Partnership: Chuache & Co. vs. Insurance Commission 158 SCRA 336 (1988) )

150 2005 CENTRALIZED BAR OPERATIONS
PARTNERSHIP
PARTNERSHIP 2. Where the contract is by its terms not

By the contract of partnership to be performed within a year from the
two or more persons bind themselves to making thereof, such partnership
contribute money, property or industry contract is covered by the statute of
to a common fund, with the intention of frauds and thus requires a written
dividing the profits among themselves. agreement to be enforceable.
Two or more persons may also 3. Where the contract of partnership
form a partnership for the exercise of a has a capital of 3,000 pesos or more, in
profession. (Art. 1767) money or property, it shall appear in a
 A partnership has a juridical public instrument and must be recorded
personality which is separate and in the Office of the Securities and
distinct from that of the partners. Exchange Commission. However, a
 A partnership may sue and be sued in partnership has a juridical personality
its name or by its duly authorized even in case of failure to comply with
representatives. A managing partner this requirement.
of the partnership may execute all
acts of administration including the Requisites:
right to sue debtors of the 1. intention to create a partnership
partnership in the case of their 2. common fund obtained from the
failure to pay their obligation when contributions
it becomes demandable. (Tai Tong 3. joint interest in the profits
Chuache & Co. vs. Insurance
Commission 158 SCRA 336 [1988]) Essential Features:
1. there must be a valid contract;
FORM OF PARTNERSHIP CONRTRACT 2. the parties must have legal capacity
GENERAL RULE: No special form is to enter into the contract;
required for the validity or existence of
the contract of partnership. NOTE: With regard to number 2 (legal
EXCEPTIONS: capacity of contracting parties),
1. Where immovable property or real individuals not legally incapacitated to
rights are contributed, the partnership contract and partnerships may enter into
contract shall be void unless: a contract of partnership. With respect
a. It is reduced to writing to corporations, the court held in
in a public instrument (Art. 1771). Aurbach vs. Sanitary Wares
b. An inventory of the property Manufacturing Corporation 180 SCRA 130
contributed is made, signed by the [1989] that although a corporation
parties and attached to the public cannot enter into a partnership contract,
instrument. (Art.1773). it may however engage in a joint venture
 A partnership with others. A joint venture has been
contract which states that the generally understood to mean an
partnership is established to operate organization formed for some temporary
a fishpond is not rendered void purpose.
because no inventory of the fishpond There is nothing against one
was made (where it did not clearly corporation being represented by a
appear in the articles of partnership natural or juridical person in a suit in
that the real property had been court, for the true rule is that “although
contributed by anyone of the a corporation has no power to enter a
partners). (Agad vs. Mabolo and partnership, it may nevertheless enter
Mabolo Agad and Co., 23 SCRA into a joint venture with another where
1223[1968]) the nature of that venture is in line with
2005 CENTRALIZED BAR OPERATIONS EXECUTIVE COMMITTEE AND SUBJECT
CHAIRPERSONS
Maricel Abarentos (Over-all Chairperson), Ronald Jalmanzar (Over-all Vice Chair), Yolanda
Tolentino(VC-Acads), Jennifer Ang(VC- Secretariat), Joy Inductivo (VC-Finance), Elaine Masukat (VC-
EDP), Anna Margarita Eres (VC-Logistics) Jonathan
Mangundayao (Political Law), Francis Benedict Reotutar (Labor Law), Romuald Padilla (Civil Law),
Charmaine Torres (Taxation Law), Mark David Martinez (Criminal Law), Garny Luisa Alegre (Commercial
Law), Jinky Ann Uy (Remedial Law), Jackie Lou Bautista (Legal Ethics)
the business authorized by the charter. dispose of his dispose of his share
(JM Tuazon and Co., Inc vs. Bolanos 95 individual interest in without the consent
PHIL 106 [1954]) the partnership so of the others
3. there must be mutual contribution of as to make the
assignee a partner
money, property and industry to a
without unanimous
common fund consent
6. Power to act with third persons
NOTE: A partnership of a civil nature In the absence of A co-owner cannot
was formed because Gatchalian & Co. stipulation to the represent the co-
put up money to buy a sweepstakes contrary, a partner ownership
ticket for the sole purpose of dividing may bind the
equally the prize which they may win as partnership
they did in fact in the amount of 7. Dissolution
P50,000. (Gatchalian vs. CIR 67 PHIL 666 Death or incapacity Death or incapacity
[1939]) of a partner results of a co-owner does
in the dissolution of not necessarily
Where the father sold his rights over
partnership dissolve the co-
2 parcels of land to his 4 children so they ownership
can build their residences, but the latter 8. Agency or representation
after 1 year sold them and paid the As a rule, there is As a rule, there is no
capital gains, they should not be treated mutual agency mutual
to have formed an unregistered representation
partnership and taxed corporate income (although it is
tax on the sale and on dividend income enough for a co-
tax on their shares of the profits from owner to bring an
the sale. (Obillos Jr. vs. CIR [1985]) action for ejectment
against a stranger)
4. the object must be lawful; and
9. Profits
5. the primary purpose must be to May be stipulated Must always depend
obtain profits upon upon proportionate
KEY: CJP3 - D2AFT shares and any
stipulation to the
Partnership Co-ownership contrary is VOID
1. Creation (Art.485)
Always created by a Generally created by 10. Form
contract, either law, but may exist May be in any from No public instrument
express or implied even without a except when real is needed even if
contract property is real property is the
contributed (here a object of the co-
2. Juridical personality public instrument is ownership
Has a juridical Has no juridical required)
personality separate personality
and distinct from KEY: CNJ – PMERET2 - FPG
that of each partner
Partnership Corporation
3. Purpose
1. Creation
Realization of Common enjoyment
Created by mere Created by law
profits of a thing or right;
agreement of the or by operation
does not necessarily
parties of law
involve sharing of
2. Number of incorporators
profits
May be organized by at Requires at least
least two persons five
4. Duration
incorporators
No limitation upon An agreement to
(except a
the duration is set keep the thing
corporation
by law undivided for more
sole)
than 10 years is not
allowed
3. Commencement of juridical
5. Transfer of interests
personality
A partner may not A co-owner can
CHAIRPERSONS
San Beda College of Law
152
MEMORY AID IN CIVIL LAW

Acquires juridical Acquires partner without the without prior
personality from the juridical unanimous consent of consent of the
moment of execution of personality from all the existing partners other
the contract of the date of because the partnership stockholders
partnership issuance of the is based on the principle because
certificate of of delectus personarum corporation is
incorporation by not based on
the Securities this principle
and Exchange 10. Term of existence
Commission partnership may be corporation may
4. Powers established for any not be formed
Partnership may Corporation can period of time for a term in
exercise any power exercise only stipulated by the excess of 50
authorized by the the powers partners years extendible
partners (provided it is expressly to not more
not contrary to law, granted by law than 50 years in
morals, good customs, or implied from any one instance
public order, public those granted or 11. Firm name
policy) incident to its limited partnership is corporation may
existence required by law to add adopt any name
5. Management the word “Ltd.” To its provided it is
When management is The power to do name not the same as
not agreed upon, every business and or similar to any
partner is an agent of manage its registered firm
the partnership affairs is vested name
in the board of 12. Dissolution
directors or may be dissolved at any can only be
trustees time by any or all of the dissolved with
partners the consent of
6. Effect of mismanagement the State
13. Governing Law
A partner as such can The suit against governed by the governed by the
sue a co-partner who a member of the contract and the Civil Corporation
mismanages board of Code Code
directors or
trustees who
mismanages
must be in the JOINT VENTURE
name of the  It is hardly distinguishable from
corporation partnership, since their elements are
similar, i.e. community of interest in
7. Right of succession the business, sharing of profits and
losses, and a mutual right of control.
Partnership has no right Corporation has  The main distinction in common law
of succession right of jurisdiction is that partnership
succession
contemplates a general business with
8. Extent of liability to third persons
some degree of continuity, while
Partners are liable Stockholders are joint venture is formed for the
personally and liable only to execution of a single transaction and
subsidiarily (sometimes the extent of is thus of temporary nature
solidarily) for the shares  In Kilosbayan, Incorporated vs.
partnership debts to subscribed by Guingona, Jr 232 SCRA 110 [1994],
third persons them the court defined a joint venture as
9. Transferability of interest an association of persons or
Partner cannot transfer Stockholder has companies jointly undertaking some
his interest in the generally the commercial enterprise; generally all
partnership so as to right to transfer
make the transferee a his shares
CIVIL LAW COMMITTEE
 CHAIRPERSON: Romuald Padilla  ASST.CHAIRPERSON: Vida Bocar, Joyce Vidad  EDP: Alnaiza Hassiman, Dorothy
Gayon
 SUBJECT HEADS: Christopher Rey Marasigan (Persons and Family Relations), Alejandro Casabar(Property), Ma.
Rhodora
Ferrer(Wills and Succession), Ian Dominic Pua(Obligations and Contracts), Sha Elijah Dumama(Sales and Lease),
John Stephen
Quiambao(PAT), Christopher Cabigao(Credit Transactions), Ligaya Alipao(Torts and Damages), Anthony
Purganan(LTD),
Ma. Ricasion Tugadi (Conflicts of Law)
contribute assets and share risks. Its (a) as a debt by installments or

requisites are: otherwise; (b) as wages of an
a. A community of interest in employee or rent to a
the performance of the landlord;
subject matter; (c) as an annuity to a widow or
b. A right to direct and govern representative of a deceased
the policy in connection partner;
therewith; (d) as interest on a loan, though the
c. Duty to share profits and amount of payment vary with the
losses. profits of the business; and
NOTE: Under the Civil Code, a (e) as the consideration for the sale
partnership may be particular or of a goodwill of a business or
universal, and a particular partnership other property by installments or
may have for its object a specific otherwise.
undertaking. Hence, a joint venture
may be treated like any other contract, CLASSIFICATION OF PARTNERSHIP
innominate in nature to be regulated and 1. as to object:
governed primarily by the stipulations of a) universal partnership
the parties thereto and suppletorily by i. universal partnership of all
the general provisions of the Civil Code present property
on obligations and contracts, by rules ii. universal partnership of
governing the most analogous contracts profits
(e.g. law on partnership), and by the b) particular partnership
customs of the place.
2. as to liability of partners:
Other Similar Contracts a) general partnership
1. Collaboration- the act of working b) limited partnership
together in a joint project.
2. Association- act of a number of 3. as to duration:
persons uniting together for some special a) partnership at will
purpose or business. b) partnership with a fixed
period
RULES TO DETERMINE EXISTENCE OF
PARTNERSHIP (ART 1769) 4. as to legality of existence:
1. GENERAL RULE: Persons who are a) de jure partnership
not partners as to each other are not b) de facto partnership
partners as to third persons.
EXCEPTION: partnership by 5. as to representation to others:
estoppel a) ordinary or real partnership
2. Co-ownership of a property does not b) ostensible or partnership by
itself establish a partnership, even estoppel
though the co-owners share in the
profits derived from the incident of 6. as to publicity:
joint ownership. a) secret partnership
3. Sharing of gross returns alone does b) notorious or open partnership
not indicate a partnership, whether
or not the persons sharing them have 7. as to purpose:
a joint or common right or interest a) commercial or trading
in any property from which the b) professional or non-trading
returns are derived.
4. Receipt of share in the profits is a UNIVERSAL PARTNERSHIP
strong presumptive evidence of 1. A universal partnership of all
partnership. However, no such present property is one wherein the
inference will be drawn if such partners contribute all the property
profits were received in payment: which actually belong to them to a
CHAIRPERSONS
154

