and
d. To require an Account of partnership affairs but
only in case the partnership is dissolved,3and
such account shall cover the period from the
date only of the last account agreed to by all
the partners (Id. at 162). '
3. Right to Participate in the Management
In the absence of an agreement to the contrary,
all partners have equal rights in the management
and conduct of partnership business (CIVIL
CODE, An‘. 1803; DE LEON, supra at 178).
Remedies of Separate Judgment Creditor of a
Partner (CIVIL CODE, An. 1814)
1. Application for a “charging order’ after
securing judgment on his credit.
While a separate creditor of a partner cannot attach
or levy upon specific partnership property for the
satisfaction of his credit because partnership assets
are reserved for partnership creditors (CIVIL CODE, '
2018 SAN BEDA CENTRALIZED BAR OPERATIONS l 417
 PARTNERSHIP, AGENCY a TRUSTS
SAN BEDAMEMéRY AID
Art. 1827), he can secure a judgment on his credit
and then apply to the proper court for a “charging
order," subjecting the interest of the debtor partner in
the partnership (CIVIL CODE, Art. 1812) with the
payment of the unsatisfied amount of such judgment
with interest thereon with the least interference with
the partnership business and the rights of the other
partners. By virtue of the charging order, any amount
or portion thereof which the partnership would
otherwise pay to the debtor-partner should instead be
given to the judgment creditor (DE LEON, supra at
163—164).
Payment to Judgment Creditor
By virtue of the charging order, any amount or portion
thereof, which the partnership would othenrvise pay
to, the debtor—partner should instead be given to the
judgment creditor (Id. at 164).
2. Preferential Rights Of Partnership Creditors
Partnership creditors have preference in partnership
assets.
Separate or individual creditorshave preference“),
separate or‘individual properties which arethose not
included in the firm (5 PARAS, supra ‘at 672). ~
3. Appointment of Receiver "- ,1 ,
The court may then or later appoint'eirecéjver :
partner’s share of the profits, and of any; othér‘moijey
due or to fall due to him in respect of the spartine h'
and make all other orders, directions}. ”Coo j:
inquiries which the debtor partner might}: have‘fi‘ 56
or which circumstances of the case may r
(CIVIL CODE, Art. 1814). E: ' “‘
4. Redemption of Interest Charged (CIVIL COD
Art. 1814) (2-2;. j
a. General partnership, may redeem at anywtiifié
before foreclosure or sale is ordered by the
court;
b. General partnership, after foreclosure, may
redeem without causing a dissolution:
i. With separate property of a partner; or
ii. With partnership property, with the consent
of all the partners whose interests are not
so charged or sold (5 PARAS, supra at
668).
c. Limited Partnership
With separate property of any general partner
but not with partnership property (CIVIL CODE, Art.
1862).
5. Exemption Laws
The partner can avail himself of the exemption law
insofar as his specific partnership property is
concerned, because in a sense, this is his private
property.
418 l 2018 SAN BEDA CENTRALIZED BAR OPERATIONS
2018
Illustration: J and G are partners. J personally
' owes F a sum of money. F sues J and obtains a
final judgment in his favor. However, J has n(
money. F may go to the same court (or any othe
court possessed of jurisdiction) and ask that J':
interest the partnership be “charged” for the
payment to her of whatever has not been paid by
him with interest thereon (5 PARAS, supra at 624)
Take note, however, that partnership creditors are
entitled priority over partnership assets (CIVIL
CODE, Art. 1827).
Firm Name
Every partnership shall operate under a firm name
which may or may not include the name of one or
more of the partners (CIVIL CODE, Art. 1815).
General Rule: The partners may use any firm name
desired which may be: _
a. The name of the individual partner
i "1" as names of all partners
, . e of one,or more of members with the
ddltion “andCOmpany”
e as name purely fanciful or fictitious
‘ n:NT "ey cannot use a misleading name i.e.
hhis? ”identical or deceptively confusingly
. 0 that of any existing partnership or
OUQC to any other name already protectec
is$atently deceptive or confusingly similar
5 ngil§ws (CORPORATION CODE, Sec. 18).
3 Use of Names of Deceased Partners
sylhemntinued use of the name of a deceased partner
is].permi‘ssible provided that the firm indicates in all its
.-»~éommunications that said partner is deceased
(QODE- OF PROFESSIONAL RESPONSIBILITY,
"récrié‘33'02r
Use of Names Who are NOT Partners
Persons who, not being partners, include their names
in the firm name do not acquire the rights of a partner.
but under Art. 1815, they shall be subject to the
liability of a partner insofar as third persons without
notice are concerned. Such persons become
partners by estoppel (DE LEON, supra at 171).
Obligations of Partners to Third Persons
A. Liability for Contractual Obligations (CIVIL
CODE, Art. 1816)
All partners, including industrial partners, are
personally liable with all their property. Their
individual liability is pro rate and subsidiary, unless
othen/vise stipulated.
 PARTNERSHIP, AGENCY a TRUSTS saw BEDA MEMéRY AlD acts
Liability_ of Partnership and Partners for
Partnership Contracts
To enforce the liability of the partners for partnership
debts and obligations, the action should be filed both
against the partnership and the individual partners.
The private property of the individual partners cannot
be seized for satisfaction of partnership debts until all
the partnership assets have been exhausted and
there remains some obligations still unpaid, the
partners individually shall respond for the concerns
debts (CompaniaMaritima v. Munoz, GR. No. L-
3704, December 12, 1904; Vda. de Chan Diaco v.
Peng, GR. NO, L-29182, October 24, 1928).
Industrial Partner Not Exempted From Liability
An industrial partner is exempted from losses (CIVIL
CODE, Art. 1797). However, he is not exempted from
liability (PINEDA, supra at 120).
Losses concern partners; liabilities concern th'
persons.
The industrial partner can recover the amoun e as
paid from the capitalist partners unless there is an j
agreement to the contrary (Id. ).
Nature Of Liability Of Partners To Creditors { ’
The liability of the partners for the partnershipldebtrs
z
is pro rate, if their contributions are unequal};
Basis of Pro-rating '. »
Pro rate must be understood to mean equatly‘;
jointly‘and not its literal meaning. " creditors or on the assignee’s promise to pay
Liability of Industrial Partner for Losse‘s
Even the industrial partner who, ordinarily, is notVLXE‘.
liable for losses would have to pay but, The-can
recover the amount he has paid from the capita‘iixsiEF'éw’fi“
partners, unless there is a stipulation to the contrary
(Id. at 174).
Note: Any stipulation against liability laid down in
Art. 1816 shall be void except as among the partners
(CIVIL CODE, Art. 1817).
B. Liability of Partnership for Acts of Partners
(CIVIL CODE, Art. 1818)
1. Acts for Apparently Carrying on in the Usual Way
the Business of the Partnership (ACUWBP)
General Rule: Every partner is an agent of the
partnership. The act of every partner binds the
partnership (CIVIL CODE, Art. 1818, Par. 1).
“Usual way” — means an ordinary activity for the
particular partnership or similar partnership.
Ex.‘ A partnership engaged in real estate is
usually involved in the sale and purchase of lands
and buildings. it is unusual for it to sell fish or
animals (PINEDA, supra at p. 125). ‘
Exception: Partnership is not bound if:
d. Acting partner has in fact no authority; and
e. Third person knows that the acting partner
has no authority.
2. Acts of Strict Dominion or Ownership (CIVIL
CODE, Art. 1818, Par. 3).
General Rule: The act does not bind the
partnership.
Exception: Partnership is bound if:
3. Act is authorized by ALL the partners; or,
b. They have abandoned the business.
Whether or not the third party knows of the lack of
authority is not important as long as there is no
uthority, the firm is not bound.
morebut less than all partners have
authority .éto: (DAD-CARE) (CIVIL CODE,
" Art. 1.818)
1. ‘Do anyiiother act which would make it
‘ possible to carry on the ordinary business.
Assign I the partnership property in trust for
the debts of the partnership;
Reason: The firm will be virtually dissolved.
°
! 3 Qispose of the goodwill of the business;
Reason: GoodWill is a valuable property; it is
a disposition of an asset of value.
4. _Qonfessa judgment;
Reason: If done before a case is filed, null
and void; if done later, the firm will be
jeopardized.
5. Submit a partnership claim or liability to
Arbitration;
Reason: This is also an act of ownership.
6. Benounce a claim of the partnership; and
Reason: A partner cannot renounce a claim
that does not belong to him. ‘
7. Enter into a compromise concerning a
partnership claim or liability.
2018 SAN BEDA CENTRALIZED BAR OPERATIONS | 419
 PARTNERSHIP. AGENCY 8: TRUSTS
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Reason: This is an act of ownership and may
be equivalent to alienation.
3. Acts in Contravention of a Restriction on Authority
No act of a partner in contravention of a
restriction or authority shall bind the partnership
to persons having knowledge of the restriction
(CIVIL CODE, Art. 1818).
The partnership is not liable to third persons
having actual or presumptive knowledge of the
restrictions, whether or not the acts are for
apparently carrying on in the usual business of
the partnership (DE LEON, supra at 181).
Instances Of Implied Authorization
1. When the other partners do not object, although
they have knowledge of the act;
2. When the act is for “apparently carrying on in the
usual way the business of the partnership." Th'
is binding on the firmeven if the partnerwa
really authorized, provided that the thir ..
in good faith (Id. at 681). ’ ’ ' " ' ’ ..
Conveyance of Property Belonging «- :to“
Partnership (CIVIL CODE, Art. 1819): ,
1. Title: in PARTNERSHIP NAME, g .7 Wig”
Conveyance: in PARTNERSHIP;NAMEi—ivthé
conveyance passes title to the property but‘;the"
partnership can recover the property unless:
a. The conveyance was in the .643a E ,
business; or : Ah‘adgwission made by a partner after the dissolutior
b. The buyer had no knowledge of the f
the partner with whom he is dealing h
authority; or ' 5
c. Unless such property has been conveyed b
the grantee or a person claiming throughksuch
grantee to a holder for value withg’u (
knowledge that the partner in making the
conveyance, has exceeded his authority.
2. Title: in PARTNERSHIP NAME,
Conveyance: in PARTNER’S NAME — Buyer
gets only the equitable interest of the partnership
provided the act is one with authority of the
partner and is in the usual course of business of
the partnership.
3. Title: in name of ONE OR MORE PARTNERS
BUT NOT ALL,
Conveyance: in NAME OF PARTNER OR
PARTNERS IN WHOSE NAME TITLE STANDS
and the records does not disclose the right of
the partnership — passes title to the property but
the partnership may recover. The effect is same
in paragraph 1.
420 I 2018 SAN BEDA CENTRALIZED BAR OPERATIONS
MEMéRY AED 8018
4. Title: in the name of ONE OR MORE OR AL
PARTNERS, or in a THIRD PERSON IN TRUS‘
for the partnership,
Conveyance: in PARTNERSHIP NAME or in
PARTNER’S NAME— passes the equitabl
interest provided the act is one with authority c
the partner and is in the usual course of busines
of the partnership.
5. Title: in name of ALL PARTNERS,
Conveyance: in name of ALL PARTNERS ,
passes title to the property. .
Note: Under paragraphs 1, 3 and 5 of Art. 1819, whe
is conveyed is title or ownership, while unde
paragraphs 2 and 4, what is conveyed is merel'
equitable interest (DE LEON, supra at 184).
Admission by a Partner
An admission or representation made by any partne
acermgg partnership affairs within the scope of hi:
. a. , jn accordance with this Title is evidencr
.39 instt he partnership (CIVIL CODE, Art. 1820).
When Binding Against Partnership (CWD)
”T’Bssionjrepresentation connected i:
ected With partnership affairs;
Ran scope of authority
, g‘t ejiexistence of the firm
misgiongfifter Dissolution
.ofthefirm iii/ill be binding upon the partnership only i
:fgconriectegg-With the winding up affairs of the firrr
(CIVIL cools, Art. 1834 [1].
Instances where knowledge of a partner is
‘” 6"nsidered knowledge of the partnership:
1 .‘; Knowledge of the partner acting in the particulal
matter
a) Acquired while a partner; or
b) Then present to his mind
2. Knowledge of any other partner who reasonably
could and should have communicated it to the
acting partner (CIVIL CODE, Art. 1821)..
Note: Such knowledge operates as a notice to or
knowledge of the partnership except in case of frauc
on the partnership, committed by or with the consent
of that partner.
Notice To A Partner
Notice to a partner while already a partner is notice
to the partnership if the matter is connected to
partnership affairs. Notice to one partner is
considered a sufficient and effective notice to the firm
(PINEDA, supra at 133-134). ‘
 PARTNERSHIP, AGENCY 8: TRUSTS
SAN BEDA MEMérw AlD 2018
Knowledge Without Notice
Knowledge of a partner is also a knowledge of the
firm under the following:
1. When knowledge is acquired by a partner who is
- acting in the particular matter. It may have been
acquired while he is already a partner or even
before his becoming a partner provided that the
matter is present to his mind which means, he still
remembers the partnership matter;
2. When knowledge is acquired by a partner not
acting in the particular matter, but with reason to
believe that the matter would become or has the
possibility of becoming the subject of the
partnership business, and he is situated in such
a way that he could communicate it to the partner
acting in the particular matter.
Liability Arising from Partner’s Tort Wrongful Act
or Omission
Where, by any wrongful act or omission of any
partner acting in the ordinary course of business of
the partnership or with authority of his co-pattrt ,
loss or injury is caused to a non-partn “ e or communicated to such person so
penalty is incurred (CIVIL CODE, Art. 1822).
Requisites of Art. 1822 (GOLAP)
1. The partner must be guilty of a 'vvrongfLil act or '
omission; ,1 ,
2. He must be acting in the Qrdihary co .- “or
business or with the authority of his ~co€partr1ers
- even if the act is not connected with‘ he biisiness;
3. Loss or injury is suffered by a thir “per
result of the wrongful act or omissior’i;
4. The-Aggrieved third person is not a partner.
‘ firm; and ‘- , partner’s);‘0r
5. There is no Ere-existing contract'between‘
partnership and the third person; if thereé'is', bu
was grossly and deliberately violated, this ‘tself
constitutes quasi—delict (Id. at 194). ” :p'artnership (DE LEON, supra at 198—199).
Criminal Liability for Criminal Acts
A non-acting partner in a partnership engaged in a
lawful business is not criminally liable for the criminal
acts of another partner but he is criminally liable if the
partnership is involved in an unlawful enterprise with
his knowledge or consent (ld.).
Extent Of Liability Of The Firm And Co-Partners
The firm is liable to the same extent as the partner
who committed the tortious act. All partners are also
solidarily liable with the firm whether or not they
participated in the commission of the wrongful acts or
omission without prejudice to their right to recover
from guilty partner(ld. at 135-136).
Liability Arising from Partner’s Breach of Trust
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 and it is
misapplied by any partner while it is in the custody
of the former (CIVIL CODE, Art. 1823).
Partner By Estoppel and Partnership by Estoppel
(CIVIL CODE, Art. 1825)
Estoppel
Arises when a person by any means represents
himself orconsents to another representing him to
anyone, as partner in an existing partnership, or with
one or more persons not actual partners; he is liable
to any such person to whom such representation has
been made, who has, on the faith of such
representation given credit to the actual or apparent
partnership (CIVIL CODE, Art 1825).
Representations '
If he has made such representation or consented to
its being made in a public manner, he is liable to such
S90 .,_ether the representation has or has not
giving ci‘edit by 'orvyi’rith the knowledge or the apparent
* partner making the representation or consenting to its
" being‘made (CIVIL CODE, Art. 1825).
y EétOPpel
nofa partner may become a partner by
antgithus liable to third persons as if he was
I} r whenéby his words or conduct he:
yéctlyfepresents himself to anyone as a partner
.ngan‘fiisting partnership or in a non-existing
'pannerShip (with one or more persons not actual
2.. indirectly represents himself by consenting to
.a other representing him as a partnership in an
rating partnership or in a non—existing
Liabilities of Partners by Estoppel
1. When partnership liability results — if all actual
partners consented to the representation, it is
considered a partnership liability. This is a case
of a partnership by estoppel (CIVIL CODE,
Art. 1825, Par. 1(1)); ‘
2. Liability is pro rata — when there is no existing
partnership and all or some of those represented
as partners consented to the representation. or
none or only some of the partners of an existing
partnership consented to the representation, the
liability of all those who made and consented to
the representation is joint (CIVIL CODE, Art.
1825, par. 1(2));
Note: Art. 1825 does not create a partnership as
between the alleged partners. The law only
considers them as partners and the association
as a partnership insofar as it is favorable to third
persons. However, partnership liability is created
2018 SAN BEDA CENTRALIZED BAR OPERATIONS | 421
 PARTNERSHIP; AGENCY a TRUSTS SAN BEDA MEMéPY AID
only in favor of persons who on the faith of such
representation given credit to the partnership (DE
LEON, supra at 199-200).
Note: The case arising under Art. 1825 must be
distinguished from the situation covered by the
. last par. of Art. 1834 which is not a situation
where partnership by estoppel results. It is rather
a partnership liability which continues for lack of
proper termination (Id. at 203).
Elements to Establish Liability as a Partner on
the Ground of Estoppel: (PaRLa) - partnership assets, the creditor may com
1. Proof by plaintiff that he was individually
Aware of the defendant’s representations or
that such representations were made by
others and not denied or refuted by
defendant;
2. Beliance on such representations by the
plaintiff; and
3. Lack of any denial or refutation of the
statements by_the defendant(DE~r 4:
supra at 203). " e partnership and the separate partner
Liability of Incoming Partner for Partnership “ it V ‘“ . private property of the partners cannot be taker
Obligations
Liability is limited to his share in partnershipg'prOperty' '
for existing obligations but this liabilityEeXteédgtgmtys $4“
partnership property for subsequeijit . obligations
(CIVIL CODE, Art. 1826). » “ e ; 3‘
Note: When the incoming partner hasgssu
obligation of a retiring partner, he is Iiatile dir‘:"
the old partnership if the assumption. was
primarily to benefit the former creditotsa Thu
because he partakes of the benefitsj,*of
partnership property and an established/":bLISine
(DE LEON, supra at 208). '
Preference of Partnership Creditors
Partnership Property
With respect to partnership assets, the partnership
creditors are entitled to priority of payment. However,
the private creditors of each partner may ask the
attachment and public sale of the share of the latter
in the partnership assets as provide in Art. 1814
(CIVIL CODE, Art. 1827).
The partnership has creditors which are different from
that of the individual partners. When both kinds of
creditors are claiming rights against partnership
property or assets, the creditors of the partnership
are preferred. They are entitled to priority of payment
Reason: The partnership has a separate and distinct
personality from that of the individual partners.
Conversely, the private property of the partners
cannot be taken as payment for partnership debts
422 l 2018 SAN BEDA CENTRALIZED BAR OPERATIONS
2018
until the commOn property of the firm has bee
exhausted
Property Preference: .
a) Partnership Property - Partnershi
creditors are preferred.
b) Partner’s Individual Property - Partner
' individual creditors are preferred (DE LEOI‘
supra at 211).
Remedy in Case of Insufficiency of Assets:
a)Partnership Creditor — After exhaustion (
after the private property of the partners.
b) Partner’s Individual Creditor — Ask fc
attachment and public sale of the share of th
partner in the partnership assets (Id. at 212,
Reason: The remainder (after liquidation c
paying of partnership obligations) really belong ti
partners.
the eof may bejoined in the same action. But thi
1 in'paymentiof partnership debts until the commor
’ ‘ rty of the concern is exhausted (Viuda di
Diapo. vs. Peng, GR, No. 29182, Octobe
928)i
viva
ch)f er; at public sale does not become I
, . CIlgl‘CODE, Arts. 1767, 1813).
?
‘ DISSOLUTION
éfpartnership does not last forever. When it ends, i
agm Involves 3 separate stages, namely .dissolution
Winding up, and termination (DE LEON, supra a
214).
1. Dissolution
Change in the relation of the partners caused by
any partner ceasing to be associated in carrying
on the business (CIVIL CODE, Art. 1828).
Note: The dissolution of a partnership must no
be understood in the absolute and strict sense sc
that at the termination of the object for which i'
was created the partnership is extinguishec
(Testate Estate of Mota v. Serra, GR. No. L:
22825, February 14, 1925). '
The change in the relation of the partners wil
dissolve the partnership but will not disturb the
continuance by the remaining partners or by the
existing and new partners of the business as
before (DE LEON, supra at p. 214).
 PARTNERSHIP. AGENCY a TRUSTS
sAN BEDA MEMéRY AID acts
Legal Personality NOT Automatically
Terminated
Dissolution does not automatically result in the
termination of the legal personality of the
partnership, nor the relations of the partners
among themselves who remain as ‘co-partners
until the partnership is terminated (DE LEON,
supra at 215).
Partnership Still Exists
The partnership, although dissolved, continues to
exist until its termination, at which time the
winding up of its affairs should have been
completed and the net partnership assets are
partitioned and distributed to the partners
(Emnace v CA, GR. No. 126334, November 23,
2001).
Winding Up
Actual process of settling the partnership
business or affairs after dissolution (DE LEON,
supra at 215).
Examples: v “
a. Collection and distribution of assets; ,
b. Payment of debts; " ' .
0. Determination of the value of ’each partner’s" ’
interest in the partnership (Id.)fand ' natipnf of the legal personality of the
d. Defending claims against the'firm (P ,. .
supra at 152) E ‘ '
Termination , k
Point in time when all partnership: taffai
wound up or completed and it signifies the e
the partnership life (DE LEON, supra at215
Effect of Dissolution On The Partners
1. As to previous obligations: The dissolutionptthe
partnership does not necessarily mean' thati’é‘éi’fifi‘:
partner can evade previous obligations entered
into by the partnership.
As to new obligations: Generally, dissolution
spares the former partners from new obligations
entered into by the partnership to which they did
not consent either expressly or impliedly, unless
these new obligations are essential for the
winding up of the partnership affairs (PINEDA,
supra at 157).
Effect Of Dissolution 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.
All partners constituting the 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 (Id. at 157—158).
Effect of Dissolution (CIVIL CODE, Art. 1829)
When there is dissolution of a partnership on any
allowable cause, the partnership is not yet terminated
it will continue to function until the winding up is
completed (Id. at 158).
insofar as past transactions of the partnership are
concerned, it shall continue to function until it shall
have satisfied all its pre—existing obligations. There is
no abrogation of contracts entered into by the
partnership. It shall perform its obligations (Id.).
we ‘ersygre not liable for new obligations to which
it gist consent ,unless the new obligations are
“necessa r?“ for .> the<winding up of the affairs of the
- ‘ rPartfiership (mt. ;
‘ ‘tgtiipn does not automatically result in the:
(.eelatjogis'fof the partners among themselves
mairf asé‘fi'co—partners until the partnership is
terminatedo LEON, supra at 215).
refers to the change in partnership
_ and not the actual cessation of the
partnership business (Id. at 216).
Transaction of new business prohibited
After dissolution, the partnership as a business
enterprise remains viable only for the purpose of
winding up its affairs. The principal significance of
dissolution is that thereafter, no new partnership
business should be undertaken, but affairs should be
liquidated and distribution made to those entitled to
the partners’ interest (Id.).
TYPES OF DISSOLUTION
A. Extrajudicial Dissolution -
The parties may agree to expand the CAUSES
provided under Art. 1830 but not to delimit them.
Causes of Extra-Judicial Dissolution: (WIELD-
CID): .
a. flithout violation of the agreement between the
partners (TEE)
i. By the expiration; of the definite Ierm or
particular undertaking specified in the
agreement;
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 PARTNERSHIP, AGENCY. 8: TRUSTS
SAN BEDA MEMéRv AH) 2018
The contract is the law between the parties, if
the firm still continues after said period, it
becomes a partnership at will (DE LEON,
supra at 219).
ii. By the Express will of any partner, who must
act in, good faith. when no definite term or
particular undertaking is specified;
A withdrawal by a partner is a dissolution,
whether or not the agreement allows such
conduct. While the attendance of bad faith
cannot . prevent the dissolution of a
partnership, it can result in liability for
damages. The guilty partner would‘ be liable
for wrongful dissolution (Id. at 220).
iii. 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 undertaki ’5 " "”
All the partners may decide to dis’
partnership even before 'thevtermination of the, ,
specified term or particular“undertakingaThef“
agreement must be unanimous. The majority
alone cannot dissolve the parthership‘Withbu‘t‘
breach of account (Id. at 2207:2121). é
That the consent of the partners .
' 6 have
assigned their interests or suffefid them to be
charged for their separate; bts
required to effect dissolution with%ut br ,
partnership agreement. They ate notifigw .
the right to have a vote or*v§ice in "
dissolution of the partnership. Theyirema
partners alone may dissolve the pa riershr
(Id. at 221). " ’
Unanimous Agreement
The agreement must be unanimous. Majority
alone cannot dissolve the partnership without
breach of contract (Id.).
iv. By the expulsion of any partner from the
business bona fide in accordance with such a
power conferred by the agreement between
the partners.
The expulsion has the effect of decreasing the
number of the partners, hence, the
dissolution. The expulsion must be made in
good faith, and strictly in accordance with the
power conferred by the agreement between
the partners. This power may be vested in
one partner exclusively. The partner expelled
in bad faith can claim damages (Id.).
424 i 2018 SAN-BEDA CENTRALIZED BAR OPERATIONS
Reason: Apparent lack of confidence, witho
prejudice to the liability for damages
PARAS, supra at 705).
b. in contravention of the agreement between tl'
partners, where the circumstances do not pem
a dissolution under any other provision of th
article, by the express will of any partner at at
time;
This may be made even though the partnersh
was entered for a definite term or particul:
undertaking. The withdrawing partner shall t:
liable for damages for unjustified dissolution, bl
in no case can he be compelled to remain in tl‘
partnership. It is a power and not necessarily
right to dissolve a partnership(Rojas v.' Mag/ant
supra).
If the cause is not justified, or no cause was giver
the withdrawing partner is liable for damages, bl
fiase can he be compelled to remain in th
h ,PARA 3, supra at 705).
‘ "His withdrawal will always result in dissolution (
7 the firm because the number of partners i
educed. Any change in the relation of th
'rtiéters will ’cause dissolution (PINEDA, supra z
k.
patticular form of notice of withdrawal i
cessafyjand it is sufficient that unequivocz
,‘tacfs or circumstances are brought to th
”knowledge of the other partners that signify th
exercise of the will or purpose to terminate th
‘ " partnership (Id.).
CI, Byfany Event which makes it unlawful for th
. business of the partnership to be carried on or fc
. , the members to carry it on in partnership;
Note: If the business ‘or the object had bee
unlawful from the very beginning, the firm neve
had juridical personality (5 PARAS, supra at 706,
d. In any case by the Loss of the thing:
a. When a specific thing which a partner ha
promised to contribute to the partnership
perishes before the delivery; or
b. When the partner has only contributed thl
usufruct of the property
Reason: The partnership is dissolved becaus
the partner has not or is deemed to have nc
given his contribution (DE LEON, supra at 224).
This provision refers only to specific things. Whei
the thing to be contributed is not specific, Article
1786 (par. 1) and 1788 shall govern (Id.).
 PARTNERSHIP, AGENCY 8 TRUSTS
SAN BEDA MEMéRY
Note: The mere failure by a partner to contribute
his share of the capital pursuant to an agreement
to form a partnership does not prevent the
existence of a firm. Such failure may be waived
by the other parties to the agreement (DE LEON,
supra at 224).
By the Death of any partner;
When a partner dies, there is an automatic
dissolution of the partnership because there is a
reduction in the number of the original partners
(PINEDA, supra 164).
The surviving partner will continue the business
of the partnership under certain circumstances. If
the surviving partners desist from continuing the
business and decide to liquidate the partnership
assets, the firm is not in the state of partnership
liquidation (Id.).
A view has been expressed that the deattgefa
of the partners does not ipsgjfacto dis
partnership when, by common agreemen the
surviving partners and the heirsflofthe deceased '_
decide to COntinue, the said agréeméntbe‘ingfin
such case considered as a contjpuationbf’ith'e‘
original contract of partnership. lrtsuch awcase,
however, there is a dissolution of tfiepaiftnetg iii I
without winding up, and a contirtpancfie'éfithé
business of the dissolved partnership by a .
partnership, of which the survivingt,”art
the heirs of the deceased or execritors
members becoming liable as the? old ,
creditors of the firm (DE LEON, supra: at 22 R
By the iil interdiction of any partne'r;‘j’~‘f,,:'w .
Civil interdiction which is a mandatory accessc‘tty‘W
penalty imposed when the penalty is at least
reclusion temporal restricts the capacity to act of
a partner. A civil intedictee cannot manage his
own properties, neither can he donate properties
inter vivos. This is known as civil death (PINEDA,
supra at 165)
Civil interdiction deprives the offender during the
time of his sentence of the right to manage his
property and dispose of such property by any act
or any conveyance inter vivos (REVISED PENAL
CODE, Art. 34).
Reason: One who is without capacity to manage
his own property should not be allowed to
manage partnership property (DE LEON, supra
at 229),
By the insolvency of any partner or of the
partnership;
AH: 2018
Note: The insolvency of the partner or of the
partnership must be adjudged by the court (Id. at
227).
Reason: By the insolvency of the partner, his
credit is impaired. It would be impossible for him
to pay for partnership liabilities in case the
partnership assets have been exhausted.
insolvency of the partnership results to inability to
continue the business which practically amounts
to dissolution (Id. at 228).
f. By goree of court under Art. 1831 (CIVIL CODE,
Art. 1830).
The decree must be a final judgment rendered by
a court of competent jurisdiction (5 PARAS,
supra at 709).
Under Article 1831, there are several
circumstances like insanity, imbecility and other
‘wacities which may be used as basis for
she» dissolution of the partnership (PINEDA,
The causes of Dissolution
” ersrfannot enter into an agreement where
atictdissolution of partnership brought out
wittjbe limited or restricted (ld.).
en o,d§creed by the court, the presiding judge
jayxptace aide partnership under receivership and
direcfan, accounting to be made towards winding up
e; part 'gtship affairs.
at ‘ 4-
,w‘Grol'mdfczr Judicial Dissolution: (MIZLO)
The ~ it shall decree dissolution, on application by
starters partner, whenever:
1 Any partner commits Misconduct or persistent
breach of partnership agreement, such as when:
a) A partner willfully or persistently commits a
_B_reach of the partnership agreement, or
otherwise conducts himself in matters relating
to the partnership business that it is not
reasonably practicable to carry on the
business in partnership with him;
b) A partner has been guilty of such conduct as
tends to affect prejudicially the carrying on of
the business (CIVIL CODE, Art. 1831).
Reason: They defeat and materially affect and
obstruct the purpose of the partnership (DE
LEON, supra at 232).
Temporary grievances, discourtesies,
disagreements, or mistakes of judgments that
involve no permanent mischief or injury will not
suffice as the basis for a judicial decree of
dissolution (Id.).
2018 SAN BEDA CENTRALIZED BAR OPERATIONS l 425
 PARTNERSHIP, AGENCY 8: TRUSTS
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Where a partner is guilty of serious misconduct,
the only remedy available to co~partners is to
apply to the court for dissolution. But the
partnership agreement may expressly confer the
power to expel a partner under specified
conditions. When this power is exercised in good
faith, it causes dissolution, without violation of the
partnership agreement, although no suit has
been instituted to that end (Id. at 233).
2. A partner has been declared insane in anyjudicial '
proceeding or is shown to be of unsound mind;
Note: The partner may have been previously
declared insane in a judicial proceeding;
otherwise, his insanity must be duly proved. It
must materially affect the capacity of partner to
perform his contractual duties as such (Id. at
231).
Incapacity: A partner impliedly undertakes to
advance the success of the partnership *
he is a member by devoting to . _
reasonable limits, his time, effort,~and ability., His , .« Eartnérsliip
co-partners are entitled to his contribution an if, I 3' ’Gér‘iéral Rulez'vissolution terminates ALL authori
for any reason, he fails to fulfill his duties they are
thereby deprived, in greater or; lessj’degree,”
according to the extent of hisg‘ailuré, .ojjthe
benefits of the contract which thei‘fhaiéefma ‘2
and of the fruits thereof to which they “are
legitimately entitled. Hence, the ruigthéj courts
have the power to decree dis‘éblutid
partnership because of incapacity of a
which materially affects his ability tp'dis . rge
the duties imposed by his partnerShip contra
(Id. at 232). ' * ‘ sf'are‘concerned):
The incapacity contemplated by law is incapacity
which is lasting, from which the prospe‘ét'i‘of-fts
recovery is remote. If the disability be of; a
temporary nature, it it be merely an occasional
malady or accidental illness, if there be a fair
prospect of recovery within a reasonable time,
then, and in such cases, there is no fit ground to
decree a dissolution, for every partnership must
be presumed to be entered into, subject to the
common incidents of life such as temporary
illness, infirmity, or insanity (Id.).
3. A partner becomes in any other way incapable of
performing his part of the partnership contract;
Note: The incapacity must be lasting, from which
the prospect of recovery is remote (Id. at 232).
4. The business of the partnership can only be
carried on at a Loss;
Note: A court is authorized to decree dissolution
notwithstanding the partnership has been making
I 426 | 2018 SAN BEDA CENTRALlZED BAR OPERATIONS
AlD 2018
profits where it appears at the time of ti
application that the business can only be carrir
on at a loss (Id. at 233).
5. cer circumstances render that dissolutir
- equitable:
l.e. Abandonment of the business; Fraud in N
management of the business; Refusal witho
justifiable cause to render accounting of ti
partnership affairs.
On the application of the purchaser of a partner
interest:
1. After the termination of the specified term
particular undertaking;
2. At any time if the partnership was a partnership
will when the interest was assigned or when ti
charging order was issued (CIVIL CODE, A
1831).
EFFECTS OF DISSOLUTION
.33w '
‘ Partner’s Authority to Act for tl
6f ahy'péither‘to' act for the partnership (CIVIL CODl
8.532)- , ‘
necessary towind up partnership affairs; c
_ neégesSary to complete transactions begL
a. not‘tgien finished (CIVIL CODE, Art. 1832).
g»
;';’Q'ualificavti6ns to the General Rule:
«, 3i; '“With Respect to the Partners (in so far as partner
a} ,fDissolution is not by Act, insolvency or Qea'
(MD) of a partner: general rule applie
' Hence, dissolution terminates the actu
authority of a partner to undertake ne
business for the partnership (CIVIL CODl
Art. 1832);
b. Dissolution is by act, insolvency or death of
partner: authority of partners inter se to act ft
the partnership is not deemed tenninater
Thus, each partner is liable to his co-partnei
for his share of any liability created by ar
partner acting for the partnership as if tr
partnership has not been dissolved (CIV.
CODE, Art. 1833).
Exceptions to (b):
i. The cause of dissolution is the act of
partner and the acting partner ha
knowledge of such dissolution;
ii. The cause of dissolution is the death (
insolvency of a partner and the actin
partner had knowledge or notice of suc
dissolution (CIVIL CODE, Art. 1833).
 PARTNERS-HIP. AGENCY 8: TRUSTS
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Note: When a person has knowledge of a
fact:
1. Not only when he has actual knowledge
but also when has knowledge of such
other facts as in circumstances show bad
faith.
2. A person has notice of a fact when the
person who claims the benefit of notice:
a. States the fact to such person, or-
b. Delivers through the mail 'or other
means a written statement of the fact
to such person or to a proper person
at his place of business or residence
(DE LEON, supra at 239). J up or for completing unfinished
Notice should be sufficient if the fact to be
notified is an ordinary business fact as when
a latter concerning transactions is placed on
the desk of B, but B never opened the letter
5 PARAS, supra at 717).
Death or insolvency, being more
than an “act," notice is’tgenough. H
law provides "knowled'ge‘éor notice’i
718). . existence — publication is sufficient.
“amt-'fl
Article 1833 applies only if theppntrgaw
partner binds the partnieéshipé Lia
partnership is not bound, Ofil'y thie * ctifig
partner is personally liable (DEELEQN, supra
at 240). A
“MW“
2. With Respect to Third Persons:
The partnership is generally bound b 2
contract although authority of actin‘gx’partn
already deemed terminated but the ’inno
partners can recover from the guilty partners.
. a. When partnership is bound to third perso s
after dissolution (CIVIL CODE, Art. 1834) j. "
i. Acts appropriate for winding up
partnership affairs
ii. Acts for completing unfinished
transactions
iii. Any transaction which would bind the
partnership if dissolution had not taken
place provided the parties are in good
faith, meaning the other party is:
1. A previous creditor and he had no
knowledge or notice of the
dissolution; or
2. Not a previous creditor and the fact
of dissolution had not been
published in a newspaper of general
circulation.
b. When partnership is not bound to third
persons after dissolution (Ne-U-l-UW-l)
i. Completely New transaction
would bind the partnership if dissolution
had not taken place with third persons in
bad faith.
ii. Where partnership was dissolved
because it was iawful to carry on the
business, except when the act is for
winding up;
iii. Where the acting partner in the
transaction has become insolvent;
iv. Where the partner is gnauthorized to
_W__ind up, except if the transaction is with
third persons in good faith (same
circumstances as defined above);
v. Where act is inappropriate for winding
tran'sactions(C/VIL CODE, Art. 1834).
Notice of Dissolution to Creditors
1. Person had extended credit prior to
dissolution - they must have knowledge or
notice of dissolution.
ote: The notice must be actual.
rso‘ns’wh‘o had known of partnership
Motefl’he fact that the dissolution has been
o ubiifihed would be sufficient even if they did
otx-Zéctually read the advertisement (DE
LEoiv, supra at 242-243).
3%? Dorfnant Partner Need Not Give Notice
"' Thie‘liability of a partner unknown as such to
théperson with whom the contract is made
. 01.230 far unknown and inactive in partnership
,affairs shall be satisfied out of partnership
.gassets alone (DE LEON, supra 246).
A dormant partner is both inactive and
secret. His connection with the partnership
not having known, it cannot in any degree
have contributed towards establishing its
reputation or credit (Id.).
Third persdns, not having dealt with the
partnership in reliance upon the
membership of the dormant partner, are
accordingly not entitled to notice of his
withdrawal. The principle of estoppel cannot
operate to continue his liability or his
authority after dissolution since prior thereto,
he was never known or held out as a partner.
However, he will be personally liable for
partnership debts arising at the time of his
retirement (Id.).
Liability Of A Pretender: if after dissolution of the
firm, a person pretends to be a partner though he is
which not and enters into transaction in behalf of the firm,
he will be liable as a partner by estoppel under Article
2018 SAN BEDA CENTRALIZED BAR OPERATIONS l 427
 PARTNERSHIP, AGENCY 8: TRUSTS
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1825. Similarly a partner of an existing partnership
who consents to the representation made by the
pretender, is also liable to the persons with whom the
pretender has dealt with (PINEDA, supra at 175).
B. As to Partner’s Existing Liability
General Rule: Dissolution does not automatically
discharge the existing liability of any partner (CIVIL
CODE, Art. 1835).
Exception: A partner may be relieved from all
existing liabilities upon dissolution only by an
agreement among: W:
1. Partner concerned;
2. Person or partnership continuing the business;
and
3. Partnership creditors (CIVIL CODE, Art. 1835,
par. 2).
The individual property of a deceased partner shall
be liable for all obligations of the partnership.) 3*"
while he was a partner, subjectto prior pa"
his separate debts (CIVIL CODE, 'Art. 1835, par...
Dissolution Ordinarily Does Not Di‘sCharge
Existing Liability of Partners . g
General Rule: Just because the firrfijs ”dissolved
does not automatically mean that thefigi’stirig
of any partner is discharged. ”i «
Otherwise, creditors would be prejudicetgl;~pa M
if a partner will just withdraw anytime from th
PARAS, supra at 723). _ L); .To gontinue the business in the sam
Exception To The General Rule: éy way‘ W
exception, upon dissolution of the partnership, th
partner concerned is discharged from any fexistin
liability if there is an agreement to that effect betJie'é
himself, the partnership creditor and the persongor
partnership continuing the business.
It has been held that a partner who has withdrawn
from the partnership is released from liability only
when there is liquidation and his withdrawal has been
duly published (PINEDA, supra at 176).
Death Of A Partner: The individual property of a
deceased partner, properties not promised to the
partnership, shall be liable for all obligations of the
partnership incurred while he was still a partner,
subject to all the prior payment of his separate debts.
The outside or personal creditors are preferred to the
firm's creditors (ld.). ' dissolution, surplus less damage
428 l 2018 SAN BEDA CENTRALIZED BAR OPERATIONS
MEMéRY A30 2018
Rights of a Partner upon Dissolution (CIVI
CODE, Art. 1837)
1. When dissolution is not in Contravention c
the Partnership Agreement
a. Have partnership property applied t
discharge partnership liabilities;
b. Receive in cash his share of the surplus.
Note: When dissolution is caused by expulsior
expelled partner may be discharged from a
partnership liability in the same manner as abov
but he shall receive in cash only the net amour
due him from the partnership (DE LEON, supra e
253). ‘
If dissolution is proper, no partner is liable for an
loss sustained as a result of the dissolution (Id).
2. When dissolution is in Contravention of th
Partnership Agreement (CIVIL CODE, Art. 183
par- 2 [1])
s wfiights of a partner who has not caused th‘
t “of; issolution wrongfully (l-PZRC)
3). , , .. To be'lndemnified for damages cause
by the partner guilty of the wrongfi
dissolution;
”I M . , To have Partnership property appliedt
' jfiiSCharge partnership liabilities;
9Fight”; To Possess partnership propert
is f: M should they decide to continue th
business;
_ y To Receive in cash his share of th
. isurplus;
name duringvthe agreed, term of th
partnership, by themselves or jointl
with others.
a}
'5. Rights of a partner who has wrongfully cause
‘ 9 the dissolution (CIVIL CODE, Art. 1837, par.
[3])
i. Business is not continued by the othe
partners:
1. To have partnership property applied t
discharge partnership liabilities;
2. To receive in cash his share of th‘
surplus less damages caused by hi
wrongful dissolution.
ii. Business is continued:
1. To have the value of his interest in th»
partnership at the time of th
caused by his wrongful dissolution t
his co-partners, ascertained and paid i
. cash or secured by a bond approved b
the court;
2. To be released from all existing an«
future liabilities.
 PARTNERSHIP. AGENCY 8r TRUSTS
SAN BEDA
Note: Goodwill may be defined as the advantage
which it has from its establishment or from the
patronage of its customers, over and above the mere
value of its property and capital. The value of the
goodwill of the business is not considered in
ascertaining the value of the interest of the guilty
partners, obviously as a penalty for their bad faith.
(DE LEON, supra at 254-255).
Partner’s lien: The right of every partner, on a
dissolution, against the other partners and persons
claiming through them in respect of their interests as
partners, to have the partnership property applied to
discharge partnership liabilities and the surplus
asses, if any, distributed in cash to the respectiVe
partners, after deducting what may be due to the firm
from them as partners, constitutes what is known as
the “partner’s lien” (ld.).
Note: Innocent partners have better rights than guilty
partners, and that the latter are required to indemnif
for the damages caused (5 PARAS, supra
Right Of Innocent Partners To 5ntinue
Innocent partners may continue thei‘business but this
time, there is really a new partnershifi‘iThéy can even
use the same firm name if they wislito; fibréov’etj“
they can ask new members to join,.b5iit alvirayshggthg
rights granted to the guilty partners er: saféguiafié 5
by. ‘2‘”! >. E 52.5,
a. Bond approved by the courts; x .1 g he‘p‘ayment of all liabilities enumerated in
b. Payment of his interest a ,Xfaytyhe %
dissolution minus damages. (filtered '
guilty partner who is excluded Wt
indemnified against all present= or f
partnership liabilities. This is because
no longer a partner (Id.). ' ,. pff'partners;
Rights Of Partner Who Has Wrongfully Cause
The Dissolution , ./ '
1. If the business is not continued by the other
partners, to have the partnership property
applied to discharge its liabilities and to receive
in cash his share of the surplus less damages
caused by his wrongful dissolution
2. If the business is continued:
a. To have the value of his interest in the
partnership at the time of the dissolution, less
any damage caused by the dissolution to his
co-partners, ascertained and paid in cash or
secured by bond approved by the court; and
b. To be released from all existing and future
liabilities of the partnership.
Rights of a Partner where Partnership Contract ls
Rescinded on the Ground of Fraud or
Misrepresentation(SlR):
1. Right of _S_ubrogation in place of the partnership
creditors after payment of partnership liabilities;
MEMéRY AID 2018
2. Right of Indemnification by the guilty partner
against all debts and liabilities of the partnership;
and
3. Right of Retention of, or lien on, the surplus of
partnership property after satisfying partnership
liabilities for any sum of money paid or
contributed by him(CIVIL CODE, Art. 1838).
Manner of Winding Up
1. Extrajudicial — by the partners themselves
without the intervention of the court;
2. Judicial ~ under the control and direction of the
court upon proper cause shown by any partner,
his legal representative or his assignee (DE
LEON, supra at 248).
Persons Authorized to Wind Up
1. Partners designated by the agreement;
2. In the absence of such agreement, all partners ‘
who have not wrongfully dissolved the
partnership; or-
atrepresentative of last surviving partner not
'nt (CIVIL CODE, Art. 1836).
5' Rules in Settling/(the Accounts between Partners
after Dissoluti9h(CIVIL CODE, Art 1839) IALCL‘
Determiner’ithe Assets of the Partnership which
?SfollbW51
5 arti'érféhip property
5 « '5
sCongi/butions of the partners necessary for
-. Art 839, par. 2 (CIVIL CODE, Art. 1839,
‘- 5 past)!
,_-3Paymetit"of Liabilities in Winding Up in the
‘ 'yfollovvi'ng order:
5 a. Those owing to creditors other than
bf Those owing to partners other than for
" capital or profits; -
c. Those owing to partners in respect of capital;
d. Those owing to partners in respect of profits
(CIVIL CODE, Art. 1839, par.2).
3. The partners shall Contribute, as provided by Art.
1797, the amount necessary to satisfy the
liabilities (CIVIL CODE, Art. 1839, par. 4).
Persons Who Can Enforce the Additional
Contribution:
1. An assignee for the benefit of creditors or any
person appointed by the court shall have the right
to enforce the contributions above specified
(CIVIL CODE, Art. 1839, par. 5).
2. Any partner or his legal representative shall have
the right to enforce the contributions specified
above, to the extent of the amount which he has
paid in excess of his share of the liability (CIVIL
CODE, Art. 1839, par. 6).
2018 SAN BEDA CENTRALIZED BAR OPERATIONS l 429
 PARTNERSHIP. AGENCY 8 TRUSTS
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Note: The individual property of deceased partner Those owing to genera

