General Provisions Partnership (P) vs.

Corporation (C)
a. creation
Art. 1767 – Definition: P – voluntary agreement of parties
Partnership – a contract whereby two or more C – created by the state in the form of a special
persons bind themselves to contribute money, charter or by a general enabling law
property or industry to a common fund, with the b. how long it exists
intention of dividing the profits among themselves, or P – no time limit except agreement by parties
in order to exercise profession. C – not more than 50 years; may be reduced, but
never extended
Profession – a group of men pursuing a learned art c. liability to strangers
as a common calling in the spirit of public service – no P – may be liable with their private property
less a public service because it may incidentally be a beyond their contribution to the firm
means of livelihood. C – liable only for payment of their subscribed
capital stock
Characteristics of Partnership d. transferability of interest
1. Consensual P – even if a partner transfers his interest to
2. Nominate another, the transferee does not become a
3. Bilateral partner unless all other parties consent
4. Onerous C – a transfer of interest makes the transferee a
5. Commutative stockholder, even without the consent of the
6. Principal others
7. Preparatory e. ability to bind the firm
P – generally, partners acting on behalf of the
 A partnership contract, in its essence, is a partnership are agents thereof; consequently
contract of agency they can bind both the firm and the partners
C – generally, the stockholders cannot bind the
Elements corporation since they are not agents thereof
1. consensual; f. mismanagement
2. there must be a contribution of money, P – a partner can sue a partner who mismanages
property or industry to a common fund; C – a stockholder cannot sue a member of the
3. the subject must be a lawful one; board of directors who mismanages: the action
4. there must be an intention of dividing the profit must be in the name of the corporation
among the partners; g. nationality
5. there must be a desire to formulate an active P- a partnership is a national of the country it was
union (affectio societatis); created
6. a new personality, that of the firm – must C – a corporation is a national of the country
arise, distinct from the separate personality of under whose laws it was incorporated, except for
each of the members wartime purposes or for the acquisition of land,
natural resources and the operation of public
Essential Features of Partnership utilities in the Philippines, in which case the veil
1. there must be a valid contract; of the corporate identity is pierced and we go to
2. the parties must have legal capacity to enter the nationality of the controlling stockholders
into the contract; h. attainment of legal personality
3. there must be a mutual contribution of money, P – the firm becomes a juridical person from the
property, or industry to a common fund; time the contract begins
4. the object must be lawful; and C – the firm becomes a juridical person from the
5. the primary purpose must be to obtain profits time it is registered in the Securities and
and to divide the same among the parties Exchange Commission, and all requisites have
been complied with
Differentiation: i. dissolution
 P – death, retirement, insolvency, civil
interdiction, or insanity of a partner dissolves the
firm
C – such causes do not dissolve the corporation
Ordinary Partnership (OP) vs. Conjugal
Partnership of Gains (CPG)
a. how created
OP – by will or consent of the parties
CPG – created by operation of law upon the
celebration of the marriage
b. law that governs
OP – in general, it is the will of the partners that
governs matters like object, length of existence,
etc; the law is only subsidiary
CPG – in general, it is the law that governs
c. legal personality
PO - possesses a legal personality
CPG – does not possess any legal personality
distinct from that of the husband or wife; hence, it
cannot sue or be sue as such
d. commencement of the partnership
PO – begins at the moment of the execution of
the contract but a contrary stipulation is allowed
CPG – commences precisely on the date o the
celebration of the marriage – no contrary
stipulation is allowed
e. purpose
PO – formed for profit
CPG – not formed particularly for profit
f. division of profits
as a rule, profits are divided according to
previous agreement; and if there is no
agreement, in proportion to the amount
contributed
CPG – as a rule, profits are divided equally (but
settlement can provide otherwise)
g. management
PO – as a rule, management is conferred upon
the partners so appointed by the others;
otherwise, all are equally considered agents of
the firm
CPG – as a rule, the administration and
enjoyment of the conjugal partnership property
belong to both spouses jointly
h. dissolution
PO – there are many grounds for dissolution
CPG – there are few grounds for dissolution
i. liquidation of profits
PO – there may be division of profits even
without dissolution
CPG – there will be no liquidation or giving of
profits till after dissolution
Partnership (P) vs. Co-Ownership (Community of
property Tenancy in Common) (CO)
a. creation
P – created by contract only (express or implied)
CO – created by contract, law and other things
b. juridical
P – has juridical or legal personality
CO – has none, hence, it cannot sue or be sued
as such
c. purpose
P – for profit
CO – collective enjoyment (hence, not
necessarily for profit)
d. agency or representation
P – as a rule, there is mutual representation
CO – as a rule, there is no mutual representation
(although it is enough for one co-owner to bring
an action for ejectment against a stranger)
e. transfer of interest
P – cannot substitute another as partner in his
place, without unanimous consent
CO – can dispose of his share without the
consent of the others
f. length of existence if created by contract
P – no term limit is set by law
CO – must not be for more that 10 years
(although agreement after termination may be
renewed) (hence, if more than 10 years, the
excess is VOID)
 20 years is the maximum if imposed by
the testator or donee of the common
property
g. profits
P- may be stipulated upon
CO – profits must always depend on
proportionate shares (any stipulation to the
contrary is VOID)
h. dissolution
P – dissolved by death or incapacity of a partner
CO – not dissolved by the death or incapacity of
co-owner
i. form
P – may be made in any form except when real
property is contributed (here, a public instrument
is required)
CO – no public instrument needed even if real
property is the object of the co-ownership
Partnership (P) vs. Joint-Stock Company (JSC) P – always organized for pecuniary profit
a. as to composition V – such objective is lacking
P – essentially, an association of persons c. contribution of members
JSC – essentially, an association of capital P – there is contribution of capital, either in the
b. as to division of capital form of money, property, or services
P – capital is not divided into shares V – for social purposes, although fees are usually
JSC – although a special form of partnership, its collected from the members to maintain the
capital is divided into shares, like in a corporation organization, there is no contribution of capital
c. as to management d. liability of members
P – generally, in all the partners P – the partnership, as a rule, is the one liable in
JSC – generally, in a board of directors the first place for the debts of the firm
d. as to liability V – the members are individually liable for the
P – partners may be liable with their individual debts of the association, authorized by them
properties after exhaustion of the partnership either expressly or impliedly, or subsequently
assets ratified by them
JSC – liability of the members is only up to the
extent of their shares if such is what the statute Partnership vs. Business Trusts
provides - when certain persons entrust their
e. effect of transfer of interest property or money to others who will manage the
P – transferee of partner’s share does not same for the former, a business trust is created. The
become a partner unless all the other partners investors are called cestui que trust; the managers
consent are the trustees. In a true business trust, the cestui
JSC – transferee of member’s shares himself que trust (beneficiaries) does not at all participate in
becomes a member without any necessity of the management; hence, they are exempted from
consent from the other members personal liability, in that they can be bound only to the
extent of their contribution.
Partnership (P) vs. Social Organizations (SO)
a. as to contribution Partnership vs. Tenancy
P – capital is given in money, property or a. a partner acts as agent for the partnership
services whom he represents; the tenant does not
SO – no capital is given although, of course, fees represent the landlord.
are usually collected b. a partnership is a legal person; no such
b. as to liability of debts person is created in the relationship between
P – partners are liable only after the partnership landlord and tenant.
assets are exhausted
SO – members are the ones individually liable for
the debts of the organization, debts authorized or Partnership vs. Agency
ratified by said members a. ―agency‖ may in one sense be considered the
c. as to purpose of objective broader term because: partnership‖ is only a form
P – organized for gain, principally financial of ―agency.‖
SO – organized usually only for social or civic b. an agent never acts for himself but only for his
objectives principal; a partner is both a principal (for his own
d. as to personality interest) and an agent (for the firm and the
P – a legal person others).
SO – not a legal person
Partnership vs. Joint Adventure (joint accounts)
Partnership (P) vs. Voluntary Association (V) a. a joint adventure is a sort of informal
a. juridical personality partnership, with no firm name and no legal
P – has juridical personality personality. In a joint account, the participating
V - none merchants can transact business under their own
b. purpose name, and can be individually liable therefor.
b. usually but not necessarily, a joint adventure
is limited to a SINGLE TRANSACTION, although
the business of pursuing it to a successful
termination may continue for a number of years;
a partnership generally relates to a continuing
business of various transactions of a certain kind.
Partnership vs. Labor Union
- a labor union is any association of
employees which exists in whole or in part for the
purpose of collective bargaining or of dealing with
employers concerning terms and conditions of
employment.
- partnerships and labor unions have some
characteristics in common, but the purpose of
partnership is essentially to enable its members, as
principals, to conduct a lawful business, trade, or
profession for pecuniary gain of partners, and no one
may become a partner without consent of all partners
Partnership vs. Syndicate
- a syndicate is usually a particular
partnership, that is, it may have been organized to
carry out a particular undertaking or for some
temporary objective
Art. 1768 – Partnership is a juridical person
separate and distinct from each of the partners.
Consequences:
1. Its juridical personality is separate and distinct
from that of each of the partners.
2. The partnership can:
- acquire and possess property of all kinds;
- incur obligations;
- bring civil or criminal actions;
- can be adjudged insolvent even if the
individual members be each financially
solvent
3. A partner has no right to make a separate
appearance in court, if the partnership being
sued is already represented, unless he is
personally sued.
 Limitations on Alien Partnership
- Secs. 2, 7, 10 and 11 of Art. 12 of the 1987 the
Philippine Constitution
 Rules in case of Associations now lawfully
organized as Partnerships
1. If an association is not lawfully organized as a
partnership, it possesses no legal personality.
Therefore, it cannot sue. However, the ―partners,‖
in their individual capacity can.
2. One who enters into contract with a
―partnership‖ as such cannot, when sued later on
for recovery of the debt, allege the lack of legal
personality on the part of the firm, even if it
indeed had no personality.
Art. 1769 – Determinants for the Existence of a
Partnership
 Purpose:
- to indicate some test to determine if what may
seem to be a partnership really is one, or it is not
 Requisites for Existence of Partnership
1. intention to create a partnership;
2. common fund obtained from contributions;
3. there was joint interest in the profits;
Therefore:
mere co-ownership or co-possession; mere
profit sharing or GROSS returns do not establish
a partnership
Sharing of net profits
- a prima facie evidence that one is a
partner except in the 5 instances under Art.
1769
Art. 1770 – Lawful Object or Purpose
1. must be within the commerce of man, possible
and not contrary to law, morals, good customs,
public order or public policy
2. if a partnership has several purposes, one of
which is unlawful, the partnership can still validly
exist so long as the illegal purpose can be
separated from the legal purpose
 Judicial decree is not necessary to dissolve an
unlawful partnership.
- the contract is void and therefore never
existed from the viewpoint of the law
 Consequences of Unlawful Partnerships
1. Art. 45, RPC
2. The partners forfeit the proceeds or profits, but
not their contributions, provided no criminal
prosecution has been instituted.
- if the contributions have already been
made, they can be returned;
- if the contributions have not yet been
made, the parties cannot be made to make
the contributions
3. An unlawful partnership has no legal
personality.
Art. 1771 – Formalities of Partnership
1. General Rule:
-for the validity of the contract, as well as for
enforceability, no form is required,
regardless of the value of the contributions
Exception:
- whenever real properties or real rights in
real properties are contributed – regardless of the
value – a public instrument is needed. Moreover, an
inventory of the immovables is needed. This must be
signed by the parties and attached to the public
instrument
1. for effectivity of the partnership contract
insofar as innocent third persons are concerned,
the same must be registered if real properties are
involved.
Art. 1772 – Partnership with capital of Php 3,000
or more – Registration with the SEC
 Purpose of the registration with the office
of the SEC
- to set a condition for the issuance of
licenses to engage in business or trade
Effect of non-registration
1. even if not registered, the partnership having a
capital of Php 3,000.00 or more is still a valid
one, and therefore has legal personality;
2. if registration is needed, or desired, any of the
partners of a valid partnership can compel the
others to execute the needed public instrument,
and to subsequently cause its registration.
Art. 1773 – Where real property is contributed
 Requirements where real property is
contributed
1. There must be a public instrument regarding
the partnership;
2. The inventory of the realty must be made,
signed by the parties, and attached to the public
instrument
 Applicability
1. applies regardless of the value of the property;
2. applies even if only real rights over real
property are contributed;
3. applies also if cash or personal property is
contributed
Registration
– transfer of the land to the partnership
must be duly recorded in the Registration of Property
to make the transfer effective insofar as third persons
are concerned
Art. 1774 – Acquisition of property under the
Partnership name
- applicable to immovable as well as
personalty because the partnership is a
juridical entity, capable of owning and
possessing property
- alien partners must comply with the
requirements as provided for in Sec. 7, Art
12 of the 1987 Constitution
 Limitations on Acquisition
- a partnership, even if entirely of Filipino
capital may not:
1. acquire, lease or hold public agricultural
lands in excess of 1,024 hectares;
2. lease public lands adapted to grazing in
excess of 2,000
Art. 1775 – Secret Partnership
 If articles are kept secret
1. the association here is certainly not
a partnership and therefore not a legal
person, because anyone of the
members may contract in his own
 name with third persons and not in the 1. General
name of the firm; - they are liable even with respect to their
2. although not a juridical entity, it individual properties, in pro rata after the assets
may be sued by third persons under of the partnership have been exhausted, for
the common name it uses, otherwise, the contracts which may be entered into in the
said innocent third parties may be name and for the account of the partnership,
prejudiced; under its signature and by a person authorized to
3. however, it cannot sue as such, act for the partnership
because it has no legal personality and 2. Limited
therefore, cannot ordinarily be a party - formed by two or more persons having as
to a civil action; members one or more general partners and
4. therefore, insofar as innocent third one or more limited partners.
parties are concerned, the partners
can be considered as members of a  The limited partners as such shall not be
partnership; but as between bound by the obligations of the partnership
themselves, or insofar as third persons
are prejudiced, only the rules on co-  A limited partner is one whose liability is
ownership must apply. Same rule limited only up to the extent of his contribution
applies in the case of a partnership by
estoppel c. as to duration
1. at will
 Note: 2. at a fixed term
- contracts entered into by a partner in his - the term of existence has been agreed
own name may be sued upon still by him in upon expressly or impliedly
his own individual capacity, notwithstanding - the expiration of the term thus fixed or the
the absence of partnership accomplishment of the particular undertaking
specified will cause the automatic dissolution
 Partnership needs publicity to prevent of the partnership
fraud/deceit
d. as to legality of existence
Art. 1776 – Classification of Partnership 1. de jure –
2. de facto
a. as to object/subject matter
1. Universal Partnership e. as to representation
- may refer to all the present 1. ordinary/real
property or to all the profits 2. ostensible/ partnership by estoppel
a. universal of all present property
- that which the partners contribute all the f. as to publicity
property which actually belongs to them to a 1. secret
common 2. open or notorious