common fund, with the intention of partnership. (Art. 739, Art. 87, Family
dividing the same among themselves, as Code)
well as all the profits which they may Profits acquired by their partners
acquire therewith. through chance (i.e. lottery) without
employment of any physical or
 In a universal partnership of all intellectual efforts are not included.
present property, the property which
belongs to each of the partners at the PARTICULAR PARTNERSHIP
time of the constitution of the A particular partnership is one
partnership, becomes the common which has for its object determinate
property of all the partners, as well as things, their use and fruits, or a specific
the profits which they may acquire undertaking, or the exercise of a
therewith. profession or vocation.
A stipulation for the common
enjoyment of any other profits may also GENERAL PARTNERSHIP
be made; but the properties which the A partnership consisting of
partners may acquire subsequently by general partners who are liable pro rata
inheritance, legacy or donation cannot and subsidiarily and sometimes solidarily
be included in such stipulation, except with their separate property for
the fruits thereof. partnership debts.
 Where the articles of partnership do LIMITED PARTNERSHIP

not specify the nature of the universal One formed by two or more
partnership, whether it is one of persons having as members one or more
“present property” or of “profits” only, general partners and one or more limited
it will be presumed that the parties partners, the latter not being personally
intended merely a partnership of profits. liable for the obligations of the
NOTE: Future properties cannot be partnership.
contributed. Thus, property
subsequently acquired by (1) PARTNERSHIP AT WILL
inheritance, (2) legacy or (3) donation A partnership wherein no time is
cannot be included by stipulation except specified and is not formed for a
the fruits thereof. particular undertaking or venture and
which may be terminated at anytime by
2. A universal partnership of profits is mutual agreement of the partners, or by
one which comprises all that the the will of anyone partner alone; or one
partners may acquire by their industry or for a fixed term or particular
work during the existence of the undertaking but has been continued by
partnership and the usufruct of movable the partners after termination of such
or immovable property which each of the term or particular undertaking without
partners may posses at the time of the express agreement.
celebration of the contract.
PARTNERSHIP WITH A FIXED TERM
 Movable or immovable property A partnership wherein the term
which each of the partners may posses at for which the partnership is to exist is
the time of the celebration of the fixed or agreed upon or one formed for a
contract shall continue to pertain particular undertaking, and upon the
exclusively to each, only the usufruct expiration of the term or completion or
passing to the partnership. the particular enterprise, the
partnership is dissolved, unless
NOTE: Persons who are prohibited from continued by the partners.
giving each other any donation or
advantage cannot enter into a universal OTHER KINDS OF PARTNERSHIP
CIVIL LAW COMMITTEE

Gayon
Rhodora
John Stephen
Purganan(LTD),
1. De Jure Partnership- one which has the partnership; he may be

complied will all the legal appointed in the articles of
requirements for its establishment. partnership or after constitution of
2. De Facto Partnership- one which the partnership.
has failed to comply with all the b) Silent partner- one who does not
legal requirements for its take any active part in the business
establishment. although he may be known to be a
3. Ordinary or real partnership- one partner.
which actually exists among the c) Liquidating partner- one who
partners and also as to third persons. takes charge of the winding up of
4. Ostensible partnership or the partnership affairs upon
partnership de facto- one which in dissolution.
reality is not a partnership, but is
considered a partnership only in 4. Miscellaneous:
relation to those who, by their a) Ostensible partner- one who
conduct or admission, are precluded takes active part and known to the
to deny or disprove its existence. public as a partner in the business,
5. Secret partnership- one wherein the whether or not he has actual interest
existence of certain persons as in the firm.
partners is not avowed or made b) Secret partner- one who takes
known to the public by any of the active part in the business by is not
partners. known to be a partner by outside
6. Open or notorious partnership- one parties nor held out as a partner by
whose existence is avowed or made the other partners. c) Dormant
known to the public by the members partner- one who does not take
of the firm. active part in the business and is not
7. Commercial or trading partnership- known or held out as partner.
one formed for the transaction of
business. KEY: CP2L
8. Professional or non-trading Capitalist Partner Industrial
partnership- one formed for the Partner
exercise of a profession. 1. as to contribution
contributes money contributes his
CLASSIFICATION OF PARTNERS or property industry (mental
1. as to CONTRIBUTION: or physical)
a) Capitalist partner- one who
contributes money or property to the 2. as to prohibition to engage in
common fund. other business
b) Industrial partner- one who Cannot generally cannot engage in
engage in the same any business for
contributes only his industry or
or similar enterprise himself
personal service. as that of his firm
2. as to LIABILITY: 3. as to profits
a) General 1. shares in the receives a just
partner- one whose liability to third profits according and equitable
persons extends to his separate to agreement share
property, he may either be a thereon;
capitalist or industrial partner. 2. if none, pro rata
b) Limited partner- one whose to his
contribution
liability to third persons is limited to
4. as to losses
his capital contribution. 1. first, the exempted as to
stipulation as to losses (as
3. as to MANAGEMENT: losses; between
a) Managing partner- one who 2. if none, the partners); but is
manages the business or affairs of agreement as to liable to third
CHAIRPERSONS
156

profits; persons, without conversion of any sum for his
3. if none, pro rata prejudice to personal benefit.
to contribution reimbursement
from the III. Obligation Not to Engage in Other
capitalist
Business for Himself
partners
1. Industrial partner- cannot engage in
any business for himself unless the
partnership expressly permits him to
OBLIGATIONS OF PARTNERS AMONG
do so. The other partners have the
THEMSELVES:
remedy of either excluding the
erring partner from the firm or of
I. Obligation with respect to
availing themselves of the benefits
contribution of property
which he may have obtained.
a) To contribute what had been
Note: The prohibition is absolute and
promised
applies whether the industrial
b) To answer for eviction in case
partner is to engage in the same
the partnership is deprived of
business in which the partnership is
determinate property
engaged or in any kind of business. It
contributed
is clear that the reason for the
c) To answer to the partnership for
prohibition exists in both cases,
the fruits of the property the
which is to prevent any conflict of
contribution of which is delayed,
interest between the industrial
from the date they should have
partner and the partnership and to
been contributed to the time of
insure faithful compliance by said
actual delivery
partner with his prestation
d) To preserve the property with
(Evangelista & Co. vs. Abad Santos,
the diligence of a good father of
51 SCRA 416, 1973)
a family pending delivery to the
partnership
2. Capitalist partner- The prohibition
e) To indemnify the partners for
extends only to any operation which
any damages caused to it by the
is of the same kind of business in
retention of the same or by
which the partnership is engaged
delay in its contribution.
unless there is a stipulation to the
contrary.
II. Obligations with respect to
contribution of money and money
IV. Obligation to Contribute Additional
converted to personal use
Capital
a) To contribute on the date due
As a general rule, a capitalist
the amount he has undertaken to
partner is not bound to contribute to the
contribute to the partnership
partnership more than what he agreed to
b) To reimburse any amount he may
contribute but in case of an imminent
have taken from the partnership
loss of the business, and there is no
coffers and converted to his own
agreement to the contrary, he is under
personal use
obligation to contribute an additional
c) To pay the agreed or legal
share to save the venture. If he refuses
interest, if he fails to pay his
to contribute, he shall be obliged to sell
contribution on time or in case
his interest in the partnership to other
he takes any amount from the
partners.
common fund and converted to
his own personal use
V. Obligation of Managing Partner who
d) To indemnify the partnership for
Collects Debt
the damages caused to it by the
Where a person is separately
delay in the contribution or the
indebted to the partnership and to the
managing partner at the same time, any
CIVIL LAW COMMITTEE
Gayon
Rhodora
John Stephen
Purganan(LTD),
sum received by the managing partner

shall be applied to the two credits in IX. Obligation to account for any
proportion to their amounts, except benefit and hold as trustee
where he received it entirely for the unauthorized personal profits
account of the partnership, in which Every partner must account to
case the whole sum shall be applied to the partnership for any benefit, and hold
the partnership credit only. as trustee for it any profits derived by
him without the consent of the other
Requisites for the application of the partners from any transaction connected
rule: with the formation, conduct, liquidation
1) There exists two debts, one where of the partnership or form any use by
the collecting partner is creditor, him of its property.
the other, where the partnership is
creditor. RIGHTS OF A PARTNER:
2) Both debts are demandable 1. Property rights of a partner
3) The partner who collects is a) His rights in the specific
authorized to manage and actually partnership property
manages the partnership. b) His interest in the partnership
c) His right to participate in the
VI. Obligation of Partner Who Receives management
Share in Partnership Credit 2. Right to reimbursement for amounts
A partner who receives, in whole advanced to the partnership and to
or in part, his share in the partnership, indemnification for risks in
when the others have not collected consequence of management
theirs, shall be obliged, if the debtor 3. Right to associate with another
should thereafter become insolvent, to person in his share
bring to the partnership capital what he 4. Right of access and inspection of
received even though he may have given partnership books
receipt for his share only. 5. Right to true and full information of
all things affecting the partnership
Requisites for application of rule: 6. Right to a formal account of
1) A partner has received, in whole or partnership affairs under certain
in part, his share in the partnership circumstances
credit NOTE: The ten year period to
2) The other partners have not demand an accounting by a partner
collected their shares. begins at the dissolution of the
3) The partnership debtor has become partnership.
insolvent. 7. Right to have partnership dissolved
under certain conditions.
VII. Obligation of Partner for Damages
to Partnership RULES FOR DISTRIBUTION OF PROFITS
Every partner is responsible to the AND LOSSES
partnership for damages suffered by it 1. Distribution of profits
through his fault. He cannot compensate a) According to their agreement
them with the profits and benefits which (but not inequitously to defeat
he may have earned for the partnership Art.1799)
by his industry. b) If none,
1) Share of capitalist partner
VIII. Duty to Render Information shall be in proportion to his
Partners shall render on demand capital contribution
true and full information of all things 2) Industrial partner shall
affecting the partnership to any partner receive such share as may be
or the legal representative of any just and equitable under the
deceased partner of any partner under circumstances
legal disability. 2. Distribution of losses
CHAIRPERSONS
158

