PART I: AGENCY AND TRUST
(Article
1. What is Agency?
Agency is a fiduciary relationship between the
principal and the agent, authorizing the latter to
execute a juridical act with third person on behalf
of the former within the scope of his authority.
2. What are the elements of contract of agency?
1. There is consent, express or implied, of the
parties to establish the relationship.
2. The object is the execution of juridical act in
relation to third persons;
3. The agent acts as a representative and not for
himself;
4. The agent acts within the scope of his
authority.
3. Differentiate express and implied consent.
1. Express – Grant of authority and acceptance
are both expressed. The consent is usually
manifested through the grant of power of
attorney.
2. Implied - silence or lack of action, or his failure
to repudiate the agency knowing that another
person is acting on his behalf without authority.
4. What are the indications of implied consent?
1. If both principal and agent are present,
the power of attorney was delivered by
the principal to the agent, and the latter
did not expressed his objection. (Art.
1871)
2. If either of the principal or agent is
absent:
a. Principal transmits the power
of attorney to the agent and the
latter did not expressed any
objection.
b. When the agent has a
business in which he is habitually
engaged as an agent and the
principal has entrusted him a
power of attorney through a
letter or telegram and the
former did not reply.
1872)
5. What is agency by estoppel?
When it appears that an agent has an apparent
authority to transact with the third person on
behalf of the principal and the third person has
relied to such authority.
It exists when it does not comply with the rules
provided in Article 1873 in relation to Article
1921 and 1922 of the civil code.
As a rule, the Principal shall notify the third
person or anyone regarding the authority he
vested to the agent, through:
1. Special information, with regard to specific
third person; or
2. Public advertisement, with regard to anyone.
Revocation shall be made in the same
manner how the Principal notified the third
person or anyone. (Art. 1873)
Thus, if the principal failed to revoke the
authority in the same manner as it is instituted as
provided in Article 1873, an agency by estoppel is
created and the following rules shall be observed:
1. For specified persons, the revocation
shall not prejudice him if they were not
given notice thereof; (1921)
2. 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 revocation in a
newspaper of general circulation is a
sufficient warning to third persons. (Art.
1922)
6. Is the rule provided in Article 1874 in conflict
with the rule under Article 1403 (no. 2, par. e)?
Under Article 1874, the authority of the agent in
selling a piece of land or any interest therein shall
be in writing, otherwise, the sale shall be void.
While Article 1403 provides that the sale of real
property or any interest therein shall be in
writing, otherwise the sale shall be
unenforceable.
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 Thus, Article 1874 provides that the
authority of the agent in selling piece of land or
any interest therein shall be in writing. While
Article 1403, on the other hand, speaks of the
transaction itself or the contract instituted by the
agent with the third person on behalf of the
principal that should be in writing.
7. What is a general power of attorney?
An agency couched in general terms comprises
only acts of administration, even if the principal
should state that:
1. The agent withholds no power;
2. The agent may execute such acts as he
may deem consider appropriate;
3. Even though the agency should
authorize a general and unlimited
management (Art. 1877)
8. Divide into three categories the instances
provided in Article 1878.
1. Acts of strict dominion;
SPA to sell excludes the power to
mortgage; and SPA to mortgage does not
include the power to sell. (Art. 1879)
2. Gratuitous contracts;
3. Contracts where personal trust/confidence is
the essence of the contract;
SPA to compromise does not authorize
submission to arbitration. (Art. 1880).
Compromise refers to making of
reciprocal concessions or settlement of
claims to avoid litigation. Arbitration, on
the other hand, is where the parties
submit their controversies to one or
more arbitrators for decision.
9. What are the obligations of an Agent? Explain
each.
1. C – Carry out the agency’
2. A – Account his transactions;
3. D- Due diligence;
4. A – Advance necessary funds;
5. D – Damages;
6. I – Interest
7. C – Commission Agent
A. CARRY OUT THE AGENCY
General Rule: The agent is bound by his
acceptance to carry out the agency. (Art. 1884)
How?
1. The agent must act within the scope of
his authority. He may do such acts
conducive to the accomplishment of the
purpose of agency. (Art. 1881)
If acted beyond scope of authority?
General Rule: The agent is directly bound
in favor of the person with whom he has
contracted. (Art. 1883, par. 2)
Exceptions: 1. When the contract
involves the property of the principal
(Art. 1883, par. 2); and 2. The act is
performed in a manner more
advantageous to the principal than that
specified by him (Art. 1882)
2. The agent must act on behalf of the
principal.
General Rule: The agent who act as such
is not personally liable to the party with
whom he contracted. (Art. 1897).
Exceptions:
1. He expressly binds himself or exceeds
the limits of his authority without giving
such party sufficient notice of his powers
(Art. 1897). If the agent acts in his own
name, the principal has no right of action
against the persons with whom the agent
contracted; neither have such persons
against the principal. (Art. 1883, par. 1)
2. If the agent contracts in the name of
the principal, exceeding the scope of his
authority, and the principal does not
ratify the contact:
a. It shall be void, if the party
with whom the agent contracted
is aware of the limits of the
powers granted by the principal
(Bad Faith); (Art. 1898)
b. It shall be unenforceable, if
the third person is not aware of
the limits of powers of the agent
(Good faith). (Art. 1403, par. 1)
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 c. It shall be valid, if the principal
ratifies it expressly or tacitly (Art.
1910, par. 2)
OBLIGATION OF THE THIRD PERSON
Ask for the presentation of power of
attorney, or the instructions as regard to
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. (Art. 1902).
Exception: The agent shall not carry out
an agency if its execution would
manifestly result in loss or damage of the
principal.
B. ACCOUNT HIS TRANSACTIONS
Every agent is bound to render an account of his
transactions and to deliver to the principal
whatever he may receive by virtue of the agency,
even though not owing to the principal. (Art. 189,
par. 1)
1. Source of profits – it is immaterial
whether such money or property is a
result of performance or violation of the
agent’s duty. RATIONALE: The agent
cannot be permitted to derive advantage
from his own default;
2. Secret profit – bonuses, gratuity or
personal benefit from the vendee
without the knowledge of the principal.
EFFECT: The commission of the agent is
forfeited. RATIONALE: Breach of trust
and confidence
LIABILITY OF THE AGENT