shall be liable for the contributions above (CIVIL partners in respect tc
CODE, Art. 1839, par. 7). CAPITAL (C/V/L CODE
An‘. 1863).
Note: Partnership creditors shall have priority on
partnership property and the separate creditors on Return Of Partner’s Share Is Dependent OI
individual property, saving the rights of lien or Discharge Of Creditors: A partner's share canno
secured creditors. be returned without first dissolving and liquidating tht
partnership, for the return is dependent on the
Where a Partner or His Estate Becomes Insolvent
discharge of the creditors, who claims enjo:
Claims against his separate property shall rank in the
preference over those of the partners, and it is self
following order: ,
evidence that all members of the partnership an
1. Those owing to separate creditors
interested in its assets and business, and are entitle<
2. Those owing to partnership creditors
to be heard in the matter of the firm's liquidation am
3. Anything left to the partners by way of contribution the distribution of its property (Magdusa v. Albaran
(CIVIL CODE, Art. 1839, par. 9).
GR. No. L—17526, June 30, 1962).
When Assets Are Not Sufficient TO Satisfy The
Rule When There Are Claims Over Partnershi;
Firm’s Liabilities
Assets And Claims Over Individual Properties 0
When the firm’s assets are not enough to settle the
Partners, Which Are Both In Custody Of Thr
liabilities, the partners are required to contribute to“,
»-C urt For Distribution:
fully satisfy its liabilities. The amounts of contrib" '
rship creditors are preferred with regard tr
will depend upon the partner’sgontribute
rship property; and
that is, pro rata (PINEDA, supra aT-188)
., -, x .25 5,lndivildual creditorsare preferred with respect tr
‘lindividual properties of partners (PINEDA, supre
Limited Partners, Not Liable: Limited partners who"
V” f ‘90).
cannot participate in the management;””of“’fih
partnership -are not personally liable lgf '
partnership obligations beyond theiv Contributtjohs‘: , asef’Of Insolvency Of A Partner Or Tha
state In Case Of Death:
(Id.).
mse‘tgainst the private property of a partne
tatéffin case of his death) which is insolven
Order Of Payment In The Wirjdrpg
Partnership Liabils »- strange paid. in the following order:
‘1; if, Separate Creditors;
,. Limited Hammers gx§ertezra§ Partnership “2 Partnership creditors; and
Those oWnl ‘ 8 gPartnersgwho gave contributions (PINEDA, supre
Those owing
PARTNERSHIP
to
partnership picred ' at 190),
CREDITORS.
and limited '7 partner-
creditors; ‘ 7:“ 2(liteitlatices When Creditor of Old Partnership
Continues to be Creditor of New Partnership
Those owing to LIMITED
(N-A1 -R-3"‘-W-Ex)
partners in respect
to their
Those owing to partners The creditors of the old partnership are also creditors
share of the profits and
other than for capital of the continued partnership after dissolution when:
other compensation by
and profits; _1. When any New partner is admitted into ar
way of income on their
existing partnership, or when any partner retire:
contributions;
and assigns (or the representative of the
Those owing to LIMITED deceased partner assigns) his rights ir
Those owing to partners partners in respect to their partnership property to two or more of the
by way of CAPITAL; and CAPITAL partners, or to one or more of the partners ane
CONTRIBUTIONS; one or more third persons, if the business is
Those owing to partners Those owing to general continued without liquidation of the partnership
by way of PROFITS partners other than for affairs;
(CIVIL CODE, Art. 1839, capital and profits; 2. When ALL BUT ONE partner retire and assigr
Par. 2). (Or the representative of a deceased partne
assigns) their rights in partnership property to the
Those owing to general
remaining partner, who continues the business
partners in respect to
without liquidation of partnership affairs, eithe
PROFITS; and
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

