NOTES IN PARTNERSHIP, AGENCY, AND TRUST
Culled primarily from the lectures of Atty. Kenneth Glenn L. Manuel
Nature, Form, and Kinds of Agency
Definition: Art. 1868: By the contract of
agency, a person binds himself to render
some service or to do something in
representation or on behalf of another, with
the consent or authority of the latter.
• Essential requisites of contract still apply
because it is statutorily defined as a
contract
Parties
• Agent (Mandatario): Binds himself to do
something in representation or on behalf
of another
o An agent does not do his acts in his
own name but under the name of
another person (the principal
• Principal: the one represented by the
agent.
Elements of contract:
Consent: Is it required that both parties
(principal and agent) give their consent?
• Yes.
Object: What is the object of agency?
• Representation
Cause:
• On the part of the agent: Compensation
(but not always)
Kinds of agency:
• Gratuitous: Not for a consideration.
• Onerous: For a consideration. This is
presumed.
What may the agent do in a contract of agency?
• Offer service or do something on behalf of
the principal provided the principal
consents
What may the agent not do in a contract of
agency?
Daverick Pacumio
UST Faculty of Civil Law
• Anything beyond the scope of authority
given to him by the principal
Kinds of agent
• General agent under general power of
attorney
• Special agent under special power of
attorney
• Universal general agent* (according to De
Leon)
Elements of contract of agency
1. Consent: Both parties required
2. Object: Representation
3. Cause: For agent – gratuitous or onerous;
For principal – whatever he wants to be
done lol.
4. Agent acts within the scope of the
authority given to him by the principal
In re: Santos v. Buenconsejo
• The principal in the SPA were the children
of Buenconsejo
• Issues:
1. May the children act on behalf of
their living father in giving an SPA
to Santos
2. Could Santos acquire the lot of
Buenconsejo by virtue of an SPA
given to him by children of
Buenconsejo? (Main issue)
• The essence of agency is to act on behalf
of another. Santos cannot claim the
property because it was his duty to act on
behalf of Buenconsejo.
• When the agent (Santos) redeemed the
property, he redeemed it under the name
of his principals, the children of
Buenconsejo. In case the redemption is
valid, the ownership redounded to the
benefit of the principals in the SPA
• The SPA is valid but it is unenforceable (it
is not mentioned in the case). this is
 because the children had no authority to
act on behalf of their father because their
father is still alive and did not give his
consent thereto.
• What if Buenconsejo authorized his
children to redeem his property. May his
children redelegate this act?
o Yes, provided there is consent on
the part of Buenconsejo. There is
what is so-called sub-agency.
• Would Santos’ petition be granted, in case
Buenconsejo validly authorized Santos to
redeem via the valid SPA?
o No. The agent cannot act in any
manner adverse to his principal.
T or F: Acts of principal = acts of agent
• F. It is the other way around. In fact, the
agent is not bound by the knowledge of
the principal.
Palma v. Cristobal
• May agencies be implied?
o Yes.
• Should the contract of agency be in
writing?
o As a general rule, no, subject to the
exceptions.
• Exceptions: (see Art. 1878)
1. Sale of land or interest therein;
o What happens if it is not in
writing? Sale is void. Art. 1874. J
o Note, only a parcel of land is
covered. Therefore, if what is sold
is a real property, the sale is still
valid.
Express agency: Where principal expressly
confers authority upon agent.
Implied agency: From the silence, inaction of
the parties.
• Example: A asked B to sell his car. B was
silent but the next day, he sold A’s car to
C.
• Requisites of implied agency:
1. Knowledge on the part of principal
of agent’s acts;
2. Principal must have opportunity to
repudiate acts of agent; and
3. No suspicious facts for third
persons.
Scenario: A and B are sisters. B sold the A’s
jewelries to C, B telling C that she was the sister
of A. Status of the sale?
Answer: C is a buyer in good faith, so the sale is
valid but unenforceable for being entered into in
the name of another by one without authority
(Art. 1403). Moreover, closeness or being
relatives does not connote or equate to implied
agency.
Scenario: A sold B’s jewelries to C without the
B’s knowledge. The sale was in A’s name, she did
not purport to represent B. Is there a valid
contract of sale? If there is a valid contract, what
is the defect and how do you characterize the
contract?
Answer: IT DEPENDS. It is not important that
the seller is not the owner at the time of
perfection, the seller’s ownership in a contract of
sale is relevant only upon the consummation, i.e.,
the delivery of the jewelries. So, since A has
ample time in this case to acquire ownership over
the jewelries before delivery, the sale may still be
valid.
• Note: This is not a case of agency. Thus,
in answering these questions, look at
whether there is representation. This case
had no representation as A did not
represent himself as agent of B so the law
on sales apply.
Scenario: Bonn and Dhez met at a coffee shop
and Bonn handed Dhez an SPA constituting the
latter as an agent. Dhez did not object to the
contents thereof. Is there a perfected contract of
agency?
Answer: Yes. There is no objection and Dhez was
present (Art. 1871).
Page 2 of 45
Scenario: Dhez and Bonn were not able to meet Agency by Estoppel Implied Agency
at a coffee shop. So, Bonn sent via LBC an SPA to There is no contract of There is an actual
Dhez. Dhez, after reading, did not reply. Is there agency and existing
a perfected contract of agency? contract of agency
Answer: It depends. There is agency when Dhez There is no intent to There is an intent
either (a) acknowledges receipt of the SPA or (b) constitute agency. to constitute
if the contents of the SPA relate to the business Agency by estoppel is agency
in which Dhez is habitually engaged in (Art. only invoked by the
1872). courts when the
principal attempts to
Scenario: Dhez operates a sisig house. Bonn deny the existence of
asked Dhez in the aforementioned manner to agency, and such denial
purchase ampalaya. Is Dhez’ silence equivalent causes prejudice or
to a perfected contract of agency? injury to third parties
Answer: NO. Dhez does not normally purchase relying on the
ampalaya, as she is engaged in the business of misrepresentation
operating a sisig house. It is required damage There is no damage
that may occur if the required
Scenario: Dhez in this case purchased ampalaya, principal is allowed by
representing herself as an agent of Bonn. Bonn, the courts to deny the
thereafter, became bankrupt and no longer had existence of agency
funds to pay for the ampalaya. The vendor is now
suing Dhez alleging she is principally liable Sevilla v. CA
therefor. Defense? • When Sevilla agreed to woman the TWS’
Answer: Dhez may still argue that she is an agent office, she did so pursuant to a contract of
of Bonn because agency is still perfected by Dhez’ agency. The essence of an agency is for an
carrying out of the agency. Therefore, the agent to render services “in
recourse of the vendor should still be with Bonn, representation or on behalf of another.”
Dhez’ principal (Art. 1870). When Sevilla solicited airline fares, she
did so for and on behalf of her principal,
Essence of contract of agency TWS. As compensation, she received 4%
• A contract of agency is just an extension commissions. However, unlike simple
of the personality of the principal. The grants of a power of attorney, this agency
agent does not act in his or her own cannot be revoked at will. Sevilla is a bona
personality, but on behalf of the principal. fide travel agent and as such, had acquired
interest in the business entrusted to her.
Jove’s Q: What is the practical reason behind Moreover, she assumed a personal
Art. 1872, second par.? obligation for the operation thereof,
A: Dhez is an agent so sanay na siya or alam niya holding herself solidarily liable for the
na ginagawa niya and it is safe to presume that payment of rentals. Accordingly, the
Dhez may perform as an agent. (My answer lang) revocation should entitle her to damages.

Agency by Estoppel Sps. Yulo v. BPI

• When the principal holds the agent out to • A contract of agency is created when a
the world as his agent and third persons person acts for and on behalf of a
relied thereon in good faith. principal, with the latter’s consent or

Page 3 of 45
 authority. While the Delivery Receipt
showed that Baitan received the credit
card packet for petitioner Rainier, it failed
to indicate Baitan's relationship with him.
BPI also failed to substantiate its claim
that Rainier authorized Baitan to act on
his behalf and receive his pre-approved
credit card. The only evidence presented
was the check mark in the box beside
"Authorized Representative" in the
Delivery Receipt. This self-serving
evidence is obviously insufficient to
sustain BPI’s claim. BPI fell short in
establishing an agency relationship
between Rainier and Baitan, as the
evidence presented did not support its
claim that Rainier authorized Baitan to
act on his behalf. Without proof that
Rainier read and agreed to the Terms and
Conditions of his pre-approved credit
card, Sps. Yulo cannot be bound by it.
• The Sps. Yulo are bound by their
purchases but they are not bound to pay
the penalties, surcharges, etc. reflected in
the Terms and Conditions because there
is no proof that they were able to read the
same as there was no proof presented that
Baitan was their agent.
Doctrine of Apparent Authority: Similar to
agency by estoppel. When a person has clothed
another with apparent authority and made it
appear that such is his agent, that person giving
that apparent authority cannot deny the
existence of a contract of agency if it would cause
damage or prejudice to another. Agency by
estoppel din yan sus.
Scenario: Clara published in a newspaper that
she granted SPA to Adi to sell her car. Adi
accepted by letter, and sold the car to Edz.
Unknown to Adi, Edz and Clara were enemies.
Had Clara known, she would not have let Adi sell
the car to Edz. Is the sale still valid?
Answer: YES. Adi is not presumed to know what
Clara, the principal, knows. Knowledge of the
principal is not knowledge of the agent.
Moreover, there was no limit placed by Clara on
the authority given to Adi.
Scenario: Clara in the aforesaid case revoked the
SPA sent to Adi via private messages or letters to
Katya, Manuel, and Dhez. But Adi had already
sold the car. Is there a valid revocation?
Answer: NO. The revocation must be made the
same way the authority was granted. In this case,
the revocation must be published as the grant of
SPA was published (Art. 1873).
Kinds of Agency as to business covered:
General Agency
• Comprises all the business of the principal
• Agent can do all acts of administration
connected to the business of the principal
(Art. 1877)
• Acts of alienation are not covered
Special Agency
• Pertains to one or more specific
transactions
• Only those specified in the SPA may be
exercised (Art. 1876)
Manila Memorial Park v. Linsangan
• Persons dealing with an agent are bound
at their peril, if they would hold the
principal liable, to ascertain not only the
fact of agency but also the nature and
extent of authority, and in case either is
controverted, the burden of proof is upon
them to establish it.
• The person transacting with an agent
must inquire as to the nature and extent
of authority of the agent.
• The remedy of Atty. Linsangan is to bring
a separate action for damages against
Baluyot
• There are two separate agreements in this
case: (1) the contract of sale of the
memorial lot; and (2) the secret
agreement between Atty. Linsangan and
Baluyot
Page 4 of 45
Scenario: Cara as the principal granted Katya, as
the agent, a GPOA. Katya entered into a contract
of sale over Cara’s land, sold to Jove. What is the
status of the sale?
A: The contract is valid but unenforceable. When
we are talking about authority to sell property,
the lack thereof only makes the contract
unenforceable. So, if there is an authority to sell
a parcel of land which is not in writing, the sale
is void. It appears that it is better that no express
authority for an agent to sell a parcel of land
because it is merely unenforceable.
Scenario: Cara (principal) executed an SPA for
Katya (agent) to enter into a service contract
with Jove. Unfortunately, Jove was busy, so Katya
entered into a service contract with Gab. Is this
valid?
A: The contract is valid but unenforceable
because Katya exceeded her authority. The SPA
limited her authority to enter into a service
contract with Jove alone (Art. 1876). Again, when
we are talking about authority, the lack thereof
merely renders the contract unenforceable.
• Void contracts do not produce legal
effect; void contracts may never be
ratified
• Unenforceable contracts produce legal
effect as it may be ratified
Scenario: Bonn granted to Katya a GPOA to
manage Bonn’s parcel of land. Katya, however,
leased the property for six (6) months. What is
the status of the contract of lease?
A: Valid but unenforceable. Art. 1878, par. 8
requires an SPA only for lease of a real property
to another person for a period of more than one
(1) year. It is unenforceable because lease is an act
of alienation, not an act of administration.
Scenario: Jove granted a power of attorney to
Katya, entitled General Power of Attorney, to
enter into a long-term lease over a parcel of land.
1
Note: This is Atty. K’s favorite question which may be
asked in the preliminary examinations.
Katya did lease the land to Cara for six (6) years.
What is the status of the contract of lease?
A: Valid. The title of the power of attorney is
immaterial, for the intention of Jove is for Katya
to enter into a long-term lease. The provisions of
the contract, which exemplify the intentions of
the parties, are controlling.
Scenario: Gab P authorized Gab L to sell his red
car to Dave. However, Gab L, in his own name,
without representing himself as an agent, sold
his own red car to Dave. Is the contract of sale
between Gab L and Dave valid?
A: Yes. It’s a valid contract. All the elements of a
contract of sale are present.
Scenario: May Gab P annul the contract
between Gab L and Dave?
A: No. It is a valid contract entered into by Gab L
in his own name (Art. 1883, par. 1). Moreover,
under the principle of relativity of contracts,
contracts take effect only among the parties
thereto. However, in real life contracts, there are
provisions as to exclusivity whereby an agent is
prohibited from selling an object other than that
contemplated in the contract of agency. This is
called an exclusivity clause. If this is the case,
then Gab P has a cause of action against Gab L
for violating the exclusivity clause.
Scenario: Gab P authorized Gab L to sell his red
car to Dave. Gab L, in his own name, without
disclosing Gab P as his principal, sold Gab P’s red
car, to Dave. Status of the sale?
A: Still valid. Ownership need not belong to the
seller at the time of the sale but only upon
consummation or delivery of the thing. The fact
that Gab L does not own the car as of now is
inconsequential. Gab L must have acquired
ownership over the same at the time of the
delivery thereof.1
Scenario: Does Gab P have a cause of action
against Gab L?
Page 5 of 45
A: In the second scenario, yes. He may recover
the purchase price from Gab L because the object
of the contract involves a thing belonging to Gab
P (Art. 1883, par. 2).
Far Eastern Export v. Lim Teck Suan
• The international supplier, Frenkel, sold
in favor of the broker, Far Eastern, who
put a price or a premium to the price for
reselling to Suan. So, there’s basically only
two contracts of sale and purchase in this
case. Far Eastern buying from Frenkel and
later reselling it at a special price in favor
of Lim Teck Suan.
Q: May there be agency by operation of law?
A: Yes. Under the special proceedings, when a
court appoints an administrator, the
administrator is an agent of the estate and an
officer of the court. In effect, the administrator
becomes an agent by operation of law. Another
instance is Art. 1929 where agency continues
despite the extinguishment thereof. Another
instance is Art. 1885 whereby a person who
declines an agency is still bound to observe the
diligence of a good father with respect to the
goods forwarded to him until such time that the
owner should find an agent or take the goods.