If the agent fails to deliver and instead converts
for his own use the money or property belonging
to the principal, the agent is liable for estafa.
MATRIX AS TO LIABILITY OF THE AGENT
Within Beyond Without
Scope Scope authority
PRINCIPAL Valid. Void. Unenforceable.
1897, 1898.
1900
and Agency by
1910. estoppel.
(1403, par. 1)
AGENT Valid. Valid. No agency at
1883. all.
STIPULATION FROM AGENT’S EXEMPTION
Every stipulation exempting the agent from the
obligation to render an account shall be void.
(Art. 1891, par 2).
RATIONALE: Contrary to public policy. It is in the
nature of a waiver for future fraud.
C. DUE DILIGENCE
1. When the agent accepted to carry out the
agency (Art. 1884);
2. When the person declines an agency, he is
bound to observe due diligence in the custody or
preservation of the goods forwarded to him by
the owner until the latter should appoint an
agent. (Art. 1885).
3. In the execution of agency, the agent shall act
in accordance with the instructions of the
principal. In default thereof, he shall do all that a
good father of a family would do, as required by
the nature of the business (Art. 1887)
AUTHORITY V. INSTRUCTION
Authority empowers the agent to
transact with the third person on behalf
of the principal. Authority refers to
power of attorney. Instructions are
private directions which the principal
may give the agent in regard to manner
of performing his duties.
Authority is contemplated to be made
known to the third persons, while
instructions are not expected to be made
known to third persons.
D. ADVANCE NECESSARY FUNDS
General Rule: The principal must advance to the
agent the sums necessary for the execution of
agent. (Art. 1912, par. 1)
Exception: The agent, provided that: there is a
stipulation and the principal is not insolvent. (Art.
1886)
REIMBURSEMENT
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General Rule: If the agent advances the necessary
funds, he is entitled for reimbursement from the
principal, even if the business or undertaking was
not successful, provided the agent is free from all
fault. The reimbursement shall include interest
on the sums advanced from the day on which the
payment was made. (Art. 1912)
Exceptions: F – I – B – A. The principal is not liable
for the expenses incurred by the agent:
1. If the expenses were incurred due to the fault
of the agent;
2. If the agent acted in contravention of the
principal’s instructions, unless the latter should
avail himself of the benefits derived from the
contract;
3. The agent is in bad faith, having knowledge
that unfavorable result would ensue, if the
principal was not aware thereof;
4. Agreement between the agent and principal
that the expenses would be borne by the former
or that he will be allowed only a certain sum. (Art.
1918)
E. DAMAGES
1. Damages which, through the non –
performance of the agent, the principal may
suffer; (Art. 1884)
2. The agent shall be liable for damages if, there
being a conflict between his interests and those
of the principal, he should prefer his own. (Art.
1889)
3. The agent is responsible not only for fraud, but
also for negligence, which shall be judged with
more or less rigor by the courts. (Art. 1909)
F. INTEREST
1. The agent owes interest on the sums he has
applied to his own use from the day on which he
did so. The interest is not for delay but by way of
compensation or indemnity;
2. Interest the agent owes after the
extinguishment of agency. Hence, demand in this
case for the delay is no longer necessary in
pursuant to Art. 1169 (1). (Art. 1896)
G. COMMISSION AGENT
A factor or commission agent is one whose
business is to receive and sell goods for
commission and who is entrusted by the principal
with the possession of goods to be sold, and
usually selling in his own name.
PRIMARY DUTIES
Carry out the agency through:
1. Sell goods;
2. Take possession of the property;
3. Generally, sells in his own name.
OTHER DUTIES
a. To sell on cash unless authorized by
Principal to sell on credit.
What if the agent sell the goods
on credit without the authority
of the Principal?
1. The principal may demand
payment in cash from agent. As
a consequence, the benefits that
may arise from such transaction
shall belong to the agent;
2. Ratify the acts of the agent.
(Art. 1905)
b. If authorized to sell on credit, the
agent shall inform the principal the
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. (Art.
1906);
c. To collect the credits of the principal at
the time they become due and
demandable, otherwise he shall be liable
for damages unless he proves he exercise
due diligence for that purpose (Art. 1908)
d. To provide counter – marks for the
goods of the same kind and marks for
purposes designating the merchandise
respectively belonging to each principal
and avoid co – mingling. (Art. 1904)
GUARANTEE COMMISSION V. ORDINARY
COMMISSION
1. The guarantee commission agent receives
higher consideration to bear the risk of
collection;
2. When the ordinary commission agent fails to
collect the sums on credits, he can raise a defense
of due diligence. Guarantee commission agent,
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on the other hand, cannot because higher
commission is paid by the principal.
10. What are the obligations of Principal? Discuss
each.
1. C – Comply
2. A – Advance funds
3. R – Reimburse
4. D - Damages
5. C - Compensation
A. COMPLY
The principal must comply with all the obligations
which the agent may have contracted with the
scope of his authority (Art. 1910)
B. ADVANCE FUNDS
(See discussion above)
C. REIMBURSEMENT
(See discussion above)
RETENTION IN PLEDGE
The agent may retain in pledge only those things
that are object of agency. The principal may
recover the object upon:
1. Reimbursement of the expenses;
2. Indemnification of damages
CAN THE AGENT RETURN IF HE WAS NOT
PAID OF HIS COMPENSATION?
a. Ordinary agents, no. The law is clear
that the object may only be retained if
there is no reimbursement and/or
indemnification. The remedy of the
agent is to ask for specific performance
or rescission due to breach of contract.
(Art. 1191)
b. Attorney, yes. An attorney shall have
liens upon the funds, documents and
papers of his clients which lawfully come
to his possession and may retain the
same until his lawful fees and
disbursements have been paid. (Sec. 37.
Attorney’s liens)
D. DAMAGES
The principal must also indemnify the agent for
all the damages which the execution of the
agency may have caused the latter, without fault
or negligence on his part.
How an agent may suffer from damages?
When the agent does not know that the
agency or the transaction itself is illegal.
E. COMPENSATION
Agency is presumed to be for a compensation,
unless there is a proof to the contrary (Art. 1875)
11. Enumerate and discuss the different modes of
extinguishment of contract of agency.
E – Expiration of the period to which for which
agency is constituted
D – Death, civil interdiction, insanity or insolvency
of the principal
W – Withdrawal of the agent
A – Accomplishment of the object or purpose of
agency
R – Revocation
D – Dissolution of the firm or corporation
O – Others
A. EXPIRATION
1. Obligations with a period. (Art. 1193 - 1198)
2. When the debtor binds himself to pay when his
means permits him to do so, the obligation shall