b. universal of profits g. as to purpose

- comprises all that the partners may 1. commercial
acquire by their industry or work during 2. professional
the existence of the partnership
2. Particular Partnership  Kinds of Partners
- object are determinate things, their use or 1. Capitalist Partners
fruits; a specific undertaking or the exercise of a - one who furnishes capital;
profession or occupation - not exempted from losses; can engage in
other business provided there is no
b. as to liability of partners
 competition between the partner and his
business d. dormant/sleeping
- one who is both a secret and silent
2. Industrial partner (not managing)
- one who furnishes industry or labor;
- can be a general partner but never a e. original
limited partner; f. incoming
- exempted from losses as between the g. retiring
partner; cannot engage in any other
business without express consent of the Arts. 1778-80 – Universal Partnership
partners, otherwise
- he can be excluded from the firm (plus  2 kinds of Universal Partnership
damage) A. Universal property of all present property
- or the benefits he obtains from the - one which comprises all that the partners
other business can be availed of by the other may acquire by their industry or work during
partners (plus damages) the existence of the partnership and the
usufruct of movable or immovable property
3. General/Real which each of the partners may possess at
- one who is liable beyond the extent of his the time of the celebration of the contract.
contribution  The following become common property of all
the partners:
4. Managing 1. property which belonged to each of them
- one who manages actively the firm’s at the time of the construction of the
affairs partnership
2. profits which they may acquire from the
5. Liquidating property contributed
- one who liquidates or winds up the affairs
of the firm after it has been dishonored  Property which the partners may acquire
subsequently by inheritance, legacy or
6. Partner by estoppel/Quasi-partner donation cannot be included for the
- one who is not really a partner but who stipulation for common enjoyment
may become liable as such insofar as third  Fruits thereof may be included
persons are concerned
B. All profits
7. Continuing - comprises all that the partners may
8. Surviving acquire by their industry or work during the
9. Subpartner existence of the partnership

 Other classifications  Distinction between all profits and all

a. ostensible partner present property
- one whose connection with the firm is
public and open  All profits
- only the usufruct of the properties of the
b. secret partners become common property; naked
- one whose connection with the firm is ownership is retained by each of the
concealed or kept a secret partners
- all profits required by the industry or work
c. silent of the partners become common property
- one who does not participate in the  All present property
management, though he shares in the profits
or losses
 - all the property actually belonging to the
partners are contributed- and said properties
become common properties
- as a rule, aside from the properties, only
the profits of the said contributed common
property
 Note:
- profits from other sources may become
common, but only if there is a stipulation to
such effect.
- Properties subsequently acquired by
inheritance, legacy or donation, cannot be
included in the stipulation, but the fruits
thereof can be included in the stipulation
Art. 1781 – Presumption in favor of
partnership of profits
- applicable only when a universal
partnership has been entered into
 note:
- future property cannot be included in the
stipulation regarding universal partnership of
all present property
Reasons:
1. contracts regarding successions rights
cannot be made;
2. partnership demands that the contributed
things be determinate, known and certain;
3. universal partnership of all present
properties really implies a donation and
future property cannot be donated
Art. 1782 – Persons prohibited by law to give
donation- cannot enter into Universal Partnership
Reason: they should not be allowed to do indirectly
what the law forbids directly
Art. 1783 – Particular Partnership
- it has for its object determinate things, their use
of fruits, or specific undertaking, or the exercise of a
profession or vocation
 Doctrine:
If two (2) individuals form a particular partnership
for a deal in reality, it does not necessarily follow
that all deals are for the benefit of the
partnership. In the absence of agreement, each
particular deal results in a particular partnership.
If one of them, on his account, and using his own
funds, should make transactions in the same
business, it is his own undertaking
II. Obligations of the Partners among
themselves
Art. 1784 – When partnership begins
General Rule:
- begins from the moment of the execution
of the contract
Exception:
- unless it is otherwise stipulated
 Intent to create a future partnership
 Art 1784 presupposes that there can
be a future partnership which at the
moment has no juridical existence yet
 The agreement for a future
partnership does not itself result in a
partnership. The intent must be later on
actualized by the formation of the
intended partnership
 Rule if contributions have not yet been
actually made
- generally, even if contributions have not yet
been made, the firm already exists, for
partnership is a consensual contract (all
requisites for such consent must be present)
Art. 1785 – Duration of Partnership
 Duration: unlimited in the sense that no time
limit is fixed by law; may be agreed upon
(expressly or impliedly)
 Partnership “at will”
- 2 kinds
a. when there is no term, express or
implied
b. when continued by habitual
managers
- note:
It is called ―at will‖ because its continued
existence really depends upon the will of the
partners or even on the will of any of them.

Art. 1786 – Duties of Parties
 3 Important Duties of a partner
1. to contribute what has been promised;
2. to deliver the fruits of what should have
been delivered; and
3. to warrant
 Obligations with respect to contribution of
property
1. to contribute at the beginning of the
partnership or at the stipulated time the
money, property or industry which he may
have promised to contribute;
2. to answer for eviction in case the
partnership is deprived of the determinate
property contributed; and
3. to answer to the partnership for the fruits
of the property the contribution of which he
delayed, from the date they should have
been contributed up to the time of actual
delivery
in addition, the partner has the obligation:
4. to preserve said property with the
diligence of a good father of a family pending
delivery to the partnership; and
5. to indemnify the partnership for any
damage caused to it by the retention of the
sane or by the delay in its contribution
 Effects of failure to contribute property
promised
The mutual contribution to a common fund
being of the essence of the contract of
partnership, for without the contributions the
partnership is useless, it is but logical that the
failure to contribute is to make the partner ipso
jure a debtor of the partnership even in the
absence of any demand.
The remedy of the partner is not rescission
but an action for specific performance with
damages and interest from the defaulting partner
from the time he should have complied with his
obligation.
Art. 1787 – Appraisal of Goods
- manner prescribed by the contract of
partnership in the absence of stipulation,
appraisal shall be made by experts
chosen by the partners and according to
current prices
A. When contribution consist of goods
- appraisal of value is needed to
determine how much has been
contributed
B. How appraisal is made
- as prescribed by the contract
- in default of the first, experts chosen
by the partners, and at current prices
C. Necessity of the Inventory Appraisal
- proof is needed to determine how
much goods or money had been
contributed. An inventory is useful
D. Risk of loss
- after goods have been contributed, the
partnership bears the risk of subsequent
changes in their value
Art. 1788- Obligations with respect to contribution
of money
1. to contribute on the date due the
amount he has undertaken to contribute
to the partnership;
2. to reimburse any amount he may
have taken from the partnership coffers
and converted to his own use;
3. to pay the agreed or legal interest, if
he fails to pay his contribution on time or
in case he takes any amount from the
common fund and converts it for his own
use; and
4. to indemnify the partnership for the
damages caused to it by the delay in the
contribution or the conversion of any
sum for his personal benefit
 Liability of guilty partner for interest and
damages
- the guilty partner is liable for interest and
damages not from the time judicial or
extrajudicial demand is made but from the
time he should have complied with his
 obligation or from the time he converted the
amount to his own use, as the case may be.
- Unless there is a stipulation fixing a
different time, this obligation of a partner to
give his promised contribution arises from
the commencement of the partnership, that
is, upon perfection of the contract.
 Cases covered by the article:
a. when money promised is not given on
time;
b. when partnership money is converted to
the personal use of the partner
 Coverage of liability
a. interest at the agreed rate (if none, the
legal interest)
b. damages that may be suffered by the
partnership
 Why no demand is needed to put partners in
default:
a. contribution
- a partnership is formed precisely to make
use of contributions, and this use should
start from its formation, unless a different
period has been set; otherwise the firm is
necessarily deprived of the benefits thereof
- injury is constant
- time is of the essence
b. conversion
- the form is deprived of the
benefits of the money, from
the very moment of conversion
 note: even if no actual injury results, the
liability exists because Art. 1788 is absolute
Art. 1789 – Obligations of an Industrial Partner
Remedies where industrial partner engages in
business
- if the industrial partner engages in
business for himself, without the express
permission of the partnership, the capitalist
partners have the right to exclude him from
the firm or to avail themselves of the benefits
which he may have obtained. In either case,
the capitalist partners have the right to
damages
note: the permission given must be express;
hence, mere toleration by the partnership will not
exempt the industrial partner from liability
Distinction between Capitalist
Partner and Industrial Partner
a. as to contribution
CP – contributes money or property
IP – contributes industry (mental or physical)
b. as to prohibition to engage in other business
CP – cannot generally engage in the same
or similar enterprise as that of his firm
(possibility of unfair competition)
IP – cannot engage in any business for
himself (all his industry is supposed to be
contributed to the firm)
c. as to profits
CP – shares in the profits according to the
agreement thereon; if none, pro rata to his
contribution
IP – receives a just and equitable share
d. as to losses
CP – stipulation; if no stipulation, the
agreement as to the profits; if none, pro rata
contribution
IP – exempted as to losses (as between the
partners0; but is liable to strangers without
prejudice to reimbursement from capitalist
partners
Art. 1790 - Contribution
General Rule: Partner shall contribute equal shares
to the capital of the partnership
Exception: stipulation to the contrary
 Amount of contribution
- it is permissible to contribute unequal
shares, if there is a stipulation to that effect
 To whom applicable
- both to industrial as well as to capital
partners undoubtedly
Art. 1791 – Obligation of Capitalist Partner
General Rule:
 - a capitalist partner is not bound to
contribute to the partnership more than what
he agreed to contribute but in case of
imminent loss of the business, and there is
no agreement to the contrary, he is under
obligation to contribute an additional share to
save the venture.
- if he refuses to contribute, he shall be
obliged to sell his interest to the other
partners
 Requisites when a capitalist partner is obliged
to sell his interest to the other partners:
1. if there is imminent loss of the partnership;
2. he refuses to contribute an additional share
to the capital; and
3. there is no agreement to the contrary
 note: industrial partner is exempted for he
is already giving his entire industry
Art. 1792 – Obligations of Managing Partner who
collects debt
 Requisites:
a. existence of at least two debts;
b. both sums are demandable; and
c. collecting partner is authorized to
manage and actually manages the
partnership
 when not applicable
- if the partner collecting is not a managing
partner
- here, there is no basis for the suspicion
that the partner is in BAD FAITH
Art. 1793 – Obligation of Partner who receives share
of partnership credit
- to bring such to the partnership capital in
case of insolvency of the debtor and other
partners have not yet collected their share
 as compared to Art. 1792
a. one debt only (firm credit)
b. applies to any partner
Art. 1794 – Obligation of partner for damages to
partnership
 Why General Damages cannot be offset by
benefits:
a. the partner has the duty to secure
benefits for the partnership; on the other
hand, he has the duty also not to be at
fault
b. since both are duties, compensation
should not take place, the partner being
the debtor in both instances
- compensation requires 2 persons who
are reciprocally debtors and creditors of
each other
 Mitigation of Liability
- equity may mitigate liability if there are
“extraordinary efforts” resulting in
unusual “profits”
 Need for Liquidation
- before a partner sues another for
alleged fraudulent management and
resultant damages, a liquidation must
first be effected to know the extent of
damages
Effect of Death of the negligent Partner
- suit for recovery may be had against
his estate
Art. 1795 – Risk of Loss of things contributed
Cases contemplated:
1. Specific and determinate things which are not
fungible where only the use is contributed
- the risk of loss is borne by the partner
because he remains the owner of the things
2. Specific and determinate things the ownership
of which is transferred to the partnership
- the risk of loss is for the account of the
partnership, being the owner
3. Fungible things or things which cannot be kept
without deteriorating even if they are contributed
only for the use of the partnership
- the risk of loss is borne by the partnership
for evidently the ownership was being
transferred since use is impossible without
the things being consumed or impaired
4. Things contributed to be sold
- the partnership bears risk of loss for there
cannot be any doubt that the partnership
 was intended to be the owner; otherwise’ the
partnership could not effect the sale
5. Things brought and appraised in the inventory
- the partnership bears the risk of loss
because the intention of the parties was to
contribute to the partnership the price of the
things contributed with an appraisal in the
inventory. There is thus an implied sale
making the partnership owner of the said
things, the price being represented by their
appraised value.
Art. 1796 – Responsibility of the Firm
Obligation of the partnership to the partners:
1. refund amounts disbursed by the partner
in behalf of the partnership plus the
corresponding interest from the time the
expenses are made;
2. to answer for the obligations the partner
may have contracted in good faith in the
interest of the partnership business; and
3. answer for risk in consequence of its
management
Art. 1797 – Rules for Distribution of Profits and
Losses
 Distribution of Profits
a. partners share the profits according to
their agreement subject to Art. 1799
b. if there is no such agreement:
1. the share of each capitalist partner
shall be in proportion to his capital
contribution (this rule is based on the
presumed will of the partners)
2. the industrial partner shall receive
such share, which must be satisfied first
before the capitalist partners shall divide
the profits, as may be just and equitable
under the circumstances.
- the share of the industrial partner in
the profits is not fixed, as in the case of
the capitalist partners, as it is very
difficult to ascertain the value of the
services of a person
 Distribution of Losses
a. the losses shall be distributed
according to their agreement subject to
Art. 1799
b. if there is no such agreement, but the
contract provides for the share of the
partners in the profits, the share of each
in the losses shall be in accordance with
the profit-sharing ratio, but the industrial
partner shall not be liable for losses.
The profits or losses of the partnership
cannot be determined by taking into
account the result of one particular
transaction but of all the transactions
had.
c. If there is also no profit-sharing
stipulated in the contract, then losses
shall be born by the partners in
proportion to their capital contributions,
but the purely industrial partner shall not
be liable for the losses.
 Industrial Partner’s Profit
- a just and equitable share
 Industrial Partner’s Losses
- while he may be held liable by third
persons, still he can recover whatever he is
made to give them, from the other partners,
for he is exempted from losses, with or
without stipulation to this effect
 Non-applicability to Strangers
- Art. 1797 applies only to the partners, not
when liability in favor of strangers are
concerned, particularly with reference to the
industrial partner
Art. 1798 – Designation by Third Persons
a. third person
- in the article, not a partner; to avoid
partiality
b. when designation by the 3rd party may
be impugned
- when it is manifestly inequitable
c. when designation cannot be
impugned even if manifestly inequitable:
- if the aggrieved partner has already
begun to execute the decision
- if he has not impugned the same within
3 months from the time he had
knowledge thereof