Art. 1885 pertains to a limited agent.
Bordador v. Luz
• A person dealing with an agent is put
upon inquiry and must discover upon
his peril the authority of the agent.
Here, there is no showing that Brigida
consented to the acts of Deganos or
authorized him to act on her behalf, much
less with respect to the particular
transactions involved. Petitioners'
attempt to foist liability on respondent
spouses through the supposed agency
relation with Deganos is groundless and
ill-advised. Besides, it was grossly and
inexcusably negligent of petitioners to
entrust to Deganos, not once or twice but
on at least six occasions as evidenced by
six receipts, several pieces of jewelry of
substantial value without requiring a
written authorization from his alleged
principal. The records show that neither
an express nor an implied agency was
proven to have existed between Deganos
and Brigida D. Luz.
• Thus, a person dealing with an agent must
inquire as to whether the agent has (a)
authority; and (b) the extent of such
authority.
Sps. Yu v. Pan American
• The declarations of the agent alone are
generally insufficient to establish the fact
or extent of his authority. The affidavit of
Tagunicar relied upon by Sps. Yu is
suspicious at best. First, Tagunicar herself
testified in open court that her affidavit
was prepared and typewritten by the
secretary of Sps. Yu’s lawyer, Atty.
Acebedo, who both came with Adrian Yu,
the son of Sps. Yu. Thus, the voluntariness
of Tagunicar in executing such affidavit is
suspect. She was not even informed that
such affidavit would be used against her.
Second, Tagunicar openly denied in open
court that she is a duly authorized agent
of TWSI and declared that she is an
independent travel agent. In case of
conflict between testimonial declarations
and affidavits, the latter command greater
weight. Third, the sales commissions
received by Tagunicar and TWSI from Pan
Am cannot justify the deduction that
Tagunicar was paid a commission either
by TWSI or Pan Am. On the contrary,
Tagunicar testified that when she pays
TWSI, she already deducts in advance her
commission and merely gives the net
amount to TWSI. From all sides of the
legal prism, the transaction is simply a
contract of sale where Tagunicar buys
airline tickets from TWSI and then sells it
at a premium to her clients.
Rallos v. Felix Go Chan
Page 6 of 45
 • As a general rule, agency is extinguished
by the death of the principal or of the
agent. The rationale for this rule,
according to Manresa, was found in the
juridical basis of agency which is
representation. There being n integration
of the personality of the principal into
that of the agent, it is not possible for the
representation to continue to exist once
the death of either is established. The
exceptions to this rule are found in Art.
1930 which provides that the agency shall
remain in full force even after the death of
the principal if it has been constituted in
the common interest of the latter and of
the agent; and Art. 1931 which provides
that anything done by the agent without
knowledge of the principal’s death is valid
and effective with respect to third persons
in good faith.
• Art. 1930 is inapplicable because the SPA
executed in Simeon’s favor was not
coupled with an interest. Art. 1931, in
order to apply, must have these
concurring requirements met: (a) agent
acted without knowledge of the
principal’s death; and (b) third person
who contracted with the agent himself
acted in good faith. In this case, Simeon
clearly had knowledge of the death of his
principal, Concepcion. Thus, Art. 1931 is
inapplicable, and the general rule
prevails.
• Note that the basis of a contract of agency
is representation. Thus, if the principal
from which the authority of the agent is
derived, dies, then the agent does not
have anyone to represent. Moreover, the
death of the principal extinguishes the
agency contract because there is no longer
any principal.
Obligations of an Agent
Q: Are we required to pay the agent?
A: No. While agency is presumed to be for a
consideration, the latter is not an element
thereof.
Scenario: Shara authorized Manuel to borrow
Php 1 million for the acquisition of equipment.
Manuel, realizing that he has money, loaned that
Php 1 million to Shara for 6% interest. Is the
contract of loan between Manuel as the lender
and Shara valid?
A: Yes. If the agent has been empowered to
borrow money, he may be the lender himself at
the current rate of interest (Art. 1890).
• The reverse is when the agent is
authorized to lend the money. In this
case, the agent cannot be the borrower
without the consent of the principal. This
is, again, to protect the principal. This
may jeopardize the principal since the
agent may not be able to pay the loan.
Thus, to avoid this conflict of interest, the
law generally prohibits the agent from
borrowing from the principal.
Scenario: Paula authorized Anna to sell a ship in
Cotabato. Anna, however, is a resident of
Palawan. Anna then appointed Katya as her sub-
agent/substitute. Is the designation, despite the
lack of authority, valid?
A: YES. However under Art. 1892, the agent may
appoint a substitute if the principal has not
prohibited him from doing so, but the agent is
liable for the acts of the substitute if:
1. When he was not given the power to
appoint one; and
2. When he was given such power, but
without designation, and the person
appointed was notoriously incompetent
or insolvent (Art. 1892).
Effect of the acts of the substitute: All acts of
the substitute appointed against the prohibition
of the principal shall be void (Id.)
Scenario: What if Katya incurred in delay. Who
is liable?
A: Anna shall be liable for delay.
Page 7 of 45

Scenario: If Paula specifically granted Anna the
power to appoint the substitute, who is
ultimately liable?
A: Katya, because she is the proximate cause of
the injury or damages caused.
Scenario: Will there be a case that
notwithstanding the fact that authority was
given to the agent to appoint a sub-agent and the
latter incurs in delay, the principal is not liable?
A: When agent was given such power but
without designating the person, the person
appointed by the agent was notoriously
incompetent or insolvent.
GR: Agent may appoint substitute
XPNs:
1. Expressly prohibited
2. The principal took into consideration the
special knowledge, skill, or competence of
the agent.
Scenario: Paula gave authority to Anna to enter
into contracts to fix Paula’s car. Anna contracted
Katya’s Repair Shop to fix the car. Paula did not
give money to Anna, so Anna advanced the
amount of P400,000.00. Paula does not want to
pay Anna. Remedy of Anna?
A: Hold the car in pledge until she is paid her
advances (Art. 1914).
2 situations contemplated by Art. 1914 for the
agent to retain the thing in pledge:
1. Agent advances funds;
2. Agent suffered injury due to execution of
the agency.
Scenario: Paula authorized Anna to enter into a
contract of sale over a parcel of land. Paula
wanted the price to be P 3 Million. Anna was able
to sell the land for P 3 Million. Is the sale valid?
A: Yes.
Scenario: Anna sold the land for P 4 Million.
Valid?
A: Yes. It is even more beneficial or
advantageous to the principal (Art. 1882).
Scenario: Paula authorized Anna to sell the car
on credit with interest. Orally, however, Paula
told Anna that the interest rate should not be
lower than 8%. Becca convinced Anna to sell the
car on credit at 6% interest rate.
A: Yes. So far as Becca, a third person, is
concerned, an act is deemed to have been
performed within the scope of the agent’s
authority, if such act is within the terms of the
power of attorney, as written, even if the agent
has in fact exceeded the limits of his authority
according to an understanding between the
principal and the agent (Art. 1900).
Note: It is the burden of third persons who
contract with an agent to determine whether the
agent is authorized and the extent of the
authority. The burden is fulfilled when the third
person asks for an SPA and relies thereon.
Eugenio v. CA
• When the payment was done by Sps.
Eugenio to Jovencio Estrada, the payment
had the effect of payment to the principal.
Art. 1240 provides that payment can only
be done to persons to whose favor the
obligation was constituted or persons
authorized, including Jovencio Estrada.
Q: Is there a difference between authority and
instruction?
A: Authority – Must be investigated by third
persons. The transactions or businesses the
agent may enter into; Instructions – Specific
manner by which the authority is to be exercised.
This need not be investigated by third persons.
Q: How should the agent take care of the
property delivered which is subject of the
agency?
A: If there is no specific instructions, he must
take care of it with the diligence of a good father.
PNB v. Manila Surety
Page 8 of 45
 • PNB extended a L/C in favor of ATACO,
and was secured by Manila Surety as a
surety. An SPA was concluded
authorizing PNB to collect payments from
the Public Works Office in satisfaction of
the L/C previously executed.
Unfortunately, due to PNB’s negligence,
ATACO’s other creditors were able to
claim from the Public Works Office.
• The SC held that the power of attorney
was couched in irrevocable terms and
thus, it was incumbent upon PNB to
secure payment because it was the only
one authorized to do so.
• PNB is an agent in this case and must act
according to the instructions or with a
diligence of a good father of a family.
Since it acted negligently, the surety was
extinguished since Manila Surety cannot
be subrogated to the rights of PNB due to
its negligence.
Scenario: Aizi granted SPA for Dave to purchase
1,000 barrels of oil on Wednesday for Aizi to use.
Dave accepted but on Wednesday, Dave did not
buy 1,000 barrels of oil. Is Dave liable for
damages?
A: Art. 1884 – The agent is bound by his
acceptance to carry out the agency and is liable
for damages which, through his non-
performance, the principal may suffer.
Scenario: On the day Dave was about to
purchase the prices of oil, the prices of oil
increased. Dave waited for prices to drop before
he purchased and delivered the barrels a day
later. Is Dave liable?
A: No. An agent shall not carry out the agency if
its execution would manifestly result in damage
or loss to the principal (Art. 1888).
DBP v. CA
• The principal will not be liable to the
agent because DBP, the agent, acted in
excess of his authority.
• If the third person dealing with an agent
is unaware of the limits of the authority
conferred by the principal on the agent
and he (third person) has been deceived
by the non-disclosure thereof by the
agent, then the latter is liable for damages
to him. Inasmuch as the non-disclosure of
the limits of the agency carries with it the
implication that a deception was
perpetrated on the unsuspecting client,
the provisions of Articles 19, 20 and 21 of
the Civil Code of the Philippines come
into play. While Dans is not entitled to
compensatory damages, he is entitled to
moral damages. Considering that DBP
offered to pay P30,000.00 to Candida as ex
gratia settlement of its claim and that
DBP’s non-disclosure of the limits of its
authority amounted to a deception, an
award of moral damages in the amount of
P50,000.00 would be reasonable.
Q: Is the agent required to advance funds in
behalf of the principal if there is a stipulation?
A: Yes. Exception: The agent shall be liable for
damages if, there being a conflict between his
interests and those of the principal, he would
prefer his own (Art. 1889).
Scenario: Gab authorized Cara to sell his car for
P 1 Million. Cara bought the car. Is this valid?
A: NO. Under Art. 1491, an agent is prohibited
from buying the property of his principal. Thus,
the sale is void. But the provision states that
“unless the principal consents.” What does this
mean?
• A void contract is not capable of
ratification. Thus, this provision
presupposes that the principal had given
his consent prior to the sale.
• Note: According to other authors, this
sale is merely unenforceable. However,
Atty. K sides with the authors who hold
that the sale is void.
Scenario: Gab P authorized Cara to sell his
horse. Cara sold the horse to Clara. Unknown to
Cara, Gab P also sold his horse to Alex. Who is
entitled?
Page 9 of 45
A: Whoever comes first. Primus tempore potior
jure (Art. 1916). “First in time, stronger in right.”
Any exception to this? If the second vendor was
able to take possession of the horse first,
pursuant to Art. 1544, viz:
If the same thing should have been sold to
different vendees, the ownership shall be
transferred to the person who may have first take
possession thereof, in good faith, if it should be
movable property.
Should it be immovable property, the ownership
shall belong to the person acquiring it who in
good faith first recorded it in the registry of
property.
Should there be no inscription, the ownership
shall pertain to the person who in good faith was
first in possession; and, in the absence thereof, to
the person who presents the oldest title,
provided there is good faith.
Art. 1891. Every agent is bound to render an
account of his transactions and to deliver to
the principal whatever he may have received
by virtue of the agency, even though it may
not be owing to the principal.
Every stipulation exempting the agent from
the obligation to render an account shall be
void.
• This is pursuant to the rule in Obligations
and Contracts that waivers of future fraud
are void.
Art. 1896. The agent owes interest on the
sums he has applied to his own use for the
day on which he did so, and on those which
he still owes after the extinguishment of the
agency.
Q: What is the liability of simultaneous persons
appointed as agents?
A: Generally, joint (Art. 1894). Exception:
solidarity has been expressly stipulated.
Q: What is their liability for non-fulfillment in
case solidarity is stipulated?
A: Each of the agents is responsible for the non-
fulfillment of the agency, and for the fault or
negligence of his fellow agents, except in the
latter case when the fellow agents acted beyond
the scope of their authority (Art. 1895).
Albert v. University Publishing, Inc.
• “A person acting or purporting to act on
behalf of a corporation which has no valid
existence assumes such privileges and
obligations and becomes personally liable
for contracts entered into or for other acts
performed as such agent.” The evidence is
patently clear that Jose M. Aruego, acting
as representative of a non-existent
principal, was the real party to the
contract sued upon; that he was the one
who reaped the benefits resulting from it,
so much so that partial payments of the
consideration were made by him; that he
violated its terms, thereby precipitating
the suit in question; and that in the
litigation he was the real defendant.
Perforce, in line with the ends of justice,
responsibility under the judgment falls on
him.
Commission agent: One whose business is to
receive and sell goods for a commission and who
is entrusted by the principal with the possession
of goods to be sold, and usually selling in his own
name.
Rules on commission agent:
ARTICLE 1903. The commission agent shall
be responsible for the goods received by him
in the terms and conditions and as described
in the consignment, unless upon receiving
them he should make a written statement of
the damage and deterioration suffered by
the same. (n)
ARTICLE 1904. The commission agent who
handles goods of the same kind and mark,
Page 10 of 45
which belong to different owners, shall
distinguish them by countermarks, and
designate the merchandise respectively
belonging to each principal. (n) cd i
ARTICLE 1905. The commission agent
cannot, without the express or implied
consent of the principal, sell on credit.
Should he do so, the principal may demand
from him payment in cash, but the
commission agent shall be entitled to any
interest or benefit, which may result from
such sale. (n)
Guarantee commission: One where, in
consideration of an increased commission, the
commission agent guarantees to the principal
the payment of debts through his agency.
ARTICLE 1906. Should the commission
agent, with authority of the principal, sell on
credit, he shall so inform the principal, with
a statement of the names of the buyers.
Should he fail to do so, the sale shall be
deemed to have been made for cash insofar
as the principal is concerned. (n)
ARTICLE 1907. Should the commission agent
receive on a sale, in addition to the ordinary
commission, another called a guarantee
commission, he shall bear the risk of
collection and shall pay the principal the
proceeds of the sale on the same terms
agreed upon with the purchaser. (n)
ARTICLE 1908. The commission agent who
does not collect the credits of his principal at
the time when they become due and
demandable shall be liable for damages,
unless he proves that he exercised due
diligence for that purpose.
