San Beda College of Law 1

MEMORY AID IN CIVIL

LAW

PARTNERSHIP

PARTNERSHIP 2. Where the contract is by its terms not to

By the contract of partnership be performed within a year from the
two or more persons bind themselves to making thereof, such partnership
contribute money, property or industry
to a common fund, with the intention of
dividing the profits among themselves.
Two or more persons may also
form a partnership for the exercise of a
profession. (Art. 1767)
 A partnership has a juridical
personality which is separate and
distinct from that of the
partners.
 A partnership may sue and be sued
in its name or by its duly
authorized representatives. A
managing partner of the partnership
may execute all acts of
administration including the right
to sue debtors of the
partnership in the case of their
failure to pay their obligation when
it becomes demandable. (Tai Tong
Chuache & Co. vs. Insurance
Commission 158 SCRA 336 [1988])

FORM OF PARTNERSHIP CONRTRACT

No special form is
required for the validity or existence of
the contract of partnership.

1. Where immovable property or real

rights are contributed, the partnership
contract shall be void unless:
a. It is reduced to writing in a
public instrument (Art. 1771).
b. An inventory of the property
contributed is made, signed by the
parties and attached to the public
instrument. (Art.1773).
 A partnership contract
which states that the partnership
is established to operate a fishpond
is not rendered void because
no inventory of the fishpond was
made (where it did not clearly appear
in the articles of partnership that
the real property had been
contributed by anyone of the
partners). (Agad vs. Mabolo and
Mabolo Agad and Co., 23 SCRA
1223[1968])
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),
2 2005 CENTRALIZED BAR
contract is covered by Othe statute of
PERATIONS
frauds and thus requires a written
agreement to be enforceable.
3. Where the contract of partnership
has a capital of 3,000 pesos or more,
in money or property, it shall appear
in a public instrument and must be
recorded in the Office of the
Securities and Exchange Commission.
However, a partnership has a juridical
personality even in case of failure to
comply with this requirement.

Requisites:
1. intention to create a partnership
2. common fund obtained from the
contributions
3. joint interest in the profits

Essential Features:
1. there must be a valid contract;
2. the parties must have legal
capacity to enter into the
contract;

NOTE: With regard to number 2 (legal

capacity of contracting parties),
individuals not legally incapacitated
to contract and partnerships may
enter into a contract of partnership.
With respect to corporations, the
court held in Aurbach vs. Sanitary
Wares Manufacturing Corporation 180
SCRA 130 [1989] that although a
corporation cannot enter into a
partnership contract, it may however
engage in a joint venture with others.
A joint venture has been generally
understood to mean an organization
formed for some temporary purpose.
There is nothing against one
corporation being represented by a
natural or juridical person in a suit in
court, for the true rule is that
“although a corporation has no power
to enter a partnership, it may
nevertheless enter into a joint
venture with another where the
nature of that venture is in line with
the business authorized by the
charter. (JM Tuazon and Co., Inc vs.
Bolanos 95 PHIL 106 [1954])

2005 CENTRALIZED BAR OPERATIONS EXECUTIVE COMMITTEE A ND 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
3. there must be mutual contribution of assignee a partner
money, property and industry to a without unanimous
common fund consent
6. Power to act with third persons
In the absence of A co-owner cannot
NOTE: A partnership of a civil nature
stipulation to the represent the co-
was formed because Gatchalian & Co. contrary, a partner ownership
put up money to buy a sweepstakes may bind the
ticket for the sole purpose of dividing partnership
equally the prize which they may win as 7. Dissolution
they did in fact in the amount of Death or incapacity Death or incapacity
P50,000. (Gatchalian vs. CIR 67 PHIL 666 of a partner results of a co-owner does
[1939]) in the dissolution of not necessarily
Where the father sold his rights over partnership dissolve the co-
ownership
2 parcels of land to his 4 children so they
8. Agency or representation
can build their residences, but the latter As a rule, there is As a rule, there is no
after 1 year sold them and paid the mutual agency mutual
capital gains, they should not be treated representation
to have formed an unregistered (although it is
partnership and taxed corporate income enough for a co-
tax on the sale and on dividend income owner to bring an
tax on their shares of the profits from action for ejectment
the sale. (Obillos Jr. vs. CIR [1985]) against a stranger)
9. Profits
4. the object must be lawful; and
May be stipulated Must always depend
5. the primary purpose must be to upon upon proportionate
obtain profits shares and any
KEY: CJP3 - D2AFT stipulation to the
contrary is VOID
Partnership Co-ownership (Art.485)
1. Creation 10. Form
Always created by a Generally created by May be in any from No public instrument
contract, either law, but may exist except when real is needed even if
express or implied even without a property is real property is the
contract contributed (here a object of the co-
public instrument is ownership
2. Juridical personality required)
Has a juridical Has no juridical
personality separate personality
KEY: CNJ – PMERET2 - FPG
and distinct from
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 two persons least 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 Acquires juridical Acquires
dispose of his dispose of his share personality from the juridical
individual interest in without the consent moment of execution of personality from
the partnership so of the others the contract of the date of
as to make the partnership issuance of the
certificate of
15 2005 CENTRALIZED BAR
2 OPERATIONS

incorporation by 10. Term of existence

the Securities partnership may be corporation may
and Exchange established for any not be formed
Commission period of time for a term in
4. Powers stipulated by the excess of 50
Partnership may Corporation can partners years extendible
exercise any power exercise only to not more
authorized by the the powers than 50 years in
partners (provided it is expressly any one
not contrary to law, granted by law instance
morals, good customs, or implied from 11. Firm name
public order, public those granted or limited partnership is corporation may
policy) incident to its required by law to add adopt any name
existence the word “Ltd.” To its provided it is
5. Management name not the same as
When management is The power to do or similar to any
not agreed upon, every business and registered firm
partner is an agent of manage its name
the partnership affairs is vested 12. Dissolution
in the board of may be dissolved at any can only be
directors or time by any or all of the dissolved with
trustees partners the consent of
the State
6. Effect of mismanagement 13. Governing Law
governed by the governed by the
A partner as such can The suit against contract and the Civil Corporation
sue a co-partner who a member of Code Code
mismanages the board of
directors or
trustees who
JOINT VENTURE
mismanages
must be in the  It is hardly distinguishable from
name of the partnership, since their elements
corporation are similar, i.e. community of
interest in the business, sharing of
7. Right of succession profits and losses, and a mutual
right of control.
Partnership has no right Corporation has  The main distinction in common
of succession right of law jurisdiction is that
succession
partnership contemplates a
8. Extent of liability to third persons general business with some
Partners are liable Stockholders are degree of continuity, while joint
personally and liable only to venture is formed for the
subsidiarily (sometimes the extent of execution of a single transaction
solidarily) for the shares and is thus of temporary nature
partnership debts to subscribed by  In Kilosbayan, Incorporated vs.
third persons them Guingona, Jr 232 SCRA 110
9. Transferability of interest [1994],
Partner cannot transfer Stockholder has the court defined a joint venture as
his interest in the generally the
an association of persons or
partnership so as to right to transfer
make the transferee a his shares companies jointly undertaking some
partner without the without prior commercial enterprise; generally all
unanimous consent of consent of the contribute assets and share risks. Its
all the existing partners other requisites are:
because the partnership stockholders a. A community of interest in
is based on the principle because the performance of the
of delectus personarum corporation is subject matter;
not based on
b. A right to direct and govern
this principle
the policy in connection
therewith;
2005 CENTRALIZED BAR OPERATIONS EXECUTIVE COMMITTEE A ND 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
 San Beda College of Law 15
3
c. DutyMEMORY AID IN
to share CIVIL and
profits
LAW
losses.