be deemed to be one with a period (Art. 1180)
B. DEATH, CIVIL INTERDICTION, INSANITY OR
INSOLVENCY
1. DEATH
General Rule: Death of either the principal or
agent extinguishes the obligation.
BASIS: Agency is a personal contract.
IS ARTICLE 1930 AN EXEMPTION TO THE RULE
THAT AGENCY IS EXTINGUISHED UPON THE
DEATH OF THE PRINCIPAL OR AGENT?
1. If the agency is constituted in the
common interest of the principal and the
agent.
Common interest: For the
benefit of the principal and the
agent. (Co – ownership)
2. If it has been constituted in the
interest of a third person who has
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 accepted the stipulation in his favor. (Art.
1930)
Upon the death of either party, the contract of
agency is extinguished because it is a personal
contract. The instances provided in Article 1930
merely recognizes prior transactions entered into
by the agent to the third persons.
Anything done by the agent, without the
knowledge of the death of 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.
(Art. 1931)
AGENT GOOD FAITH, THIRD PERSON
GOOD FAITH
The contract shall be valid and shall be
fully effective with third persons. BASIS:
The agent is required to finish the
business already begun on the death of
the principal should delay would entail
danger (Art. 1884, par. 2)
AGENT BAD FAITH, THIRD PERSON GOOD
FAITH
Void. The authority of the agent has been
revoked. Thus, any third persons who has
relied from the agent shall be entitled to
damages.
AGENT GOOD FAITH, THIRD PERSON BAD
FAITH
Void.
2. CIVIL INTERDICTION
3. INSANITY
4. INSOLVENCY
BASIS: The contract of agency is not
merely suspended but extinguished. The
principal can no longer perform his
obligation because he was prohibited by
law. Thus, juridical decree is necessary in
cases of civil interdiction and insolvency.
C. WITHDRAWAL OF THE AGENT
Basis: The impossibility of continuing the
performance of the agency without grave
detriment to himself.
Requisites:
1. Must give due notice to the principal;
2. Must continue to act as an agent until
the principal has had reasonable
opportunity to take necessary steps to
meet the situation. (Art. 1929)
D. ACCOMPLISHMENT OF THE OBJECT OR
PURPOSE OF AGENCY
E. REVOCATION
The principal may revoke the agency at will, and
compel the agent to return the document
evidencing the agency. Such revocation may be
expressed or implied. (Art. 1921)
REVOCATION AT WILL
The rule regarding the revocation of the principal
at will is absolute. BASIS: The contract of agency
is based on “trust and confidence”.
IS ARTICLE 1927 PROVIDES AN
EXEMPTION?
An agency cannot be revoked if:
1. Bilateral contract depends on it;
2. The means of fulfilling an obligation
already contracted;
3. Partner is appointed manager of a
partnership in the contract of
partnership and his removal from the
management is unjustifiable.
Again, it is absolute that the principal can revoke
the contract of agency at will because it is based
on “trust and confidence”. One party cannot
compel the other to act on his behalf because it
would amount to involuntary servitude.
The list provided under Article 1927 does
not suggests irrevocability of agency, but
the liability of the principal to the agent.
If the revocation at will of principal falls
to the list mentioned in Article 1927, the
principal shall be liable for damages to
agent.
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RETURN OF DOCUMENT EVIDENCING AGENCYR
BASIS: For the protection of the principal and the
third person who may rely to such apparent
authority of the agent.
EFFECTS IF DOCUMENT NOT RETURNED
1. For purposes of contracting specified persons,
its revocation shall not prejudice the latter if they
were not given notice thereof. (Art. 1921)
2. If the agent has general powers, revocation of
the agency does not prejudice third persons who
acted in good faith and no knowledge of the
revocation. (Art. 1922)
BASIS: The power of the agent to represent the
principal shall remain in full force until notice is
rescinded in the same manner in which it was
given (Art.1873, par 2.)
EXPRESS AND IMPLIED REVOCATION
1. Express – A deed of revocation must be
executed which must be duly notarized.
2. Implied
a. The appointment of new agent for the
same business or transaction revokes the
previous agency from the day on which
notice thereof was given to the former
agent (Art. 1923)
BASIS: Incompatibility of
authority. (P granted A1 to sell
the land; P granted A2 to
mortgage the same land)
REQUISITE: The former agent
shall be given notice of grant of
incompatible authority to the
subsequent agent.
b. The principal directly manages the
business entrusted to the agent, dealing
directly with the third persons. (Art.
1924)
BASIS: Compatibility of
authority. There would no longer
any basis for the representation
previously conferred. (P granted
A to sell his land; P sold the same
land to X)
DIFFERENCE OF ARTICLE 1924
TO ARTICLE 1916, 1917?
Article 1924 refers to the
authority of the agent to
transact; Article 1916 and 1917
refers to the thing that is the
subject of the transaction.
Rules on incompatible contracts
Same subject matter transacted
by incompatible contracts
(transacted by the agent and the
principal):
1. Prior date shall be preferred.
(Art. 1916)
a. If movable property,
those who has taken the
property in good faith;
b. If immovable
property, those who has
registered the property
in Registry of Property in
good faith; if no
inscription, those who
has in possession of the
property in good faith; in
the absence thereof,
those who presents the
oldest title in good faith.
(Art. 1544)
2. If agent acted in good faith
and within the scope of his
authority, the principal incurs
damages. If the agent acted in
bad faith, he alone shall be
responsible to third person. (Art.
1917)
c. When two or more principals have
granted power of attorney for common
transaction, any one of them may revoke
the same without the consent of others.
(Art. 1925)
BASIS: The principals are
solidarily liable to the agent for
the all the consequences of the
agency. (Art. 1915)
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 PROVIDED: The appointment of Beneficiary, he is also considered as the
the agent is for common real owner.
transaction, otherwise,
revocation of one principal 14. Differentiate Trust from Agency.
amounts only to revocation of The separation of legal title from real title is what
his respective share. distinguishes trust from agency. In trust, the title
and control of the property under the trust
Common transaction = common instrument passes to the trustee who acts in his
interest of the agent and the own name, while in agency, the agent who acts
principal. on behalf of the principal does not acquire any
title, legal or real, over the property belonging to
d. A general power of attorney is revoked the latter.
by special one granted to another agent,
as regards the special matter involved in
the latter. (Art. 1926)
BASIS: Partial incompatibility of
authority. (P granted A1 general
power to administer his
business; P granted A2 a special
power to hire employees on his
business. Insofar as to authority
of A1 to hire, his authority is
revoked)
REQUISITE: The agent with
general power shall be given
notice of grant of special power
to another agent.