Obligations of the Principal
Obligations of the principal:
1. To comply with the obligations the agent
may have contracted (Art. 1910);
2. To advance to the agent should the latter
so request, the sums necessary for the
execution of the agency (1912);
3. To reimburse the agent for all advances
made by him, provided the agent is free
from fault (Id.);
4. To indemnify the agent for all the
damages which the execution of the
agency may have caused the latter
without fault or negligence on his part
(Art. 1913); and
5. To pay the agent the compensation
agreed upon, or if no compensation is
agreed upon, the reasonable value of the
agent’s services.
Art. 1910 – The Doctrine of Representation:
Whatever the agent has contracted with, it is
considered as if the principal has entered into the
same, Provided: the agent acted within the
scope of his authority.
Scope of authority:
1. Those expressly specified;
2. Collateral acts or those merely incidental
thereto;
3. Conducive acts – preparatory acts to the
authority expressly specified; and
4. Advantageous acts – If what was done by
the agent was advantageous to the
principal, it will bind the latter even if it
was not expressly stipulated.
Obligation in excess of the agent’s authority:
A personal liability of the agent.
XPN: When the principal ratifies it expressly or
impliedly.
Ratification: If the principal has full knowledge
of all material facts
XPN: Implied ratification – When the principal
accepts the benefits of the obligation contracted
in excess of the agent’s authority.
Scenario: Principal A authorized agent to sell his
blue car to B for P 1 Million. Agent sold A’s red
car as well for P 1 Million. However, after B
Page 11 of 45
encountered an accident due to the defects in A’s
red car. Who is/are liable to B?
A: Art. 1911 – Even when the agent has exceeded
his authority, the principal is solidarily liable
with the agent if the former allowed the latter to
act as though he had full powers.
Art. 1912 – Obligation of the principal to advance
the sums necessary for the execution of the
agency.
May the agent advance? Yes, but he should be
reimbursed by the principal.
Scenario: Principal (P) authorized agent (A) to
manage her Galunggong business for 2 years.
However, the principal did not give funds to the
agent. The agent, in pursuit of the agency,
advanced funds, worth P 1 Million dated 01
January 2020. A demanded payment on 01
January 2022.
1. Is P required to reimburse?
2. What if the business is unsuccessful, is he
still required?
A: YES TO BOTH. Under Art. 1912, the principal
must reimburse the agent for the advancements
of the latter even if the business or undertaking
was unsuccessful especially if the agent was not
at fault. Exception: If the agent was at fault.
However, the SC ruled that the agent is still
entitled to be reimbursed, but the amount
thereof is tempered because he is negligent or at
fault.
Scenario: Agent also asks for interest when he
demanded 01 January 2022. Is P liable to pay
interest?
A: YES. Interest begins to run on the day A made
the advancements. The reimbursement shall
include interest on the sums advanced from the
day on which the advance was made (Art. 1912).
Exceptions to the obligation to reimburse
agent for expenses incurred by the latter: The
principal is not liable for the expenses incurred
by the agent in the following cases:
1. If the agent acted in contravention of the
principal's instructions, unless the latter
should wish to avail himself of the
benefits derived from the contract;
2. When the expenses were due to the fault
of the agent;
3. When the agent incurred them with
knowledge that an unfavorable result
would ensue, if the principal was not
aware thereof;
4. When it was stipulated that the expenses
would be borne by the agent, or that the
latter would be allowed only a certain sum
(Art. 1918).
Extinguishment of Agency
Modes of Extinguishment under Art. 1919:
(EDWARD)
1. Expiration of the period for which the
agency was constituted;
2. Death, civil interdiction, insolvency,
insanity of the principal or the agent;
3. Withdrawal of the agent;
4. Accomplishment of the object or purpose
of the agency;
5. Revocation by the principal; and
6. Dissolution of firm or corporation which
entrusted or accepted the agency.
Note:
• This is not an exclusive list. The modes of
extinguishment of contracts also apply to
agency since agency is a contract.
Death of one of the Parties
Death of the Principal: Generally, the death of
the principal extinguishes the agency.
XPNs:
1. If the agency has been constituted in the
common interest of the principal and the
agent.
Example: Sale of parcel of land.
2. If the agency has been constituted in the
interest of a third person or a stipulation
pour autrui.
3. The agent in good faith did not know or
has no knowledge that the principal had
died, Provided: the third person
Page 12 of 45
 contracting with the agent is also in good
faith and does not know that the principal
had died as well.
Death of the Agent: Ipso facto extinguishes the
agency because agency is personal and is not
transmissible. However:
1. The heirs of the agent must notify the
principal of the death of the agent; and
2. Adopt such measures as the
circumstances may demand in the
interest of the principal (Art. 1932).
Revocation of the Principal: The principal may
revoke the agent at will and compel the agent to
return the document evidencing the agency.
Such revocation may be express or implied
(Art. 1920).
XPNs: If it is coupled with an interest under Art.
1927, viz:
1. If a bilateral contract depends upon it.
2. If it is the means of fulfilling an obligation
already contracted.
3. If a partner is appointed manager of a
partnership in the contract of partnership
and his removal from the management is
unjustifiable.
Instances of implied revocation:
1. Art. 1923 – The appointment of a new
agent for the same business or transaction
revokes the previous agency from the day
on which notice thereof was given to the
former agent, without prejudice to the
provisions of Arts. 1921 and 1922.
o Note that this implies
inconsistency or incompatibility,
i.e., if the authorities of the agents
are so incompatible that they
legally cannot co-exist. For
example, the appointment of the
new agent is exclusive.
2. Art. 1924 – The agency is revoked if the
principal directly manages the business
entrusted to the agent, dealing directly
with third persons.
Scenario: A was given a general power of
attorney to administer the principal’s
poultry business in Batangas. Thereafter,
the principal granted a special power of
attorney to B to purchase poultry feeds. Is
the general power of attorney to A
revoked?
A: Yes, insofar as the inconsistent
provisions are concerned. Therefore,
A’s general power of attorney subsists, but
B has the sole power to purchase poultry
feeds as he has a special power of attorney
for the said purpose (Art. 1926).
3. Art. 1921 – If the agency has been
entrusted for the purpose of contracting
with specified persons, its revocation shall
not prejudice the latter if they were not
given thereof.
4. Art. 1922 – If the agent had general
powers, revocation of the agency does not
prejudice third persons who acted in good
faith and without knowledge of the
revocation. Notice of the revocation in a
newspaper of general circulation is a
sufficient warning to third persons.
Knowledge: Publication of revocation in
a newspaper of general circulation is
sufficient notice of revocation of a general
power of attorney.
Scenario: 2 principals P1 and P2. They
granted to A a power of attorney to enter
into contracts to repair their vacation
house. P1 revoked the SPA. Is the
revocation binding to P2?
A: Yes. Under Art. 1925, when two or
more principals have granted a power of
attorney for a common transaction, any
one of them may revoke the same without
the consent of the others. No notice is
needed as the law does not require such.
Withdrawal of the Agent: The agent may
withdraw from the agency by giving due notice
to the principal. If the latter should suffer any
Page 13 of 45
damage by reason of the withdrawal, the agent
must indemnify him therefor (Art. 1928).
XPN: The agent based his withdrawal upon the
impossibility of continuing the performance of
the agency without grave detriment to himself
(Id.).
Obligation of withdrawing agent: The agent,
even if he should withdraw from the agency for a
valid reason, must continue to act until the
principal has had reasonable opportunity to take
the necessary steps to meet the situation (Art.
1929).
• A violation of this provision entitles the
principal to recover damages.
Loss of the Thing Due
• Note: The grounds for extinguishment of
agency under Art. 1919 are not exclusive.
Grounds for extinguishment of contract
or obligation also apply.
• Example: P authorized A to sell his car and
thereafter, the car got destroyed due to
fortuitous event. The agency is
extinguished because the object of the
agency was lost.
Civil Interdiction: Deprives the person during
the period of his sentence of the right to manage
his property and dispose of such property by any
act or any conveyance inter vivos.
Accomplishment of the Object or Purpose of
the Agency: Self-explanatory.
Dissolution of Corporation: A dissolved
corporation as a principal has no juridical
personality. Same effect as the death of a natural
person as a principal.
Merger: When the identity of principal and
agent merges into one person, the agency is
extinguished. For example, corporation A is the
principal and corporation B is the agent.
Subsequently, a merger took place between
corporation A and B. Therefore, there is
confusion or merger in the identity of the
principal and agent.
Partnership
General Provisions
Definition: ARTICLE 1767. By the contract of
partnership, two or more persons bind
themselves to contribute money, property,
or industry to a common fund, with the
intention of dividing the profits among
themselves.
Two or more persons may also form a
partnership for the exercise of a profession.
Elements:
1. Parties: Two (2) or more.
o Distinguished from a corporation because
a corporation under the Revised
Corporation Code may be composed of
only one (1).
Parties must have legal capacity to enter
into contract
o Thus, minors, deafmutes, insanes, and
cannot enter into contract of partnership.
o Corporations: Cannot enter into a
contract of partnership.
o Note: In a joint venture, two (2)
or more persons enter into a
contract for a particular
undertaking. Corporations may be
venturers.
o Partnerships becoming partners to a
partnership: According to De Leon, it is
allowed because there is no express
prohibition.
2. Consent: We follow the Cognition Theory
under Art. 1319, par. 2 of the Civil Code.
3. Object: The intention to contribute either
money, property, or industry to a common fund.
o Actual contribution is not necessary for
the perfection of a contract of
partnerships. The provision simply
provides that the parties agree to
contribute to a common fund.
Page 14 of 45
 o Scenario: 3E is a partnership and Atty. K
wanted to be admitted to the same. He
wanted to contribute a parcel of land
amounting to 2 million. Is this a sufficient
contribution?
A: Yes. Art. 1767 provides that a partner
may contribute either money, property, or
industry to a common fund. The law uses
the conjunctive “or” denoting
alternatives.
4. Intention: To divide the profits among
themselves.
5. Lawful purpose: Purpose must not be
contrary to law, morals, public policy, good
customs.
o Common benefit to the partners:
Always pertains to pecuniary benefit. In
fact, Art. 1799 provides that stipulation
which excludes one or more partners from
any participation in the profits (or losses)
is void.
6. Mutual Agency: An important feature of a
contract of partnership.
o Agency: Presupposes representation. In
partnership, the representation is
mutual. So, for example, between partners
A, B, and C, A may represent B and C and
so on.
o Articles of Partnership: Agreement
between the partners filed with the SEC.
o Stipulation in the Articles of
Partnership which authorizes only
the managing partner to act as an
agent of the partnership is an
exception to the element of
mutual agency.
7. Delectus Personae: Selection of persons
based on trust and confidence. Partners are
chosen based on their qualifications.
Characteristics of a contract of partnership:
1. Principal: Not reliant on another
contract.
2. Commutative: The undertaking of each
of the partners is deemed equal.
3. Bilateral: Two or more persons obligate
themselves.
Note: Partnership is not reciprocal.
4. Onerous: There is an obligation to
contribute money, property, or industry.
5. Preparatory: Partnership is just a means
to an end and paves the way for other
contracts and transactions to occur.
6. Nominate: It has a name designated by
the Civil Code.
Q: Is a partnership consensual, real, or formal?
A: It is consensual, because Art. 1771 provides
that partnership may be entered into in any form
provided there is consent. Exceptions:
1. Where there is contribution of real
property or real rights, the partnership
must be in a public instrument and an
inventory of the real property must be
made and signed by the parties;
Note: Non-compliance with this renders
the partnership void ab initio.
2. If the total capital is at least Php 3,000.00,
in money or property, it must be in a
public instrument and must be registered
with the SEC.
Note: Non-compliance does not affect the
liability of the partners as to third
persons. Partnership still has juridical
personality (see Art. 1768).
ARTICLE 1768. The partnership has a
juridical personality separate and distinct
from that of each of the partners, even in
case of failure to comply with the
requirements of article 1772, first paragraph.
Separate juridical personality of partnership
o Juridical persons: Persons by fiction of
law.
o Effect: Whatever contracts entered into
by the partnership is the contract of the
partnership and not of the individual
partners.
Page 15 of 45
 o Example: Partnership 3E, composed of
A,B, and C, loaned Php 1 million from 3C.
This debt is not the debt of A,B, and C.
Thus, 3C as creditor may not immediately
go after A,B, and C to satisfy the debt
incurred by Partnership 3E. Partnership
3E’s debts must be satisfied by
Partnership 3E’s assets first before the
personal assets of partners A,B, and C may
be resorted to.
o Scenario: Creditor A wanted to sue
partners A,B, and C of Partnership 3E
because of a transaction entered into
between Creditor A and Partnership 3E.
will the suit prosper?
A: No. The real party-in-interest is the
Partnership 3E thus, the suit may be
dismissed.
Kinds of Partnership
As to Object
1. Particular partnership: Contributing
specified, determinate properties.
o Example: A binds himself to
contribute a car and B binds
himself to contribute Php 1 million
pesos.
2. Universal Partnership
a. Universal Partnership of All
Present Property: All of the
properties of the partners will be
contributed to the partnership
and, if stipulated, may likewise
include profits from these
properties.
o Note: Properties that may
be acquired by gratuitous
title (e.g., Succession) may
not be included in the
universal partnership of all
present property except the
fruits thereof.
b. Universal Partnership of All
Profits: What is contributed is
only the profits. The ownership of
what is presently owned by the
partners is not transferred but the
usufruct may be transferred.
o This is presumed because it
is the least burdensome.
o Note: A Conjugal
Partnership of Gains is not a
contract of partnership. It is
a property regime between
the spouses under the
Family Code. In CPG, the
share of the husband and
the wife is always equal. In
partnership, the partners
have specific shares.
Moreover, obviously, you
cannot admit another
partner in CPG otherwise
that would be contrary to
law and public policy.
As to Term
1. For a Fixed Term: Similar to a resolutory
period.
2. For a Particular Undertaking: Upon the
fulfillment of the undertaking, the
partnership ceases.
o Note: The arrival of the fixed term or
fulfillment of the undertaking does
not ipso facto terminate the
partnership because the partnership
may become a partnership at will
when the partners continue the
operations of the partnership (Art.
1785). The renewal of the partnership
may be:
o Express: When parties expressly
renewed
o Implied: When partners just
continued the operations of the
partnership without express renewal
thereof.
3. At Will: Indefinite existence. Continues
until terminated at will by the partners.
As to Legality of Existence
Page 16 of 45
 1. De Jure: Compliant with all the
requirements of law for its establishment.
2. De Facto: Non-compliant with all the
requirements of law for its establishment.
Example: Partnership capital is at least
Php 3,000.00 but was not recorded in a
public instrument and registered with the
SEC.
As to Liability
1. General Partnership: One consisting of
general partners who are liable pro rata
and subsidiarily and sometimes solidarily.
o General Partners: Liable for
partnership liabilities to the extent
of their personal assets. So, kapag
naubos na partnership assets,
pwede habulin assets ng partner.