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),
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
Other Similar Contracts partners:
1. Collaboration- the act of working a) general partnership
together in a joint project. b) limited partnership
2. Association- act of a number of
persons uniting together for some special 3. as to duration:
purpose or business. a) partnership at will
b) partnership with a fixed
RULES TO DETERMINE EXISTENCE OF period
PARTNERSHIP (ART 1769)
1. GENERAL RULE: Persons who are 4. as to legality of
not partners as to each other are not existence:
partners as to third persons. a) de jure partnership
EXCEPTION: partnership by b) de facto partnership
estoppel
2. Co-ownership of a property does not 5. as to representation to others:
itself establish a partnership, even a) ordinary or real partnership
though the co-owners share in the b) ostensible or partnership by
profits derived from the incident of estoppel
joint ownership.
3. Sharing of gross returns alone does 6. as to publicity:
not indicate a partnership, whether a) secret partnership
or not the persons sharing them have b) notorious or open partnership
a joint or common right or interest
in any property from which the 7. as to purpose:
returns are derived. a) commercial or trading
4. Receipt of share in the profits is a b) professional or non-trading
strong presumptive evidence of
partnership. However, no such UNIVERSAL PARTNERSHIP
inference will be drawn if such 1. A universal partnership of all
profits were received in payment: present property is one wherein the
(a) as a debt by installments or partners contribute all the property
otherwise; (b) as wages of an which actually belong to them to a
employee or rent to a common fund, with the intention of
landlord; dividing the same among themselves, as
(c) as an annuity to a widow or well as all the profits which they may
representative of a deceased acquire therewith.
partner;
(d)as interest on a loan, though the  In a universal partnership of all
amount of payment vary with the present property, the property which
profits of the business; and belongs to each of the partners at the
time of the constitution of the
partnership, becomes the common
property of all the partners, as well
as
the profits which they may acquire GENERAL PARTNERSHIP
therewith. A partnership consisting of
A stipulation for the common general partners who are liable pro rata
enjoyment of any other profits may also and subsidiarily and sometimes solidarily
be made; but the properties which the with their separate property for
partners may acquire subsequently by partnership debts.
inheritance, legacy or donation cannot
be included in such stipulation, except LIMITED PARTNERSHIP
the fruits thereof. One formed by two or more
persons having as members one or more
 Where the articles of partnership general partners and one or more limited
do not specify the nature of the partners, the latter not being personally
universal partnership, whether it is liable for the obligations of the
one of “present property” or of partnership.
“profits” only, it will be presumed
that the parties intended merely a PARTNERSHIP AT WILL
partnership of profits. NOTE: Future A partnership wherein no time is
properties cannot be contributed. specified and is not formed for a
Thus, property particular undertaking or venture and
subsequently acquired by (1) which may be terminated at anytime by
inheritance, (2) legacy or (3) donation mutual agreement of the partners, or by
cannot be included by stipulation except the will of anyone partner alone; or one
the fruits thereof. for a fixed term or particular
undertaking but has been continued by
2. A universal partnership of profits is the partners after termination of such
one which comprises all that the term or particular undertaking without
partners may acquire by their industry or express agreement.
work during the existence of the
partnership and the usufruct of movable PARTNERSHIP WITH A FIXED TERM
or immovable property which each of A partnership wherein the term
the partners may posses at the time of for which the partnership is to exist is
the celebration of the contract. fixed or agreed upon or one formed for a
particular undertaking, and upon the
 Movable or immovable property expiration of the term or completion or
which each of the partners may posses the particular enterprise, the
at the time of the celebration of the partnership is dissolved, unless
contract shall continue to pertain continued by the partners.
exclusively to each, only the usufruct
passing to the partnership. OTHER KINDS OF PARTNERSHIP
1. De Jure Partnership- one which has
NOTE: Persons who are prohibited from complied will all the legal
giving each other any donation or requirements for its establishment.
advantage cannot enter into a universal 2. De Facto Partnership- one which
partnership. (Art. 739, Art. 87, Family has failed to comply with all the
Code) legal requirements for its
Profits acquired by their establishment.
partners through chance (i.e. lottery) 3. Ordinary or real partnership- one
without employment of any physical or which actually exists among the
intellectual efforts are not included. partners and also as to third persons.
4. Ostensible partnership or
PARTICULAR PARTNERSHIP partnership de facto- one which in
A particular partnership is one reality is not a partnership, but is
which has for its object determinate considered a partnership only in
things, their use and fruits, or a specific relation to those who, by their
undertaking, or the exercise of a conduct or admission, are precluded
profession or vocation. to deny or disprove its existence.
5. Secret partnership- one wherein the b) Secret partner- one who takes
existence of certain persons as active part in the business by is not
partners is not avowed or made known to be a partner by outside
known to the public by any of the parties nor held out as a partner by
partners. the other partners. c) Dormant
6. Open or notorious partnership- one partner- one who does not take
whose existence is avowed or made active part in the business and is not
known to the public by the members known or held out as partner.
of the firm.
7. Commercial or trading partnership- KEY: CP2L
one formed for the transaction of Capitalist Partner Industrial
business. Partner
8. Professional or non-trading 1. as to contribution
partnership- one formed for the contributes money contributes his
exercise of a profession. or property industry (mental
or physical)
CLASSIFICATION OF PARTNERS
2. as to prohibition to engage in
1. as to CONTRIBUTION:
other business
a) Capitalist partner- one who Cannot generally cannot engage in
contributes money or property to the engage in the same any business for
common fund. or similar enterprise himself
b) Industrial partner- one who as that of his firm
contributes only his industry or
personal service. 3. as to profits
1. shares in the receives a just
2. as to LIABILITY: profits according and equitable
a) General partner- one whose to agreement share
thereon;
liability to third persons extends to
2. if none, pro rata
his separate property, he may either to his
be a capitalist or industrial partner. contribution
b) Limited partner- one whose 4. as to losses
liability to third persons is limited to 1. first, the exempted as to
his capital contribution. stipulation as to losses (as
losses; between
3. as to MANAGEMENT: 2. if none, the partners); but is
a) Managing partner- one who agreement as to liable to third
profits; persons, without
manages the business or affairs of
3. if none, pro rata prejudice to
the partnership; he may be to contribution reimbursement
appointed in the articles of from the
partnership or after constitution of capitalist
the partnership. partners
b) Silent partner- one who does not
take any active part in the business
although he may be known to be a OBLIGATIONS OF PARTNERS AMONG
partner. THEMSELVES:
c) Liquidating partner- one who
takes charge of the winding up of I. Obligation with respect to
the partnership affairs upon contribution of property
dissolution. a) To contribute what had been
promised
4. Miscellaneous: b) To answer for eviction in case
a) Ostensible partner- one who the partnership is deprived of
takes active part and known to the determinate property
public as a partner in the business, contributed
whether or not he has actual interest
in the firm.
 c) To answer to the partnership for partner and the partnership and to
the fruits of the property the insure faithful compliance by said
contribution of which is delayed, partner with his prestation
from the date they should have (Evangelista & Co. vs. Abad Santos,
been contributed to the time of 51 SCRA 416, 1973)
actual delivery
d) To preserve the property with 2. Capitalist partner- The prohibition
the diligence of a good father of extends only to any operation which
a family pending delivery to the is of the same kind of business in
partnership which the partnership is engaged
e) To indemnify the partners for unless there is a stipulation to the
any damages caused to it by the contrary.
retention of the same or by
delay in its contribution. IV. Obligation to Contribute Additional
Capital
II. Obligations with respect to As a general rule, a capitalist
contribution of money and money partner is not bound to contribute to the
converted to personal use partnership more than what he agreed to
a) To contribute on the date due contribute but in case of an imminent
the amount he has undertaken to loss of the business, and there is no
contribute to the partnership agreement to the contrary, he is under
b) To reimburse any amount he may obligation to contribute an additional
have taken from the partnership share to save the venture. If he refuses
coffers and converted to his own to contribute, he shall be obliged to sell
personal use his interest in the partnership to other
c) To pay the agreed or legal partners.
interest, if he fails to pay his
contribution on time or in case V. Obligation of Managing Partner who
he takes any amount from the Collects Debt
common fund and converted to Where a person is separately
his own personal use indebted to the partnership and to the
d) To indemnify the partnership for managing partner at the same time, any
the damages caused to it by the sum received by the managing partner
delay in the contribution or the shall be applied to the two credits in
conversion of any sum for his proportion to their amounts, except
personal benefit. where he received it entirely for the
account of the partnership, in which
III. Obligation Not to Engage in Other case the whole sum shall be applied to
Business for Himself the partnership credit only.
1. Industrial partner- cannot engage in
any business for himself unless the Requisites for the application of the
partnership expressly permits him to rule:
do so. The other partners have the 1) There exists two debts, one where
remedy of either excluding the the collecting partner is creditor,
erring partner from the firm or of the other, where the partnership is
availing themselves of the benefits creditor.
which he may have obtained. 2) Both debts are demandable
Note: The prohibition is absolute 3) The partner who collects is
and applies whether the industrial authorized to manage and actually
partner is to engage in the same manages the partnership.
business in which the partnership is
engaged or in any kind of business. It VI. Obligation of Partner Who Receives
is clear that the reason for the Share in Partnership Credit
prohibition exists in both cases, A partner who receives, in whole
which is to prevent any conflict of or in part, his share in the partnership,
interest between the industrial when the others have not collected
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
a) According to their agreement as
IX. Obligation to account for any to losses (but not inequitously to
benefit and hold as trustee defeat Art.1799)
unauthorized personal profits b) If none, according to their
Every partner must account to agreement as to profits
the partnership for any benefit, and hold c) If none, in proportion to his
as trustee for it any profits derived by capital contribution, but the
him without the consent of the other purely industrial partner shall
partners from any transaction connected not be liable for the losses
with the formation, conduct, liquidation
of the partnership or form any use by A stipulation excluding
him of its property. a partner from any share in the profits or
losses is VOID (Article 1799)
RIGHTS OF A PARTNER: Article 1797(2) excludes an
1. Property rights of a partner industrial partner from losses. Thus, a
a) His rights in the specific stipulation excluding an industrial
partnership property partner from losses is VALID, but he is
b) His interest in the partnership NOT exempted from liability insofar as
c) His right to participate in the third persons are concerned.
management NOTE: In general, LIABILITY refers to
2. Right to reimbursement for amounts responsibility towards third persons, and
advanced to the partnership and to LOSSES refers to responsibility as among
indemnification for risks in partners
consequence of management
 become a partner
CONTRACT OF SUB-PARTNERSHIP
 One formed between a member
of a partnership and a third person
for a division of profits owing to
him from the partnership
enterprise.
 It is a partnership within a
partnership distinct and separate
from the main or principal
partnership.