430 I 2018 SAN BEDA CENTRALIZED BAR OPERATIONS

 PARTNERSHIP. AGENCY 8: TRUSTS
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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; _ partnership. Othen/vise, creditors of the dissolved
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 flrongfully causes a
dissolution and the remaining partners continue
the business under the provisions of Art. ‘1837,
second paragraph, No. 2, either alone or with
others, and without liquidation of the partnership
affairs;
6. When a partner is gxpelled and the remaining
partners continue the business either alone or
with others without liquidation of the partnership
affairs (CIVIL CODE, Art. 1840).
'Applicability: Article 1840 applies when
partnership is dissolved but the remaining?
continue the business without ”liquidation of
its accounts first (PINEDA, supra at 193).
"(,‘cons'isted of, members of a partnership whose-
Any change in membership dissolves a partnership ,
and creates a new one. As the partnership is the ”
result of a contract, a change in theipanies $9-1m
contract necessarily results in a neVii’co ct {Dis
LEON, supra at 266). ' (Id. $9269).
Change In Membership, Cause Of D ”solu
Article 1840 states six situations where tiger
dissolution by reason of change in embefrs‘hi‘
caused by any of the following: Q1? .
1. admission of new member; 5?, .
2. retirement of a partner;
3. assignment of rights in partnership property;
4. death of a partner; and
5. expulsion of a partner (PINEDA, supra at 193).,
When there is a change in the membership and the
partnership is simply continued without liquidation,
the unpaid old creditors of the dissolved partnership
automatically becomes creditors of the new
partnership (Id.).
If this were not so, it is easy to deceive the old
creditors by simply causing a change in the
membership of the partnership (ld,).
Reason: To maintain the preferential rights of the old
creditors to the partnership property of the
partnership whose business is continued by the new
partners (Id. At 193-194).
The law makes the creditors of the dissolved
partnership also creditors of the persons or
partnership continuing the business (DE LEON,
supra at 267).
MEMéRY AID 20
Note: Paragraph 1, No. 4, applies only when the third
person continuing the business of the dissolved
partnership promises to pay the debts of the
partnership have no claim on the person or
partnership continuing the business or its property
unless the assignment can be set aside as a fraud on
creditors under paragraph 4 (Id. at 268).
Prior Right Of Dissolved Partnership Creditors As
Against Purchaser
When a retiring or deceased partner has sold his
interest in the partnership without a final settlement
with creditors of the partnership, such creditors have
" an equitable lien on the consideration paid to the
retiring or deceased partner by the purchaser thereof.
This lien comes ahead of the claims of the separate
creditors or the retired or deceased partner (ld.).
Continuation Of Dissolved Partnership Business
a By Another Company
’ ‘ gégorporation deemed a mere continuation of
"ership — the weight of authority supports
(the vie {that wherea corporation was formed by, and
bUSiness and property was conveyed and transferred
"1h rpo’ra'tion for the purpose of continuing its
7 sulffhf corporation is presumed to have
' partnership debts and is prima facie liable
of the partnership may be said to have
"simply-1 put \a’ihew coat, or taken on a corporate cloak,
/ and the comeration is a mere continuation of the
":éiiJartnership (Id.). '
., , 2. ,Wtzfén ‘obligations of company bought out
,, considered assumed by vendee: When one company
Q .bflysout another and continues the business of the ‘
\latter company, the buyer may be said to assume the
obligations of the company bought out when said
obligations are not of considerable amount or value
especially when incurred in the ordinary course, and
when the business of the latter is continued (DE
LEON, supra at 269).
However, when said obligation is of extraordinary
value, and the company was bought out not to
continue its business but to stop its operation in order
to eliminate competition, it cannot be said that the
vendee assumed all the obligations of the rival
company (Phil. Air Lines, Inc. v. Balinguit, GR. No.
L-87_15, June 30, 1956).
Use of Partnership Name
As a general rule, upon the dissolution of a
commercial partnership, the succeeding partners or
parties have the right to carry on the business under
the old name, in the absence of stipulation forbidding
it, since the name of a commercial partnership is a
2018 SAN BEDA CENTRALIZED BAR OPERATlONS l 431
 PARTNERSHIP. AGENCY 8 TRUSTS
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partnership asset inseparable from the goodwill of the
firm (DE LEON, supra at 270).
Liability of Third Person Becoming a Partner
The liability of a third person becoming a partner in
the partnership continuing the business, under this
article, shall not extend to his personal property,
unless there is a stipulation to the contrary (PINEDA,
supra at 187).
Continuation of Partnership without Liquidation
The remaining partners (and/or new partners) may
continue the business by simply taking over the
business enterprise and continuing the use of the old
name (DE LEON, supra at 266). “'
Rights of Retiring, or of Estate of Deceased
Partner When Business is Continued
1. Have the value of the interest of the retiring or
deceased partner ascertained as of the date of
dissolution, i.e. retirement or death
2. Receive, as an ordinary creditor, an
equal to his share to the value"of his sh
dissolved partnership with interest, or, at, his 2
option, in lieu of interest, the profitsattributable'to'“
the use of his right in the property‘ipf the dissolved
partnership (CIVIL CODE, Art. 1641).
éz
Partner’s Lien
Right of every partner to have t paigtnérship'
property applied to discharge partne, fp liabilities
and to have the surplus assets, if anyfifistri
cash to the respective partners, after deducting
may be due to the partnership from then?“ as p53
(Id. at 253). W .
Persons Liable to Render an Account
1. The winding up partners;
2. The surviving partners; or
3. The person or partnership continuing
business (CIVIL CODE, Art. 1842).
Right to Demand Accounting Of Partner’s Interest
The right to demand accounting of a partner’s interest
shall be reckoned from the date of dissolution of the
partnership unless there is a contrary agreement
(PINEDA, supra at 200).
LIMITED PARTNERSHIP
Limited partnership
One formed by two or more persons having as
members one or more general partners and one or
more limited partners, the latter not being personally
liable for partnership debts (CIVIL CODE, Art. 1843).
432 | 2018 SAN BEDA CENTRALIZED BAR OPERATIONS
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Characteristics of a Limited Partnership: (C03'LDR
1. Formed by substantial Qmpliance in good fait
with the statutory requirements;
2. One or more general partners atrol th
business and are personally liable to creditors;
3. One or more limited partners Qntribute mone
or property to the capital and share in the profit
but do not participate in the management of th
business;
4. Limited partners are not personally Liable fr
partnership obligations beyond the amount (
their capital contributions;
5. The partnership ets are paid out of th
common fund and the individual properties of th
general partners; and
6. The limited partners may ask for the Return (
their capital contributions under the condition
prescribed by law (PINEDA, supra at 205-206).
Advantages of a Limited Partnership _
1 On the part of the general partner/s — They ca
' e capital from others for purposes of the
_ . :55 while retaining control and supervisio
of the partnership business.
_‘ 2. On the part of the limited partner — The limits
partner shares in the profits without risk (
‘ personal liability (Id. at 206).
“EtioQEVOf Limited Partners
attributions of a limited partner may be:
”OtEerpropérty
letting": seryic‘e’s (CIVIL CODE, An‘. 1845).
z.
Effect if ”Limited Partner also Contributes Hi
Services ». 4
, ‘lf hedges so, with the knowledge of his co-pa'rtner:
heigfbécomes a general and limited partner at th
{WSame time. In such case, he will be exposed to all th
the, "liabilities of a general partner (PINEDA, supra z
213).
Name of a Limited Partner
General Rule: The surname of a limited partner she
not appear in the partnership name (CIVIL CODI
An. 1846).
Exceptions:
1. If it is also the name of a general partner, or
2. Prior to the time when the limited partner becam
such, the business had been carried on under
name in which his surname appeared (C/VI
CODE, An‘. 1846).
Effects of Violation of the Rule:
1. The limited partner will be liable to partnershi
creditors who have no actual knowledge that h
is not a general partner (CIVIL CODE, Art. 1846)
or
 PARTNERSHIP, AGENCY 8r TRUSTS
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2. The limited partner does NOT acquire the rights
of a general partner (PINEDA, supra at 214).
Reason For Non-Inclusion
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 limited partner.
Liability for Falsity in Certificate (CIVIL CODE, An‘.
1847)
Requisites: (KEL)
1. He Knew the statements to be false
a. At the time he signed the certificate, or
b. Subsequently, but having sufficient time to
cancel or amend it or file a petition for its
cancellation or amendment;
2. The person seeking to Enforce liability has relied
upon the false statement in transacting business
with the partnership; and
3. The person suffered Loss as a result of reliance ‘ g _
upon false statement.
Note: A limited partner contributing‘greatertiifia hat . ,
specified is not liable for making afalsestatemént”
(DE LEON, supra at 291).
Note: Art. 1847 does not say that the guilt? partner
shall be liable as a general partner! Thé liability
imposed therein is merely statutory 7nd ’Yoesghot‘
make the limited partner a general.
purposes, even as to third persons (I;
Liability of a Limited Partner for Participati
Management of Partnership: ‘ ‘
A limited partner is liable as a general partnerf
firm’s obligations if he takes part in the control of t e
business (CIVIL CODE, Art. 1848). ' A:
The limited partner takes part in the management of]
the business where:
1. The business is carried on by board of directors
chosen by the limited partners;
2. By the terms of the contract between the parties,
an appointee of the limited partner becomes the
directing manager of the firm;
3. Limited partner purchases the entire partnership
property, taking title in himself and then carries on
the business in his own name and for his
exclusive benefit; and
4. He makes or is a party to a contract with creditors
of ari insolvent firm with respect to the disposal of
the firm's assets in the payment of the firm’s debts
(DE LEON, supra at 293).
Note: The list is not exclusive.
General Rule on Liability of Limited Partner: As a
rule,‘a limited partner is not liable as a general
partner. His liability is limited to the extent of his
contribution to the partnership.
However, if he takes part in the control of the
business which contemplate active participation in
the business of the partnership, he becomes liable as
a general partner. While he becomes liable as a
general partner, he does not acquire the rights of one
(PINEDA, supra at 215).
illustrations Of Active Participation
1. When the limited partner participates in the
selection of the managing partners of the
partnership (Stranger v. Thomas, 114 Wis. 699);
2. When the limited partner exercises supervisory
power over a superintendent of the business of
the partnership (Richardson v. Hogss, 38 Pa Sf.
153);
3. When the limited partner purchases the entire
property of the firm, taking title in himself and
carries on the business in his own name and for
” : exclusive benefit (Silvo/a v. Reulett, 272 P.d.
n3of5Additional Limited Partners
Mfofrriation of the limited partnership,
liréite’d partners may be admitted upon
, amendment to the original certificate in
'nce-ititiith the requirements of Art. 1865 (CIVIL
F ,. 8619)
it . "/
Effect ofnailure to Amend: This does not
enegeéssariiy mean the dissolution of the limited
partneqsh‘ip (Tec Bi and Co. v. Collector of Internal
aye'Revénué, GR. No. 42115, March 30, 1935).
éqdisites For Admission 0f Additional Limited
“Partners
The law allows the admission of limited partners after
the formation of the firm. It is, however, required that
the original certificate be amended indicating the
admission of the new partner or partners and all
partners shall sign the certificate and which thereafter
must be duly filed with the SEC (PINEDA, supra at
217).
Management of a Limited Partnership
General Rule: A limited partner has no management
powers. .
Exception: A general partner in a limited partnership
however has no authority, without written consent or
ratification of all limited partners, to: (ClC-PAZC)
1. Do any act in Qontravention of the certificate;
2. Do any act which would make it impossible to
carry on the ordinary business of the partnership;
3. gonfess a judgment against the partnership;
2018 SAN BEDA CENTRALIZED BAR OPERATIONS | 433
 PARTNERSHIP, AGENCY 8: TRUSTS
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4. Eossess 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 to do so is given in the certificate; and
7. Continue the business with the partnership
property on the death, retirement, insanity, civil
interdiction or insolvency of a general partner,
unless the right to do so is given in the certificate
(CIVIL CODE, Art. 1850).
The said acts are acts of strict dominion or ownership
and are beyond the scope of the authority of a
general partner. The general partner who viOIated the
requirement imposed by Art. 1850 is liable for
damages to the limited partnership (DE LEON, supra
at 295).
Rights, Powers, and Liabilities Of A General
Partner
The essential feature of a limited partnership
union of two classes or typesp‘f membets>
limited partner and the generalmpartner. The law\
expressly requires that there be at least one general
partner with unlimited liability.
1. Right of control or unlimited persénal liability:A
general partner in a limited partneé’ship is fresh;
with the entire control of the fim7s7?dusirtess and
has all the rights and powers and; s§subject to all
the liabilities and restrictions offiagpart :
partnership without limited partners. I'
consideration of his unlimited personal liabilityfo
the obligation of the partnership that he is grari
the general authority to manage { the firth
business (Id.). ‘ ' 4' '
2. Acts of administration or acts of strict dominion.
As a rule, he may bind the partnership by anyact
of administration, but he had no power to do the
specific acts enumerated in Article 1850 (even if
agreed to by all the general partners) without the
written consent or at least ratification of all the
limited partners. The said acts are of strict
dominion or ownership and are, therefore,
beyond the scope of the authority of a general
partner (Id. at 295). ‘ One Person, Both A General Partner And I
3. The general partners, of course, have no power
to bind the limited partners beyond the latter’s
investment (Id.).
Rights of a Limited Partner: (Bl FZARZ)
1. To have the partnership gooks kept at the
principal place of business of the partnership;
2. To inspect, at a reasonable hour, partnership
books and copy any of them;
3. To demand true and full information of the things
affecting the partnership;
434 l 2018 SAN BEDA CENTRALIZED BAR OPERATIONS
4. To demand a formal account of the partnershi
affairs Whenever circumstances render it just an
reasonable ; '
5. To Ask for dissolution and winding up by decre
of court (CIVIL CODE, Art. 1851);
6. To Receive a share in the profits or othe
compensation by way of income provided the
the partnership assets are in excess (
partnership liabilities after such payment (CIVI
CODE, Arts. 1851 and 1856); and
7. To Receive the return of his contribution provide
that:
a. All the liabilities of the partnership, excer
liabilities to general partners and to limite
partners on account of their contribution, hav
been paid or the partnership assets art
sufficient to pay partnership liabilities;
b. The consent of all the members (general an-
limited partners) has been obtained;
c. The certificate is cancelled or so amended 3
to set forth the withdrawal or reduction (CIVI.
ODE, Arts. 1851 and 1857).
Exceptions:
When letter(a) and (c) are complied with, th-
retum of the contribution is a matter of right:
i- ’On the dissolution of the partnership;
«Upon the arrival of the date specified in thi
ertifi’cate for the return; or
ttefhe has given 6 months' notice in writing
ejall other partners, given that no time i:
spéicified in the certificate for the return 0
the‘ Contribution or for the dissolution of in:
partnership (CIVIL CODE, Art. 1857).
'Rig‘ht offj'Limited Partner to Cash in Return fo
" . Contribution (CIVIL CODE, Art. 1857)
General Rule: A limited partner, irrespective of thi
*‘t‘m'ii‘a‘ture of his contribution, has only the right ti
’ demand and receive cash.
Exceptions:
1. When there is a stipulation to the contrary; and
2. Where all the partners consent to the return othe
than in the form of cash (CIVIL CODE, Art. 185'.
par. 3).
Limited Partner
A person may be a general and a limited partner a
the same time in the same partnership provided tha
this fact is stated in the certificate signed, sworn to
and recorded in the Office of the Securities anc
Exchange Commission (CIVIL CODE, Art. 1853)
(DE LEON, supra 300-301)
Allowable Transactions of a Limited Partner
1. Transacting other business with the partnership;
 PARTNERSHIP, AGENCY 8 TRUSTS
SAN BEDA MEMéR‘i’ AID acts
2. Receiving a pro rata share of the partnership
assets with the general creditors if he is not also
a general partner; and
3. Granting loans to the partnership (CIVIL CODE,
Art. 1854). '
Prohibited Transactions:
1. Receiving or holding as collateral security any
partnership property; or _ limited partnership. E, who agreed to be a limited
2. Receiving any payment, conveyance, or release
from liability if the partnership assets are less
than its liabilities(CIV/L CODE, Art. 1854).
Reason behind the prohibited transactions: To
prevent illegal competition between the limited
partner and creditors of the partnership for the assets
of the partnership (A.T.E. Financial Services, Inc. v.
Corson, 268 A. 2d 73, July 10, 1970).
Note: Violation of the prohibition will give rise to the
presumption that it has been made to defraud
partnership creditors. The prohibition as
absolute, there is no suchgprohibitio
partnership assets are sufficient; to discharge
partnership liabilities to persons not claiming as
general or limited partners (DE LEON, supraxat302).
Preferred Limited Partners , .
' Preference over one or more limited partners i
by agreement of all partners as stated ‘i‘n the ';
certificate as to the: . .
1. Return of contributions;
2. Compensation by way of income; and
3. Any other matter (CIVIL CODE, Art, E1855
Note: In the absence of such statemén'tlim
certificate, even if there is an agreementgiall th
limited partners shall stand on equal foptingiin
respect of these matters (DE LEON, supra at'30\4
Liabilities of a Limited Partner
General Rule: A limited partner is not liable as a
general partner (CIVIL CODE, Art. 1848).
Exceptions (MAGESZ):
1. When he takes part in control or Management
of the partnership (CIVIL CODE, Art. 1848);
Reason: It contemplates active participation
in the business of the partnership.
2. In the Absence of registration of the limited
partnership with the Securities and Exchange
Commission (SEC);
Reason: Lack of substantial compliance in
the formal requirements of Art. 1844 of the
Civil Code.
3. When he becomes a general partner by
estoppel;
4. When he is Erroneously designated as a
general partner and fails to correct such error
(CIVIL CODE, Art. 1852);
Illustration: A, B, C, D and E decided to create a
partner and had already contributed money, was
left out of the certificate and in the SEC records(5
PARAS, supra at 749).
General Rule: A person erroneously believing
himself that he has become a limited partner, as
in the above scenario, is exempted from liability as
a general partner (CIVIL CODE, Art, 1852).
Conditions for Exemption: (RAP)
a. On ascertaining the mistake, he promptly
Benounces his interests in the profits of
the business or other compensation by
way of income (CIVIL CODE, Art. 1852);
His surname does not Appear in the firm
name (CIVIL CODE, Art. 1846); and
' - He " does not Earticipate in the
g management of the business (CIVIL
CODE, Art. 1848).
made
~ , henghe is a general partner at the §ame time
rvrri" CODE, Art. 1853);
.
galvhe’fhhis _S_urname appears in the firm name
subject to the exceptions provided by Art.
1846 of the Civil Code. '
.«Aslimged’ partners they are not principals in the
tr'ari,‘ éi‘icm of a partnership, their liability, as a rule, is
(the partnership (CIVIL CODE, Art. 1858), not to the
./ creditors of the partnership.
Preference To Some Limited Partners
Preference can be given to some limited partners
over other limited partners. However, the preference
' must be stated in the certificate (CIVIL CODE, Art.
1855). ,
Compensation 0f Limited Partner
The right of the limited partner to receive his share of
the profits or compensation by way of income
stipulated for in the certificate is subject to the
condition that partnership assets will still be in excess
of partnership liabilities after such payment. In other
words, third-party creditors have priority over the
limited partner’s rights (DE LEON, supra at 304).
In determining the liabilities of the partnership, the
liabilities to the limited partners for their contributions
and togeneral partners, whether for contributions or
not, are not included. Liabilities to limited partners
2018 SAN BEDA CENTRALIZED BAR OPERATIONS | 435
 PARTNERSHIP, AGENCY a TRUSTS
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other than on account of their contributions arising
from business transactions by them with the
partnership, enjoy protection, subject to the
preferential rights of partnership creditors (Id.).
Note: The liabilities of a limited partner may be
waived or compromised, provided: The waiver or
compromise is made with the consent of all the
partners; and the waiver or compromise does not
prejudice partnership creditors who extended
credit or whose claims arose before the cancellation
or amendment of the certificate (CIVIL CODE, Art.
1858, par. 3)
General Rule: A person erroneously “believing
himself that he has become limited partner, as in the
above scenario, is exempted from liability as a
general partner (CIVIL CODE, Art, 1852).
Conditions for Exemption: (RAP)
1. On ascertaining the mistake, he promptly
fienounces his interests in the profits t h “
business or other compensation by ‘:{,way of
income (CIVIL CODE, Art. 1852); 1 2. When all limited partners ceased to be suc
2. His surname does not Appear in the firm name
(CIVIL CODE, Art. 1846); and
3. He does not Participate in the management of the
business (CIVIL CODE, Art. 1848).“:
Note: An heir of a deceased partne §rdinarily (not
necessarily) becomes a limited partner, for 31
protection, but he may later on elect tipbét‘.
general partner (Goquiolay v. Sycip, supra).
Substituted Limited Partner V i
A person admitted to all the rights of 'a limited partner .
who has died or has assigned his interest in the
partnership (DE LEON, supra at 313).
General Rule: He has all the rights and powers, and
is subject to all the restrictions and liabilities of his
assignor (CIVIL CODE, Art. 1859, Par. 6).
Exception: Those liabilities which he was ignorant at
the time he became a limited partner and which could
not be ascertained from the certificate (CIVIL CODE,
Art. 1859).
Requisites in Order that the Assignee May
Become a Substituted Limited Partner: (CAR)
1. All the members must Consent to the assignee
becoming a substituted limited partner, or the
limited partner, being empowered by
certificate must give the assignee the right to
become a limited partner;
2. The Certificate must be Amended in accordance
with Art. 1865; and
3. The certificate as amended must be Registered
in the Securities and Exchange Commission
(CIVIL CODE, Art. 1859).
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Note: An assignee merely receives the share of th
profits or the return of the contribution to which th
assignor would otherwise be entitled. The assigne
acquires all the rights of the limited partner only whe
he has become a substituted limited partner (D,
LEON, supra at 312-313).
Causes of Dissolution of a Limited Partnership:
1. Retirement, insolvency, Qeath, insanity, or i
interdiction (RIDIC) of a general partner;
Exception: If the business is continued b
remaining general partners (under a right so t
do stated in the certificate or with the consent (
all members) (CIVIL CODE, Art. 1860).
Note: The abovementioned causes of a genera
partner dissolve the partnership, while any (
such causes affecting a limited partner does nc
result in its dissolution, unless of course if ther
is only one limited partner (DE LEON, supra e
“314
(CIVIL CODE, Art. 1864, par. 1);
3. Expiration of the term or period of existence of th
partnership (CIVIL CODE, Art. 1830, par. 1[a]);
Q agreement of all partners before the lapse (
riod of existence (CIVIL CODE, Art. 183(
own =ondgct: of a general partner or frau
" A _ ,mittgad; by a general partner against th
limited partner/s; or
_ ,6“. When the limited partner demanded the return c
his contribution but same was unjustifiably denie
(CIVIL CODE, Art. 1857, par. 3[1]).
Note. ., ‘ he above list is NOT exclusive.
Exceptions To The Above Rule 0n Dissolution
The limited partnership is not dissolved even if
general partner lSr involved in any of th-
circumstances provided the business is continued b
the remaining general partners under a right stated i
the certificate or even if not stated, when all th
members have given their consent to the contributio
of the business (Id. at. 236).
On the death of a limited partner, his executor c
administrator shall acquire all the rights of a limiteu
partner for the purpose of settling the estate (CIVI.
CODE, Art. 1861, par. 1).
the
The estate of the deceased limited partner shall bl
liable for all his obligations or liabilities to thi
partnership as a limited partner (CIVIL CODE, An
1861, par. 2).
 PARTNERSHIP, AGENCY 8 TRUSTS
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Rights Of Creditors Of Limited Partners To
Charge The Interest Of The lndebted Limited
Partner
The creditor of a limited partner may file a petition to
charge the interest of the latter in the partnership with
the payment of the unsatisfied amount of the
creditor's claim. This is a sort of a foreclosure of the
interest of the indebted limited partner for the
satisfaction of the creditor’s claim. A receiver may be
appointed by the court to preserve the said interest.
The court may issue other orders, directives as may
be necessary under the attendant circumstances (Id.
at 237-238).
Settling of accounts or liabilities after dissolution
of a limited partnership
Article 1863 states the order of priority in the payment
of the liabilities of the limited partnership:
1. Those owing to creditbrs, 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 la
Concurrence and Preferen’bgaof Credits
applicable; " :' "4 2 ‘ including the new members if some are added; in
2. Those owing to limited partnersiin‘ respect totherr "
share of the profits and other compensation 'by “
way of income on their contributiohs; _‘ ~.
3. Those owing to limited partners infirespect, ‘
capital of their contributions; E . E ,_
4. Those owing to general partnersiEther'gt anjfor
capital and profits; < g1
5. Those owing to general partnersijir‘iyr
profits; ffj
6. Those owing to general partnersm res c
capital (CIVIL CODE, Art. 1863) (PINEDA, ‘sg
at 239—240). f
Note: In a general partnership, the claims
general partners in respect of capital”?
preference over those in respect of profits (CIVIL
CODE, Art. 1839, par. 1[c & d]).
Cancellation of Certificate or Articles of
Partnership
1. When the partnership is dissolved; or
2. When all the limited partners ceased to be such
(CIVIL CODE, Art. 1864). .
Amendment of Certificate or Articles of
Partnership
A certificate shall be amended when;
(Al-AgNaS-FRET-CO)
1. An Additional Limited partner is admitted;
2. A person'is _A_dmitted as a general partner;
3. There isva change in the flame of the partnership
or in the amount or character of the contribution
of any limited partner;
4. A person is §ubstituted as a limited partner;
5. A time is Eixed for the dissolution of the
partnership, or the return of a contribution, no
time having been specified in the certificate;
6. A general partner Betires, gies, becomes
insolvent or insane, or is sentenced to givil
interdiction and the business is continued under
Art. 1860 (RIDIC);
7. There is a false or _E_rroneous statement in the
certificate;
8. There is a change in the lime as stated in the
certificate for dissolution of the partnership or for
the return of a contribution;
9. There is change in the Character of the business
of the partnership; or
10. The members desire to make a change in any
cer statement in the certificate in order that it
shall accurately represent the agreement among
them (CIVIL CODE, Art. 1864).
Requirements for Cancellation/Amendment of a
Certificate:
Must be in writing;
be signed and sworn to by all the members
case of substitution, the assigning limited partner
must also sign; and
cancellation or amendment must be recorded in
the EC (CIVIL CODE, Art. 1865).
risqndesignated refuses to execute the
.‘afr‘nend or cancel certificate, a person
. .thgéfcancellation or amendment of a
ificate 5?:inay petition the court to order a
cancellation or amendment thereof (CIVIL CODE,
Exam} 1865). . ,
”if the court finds that the petitioner has a right to have
theviwriting executed by a person who refuses to do
., so: ,.
"1.: It shall order the SEC where the certificate is
recorded, to record the cancellation or
amendment of the certificate; and
2. When the certificate is to be amended, shall also
cause to be filed for record in said office a certified
copy of its decree setting forth the amendment
(CIVIL CODE, Art. 1865). '
Note: The approval by the Commission of the
amendment or cancellation is not required (DE
LEON, supra at 322).
General Rule: A limited partner is a mere contributor,
hence, he cannot be a proper party in a case for or
against the partnership (CIVIL CODE, Art. 1866).
Exceptions:
1. Unless the action is to enforce his individual rights
against the partnership as authorized in Art.
1851;0r
2018 SAN BEDA CENTRALIZED BAR OPERATIONS I 437
 PARTNERSHIP, AGENCY 8: TRUSTS
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2. He can be a defendant on an action filed against "'I'General Partner! = .

him by the partnership to enforce his liability to . .1 . Partnership g ,
the latter (CIVIL CODE, Art. 1866). edings'by or Against . .
a .ership ‘ " x :1 ‘j ;
Limited and General Partner/Partnership Limited partner is not General partner is the
Distin uished: CZORzB-PETZAL) a proper party to proper party to
proceedings by or proceedings by or
against a partnership against a partnership.
unless:
ompose y 1.He is also a general
more general partners general partners partner (his liability is
and one or more limited to the partners not to
partners the creditors); or
may 2.Where the object of
Limited partner General partner may the proceeding is to
only contribute cash or contribute money, enforce a limited
property to the property or industry to partner’s right
partnership but not the partnership against or liability to
services the partnership.
'. {Gilli , as” mother Business
A limite General partnership, 0 such prohibition in 1. Capitalist partner -
must be executed in a as‘a general rule “they of a limited prohibited from
certificate of limited be censtituted y _ for he is engaging in a
partnership, duly signed form "by contract or consrdered a? mere business which is of
and sworn to by all the conduct of the contributor to the the same kind of
partners and recorded partnership. unless 3 4 partnership. . business in which
in the SEC. immovable property, is the partnership is
contributed. engaged; or
flutesGove ., 2. Industrial partner —
Governed by rt. in ANY of business
for himself.
Insanity of a general Insanity of, a g ' in; Death, insanity or
partner automatically partner being a jud 'al‘ - 93°)! ‘ ,
dissolves the ground for dissolution Retirement, deat ,
partnership (CIVIL under Art. 1831 of the ’ insanity or insolvency of insanity or insolvency
CODE, Art. 1860). Civil Code, it ,will not : ' ”a limited partner does of a general partner
automatically dissolve not dissolve the dissolves the
th rtersh' " vpaftnership for his partnership.
V'P'f'EighTfiWSERTé‘ffiatgifi executor or
Partial rship > ; . administrator shall have
Limited partner has no General p artners have the rights of a limited
share in the an equal right in the partner for the purpose
management of a management of the of sellin- his estate.
limited partnership and business (when the 'Ierm of Existence
renders himself liable to manner of Required to have a May be a partnership
partnership creditors as management has not fixed term or particular with a term or a
a general partner if he been agreed upon) undertakino. ooartnershi at will.
takes part in the control Assignability of'lnterest
of the business Freely assignable, with Not assignable without
' Business Name . assignee acquiring all the consent of the
Generally, the name of Name of V a general the rights of the limited other ' partners,
a limited partner must partner may appear in partner subject to although he may
not appear in the firm the firm name. certain qualifications associate a third
name. person with him in his
share
Firm name must be No such requirement ‘ . ‘Szttetttbtyability
followed by the word Lrnediit" partner's General partner is
limited liability extends only to personally liable for
his capital contribution partnership obligations

438 l 2018 SAN BEDA CENTRALIZED BAR OPERATIONS

 PARTNERSHIP, AGENCY a TRUSTS
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Limited Partner! ' ' . (General Pa er} ” Elements of an Agency: (COC-RW)

Partnership ' " ,t [Partnersmp 1. Qonsent;
after exhaustion of a. Express or implied
partnership assets. i. Express
(DE LEON, supra at 281-282) A person may express his consent through a
contract either orally 'or in writing (CIVIL
CODE, Art. 1868);
ii. Implied
AGENCY A person may impliedly express his consent
through his conducts (CIVIL CODE, Art.
1869); or through ratification (CIVIL CODE,
A contract of agency is one whereby a person An‘. 1910)
(agent) binds himself to render some service or to do
something in representation or on behalf of another b. It is essential, for a contract of agency to
(principal), with the consent or authority of the latter exist, that the principal consents that the
(CIVIL CODE, Art. 1868). constructively present in many different
places and to perform diverse juridical
Characteristics of An Agency Contract: (PF- acts other party, the agent, shall act on its
BORN-CP) behalf and the agent consents so as to act.
. Ereparatory;
9°.‘197S-"P9’N‘

fiduciary; 0. Any person or entity having juridical capacity

gilateral (but may be unilateral);
Qnerous (generally); - qualified, may enter into an agency.
Representative Relation;
flominate;
Qonsensual; and
Erincipal
Nature of An Agency ' .
It is both a contract and a representativ‘ reléti'
LEON, supra at 328-329). '
Distinct Characteristic of a Contractfiof Age .
1. ' Representative Character — in a cont b: , f
agency, the agent acts as a representative ‘ '
principal, and not for himself; ' *
' 2. Derivative authority; and
3. The agent’s power to bring about bu (mess
relations between his principal and third persé‘ffs»
is the most distinctive mark of the agent, as
contrasted With others who act in representative
capacity but are not agents (Id. at 348).
Parties to the Contract of Agency:
1. Principal — one whom the agent represents and
from whom ‘he derives authority;
2. Agent — one who acts for and represents another.
Purpose of an Agency
To extend the personality of the principal through the
facility of the agent. It enables the activity of man
which is naturally limited in its exercise by the
impositions of his physiological conditions to be
legally extended by permitting him to be and carry on
many different activities through another when
physical presence is impossible or inadvisable at the
same time (11 Manresa 434).
nd capacity to act and not otherwise
d. A principal must be capacitated or have a
legal capacity to enter into a contract. The
agent’s capacity is usually immaterial, he
does pot have to possess full capacity to act
, or; himself insofar as third persons are
‘ . ned (DE LEON, supra at 334-336).
g lnSofaf as his obligations to his principal are
' f concerned, the agent must be competent to
bind himself. The extent to which an agent is
aafiduciary and is subjected to duties and
(liabilities to his principal depends upon his
Capacity (Id. at 336).
f. in an agent—principal relationship, the
personality of the principal is extended
through the facility of the agent. In so doing,
the agent, by legal fiction, becomes the
principal, authorized to perform all acts which '
the latter would have him do. Such a
relationship can only be effected with the
consent of the principal, which must not, in
any way, be compelled by law or by any court
(Orient- Air Services and Hotel
Representatives v. Court of Appeals, GR.
Nos. 76931-33, May 29, 1991).
2. iect: Execution of a juridical act in relation to a
third person;
3. Cause: may be onerous or gratuitous but
presumed for compensation;(C/VIL CODE, An‘.
1875).