2. Limited Partnership: One formed by
two (2) or more persons having as
members one (1) or more general partners
and one (1) or more limited partners, the
latter not being personally liable for the
obligations of the partnership.
o Limited Partners: Not liable with
their personal assets. They are only
liable only up to the extent of their
contributions to the partnership.
Q: In a general partnership, all partners are
general partners. In a limited partnership, all
partners are limited partners. Are both
statements true?
A: Only the first statement is true. In a limited
partnership, there must always be at least one (1)
general partner among the limited partners. Para
may mahabol naman yung creditors pag
insolvent na yung partnership.
Note: This also distinguishes partnership from a
corporation because in a corporation, all the
shareholders enjoy limited liability.
As to Purpose
1. Commercial: For a business
2. Professional: For the exercise of a
profession (Art. 1767, par. 2)
o Professional partnerships are more
of a public service and not a profit-
sharing venture.
Kinds of Partners
As to Liability
1. General: One whose liability to third
persons extends to his separate property.
2. Limited: One whose liability to third
persons is limited to his capital
contributions.
As to Contribution
1. Capitalist Partners: Contribute money
or property.
2. Industrial Partners: Contribute
industry or services.
3. Capitalist-Industrial: Contribute both
money, property, and industry.
4. Managing Partner: One who manages
the affairs or business of the partnership.
An exception to the rule on mutual
agency.
5. Liquidating Partner: Takes charge of
the winding up of the partnership affairs
upon dissolution.
6. Continuing Partner: Continues the
business of a partnership after it has been
dissolved by reason of the admission of a
new partner or death of a partner.
7. Subpartner: Not a member of a
partnership but contracts with a partner
with reference to the latter’s share in the
partnership. Shares in the profits
obtained by a partner.
Note: This is different from a sub-agent
because a sub-agent is authorized to do
the acts which the agent is authorized to
do. The sub-partner has no say in the
management or operation of the
partnership.
As to Publicity
1. Ostensible Partner: One who is active in
the management of partnership affairs
and known to third persons as a partner.
Page 17 of 45
 2. Secret Partner: One who is also active in sharing of profits made in the use
the affairs of the partnership but is not of such property. There is no
known to third persons as a partner. intention for the co-owners to bind
“Kayo pero hindi alam ng iba.” themselves as partners because
3. Silent Partner: Not active in the affairs of their co-ownership arose by virtue
the partnership but is known to third of law.
persons as a partner. A nominal partner Partnership Co-ownership
may also be called a silent partner. “Alam Created by Generally
ng iba na kayo pero walang effort.” contract created by law
4. Dormant Partner: One who does not Has separate Has no
take active part in the business and is not juridical separate
known to third persons as a partner. But personality juridical
he still shares in the profits because Art. from partners personality
1799 prohibits stipulations excluding a from co-
partner from sharing in the profits. owners
Purpose is for Purpose is for
ARTICLE 1769. In determining whether a profits common
partnership exists, these rules shall apply: enjoyment of a
1. Except as provided by article 1825, thing or a right
persons who are not partners as to Partnership Co-ownership
each other are not partners as to third may not have a must be for a
persons; term maximum of
o Art. 1825 provides for partnership ten (10) years
by estoppel, which is an exception
to this provision. If two (2)
2. Co-ownership or co-possession does persons
not of itself establish a partnership, remain to be
whether such co-owners or co- co-owners
possessors do or do not share any beyond ten
profits made by the use of the (10) years, the
property; law will treat
o Scenario: Rody died leaving the co-owned
properties including a parcel of property as an
land with a condominium with unregistered
tenants. The condominium unit is property.
still income generating. The estate A partner may A co-owner
of Rody is not yet settled. Under not dispose of may freely
the law on succession, the his individual dispose
ownership of Rody’s properties are interest in the
automatically transmitted from partnership
the moment of Rody’s death to his There is No mutual
heirs, R1 and R2. Thus, they mutual agency agency
become co-owners of Rody’s Death of Death of co-
properties. Is there a partnership? partner is a owner is not
A: None. Co-ownership or co- ground for ground for
possession does not itself establish dissolution partition or
a partnership even if there is
Page 18 of 45
 dissolve the Created by mere Created by law or by
co-ownership agreement of the operation of law
parties
3. The sharing of gross returns does not Organized by two (2) May have any number
of itself establish a partnership, or more persons of incorporators not to
whether or not the persons sharing exceed 15 in number
them have a joint or common right or Partnership’s juridical Corporation begins its
interest in any property from which personality corporate existence
the returns are derived; commences from the and juridical
o Hindi porket may co-ownership moment of the personality from the
where the co-owners are sharing in execution of the date of issuance of the
the profits of the co-owned contract certificate of
property, may partnership na. incorporation by the
4. The receipt by a person of a share of SEC
the profits of a business is prima facie Partnership may Corporation may
evidence that he is a partner in the exercise any power exercise only powers
business, authorized by expressly granted by
o Example: A obtains a share in the partners provided it is law or implied from
business of B. A is prima facie not contrary to law, those granted or
presumed to be a partner. etc. incidental to its
but no such inference shall be drawn if existence
such profits were received in payment: Management of Stockholders do not
(a) As a debt by installments or partnership is vested manage corporations
otherwise; upon all partners for management is
(b) As wages of an employee or rent to except when a vested in the BOD or
a landlord; managing partner is BOT
(c) As an annuity to a widow or designated
representative of a deceased partner; Partners have Stockholders have
(d) As interest on a loan, though the unlimited liability, strictly limited
amount of payment vary with the generally, unless they liability
profits of the business; are limited partners
(e) As the consideration for the sale of Partner cannot Stockholders may
a goodwill of a business or other transfer his interest transfer his shares
property by installments or otherwise. without the consent without the prior
of all existing partners consent of other
Similarities between Partnership and stockholders
Corporation: Indefinite term Under the Revised
a. Separate juridical personality Corporation Code,
b. Distribution of profits corporations have
c. Partnerships are similarly taxed as perpetual existence
corporations
Obligations of the Partners Among
Distinctions between Partnerships and Themselves
Corporations
Partnership Corporation Ang Pue v. Secretary of Commerce

Page 19 of 45
 • To organize a corporation or a
partnership that could claim a juridical
personality of its own and transact
business as such, is not a matter of
absolute right but a privilege which may
be enjoyed only under such terms as the
State may deem necessary to impose. That
the State, through Congress, and in the
manner provided by law, had the right to
enact Republic Act No. 1180 and to
provide therein that only Filipinos and
concerns wholly owned by Filipinos may
engage in the retail business cannot be
seriously disputed. That this provision
was clearly intended to apply to
partnerships already existing at the time
of the enactment of the law is clearly
shown by its provision giving them the
right to continue engaging in their retail
business until the expiration of their term
of life.
• Q: Is there violation of due process in this
case?
A: No. The right to form a partnership is
not a property right within the purview of
the due process clause of the
Constitution.
CIR v. Suter
• CIR rests his argument regarding the
dissolution by virtue of the marriage on
the provision that a husband and a wife
may not enter into a contract of general
co-partnership. The partnership in this
case was not a universal partnership, but
a particular one. A universal partnership
requires either that the object of the
association be all the present property of
the partners, as contributed by them to
the common fund, or else " all that the
partners may acquire by their industry or
work during the existence of the
partnership". Here, the contributions of
the partners were fixed sums of money
and neither one of them was an industrial
partner. Moreover, the subsequent
marriage of the partners did not operate
to dissolve such partnership since it is not
one of the grounds for dissolution.
• The partnership has a juridical personality
of its own, distinct and separate from its
partners. The limited partnership’s
separate individuality makes it impossible
to equate its income with that of the
component members. True, Sec. 24 of the
Tax Code merges registered partnerships
with the personality of the individual
partners for income tax purposes, but this
rule is exceptional in its disregard of a
cardinal tenet of our partnership laws,
and cannot be extended by mere
implication to limited partnerships.
• The CIR is, likewise, mistaken in that it
assumes that the conjugal partnerhip of
gains is a taxable unit, which it is not.
What is taxable is the "income of both
spouses" [Section 45 (d)] in their
individual capacities: Though the amount
of income (income of conjugal
partnership vis-a-vis the joint income of
husband and wife) may be the same for a
given taxable year, their consequences
would be different, as their contributions
in the business partnership are not the
same.
• The corporations, in the cases cited by the
CIR, merely served as business conduits
or alter egos of the stockholders, a factor
that justified a disregard of their
corporate personalities for tax purposes.
This is not true in the present case. Here,
the limited partnership is not a mere
business conduit of the partner-spouses;
it was organized for legitimate business
purposes; it conducted its own dealings
with its customers prior to appellee's
marriage; and had been filing its own
income tax returns as such independent
entity. The change in its membership,
brought about by the marriage of the
partners and their subsequent acquisition
of all interest therein, is no ground for
withdrawing the partnership from the
coverage of Section 24 of the tax code,
Page 20 of 45
 requiring it to pay income tax. As far as
the records show, the partners did not
enter into matrimony and thereafter buy
the interests of the remaining partner
with the premeditated scheme or design
to use the partnership as a business
conduit to dodge the tax laws. Regularity,
not otherwise, is presumed.
Art. 1786. Every partner is a debtor of the
partnership for whatever he may have
promised to contribute thereto.
He shall also be bound for warranty in case
of eviction with regard to specific and
determinate things which he may have
contributed to the partnership, in the same
cases and in the same manner as the vendor
is bound with respect to the vendee.
He shall also be liable for the fruits thereof
from the time they should have been
delivered, without the need of any demand.
• Note: As previously discussed, the actual
contribution is not necessary for the
perfection of a contract of partnership.
This is why this provision is put in place.
• Q: When should the partner contribute?
A: Generally, and in the absence of a
contrary stipulation, the partner should
contribute at the beginning of the
partnership.
• Q: K bound himself to contribute Php 1
million on 11 November 2020 (11.11 yay). A
week had already passed, and K had not
yet contributed the same. Katya
demanded that K pay the Php 1 million to
the partnership. Is Katya entitled to the
same?
A: Yes. Every partner is a debtor to the
partnership for whatever he may have
promised to contribute thereto.
• Q: K argues that he is indebted to the
partnership, not to Katya. So, the
partnership should be the one
demanding. Is K correct?
A: No. A characteristic of a contract of
partnership is that there should be mutual
agency between and among the partners.
• Q: Katya made a demand on 20 November
2020. K still failed to pay. What is the
consequence of his non-payment?
A: Well, still the same – he is liable for
interest and damages. The defaulting
partner is bound to pay interest and
damages from the time he should have
complied with his obligation (Art. 1788).
So, from 11 November 2020, K is already
bound to pay interest and damages.
• Q: For instance, K, a partner, got Php
500,000.00 from the partnership’s
common fund. When does interest begin
to run?
A: From the time he converted the
amount to his own use.
• Q: K firmly opposed ;) Katya’s demand.
May Katya rescind the contract?
A: No. The remedy available to Katya is an
action for specific performance with
interest and damages. Moreover,
rescission is a remedy available only in
reciprocal obligations under Art. 1191. A
partnership does not entail reciprocal
obligations, only bilateral and multilateral
obligations since it involves multiple
parties.
• Scenario: Atty. K promised to contribute
a parcel of land in Bulacan. He transferred
the title of the same to the partnership.
Eventually, the ownership over the land
was the subject of a court action. The
court ruled against the partnership, and
was deprived of the ownership and the
use of the land. What is Atty. K’s
obligation as the partner who contributed
the land?
A: He is liable for damages. Atty. K
warrants that the partnership shall not be
evicted from the land. A partner is bound
for warranty in case of eviction with
regard to specific and determinate things
which he may have contributed to the
partnership (Art. 1786).
Page 21 of 45
 • Q: What is the rule on the entitlement of
the partnership to the fruits?
A: Atty. K shall also be liable for the fruits
produced by the land from the time they
should have been delivered, without the
need of any demand (Id.). If there is a
stipulation as regards a specific time for
which Atty. K is bound to deliver a
property, then the fruits from that time
should be delivered by Atty. K.
Gatchalian v. CIR
• The plaintiffs formed a partnership. The
plaintiffs organized a partnership of a civil
nature because each of them put up
money to buy a sweepstakes ticket for the
sole purpose of dividing equally the prize
which they may win, as they did in fact in
the amount of P50,000. The partnership
was not only formed, but upon the
organization thereof and the winning of
the prize, Jose Gatchalian personally
appeared in the office of the Philippine
Charity Sweepstakes, in his capacity as co-
partner, as such collected the prize, the
office issued the check for P50,000 in
favor of Jose Gatchalian and company,
and the said partner. in the same capacity,
collected the said check. All these
circumstances repel the idea that the
plaintiffs organized and formed a
community of property only.
• There was an implied admission on the
part of Jose because he claimed the
P50,000.00 as co-partner of Jose
Gatchalian & Co.
• Here, we see that a partnership need not
be organized for a continuing business.
There is no requirement under Art. 1767
that a partnership be organized for a
business. What is crucial is that it is
coupled with an intention to divide the
profits among the partners.
Art. 1790. Unless there is a stipulation to the
contrary, the partners shall contribute equal
shares to the capital of the partnership.
• As a general rule, if there is a stipulation
to the contract as to the contributions of
the partners, said stipulation should
govern how much partners shall
contribute. However, if the partnership
contract is silent, the partners shall
contribute equal shares to the capital of
the partnership.
• Note: This does not apply to industrial
partners because the latter contributes his
services and industry, and not capital. The
exception is when the industrial partner
also contributes capital.
Art. 1791. If there is no agreement to the
contrary, in case of an imminent loss of the
business of the partnership, any partner who
refuses to contribute an additional share to
the capital, except an industrial partner, to
save the venture, shall he obliged to sell his
interest to the other partners.
• Scenario: Ann is the sole industrial
partner in a siomai business in UST. The
pandemic happened and the partnership
suffered losses. The other capitalist
partners, Aizi and Clara, agreed to
increase the capital of the partnership to
transfer the business in UST. Ann and
Julian refused. May they do so?
• A: Only Ann may do so since she is an
industrial partner. With respect to Julian,
as a capitalist partner, because of her
refusal, she is bound to sell her interest to
Aizi and Clara under Art. 1791.
• Requisites for the application of Art.
1791: (IMRA)
a. Imminent loss to the business;
b. Majority of the capitalist partners
believe that an additional
contribution to the common fund
would save the business;
c. Capitalist partner Refuses
deliberately; and
d. No Agreement that the partners
are not obliged to contribute in
case of an imminent loss.
Page 22 of 45
Art. 1792. If a partner authorized to manage
collects a demandable sum which was owed
to him in his own name, from a person who
owed the partnership another sum also
demandable, the sum thus collected shall be
applied to the two credits in proportion to
their amounts, even though he may have
given a receipt for his own credit only; but
should he have given it for the account of the
partnership credit, the amount shall be fully
applied to the latter.