a) According to their agreement as  not assignable, except in connection
to losses (but not inequitously to with the assignment of rights of all
defeat Art.1799) partners in the same property
b) If none, according to their  not subject to attachment or
agreement as to profits execution, except on a claim against
c) If none, in proportion to his the partnership
capital contribution, but the  not subject to legal support
purely industrial partner shall
not be liable for the losses NOTE: Any immovable property or an
interest therein may be acquired in the
GENERAL RULE: A stipulation excluding partnership name. The title so acquired
a partner from any share in the profits or may be conveyed only in the partnership
losses is VOID (Article 1799) name subject to the provisions of Article
EXCEPTION: Article 1797(2) excludes an 1819 of the Civil Code.
industrial partner from losses. Thus, a 2. Interest in the partnership
stipulation excluding an industrial  share in the profits and surplus
partner from losses is VALID, but he is  A partner actually owns his
NOT exempted from liability insofar as respective share.
third persons are concerned.
NOTE: In general, LIABILITY refers to Effects of conveyance by a partner of
responsibility towards third persons, and his interest in the partnership
LOSSES refers to responsibility as among 1. conveyance of his whole interest –
partners partnership may either remain or be
dissolved
2. assignee does not necessarily
CONTRACT OF SUB-PARTNERSHIP become a partner
 One formed between a member of a 3. assignee cannot interfere in the
partnership and a third person for a management or administration of the
division of profits owing to him from partnership business or affairs
the partnership enterprise. 4. assignee cannot demand
 It is a partnership within a information, accounting and
partnership distinct and separate inspection of the partnership books
from the main or principal Remedies of separate judgment
partnership. creditor of a partner
 Application for a charging order after
NOTE: In the absence of unanimous securing judgment on his credit to
consent of all the partners, a sub- subject the interest of the debtor
partner does not become a member of partner with payment of unsatisfied
the partnership. Hence, a sub-partner amount of the judgment debt
does not acquire the rights of a partner
nor is he liable for its debts Redemption of interest charged
1. General partnership
PROPERTY RIGHTS OF A PARTNER a) with separate property of a
1. Right to specific partnership partner; or
property b) with partnership property, with
 contemplates tangible property the consent of all the partners
 The specific partnership property whose interests are not so
belongs to the partnership as a charged or sold
separate juridical personality. The 2. Limited partnership (interest of
partners have no actual interest in it limited partner)
until after dissolution. a) with separate property of any
 equal right with other partners to general partner but NOT with
possess specific partnership property partnership property
for partnership purposes
CIVIL LAW COMMITTEE
Gayon
Rhodora
John Stephen
Purganan(LTD),
3. Right to participate in the a) Decision of the majority

management of the managing partners
shall prevail
MANAGEMENT OF PARTNERSHIP b) In case of a tie, decision
I. When the manner of management of the partners
has been provided for in the representing the
partnership agreement controlling interest shall
prevail
A. When a managing partner has
been appointed 2) With stipulation requiring
1) Appointment in the articles of unanimity of action
partnership GENERAL RULE: Unanimous
a. Power is irrevocable without consent of all the managing
just or lawful cause partners shall be necessary for
i. to remove him for JUST the validity of the acts and
cause, vote of partners absence or inability of any
representing controlling managing partner cannot be
interest is necessary alleged
ii. to remove him without just
cause or for an UNJUST cause,
EXCEPTION: When there is an
there must be unanimity imminent danger of grave or
including his own vote irreparable injury to the
b. Extent of power partnership, partner may act
i. if he acts in good faith, he alone without the consent of the
may do all acts of partner who is absent or under
ADMINISTRATION, despite disability
opposition of his partners
ii. if in bad faith, he cannot. II. When manner of management has
not been agreed upon
2) Appointment other than in the a) All partners shall be considered
articles of partnership managers and agents
a. Power to act may be revoked b) Unanimous consent required for
at any time, with or without alteration of immovable property
just cause
b. Extent of power: as long as he OBLIGATIONS OF PARTNERS TO THIRD
remains manager, he can perform PERSONS
all acts of administration, but if I. Liability for contractual obligations
others oppose and he persists, he (ART 1816)
can be removed 1. All partners, including industrial
partners, are personally liable
B. When two or more managing with all their property. Their
partners have been entrusted individual liability is pro rata and
with the management of subsidiary, unless otherwise
partnership stipulated
1) Without specification of 2. Liability of partnership for acts
their respective duties and of partners
without stipulation requiring a) Acts for apparently carrying
unanimity of action on in the usual way the
GENERAL RULE: Each managing business of the partnership
partner may execute all acts of GENERAL RULE: Act binds
administration the partnership.
EXCEPTION: If any of the EXCEPTION: Partnership is
managing partners should not bound if:
oppose, i. acting partner has in fact
no authority and

CHAIRPERSONS
160

ii. the third person knows wrongdoing is regarded as individual
that the acting partner in character. But where the crime is
has no authority statutory, especially when it involves
b) Acts of Strict Dominion or a fine rather than imprisonment,
Ownership (acts which are criminal liability may be imposed
not apparently for carrying
on in the usual way the LIABILITY OF STOCKHOLDERS IN A
business of the partnership) DEFECTIVELY FORMED CORPORATION
GENERAL RULE: Act does  It is ordinarily held that persons who
not bind the partnership. attempt but fail to form a
EXCEPTION: Partnership is corporation and carry on business
bound if: under the corporate name occupy
i. the act is authorized by all the position of partners inter se.
the partners; or
ii. they have abandoned the
Thus where persons associate
business themselves together under articles
c) Acts in contravention of a to purchase property to carry on a
restriction on authority business, and their organization is so
i. Partnership is not liable to defective as to come short of
third persons having actual creating a corporation within the
or presumptive knowledge statute, they become in legal effect
of the restrictions partners inter-se.
 Exception: One who takes no part
II. Liability arising from partner’s tort except to subscribe for stock in a
(ART 1822) or Breach of Trust (ART proposed corporation, which was
1823) never legally formed, does not
1. Where, by any wrongful act or become a partner with other
omission of any partner acting in subscribers who engage in business
the ordinary course of business under the name of the pretended
of the partnership or with corporation, so as to be liable as
authority of his co-partners, loss such in an action for settlement of
or injury is caused to any person, the alleged partnership and
not being a partner in the contribution. (Pioneer Insurance &
partnership (Article 1822) Surety Corporation vs. Court of
2. Where one partner, acting within Appeals, 175 SCRA 668 [1989].)
the scope of his apparent PRINCIPLE OF DELECTUS PERSONARUM
authority, receives money or  A rule inherent in every partnership
property of a third person and wherein no one can become a
misapplies it (Article 1823) member of the partnership without
3. Where the partnership, in the the consent of all the partners.
course of its business, receives
money or property and it is NOTE: This element of delectus
misapplied by any partner while personae is true only in case of a general
it is in the custody of the partner, but NOT as regards a limited
partnership (Article 1823) partner.
NOTE: All partners are solidarily liable MUTUAL AGENCY

with the partnership for any penalty or  Partnership is a contract of “mutual
damage arising from a partnership tort agency”, each partner acting as a
or breach of trust principal on his own behalf, and as
an agent of his co-partners and the
III. Criminal liability of partnership.
partnership
 Partnership liability does not extend Requisites When A Partner Binds The
to criminal liability where the Partnership
CIVIL LAW COMMITTEE
Gayon
Rhodora
John Stephen
Purganan(LTD),
1. when he is expressly or impliedly the partnership, nor the relations of the

authorized partners among themselves who remain
2. when he acts in behalf and in the as co-partners until the partnership is
name of the partnership terminated.
PARTNERSHIP BY ESTOPPEL WINDING UP

 Arises when a person, by words  Process of settling the partnership
spoken or written or by conduct, business or affairs after dissolution.
represents himself or consents to
another representing him to anyone, TERMINATION
as partner in an existing partnership,  Point in time when all partnership
or with one or more persons not affairs are wound up or completed
actual partners; he is liable to any and is the end of the partnership
such person to whom such life.
representation has been made, who
has, on the faith of such CAUSES OF DISSOLUTION
representation given credit to the 1. Extrajudicial dissolution (ART
actual or apparent partnership. (Art 1830) - the parties may agree to
1825) expand the grounds provided under
Art 1830 but NOT to delimit them.
NOTE: Art. 1825 does not create a The causes enumerated are as
partnership as between the alleged follows:
partners. A contract, express or implied a. Without violation of the
is essential to the creation of agreement between the partners
partnership. The law considers them i. By the termination
partners and the association as a of the definite term or
partnership insofar as it is favorable to particular undertaking
third persons. However, partnership specified in the agreement;
ii. By the express will
liability is created only in favor of of any partner, who must
persons who on the faith of such act in good faith, when no
representation given credit to the actual definite term or particular
or apparent partnership undertaking is specified;
iii. By the express will
of all the partners who
have not assigned their
interest or suffered them to
DISSOLUTION be charged for their
separate debts, either
 Change in the relation of the before or after the
partners caused by any partner termination of any specified
ceasing to be associated in carrying term or particular
on the business. (Article 1828) undertaking;
 It is the point in time when the iv. By the expulsion
partners cease to carry on the of any partner from the
business together. It represents the business bona fide in
demise of a partnership. accordance with such
power conferred by the
agreement between the
NOTE: The dissolution of a partnership
partners;
must not be understood in the absolute b. In contravention of the
and strict sense so that at the agreement between the
termination of the object for which it partners, where the
was created the partnership is circumstances do nor permit a
extinguished. (Testate of Mota vs. dissolution under any other
Serra, 47 PHIL 464, 1926.) Dissolution provision of this article by the
does not automatically result in the
termination of the legal personality of
CHAIRPERSONS
162

express will of any partner at e. The business of the
any time. partnership can only be carried
c. By any event which on in a loss;
makes it unlawful for the f. Other circumstances
business of the partnership to be render a dissolution equitable.
carried on or for the members to On application of the purchaser of a
carry it on in partnership. partner’s interest under Article
d. When a specific thing, a 1813 or 1814:
partner had promised to a. After the termination of the
contribute, perishes before its specified term or particular
delivery. Or where the partner undertaking;
only contributed the use or b. At any time if the
enjoyment of the thing and has partnership was a partnership at
reserved ownership thereof, its will when the interest was
loss, before or after delivery assigned or when the charging
dissolves the partnership. order was issued.
e. By the death of any
partner; EFFECTS OF DISSOLUTION
f. By the insolvency of any A. As to partner’s authority to act for
partner or the partnership; the partnership
g. By the civil interdiction GENERAL RULE: Dissolution terminates
of any partner; all authority of any partner to act for the
partnership
2. Judicial dissolution (ART 1831) - EXCEPTIONS:
when so decreed by the court, the 1. Acts necessary to wind up
presiding judge may place the partnership affairs
partnership under receivership and 2. Acts necessary to complete
direct an accounting to be made transactions begun but not then
towards winding up the partnership finished
affairs. Note: Thus, dissolution terminates
On application by or for any the ACTUAL authority of a partner to
partner, the court shall decree a undertake NEW business for the
dissolution whenever: partnership
a. A partner has been
declared insane in any judicial QUALIFICATIONS TO THE GENERAL
proceeding or is shown to be of RULE:
unsound mind; 1. With respect to the partners (in so
b. A partner becomes in far as partners themselves are
any other way incapable of concerned)
performing his part of the a) Dissolution is not by act,
partnership contract; insolvency or death of a partner:
c. A partner has been guilty General Rule applies. Hence,
of such conduct as tend to affect dissolution terminates the
prejudicially the carrying on of ACTUAL authority of a partner to
the business; undertake NEW business for the
d. A partner willfully or partnership
persistently commits a breach of b) Dissolution is by act, insolvency
the partnership agreement, or or death of a partner:
otherwise so conducts himself in GENERAL RULE: Authority of
matters relating to the partners inter se to act for the
partnership business that it is partnership is NOT deemed
not reasonably practicable to terminated. Thus, each partner
carry on the business in is liable to his co-partners for his
partnership with him. share of any liability created by
CIVIL LAW COMMITTEE
Gayon
Rhodora
John Stephen
Purganan(LTD),
any partner acting for the circumstances as defined