Art. 1799 – (1) Stipulation excluding a partner from
any share in profits or losses
General Rule:
- a stipulation excluding one or more
partners from any share in the profits or
losses is void
Reason: partnership is for COMMON BENEFIT
Exception:
- in the case of the industrial partner whom
the law itself excludes from losses
note: stipulation exempting a partner from losses
should be allowed
 Reason why industrial partner is generally
exempted from losses
- the industrial partner cannot withdraw any
labor or industry he had already exerted.
Art.1800 - Rights and Obligations of a Managing
Partner
 Modes of Appointing a Manager
1. appointment as manager in the articles of
partnership
2. appointment as manager made in an
instrument other than the articles of
partnership or made orally
 Distinction between Appointment in Articles of
Partnership and Appointment from other Source
(other than the articles of partnership)
a. as to power
Partnership – power is irrevocable without just or
lawful cause
- to justify removal for just cause:
controlling partners should vote to oust him
- without just cause: there must be
unanimity
other source - power to act may be revoked at
any time, with or without just cause
- such appointment is a mere delegation of
power; revocable at any time
- removal shall also be done by the
controlling interest
b. as to extent of power
Partnership
 good faith – he may do all acts of
administration (not ownership) despite the
opposition of his partners
 bad faith – he cannot
other source – as long as he remains manager,
he can perform all acts of administration, but of
course, if the others oppose and he persists, he
can be removed
 Scope of the Powers of the Manager
Unless specifically restricted:
- he has the powers of a general agent;
- as well as the incidental powers needed
to carry out the objectives of the partnership
 Rules as to Compensation
General Rule:
- in the absence of an agreement to the
contrary, each member of the partnership
assumes the duty to give his time, attention,
and skill to the management of its affairs, so
far at least, as may be reasonable necessary
to the success of the common enterprise;
and for this service a share of the profits is
only his compensation.
Exception:
a. a partner engaged by his co-partners to
perform services not required of him in
fulfillment of the duties which the partnership
relation imposes and in a capacity
other than that of a partner is entitled to
receive the compensation agreed upon
therefor;
b. a contract for compensation may be
implied where there is extraordinary neglect
on the part of one partner to perform his
duties toward the firm’s business, thereby
imposing the entire burden on the remaining
partner;
c. one partner may employ his co-partner to
do work for him outside of and independent
of the co-partnership, and become
personally liable therefor;
d. partners exempted by the terms of
partnership from rendering services to the
firm may demand pay for services rendered;
e. where one partner is entrusted with the
management of the partnership business
 and devotes his whole time and attention
thereto, at the instance of the other partners
who are attending to their individual
business and giving no time or attention to
the business of the firm, the case presents
unusual conditions, is taken out of the
general rule as to compensation and
warrants the implication of an agreement to
make compensation, In such cases, the
amount of compensation depends, of
course, upon the agreement of the parties,
express or implied, as well as upon the
particular circumstances of the case; and
f. by the contract of partnership, one
partner is exempted from the duty of
rendering personal services to the
concerned, if he afterwards does render
such service at the instance and request of
his co-partners, or where the services
rendered are extraordinary.
Art. 1801 – Rule where there are 2 or more Managers
 Applicability of the Article
1. there are two or more managers;
2. there is no specification of respective
duties; and
3. there is no stipulation requiring
unanimity
 Specific Rules:
1. Each may separately execute all acts of
administration;
2. except if any of the managers should
oppose (division of the majority of the
managers shall prevail)
- if there is a tie, the partners owning the
controlling interest prevail; provided they are
also managers
 when opposition may be made
- before the acts produce legal effects
insofar as third persons are concerned
Art. 1802 – Unanimity of Action
 When Unanimity is Required
a. applies when there must be unanimity in
the actuations of the managers
b. absence or incapacity of one of the
managers still requires unanimity
except:
- when there is imminent danger of
grave or irreparable injury to the
partnership
 Duty of third persons
RULE:
Third persons are not required to inquire as
to whether or not a partner with whom he
transacts has the consent of all the managers, for
the presumption is that he acts with due authority
and can bind the partnership.
APPLICABILITY:
When they innocently deal with a partner
apparently carrying on in the usual way the
business, it is imperative that if unanimity is
required it is essential that there be unanimity;
otherwise the act shall not be valid, that is the
partnership is not bound.
Art. 1803 – Rule when manner of management has
not been agreed upon
a. Generally, each partner is an agent
b. Although each is an agent, still if the
acts are opposed by the rest, the
majority should prevail for the presumed
intent is for all the partners to manage
as in Art. 1801;
c. When a partner acts as an agent, it is
understood that he acts in behalf of the
firm; therefor when he acts in his own
name, he does not bind the partnership
generally
d. On the other hand, the authority to
bind the firm does not apply if somebody
else had been given authority to
manage in the articles of organization or
thru other means.
 Rule on Alterations
a. ―important alterations‖
- deals with immovable property
because of their greater importance
than personality. Also, in proper cases,
they should be returned to the partners
in the same condition as when they
were delivered to the partnership
b. ―alteration‖
- contemplates useful expenses

c. consent of the others may be express or
implied
Art. 1804 – Contract of Subpartnership
Subpartnership – partnership formed between a
member of a partnership and a third person for a
division of the profits coming to him from the
partnership enterprise
- partnership within a partnership and is
distinct and separate from the main or principal
partnership
 Right of person associated with partner share
- subpartnership agreements do not in any
wise affect the composition, existence, or
operations of the firm. The partners are
partners inter se,but, in the absence of the
mutual assent of all the parties, the
subpartner does not become a member of
the partnership, even the agreement is
known to the other members of the firm.
 Associate of Partner
a. for a partner to have an associate in his
share, consent of the other partners is not
required;
b. for the associate to become a partner, all
must consent
Art. 1805 – Partnership Books
a. such a right is granted to enable the
partner to obtain true and fuel
information of the partnership affairs
b. the article presupposes an ―ongoing
partnership‖
c. ―reasonable hour‖
- contemplates business days
throughout the year
 Value of Partnership Books of Account as
Evidence
- they constitute an admission of the facts
stated therein, an admission that can be
introduced on evidence as against the
keeper or maker thereof.
Art. 1806 – Duty of Partner to render Information
 Duty to give information
- there must be no concealment between
partners in all matters affecting the firm’s
interest
- requires good faith
- duty to give on demand ―true and full
information‖
Errors in the Book
- if partnership books contain error, but
said errors have not been alleged, the books
must be considered entirely correct insofar
as the keeper of said books of account is
concerned
Who can demand information
a. any partner;
b. legitimate representative of dead
partner;
c. legitimate representative of any
partner under any legal disability
Art. 1807 – Duty to Account
 Partner accountable as fiduciary
- the relation between the partners is
essentially fiduciary involving trust and
confidence, each partner being considered
in law, as he is, the confidential agent of the
others
 Duties of a partner
1. Duty to act for common benefit
2. Duty begins during the formation of
partnership
3. Duty continues even after dissolution of
partnership
4. Duty to account for secret and similar
profits
5. Duty to account for earnings accruing
even after termination of partnership
6. Duty to make full disclosure of information
belonging to partnership
7. Duty not to acquire interest or right
adverse to partnership
 Duty to Account
REASON:
- the fiduciary relation between the
partners are relationships of trust and
 confidence which must not be abused or
used to personal advantage III. Property Rights of a Partner
- trust relations exists only during the life of
the partnership, not before nor after Art. 1810 – Property Rights of a Partner

Art. 1808 – Prohibition against a Capitalist Partner Principal Rights:

a. specific partnership
 Business Prohibition on Capitalist Partner b. interest in the partnership
- prohibited from engaging for his own c. right to participate in the
account in any operation which is the kind of management
business in which the partnership is
engaged Related Rights:
a. the right to reimbursement for
Instances where there is no prohibition amounts advanced to the partnership
a. when there is an express stipulation allowing and to indemnification for risks in
the capitalist partner to engage himself; consequence of management;
b. when the other partners expressly allow him to b. the right to access the inspection of
do so; partnership books;
c. when the other partners impliedly allowed him c. the right to true and full information
to do so; of all things affecting the partnership;
d. when the company ceases to be engaged in d. the right to formal account of
business during the period of liquidation and partnership affairs under certain
winding up; and circumstances; and
e. when the general-capitalist partner becomes e. the right to have the partnership
merely a limited partner in a competitive dissolved also under certain conditions
enterprise
Distinction between Partnership Property and
 Effect of Violation Partnership Capital
a. the violator shall bring the partner shall of
the profits illegally obtained; a. as to changes in value
b. he shall personally bear all the losses PP – variable; its value may vary from day to
day with changes in the market value of the
 Art. 1809 – Right of Partner to a Formal partnership assets
Account PC – constant; remains unchanged as the
amount fixed by agreement of partners, and
Right to demand a formal account is not affected by fluctuations in the value of
a. generally, no formal accounting partnership property, although it may be
is demandable until after dissolution increased or diminished by unanimous
b. however, under Art. 1809, consent of the partners
formal accounting may be properly b. as to assets included
asked for PP – includes not only the original capital
contributions of the partners, but all property
Estoppel subsequently acquired on account of the
- cannot be questioned anymore if it was partnership or with partnership funds,
accepted without objection for this would including partnership name and the good will
now be a case of estoppel, unless fraud and of the partnership
error are alleged and proved PC – represents the aggregate of the
individual contributions made by the partners
 Stipulation and Continuing Share in establishing or continuing the partnership
- valid and proper accounting must be
made
Art. 1811 – Partnership in Specific Partnership
Property
 Co-ownership in Specific Partnership Property
- partners are co-owners but rules on co-
ownership does not necessarily apply
 Rights of a partner in specific partnership
property
1. in general, he has an equal right with his
partners to posses, but only for partnership
purposes;
2. he cannot assign his right;
3. his right is not subject to attachment or
execution; and
4. his rights is not subject to legal support
Art. 1812 – Partner’s Interest in the Partnership is his
share of the profits and surplus
In general., a partner’s interest in the
partnership (his share in the profits and surplus) may
be assigned, attached or be subject to legal support
Art. 1813 – Conveyance of Interest
 Effects of conveyance by partner of his
Interest in the Partnership
1. Partnership may still remain; partnership
may be dissolved
2. Assignee does not necessarily become a
partner
3. Assignee cannot even interfere in the
management or administration of the
partnership business or affairs
4. Assignee cannot demand information,
accounting or inspection of the partnership
books
 Rights of Assignee
1. to get whatever profits the assignor-
partner would have obtained;
2. to avail himself of the usual remedies in
case of fraud in the management;
3. to ask for annulment of the contract of
assignment if there was fraud, error,
intimidation, force, undue influence;
4. to demand an accounting
Art. 1814 –
Charging Interest of a Partner
- while a partner’s interest in the
partnership may be charged or levied upon,
his interest in a specific firm property cannot
as a rule be attached.
 Preferential Rights of Partnership Creditors
- preference is given to partnership
creditors in the partnership assets;
- separate or individual creditors have
preference in separate or individual
properties
 Remedies of separate Judgment Creditor of a
Partner
1. Application for the ―charging order‖ after
securing judgment on his credit
2. Availability of other remedies
 Receivership
a. when the charging order is applied for
and granted, the court may at the same time
or later appoint a receiver of the partner’s
share in the profits or money due him
b. the receiver appointed is entitled to any
relief necessary to conserve the partnership
assets for partnership purposes
 Redemption of the Interest Charged
a. redemption- means the
extinguishment of the charge or
attachment on the partner’s interest in the
profits;
b. when redemption is made
- any time before closure;
- after closure, it may still be bought with
separate property or with partnership
property
IV. Obligation of the Partners with regard to Third
Persons
Art. 1815 – Firm Name
 Firm Name
- name, title or style under which a
company transacts business; a partnership
of two or more persons; a commercial house
 Purpose
 - necessary to distinguish the partnership
which has a distinct and separate juridical
personality from the individuals composing
the partnership and from other partnerships
and entities.
 Liability of strangers who include their name
- liability as partners because of estoppel,
but do not have the rights as partners
Art. 1816 – Liability for Contractual Obligations of
Partners
 Partnership Liability
 Individual Liability
Liability Distinguished from Losses
- an industrial partner is exempted by law
for losses’ but not from liability;
- third persons may sue the firm and the
partners, including the industrial partners;
- partners will be personally liable only after
the assets of the partnership have been
exhausted
Stipulations such as those exempting all the
industrial partners and some of the capitalist
partners, insofar as third persons are concerned,
would be null and void
Art 1817 – Stipulations Eliminating Liability
Art. 1799 and 1817 reconciled:
- it is permissible to stipulate among them
that a capitalist partner will be exempted
from liability in excess of the original capital
contributed; but will not be exempted insofar
as his capital is concerned
Liability vs. Losses
Liability – refers to responsibility towards third
persons
Losses – refers to responsibility as among partners
Art. 1818 – Partner as an Agent of Partnership
When a partner can bind or cannot bind the firm
a. Art. 1818 speaks of an instance when
the partner is an agent; and
b. when he can and cannot bind as
agent
 Agency of a partner
- partnership is a contract of mutual agency
- each partner acting as a principal on his
own behalf and as an agent for his co-
partners or the firm
When can a partner bind the partnership
Requisites:
a. when he is expressly authorized or
impliedly authorized; and
b. when he acts in behalf and in the
name of the partnership
When will act not bind the partnership
A. when, although for apparently
carrying on in the usual way the
business of the partnership,‖ still the
partner has in fact NO AUTHORITY,
and the third party knows that the
partner has no authority;
B. when the act is not for apparently
carrying on in the usual way of the
partnership and the partner has no
authority
NOTE: The 7 kinds of acts enumerated in
Art. 1818 are instances of acts which are
NOT for apparently carrying on in the usual
way the business of the partnership.
In the 7 instances, the authority
must be unanimous except if the business
has been abandoned.
 Reasons why 7 acts are ―unusual‖
a. assign the firm property – firm will virtually
be dishonored
b. dispose of the goodwill – good will is
valuable property
c. do any other act which would make it
impossible to carry on – this is evidently
prejudicial
d. confers a judgment – if done before a
case is filed, this is null and void; if done
later, the firm would be jeopardized
e. compromise – an act of ownership and
may be said to be equivalent to alienation
f. arbitration – an act of ownership which
may not be justified
g. renounce a claim – why should a partner
renounce a claim that does not belong to
him but to the partnership?