The provisions of this article are understood
to be without prejudice to the right granted
to the other debtor by Article 1252, but only if
the personal credit of the partner should be
more onerous to him.
• Scenario: Aizi, a managing partner,
managed to collect payment from Clara, a
debtor of Aizi. Clara is also a debtor of the
partnership of Aizi with Jillian. Aizi issued
a receipt in her name when she managed
to collect the debt from Clara. Jillian
demands that the whole amount collected
should be applied to the partnership. Is
Jillian correct?
A: No. If a partner authorized to manage
collects a demandable sum which was
owed to him in his own name, from a
person who owed the partnership another
sum also demandable, the sum thus
collected shall be applied to the two
credits in proportion to their amounts,
even though he may have given a receipt
for his own credit only; but should he
have given it for the account of the
partnership credit, the amount shall be
fully applied to the latter. So, the amount
collected from Aizi should be
proportionately applied to what is due the
partnership and Aizi.
• Requisites for application: (2-DA)
a. There are at least 2 debts, where
the collecting partner is creditor,
and the other, where the
partnership is the creditor;
b. Both debts are Demandable;
c. The partner who collects is
Authorized to manage and actually
manages the partnership.
• Scenario: Atty. K owes Php 750,000.00 to
the partnership, and Php 250,000.00 to
Aizi. Atty. K gives Aizi Php 100,000.00 for
an unspecified amount. Aizi issued a
receipt under the partnership name. To
which debt should the Php 100,000.00 be
applied?
A: The partnership, When the collecting
partner, in this case Aizi, issued a receipt
under the name of the partnership, the
entire proceeds shall be applied in favor of
the partnership.
• Q: What if Atty. K, the debtor, specifically
stated that the Php 100,000.00 be applied
to Aizi’s debt and not the partnership
debt. What should Aizi do?
A: Aizi should apply the Php 100,000.00 to
her personal credit, and not to the
partnership credit. Debtor is given the
right to prefer payment of the credit of the
partner if it should be more onerous to
him (Art. 1252).
• Summary of the Rules in Art. 1792:
1. Collecting partner issues a receipt
in his name = the amount collected
is proportionately divided between
the debt owing to the partnership
and the debt owing to the
collecting partner.
2. Collecting partner issues a receipt
in the partnership name = the
amount collected is applied to the
partnership wholly.
3. Debtor specifies where the debt is
to be applied = the will of the
debtor is to be followed.
Ortega v. CA
• The argument of the partners that the
partnership in this case was for a
particular undertaking because it had a
purpose would mean that all partnerships
are for a particular undertaking because
almost all partnerships have a purpose.
Page 23 of 45
 The 'purpose' of the partnership is not the
specific undertaking referred to in the
law. Otherwise, all partnerships, which
necessarily must have a purpose, would
all be considered as partnerships for a
definite undertaking. There would
therefore be no need to provide for
articles on partnership at will as none
would so exist. Apparently what the law
contemplates, is a specific undertaking or
'project' which has a definite or
definable period of completion.
• The power to withdraw by virtue of the
doctrine of delectus personae is not a
right, but merely a power to withdraw
from the partnership at any time. Why?
Among partners, mutual agency arises
and the doctrine of delectus personae
allows them to have the power, although
not necessarily the right, to dissolve the
partnership. An unjustified dissolution by
the partner can subject him to a possible
action for damages.
• The power to withdraw is not a right in
the sense that the unjustified exercise of
such power, i.e., when the undertaking
had not yet been achieved or the fixed
term had not yet lapsed, would subject
the withdrawing partner to certain
consequences, i.e., damages. However, it
is to be noted that in this case, the
partnership is a partnership at will. So,
Atty. Misa not only had the power, but
also the right to withdraw.
• So, I submit that the rules in Ortega v. CA
could be summarized as follows:
a. A partner has the power to
withdraw in all kinds of
partnerships, whether it be a
partnership for a particular
undertaking or a partnership at
will.
b. If the partnership is for a particular
undertaking, the withdrawing
partner does not necessarily have
the right to withdraw if the
particular undertaking had not yet
been accomplished, or the fixed
period for its completion had not
yet lapsed. If he withdraws, he may
be held liable for damages.
c. If the partnership is a partnership
at will, the withdrawing partner
has the right to withdraw any time.
Art. 1794. Every partner is responsible to the
partnership for damages suffered by it
through his fault, and he cannot compensate
them with the profits and benefits which he
may have earned for the partnership by his
industry. However, the courts may equitably
lessen this responsibility if through the
partner's extraordinary efforts in other
activities of the partnership, unusual profits
have been realized.
• Scenario: Bonn promised to contribute a
parcel of land to Mike, Becca, and Edz’
partnership. Bonn failed to contribute on
time which resulted in damages. Is Bonn
liable for damages?
A: Yes.
• Q: Bonn is also an industrial partner. He
wanted to offset his liability as against his
future shares in the profits of the
partnership. May he do so?
A: Generally, no. Offsetting is not
allowed. The exception is if Bonn, by his
extraordinary efforts, had contributed
unusual profits to the partnership.
• Note: Every partner must account to the
partnership for any benefit, and hold as
trustee for it any profits derived by him
without the consent of the other partners
from any transaction connected with the
formation, conduct, or liquidation of the
partnership or from any use by him of its
property (Art. 1807).
Rights of Partnership:
1. Right to receive contribution
a. Right to Warranty against
Eviction
Page 24 of 45
 b. If there is Imminent Loss, there
is a Right to Additional Capital
Contribution
c. Right to interest and damages
from defaulting partner
d. Right to fruits from the time the
obligation to deliver the capital
contribution arises
2. Right to have sums applied
proportionately (Art. 1792)
3. Right to be compensated for damages
4. Right to accounting (Art. 1807).
Rights and Obligations of Partners
Right to Assign
Art. 1804. Every partner may associate
another person with him in his share, but the
associate shall not be admitted into the
partnership without the consent of all the
other partners, even if the partner having an
associate should be a manager.
• Q: May a partner assign his right to
interest in the profits to a person who is
not a partner?
A: Yes. Every partner may associate
another person with him in his share, but
the associate shall not be admitted into
the partnership without the consent of all
the other partners, even if the partner
having an associate should be a manager
(Art. 1804). However, if the assignee of
the partner’s interest wants to be
admitted into the partnership, the
consent of all the other partners is needed
(Id.).
Right to Inspect Books at Reasonable Time
Art. 1805. The partnership books shall be
kept, subject to any agreement between the
partners, at the principal place of business of
the partnership, and every partner shall at
any reasonable hour have access to and may
inspect and copy any of them.
Right to Formal Accounting
Art. 1809. Any partner shall have the right to
a formal account as to partnership affairs:
(1) If he is wrongfully excluded from the
partnership business or possession of its
property by his co-partners;
(2) If the right exists under the terms of any
agreement;
(3) As provided by Article 1807;
(4) Whenever other circumstances render it
just and reasonable.
• Art. 1807: Every partner must account to
the partnership for any benefit, and hold
as trustee for it any profits derived by him
without the consent of the other partners
from any transaction connected with the
formation, conduct, or liquidation of the
partnership or from any use by him of its
property.
Obligations of the Partners/Partnership to
Third Persons
ARTICLE 1815. Every partnership shall
operate under a firm name, which may or
may not include the name of one or more of
the partners.
Those who, not being members of the
partnership, include their names in the firm
name, shall be subject to the liability of a
partner.
• Person who is not a partner but is
included in the partnership name is called
a nominal partner and is liable as a
general partner. A nominal partner is
legally not a partner but is subject to the
liability of a general partner.
• This provision must be read with the
Intellectual Property Laws, i.e., there must
not be confusing similarity with another
registered partnership name, among
others.
• The SEC may deny or compel the
partnership to change the name if it is
confusingly similar to another
partnership name or is deceptively similar
thereto.
Page 25 of 45

ARTICLE 1816. All partners, including
industrial ones, shall be liable pro rata with
all their property and after all the
partnership assets have been exhausted, for
the contracts which may be entered into in
the name and for the account of the
partnership, under its signature and by a
person authorized to act for the partnership.
However, any partner may enter into a
separate obligation to perform a partnership
contract.
• Pro rata: Equally and individually.
• Scenario: The partnership of Katya, Aizi,
and Jillian was the debtor of Sab for the
amount of Php 2 million. Sab went to
Katya. Sab wanted to claim the parcel of
land of Katya as a satisfaction of the debt.
Is Katya compelled to pay Sab?
A: No. Katya is only subsidiarily liable to
pay. So, it was improper for Sab to
immediately go to Katya for payment.
Under Art. 1816, the partners shall be
liable pro rata only after all the
partnership assets have been exhausted.
Note that the partnership has a separate
juridical personality from the partners.
• Solidary liability applies only in cases
found in Art. 1822 (Wrongful Act of the
Partner) and Art. 1823 (Misapplication of
the Proceeds or Funds of the Partnership).
ARTICLE 1817. Any stipulation against the
liability laid down in the preceding article
shall be void, except as among the partners.
• In case
ARTICLE 1826. A person admitted as a
partner into an existing partnership is liable
for all the obligations of the partnership
arising before his admission as though he
had been a partner when such obligations
were incurred, except that this liability shall
be satisfied only out of partnership property,
unless there is a stipulation to the contrary.
• Scenario: Ann, Manuel, and Alexis are
the original partners. Dave joined on 01
December 2020. Dave’s contribution to
the partnership is Php 2 million and his
personal assets are Php 3 million. The
partnership incurred liability in favor of
Jove on 01 November 2020, prior to Dave’s
entry in the partnership. Up to what
extent may Dave be held liable for the
debts in favor of Jove?
A: Only Php 2 million. Under Art. 1826, a
person admitted as a partner into an
existing partnership is liable for all the
obligations of the partnership arising
before his admission as though he had
been a partner when such obligations
were incurred, except that this liability
shall be satisfied only out of partnership
property, unless there is a stipulation to
the contrary.
• For liabilities subsequent to the
admission of the partner, the normal rules
apply thus, Dave in the above scenario
may be held liable with his personal assets
in case all the partnership properties have
been exhausted.
ARTICLE 1818. Every partner is an agent of
the partnership for the purpose of its
business, and the act of every partner,
including the execution in the partnership
name of any instrument, for apparently
carrying on in the usual way the business of
the partnership of which he is a member
binds the partnership, unless the partner so
acting has in fact no authority to act for the
partnership in the particular matter, and the
person with whom he is dealing has
knowledge of the fact that he has no such
authority.
An act of a partner which is not apparently
for the carrying on of business of the
partnership in the usual way does not bind
the partnership unless authorized by the
other partners.
Except when authorized by the other
partners or unless they have abandoned the
Page 26 of 45
business, one or more but less than all the
partners have no authority to:
1) Assign the partnership property in
trust for creditors or on the assignee's
promise to pay the debts of the
partnership;
2) Dispose of the good-will of the
business;
3) Do any other act which would make it
impossible to carry on the ordinary
business of a partnership;
4) Confess a judgment;
5) Enter into a compromise concerning a
partnership claim or liability;
6) Submit a partnership claim or liability
to arbitration;
7) Renounce a claim of the partnership.
No act of a partner in contravention of a
restriction on authority shall bind the
partnership to persons having knowledge of
the restriction.
• There is a need to distinguish between
three contracts, i.e., (1) For the purpose of
its business; (2) Not apparently for the
carrying of the business; and (3) In
contravention of a restriction on
authority to persons having knowledge of
the restriction.
• Scenario: Becca, a partner in a
partnership engaged in selling chicken, is
not authorized to enter into a contract,
but Becca entered into a contract for
purchase of chicken with Jove. Is the
partnership liable?
A: Yes. The partnership is still liable
because it is still in the ordinary course of
business of the partnership. The
exception in this case is if (a) the partner
has no authority to act; and (b) the person
with whom Becca is dealing with has no
knowledge of such lack of authority. This
is provided for in the first paragraph of
Art. 1818. Here, there was no knowledge
on the part of Jove that Becca had no
authority.
• Scenario: Paula, Cara, and Becca are
engaged in a partnership selling chicken.
Cara transacted with another person, and
purchased a car. Is the partnership liable
for Cara’s purchase?
A: No. For acts which are not apparently
for the carrying on of business of the
partnership, the latter is not bound unless
authorized by the partners (Art. 1818, par.
2).
• Scenario: Same partners and business.
Becca is the managing partner and owns
the controlling interest in the
partnership. The partnership lent Alexis
Php 5 million. Becca, being close friends
with Alexis, condoned the latter’s debt. Is
this binding to the partnership?
A: No. Under Art. 1818, one or more but
less than all the partners have no
authority to renounce a claim of the
partnership. Renunciation of a claim of
the partnership is an act of strict
dominion which requires the assent of all
of the partners. This, however, may be
ratified if authorized by all of the partners
or if they have abandoned the business.
ARTICLE 1819. Where title to real property is
in the partnership name, any partner may
convey title to such property by a conveyance
executed in the partnership name; but the
partnership may recover such property
unless the partner's act binds the
partnership under the provisions of the first
paragraph of article 1818, or unless such
property has been conveyed by the grantee
or a person claiming through such grantee to
a holder for value without knowledge that
the partner, in making the conveyance, has
exceeded his authority.
Where title to real property is in the name of
the partnership, a conveyance executed by a
partner, in his own name, passes the
equitable interest of the partnership,
provided the act is one within the authority
Page 27 of 45
of the partner under the provisions of the 1) If the conveyance is in
first paragraph of article 1818. the ordinary course of
business except: (a)
Where title to real property is in the name of partner has no
one or more but not all the partners, and the authority; and (b)
record does not disclose the right of the person with whom he
partnership, the partners in whose name the is dealing has
title stands may convey title to such knowledge of such
property, but the partnership may recover lack of authority (Art.
such property if the partners' act does not 1818, par. 1);
bind the partnership under the provisions of 2) Property is conveyed
the first paragraph of article 1818, unless the to a person in good
purchaser or his assignee, is a holder for faith and for value.
value, without knowledge.
