PARTNERSHIP & AGENCY

 
General Provisions
 
Art. 1767 – Definition:
Partnership – a contract whereby 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, or in order to exercise profession.
 
Profession – a group of men pursuing a learned art as a common calling in the spirit of
public service – no less a public service because it may incidentally be a means of
livelihood.
 
Characteristics of Partnership
1.        Consensual
2.        Nominate
3.        Bilateral
4.        Onerous
5.        Commutative
6.        Principal
7.        Preparatory
 
·         A partnership contract, in its essence, is a contract of agency
 
Elements
1.        consensual;
2.        there must be a contribution of money, property or industry to a common fund;
3.        the subject must be a lawful one;
4.        there must be an intention of dividing the profit among the partners;
5.        there must be a desire to formulate an active union (affectio societatis);
6.        a new personality, that of the firm – must arise, distinct from the separate
personality of each of the members
 
Essential Features of Partnership
1.        there must be a valid contract;
2.        the parties must have legal capacity to enter into the contract;
3.        there must be a mutual contribution of money, property, or industry to a common
fund;
4.        the object must be lawful; and
5.        the primary purpose must be to obtain profits and to divide the same among the
parties
 
Differentiation:
 
Partnership (P) vs. Corporation (C)
a.        creation
P – voluntary agreement of parties
C – created by the state in the form of a special charter or by a general enabling law
b.        how long it exists
P – no time limit except agreement by parties
C – not more than 50 years; may be reduced, but never extended
c.        liability to strangers
P – may be liable with their private property beyond their contribution to the firm
C – liable only for payment of their subscribed capital stock
d.        transferability of interest
P – even if a partner transfers his interest to another, the transferee does not
become a partner unless all other parties consent
C – a transfer of interest makes the transferee a stockholder, even without the
consent of the others
e.        ability to bind the firm
P – generally, partners acting on behalf of the partnership are agents thereof;
consequently they can bind both the firm and the partners
C – generally, the stockholders cannot bind the corporation since they are not
agents thereof
f.          mismanagement
P – a partner can sue a partner who mismanages
C – a stockholder cannot sue a member of the board of directors who mismanages:
the action must be in the name of the corporation
g.        nationality
P- a partnership is a national of the country it was created
C – a corporation is a national of the country under whose laws it was incorporated,
except for wartime purposes or for the acquisition of land, natural resources and the
operation of public utilities in the Philippines, in which case the veil of the corporate
identity is pierced and we go to the nationality of the controlling stockholders
h.        attainment of legal personality
P – the firm becomes a juridical person from the time the contract begins
C – the firm becomes a juridical person from the time it is registered in the Securities
and Exchange Commission, and all requisites have been complied with
i.          dissolution
P – death, retirement, insolvency, civil interdiction, or insanity of a partner dissolves
the firm
C – such causes do not dissolve the corporation
 
Ordinary Partnership (OP) vs. Conjugal Partnership of Gains (CPG)
a.        how created
OP – by will or consent of the parties
CPG – created by operation of law upon the celebration of the marriage
b.        law that governs
OP – in general, it is the will of the partners that governs matters like object, length
of existence, etc; the law is only subsidiary
CPG – in general, it is the law that governs
c.        legal personality
PO - possesses a legal personality
CPG – does not possess any legal personality distinct from that of the husband or
wife; hence, it cannot sue or be sue as such
d.        commencement of the partnership
PO – begins at the moment of the execution of the contract but a contrary stipulation
is allowed
CPG – commences precisely on the date o the celebration of the marriage – no
contrary stipulation is allowed
e.        purpose
PO – formed for profit
CPG – not formed particularly for profit
f.          division of profits
as a rule, profits are divided according to previous agreement; and if there is no
agreement, in proportion to the amount contributed
CPG – as a rule, profits are divided equally (but settlement can provide otherwise)
g.        management
PO – as a rule, management is conferred upon the partners so appointed by the
others; otherwise, all are equally considered agents of the firm
CPG – as a rule, the administration and enjoyment of the conjugal partnership
property belong to both spouses jointly
h.        dissolution
PO – there are many grounds for dissolution
CPG – there are few grounds for dissolution
i.          liquidation of profits
PO – there may be division of profits even without dissolution
CPG – there will be no liquidation or giving of profits till after dissolution
 
Partnership (P) vs. Co-Ownership (Community of property Tenancy in Common)
(CO)
a.        creation
P – created by contract only (express or implied)
CO – created by contract, law and other things
b.        juridical
P – has juridical or legal personality
CO – has none, hence, it cannot sue or be sued as such
c.        purpose
P – for profit
CO – collective enjoyment (hence, not necessarily for profit)
d.        agency or representation
P – as a rule, there is mutual representation
CO – as a rule, there is no mutual representation (although it is enough for one co-
owner to bring an action for ejectment against a stranger)
e.        transfer of interest
P – cannot substitute another as partner in his place, without unanimous consent
CO – can dispose of his share without the consent of the others
f.          length of existence if created by contract
P – no term limit is set by law
CO – must not be for more that 10 years (although agreement after termination may
be renewed) (hence, if more than 10 years, the excess is VOID)
·         20 years is the maximum if imposed by the testator or donee of the common
property
g.        profits
P- may be stipulated upon
CO – profits must always depend on proportionate shares (any stipulation to the
contrary is VOID)
h.        dissolution
P – dissolved by death or incapacity of a partner
CO – not dissolved by the death or incapacity of co-owner
i.          form
P – may be made in any form except when real property is contributed (here, a
public instrument is required)
CO – no public instrument needed even if real property is the object of the co-
ownership
 
Partnership (P) vs. Joint-Stock Company (JSC)
a.        as to composition
P – essentially, an association of persons
JSC – essentially, an association of capital
b.        as to division of capital
P – capital is not divided into shares
JSC – although a special form of partnership, its capital is divided into shares, like in
a corporation
c.        as to management
P – generally, in all the partners
JSC – generally, in a board of directors
d.        as to liability
P – partners may be liable with their individual properties after exhaustion of the
partnership assets
JSC – liability of the members is only up to the extent of their shares if such is what
the statute provides
e.        effect of transfer of interest
P – transferee of partner’s share does not become a partner unless all the other
partners consent
JSC – transferee of member’s shares himself becomes a member without any
necessity of consent from the other members
 
Partnership (P) vs. Social Organizations (SO)
a.        as to contribution
P – capital is given in money, property or services
SO – no capital is given although, of course, fees are usually collected
b.        as to liability of debts
 P – partners are liable only after the partnership assets are exhausted
SO – members are the ones individually liable for the debts of the organization,
debts authorized or ratified by said members
c.        as to purpose of objective
P – organized for gain, principally financial
SO – organized usually only for social or civic objectives
d.        as to personality
P – a legal person
SO – not a legal person
 
Partnership (P) vs. Voluntary Association (V)
a.        juridical personality
P – has juridical personality
V - none
b.        purpose
P – always organized for pecuniary profit
V – such objective is lacking
c.        contribution of members
P – there is contribution of capital, either in the form of money, property, or services
V – for social purposes, although fees are usually collected from the members to
maintain the organization, there is no contribution of capital
d.        liability of members
P – the partnership, as a rule, is the one liable in the first place for the debts of the
firm
V – the members are individually liable for the debts of the association, authorized
by them either expressly or impliedly, or subsequently ratified by them
 
Partnership vs. Business Trusts
                - when certain persons entrust their property or money to others who will
manage the same for the former, a business trust is created. The investors are called
cestui que trust; the managers are the trustees.  In a true business trust, the cestui que
trust (beneficiaries) does not at all participate in the management; hence, they are
exempted from personal liability, in that they can be bound only to the extent of their
contribution.
 
Partnership vs. Tenancy
a.        a partner acts as agent for the partnership whom he represents; the tenant does
not represent the landlord.
b.        a partnership is a legal person; no such person is created in the relationship
between landlord and tenant.
 
 
Partnership vs. Agency
a.        “agency” may in one sense be considered the broader term because:
partnership” is only a form of “agency.”
b.        an agent never acts for himself but only for his principal; a partner is both a
principal (for his own interest) and an agent (for the firm and the others).
 
Partnership vs. Joint Adventure (joint accounts)
a.        a joint adventure is a sort of informal partnership, with no firm name and no legal
personality. In a joint account, the participating merchants can transact business
under their own name, and can be individually liable therefor.
b.        usually but not necessarily, a joint adventure is limited to a SINGLE
TRANSACTION, although the business of pursuing it to a successful termination
may continue for a number of years; a partnership generally relates to a continuing
business of various transactions of a certain kind.
 
Partnership vs. Labor Union
- a labor union is any association of employees which exists in whole or in part
for the purpose of collective bargaining or of dealing with employers concerning terms
and conditions of employment.
-   partnerships and labor unions have some characteristics in common, but the
purpose of partnership is essentially to enable its members, as principals, to conduct a
lawful business, trade, or profession for pecuniary gain of partners, and no one may
become a partner without consent of all partners
 
Partnership vs. Syndicate
                - a syndicate is usually a particular partnership, that is, it may have been
organized to carry out a particular undertaking or for some temporary objective
 
Art. 1768 – Partnership is a juridical person separate and distinct from each of the
partners.
 
Consequences:
1.        Its juridical personality is separate and distinct from that of each of the partners.
2.        The partnership can:
-          acquire and possess property of all kinds;
-          incur obligations;
-          bring civil or criminal actions;
-          can be adjudged insolvent even if the individual members be each financially
solvent
3.        A partner has no right to make a separate appearance in court, if the partnership
being sued is already represented, unless he is personally sued.
 
·         Limitations on Alien Partnership
- Secs. 2, 7, 10 and 11 of Art. 12 of the 1987 the Philippine Constitution
 
·         Rules in case of Associations now lawfully organized as Partnerships
1.        If an association is not lawfully organized as a partnership, it possesses no legal
personality. Therefore, it cannot sue. However, the “partners,” in their individual
capacity can.
2.        One who enters into contract with a “partnership” as such cannot, when sued
later on for recovery of the debt, allege the lack of legal personality on the part of the
firm, even if it indeed had no personality.
 
 
Art. 1769 – Determinants for the Existence of a Partnership
 
·         Purpose:
- to indicate some test to determine if what may seem to be a partnership really is
one, or it is not
 
·         Requisites for Existence of Partnership
1.        intention to create a partnership;
2.        common fund obtained from contributions;
3.        there was joint interest in the profits;
 
Therefore:
        mere co-ownership or co-possession; mere profit sharing or GROSS returns do
not establish a partnership
 
Sharing of net profits
-          a prima facie evidence that one is a partner except in the 5 instances under
Art. 1769
 
Art. 1770 – Lawful Object or Purpose
1.        must be within the commerce of man, possible and not contrary to law, morals,
good customs, public order or public policy
2.        if a partnership has several purposes, one of which is unlawful, the partnership
can still validly exist so long as the illegal purpose can be separated from the legal
purpose
 
·         Judicial decree is not necessary to dissolve an unlawful partnership.
-          the contract is void and therefore never existed from the viewpoint of the law
 
·         Consequences of Unlawful Partnerships
1.        Art. 45, RPC
2.        The partners forfeit the proceeds or profits, but not their contributions, provided
no criminal prosecution has been instituted.
 
-          if the contributions have already been made, they can be returned;
-          if the contributions have not yet been made, the parties cannot be made to
make the contributions
3.        An unlawful partnership has no legal personality.
 
Art. 1771 – Formalities of Partnership
 
1.        General Rule:
-for the validity of the contract, as well as for enforceability, no form is required,
regardless of the value of the contributions
 
                Exception:
 
                - whenever real properties or real rights in real properties are contributed –
regardless of the value – a public instrument is needed. Moreover, an inventory of the
immovables is needed. This must be signed by the parties and attached to the public
instrument
 
1.        for effectivity of the partnership contract insofar as innocent third persons are
concerned, the same must be registered if real properties are involved.
 
 
 
Art. 1772 – Partnership with capital of Php 3,000 or more – Registration with the
SEC
 
·         Purpose of the registration with the office of the SEC
-          to set a condition for the issuance of licenses to engage in business or trade
 
Effect of non-registration
1.        even if not registered, the partnership having a capital of Php 3,000.00 or more is
still a valid one, and therefore has legal personality;
2.        if registration is needed, or desired, any of the partners of a valid partnership can
compel the others to execute the needed public instrument, and to subsequently
cause its registration.
 