Art. 1819 – Conveyance of Real Property
 the article speaks of ―:to convey‖ or a
conveyance
 real property may be registered or
owned in the name of
- the partnership
- all the partners
- one, some or not all the partners in
trust for the partnership
Art. 1920 – Admission or representation made by a
partner
Conditions:
- admission must concern partnership
affairs;
- within the scope of the authority
Restrictions on the rule:
a. admission made BEFORE
dissolution are binding only when the
partners has authority to act on the
particular matter
b. admissions made AFTER dissolution
are binding only if the admissions were
necessary to wind up the business
note: a previous admission of a partner is
admissible in evidence against the
partnership when it is made within the scope
of the partnership, and during the existence,
provided of course that the existence of the
partnership is first proved by evidence other
than such act or declaration
Art. 1821 – Notice to a Partner
 Cases of Knowledge of a Partner
1. knowledge of a partner acting in a
particular matter acquired while a partner;
2. knowledge of a partner acting in a
particular matter then present to his mind;
and
3. knowledge of any partner who reasonably
could and should have communicated it to
the acting partner
 Effect of Notice to a Partner
a. in general, notice to a partner is notice to
the partnership, that is, a partnership cannot
claim ignorance if a partner knew (but this is
with restriction)
b. notice to a partner, given while already a
partner, is a notice to the partnership
provided it relates to partnership affairs
 Effect of knowledge although no notice was
given
- notice of the partner is also knowledge of
the firm provided:
a. the knowledge was acquired by a
partner who is acting in the particular
matter involved;
b. the knowledge may have been
acquired by a partner not acting in the
particular matter involved
Art. 1822 – Liability of Partnership
 Requisites for Liability
a. the partner must be guilty of a wrongful
act or omission; and
b. he must be acting in the ordinary course
of business, or with the authority of his co-
partners even if the act is unconnected with
the business
note: partnership liability does not extend to criminal
liability
 Instances when the firm and other partners
are not liable:
a. if the wrongful act or omission was not
done within the scope of the partnership
business and for its benefit;
b. if the act or omission was not wrongful;
c. if the act or omission, although wrongful,
did not make the partner concerned liable
himself; and
d. if the wrongful act or omission was
committed after the firm had been dissolved
and the same was not in connection with the
process of winding up
Art. 1823 – Liability for Misappropriation
 Liability of partnership for misappropriation
- the difference between par. 1 and par. 2
is that in the former misappropriation is
 made by the receiving partner, while in the
latter, the culprit may be any partner. The
effect however is the same in both cases
Art. 1824 – Solidary Liability of partners
- not only the partners that are liable in
solidum; it is also the partnership
Art. 1825 – Partner by Estoppel and Partnership by
Estoppel
 Estoppel
- a bar which precludes a person from
denying or asserting anything contrary to
that which has been established as the truth
by his own deed or representation, either
express or implied
When Partnership Liability Results:
- if all the actual partners consented to the
representation, then the liability of the
person who represented himself to be a
partner or who consented to such
representation and the actual partners is
considered a partnership liability.
Elements to establish liability as a partner on ground
of estoppel:
1. proof by plaintiff that he was
individually aware of the defendant’s
representations as to his being a partner
or that such representations were made
by others and not denied or refuted by
the defendant;
2. reliance on such representations by
the plaintiff; and
3. lack of denial or refutation of the
statements by the defendants; such
denial need not precede plaintiff’s acting
thereon if the denial was forthcoming
promptly upon hearing of the
representations, and if, by prudence and
diligence the plaintiff might have learned
the truth or untruth of the
representations.
 When the problem may arise:
A person may:
a. represent himself as a partner of an
existing partnership with or without the
consent of the partnership;
b. represent himself as a partner of a
non-consent partnership
When estoppel does not apply:
- when although there is misrepresentation,
the third party is not deceived, the doctrine
of estoppel does not apply
Burden of Proof
- the creditor, or whoever alleges the
existence of a partner or partnership by estoppel has
the burden of proving the existence of the
misrepresentation and the innocent reliance on it
Art. 1826 – Entry of a New Partner
 Entry of a new partner into an existing
partnership
- the newly admitted partner would be
liable as an ordinary original partner for all
partnership obligations incurred after his
admission to the firm
 Creation of a new partnership in view of the
entry
- the admission of a new partner dissolves
the old firm and creates a new one;
- since the old firm is dissolved, the original
creditors would not be the creditors of the
new firm, but only of the original partners;
hence, they may lose their preference;
- under the civil code, they are considered
creditors of the new firm
 Liability of incoming partner for partnership
obligations
1. limited to his share in partnership property
for existing obligations, unless there is
stipulation to the contrary;
2. extends to his separate property for
subsequent obligations
 Liability of an Outgoing Partner
- where a partner gives notice of his
retirement or withdrawal from the
partnership, he is freed from any liability on
contracts entered into thereafter, but his
liability on existing incomplete contract
continues.
  the rule of holding the new partner liable
for previous obligations of the firm is not
harsh on the said new partner. After all the
incoming partner partakes of the benefit of
the partnership, property and an established
business
Art. 1827 – Creditors of Partnership
Reason for the Preference of Partnership
Creditors
- after all, the partnership is a juridical
person with whom the creditors have
contracted; moreover the assets of the
partnership must first be executed
Reason why industrial creditors may still attach
the partner’s share
- after all, remainder belongs to the partner
Sale by a partner of his share to a third party
- if a partner sells his share to a third party,
but the firm itself still remains solvent,
creditors of the partnership cannot assail the
validity of the sale by alleging that it is made
in fraud of them, since they have not really
been prejudiced
IV. Dissolution and Winding Up
Art. 1828 & 1829 – Definition of Dissolution, Winding
up and Termination; Effects of Dissolution
Dissolution
- the change in the relation of the partners
caused by any partner ceasing to be
associated in the carrying on of the business
- that point of time when the partners
cease to carry on the business together
Effects of Dissolution:
a. partnership is not terminated;
b. partnership continues for a limited
purpose; and
c. transaction of new business is
prohibited
Winding Up
- the process of settling business affairs
after dissolution
Termination
- the point in time after all the partnership
affairs have been wound up
Effect on Obligations
a. a partner cannot evade previous
obligations entered into by the
partnership
b. absolution saves the former
partners from new obligation to which
they have not expressly or impliedly
consented, unless the same be
essential for winding up
Art. 1830 – Causes of Dissolution
1. as to first cause
- partnership agreement has not been
violated
4 instances:
 termination of the definite term or
specific undertaking;
 express will of a partner who
must act in good faith when there is
no definite term and specific
undertaking;
 express will of all the partners
who have not assigned their
interests or suffered them to be
charged for their separate debts,
either before or after the termination
of any specified term or particular
undertaking;
 by the expulsion of any partner
from the business bona fide in
accordance with such p[power
conferred by the agreement
between the partners
3. In contravention of the agreement
between the partners, where the
circumstances do not permit a dissolution
under any other provision of this article, by
the express will of any partner at any time;
4. when a specific thing, which a partner had
promised to contribute to the partnership,
perishes before delivery
 5. by the death of any partner;
6. by the insolvency of any partner or of the
partnership;
7. by the civil interdiction of any partner; and
8. by decree of court
note: partners in their contract cannot limit the
cause for dissolution
Art. 1831 – Judicial determination as to dissolution
 this article speaks of a dissolution by
decree of court. In a suit for dissolution proof
as to the existence of the firm must be given
 Who may sue for dissolution:
a. a partner for any of the causes given
under 1831
b. the purchaser of a partner’s interest
in the partnership under Art. 1813/1814,
provided that the period has expired or if
the firm was a partnership at will when
the interest was assigned or changed
note: if period is not yet over, said purchaser
cannot sue for dissolution
 Grounds for Dissolution
a. insanity
b. incapacity
c. misconduct and persistent breach of
partnership agreement
d. business can be carried on only at a
loss
e. other circumstances
 Insanity of a partner
a. even if a partner has not yet been
previously declared insane by the court,
dissolution may be asked, as long as
the insanity is duly proved in court;
b. insanity is a cause since the partner
will be incapacitated to contract
 Incapability to perform part
- may happen when the partner enters the
government service which would prohibit him
from participating in the firm, or when he will
stay abroad for a long time
Appointment of a receiver
In a suit for dissolution, the court may
appoint a receiver at its own discretion but a
receiver is not needed when practically all the
firm assets are in the hands of a sheriff under a
writ of replevin, or when the existence of a
partnership with the plaintiff is denied, particularly
if the business of the firm is being conducted
successfully
 Time of Dissolution
- a firm becomes a dissolved partnership at
the time the judicial decree become s a final
judgment
Art. 1832 – Effects of Dissolution
General Rile: Art. 1832
Exception: Art. 1833 and 1834
Effects of dissolution
- when a partnership is dissolved, certain
effects are inevitable, insofar as the relations
of the firm toward third persons are
concerned, and insofar as the partners
themselves are affected in their relations
with one another
Effect of previous contract
- when a firm is dissolved, it does not mean
that the contracts and obligations entered
into, whether the firm is the creditor or
debtor, automatically cease;
- the firm is still allowed to collect
previously acquired credits, it is also bound
to pay all the debts;
- a dissolved partnership still has the
personality for winding up its affairs
Creditors who have not been prejudiced
- if the obligations and rights of a dissolved
firm are transferred to another firm, the
creditors may not hold the former liable even
if said creditors have not been prejudiced, as
long as the new firm can indeed take care of
said creditors. It would be erroneous to let
the old firm pay, if the new firm can really
pay.
Art. 1833 – Kinds of Causes of Dissolution
a. Act-Insolvency-Death
 b. Other things like termination
Effect of AID
- all partners are still bound to each other
generally, except:
a. if the partner had knowledge (as
distinguished by NOTICE without actual
knowledge)
- if dissolution is caused by an act (e.g.
withdrawing, retiring)
b. if the partner acting had knowledge or
notice, if dissolution was caused by death or
insolvency
note:
Death or insolvency being more ordinary
than an ―act,‖ notice is enough. Hence, the law
provides ―knowledge‖ or notice.
However, it is still essential that there be
knowledge or notice of the fact of death or
insolvency to justify non-liability of the other
partners to the parties acting.
 Right of partner to contribution from co-
partners
- when a partner enters into a new
contract with a third person after
dissolution, the new contract generally
will bind the partners (Art. 1834, par. 1).
Each of them is liable for his share of
any liability created by the acting partner
as if the partnership had not been
dissolved.
Art. 1834 – When Partnership is Bound
Article speaks of 2 possibilities:
a. when the partnership is bound to
strangers; and
b. when the partnership is not bound to
strangers
When Partnership is bound:
(a partnership liability is created)
a. business is for winding up;
b. business is to complete unfinished
transactions; and
c. completely new business with third
parties considered innocent
When firm is not bound:
a. in all cases not included when
partnership is bound;
b. when the firm was discharged
because it was unlawful to carry on the
business; except when the act is
winding up;
c. where the partner had acted in the
transaction has become insolvent;
d. where the partner is unauthorized to
wind up
except: if the transaction is with a
customer in good faith
Note:
- it is understood that if after dissolution a
stranger will represent himself as a partner
although he is not one, he will be a partner
by estoppel
Art. 1835 – Effect of Dissolution on Partner’s Existing
Liability
Dissolution ordinarily does not discharge
existing liability of partners, otherwise, creditors would
be prejudiced, particularly if a partner will just
withdraw anytime from the firm
How a Partner’s liability is discharged
- the following must agree:
a. the partner concerned;
b. the other partners; and
c. the creditors
Effect of death on pending action
- An action for accounting against a
managing partner should be discontinued if
he dies during the pendency of the action;
- The suit must be conducted in the
settlement proceedings of the deceased’s
estate, particularly if this is the desire of his
administration;
- Thus, it is wrong to just continue the
action for accounting and substitute the dead
defendant with his heirs
Art. 1836 – Judicial and Extrajudicial Wind up;
Persons authorized to wind up
Extrajudicial winding up
- by the partners who have not wrongfully
dissolved the partnership;
 - or by the legal representative of the last
surviving partner provided the last survivor
was not insolvent
Judicial winding up
- under the control and direction of the
court, upon proper cause that is shown to
the court;
- petition for judicial winding up can be
done by any partner, his legal representative
or assignee
Rule if survivor is not the manager
- he is not required to serve as liquidator
thereof;
- he is not required as liquidator without
compensation; and
- if he liquidates the affairs upon promise of
a certain compensation by the managing
partners, he is naturally entitled to receive
compensation
Profits
- profits are supposed to accrue only
during the existence of the partnership
before dissolution;
- profits that will actually enter the firm after
dissolution as a consequence of transactions
already made before dissolution are included
because they are considered as profits
existing at the time of dissolution; and
- any other income earned after the time
should not be disturbed as profits, but
merely as additional income to the capital
Persons authorized to wind up:
a. the partners designated by the
agreement;
b. in the absence of such agreement, all
the partners who have not wrongfully
dissolved the partnership; and
c. the legal representative (executor or
administrator) of the last surviving
partner (when all the partners are
already dead) not insolvent.
Art. 1837 - Right of Partner to Application of
Partnership Property on Dissolution
 rights where dissolution not in
contravention of agreement (par. 1)
 rights where dissolution is in
contravention of agreement (par.2)
Two aspects of dissolution
Dissolution may be caused:
a. although the partnership contract is
not violated;
b. because the partnership contract is
violated
Innocent Partners:
- have better rights than guilty partners;
- may continue the business (new
partnership);
- rights of the guilty partners are
safeguarded by a:
a. bond approved by the court
b. payment of interest at the time of
dissolution minus damages
Right to get cash
- in case of non-continuance of the
business, the interest of the partner should,
if he desires, be given in CASH
note: a guilty partner, in ascertaining the value of
his interest is not entitled to a proportionate share
of the value of the GOOD WILL
Partner wrongfully excluded
- he should be considered an innocent
party;
- the other partner must account not only
for what is due to him at the date of the
dissolution but also for damages or for his
share of the profits realized from the
appreciation of the partnership business and
good will (provided the excluded partner had
not substantially broken the partnership
agreement)
Division of Losses
-rule on losses must apply, provided that
their real market values at the time of liquidation are
the values considered
Art. 1838 – Right of Partner to Rescind Contract of
Partnership
 if the contract is annulled, the injured
partner is entitled to restitution
 - regarding individual property, creditors
Rescission or annulment of partnership contract are prejudiced
- fraud or misrepresentation violates the
consent whereby the contract of partnership Rules if partners are insolvent
had been entered into, hence, it is really also a. give to the individual/separate
causante creditors;
b. give to the partnership creditor;
Three Rights (without prejudice to the other rights c. then those owing to the other
under other legal provisions) partners by way of contribution
a. right to lien or retention;
b. right of subrogation; and Art. 1840 – Dissolution of Partnership by Change in
c. right of indemnification Membership
a. a new partner is admitted;
Art. 1839 – Liquidation and Distribution of Assets of b. when a partner dies, retires, expelled
Dissolved Partnership or withdraws;
c. when the other partners assign their
Liquidation rights to the sole remaining partner;
- before liquidation is made, no action for d. when all the partners assign their
accounting of a partner’s share in the profit or for a rights in partnership property to third
return of his capital assets can properly be made, persons
since it is essential to first pay off the creditors
Rights of creditors of dissolved partnership which is
Assets of Partnership continued
- partnership property 1. equal rights of dissolved and
- contributions of the partners, which are new partnership creditors
made to pay off the partnership liabilities 2. liability of persons
continuing business (see par. 2
Order of Payment of Firm’s Liabilities and par. 1, no.4)
1. creditors (who are 3. prior right of dissolved
strangers) otherwise partnership as against
they may be purchaser
prejudiced; - without a final settlement
2. partners (who are with creditors of the partnership
already creditors);
3. distribute profits Why are the old creditors considered creditors of the
new firm?
note: - the reason for the law (in making
- if the partnership assets are insufficient creditors of the dissolved firm also creditors
the other partners must contribute more of the person or partnership continuing the
money or property business) is for said creditors not to loss
- such contributors may be enforced by: their preferential rights as creditors to the
- any assignee for the benefit of the partnership property
creditor, or any person appointed by the
court; Art. 1841 – Retirement or Death of a partner
- any partner or his legitimate
representative General Rule:
- when a partner retires from the firm he is
Preference with respect to the assets entitled to the payment of what may be due
It depends: him after liquidation
- regarding partnership property,
partnership creditors have preference
 - but no liquidation is needed when there
already is a settlement as to what the retiring
partner shall receive
Art. 1842 – Accrual and Prescription of Partner’s right
to account for his Interest
When right to account accrues
- at the date of dissolution in the absence
of any contrary agreement
Possible defendants:
Action against
- winding up partners
- surviving partners
- person in partnership continuing the
business
Prescription
- begins to run only upon the dissolution of
the partnership when the final accounting is
done
Limited Partnership
Art. 1843 – Limited Partnership
Characteristics:
a. formed by compliance with the
statutory requirements;
b. one or more general partners control
the business and are personally liable to
creditors
c. one or more limited partners
contribute to the capital and share in the
profits but do not participate in the
management of the business and are
not personally liable for partnership
obligations beyond the amount of their
capital contributions;
d. the ;limited partners may ask for the
return of their capital contributions under
the conditions prescribed by law; and
e. the partnership debts are paid out of
common fund and the individual
properties of the general partners
Limited Partnership
- one formed by two or more persons
under the provisions of Art. 1844, having as
members one ore more general partners and
one or more limited partners. The limited
partners as such shall not be bound by the
obligations of the partnership
Art. 1844 – Requirements for the Formation of Limited
Partnership
Presumption of General Partnership
- a partnership transacting business is
prima facie, a general partnership and those
who seek to avail themselves of the
protection of the laws prevailing the creation
of limited partnership must show due
compliance with such laws
Requisites:
a. signing under oath of the required
certificate;
b. filing for record of the certificate in the
SEC
Effect of non-fulfillment of the requirements
- then it is not considered a limited
partnership but a general partnership
Effect of only aggregate contribution is stated
- the law says that the contribution of each
limited partner must be stated. Therefore, if
the aggregate sum given by two or more
limited partners is given, the law has not
been complied with.
Effect of omitting the term ―limited‖ in the firm name
- the law requires the firm name to have
the word ―limited.‖ If such is violated, the
name cannot be considered the firm name of
the limited partnership.
Art. 1845 – Limited Partner’s Contribution
Rule:
a. a limited partner is not allowed to
contribute industry or services alone
b. an industrial partner can become a
general partner in a limited partnership
Art. 1846 – Effect where surname of limited partner
appears in partnership name
- the limited partner violating this article is
liable, as a general rule, to partnership
 creditors without, however, the rights of a
general partner. Of course, such limited
partner shall not be liable as a general
partner with respect to third persons with
actual knowledge that he is only a limited
partner.
Art. 1848 – Liability of limited partner for participating
in management of p[partnership
- a limited partner is liable as a general
partner for the firm’s obligations if he takes
part or interfere in the management of the
firm’s business.
The following do not constitute taking part in the
control of the business:
a. mere dealing with a customer;
b. mere consultation on one occasion
with the general partners
Acts constituting interference in the management
a. selection of who will be managing
partners;
b. supervision over a superintendent of
the business of the firm
note: participation in the control of the business
makes the limited partners liable as a general partner
without getting the latter’s rights
Art. 1849 – Admission of additional limited partners
- even after a limited partnership has
already been formed, the firm may still admit
new limited partners, provided there is a
proper amendment to the certificate
- failure to amend the certificate does not
necessarily mean the dissolution of the
limited partnership
Art. 1850 – Rights, powers and liabilities of a general
partner
a. right of control/unlimited personal liability
b. acts of administration/acts of strict
dominion
c. other limitations:
- no power to bind the limited partners
beyond the latter’s investment
- no power to act for the firm beyond
the purpose and scope of the
partnership
- no authority to change the nature of
the business without the consent of the
limited partners
 Under the acts enumerated (under Art.
1850), the general partners (even if
unanimous) must still get the written consent
of all the limited partners.
 If a general partner in a limited
partnership goes abroad, his capacity to bind
the firm is governed by the law of the place
where the limited partnership was formed.
Art. 1851 – Rights of a limited partner
Rights, in general, of a limited partner
- as members of the firm, the limited
partner, in order to protect his interest in the
firm, has the same right to compel the
partners to account as a general partner has
Rights of a limited partner
a. a limited partner necessarily has
lesser rights than a general partner (as
enumerated in Art. 1851)
b. however, he has also the right to
have dissolution and winding up by
decree of court; he cannot, however,
bind the firm by a contract
Art. 1852 – Status of partner where there if failure to
create limited partnership
 a contributor who erroneously believes he
has become a limited partner and thereupon
exercises the rights of a limited partner, he
should not be considered as a general
partner
 however, he can be held liable as a
general partner:
- unless in ascertaining the mistake, he
promptly renounces his interest in the profits
of the business or other compensation by
way of income;
- unless, even if no such renouncing is
made, partnership creditors are not
prejudiced
Art. 1853 – A person may be both a general partner
and a limited partner
 a person may be a general and a limited
partners at the same time, provided the
same is stated in the certificate
 generally, his rights are those of a limited
partner
exception:
- regarding his contribution, he would be
considered a limited partner, with the rights
of a limited partner insofar as the other
partners are concerned
Art. 1854 – Loan and other business transactions with
limited partners
Right of a limited partner to lend money and transact
other business with the firm
a. the parties are always given preferential
rights insofar as the firm’s assets are
concerned
b. while a limited partner, in the case of
claims referred to in the article, is prohibited
to receive or hold as collateral security any
partnership property, still he is not
prohibited to purchase partnership assets
which are used to satisfy partnership
obligations towards third parties
Allowable transactions
a. granting loans to the partnership;
b. transacting other business with it; and
c. receiving a pro rata share of the
partnership assets with general creditors if
he is not also a general partner
Prohibited transactions
a. receiving or holding collateral security any
partnership property
b. receiving any payment, conveyance, or
release from liability if it will prejudice the
right of third persons
Art. 1855 – Preferred limited partners
Preference to some limited partners:
- such preference must be stated in the
certificate
Preference involves:
- return of contribution
- compensation
- other matters
Art. 1856 – Compensation of limited partners
For this article to apply, partnership assets
must be in excess of partnership liabilities to third
persons, not liabilities to partners
Art. 1857 – Requisites for return of contribution of
limited partner
a. all liabilities of the partnership have been
paid or if they have not yet been paid, the
assets of the partnership are sufficient to pay
such liabilities
b. the consent of all the members has been
obtained except when the return may be
rightfully demanded; and
c. the certificate is cancelled or so amended
as to set forth the withdrawal or reduction of
the contribution
Par. 1 – deals with the conditions that must exist
before contribution by a limited partner can be
returned to him
Par. 2 – deals with the time when such contributions
can be returned, provided that the conditions are
complied with
 even if a limited partner has contributed
property, he has the right to demand and
receive cash in return
 if par. 1 is violated, previous creditors can
sue, but they must allege and prove the non-
existence of the conditions
Liability of a partner who has withdrawn
- a limited partner who withdraws rightfully
his contribution, and the certificate is
amended properly, would still be liable to
previous creditors if later on the firm
becomes insolvent. His contribution is to be
treated as a trust fund for the discharge of
liabilities
Art. 1858 – Liabilities of a limited partner
 - liabilities may be waived provided the Art. 1860 – Causes for the dissolution of limited
following concur: partnership
- all the other limited partners must agree
- innocent third party creditors must not be - new provision
prejudiced - source: Sec. 20 Uniform Limited
Partnership Act
Liabilities of a limited partner
a. to the partnership Art. 1861 – Death of limited partner
- their liability is to the partnership not to
the creditors of the partnership - new provision
b. to partnership creditors and other - source: Sec. 21 Uniform Limited
partners Partnership Act
- see arts. 1843, 1846-48,1854,and 1844,
par.2 Art. 1862 – Charging the interest of a limited partner
c. to separate creditors
- see art 1862 - new provision
- source: Sec. 22 Uniform Limited
When return of contribution a matter of right Partnership Act
a. on the dissolution of the partnership; or
b. upon the arrival of the date specified in Art. 1863 – Payment of liabilities of limited partner
the certificate for the return
c. after the expiration of the 6 months’ notice - new provision
in writing given by him to the other partners if - source: Sec. 23 Uniform Limited
no time is fixed in the certificate for the Partnership Act
return of the contribution or for the
dissolution of the partnership Art. 1864 – When Certificate is cancelled or amended