F. DISSOLUTION

G. OTHERS
(Article 1231)

12. What is Trust?

A fiduciary relationship between one person
having an equitable ownership in a property and
another owning the legal title to such property,
the equitable ownership of the former entitling
him to the performance of certain duties and the
exercise of certain powers by the latter for
benefit of the former.

13. What is the distinct character of Trust?

Separation of legal title and beneficial ownership.
1. Trustee is considered the legal owner;
2. The Beneficiary is the real owner.
However, if the Trustor is also the

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PART II: PARTNERSHIP
GENERAL PROVISIONS
1. What is contract of 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. (Art. 1767)
2. What are the elements of contract of
partnership?
a. There must be valid contract;
b. There must be two or more partners;
c. Partners bind themselves to contribute to
common fund;
d. There must be intention of dividing the profits
among themselves;
e. There must be a fiduciary relationship between
the parties.
3. What do you mean “there must be a fiduciary
relationship between the parties”?
There must be delectus personae (choice of
persons) or the authority of one partner to bind
another by contract or otherwise and affectio
societatis or the desire to formulate an active
union with people which results to trust and
confidence among the partners.
4. What is the distinctive feature of contract of
partnership as compared to other contracts?
Partnership is a special kind of agency, the
feature that distinguishes Partnership from other
contracts is the mutual agency.
5. Distinguish mutual agency from ordinary
agency.
a. In ordinary agency, trust and confidence of the
agent towards to his principal is immaterial. In
mutual agency, trust and confidence of the agent
towards to his principal is indispensable because
in the contract of partnership, a partner is
considered as an agent and principal of the other.
b. In mutual agency, the partnership has a
juridical personality that is separate and distinct
from that of each partners (Art. 1768). In ordinary
agency, there is none.
6. What is a common fund?
It is the contribution of money, property or
industry.
a. Money – It must be currency of legal
tender in the Philippines. Legal tender
consists of all notes and coins issued by
the BSP fully guaranteed by the
Government of the Philippines for all
debts, both public and private: Provided,
however, unless otherwise fixed by the
monetary board, coins shall be legal
tender in amounts of not exceeding to
P50 for denominations of P25 centavos
and above, and amounts not exceeding
to P20 for denominations of P10
centavos or less.
b. Property – it may consist of tangible or
intangible property which may be
movable or immovable. Hence, credit
such as promissory note or other
evidence of obligation or even mere
goodwill may be contributed, as they are
considered property.
c. Industry – active cooperation, the work
or party associated, which may be
personal manual efforts or intellectual,
and for which he receives his share in the
profits.
7. What is the rule with regard to form of contract
of partnership?
GENERAL RULE: A partnership may be
constituted in whatever form. (Art. 1771)
REASON: All contracts shall be
obligatory, in whatever form they may
have been entered into, provided all the
essential requisites for their validity are
present. However, when the law requires
a contract be in some form in order that
it may be valid and enforceable, that
requirement is indispensable. (Art. 1356)
EXCEPTIONS:
1. Immovable property or real rights are
contributed to the common fund, in which case a
public instrument shall be necessary (Art. 1771)
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 REASON: Acts and contracts which have
for their object the creation,
transmission, modification or
extinguishment of real rights over
immovable property. (Art. 1358)
REQUIREMENTS:
1. The articles of partnership shall appear
in the public instrument;
2. Inventory shall be executed by the
parties;
3. The inventory shall be signed and
attached to the public instrument. (Art.
1773)
IMPORTANCE OF COMPLYING WITH
FORMALITIES
Public instrument is necessary for
inscription in Registry of Property. It is
considered as a mode of conveyance in
transferring the property of the partner
to the partnership. Thus, inscription to
the Registry of property serves as a
notice to the world that the property
belongs to the partnership.
Furthermore, formalities mandated
under Art. 1773 are meant for the
protection of the partnership creditors,
and that the declaration that the
partnership is void does not affect the
intra – partnership relationship between
and among the partners and between
the partners and the partnership. (Torres
V. CA)
2. Limited Partnership cannot be constituted
orally. The requirements of the statute must be
substantially complied with, otherwise the
liability of the limited partners becomes the same
as that of general partners.
8. What are the factors determining the existence
of contract of partnership?
The following are indications that the agreement
is not contract of Partnership:
1. Persons who are not partners as to each other
are not partners to third persons, except Art.
1825.
REASON FOR EXCEPTION: Art. 1825 or
Partnership by estoppel is not real
partnership. It is a mere partnership
liability for purposes of protecting the
interest of third persons who has relied
to such representation
2. Co – ownership or co – possession does not of
itself establish a partnership, whether such co –
owners or co – possessors do or do not share any
profits made by the use of the property.
REASON: The profits must be derived
from the operation of the business or
undertaking by the members of the
association and not merely from the
enjoyment or use of the property.
However, in the case of Ona V. CIR, co –
ownership may be converted to
partnership, if after partition of co –
ownership, their respective shares are
contributed to common fund.
3. The sharing of gross returns does not itself
establish partnership, whether or not the persons
sharing them have a joint or common right or
interest in any property from which the returns
are derived.
a. Gross return - total income of
the partnership which does not
includes the costs, expenses and
liabilities
b. Gross profit - the expenses,
costs and liabilities were already
deducted in the total income of
the partnership.
4. The receipt by a person of a share of the profits
of a business is prima facie evidence that he is a
partner in the business, but no such inference
shall be drawn if such profits were received in
payment: (DAWIC)
a. As debt by installments or otherwise;
b. As wages of an employee or rent to a
landlord;
c. As annuity to a widow or
representatives of a deceased partner;
ATP | ATTY. BUGAYONG
OLIVEROS, STEPHANO P. | 2E 10
 d. As interest on a loan, though the
amount of payment vary with the profit
of the business;
e. As the consideration for the sale of a
goodwill (trademark) of a business or
other property by installments or
otherwise.
9. What are the classification of Partnership?
Contract of Partnership is classified as to the
object, composition, liability and duration.
10. Explain the partnership classified as to the
object.
The object of partnership shall be referred as the
subject matter and purpose of the contract.
A. As to the Subject matter
1. Universal partnership of all present properties
(Art. 1778)
a. All present property of each partner at
the time of constitution of partnership
including the profits arising therefrom;
b. Future property and the profits arising
therefrom, provided it is stipulated,
except inheritance, donation or legacy;
REASON FOR INCLUSION OF
PRESENT PROPERTY: While
Article 1779 is clear that present
property may be contributed to
the common fund, there is no
express prohibition regarding
the contribution of future
property to the partnership.
Hence, all things which are not
outside the commerce of men,
including future things, may be
the object of the contract. (Art.
1347)
c. Fruits of inheritance, donation or
legacy, if stipulated
2. Universal Partnership of all profits (Art. 1780)
a. All profits arising from work or industry
during the existence of partnership.
(Wages, salary and other remuneration)
b. Usufruct of movable and immovable
property.
3. Particular Partnership of determinate thing, its
profits and use. (Art. 1783)
B. As to purpose
Particular partnership of specific undertaking and
exercise of profession or occupation (Art. 1783)
11. What are the rules to be observed when the
object of the partnership is not clearly stated?
The following are the rules to be observed when
the object of the contract of partnership is not
clearly stated:
1. When the articles of partnership does not
specify the nature of Universal partnership, it
shall be deemed universal partnership of all
profits.
REASON: Imposes less obligations to the
partners since the ownership is retained
by the partners.
2. When the articles of partnership does not
specify the nature of partnership, whether
universal or particular, the following rules shall be
observed:
a. Determine the true intention of the
parties by reviewing the words of the
contract applying the provisions of
obligations and contracts (Arts. 1370 –
1379);
b. When it is impossible to settle doubts
by the rules established in Arts 1370 –
1377, and the doubts refer to incidental
circumstances of gratuitous contracts,
the least transmission of rights and
interests shall prevail. (Art. 1378).
12. Explain the contract of partnership classified
as to composition.
The contract of partnership classified as to
composition shall refer to general and limited
partnership. General Partnership is a partnership
consist of all general partners; Limited
Partnership, on the other hand, is when the
partnership consists of one or more general
partners and one or more limited partners. When
the partnership is consist of all limited partners,
their liability shall be the same as that of general
partners.
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OLIVEROS, STEPHANO P. | 2E 11