Art. 1773 – Where real property is contributed
 
·         Requirements where real property is contributed
1.        There must be a public instrument regarding the partnership;
2.        The inventory of the realty must be made, signed by the parties, and attached to
the public instrument
 
·         Applicability
1.        applies regardless of the value of the property;
2.        applies even if only real rights over real property are contributed;
3.        applies also if cash or personal property is contributed
 
Registration
– transfer of the land to the  partnership must be duly recorded in the
Registration of Property to make the transfer effective insofar as third persons are
concerned
 
Art. 1774 – Acquisition of property under the Partnership name
 
-          applicable to immovable as well as personalty because the partnership is a
juridical entity, capable of owning and possessing property
-          alien partners must comply with the requirements as provided for in Sec. 7,
Art 12 of the 1987 Constitution
 
·         Limitations on Acquisition
-          a partnership, even if entirely of Filipino capital may not:
1.        acquire, lease or hold public agricultural lands in excess of 1,024 hectares;
2.        lease public lands adapted to grazing in excess of 2,000
 
Art. 1775 – Secret Partnership
 
·         If articles are kept secret
1.           the association here is certainly not a partnership and therefore not a
legal person, because anyone of the members may contract in his own
name with third persons and not in the name of the firm;
2.           although not a juridical entity, it may be sued by third persons under the
common name it uses, otherwise, said innocent third parties may be
prejudiced;
3.           however, it cannot sue as such, because it has no legal personality and
therefore, cannot ordinarily be a party to a civil action;
4.           therefore, insofar as innocent third parties are concerned, the partners
can be considered as members of a partnership; but as between
themselves, or insofar as third persons are prejudiced, only the rules on co-
ownership must apply.  Same rule applies in the case of a partnership by
estoppel
 
·         Note:
-          contracts entered into by a partner in his own name may be sued upon still by
him in his own individual capacity, notwithstanding the absence of partnership
 
·         Partnership needs publicity to prevent fraud/deceit
 
Art. 1776 – Classification of Partnership
 
a.        as to object/subject matter
1.        Universal Partnership
-  may   refer to all   the present
property or to all the profits
a.          universal of all present property
- that which the partners contribute all the property which actually belongs to
them to a common
 
b.          universal of profits
 -          comprises all that the partners may acquire by their industry or work
during the existence of the partnership
2.        Particular Partnership
- object are determinate things, their use or fruits; a specific undertaking or the
exercise of a profession or occupation
 
b.        as to liability of partners
1.        General
- they are liable even with respect to their individual properties, in pro rata after
the assets of the partnership have been exhausted, for the  contracts which may be
entered into in the name and for the account of the partnership, under its signature
and by a person authorized to act for the partnership
2.        Limited
-          formed by two or more persons having as members one or more general
partners and one or more limited partners.
 
·         The limited partners as such shall not be bound by the obligations of the
partnership
 
·         A limited partner is one whose liability is limited only up to the extent of his
contribution
 
c.        as to duration
1.        at will
2.        at a fixed term
-          the term of existence has been agreed upon expressly or impliedly
-          the expiration of the term thus fixed or the accomplishment of the particular
undertaking specified will cause the automatic dissolution of the partnership
 
d.        as to legality of existence
1.        de jure –
2.        de facto
 
e.        as to representation
1.        ordinary/real
2.        ostensible/ partnership by estoppel
 
f.          as to publicity
1.        secret
2.        open or notorious
 
g.        as to purpose
1.        commercial
2.        professional
 
·         Kinds of Partners
1.        Capitalist Partners
-          one who furnishes capital;
-          not exempted from losses; can engage in other business provided there is no
competition between the partner and his business
 
2.        Industrial
-          one who furnishes industry or labor;
-          can be a general partner but never a limited partner;
-          exempted from losses as between the partner; cannot engage in any other
business without express consent of the partners, otherwise
- he can be excluded from the firm (plus damage)
- or the benefits he obtains from the other business can be availed of by the
other partners (plus damages)
 
3.        General/Real
-          one who is liable beyond the extent of his contribution
 
4.        Managing
-          one who manages actively the firm’s affairs
 
5.        Liquidating
-          one who liquidates or winds up the affairs of the firm after it has been
dishonored
 
6.        Partner by estoppel/Quasi-partner
-          one who is not really a partner but who may become liable as such insofar as
third persons are concerned
 
7.        Continuing
8.        Surviving
9.        Subpartner
 
·         Other classifications
a.        ostensible partner
-          one whose connection with the firm is public and open
 
b.        secret
-          one whose connection with the firm is concealed or kept a secret
 
c.        silent
-          one who does not participate in the management, though he shares in the
profits or losses
 
d.        dormant/sleeping
-          one who is both a secret and silent partner (not managing)
 
e.        original
f.          incoming
g.        retiring
 
Arts. 1778-80 – Universal Partnership
 
·         2 kinds of Universal Partnership
A. Universal property of all present property
-          one which comprises all that the partners may acquire by their industry or
work during the existence of the partnership and the usufruct of movable or
immovable property which each of the partners may possess at the time of the
celebration of the contract.
·         The following become common property of all the partners:
1.        property which belonged to each of them at the time of the construction of the
partnership
2.        profits which they may acquire from the property contributed
 
·         Property which the partners may acquire subsequently by inheritance, legacy
or donation cannot be included for the stipulation for common enjoyment
·         Fruits thereof may be included
 
B. All profits
-          comprises all that the partners may acquire by their industry or work during
the existence of the partnership
 
·         Distinction between all profits and all present property
 
·         All profits
-          only the usufruct of the properties of the partners become common property;
naked ownership is retained by each of the partners
-          all profits required by the industry or work of the partners become common
property
·         All present property
-          all the property actually belonging to the partners are contributed- and said
properties become common properties
-          as a rule, aside from the properties, only the profits of the said contributed
common property
·         Note:
-          profits from other sources may become common, but only if there is a
stipulation to such effect.
-          Properties subsequently acquired by inheritance, legacy or donation, cannot
be included in the stipulation, but the fruits thereof can be included in the
stipulation
 
Art. 1781 – Presumption in favor of partnership of profits
 
 -          applicable only when a universal partnership has been entered into
 
·         note:
-          future property cannot be included in the stipulation regarding universal
partnership of all present property
Reasons:
1.        contracts regarding successions rights cannot be made;
2.        partnership demands that the contributed things be determinate, known and
certain;
3.        universal partnership of all present properties really implies a donation and
future property cannot be donated
 
 
Art. 1782 – Persons prohibited by law to give donation- cannot enter into
Universal Partnership
 
Reason: they should not be allowed to do indirectly what the law forbids directly
 
Art. 1783 – Particular Partnership
- it has for its object determinate things, their use of fruits, or specific undertaking, or
the exercise of a profession or vocation
 
·         Doctrine:
If two (2) individuals form a particular partnership for a deal in reality, it does not
necessarily follow that all deals are for the benefit of the partnership.  In the absence
of agreement, each particular deal results in a particular partnership. If one of them,
on his account, and using his own funds, should make transactions in the same
business, it is his own undertaking
 
II. Obligations of the Partners among themselves
 
Art. 1784 – When partnership begins
 
General Rule:
-          begins from the moment of the execution of the contract
Exception:
-          unless it is otherwise stipulated
 
·         Intent to create a future partnership
·         Art 1784 presupposes that there can be a future partnership which at the
moment has no juridical existence yet
·         The agreement for a future partnership does not itself result in a
partnership. The intent must be later on actualized by the formation of the
intended partnership
 
·         Rule if contributions have not yet been actually made
 - generally, even if contributions have not yet been made, the firm already exists, for
partnership is a consensual contract (all requisites for such consent must be
present)
 
Art. 1785 – Duration of Partnership
 
·         Duration: unlimited in the sense that no time limit is fixed by law; may be agreed
upon (expressly or impliedly)
 
·         Partnership “at will”
- 2 kinds
a.        when there is no term, express or implied
b.        when continued by habitual managers
 
-          note:
It is called “at will” because its continued existence really depends upon the will
of the partners or even on the will of any of them.
 
Art. 1786 – Duties of Parties
·         3 Important Duties of a partner
1.        to contribute what has been promised;
2.        to deliver the fruits of what should have been delivered; and
3.        to warrant
 
·         Obligations with respect to contribution of property
1.        to contribute at the beginning of the partnership or at the stipulated time the
money, property or industry which he may have promised to contribute;
2.        to answer for eviction in case the partnership is deprived of the determinate
property contributed; and
3.        to answer to the partnership for the fruits of the property the contribution of
which he delayed, from the date they should have been contributed up to the
time of actual delivery
 
in addition, the partner has the obligation:
 
4.        to preserve said property with the diligence of a good father of a family
pending delivery to the partnership; and
5.        to indemnify the partnership for any damage caused to it by the retention of
the sane or by the delay in its contribution
 
·         Effects of failure to contribute property promised
        The mutual contribution to a common fund being of the essence of the contract
of partnership, for without the contributions the partnership is useless, it is but logical
that the failure to contribute is to make the partner ipso jure a debtor of the
partnership even in the absence of any demand.
 
         The remedy of the partner is not rescission but an action for specific
performance with damages and interest from the defaulting partner from the time he
should have complied with his obligation.
 
Art. 1787 – Appraisal of Goods
 
-          manner prescribed by the contract of partnership in the absence of
stipulation, appraisal shall be made by experts chosen by the partners and
according to current prices
 
A.       When contribution consist of goods
- appraisal of value is needed to determine how much has been contributed
 
B.       How appraisal is made
- as prescribed by the contract
- in default of the first, experts chosen by the partners, and at current prices
 
C.       Necessity of the Inventory Appraisal
- proof is needed to determine how much goods or money had been
contributed. An inventory is useful
               
D.       Risk of loss
- after goods have been contributed, the partnership bears the risk of
subsequent changes in their value
 
Art. 1788- Obligations with respect to contribution of money
 
1.        to contribute on the date due the amount he has undertaken to contribute
to the partnership;
2.        to reimburse any amount he may have taken from the partnership coffers
and converted to his own use;
3.        to pay the agreed or legal interest, if he fails to pay his contribution on
time or in case he takes any amount from the common fund and converts it
for his own use; and
4.        to indemnify the partnership for the damages caused to it by the delay in
the contribution or the conversion of any sum for his personal benefit
 
·         Liability of guilty partner for interest and damages
-          the guilty partner is liable for interest and damages not from the time judicial
or extrajudicial demand is made but from the time he should have complied with
his obligation or from the time he converted the amount to his own use, as the
case may be.
-          Unless there is a stipulation fixing a different time, this obligation of a partner
to give his promised contribution arises from the commencement of the
partnership, that is, upon perfection of the contract.
 
·         Cases covered by the article:
a.        when money promised is not given on time;
b.        when partnership money is converted to the personal use of the partner
 
·         Coverage of liability
a.        interest at the agreed rate (if none, the legal interest)
b.        damages that may be suffered by the partnership
 
·         Why no demand is needed to put partners in default:
a.        contribution
-          a partnership is formed precisely to make use of contributions, and this use
should start from its formation, unless a different period has been set; otherwise
the firm is necessarily deprived of the benefits thereof
- injury is constant
- time is of the essence
b. conversion
-          the   form   is   deprived   of   the
benefits of the money, from the      very moment of conversion
 
·         note: even if no actual injury results, the liability exists because Art. 1788 is
absolute
 
Art. 1789 – Obligations of an Industrial Partner
 
Remedies where industrial partner engages in business
-          if the industrial partner engages in business for himself, without the express
permission of the partnership, the capitalist partners have the right to exclude
him from the firm or to avail themselves of the benefits which he may have
obtained.  In either case, the capitalist partners have the right to damages
 
note: the permission given must be express; hence, mere toleration by the
partnership will not exempt the industrial partner from liability
 
Distinction between Capitalist Partner and Industrial Partner
a. as to contribution
CP – contributes money or property
IP – contributes industry (mental or physical)
 
b. as to prohibition to engage in other business
CP – cannot generally engage in the same or similar enterprise as that of his firm
(possibility of unfair competition)
IP – cannot engage in any business for himself (all his industry is supposed to be
contributed to the firm)
 
c. as to profits
 CP – shares in the profits according to the agreement thereon; if none, pro rata
to his contribution
IP – receives a just and equitable share
 
d. as to losses
CP – stipulation; if no stipulation, the agreement as to the profits; if none, pro rata
contribution
IP – exempted as to losses (as between the partners0; but is liable to strangers
without prejudice to reimbursement from capitalist partners
 
Art. 1790  - Contribution
 
General Rule: Partner shall contribute equal shares to the capital of the partnership
 
Exception: stipulation to the contrary
 
·         Amount of contribution
-          it is permissible to contribute unequal shares, if there is a stipulation to that
effect
 
·         To whom applicable
-          both to industrial as well as to capital partners undoubtedly
 
Art. 1791 – Obligation of Capitalist Partner
 
General Rule:
-          a capitalist partner is not bound to contribute to the partnership more than
what he agreed to contribute but in case of imminent loss of the business, and
there is no agreement to the contrary, he is under obligation to contribute an
additional share to save the venture.
-          if he refuses to contribute, he shall be obliged to sell his interest to the other
partners
 
·         Requisites when a capitalist partner is obliged to sell his interest to the other
partners:
1. if there is imminent loss of the partnership;
2. he refuses to contribute an additional share to the capital; and
3. there is no agreement to the contrary
 
·         note: industrial partner is exempted for he is already giving his entire industry
 
Art. 1792 – Obligations of Managing Partner who collects debt
·         Requisites:
a.        existence of at least two debts;
b.        both sums are demandable; and
 c.        collecting partner is authorized to manage and actually manages the
partnership
   
·         when not applicable
-          if the partner collecting is not a managing partner
-          here, there is no basis for the suspicion that the partner is in BAD FAITH
 
Art. 1793 – Obligation of Partner who receives share of partnership credit
-          to bring such to the partnership capital in case of insolvency of the debtor and
other partners have not yet collected their share
 
·         as compared to Art. 1792
a.        one debt only (firm credit)
b. applies to any partner
 
Art. 1794 – Obligation of partner for damages to partnership
 
·         Why General Damages cannot be offset by benefits:
 
a.        the partner has the duty to secure benefits for the partnership; on the
other hand, he has the duty also not to be at fault
b.       since both are duties, compensation should not take place, the partner
being the debtor in both instances
-          compensation requires 2 persons who are reciprocally debtors and
creditors of each other
 
·         Mitigation of Liability
-          equity may mitigate liability if there are “extraordinary efforts” resulting
in unusual “profits”
 
·         Need for Liquidation
-          before a partner sues another for alleged fraudulent management and
resultant damages, a liquidation must first be effected to know the extent of
damages
 
Effect of Death of the negligent Partner
-          suit for recovery may be had against his estate
 
Art. 1795 – Risk of Loss of things contributed
 
Cases contemplated:
1.        Specific and determinate things which are not fungible where only the use is
contributed
-          the risk of loss is borne by the partner because he remains the owner of the
things
2.        Specific and determinate things the ownership of which is transferred to the
partnership
-          the risk of loss is for the account of the partnership, being the owner
3.        Fungible things or things which cannot be kept without deteriorating even if they
are contributed only for the use of the partnership
-          the risk of loss is borne by the partnership for evidently the ownership was
being transferred since use is impossible without the things being consumed or
impaired
4.        Things contributed to be sold
-          the partnership bears risk of loss for there cannot be any doubt that the
partnership was intended to be the owner; otherwise’ the partnership could not
effect the sale
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 making the partnership
owner of the said things, the price being represented by their appraised value.
 