If the partner sold the real
Where the title to real property is in the property under his own
name of one or more or all the partners, or in name, the buyer must be
a third person in trust for the partnership, a cautious enough since the
conveyance executed by a partner in the partnership owns the real
partnership name, or in his own name, property. In this case, only
passes the equitable interest of the the partner’s equitable title
partnership, provided the act is one within passes to the buyer, and not
the authority of the partner under the the legal title itself.
provisions of the first paragraph of article Title is in the The partner in whose name
1818. name of one the property is titled may
or more but convey in his own name. The
Where the title to real property is in the not all of the partnership may recover the
names of all the partners a conveyance partners property except:
executed by all the partners passes all their 1) If the conveyance is in
rights in such property. the ordinary course of
business except: (a)
• Take into account under whose name the partner has no
title of the real property is. authority; and (b)
• Scenario: A, B, and C are partners. Parcel person with whom he
of land titled under the partnership name. is dealing has
A sells to X property in behalf of the knowledge of such
partnership, title is conveyed. If A conveys lack of authority (Art.
in his own name, only equitable title is 1818, par. 1);
passed. 2) The purchaser or his
assignee is a holder for
Title in the Any partner may convey the value, without
partnership real property, provided: it is knowledge.
name in the name of the Title is in the Conveyance by a partner in
partnership. The partnership name of one the partnership name or in
may recover the property or more or all his own name passes
except: of the equitable interest of the
partners or in partnership, provided it is in
Page 28 of 45
 a third person the ordinary course of the
in trust for partnership business.
the
partnership
Title is in the A conveyance executed by all
names of all partners passes all rights in
of the such property.
partners
ARTICLE 1820. An admission or
representation made by any partner
concerning partnership affairs within the
scope of his authority in accordance with
this Title is evidence against the partnership.
ARTICLE 1821. Notice to any partner of any
matter relating to partnership affairs, and
the knowledge of the partner acting in the
particular matter, acquired while a partner
or then present to his mind, and the
knowledge of any other partner who
reasonably could and should have
communicated it to the acting partner,
operate as notice to or knowledge of the
partnership, except in the case of a fraud on
the partnership, committed by or with the
consent of that partner.
2 instances contemplated:
1) Knowledge obtained involves particular
matter in which partner is acting upon
2) Knowledge which reasonably could and
should have communicated to the acting
partner.
ARTICLE 1822. Where, by any wrongful act or
omission of any partner acting in the
ordinary course of the business of the
partnership or with the authority of his co-
partners, loss or injury is caused to any
person, not being a partner in the
partnership, or any penalty is incurred, the
partnership is liable therefor to the same
extent as the partner so acting or omitting to
act.
• Q: Katya, Dave and Becca are partners
and they are selling vegetables. Dave
entered into a contract with Jove whereby
the partnership is bound to deliver fresh
veggies to Jove. Dave delivered veggies to
Jove but Jove, upon receipt, saw that the
veggies are of inferior quality. Dave
incurred delay in replacing the veggies.
Jove sues the partnership for damages. Is
the partnership liable with Dave? If so,
what is the extent of the partnership
liability?
A: Yes, the partnership is liable. The
partnership is solidarily liable with
Dave. Under Art. 1822, the partnership is
solidarily liable to a person injured when:
(a) a wrongful act or omission was
committed by a partner in the ordinary
course of the partnership business; or (b)
even if it is not in the ordinary course of
the business but the partner’s act was with
the authority of his co-partners.
ARTICLE 1823. The partnership is bound to
make good the loss:
(1) Where one partner acting within the
scope of his apparent authority receives
money or property of a third person and
misapplies it; and
(2) Where the partnership in the course of its
business receives money or property of a
third person and the money or property so
received is misapplied by any partner while
it is in the custody of the partnership.
ARTICLE 1824. All partners are liable
solidarily with the partnership for
everything chargeable to the partnership
under articles 1822 and 1823.
• Scenario: Katya, Dave and Becca are
partners engaged in the veggie business.
Dave entered into a contract with Jove to
deliver veggies but they were of inferior
quality. Jove thus suffered damages. Jove
went to you for advice asking who should
be sued. Who should Jove go after?
Page 29 of 45
 A: Dave, Katya, Becca, and the
partnership. Under Art. 1824, all
partners are solidarily liable with the
partnership in cases contemplated by
Arts. 1822 and 1823. This article does not
preclude Katya and Becca’s right to
reimbursement from Dave because of
Dave’s acts.
• Scenario: Jove contemplated to file a case
for estafa. Assuming it is proper, who
should be charged for estafa?
A: Dave alone. Arts. 1822-1824 pertaining
to solidary liability only extends to civil
liability, not to criminal liability. An
exception to this is when the statutory law
itself holds the juridical person liable (e.g.
Intellectual Property cases). Moreover,
another exception is when the
partnership in itself is illegal.
ARTICLE 1825. When a person, by words
spoken or written or by conduct, represents
himself, or consents to another representing
him to anyone, as a partner in an existing
partnership or with one or more persons not
actual partners, he is liable to any such
persons to whom such representation has
been made, who has, on the faith of such
representation, given credit to the actual or
apparent partnership, and if he has made
such representation or consented to its
being made in a public manner he is liable to
such person, whether the representation has
or has not been made or communicated to
such person so giving credit by or with the
knowledge of the apparent partner making
the representation or consenting to its being
made:
(1) When a partnership liability results, he is
liable as though he were an actual member
of the partnership;
(2) When no partnership liability results, he
is liable pro rata with the other persons, if
any, so consenting to the contract or
representation as to incur liability,
otherwise separately.
When a person has been thus represented to
be a partner in an existing partnership, or
with one or more persons not actual
partners, he is an agent of the persons
consenting to such representation to bind
them to the same extent and in the same
manner as though he were a partner in fact,
with respect to persons who rely upon the
representation. When all the members of the
existing partnership consent to the
representation, a partnership act or
obligation results; but in all other cases it is
the joint act or obligation of the person
acting and the persons consenting to the
representation.
Partnership by estoppel, elements:
1) Representation by a person/partners
2) Reliance on such representations by third
person; and
3) Damage or injury on the part of a third
person.
Partnership by estoppel, scenarios:
• Scenario 1: A and B are partners. They
hold C out as a partner. If C consents to
such representation, C would be liable as
if he/she is a partner.
• Scenario 2: A and B are partners. C holds
himself out as a partner. If A, alone,
consents, only A and C shall be liable. B
cannot be liable because he did not
consent to the representation of C.
• Scenario 3: A and B are partners. C holds
himself out as a partner. Both A and B
consented this time. This time, a
partnership liability arises. The
partnership of A and B may be held liable
together with C.
• Scenario 4: A and B are not partners. C
represented that he is a partner. A and B
consented. A, B, and C are jointly liable
pro rata but no partnership liability may
Page 30 of 45
 arise because no partnership exists in the
first place.
• Scenario 5: A and B are not partners. C
represented that he is a partner. A and B
did not consent. Only C is liable because
A and B did not consent.
Note:
• There is no partnership created under Art.
1825.
• This is only for purposes of establishing
liability to protect third persons.
ARTICLE 1827. The creditors of the
partnership shall be preferred to those of
each partner as regards the partnership
property. Without prejudice to this right, the
private creditors of each partner may ask the
attachment and public sale of the share of
the latter in the partnership assets.
Preference:
• Partnership creditors are preferred on
partnership property
• Personal creditors are preferred on
personal property of a partner.
• Q: May a personal creditor go against the
assets of the partnership?
A: Yes, in a limited sense. Art. 1814
provides that a judgement creditor may
charge the partner’s interest to satisfy the
judgement. The court may likewise
appoint a receiver of the partner’s share in
the profits. Attachment or sale of property
may be had without prejudice to the
application of Art. 1827 to the partnership
creditors, i.e., partnership creditors are
preferred.
Dissolution and Winding Up
ARTICLE 1828. The dissolution of a
partnership is the change in the relation of
the partners caused by any partner ceasing
to be associated in the carrying on as
distinguished from the winding up of the
business.
• Presupposes that one partner has ceased
to be associated with the partnership.
• Does not mean that the partnership
business will end. In fact, the partnership
may be dissolved and the partnership
business may still continue.
ARTICLE 1829. On dissolution the
partnership is not terminated, but continues
until the winding up of partnership affairs is
completed.
• Thus, upon dissolution, the separate
juridical personality of the partnership
exists, albeit for a limited purpose only.
• There are only certain transactions which
the partnership can enter into.
• Winding up: The settling of partnership
business or the affairs of the partnership.
In involves the collection and distribution
of partnership assets, includes payment of
liabilities to creditors, and determination
of the value that will be distributed to the
partners. It is the process of closing the
partnership business.
• Note: Dissolution is not necessarily
succeeded by winding up.
• Termination: The point in time when all
partnership affairs are completely wound
up. The end of the partnership life. This
comes after the winding up of partnership
affairs.
Causes of Dissolution (Art. 1830 and 1831): Arts.
1830 and 1831 classifies the causes into four (4)
groups, i.e.:
1. Dissolution without violation of partnership
agreement – Lists the instances when
dissolution is a right.
a) Expiration of particular undertaking or
fixed term
o Note: Art. 1785 – If after the
expiration of the fixed term or
fulfillment of particular
undertaking, the partners may still
continue the partnership business.
Now, the partnership is converted to
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 a partnership at will. Is there a
dissolution? Most authors say yes.
b) Express will of any partner – The
partnership is based on delectus personae
o The partner must act in good faith.
What happens if the partner acts in
bad faith? In Ortega v. CA, a partner
who is in bad faith may still dissolve
the partnership. Good faith or bad
faith is immaterial with regards to
the power, as distinguished from the
right, to dissolve the partnership.
The consequence, therefore, is that
the partner is liable to pay damages.
c) 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 undertaking
o Thus, notwithstanding a particular
undertaking or a fixed term, all the
partners may dissolve the
partnership.
o However, if a partner has assigned
his interest to another person who
knows that the partnership is for a
fixed term or a particular
undertaking, that assignee has an
interest in continuing the
partnership and, therefore, the
partnership cannot be terminated or
dissolved by the express will of all
without paying damages.
o Similarly, if the partners suffered
them to be charged for their
separate debts before the expiration
of the fixed term or particular
undertaking, the partnership cannot
be dissolved without the express will
of all without paying damages.
o Q: Can the partnership be dissolved
notwithstanding the opposition or
protest of the creditor or the
assignee?
A: Yes, but there must be payment
of damages.
d) By the expiration of the partner bona fide in
such a power conferred by the agreement
between the partners
2. Dissolution in violation of partnership
agreement
• Example: In the Articles of Partnership,
there was a provision prohibiting any of the
partners to enter into a contract. If one
partner enters into the prohibited contract,
the other partners have the right to dissolve
the partnership.
3. By operation of law
a) If the partnership became illegal
o Note: If at the outset the object or
cause of the partnership is unlawful,
the partnership is void ab initio.
Thus, there could be no dissolution
since no partnership is deemed to
have existed.
o This provision presupposes that the
partnership was validly constituted
at first.
b) If a partner has promised to contribute a
specific thing and it was lost prior to
delivery
o Dissolution occurs in this case
because there arises a failure of
consideration
o Loss of specific thing after
delivery: The partnership is
deemed to be the owner of the
specific thing already and the
partnership is to bear the loss. No
dissolution.
o Note: Specific thing lang ang
covered ng provision. Genus never
perishes.
c) If the specific thing was lost
notwithstanding the fact that it was
delivered to the partnership if only the use
or enjoyment of which has been
contributed
o Connotes usufruct.
d) Death of a partner
Page 32 of 45
 e) Insolvency of a partner – Must be a
judicially declared insolvency (under the
Financial Rehabilitation and Insolvency
Act). Note: The judicial decree in this case
pertains to the insolvency of a partner, not
the dissolution of the partnership.
f) Civil interdiction
4. By decree of court (Art. 1831) – There must be
an application before the court and a judicial
decree dissolving the partnership.
Invoked by the partners:
a) Insanity
o A judicial declaration of insanity is
not enough, there must be a judicial
declaration of dissolution of
partnership by reason of insanity.
Why? Because not all forms of
insanity dissolves a partnership. The
kind of insanity that dissolves a
partnership is that which materially
affects a person’s capacity to
perform his obligations under the
partnership agreement.
b) Incapacity of partner to perform his duties
under the partnership contract
o Example: A was an industrial
partner who is to render his services
as a construction worker in
partnership ABC. A loses his entire
leg due to an accident. A is deemed
to be incapacitated to perform his
duties under the partnership
contract. The partnership may be
dissolved in this instance at will. But
if A insists on his capacity, then a
decree of court may be obtained.
c) If a partner is found guilty of such conduct
as to affect prejudicially the carrying on of
the business
d) If the partnership can only be carried on at
a loss
o Authors suggest that an actual,
historical, and sustained pattern of
losses need not be proven. It is
merely corroborative.
Invoked by the assignee of the partner under
Arts. 1813 and 1814:
a) After the termination of a specified term or
undertaking
o Example: Creditor-assignee ni
partner A si C. The partnership
where A belongs to is a partnership
for a specified term or undertaking.
After the expiration of the specified
term or undertaking, C may ask the
court for a judicial decree for the
dissolution of the partnership.
b) Any time if the partnership was a
partnership at will when the interest was
assigned or the charging order was issued.
Effects of Dissolution
1. Partnership continues but in a restricted or
limited sense – The right of representation is
limited to certain transactions, viz:
a) To wind up partnership affairs – For
example, one of the transactions in
dissolving a partnership is to sell the
partnership assets and have them applied
to satisfy partnership liabilities.
b) To complete transactions begun but not yet
finished
2. If the ground for dissolution is Act of the
partner, Insolvency of the partner, or Death of
a partner (AID), the general rule is that the
partner may still bind the partnership.
• Exception: If the partner has
knowledge of the AID. In this case, the
partnership is no longer bound.
• Example: A, B, and C are partners. On
10 December 2020, C died. On 11
December 2020, A bought
merchandise from D. The partnership
had been dissolved as of 10 December
2020. The partnership is still bound by
the contract entered into between A
and D. However, if A knew of C’s death,
then the partnership is not bound.
Page 33 of 45
3. Art. 1834, par. 1: After dissolution, transactions
entered into are no longer binding to the
partnership, except:
a) For purposes of winding up
o Example: A, B, and C are partners.
The partnership was dissolved. A
entered into a transaction with X to
liquidate assets that will no longer
be used. Is this binding to the
partnership? Yes, since it is for
winding up partnership affairs.
o Example: What if X had knowledge
of the dissolution of the partnership.
Is this binding to the partnership?
Yes, since it is still for winding up
partnership affairs. If it is for
winding up partnership affairs, it is
immaterial whether the person has
knowledge of the dissolution.
b) If a third person had extended credit to the
partnership prior to the dissolution and
such party has no knowledge or notice that
the partnership has been dissolved
o Example: A entered into a contract
of purchase with Y. Y had extended
credit to the partnership prior to the
dissolution. Is this binding to the
partnership? If Y had no knowledge
of the dissolution, then yes, it is
binding. But if Y had knowledge of
the dissolution, then it is not
binding to the partnership.
c) If a third person has not extended credit to
the partnership but had known the
partnership prior to the dissolution and has
no knowledge or notice of the partnership
because the dissolution of the partnership
was not published in a newspaper of
general circulation in the place where the
partnership business is regularly conducted
o Example: What if Y had not
extended credit to the partnership
before? If Y had no knowledge of the
dissolution of the partnership, then
it is binding to the partnership.