partnership as if the partnership above)
has not been dissolved 4) Where act is NOT
appropriate for winding up
EXCEPTIONS: partnership affairs or for
1) The cause of dissolution is completing unfinished
the ACT of a partner and the transactions
acting partner had 5) completely NEW transaction
KNOWLEDGE of such which would bind the
dissolution partnership if dissolution had
2) The cause of dissolution is not taken place with third
the DEATH or INSOLVENCY of persons in bad faith
a partner and the acting
partner had KNOWLEDGE or B. As to partner’s existing liability
NOTICE of such dissolution GENERAL RULE: Dissolution does not
2. With respect to persons not automatically discharge the existing
partners (third persons) liability of any partner
a) When partnership is bound to EXCEPTION: A partner may be relieved
third persons after dissolution from all existing liabilities upon
1) Act appropriate for winding dissolution ONLY by an agreement
up partnership affairs between:
2) Act appropriate for 1. Partner concerned
completing unfinished 2. Other partners
transactions 3. Partnership creditors
3) Completely NEW transaction Note: The consent of the partnership
which would bind the creditors and the other partners to
partnership if dissolution had the novation may be implied from
not taken place provided: their conduct.
the other party is in good
faith, meaning: RIGHTS OF A PARTNER UPON
i. Previous creditor (had DISSOLUTION
previously extended 1. Where dissolution is NOT in
credit) AND he had NO contravention of the partnership
KNOWLEDGE or NOTICE agreement
of the dissolution, OR a) To have partnership property
ii. NOT a previous creditor applied to discharge partnership
AND the fact of liabilities
dissolution had not been b) To receive in cash his share of
published in a newspaper the surplus
of general circulation 2. Where dissolution is in
b) When partnership is NOT bound contravention of the partnership
to third persons after dissolution agreement
1) Where partnership was a) Rights of a partner who has not
dissolved because it was caused the dissolution wrongfully
unlawful to carry on the 1) To have partnership property
business, except when the applied to discharge
act is for winding up partnership liabilities
2) Where the acting partner in 2) To receive in cash his share
the transaction has become of the surplus
insolvent 3) To be indemnified for
3) Where the partner is damages caused by the
unauthorized to wind up, partner guilty of the
except if the transaction is wrongful dissolution
with third persons in good 4) To continue the business in
faith (under the same the same name during the
CHAIRPERSONS
164

agreed term of the 3. Right of INDEMNIFICATION by the
partnership, by themselves guilty partner against all debts and
or jointly with others liabilities of the partnership
5) To possess partnership
property should they decide MANNER OF WINDING UP
to continue the business 1. Extrajudicial – by the partners
b) Rights of a partner who has themselves without the intervention
wrongfully caused the dissolution of the court
1) If the business is not 2. Judicial – under the control and
continued by the other direction of the court upon proper
partners cause shown by any partner, his
i. To have partnership legal representative or his assignee
property applied to
discharge partnership PERSONS AUTHORIZED TO WIND UP
liabilities 1. partners designated by the
ii. To receive in cash his share
of the surplus less damages
agreement
caused by his wrongful 2. in the absence of such agreement,
dissolution all partners who have not wrongfully
2) If the business is continued dissolved the partnership
i. To have the value of his 3. legal representative of last surviving
interest in the partnership partner not insolvent
at the time of the
dissolution, surplus less ORDER OF PAYMENT IN WINDING UP
damages caused by his 1. General Partnership (ART 1839 (2))
wrongful dissolution to his a) those owing to creditors other
co-partners, ascertained
than partners
and paid in cash or secured
by a bond approved by the b) those owing to partners other
court; AND than for capital or profits
ii. To be released from all c) those owing to partners in
existing and future respect of capital
liabilities d) those owing to partners in
NOTE: The value of the respect of profits
goodwill of the business is 2. Limited Partnership (ART 1863)
not considered in a) those owing to creditors, except
ascertaining the value of the those to limited partners on
interest of the guilty account of their contribution,
partners. and to general partners
b) those owing to limited partners
RIGHTS OF A PARTNER WHERE in respect of their share of the
PARTNERSHIP CONTRACT IS RESCINDED profits and other compensation
ON THE GROUND OF FRAUD OR by way of income
MISREPRESENTATION c) those owing to limited partners
(NOTE: The following are the rights of in respect of their capital
the partner entitled to rescind) contributions
1. Right of LIEN on, or RETENTION of, d) those owing to general partners
the surplus of partnership property other than for capital and profits
after satisfying partnership liabilities e) those owing to general partners
for any sum of money paid or in respect of profits
contributed by him f) those owing to general partners
2. Right of SUBROGATION in place of in respect of capital
the partnership creditors after
payment of partnership liabilities; DOCTRINE OF MARSHALLING OF ASSETS
and (Article 1839(8))
CIVIL LAW COMMITTEE

Gayon
Rhodora
John Stephen
Purganan(LTD),
1. Partnership creditors have 4. The limited partners may ask for the
preference in partnership assets return of their capital contributions
2. Separate or individual creditors have under the conditions prescribed by
preference in separate or individual law
properties 5. The partnership debts are paid out
3. Anything left from either goes to the of the common fund and the
other individual properties of the general
partners
PARTNER’S LIEN
 Right of every partner to have the General
Limited
partnership property applied to Partner/
Partner/Partnership
discharge partnership liabilities AND Partnership
to have the surplus assets, if any, 1. Extent of liability
distributed in cash to the respective Limited partner’s General partner
partners, after deducting what may liability extends only to is personally
be due to the partnership from them his capital contribution liable for
as partners. partnership
obligations
2. Right to participate in the
LIMITED PARTNERSHIP management of partnership
 One formed by two or more persons Limited partner has no General
having as members one or more share in the partners have
general partners and one or more management of a an equal right
limited partners, the latter not being limited partnership and in the
personally liable for partnership renders himself liable to management of
debts. partnership creditors as the business
a general partner if he (when the
NOTE: The Supreme Court, declared a takes part in the control manner of
of the business management
firm to be a general partnership in a
has not been
case where it appears that the inclusion agreed upon)
of “Ltd.” (limited) in the firm was only a 3. Contribution
subterfuge resorted to by the partners in Limited partner must General partner
order to evade liability for possible contribute cash or may contribute
losses, while assuming their enjoyment property to the money,
of advantages to be derived from the partnership but not property or
relation. Jo Chung Cang vs. Pacific services industry to the
Commercial Co. 45 PHIL 142 [1923]). In partnership
other words if the parties intended a
4. Proper party to proceedings by or
general partnership, they are general
against the partnership
partners although their purpose is to
avoid the creation of such a relation. Limited partner is not a General partner
proper party to is the proper
Characteristics of Limited Partnership proceedings by or party to
1. Limited partnership is formed by against a partnership proceedings by
substantial compliance in good faith Unless: or against a
with the statutory requirements 1. he is also a general partnership
2. One or more general partners control partner, or
the business and are personally 2. where the object of
the proceeding is to
liable to creditors
enforce a limited
3. One or more limited partners partner’s right
contribute to the capital and share against or liability to
in the profits but do not participate the partnership
in the management of the business
and are not personally liable for 5. Transferability of interest
partnership obligations beyond the
amount of their capital contributions
CHAIRPERSONS
166
Limited partner’s General Retirement, death, Retirement,

interest is freelypartner’s insanity or insolvency of death, insanity
assignable, withinterest in the a limited partner does or insolvency of
assignee acquiring all partnership not dissolve the a general
the rights of the limited may not be partnership for his partner
partner subject toassigned as to executor or dissolves the
certain qualifications make the administrator shall have partnership
assignee a new the rights of a
partner without limited partner for the
the consent of purpose of selling his
the other estate
partners, 9. Creation
although he Limited partnership is General
may associate a created by the members partnership, as
third person after substantial a general rule,
with him in his compliance in good may be
share faith with the constituted in
6. Inclusion of partner’s name in the requirements set forth any form by
firm name by law contract or
conduct of the
As a general rule, name Name of a partnership
of a limited partner general partner
must not appear in the may appear in 10. Members of the partnership
firm name the firm name Composed of one or Composed only
more general partners of general
7. Prohibition to engage in other and one or more limited partners
business partners
11. Firm name
No such prohibition in General partner Firm name must be No such
the case of a limited is prohibited followed by the word requirement
partner who is from engaging Limited
considered a mere in a business 12. Rules governing dissolution and
contributor to the which is of the winding up
partnership SAME kind of Governed by Art. 1839 Governed by
business in Art. 1863
which the
partnership is
ESSENTIAL REQUIREMENTS FOR
engaged, if he
is a capitalist
FORMATION OF LIMITED PARTNERSHIP
partner, or in 1. A certificate or articles of limited
ANY of business partnership which states the matters
for himself if he enumerated in Article 1844, which
is an industrial must be signed and sworn;
partner 2. Such certificate must be filed for
record in the Office of the Securities
8. Effect of retirement, death, insanity and Exchange Commission.
or insolvency
NOTE: A strict compliance with the legal
requirements is not necessary. It is
sufficient that there is substantial
compliance in good faith. If there is no
substantial compliance, the partnership
becomes a general partnership as far as
third persons are concerned, in which all
the members are liable as general
partners. (Jo Chung Cang vs. Pacific
Commercial Co., 45 PHIL 142 [1923].)
CIVIL LAW COMMITTEE
Gayon
Rhodora
John Stephen
Purganan(LTD),
However, a firm which fails to 10. Right, if given, of a limited partner