Art. 1796 – Responsibility of the Firm
 
Obligation of the partnership to the partners:
1.        refund amounts disbursed by the partner in behalf of the partnership plus the
corresponding interest from the time the expenses are made;
2.        to answer for the obligations the partner may have contracted in good faith in
the interest of the partnership business; and
3.        answer for risk in consequence of its management
 
Art. 1797 – Rules for Distribution of Profits and Losses
 
·         Distribution of Profits
a.           partners share the profits according to their agreement subject to Art. 1799
b.           if there is no such agreement:
1.        the share of each capitalist partner shall be in proportion to his capital
contribution (this rule is based on the presumed will of the partners)
2.        the 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.
-          the share of the industrial partner in the profits is not fixed, as in the case
of the capitalist partners, as it is very difficult to ascertain the value of the
services of a person
 
·         Distribution of Losses
a.        the losses shall be distributed according to their agreement subject to Art.
1799
b.        if there is no such agreement, but the contract provides for the share of
the partners in the profits, the share of each in the losses shall be in
 accordance with the profit-sharing ratio, but the industrial partner shall not be
liable for losses. The profits or losses of the partnership cannot be determined
by taking into account the result of one particular transaction but of all the
transactions had.
c.        If there is also no profit-sharing stipulated in the contract, then losses shall
be born by the partners in proportion to their capital contributions, but the
purely industrial partner shall not be liable for the losses.
 
·         Industrial Partner’s Profit
-          a just and equitable share
 
·         Industrial Partner’s Losses
-          while he may be held liable by third persons, still he can recover whatever he
is made to give them, from the other partners, for he is exempted from losses,
with or without stipulation to this effect
 
·         Non-applicability to Strangers
-          Art. 1797 applies only to the partners, not when liability in favor of strangers
are concerned, particularly with reference to the industrial partner
 
Art. 1798 – Designation by Third Persons
 
a.        third person
- in the article, not a partner; to avoid partiality
               
b.       when designation by the 3rd party may be impugned
- when it is manifestly inequitable
 
c.        when designation cannot be impugned even if manifestly inequitable:
- if the aggrieved partner has already begun to execute the decision
- if he has not impugned the same within 3 months from the time he had
knowledge thereof
 
Art. 1799 – (1) Stipulation excluding a partner from any share in profits or losses
 
General Rule:
-          a stipulation excluding one or more partners from any share in the profits or
losses is void
Reason: partnership is for COMMON BENEFIT
 
Exception:
-          in the case of the industrial partner whom the law itself excludes from losses
note: stipulation exempting a partner from losses should be allowed
 
·         Reason why industrial partner is generally exempted from losses
 -          the industrial partner cannot withdraw any labor or industry he had already
exerted.
 
Art.1800 - Rights and Obligations of a Managing Partner
 
·         Modes of Appointing  a Manager
1.        appointment as manager in the articles of partnership
2.        appointment as manager made in an instrument other than the articles of
partnership or made orally
 
·         Distinction between Appointment in Articles of Partnership and Appointment from
other Source (other than the articles of partnership)
 
a.        as to power
Partnership – power is irrevocable without just or lawful cause
-          to justify removal for just cause: controlling partners should vote to oust him
-          without just cause: there must be unanimity
 
other source  - power to act may be revoked at any time, with or without just cause
 
-          such appointment is a mere delegation of power; revocable at any time
-          removal shall also be done by the controlling interest
 
b.        as to extent of power
Partnership
·         good faith – he may do all acts of administration (not ownership) despite the
opposition of his partners
·         bad faith – he cannot
 
other source – as long as he remains manager, he can perform all acts of
administration, but of course, if the others oppose and he persists, he can be
removed
 
·         Scope of the Powers of the Manager
Unless specifically restricted:
-          he has the powers of a general agent;
-          as well as the incidental powers needed to carry out the objectives of the
partnership
 
·         Rules as to Compensation
General Rule:
-          in the absence of an agreement to the contrary, each member of the
partnership assumes the duty to give his time, attention, and skill to the
management of its affairs, so far at least, as may be reasonable necessary to the
success of the common enterprise; and for this service a share of the profits is
only his compensation.
 Exception:
a.        a partner engaged by his co-partners to perform services not required of him
in fulfillment of the duties which the partnership relation imposes and in a
capacity other  than that of a partner is entitled to receive the compensation
agreed upon therefor;
b.        a contract for compensation may be implied where there is extraordinary
neglect on the part of one partner to perform his duties toward the firm’s
business, thereby imposing the entire burden on the remaining partner;
c.        one partner may employ his co-partner to do work for him outside of and
independent of the co-partnership, and become personally liable therefor;
d.        partners exempted by the terms of partnership from rendering services to the
firm may demand pay for services rendered;
e.        where one partner is entrusted with the management of the partnership
business and devotes his whole time and attention thereto, at the instance of the
other partners who are attending to their individual business and giving no time
or attention to the business of the firm, the case presents unusual conditions, is
taken out of the general rule as to compensation and warrants the implication of
an agreement to make compensation, In such cases, the amount of
compensation depends, of course, upon the agreement of the parties, express or
implied, as well as upon the particular circumstances of the case; and
f.          by the contract of partnership, one partner is exempted from the duty of
rendering personal services to the concerned, if he afterwards does render such
service at the instance and request of his co-partners, or where the services
rendered are extraordinary.
               
Art. 1801 – Rule where there are 2 or more Managers
 
·         Applicability of the Article
1.           there are two or more managers;
2.           there is no specification of respective duties; and
3.           there is no stipulation requiring unanimity
 
·         Specific Rules:
1.        Each may separately execute all acts of administration;
2.        except if any of the managers should oppose (division of the majority of the
managers shall prevail)
-          if there is a tie, the partners owning the controlling interest prevail; provided
they are also managers
 
·         when opposition may be made
-          before the acts produce legal effects insofar as third persons are concerned
 
Art. 1802 – Unanimity of Action
 
·         When Unanimity is Required
a.        applies when there must be unanimity in the actuations of the managers
 b.        absence or incapacity of one of the managers still requires unanimity
except:
-          when there is imminent danger of grave or irreparable injury to the
partnership
 
·         Duty of third persons
RULE:
        Third persons are not required to inquire as to whether or not a partner with
whom he transacts has the consent of all the managers, for the presumption is that
he acts with due authority and can bind the partnership.
 
APPLICABILITY:
When they innocently deal with a partner apparently carrying on in the usual way
the business, it is imperative that if unanimity is required it is essential that there be
unanimity; otherwise the act shall not be valid, that is the partnership is not bound.
 
Art. 1803 – Rule when manner of management has not been agreed upon
 
a.        Generally, each partner is an agent
b.        Although each is an agent, still if the acts are opposed by the rest, the
majority should prevail for the presumed intent is for all the partners to
manage as in Art. 1801;
c.        When a partner acts as an agent, it is understood that he acts in behalf of
the firm; therefor when he acts in his own name, he does not bind the
partnership generally
d.        On the other hand, the authority to bind the firm does not apply if
somebody else had been given authority to manage in the articles of
organization or thru other means.
·         Rule on Alterations
a.        “important alterations”
-          deals with immovable property because of their greater importance than
personality. Also, in proper cases, they should be returned to the partners in
the same condition as when they were delivered to the partnership
 
b.        “alteration”
-          contemplates useful expenses
 
c.        consent of the others may be express or implied
 
Art. 1804 – Contract of Subpartnership
 
Subpartnership – partnership formed between a member of a partnership and a third
person for a division of the profits coming to him from the partnership enterprise
                - partnership within a partnership and is distinct and separate from the main
or principal partnership
 
·         Right of person associated with partner share
-          subpartnership agreements do not in any wise affect the composition,
existence, or operations of the firm.  The partners are partners inter se, but, in
the absence of the mutual assent of all the parties, the subpartner does not
become a member of the partnership, even the agreement is known to the other
members of the firm.
 
·         Associate of Partner
a.        for a partner to have an associate in his share, consent of the other partners
is not required;
b.        for the associate to become a partner, all must consent
 
Art. 1805 – Partnership Books
 
a.        such a right is granted to enable the partner to obtain true and fuel
information of the partnership affairs
b.        the article presupposes an “ongoing partnership”
c.        “reasonable hour”
- contemplates business days throughout the year
 
·         Value of Partnership Books of Account as Evidence
-          they constitute an admission of the facts stated therein, an admission that
can be introduced on evidence as against the keeper or maker thereof.
 
Art. 1806 – Duty of Partner to render Information
 
·         Duty to give information
-          there must be no concealment between partners in all matters affecting the
firm’s interest
-          requires good faith
-          duty to give on demand “true and full information”
 
Errors in the Book
-          if partnership books contain error, but said errors have not been alleged, the
books must be considered entirely correct insofar as the keeper of said books of
account is concerned
 
Who can demand information
a.        any partner;
b.        legitimate representative of dead partner;
c.        legitimate representative of any partner under any legal disability
 
Art. 1807 – Duty to Account
 
·         Partner accountable as fiduciary
 -          the relation between the partners is essentially fiduciary involving trust and
confidence, each partner being considered in law, as he is, the confidential agent
of the others
 
·         Duties of a partner
1.        Duty to act for common benefit
2.        Duty begins during the formation of partnership
3.        Duty continues even after dissolution of partnership
4.        Duty to account for secret and similar profits
5.        Duty to account for earnings accruing even after termination of partnership
6.        Duty to make full disclosure of information belonging to partnership
7.        Duty not to acquire interest or right adverse to partnership
 
·         Duty to Account
REASON:
-          the fiduciary relation between the partners are relationships of trust and
confidence which must not be abused or used to personal advantage
-          trust relations exists only during the life of the partnership, not before nor after
 
Art. 1808 – Prohibition against a Capitalist Partner
 
·         Business Prohibition on Capitalist Partner
-          prohibited from engaging for his own account in any operation which is the
kind of business in which the partnership is engaged
 
Instances where there is no prohibition
a.        when there is an express stipulation allowing the capitalist partner to engage
himself;
b.        when the other partners expressly allow him to do so;
c.        when the other partners impliedly allowed him to do so;
d.        when the company ceases to be engaged in business during the period of
liquidation and winding up; and
e.        when the general-capitalist partner becomes merely a limited partner in a
competitive enterprise
 
·         Effect of Violation
a.         the violator shall bring the partner shall of the profits illegally obtained;
b.         he shall personally bear all the losses
 
·         Art. 1809 – Right of Partner to a Formal Account
 
Right to demand a formal account
a.               generally, no formal accounting is demandable until after dissolution
b.               however, under Art. 1809, formal accounting may be properly asked
for
 
Estoppel
-          cannot be questioned anymore if it was accepted without objection for this
would now be a case of estoppel, unless fraud and error are alleged and proved
 
·         Stipulation and Continuing Share
-          valid and proper accounting must be made
 
III. Property Rights of a Partner
 
Art. 1810 – Property Rights of a Partner
 
Principal Rights:
a.        specific partnership
b.        interest in the partnership
c.        right to participate in the management
 
Related Rights:
a.        the right to reimbursement for amounts advanced to the partnership and
to indemnification for risks in consequence of management;
b.        the right to access the inspection of partnership books;
c.         the right to true and full information of all things affecting the partnership;
d.        the right to formal account of partnership affairs under certain
circumstances; and
e.        the right to have the partnership dissolved also under certain conditions
 
Distinction between Partnership Property and Partnership Capital
 
a.        as to changes in value
PP – variable; its value may vary from day to day with changes in the market
value of the partnership assets
PC – constant; remains unchanged as the amount fixed by agreement of
partners, and is not affected by fluctuations in the value of partnership property,
although it may be increased or diminished by unanimous consent of the
partners
b.        as to assets included
PP – includes not only the original capital contributions of the partners, but all
property subsequently acquired on account of the partnership or with partnership
funds, including partnership name and the good will of the partnership
PC – represents the aggregate of the individual contributions made by the
partners in establishing or continuing the partnership
 
Art. 1811 – Partnership in Specific  Partnership Property
 
·         Co-ownership in Specific Partnership Property
- partners are co-owners but rules on co-ownership does not necessarily apply
 
·         Rights of a partner in specific partnership property
1.        in general, he has an equal right with his partners to posses, but only for
partnership purposes;
2.        he cannot assign his right;
3.        his right is not subject to attachment or execution; and
4.        his rights is not subject to legal support
 
Art. 1812 – Partner’s Interest in the Partnership is his share of the profits and surplus
 
                In general., a partner’s interest in the partnership (his share in the profits and
surplus) may be assigned, attached or be subject to legal support
 
Art. 1813 – Conveyance of Interest
 
·         Effects of conveyance by partner of his Interest in the Partnership
1.         Partnership may still remain; partnership may be dissolved
2.         Assignee does not necessarily become a partner
3.         Assignee cannot even interfere in the management or administration of the
partnership business or affairs
4.         Assignee cannot demand information, accounting or inspection of the
partnership books
 
·         Rights of Assignee
1.         to get whatever profits the assignor-partner would have obtained;
2.         to avail himself of the usual remedies in case of fraud in the management;
3.         to ask for annulment of the contract of assignment if there was  fraud, error,
intimidation, force, undue influence;
4.         to demand an accounting
 
Art. 1814 –
 
Charging Interest of a Partner
-          while a partner’s interest in the partnership may be charged or levied upon,
his interest in a specific firm property cannot as a rule be attached.
 