It is not necessary that there is a consideration for

the relationship to be created;

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4. The agent acts as Representative of the principal; Bound to act according to The buyer can deal witl
the instructions of his the thing as he pleases
The acts of the agent on behalf of the principal, principal. being the owner.
within the scope of his authority (CIVIL CODE, (Id. at 362).
Art. 1881), produce the same legal and binding
effects as if they were personally done by the Agency v. Lease of Services > g ‘
principal.
.1 LeaSe’OfService 3.!
5. The agent acts Within the scope of his authority Principle of representation Principle of employmer
(DE LEON, supra at 331-332), is applied. is applied.
Extinguished at will of the Concurrence of partie
The agent may not be deprived of his right to principal or the agent. is necessary.
compensation by an unjustified revocation of the
agency (PINEDA, supra at 281). Agent exercises Employee exercise:
discretionary power ministerial functions onl
The agent must act as a representative and not for Preparatory contract Principal contract
himself, and must act within the scope of his authority (Id. at 350)
(CIVIL CODE, Art. 1881).
A encyv Trust (BET-RZP)
Acts Which May Be Delegated To An Agent
General Rule: What a man may do in person, he ma
9 par; '
do thru another (DE LEON, supra at 337). "
sis .. -
Contract or law
firingaishmen't, ., ,
Exceptions:
May be revoked ls terminated upon the
1. Personal Acts
anytime. ' ‘ accomplishment of its
2. Criminal Acts or acts not allowed by law if done
pur ose.
by the principal (2 C.J.S. 1039-1040). ’ “ ,
,Ti
Note: The relations of an agent to h " pri '_ ipal
Trustee holds title over
fiduciary in character since they are edion trust e property the property subject of
and confidence (Severino v. Seve . trusta - reement_
18058, January 16, 1923).
The trust agreement,
Knowledge of Agent ls imputed To Princip ordinarily, is terminated
General Rule: The knowledge of the agar; only upon fulfillment of
imputed to the principal eVen though the agent its puroose
communicated such knowledge to the prinCip’al
Agent acts The trustee may atc
Exceptions:(ABC) pf his principal his own name
1. Where the agent’s interest are Adverse to these
of the principal; and Agent has authority to The trustee does not
2. Where the person claiming the fienefit of the rule represent the principal . have authority to bind
colludes with the agent to defraud the principal; the trustor
3. Where the agent’s duty is not to disclose the , . ,, Eroperty . .
information, as where he is informed by way of May or may not involve Trust always involves
Confidential information (DE LEON, supra at a property. control over property
347). (Id. at 372—373)

~ . eAncy Sell v. Sale ‘ CZRAZP

Agericyti? $61,! ‘ f ,, . _ 3 Sale... Guardianship
Agent receives the goods The buyer receives " , ' Creation
as the goods of the goods as owner Founded upon consent of Created irrespective o
principal. the consent or capacitj
Agent delivers the Buyer pays the price. of the ward
proceeds of the sale ..,, > , Moi . _.::PersonfRepresented
Agent can return the The buyer, as a rule, The agent represents a The guardian
object in case he is cannot return the object principal with legal represents a person
unable to sell it sold capacity without legal capacity

440 I 2018 SAN BEDA CENTRALlZED BAR OPERATlONS

 PARTNERSHIP, AGENCY a TRUSTSSAN BEDA MEMéRY A?!) 23018

' Agency g M. Guardianship Forms of Agency

General Rule: There are no formal requirements
genresentatlon 7' ' governing the appointment of an agent.
Agent represents a person A guardian represents
who has the capacity to an incapacitated person Express;
contract for himself 2. Implied:
a. From the acts of the principal;
D. From his silence or lack of action; to repudiate
the agency knowing that another person is
Agent derives his authority Guardian does not acting on his behalf without authority (CIVIL
from his principal derive his authority CODE, An‘. 1869); and
from the ward c. If the principal delivers his power of attorney
. amid-W to the agent and the latter receives it without
any objection (CIVIL CODE, Art. 1871).
Appointment of an agentis Guardian is appointed
derived from contract. by the court and
Exception: When the law requires a specific form
stands in loco parentis.
(e.g., sale of a piece of land or any interest therein
Agent’s power may at any
thru an agent) authority of the agent shall be in
time be abrogated or Legal guardian may be
writing, othenrvise, the sale is void (CIVIL CODE, Art.
modified by the principal. substituted by law
1874). These contracts cannot be ratified. Neither
-_ gainer of Control M 3 the right to set up the defense of illegality be
Agents are subject to the Not3 subject
control , of the their direction of thei . .,
principals 3 Not . l'l impliedagency, the principal is still bound
by the acts of the agent just as in case of express
(Id. at 372).
agency.‘ '
Agency may be oral, unless the law requires a
specific form (CIVIL CODE, Art. 1869)., ‘ M': Acceptance bythe agent may also be express or
:rom :his acts which carry out the agency, or
’ M £5 .sit‘ence or inaction according to the
Kinds of Agency (CZSAN)
an. s (CIVIL CODE, Art. 1870).
1. Asto manner of Qreation
a. » Express:
i. Oral or Verbal 4 - 3 . 391mg of Acceptance By Agent
ii. Written — when the law requires a specific 1., > EXpress; and
2 ' Implied: ,
form (CIVIL CODE, Art. 1869, par. 2).
a. . Erom his acts which carry out the agency; or
b. Implied.
b. 3:»From his silence or inaction according to the
2. As to its _C_haracter .33....cit‘CUmstances (CIVIL CODE, Art. 1870).
a. Gratuitous; ' 3,
b. Compensated or onerous (CIVIL CODE, Art.
Kinds of Implied Acceptance
1. Between persons who are present (CIVIL CODE,
1875).
Art. 1871);
a. Principal delivers his power of attorney to the
3. As to extent of §cope of business covered
agent;.and
a. General — comprises all the business of the
b. Agent receives it without any objection.
principal;
b. Special — comprises one or more specific
2. Between persons who are absent(C/VIL CODE,
. transactions (CIVIL CODE, Art. 1876).
Art. 1872), the acceptance of the agency cannot
be implied from the silence of the agent, except:
4. As to Authority conferred
a. When the principal transmits his power of
a. Couched in general terms - one which is
attorney to the agent, who receives it
created in general terms and is deemed to
_without any objection;
comprise only acts of administration (CIVIL
b. When the principal entrusts to him by
CODE, Art. 1877);
letter or telegram a power of attorney with
b. Couched in specific terms.
respect to the business in which he is
habitually engaged as an agent, and he
5. As to its flature‘and effects
did not reply to the letter or telegram
a. Ostensible I repreSentative - agent acts .in the
(CIVIL CODE, Art. 1872).
name and in representation of the principal;
b. Simple I commission - agent acts in his own
name but for the account of the principal.

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Article 1872 applies only when the persons
involved are both absent unlike in Article 1871
where they are both present (PINEDA supra at
263).
in Article 1872, the general rule is that the silence
of the supposed “agent” does not mean implied
acceptance of the agency (ld.).
General Rule: Acceptance cannot be implied from
silence of the agent (CIVIL CODE, Art. 1872 par. 2).
Exceptions:
1. Principal transmits his power of attorney to the
agent, who receives it without any objection;
2. Principal entrusts to him by letter or telegram a
power of attorney with respect to the business in
which he is habitually engaged as an agent, and
he did not reply to the letter or telegram (CIVIL
CODE, Art. 1872, pars. 2 and 3).
As a rule, agency is not presumed. A presumpti
agency may arise, however, in those f
where agency may arise by operation of law'(I.e. Art. ,
1803) or to prevent unjust enrichment (DE LEON, ' '
supra at 379). . émtéfr brassy-rim , . -_
Appointment of Agent «: . * VM
it is not essential that the agent shouldgbe éppo ted
directly by the principal, but the appointmentmay, b
made through another, as by referring an ap “lic ‘
another and representing that he has autho
or the relation may arise out of an agreerné
employ the agent of another, such perso .
becoming an agent of the first party (DE LEON,
at 378). “ .
Between persons who are present, the accepta,’ e of
the agency may also be implied if the prin p
delivers his power of attorney to the agent and the
latter receives it without any objection (CIVIL CODE,
Art. 1871).
“Present” — meaning “face to face” or conversing with
each other through mobile cellphone (5 PARAS
supra at 787). .
Acceptance Between Persons Present
As regards implied acceptance by the agent, the law
distinguishes between cases
1. where persons are present (CIVIL CODE, Art.
1871); and
2. where persons are absent (CIVIL CODE, Art.
1872; DE LEON, supra at 382).
The agency is impliedly accepted if the agent
receives a power of attorney from the principal
himself personally without any objection, both being
present.
442 l 2018 SAN BEDA CENTRALlZED BAR OPERATIONS
Power of Attorney
It is an instrument in writing by which one person, a
principal, appoints another as his agent, and confer
upon him the authority to perform certain specifie
acts or kinds of acts in behalf of the principal (ld.).
Purpose: Not to define the authority of the agent a
between himself and his principal but to evidence th
authority of the agent to third parties with whom th
agent deals.
A power of attorney is valid even though no notar
public intervened in its execution (Reyes v. Santiagc
GR. Nos. 47996-7, November 27, 1975; Ange/es \
Phil. National Railways, GR. No. 150128, August31
2006).
, Distinctions Between Article 1871 and Articlr
1872
Article 1371 _ _ _ Articiemnj
Condition of Creation" 5
_ reated, both When created, both the
,pr' Clpal and agent areiprincipal and the agent
lpre‘se i _‘ are absent.
r ofi‘attorney is The power of attorney is
l elivered by not personally
pupa othe agent delivered. There is
w transmission by
messenger, or by letter
or telephone.
be h articles, there is no objection or reply given by
emag t"to the principal. Hence, agency is deemec
' ccepted (Id.).
p" son specially informs another or states by
public advertisement that he has given a power 0'
attorney to a third person, the latter thereby becomes
a duly authorized agent, in the former case witt
respect to the person who received the specia
information; and in the latter case with regard to any
person.
The power shall contribute to be in full force until the
notice is rescinded in the same manner in which it
was given (CIVIL CODE, Art. 1873).
Rule on Agency by Estoppel
One who clothes another with apparent authority as
his agent, and holds him out to the public as such,
cannot be permitted to deny the authority of such
person in good faith, and in the honest belief that he
is what he appears to be (Culson v. Court of Appeals,
GR. No. 88539, October 26, 1993).
 PARTNERS HIP, AGENCY 8r TRUSTS
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Estoppel to Deny Agency Manner of Termination or Rescission of Agency

1. Estoppel of agent — one professing to act as
agent may be estopped to deny agency both
against the asserted principal and third persons.
Estoppel of principal
3. As to agent — if he knows that another is
acting as his agent and fails to repudiate his
acts or accepts the benefits of them
' As to sub-agent —he must have known or be
charged with the knowledge of the fact of
transaction. and terms of
between the agent and sub-agent
Estoppel of third persons — A third person,
having dealt with one as an agent may be
estopped to deny the agency as against the
principal, agent, or third persons in interest. He
will not, however, be estopped where he has
withdrawn from the contract made with the
unauthorized agent before receiving any benefits
thereunder.
Estoppel of the government— the government
is neither estopped by the mistake or errorso ti"?
part of its agents. But it may be estoppe g .
affirmative acts of its officers acting Within the
scope of their authority. (DE LEON, supra at 3 39",
390).
If the agency is created under Article 1873, it shall
continue to exist and be effective until the notice
(information or advertisement) had been rescinded in
the same manner in which it was given.
The power of attorney must be revoked in the same
manner in which it was given (CIVIL CODE, Art.
1873, par. 2). '
agreement 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 (CIVIL CODE, Art. 1921).
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
(CIVIL CODE, Art. 1922).
ev s, revocation made in any manner is
effective where theperson dealing with the agent has
' ‘ actual knowledge therefor; otherwise, bad faith and
fraud would be committed (DE LEON, supra at 387).

nency b Estoppel v. Implied Agency PREN
Should be restricted to
cases where authority is
not real but apparent.
n—r
necessary.
Reliance i s
There IS no agency at
all, but the one
assuming to act as
agent has apparent or
ostensible, although not
real, authority to
reoresent another.
, 9 Nature, of Authority.
An apparent agent has
none of the rights of an
agent, except where the
principal’s conduct or
representations are
such that the agent
reasonably believed
that the principal
intended him to act as
agent in the matter.
(DE LEON, supra. at 390-391)
est ll fraud, a revocation made in any manner
hey. ,1 effeétiVe against all persons having actual
ethereof (5 PARAS, supra at 789 citing
To be ‘pfoved: from ftions’ on the New Civil Code, 16 Lawyer’s
1 Agency for Compensation
*‘igeneral ,Rule: Agency is presumed to be for
compensation (CIVIL CODE, Art. 1875).
Reliance l
necessa
Exception: Unless there is proof to the contrary.
There rs cul agecy.
The Principal alone is
Necessity of Compensation
The relation of principal and agent can be created
liable.
although the agent receives no compensation.
Gratuitous Agent
A person who agrees to act as an agent without
compensation. The promise‘ of a gratuitous agent is
" ordinarily not enforceable but the fact that he is such
Agent has actual
has no effect upon his rights and duties with
authority to act on
reference to the principal and third persons.
behalf of the principal.
However, the fact that the agency was for
compensation or not, shall be considered by the court
in determining the extent of liability of agent for fraud
or negligence (CIVIL CODE, Art. 1909).
. Liability of Principal To Pay Compensation
1. Amount — the principal must pay the agent the
compensation agreed upon, or the reasonable
value of the agent’s services, if no compensation
was specified (DE LEON, supra at 398).

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2. Compliance by agent with his obligations — the Extent by which Agent may Bind Principal i
liability of the principal to pay commission
Binds his principal by an Cannot bind his principz
presupposes that the agent has complied with his
act within the scope of in a manner beyond c
obligation as such to the principal (Id.).
his authority although it outside the specific act
may be contrary to his which he is authorized t
A broker is never entitled to commission for
special instructions. perform on behalf of th
unsuccessful efforts. Even if the broker is responsible
principal.
for making the owner and the possible buyer to meet
and discuss the terms, if no sale was consummated, , - :.;_,I .1 Continuity“
he is not entitled to a commission (Id.). Conducts a series of Usually involves a singl
transactions involving a transaction or a series c
Governing Rule continuity of service. transactions nc
The agent must prove that he was the guiding cause involving continuity.
or the “procuring cause.“
, y . Construction oflnstructions'of Principal‘,_fi;
Procuring' Cause Statement of principal Authority of agent mus
A cause originating a series of events which, without with respect to the be strictly pursued.
break in their continuity, result in the accomplishment agent's authority would
of the prime objective of the employment of the ordinarily be regarded as
broker, producing a purchaser ready, willing and able advisory only.
to buy on the owner's terms.
terminate “Anthem .
The broker must be instrumental . ggit-f} authorityfldoes Mere revocation i
consummation of the sale to ”be entitled tea, not teritiinate by the effective to terminate tht
commission (DE LEON, supra at400). \ 1" xméie revocation’lof his authority as to thin
authority . without notice persons because thr
An agency is either general or special. Thé‘fbr‘me‘r‘ ird party. third person has a duty tt
comprises all the business of the principal. Thelafltter, * * ’ inquire.
one or more specific transactions (CIVfL-CQDE; _
1876). . 9-49?»
ge ,'y':comprises all the business of th
Classes and Kinds of Agents , 9| buf'icouched in general terms, it is limits
1. Universal Agent — one employed on yto‘ acts? bf administrations (Dominion Insuranc
that the principal may personally do, and» .Qorpgv. on; G. R. No. 129919, February 6, 2002).
he can lawfully delegate to another the po
doing. '3 " nver q; Attorney
2. General Agent — one employed to transacf , ’ 75x .in’tr‘ilm'ent in writing by which one person, a
business of the principal, or all the businékSLof a at“ appoints another as his agent and confer
particular kind or in a particular place, or in’Stli‘géi‘ *‘ n ”him the authority to perform certain specifie
words to do all acts. connected with a particular acts or kinds of acts on behalf of the principal (Id. z
trade, business or employment. 382).
3. Special or Particular Agent — one authorized to
act in one or more specific transactions, or to do An agency couched in general terms comprises onl
one or more specific acts, or to act upon a acts of administration, even, even if the principz
particular occasion (DE LEON, supra at 407- ' should state that he withholds no power or that th
408). agent may execute such acts as he’may conside
appropriate, or even though the agency shoul
General Agent v. Special Agent (SECZT) authorize a general and unlimited managemer
' General Agent . Special Agent (CIVIL CODE, Art. 1877).

. . §c99é ofAuthcrity Agency Couched in General and Special Terms

Usually authorized to do Authorized to do only According to the power or authority conferred, th
all acts connected with acts in pursuance of agency may be:
the business or particular instructions or 1. Couched in general terms (CIVIL CODE, Ar

j
employment in which he with restrictions 1877); or
is engaged. necessarily implied from 2. Couched in specific terms under special power c
the acts to be done i attorney (CIVIL CODE, Art. 1878).