NOTE: In the absence of unanimous

consent of all the partners, a sub-
partner does not become a member of
the partnership. Hence, a sub-partner
does not acquire the rights of a partner
nor is he liable for its debts

PROPERTY RIGHTS OF A PARTNER

1. Right to specific partnership
property
 contemplates tangible property
 The specific partnership property
belongs to the partnership as a
separate juridical personality. The
partners have no actual interest in
it until after dissolution.
 equal right with other partners
to possess specific partnership
property for partnership purposes
 not assignable, except in
connection with the assignment of
rights of all partners in the same
property
 not subject to attachment or
execution, except on a claim
against the partnership
 not subject to legal support

NOTE: Any immovable property or an

interest therein may be acquired in the
partnership name. The title so acquired
may be conveyed only in the partnership
name subject to the provisions of Article
1819 of the Civil Code.
2. Interest in the partnership
 share in the profits and surplus
 A partner actually owns his
respective share.

Effects of conveyance by a partner of

his interest in the partnership
1. conveyance of his whole interest –
partnership may either remain or be
dissolved
2. assignee does not necessarily
 ii. if in bad faith, he cannot.
3. assignee cannot interfere in the
management or administration of
the partnership business or affairs
4. assignee cannot
demand information, accounting
and inspection of the partnership
books
Remedies of separate judgment
creditor of a partner
 Application for a charging order
after securing judgment on his
credit to subject the interest of
the debtor partner with payment
of unsatisfied amount of the
judgment debt

Redemption of interest charged

1. General partnership
a) with separate property of a
partner; or
b) with partnership property,
with the consent of all the
partners whose interests are
not so charged or sold
2. Limited partnership (interest of
limited partner)
a) with separate property of any
general partner but NOT with
partnership property

3. Right to participate in the

management

MANAGEMENT OF PARTNERSHIP
I. When the manner of management
has been provided for in the
partnership agreement

A.When a managing partner has

been appointed
1) Appointment in the articles
of partnership
a. Power is irrevocable
without just or lawful
cause
i. to remove him for JUST
cause, vote of partners
representing
controlling interest is
necessary
ii. to remove him without just
cause or for an UNJUST
cause, there must be
unanimity including his
own vote
b. Extent of power
i. if he acts in good faith, he
may do all acts of
ADMINISTRATION, despite
opposition of his partners
 2) Appointment other than in the b) Unanimous consent required for
articles of partnership alteration of immovable
a. Power to act may be revoked property
at any time, with or without
just cause OBLIGATIONS OF PARTNERS TO THIRD
b. Extent of power: as long as he PERSONS
remains manager, he can perform I. Liability for contractual obligations
all acts of administration, but if (ART 1816)
others oppose and he persists, he 1. All partners, including industrial
can be removed partners, are personally liable
with all their property. Their
B. When two or more managing individual liability is pro rata and
partners have been entrusted subsidiary, unless otherwise
with the management of stipulated
partnership 2. Liability of partnership for acts
1)Without specification of their of partners
respective duties and without a) Acts for apparently carrying
stipulation requiring unanimity of on in the usual way the
action business of the partnership
Each managing Act binds
partner may execute all acts of the partnership.
administration Partnership is
If any of the not bound if:
managing partners should i. acting partner has in fact
oppose, no authority and
a) Decision of the majority ii. the third person knows
of the managing partners that the acting partner
shall prevail has no authority
b) In case of a tie, decision b) Acts of Strict Dominion or
of the partners Ownership (acts which are
representing the not apparently for carrying
controlling interest shall on in the usual way the
prevail business of the partnership)
Act does
2) With stipulation requiring not bind the partnership.
unanimity of action Partnership is
Unanimous bound if:
consent of all the managing i. the act is authorized by all
partners shall be necessary for the partners; or
the validity of the acts and ii. they have abandoned the
absence or inability of any business
managing partner cannot be c) Acts in contravention of a
alleged restriction on authority
i. Partnership is not liable to
When there is an
third persons having actual
imminent danger of grave or or presumptive knowledge
irreparable injury to the of the restrictions
partnership, partner may act
alone without the consent of the II. Liability arising from partner’s tort
partner who is absent or under (ART 1822) or Breach of Trust (ART
disability 1823)
1. Where, by any wrongful act or
II. When manner of management has omission of any partner acting in
not been agreed upon the ordinary course of business
a) All partners shall be considered of the partnership or with
managers and agents authority of his co-partners, loss
or injury is caused to any person,
16 2005 CENTRALIZED BAR
0 OPERATIONS

not being a partner in the PRINCIPLE OF DELECTUS PERSONARUM

partnership (Article 1822)  A rule inherent in every partnership
2. Where one partner, acting within wherein no one can become a
the scope of his apparent member of the partnership without
authority, receives money or the consent of all the partners.
property of a third person and
misapplies it (Article 1823) NOTE: This element of delectus
3. Where the partnership, in the personae is true only in case of a general
course of its business, receives partner, but NOT as regards a limited
money or property and it is partner.
misapplied by any partner while
it is in the custody of the MUTUAL AGENCY
partnership (Article 1823)  Partnership is a contract of
“mutual agency”, each partner acting
NOTE: All partners are solidarily liable as a principal on his own behalf,
with the partnership for any penalty or and as an agent of his co-partners
damage arising from a partnership tort and the partnership.
or breach of trust
Requisites When A Partner Binds The
III. Criminal liability of partnership Partnership
 Partnership liability does not 1. when he is expressly or impliedly
extend to criminal liability where the authorized
wrongdoing is regarded as 2. when he acts in behalf and in the
individual in character. But where name of the partnership
the crime is statutory, especially
when it involves a fine rather than PARTNERSHIP BY ESTOPPEL
imprisonment, criminal liability  Arises when a person, by words
may be imposed spoken or written or by conduct,
represents himself or consents to
LIABILITY OF STOCKHOLDERS IN A another representing him to anyone,
DEFECTIVELY FORMED CORPORATION as partner in an existing partnership,
 It is ordinarily held that persons or with one or more persons not
who attempt but fail to form a actual partners; he is liable to any
corporation and carry on business such person to whom such
under the corporate name occupy representation has been made, who
the position of partners inter se. has, on the faith of such
Thus where persons associate representation given credit to the
themselves together under articles actual or apparent partnership. (Art
to purchase property to carry on a 1825)
business, and their organization is so
defective as to come short of NOTE: Art. 1825 does not create a
creating a corporation within the partnership as between the alleged
statute, they become in legal effect partners. A contract, express or implied
partners inter-se. is essential to the creation of
 Exception: One who takes no part partnership. The law considers them
except to subscribe for stock in a partners and the association as a
proposed corporation, which was partnership insofar as it is favorable to
never legally formed, does not third persons. However, partnership
become a partner with other liability is created only in favor of
subscribers who engage in business persons who on the faith of such
under the name of the pretended representation given credit to the actual
corporation, so as to be liable as or apparent partnership
such in an action for settlement of
the alleged partnership and
contribution. (Pioneer Insurance &
Surety Corporation vs. Court of
Appeals, 175 SCRA 668 [1989].)
2005 CENTRALIZED BAR OPERATIONS EXECUTIVE COMMITTEE A ND 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
 charged for their separate
DISSOLUTION
 Change in the relation of the
partners caused by any partner
ceasing to be associated in carrying
on the business. (Article 1828)
 It is the point in time when the
partners cease to carry on the
business together. It represents
the demise of a partnership.

NOTE: The dissolution of a partnership

must not be understood in the absolute
and strict sense so that at the
termination of the object for which it
was created the partnership is
extinguished. (Testate of Mota vs.
Serra, 47 PHIL 464, 1926.) Dissolution
does not automatically result in the
termination of the legal personality of
the partnership, nor the relations of the
partners among themselves who remain
as co-partners until the partnership is
terminated.

WINDING UP
 Process of settling the partnership
business or affairs after
dissolution.

TERMINATION
 Point in time when all partnership
affairs are wound up or completed
and is the end of the partnership
life.