·         Preferential Rights of Partnership Creditors
-          preference is given to partnership creditors in the partnership assets;
-          separate or individual creditors have preference in separate or individual
properties
 
·         Remedies of separate Judgment Creditor of a Partner
1.        Application for the “charging order” after securing judgment on his credit
2.        Availability of other remedies
 
·         Receivership
 a.        when the charging order is applied for and granted, the court may at the
same time or later appoint a receiver of the partner’s share in the profits or
money due him
b.        the receiver appointed is entitled to any relief necessary to conserve the
partnership assets for partnership purposes
 
·         Redemption of the Interest Charged
a.                redemption- means the extinguishment of the  charge or attachment on
the partner’s interest in the profits;
b.                when redemption is made
-          any time before closure;
-          after closure, it may still be bought with separate property or with partnership
property
 
IV. Obligation of the Partners with regard to Third Persons
 
Art. 1815 – Firm Name
 
·         Firm Name
-          name, title or style under which a company transacts business; a partnership
of two or more persons; a commercial house
 
·         Purpose
-          necessary to distinguish the partnership which has a distinct and separate
juridical personality from the individuals composing the partnership and from
other partnerships and entities.
 
·         Liability of strangers who include their name
-          liability as partners because of estoppel, but do not have the rights as
partners
 
Art. 1816 – Liability for Contractual Obligations of Partners
 
·         Partnership Liability
·         Individual Liability
 
Liability Distinguished from Losses
-          an industrial partner is exempted by law for losses’ but not from liability;
-          third persons may sue the firm and the partners, including the industrial
partners;
-          partners will be personally liable only after the assets of the partnership have
been exhausted
 
Stipulations such as those exempting all the industrial partners and some of the
capitalist partners, insofar as third persons are concerned, would be null and void
 
Art 1817 –  Stipulations Eliminating Liability
 
Art. 1799 and 1817 reconciled:
-          it is permissible to stipulate among them that a capitalist partner will be
exempted from liability in excess of the original capital contributed; but will not be
exempted insofar as his capital is concerned           
 
Liability vs. Losses
Liability – refers to responsibility towards third persons
Losses – refers to responsibility as among partners
 
Art. 1818 – Partner as an Agent of Partnership
 
When a partner can bind or cannot bind the firm
a.        Art. 1818 speaks of an instance when the partner is an agent; and
b.        when he can and cannot bind as agent
·         Agency of a partner
-          partnership is a contract of mutual agency
-          each partner acting as a principal on his own behalf and as an agent for his
co-partners or the firm
 
When can a partner bind the partnership
                Requisites:
a.            when he is expressly authorized or impliedly authorized; and
b.            when he acts in behalf and in the name of the partnership
 
When will act not bind the partnership
A.       when, although for apparently carrying on in the usual way the business of
the partnership,” still the partner has in fact NO AUTHORITY, and the third
party knows that the partner has no authority;
B.       when the act is not for apparently carrying on in the usual way of the
partnership and the partner has no authority
 
NOTE:  The 7 kinds of acts enumerated in Art. 1818 are instances of acts which
are NOT for apparently carrying on in the usual way the business of the
partnership.
                In the 7 instances, the authority must be unanimous except if the
business has been abandoned.
 
·         Reasons why 7 acts are “unusual”
a.        assign the firm property – firm will virtually be dishonored
b.        dispose of the goodwill – good will is valuable property
c.        do any other act which would make it impossible to carry on – this is evidently
prejudicial
d.        confers a judgment – if done before a case is filed, this is null and void; if
done later, the firm would be jeopardized
 e.        compromise – an act of ownership and may be said to be equivalent to
alienation
f.          arbitration – an act of ownership which may not be justified
g.        renounce a claim – why should a partner renounce a claim that does not
belong to him but to the partnership?
 
Art. 1819 – Conveyance of Real Property
 
·         the article speaks of “:to convey” or a conveyance
·         real property may be registered or owned in the name of
- the partnership
- all the partners
- one, some or not all the partners in trust for the partnership
 
Art. 1920 – Admission or representation made by a partner
 
Conditions:
-          admission must concern partnership affairs;
-          within the scope of the authority
 
Restrictions on the rule:
a.         admission made BEFORE dissolution are binding only when the partners
has authority to act on the particular matter
b.         admissions made AFTER dissolution are binding only if the admissions
were necessary to wind up the business
 
note: a previous admission of a partner is admissible in evidence against the
partnership when it is made within the scope of the partnership, and during the
existence, provided of course that the existence of the partnership is first proved
by evidence other than such act or declaration
 
Art. 1821 – Notice to a Partner
 
·         Cases of Knowledge of a Partner
1.        knowledge of a partner acting in  a particular matter acquired while a partner;
2.        knowledge of a partner acting in  a particular matter then present to his mind;
and
3.        knowledge of any partner who reasonably could and should have
communicated it to the  acting partner
 
·         Effect of Notice to a Partner
a.        in general, notice to a partner is notice to the partnership, that is, a
partnership cannot claim ignorance if a partner knew (but this is with restriction)
b.        notice to a partner, given while already a partner, is a notice to the
partnership provided it relates to partnership affairs
 
·         Effect of knowledge although no notice was given
-          notice of the partner is also knowledge of the firm provided:
a.        the knowledge was acquired by a partner who is acting in the particular
matter involved;
b.        the knowledge may have been acquired by a partner not acting in the
particular matter involved
 
Art. 1822 – Liability of Partnership
 
·         Requisites for Liability
a.        the partner must be guilty of a wrongful act or omission; and
b.        he must be acting in the ordinary course of business, or with the authority of
his co-partners even if the act is unconnected with the business
 
note: partnership liability does not extend to criminal liability
 
·         Instances when the firm and other partners are not liable:
a.        if the wrongful act or omission was not done within the scope of the
partnership business and for its benefit;
b.        if the act or omission was not wrongful;
c.        if the act or omission, although wrongful, did not make the partner concerned
liable himself; and
d.        if the wrongful act or omission was committed after the firm had been
dissolved and the same was not in connection with the process of winding up
 
Art. 1823 – Liability for Misappropriation
 
·         Liability of partnership for misappropriation
-          the difference between par. 1 and par. 2 is that in the former misappropriation
is made by the receiving partner, while in the latter, the culprit may be any
partner.  The effect however is the same in both cases
 
Art. 1824 – Solidary Liability of partners
-          not only the partners that are liable in solidum; it is also the partnership
 
Art. 1825 – Partner by Estoppel and Partnership by Estoppel
 
·         Estoppel
-          a bar which precludes a person from denying or asserting anything contrary
to that which has been established as the truth by his own deed or
representation, either express or implied
 
When Partnership Liability Results:
-          if all the actual partners consented to the representation, then the liability of
the person who represented himself to be a partner or who consented to such
representation and the actual partners is considered a partnership liability.
 
Elements to establish liability as a partner on ground of estoppel:
1.        proof by plaintiff that he was individually aware of the defendant’s
representations as to his being a partner or that such representations were
made by others and not denied or refuted by the defendant;
2.        reliance on such representations by the plaintiff; and
3.        lack of denial or refutation of the statements by the defendants; such
denial need not precede plaintiff’s acting thereon if the denial was forthcoming
promptly upon hearing of the representations, and if, by prudence and
diligence the plaintiff might have learned the truth or untruth of the
representations.
 
·         When the problem may arise:
A person may:
a.        represent himself as a partner of an existing partnership with or without
the consent of the partnership;
b.        represent himself as a partner of a non-consent partnership
 
When estoppel does not apply:
-          when although there is misrepresentation, the third party is not deceived, the
doctrine of estoppel does not apply
 
Burden of Proof
                - the creditor, or whoever alleges the existence of a partner or partnership by
estoppel has the burden of  proving the existence of the misrepresentation and the
innocent reliance on it
 
Art. 1826 – Entry of a New Partner
 
·         Entry of a new partner into an existing partnership
-          the newly admitted partner would be liable as an ordinary original partner for
all partnership obligations incurred after his admission to the firm
 
·         Creation of a new partnership in view of the entry
-          the admission of a new partner dissolves the old firm and creates a new one;
-          since the old firm is dissolved, the original creditors would not be the creditors
of the new firm, but only of the original partners; hence, they may lose their
preference;
-          under the civil code, they are considered creditors of the new firm
 
·         Liability of incoming partner for partnership obligations
1.        limited to his share in partnership property for existing obligations, unless
there is stipulation to the contrary;
2.        extends to his separate property for subsequent obligations
 
·         Liability of an Outgoing Partner
 -          where a partner gives notice of his retirement or withdrawal from the
partnership, he is freed from any liability on contracts entered into thereafter, but
his liability on existing incomplete contract continues.
 
·         the rule of holding the new partner liable for previous obligations of the firm is
not harsh on the said new partner. After all the incoming partner partakes of the
benefit of the partnership, property and an established business
 
Art. 1827 – Creditors of Partnership
 
Reason for the Preference of Partnership Creditors
 
-          after all, the partnership is a juridical person with whom the creditors have
contracted; moreover the assets of the partnership must first be executed
 
Reason why industrial creditors may still attach the partner’s share
 
-          after all, remainder belongs to the partner
 
Sale by a partner of his share to  a third party
 
-          if a partner sells his share to a third party, but the firm itself still remains
solvent, creditors of the partnership cannot assail the validity of the sale by
alleging that it is made in fraud of them, since they have not really been
prejudiced
 
IV. Dissolution and Winding Up
 
Art. 1828 & 1829 – Definition of Dissolution, Winding up and Termination; Effects of
Dissolution
 
Dissolution
-          the change in the relation of the partners caused by any partner ceasing to be
associated in the carrying on of the business
-          that point of time when the partners cease to carry on the business together
 
Effects of Dissolution:
a.        partnership is not terminated;
b.        partnership continues for a limited purpose; and
c.        transaction of new business is prohibited
 
Winding Up
-          the process of settling business affairs after dissolution
 
Termination
-          the point in time after all the partnership affairs have been wound up
 
Effect on Obligations
a.          a partner cannot evade previous obligations entered into by the
partnership
b.          absolution saves the former partners from new obligation to which they
have not expressly or impliedly consented, unless the same be essential for
winding up
 
Art. 1830 – Causes of Dissolution
 
1. as to first cause
-          partnership agreement has not been violated
 
4 instances:
v      termination of the definite term or specific undertaking;
v      express will of a partner who must act in good faith when there is no
definite term and specific undertaking;
v      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;
v      by the expulsion of any partner from the business bona fide in
accordance with such p[power conferred by the agreement between the
partners
 
3.        In contravention of the agreement between the partners, where the
circumstances do not permit a dissolution under any other provision of this
article, by the express will of any partner at any time;
4.        when a specific thing, which a partner had promised to contribute to the
partnership, perishes before delivery
5.        by the death of any partner;
6.        by the insolvency of any partner or of the partnership;
7.        by the civil interdiction of any partner; and
8.        by decree of court
 
note: partners in their contract cannot limit the cause for dissolution
 
Art. 1831 – Judicial determination as to dissolution
 
·         this article speaks of a dissolution by decree of court. In a suit for dissolution
proof as to the existence of the firm must be given
·         Who may sue for dissolution:
a.        a partner for any of the causes given under 1831
b.        the purchaser of a partner’s interest in the partnership under Art.
1813/1814, provided that the period has expired or if the firm was a
partnership at will when the interest was assigned or changed
 
 note: if period is not yet over, said purchaser cannot sue for dissolution
 
·         Grounds for Dissolution
a.        insanity
b.        incapacity
c.        misconduct and persistent breach of partnership agreement
d.        business can be carried on only at a loss
e.        other circumstances
 
·         Insanity of a partner
a.        even if a partner has not yet been previously declared insane by the court,
dissolution may be asked, as long as the insanity is duly proved in court;
b.        insanity is a cause since the partner will be incapacitated to contract
 
·         Incapability to perform part
-          may happen when the partner enters the government service which would
prohibit him from participating in the firm, or when he will stay abroad for a long
time
 
Appointment of a receiver
        In a suit for dissolution, the court may appoint a receiver at its own discretion
but a receiver is not needed when practically all the firm assets are in the hands of a
sheriff under a writ of replevin, or when the existence of a partnership with the
plaintiff is denied, particularly if the business of the firm is being conducted
successfully
 
·         Time of Dissolution
-          a firm becomes a dissolved partnership at the time the judicial decree
become s a final judgment
 
Art. 1832 – Effects of Dissolution
 
General Rile: Art. 1832
Exception: Art. 1833 and 1834
 
Effects of dissolution
- when a partnership is dissolved, certain effects are inevitable, insofar as the
relations of the firm toward third persons are concerned, and insofar as the
partners themselves are affected in their relations with one another
 
Effect of previous contract
-          when a firm is dissolved, it does not mean that the contracts and obligations
entered into, whether the firm is the creditor or debtor, automatically cease;
-          the firm is still allowed to collect previously acquired credits, it is also bound
to pay all the debts;
-          a dissolved partnership still has the personality for winding up its affairs
 
Creditors who have not been prejudiced
-          if the obligations and rights of a dissolved firm are transferred to another firm,
the creditors may not hold the former liable even if said creditors have not been
prejudiced, as long as the new firm can indeed take care of said creditors. It
would be erroneous to let the old firm pay, if the new firm can really pay.
 