However, if Y had knowledge of the
dissolution of the partnership, then
it is not binding. Note, however,
that even if Y had no knowledge, if
the partnership was able to publish
its dissolution in a newspaper of
general circulation, the transaction
is still not binding.
4. Art. 1834, par. 2: Transactions with third
persons shall be satisfied only out of
partnership assets if the partner transacting
prior to dissolution is:
a) Unknown as a partner to the person with
whom the contract is made
b) Inactive in partnership affairs that the
business reputation of the partnership is
not attributable to his connection to it
o Example: ABC partnership. C is a
dormant partner. After dissolution,
B contracted with a third person
who had extended credit without
knowledge of the dissolution of the
partnership. The partnership is
liable to the third person. Let’s say
after liquidation of partnership
assets, there are still creditors left
unpaid. May the creditors go after
the personal assets of C? No,
because C is unknown as a partner
to the creditors.
5. Art. 1834, par. 3: Partnership is not bound by
any act of a partner after dissolution:
a) If the partnership is dissolved because it is
unlawful to carry on the business except if
the act is for the winding up
b) If the partner acting is insolvent
c) If the partner acting has no authority to
wind up the affairs except if third persons
have no knowledge that the partner has no
authority to wind up the affairs
Scenario: A, B, and C entered into a partnership.
The partnership is indebted in the amount of Php
2 million. C died, dissolving the partnership. A
rejoiced, believing that the partnership
indebtedness had already been extinguished by
reason of the dissolution. Is A correct?
Page 34 of 45
A: No. Art. 1835 provides that the dissolution of
the partnership does not of itself discharge the
existing liabilities of the partners. Dissolution of
the partnership is not a mode of extinguishing
obligations. Except: An agreement between:
1. The partner;
2. The partnership creditor; and
3. The partners/partnership continuing the
business
Note: The individual property of a deceased
partner shall be liable for all obligations of the
partnership incurred while he was a partner, but
subject to the prior payment of his separate debts
(Id.).
• Art. 1827 – In liquidating the personal
assets of a deceased partner, priority
should be given to his personal creditors.
Who may wind up partnership affairs (Art.
1836)
1. Partner who has been designated pursuant to
an agreement
2. All partners in general except those who have
acted wrongfully
3. The legal representative of the last surviving
partner
Manner of winding up
1. Judicial – An action for liquidation is classified
as a personal action therefore, the rules
pertaining to personal actions apply,
specifically regarding venue.
• That real properties are contributed does
not matter, nor change the nature of the
action for liquidation into a real one.
2. Extrajudicial – Partners may agree among
themselves how to distribute the assets of the
partnership.
Rights of Partners in Dissolution: Depends
upon the mode of dissolution
1. Dissolution without violation of partnership
agreement
2
Will surely be asked in the final exam.
a) Each partner may have the partnership
properties to discharge its liabilities (Art.
1837)
b) The surplus, if any, shall be paid to the
respective owners/partners.
2. Dissolution with violation of partnership
agreement – Same rights as if there is no
violation. However, the injured/innocent
partners have additional rights, viz:
a) Right to damages
b) Right to continue the same business,
provided: (a) there is payment of bond for
the use of the property contributed by the
partner who acted wrongfully; (b) there is
payment of the partner’s contribution less
damages; and (c) indemnification of the
partner against all present or future
liabilities
Remedies of the defrauded party if
partnership is rescinded on the ground of
fraud or misrepresentation (Art. 1838)
• Fraud or misrepresentation: Must be
material or substantial. Mere
exaggeration does not count. The fraud
must be inducing, i.e., it induced one to
enter into a contract of partnership.
1. To have a lien on, or right of retention, of the
surplus of the partnership property
2. Right to subrogation – If there has been fraud
and the defrauded partner has already
advanced funds as payment of partnership
creditors, then the defrauded partner can step
into the shoes of the partnership creditors and
collect from the fraudulent partner
3. Right to damages
Settling of Accounts (Art. 1839)2
Art. 1839, par. 1 – The assets of a partnership
• Q: What will be distributed upon
dissolution?
A: All assets of the partnership. Assets:
consist of the partnership property and
the contributions of the partners
necessary for the payment of all liabilities.
Page 35 of 45
 This is because if the partnership
properties have already been exhausted,
the partners may be compelled to make
additional contributions if all the
partnership liabilities have not been
discharge.
Art. 1839, par. 2 – Order of payment
• Q: What happens if we have already
identified all the assets of the
partnership?
A: Turn all these assets liquid. This means
that the assets must be converted into
cash. Then, the priority or order of
payment shall be as follows:
1. Creditors
2. Partners in their capacity as creditors
3. Partners with respect to their capital
4. Partners with respect to their profits
Anecdotal Illustration
• Partnership assets of ABC partnership
amount to Php 10 million. ABC
partnership has to pay the following:
(a) Liability to X – Php 6 million;
(b) Liability to Y – Php 6 million;
(c) Liability to Partner A – Php 5 million;
(d) Contribution of A – Php 4 million;
(e) Contribution of B – Php 2 million;
(f) C is an industrial partner.
Where will the Php 10 million go?
A: Proportionately to X and Y. The total
liabilities to X and Y amount to Php 12
million. Again, X and Y will
proportionately share in the Php 10
million. They each have a deficiency of
Php 1 million
Q: May X and Y go after the personal
assets of A, B, and C?
A: Yes. C may be proceeded against even
if he is in reality only an industrial partner
since, in the eyes of third persons, all
partners are general partners. C, however,
has the right to be reimbursed by A and B.
• Scenario: Same scenario above, only this
time, the partnership assets = Php 15
million. So, X and Y are sufficiently paid
and there is an excess of Php 3 million
partnership assets. Where will this Php 3
million go?
A: To Partner A, in satisfaction of the Php
5 million loan he extended to the
partnership.
• Q: How will Partner A satisfy the Php 2
million deficiency?
A: He may go after partners B and C for an
amount less Partner A’s supposed
contribution since A is both a creditor and
a debtor.
• Scenario: Same scenario, partnership
assets = Php 20 million. There is now an
excess of Php 3 million after payment of
liabilities to third persons. Where will this
Php 3 million go?
A: It will be shared by A and B as their
capital contributions and will be
proportionately divided based thereon,
i.e., Php 2 million to A, and Php 1 million
to B (2:1 ratio).
• Scenario: Partnership assets = Php 30
million. After paying the partnership
creditors X and Y; partner A in his
capacity as a creditor; and partners A and
B’s capital contribution, there is an excess
of Php 7 million. How would this be
distributed?
A: This would be shared by A, B, and C as
the profits based on their profit-sharing
ratio, as provided in the partnership
agreement.
Art. 1839, par. 3 – Partners cannot be
compelled to make additional contributions
if there remains partnership assets
• Should the partners be compelled to make
additional contributions, the proportion
should be based on their profit-sharing
Page 36 of 45
 agreement, as provided for under Art.
1797.
Art. 1839, pars. 5 and 6 – The obligation to
make additional contributions is
enforceable in case partnership property is
insufficient to cover its liabilities
• Q: Who can compel or enforce this
obligation?
A: Assignee or the appointee of the
creditor (Art. 1839, par. 5); and Partner or
legal representative of the partner up to
the amount of the excess of his share in
the liability (Art. 1839, par. 6). For
example, partner A paid Php 800,000.00
to creditor X when in fact, his share in the
liability should only be Php 500,000.00.
Partner A can compel his co-partners to
pay him.
Art. 1839, par. 7 – The estate of a deceased
partner may be held liable for additional
contributions.
• Q: May the estate of the deceased receive
his share?
A: Yes.
Art. 1839, par. 9 – Order of Payment of
Personal Assets of Insolvent Partner
1. Personal creditors (Art. 1827)
2. Partnership creditors
3. Those owing to partners, by way of their
contribution – Kung nag-abono yung
partners
Instances when creditors of dissolved
partnership become creditors of
persons/partnerships continuing the
business: Basta tinuloy yung business ng
partnership despite the dissolution of the
partnership, the creditors remain the same.
1. If the business is continued without
liquidation, then the creditors prior to the
dissolution will be the same creditors of
the person/partnership continuing the
business (Art. 1840, pars. 1 and 2).
2. If a partner/s died or retires and the
business is continued without any
assignment of his right in partnership
property, then the creditors prior to the
dissolution of the partnership will be the
same creditors of the person/partnership
continuing the business (Art. 1840, par. 3).
3. If all the partners assign their rights in the
partnership property to one or more third
persons who promise to pay the debts and
continue business of the dissolved
partnership (Art. 1840, par. 4).
4. If a partner wrongfully dissolves the
partnership, the remaining partners have
the right to continue and therefore, if they
so continue, the creditors prior to the
wrongful dissolution remain to be the
creditors in the continued partnership
(Art. 1840, pars. 5 and 6).
ARTICLE 1841. When any partner retires or
dies, and the business is continued under
any of the conditions set forth in the
preceding article, or in article 1837, second
paragraph, No. 2, without any settlement of
accounts as between him or his estate and
the person or partnership continuing the
business, unless otherwise agreed, he or his
legal representative as against such person
or partnership may have the value of his
interest at the date of dissolution
ascertained, and shall receive as an ordinary
creditor an amount equal to the value of his
interest in the dissolved partnership with
interest, or, at his option or at the option of
his legal representative, in lieu of interest,
the profits attributable to the use of his right
in the property of the dissolved partnership;
provided that the creditors of the dissolved
partnership as against the separate
creditors, or the representative of the retired
or deceased partner, shall have priority on
any claim arising under this article, as
provided by article 1840, third paragraph.
• If partnership continues despite
retirement or death of a partner, there are
2 remedies available to the heirs or legal
Page 37 of 45
 representatives of the retiring or deceased
partner:
1. Value of the interest of the
retired/deceased partner ascertained;
or
2. Once the value has been ascertained:
a) The heirs/legal representatives, as
creditors, can compel the
partnership to pay the value of
such interest of the
retired/deceased partner; or
b) The heirs/legal representatives
may compel that the profits
attributable to the assets
contributed by the
retired/deceased partner be given
to them
ARTICLE 1842. The right to an account of his
interest shall accrue to any partner, or his
legal representative as against the winding
up partners or the surviving partners or the
person or partnership continuing the
business, at the date of dissolution, in the
absence of any agreement to the contrary.
• The right to account of his interest
accrues as of the date of dissolution.
• Exception: Agreement to the contrary.
• Art. 1770 – A partnership dissolved by
reason of unlawfulness = Profits will not
go to the partners, but redounds to the
State. Example, profits earned by
partnership selling shabu goes to the
State, not the partners.
Limited Partnerships
Limited Partnership:
• Differs from general partnership because
there is the presence of limited partner/s.
There must, however, be at least one (1)
general partner. This is in order to afford
creditors protection in case partnership
assets have been exhausted.
Concept of a Limited Partner
• As a rule, partners are subject to limited
liability, i.e., upon exhaustion of
partnership assets, the creditors of the
partnership may not go through the
personal assets or properties of the
limited partners.
• Liability of limited partners is limited to
their capital contributions.
• Limited partners may only contribute
money, or property but never industry
(Art. 1845).
• The names of limited partners may not be
included in the partnership name (Art.
1846). Exceptions:
a) It is also the surname of a general
partner;
b) Prior to the time when the limited
partner became such, the business had
been carried on under a name in which
his surname appeared (Ibid.)
• Effect of failure to comply with the
foregoing: The limited partner whose
surname appears in the partnership name
is treated as a general partner with respect
to third persons who have no actual
knowledge that he is not a general partner
(Ibid.) Nevertheless, among the partners,
the limited partner is still a limited
partner.
Characteristics of Limited Partnership
1. Formal – there must be compliance with
requirements under Art. 1844 of the Civil
Code which requires the filing of
certificate with the SEC. Certificate must
contain, among others:
a) Partnership name which contains
the name “Limited”.
b) Temporary limited partners – the
time, if agreed upon, when the
contribution of each limited
partner is to be returned.
c) Right of priority given to a limited
partner upon dissolution.
o Note: Art. 1844 does not require
strict compliance – substantial
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 compliance in good faith is
enough.
o Q: What if there is no substantial
compliance in good faith?
A: If there is no substantial
compliance, the partnership
becomes a general partnership as
far as third persons are concerned,
in which all the members are liable
as general partners. So, there’s still
a partnership. Substantial
compliance is only necessary to
create a limited partnership.
o Q: Effect of false statement in the
certificate?
A: The partner guilty of knowing
the falsity is liable as a general
partner, provided: (a) he knew the
statement to be false at the time he
signed the certificate, or
subsequently, but having sufficient
time to cancel or amend it or file a
petition for its cancellation or
amendment, he failed to do so; (b)
the person seeking to enforce
liability has relied upon the false
statement in transacting business
with the partnership; and (c) the
person suffered loss as a result of
reliance upon such false statement
(Art. 1847).
Q: Who can be managing partners in a limited
partnership?
A: General partners only. First, under Art. 1845,
limited partners are never industrial partners.
Second, under Art. 1848, if a limited partner
becomes a managing partner, he becomes a
general partner to third persons.
Article 1850. A general partner shall have all
the rights and powers and be subject to all
the restrictions and liabilities of a partner in
a partnership without limited partners.
However, without the written consent or
ratification of the specific act by all the
limited partners, a general partner or all of
the general partners have no authority to:
(1) Do any act in contravention of the
certificate;
(2) Do any act which would make it
impossible to carry on the ordinary business
of the partnership;
(3) Confess a judgment against the
partnership;
(4) Possess partnership property, or assign
their rights in specific partnership property,
for other than a partnership purpose;
(5) Admit a person as a general partner;
(6) Admit a person as a limited partner,
unless the right so to do is given in the
certificate;
(7) Continue the business with partnership
property on the death, retirement, insanity,
civil interdiction or insolvency of a general
partner, unless the right so to do is given in
the certificate.
Article 1853. A person may be a general
partner and a limited partner in the same
partnership at the same time, provided that
this fact shall be stated in the certificate
provided for in article 1844.
A person who is a general, and also at the
same time a limited partner, shall have all
the rights and powers and be subject to all
the restrictions of a general partner; except
that, in respect to his contribution, he shall
have the rights against the other members
which he would have had if he were not also
a general partner.
• So, pwedeng general partner and limited
partner ka. Provided, it is provided for in
the certificate in Art. 1844.
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 • You are a general partner as to rights and
powers. But with respect to liability, you
enjoy limited liability but only with
respect to your co-partners. So, third
persons may treat you as a general partner
but you may seek reimbursement from
your co-partners.