Art. 1859 – Change in the relation of limited partners - new provision

- source: Sec. 24 Uniform Limited
Effect of change in the relationship of limited partners Partnership Act
- does not necessarily dissolve the
partnership. No limited par6tner, however, Cancellation
can withdraw his contribution until all - when the partnership is dissolved, or
liabilities to creditors are paid when all the limited partners cease to
be limited partners, the limited partners shall
Substituted Limited Partner be cancelled, not merely amended. The
- a person admitted to all the rights of a writing to cancel a certificate shall be signed
limited partner who has died or has assigned his b y all the members
interest in the partnership except only those of which
he was ignorant at the time he became a limited Art. 1865 – Requisites for amending or canceling the
partner and which could not be ascertained from the certificate
certificate
- see arts. 1847 and 1858 for the liabilities - new provision
of an assignor - source: Sec. 25 Uniform Limited
Partnership Act
Rights of assignees of limited partner
- the assignee is only entitled to receive the Art. 1866 – When contributors (other than general
share of the profits or other compensation by way of partners) should be made parties to proceedings
income or the return of the contribution to which the
assignor would otherwise be entitled Art. 1867 – Transitional provision on Limited
Partnership

- new provision
- source: Sec. 30
Partnership Act
- he who acts or stands for
another
Uniform Limited - usually, he is given full or partial
discretion, but sometimes he acts
under a specific command

Nature, Form and Kinds of Agency Elements of Agency

Art. 1868 a. there is consent, express or implied,

of the parties to establish the
Definition of agency relationship;
- a relationship which implies a power in an b. the object is the execution of a
agent to contract with a third person on juridical act in relation to third persons;
behalf of the principal. c. the agent acts as a representative
- The power to effect the principal’s and not for himself; and
contractual relations with third persons that d. the agent acts within the scope of his
differentiates the agent from the employee, authority
the servant, and the independent contractor
Capacity of the Principal
Importance a. capacitated to give consent;
- enables a man to increase the range of b. natural or a juridical person
his individual and corporate activity by
enabling him to be constructively present in Capacity of an Agent
many places and to carry on divers activities  the same as the law on contracts
at the same time - able to bind himself but only
insofar as his obligation to his
Characteristics principal is concerned;
a. principal - insofar as third persons are
b. nominate concerned, however, it is
c. bilateral enough that his principal be the
d. preparatory one capacitated, for generally
e. commutative an agent assumes no personal
f. generally onerous liability
g. fiduciary