Art. 1833 – Kinds of Causes of Dissolution
 
a.        Act-Insolvency-Death
b.        Other things like termination
 
Effect of AID
-          all partners are still bound to each other generally, except:
a.        if the partner had knowledge (as distinguished by NOTICE without actual
knowledge)
- if dissolution is caused by an act (e.g. withdrawing, retiring)
 
b.        if the partner acting had knowledge or notice, if dissolution was caused by
death or insolvency
 
note:
Death or insolvency being more ordinary than an “act,” notice is enough. Hence,
the law provides “knowledge” or notice.   
However, it is still essential that there be knowledge or notice of the fact of death
or insolvency  to justify non-liability of the other partners to the parties acting.
 
·         Right of partner to contribution from co-partners
-          when a partner enters into a new contract with a third person after
dissolution, the new contract generally will bind the partners (Art. 1834, par.
1). Each of them is liable for his share of any liability created by the acting
partner as if the partnership had not been dissolved.
 
Art. 1834 – When Partnership is Bound
 
Article speaks of 2 possibilities:
a.        when the partnership is bound to strangers; and
b.        when the partnership is not bound to strangers
 
When Partnership is bound:
                (a partnership liability is created)
a.        business is for winding up;
b.        business is to complete unfinished transactions; and
c.        completely new business with third parties considered innocent
 
When firm is not bound:
 a.        in all cases not included when partnership is bound;
b.        when the firm was discharged because it was unlawful to carry on the
business; except when the act is winding up;
c.        where the partner had acted in the transaction has become insolvent;
d.        where the partner is unauthorized to wind up
except: if the transaction is with a customer in good faith
                Note:
-          it is understood that if after dissolution a stranger will represent himself as a
partner although he is not one, he will be a partner by estoppel
 
Art. 1835 – Effect of Dissolution on Partner’s Existing Liability
 
                Dissolution ordinarily does not discharge existing liability of partners,
otherwise, creditors would be prejudiced, particularly if a partner will just withdraw
anytime from the firm
 
How a Partner’s liability is discharged
-          the following must agree:
a.        the partner concerned;
b.        the other partners; and
c.        the creditors
 
Effect of death on pending action
-          An action for accounting against a managing partner should be discontinued
if he dies during the pendency of the action;
-          The suit must be conducted in the settlement proceedings of the deceased’s
estate, particularly if this is the desire of his administration;
-          Thus, it is wrong to just continue the action for accounting and substitute the
dead defendant with his heirs
 
Art. 1836 – Judicial and Extrajudicial Wind up; Persons authorized to wind up
 
Extrajudicial winding up
-          by the partners who have not wrongfully dissolved the partnership;
-          or by the legal representative of the last surviving partner provided the last
survivor was not insolvent
 
Judicial winding up
-          under the control and direction of the court, upon proper cause that is shown
to the court;
-          petition for judicial winding up can be done by any partner, his legal
representative or assignee
 
Rule if survivor is not the manager
-          he is not required to serve as liquidator thereof;
-          he is not required as liquidator without compensation; and
 -          if he liquidates the affairs upon promise of a certain compensation by the
managing partners, he is naturally entitled to receive compensation
 
Profits
-          profits are supposed to accrue only during the existence of the partnership
before dissolution;
-          profits that will actually enter the firm after dissolution as a consequence of
transactions already made before dissolution are included because they are
considered as profits existing at the time of dissolution; and
-          any other income earned after the time should not be disturbed as profits, but
merely as additional income to the capital
 
Persons authorized to wind up:
a.        the partners designated by the agreement;
b.        in the absence of such agreement, all the partners who have not
wrongfully dissolved the partnership; and
c.        the legal representative (executor or administrator) of the last surviving
partner (when all the partners are already dead) not insolvent.
 
Art. 1837 - Right of Partner to Application of Partnership Property on Dissolution
 
·         rights where dissolution not in contravention of agreement (par. 1)
·         rights where dissolution is in contravention of agreement (par.2)
 
Two aspects of dissolution
Dissolution may be caused:
a.           although the partnership contract is not violated;
b.           because the partnership contract is violated
 
Innocent Partners:
-          have better rights than guilty partners;
-          may continue the business (new partnership);
-          rights of the guilty partners are safeguarded by a:
a.        bond approved by the court
b.        payment of interest at the time of dissolution minus damages
 
Right to get cash
-          in case of non-continuance of the business, the interest of the partner should,
if he desires, be given in CASH
 
note: a guilty partner, in ascertaining  the value of his interest is not entitled to a
proportionate share of the value of the GOOD WILL
 
Partner wrongfully excluded
-          he should be considered an innocent party;
 -          the other partner must account not only for what is due to him at the date of
the dissolution but also for damages or for his share of the profits realized from
the appreciation of the partnership business and good will (provided the excluded
partner had not substantially broken the partnership agreement)
 
Division of Losses
                -rule on losses must apply, provided that their real market values at the time
of liquidation are the values considered
 
Art. 1838 – Right of Partner to Rescind Contract of Partnership
 
·         if the contract is annulled, the injured partner is entitled to restitution
 
Rescission or annulment of partnership contract
-          fraud or misrepresentation violates the consent whereby the contract of
partnership had been entered into, hence, it is really also causante
 
Three Rights (without prejudice to the other rights under other legal provisions)
a.        right to lien or retention;
b.        right of subrogation; and
c.        right of indemnification
 
Art. 1839 – Liquidation and Distribution of Assets of Dissolved Partnership
 
Liquidation
                - before liquidation is made, no action for accounting of a partner’s share in
the profit or for a return of his capital assets can properly be made, since it is essential
to first pay off the creditors
 
Assets of Partnership
-          partnership property
-          contributions of the partners, which are made to pay off the partnership
liabilities     
 
Order of Payment of Firm’s Liabilities
1.            creditors (who are strangers) otherwise they may be
prejudiced;
2.            partners (who are already creditors);
3.            distribute profits
 
note:
-          if the partnership assets are insufficient the other partners must contribute
more money or property
-          such contributors may be enforced by:
-          any assignee for the benefit of the creditor, or any person appointed by
the court;
 -          any partner or his legitimate representative
 
Preference with respect to the assets
                It depends:
-          regarding partnership property, partnership creditors have preference
-          regarding individual property, creditors are prejudiced
 
Rules if partners are insolvent
a.        give to the individual/separate creditors;
b.        give to the partnership creditor;
c.        then those owing to the other partners by way of contribution
 
Art. 1840 – Dissolution of Partnership by Change in Membership
a.        a new partner is admitted;
b.        when a partner dies, retires, expelled or withdraws;
c.        when the other partners assign their rights to the sole remaining partner;
d.        when all the partners assign their rights in partnership property to third
persons
 
Rights of creditors of dissolved partnership which is continued
1.        equal rights of dissolved and new partnership creditors
2.        liability of persons continuing business (see par. 2 and par. 1, no.4)
3.        prior right of dissolved partnership as against purchaser
-          without a final settlement with creditors of the partnership
 
Why are the old creditors considered creditors of the new firm?
-          the reason for the law (in making creditors of the dissolved firm also creditors
of the person or partnership continuing the business) is for said creditors not to
loss their preferential rights as creditors to the partnership property
 
Art. 1841 – Retirement or Death of a partner
 
General Rule:
-          when a partner retires from the firm he is entitled to the payment of what may
be due him after liquidation
-          but no liquidation is needed when there already is a settlement as to what the
retiring partner shall receive
 
Art. 1842 – Accrual and Prescription of Partner’s right to account for his Interest
 
When right to account accrues
-          at the date of dissolution in the absence of any contrary agreement
 
Possible defendants:
                Action against
-          winding up partners
 -          surviving partners
-          person in partnership continuing the business
 
Prescription
-          begins to run only upon the dissolution of the partnership when the final
accounting is done
 
Limited Partnership
 
Art. 1843 – Limited Partnership
 
Characteristics:
a.        formed by compliance with the statutory requirements;
b.        one or more general partners control the business and are personally
liable to creditors
c.        one or more limited partners contribute to the capital and share in the
profits but do not participate in the management of the business and are not
personally liable for partnership obligations beyond the amount of their capital
contributions;
d.        the ;limited partners may ask for the return of their capital contributions
under the conditions prescribed by law; and
e.        the partnership debts are paid out of common fund and the individual
properties of the general partners
 
Limited Partnership
-          one formed by two or more persons under the provisions of Art. 1844, having
as members one ore more general partners and one or more limited partners.
The limited partners as such shall not be bound by the obligations of the
partnership
 
Art. 1844 – Requirements for the Formation of Limited Partnership
 
Presumption of General Partnership
-          a partnership transacting business is prima facie, a general partnership and
those who seek to avail themselves of the protection of the laws prevailing the
creation of limited partnership must show due compliance with such laws
 
Requisites:
a.        signing under oath of the required certificate;
b.        filing for record of the certificate in the SEC
 
Effect of non-fulfillment of the requirements
-          then it is not considered a limited partnership but a general partnership
 
Effect of only aggregate contribution is stated
 -          the law says that the contribution of each limited partner must be stated.
Therefore, if the aggregate sum given by two or more limited partners is given,
the law has not been complied with.
 
Effect of omitting  the term “limited” in the firm name
-          the law requires the firm name to have the word “limited.” If such is violated,
the name cannot be considered the firm name of the limited partnership.
 
Art. 1845 – Limited Partner’s Contribution
 
Rule:
a.        a limited partner is not allowed to contribute industry or services alone
b.        an industrial partner can become a general partner in a limited partnership
 
Art. 1846 – Effect where surname of limited partner appears in partnership name
 
-          the limited partner violating this article is liable, as a general rule, to
partnership creditors without, however, the rights of a general partner. Of course,
such limited partner shall not be liable as a general partner with respect to third
persons with actual knowledge that he is only a limited partner.
 
Art. 1848 – Liability of limited partner for participating in management of p[partnership
 
-          a limited partner is liable as a general partner for the firm’s obligations if he
takes part or interfere in the management of the firm’s business.
 
The following do not constitute taking part in the control of the business:
a.        mere dealing with a customer;
b.        mere consultation on one occasion with the general partners
 
Acts constituting interference in the management
a.        selection of who will be managing partners;
b.        supervision over a superintendent of the business of the firm
 
note: participation in the control of the business makes the limited partners liable as a
general partner without getting the latter’s rights
 
Art. 1849 – Admission of additional limited partners
 
-          even after a limited partnership has already been formed, the firm may still
admit new limited partners, provided there is a proper amendment to the
certificate
-          failure to amend the certificate does not necessarily mean the dissolution of
the limited partnership
 
Art. 1850 – Rights, powers and liabilities of a general partner
  
a.        right of control/unlimited personal liability
b.        acts of administration/acts of strict dominion
c.        other limitations:
-          no power to bind the limited partners beyond the latter’s investment
-          no power to act for the firm beyond the purpose and scope of the
partnership
-          no authority to change the nature of the business without the consent of
the limited partners
 
·         Under the acts enumerated (under Art. 1850), the general partners (even if
unanimous) must still get the written consent of all the limited partners.
·         If a general partner in a limited partnership goes abroad, his capacity to bind
the firm is governed by the law of the place where the limited partnership was
formed.
 