substantially comply with the formal to substitute an assignee as
requirements of a limited partnership is contributor in his place, and the
a general partnership only as to its terms and conditions of the
relations to third persons. The firm is a substitution;
limited partnership, subject to all rules 11. Right, if given, of the partners to
applicable to such partnership; and as admit additional partners;
between the partners they are bound by 12. Right, if given, of one or more of the
their agreement; and that all the limited limited partners to priority over
partner’s relations to his co-partners and other limited partners, as to
their obligations to him growing out of contributions or as to compensation
the relation remain unimpaired. by way of income, and the nature of
As to third persons or creditors such priority;
guilty of estoppel, the firm shall not be 13. Right, if given, of the remaining
treated as a general partnership despite general partner or partners to
lack of substantial compliance to the continue the business on the death,
requirements of a limited partnership. If retirement, civil interdiction,
creditors deal with the firm as a limited insanity or insolvency of a general
partnership, they will be estopped from partner; and
insisting that there is no such 14. Right, if given, of a limited partner
partnership, or that the terms of the to demand and receive property
partnership were not sufficiently stated other than cash in return of his
in the notice of its formation. (40 Am. contribution.
Jur. 476.)
LIABILITY FOR FALSE STATEMENT IN
CONTENTS OF THE CERTIFICATE OR CERTIFICATE
ARTICLES OF LIMITED PARTNERSHIP Any partner to the certificate
1. Name of the partnership, adding containing a false statement is liable to
thereto the word “limited;” one who suffers loss by reliance on such
2. Character of the business; certificate provided the following
3. Location of the principal place of requisites are present:
business; 1. He knew the statement to be false
4. Name and place of residence of each at the time he signed the
member, general and limited certificate, or subsequently having
partners being respectively sufficient time to cancel or amend
designated; it or file a petition for its
5. Term for which the partnership is to cancellation or amendment, he
exist; failed to do so;
6. Amount of cash and description of 2. The person seeking to enforce
and the agree value of the other liability has relied upon the false
property contributed by each limited statement in transacting business
partner; with the partnership;
7. Additional contributions to be made 3. The person suffered a loss as a
by each limited partner and the result of reliance upon such false
times at which or events on the statement.
happening of which they shall be
made; MANAGEMENT OF LIMITED
8. Time, if agreed upon, when to PARTNERSHIP
contribution of each limited partner  A general partner in a limited
is to be returned; partnership is vested with the entire
9. Share in the profits or other control of the firm’s business and
compensation by way of income has all the rights and powers and is
which each limited partner shall subject to all the liabilities and
receive by reason of his contribution; restrictions of a partner in a general
partnership.
CHAIRPERSONS
168

 A general partner in a limited 6. To receive a share in the profits or
partnership however has no other compensation by way of
authority, without written consent income
or ratification of all limited partners, provided: that the partnership
to: assets are in excess of partnership
1. Do any act in liabilities after such payment
contravention of the certificate; 7. To receive the return of his
2. Do any act which would contribution provided:
make it impossible to carry on a) All the liabilities of the
the ordinary business of the partnership have been paid
partnership; OR the partnership assets
3. Confess judgment are sufficient to pay
against the partnership; partnership liabilities
4. Possess partnership b) The consent of all the
property, or assign their rights in members (general and
specific partnership property, for limited partners) has been
other that a partnership obtained
purpose; EXCEPTION:
5. Admit a person as a When the return of the
general partner; contribution may be
6. Admit a person as a rightfully demanded:
limited partner, unless the right 1) On the dissolution of the
to do so is given in the partnership
certificate 2) Upon the arrival of the
7. Continue the business date specified in the
with the partnership property on certificate for the return
the death, retirement, insanity, 3) After he has given 6
civil interdiction or insolvency of months notice in writing
a general partner, unless the to all other partners, if
right to do so is given in the no time is specified in
certificate. the certificate their for
 A limited partner is liable as a the return of the
general partner for the firm’s contribution or for the
obligations if he takes part or dissolution of the
interferes in the management of the partnership
business. c) The certificate is cancelled
or so amended as to set forth
RIGHTS OF A LIMITED PARTNER the withdrawal or reduction
KEY: BIF2AR2
1. To have the partnership books kept LIABILITIES OF A LIMITED PARTNER
at the principal place of business of 1. Liability for unpaid contribution
the partnership a) For the difference between his
2. To inspect, at a reasonable hour, contribution as actually made
partnership books and copy any of and that stated in the certificate
them as having been made; AND
3. To demand true and full information b) For any unpaid contribution
of the things affecting the which he has agreed in the
partnership certificate to make in the future
4. To demand a formal account of the at the time and the conditions
partnership affairs whenever stated in the certificate
circumstances render it just and 2. Liability as trustee
reasonable a) Specific property stated in the
5. To ask for dissolution and winding up certificate as contributed by
by decree of court him, but which was not
CIVIL LAW COMMITTEE
Gayon
Rhodora
John Stephen
Purganan(LTD),
contributed or which has been 3. receiving a pro rata share of the

wrongfully returned; AND partnership assets with the general
b) Money or other property creditors if he is NOT also a general
wrongfully paid or conveyed to partner
him on account of his
contribution NOTE: In transacting a business with the
partnership as a non-member, the
NOTE: These liabilities can be waived or limited partner is considered a non-
compromised only by consent of all the partner creditor
members; but a waiver or compromise
shall NOT affect the right of a creditor of PROHIBITED TRANSACTIONS OF A
a partnership who extended credit or LIMITED PARTNER
whose claim arose after the filling and 1. receiving or holding as collateral
before the cancellation or amendment of security any partnership property; or
the certificate, to enforce such 2. receiving any payment, conveyance,
liabilities. or release from liability if it will
prejudice the partnership creditors
SUBSTITUTED LIMITED PARTNER

 A person admitted to all the rights of NOTES:
a limited partner who has died of has  Violation of the prohibition will give
assigned his interest in the rise to the presumption that it has
partnership. been made to defraud partnership
creditors
GENERAL RULE: He has all, the rights  The prohibition is NOT ABSOLUTE,
and powers, and is subject to all the there is no such prohibition if the
restrictions and liabilities of his assignor. partnership assets are sufficient to
EXCEPTION: Those liabilities which he discharge partnership liabilities to
was ignorant at the time he became a persons not claiming as general or
limited partner AND which could not be limited partners.
ascertained from the certificate.
REQUISITES IN ORDER THAT THE AGENCY

ASSIGNEE MAY BECOME A SUBSTITUTED
LIMITED PARTNER CONTRACT OF AGENCY
1. All the members must consent to the  A contract whereby a person (agent)
assignee becoming a substituted binds himself to render some service
limited partner, OR the limited or to do something in representation
partner, being empowered by the or on behalf of another (principal),
certificate must give the assignee with the consent or authority of the
the right to become a limited latter. (Article 1868)
partner
2. The certificate must be amended in  The parties to the contract are:
accordance with Art.1865 1. Principal- one whom the agent
3. The certificate as amended must be represents and from whom he
registered in the Securities and derives authority; he is the
Exchange Commission person represented.
2. Agent- one who acts for and
ALLOWABLE TRANSACTIONS OF A represents another; he is the
LIMITED PARTNER person acting in a representative
 Being merely a contributor to the capacity.
partnership is not prohibited from:
1. granting loans to the partnership
2. transacting other business with the AGENCY LEASE OF
partnership SERVICES
CHAIRPERSONS
170

1. Principle of 1. Principle of
representation is employment is B. Object
applied. applied.  the services to be undertaken by the
2. Extinguished at 2. Concurrence of agent
will of the principal. parties is necessary.  may cover all acts pertaining to a
3. Agent exercise 3. Employee exercise
business of the principal (general
discretionary power ministerial functions
to attain an end for only. agency) or one or more specific
which he was transactions (special agency)
appointed.  the extent of the agent’s authority
4. Preparatory 4. Principal Contract to act, whether it be a general or a
Contract special agency, depends on how the
agency is couched.
AGENCY TO SELL SALE
1. Agent receives the 1. The buyer C. Cause
goods as the goods of receives goods as  May be onerous or gratuitous but
the principal. owner presumed for compensation
2. Agent delivers the 2. Buyer pays the NOTE: The agent may not be deprived
proceeds of the sale price. of his right to compensation by an
3. Agent can return 3. the buyer, as a unjustified revocation of the agency
the object in case he rule, cannot return
is unable to sell the the object sold
same KINDS OF AGENCY
4. Bound to act 4. The buyer can 1. as to manner of creation
according to the deal with the thing a) express- one where the agent
instructions of his as he please being has been actually authorized
principal. the owner. by the principal, either orally
or in writing;
PURPOSE OF AGENCY b) implied- one which is implied
 The purpose of agency is to extend from the
the personality of the principal i. acts of the
through the facility of the agent. It principal- from his silence or
lack of action, or his failure
enables the activity of man which is
to repudiate the agency
naturally limited in its exercise by knowing that another person
the impositions of his physiological is acting on his behalf
conditions to be legally extended by without authority.
permitting him to be constructively ii. Acts of the agent-
present in many different places and when he carries out the
to perform diverse juridical acts and agency, or from his silence
carry on many different activities or inaction according to the
through another when physical circumstances.
presence is impossible or inadvisable
at the same time. (11 Manresa 434) 2. as to its character
a) gratuitous- one where the
ELEMENTS OF AGENCY agent receives no
A. Consent compensation for his services.
 Any person or entity having juridical b) compensated or onerous-
capacity and capacity to act and not one where the agent receives
otherwise disqualified, may enter compensation for his services.
into an agency.
 But as regards the party with whom 3. as to extent of business covered
the agent acts or contracts, the legal a) general- one which comprises
capacity of the principal rather than all the business of the
the agent, is of the greater import. principal;
CIVIL LAW COMMITTEE

Gayon
Rhodora
John Stephen
Purganan(LTD),
b) special- one which comprises persons under their charge or

one or more specific property under control, are
transactions. prohibited from acquiring said
property and cannot do so through
4. as to authority conferred an agent.
a) couched in general terms-
one which is created in FORM OF AGENCY
general terms and is deemed  Agency may be express or implied
to comprise only acts of from the acts of the principal, from
administration; his silence or lack of action, or his
b) couched in specific terms- failure to repudiate the agency,
one authorizing only the knowing that another person is
performance of a specific act acting on his behalf without
or acts. authority. (Article 1869)
5. as to its nature and effects NOTE: In an implied agency, the

a) ostensible or principal is still bound by the acts of the
representative- one where agent just as in case of express agency
the agent acts in the name
and in representation of the GENERAL RULE: There are no formal
principal. requirements governing the appointment
b) simple or commission- one of an agent. The agent’s authority may
where the agent acts in his be oral or written. It may be in a public
own name but for the or private writing.
account of the principal. EXCEPTION: When the law requires a
ACTS WHICH MAY BE DELEGATED TO AN specific form
AGENT
GENERAL RULE: What a man may do in Example: Sale of a piece of land or
person, he may do thru another. any interest therein through an
EXCEPTIONS: agent:
1. Personal acts- if personal
performance is required the doing of NOTES:
an act by a person on behalf of  authority to sell must be in writing;
another does not constitute otherwise the sale is VOID (Art.1874)
performance by the latter.  the sale itself should be in writing in
a) Voting during an election; order to be enforceable.
b) Making a will;  The authority of an agent to execute
c) Making statements which are
a contract of sale of real estate must
required to be done under oath;
be conferred in writing and must
d) A member of the board of
give him specific authority, either to
directors or trustees in a
conduct the general business of the
corporation cannot validly act as
principal or to execute a binding
such by proxy
contract containing terms and
e) An agent cannot delegate to
conditions which are in the contract
a sub-agent the performance of
he did execute. (Dizon et al. vs. CA
acts which he has been
et al., GR 124741, January 28, 2003)
appointed to perform in person.
2. Criminal Acts or Acts not allowed by
FORM OF ACCEPTANCE BY AGENT
law- There can be no agency in the
perpetration of a crime or unlawful act.  Acceptance by the agent may also be
Examples: express or implied from his acts
a) An alien principal using which carry out the agency, or from
an agent to acquire lands; his silence or inaction according to
b) Persons who, because of their the circumstances
position and relation with the
CHAIRPERSONS
172