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 PARTNERSHIP, AGENCY G TRUSTS
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Acts of Administration
Acts of administration are those which do not imply
the authority to alienate (DE LEON, supra at 413).
However, sound management will sometimes require
the performance of an act of ownership. Hence, acts
of administration will always be a questions of fact
than of law. ' prescription already acquired by the principal
Instances Where SPA ls Necessary(C/VIL CODE,
Art. 1878) (PECWEM-LLB-BOCARO):
1. To make aments as are not usually considered
as acts of administration;
Payment is the delivery of money or the
performance in any other manner of an obligation
(CIVIL CODE, Art. 1232). It is an act of ownership
because it involves the conveyance of ownership
of money or property. (DE LEON, supra at 420).
Note: If the payment is usually considered an act
of administration, no special power of agtg'n
needed. It should be noted, however, that some}
acts of administration carry. with them, the,
exercise of acts of dominion, e.g., the saleby an
administrator of fertile land or the products of the
land (see 11 Manresa 469-470). “ ‘er of attorney is needed to validly effect such
2. To Effect novation which put an eniéto oéiigé‘tt‘éi‘ié,
already in existence at time th ‘ agency was”
constituted;
Novation is the extinction of an obligationt
the creation of a new one which substitutes
changing the object of principaI:CQndiii'
thereof, substituting a debtor or ‘subrogét
another in the right of the creditor (CIVI one:
Art. 1291). " e express mandate required by law to enable
The obligations must already be in existencegat
the time of the constitution of the agency (5
PARAS, supra at 801). .,
3. To Compromise, submit questions to arbitration,
renounce the right to appeal from a judgment,
_vgaive objections to the venue of an action or
abandon a prescription already acquired
(CAAWA); . conveys such power, no such construction shall
There are five (5) different powers mentioned
here. A right given regarding one is not enough to
grant the others.
Compromise . g
It is a contract whereby the parties, by making
reciprocal concessions, avoid a litigation or put an
end to one already commenced (CIVIL CODE,
Art. 2028).
AlD {3018
Arbitration
ls where the parties submit their controversies to
one or more arbitrators for a decision (CIVIL
CODE, Art. 2024).
An agent cannot waive: the‘ right to appeal from
a judgment; objections to the venue of an action;
(CIVIL CODE, Art. 1106) (PINEDA, supra at 293)
_4. . To Waive any obligation gratuitously;
’ This is condonation or remission (CIVIL CODE,
Art. 1270). A debtor may have a debt or obligation
to do in favor of the principal. The agent cannot
waive such credit gratuitously. Express
condonation shall comply with the forms of
donation (CIVIL CODE, Art. 1270). The waiver is
an act of ownership.
5. To Enter into any contract by which the ownership
of an immovable is transmitted or acquired either
« / t ' usly or for a valuable consideration.
‘1 nveyanc‘e‘u’ of an immovable, whether for a
valuable consideration or gratuitously, is an act of
Whership,gr'iot an act of administration. Special
fieyanges (PINEDA, supra at 295).
a: megauthority of an agent to execute a
tact f sale of real estate must be conferred
gvrit nd must give him specific authority,
either t, "conduct the general business of the
principal: or to execute a binding contract
'cbntaining terms and conditions which are in the
.fixffcontratSt/he did execute.
..an appointee of an agency couched in general
’ » ,. terms to sell must be one that expressly mentions
a sale or that includes a sale as a necessary
ingredient of the act mentioned. For the principal
to'confer the right upon an agent to sell real
estate, a power of attorney must so express
the powers of the agent in clear and
unmistakable language. When there'is any
reasonable doubt that the language so used
be given to the document (Cosmic Lumber
Corporation v. CA, GR. No. 114311, November
29, 1996).
Absence of Written Authority
It has been repeatedly held that the absence of a
written authority to sell a piece of land is ipsojure,
void, precisely to protect the interest of an
unsuspecting owner from being prejudiced by the
unwarranted act of another (Pahud v. CA, GR.
No. 160346, August 25, 2009).
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6. To _llIl_ake gifts, except customary ones for charity
or those made to employees in the business
managed by the agent;
General Rule: Gifts are donations. A donation is
an act of liberality whereby a person disposes of
a thing or right in favor of another who accepts it.
lt is an act of ownership. Hence a special power
of attorney is necessary.
Exception: Gifts which are customary for charity
or given to employees in the business managed
by the agent. Because these are only acts of
administration.(PlNEDA, supra at 297).
7. To Loan or borrow money, unless the latter act
be urgent and indispensable for the preservation
of the things which are under administration; '
What'is involved here is only money. The agent
may have in his possession funds or money of h‘
principal. He may lend this money r3 ”it
persons. He may abuse the, act of log
.
special power of attorney is necessary to ééntrol
this act as the principal will "be placed 'at a’
disadvantage if there is no limit to the disoreti'on
of the agent. If the agent loans money”“t7l‘rlth§ut‘ ’
SPA, the loan will not be binding’t" the :‘prihk l;
(PINEDA, supra at 297). ' it,
The same principle applies to the 38th
_ fbérrovgin
money. Without a SPA, the agenticjégnno: “ i“
borrow money in behalf of the prinCipal .
Bank of Caloocan v. CA, G. R. No. L 211
21, 1981). C
The rule is that the agent cannot bor ammonia
without a SPA except when the fundsgigare
necessary and indispensable for the prestewrvati‘f’iiff’W
of the property being administered by the said
agent (Sta. Catalina v. Espitero, CA-G.R. No.
27075-R, April 28, 1964).
8. To Lease any real property to another person for
more than one year;
The special power of attorney is necessary-
because a lease for more than one (1) year
creates a real right. To bind the principal, the
agent must be possessed of a special power.
(PINEDA, supra at 298).
if the lease is not for more than one (1) year, it is
merely an act of administration provided it is not
registered (Id).
The principal is the lessor and not the lessee (Id).
9. -To fiind the principal to render some service
without compensation;
446 I 2018 SAN BEDA CENTRALIZED BAR OPERATIONS
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While the agent may agree to render sorr
service without compensation, he cannot witho:
authority bind his principal to do so, unless he
given a special power to that effect. This
tantamount to bind him to render service withou
compensation. This is involuntary servitude (ld.,
10. To find the principal in a contract of partnershit
By the contract of partnership, the principal binc
themselves to contribute money, property (
industry to a common fund with the intention r
dividing the profits among themselves (CIVI
CODE, An‘. 1767). The contract of partnershi
thus creates obligations the fulfillment of whic
requires an act of strict ownership.
Furthermore, the principal must personally hav
trust and confidence in the proposed partners
(DE LEON, supra at 425).
To ligate the principal as guarantor or surety;
ggranty, the guarantor binds himself to th
., (Sr to fulfill the obligation of the principz
debtor'in case the latter should fail to do so (CIVI
”CODE, Art. 2047). This is an act of ownershi
because torfulfill the obligation, there may be
~ito pay in cash or property.
etysfiip, the surety binds himself solidaril
- * ncipal debtor. The creditor can mark
”personally liable for the debt of th:
. (principal :debtor. This is an act of strict ownershi|
.‘ (Director/of Public Works v. Sing Juco, G.R. Nc
Lamar; July 12, 1929).
\_ ”To greate or convey real rights over immovablt
prbriérty; '
An agent cannot create real rights (usufruc
Mortgage, voluntary easement) over th<
immovable property of his principal without ;
special power of attorney. This is an act of stric
ownership. With more reason, an agent cannc
convey same real rights. Both acts constitute act
of strict ownership. A special power is needer
(Phil. Sugar Estates Development Co. v. Poizai
G. R. No. L-23352, December 31, 1925).
13. To Accept or repudiate an inheritance;
14. Any person having the free disposal of hi:
property may accept or repudiate an inheritancr
(CIVIL CODE, Art. 1044). This act is one of stric
dominion; hence, the necessity of a specie
authority. To _R_atify or recognize obligation:
contracted before the agency;
An agent cannot effect novation of obligation:
existing at the time of the constitution of the
agency unless he be specially authorized to d(
so. Also, the agent cannot ratify or recognize
3
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obligations contracted before the agency without
special power of attorney (DE LEON, supra at
427).
15. Any Other act of strict dominion.
Included in the general provisions are all acts of
strict dominion not mentioned in the first cases
enumerated in the article (ld.).
Note: A third person with whom the agent wishes to
contract on behalf of the principal may require the
presentation of the power of attorney or the
instructions as regards the agency. 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 (CIVIL
CODE, Art. 1902).
Special Powers of Attorney
Refers to the clear mandate (express or implied)
specifically authorizing the performance of an act,
and must therefore be distinguished from an~ag
couched in general terms (Strong v. Repide,
L-7154, February 21, 1912) (5 PARAS, supra at 800).
‘ fitrjatg specified by him (CIVIL CODE, Art. 1882).
A general power of attorney may howeverincludé a ‘
special power if such special power‘i‘s mentioned. 6r"
referred to in the general power, e.g. “Iauthpriz
to sell all ’my properties. ”This does not need a sp
power to sell for each property involvég, since such
power has already been given.
2%. .
Effect of Lack of SPA Where One Is Réequi .
It is unenforceable(C/VIL CODE, Art. 1403).
Scope of Agent’s Authority ’
The scope of the agent’s authority is what appears I
the written terms of the power of attorney. Whilegthj
persons are bound to inquire into the extent or scop
of the agent’s authority, they are not required to go
beyond the terms of the written power of attorney.
Third persons cannot be adversely affected by an
understanding between the principal and his agent as
to the limits of the Iatter’s authority. In the same way,
third persons need not concern themselves with
instructions given by the principal to his agent outside
the written power of attorney (Siredy Enterprises, Inc.
v. Court of Appeals, etaI, GR No. 129039, September
17, 2002).
SPA to sell does not include the power to mortgage;
and vice versa. SPA to mortgage includes the power
to allow the extrajudicial foreclosure of the mortgaged
property (CIVIL CODE, Art. 1879).
A special power of attorney to compromise does not
authorize submission to arbitration (CIVIL CODE, Art.
1880)
Reason: A special power to compromise does not
authorize submission to arbitration because while the
principal may have the trust and confidence in the
judgment of his agent, he may not have the same
trust and confidence on the designate arbitrators.
To authorize a person to submit the principal’s
transactions in question to arbitration, there must be
a special power of attorney to that effect (CIVIL
CODE, Art. 1878, par. 3). Thus if the principal has
designated the names of the arbitrators to arbitrate,
the agent cannot submit the matter in controversy to
the other arbitrators (Cox v. Fay 54 Vt. 446). If there
is no designation, the agent may submit the matter in
question to any arbitrator (PINEDA, supra at 302).
When a Principal is Bound by Act of the Agent:
1. Agent must act within the scope of his authority
(CIVIL CODE, Art. 1881); and
2. Agent must act in behalf of the principal.
» e limits of the agent‘s authority shall not be
» ; exceededshould it have been performed
in a manner more advantageous to the principal than
cipal'" 1's bound by either actual or
,5; [it authority of the agent
doiétrine of apparent authority (estoppel),
‘ pa liable only as to third persons who
l‘ert‘fledwreasonably to believe by the conduct
of the prinéi‘pal that such actual authority exists,
.xalthough noihe has been given. The principal may or
' mayS/notbe‘ liable to the apparent agent(DE LEON,
“iésupr’a at 439)
Kindsof Authority
‘ Actual;
Neweewe
wExpress;
, Implied;
Apparent or ostensible;
General;
Special; and .
Emergency or authority by necessity or operation
of law (DE LEON, supra at 435-437).
When a Principal is NOT Bound By Act of The
Agent:
1. Agent acts without or beyond the scope of his
authority in the principal's name; and
. 2. Agent acts within the scope of his authority but in
his own name (Undisclosed Principal), except
when the transaction involves a thing belonging
to the principal (CIVIL CODE, Art. 1883 par. 2).
Reason: There is no representation of the principal
(DE LEON, supra at 444).
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Effects of Agent’s Acts:
1. With Authority
a. In principal‘s name — valid; principal is bound;
agent not personally liable unless he expressly
bound himself or exceeded the limits of his
authority without giving such party sufficient
notice of his powers (CIVIL CODE, Art. 1897);
illustration:
P authorized A to sell his (P’s) car. A then
sold the car in P’s name. The transaction is
valid. A assumes no personal liability (5
PARAS, supra at 812).
b. in his own name — apply Article 1883; generally
not binding on the principal; agent and stranger
are the only parties, except regarding things
belonging to the principal or when the principal
ratifies the contract or derives benefit therefrom.
Illustration — Exception To The Exception:
if P authorized A to find for him (P) ~
engagement at the Manila Grand Opera
House, and A acts in his'ovVn (A's) behalf, that
is, A wanted to sing and he got the‘job, onlyA
and the Opera House would be bound toeach V
other.
1’»
macaw
illustration: 4
P authorized Ato sell his (P’s), . , A
the car in his (A’s) own an. mefiwittiout
disclosing who the principal wazsorfii '
the agent can only have recourse again
buyer, and the buyer can have: refocur
against the agent under Article all?”
However, in this particular case, since the
belonged to the principal, P“ can ha<
recourse against the buyer and the'buyer;
have recourse against agent P(Id.). " ,.
2. Without Authority
a. In principal’s name — unauthorized &
unenforceable but may be ratified by the
principal, in which case, may be validated
retroactively from the beginning (CIVIL
CODE, Art. 1407);
Illustration:
Without P's authority, A sold P's car to a buyer
in P’s behalf. The transaction, insofar as P is
concerned is unauthorized, hence
unenforceable(C/VIL CODE, Art. 1403, No.
1). P is therefore not bound, unless he ratifies
the transaction. Without the necessary
ratification, the buyer can have a claim only
against the alleged agent A. The moment a
ratification is made, A steps out of the picture,
since he would no longer be personally liable,
and now it is P who will have'to deal with the
buyer (Id).
.
“—MOM. __._.
448 l 2018 SAN BEDA CENTRALIZED BAR OPERATIONS
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b. In his own name — valid (in case of salt
whether or not the subject matter belongs
the principal; Provided, that at the time
delivery, the “agent" can legally transfer t
ownership of the thing. Otherwise, he will
held liable for breach of warranty agair
eviction; Art. 1883 does NOT apply
PARA 8, supra at 809).
Illustration:
A,.without authority from P, and representi
himself to be the owner of P’s car, sold it tc
buyer. Here, A acted without authori
Moreover, he acted in his own behalf. lt
clear that the transaction (sale) is va
provided that at the time delivery is to
made, the “agent” can transfer legally t
ownership of the thing. Otherwise, he will
held liable for breach of warranty agair
eviction. it is also clear that only A is liable
an innocent purchaser. Here, Article 18
ges not apply because Article 18
A” upposesauthority (Id.).
f :Doctrine‘uof Agency By Necessity
.
vlf ther 'an emergency to meet, the authority of t
expanded to cover the exigencies of t
hen Principal ls Bound by the Ac
twbeyond the Latter’s Powers: (l:
/
H Where the principal’s acts have contributed
I_)_éceive third persons;
'_,Wher.e;.the gmitations upon the power created
".f'him could not have been known by the th
person;
;;Where the principal has placed in the hands
“the agent instruments signed by him in file
‘- (Strong v. Repide, GR. No. L-7154, February:
1912);
4. Where the principal has fitified the acts of t
agent (DE LEON, supra at 442).
Note: Actually, agency can never be created
necessity; what is created is additional authority in
agent appointed and authorized before t
emergency arose (Id.).
The limits of the agent's authority shall not
considered exceeded should it have been perform
in a manner more advantageous to the principal tl
that specified by him(CIVIL CODE, Art. 1882).
The provisions of this article shall be understood
be without prejudice to the actions between t
principal and the agent(CIVIL CODE, An‘. 1883).
 PARTNERSHIP, AGENCY 8: TRUSTS
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Agency with an Undisclosed Principal
Art. 1883 pertains to the act of an agent who is
authorized, but instead of acting in behalf of the
principal, he acts in his own behalf. Art. 1883 does
not apply if the agent was unauthorized or he acts in
excess ”of his authority”(5 PARAS, supra at 823).
Undisclosed Principal
Is one whom the other party dealing with the agent
has no notice of the fact that the said agent is acting
for a principal (PINEDA, supra at 308).
Reason: To protect third persons against possible
collusion between the agent and the principal. lt
applies only when the agent has, in fact, been
authorized by the principal to enter into the particular
transaction, but the agent, instead of contracting for
and in behalf of the principal, acts in his own
name(PhiI. National Bank vs. Agudelo y Gonzaga,
G. R. No. 39037, October 30, 1933).
OBLIGATIONS OF‘TIjE‘: AG,
General Obligations of an Agent ,toh‘LPl’InCJPal
(ObAE)
1. To __O_bey all lawful orders andriipsuufictiongwf
principal within the scope of the aggncy‘éémuty of.
Obedience) "' st
2. To Act with utmost good faith *a/éd logy;
furtherance of principal’s interegs (é
Loyalty); and i " ” 4 gmcipél' (CIVIL CODE, Art. 1888);
3. To Exercise reasonable care, skill
(Duty of Diligence)(ld. at 453-455).
Specific Obligations of an Agent to‘ .Pi'incip
(CAFOA-DALAR-PAID-BIR) ”“
:38:
1. To Carry out the agency which he has acc
(CIVIL CODE, Art. 1884); , to human error is part of the risk that every owner
Exception: An agent shall not carry out an
agency if its execution would manifestly result in
loss or damage to the principal (CIVIL CODE, Art.
1888).
2. To Answer for damages which through his non-
performance the principal may suffer (CIVIL
CODE, Art. 1884);
This is consistent with the terms of Arts.1170 and
1909' of the Civil Code(V/LLANUEVA, supra at
132).
Note: An action for specific performance is not
available for personal obligations to do (Id.).
3. To Einish the business already begun on the
death of the principal should delay entail any
danger (CIVIL CODE, Art. 1884);
4. To Qbserve diligence of a good father of a family
in the custody and preservation of the goods
forwarded to him by the owner in case he
declines an agency until an agent is appointed
(CIVIL CODE, Art. 1885);
General Rule: When a person declines the offer
to make him an agent, generally, no contract of
agency arises and thereby no obligation is
assumed by such person to the offeror based on
the absence of privity.
Exception: Art. 1885 provides for an exception
as when the offeree, in spite of his refusal to
accept the appointment, assumes certain
liabilities (VILLANUEVA, supra at 134).
The duty of care over goods given to his custody
can only cover a “reasonable period" because
the law provides that “the owner shall as soon as
practicable either appoint an agent or take charge
W' oods” (Id.).
jfiirance thé‘fnecessary funds should there be
(a stipulationtogdo so (CIVIL CODE, Art. 1886);
" ééptioné The agent is not bound to provide the
if the ’principal is insolvent (CIVIL CODE,
8 3 'i -
r
i ob: rry out the agency if its execution would
gnife yl‘yf result in loss or Qamage to the
{Notenotice that the article covers only acts that
‘wouldfti'“manifestly” lead to losses, in other
wgrds the agent cannot be a guarantor that the
gpnfjcipal would suffer no loss or damage in the
.piLirsuit of the agency; the sustaining of losses due
or principal assumes (VILLANUEVA, supra at
140).
7. To Answer for damages if there being a conflict
between his interest and those of the principal,
he should prefer his own (CIVIL CODE, Art.
1889x
Art. 1889 does not declare the contract or
transaction the agent entered into as void, but
merely makes the agent liable for damages
suffered by the principal (VILLANUEVA, supra at
144).
A common conflict-of-interest situation is the
purchase of principal's property. Art. 1491
provides that an agent, cannot acquire by
purchase, even at a public or judicial auction,
eithervin person or through the mediation of
another, the property under his administration or
2018 SAN BEDA CENTRALlZED BAR OPERATIONS I 449
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for sale entrusted to him, unless the consent of
the principal has been given.
Remedy when an Agent Wishes to Prefer His
Own Interest: He must timely renounce the
agency, provided his renunciation is not for the
purpose of profiting from the transaction
(PINEDA, supra at 321).
Not to Loan to himself if he has been authorized
to lend money at interest (CIVIL CODE, Art.
1890);
Exception: When the principal consents to the
same (CIVIL CODE, at Art. 1890).
Agent may lend money to the principal, but the
interest he may charge cannot be higher than the
current rate of interest (DE LEON, supra at 470).
Reason: The principal will suffer no prejudice
because the principal, just the same, will~ i
to pay interest (Id.). ‘i '
To render an Account of his transactions and to; t '
deliver to the principal whatever he may have »
received by virtue of the agency, even though it
may not be owing to the princip " ' 1 Dj
Art. 1891);
Stipulation Exempting Agent
Account is Void f ,
Reason: it is contrary to public '
CODE, Art. 1306).
The agent has an absolute duty to make a:
disclosure or accounting to his principal of all»:
transactions and material facts that mayuhave
some relevance with the agency (Domingb
Domingo, GR. No. L-30573, October 29, 1971).
Obligation to Account NOT Applicable: (SLIM)
a. ln cases of §olutio indebiti;
b. Where a right of Lien exists in favor of the
agent, the rule is not also applicable.
i. The agent may, under Art.1914, retain in
pledge the things which are the object of
the agency until the principal effects the
reimbursement and pays the indemnity
provided in Arts. 1912 and 1913.
ii. A lawyer shall have a lien upon the funds,
documents and papers of his client and
may retain the same until his lawful fees
and disbursements have been paid
(RULES OF COURT, Rule 138, Sec. 37).
- 0. Neither would the rule apply if the agent or
broker had lnfonned the principal of the gift or
bonus or profit he received from the purchaser
450 | 2018 SAN BEDA CENTRALIZED BAR OPERATIONS
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and his principal did not object thereto ([3
LEON, supra at 477).
d. The duty embodied in Art. 1891 will not apply
the agent or broker acted only as a Middleme
with the task of merely bringing together tt
vendor and the vendee, who themselve
thereafter will negotiate on the terms at
conditions of the transaction (Domingo
Domingo, supra).
Note: An agent who takes a secret profit is guilty .
breach of his loyalty and forfeits his right to colle
the commission. It does not even matter if tt
agency was a gratuitous one, or that the princip
obtained better results, or that usage or custor
allows a receipt of such bonus (Id.).
No co—ownership is created even if the commissio
of the agent is settled (US. v. Reyes, GR. Nt
12743, August 25, 1917).
agent has both physical and juridic;
OS on but_he may not set up his right (
”possesson as against that of the principal until th
"‘{agency is terminated (Guzman v. CA, GR. No
9572 July 31 1956).
nguished From Accounting
'po‘rti'in‘iports a statement of collections.
can 9 means settling of account (
ration or agency, which include
Has no independent
right, payment to him
is payment to the bank
itself. He is a mere
custodian.
, . -ln Case of MisappropriatiOn ' , :_
He is guilty of estafa. He is guilty of qualified
theft.
(DE LEON, supra at 479)~
10. To be Responsible in certain cases for the acts
a) Of the substitute appointed by him when:
i. He was not given the power to appoin
one ; and
ii. He was given such power, but withou
designating the person, and the
person appointed was notoriousli
incompetent or insolvent (ClVlt
CODE, Art. 1892);
11. To a interest on funds he has applied to his
Own use (CIVIL CODE, Art. 1896);
 PARTNERSHIP, AGENCY a TRUSTS
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Two Cases in Contemplation of the Rule:
a. The sum belonging to the principal which he
applied to his own use; and
b. The sum that the agent still owed the
principal after the expiration of the agency
(Mendoza v. C. Vda. de Goitia, GR. No. L—
31739, March 11, 1930).
12. To Act in accordance with the instructions of the
principal, and in default thereof, to do all that a
good father of a family would do (CIVIL CODE,
Art. 1887);
Note: Acting in accordance with the instructions
of the principal is different from acting within the
scope of the agent’s authority. The former refers
to the details of the execution of the agency while
the latter refers to the general parameters or
extent of the agency (PINEDA, supra at 318—
319).
13. To Inform the principal, where an authoriz
of credit has been made, of such sale
(CIVIL CODE, Art. 1906); ’
., ,. .
14. To Qistinguish goods by coUntermarks and ‘ "
designate the ,
merchandise :;g . 7:reSp'eCtiyelV”
belonging to each principal, in‘the casewgifgg
commission agent who handieSfQoodT-gs 36f"?fhe
same kind and mark, which belongzto ifgiffe‘rg‘eriti’
owners (CIVIL CODE, Art. 1904);} r ' . pointed an agent to take care of them.
15. To gear the risk of collection, shou’ii‘dhe”;
also on sale, a guarantee commission
CODE, Art. 1907);
16. To lndemnify the principal for damagesfor
failure to collect the credits of his prinCipalzat..the
time that they become due (0/e CODES'fAr‘tszr-v:
1 908);
Note: Not applicable to guarantee commission
(CIVIL CODE, Art. 1907).
17. To be Responsible for fraud or negligence (CIVIL
CODE, Art. 1909).
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(CIV/L CODE, Art. 1884).
Three Obligations Under Art. 1884:
1. Obligation to Carry Out the Agency — A person is
free to refuse the agency. But once he accepts
the agency, he is bound to carry it out in
accordance with its terms in good faith (CIVIL
AID 2018
CODE, Art. 1159) and following the instructions,
if any, of the principal (CIVIL CODE, Art. 1887;
PINEDA, supra at 314).
2. Obligation to Answer for Damages — Upon his
failure to carry out the terms of the agency, he is
liable for the damage which the principal may
suffer (CIVIL CODE, Art. 1897).
3. Obligation to finish the business upon the
principal‘s death — Although the death of the
principal extinguishes the agency (CIVIL CODE,
Art. 1919, par. 3), the agent has an obligation to
conclude the business already begun on the
death of the principal, in accord with the
principles of equity. But the duty exists should
delay entail any danger (Id.).
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. The owner shall as soon as practicable either
fligttggn agent or take charge of the goods (CIVIL
’ 1885).,
. ' fig-dbtigatiqn of theperson who declines an agency
If the owner has appointed a person to be his agent
njd . fonriggarded goods to the latter whom he
. egg togaggccept the agency but did not, the latter
ed go observe ordinary diligence in the
gservation of the goods until the owner
dose on the part of the declining person
m' liable for damages (PINEDA, supra at
Qiligenoeiof a Good Father of Family
A person who declines an agency is still bound to
gbserVe diligence of a good father of a family (CIVIL
‘I‘TCODE, Art. 1885).
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(CIVIL
CODE, Art. 1886).
An agent shall not carry out an agency if its execution
would manifestly result in loss or damage to the
principal (CIVIL CODE, Art. 1888).
Reason: The duty of the agent who is merelyan
extension of the personality of the principal is to
render service for the benefit of the principal and not
to act to his detriment(DE LEON, supra at' 468).
Hence, an agent need not proceed with the agency if
by doing so, loss or damage would manifestly be
suffered by the principal (PINEDA, supra at 320).
The agent shall be liable for damages if, there being
a, conflict between his interests and those of the
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principal, he should prefer his own(ClV/L CODE, Art.
1889).
An agent is prohibited from dealing in the agency
matter on his own account and for his own behalf
without the consent of the principal (DE LEON, supra
at 468).
lf 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(CIV/L CODE, Art. 1890).
Authority to Borrow Or Lend Money
1. If he has been expressly empowered to borrow
money, he may himself be the lender at the
current rate of interest (DE LEON, supra at 470).
Reason: The principal will suffer no prejudice
because even if the agent finds a third person as
lender, the principal just the same will beat} 1%, ,
pay interest at the current rate or prob
(PINEDA, supra at 321). ' ’
2. if the agent has been authorized; to lend»? one
at interest, he cannot be the borroirlrer withiout’fth'e
consent of the principal (DE LEO/@Supr‘ga $429).)
Reason: To protect the principal“, 'e aéé m y
not be a good payer, or may be infs'é vent, or rita
not be a good risk. More, conflict, '~1'nt ' ' ‘
bound to arise. '
Exception: When the principal ‘ves:
consent, either orally or in writing“ PIN
supra at 322).
Obligation to Render an Account:
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 (CIVIL
CODE, Art. 1891).
Every stipulation exempting the agent from the
obligation to render an account shall be void (CIVIL
CODE, Art. 1891, par. 2) because it is contrary to
public policy as it would encourage fraud. It is in the
nature of an action for future fraud which is void.
(CIVIL CODE, Art. 1171) (DE LEON, supra at 476).
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
452 l 2018 SAN BEDA CENTRALIZED BAR OPERATIONS
appointed was notoriously incompetent (
insolvent.
All acts of the substitute appointed against th
prohibition of the principal shall be void(ClVIL 0001
Art. 1892).
in the cases mentioned in Nos. 1 and 2 of th
preceding article, the principal may furthermore bein
an action against the substitute with respect to th
obligations which the latter has contracted under th
substitution(C/VIL CODE, Art. 1893).
Sub-Agent
A person employed or appointed by an agent as hi
agent, to assist him in the performance of an act f(
the principal, which the agent has been empowere
to perform (DE LEON, supra at 480).
General Rule: An agent may appoint a sub-ager
(1d,). The agent in this situation is a principal wit
”7‘ o the substitute. (Id.)
"
' I' 315. -'
? pro‘tgibited by the principal;
n meg/york entrusted to the agent to carry 0t
res special knowledge, skill or competence
origto the 2'"d exception: When 5
. gaff), urged, Qyfijthepfincipai (Id. at 481).
j Iii-airing gents hrough his own sub—agent buys from th
«tzspri’rlciipalfigthe principal is not required to fill suc
ordersuhi'ess said principal ratifies the sale after h
shes fullikhowledge of the facts of the case (Barton l
L‘e’ éizisphalt, GR. No. L—21237, March 22, 1924).
instances when Agent shall be Responsible to
the Acts of the Substitute:
1. He is not given the power to appoint; or
2. He was given such power but without designatin
the person, and the person appointed wa
notoriously incompetent or insolvent(C/VI
CODE, Art. 1892).
Reason: This is an abuse by the agent of th
principal's confidence (DE LEON, supra at 483).
Note: In these two cases the principal MAY furthe
bring an action against the substitute with respec
to the obligations that the latter has contracte
under the substitution (CIVIL CODE, Art. 1893).
Effect of Death of Principal/Agent
it will depend from whom the authority of the sub
agent was derived:
1. From the principal — Death of the agent whr
appointed him does not affect his authority
 PARTNERSHIP. AGENCY 8: TRUSTS
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2. From the agent who appointed him — Death of the .
agent terminates his authority (DE LEON, supra
at 481).
Effects of Substitution
1. Substitution expressly prohibited:
a. All acts of the substitute shall be void (CIVIL
CODE, Art. 1892);
Note: According to Dean Villanueva,
although Art. 1892 provides that all acts of the
substitute appointed against the prohibition of
the principal shall be void, the contracts are
really unenforceable insofar as the principal is
concerned and subject to his ratificatiOn
pursuant to_Articie 1317 of the New Civil Code
(Id. at 158).
In a situation where the SPA to sell a piece of
land contains a prohibition to appoint a
substitute, but nevertheless the agen
appoints a substitute who executes ,t; ,
of sale in the name of‘trte
“m
principals:
may be true that the age t may hat/téi‘iéc‘iéd ,2 l
outside the scope of his aL‘ithority, thatdid notff , yNot’e‘: ,A'l ,inndge‘nt agent has a right later on to
make the sale void, but merely; Unenforce‘able
under Art. 1317. Although the principéi 'dér’ji‘éd“
the sale, his acceptance of fithe proceeds
thereof were tantamount to ratificatiogi fijeatgof
(Escueta v. Lim, G.R. No.13é162, sanitary?
24, 2007). g: 3;; ’ Win12}; e from the day on which he did so, and
Agent is personally liable for theg‘gcts .
substitute, as though the contraCts of t
substitute were his own; and , .Jhefagentrwho converted to his personal use the
Principal would have no cause/to ‘actlo
against the substitute (VILLANUEVA, w{upra
at 160). “$n
2. Substitution authorized:
a. The substitute was designated by the agent -
it has the effect of releasing the agent from his
responsibility unless the person appointed is
notoriously incompetent or insolvent.
The substitute was designated by the
principal — absolute exemption of the agent
(DE LEON, supra at 483).
3. Substitution not authorized, but not
prohibited — if the substitution has occasioned
damage to the principal, the agent shall be
primarily responsible for the acts of the substitute
(Serona v. CA, GR. No. 130423, November 18,
2002).
The responsibility of two or more agents, even
though they have been appointed
simultaneously, is not solidary, if solidarity has
2018
not been expressly stipulated (CIVIL CODE, Art.
1894).
Joint Agents
Agents appointed by one or more principals under
such circumstances as to induce the inference that it
was the principal’s intent that all should act in
conjunction in consummating the transaction for
which they were appointed (DE LEON, supra at 484—
485).
Liability of Joint Agents
Their responsibility is joint; except if solidarity has
been expressly stipulated (CIVIL CODE, Art. 1894).
If solidarity has been agreed upon, each agent is
responsible for the:
1. Non-fulfillment of the agency; and
2. Fault or negligence of his fellow agents (CIVIL
CODE, Art. 1895).
on: When the fellow agents acted beyond the
eir authority (CIVIL CODE, Art. 1895).
, . , . . ,
’v‘recov’er'from the guilty or negligent agent (CIVIL
CODE rt. (12;.17 par. 2).
'\ atx.
if f w em for Interest
nt“ es interest on the sums he has applied
o§e wrych he still owes after the extinguishment
ofthesgenéyfrcrvm CODE, Art. 1896).
fgnds ofithe‘principal is liable for interest by way of
wtfiompensation or indemnity (which is different from
interest for delay) which shall be computed from the
f’déy he did so, without prejudice to any criminal action
‘for the conversion (Id).
While there is no liability for interest on sums which
have not been converted for the agent’s own use (De
Borja vs. De Borja, GR. No. L-38479, November 20,
1933) the agent who is found to owe the principal
sums after the extinguishment of the agency is liable
for interest from the date the agency is extinguished
(Id.).
Obligation to Deliver
The agent is bound to deliver to the principal
whatever he may have received by virtue of the
agency (CIVIL CODE, Art. 1891), demand is no
longer necessary (DE LEON, supra at 487).
Liability of an Agent to Third Persons
General Rule: Agent is not personally liable to third
persons (CIVIL CODE, Art. 1897).
2018 SAN BEDA CENTRALIZED BAR OPERATlONS | 453
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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 (CIVIL CODE, Art. 1897).
Reason: Principle of Relativity; a person acting as a
mere representative of another acquires no rights nor
does he incur any liabilities from the contract between
his principal and another party (Chong v. CA, GR.
No. 148280, July 10, 2007).
Exceptions:
Instances when Agent may lncur Personal
Liability (FOl-WEEP)(CIV/L CODE, Art. 1897):
1. Eraud and negligence by agent (CIVIL CODE,
Art. 1909);
Note: Although the agent becomes personally
liable, this does not mean that the principal is
exempted from liability. Since the acts of the
agent are by law those of the principal,,§goth
principal and the agent‘gre deem) OI
tortfeasors and are deemed solidarity liable.
insofar as third persons ’~W‘*»are concerned"
(VILLANUEVA, supra at 170).
w - w». A n
The remedy of the principal is to stfe theiageugtfor
damages due to agent’s fraudulent or hegli ._ “ ,
,
acts (Id).
2. Agent acts in his _a name;
Exception: When the contract involve
belonging to the principal (CIVIL CODE, Art.
par. 2): " ~
3. A person who acts as an agent 'of
Incapacitated principal ;
Exception: Unless the third party was aware‘lof
the incapacity at the time of the making of the
contract (DE LEON, supra at 496).
4. When a person acts as an agent V_Vithout authority
or without a principal (Id.);
5. Agent _Expressly binds himself;
The individual liability of the agent can be
considered as further security in favor of the
creditor and does not affect or preclude the
liability of the principal; both are liable (Id. at 490—
491).
Unless othenrvise indicated in the contract, the
liability of the agent with the principal is merely
joint, and not solidary (CIVIL CODE, Art. 1207).
6. Agent _E_xceeds his authority; and
454 l 2018 SAN BEDA CENTRALIZED BAR OPERATIONS
MEMéRY All) 2018
Note: The contract will be void. Nonetheless, th
agent will be liable if he undertook to secure thu
principal’s ratification (CIVIL CODE, Art. 1898).
Exceptions:
a. When the principal ratifies the act, in whic
case, the principal becomes liable.
b. When the agent has given the third person
sufficient notice about the extent of his powe
to put him on guard;
c. When the third person is aware of the limits c
the agent’s powers; or
Note: If the party with whom the agen
contracted is unaware of the limits of thr
powers granted by the principal, the contrac
is unenforceable under Article 1403 of thr
New Civil Code.
If the agent contracts in the name of the
principal, exceeding the scope of hi:
authority, and the principal does not ratify the
ract, it shall be void if the party with whon
the agent contracted is aware of the limits 0
' g the powers granted by the principal. In thi:
'case, however the agent is liable if he
" hdertook to secure the principal’s ratificatior
IVIU‘C'ODE, Art. 1898).
theiagent acts in excess of his authority, the
rintjgpal is not bound insofar as the excess is
conc‘ferned. It is unfair ifthe principal be bounc
4 in a7 contract which he did not authorize
. (PINEDA, supra at 340).
7 iActspfthe agent Erevent performance on the par
.of,th:é.p'rincipal (DE LEON, supra at 496).
an
a I Ication ; Effects
1 If the principal does not ratify the contract under
Article 1898, he is not bound by it. Only the agent
is bound, fer in effect, he is the principal acting
for himself; .
2. If the agent promised to undertake to secure the
principal’s ratification of the contract and failed ir
his promise, he alone is responsible to the party
relying on him in good faith (PINEDA, supra at
342).
Instances when Third Party is Liable towards the
Agent: (CBIT)
1. Where the agent gontracts in his own name for
an undisclosed principal, in which case, the agent
may sue the third party to enforce the contract
(CIVIL CODE, Art. 1883); g
2. Where the agent possesses a fieneficial interest
in the subject matter of the agency (CIVIL CODE,
An‘. 1907);
3. Where the agent pays money of his principal to a
third party by mistake or under a contract which
 PARTNERSHIP, AGENCY 8t TRUSTS
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proves subsequently to be Illegal, the agent being 2. By flecessity;

ignorant with respect to its illegal nature; and
4. Where the third party commits a Iort against the
agent (DE LEON, supra at 496-497).
Scope of Agent’s Authority as to Third Persons
(CIVIL CODE, Art. 1900)
Includes not only the actual authorization conferred
upon the agent by his principal, but also that which
was apparently or impliedly delegated to him
(Angerosa v. The White Company, 210 N.Y.S. 204,
1936).
1. Where authority not in writing — Every person
dealing with an assumed agent is put upon an
iairy and must discover upon his peril, if he
would hold the principal liable, not only the fact of
the agency but the nature and extent of the
authority of the agent (DE LEON, supra at 500).
Note: If he does not make such inquiry, he is
chargeable with knowledge of the; “‘3
authority, and his ignoranc’eof that auth gift
not be any excuse (Pineda‘r-v. CA, G.R.,::I\I‘o. ,
105562, September 27, 1993).
2. Where authority in writing — Such person is’itot
required to inquire further than the'termsmpf, the
written power of attorney (DE LEON, @upréfwat
502). §. § , w. ‘ j (by Principal
If the duly authorized agent acts in aboprda
the orders of the principal, the latter cannot set
ignorance of the agent as to circumstances wh at)
he himself was, or ought to have been, ate/are (C
CODE, Art. 1899).
So far as third persons are concerned, an? act is agent’vvhere he receives and retains the benefits of
deemed to have been performed within the scopér’of‘s”the transaction with knowledge of the material facts
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 (CIVIL CODE, Art. 1900).
Methods of Broadening and Restricting Agent’s
Authority: (UNDIE) (DE LEON, supra at 508-51 1).
1. By Qsage and custom;
Exceptions: (V-DEC)
a. Where it is sought to \_Iary the terms of an
express authorization;
b. Where it is sought thereby to Qispense with
a: legal requirement enacted for the
principal’s benefit; - Instruction
c. Where it is sought to vary an Essential
quality of the agency relationship; and
d. Where it is sought thereby to Qhange a rule'
- of law or as to dispense with a formality
required by law (DE LEON, supra at 509).
Requisites: (PERU):
a. The agent’s enlarged authority is exercised
for the principal’s Protection;
b. The Emergency really exists;
c. The means adopted are Reasonable under
the circumstances; and
d. The agent is Unable to communicate with
the principal (Id. at 510).
3. By certain rtrines;
a. Of apparent authority;
b. Of liability by estoppel; and
c. Of ratification (Id.). .
4. By implication (Id. at 508); or
By the rule of Ejusdem generis (Id. at 509).
Responsibility of Principal Where Agent Acted
With Improper Motives
' m ye of the agent in entering into a contract
person ,is immaterial. Where a written
.a on ivenvto‘an agent covers the thing done by
’ “him bn behalf ogthe principal, it is not competent to
i the court'to qk' into the mind of the agent and if he
‘ 1 pig‘ed [his authority for his own ends, to hold that
' ’nbt bound (DE LEON, supra at 511).
. tpefsé Wcannot set up the fact that the agent
M s _, I: dhis powers, if the principal has ratified,
‘voxryhas sig , ie'd his willingness to ratify the agent‘s
facts (CIVILfCODE, Art. 1901).
R ‘i‘iinisrieqi‘ifatirication
A principal is deemed to have ratified an act of an
“Surrounding the same (DE LEON, supra at 517).
Presentation of Instructions (CIVIL CODE, Art.
1902)
General Rule: A third person is bound to inquire as
to the extent of the agent‘s authority. A third person
deals with an agent at his peril (DE LEON, supra at
518). ‘
Exception: Private or secret orders or instructions of
the principal do not prejudice third persons.
Instruction v. Authority NEN)
Authority J
. ' . ..Ast0.lia,ture,j.,_,,..
Directs the manner of The sum total of' the
transacting the powers committed or
authorized business permitted to the agent by
and contemplates the principal; may be
only a private rule of limited in scope and

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guidance to the agent such limitations are and as described in the consignment, unless upc
and is independent themselves part of the receiving them he should make a written statement
and distinct in authority (CIVIL CODE, the damage and deterioration suffered by the san
character. Art.1881 and Art. 1882). (CIVIL CODE, Art. 1903).