Obligations of limited partner
1. Contribute money or property but not
services (Art. 1845);
2. For the difference between his
contribution as actually made and that
stated in the certificate as having been
made (Art. 1858);
3. For any unpaid contribution which he
agreed in the certificate to make in the
future at the time and on the conditions
stated in the certificate (Ibid.);
4. Hold as trustee for the partnership:
(1) Specific property stated in the
certificate as contributed by him, but
which was not contributed or which has
been wrongfully returned; and
(2) Money or other property wrongfully
paid or conveyed to him on account of
his contribution (Ibid.)
o Note: The liabilities of a limited
partner as set forth above can be
waived or compromised only by
the consent of all members; but a
waiver or compromise shall not
affect the right of a creditor of a
partnership who extended credit
or whose claim arose after the
filing and before a cancellation or
amendment of the certificate, to
enforce such liabilities (Ibid.).
Q: What if a contributing partner erroneously
believed himself to be a limited partner?
A: He may still become a general partner if: (a)
he knew of the mistake and did not renounce his
interest in the profits of the business and
continued participating in the business; and (b)
if he participates in the management of the
business (Art. 1852 in relation to Art. 1848)
Q: Is a limited partner liable to third persons?
A: Yes, but only to the extent of his contribution.
Note the exceptions.
Liability of Limited Partner to his Personal
Creditors
• Same with Art. 1814, i.e., the courts may
charge the interest of the limited partner
to pay the claims of the personal creditors.
• Art. 1862: Interest may be redeemed with
the separate property of any general
partner but may not be redeemed with the
property of the partnership.
• Scenario: ABC partnership. C, limited
partner, personally owes X Php 1 million.
C has no more assets to pay his debt to X.
X knew C was a limited partner, and knew
that C’s capital contribution amounted to
Php 3 million. Can X attach this?
A: Yes, but only upon due application
with the court. However, the court must
first ascertain that partnership assets may
still be sufficient to satisfy partnership
creditors even after satisfying the claim of
X, a personal creditor of limited partner C.
Rights of Limited Partner (Art. 1851)
(1) Have the partnership books kept at the
principal place of business of the
partnership, and at a reasonable hour to
inspect and copy any of them;
(2) Have on demand true and full
information of all things affecting the
partnership, and a formal account of
partnership affairs whenever circumstances
render it just and reasonable; and
(3) Have dissolution and winding up by
decree of court.
A limited partner shall have the right to receive a
share of the profits or other compensation by
way of income, and to the return of his
contribution as provided in articles 1856 and
1857.
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Article 1854. A limited partner also may loan
money to and transact other business with
the partnership, and, unless he is also a
general partner, receive on account of
resulting claims against the partnership,
with general creditors, a pro rata share of the
assets. No limited partner shall in respect to
any such claim:
(1) Receive or hold as collateral security any
partnership property, or
(2) Receive from a general partner or the
partnership any payment, conveyance, or
release from liability if at the time the assets
of the partnership are not sufficient to
discharge partnership liabilities to persons
not claiming as general or limited partners.
The receiving of collateral security, or
payment, conveyance, or release in violation
of the foregoing provisions is a fraud on the
creditors of the partnership.
• Scenario: ABC partnership. C is a limited
partner who loaned Php 2 million to the
partnership. The parcel of land belonging
to the partnership was mortgaged to C as
security for the loan. Which of the two
contracts (loan and real estate mortgage)
is valid?
A: The loan is valid but the real estate
mortgage is void. Even though the limited
partner may loan money to the
partnership, the limited partner has no
right to hold as security for the loan
partnership property.
• Q: What if insufficient na yung assets
nung partnership?
A: The limited partner has the right to
receive limited payment if at the time the
assets of the partnership are insufficient
to discharge partnership liabilities. Pero
hindi buo.
• Note: In the order of dissolution and
liquidation, the limited partner is
preferred over a limited partner.
Article 1857. A limited partner shall not
receive from a general partner or out of
partnership property any part of his
contributions until:
(1) All liabilities of the partnership, except
liabilities to general partners and to limited
partners on account of their contributions,
have been paid or there remains property of
the partnership sufficient to pay them;
(2) The consent of all members is had, unless
the return of the contribution may be
rightfully demanded under the provisions of
the second paragraph; and
(3) The certificate is cancelled or so amended
as to set forth the withdrawal or reduction.
Subject to the provisions of the first
paragraph, a limited partner may rightfully
demand the return of his contribution:
(1) On the dissolution of a partnership; or
(2) When the date specified in the certificate
for its return has arrived, or
(3) After he has six months' notice in writing
to all other members, if no time is specified
in the certificate, either for the return of the
contribution or for the dissolution of the
partnership.
In the absence of any statement in the
certificate to the contrary or the consent of
all members, a limited partner, irrespective
of the nature of his contribution, has only
the right to demand and receive cash in
return for his contribution.
A limited partner may have the partnership
dissolved and its affairs wound up when:
(1) He rightfully but unsuccessfully demands
the return of his contribution, or
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(2) The other liabilities of the partnership
have not been paid, or the partnership
property is insufficient for their payment as
required by the first paragraph, No. 1, and
the limited partner would otherwise be
entitled to the return of his contribution.
• Right to return contribution of
limited partner: (1) Sufficiency of
partnership assets to pay its liabilities; (2)
Consent of all the partners; and (3)
Cancellation or amendment of the
certificate with the SEC.
• Right to demand return of
contributions even without consent of
all partners: (1) Upon dissolution of the
partnership; (2) Specified date in the
certificate has arrived; (3) 6 months’
notice in writing have been given by the
limited partner.
• How contributions returned:
Generally, cash. Exception, stipulation to
the contrary.
• Q: Can a limited partner demand the
winding up of a partnership?
A: Generally, no. Exceptions:
a) Limited partner rightfully but
unsuccessfully demands return of
contributions;
b) other liabilities of the partnership
have not been paid, or the
partnership property is insufficient
for their payment as required by
the first paragraph, No. 1, and the
limited partner would otherwise
be entitled to the return of his
contribution.
Article 1859. A limited partner's interest is
assignable.
A substituted limited partner is a person
admitted to all the rights of a limited partner
who has died or has assigned his interest in
a partnership.
An assignee, who does not become a
substituted limited partner, has no right to
require any information or account of the
partnership transactions or to inspect the
partnership books; he is only entitled to
receive the share of the profits or other
compensation by way of income, or the
return of his contribution, to which his
assignor would otherwise be entitled.
An assignee shall have the right to become a
substituted limited partner if all the
members consent thereto or if the assignor,
being thereunto empowered by the
certificate, gives the assignee that right.
An assignee becomes a substituted limited
partner when the certificate is appropriately
amended in accordance with article 1865.
The substituted limited partner has all the
rights and powers, and is subject to all the
restrictions and liabilities of his assignor,
except those liabilities of which he was
ignorant at the time he became a limited
partner and which could not be ascertained
from the certificate.
The substitution of the assignee as a limited
partner does not release the assignor from
liability to the partnership under articles
1847 and 1858.
• Substitute limited partner: If there is
consent by all of the partners to the
assignment. He has all the rights of a
limited partner.
• No consent of all partners: Only
entitled to receive the share of the profits
or other compensation by way of income,
or the return of his contribution, to which
his assignor would otherwise be entitled.
Dissolution
• Same causes of dissolution of partnership
applies to limited partnership.
• Additional: The retirement, death,
insolvency, insanity or civil interdiction of
a general partner dissolves the
Page 42 of 45
 partnership, unless the business is
continued by the remaining general
partners: (1) Under a right so to do stated
in the certificate, or (2) With the consent
of all members (Art. 1860).
• Note: Debts of limited partner survive
notwithstanding debt.
• Note: Certificate should be cancelled or
amended upon dissolution.
Order of Distribution (Art. 1863)
1. Creditors;
2. Limited partners – profits then
contributions. Note: There may be a
stipulation of preference among the
limited partners as to who shall be paid
first;
3. General Partners – profits then
contributions.
Trusts
Parties
1. Beneficiary or Cestui Que Trust:
person who has beneficial title in the
property and enjoys the benefit of
administration
2. Trustor:
3. Trustee: Owns legal title but the
beneficial title is with the beneficiary
Characteristics
• It is a legal relationship, not a contract.
This is because even without an
agreement, a trust can be set up.
Moreover, there are some trusts which
may exist by operation of law.
• Relationship is of a fiduciary character –
Trust and confidence.
• The relationship is with respect to
property – Without property, there can be
no trust relationship. This is what
distinguishes trust from a stipulation
pour autrui. The latter does not
necessarily involve property.
• Involves existence of equitable duty upon
the trustee to hold in trust the property
for the beneficiary. This distinguishes it
from guardianship. In trust, the trustee
has the legal title over the property. In
guardianship, the guardian is merely an
agent of the ward tasked with the
management and administration of the
same so, the title of the property is still
with the ward.
• It arises as a result of a manifestation of
intention (express or implied) to create
the relationship.
Express Trust
• Clear intention of the parties to constitute
the trust.
• The conveyance of the property may be
inter vivos or by wills (fideicommissary
substitution). In fideicommissary
substitution, the fideicommissary is
essentially the trustee.
• Form:
o If it involves immovable property,
an oral declaration/constitution is
valid but unenforceable. To be
enforceable, it must be in writing.
To bind third persons, it must be in
a public instrument.
o If it involves personal property, an
oral declaration/constitution
suffices.
• There must be declaration and
conveyance to the trustee.
• The beneficiary must accept the trust.
o However, as distinguished from
donations, the acceptance by the
beneficiary may be in any form. In
donation, certain formalities for
acceptance are required, i.e., in
donation of real property, the deed
of donation and acceptance must
be in a public instrument.
Moreover, in donation, both the
legal and equitable title passes to
the donee. But in trusts, the legal
title passes to the trustee, but the
equitable title passes to the
beneficiary.
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Implied Trust
• By operation of law (Art. 1448 onwards)
Article 1448. There is an implied trust when
property is sold, and the legal estate is
granted to one party but the price is paid by
another for the purpose of having the
beneficial interest of the property. The
former is the trustee, while the latter is the
beneficiary. However, if the person to whom
the title is conveyed is a child, legitimate or
illegitimate, of the one paying the price of
the sale, no trust is implied by law, it being
disputably presumed that there is a gift in
favor of the child.
• Scenario: A owns a parcel of land which
he aims to sell to B, the buyer. P pays the
purchase price, but the deed of sale
indicates that B holds legal title. In this
case, B is the trustee, but P is the
beneficiary. Exception: If B is the child of
P, P will be deemed to have donated the
purchase price to B. Therefore, no trust is
implied.
Article 1449. There is also an implied trust
when a donation is made to a person but it
appears that although the legal estate is
transmitted to the donee, he nevertheless is
either to have no beneficial interest or only a
part thereof.
• Scenario: A died owning a parcel of land.
B was instituted as a devisee. It was,
however, specified that C shall have the
beneficial interest and B shall have no
other interest except legal title. Here, B is
the trustee and C is the beneficiary.
Article 1451. When land passes by succession
to any person and he causes the legal title to
be put in the name of another, a trust is
established by implication of law for the
benefit of the true owner.
• Scenario: A died. H is a legal heir. During
the settlement, the land was placed under
the name of T. T is the trustee and H is the
beneficiary.
Article 1452. If two or more persons agree to
purchase property and by common consent
the legal title is taken in the name of one of
them for the benefit of all, a trust is created
by force of law in favor of the others in
proportion to the interest of each.
• Scenario: A and B purchased land. The
title was only registered under the name
of A. A is the trustee and B is the
beneficiary but only insofar as the ½
portion of B is concerned.
Article 1453. When property is conveyed to a
person in reliance upon his declared
intention to hold it for, or transfer it to
another or the grantor, there is an implied
trust in favor of the person whose benefit is
contemplated.
• Scenario: K Manuel said that if you give
him Php 2 million, he will donate 75% to
K Manuel Foundation for Boys. Php 2
million was given to him by 3E (trustor).
K Manuel (trustee) holds 75% of the Php
2 million in trust for the beneficiary, i.e.,
the K Manuel Foundation for Boys.
• Parang sa crowdsourcing ng donations
lang sa Twitter and social media.
Constructive Trusts
• Specie of implied trust
• No words contained in the agreement but
by reason of equity and justice, the law
presumes that there is an implied trust.
Article 1450. If the price of a sale of property
is loaned or paid by one person for the
benefit of another and the conveyance is
made to the lender or payor to secure the
payment of the debt, a trust arises by
operation of law in favor of the person to
whom the money is loaned or for whom it is
paid. The latter may redeem the property
and compel a conveyance thereof to him.
Page 44 of 45
 • Scenario: C loaned to D Php 1 million for
the latter to use to purchase parcel of
land. C wanted to be secure. Pending
payment of D’s loan, C was named as the
buyer of the parcel of land. When D has
enough money to Php 1 million, C
transfers the parcel of land. This is not
allowed by Art. 1450. C is not a party to the
purchase transaction. The intention of the
parties was to have the parcel of land as a
security (real estate mortgage, kumbaga).
This is to avoid pactum commissorium
which provides for automatic
appropriation of the property given as
security for the loan. Under Art. 1450,
there is a trust constituted where C is the
trustee, and D is the beneficiary. In fact,
D, as beneficiary, can compel the
conveyance of the property any time.
Article 1454. If an absolute conveyance of
property is made in order to secure the
performance of an obligation of the grantor
toward the grantee, a trust by virtue of law is
established. If the fulfillment of the
obligation is offered by the grantor when it
becomes due, he may demand the
reconveyance of the property to him.
• Medyo same sa Art. 1450 except that Art.
1450 is specific to the contract of loan.
• Scenario: C undertook to construct a
house in favor of H. By way of security, C
transferred a parcel of land to H. here,
even though the legal title is with H, he
holds it as trustee in favor of C, the
beneficiary.
fund). G manages and administers the
Php 1 million. G uses the Php 1 million to
buy a car, and registers it in his name.
Under Art. 1455, G merely holds the car in
trust in favor of W, the beneficiary.
Article 1456. If property is acquired through
mistake or fraud, the person obtaining it is,
by force of law, considered a trustee of an
implied trust for the benefit of the person
from whom the property comes.
• Scenario: A told D that he is the long lost
son of D, showing a birth certificate. Yun
pala, pineke ni D yung birth certificate. D
donated parcel of land to A, as his son.
Subsequently, D discovered na fake pala
yung birth cert. A holds in trust the parcel
of land in favor of D.
FINALS: Same format; Assuming walang
deptals, 20% MCQ, 80% Essay. 20% MCQ –
Partnership only, 80% Essay – Partnership,
Agency (pero repeat principles lang sa
prelims), and Trust. Good luck!

Article 1455. When any trustee, guardian or

other person holding a fiduciary
relationship uses trust funds for the
purchase of property and causes the
conveyance to be made to him or to a third
person, a trust is established by operation of
law in favor of the person to whom the funds
belong.
• Scenario: G is the guardian of W. W has
in his bank account Php 1 million (trust
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