Nature – a contract Distinctions

Basis – representation constitutes the basis of
agency Agency (A) vs. Partnership (P)
Purpose – to extend the personality of the
principal through the facility of the agent An agent acts not for himself, but for his
principal; a partner acts for himself, for his firm, and
Parties: for his partners. It may be even said that partnership
is a branch of the law on agency.
a. principal
- he whom the agent represents and Agency vs. Loan
from whom he derives authority; he is
the one primarily concerned in the An agent may be given funds by the
contract principal to advance the latter’s business, while the
borrower is given money for purposes of his own, and
b. agent he must generally return it, whether or not his own
business is successful. A lot however depends on the
intent of the
parties.
Agency vs. Guardianship
1. The agent represents a capacitated person while
the guardian represents an incapacitated person
2. The agent is appointed by the principal and can be
removed by the latter while the guardian is appointed
by the court and stands in locos parentis
3. The agent is subject to the directions of the
principal while the guardian is not subject to the
directions of the ward, but must of course act for the
benefit of the ward.
4. The agent can make the principal personally liable
while the guardian has no power to impose personal
liability on the ward.
Agency vs. Judicial Administration
(1) The agent is appointed by the principal
while the judicial administrator (JA) is appointed by
the court.
(2) The agent represents the principal while
the JA represents not only the court but also the heirs
and creditors of the estate.
(3)Agent generally does not file a bond
while the JA files a bond.
(4)The agent is controlled by the principal
thru their agreement while the acts of the JA are
subject to the specific orders from the court.
Agency from Lease of property
(1)The agent is controlled by the principal
while the lease is not controlled by the lessor
(2) The agency may involve things other
than property while, obviously, a lease of property
involves property only.
(3) The agent can bind the principal while
the lessee, as such, cannot bind the lessor.
Agency from Lease of Services
1. The agent represents the principal while
the lessor of services does not represent his
employer
2. relationship can be terminated at the will
of either principal or agent while in lease, generally,
the relationship can be terminated only at the will of
the both
3. agent exercises discretionary powers
while the employee has ministerial functions
4. in agency, it usually involves 3 persons:
the principal, the agent, and a stranger while lease of
services usually involves only two persons
NOTE: it should be understood however that an agent
may incidentally render acts of service, while a lessor
of services or employee may incidentally make
contracts
Agency vs. Contract with an independent contractor
a. the agent acts under the control of
the principal, while the independent
contractor is authorized to do the work
according to his own method, without
being subject to the other party’s
control, except insofar as the RESULT
of the work is concerned
b. the agent of the agent may be
controlled by the principal while the
employees of the contractor are not the
employees of the employer of the
contractor
c. agent can bind the principal while
ordinarily, the independent contractor
cannot bind the employer by tort
d. the negligence of the agent is
imputable to the principal while the
negligence if the independent contractor
is generally not imputable to his
employer
Agency vs. Negotiorum Gestio
a. in agency there is a contract caused
by a meeting of the minds, expressly or
impliedly while in negotiorum gestio,
there is only a quasi-contract, there
having been no meeting of minds.
 Hence, the representation was not
agreed upon
b. agent is controlled by the principal
while the officious manager follows his
judgment and the presumed will of the
owner
c. in agency the legal relation is created
by the parties while in negotiorum gestio
the legal relationship is created by law
(occasioned of course by the acts of the
manager)
Agency vs. Trust
a. an agent usually holds no title at all
while the trustee may hold legal title to
the property
b. usually, agent acts in the name of the
principal while the trustee may act in his
own name
c. usually, agency may be terminated or
revoked at any time while the trusty is
usually ended by the accomplishment of
the purposes for which it was formed
d. agency may not be connected at all
with property while trust involves control
over property
e. agent has authority to make contracts
which will be binding on his principal
while trustee does not necessarily or
even possess such authority to bind the
trustor or the cestui que trust
f. agency is really a contractual
relation while a trust may be the result of
the contract or not: it may be created
also by law
Art. 1869 – Kinds of agency
a. according to manner of constitution
 express
- one where the agent has been actually
authorized by the principal, either orally or in
writing
 implied
- one which is implied from the acts of the
principal,
- acts of principal
- principal’s silence
- principal’s lack of action
- principal’s failure to
repudiate agency
b. according to form
- oral
- written
c. as to character
 gratuitous
- one where the agent receives no
compensation for his services
 compensated or onerous
- one where the agent receives
compensation for his services
d. as to extent of business covered
 general – one which comprises all the
business of the principal
 special – one which comprises one or
more specific transaction
e. as to authority conferred
 couched in general terms – one which is
created in general terms and is deemed to
comprise only acts of administration
 couched in specific terms – one
authorizing only the performance of a
specific act or acts
f. as to its nature and effects
 ostensible or representative – one where
the agents acts in the name and
representation of the principal
 simple or commission – one where the
agent acts in his own name but for the
account of the principal
Form of agency
In general, there are no formal
requirements governing the appointment of an agent.
The agent’s authority may be oral or written. It may be
in public or private writing.
Agency may even be implied from words
and conduct of the parties and the circumstances of
the particular case. But agency cannot be inferred
from mere relationship or family ties.
Appointment of agent
 It is not essential that an agent be
appointed directly by the principal, but the
appointment may be made through another, as by
referring an applicant to another and representing that
he has authority to act, or the relation may arise out of
an agent to employ the agent of the first party.
An agent appointed by the directors of a
corporation to act for the corporation is an agent of
the corporation and not of the directors.
Presumption of agency
General Rule:
- agency is generally not presumed. The
relationship between the principal and the agent must
exist as a fact.
Exception:
- a presumption of agency may arise,
however, in those few cases where an agency may
arise by operation of law or to prevent unjust
enrichment
Art. 1870 – Form of acceptance by agent
Forms:
a. express
b. implied
Art. 1871 – Acceptance between persons present
Rules:
Acceptance cannot be implied from the
silence of the agent except:
a. transmission of the Power of Attorney
by the principal to the agent, who
receives it without objection; and
b. principal entrusts to the agent a letter
or telegram a Power of Attorney, and he
did not reply to the same
Power of Attorney
- an instrument in writing by
which one person, as principal,
appoints another as his agent
and confers upon him the
authority to perform certain
specified acts or kinds of acts
on behalf of the principal
- the written authority itself is
the power of the attorney and
this is clearly indicated by the
fact it has also been called a
―letter of attorney.‖
Primary Purpose:
- not to define the authority of the
agent as between himself and his principal
but to evidence the authority of the agent to
the third parties within whom the agent
deals; and the person holding the power of
attorney is shown and designated as an
―attorney in fact,‖ thus distinguishing such
person from an attorney at law
Construction of powers of attorney:
General Rule: The instrument will be held to grant
only those powers which are specified, and the agent
may neither go beyond nor deviate from the power of
attorney.
Exception to the Rule: The general rule shall not be
applied to the extent of destroying the very purpose of
the power.
Art. 1872: Acceptance if the parties are absent:
Rules:
Acceptance of the agency by the agent is
not implied from his silence or inaction. Since the
agent is not bound to accept the agency, he can
simply ignore the offer.
However, there is implied acceptance if:
1. There is transmission of the
Power of Attorney by the
principal to the agent, who
receives it without objection.
2. The Principal entrusts to the
agent a letter or telegram a
Power of Attorney, and he did
not reply to the letter or
telegram.
Art. 1873: Ways of Giving notice of Agency
There are two ways of giving notice of
agency with different effects:
 1. If by special information (by
letter), the person appointed as
agent is considered such with
respect to the person to whom
it was given.
2. If by public advertisement,
the agent is considered as
such with regard to any person.
In either case, the agency is deemed to exist
whether there is actually an agency or not.
Manner of Revocation of Agency:
The power of attorney must be
revoked in the same manner in which it was
given.
If the agency has been entrusted
for the purpose of contracting with specified
persons, its revocation shall not prejudice
the latter if they were not given notice
thereof. If the agent had general powers,
revocation of the agency does not prejudice
third persons who acted in good faith and
without knowledge of the revocation.
Art. 1874: Sale of Land through Agent
Rule: The authority of the agent shall be in
writing in case of sale of a piece of land.
Otherwise, the sale is void.
Art. 1875: Agency presumed to be with
compensation
This article changes the rule in the
old Civil Code under which an agency was
presumed to be gratuitous. Hence, the
agent does not have to prove that the
agency is for compensation.
Art. 1876: General vs. Special Agencies
Distinction:
The distinction is based on the
scope of the business covered. A General
Agency must not be confused with one
couched in general terms which is a special
agency when it involves only one or more
specific transactions.
CLASSES AND KINDS OF AGENTS:
Agents may be classified as express or
implied, according to the manner in which the agency
is create; or as actual or ostensible, with reference to
their authority in fact.
According to the nature and extent of their
authority agents have been classified into universal,
general, and special or particular.
a. A UNIVERSAL AGENT is one employed
to do all acts that the principal may
personally do, and which he can lawfully
delegate to another the power of doing.
b. A GENERAL AGENT is one employed to
transact all the business of his principal, or
all business of a particular kind or in a
particular place, or in other words, to do all
acts, connected with a particular trade,
business, or employment.
c. A SPECIAL OR PARTICULAR AGENT is
one authorized to act in one or more specific
transactions, or to do one or more specific
acts, or to act upon a particular occasion.
The more common special types of agents
are the following:
1. Attorney at law, one whose
business is to represent client in
legal proceedings;
2. Auctioneer, one whose business
is to sell property for other to the
highest bidder at a public sale;
3. Broker, one whose business is to
act as intermediary between two
other parties such as insurance
broker and real estate broker; and
4. Factor (synonymous with
commission merchant), one whose
business is to receive and sell
goods for a commission, being
entrusted with the possession of the
goods involved in the transaction.
Art. 1877 : Agency couched in general terms
As to the extent of the power conferred,
agency may be couched in general terms or couched
in specific terms.
An agency couched in general terms may
be a general agency or a special agency. It includes
only acts of administration and an express power is
necessary to perform any act of strict ownership
Meaning of Acts of Administration:
What are acts of administration will always Art. 1879: - Special Power to Sell excludes the Power
be a question of fact, rather than of law, because to Mortgage
there can be no doubt that sound management will  Special Power to Mortgage does not
sometimes require the performance of an act of include the Power to Sell.
ownership. But, unless the contrary appears, the
authority of an agent is presumed to include all the
necessary and usual means to carry out the agency Art. 1880: Scope of special power to compromise
into effect.
An agent authorized to compromise can do
Construction of contracts of agency: anything which the principal himself can do to effect a
a. Contracts of agency as well as general settlement, unless there is a contrary legal provision.
powers of attorney must be interpreted in A special power to submit to arbitration
accordance with the language used by the does not authorize the power to compromise.
parties
b. The real intention of the parties is Art. 1881 and Art. 1882:
primarily to be determined from the language
used and gathered from the whole Definition of the Authority of an Agent
instrument. Authority is the power of the agent to affect
c. In case of doubt, resort must be had to the legal relations of the principal by acts done in
the situation surroundings, and relations of accordance with the principal’s manifestation of
the parties. consent to him.
d. The intention of the parties must be
sustained rather that be defeated. Authority vs. Power
e. The acts of the parties in carrying out the a. as to existence
contract will be presumed to have been done -the former may be considered the source
in good faith and in conformity with and not or cause, while the latter, the effect
contrary to the intent of the contract.
note: the power of an agent is also the
Art. 1878: When Special Powers of Attorney are limitation upon his ability to bind the principal, for it is
necessary: well settled that an agent binds his principal only as to
acts within his actual or apparent authority
15 instances:
1. To make payment b. as to scope
2. To effect novation general rule: the extent of the agent’s authority
3. To compromise, etc depends upon the purpose of the agency
4. To waive an obligation - as between the agent and the principal, an
gratuitously act is within the authority of the agent if it is not a
5. To convey or acquire immovable violation of his duty to the principal, and it is
6. To make gifts within the power if he has the legal ability to bind
7. To loan or borrow money the p[principal to a third parson although the act
8. To lease realty for more than 1 constitutes a violation of his duty to the principal
year
9. To bind the principal to render - so far as third persons are concerned, no
service gratuitously distinction exists. An act within the power of the
10. To bind the principal in a contract agent is deemed within the scope of his authority
of partnership even if the agent has, in fact, exceeded the limits
11. To obligate principal as guarantor of his authority or he has no authority whatever to
or surety do so
12. To create or convey real rights
over immovable property Kinds of authority:
 1. actual acting for a principal and of the
2. express principal’s identity.
3. implied - This is the usual type of
4. apparent or ostensible agency
5. general b. Partially Disclosed Principal
6. special - if the other part knows or
7. authority by necessity or by has reason to know that the
operation of law agent is or may be acting for a
- when it is demanded by virtue of principal but is unaware of the
the existence of an emergency; it principal’s identity.
terminates when the agency has - The par6tially disclosed
passed partner may enforce against
the third person the contract of
Requisites when the agent like any disclosed
1. principal is bound by act of agent principal. Similarly, the third
a. agent must act within the scope of his has the right of action against
authority; and the principal
b. the agent must act in behalf of the c. Undisclosed Principal
principal - if the party has no notice of
the fact that the agent is acting
2. not bound by act of agent as such for a principal
a. the latter acts without or beyond the
scope of his authority in the former’s  Agency with an undisclosed principal
name; and - the article speaks of a case
b. the latter acts within the scope of his where the agent was
authority but in his own name, except authorized, but instead of
when the transaction involves things acting in behalf of the principal,
belonging to the principal he acts in his own behalf
- does not apply if the agent
3. principal bound by acts of agent beyond his power was unauthorized or he acts in
a. where his (principal’s) acts have excess of his authority
contributed to deceive third person in
good faith;  When authorized agent buys in his own
b. where the limitations upon the power name but really in behalf of principal
created by him could not have been - seller has the option to look to either for
known by the third person; payment unless:
c. where the principal has placed in the a. he trusted the agent
hands of the agent instruments signed exclusively;
by him in blank; and b. by usage and understanding
d. where the principal has ratified the of business, the agent only is
acts of the agent held;
c. unless the special
circumstances of the case reveal
Art. 1883 – Kinds of Principal that the agent was intended to be
bound and the seller knew it, or
a. Disclosed Principal was chargeable with knowledge
- if at the time of the of it
transaction contracted by the  When authority of agent is doubtful
agent, the other party thereto - the action must be directed against both
has known that the agent is the principal and ―agent‖
  Regarding things belonging to the
principal
- this means that the agent’s apparent
representation yields to the principal’s true
representation; and that, in reality and in
effect, the contract must be considered as
entered into between the principal and the
third person and consequently, if the
obligation belongs to the former, to him
alone must also belong the rights arising
from the contract
Obligations of the Agent
Art. 1884 – Obligations of agent to principal
General obligations
a. Loyalty to his trust agent’s first duty
b. Obedience to principal’s instruction
c. Exercise of reasonable care
Duty of agent to carry out the agency
- an agent who does not carry out the
agency is liable for damages; if he fulfills his duty, he
is not personally liable unless he so binds himself
Effect of principal’s death
- extinguishes the agency, but agent is
obliged to finish the business already begun if delay
should entail danger
Agent who sells to himself
-an agent who has been authorized to sell
some merchandise is not allowed to bind the principal
by selling to himself directly or indirectly.
Art. 1885 – Obligation of person who declines agency
Duty of Owner
a. by appointing an agent
b. by taking charge of the goods
Obligation of person who declines agency
- in the event a person declines an agency,
he is still bound to observe the diligence of a good
father of a family in the custody and preservation of
the goods forwarded to him by the owner.
Art. 1886 – Obligation to advance necessary funds
Rule:
- the principal must advance to the agent,
should the latter so request, the sums necessary for
the execution of the agency
- the contract on agency, however, may
stipulate that the agent shall advance the necessary
funds
- in such case, the agent is bound
to furnish such funds except when the principal is
insolvent
Art. 1887 – Agent’s duty to follow instructions
Instruction of principal
- private directions which the principal may
give the agent in regard to the manner of performing
his duties as such agent
Instructions vs. Authority
a. authority, the sum total of the powers
committed or permitted to the agent by
the principal, may be limited in scope
and such limitations are themselves a
part of the authority, but instructions
direct the manner of transacting the
authorized business and contemplates
only a private rule of guidance to the
agent and are independent and distinct
in character;
b. authority relates to the subject with
which the agent is empowered to deal or
the kind of business or transactions
upon which he is empowered to act,
while instructions refer to the manner or
mode of his action with respect to
matters which in their substance are
within the scope of permitted action;
c. limitations of authority are operative
as against those who have or charged
with knowledge of them, while
instructions are without significance as
against those dealing with the agent
with neither knowledge nor notice of
them; and
d. authority is contemplated to be made
known to the third person dealing with
the agent, while instructions are not
expected to be made known to those
with whom the agent deals
Effects of violation of principal’s instructions:
a. liability of principal to third person
 b. liability of agent to principal - agency being a fiduciary
relation, the agent is required
to observe with utmost good
Obligation to act in accordance with principal’s faith and loyalty towards his
instructions principal
- he is therefore, liable for
a. duty to obey reasonable and lawful damages if, there being a
instructions conflict between his interest
b. liability for the loss or damage and those of the principal, he
c. duty to act in good faith and with due should prefer his own
care
d. exception from liability for failure of b. basis:
undertaking - the underlying basis of the
e. right to disobey principal’s rule is to shut the door against
instructions temptation and keep the
agent’s eye single to the rights
Justification in case of violation of principal’s and welfare of his principal
instructions
c. where agents’ interest are superior
a. sudden emergency - where the agent’s rights are
b. ambiguous instructions superior, such as where he has
c. insubstantial departure a security interest in goods of
the principal in his possession,
Effect if instructions are followed he may protect his interest
- he cannot be held responsible for the even if in so doing he disobeys
failure of his principal to accomplish the objective of the principal’s orders or injures
the agency unless the said agent exceeded his his interest
authority or has acted with negligence, deceit or fraud
Art. 1890 – Obligation of agent not to loan or borrow
Art. 1888 – When agent shall not carry out agency money to himself