Refers to the manner Broker

Relates to the subject A middleman or intermediary who, in behalf of othe
or mode of his action
with which the agent is
with respect to and for a commission or fee, negotiates or contrac
empowered to deal or transactions relating to real or personal property ar
matters which in their
the kind of business or never acting in his own name but in the name of tho:
substance are within
transactions upon which who employed him (DE LEON, supra at 360).
the scope of permitted
he is empowered to act.
action. _
, ,j""§{fe¢t ‘ov‘imit
Without significance
Limitations of “authority
as against those
are operative as against
dealing with the agent
those who have or are
without knowledge or
charged with knowledge
notice of them
of them and ignorance of
because they concern
the authority will not be
only the principal and
any excuse (see Art.
the agent (see Art. in Transa ts
1900).
1902). the name of the name 0'.
him-Persons » the principal those whc
Contemplte to «99.; , employed him.
Not expected to be made known tothe thi d . ’
made known to those person dealing with (the
whom the agent deals agent. Third persons
with. must theregpre gerif ;nd and mark, which belong to differei
investigat’ the aét s'hall'jdistinguish them by counterrnarks, ar
(DE LEON, supra at 462—463) ‘ i e th merchandise respectively belonging 1
_ n'cr (CIVIL CODE, Art: 1904).
When Departure from Principal’s l
Justified: (SAI) _ g‘The commission agent must provide identifyir
1. §udden Emergency — Where some nexpe marks on the goods belonging to different owners 5
emergency or unforeseen event occ rswhic a’lrthat' segregation may be easy (PINEDA, supra .
admit no delay for communicationiwvith . 353). He'may not commingle goods without authori'
principal, the agent is justified in adopt" ‘g the (DE LEON, supra at 520).
course which seems best to him und ‘
circumstances. V g ( The commission agent cannot, without the express (
2. Ambiguous Instructions — Where instructionsfa’r'e implied consent of the principal, sell on credit. Sh0ul
ambiguous, the agent is not chargeable with he do so. the principal may demand from hii
disobedience or its consequences in case he payment in cash, but the commission agent shall t:
makes an honest mistake and adopts a entitled to any interest or benefit, which may feSL
construction different from that intended by the from such sale (CIVIL CODE, Art. 1905).
principal. It is the duty of the principal to couch his
instructions in clear terms. A commission agent can sell on credit only with th
3._ insubstantial Departure — An agent may not be express or implied consent of the principal. lf suc
said to have breached the agency contract by sale is made without authority, the principal is give
reason of an insubstantial departure from the two alternatives (CIVIL CODE, Art. 1905):
principal’s instructions, which does not affect the a. He may require payment in cash, in which cas
result (DE LEON, supra at 466-467). any interest or benefit from the sale on crec
shall belong to the agent since the princip:
Factor/Commission Agent cannot be allowed to enrich himself at th
A person whose business is to receive and sell goods agent’s expense;
entrusted to him by the principal for a commission
and is usually selling in his own name (PINEDA, Illustration: if an agent was authorized to se
supra at 351). a Godin electric acoustic guitar for P100,00
. cash, but he sells it on credit for P120,000, th
The commission agent shall be responsible for the principal can demand from said agent the sur
goods received by him in the terms and conditions of P100,000 in cash. However, should th

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 PARTNERSHIP, AGENCY 8 TRUSTS
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agent eventually collect the entire sum of
P120,000, he gets an ultimate personal gain of
P20.000 (5 PARAS, supra at 845-846).
b. He may ratify the sale on credit in which case
it will have all the risks and advantages to him.
Should the commission agent, with authority of the
principal, sell on credit, he shall so inform the
principal, with as 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 (CIVIL CODE, Art. 1906).
Rule When the Commission Agent is Authorized
to Sell on Credit
The law imposes an obligation upon the commission
agenL when he is authorized to sell on credit, to
submit a written statement to the principal indicating
the names of the buyer or buyers. Failure to give such
statement will result in the irreversible presumption
that the sale was made in cash and the prinei “‘3
now demand the payment in cash; ,
Should the commission agent redeive on sale,
' addition to the ordinary commission, "anothercalled'a
guarantee commission, he 'shall bear the ’risk‘”of ‘
collection and shall pay the principal tfieprdce dsggf
the sale on the same terms agreedfiponfgwith he
purchaser (CIVIL CODE, Art. 1907). ' ’i
Guarantee Commission or I)
Commission . etaéxentgé responsible not only for fraud, but also
A commission which is paid to the commission
in addition to the ordinary commissionagreed ,
(PINEDA, supra at 356). ‘ ~~
Where there is a guarantee commission, "thetagent
becomes a guarantor in the payment of the purcha§é ,
price whether the sale is on cash or instalment basis
(CIVIL CODE, Art. 2047). The agent is called a del
credere agent (Id.).
Purpose of the commission: To compensate the
agent for the inconveniences and risks he has to
undergo in the collection of the purchase price
payable to the principal (ld.).
Liability of the Del Credere Agent
The liability of the del credere agent is contingent. If
the buyer fails to pay, he shall pay the principal. He
has no right to invoke the benefit of excussion (CIVIL
CODE, Arts. 2058-2059) because he is not really a
guarantor. Precisely, he is given an additional
commission for this obligation because he assumes
the risk of collection for the principal (Id.).
The liability of the del credere agent is limited to the
payment of the purchase price. It does not extend to
the other obligations arising from the contract such as
damages (Id.).
Illustration:
The agent was authorized to sale on credit an lbanez
electric guitar for P40,000 with a 10% ordinary
commission (P4,000). He was also paid guaranteed
commission of 5% (P2,000). His total profit would
therefore be P6,000. However, every time the
customer fails to pay an installment that is due, the
agent himself pays said amount to the principal (5
PARAS, supra at 850).
Note: Art. 1907 includes both credit and cash sales
because the law did not make any distinction
(Id.).
if the agent receives guarantee commission, he
cannot put the defense that the debtor-third person
possesses property (Id.).
Who may Sue the Buyer who Failed to Pay
Either the principal or the del credere agent may sue
the buyer. The suit of one will bar the subsequent suit
W” 7 er (DE LEON, supra at 523).
co mission agent who does- not collect the
"1 ,credltsofflhis‘prieipal at the time when they become
~«dUe'~~andfdem‘andable shall be liable for damages,
«.t ,né'gligeizce, which shall be judged with more or
ssf’rigorgrbyflhe courts, according to whether the
’ agencyigyiras or was not for compensation (CIVIL
wQOD, Art. 1909).
ic Obligations of a Commission Agent
(CZ-RIBS) '
1. Not to Qommingle similar goods belonging to
different principals (CIVIL CODE, Art. 1904);
2. To gollect credits of the principal at the time they '
become due and demandable (CIVIL CODE, Art.
1908);
3. To be Besponsible for the goods received by him
in the terms and conditions and as described in
the consignment (CIVIL CODE, Art. 1903);
4. To inform the principal of every pre-authorized
sale on credit (CIVIL CODE, Art. 1906);
5. To gear the risk of collection under a del credere
commission set-up; and
. Not to §_ell on credit without principal’s
0)
authorization (CIVIL CODE, Art. 1905).
Commission of Brokers
The brokers are entitled to their commission because
they were instrumental in the sale of the property.
They were the procuring cause (Tan v. Gullas, GR.
No. 143978, December 3, 2002).
2018 SAN BEDA CENTRALIZED BAR OPERATIONS l 457
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In the absence of an express contract between the
broker and his principal, the implication generally is
that the broker becomes entitled to the usual
commissions (Medrano v.'Cour't of Appeals, GR. No.
150678, February 18, 2005).
Factorage
Compensation of a factor or commission agent (DE
LEON, supra at 519).
OBLIGATIONS OF THE
PRINCIPAL
General Obligations of Principal to Agent
Duties and liabilities of the principal are primarily
based upon the contract and the validity of the
contract between them. in addition to his contractual
duties, the principal is under an obligation to deal
fairly and in good faith with his agent (3 OJ. S
Specific Obligations of Principal to
(CARIP) ' contracts;' the contract is unenforceable (CIVII
1. To comply with all the obiigatiohzé'which the agéht ;
may have contracted within the, scope. of his
authority (CIVIL CODE, Arts. 1910, 1881, 1897)
and in the name of the principal iZCIV/L CODE;
Art. 1886, 1883); ~ ,
2. To Advance to the agent, should ahe i
request, the sums necessary for thei’execq
the agency (CIVIL CODE, Art. 1912);
Note: Compare this with Art.1886 li‘yvhere
agent is bound to advance the sums necessarystQ-i
carry out the agency, but only when he so ‘
consents or it is stipulated in the agreementw'andw
if the principal is not insolvent.
3. To Beimburse the agent for what the latter has
advanced (plus interest), even if the business
was not successful, provided the agent was free
from fault (CIVIL CODE, Art. 1912);
Note: Demand for reimbursement not necessary.
4. To lndemnify the agent for all the damages, which
the execution of the agency may have caused the
latter without fault or negligence on his part (CIVIL
CODE, Art. 1913);
5. To Bay the agent the compensation agreed upon,
or if no compensation was specified,
reasonable value of the agent’s services (CIVIL
CODE, Arts. 1875, 1306). -
As for any obligation wherein the agent has exceeded
his power, the principal is not bound except when he
ratifies it expressly or tacitly(CIV/L CODE, Art. 1910).
458 l 2018 SAN BEDA CENTRALIZED BAR OPERATIONS
MEMéRY AlD 2018
Principal Bound by Agent’s Acts Done within th
Scope of the Latter’s Authority
General Rule: Whatever has been done of execute
by the agent within the scope of his authority and i
the name of the principal, is binding upon thu
principal. Consequently, the principal must compl
with all the obligations arising from the authorize:
acts of the agent (PINEDA, supra at 364).
Exception: When the transaction concerns thing
belonging to the principal (CIVIL CODE, Art. 1883).
Conversely, the principal is not bound by the acts c
the agent if the latter acted without or in excess of hi:
authority (Id. ).The agent alone is personally liable.
Exception: The principal may be bound if ht
expressly or impliedly ratifies the contract (CIVII
CODE, Art. 1393).
Binding Effect of Contracts Made Withou
etyor Outside the Scope of Authority
ether; *Rule: Principal is not bound by sucl
CODE, Art. 1403).
‘ Exceptions:
hen the , principal ratifies such contract
sslyf‘or tacitly (CIVIL CODE, Art. 1910);
.. the principal has allowed the purportec
nt to'jact as though he had full powers (CIVIL
_ 090513”. 1911); and
. When the principal has revoked the agency bu
. the third party has acted in good faith withou
notice of the revocation (CIVIL CODE, Art. 1921)
«Liability of Third Persons to Principal
1.,gased on contract — third person is liable to the
, -
'i'prinCipal upon contracts entered into by his agent, ir
the same manner as though the contract were
entered into by the principal himself (DE LEON, supra
at 535).
Reason: As the nature of agency is representative,
the relationship of the third party to the principal is the
same as that in a contract in which there is no agent
(Id.).
2. In tort — third person’s tort liability to the principal
arises in three main factual situations:
a. Where third person damages or injures
property or interest of the principal in agent’s
possession;
the
b. Where third person colludes with the agent to
injure or defraud the principal;
c. Where third person induces the agent to
violate his contract with the principal to betray
the trust reposed upon him by the principal.
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PARTNERSHIP, AGENCY a TRUSTSSAN BEDA
3. In respect of property received — in the absence
of a law or the possession by the agent of apparent
authority or circumstances of estoppel against the
principal, the latter may recover property from the
agent (Id. at 536-537).-
Note: In negotiable instrument, the law protects third
parties who are holders in due course (Id at 537).
Liability of Principal for Tort of Agent Rule
The principal is civilly liable to third persons for torts
of an agent committed at the principal’s direction or
in the course and within the scope of the agent's
employment. Whether the tort is committed willfully or
negligently has no effect on the extent ordegree ”of
the principal’s liability (Id.at 542-543).
Reason: Based upon the principle that he who does
an act through another does it himself. The agent is
also liable with the principal and their liability is
solidary (Id.at 543).
Motivation-Deviation Test ~t ,
The bounds of the agent’s authority are not the it
of the principal’s tort liability, but rather the” “scope‘of g ,
the employment” which may or may .ndt bé=within .
the bounds of authority. Scope of jemployf‘ri‘éh’tfis
much wider than scope of authority (Id). . «x 5‘s};i:ewe,
Requisites for Vicarious Liability rqrijortif; “ *
1. SatisfactOry evidence that the emp yee‘in ddin
the act, in doing of which the tort was: co 7’
was motivated in part, at least, bfa d”
serve his employer; and , Who ratifies thereby assumes responsibility for the
2. Satisfactory evidence that the act, in the do g
which the tort is committed, was not an extr‘erjn
deviation from the normal condud' gof such
employee (Id. at 543-544).
Ratification ' without his knowledge. (/d.)With respect to third
it is the adoption or affirmance by a person of a prior
act which did not bind him, but which was done or
professed to be done on his account. thus giving
effect to the acts as if originally authorized(DE LEON,
supra at 548).
Conditions for Ratification: (C-BECK)
1. Principal must have Qapacity and power to ratify;
2. Act must be done in _B_ehalf of the principal
Note: A principal cannot ratify the unauthorized
act of another person unless that person
purported to act as agent for, and in the name of
the principal, and not in his own behalf(ld.).
3. Principal must ratify the acts in its Entirety;
The acceptance of the result of the act ratifies the
whole transaction, including the means whereby
the result was achieved(DE LEON, supra at 556).
MEMéRY All) 2018
The act must be ratified in its entirety or not at all.
The principal cannot accept the benefits of a
transaction and refuse to accept the obligations.
(Id.).
4. Act must be gapable of ratification; and
5. Principal must have had Knowledge or had
reason to know of material facts about the
transaction (DE LEON, supra at 549).
Acts That May Be Ratified:
Valid acts;
.UIPP’NT‘
Voidable acts;
Unrevoked acts;
Criminal acts; and *
Tortious acts (Id. at 558—560).
Note: Acts which are absolutely void cannot be
authorized or ratified (Id. at 558).
Effects of Ratification by Principal
By ratification, the relation of principal and agency is
' fince ratification by a principal is equivalent
aythority. Once made, ratification becomes
, irrevoca 1e (Id. at» 561).
zedftransaction, and to his principal for
ithofit authority and he may recover the
atioén due for performing the act which has
9
"2 With respect to the principal himself —The principal
aflthorized‘act as fully as if the agent had acted
under, original authority but is not liable for acts
«routside’Fthe authority approved by his ratification.
Thusg’li’ratification does not render the principal liable
’fo’r'ifraUdulent misrepresentations made by the agent
persons — Ordinarily, a third person is bound by a
ratification to the same extent as he would have been
bound if the ratified act had been authorized in the
first instance, and he cannot raise the question of the
agent‘s authority to do the ratified act (Id.).
To be effective, ratification need not be
communicated or made known to the agent or the
third party. The act of conduct of the principal, rather
than his communication is the key. But before
ratification, the third party is free to revoke the
unauthorized contract (Id.).
Retroactive Effect of Ratification:
General Rule: The effect of ratification is the same
as where the principal allowed the agent to act as
though the latter had full authority from the beginning
(Id. at 562).
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Exceptions: DWC justifies others in

1. Where it would Defeat the rights of third parties believing he
which have accrued between the time of the possesses the
making of the unauthorized contract and the time requisite authority.
of ratification (Id. at 563).
if it will render wrongful an otherwise rightful act . Ratification v. E stoppel
or omission which has taken place between the
making of the unauthorized contract and the time
(fiRatifi'ati
‘ Empire! .
of its ratification (Id. at 564). Rests on intention, Rests on prejudice
If it will allow the circumvention of a rule of law express or implied, rather than intention.
formulated in the interest of public policy (Id.). regardless of prejudice
If the third party has withdrawn from the contract, to another.
the act or transaction is no longer capable of Effct ' ‘
ratification (Id.). ls retroactive and Operates upon

-
makes the agent’s something which has
Solidary Liability unauthorized act good been done but after the
Even when the agent has exceeded his authority, the from the beginning. misleading act and in
principal is solidarily liable with the agent if the former reliance on it and may
allowed the latter to act as though he had full powers only extend to so much
(CIVIL CODE, Art. 1911). of such act as can be
shown to be affected
When an agent exceeds his authority in histgagen‘fl by the stopping
the principal whom he is supposedly representing- is. . bnduct.
not bound thereby. The contract is considered
“unenforceable" as long as it is “not ratified by the Confirmations of the PrinCIpal s inducement
principal (CIVIL CODE, 1317, par. 2). Such contract
,> unauthorized act or to another to act to his
binds only the agent (CIVIL . CODE, An‘.‘ ”
centra'ct after it has prejudice. Acts and
1897)(PINEDA, supra at 371). ' '1 conduct amounting to
3;
. , an estoppel in paismay
However, the principal becomes boundiif knrj‘ Ving‘kthe etegyvithout any in some instances
acts of the agent as beyond his powé’” ~« ’ amount to ratification.
"
the agent to act as if he had full powers.?§The .(Id. at 565-566)
is solidary. They are guilty of quasi-delict wh'
liability of two or more tortfeasors is solid ary (CIVIC .
Notei In implied agency, there is actual agency. Th
CODE, Art. 2194).
"principal alone is liable. In agency by estoppel, th
”authoritypf the agent is not real but only apparent:
The agency arising from the act of the principal i'
‘ 1. lfdfithe estoppel is caused by the principal, he i
based on the principle of “apparent authority”.§;
-'z.~1li‘able to pay third persons who relied on th
‘ misrepresentation;
Ap - arent Authority v. Authority b Estoppel,"
2:" if it is caused by the agent, then only the agent i
’ . Authority by"
Estoppel , liable (Id. at 571).
Apparent Authonty
Defi ition The principal must advance to the agent, should thr
That which though not Where the principal, by latter so request, the sums necessary for thl
actually granted, the his culpable execution of the agency.
principal knowingly negligence, permits
permits the agent to his agent to exercise Should the agent have advanced them, the principe
exercise or hold him power not granted to must reimburse him therefor, even if the business 0
out as possessing. him, even though the undertaking was not successful, provided the agen
principal has no notice is free from all fault.
or knowledge of the
conduct of the aoent. The reimbursement shall include interest on the sum:
advanced, from the day on which the advance wa:
Founded on conscious Based on negligence made (CIVIL CODE, Art. 1912).
permission of acts of the principal in
beyond the powers failing properly to in the absence of stipulation that the agent shal
granted supervise the affairs of advance the necessary funds (CIVIL CODE, An
agent, allowing him to 1886), the principal must advance to the agent the
exercise powers not sums necessary for the execution for the agency
granted to him, and so

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(CIVIL CODE, Art. 1912, par. 1)(DE LEON, supra at
p. 572).
Failure of the agency, through no fault of the agent
must be borne solely by the principal. It is unfair to
hold this failure against an innocent agent(5 PARAS,
supra at 858).
Even if the agency be gratuitous, this Article still
' applies; hence, the agent will still be entitled to
reimbursement and interest. This is so because the
reimbursement and interest in Article 1912 does not
refer to compensation or commission(ld.).
if the principal failed to make the advances needed
and the agent used his own funds, he must be
reimbursed therefor even if the business did not
succeed. The right of the agent to be reimbursed is
not dependent upon the success of the undertaking
or the transaction. The reimbursement shall include
interest. In the absence of any agreement, it shall be
the legal rate at six percent (6%)(PINEDA 5% “M
374-375). “vr5. H
. C?
The principal must also indemnify the agent forali the, ' " common transaction or undertaking (PINEDA, supra
damages which the execution of (the agency-may “
have caused the latter, without fault negligence on
it,, i. '
his part(CIVIL CODE, Art. 1913).
: £2 ?
The liability of the principal for damage -3 lingtéd qnl’y’
.to that which the execution of. the agency ha caused
the agent. ThUs, no promise to indeégsinify
implied for losses or damages caged ..
independent and unexpected wrongful"i;ac':ts
person for which the principal is in no wayirespo ,
(Id.). " ~
The rule is based on equity and applies even ore if
the agency is gratuitous (5 PARAS at p. 859)."; .
The agent may retain in pledge the things which are
the object of the agency until the principal effects the
reimbursement and pays the indemnity set forth in
the two preceding articles (CIVIL CODE, Art. 1914).
Kind of Pledge in Article 1914
Legal pledge or pledge by operation of law (PINEDA,
supra at 377).
For the protection of the agent, the law provides that
the agent has the right to retain in pledge the objects
of the agency until the principal shall have
reimbursed him for the advances he made with
interest as well as the amount of indemnity for the
losses and damages he suffered while fulfilling the
agency (CIVIL CODE, Arts. 1912-1913).
Nature of Agent’s Right of Lien _ P1, 500,000, he can recover reimbursement of
1. The right is limited to the subject matter of the
agency (DE LEON, supra at 575).
2. To entitle the agent to a lien, the funds or property
against which it is asserted must be in his actual
or constructive possession,,and he must have
acquired such possession lawfully and in his
capacity as an agent (Id).
3. in the absence of ratification of the sub-agent’s
acts by the principal, the right of lien exists only
in favor of the agent and cannot be claimed by
one to whom the agent delegates his authority
where no privity exists between the sub-agent
and his principal (Id. at 575-576)
However, the agent is not entitled to the excess in
case the things are sold to satisfy his claim and the
proceeds thereof are more than the amount due (Id.
at 576).
If two or more persons have appointed an agent for a
common transaction or undertaking, they shall be
solidarily liable to the agent for all the consequences
he agency (CIVIL CODE, Art. 1915). '
ore persons who appoint an agent for a
at 378).
I Solidarity liable to the agent for all the
, neg/sot the agency (CIVIL CODE, Art.
I arftyjs he rule under this Article because of the
(common transaction. Thus, even if the agent have
been appointed separately, the rule should apply in
:Etheihterest of justice (PINEDA, supra at 378).
.Note: The ‘rule in Art. 1915 applies even when the
appointment was made by the principals in separate
acts; provided that they are for the same transaction
(DE LEON, supra at 577).
Requisites of Solidary Liability:
1. There are two or more principals
2. The principals have all concurred in the
appointment of the same agent; and
3. The agent is appointed for a common transaction
or undertaking (Id. at 576—577).
Note: Any one of the principals may revoke the
. agency (CIVIL CODE, Art. 1925).
illustrations:
W, X, and Y employ A as agent to sell a land owned
in common by the three, with A receiving a
commission of P1, 500,000. If A is successful, A can
collect from any of the three the sum of P1, 500,000
because of their solidary liability. Of course if X pays
P500,00 each from W and Y.
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C, D, and E appoint F as their agent to sell their
separate houses. The liability of C, D, and E are
merely joint and not solidary even if the appointment
is made in one instrument. This is because this is
NOT a common transaction or undertaking (5
PARAS, supra at 859—860).
When two persons contract with regard to the same
thing, one of them with the agent and the other with
the principal, and the two contracts are incompatible
with each other that of prior date shall be preferred,
without prejudice to the provisions of Article 1544.
(CIVIL CODE, An‘. 1916).
When the principal and the agent separately
contracted for the sale of the same property which is
the object of the agency, the following rules shall be
observed:
1. The contract of prior date shall prevail.
.2. _ But, if the rule on double sale under Article 1544
is applicable, said article applies.
In the case referred to in the preceding artic , ,
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 and faith, he
alone shall be responsible (CIVIL CODE, Art. 1917).
Whether the principal or the agent will-belth’eo’ne
liable for damages to the third person who has“ been
prejudiced under Article 1916 dependé'on ’{whefher
the agent acted in bad faith or not. If the: age!)
in good faith and within the scope of his aUtho‘
principal incurs liability. If the agent actedin bad‘faith
he alone shall be responsible to such third perSo
(DE LEON, supra at 580). ‘ the” agent, even if it is done in connection with hi
, -- f ;,
General Rule: The principal is liable fora/the
expenses incurred by the agent in the execution offExceptIons (DeSC)
the agency (PINEDA, supra at 381). 1. Where the delict or the quasi-delict wa
committed by the agent because of @fectiv
Exception:
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 (CIVIL CODE, Art. 1918 (1)).
Reason: To penalize the agent for disobeying
the instructions of the principal. However, if the
principal will receive the benefits derived from the
contract, there is ratification and therefore, he is ‘
bound to pay the expenses incurred by the agent
(PINEDA, supra at 381 -382).
2. When the expenses were due to the fault of the
agent (CIVIL CODE, Art. 1918 (2)).
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Reason: Fairness dictates that where ti
expenses were incurred because of the fault .
negligence of the agent, he alone should or be
the expenses (PINEDA, supra at 382).
3. When the agent incurred them with knowledg
that an unfavorable result would ensue, if tl
principal was not ware thereof (CIVIL CODE, A.
1918(3)).
Reason: To punish the agent. He should n
carry out the agency if the execution there
would manifestly result in loss or damage to tr
principal (PINEDA, supra at 382). However, if tr
principal is aware of the resulting effect of tr
execution and did not stop the agent, the age:
is excused from liability.
4. When it was stipulated that the expenses woul
be borne by the agent, or that the latter would t
allowed only a certain sum (CIVIL CODE, AI
1:918 14)).
Reason: The stipulation of exemption excuse
the principal from expenses. The parties are fre
to enter into allowable stipulations (CIVIL CODI
f1‘":1306); Further, it is not unlawful for them I
that the agent shall be liable only up to
'in ontesser sum (CIVIL CODE, Art. 1918 (4
EDA/supra at 382).
jab! Ity foggAgent’s Illicit Acts
"Genet-“5| Rulez'Where the fault or crime committed t
the agent is not in the performance of an obligation (
I athe’p'rincipal, the latter is not bound by the illicit actt
functions (5 TOLENT/NO, supra at 426)..
.
instructions from the principal, or due to the lac
of necessary vigilance or supervision on his par
the principal is liable for his own negligence;
2. When the agent §ecures a contract throug
fraud, or makes a fraudulent alienation, (
executes a simulated contract, all of these act
are imputable to the principal as if done by hinr
because the illicit act is inseparable from th
transaction executed for him; or
3. When the crime consists in the performance of a
act which is within the powers of the agent, bl
becomes Qriminal only because of the manner i
which the agent has performed it, the principal i
liable to third persons who act in good faith(ld. E
426-427).
Note: Principal is still liable for mismanagement c
business by the agent (Commercial Bank & Trust Cc
 PARTNERSHIP, AGENCY 8: TRUSTS
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v. Republic Armored Car Service Corp, GR. No. L- take necessary measure to meet the
18223-24, June 29, 1963). situation(CIV/L CODE, Art. 1929).