13. Explain the contract of partnership classified
as to liability.
The contract of partnership classified as to
liability shall refer to general and limited
partners. General partners are jointly and
subsidiarily liable to the third person after the
exhaustion of all properties of the partnership.
Limited partners, on the other hand, are not
personally liable to the third person because they
are mere investors. Thus, liability only extends to
the amount of their contribution.
14. Explain the contract of partnership classified
as to duration.
The contract of partnership classified as to
duration shall refer to the following: partnership
at will, partnership with a period and partnership
with a specific undertaking. The contract of
partnership is considered at will if it falls to any of
the following instances:
1. When no period is stipulated;
2. When the partnership continued to
operate after the expiration of the period
stipulated; or
3. When the partnership continued to
operate after the accomplishment of the
specific undertaking stipulated.
REQUIREMENTS: Provided that
in nos. 2 and 3, the following
conditions must be complied
with:
a. There is no liquidation; and
b. There is no stipulation for
another period.
c. The partners habitually acted
as such after expiration of term
or fulfillment of the specific
undertaking. (Art. 1784, par. 3)
15. How is partnership created?
General Rule: A partnership begins from the
moment of execution of the contract. (Art. 1784)
Exceptions:
1. Partners agreed that the Partnership shall be
effective in some future time (Art. 1784);
2. When immovable property does not or has not
yet appeared in the public instrument (Art. 1771);
3. Limited Partnership
16. What are consequences of the creation of
partnership?
1. The juridical personality of the partnership is
created distinct and separate from the
personality of the partners (Art. 1768)
2. The following relationships are created:
a. Relations among partners themselves;
b. Relations of the partners with the
partnership;
c. Relations of the partnership with the
third persons;
d. Relations of the partners to the third
persons.
3. Obligations of the partners are created. The
parties are not only bound to the fulfillment of
what has been expressly stipulated but also to all
of its consequences. (Art. 1315)
OBLIGATIONS OF THE PARTNERS
AMONG THEMSELVES
17. What are the obligations of the partners
among themselves?
The following are the obligations of the partners
among themselves:
1. Obligation to deliver the contribution
promised; (Arts. 1786 and 1788)
2. Not to engage in unfair competition
with his own firm; (Art. 1808)
3. To account for and hold as trustee,
unauthorized personal profits; (Art.
1807)
4. Not to convert firm money or property
for his own use; (Art. 1788)
5. Pay for damages caused by his fault;
(Art. 1794)
6. Duty to credit to the firm, payment
made by a debtor who owes him and the
firm; (Art. 1792)
7. To share with the other partners the
share of partnership credit which he has
ATP | ATTY. BUGAYONG
OLIVEROS, STEPHANO P. | 2E 12
 received from an insolvent firm debtor.
(Art. 1743)
18. When the obligation of the partner to deliver
the promised contribution to the partnership
arises?
The contribution shall be delivered upon the
perfection of the contract of partnership (see no.
15).
19. What are the remedies of the partnership if
the partner did not deliver the contribution on
time?
The partnership may file an action for specific
performance with damages (for breach of the
contract) and interest (for loss of opportunity to
earn).
REASON: Every partner is a debtor of the
partnership for whatever he may
promised to contribute thereto. (Art.
1786, par. 1)
20. Is demand necessary to hold the partner liable
for delay?
No. When the thing to be delivered or services to
be rendered was the controlling motive for the
establishment of the contract, demand is no
longer necessary. (Art. 1169, par. 2). In other
words, when time is of the essence of the
obligation, demand is no longer necessary.
21. What are the other obligations inclusive to the
obligation to deliver?
a. The partner upon delivery of the contribution
promised shall also be bound for warranty in case
of eviction with regard to specific and
determinate things which he may have
contributed to the partnership, in the same cases
and in the same manner as the vendor is bound
with respect to the vendee. (Art. 1786, par. 2);
b. He shall also be liable for the fruits thereof
from the time they should have been delivered,
without the need of demand. (Art. 1786, par. 3)
22. When is the obligation to warrant eviction
arises?
Eviction shall take place whenever final judgment
based on the right prior to the sale or an act
imputable to the vendor, the vendee is deprived
of the whole or in part of the thing purchased.
The vendor shall answer for eviction even
nothing has been said in the contract on the
subject (Art. 1548)
23. Explain the obligation prohibiting the
Industrial partner to engage in another business.
Industrial partners are prohibited from engaging
in another business regardless if it is similar or
different to the business of the partnership,
unless partnership expressly permits him to do
so. (Art. 1789)
REASON FOR PROHIBITION: To insure
faithful compliance by industrial partner
with his prestation.
24. What are the consequences if the industrial
partner engaged in another business without the
permission of other partners?
1. The industrial partner may be excluded in the
partnership; or
2. He shall be deprived of the benefits which he
may obtained from engaging the business other
than of the partnership.
3. In either case, the other partners shall be
entitled for damages against the guilty industrial
partner. (Art. 1789)
REASON: Right to damages are only
available when the industrial partner
engaged in other business. It is not
available when a capitalist partner
engaged in another business because in
the former case, labor is the only
contribution of the industrial partner,
hence, engaging in another business
amounts to withdrawal of his
contribution to the partnership.
Withdrawal by the industrial partner of
his contribution would affect the
operation of the partnership.
25. Explain the obligation prohibiting the
Capitalist partner to engage in another business.
He cannot engage for their own account in any
operation which is of the kind of business in
which the partnership is engaged, unless there is
a stipulation to the contrary. (Art. 1808)
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OLIVEROS, STEPHANO P. | 2E 13
 26. What are the consequences if the industrial 28. What if the debtor is solvent contrary to the
partner engaged in another business without the provisions of Article 1973? Where the credit shall
permission of other partners? be accounted?
1. Exclusion from the partnership. - The credit shall be brought to the partnership
REASON: Although it is not expressly fund only if the debtor is insolvent. Hence, if the
stated by law, it is believed that the debtor is solvent, the provisions of Article 1807
violator can be ousted from the firm on shall apply in relation to Article 1809 (3). Every
the ground of loss of trust and partner must account to the partnership any
confidence, particularly if the violation is benefit and hold as trustee for it any profits
repeated after due warning. This would derived by him without the consent of the other
of course result in the dissolution of the partners from any transaction connected with
firm. the formation, conduct or liquidation of the
2. He shall bring any profits accruing to partnership.
him from his transactions to the common
funds of the partnership. 29. Explain the right of the partner to a formal
3. In case of losses of his business, he account.
shall bear them alone. A. During the existence of partnership
1. If he is wrongfully excluded from the
27. Discuss the obligation to account credit under partnership business or possession of its
Articles 1792 and 1793. property by his co – partners;
1792 1793 2. If the right exists under the terms of
Who will Managing Partner Any partner. any agreement;
collect
Number of Two (2). One is due to One (1). Credit in 3. As provided in Article 1807;
debts to be the managing partner, favor of the 4. Whenever other circumstances render
collected. and the other is due to partnership. it just and reasonable. (Art. 1809)
the partnership.

Where to It shall be applied to two The amount collected B. During dissolution

account. credits in proportion to
their amounts, except it
is received for the
account of partnership,
in which case the whole
sum shall be applied to
the partnership credit.
However, the debtor is
given the right to prefer
payment of the credit of
the partner if it should
be more onerous to him
in accordance with his
right to application of
payment.
shall be brought to The right to formal account shall be
the partnership fund,
likewise available to the legal
provided:
1. A partner has representative of the partner. Upon
received, in whole or dissolution, the right to formal account
in part, his share of
can be exercised against the winding up
the partnership
credit; partner, surviving partner or person or
2. The other partners partnership continuing the business.
have not collected (Art. 1842)
their shares;
3. The partnership
debtor has become 30. Explain the obligation of the partner to pay for
insolvent. damages due to his fault.
Every partner is responsible to the partnership
for damages suffered by it due to his fault,
provided he cannot compensate them with the
profits and benefits which he may have earned
for the partnership by his industry, unless unusual
profits have been realized through his
extraordinary efforts in other activities of the
partnership, the court may equitably lessen the
liability. (Art. 1794)

ATP | ATTY. BUGAYONG

OLIVEROS, STEPHANO P. | 2E 14
PROPERTY RIGHTS OF A PARTNER Profits is determined depending to the
agreement of the partners during the lifetime of
31. What are the property rights of a partner?
the partnership. Surplus, on the other hand, is
(SIP)
determined depending to the agreement of the
1. Rights in specific partnership property;
partners during the winding up and liquidation of
2. Interest in the partnership;
the partnership.
3. Right to participate in the management.