CAUSES OF DISSOLUTION
1. Extrajudicial dissolution (ART
1830) - the parties may agree to
expand the grounds provided under
Art 1830 but NOT to delimit them.
The causes enumerated are as
follows:
a. Without violation of the
agreement between the partners
i. By the termination of the
definite term or particular
undertaking specified in
the agreement;
ii. By the express will of any
partner, who must act in
good faith, when no
definite term or particular
undertaking is specified;
iii. By the express will of all
the partners who have not
assigned their interest or
suffered them to be
 c. A partner has been guilty of such
debts, either before or conduct as tend to affect
after the termination of
any specified term or
particular undertaking;
iv. By the expulsion of any
partner from the
business bona fide in
accordance with such
power conferred by the
agreement between the
partners;
b. In contravention of the
agreement between the
partners, where
the circumstances do nor
permit a dissolution under any
other provision of this article
by the express will of any
partner at any time.
c. By any event which makes it
unlawful for the business of
the partnership to be carried
on or for the members to
carry it on in partnership.
d. When a specific thing, a
partner had promised to
contribute, perishes before its
delivery. Or where the partner
only contributed the use or
enjoyment of the thing and
has reserved ownership
thereof, its loss, before or
after delivery dissolves the
partnership.
e. By the death of any partner;
f. By the insolvency of any
partner or the partnership;
g. By the civil interdiction of any
partner;

2. Judicial dissolution (ART 1831) -

when so decreed by the court, the
presiding judge may place the
partnership under receivership
and direct an accounting to be
made towards winding up the
partnership affairs.
On application by or for any
partner, the court shall decree a
dissolution whenever:
a. A partner has been declared
insane in any judicial
proceeding or is shown to be
of unsound mind;
b. A partner becomes in any
other way incapable of
performing his part of the
partnership contract;
 prejudicially the carrying on of b) Dissolution is by act, insolvency
the business; or death of a partner:
d. A partner willfully or persistently Authority of
commits a breach of the partners inter se to act for the
partnership agreement, or partnership is NOT deemed
otherwise so conducts himself in terminated. Thus, each partner
matters relating to the is liable to his co-partners for his
partnership business that it is share of any liability created by
not reasonably practicable to any partner acting for the
carry on the business in partnership as if the partnership
partnership with him. has not been dissolved
e. The business of the partnership
can only be carried on in a loss;
f. Other circumstances render a 1) The cause of dissolution is
dissolution equitable. the ACT of a partner and the
On application of the purchaser of a acting partner had
partner’s interest under Article KNOWLEDGE of such
1813 or 1814: dissolution
a. After the termination of the 2) The cause of dissolution is
specified term or particular the DEATH or INSOLVENCY of
undertaking; a partner and the acting
b. At any time if the partner had KNOWLEDGE or
partnership was a partnership at NOTICE of such dissolution
will when the interest was 2. With respect to persons not
assigned or when the charging partners (third persons)
order was issued. a) When partnership is bound to
third persons after dissolution
EFFECTS OF DISSOLUTION 1) Act appropriate for winding
A. As to partner’s authority to act for up partnership affairs
the partnership 2) Act appropriate for
Dissolution terminates completing unfinished
all authority of any partner to act for transactions
the partnership 3) Completely NEW transaction
which would bind the
1. Acts necessary to wind up partnership if dissolution had
partnership affairs not taken place provided:
2. Acts necessary to complete the other party is in good
transactions begun but not then faith, meaning:
finished i. Previous creditor (had
Note: Thus, dissolution terminates previously extended
the ACTUAL authority of a partner to credit) AND he had NO
undertake NEW business for the KNOWLEDGE or NOTICE
partnership of the dissolution, OR
ii. NOT a previous creditor
QUALIFICATIONS TO THE GENERAL AND the fact of
RULE: dissolution had not been
1. With respect to the partners (in so published in a newspaper
far as partners themselves are of general circulation
concerned) b) When partnership is NOT bound
a) Dissolution is not by act, to third persons after dissolution
insolvency or death of a partner: 1) Where partnership was
General Rule applies. Hence, dissolved because it was
dissolution terminates the unlawful to carry on the
ACTUAL authority of a partner to business, except when the
undertake NEW business for the act is for winding up
partnership
 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
circumstances as defined agreed term of the
above) partnership, by themselves
4) Where act is NOT or jointly with others
appropriate for winding up 5) To possess partnership
partnership affairs or for property should they decide
completing unfinished to continue the business
transactions b) Rights of a partner who has
5) completely NEW transaction wrongfully caused the dissolution
which would bind the 1) If the business is not
partnership if dissolution had continued by the other
not taken place with third partners
persons in bad faith i. To have partnership
property applied to
B. As to partner’s existing liability discharge partnership
liabilities
Dissolution does not ii. To receive in cash his share
automatically discharge the existing of the surplus less damages
liability of any partner caused by his wrongful
A partner may be relieved dissolution
from all existing liabilities upon 2) If the business is continued
dissolution ONLY by an agreement i. To have the value of his
between: interest in the partnership
1. Partner concerned at the time of the
2. Other partners dissolution, surplus less
3. Partnership creditors damages caused by his
wrongful dissolution to his
Note: The consent of the partnership co-partners, ascertained
creditors and the other partners to and paid in cash or secured
the novation may be implied from by a bond approved by the
their conduct. court; AND
ii. To be released from all
RIGHTS OF A PARTNER UPON existing and future
DISSOLUTION liabilities
1. Where dissolution is NOT in NOTE: The value of the
contravention of the partnership goodwill of the business is
agreement not considered in
a) To have partnership property ascertaining the value of the
applied to discharge partnership interest of the guilty
liabilities partners.
b) To receive in cash his share of
the surplus RIGHTS OF A PARTNER WHERE
2. Where dissolution is in PARTNERSHIP CONTRACT IS RESCINDED
contravention of the partnership ON THE GROUND OF FRAUD OR
agreement MISREPRESENTATION
a) Rights of a partner who has not (NOTE: The following are the rights of
caused the dissolution wrongfully the partner entitled to rescind)
1) To have partnership property 1. Right of LIEN on, or RETENTION of,
applied to discharge the surplus of partnership property
partnership liabilities after satisfying partnership liabilities
 for any sum of money paid or
contributed by him DOCTRINE OF MARSHALLING OF ASSETS
2. Right of SUBROGATION in place of (Article 1839(8))
the partnership creditors after 1. Partnership creditors have
payment of partnership liabilities; preference in partnership assets
and 2. Separate or individual creditors have
3. Right of INDEMNIFICATION by the preference in separate or individual
guilty partner against all debts and properties
liabilities of the partnership 3. Anything left from either goes to the
other
MANNER OF WINDING UP
1. Extrajudicial – by the partners PARTNER’S LIEN
themselves without the intervention  Right of every partner to have
of the court the partnership property applied
2. Judicial – under the control and to discharge partnership liabilities
direction of the court upon proper AND to have the surplus assets, if
cause shown by any partner, his any, distributed in cash to the
legal representative or his assignee respective partners, after
deducting what may be due to the
PERSONS AUTHORIZED TO WIND UP partnership from them as partners.
1. partners designated by the
agreement LIMITED PARTNERSHIP
2. in the absence of such agreement,  One formed by two or more
all partners who have not wrongfully persons having as members one or
dissolved the partnership more general partners and one or
3. legal representative of last surviving more limited partners, the latter
partner not insolvent not being personally liable for
partnership debts.
ORDER OF PAYMENT IN WINDING UP
1. General Partnership (ART 1839 (2)) NOTE: The Supreme Court, declared a
a) those owing to creditors other firm to be a general partnership in a
than partners case where it appears that the inclusion
b) those owing to partners other of “Ltd.” (limited) in the firm was only a
than for capital or profits subterfuge resorted to by the partners in
c) those owing to partners in order to evade liability for possible
respect of capital losses, while assuming their enjoyment
d) those owing to partners in of advantages to be derived from the
respect of profits relation. Jo Chung Cang vs. Pacific
2. Limited Partnership (ART 1863) Commercial Co. 45 PHIL 142 [1923]). In
a) those owing to creditors, except other words if the parties intended a
those to limited partners on general partnership, they are general
account of their contribution, partners although their purpose is to
and to general partners avoid the creation of such a relation.
b) those owing to limited partners
in respect of their share of the Characteristics of Limited Partnership
profits and other compensation 1. Limited partnership is formed by
by way of income substantial compliance in good faith
c) those owing to limited partners with the statutory requirements
in respect of their capital 2. One or more general partners control
contributions the business and are personally
d) those owing to general partners liable to creditors
other than for capital and profits 3. One or more limited partners
e) those owing to general partners contribute to the capital and share
in respect of profits in the profits but do not participate
f) those owing to general partners in the management of the business
in respect of capital and are not personally liable for
 partnership obligations beyond the 5. Transferability of interest
amount of their capital contributions
4. The limited partners may ask for the Limited partner’s General
interest is freely partner’s
return of their capital contributions
assignable, with interest in the
under the conditions prescribed by assignee acquiring all partnership
law the rights of the limited may not be
5. The partnership debts are paid out partner subject to assigned as to
of the common fund and the certain qualifications make the
individual properties of the general assignee a new
partners partner without
the consent of
the other
General
Limited partners,
Partner/
Partner/Partnership although he
Partnership may associate a
1. Extent of liability third person
Limited partner’s General with him in his
liability extends only to partner is share
his capital contribution personally 6. Inclusion of partner’s name in the
liable for firm name
partnership
obligations As a general rule, name Name of a
2. Right to participate in the of a limited partner general partner
management of partnership must not appear in the may appear in
Limited partner has no General firm name the firm name
share in the partners have
management of a an equal right 7. Prohibition to engage in other
limited partnership and in the business
renders himself liable to management of
partnership creditors as the business No such prohibition in General
a general partner if he (when the the case of a limited partner is
takes part in the control manner of partner who is prohibited from
of the business management considered a mere engaging in a
has not been contributor to the business which
agreed upon) partnership is of the SAME
3. Contribution kind of business
Limited partner must General in which the
contribute cash or partner may partnership is
property to the contribute engaged, if he
partnership but not money, is a capitalist
services property or partner, or in
industry to the ANY of business
partnership for himself if
he is an
4. Proper party to proceedings by or industrial
against the partnership partner