Kinds of Implied Acceptance 3. Special or Particular Agent- one
1. Where persons are present authorized to act in one or more
 Acceptance may be implied if: specific transactions, or to do one or
a. principal delivers his power of more specific acts, or to act upon a
attorney to the agent and particular occasion.
b. agent receives it without any
objection
2. Where persons are absent General Agent Special Agent
GENERAL RULE: Acceptance cannot
be implied from silence of the agent 1. Scope of Authority
EXCEPTION:
1. principal transmits his power of Usually authorized to Authorized to
attorney to the agent, who do all acts connected do only acts in
with the business or pursuance of
receives it without any
employment in which particular
objection; he is engaged. instructions or
2. principal entrusts to him by with restrictions
letter or telegram a power of necessarily
attorney with respect to the implied from
business in which he is the acts to be
habitually engaged as an agent, done
and he did not reply to the letter
or telegram 2. Continuity
IMPLIED AGENCY BY Conducts a series of Usually involves

transactions involving a single
ACCEPTANCE ESTOPPEL
a continuity of transaction or a
1. De Jure Agent 1. Not really an service. series of
agent transactions not
2. Binds the 2. Only the involving
principal for acts purported agent is continuity
within the scope liable. 3. Extent by which agent may bind
of his authority. principal
RULE ON AGENCY BY ESTOPPEL Binds his principal by Cannot bind his
 One who clothes another with an act within the principal in a
apparent authority as his agent, and scope of his authority manner beyond
holds him out to the public as such, although it may be or outside the
cannot be permitted to deny the contrary to his special specific acts
authority of such person in good instructions which he is
authorized to
faith, and in the honest belief that
perform on
he is what he appears to be. (Cuison behalf of the
vs. CA, GR.88531, October 26, 1993) principal
4. Termination of Authority
CLASSES AND KINDS OF AGENTS Apparent authority Mere revocation
1. Universal Agent- one employed to do does not terminate by is effective to
all acts that the principal may the mere revocation terminate the
of his authority authority as to
personally do, and which he can
without notice to the third persons
lawfully delegate to another the third party because the
power of doing. third person has
2. General Agent- one employed to a duty to
transact all the business of the inquire
principal, or all the business of a 5. Construction of Instructions of
particular kind or in a particular Principal
place, or in other words to do all Statement of Authority of agent
acts, connected with a particular principal with must be strictly
trade, business or employment. respect to the pursued
CIVIL LAW COMMITTEE
Gayon
Rhodora
John Stephen
Purganan(LTD),
agent’s authority 11. To obligate the principal as

would ordinarily guarantor or surety;
regarded as 12. To create or convey real rights over
advisory only immovable property;
13. To accept or repudiate an
SPECIAL POWER OF ATTORNEY (SPA) inheritance;
 An instrument in writing by which 14. To ratify or recognize obligations
one person, as principal, appoints contracted before the agency;
another as his agent and confers 15. Any other act of strict dominion.
upon him the authority to perform
certain specified acts or kinds of acts NOTE: a third person with whom the
on behalf of the principal. agent wishes to contract on behalf of the
NOTE: It need not be notarized; except principal may require the presentation of
where it is executed in a foreign the power of attorney or the instructions
country, must be certified in accordance as regards the agency; except private or
with the Rules of Court. secret orders.
INSTANCES WHERE SPA IS NECESSARY NOTE: The scope of the agent’s
(ART 1878) (PECWEM- LLB- BOCARO) authority is what appears in the written
1. To make such payments as are not terms of the power of attorney. While
usually considered as acts of third persons are bound to inquire into
administration; the extent or scope of the agent’s
2. To effect novation which put an end authority, they are not required to go
to obligations already in existence at beyond the terms of the written power
time the agency was constituted; of attorney. Third persons cannot be
3. To compromise, to submit questions adversely affected by an understanding
to arbitration, to renounce the right between the principal and his agent as
to appeal from a judgment, to waive to the limits of the latter’s authority. In
objections to the venue of an action the same way, third persons need not
or to abandon a prescription already concern themselves with instructions
acquired; given by the principal to his agent
outside the written power of attorney.
4. To waive any obligation gratuitously; (Siredy Enterprises, Inc. vs. CA, et al.
5. To enter into any contract by which GR 129039, September 27, 2002)
the ownership of an immovable is NOTES:
transmitted or acquired either  SPA to sell does not include the
gratuitously or foe a valuable
power to mortgage; and vice versa.
consideration;
6. To make gifts, except customary  SPA to mortgage includes the power
ones for charity or those made to to allow the extrajudicial foreclosure
employees in the business managed of the mortgaged property.
by the agents;  SPA to compromise does not
7. To loan or borrow money, unless the authorize submission to arbitration
latter’s act be urgent and  SPA for an agent to institute any
indispensable for the preservation of action in court to eject all persons in
the things which are under the principal’s lots so that the
administration; principal could take material
8. To lease any real property to possession thereof, and for this
another person for more than one purpose, to appear at the pre-trial
year; and enter into any stipulation of
9. To bind the principal to render some facts and/or compromise agreement
service without compensation; but only insofar as this is protective
10. To bind the principal in a contract of of the rights and interests of the
partnership; principal in the property, does not
grant any power to the agent to sell
CHAIRPERSONS
174

the subject property nor a portion ratified, in which case, may be
thereof. (Cosmic Lumber Corp vs. CA validated retroactively from the
265 SCRA 168) beginning (Article 1407)
b. in his own name – valid, whether
EFFECT OF LACK OF SPA WHERE ONE IS or not the subject matter
REQUIRED: UNENFORCEABLE belongs to the principal,
provided that at the time of
When principal bound by act of agent delivery, the “agent” can
1. Agent must act within the scope of transfer legally the ownership of
his authority the thing. Otherwise, he will be
2. Agent must act in behalf of the held liable for breach of
principal warranty against eviction;
Article 1883 does NOT apply
NOTE: The limits of the agent’s
authority shall not be considered OCCASIONS WHEN PRINCIPAL IS BOUND
exceeded should it have been performed BY THE ACTS OF THE AGENT BEYOND
in a manner more advantageous to the THE LATTER’S POWERS
principal than that specified by him.
General Rule: The principal is not bound
When a person NOT bound by act of by the acts of the agent beyond his
another limited powers.
Exceptions:
1. Latter acts without or beyond the 1. Where the principal’s acts have
scope of his authority in the former’s contributed to deceive the third person
name; and in good faith;
2. Latter acts within the scope of his 2. Where the limitations upon the
authority but in his own name power created by him could not have
(UNDISCLOSED PRINCIPAL), except been known by the third person;
when the transaction involves a thing 3. Where the principal has placed in
belonging to the principal. In such the hands of the agent instruments
case, the contract is deemed as signed by him in blank (Strong vs.
entered between the principal and Gutierrez Repide 6 PHIL 680 [1906])
the third person. 4. Where the principal has ratified the
acts of the agent.
EFFECTS OF AGENT’S ACTS
1. With Authority Doctrine of Agency by Necessity
a. in principal’s name – valid;  By virtue of the existence of an
principal is bound; agent not emergency, the authority of an agent is
personally liable unless he bound correspondingly enlarged in order to
himself (Article 1897) cope with the exigencies or the
b. in his own name – Apply Article necessities of the moment
1883; generally not binding on  Requisites:
the principal; agent and 1. Real existence of an emergency
stranger are the only parties, 2. Inability of the agent to
except regarding things communicate with the principal
belonging to the principal or 3. Exercise of the additional
when the principal ratifies the authority for the principal’s own
contract or derives benefit protection
therefrom. 4. Adoption of fairly reasonable
2. Without Authority means, premises duly considered
a. in principal’s name –
unauthorized and NOTE: Agency can never be created by
unenforceable but may be necessity; what is created is additional
CIVIL LAW COMMITTEE
Gayon
Rhodora
John Stephen
Purganan(LTD),
authority in an agent appointed and of the same kind and mark, which
authorized before the emergency arose. belong to different owners
12. To be responsible in certain cases for
GENERAL OBLIGATIONS OF AGENT TO the acts of the substitute appointed
PRINCIPAL: by him
1. To act with utmost good faith and 13. To pay interest on funds he has
loyalty for furtherance of principal’s applied to his own use
interests 14. To inform the principal, where an
2. To obey all lawful orders and authorized sale of credit has been
instructions of principal within the made, of such sale
scope of the agancy 15. To bear the risk of collection, should
3. To exercise reasonable care, skill he receive also on sale, a guarantee
and diligence commission
16. To indemnify the principal for
SPECIFIC OBLIGATIONS OF AGENT TO damages for his failure to collect the
PRINCIPAL credits of his principal at the time
1. To carry out the agency which he has that they become due
accepted 17. To be responsible for fraud or
2. To answer for damages which negligence
through his performance the
principal may suffer NOTE: A stipulation exempting the agent
3. To finish the business already begun from the obligation to render an account
on the death of the principal should shall be VOID.
delay entail any danger GENERAL RULE: Knowledge of agent is
4. To observe diligence of a good father knowledge of principal.
of a family in the custody and EXCEPTIONS
preservation of the goods forwarded 1. Agent’s interests are adverse to
to him by the owner in case he those of the principal
declines an agency, until an agent is 2. Agent’s duty is not to disclose the
appointed information (confidential
5. To advance the necessary funds information)
should there be a stipulation to do so 3. Where the person claiming the
6. To act in accordance with the benefit of the rule colludes with the
instructions of the principal, and in agent to defraud the principal
default thereof, to do all that a good
father of a family would do
7. Not to carry out the agency if its SUB-AGENT
execution would manifestly result in  A person to whom the agent
loss or damage to the principal delegates, as his agent, the
8. To answer for damages if there being performance of an act for the
a conflict between his interest and principal which the agent has been
those of the principal, he should empowered to perform through his
prefer his own representative.
9. Not to loan to himself if he has been
authorized to lend money at interest NOTE: The agent may appoint a
10. To render an account of his substitute (sub-agent) except when he
transactions and to deliver to the has been prohibited by the principal.
principal whatever he may have (ART 1892)
received by virtue of the agency
11. To distinguish goods by countermarks Instances when agent shall be
and designate the merchandise responsible for the acts of the
respectively belonging to each substitute:
principal, in the case of a 1. when he was not given the power to
commission agent who handles goods appoint; or