36. How are profits and losses computed?

32. Explain the right of the partner in specific
General Rule: The losses and profits shall be
partnership property.
distributed in conformity with the agreement.
A partner is a co – owner with his partners of
(Art. 1797, par. 1)
specific partnership property (Art. 1811). It is
called special limited partnership
Exceptions:
REASON: The partners are considered co
1. If only the share of each partner in the profits
– owners of the partnership property,
has been agreed upon, the share of each in the
however, their relationship is governed
losses shall be in the same proportion. (Art. 1797,
by Article 1811 and not by the Rules on
par. 1);
Co – ownership under Title III, Book 2 of
2. If there is no agreement, the share of each
the Civil Code.
partner in the profits and losses shall be
proportionate to their contribution. (Art. 1797,
33. What are the incidents of co – ownership
par. 2);
under Article 1811?
3. If there is no statement as to amount of
1. A partner has an equal right with his partners
contribution, the profits and losses shall be
to possess the partnership property for
equally shared by the partners (Art. 1790)
partnership purposes only, unless consent of
REASON: Presumption of equal
other partners is obtained;
contribution because Partnership is
2. Partner’s right over the partnership property
established for the common benefit or
cannot be assigned except if the rights of all the
interest of the partners. (Art. 1770)
partners in the same property are assigned;
3. Partner’s right to partnership property cannot
37. Status of stipulation excluding partner/s from
be subject to attachment or execution, except in
share in profits and losses.
claim against the partnership.
A stipulation which excludes one or more
ATTACHMENT V. EXECUTION: For
partners from any share in the profits and losses
purposes of satisfying the judgment, the
shall be void. (Art. 1799).
court, during the pendency of the case,
REASON: Mutuality of contracts. The
order the property of the debtor to be
contracts must bind both contracting
attached. After judgment, the court shall
parties; its validity or compliance cannot
award the creditor through the
be left to the will of one of them. (Art.
execution of the debtor’s property
1308)
attached.
4. Partner’s right to partnership property is not
38. Explain the designation of profits and losses of
subject to legal support.
a partner intrusted to another partner and to a
third person.
34. Explain the partner’s interest in the
The partners may agree to intrust to a third
partnership.
person the designation of the share of each one
A partner’s interest in the partnership is his share
in the profits and losses.
of the profits and surplus. (Art. 1812)
REASON: Autonomy of contracts. The
contracting parties may establish such
35. Distinguish profits and surplus.