3. Death
MODES OF EXTINGUISHMENT
General Rule: Agency is extinguished ipso jure
OF AGENCY upon the death of either principal or agent (DE
LEON, supra at 584). The death of the principal
terminates the agency, even if a period has been
Presumption of Continuance of Agency
stipulated and such period has not yet ended
Once shown to have existed, an agency relation will
(Gabin, et. a/ v. Villanueva, GR. No. L—1849,
be presumed to have continued, in the absence of
October 25, 1949).
anything to show its termination (DE LEON, supra at
582).
Reason: Agency is both a fiduciary and a
representative relationship. There being an
Modes of Extinguishment of Agency:
integration of the personality of the principal into
(EDWARDO)
that of the agent, it not possible for the
1. Expiration of the period;
representation to continue to exist once the death
2. _D_eath, civil interdiction, insanity or insolvency of
of either is established (VILLANUEVA, supra at
the principal or of the agent;
232).
Reason: Agency requires the presence,“ {tr
and solvency of both the principal and L
(Id. at 583). :1 4
CODE, Art. 1930). .
a. If the agency has been constituted in the
3. V_Vithdrawal of the agent;
common interest of the principal and the
'1 agent; «
Note: Agent may withdraw by giving notice to the
principal, but must indemnify the principalffor
nterest in the Subject Matter
damages that he may suffer by ‘réaSon;,oi such.
ani'agency coupled with an interest, the
withdrawal (CIVIL CODE, Art. 19283.1; ge‘rij’iinterest must be in the subject matter
.;0f the power conferred and not merely an
4. Accomplishment of the object or‘t tspuriéo " interest in the exercise of the power because
the agency; "
it entitles him to compensation. When an
5. Eevocation;
agent‘s interest is confined in earning his
6. [_D_issolution of the firm or corporation, whi I...
agreed compensation, the agency is not one
entrusted or accepted the agency - "‘2' '
coupled with an interest, since an agent’s
7. _cer modes of extinguishing a simple Contract. "
"interest in obtaining his compensation as
(CIVIL CODE, Art. 1919). such agent is an ordinary incident of the
agency relationship (Lim v. Saban, GR. No.
Bases of the Modes of Extinguishment:
163720, December 16, 2004).
1. Revocation
Illustration: Zenaida borrows from Jose, and
Agency is an act of trust and confidence. lt ceases
as a security, entrusts to Jose a ring, which
when the trust and confidence disappear.
Jose can sell in case Zenaida fails to pay the
Consequently, the principal is allowed to terminate
debt at the time of the maturity. Even if
the agency when he loses his trust and confidence
Zenaida dies, the agency of Jose would still
is the agent. The unilateral act of revocation of
remain (5 PARAS, supra at 873).
the principal is sufficient cause to extinguish the
contract of agency (PINEDA, supra at 383).
b. If it has been constituted in the interest of a
third person who accepted the stipulation in
But the revocation must not be done in bad faith. .
his favor (CIVIL CODE, Art. 1930).
2. Withdrawal of the Agent Illustration: Melady sells his land to Bravo
and appoints Bravo his agent in paying with
The agent may withdraw from the agency by
the purchase price what Melady owes
giving due notice to the principal (CIVIL CODE,
Arellano, a third person. Here, even when
Art. 1928). However, although his withdrawal isfor
Melady dies, the agency of Bravo continues
a valid reason, he must continue to act until the to exist (5 PARAS, supra at 873).
principal has had the reasonable opportunity to

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 PARTNERSHIP, AGENCY a TRUSTS
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2. The act of the agent was executed without
knowledge of the death of the principal and the
third person who contracted with the agent in
good faith (CIVIL CODE, Art. 1931).
Note: The power of sale in a deed of mortgage
survives the death of the principal (mortgagor) as
it is primarily an authority conferred upon the
mortgagee for the agent’s own protection. The
right to foreclose exists independently (DE LEON,
supra at 585).
The agent must finish the business begun on the
death of the principal, should delay entail any
danger. " from the terms of the agreement, the purpo:
3. Civil Interdiction (RPC, Art. 34), insanity and
insolvency
Civil interdiction deprives the offender during the
period of his sentence of the right to manage his
property and dispose of such property byja
of any conveyance inter vivos. A persg.a def»
civil interdiction cannot validly give “consent:
(CIVIL CODE, Art. 1327).
Insolvency the principal losesl'COntrOI “of jthé‘
subject matter of the agency, the authority ,n e
agent to act for his principal generally ceases y
operation of law upon an adjudigatioig "of the
principal’s insolvency. The insoltZency;
agent will put an end to the agencyzif, it i:
way connected with the agent's buéines'
has caused his failure. ’3
4. Dissolution of the firm or corporation j,
If the agent appointed is a corporation onazfirm
(partnership) which has a juridical persOnalityff»
once it is dissolved, it could no longer functionas
a principal or an agent except for winding up of
corporate affairs (CORPORATION CODE, Sec.
122) or partnership affairs (CIVIL CODE, Art.
1832) (Id. ).
5. Accomplishment of object of purpose
At least as between the parties, principal and
agent, the fulfillment of the purpose for which the
agency is created ipso facto terminated the
agency, even though expressed to be irrevocable
‘(DE LEON, supra at 586). The agency becomes
functus officio. It has no more basis for its
existence (PINEDA, supra at 388).
6. Expiration of the period for which it was
constituted
Where an agency, by the terms of the original
agreement, is created for a fixed period or is to
464 l 2018 SAN BEDA CENTRALIZED BAR OPERATIONS
A19 8018
end at a certain time, the expiration of sur
period or the arrival of that time, results in tl
termination of the relationship, even though tI
purpose for which the agency was created h;
not been accomplished. The parties may conse
to the continuation of the agency relationsr
beyond the period originally fixed.
a. Time is specified — upon the arrival of ti
time agreed upon.
b. Time not specified — at the end of
reasonable time. Either party can termina
the relationship at will by giving notice to tl
other.
0. Period implied — the period may be implii
of the agency, and the circumstances of ti
parties (Id.).
Duty to Notify
Agent's heirs have the duty' to notify the princip
thereof and in the meantime adopt such measures a
'r rmstances may demand in the interest of tl
IL CODE, Art. 1932).
"Note: Art. 1932 does not impose on the heirs of ti
principal the duty to notify the agent of the death
a|‘(SDE LEON, supra at 626).
ne without Knowledge of Principal
dottieujby the agent, without knowledge of ti
wdeathpf th‘éprincipal or of any other cause th
”extinguishe's'the agency, is valid and shall be fu
. ' effective With respect to third persons who may ha\
{goontracteqwth
1931). . ., him in good faith (CIVIL CODE, A
Effect'lof Death in case of Multiple Agents
. . .. in case of several agents constituted for the san
' business or property — death of one or more, b
not all of them would not extinguish the agenc
with respect to those who remain living.
Note: The same 'rule applies in case of of
interdiction, insanity or insolvency of any but n
all of the common agents.
When it is clear at the constitution of the agent
that the common agents were intended to l
considered as having capacity as a group and n
individually - death, legal incapacity,
insolvency of one would legally terminate tl
agency (VILLANUEVA, supra at 237-238).
Loss or destruction of subject matter
General Rule: Agency is terminated (Id. at 589).
Exception (CSP):
1. gontrary agreement.
2. If it is possible to be §ubstituted by another.
 PARTNERSHIP, AGENCY a TRUSTS
SAN BEDA
3. Partial loss or destruction does not always
terminate the agency. It may continue in
existence as to other property nOt affected (Id).
Change of Conditions
General Rule: Where there is a basic change in the
circumstances surrounding the transaction, which
was not contemplated by the parties and which would
reasonably lead the agent to believe that the principal
would not desire him to act, the authority of agent is
terminated (Id. at 589-590).
Exceptions:
1. If the original circumstances are restored within
reasonable period of time. “'
2. Where agent has reasonable doubts as to
whether the principal would desire him to act, his
authority will not be terminated if he acts
reasonably. . Illustration: P wanted to make A his surety so P
3. Where the principal and agent are in close daily
contact, the agent’s authority to act will n
terminate upon a change of circumstanggg
agent knows the principal is aWare of the
and does not give him new instruction
590). ’ .. "principal butialso for the interest of third persons,
Revocation of Agency by Principal,
General Rule: Agency is revocableéat will ofwihe
principal, regardless of the term of the Egret-intent, at
any time, with or without reason (CLVILCOZDE
1920).
Reason: . .
1. Since the authority of the agent emanate f ’
the principal, it is enough if he wishes to withd
or terminate the agency (Id. at 595)} , . sr’iotic (Id. at 598).
2. The trust and confidence of the principal {may
have been lost (Barreto vs. Santa Marinag'GiiRTES
No. L~8169, December 29, 1913).
3. The principal-agent relationship is consensual
and personal in nature and no one can be forced
to retain another agent against his will (DE
LEON, supra at 595).
Revocation at Will Is Proper
1. Even if the agency is onerous;
2. Even if the period fixed has not yet expired (5
PARAS, supra at 866).
When done by the principal, it is called “revocation"
and when done by the agent, it is usually spoken of
as “withdrawal” or “renunciation" (CIVIL CODE, Art.
1919, par. 2) (DE LEON, supra at 594).
Wrongful termination can subject the terminating
party to a suit for damages.
The mere fact that the agency is to be irrevocable will
not make it so; and the principal may still revoke the
agency at will(CIVIL CODE, Art. 1920).
MEMéRY AED {3018
Exceptions:(COMBl) (CIVIL CODE, Art. 1927)
1. When the agency Is Coupled with interest; (DE
LEON, supra at 608).
The interest possessed by the agent is not in the
proceeds arising from the exercise of the power,
but interest in the subject matter of the power (Del
Rosario, et al. v. Abad & Abad, GR. No. L-10881,
September 30, 1958).
2. If it is the means of fulfilling an ligation already
contracted;
3. If a partner is appointed Manager of a partnership
and his termination is unjustifiable;
4. If a gilateral contract depends upon it;
made A his agent as a sort of inducement to
safeguard him from eventual loss (5 PARAS,
"he ’ pigmat 820); and
created-not only for the interest of the
who have stocepted the stipulation in their favor.
. Agency coupled with interest may be
edfprfi just cause (Id. at 614).
It
Expregs noiiceto the agent is not always necessary.
If, the, party .to be notified actually knows, or has
"."reason to‘know, facts indicating that his authority has
been terminated or suspended, there is sufficient
: A revocation without notice to the agent will not
' render invalid an act done in pursuance of the
authority (Id).
2) To third persons
Notice by publication is sufficient (ld.; CIVIL CODE,
Art. 1873).
Note: In the absence of any notice of revocation, the
principal may also be held liable even to third persons
who never dealt with the agent previous to the
revocation, if they, in common with the public at large,
are justified in believing that such agency continues
to exist (DE LEON, supra. at 599).
Kinds of Revocation:
1. Express revocation; and
2. Implied revocation
Reason: The essence of the relationship is
(consensual hence the principal has no right to
2018 SAN BEDA CENTRALIZED BAR OPERATIONS | 465
 PARTNERSHIP, AGENCY a TRUSTS
SAN BEDA MEMéRY AH) 2018
affinnative specific performance of the agency (Id. at
600).
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 (CIVIL CODE, Art. 1921).
Agency For The Purpose of Contracting With
Specified Third Persons
The revocation of this kind of agency shall not
prejudice specified persons who were not timely
notified of the act of revocation. They must be given
the opportunity to meet the situation so that they may
be able to protect their rights and interest(PINEDA,
supra at 391).
If the agent fails or refuses to return the power of
attorney, it is incumbent upon the principal to give
proper notice to the members of the public who may
be affected by the revocation. Under Article 1921 of
the New Civil Code, if the agency has been entrust
for the purpose of contracting With specified fietsonsw
1 By the, act of the principal in direct
its revocation shall not prejudice the latter Who were
not given notice thereof(V/LLANUEVA, supra at 209)?
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 reVOcat‘i'o”
Notice of the revocation in a newspaper ofgge'n‘e'ral
circulation is a sufficient warning to th'rd ‘p " ED: «(supra at 397).
(CIVIL CODE, Art. 1922). , *
The appointment of a new agent for the
business or transaction revokes the previous age
from the day on which notice thereof was given tot,
former agent, without prejudice to the provisions ”0
the two preceding articles (CIVIL CODE, Art.1=923).
Implied revocation may be effected:
1. By the act of the principal in appointing another
agent for the same business or transaction (CIVIL
CODE, Art. 1923);
There is implied revocation of the previous
agency when the principal appoints a new agent
for the same business or transaction provided
there is incompatibility (DyBuncio& Co. vs. Ong
Guan Guan, GR. No. L-40681, October 2, 1934)
The revocation does not become effective as
between the principal and the agent until it is in
some way communicated to the latter (DE LEON,
supra at 603).
The rights of third persons who acted in good
faith and without knowledge of the revocation will
not be prejudiced thereby (CIVIL CODE, Arts.
1921—1922).
486 I 2018 SAN BEDA CENTRALIZED'BAR OPERATIONS
A special power revokes a general one (Cllz
CODE, Art. 1926).
Note: The effect of revocation is witho
prejudice to the rights of third parties who we
not aware of or notified of such situation.
In Garcia v. De Manzano (G.R. No.1341
February 4, 1919), where the father first gave
power of attorney over the business to his S(
and subsequently to the mother, the Court he
that without evidence showing that the son w;
informed of the issuance of the power of attorni
to the mother, the transaction effected by the S(
pursuant to his power of attorney was valid at
binding (VILLANUEVA, supra at 210—211).
2. But there is no- implied revocation where tt
appointment of another agent is not incompatib
with the continuation of a like authority in the fir
agent, or the first agent is not given notice of ti
‘ intment the new agent (DE LEON, supra
managing the business entrusted to the age
,"(C/VIL cope, Art. 1924);
agenCy is deemed impliedly revoke
. se tgiere is no‘ more basis for the existenc
agenCy. There is no more representation
.9' which is the basis of the agenc
”'4; "But the "intervention of the principal after havir
_, appointed an agent in the very business which t
Lhaswdelegated to the latter will not revoke tr
3/” agency if there is no incompatibility.
\ ' rule applies only in the case i
” , incompatibility, because it may be that the on
desire of the principal is for him and the agent I
manage the business together. In case of tru
inconsistency, the agency is revoked, for ther
would be no longer any basis therefor (1
Manresa 547).
When is the agency revoked?
Although the provision does not state when th
act of revocation takes place, it can be presume
therefore that the moment the principal directl
manages he business by dealing directly wit
third persons, the agency is revoke
(VILLANUEVA, supra at 211).
Note: Revocation of the agency is only wit
respect to the third persons with whom th
principal deals directly; as to third person wh
have previously known of the power of attorneyc
the agent and who have not dealt with th
principal, the agency cannot be considere
revoked (Id.).
 PARTNERSHIP, AGENCY 8 TRUSTS
SAN BEDA MEMéQY Ase
it is also apparent that unless the agent is aware
or given notice that the principal has directly
managed the business which is covered by his
power of attorney, then insofar as the agent is
concerned there is as yet no revocation of his
powers ( Id.). '
Direct management of the business by the
principal and directly dealing with third parties
shall be deemed to produce the effect of
revocation when such acts would be
INCONSISTENT with the terms of the powers of
attorney previously given to the agent (Id.).
The grant to a person an “exclusive agency"
position does not mean that the agency is'
irrevocable within the period provided in the
contract of agency, but that merely means that
the principal would not appoint another agent to
handle the business covered (CMS Logging v..
Court of Appeals, GR. No. 41420, June 1 . ”Revocation at Will
1992). ‘ {a Rule on Revocation: The principal may
When two or more principals have gran e a
power of attorney for a commonltransaction, any
one of them may revoke the same without the
consent of the others (CIVIL CODE, Art, 1925). ’ ‘
As the appointment of an agent by tt‘rvo (232 or taste,
principals for a common transaction
undertaking makes them solidarilfr’fiiliabl: to 3the
agent for all the consequences offthe 2% ”N
«:5
(CIVIL CODE, Art. 1915), any f‘one ”b (e
' principals is granted under this article the right to
revoke the power of attorney without the consent
of the others (DE LEON, supra at 606)._ ''
Reason: In a solidary obligation, the aét pf one is
the act of all (Id. ). . M7»? xv’yiafg: ; ,p-nff
By the act of the principal in subsequently
granting a special power of attorney as regards
the same business to another agent, where he
had previously granted a general power of
attorney to one agent (CIVIL CODE, Art. 1926).
When an agent is granted a general power to do
certain acts by his principal and the latter
subsequently granted a special power to another
agent to do the same matter or transaction, the
fom1er power is impliedly revoked. There is a
parallelism with the rule that a special law
prevails over a general law. impliedly, a general
power subsequently granted to another agent
does not revoke the special power, unless it is
clearly stated that the special power is revoked
by the subsequent general power(P/NEDA,
supra at 399).
2018
Note: A special power 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
(5 TOLENTINO, supra at 436).
Effects of Revocation to Third Persons:
1. If the agent is authorized to contract with specified
persons, revocation will not prejudice such third
persons until notice is given to them (CIVIL
CODE, Art. 1921);
Note: Notice by public advertisement would not
constitute sufficient notice to bind such specified
third parties (VILLANUE VA, supra at 232).
2. If the agent is authorized to contract with the .
public in general, publication in a newspaper is
sufficient (DE LEON, supra at 598).
agency. at ,will.
‘ V’Eixcéptions:
’1'. When a bilateral contract depends upon it;
lift ‘5 a means of fulfilling an obligation already
acted
rtne‘r is appointed manager or a partnership
d'r‘ {hecéntract of partnership and his removal
. thémmanagement is unjustifiable (CIVIL
fDE, (if 1927) .
.592.“ e.-
. “Agency Coupled with an Interest
2: An agency that is established for the mutual benefit
of the principal and of the agent, or for the interest of
“ the principal and of third persons, and it cannot be
revoked by the principal so long as the interest of the
“agent" or of a third person subsists (PINEDA, supra at
400).
When A Partner ls Appointed Manager of A
Partnership Andfls Removed Unjustifiably
if a partner was agreed to bathe manager of a
partnership as indicated in the Certificate of
Partnership. and for which he would devote time and
efforts and was thus induced to resign from his other
Professional works so he could render full time as
manager, and has been dealing with third persons as
a representative of the firm, his appointment as
manager cannot be revoked without valid justification
(CIVIL CODE, Art. 1800).
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 therefore, unless the agent
should base his withdrawal upon the impossibility of
continuing the performance of the agency without
grave detriment to himself (CIVIL CODE, An‘. 1928).
2018 SAN BEDA CENTRALIZED BAR OPERATIONS l 467
 PARTNERSHIP, AGENCY a TRUSTS
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Just as the principal may, at his will, terminate the
representation conferred by revoking the power
executed, likewise the agent may terminate the
agency by renouncing the trust(PINEDA, supra at
406).
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 (CIVIL
CODE, Art. 1929).
Even when the agent withdraws from the agency for
a valid reason, he must continue to act until the
principal has had reasonable opportunity to take the
necessary steps like the appointment of a new agent
to remedy the situation caused by the withdrawal;
The purpose of the law is to prevent damage or
prejudice to the principal (DE LEON, supra at 618).
The agency shall remain in the full force and effec
event after the death of the principal, if it lg f 'ggéfitge legal title to such property, the equitabl
constituted in the common interest of the Iatt: % a
the agent, or in the interest of a'third person”w c has
accepted the stipulation in his favbr (CIVIL,CODE
Art. 1930) \ ’3orniEIBfiflDE LEON, supra at 628).
we
General Rule: Agency is terminatediés’tanily tug?
death of the principal (CIVIL CODE, gri1§1§
) ~
Exceptions:
1. If the agency has been constituted
common interest of the principal and the
(CIVIL CODE, An‘. 1927); 53;};
2. If it has been constituted in the intére’St'of a
person who has accepted the stipUla’tibniin him
favor (CIVIL CODE, Art. 1311); ‘ ..
3. If the agent had already begun the business-anWfi%%UG¢GMber 25’ 1968)-
there is an imperative need to finish the same‘ttSH
avoid danger, prejudice or damage to the
principal.
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 (CIVIL CODE, Art.
1931).
An act done by the agent after the death of the
principal is valid and effective only under two
conditions:
1. That the agent acted without knowledge of the
death of the principal;
2. The third person who contracted with the agent
acted in good faith.
If the agent dies, his heirs must notify the principal
thereof, and in the meantime adopt such measures
468 | 2018 SAN BEDA CENTRALIZED BAR OPERATIONS
as the circumstances may demand in the interest 1
the latter (CIVIL CODE, Art. 1932).
General Rule: An agency cannot be performed t
the agent’s personal representatives in case of h
death because agency calls for personal services.
Exceptions:
1. In case of agency by operation of law or presume
’or tacit agency;
2. Where the agency is one coupled with an interes
(DE LEON, supra at 626).
TRUST
Trust
A fiduciary relationship between one person havin
an equitable ownership in a property and anothe
fi of the former entitling him to th
a’fice of certain duties and the exercise <
certain powers by the latter for the benefit of th
was i :53 7
. “confidence," “fiduciar
ipfigetc. and is often used in reference to th
ial”,é‘spect of any kind of a bailment c
i oni‘gy’bne person of the property of anothe
gigs;
trusti‘is based on equity
,Iisflmnded on equity such that it cannot result fror
j, L a'péntract formed for an illegal purpose. Neither ma
(awfla‘itrustpé created for the purpose of evading a legs
prehibition (Deluao v Casteel, GR. No. L-21906
yj’iwr—u.
Concept of Trust (Fideicomisso)
It is a fiduciary relationship created by agreement c
by law where the trustor of the property has th«
equitable title while the legal title is vested in anothe
(trustee). The trustee holds the property for th:
benefit of another (beneficiary) who could be thi
trustor himself or a third person.
Note: The trustee is not an agent of the trust estati
or of the cestuique trust, but he acts for himself in thi
administration of the trust estate, although subject t(
the terms of the trust and the law of trusts (DE LEON
supra at 634).
Exception: A trustee has been regarded as an agen
of the beneficiaries of the trust at least for certaii
purposes, such as for the purpose of imputing to the
beneficiaries of the trust notice given to the trustee.
 PARTNERSHIP. AGENCY a TRUSTS.
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Persons Involved in a Trust of the subject matter by arrangement, a

1. Trustor —- the one who intentionally creates a the buyer. medium, by which the
trust; trustee is expected to
2. Trustee — the person who holds the legal title to pursue other juridical
the trust property, for the.- benefit of another, and acts for the benefit of
with certain powers and subject to certain duties. the beneficiary.
The trustee may be a natural person or legal
(VILLANUEVA, supra at 281)
entity; and
3. Beneficiary or the cestuique trust — the person
Trust v. Lease
who has the equitable interest in the property and
enjoys the benefit of administration by the trustee. ' Trust Lease
He may be a natural person or a legal entity. The Naked title is transferred Lessor retains naked
trustor may establish a trust with himself as the to the trustee; full title.
beneficiary (usual case). beneficial ownership is
for the account of the
Note: The trust may provide for more than one beneficiary.
beneficiary (Id. at 631—632). Essence of the contract Essence of the contract
is for the trustee to is the enjoyment of the
Trustor as trustee or beneficiary manage the trust possession and use of
The trustor may establish a trust with him as the property as the legal title the leased property.
trustee or the beneficiary. He cannot, however, be the, holder for benefit or
sole trustee and the sole beneficiary of a singl 1" . . of the
(Id. at 632). " .
.safi

Trust Distinguished from Other Relations ” Benefits enjoyed by the Benefits enjoyed by the
What distinguishes a trust from other relations is the 7 V ‘ beneficiary are usually of lessee are only for a
separation of the legal title and {the equitable“ a permanent nature. limited contracted
ownership of the subject property between twggr period.
more people (Id. at 630).

, Donation
3'5.'i'sting legal There is a transfer of
ownership, embracing a on an j , ., 'rgratroqéhip, which property as well as the
set of rights and duties supported, t; by ‘ ‘ 3" . jhvolVe‘s the separation of disposition of both
fiduciary in character,,considerationfiiu, ~ leg" and equitable title. legal and equitable
which may be created by obligation may“ or; may/4‘” ‘ ‘ j ownership except in
a declaration without not be fiduciary’wtr} ~ cases of gifts in trust.
consideration. character. The beneficiary of a trust The donee must
(Id. at 631). ' may demand comply with the legal
perfomtance of the requirements in
Trust v. Sale obligation without having accepting donations.
Sale formally accepted the
benefit of the trust in
An express trust is not Seller obliges himself to
public document, upon
perfected by mere transfer ownership and
mere acquiescence in
consent, but requires the deliver possession to
the formation of the trust
actual delivery of the the buyer.
and acceptance under
naked or legal title to the
the second paragraph of
trustee for the
Art. 1311 (stipulations
relationship to legally
pour autrut).
arise.
(Id at 630-631)
Trustee in an express Buyer takes full
trust only takes naked or ownership of the Trust v. Debt
legal title and for the subject matter for his
benefit of another‘ sole benefit.
Berson, the beneficiary. The beneficiary of a trust A creditor has merely a
Entered into for its own Constitutednmerely asa has a beneficial interest in personal claim against
end, the acquiring of title preparatory the trust property. the debtor.

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 PARTNERSHIP , AGENCY 8t TRUSTS
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, ’tétéf‘ébfifiidu'c ary’Retationship Trust Property

is a fiduciary There is no fiduciary The property so held is referred to as the “tn
relationship between a relationship between a property" or “trust res", which is the subject matter
trustee and aybeneficiary. debtor and creditor. the trust. The subject matter of a trust may be a
(Id. at 631)" property of value (DE LEON, supra at 632).

Trust v. Stipulation PourAutrui Property Must be Existing

It can arise either by virtue
of a contract or by legal
provision.
Stipulatipn Paar
ltc an arise onyl y ,
virtue of a contract and
never by operation of
law.
It must consist of property actually in existence
which the trustor has a transferable interest or ti'
although it may, as a rule, be any kind of transferat
property either realty or personalty. But it cannot be
mere expectancy without right or interest or a me
interest in the performance of a contract althoug
such interest is in the nature of a property right (Id.

Alw y a specific Could either be Owned by Two Persons

property, whether real or
personal, including
undivided interest therein
as in co-ownership
choses in action.
10‘1“.
Either express or implied. Aly
It continues to exist must be accepted :by ‘ f The trustee is not a mere agent, but an owner(ld.).
unless repudiated.
ru t. Trust Receipt . «f
,. at?
The right to the beneficial
enjoyment of a property
but the legal title to which
is vested in another.
Fiduciary eenioymt bfa
property
The trust property is owned by two persons at tl
specific property or
same time, the relation between the two owne
an other things.
being such that one of them is under an obligation
use his'ownership for the benefit of the other. (L
or
LEON supra at 633).
The wnei'ship of the trustee is a mere matter of for
expresswaind rather than substance, and nominal rather than re:
the third person before; ‘
"a't'acter of Office of Trustee
incipal— The trustee is not an agent of ti
estate or of the cestuique trust, but he ac
ims'elf in the administration of the tru
ateaithough subject to the terms of the tru
' " Trust Re 4_ aw of trusts. He cannot act as an age
offthe trust estate for the reason that it lacl
' , juristicpersonality.
' :2. {As agent — In some cases, however, a trust:
connected , . - has been regarded as an agent of beneficiarii
importation Of}, “nods- ofthe trust at least for certain purpose, such 2
through letter ’of “(or the purpose of imputing to the beneficiaries
credit ' , the trust notice given to the-trustee.
3.. As fiduciary — A trustee holds an office of trust.
Involves a security trustee has a duty of loyalty. He has tl
transaction intended obligation to avoid conflicts of interest with ti
to aid in financing beneficiary, and even potential conflicts
importers and retail interest. He is expected to exercise the degree
dealers who do not care, prudence and skill that a reasonab
have sufficient funds prudent person would exercise in administerir
or resources to and protecting his own property (Id. at 634).
finance the
importation or Note: A trust is not void for indefiniteness if by i
purchase of terms the whole property will go to beneficiaries M
merchandise, and are undetermined but will be determined at tt
who may not be able termination of the trust, at the latest. It is n
to acquire credit necessary to the creation of a trust that the cestuiqL
except through trust be named or even be in existence at the time .
utilization, as its creation (Id. at 635).
collateral, of the
merchandise Trusts are either express or implied. Express trusts
imported or are created by the intention of the trustor or for the
purchased. parties. Implied trusts come into being by operation
of lay (CIVIL CODE, Art. 1441).

470 l 2018 SAN BEDA CENTRALIZED BAR OPERATIONS

 PARTNERSHIP, AGENCY a TRUSTS
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Classifications ofTrust Created by the direct Those, without being

1. As to Effectivity — from the viewpoint of whether and positive acts of the expressed, are
they become effective after the death of the parties by some writing deductible from the
trustor or during his life, it may be either: or deed or will or by nature of the transaction
a. Testamentary trust; _ words evidencing an by operation of law as
b. Trust inter vivos (sometimes called “living intention to create a matters of equity,
trusts"). trust (JURADO, supra independently of the
at 920). particular intention of the
2. As to Creation ,— from the viewpoint of the
creative force bringing them into existence, it may
be either: An express trust over
a. Express trust— created by the intention of the an immovable property
trustor or of the parties. It is created by the or any interest therein
An implied trust may be
direct and positive acts of the parties, by cannot be proved by ?C(7\\I/‘Iel_dCbé/00Era|A:\/i?:g;)e
some writing, deed, will or by words, either parol evidence (Id. at
expressly or impliedly, evincing an intention to 655 ,
create a trust. , ,_; Asto Bresértptionf...j
_ _ Action must be made In resulting trust: Action
F'GMGMSZ (CORB) within 10 years from must be made within 10
'- npetent trustor and trustee; knowledge of the years from knowledge of
ii. Ascertainable trust fies; and . _ ,repudiation, otherwise repudiation, otherwise
Ill. Suffrcrently certain fienefrcranes s , d. prescribed.