Limited partner is not a General 8. Effect of retirement, death, insanity

proper party to partner is the or insolvency
proceedings by or proper party to
against a partnership proceedings by Retirement, death, Retirement,
Unless: or against a insanity or insolvency of death, insanity
1. he is also a general partnership a limited partner does or insolvency of
partner, or not dissolve the a general
2. where the object of partnership for his partner
the proceeding is to executor or dissolves the
enforce a limited administrator shall have partnership
partner’s right the rights of a
against or liability to limited partner for the
the partnership purpose of selling his
estate
 9. Creation As to third persons or creditors
Limited partnership is General guilty of estoppel, the firm shall not be
created by the members partnership, as treated as a general partnership despite
after substantial a general rule, lack of substantial compliance to the
compliance in good may be requirements of a limited partnership. If
faith with the constituted in
requirements set forth any form by
creditors deal with the firm as a limited
by law contract or partnership, they will be estopped from
conduct of the insisting that there is no such
partnership partnership, or that the terms of the
partnership were not sufficiently stated
10. Members of the partnership in the notice of its formation. (40 Am.
Composed of one or Composed only Jur. 476.)
more general partners of general
and one or more limited partners CONTENTS OF THE CERTIFICATE OR
partners
11. Firm name ARTICLES OF LIMITED PARTNERSHIP
Firm name must be No such 1. Name of the partnership, adding
followed by the word requirement thereto the word “limited;”
Limited 2. Character of the business;
12. Rules governing dissolution and 3. Location of the principal place of
winding up business;
Governed by Art. 1839 Governed by 4. Name and place of residence of each
Art. 1863 member, general and limited
partners being respectively
ESSENTIAL REQUIREMENTS FOR designated;
FORMATION OF LIMITED PARTNERSHIP 5. Term for which the partnership is to
1. A certificate or articles of limited exist;
partnership which states the matters 6. Amount of cash and description of
enumerated in Article 1844, which and the agree value of the other
must be signed and sworn; property contributed by each limited
2. Such certificate must be filed for partner;
record in the Office of the Securities 7. Additional contributions to be made
and Exchange Commission. by each limited partner and the
times at which or events on the
NOTE: A strict compliance with the legal happening of which they shall be
requirements is not necessary. It is made;
sufficient that there is substantial 8. Time, if agreed upon, when to
compliance in good faith. If there is no contribution of each limited partner
substantial compliance, the partnership is to be returned;
becomes a general partnership as far as 9. Share in the profits or other
third persons are concerned, in which all compensation by way of income
the members are liable as general which each limited partner shall
partners. (Jo Chung Cang vs. Pacific receive by reason of his
Commercial Co., 45 PHIL 142 [1923].) contribution;
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
such priority;
13. Right, if given, of the remaining 4. Possess partnership property, or
general partner or partners to assign their rights in specific
continue the business on the death, partnership property, for other
retirement, civil interdiction, that a partnership purpose;
insanity or insolvency of a general 5. Admit a person as a general
partner; and partner;
14. Right, if given, of a limited partner 6. Admit a person as a limited
to demand and receive property partner, unless the right to do so
other than cash in return of his is given in the certificate
contribution. 7. Continue the business with the
partnership property on the
LIABILITY FOR FALSE STATEMENT IN death, retirement, insanity, civil
CERTIFICATE interdiction or insolvency of a
Any partner to the certificate general partner, unless the right
containing a false statement is liable to to do so is given in the
one who suffers loss by reliance on such certificate.
certificate provided the following  A limited partner is liable as
requisites are present: a general partner for the
1. He knew the statement to be false firm’s obligations if he takes
at the time he signed the part or interferes in the
certificate, or subsequently having management of the business.
sufficient time to cancel or amend
it or file a petition for its RIGHTS OF A LIMITED PARTNER
cancellation or amendment, he KEY: BIF2AR2
failed to do so; 1. To have the partnership books kept
2. The person seeking to enforce at the principal place of business of
liability has relied upon the false the partnership
statement in transacting business 2. To inspect, at a reasonable hour,
with the partnership; partnership books and copy any of
3. The person suffered a loss as a them
result of reliance upon such false 3. To demand true and full information
statement. of the things affecting the
partnership
MANAGEMENT OF LIMITED 4. To demand a formal account of the
PARTNERSHIP partnership affairs whenever
 A general partner in a limited circumstances render it just and
partnership is vested with the reasonable
entire control of the firm’s 5. To ask for dissolution and winding up
business and has all the rights and by decree of court
powers and is subject to all the 6. To receive a share in the profits or
liabilities and restrictions of a other compensation by way of
partner in a general partnership. income
 A general partner in a limited provided: that the partnership
partnership however has no assets are in excess of partnership
authority, without written consent liabilities after such payment
or ratification of all limited 7. To receive the return of his
partners, to: contribution provided:
1. Do any act in contravention of a) All the liabilities of the
the certificate; partnership have been paid
2. Do any act which would make it OR the partnership assets
impossible to carry on the are sufficient to pay
ordinary business of the partnership liabilities
partnership; b) The consent of all the
3. Confess judgment against the members (general and
partnership; limited partners) has been
obtained
 SUBSTITUTED LIMITED PARTNER
When the return of the  A person admitted to all the
contribution may be rights of a limited partner who has
rightfully demanded: died of has assigned his interest
1) On the dissolution of the in the partnership.
partnership
2) Upon the arrival of the RAL RULE: He has all, the rights
date specified in the and powers, and is subject to all the
certificate for the return restrictions and liabilities of his assignor.
3) After he has given 6 Those liabilities which he
months notice in writing was ignorant at the time he became a
to all other partners, if limited partner AND which could not be
no time is specified in ascertained from the certificate.
the certificate their for
the return of the REQUISITES IN ORDER THAT THE
contribution or for the ASSIGNEE MAY BECOME A SUBSTITUTED
dissolution of the LIMITED PARTNER
partnership 1. All the members must consent to the
c) The certificate is cancelled assignee becoming a substituted
or so amended as to set limited partner, OR the limited
forth the withdrawal or partner, being empowered by the
reduction certificate must give the assignee
the right to become a limited
LIABILITIES OF A LIMITED PARTNER partner
1. Liability for unpaid contribution 2. The certificate must be amended in
a) For the difference between his accordance with Art.1865
contribution as actually made 3. The certificate as amended must be
and that stated in the certificate registered in the Securities and
as having been made; AND Exchange Commission
b) For any unpaid contribution
which he has agreed in the ALLOWABLE TRANSACTIONS OF A
certificate to make in the future LIMITED PARTNER
at the time and the conditions  Being merely a contributor to
stated in the certificate the partnership is not prohibited
2. Liability as trustee from:
a) Specific property stated in the 1. granting loans to the partnership
certificate as contributed by 2. transacting other business with the
him, but which was not partnership
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 PROHIBITED TRANSACTIONS OF A
of 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
NOTES: 3. Agent can return 3. the buyer, as a
 Violation of the prohibition will the object in case he rule, cannot return
give rise to the presumption that it is unable to sell the the object sold
same
has been made to defraud
4. Bound to act 4. The buyer can
partnership creditors
according to the deal with the thing
 The prohibition is NOT ABSOLUTE, instructions of his as he please being
there is no such prohibition if the principal. the owner.
partnership assets are sufficient to
discharge partnership liabilities to PURPOSE OF AGENCY
persons not claiming as general or  The purpose of agency is to extend
limited partners. the personality of the principal
through the facility of the agent. It
AGENCY enables the activity of man which is
naturally limited in its exercise by
the impositions of his physiological
CONTRACT OF AGENCY conditions to be legally extended by
 A contract whereby a person permitting him to be constructively
(agent) binds himself to render some present in many different places and
service or to do something in to perform diverse juridical acts and
representation or on behalf of carry on many different activities
another (principal), with the through another when physical
consent or authority of the latter. presence is impossible or inadvisable
(Article 1868) at the same time. (11 Manresa 434)
 The parties to the contract are: ELEMENTS OF AGENCY
1. Principal- one whom the agent A. Consent
represents and from whom he  Any person or entity having juridical
derives authority; he is the capacity and capacity to act and
person represented. not otherwise disqualified, may
2. Agent- one who acts for and enter into an agency.
represents another; he is the  But as regards the party with
person acting in a representative whom the agent acts or contracts,
capacity. the legal capacity of the principal
rather than the agent, is of the
greater import.
AGENCY LEASE OF
SERVICES
1. Principle of 1. Principle of B. Object
representation is employment is
 the services to be undertaken
applied. applied.
2. Extinguished at 2. Concurrence of bythe agent
will of the principal. parties is necessary.  may cover all acts pertaining to
3. Agent exercise 3. Employee exercise a business of the principal
discretionary power ministerial functions (general agency) or one or more
to attain an end for only. specific transactions (special
which he was 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
the principal. owner
2. Agent delivers the 2. Buyer pays the
but presumed for compensation
proceeds of the sale price. NOTE: The agent may not be deprived
of his right to compensation by an
unjustified revocation of the agency
170 2005 CENTRALIZED BAR
OPERATIONS