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OLIVEROS, STEPHANO P. | 2E 15
 stipulations, clauses, terms and
conditions as they may deemed
convenient, provided they are not
contrary to law, morals, good customs,
public order, or public policy. (Art. 1306).
Thus, when the fulfillment of the
condition depends upon chance or will of
a third person, the obligation shall take
effect in conformity with the provisions
of this code. (Art. 1182)
However, the designation of losses and profits
cannot be entrusted to one of the partners.
REASON: Potestative agreement. When
the fulfillment of the condition depends
upon the sole will of the debtor, the
conditional obligation shall be void. (Art.
1182)
38. Is the authority to designate the share in the
profits and losses of partner/s vested to a third
person be impugned? If yes, what are the
conditions?
Yes. Provided the following conditions are
complied with:
1. Such designation is manifestly inequitable;
2. The designation must be questioned within
three (3) months from the time he had
knowledge thereof;
3. It must be executory, the designation is not yet
implemented. (Art. 1798)
REASON: To avoid estoppel.
39. What are the effects of assignment of
partner’s interest in the partnership?
1. The partnership is not dissolve;
2. The assignee will not become a partner (Art.
1813)
REASON: Delectus personae (choice of
persons) or the authority of one partner
to bind another by contract or otherwise.
40. What are the rights granted to the assignee in
the assignment of interest? (RARA)
1. To receive in accordance with his contract the
profits accruing to the assignor;
2. To avail himself of usual remedies provided by
law in the event of fraud in management;
3. To receive assignor’s interest in case of
dissolution;
4. To require an account of partnership affairs.
41. What are the rights granted to the assignee
NOT included in the assignment of interest? (MIP)
1. Interfere in the management;
2. To require any information or account;
3. To inspect any of the partnership books. (Art.
1813)
42. Explain the right of the partner to participate
in the management of Partnership.
The partner who has been appointed manager in
the articles of partnership may execute all acts of
administration. (Art. 1800)
43. Is the power of performing acts of
management irrevocable?
Yes. If such appointment as manager is in the
articles of partnership, his power is revocable
only upon the following grounds:
a. Showing of just and lawful cause
b. He should act in bad faith;
c. After the vote of the partners
representing the controlling interest.
(Art. 1800)
REASON: The revocation represents
change in the terms of contract. The law
presumes that the appointment thus
constituted is, in effect, one of the
conditions of the contract and it is only
logical that such appointment should not
be revoked without the consent of all the
partners, including the partner thus
appointed.
If his appointment as manager after the
constitution of the partnership, his power may be
revoked at any time for any cause whatsoever.
REASON: The revocation is not founded
on change of will on the part of the
partners, the appointment not being a
condition of the contract.
44. What is the difference of controlling interest
and majority?
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OLIVEROS, STEPHANO P. | 2E 16
Majority is per head basis, while controlling
interest, the computation is based on shares.
Thus, majority is 50% plus 1 while controlling
interest is 50% plus 1 shares.
45. What is a charging order?
While a separate creditor of a partner cannot
attach or levy upon a specific partnership
property for the satisfaction of his credit because
partnership assets are for partnership creditors,
he can secure a judgment on his credit and then
apply to proper court for a “charging order”,
subjecting the interest of the debtor partner in
the partnership. 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. (Art. 1814, par. 1). However, claims of
partnership creditors must be satisfied first
before the separate creditors of the partners can
be paid out of the interest charged. (Art. 1827)
46. Explain the right of redemption of interest
charged.
The interest of the debtor – partner so charged
may be redeemed or purchased at any time
before foreclosure without thereby causing a
dissolution:
1. With separate property, by one or
more of the partners;
2. With partnership property, but with
the consent of all the partners whose
interest are not so charged. (1814, par.
2)
OBLIGATION OF PARTNERS WITH
REGARD TO THIRD PERSONS
47. Explain the importance of a firm name.
1. For purposes of identity. To distinguish the
partnership which a distinct and separate
juridical personality from the individuals
composing the partnership and from other
partnership entities;
2. For purposes of transaction. To enable the
partnership to enter a juridical relationship with
a third person;
3. It allows the partnership to sue and be sued;
4. It authorizes the partnership to acquirer and
dispose property.
48. State the rules with respect selection of firm
name.
GENERAL RULE: The partners enjoy the utmost
freedom in the selection of the partnership
name. As a general rule, they may adopt any firm
name desired.
LIMITATIONS:
1. The firm name may or may not include the
name of the partners. (Art. 1815, par. 1)
2. The firm name shall not be misleading.
REASON: Because it causes confusion
and unfair competition to other business
having similar name.
WHAT CAUSES CONFUSION: It is not the
similarity of the name but the similarity
of the nature of business. Thus, a
partnership having similar name with
other business not engaged in the same
business to which the partnership is
engaged in, does not violate this
limitation.
3. A person who is not a partner shall not include
his name to the partnership name, otherwise, he
shall be liable as a partner insofar as third person
without notice is concerned. (Art. 1815, par. 1)
REASON: Such persons become partners
by estoppel. (Art. 1825)
4. As a rule, partner shall not include the name of
deceased partners in the firm name, however, it
is permissible provided that the firm indicates in
all its communications that said partner is
deceased.
REASON FOR ALLOWING THE USE OF THE
DECEASED NAME: Goodwill.
5. Two or more persons desiring to form a limited
partnership shall include the word “Limited”,
“LTD” or “LLP” thereto. (Art. 1844, no. 1, par. b);
6. The surname of a limited partner shall not
appear in the partnership name unless:
a. It is also the surname of a general
partner;
b. Prior to the time when the limited
partner became such, the business had
ATP | ATTY. BUGAYONG
OLIVEROS, STEPHANO P. | 2E 17
 been carried on under the name in which
his surname appeared. (Art. 1846, par. 1)
49. Explain the nature of obligation of a partner
with regard to third person under Article 1816.
1. Joint obligation
2. Contractual obligation
3. Subsidiary obligation
50. Explain the nature of liability of a partner with
regard to third person and the losses among
themselves.
The liability of the partners with regard to third
person as provided in Article 1816 shall be
construed as joint liability and not pro rata. The
former refers to equal liability while the latter
refers to proportionate liability based on the
amount of contribution. Thus, an industrial
partner is still liable, jointly, to a third person.
REASON: All partners, including
industrial ones, shall be liable pro rata
with all their property and after all the
partnership assets have been exhausted,
for the contracts which may be entered
into in the name and for the account of
partnership. (Art. 1816)
With regard to losses, in the absence of
stipulation, the share of each partner in the
profits and losses shall be in proportion to what
he may have contributed, but the industrial
partner shall not be liable for the losses. (Art.
1797)
51. What are the acts of a partner mentioned in
Article 1818?
1. Apparently carrying on in the usual way the
business of the partnership. (ACUWBP)
2. Not apparently carrying on in the usual way the
business of the partnership. (NACUWBP)
3. Acts of strict dominion
4. Acts in contravention of restriction on
authority.
52. Is acts carrying on in the usual way the
business of the partnership similar to acts of
administration?
No. The acts carrying on in the usual way the
business of partnership is a juridical act while the
acts of administration is not.
53. What are the acts of strict dominion under
Article 1818? (ADD-CARE)
1. Assign the partnership property in trust for
creditors to pay the debts of the partnership;
2. Dispose of the goodwill of the business;
3. Do any other act which would make it
impossible to carry on the ordinary business of
partnership;
4. Confess a judgment;
4. Submit a partnership claim or liability for
arbitration;
5. Renounce a claim of the partnership;
6. Enter into a compromise concerning a
partnership claim or liability.
54. Explain the consequences of the acts
mentioned in Article 1818.
1. For acts apparently carrying on in the usual
way the business of the partnership, every
partner is an agent and may execute such acts
with binding effect on the partnership, unless the
partner so acting has in fact no authority to act
and the third person has knowledge of such lack
of authority;
2. For acts not apparently carrying on in the usual
way the business of the partnership, the partner
does not bind the partnership unless authorized
by other partners;
3. For acts of strict dominion, the partner does
not bind the partnership unless authorized by all
the other partners or they have abandoned the
business;
4. For acts in contravention of a restriction or
authority, partnership is not liable to third person
in bad faith, whether or not the acts are for
apparently carrying on in the usual way the
business of the partnership.
55. When is a partner solidarily liable with the
partnership?
1. Tort or quasi – delict. Where, by any wrongful
act or omission of any partner acting in the
ordinary course of the business of the
partnership or with the authority of his co –
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OLIVEROS, STEPHANO P. | 2E 18
partners, loss or injury is caused to any person,
not being a partner in the partnership. (Art.
1822); (Ex. Contract of carriage)
2. 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 of third person and the money or
property so received is misapplied by any partner
while it is in the custody of the partnership. (Art.
1823)
56. What is the difference between par. 1 and 2
under Article 1823?
The first paragraph is an act not apparently
carrying on in the usual way the business of the
partnership. Thus, the nature of business of the
partnership is not engaged in receiving of money
or property in trust from the third person. The
second paragraph, on the other hand, is an act
apparently carrying on in the usual way the
business of the partnership. Thus, the nature of
business of the partnership is engaged in
receiving of money or property in trust from the
third person. (Ex. Contract of pledge, contract of
deposit etc.)
57. What is the rule with regard to admission or
representation of a partner?
Generally, an admission by a partner is an
admission against the partnership under the
conditions given:
1. The admission must concern partnership
affairs;
2. Within the scope of his authority (Art. 1820)
58. What are the restrictions with regard to the
rule on admission or representation?
1. Admissions made BEFORE dissolution are
binding only when the partner has authority to
act on the particular matter.
2. Admissions made AFTER dissolution are