Art. 1851 – Rights of a limited partner
 
Rights, in general, of a limited partner
-          as members of the firm, the limited partner, in order to protect his interest in
the firm, has the same right to compel the partners to account as a general
partner has
 
Rights of a limited partner
a.        a limited partner necessarily has lesser rights than a general partner (as
enumerated in Art. 1851)
b.        however, he has also the right to have dissolution and winding up by
decree of court; he cannot, however, bind the firm by a contract
 
Art. 1852 – Status of partner where there if failure to create limited partnership
 
·         a contributor who erroneously believes he has become a limited partner and
thereupon exercises the rights of a limited partner, he should not be considered
as a general partner
·         however, he can be held liable as a general partner:
-          unless in ascertaining the mistake, he promptly renounces his interest in the
profits of the business or other compensation by way of income;
-          unless, even if no such renouncing is made, partnership creditors are not
prejudiced
 
Art. 1853 – A person may be both a general partner and a limited partner
 
·         a person may be a general and a limited partners at the same time, provided
the same is stated in the certificate
·         generally, his rights are those of a limited partner
 
 exception:
-          regarding his contribution, he would be considered a limited partner, with the
rights of a limited partner insofar as the other partners are concerned
 
Art. 1854 – Loan and other business transactions with limited partners
 
Right of a limited partner to lend money and transact other business with the firm
a.          the parties are always given preferential rights insofar as the firm’s assets
are concerned
b.          while a limited partner, in the case of claims referred to in the article, is
prohibited to receive or hold as collateral security any partnership property, still
he is not prohibited to purchase partnership assets which are used to satisfy
partnership obligations towards third parties
 
Allowable transactions
a.        granting loans to the partnership;
b.        transacting other business with it; and
c.        receiving a pro rata share of the partnership assets with general creditors if
he is not also a general partner
 
Prohibited transactions
a.        receiving or holding collateral security any partnership property
b.        receiving any payment, conveyance, or release from liability if it will prejudice
the right of third persons
 
Art. 1855 – Preferred limited partners
 
Preference to some limited partners:
-          such preference must be stated in the certificate
 
Preference involves:
-          return of contribution
-          compensation
-          other matters
 
Art. 1856 – Compensation of limited partners
 
                For this article to apply, partnership assets must be in excess of partnership
liabilities to third persons, not liabilities to partners
 
Art. 1857 – Requisites for return of contribution of limited partner
 
a.        all liabilities of the partnership have been paid or if they have not yet been
paid, the assets of the partnership are sufficient to pay such liabilities
b.        the consent of all the members has been obtained except when the return
may be rightfully demanded; and
 c.        the certificate is cancelled or so amended as to set forth the withdrawal or
reduction of the contribution
 
Par. 1 – deals with the conditions that must exist before contribution by a limited partner
can be returned to him
 
Par. 2 – deals with the time when such contributions can be returned, provided that the
conditions are complied with
 
·         even if a limited partner has contributed property, he has the right to demand
and receive cash in return
·         if par. 1 is violated, previous creditors can sue, but they must allege and prove
the non-existence of the conditions
 
Liability of a partner who has withdrawn
-          a limited partner who withdraws rightfully his contribution, and the certificate
is amended properly, would still be liable to previous creditors if later on the firm
becomes insolvent. His contribution is to be treated as a trust fund for the
discharge of liabilities
 
Art. 1858 – Liabilities of a limited partner
 
-          liabilities may be waived provided the following concur:
- all the other limited partners must agree
- innocent third party creditors must not be prejudiced
 
Liabilities of a limited partner
a.        to the partnership
-          their liability is to the partnership not to the creditors of the partnership
b.        to partnership creditors and other partners
-          see arts. 1843, 1846-48,1854,and 1844, par.2
c.        to separate creditors
-          see art 1862
 
When return of contribution a matter of right
a.        on the dissolution of the partnership; or
b.        upon the arrival of the date specified in the certificate for the return
c.        after the expiration of the 6 months’ notice in writing given by him to the other
partners if no time is fixed in the certificate for the return of the contribution or for
the dissolution of the partnership
 
Art. 1859 – Change in the relation of limited partners
 
Effect of change in the relationship of limited partners
-          does not necessarily dissolve the partnership. No limited par6tner, however,
can withdraw his contribution until all liabilities to creditors are paid
 
Substituted Limited Partner
                - a person admitted to all the rights of a limited partner who has died or has
assigned his interest in the partnership except only those of which he was ignorant at
the time he became a limited partner and which could not be ascertained from the
certificate
                - see arts. 1847 and 1858 for the liabilities of an assignor
 
Rights of assignees of limited partner
                - the assignee is only entitled to receive the share of the profits or other
compensation by way of income or the return of the contribution to which the assignor
would otherwise be entitled
 
Art. 1860 – Causes for the dissolution of limited partnership
 
-          new provision
-          source: Sec. 20 Uniform Limited Partnership Act
 
Art. 1861 – Death of limited partner
 
-          new provision
-          source: Sec. 21 Uniform Limited Partnership Act
 
Art. 1862 – Charging the interest of a limited partner
 
-          new provision
-          source: Sec. 22 Uniform Limited Partnership Act
 
Art. 1863 – Payment of liabilities of limited partner
 
-          new provision
-          source: Sec. 23 Uniform Limited Partnership Act
 
Art. 1864 – When Certificate is cancelled or amended
 
-          new provision
-          source: Sec. 24 Uniform Limited Partnership Act
 
Cancellation
-          when the partnership is dissolved, or when all the limited partners cease to
be  limited partners, the limited partners shall be cancelled, not merely amended.
The writing to cancel a certificate shall be signed b y all the members
 
Art. 1865 – Requisites for amending or canceling the certificate
 
-          new provision
 -          source: Sec. 25 Uniform Limited Partnership Act
 
Art. 1866 – When contributors (other than general partners) should be made parties to
proceedings
 
Art. 1867 – Transitional provision on Limited Partnership
 
-          new provision
-          source: Sec. 30 Uniform Limited Partnership Act
 
 
Nature, Form and Kinds of Agency
 
Art. 1868
 
Definition of agency
-          a relationship which implies a power in an agent to contract with a third
person on behalf of the principal.
-          The power to effect the principal’s contractual relations with third persons that
differentiates the agent from the employee, the servant, and the independent
contractor
 
Importance
-          enables a man to increase the range of his individual and corporate activity
by enabling him to be constructively present in many places and to carry on
divers activities at the same time
 
Characteristics
a.        principal
b.        nominate
c.        bilateral
d.        preparatory
e.        commutative
f.          generally onerous
g.        fiduciary
 
Nature – a contract
Basis – representation constitutes the basis of agency
Purpose – to extend the personality of the principal through the facility of the agent
 
Parties:
 
a.        principal
- he whom the agent represents and from whom he derives authority; he is
the one primarily concerned in the contract
 
 b.        agent
-          he who acts or stands for another
-          usually, he is given full or partial discretion, but sometimes he acts
under a specific command
 
Elements of Agency
 
a.        there is consent, express or implied, of the parties to establish the
relationship;
b.        the object is the execution of a juridical act in relation to third persons;
c.        the agent acts as a representative and not for himself; and
d.        the agent acts within the scope of his authority
 
Capacity of the Principal
a.        capacitated to give consent;
b.        natural or a juridical person
 
Capacity of an Agent
·         the same as the law on contracts
-          able to bind himself but only insofar as his obligation to his principal
is concerned;
-          insofar as third persons are concerned, however, it is enough that
his principal be the one capacitated, for generally an agent assumes
no personal liability
 
 
Distinctions
 
Agency (A)  vs. Partnership (P)
               
                An agent acts not for himself, but for his principal; a partner acts for himself,
for his firm, and for his partners. It may be even said that partnership is a branch of the
law on agency.
 
Agency  vs.  Loan
 
 An agent may be given funds by the principal to advance the latter’s business,
while the borrower is given money for purposes of his own, and he must generally
return it, whether or not his own business is successful. A lot however depends on the
intent of the
parties.
 
Agency  vs.  Guardianship
               
1. The agent represents a capacitated person while the guardian represents an
incapacitated person
 
2. The agent is appointed by the principal and can be removed by the latter while the
guardian is appointed by the court and stands in locos parentis
 
3. The agent is subject to the directions of the principal while the guardian is not subject
to the directions of the ward, but must of course act for the benefit of the ward.
4. The agent can make the principal personally liable while the guardian has no power
to impose personal liability on the ward.
 
Agency vs. Judicial Administration
 
                (1) The agent is appointed by the principal while the judicial administrator (JA)
is appointed by the court.
 
                (2) The agent represents the principal while the JA represents not only the
court but also the heirs and creditors of the estate.
 
                (3)Agent generally does not file a bond while the JA files a bond.
 
(4)The agent is controlled by the principal thru their agreement while the acts of
the JA are subject to the specific orders from the court.
 
 
Agency from Lease of property
 
                (1)The agent is controlled by the principal while the lease is not controlled by
the lessor
 
(2) The agency may involve things other than property while, obviously, a lease
of property involves property only.
 
(3) The agent can bind the principal while the lessee, as such, cannot bind the
lessor.
 
Agency from Lease of Services
 
                1. The agent represents the principal while the lessor of services does not
represent his employer
                2. relationship can be terminated at the will of either principal or agent while in
lease, generally, the relationship can be terminated only at the will of the both
                3. agent exercises discretionary powers while the employee has ministerial
functions
                4. in agency, it usually involves 3 persons: the principal, the agent, and a
stranger while lease of services usually involves only two persons
 
NOTE: it should be understood however that an agent may incidentally render acts of
service, while a lessor of services or employee may incidentally make contracts
 
Agency vs. Contract with an independent contractor
 
a.        the agent acts under the control of the principal, while the independent
contractor is authorized to do the work according to his own method, without
being subject to the other party’s control, except insofar as the RESULT of
the work is concerned
b.        the agent of the agent may be controlled by the principal while the
employees of the contractor are not the employees of the employer of the
contractor
c.        agent can bind the principal while ordinarily, the independent contractor
cannot bind the employer by tort
d.        the negligence of the agent is imputable to the principal while the
negligence if the independent contractor is generally not imputable to his
employer
 
Agency vs. Negotiorum Gestio
 
a.        in agency there is a contract caused by a meeting of the minds, expressly
or impliedly while in negotiorum gestio, there is only a quasi-contract, there
having been no meeting of minds. Hence, the representation was not agreed
upon
b.        agent is controlled by the principal while the officious manager follows his
judgment and the presumed will of the owner
c.        in agency the legal relation is created by the parties while in negotiorum
gestio the legal relationship is created by law (occasioned of course by the
acts of the manager)
 
Agency vs. Trust
 
a.        an agent usually holds no title at all while the trustee may hold legal title to
the property
b.        usually, agent acts in the name of the principal while the trustee may act
in his own name
c.        usually, agency may be terminated or revoked at any time while the trusty
is usually ended by the accomplishment of the purposes for which it was
formed
d.        agency may  not be connected at all with property while trust involves
control over property
e.        agent has authority to make contracts which will be binding on his
principal while trustee does not necessarily or even possess such authority to
bind the trustor or the cestui que trust
f.          agency is really a contractual relation while a trust may be the result of
the contract or not: it may be created also by law
 
Art. 1869 – Kinds of agency
 
a.        according to manner of constitution
·         express
- one where the agent has been actually authorized by the principal, either orally
or in writing
·         implied
- one which is implied from the acts of the principal,
-          acts of principal
-          principal’s silence
-          principal’s lack of action
-          principal’s failure to repudiate agency
 
      b.  according to form
-          oral
-          written
 
      c. as to character
·         gratuitous
- one where the agent receives no compensation for his services
·         compensated or onerous
- one where the agent receives compensation for his services
    
d. as to extent of business covered
·         general – one which comprises all the business of the principal
·         special – one which comprises one or more specific transaction
 
e. as to authority conferred
·         couched in general terms – one which is created in general terms and is
deemed to comprise only acts of administration
·         couched in specific terms – one authorizing only the performance of a specific
act or acts
 
f. as to its nature and effects
·         ostensible or representative – one where the agents acts in the name and
representation of the principal
·         simple or commission – one where the agent acts in his own name but for the
account of the principal
 
Form of agency
                In general, there are no formal requirements governing the appointment of an
agent. The agent’s authority may be oral or written. It may be in public or private writing.
               
                Agency may even be implied from words and conduct of the parties and the
circumstances of the particular case. But agency cannot be inferred from mere
relationship or family ties.
 
Appointment of agent
 
                It is not essential that an agent be appointed directly by the principal, but the
appointment may be made through another, as by referring an applicant to another and
representing that he has authority to act, or the relation may arise out of an agent to
employ the agent of the first party.
 
                An agent appointed by the directors of a corporation to act for the corporation
is an agent of the corporation and not of the directors.
 
Presumption of agency
 
General Rule:
                - agency is generally not presumed. The relationship between the principal
and the agent must exist as a fact.
 
Exception:
                - a presumption of agency may arise, however, in those few cases where an
agency may arise by operation of law or to prevent unjust enrichment
 
Art. 1870 – Form of acceptance by agent
 
Forms:
a.        express
b.        implied
 
Art. 1871 – Acceptance between persons present
 
Rules:
                Acceptance cannot be implied from the silence of the agent except:
a.        transmission of the Power of Attorney by the principal to the agent, who
receives it without objection; and
b.        principal entrusts to the agent a letter or telegram a Power of Attorney,
and he did not reply to the same
 
Power of Attorney
-          an instrument in writing by which one person, as principal, appoints
another as his agent and confers upon him the authority to perform
certain specified acts or kinds of acts on behalf of the principal
-          the written authority itself is the power of the attorney and this is
clearly indicated by the fact it has also been called a “letter of
attorney.”
 
Primary Purpose:
                - not to define the authority of the agent as between himself and his
principal but to evidence the authority of the agent to the third parties within
whom the agent deals; and the person holding the power of attorney is shown
and designated as an “attorney in fact,” thus distinguishing such person from an
attorney at law
 
Construction of powers of attorney:
 
General Rule: The instrument will be held to grant only those powers which are
specified, and the agent may neither go beyond nor deviate from the power of attorney.
 
Exception to the Rule:  The general rule shall not be applied to the extent of destroying
the very purpose of the power.
 
Art. 1872: Acceptance if the parties are absent:
 
Rules:
                Acceptance of the agency by the agent is not implied from his silence or
inaction. Since the agent is not bound to accept the agency, he can simply ignore the
offer.
 
However, there is implied acceptance if:
1.        There is transmission of the Power of Attorney by the principal to
the agent, who receives it without objection.
2.        The Principal entrusts to the agent a letter or telegram a Power of
Attorney, and he did not reply to the letter or telegram.
 
Art. 1873: Ways of Giving notice of Agency
 
                There are two ways of giving notice of agency with different effects:
1.        If by special information (by letter), the person appointed as agent
is considered such with respect to the person to whom it was given.
2.        If by public advertisement, the agent is considered as such with
regard to any person.
In either case, the agency is deemed to exist whether there is actually an agency
or not.
 