KINDS OF AGENCY ACTS WHICH MAY BE DELEGATED TO AN

1. as to manner of creation AGENT
a) express- one where the agent
has been actually authorized person, he may do thru another.
by the principal, either orally
or in writing; 1. Personal acts- if personal
b) implied- one which is implied performance is required the doing of
from the an act by a person on behalf of
i. acts of the principal- from another does not constitute
his silence or lack of action, performance by the latter.
or his failure to repudiate a) Voting during an election;
the agency knowing that
b) Making a will;
another person is acting on
his behalf without authority. c) Making statements which are
ii. Acts of the agent- when he required to be done under oath;
carries out the agency, or d) A member of the board of
from his silence or inaction directors or trustees in a
according to the corporation cannot validly act as
circumstances. such by proxy
e) An agent cannot delegate to
2. as to its character a sub-agent the performance of
a) gratuitous- one where the acts which he has been
agent receives no appointed to perform in person.
compensation for his services. 2. Criminal Acts or Acts not allowed by
b) compensated or onerous- law- There can be no agency in the
one where the agent receives perpetration of a crime or unlawful act.
compensation for his services. Examples:
a) An alien principal using an
3. as to extent of business covered agent to acquire lands;
a) general- one which comprises b) Persons who, because of their
all the business of the position and relation with the
principal; persons under their charge or
b) special- one which comprises property under control, are
one or more specific prohibited from acquiring said
transactions. property and cannot do so through
an agent.
4. as to authority conferred
a) couched in general terms- FORM OF AGENCY
one which is created in  Agency may be express or implied
general terms and is deemed from the acts of the principal,
to comprise only acts of from his silence or lack of action,
administration; or his failure to repudiate the
b) couched in specific terms- agency, knowing that another
one authorizing only the person is acting on his behalf
performance of a specific act without authority. (Article 1869)
or acts.
NOTE: In an implied agency, the
5. as to its nature and effects principal is still bound by the acts of the
a) ostensible or agent just as in case of express agency
representative- one where
the agent acts in the name There are no formal
and in representation of the requirements governing the appointment
principal. of an agent. The agent’s authority may
b) simple or commission- one be oral or written. It may be in a public
where the agent acts in his or private writing.
own name but for the When the law requires a
account of the principal. specific form
2005 CENTRALIZED BAR OPERATIONS EXECUTIVE COMMITTEE A ND 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
 IMPLIED AGENCY BY and he did not reply to the letter
ACCEPTANCE ESTOPPEL or telegram
1. De Jure Agent 1. Not really an
agent letter or telegram a power of
2. Binds the 2. Only the attorney with respect to the
principal for acts purported agent is business in which he is habitually
within the scope liable. engaged as an agent,
of his authority.

Example: Sale of a piece of land or

any interest therein through an
agent:

NOTES:
 authority to sell must be in
writing; otherwise the sale is VOID
(Art.1874)
 the sale itself should be in
writing in order to be enforceable.
 The authority of an agent to
execute a contract of sale of real
estate must be conferred in writing
and must give him specific authority,
either to conduct the general
business of the principal or to
execute a binding contract
containing terms and conditions
which are in the contract he did
execute. (Dizon et al. vs. CA et al.,
GR 124741, January 28, 2003)

FORM OF ACCEPTANCE BY AGENT

 Acceptance by the agent may
also be express or implied from
his acts which carry out the
agency, or from his silence or
inaction according to the
circumstances

Kinds of Implied Acceptance

1. Where persons are present
 Acceptance may be implied
if:
a. principal delivers his power of
attorney to the agent and
b. agent receives it without any
objection
2. Where persons are absent
Acceptance cannot
be implied from silence of the agent

1. principal transmits his power of

attorney to the agent, who
receives it without any
objection;
2. principal entrusts to him by
RULE ON AGENCY BY ESTOPPEL
 One who clothes
another with apparent authority
as his agent, and holds him out
to the public as such, cannot be
permitted to deny the
authority of such person in
good faith, and in the honest
belief that he is what he appears
to be. (Cuison vs. CA, GR.88531,
October 26, 1993)

CLASSES AND KINDS OF AGENTS

1. Universal Agent- one employed to
do all acts that the principal may
personally do, and which he can
lawfully delegate to another the
power of doing.
2. General Agent- one employed to
transact all the business of the
principal, or all the business of a
particular kind or in a particular
place, or in other words to do all
acts, connected with a particular
trade, business or employment.
3. Special or Particular Agent- one
authorized to act in one or more
specific transactions, or to do one
or more specific acts, or to act
upon a particular occasion.

General Agent Special Agent

1. Scope of Authority

Usually authorized to Authorized to

do all acts connected do only acts in
with the business or pursuance of
employment in which particular
he is engaged. instructions or
with restrictions
necessarily
implied from
the acts to be
done

2. Continuity

Conducts a series of Usually involves

transactions involving a single
a continuity of transaction or a
service. series of
transactions not
involving
continuity
 San Beda College of Law 173

MEMORY AID IN CIVIL

LAW

3. Extent by which agent may bind 4. To waive any obligation gratuitously;

principal 5. To enter into any contract by which
Binds his principal by Cannot bind his the ownership of an immovable is
an act within the principal in a transmitted or acquired either
scope of his authority manner beyond gratuitously or foe a valuable
although it may be or outside the
contrary to his special specific acts
consideration;
instructions which he is 6. To make gifts, except customary
authorized to ones for charity or those made to
perform on employees in the business managed
behalf of the by the agents;
principal 7. To loan or borrow money, unless the
4. Termination of Authority latter’s act be urgent and
Apparent authority Mere revocation indispensable for the preservation of
does not terminate by is effective to the things which are under
the mere revocation terminate the
administration;
of his authority authority as to
without notice to the third persons 8. To lease any real property to
third party because the another person for more than one
third person has year;
a duty to 9. To bind the principal to render some
inquire service without compensation;
5. Construction of Instructions of 10. To bind the principal in a contract of
Principal partnership;
Statement of Authority of agent 11. To obligate the principal as
principal with must be strictly
guarantor or surety;
respect to the pursued
agent’s authority 12. To create or convey real rights over
would ordinarily immovable property;
regarded as 13. To accept or repudiate an
advisory only inheritance;
14. To ratify or recognize obligations
SPECIAL POWER OF ATTORNEY (SPA) contracted before the agency;
 An instrument in writing by which 15. Any other act of strict dominion.
one person, as principal, appoints
another as his agent and confers NOTE: a third person with whom the
upon him the authority to perform agent wishes to contract on behalf of the
certain specified acts or kinds of principal may require the presentation
acts on behalf of the principal. of the power of attorney or the
NOTE: It need not be notarized; except instructions as regards the agency;
where it is executed in a foreign except private or secret orders.
country, must be certified in accordance
with the Rules of Court. NOTE: The scope of the agent’s
authority is what appears in the written
INSTANCES WHERE SPA IS NECESSARY terms of the power of attorney. While
(ART 1878) (PECWEM- LLB- BOCARO) third persons are bound to inquire into
1. To make such payments as are not the extent or scope of the agent’s
usually considered as acts of authority, they are not required to go
administration; beyond the terms of the written power
2. To effect novation which put an end of attorney. Third persons cannot be
to obligations already in existence at adversely affected by an understanding
time the agency was constituted; between the principal and his agent as
3. To compromise, to submit questions to the limits of the latter’s authority. In
to arbitration, to renounce the right the same way, third persons need not
to appeal from a judgment, to waive concern themselves with instructions
objections to the venue of an action given by the principal to his agent
or to abandon a prescription already outside the written power of attorney.
acquired; (Siredy Enterprises, Inc. vs. CA, et al.
GR 129039, September 27, 2002)