binding only if the admissions were necessary to
WIND UP the business.
59. What is the difference between notice and
knowledge?
Knowledge is an actual awareness of a certain
fact or event, while notice creates a mere
presumption because information of a certain
fact or event was obtain through the intervention
of a third person. Thus, information in the former
was obtain directly while information in the latter
was obtain indirectly.
60. What are the effects of knowledge and
notice?
As a rule, notice to any partner of any matter
relating to partnership affairs is notice to
partnership. On the other hand, knowledge of a
partner is also knowledge of the firm provided:
1. Knowledge of the partner acting in the
particular matter acquired while a
partner;
2. Knowledge of the partner acting the
particular matter then present to his
mind;
3. Knowledge of any other partner who
reasonably could and should have
communicated it to the acting partners.
61. Can there be a partnership by estoppel if the
partnership is non – existing?
No. There must be an existing partnership. Article
1825 does not create a partnership as between
the partners because no partnership can exist
without an agreement. Thus, a person who
directly represents himself to anyone as a partner
or indirectly represents himself by consenting to
another representing him, shall be liable as an
actual member of the partnership, if partnership
liability results.
REASON: For the protection of the third
person deceived by such
misrepresentation.
62. Explain the liability of the partner by estoppel.
A. The liability is pro rata:
1. In a non – existing partnership, all
those represented as partners consented
to the representation;
2. In an existing partnership, not all of the
partners consented to the
representation.
B. The liability is separate:
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 1. In a non – existing partnership, not all
but some of those represented as
partners consented to the
representation;
2. In an existing partnership, none of the
partners consented to the partnership.
63. Is a person admitted as a partner liable for the
obligation of the partnership arising before his
admission?
Yes. A person admitted as partner into an existing
partnership is liable for all the obligations of the
partnership arising before his admission as
though he had been a partner when such
obligations were incurred. Hence, his liability is
limited only to his contribution and cannot
extend to his separate property unless there is a
stipulation to the contrary. (Art. 1826)
REASON: Once admitted, he assumed all
the benefits enjoyed by the partnership.
Thus, it is equitable to assume its prior
liabilities.
DISSOLUTION AND WINDING UP
64. What are the causes of dissolution?
1. Without violation of the agreement between
the partners:
a. By the termination of the definite term
or particular undertaking specified in the
agreement;
b. By the express will of any partner, who
must act in good faith, when no definite
term or particular undertaking is
specified;
c. By the express will of all the partners
who have not assigned their interests or
suffered them to be charged for their
separate debts, either before or after the
termination of any specified term or
particular undertaking;
d. By the expulsion of any partner from
the business bona fi de in accordance
with such a power conferred by the
agreement between the partners;
2. Contravention of the agreement between the
partners.
3. Any event which makes it unlawful for the
business of the partnership to be carried on
4. Loss of the specific thing promised to be
delivered in the common fund.
5. Death of any partner;
6. Insolvency of any partner or of the partnership;
7. Civil interdiction of any partner;
8. Decree of court under the following article.
65. What do you mean “by express will of any
partner”?
It means resignation or withdrawal from the
partnership.
66. How is a partner expelled from the
partnership?
1. A capitalist partner who engaged in the
operation of business similar to the nature of
business of the partnership (Art. 1808);
2. An industrial partner who engaged in another
business for himself (Art. 1789)
67. Is a decree of insolvency necessary?
Yes. The partner must be judicially declared as
insolvent.
68. What are the grounds for dissolution?
(BIGLIO)
1. Breach of trust;
2. Insanity;
3. Guilty of such conduct which prejudicially
affects the partnership;
4. Partnership can only be carried on at a loss;
5. Incapable of performing his part in the
partnership;
6. Other circumstances render dissolution
equitable. (Ex. Availment of the assignee of the
usual remedies in case of fraud in the
management of partnership)
69. What is the difference between Article 1830
and 1831?
Article 1830 or the causes of dissolution refers to
instances when a partnership automatically
dissolves. On the other hand, in Article 1831, a
partnership may only be dissolved upon petition
for dissolution, hence, not automatic.
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70. Who can apply for petition for dissolution of
the partnership?
1. Partner;
2. Third person such as assignee, unpaid creditor
or purchaser of interest.
71. Is a judicial decree for insanity necessary?
No. The determination of insanity can be made in
the same petition for dissolution.
72. What is the effect of dissolution with respect
to the partners not caused by act, insolvency or
death of a partner?
Dissolution terminates all authority of any
partner to act for the partnership unless insofar
as may be necessary to wind up partnership
affairs or to complete unfinished business. (Art.
1832)
73. What is the effect of dissolution with respect
to the partners caused by the act, insolvency or
death of a partner?
General Rule: Each partner is liable to his co –
partners for his share of his liability created by
any partner acting for the partnership had not
been dissolve.
Exceptions:
1. The dissolution being by act of any partner, the
partner acting for the partnership had knowledge
of dissolution;
2. The dissolution being by death or insolvency of
a partner, the partner acting for the partnership
had knowledge or notice of the death or
insolvency.
74. What do you mean dissolution caused by the
act of a partner?
It may refer to resignation or withdrawal of a
partner, either by express will without violation
of the agreement or in contravention of
agreement. (Art. 1830, pars. 1 and 2)
75. When is the partnership bound to third
persons?
General Rule: Dissolution terminates all authority
of any partner to act for the partnership. The
partner can no longer bind the partnership to
third person.
Exceptions:
1. The business is for winding up;
2. The business is to complete unfinished
business transactions;
3. Completely new business entered into with
third persons in good faith. (Art. 1834)
76. When is the partnership not bound with the
third persons?
1. If the business is not for winding up nor to
complete unfinished business except completely
new business entered into with third persons in
good faith;
2. Where the firm was dissolved because it was
unlawful to carry on the business except when
the act is for winding up;
3. Where the partner that acted in the
transaction has become insolvent;
4. Where the partner is unauthorized to wind up
except if the transaction is with a customer in
good faith. (Art. 1834)
78. Is the liability of the partners discharged upon
dissolution?
General Rule: The dissolution of the partnership
does not itself discharge the existing liability of
any partner. (Art. 1835, par. 1)
REASNON: Otherwise, creditors would
be prejudiced, particularly if a partner
will just withdraw anytime from the fi rm.
EXCEPTION: A partner is discharged from any
existing liability upon dissolution of the
partnership by an agreement between:
1. The partners concerned;
2. Other partners;
3. Creditors
79. Who can initiate the winding up of the
partnership?
A. Extrajudicial winding up
1. Partners designated in the agreement;
2. Partners who have not wrongfully
dissolved the partnership; or
3. Legal representative of the last
surviving partner provided the last
survivor was not insolvent.
B. Judicial winding up
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 1. Person duly appointed by the court. LIMITED PARTNERSHIP
(Art. 1836)
85. What distinguishes limited partner from a
general partner?
80. In case of extrajudicial winding up, who shall
Under Article 1810, a general partner is entitled
initiate the winding up of partnership if all of the
to property rights such as his rights to specific
partners simultaneously died?
partnership property, his interest in the
The partnership, therefore, can only be judicially
partnership and his right to participate in the
wind up. The rule provided in Article 1836 shall
management. On the other hand, a limited
not apply.
partner is likewise entitled to property rights
except the right to participate in the
81. What are the powers of liquidating partner?
management of the partnership. Limited
1. Make new contracts;
partners are usually those who put money for the
2. Raise money to pay partnership debts;
business. They are mere investors.
3. Incur obligations to complete existing
contracts or preserve partnership assets;
86. What are the requisites in forming Limited
4. Incur expenses necessary in the conduct of
Partnership?
litigation.
1. The certificate of articles of limited partnership
which states the matters enumerated in Article
82. What comprises assets of partnership?
1844, must be signed and sworn to;
1. Partnership property; and
2. Such certificate must be filed for record in the
2. Contributions of the partners necessary for the
office of SEC. (Art. 1844)
payment of all partnership liabilities.
87. What is the effect if the partners did not
83. What comprises partnership property and
strictly complied with the requirements?
contributions of partners?
A strict compliance with the legal requirements is
Partnership property shall consist contribution of
not necessary. It is sufficient that there is
the partners to the common fund and property
substantial compliance in good faith. If there is no
acquired by the partnership during its lifetime.
substantial compliance, the partnership becomes
Contributions, on the other hand, as referred in
general partnership as far as the third persons are
Article 1839 shall not refer to profits and losses
concerned, in which all the members are liable as
as provided in 1797, but the separate properties
general partners. (Art. 1844)
of the partners under 1816. Subsidiary liability is
one of the characteristics of Partnership, thus,
88. Can a Limited partner contribute services to
separate properties of partners can be used to
the partnership?
suffice the partnership liabilities after the
The contributions of a limited partner may be
exhaustion of partnership properties. (*Based on
cash or other property, but not services. (Art.
Atty. Bugayong’s opinion.)
1845) A limited partner cannot be an industrial
partner. However, a limited partner may be a
84. Enumerate the preference in the payment of
general partner at the same time, provided that
partnership liabilities.
this fact shall be stated in the certificate provided
1. Payment shall be made to partnership
for in Article 1844.
creditors;
2. Payment to partners who are also creditors;
89. Can a limited partner be an employee of the
3. Give the partners their capital;
partnership?
4. The profits shall be distributed among the
Yes. As provided in Article 1844, a limited partner
partners. (Art. 1839)
is entitled to compensation by way of income.

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