Manner of Revocation of Agency:
 
                The power of attorney must be revoked in the same manner in which it
was given.
                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. 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.
 
Art. 1874: Sale of Land through Agent
 
Rule:  The authority of the agent shall be in writing in case of sale of a piece of
land. Otherwise, the sale is void.
 
Art. 1875: Agency presumed to be with compensation
 
                This article changes the rule in the old Civil Code under which an
agency was presumed to be gratuitous.  Hence, the agent does not have to
prove that the agency is for compensation.
 
Art. 1876: General vs. Special Agencies
 
Distinction:
                The distinction is based on the scope of the business covered.  A
General Agency must not be confused with one couched in general terms which
is a special agency when it involves only one or more specific transactions.
 
CLASSES AND KINDS OF AGENTS:
                Agents may be classified as express or implied, according to the manner in
which the agency is create; or as actual or ostensible, with reference to their authority in
fact.
                According to the nature and extent of their authority agents have been
classified into universal, general, and special or particular.
a.        A UNIVERSAL AGENT is one employed to do all acts that the principal may
personally do, and which he can lawfully delegate to another the power of doing.
b.        A GENERAL AGENT is one employed to transact all the business of his
principal, or all business of a particular kind or in a particular place, or in other
words, to do all acts, connected with a particular trade, business, or employment.
c.        A SPECIAL OR PARTICULAR AGENT is one authorized to act in one or
more specific transactions, or to do one or more specific acts, or to act upon a
particular occasion.
 
The more common special types of agents are the following:
1.        Attorney at law, one whose business is to represent client in legal
proceedings;
2.        Auctioneer, one whose business is to sell property for other to the
highest bidder at a public sale;
3.        Broker, one whose business is to act as intermediary between two
other parties such as insurance broker and real estate broker; and
4.        Factor (synonymous with commission merchant), one whose business
is to receive and sell goods for a commission, being entrusted with the
possession of the goods involved in the transaction.
 
Art. 1877 : Agency couched in general terms
 
                As to the extent of the power conferred, agency may be couched in general
terms or couched in specific terms.
                An agency couched in general terms may be a general agency or a special
agency. It includes only acts of administration and an express power is necessary to
perform any act of strict ownership
 
Meaning of Acts of Administration:
                What are acts of administration will always be a question of fact, rather than
of law, because there can be no doubt that sound management will sometimes require
the performance of an act of ownership.  But, unless the contrary appears, the authority
of an agent is presumed to include all the necessary and usual means to carry out the
agency into effect.
 
Construction of contracts of agency:
a.        Contracts of agency as well as general powers of attorney must be
interpreted in accordance with the language used by the parties
b.        The real intention of the parties is primarily to be determined from the
language used and gathered from the whole instrument.
c.        In case of doubt, resort must be had to the situation surroundings, and
relations of the parties.
d.        The intention of the parties must be sustained rather that be defeated.
e.        The acts of the parties in carrying out the contract will be presumed to have
been done in good faith and in conformity with and not contrary to the intent of
the contract.
 
Art. 1878: When Special Powers of Attorney are necessary:
 
15 instances:
1.        To make payment
2.        To effect novation
3.        To compromise, etc
4.        To waive an obligation gratuitously
5.        To convey or acquire immovable
6.        To make gifts
7.        To loan or borrow money
8.        To lease realty for more than 1 year
9.        To bind the principal to render service gratuitously
10.     To bind the principal in a contract of partnership
11.     To obligate principal as guarantor or surety
12.     To create or convey real rights over immovable property
 
Art. 1879: - Special Power to Sell excludes the Power to Mortgage
·         Special Power to Mortgage does not include the Power to Sell.
 
 
Art. 1880: Scope of special power to compromise
 
                An agent authorized to compromise can do anything which the principal
himself can do to effect a settlement, unless there is a contrary legal provision.
                A special power to submit to arbitration does not authorize the power to
compromise.
 
Art. 1881 and Art. 1882:
 
Definition of the Authority of an Agent
                Authority is the power of the agent to affect the legal relations of the principal
by acts done in accordance with the principal’s manifestation of consent to him.
 
Authority  vs. Power
a.        as to existence
                -the former may be considered the source or cause, while the latter, the effect
 
                note: the power of an agent is also the limitation upon his ability to bind the
principal, for it is well settled that an agent binds his principal only as to acts within his
actual or apparent authority
 
b.        as to scope
general rule: the extent of the agent’s authority depends upon the purpose of the
agency
        - as between the agent and the principal, an act is within the authority of the
agent if it is not a violation of his duty to the principal, and it is within the power if he
has the legal ability to bind the p[principal to a third parson although the act
constitutes a violation of his duty to the principal
 
        - so far as third persons are concerned, no distinction exists. An act within the
power of the agent is deemed within the scope of his authority even if the agent has,
in fact, exceeded the limits of his authority or he has no authority whatever to do so
 
Kinds of authority:
1.        actual
2.        express
3.        implied
4.        apparent or ostensible
5.        general
6.        special
7.        authority by necessity or by operation of law
- when it is demanded by virtue of the existence of an emergency; it
terminates when the agency has passed
 
Requisites when
1. principal is bound by act of agent
a.        agent must act within the scope of his authority; and
b.        the agent must act in behalf of the principal
 
2. not bound by act of agent
a.        the latter acts without or beyond the scope of his authority in the former’s
name; and
b.        the latter acts within the scope of his authority but in his own name, except
when the transaction involves things belonging to the principal
 
3. principal bound by acts of agent beyond his power
a.        where his (principal’s) acts have contributed to deceive third person in
good faith;
b.        where the limitations upon the power created by him could not have been
known by the third person;
c.        where the principal has placed in the hands of the agent instruments
signed by him in blank; and
d.        where the principal has ratified the acts of the agent
 
 
Art. 1883 – Kinds of Principal
 
a.        Disclosed Principal
-          if at the time of the transaction contracted by the agent, the other
party thereto has known that the agent is acting for a principal and of
the principal’s identity.
-          This is the usual type of agency
b. Partially Disclosed Principal
-          if the other part knows or has reason to know that the agent is or
may be acting  for a principal but is unaware of the principal’s identity.
-          The par6tially disclosed partner may enforce against the third
person the contract of the agent like any disclosed principal. Similarly,
the third has the right of action against the principal
c. Undisclosed Principal
-          if the party has no notice of the fact that the agent is acting as such
for a principal
 
·         Agency with an undisclosed principal
-          the article speaks of a case where the agent was authorized, but
instead of acting in behalf of the principal, he acts in his own behalf
-          does not apply if the agent was unauthorized or he acts in excess
of his authority
 
·         When authorized agent buys in his own name but really in behalf of principal
- seller has the option to look to either for payment unless:
 a.            he trusted the agent exclusively;
b.            by usage and understanding of business, the agent only is held;
c.             unless the special circumstances of the case reveal that the agent
was intended to be bound and the seller knew it, or was  chargeable with
knowledge of it
·         When authority of agent is doubtful
- the action must be directed against both the principal and “agent”
 
·         Regarding things belonging to the principal
- this means that the agent’s apparent representation yields to the principal’s true
representation; and that, in reality and in effect, the contract must be considered
as entered into between the principal and the third person and consequently, if
the obligation belongs to the former, to him alone must also belong the rights
arising from the contract
 
Obligations of the Agent
 
Art. 1884 – Obligations of agent to principal   
 
General obligations
a.        Loyalty to his trust agent’s first duty
b.        Obedience to principal’s instruction
c.        Exercise of reasonable care
 
Duty of agent to carry out the agency
                - an agent who does not carry out the agency is liable for damages; if he
fulfills his duty, he is not personally liable unless he so binds himself
 
Effect of principal’s death
                - extinguishes the agency, but agent is obliged to finish the business already
begun if delay should entail danger
 
Agent who sells to himself
                 -an agent who has been authorized to sell some merchandise is not allowed
to bind the principal by selling to himself directly or indirectly.
 
Art. 1885 – Obligation of person who declines agency
 
Duty of Owner
a.        by appointing an agent
b.        by taking charge of the goods
 
Obligation of person who declines agency
                - in the event a person declines an agency, he is still 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.
 
Art. 1886 – Obligation to advance necessary funds
 
Rule:
                - the principal must advance to the agent, should the latter so request, the
sums necessary for the execution of the agency
                - the contract on agency, however, may stipulate that the agent shall advance
the necessary funds
                                - in such case, the agent is bound to furnish such funds except
when the principal is insolvent
 
Art. 1887 – Agent’s duty to follow instructions
 
Instruction of principal
                - private directions which the principal may give the agent in regard to the
manner of performing his duties as such agent
 
Instructions vs. Authority
a.        authority, the sum total of the powers committed or permitted to the agent
by the principal, may be limited in scope and such limitations are themselves 
a part of the authority, but instructions direct the manner of transacting the
authorized business and contemplates only a private rule of guidance to the
agent and are independent and distinct in character;
b.        authority relates to the subject with which the agent is empowered to deal
or the kind of business or transactions upon which he is empowered to act,
while instructions refer to the manner or mode of his action with respect to
matters which in their substance are within the scope of permitted action;
c.        limitations of authority are operative as against those who have or charged
with knowledge of them, while instructions are without significance as against
those dealing with the agent with neither knowledge nor notice of them; and
d.        authority is contemplated to be made known to the third person dealing
with the agent, while instructions are not expected to be made known to those
with whom the agent deals
 
Effects of violation of principal’s instructions:
a.        liability of principal to third person
b.        liability of agent to principal
 
 
Obligation to act in accordance with principal’s instructions
 
a.        duty to obey reasonable and lawful instructions
b.        liability for the loss or damage
c.        duty to act in good faith and with due care
d.        exception from liability for failure of undertaking
e.        right to disobey principal’s instructions
 
Justification in case of violation of principal’s instructions
 
a.        sudden emergency
b.        ambiguous instructions
c.        insubstantial departure
 
Effect if instructions are followed
                - he cannot be held responsible for the failure of his principal to accomplish
the objective of the agency unless the said agent exceeded his authority or has acted
with negligence, deceit or fraud
 
Art. 1888 – When agent shall not carry out agency
 
                - agent must not carry out the agency if its execution would manifestly result
in the loss or damage to the principal
a.        agent should exercise due diligence;
b.        agent must presumably act for the benefit, and not to the detriment of
the principal
 
manifestly – means that the execution would damage only the principal
 
Art. 1889 – Obligation by the agent not to prefer his own interest to those of principal
 
                - the article applies whether the agency is onerous or gratuitous for here the
law does not distinguish
 
a.        reason for the rule:
-          agency being a fiduciary relation, the agent is required to observe
with utmost good faith and loyalty towards his principal
-          he is therefore, liable for damages if, there being a conflict between
his interest and those of the principal, he should prefer his own
 
b.        basis:
-          the underlying basis of the rule is to shut the door against
temptation and keep the agent’s eye single to the rights and welfare of
his principal
 
c.        where agents’ interest are superior
-          where the agent’s rights are superior, such as where he has a
security interest in goods of the principal in his possession, he may
protect his interest even if in so doing he disobeys the principal’s
orders or injures his interest
 
Art. 1890 – Obligation of agent not to loan or borrow money to himself
 
 a.        if he is expressly empowered to borrow money, he may himself be the
lender at the current rate of interest for there is no danger of the principal
suffering any damage since the current rate of interest would have to be paid
in case if the loan were obtained from a third person.
b.        If the agent has been authorized to lend money at interest, he cannot be
the borrower without the consent of the principal because the agent may
prove to be a bad debtor.
 
Art. 1891 – Obligation of agent to render accounts
 
Duty to render account:
                - the article does not apply to cases of solutio indebiti for in such cases,
recovery can be had by the payor against the agent himself. Therefore, the agent
meantime can keep what had been given to him by error
 
Stipulation exempting agent from duty to account
                - void, against public policy because it would be conducive to fraud
 
Duty to deliver funds
                - if nothing in the contract of agency provides otherwise, 1891 imposes on the
agent the obligation to deliver to his principal all funds collected on his account
 
When obligation to account not applicable
 
a.        if the agent or broker acted only as a middleman with the task of merely
bringing together the vendor and the vendee, who themselves thereafter will
negotiate on the terms and conditions of the transaction
b.        if the agent or broker had informed the principal of the gift or bonus or
profit he received from the purchaser  and his principal did not object thereto
c.        where the right of lien exists in favor of the agent
 
Art. 1892 ; Art. 1893 – Appointment of substitute for the agent
                - while ordinarily the agent upon whom the principal has reposed confidence
must do the act himself, still the principal need not fear prejudice for, in some cases, he
can still exact responsibility from his agent
 
Definition of Sub-agent
A person to whom the agent delegates, as his agent, the performance of an act
for the principal which the agent has been empowered to perform through his
representative.
 
Power of agent to appoint sub-agent
                Unless prohibited by the principal, the agent may appoint a sub-agent. The
agent, in this situation is a principal with respect to the substitute.
 
 
Effects of Substitution.
 
a.        When the substitute is appointed by the agent against the express prohibition
of the principal, the agent exceeds the limits of his authority. All acts of the
substitute in such case is VOID.
b.        If the agent is given the power to appoint a substitute and the principal did not
designate any person to be appointed, the substitution has the effect of releasing
the agent from his responsibility unless the person appointed is notoriously
incompetent or insolvent.
c.        If the agent appoints a substitute when he was not given the power to appoint
one, the substitution is valid if the same is BENEFICIAL to the principal.
 