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),
NOTES: EFFECTS OF AGENT’S ACTS
 SPA to sell does not include the 1. With Authority
power to mortgage; and vice a. in principal’s name – valid;
versa. principal is bound; agent not
 SPA to mortgage includes the personally liable unless he bound
power to allow the extrajudicial himself (Article 1897)
foreclosure of the mortgaged b. in his own name – Apply Article
property. 1883; generally not binding on
 SPA to compromise does not the principal; agent and
authorize submission to arbitration stranger are the only parties,
except regarding things
 SPA for an agent to institute any belonging to the principal or
action in court to eject all persons in
when the principal ratifies the
the principal’s lots so that the
contract or derives benefit
principal could take material
therefrom.
possession thereof, and for this 2. Without Authority
purpose, to appear at the pre-trial
a. in principal’s name –
and enter into any stipulation of
unauthorized and
facts and/or compromise agreement
unenforceable but may be
but only insofar as this is protective
ratified, in which case, may be
of the rights and interests of the
validated retroactively from the
principal in the property, does not
beginning (Article 1407)
grant any power to the agent to sell
b. in his own name – valid, whether
the subject property nor a portion
or not the subject matter
thereof. (Cosmic Lumber Corp vs. CA
belongs to the principal,
265 SCRA 168)
provided that at the time of
delivery, the “agent” can
EFFECT OF LACK OF SPA WHERE ONE IS
transfer legally the ownership of
REQUIRED: UNENFORCEABLE
the thing. Otherwise, he will be
held liable for breach of
When principal bound by act of agent warranty against eviction;
1. Agent must act within the scope of Article 1883 does NOT apply
his authority
2. Agent must act in behalf of the OCCASIONS WHEN PRINCIPAL IS BOUND
principal BY THE ACTS OF THE AGENT BEYOND
THE LATTER’S POWERS
NOTE: The limits of the agent’s
authority shall not be considered
General Rule: The principal is not bound
exceeded should it have been performed
by the acts of the agent beyond his
in a manner more advantageous to the
limited powers.
principal than that specified by him.
Exceptions:
1. Where the principal’s acts have
When a person NOT bound by act
contributed to deceive the third person
of another
in good faith;
1. Latter acts without or beyond the 2. Where the limitations upon the
scope of his authority in the former’s power created by him could not have
name; and been known by the third person;
2. Latter acts within the scope of his 3. Where the principal has placed in
authority but in his own name the hands of the agent instruments
(UNDISCLOSED PRINCIPAL), except signed by him in blank (Strong vs.
when the transaction involves a Gutierrez Repide 6 PHIL 680 [1906])
thing belonging to the principal. In 4. Where the principal has ratified the
such case, the contract is deemed as acts of the agent.
entered between the principal and
the third person.
17 2005 CENTRALIZED BAR
4 OPERATIONS

Doctrine of Agency by Necessity 7. Not to carry out the agency if its

 By virtue of the existence of execution would manifestly result in
an emergency, the authority of an loss or damage to the principal
agent is correspondingly enlarged in 8. To answer for damages if there being
order to cope with the exigencies a conflict between his interest and
or the necessities of the moment those of the principal, he should
 Requisites: prefer his own
1. Real existence of an emergency 9. Not to loan to himself if he has been
2. Inability of the agent to authorized to lend money at interest
communicate with the principal 10. To render an account of his
3. Exercise of the additional transactions and to deliver to the
authority for the principal’s own principal whatever he may have
protection received by virtue of the agency
4. Adoption of fairly reasonable 11. To distinguish goods by countermarks
means, premises duly considered and designate the merchandise
respectively belonging to each
NOTE: Agency can never be created by principal, in the case of a
necessity; what is created is additional commission agent who handles goods
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 Knowledge of agent is
4. To observe diligence of a good father knowledge of principal.
of a family in the custody and
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

2005 CENTRALIZED BAR OPERATIONS EXECUTIVE COMMITTEE A ND 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
SUB-AGENT Instances when agent may incur
 A person to whom the agent personal liability:
delegates, as his agent, the 1. When the agent expressly binds
performance of an act for the himself
principal which the agent has been NOTE: The individual liability of the
empowered to perform through his agent can be considered a further
representative. security in favor of the creditor and
does not affect or preclude the
NOTE: The agent may appoint a liability of the principal; both are
substitute (sub-agent) except when he liable
has been prohibited by the principal. 2. When agent exceeds his authority
(ART 1892) 3. When agent by his acts prevents
performance on the part of the
Instances when agent shall be principal
responsible for the acts of the 4. When a person acts as an agent
substitute: without authority or without a
1. when he was not given the power to principal
appoint; or 5. A person who acts as an agent of an
2. when he was given such power but incapacitated principal unless the
without designating the person, and third party was aware of the
the person appointed was incapacity at the time of the making
notoriously incompetent or of the contract
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  The commission agent who handles
circumstances as to induce the goods of the same kind and mark,
inference that it was the which belong to different owners,
principal’s intent that all should shall distinguish them by
act in conjunction in countermarks, and designate the
consummating the transaction for merchandise respectively
which they were appointed. belonging to each principal.
 Their responsibility is JOINT;  A commission agent can sellon
except if solidarity has been credit only with the express or
expressly stipulated. implied consent of the principal. If
 If solidarity has been agreed such sale is made without
upon, each agent is responsible for authority, the principal is given
the: two alternatives:
a. non-fulfillment of the agency i. He may require payment in cash,
b. fault or negligence of his fellow in which case any interest or
agents; except when the fellow benefit from the sale on credit
agents acted beyond the scope shall belong to the agent since the
principal cannot be allowed to
of their authority.
enrich himself at the agent’s
expense;
NOTE: innocent agent has a right later ii. He may ratify the sale on credit in
on to recover from the guilty or which case it will have all the
negligent agent (ART 1217(2)) risks and advantages to him.
 principal
 If the commission agent is
authorized to sell on credit, he shall
inform the principal with a
statement of the names of the
buyers. With such statement, the
sale shall be deemed to be for cash
as far as the principal is
concerned.
 The commission agent who does
not collect the credits of his
principal at the time when they
become due and demandable shall
be liable for damages, unless he
proves the exercise of due
diligence for that purpose.

BROKER
 A middleman or intermediary
who, in
behalf of others and for a
commission or fee, negotiates
contracts/transactions relating to
real or personal property.

Factorage
 Compensation of a
factor or
commission agent.

Ordinary Commission
 Compensation for the sale of
goods which are placed in his
possession or at his disposal.

Guaranty Commission (Del credere)

 Fee that is given in return forthe
risk, which the agent has to bear in
the collection of credits.
 An agent with a del credere
commission is liable to the
principal if the buyer fails to pay
or is incapable of paying.

GENERAL OBLIGATIONS OF PRINCIPAL

TO AGENT
 Duties and liabilities of the
principal are primarily based upon the
contract and the validity of the
contract between them

SPECIFIC OBLIGATIONS OF PRINCIPAL

TO AGENT (CARIP)
1. To comply with all the obligations
which the agent may have
contracted within the scope of his
authority and in the name of the
 transaction or undertaking.
2. To advance to the agent, should
the latter so request, the sums
necessary for the execution of the
agency
3. To reimburse the agent for what
the latter has advanced (plus
interest), even if the business was
not successful, provided the agent
was free from fault
4. To indemnify the agent for all the
damages, which the execution of
the agency may have caused the
latter without fault or negligence
on his part
NOTE: The agent may retain in
pledge the things which are the
object of the agency until the
principal effects this
reimbursement and pays the
indemnity.
5. To pay the agent the
compensation agreed upon, or if
no compensation was specified,
the reasonable value of the
agent’s services

LIABILITY OF PRINCIPAL FOR TORT OF

AGENT RULE: The principal is civilly
liable to third persons for torts of an
agent committed at the principal’s
direction or in the course and within
the scope of the agent’s authority.
Reason for liability: The rule is based
upon the principle that he who does
an act through another does it
himself.

CONDITIONS FOR RATIFICATION

1. principal must have capacity and
power to ratify
2. principal must have had
knowledge of material facts
3. principal must ratify the acts in its
entirety
4. act must be capable of ratification
5. act must be done in behalf of the
principal

ESTOPPEL BY PRINCIPAL
Even when the agent has
exceeded his authority, the principal
is solidarily liable with the agent if
the former allowed the latter to act
as though he had full powers.