CHAIRPERSONS
176

2. when he was given such power but third party was aware of the
without designating the person, and incapacity at the time of the making
the person appointed was notoriously of the contract
incompetent or insolvent.
3. in these two cases the principal may FACTOR/COMMISSION AGENT
further bring an action against the - one engaged in the purchase and sale
substitute with respect to the for a principal of personal property,
obligations which the latter has which for this purpose, has to be placed
contracted under the substitution. in his possession and at his disposal.
NOTE: All acts of the substitute  If the commission agent received
appointed against the prohibition of the goods consigned to him, he is
principal shall be VOID. responsible for any damage or
deterioration suffered by the same
JOINT AGENTS in the terms and conditions and as
 Agents appointed by one or more described in the consignment.
principals under such circumstances  The commission agent who handles
as to induce the inference that it goods of the same kind and mark,
was the principal’s intent that all which belong to different owners,
should act in conjunction in shall distinguish them by
consummating the transaction for countermarks, and designate the
which they were appointed. merchandise respectively belonging
 Their responsibility is JOINT; except to each principal.
if solidarity has been expressly  A commission agent can sell on
stipulated. credit only with the express or
 If solidarity has been agreed upon, implied consent of the principal. If
each agent is responsible for the: such sale is made without authority,
a. non-fulfillment of the agency the principal is given two
b. fault or negligence of his fellow alternatives:
agents; except when the fellow i. He may require payment in cash,
agents acted beyond the scope in which case any interest or
of their authority. benefit from the sale on credit
shall belong to the agent since the
principal cannot be allowed to
NOTE: innocent agent has a right later enrich himself at the agent’s
on to recover from the guilty or expense;
negligent agent (ART 1217(2)) ii. He may ratify the sale on credit in
Instances when agent may incur which case it will have all the risks
personal liability: and advantages to him.
1. When the agent expressly binds  If the commission agent is authorized
himself to sell on credit, he shall inform the
NOTE: The individual liability of the principal with a statement of the
agent can be considered a further names of the buyers. With such
security in favor of the creditor and statement, the sale shall be deemed
does not affect or preclude the to be for cash as far as the principal
liability of the principal; both are is concerned.
liable  The commission agent who does not
2. When agent exceeds his authority collect the credits of his principal at
3. When agent by his acts prevents the time when they become due and
performance on the part of the demandable shall be liable for
principal damages, unless he proves the
4. When a person acts as an agent exercise of due diligence for that
without authority or without a purpose.
principal
5. A person who acts as an agent of an BROKER
incapacitated principal unless the
CIVIL LAW COMMITTEE
Gayon
Rhodora
John Stephen
Purganan(LTD),
 A middleman or intermediary who, in NOTE: The agent may retain in

behalf of others and for a pledge the things which are the
commission or fee, negotiates object of the agency until the
contracts/transactions relating to principal effects this reimbursement
real or personal property. and pays the indemnity.
5. To pay the agent the compensation
Factorage agreed upon, or if no compensation
 Compensation of a factor or was specified, the reasonable value
commission agent. of the agent’s services
Ordinary Commission LIABILITY OF PRINCIPAL FOR TORT OF

 Compensation for the sale of goods AGENT RULE: The principal is civilly
which are placed in his possession or liable to third persons for torts of an
at his disposal. agent committed at the principal’s
direction or in the course and within the
Guaranty Commission (Del credere) scope of the agent’s authority.
 Fee that is given in return for the Reason for liability: The rule is based
risk, which the agent has to bear in upon the principle that he who does an
the collection of credits. act through another does it himself.
 An agent with a del credere
commission is liable to the principal CONDITIONS FOR RATIFICATION
if the buyer fails to pay or is 1. principal must have capacity and
incapable of paying. power to ratify
2. principal must have had knowledge
GENERAL OBLIGATIONS OF PRINCIPAL of material facts
TO AGENT 3. principal must ratify the acts in its
 Duties and liabilities of the principal entirety
are primarily based upon the 4. act must be capable of ratification
contract and the validity of the 5. act must be done in behalf of the
contract between them principal
SPECIFIC OBLIGATIONS OF PRINCIPAL ESTOPPEL BY PRINCIPAL

TO AGENT (CARIP) Even when the agent has
1. To comply with all the obligations exceeded his authority, the principal is
which the agent may have solidarily liable with the agent if the
contracted within the scope of his former allowed the latter to act as
authority and in the name of the though he had full powers.
principal
2. To advance to the agent, should the JOINT PRINCIPALS
latter so request, the sums necessary  Two or more persons who appoint an
for the execution of the agency agent for a common transaction or
3. To reimburse the agent for what the undertaking.
latter has advanced (plus interest),  Liability: solidarily liable to the
even if the business was not agent for all the consequences of the
successful, provided the agent was agency.
free from fault  Requisites of solidary liability:
4. To indemnify the agent for all the 1. There are two or more principals
damages, which the execution of the 2. The principals have all concurred
agency may have caused the latter in the appointment of the same
without fault or negligence on his agent; and
part 3. The agent is appointed for a
common transaction or
undertaking

CHAIRPERSONS
178

NOTE: Any one of them may revoke the 6. Dissolution of the firm or
agency corporation, which entrusted or
accepted the agency.
RULES ON DOUBLE SALE BY PRINCIPAL
AND AGENT Instances when death of principal does
1 When two persons contract with not terminate agency
regard to the same thing, one of 1. If the agency has been constituted in
them with the agent and the other the common interest of the principal
with the principal, and the two and the agent
contracts are incompatible with each 2. If it has been constituted in the
other, that of prior date shall be interest of a third person who has
preferred, without prejudice to accepted the stipulation in his favor
Article 1544(double sale).
2 If the agent has acted in good faith, Revocation of Agency by Principal
the principal shall be liable in GENERAL RULE: Agency is revocable at
damages to the third person whose will of the principal, regardless of the
contract must be rejected. If the term of the agreement.
agent is in bad faith, he alone shall EXCEPTIONS:
be responsible. 1. If a bilateral contract depends upon
it;
Instances when principal is not liable 2. If it is the means of fulfilling an
for the expenses incurred by the obligation already contracted;
agent: 3. If a partner is appointed manager of
1. if the agent acted in contravention a partnership and his termination is
of the principal’s instructions, unless unjustifiable; and
the latter should wish to avail 4. If it is created not only for the
himself of the benefits derived from interest of the principal but also for
the contract; the interest of third persons, who
2. when the expenses were due to the have accepted the stipulation in
fault of the agent; their favor
3. when the agent incurred them with
knowledge that an unfavorable result Agency coupled with an interest
would ensure, if the principal was
 An agency wherein the agent has
not aware thereof;
acquired some interest of his own in
4. when it was stipulated that the
the execution of the authority
expenses would be borne by the
granted to him, in addition to his
agent, or that the latter would be
mere interest in the contract of
allowed only a certain sum.
employment with the resulting gains.
 The agency becomes merely a part
MODES OF EXTINGUISHMENT OF
of another obligation or agreement,
AGENCY (EDWARD)
or an incidental element thereof so
1. Expiration of the period
it cannot be unilaterally revoked.
2. Death, civil interdiction, insanity or
NOTE: However, in Coleongco vs.
insolvency of the principal or of the
Claparals (10 SCRA 577), the SC made a
agent
sweeping statement that coupled with
3. Withdrawal of the agent
an interest or not, the authority (agency)
 agent may withdraw by giving
can certainly be revoked for a just
notice to the principal, but must
cause.
indemnify the principal for
damages that he may suffer by Implied Revocation may be effected:
reason of such withdrawal. 1. By the act of the principal in
4. Accomplishment of the object or the appointing another agent for the
purpose of the agency same business or transaction;
5. Revocation
CIVIL LAW COMMITTEE
Gayon
Rhodora
John Stephen
Purganan(LTD),
2. By the act of the principal in directly 1.Trustor - the one who intentionally
managing the business entrusted to creates a trust
the agent; or
3. By the act the principal in 2.Trustee - the person who holds the
subsequently granting a special legal title to the trust property for
power of attorney as regards the the benefit of another and with
same business to another agent, certain powers and subject to
where he had previously granted a certain duties
general power of attorney to one
agent. 3.Beneficiary or the cestui que trust -
the one who has the equitable
TRUSTS interest in the property and enjoys
the benefit of administration by the
trustee. He may be a natural person
TRUST or a legal entity. The trustor may
 A legal relationship between one establish a trust with himself as the
person having an equitable beneficiary (usual case).
ownership in property and another
owning the legal title to such ELEMENTS OF EXPRESS TRUST
property. 1. Competent trustor and trustee;
2. Ascertainable trust res; and
CLASSIFICATIONS 3. Sufficiently certain beneficiaries.
1. Effectivity - from the viewpoint of
whether they become effective after TRUST PROPERTY
the death of the trustor or during his The concept of a trust arises from or is
life, it may be either: the result of a fiduciary relation
a. testamentary trusts between the trustee and the cestui que
b. trusts inter vivos (sometimes trust as regards certain property- real,
called “living trusts”) personal, funds or money, choses in
2. Creation - from the viewpoint of the
creative force bringing them into
existence, it may be either: TRUST CONTRACT
a) Express trust - created by the Always involves A legal obligation
intention of the trustor or of the owner-ship, based on an
parties embracing a set of undertaking
b) Implied trust - one which comes rights and duties supported by a
fiduciary in consideration,
into being by operation of law.
character which may which obligation
This may be either: be created by a may or may not be
1) Resulting trust - one in which declaration without fiduciary in
the intention to create a trust consideration. character.
is presumed by law to exist TRUST DONATION
from the transaction and facts 1. An existing legal There is a transfer
of the case relationship and of property as well
2) Constructive trust - one involves the as the disposition of
imposed by law irrespective of separation of legal both legal and
and even contrary to the and equitable title equitable ownership
intention of the parties. It is except in cases of
gifts in trust.
designed to promote justice,
frustrate fraud and prevent 2. The beneficiary 2. The donee must
unjust enrichment. of a trust may comply with the
demand legal requirements
performance of the in accepting
Persons involved in the creation of a obligation without donations.
trust: having formally
accepted the
benefit of the trust
2005 CENTRALIZED BAR OPERATIONS EXECUTIVE
in public document,COMMITTEE AND SUBJECT
CHAIRPERSONS upon mere
Maricel Abarentos (Over-all Chairperson), Ronald Jalmanzar in
acquiescence (Over-all
the Vice Chair), Yolanda
EDP), Anna Margarita Eres (VC-Logistics) Jonathan formation of the
Mangundayao (Political Law), Francis Benedict Reotutartrust and
(Labor Law), Romuald Padilla (Civil Law),
Charmaine Torres (Taxation Law), Mark David Martinez (Criminalacceptance under
Law), Garny Luisa Alegre (Commercial
the second
paragraph of article
1311(stipulations
pour autrui).
180