Art. 1894; Art 1895 : Necessity of concurrence in case of 2 or more agents
 
Rule: It is advisable that when a principal hires several agents to act for him, he must
define their respective powers – whether that may act only as a unit or whether they
may act separately.
 
Nature of Liability of 2 or more agents to their principal
 
a.        The presumption is that an obligation is joint. The rule in 1894 follows the
general principle respecting solidarity.
b.        If solidarity has been agreed upon, each of the agents becomes solidarily
liable:
a.        For the non-fulfillment of the agency even though in this case, the
fellow agents acted beyond the scope of their authority; and
b.        For the fault or negligence of his fellow agents provided the latter acted
within the scope of their authority.
c.        An agent who exceeds his powers does not act as such agent, and therefore,
the principal assumes no liability to third person.
 
Art. 1896 – Liability of Agent for Interest
 
The article is without prejudice to a criminal action that may be brought because of
conversion;
On the other hand, there is no liability for interest on sums which have not been
converted for the agent’s own use, unless of course, at the expiration of the agency, the
agent still owed the principal certain sums.
 
Art. 1897: Duties and liabilities of agent to third persons
 
Rule:  The PRINCIPAL is responsible for the acts of the agent done within the scope of
his authority and should bear any damage caused to third persons.
 
Third party’s liability towards agent:
·         When the agent contracts in his own name for an undisclosed principal.
 ·         Where the agent possesses a beneficial interest in the subject matter of the
agency
·         Where the agent pays money of his principal to a third party by mistake or
under a contract which proves subsequently to be illegal, the agent being
ignorant with respect to its illegal nature; and
·         Where the third party commits a tort against the agent.
 
Art. 1898: Contracts entered into in excess of authority
 
                This article refers only to the liability of the agent towards third persons.
                Principal is not bound except if there is subsequent ratification by him.
 
Art. 1899: Effect of Agent’s Ignorance
 
                It is not enough for the agent to act within the scope of his authority. It is also
imperative for such agent to have complied with the orders and instructions of the
principal.  If the agent is ignorant, the principal is liable.
 
Art. 1900: Act performed within Terms of Written Authority.
               
                Designed to protect the interest of third persons.
                For the article to apply, the authority must be in writing
                Principal may broaden the authority of agent by implication, usage and
custom, necessity, by the rule of ejusdem generis and by certain doctrines
 
Art. 1901: Effect of Ratification
 
                Ratification in effect grants authority to the agent.  The ratification may be in
the future.  Note also that only the principal can ratify.
 
Art. 1902 – Third persons may require the agent to present Power of Attorney or
instructions as regards agency.
                Third person deals with an agent at his peril. Hence, he is bound to inquire as
to the extent of the agent’s authority, and this is especially true where the act of the
agent is of an unusual nature.
 
Art. 1903 : Commission / Factor Agent
                A factor or Commission Agent is one whose business is to receive and sell
goods for a commission (factorage) and who is entrusted by the principal with the
possession of goods to be sold, and usually selling in his own name.
 
Liability of commission agent as to goods received:
                The commission agent is responsible for any damage or deterioration
suffered by the same in the terms and conditions and as described in the consignment. 
To avoid liability, the commission agent should make a written statement of the damage
or deterioration if the goods received by him do not agree with the description in the
consignment.
 
Art. 1904 – Duty of Commission Agent to place Countermarks
Reason: To put countermarks and designate them is employed to AVOID CONFUSION
OR DECEPTION.
 
Art. 1905 – Sale by the Commission Agent on Credit.             
General Rule: Commission Agent cannot sell on credit.
Exception:  When there is an express or implied consent of the Principal.
 
 
 
 
Art. 1906 – Obligation of Commission Agent where sale on credit is authorized
                An authorized sale on credit shall be deemed to have been on a cash basis
insofar as the principal is concerned, upon failure of the agent to inform the principal of
such sale on credit with a statement of the names of the buyers.
 
Art. 1907 – Guarantee Commission
Guarantee Commission (or del credere commission) is one where, in
consideration of an increased commission, the factor or commission agent guarantees
to the principal the payment of debts arising through his agency
 
Nature of liability of a del credere agent
                Del credere agents is liable to the principal if the buyer fails to pay or is
incapable of paying.  But he is not primarily the debtor.  The liability of the del credere
agent is a contingent pecuniary liability.
 
Art. 1908: Obligation of Commission Agent to collect credits of Principal
               
                A commission agent who has made an authorized sale on credit must collect
the credits due the principal at the time they become due and demandable.  If he fails to
do so, he shall be liable for damages unless he can show that the credit cannot be
collected notwithstanding the exercise of due diligence on his part.
 
Art. 1909: Liability of Agent for FRAUD and NEGLIGENCE
                The agent is responsible to the principal not only for fraud committed by him
but also for negligence.
 
OBLIGATIONS OF THE PRINCIPAL
 
Art. 1910: Obligations, in general, of the Principal to Agent.
                The 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.
 
Art. 1911: Estoppel
 
                Estoppel is a bar which precludes a person from denying or asserting
anything contrary to that which has been established as the truth by his own deed or
representation either express or implied.
 
                When the Principal is in estoppel, therefore innocent third persons should not
be prejudiced.
 
RATIFICATION vs ESTOPPEL
                Ratification differs from estoppel mainly in that the former rests on intention,
express or implied, regardless of prejudice to another, whereas estoppel rests on
prejudice rather than intention.
 
Apparent authority vs. authority by estoppel
                Apparent authority is that which though not actually granted, the principal
knowingly permits the agent to exercise or holds him out as possessing. Authority by
estoppel arises in those cases where the principal , by his culpable negligence, permits
his agent to exercise powers not granted to him, even though the principal may have no
notice or knowledge of the conduct of the agent.
 
Liability of Principal because of Estoppel
                -instance when solidarity is imposed by la                -principal is in estoppel
and therefore innocent third parties should not be prejudiced
 
Art. 1912
                In the absence of stipulation that the agent shall advance the necessary
funds, the principal must advance to the agent upon his request the sums necessary for
the execution of the agency               .
                Even if the agency is gratuitous,1912 will also apply; hence, the agent will still
be entitled to reimbursement
 
Art. 1913
Obligation of the principal to reimburse agent for damages
                Article is based on equity, and applies even if the agency is gratuitous.
 
Art.1914
                Right of agent to retain by way of pledge
                -speaks of one kind of pledge—pledge by operation of law
 
Nature of agent’s right of lien
                (1)Right limited to subject matter of agency
(2)                               Right acquires possession by agent of subject
matter
 (3)                               In the absence of a ratification of a sub-agent’s acts
by the principal, right generally only in favor of the agent.
 
 
Art.1915
                Solidarity liability of principals
                Solidarity is the rule under 1915 because of the common
transaction (even if the agent have been appointed separately).
 
Requisites for solidarity 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.
 
Art.1916
                -the article is subject, however,  to the rules under art. 1544.
 
Art. 1917
Liability to third persons of agent or principal who contracts separately
                -if agent is in good faith, the principal shall be liable in damages
to third persons whose contract must be rejected.
                -agent alone in bad faith is solely responsible
 
Art.1918
                In four cases provided in this article, the principal I not liable for expenses
incurred by the agent.
 
Reasons :
Under no.1, is to punish the agent; for the exception, the acceptance of benefits
is implied ratification;
Under no.2, it is self-evident;
Under no.3 the agent is guilty of bad faith and lack of diligence; and
Under no.4, an express stipulation which is not contrary to law, morals, good
customs, public order, or public policy is binding between the parties
 
IV. Modes of Extinguishment of Agency
 
Art. 1919 – How agency is extinguished
 
a.        revocation;
b.        withdrawal of the agent;
c.        death, civil interdiction, insanity or insolvency of the principal or agent;
d.        dissolution of the firm or corporation
e.        accomplishment of the object or purpose of the agency;
 f.          expiration of the period
 
General Classification of modes of extinguishment:
a.        by agreement – nos. 5 and 6
b.        by the act of both the parties or by mutual consent
c.        by the unilateral act of one of them – nos. 1 and 2
d.        by operation of law – nos. 3 and 4
 
note: presence, capacity, and solvency of parties are essential for continuance of
agency
 
·         Presumption of continuance of agency
- when once shown to have existed, an agency relation will be presumed to have
continued, in the absence of anything to show its termination; and the burden of
proving a revocation or other termination of an agency is on the party asserting it
 
Art. 1920 – Revocation of agency by principal
 
Reason:
                - agency is generally irrevocable at the will of the principal because the trust
and confidence may have been lost
 
Revocation at will is proper even if:
a.        agency is onerous
b.        the period fixed has not yet expired
 
When agency cannot be revoked at will
-          when it is coupled with interest
-          in relation to 1927
-          when there has been a waiver by the principal
-          when principal is not obliged to revoke
-          when revocation is done in bad faith
 
Gen. Rule:
                - when revocation is proper, the agent cannot get damages because the
principal is merely exercising a right
 
Liability of principal caused by revocation
                -he  just respond in damages in those cases wherein not having the right to
do so, he should discharge the agent
 
Kinds of revocation
                - express or implied
 
Necessity of notice of revocation
a.        to agent
 b.        to third persons
 
Renunciation of agency by agent
a.        agency terminable at will subject only to the contractual obligations owing
to the principal
b.        Reason:
- where the agent terminates the agency in violation of a contract, the
principal has no right to affirmative specific performance of the agency for the
essence of the relationship is consensual – the willingness of the agent to act
for the principal
 
Art. 1921 - 22 – Effect of revocation in relation to third persons
 
a.        agent authorized to contract with specified persons
- its revocation will not prejudice such third persons until notice thereof is
given to the same
Reason: since the third parties have been made to believe by the principal
that the agent is authorized to deal with them, they have a right to presume
that the representation continues to exist in the absence of notification by the
principal
 
Agency for contracting with specified persons;
a.        so that third parties may not be prejudiced, the principal who fails to give
the notification can be held liable for damages
b.        no notice is required for persons who already know of the revocation for
then the purpose of the notification shall have been served
 
Art. 1923 – Appointment of new agent for the same business
 
a.        appointment of a new revokes the first agency only in case of
incompatibility;
b.        a special power revokes a general one;
c.        if the agent is not notified of the appointment of the second agent, it is
understood that the first agency still exists
 
·         appointment of new agent is an IMPLIED REVOCATION of the
previous agency from the day on which notice was given thereof.
 
Art. 1924 – Revocation by direct management of business by the principal himself
 
Effect:
a.        in case of true inconsistency, the agency is revoked, for there would no
lo0nger be any basis therefore
b.        another case of implied revocation
 
Art. 1925 – Revocation by 1 of two or more principals
 
                Effect:
-          the power to revoke is a consequence of the solidary liability of the
principals
-          any of the principals may revoke without the consent of the others
 
Art. 1926 – Partial revocation of general power by a special power
 
Requirements for application:
a.        two agents are involved;
b.        a specific right naturally prevails over a general one
 
·         the general power is impliedly revoked as to matters covered by the
special power.
·         It is indispensable that notice of the revocation be communicated in
some way to the agent
 
Art. 1927 – When agency not revocable
 
General rule: agency may be revoked at the will of the principal
 
Exceptions:
a.        when the agency is created not only for the interest of the principal and
the agent; and
b.        when the agency is created for the mutual interest of both the principal
and the agent
 
Art. 1928 – Right of agent to withdraw from the agency
 
Withdrawal by agent
                - reasons of health can justify withdrawal
 
Effect when agent sues principal
a.        will not ordinarily permit the continuation of the  agency;
b.        such a complaint will be equivalent to withdrawal of the agent from the
agency
Kinds of withdrawal:
a.        without just cause
- the law imposes upon the agent the duty to give due notice to the principal
and if the withdrawal is without just cause, to indemnify the principal should
the latter suffer damage by reason of such withdrawal
b.        with just cause
-          if the withdrawal is with a valid reason, the agent cannot be held
liable
 
Art. 1929 – Obligation of agent to continue to act after withdrawal
 
Reason: to prevent damage to the principal
 
Art. 1930 – When death of principal does not terminate agency
 
Instances when death does not affect agency:
a.         if the agency has been constituted in the common interest of the principal
and the agent; and
b.         if it has been constituted in the interest of a third person who has
accepted the stipulation in his favor
 
Art. 1931 – Nature of agent’s authority after the death of the principal
 
* the law requires that there must be good faith
                - the death of the principal extinguishes the agency; but in the same way that
revocation of the agency does not prejudice persons who have dealt with the agent in
good faith without notice of the revocation
 
Art. 1932 – Death of agent
 
Duty of agent’s heirs:
a.        the heirs duty to continue the agency after the death of the agent arises
from what may be termed as an agency by operation of law or a presumed
tacit agency
-          only temporarily
b. where the agency is one coupled with an interest in the subject matter of
agency, the death of the agent will not instantly end the relationship, and
consequently, his heirs or representatives may subsequently exercise the power
conferred at least insofar as may be necessary to protect the estate of the agent
 
Effect of agent’s death in case agency coupled with an interest
                - generally, the agent’s death terminates the agency for it should not be
continued by one upon whom the principal has reposed no confidence
 
 Continuation by agent’s heirs of agency
                General rule:
                - an agency calls for personal services. Ordinarily, therefore, the agent’s
duties cannot be performed by his personal representatives, and in case of death, the
agency is generally thereby terminated
 
exceptions:
          see duty of agent’s heirs