Note: Consideration is not rebuked (DE LE In constructive trust: It

supra at 636-637). ' . must be made with 10
years from date of
b. Implied trust — one which comes into being- registration (DE LEON,
by operation of law. This mafieither H (M supra at 657).
i. Resulting trust — one,§' whch “fine {Doctrine of Lashes ‘ , '
intention to create a trust/,is piesur’rxiedi In constructive trusts,
by law to exist from the... "nfsadtion and even if there is f no
facts of the case; or 8' '- repudiation, laches may
ii. Constructive trust - one, ,mp bar an action to enforce
Iaw irrespective of and eve}: con . an implied trust
the - intention of the parties.
designed to promote justic‘eri Exception: If there is
fraud and prevent unjust eff'chmeiyit"? concealment (Id. at 669-
(Id. at 636). ‘ " 671).
to '§_ue and be [Sued
Reason: No one shall be unjustly enriched atthe Trustee can sue and be
expense of another. sued alone (PAL, Inc. v.
Trustee cannot sue and
‘ H I L .
3. As to revocability — from the viewpoint of Gigd NgmbiCfifgf be sued alone.
whether they may be revoked by the trustor, they August 16 1957).
may be either:
a. Revocable trust - one WhiCh can be revoked Note: The principles of the general law of trusts,
or 639?"? ' I by rthe trustor or insofar as they are not in conflict with this Code, the
another In M ua given t e power, or Code of Commerce, the Rules of Court, and special
b. Irrevocable trust — one which may not be . IVIL CODE A 1442
terminated during the specified term of the laws are hereby adopted (C ’ rt. )'
trust (Id. at 637). Express Trust
No express trust concerning an immovable or any
Express Trust v. lplied Trust (CPZAS) interest therein may be proved by parol evidence
Express Trust * . . ‘ Implied Trust (CIVIL CODE, Art. 1443).
. g as to Qreation . '
Created by the Comes into being by General Rule:' The burden of proving the existence
menu?“ Of the trastor operation 0f law (Id' at of the trust is on the party alleging its existence by
or parties (Id' at 655)‘ 655) clear, satisfactory and convincing proof (Ramos v.
Ramos, GR. No. L-19872, December 3, 1974).

2018 SAN BEDA CENTRALIZED BAR OPERATIONS I 471


PARTNERSHIP. AGENCY a TRUSTS
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Parol Evidence -— oral or verbal evidence; that which
is given by word of mouth; the ordinary kind of
evidence given by the witnesses in court (PINEDA,
supra at 424).
Formalities of Express Trust
1. The requirement that the express trust be written
is only for enforceability, not for validity between
the parties. Hence, Article 1443 may by analogy
be included under the Statute of Frauds.
2. By implication, for a trust over personal property
an oral agreement is valid and enforceable
between the parties.
3. Regarding third persons, the trust must be: in a
public instrument and registered in the Registry
of Property. If it concerns real property (PARAS,
Civil Code of the Philippines, Volume IV, (2016),
p. 892) [hereinafter 4 PARAS].
An express trust over personal property or any
interest therein, and an implied trust, whether the
property subject to the trust is real or persowpxal‘:
be proved by oral evidence (CIVIL CODE, "
DE LEON, supra at 643). ' _
Kinds of Express Trusts: (PEASZ)
1. Eublicly-Regulated Trust — one where the State“
provides the vehicle by which{xt‘institutionsygarg
allowed to administer large fundsf’iggor th’g
of the public. Among such funds is«,reatgdfundér'
the law would be pension andsbfie" ,efit; fuhds
administered by GSlS, SSS, and g-l '_
(VILLANUEVA, supra at 288); » ‘
2. _E_|eemosynary/Charitable Trust :- desig _
the benefit of a segment of the public'orthe
in general; ’ éé
3. Accumulation Trust — one that will’iaCnmu
income to be reinvested by the trustee in;the ‘
for the period of time specified; ~ ~
4. §pendthrift Trust — income will be paid to (the
beneficiary only when necessary; and
5. §prinkling Trust — gives the trustee the right to
determine the income of beneficiaries who should
receive income each year and the amount
thereof(DE LEON, supra at 646).
Creation of an Express Trust
No particular words are required for the creation of an
express trust, it being sufficient that a trust is clearly
intended (CIVIL CODE, Art. 1444).
Note: Technical or particular forms of words or
phrases are not essential to the manifestation of an
intention to create a trust. What is important is
whether the trustor or the party manifested an
intention to create the kind of relationship which in law
is known as trust (DE LEON supra at 644).
Requisites For The Creation Of An Express Trust
1. There must be a clear intent to establish it;
472 I 2018 SAN BEDA CENTRALIZED BAR) OPERATIONS
.
2. There must be direct and positive acts of tl
parties by some:
a. Writing
b. Deed;
c. Will; or
d. By words evidence the intention to create i
3. It presupposes that:
a. The trustor has the capacity to convey tl
property;
b. The trustee has the capacity to enter in
contract; and
c. The beneficiary has the capacity to recei'
gratuitously the property from the trust
(PINEDA, supra at 427).
Proof of Trust
General Rule: An express trust over person
property or any interest therein, and an implied tru:
whether the property subject to the trust is real
personal, may be proved by parol evidence (CIl/
CODE, Art. 1457).
- ,. An express trust over an immovable
anyinter'e‘st therein (CIVIL CODE, Art. 1443). Tr
f "flatter requirement is not for validity but for purpOS(
‘ of proof '- ' \
. affect third persons, a trust concerning z
,zfefit, "le,ogf'any interest therein must be embodir
clinjswtrument and registered in the Regist
rty} ’ E LEON, supra at 642).
' '
‘ Whenfl'rustee Declines Designation
No trust shall fall because the trustee appointe
sarflecriines thedesignation, unless the contrary shou
appear iniéthe instrument constituting the trust (Cll/
.. vCODEi-‘Art. 1445).
Acceptance by the beneficiary is necessar
'Nevertheless, if the trust imposes no oneror
condition upon the beneficiary, his acceptance sh:
be presumed, if there is no proof to the contra
(CIVIL CODE, Art. 1446). '
No Acceptance, No Trust Created
It is essential that the beneficiary accepts the trust.
he repudiates or declines the trust, the trust does n
become effective (PINEDA, supra at 434).
However, even if there is no express acceptanc
there is a presumption of acceptance by tl
beneficiary if the trust is purely gratuitous, that is,
imposes no condition whatsoever upon tl
beneficiary. But this will not apply if there is evidenr
to the contrary. Presumptive acceptance is enoug
(Id. at 435).
Note: Acceptance by the beneficiary of a gratuitOI
trust is not subject to the rules for the formalities
donations. Therefore, even if real .property
 PARTNERSHIP, AGENCY 8: TRUSTS
saw BEDA MEMéeY
involved, acceptance by the beneficiary need not be
un a public instrument (4 PARAS, 898).
Note: There are cases, however, in which it may
appear that the trustor intended the trust to continue
only so long as the person designated by him as
trustee should continue as such. It may be so
provided by the terms of the trust, or it may appear
that the purposes of the trust cannot be carried out
unless the person named as trustee continues to act.
In such a case, the trust will fail, if the trustee resigns,
dies, is removed or otherwise ceased to be a trustee
(VILLANUEVA, supra at 292).
A trustee is prohibited from donating the trust
property under Art. 736 of New Civil Code.
Reason: Such prohibition is in accordance with the
fiduciary duty of loyalty of a trustee that holds the trust
property for the benefit of the beneficiary (ld.).
Necessity of Acceptance for the Crea'
Validity of a Trust Relationship,
1. Acceptance of the trustee _,
a. Not necessary to its existence andwvalidity
since if he declines, the courts will appoint/a
trustee to fill the office that he, declines “(see
RULES OF COURT, Rule 98, §e0.3§. "V ‘
b. But a trustee's acceptance of aii'expéess ., S.
is necessary to charge him witfithegdffice or
the trustee and the administratié”~of’ih t"
and to vest the legal title in him”
c. As between the mother and t% un
former is preferred to be the trustee
proceeds of the insurance policy i
absence of any showing that thedfonne
incompetent (Cabanas v. Pilapil,”G'.l3 ‘No.
25843, July 25, 1974). ‘ .
2. Acceptance of the beneficiary
a. Essential to the creation and validity of a trust.
However, such acceptance is. presumed if
there is no proof to the contrary and the trust
does not impose any onerous condition upon
the beneficiary (CIVIL CODE, Art. 1446).
b. Even if real property is involved, the
acceptance need not be in a public instrument
(Cristobal v. Gomez, GR. No. L-27014,
October 5, 1927).
Q: What happens when the designated beneficiary
expressly refuses to accept the benefits of the trust
arrangement, and yet the naked or legal title to the
corpus has already been transferred to the trustee?
Does the express trust therefor fail?
The essential characteristic of express trust being a
preparatory contract would mean that with the
purpose of the trust no longer availing, since the
designated beneficiary has refused the trust
MD 2018
relationship, the trust ceases to have an objective.
But since the naked or legal title remains with the
trustee, his obligations are to comply with the
instructions of the trustor, and to dispose of the trust
properties in accordance with the instructions of the
trustor, which may include the designation of a new
beneficiary (VILLANUEVA, supra at 266).
Extinguishment of Express Trust: (THE-MADZ-
BRAMP)
1. Iotal loss of the object of the trust;
2. flappening of the resolutory condition, if one had
been imposed;
3 Expiration of the agreed term;
4. Mutual agreement of all parties;
5. Annulment or rescission of the trust;
6 Qecision of court declaring the trust terminated;
7 Qeath‘ or legal incapacity of the trustee when the
trustor intended no other person to administer the
trust {Caezo v. Rojas, GR. No. 148788,
November 23, 2007);
ich of trust;
tion by the trustor when such power is
. serVed (VILLANUEVA, supra at 302);
' [Merger of thef'rig'hts of the trustor and the trustee,
' as When the’ftrustor waived his beneficial rights in
V33; of the trustee, or vice versa;
plisjtment of the purpose of trust; and
ripttfinf
t fescription as a Mode of Acquiring
genegal , little: A trustee cannot acquire by
rprescfiption» the ownership of property entrusted to
gm? (Ralma v. Cristobal, GR. No. L-49219,
Qe’cember 11, 1946).
Reaso . The possession .of a trustee is not adverse
’ Wtfa'guha v. Levantino, GR. No. 47386, April 18,
""1941).
Exception: Acquisitive prescription may bar an
action of the beneficiary against the trustee if the
following are present:
Prescription Of Action For Recovery Of Property
Held In Trust ‘
Prescription as a statute of limitation applies to trusts:
1. As To Express Trust - Generally, an action to
recover property held in trust does not prescribe.
However, if there is repudiation, and no action had
been filed within 10 years from the time the
beneficiary had been infon'ned of the repudiation, the
action for recovery will prescribe (PINEDA, supra at
437).
2. As To Implied Trust
a. Resulting Trust —— Generally, the action does
no prescribe, unless there is repudiation. This is
similar to an express trust. The similarity lies in the
2018 SAN BEDA CENTRALlZED BAR ODERATIONS l 473
 PARTNERSHIP, AGENCYNS TRUSTS
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fact that in resulting trust there is an intent to
create the trust, but the same was not expressed
in the instrument (Id,).
b. Constructive Trust — it is well-settled that an
action to recover property based on constructive
trust, which is not really a trust in the technical
sense (as it is justified merely by equity to satisfy
the demands of justice) prescribes if no action is
filed within 10 years from the registration of the
property in the name of the trustee. The 10-year
period commences to run from the date of the
registration of the deed of conveyance which
operates as a constructive notice or the date of
issuance of the certificate of title (Id. at 438).
I‘Margarita Cabacungan v. Mari/ouLaigo, GR. N
175073, August 15, 2011).
Implied Trust
Those which, without being express, are deducib
from the nature of the transaction as matters of inter
or which are superinduced on the transaction l
operation of law, as matters of equity independent
of the particular intention of the parties (Philippi/
National Bank v. CA, GR. No. 97995, January 2
1993).
it is applied to numerous cases where injustice Vi
prevail over the equitable right of the beneficiary (/
at 445).

Requisites of a Trustee to Claim Title by While implied trusts may be proved by oral evidenc
Prescription: (PACK) the evidence must be trustworthy and received by tt
1. The Eeriod fixed by law has expired—ten (10) courts with extreme caution, and should not be mat
years from the time that the repudiation is made to rest on loose, equivocal or indefinite declaration
known to the beneficiary in cases of express trust The proof should be as fully convincing as if the ac
or resulting trust while ten (10) years fr , ”Wig 'se to the trust obligation are proven by e
time a constructive trust ariSes: _ ,
.4 authent i .‘document (Filipinas Port Services Inc.
2. He has performed open and unequivocal Acts of g g Go,_lG.R. No. 161§86, March 16, 2007).
repudiation; 7
3. The evidence thereon should {be clear 'and‘ ' Kinds‘of implied Trust
Convincing; and , ‘ ’ulting jrusts — They arise from the nature I
4. Such positive acts of repudiation hairegbée stances of the consideration involved in
made Known to the beneficiary or'fgthe éestuZEj , , ”action whereby one person theret
trust or other co-owners (DE LEQN, supra at , me ‘invested with legal title but is obliged
65m. .3:: i ' -,ity~.1to hold his legal title for the benefit o
othergtPiNEDA, supra at 445).
Note: The reckoning point is repudiation of
trust by the trustee because from thatmom’énfhi 9 V ‘ 2. * GonstrtictiVe Trust — Created by the constructic
possession becomes adverse which gives rise“ 5' of eqUity'in order to satisfy the demands ofjustic
a cause of action. . 4' and ,gpreVent unjust enrichment. They aris
contrary to intention against one who, by fraur
Limited Applicability Of The. Ten-Year ‘ .{duress or abuse of confidence, contains or holc
Prescriptive Period In Implied Trust the legal right to property which he ought not, .
The ten—year prescriptive period applies only when) equity and good conscience, to hold (Id. at 446
the cestuique trust is not in possession of the
property. Otherwise, there is no prescription (Id. at Resulting Trust v. Constructive Trust
442). ' Resulting Trust Constructive
.. ' ._'- ItntentiOn-to'Create Ttu'stf“,
Effect When Nullity 0f Conveyance Is The Ground , The intent of the parties The trust is created
Of Action to create a trust is irrespective of or even
The title does not become incontrovertible but is null presumed or implied by contrary to the intention
and void if the property covered thereby is originally law from the nature of of the parties tc
of private ownership, and action to annul the same their transaction promote justice,
does not prescribe (Tongoy v. CA, G. R. No. L-45645 frustrate fraud and to
June 28, 1983). . . prevent unjust
enrichment.
Trust Pursuit Rule
Equity will pursue property that is wrongfully
, , : :Pi’eS,Cit. ipt "ire. Peribii'f" ‘
The ,1 0 year prescriptive The 10 year prescriptive
converted by the fiduciary, or othenivise compel period shall be counted period shall be counted
restitution to the beneficiary. A trust will follow the from the time from the time that the
property through all changes in its state and form repudiation is made constructive trust
even into the hands of a transferee other than a bona known to beneficiary. arises, i.e. from the date
fide purchaser for value, provided its product or of registration.
proceeds are capable of identification (Estate of

474 l 2018 SAN BFDA CENTRALIZED BAR OPERATIONS

 PARTNERSHIP, AGENCY 8: TRUSTS
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Illustrated in Arts. 1448, illustrated in Art. 1450,
1449, and 1451 to 1454to1456.
1453.
(DE LEON, supra at 650—651).
Prescription
General Rule: A trustee (express trust or implied
trust) cannot acquire by prescription ownership Over
property entrusted to him until and unless he
repudiates the trust (Vda. De Esconde v. Court of
Appeals, GR. No. 103635, February 1, 1996).
Exception: When the resulting trust is repudiated, it
is converted into a constructive trust and is subject to
prescription (O’laco v. Co Cho Chit, GR. No. 58010,
March 31, 1993).
Requisites before Period of Prescription may
Start in Regard to an Action Based on an implied
Trust: (UPE)
1. The trustee has performed gnequivocai” " ,
repudiation amounting to" an ouste
cestuique trust. "’ ' ,jthe‘ficonstructive notice rule cannot be applied,
2. Such Eositive acts of repudiation haveq’bee‘n
made known to the cestuique trust; and i = \ ~ ‘ "
3. Evidence thereon is clear and pdSitiveéNdéI'U
Cabrera v. Court of Appeals, G;,%’No.§108%¢54
February 3, 1997). . - . awét trust but the limitation laid down in Art.
Prescriptive Period
The 4-year prescriptive period und
applies only if the fraud does not giverris
implied trust, and the action is to annul avot
contract under Art. 1390. >
When To Reckon The Period 0f Prescri“ tion
An action for reconveyance of a parcel of landfbas
on an implied or constructive trust prescribes/inwl’
years, the point .of reference being the date- «of
registration of the deed or the date of the issuance of
the certificate of title over the property (Pedrano v,
Heirs of Benedictino Pedrano, GR. No. 159666,
December 4, 2007). Since such issuance operates as
a constructive notice to the whole world, the
discovery of fraud is deemed to have taken place at
that time (Lopez v. Court of Appeals, GR. No.
157784, December 16, 2008). But this rule applies
only when the plaintiff (or person enforcing the trust)
is not in possession of the property, since if a person
claiming to be the owner thereof is in actual
possession of the property, the right to seek
reconveyance, which in effect seeks to quiet title to
property, does not prescribe.
Note: Discovery of the fraud must be deemed to have
taken place from the issuance of the certificate of title
“because registration of real property is considered a
constructive notice to all persons and it shall be
counted from the time of such registering, filing or
AID £3018
entering”(Serna v. Fontanilla, GR. No. 124605, June
18, 1999).
Period of Prescription of an Action for
Reconveyance of Real Property based on an
Implied Trust
'1. If it involves annulment of a voidable contract
which became the basis for the fraudulent
registration of the subject property, 4 years from
the discovery of fraud. (CIVIL CODE, Art 1391,
par. 4)
2. If there was fraud in the registration of the
subject property, 10 years from the discovery of
fraud. (CIVIL CODE, Art. 1144, No. 2)
3. If it involves declaration of the nullity or
inexistence of a void or inexistent contract which
became the basis for the fraudulent registration
of the subject property, imprescriptible. (CIVIL
CODE, Art. 1410)
4. If it is in reality an action to quiet title and the
legitimate owner of the property which was
iiaudulently registered in the name of another
lways been in possession thereof so that
j imprescriptibfe (JURADO, supra at 924).
" meration of the following cases of implied
's ,ntjt exclude others established by the
ppliéable (CIVIL CODE, Art. 1447).
fin impliedL-‘frust can be converted into an express
"trust-ifjthe implied trustee recognized the right of the
ownef overthe property (PINEDA, supra at 446)
”(Consequence Of An Implied Trust
iPrinClpally, the implied trustee shall deliver the
possession and reconvey title to the property to the
i‘ibéhefiCiary of the trust, and to pay the latter the fruits
and other net profits received from such property
during the period of wrongful holding and otherwise,
to adjust the equities between the trustee holding the
legal title and the beneficiary of the trust (DE LEON,
supra at 654). "
Laches In Action To Enforce A Trust
Implied trusts may be barred not only be prescription
but also by laches. Inasmuch as the so—called trustee
in a constructive or implied trust does not recognize
any trust, and has not intent to hold for the
beneficiary, the latter is not justified in delaying action
to recover his property (Id. at 670).
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. (CIVIL CODE, Art.
1448). - ‘
2018 SAN BEDA CENTRALIZED BAR OPERATIONS | 475
 PARTNERSHIP, AGENCY Sr TRUSTS
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Kinds of Implied Trust:
1‘; Purchase money resulting trust (CIVIL CODE,
Art. 1448);
2. Donations made to a person but the beneficial
interest is vested in another. The donee is the
trustee while the designated third person is the
beneficiary (CIVIL CODE, Art. 1449);
3. Purchase with borrowed funds and the
conveyance is made to lender to secure payment
of debt (CIVIL CODE, Art. 1450);
4. Legal title to land inherited by heir placed in the
name of another (CIVIL CODE, Art. 1451);
5. Legal title to property purchased taken in one co-
owner (CIVIL CODE, Art. 1452);
6. Conveyance under a promise to hold for, or
transfer to another (CIVIL CODE, Art. 1453);
7. Absolute conveyance to a person to secure
performance of grantor's obligation (CIVIL
CODE, Art. 1454);
8. Purchase of property with use of trust funds
(CIVIL CODE, Art. 1455);
"9c
9. Acquisition of property through mistak .
(CIVIL CODE, Art. 1456);
10. Donations made to a persorii but the beneficialm
interest is vested in another/The donee lathe“
trustee while the designated third person :is th
beneficiary (CIVIL CODE, Art. 1449); ",
11. Purchase with borrowed rungs,
. t‘
é”?
conveyance is made to lender to secure?
of debt (CIVIL CODE, Art. 1450);,git '» 32;:
12. Legal title to land inherited by heirf
name of another (CIVIL CODE, Alt..jt45f
13. Legal title to property purchased takéyn in e“
owner (CIVIL CODE, Art. 1452); t; ,. '
14. Conveyance under a promise to hold fo,
transfer to another (CIVIL CODE, Art.”‘«1453); .
15. Absolute conveyance to a person to’ secu
performance of grantor’s obligation.» 9
CODE, Art. 1454); , 5de‘ln Violation Of Law
16. Purchase of property with use of trust funds
(CIVIL CODE, Art. 1455); and
17. Acquisition of property through mistake or fraud
(CIVIL CODE, Art. 1456).
Note: Enumeration is not exclusive (CIVIL CODE,
Art. 1447). it is intended to be illustrative of the
situation in order to correct a wrong or prevent unjust
enrichment.
Purchase Money Resulting Trust (CIVIL CODE,
Art. 1448); . not turned into an instrument for deprivation of
When property is sold, and the legal estate is granted
to one party but the price is paid by another party for
the purpose of having the beneficial interest of the
property. ‘ Prescription
General Rule:
To give rise to a pUrchase money resulting trust, it is
essential that there be:
478 l 2018 SAN BEDA CENTRALIZED BAR OPERATIONS
MEMéRY A?!) 2018
1. An actual payment of money, property c
services or an equivalent, constituting valuabl
consideration;
2. Such consideration must be furnished by thi
alleged beneficiary of a resulting trust (DE LEOA
supra, at 674).
Exceptions:
1. If the person to whom the title is conveyed is 4
child, legitimate or illegitimate, of the one paying
the price of the sale, it is disputably presume
that there is a gift in favor of the child; (CIVII
CODE, Art. 1448).
2. Where an actual contrary intention is proved;
3. Where the purchase is made in violation of ai
existing statute and in evasion of its expres:
provision, no trust can result in favor of the part:
who is guilty of fraud (Tigno v. Court of Appeals
GR No. 110115, October 8, 1997).
Sale To A Party But Price Paid By Another
"' ' ting trust arises in favor of a person from whon
:fation comes for a conveyance of property
wrealty *pr , personalty, to another. The
presumption is'th‘at he who pays for a things intend:
a ’n'eficial interest therein for himself (DE LEON
‘ 4671):: ,
n .
pl on who receives the legal title is a
itima” or illegitimate child of the one paying
ham... ;
{When an actual contrary intention is proved; anc
fWherefithe purchase is made in violation of ar
(.aexistihglstatute and in evasion of its express
( proviSio’n (PINEDA, supra at 449).
tflogglinplied Trust ls Created When Purchase ls
“Where the purchase is made in violation of ar
existing statute and in evasion of its express
provision, no trust can result in favor of the party whc
is guilty of the fraud (Ta/a Realty Services
Corporation v. Banco Filipino Savings and Mortgage
Bank, GR. No. 137980, June 20, 2000).
Trustee Cannot Repudiate Trust By Relying On
Registration 0f property In His Own Name
A certificate of title under the Torrens System is
aimed to protect dominion, and should certainly be
ownership (Adriano v. CA, GR No. 124118, Marci.
27, 2000).
‘ General Rule: A trustee (express trust or implied
trust) cannot acquire by prescription ownership over
property entrusted to him until and unless he
repudiates the trust(Vda. De Esconde v. Court 01
Appeals, GR. No. 103635, February 1, 1996).
 PARTNERSHIP. AGENCY a TRUSTS
SAN BEDA MEMéRv Ala acts
Exception: When the resulting trust is repudiated, it
is converted into a constructive trust and is subject to
prescription (O’Iaco v. Co Cho Chit, GR. No. 58010,
March 31, 1993).
Requisites before Period of Prescription May
Start in Regard to an Action Based on an Implied
Trust: (UPE)
1. The trustee has performed Qnequivocal acts of
- repudiation amounting to ‘an ouster of the
cestuique trust,
2. Such Eositivefi acts of repudiation have been
made known to the cestuique trust; and
3. Evidence thereon is clear and positive (Vda. de
Cabrera v. Court of Appeals, GR. No. 108547,
February 3, 1997).
The elements in order that a co—owner’s possession
may be deemed adverse to the cestuique trust of the
co-owner are:
4. That he has performed unequivocal acts of
repudiation amounting to ouster of the , '.‘ \
trust or other co—owners; ”a, t
5. That the positive acts of répiidiation ha
made know to the cestuique trust orflotheric"
owners; " '” ’
6. That the evidence thereon mustxbe cleanfind
convincing. . ’5‘ 5
If the price of a sale of property is loalied 0% paldfby' i
one person for the benefit of arro')“'er grid A he
conveyance is made to the lender or payer t
the payment of the debt, a trust arisestby o
of law in favour of the person to whom, the m
loaned or for whom it is paid. The latter may re" "
the property and compel a conveyance theire'of to
(CIVIL CODE, Art. 1450). ' 57‘
When land passes by succession to any personiai‘idfiéx'i‘ ffif’é’flected in the deed of conveyance.
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 (CIVIL CODE, Art.
1451). This is a resulting trust, there being a clear
intention to establish a trust. - seller offers to pay his obligation when due, the buyer
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 (CIVIL CODE, Art.
1452).
A resulting trust arises 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 (CIVIL CODE, Art.
485, par. 2).
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
(CIVIL CODE, Art. 1453).
An implied resulting trust is created because of the
declared intention of the grantee to hold or transfer
the property to the grantor or to another person.
Where property is taken by a person under an
agreement to hold it for or convey it to another or to
the grantor, or on certain conditions, a trust results for
the benefit of such other or his heirs, which equity will
enforce according to the agreement (89 C.J.S. 960; .
Heirs of Candelaria vs. Romero, 109 Phil. 500 [1960];
Rosario vs. Court of Appeals, 310 SCRA 464 [1999]).
Illustration: “A” purchased a car which was
registered in the name of his cousin, “B” on the Iatter’s
oral commitment that he would hold it while the
' abroad, and that upon “A's” return, “B"
ey the canto the former.
3w
0 if“ asserts thatfihe is really the owner, he can't be
“allowed to’for h’evwould be in estoppel under Article
1433,
,solufeflconveyance of property is made in
secgire the performance of an obligation of
, «tort ward the grantee, a trust by virtue of law
sfiblish If the fulfilment of the obligation is
_,offere'gi by tgie5grantor when it becomes due, he may
_demahd the reconveyance of the property to him.
"IiXC/yIL CODE, Art. 1454).
”An implied-resulting trust is created-as there is a clear
intention to create a trust, although, it was not
This is like a sale with right to repurchase, except that
the right is not stated in the document. The seller is
the beneficiary and the buyer, the trustee. When the
must reconvey the property (PINEDA, supra at 464).
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 favour of the
person to whom the funds belong (CIVIL CODE, Art.
1455).
An implied constructive trust is created in this
situation to prevent unjust enrichment on the part of
the fiduciary.
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The article applies to any trustee, guardian, agent,

partner and a confidential employee (PINEDA, supra
at 464).

If the fiduciary uses the funds of the principal in

buying a property, the acquisition shall inure to the
benefit of the principal (Severino vs. Sever/no, 44
Phil. 343).

Rationale Behind The Law

1. To prevent the fiduciary from the temptation of
putting his own self~interest above that of his
principal whom he is supposed to protect.
2. To keep and encourage the fiduciary to remain
honest and loyal to his principal (Id.) 3

If the 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 (CIVIL CODE,
Art. 1456).

An implied constructive trust ivsxcreate s

situation, with the acquirer as the trustee and’thereat ,
owner as the beneficiary. The trust is createdt
prevent unjust enrichment on the part of the'aciirei'
to the prejudice of the true owner. The mistake”fitfi§t" ‘
be committed by a third person. It made b)? a Bart ,1
there is no trust (Laureano vs. Ste ,éiyson“? 45 75 ii:-
252). ' '7

An implied trust may be proved by

(CIVIL CODE, Art. 1457).

express agreement nor required to bee idenc ;

writing, hence, the oral evidence required to'ipr’ove 3h
implied trust has to be trustworthy becausexipral
evidence can be easily fabricated. It cannot re§t%fi53‘*§r
loose, equivocal or infinite declarations (Salaoffvf
Salao, GR. No. L-26699 March 16, 1976).

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