action held by the trustee. (Pacheco vs.
Arro, 85 PHIL 505 ) 2. Acceptance of the beneficiary
 The acceptance by the beneficiary is
 The trust property is owned by two essential to the creation and validity
or more persons at the same time, the of a trust. However, such
relation between the two owners being acceptance is presumed if there is
such that one of them is under an no proof to the contrary and the
obligation to use his ownership for the trust does not impose any onerous
benefit of the other. condition upon the beneficiary.
 The trustee is not a mere agent
but an owner. But his ownership is a Requisites for a Trustee to claim title
mere matter of form rather than by prescription:
substance, and nominal rather than real. 1. He has performed open and
unequivocal acts of repudiation
PROOF OF TRUST 2. Such positive acts of repudiation
GENERAL RULE: trust whether express have been made known to the
or implied may be proved by parol or beneficiary or the cestui que trust
oral evidence 3. The evidence thereon should be
EXCEPTION: An express trust over an clear and convincing and
immovable property or any interest 4. The period fixed by law has expired.
therein. This latter requirement (10 years from the time that the
however is not for validity but only for repudiation is made known to the
purposes of proof. beneficiary in cases of express trust
or resulting trust while 10 years from
NOTES: the time a constructive trust arises).
 Trusts cannot be established in
violation of law. Trust is founded in  In order that a trustee may sue or be
equity such that it cannot result sued alone, it is essential that his
from a contract formed for an illegal trust should be express, that is a
purpose. trust created by the direct and
 Neither may a trust be created for positive acts of the parties, by some
the purpose of evading a legal writing deed or will, or by
prohibition. Example: there cannot proceedings in court. Rule 3, sec 3
be a trust created for the purpose of does not apply in cases of implied
obtaining homestead patents, in trust that is, a trust which may be
favor of a person already disqualified inferred merely by the acts of the
to obtain additional homesteads. parties or from other circumstances.
(PAL vs. Heald Lumber Co.)
Necessity of Acceptance to the
creation and validity of trust NOTES:
relationship  the 10-year prescriptive period in
1. Acceptance of the trustee case of implied trust begins to run
 The acceptance of the trustee is not from the date the trustee repudiates
necessary to its existence and the express trust. In the case Sps.
validity since if he declines, the Pascual, et al. vs. CA, et al. GR
courts will appoint a trustee to fill 115925, August 15, 2003, it was held
the office that he declines. (see that repudiation takes place when
Sec.3 Rule 98 of the Rules of Court). the adverse party registers the land.
NOTE: But a trustee’s acceptance of the  the 4-year prescriptive period under
trust is necessary to charge him with the Article 1391 applies only if the fraud
office of the trustee and the does not give rise to an implied
administration of the trust and to vest trust, and the action is to annul a
the legal title in him. voidable contract under Article 1390.
CIVIL LAW COMMITTEE

Gayon
Rhodora
John Stephen
Purganan(LTD),
parol evidence proved by oral

TRUST PURSUIT RULE evidence.
 Equity will pursue property that is 3. As regards repudiation of trust
wrongfully converted by the fiduciary, or An express repudiation In constructive
otherwise compel restitution to the made known to the trusts, even if
beneficiary. A trust will follow the beneficiary is there is no
property through all changes in its state necessary in order that repudiation, laches
laches or acquisitive may bar an action
and form, provided its product or prescription may bar to enforce an
proceeds are capable of identification. an action to enforce an implied trust.
express trust.
IMPLIED TRUST
 Are those, without being express, KINDS OF IMPLIED TRUSTS
are deducible from the nature of the 1. Purchase money resulting trust
transaction as matters of intention, or (Article 1448) – There is a resulting
which are superinduced on the trust when property is sold, and the
transaction by operation of law, as legal estate is granted to one party
matters of equity independently of the but the price is paid by another
particular intention of the parties. party for the purpose of having the
RESULTING CONSTRUCTIVE beneficial interest of the property.
TRUST TRUST  To give rise to a purchase money
1. Intention to create trust: resulting trust, it is essential that
The intent of The trust is created there be:
the parties to irrespective of or even a) an actual payment of money,
create a trust contrary to the property or services or an
is presumed or intention of the parties equivalent, constituting valuable
implied by law to promote justice, consideration;
from the frustrate fraud and to b) and such consideration must be
nature of their prevent unjust furnished by the alleged beneficiary
transaction enrichment. of a resulting trust.
2. Prescriptive period:
The 10 year The 10 year EXCEPTIONS:
prescriptive prescriptive period a) Where A pays the purchase
period shall be shall be counted from money and title is conveyed by
counted from the time that the absolute deed to A’s child or to a
the time constructive trust person to whom A stands in loco
repudiation is arises. parentis and who makes no express
made known promise, a trust does not result, the
to beneficiary. presumption being that a gift was
3. Examples: intended;
Illustrated in Illustrated in Articles b) Where an actual contrary
Articles 1448, 1450, 1454, 1455, 1456 intention is proved;
1449, 1451, c) Where the purchase is made in
1452, 1453 violation of an existing statute and in
evasion of its express provision, no
trust can result in favor of the party
EXPRESS TRUST IMPLIED TRUST who is guilty of fraud. (Tigno vs.
1. As to creation Court of Appeals 280 SCRA 262
Created by the Come into being by [1997])
intention of the parties operation of law.
2. As to proof of trust
An express trust over An implied trust
an immovable property over an immovable 2. Donations made to a person but the
or any interest therein or any interest beneficial interest is vested in
cannot be proved by therein may be another. The donee is the trustee

CHAIRPERSONS
182

while the designated third person is an action based on an implied
the beneficiary. (ART 1449). trust:
3. Purchase with borrowed funds and a) the trustee has performed
the conveyance is made to lender to unequivocal acts of repudiation
secure payment of debt. ART 1450 ) amounting to an ouster of the cestui
4. Legal title to land inherited by heir que trust.
placed in the name of another. b) Such positive acts of
(Article 1451) repudiation have been made know to
5. Legal title to property purchased the cestui que trust; and
taken in one co-owner. (ART 1452) c) Evidence thereon is clear
6. Conveyance under a promise to hold and positive. (Vda. De Cabrera vs.
for, or transfer to another. (ART Court of Appeals 267 SCRA 339
1453) [1997].)
7. Absolute conveyance to a person to
secure performance of grantor’s NOTE: The enumeration is not exclusive.
obligation.
8. (ART 1454) Other examples of implied trust:
9. Purchase of property with use of 1. The registration of land under
trust funds (ART 1455) torrens in the name of one person do
10. Acquisition of property through not bar evidence to show it was only
mistake or fraud. (ART 1456). held in trust for another.
2. Certificate of registration of vehicle
NOTE: An action for reconveyance of placed in the name of a person
a parcel of land based on an implied although the price was not paid by
or constructive trust prescribes in him but by another.
ten years, the point of reference 3. One arising from the agent’s willful
being the date of registration of the violation of the trust reposed in him
deed or the date of the issuance of by the principal by buying for
the certificate of title over the himself the property he was
property. BUT, this rule applies only supposed to buy for the principal
when the plaintiff (or person who designated and appointed him
enforcing the trust) is not in to negotiate with the owner.
possession of the property, since if a 4. In consonance with the trust fund
person claiming to be the owner doctrine in Corporation Law, the
thereof is in actual possession of the assets of the corporation, as
property, the right to seek represented by the capital stock, are
reconveyance, which in effect seeks regarded as “trust fund” to be
to quiet title to property, does not maintained unimpaired for the
prescribe. payment of corporate creditors.
Requisites before period or

prescription may start in regard to
CIVIL LAW COMMITTEE
Gayon
Rhodora
John Stephen
Purganan(LTD),

Partnership: Chuache & Co. vs. Insurance Commission 158 SCRA 336 (1988) )

Hochgeladen von

Dokumentinformationen

Originaltitel

Copyright

Verfügbare Formate

Dieses Dokument teilen

Dokument teilen oder einbetten

Freigabeoptionen

Stufen Sie dieses Dokument als nützlich ein?

Sind diese Inhalte unangemessen?

Copyright:

Verfügbare Formate

Partnership: Chuache & Co. vs. Insurance Commission 158 SCRA 336 (1988) )

Hochgeladen von

Copyright:

Verfügbare Formate

150 2005 CENTRALIZED BAR OPERATIONS

PARTNERSHIP 2. Where the contract is by its terms not

MEMORY AID IN CIVIL LAW

contribute assets and share risks. Its (a) as a debt by installments or

MEMORY AID IN CIVIL LAW

 Where the articles of partnership do LIMITED PARTNERSHIP

CIVIL LAW COMMITTEE

1. De Jure Partnership- one which has the partnership; he may be

MEMORY AID IN CIVIL LAW

sum received by the managing partner

MEMORY AID IN CIVIL LAW

3. Right to participate in the a) Decision of the majority

2005 CENTRALIZED BAR OPERATIONS EXECUTIVE COMMITTEE AND SUBJECT

MEMORY AID IN CIVIL LAW

NOTE: All partners are solidarily liable MUTUAL AGENCY

1. when he is expressly or impliedly the partnership, nor the relations of the

PARTNERSHIP BY ESTOPPEL WINDING UP

MEMORY AID IN CIVIL LAW

any partner acting for the circumstances as defined

MEMORY AID IN CIVIL LAW

CIVIL LAW COMMITTEE

MEMORY AID IN CIVIL LAW

Limited partner’s General Retirement, death, Retirement,

However, a firm which fails to 10. Right, if given, of a limited partner

MEMORY AID IN CIVIL LAW

contributed or which has been 3. receiving a pro rata share of the

SUBSTITUTED LIMITED PARTNER

REQUISITES IN ORDER THAT THE AGENCY

MEMORY AID IN CIVIL LAW

CIVIL LAW COMMITTEE

b) special- one which comprises persons under their charge or

5. as to its nature and effects NOTE: In an implied agency, the

MEMORY AID IN CIVIL LAW

IMPLIED AGENCY BY Conducts a series of Usually involves

agent’s authority 11. To obligate the principal as

MEMORY AID IN CIVIL LAW

2005 CENTRALIZED BAR OPERATIONS EXECUTIVE COMMITTEE AND SUBJECT

MEMORY AID IN CIVIL LAW

 A middleman or intermediary who, in NOTE: The agent may retain in

Ordinary Commission LIABILITY OF PRINCIPAL FOR TORT OF

SPECIFIC OBLIGATIONS OF PRINCIPAL ESTOPPEL BY PRINCIPAL

2005 CENTRALIZED BAR OPERATIONS EXECUTIVE COMMITTEE AND SUBJECT

MEMORY AID IN CIVIL LAW

MEMORY AID IN CIVIL LAW

CIVIL LAW COMMITTEE

parol evidence proved by oral

2005 CENTRALIZED BAR OPERATIONS EXECUTIVE COMMITTEE AND SUBJECT

MEMORY AID IN CIVIL LAW

Requisites before period or

Das könnte Ihnen auch gefallen