- agent must not carry out the agency if its a. if he is expressly empowered to
execution would manifestly result in the loss or borrow money, he may himself be the
damage to the principal lender at the current rate of interest for
a. agent should exercise due there is no danger of the principal
diligence; suffering any damage since the current
b. agent must presumably act for rate of interest would have to be paid in
the benefit, and not to the detriment case if the loan were obtained from a
of the principal third person.
b. If the agent has been authorized to
manifestly – means that the execution would damage lend money at interest, he cannot be the
only the principal borrower without the consent of the
principal because the agent may prove
Art. 1889 – Obligation by the agent not to prefer his to be a bad debtor.
own interest to those of principal
Art. 1891 – Obligation of agent to render accounts
- the article applies whether the agency is
onerous or gratuitous for here the law does not Duty to render account:
distinguish - the article does not apply to cases of
solutio indebiti for in such cases, recovery can be had
a. reason for the rule: by the payor against the agent himself. Therefore, the
agent meantime can keep what had been given to
him by error
Stipulation exempting agent from duty to account
- void, against public policy because it
would be conducive to fraud
Duty to deliver funds
- if nothing in the contract of agency
provides otherwise, 1891 imposes on the agent the
obligation to deliver to his principal all funds collected
on his account
When obligation to account not applicable
a. if the agent or broker acted only as a
middleman with the task of merely
bringing together the vendor and the
vendee, who themselves thereafter will
negotiate on the terms and conditions of
the transaction
b. if the agent or broker had informed
the principal of the gift or bonus or profit
he received from the purchaser and his
principal did not object thereto
c. where the right of lien exists in favor
of the agent
Art. 1892 ; Art. 1893 – Appointment of substitute for
the agent
- while ordinarily the agent upon whom the
principal has reposed confidence must do the act
himself, still the principal need not fear prejudice for,
in some cases, he can still exact responsibility from
his agent
Definition of Sub-agent
A person to whom the agent delegates, as
his agent, the performance of an act for the principal
which the agent has been empowered to perform
through his representative.
Power of agent to appoint sub-agent
Unless prohibited by the principal, the agent
may appoint a sub-agent. The agent, in this situation
is a principal with respect to the substitute.
Effects of Substitution.
a. When the substitute is appointed by the
agent against the express prohibition of the
principal, the agent exceeds the limits of his
authority. All acts of the substitute in such
case is VOID.
b. If the agent is given the power to appoint
a substitute and the principal did not
designate any person to be appointed, the
substitution has the effect of releasing the
agent from his responsibility unless the
person appointed is notoriously incompetent
or insolvent.
c. If the agent appoints a substitute when he
was not given the power to appoint one, the
substitution is valid if the same is
BENEFICIAL to the principal.
Art. 1894; Art 1895 : Necessity of concurrence in case
of 2 or more agents
Rule: It is advisable that when a principal hires
several agents to act for him, he must define their
respective powers – whether that may act only as a
unit or whether they may act separately.
Nature of Liability of 2 or more agents to their
principal
a. The presumption is that an obligation is
joint. The rule in 1894 follows the general
principle respecting solidarity.
b. If solidarity has been agreed upon, each
of the agents becomes solidarily liable:
a. For the non-fulfillment of the
agency even though in this case,
the fellow agents acted beyond the
scope of their authority; and
b. For the fault or negligence of his
fellow agents provided the latter
acted within the scope of their
authority.
c. An agent who exceeds his powers does
not act as such agent, and therefore, the
principal assumes no liability to third person.
Art. 1896 – Liability of Agent for Interest
The article is without prejudice to a criminal
action that may be brought because of conversion;
On the other hand, there is no liability for interest
on sums which have not been converted for the
agent’s own use, unless of course, at the expiration of
the agency, the agent still owed the principal certain
sums.
Art. 1897: Duties and liabilities of agent to third
persons
Rule: The PRINCIPAL is responsible for the acts of
the agent done within the scope of his authority and
should bear any damage caused to third persons.
Third party’s liability towards agent:
 When the agent contracts in his own
name for an undisclosed principal.
 Where the agent possesses a beneficial
interest in the subject matter of the agency
 Where the agent pays money of his
principal to a third party by mistake or under
a contract which proves subsequently to be
illegal, the agent being ignorant with respect
to its illegal nature; and
 Where the third party commits a tort
against the agent.
Art. 1898: Contracts entered into in excess of
authority
This article refers only to the liability of the
agent towards third persons.
Principal is not bound except if there is
subsequent ratification by him.
Art. 1899: Effect of Agent’s Ignorance
It is not enough for the agent to act within
the scope of his authority. It is also imperative for
such agent to have complied with the orders and
instructions of the principal. If the agent is ignorant,
the principal is liable.
Art. 1900: Act performed within Terms of Written
Authority.
Designed to protect the interest of third
persons.
For the article to apply, the authority must
be in writing
Principal may broaden the authority of
agent by implication, usage and custom, necessity, by
the rule of ejusdem generis and by certain doctrines
Art. 1901: Effect of Ratification
Ratification in effect grants authority to the
agent. The ratification may be in the future. Note
also that only the principal can ratify.
Art. 1902 – Third persons may require the agent to
present Power of Attorney or instructions as regards
agency.
Third person deals with an agent at his
peril. Hence, he is bound to inquire as to the extent of
the agent’s authority, and this is especially true where
the act of the agent is of an unusual nature.
Art. 1903 : Commission / Factor Agent
A factor or Commission Agent is one whose
business is to receive and sell goods for a
commission (factorage) and who is entrusted by the
principal with the possession of goods to be sold, and
usually selling in his own name.
Liability of commission agent as to goods received:
The commission agent is responsible for
any damage or deterioration suffered by the same in
the terms and conditions and as described in the
consignment. To avoid liability, the commission agent
should make a written statement of the damage or
deterioration if the goods received by him do not
agree with the description in the consignment.
Art. 1904 – Duty of Commission Agent to place
Countermarks
Reason: To put countermarks and designate them is
employed to AVOID CONFUSION OR DECEPTION.
Art. 1905 – Sale by the Commission Agent on
Credit.
General Rule: Commission Agent cannot sell on
credit.
Exception: When there is an express or implied
consent of the Principal.
Art. 1906 – Obligation of Commission Agent where
sale on credit is authorized
An authorized sale on credit shall be
deemed to have been on a cash basis insofar as the
principal is concerned, upon failure of the agent to
inform the principal of such sale on credit with a
statement of the names of the buyers.
Art. 1907 – Guarantee Commission
Guarantee Commission (or del credere
commission) is one where, in consideration of an
increased commission, the factor or commission
agent guarantees to the principal the payment of
debts arising through his agency
Nature of liability of a del credere agent
Del credere agents is liable to the principal
if the buyer fails to pay or is incapable of paying. But
he is not primarily the debtor. The liability of the del
credere agent is a contingent pecuniary liability.
Art. 1908: Obligation of Commission Agent to collect
credits of Principal
A commission agent who has made an
authorized sale on credit must collect the credits due
the principal at the time they become due and
demandable. If he fails to do so, he shall be liable for
damages unless he can show that the credit cannot
be collected notwithstanding the exercise of due
diligence on his part.
Art. 1909: Liability of Agent for FRAUD and
NEGLIGENCE
The agent is responsible to the principal not
only for fraud committed by him but also for
negligence.
OBLIGATIONS OF THE PRINCIPAL
Art. 1910: Obligations, in general, of the Principal to
Agent.
The duties and liabilities of the principal are
primarily based upon the contract and the validity of
the contract between them. In addition to his
contractual duties, the principal is under an obligation
to deal fairly and in good faith with his agent.
Art. 1911: Estoppel
Estoppel is a bar which precludes a person
from denying or asserting anything contrary to that
which has been established as the truth by his own
deed or representation either express or implied.
When the Principal is in estoppel, therefore
innocent third persons should not be prejudiced.
RATIFICATION vs ESTOPPEL
Ratification differs from estoppel mainly in
that the former rests on intention, express or implied,
regardless of prejudice to another, whereas estoppel
rests on prejudice rather than intention.
Apparent authority vs. authority by estoppel
Apparent authority is that which though not
actually granted, the principal knowingly permits the
agent to exercise or holds him out as possessing.
Authority by estoppel arises in those cases where the
principal , by his culpable negligence, permits his
agent to exercise powers not granted to him, even
though the principal may have no notice or knowledge
of the conduct of the agent.
Liability of Principal because of Estoppel
-instance when solidarity is imposed by
la -principal is in estoppel and therefore
innocent third parties should not be prejudiced
Art. 1912
In the absence of stipulation that the agent
shall advance the necessary funds, the principal must
advance to the agent upon his request the sums
necessary for the execution of the agency .
Even if the agency is gratuitous,1912 will
also apply; hence, the agent will still be entitled to
reimbursement
Art. 1913
Obligation of the principal to reimburse agent for
damages
Article is based on equity, and applies even
if the agency is gratuitous.
Art.1914
Right of agent to retain by way of pledge
-speaks of one kind of pledge—pledge by
operation of law
Nature of agent’s right of lien
(1)Right limited to subject matter of agency
(2) Right
acquires possession
by agent of subject
matter
 (3) In the Under no.1, is to punish the agent; for the
absence of a exception, the acceptance of benefits is implied
ratification of a sub- ratification;
agent’s acts by the Under no.2, it is self-evident;
principal, right Under no.3 the agent is guilty of bad faith
generally only in and lack of diligence; and
favor of the agent. Under no.4, an express stipulation which is
not contrary to law, morals, good customs, public
order, or public policy is binding between the parties
Art.1915
Solidarity liability of IV. Modes of Extinguishment of Agency
principals
Solidarity is the rule Art. 1919 – How agency is extinguished
under 1915 because of the
common transaction (even if the a. revocation;
agent have been appointed b. withdrawal of the agent;
separately). c. death, civil interdiction, insanity or
insolvency of the principal or agent;
Requisites for solidarity liability d. dissolution of the firm or corporation
(1)There are two or more e. accomplishment of the object or
principals; purpose of the agency;
(2)The principals have all f. expiration of the period
concurred in the appointment of the
same agent; and General Classification of modes of extinguishment:
(3)The agent is appointed a. by agreement – nos. 5 and 6
for a common transaction or b. by the act of both the parties or by
undertaking. mutual consent
c. by the unilateral act of one of them –
Art.1916 nos. 1 and 2
-the article is subject, d. by operation of law – nos. 3 and 4
however, to the rules under art.
1544. note: presence, capacity, and solvency of parties are
essential for continuance of agency
Art. 1917
Liability to third persons of agent or  Presumption of continuance of agency
principal who contracts separately - when once shown to have existed, an
-if agent is in good faith, agency relation will be presumed to have
the principal shall be liable in continued, in the absence of anything to
damages to third persons whose show its termination; and the burden of
contract must be rejected. proving a revocation or other termination of
-agent alone in bad faith an agency is on the party asserting it
is solely responsible
Art. 1920 – Revocation of agency by principal
Art.1918
In four cases provided in this article, the Reason:
principal I not liable for expenses incurred by the - agency is generally irrevocable at the will
agent. of the principal because the trust and confidence may
have been lost
Reasons :
Revocation at will is proper even if:
a. agency is onerous
 b. the period fixed has not yet expired
When agency cannot be revoked at will
- when it is coupled with
interest
- in relation to 1927
- when there has been a
waiver by the principal
- when principal is not obliged
to revoke
- when revocation is done in
bad faith
Gen. Rule:
- when revocation is proper, the agent
cannot get damages because the principal is merely
exercising a right
Liability of principal caused by revocation
-he just respond in damages in those
cases wherein not having the right to do so, he should
discharge the agent
Kinds of revocation
- express or implied
Necessity of notice of revocation
a. to agent
b. to third persons
Renunciation of agency by agent
a. agency terminable at will subject only
to the contractual obligations owing to
the principal
b. Reason:
- where the agent terminates the
agency in violation of a contract, the
principal has no right to affirmative
specific performance of the agency for
the essence of the relationship is
consensual – the willingness of the
agent to act for the principal
Art. 1921 - 22 – Effect of revocation in relation to third
persons
a. agent authorized to contract with
specified persons
- its revocation will not prejudice such
third persons until notice thereof is given
to the same
Reason: since the third parties have
been made to believe by the principal
that the agent is authorized to deal with
them, they have a right to presume that
the representation continues to exist in
the absence of notification by the
principal
Agency for contracting with specified persons;
a. so that third parties may not be
prejudiced, the principal who fails to give
the notification can be held liable for
damages
b. no notice is required for persons who
already know of the revocation for then
the purpose of the notification shall have
been served
Art. 1923 – Appointment of new agent for the same
business
a. appointment of a new revokes the
first agency only in case of
incompatibility;
b. a special power revokes a general
one;
c. if the agent is not notified of the
appointment of the second agent, it is
understood that the first agency still
exists
 appointment of new agent is
an IMPLIED REVOCATION of
the previous agency from the
day on which notice was given
thereof.
Art. 1924 – Revocation by direct management of
business by the principal himself
Effect:
a. in case of true inconsistency, the
agency is revoked, for there would no
lo0nger be any basis therefore
b. another case of implied revocation
Art. 1925 – Revocation by 1 of two or more principals
Effect:
 - the power to revoke is a
consequence of the solidary
liability of the principals
- any of the principals may
revoke without the consent of
the others
Art. 1926 – Partial revocation of general power by a
special power
Requirements for application:
a. two agents are involved;
b. a specific right naturally prevails over
a general one
 the general power is
impliedly revoked as to matters
covered by the special power.
 It is indispensable that
notice of the revocation be
communicated in some way to
the agent
Art. 1927 – When agency not revocable
General rule: agency may be revoked at the will of the
principal
Exceptions:
a. when the agency is created not only
for the interest of the principal and the
agent; and
b. when the agency is created for the
mutual interest of both the principal and
the agent
Art. 1928 – Right of agent to withdraw from the
agency
Withdrawal by agent
- reasons of health can justify withdrawal
Effect when agent sues principal
a. will not ordinarily permit the
continuation of the agency;
b. such a complaint will be equivalent to
withdrawal of the agent from the agency
Kinds of withdrawal:
a. without just cause
- the law imposes upon the agent the
duty to give due notice to the principal
and if the withdrawal is without just
cause, to indemnify the principal should
the latter suffer damage by reason of
such withdrawal
b. with just cause
- if the withdrawal is with a
valid reason, the agent cannot
be held liable
Art. 1929 – Obligation of agent to continue to act after
withdrawal
Reason: to prevent damage to the principal
Art. 1930 – When death of principal does not
terminate agency
Instances when death does not affect agency:
a. if the agency has been constituted in
the common interest of the principal
and the agent; and
b. if it has been constituted in the
interest of a third person who has
accepted the stipulation in his favor
Art. 1931 – Nature of agent’s authority after the death
of the principal
* the law requires that there must be good faith
- the death of the principal extinguishes the
agency; but in the same way that revocation of the
agency does not prejudice persons who have dealt
with the agent in good faith without notice of the
revocation
Art. 1932 – Death of agent
Duty of agent’s heirs:
a. the heirs duty to continue the agency
after the death of the agent arises from
what may be termed as an agency by
operation of law or a presumed tacit
agency
- only temporarily
b. where the agency is one coupled with an
interest in the subject matter of agency, the
death of the agent will not instantly end the
relationship, and consequently, his heirs or
representatives may subsequently exercise
the power conferred at least insofar as may
 be necessary to protect the estate of the
agent

Effect of agent’s death in case agency coupled with

an interest
- generally, the agent’s death terminates
the agency for it should not be continued by one upon
whom the principal has reposed no confidence

Continuation by agent’s heirs of agency

General rule:
- an agency calls for personal services.
Ordinarily, therefore, the agent’s duties cannot be
performed by his personal representatives, and in
case of death, the agency is generally thereby
terminated