JOINT PRINCIPALS
 Two or more persons who
appoint an agent for a common
 Liability: solidarily liable to the 3. Withdrawal of the agent
agent for all the consequences of  agent may withdraw by giving
the agency. notice to the principal, but
 Requisites of solidary liability: must indemnify the principal
1. There are two or more principals for damages that he may suffer
2. The principals have all concurred by reason of such withdrawal.
in the appointment of the same 4. Accomplishment of the object or the
agent; and purpose of the agency
3. The agent is appointed for a 5. Revocation
common transaction or 6. Dissolution of the firm or
undertaking corporation, which entrusted or
NOTE: Any one of them may revoke the accepted the agency.
agency
Instances when death of principal does
RULES ON DOUBLE SALE BY PRINCIPAL not terminate agency
AND AGENT 1. If the agency has been constituted in
1 When two persons contract with the common interest of the principal
regard to the same thing, one of and the agent
them with the agent and the other 2. If it has been constituted in the
with the principal, and the two interest of a third person who has
contracts are incompatible with each accepted the stipulation in his favor
other, that of prior date shall be
preferred, without prejudice to Revocation of Agency by Principal
Article 1544(double sale).
2 If the agent has acted in good faith, will of the principal, regardless of the
the principal shall be liable in term of the agreement.
damages to the third person whose
contract must be rejected. If the 1. If a bilateral contract depends upon
agent is in bad faith, he alone shall it;
be responsible. 2. If it is the means of fulfilling an
obligation already contracted;
Instances when principal is not liable 3. If a partner is appointed manager of
for the expenses incurred by the a partnership and his termination is
agent: unjustifiable; and
1. if the agent acted in contravention 4. If it is created not only for the
of the principal’s instructions, unless interest of the principal but also for
the latter should wish to avail the interest of third persons, who
himself of the benefits derived from have accepted the stipulation in
the contract; their favor
2. when the expenses were due to the
fault of the agent; Agency coupled with an interest
3. when the agent incurred them with
 An agency wherein the agent has
knowledge that an unfavorable
acquired some interest of his own
result would ensure, if the principal
in the execution of the authority
was not aware thereof;
granted to him, in addition to his
4. when it was stipulated that the
mere interest in the contract of
expenses would be borne by the
employment with the resulting
agent, or that the latter would be
gains.
allowed only a certain sum.
 The agency becomes merely a
part of another obligation or
MODES OF EXTINGUISHMENT OF
agreement, or an incidental
AGENCY (EDWARD)
1. Expiration of the period element thereof so 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
an interest or not, the authority
(agency)
can certainly be revoked for a just cause.
Implied Revocation may be effected: TRUST CONTRACT
1. By the act of the principal in Always involves A legal obligation
appointing another agent for the owner-ship, based on an
same business or transaction; embracing a set of undertaking
2. By the act of the principal in directly rights and duties supported by a
fiduciary in consideration,
managing the business entrusted to
character which may which obligation
the agent; or be created by a may or may not be
3. By the act the principal in declaration without fiduciary in
subsequently granting a special consideration. character.
power of attorney as regards the TRUST DONATION
same business to another agent, 1. An existing legal There is a transfer
where he had previously granted a relationship and of property as well
general power of attorney to one involves the as the disposition of
agent. separation of legal both legal and
and equitable title equitable ownership
except in cases of
TRUSTS gifts in trust.

2. The beneficiary 2. The donee must

TRUST
of a trust may comply with the
 A legal relationship between one demand legal requirements
person having an equitable performance of the in accepting
ownership in property and another obligation without donations.
owning the legal title to such having formally
property. accepted the
benefit of the trust
CLASSIFICATIONS in public document,
1. Effectivity - from the viewpoint of upon mere
acquiescence in the
whether they become effective after
formation of the
the death of the trustor or during his trust and
life, it may be either: acceptance under
a. testamentary trusts the second
b. trusts inter vivos (sometimes paragraph of article
called “living trusts”) 1311(stipulations
2. Creation - from the viewpoint of the pour autrui).
creative force bringing them into Persons involved in the creation of a
existence, it may be either: trust:
a) Express trust - created by the 1. Trustor - the one who intentionally
intention of the trustor or of the creates a trust
parties
b) Implied trust - one which comes 2. Trustee - the person who holds the
into being by operation of law. legal title to the trust property for
This may be either: the benefit of another and with
1) Resulting trust - one in which certain powers and subject to
the intention to create a trust certain duties
is presumed by law to exist
from the transaction and facts 3. Beneficiary or the cestui que trust
of the case - the one who has the equitable
2) Constructive trust - one interest in the property and enjoys
imposed by law irrespective of the benefit of administration by the
and even contrary to the trustee. He may be a natural person
intention of the parties. It is or a legal entity. The trustor may
designed to promote justice, establish a trust with himself as the
frustrate fraud and prevent beneficiary (usual case).
unjust enrichment.
 isnot necessary to its existence
ELEMENTS OF EXPRESS TRUST and validity since if he declines,
1. Competent trustor and trustee; the
2. Ascertainable trust res; and
3. Sufficiently certain beneficiaries.

TRUST PROPERTY
The concept of a trust arises from or is
the result of a fiduciary relation
between the trustee and the cestui que
trust as regards certain property- real,
personal, funds or money, choses in
action held by the trustee. (Pacheco vs.
Arro, 85 PHIL 505 )

 The trust property is owned by

two or more persons at the same time,
the relation between the two owners
being such that one of them is
under an obligation to use his
ownership for the benefit of the other.
 The trustee is not a mere agent
but an owner. But his ownership is a
mere matter of form rather than
substance, and nominal rather than
real.

PROOF OF TRUST

or implied may be proved by parol or

oral evidence

immovable property or any interest

therein. This latter requirement
however is not for validity but only for
purposes of proof.

NOTES:
 Trusts cannot be established
in violation of law. Trust is founded
in equity such that it cannot
result from a contract formed for
an illegal purpose.
 Neither may a trust be created
for the purpose of evading a
legal prohibition. Example: there
cannot be a trust created for the
purpose of obtaining homestead
patents, in favor of a person
already disqualified to obtain
additional homesteads.

Necessity of Acceptance to the

creation and validity of trust
relationship
1. Acceptance of the trustee
 The acceptance of the trustee
 the case Sps. Pascual, et al. vs.
courts will appoint a trustee to CA, et al. GR 115925, August 15,
fill the office that he declines. (see 2003, it was held that repudiation
Sec.3 Rule 98 of the Rules of Court). takes place when the adverse party
NOTE: But a trustee’s acceptance of registers the land.
the trust is necessary to charge him
with the office of the
trustee and the
administration of the trust and to
vest
the legal title in him.

2. Acceptance of the beneficiary

 The acceptance by the
beneficiary is essential to the
creation and validity of a
trust. However, such acceptance
is presumed if there is no proof to
the contrary and the trust does
not impose any onerous condition
upon the beneficiary.

Requisites for a Trustee to claim title

by prescription:
1. He has performed open and
unequivocal acts of repudiation
2. Such positive acts of repudiation
have been made known to the
beneficiary or the cestui que trust
3. The evidence thereon should be
clear and convincing and
4. The period fixed by law has expired.
(10 years from the time that the
repudiation is made known to the
beneficiary in cases of express trust
or resulting trust while 10 years
from the time a constructive trust
arises).

 In order that a trustee may sue

or be sued alone, it is essential
that his trust should be express,
that is a trust created by the
direct and positive acts of the
parties, by some writing deed
or will, or by proceedings in
court. Rule 3, sec 3 does not apply
in cases of implied trust that is, a
trust which may be inferred
merely by the acts of the parties
or from other circumstances. (PAL
vs. Heald Lumber Co.)

NOTES:
 the 10-year prescriptive period
in case of implied trust begins to
run from the date the trustee
repudiates the express trust. In
 the 4-year prescriptive period 2. As to proof of trust
under Article 1391 applies only if An express trust over An implied trust
the fraud does not give rise to an an immovable property over an immovable
implied trust, and the action is to or any interest therein or any interest
cannot be proved by therein may be
annul a voidable contract under
parol evidence proved by oral
Article 1390. evidence.
3. As regards repudiation of trust
TRUST PURSUIT RULE An express repudiation In constructive
 Equity will pursue property that made known to the trusts, even if
is wrongfully converted by the beneficiary is there is no
fiduciary, or otherwise compel necessary in order that repudiation, laches
restitution to the beneficiary. A trust laches or acquisitive may bar an action
will follow the property through all prescription may bar to enforce an
changes in its state and form, an action to enforce an implied trust.
express trust.
provided its product or proceeds are
capable of identification.
KINDS OF IMPLIED TRUSTS
1. Purchase money resulting trust
IMPLIED TRUST
(Article 1448) – There is a resulting
 Are those, without being express,
trust when property is sold, and the
are deducible from the nature of the
legal estate is granted to one party
transaction as matters of intention, or
but the price is paid by another
which are superinduced on the
party for the purpose of having the
transaction by operation of law, as
beneficial interest of the property.
matters of equity independently of the
particular intention of the parties.  To give rise to a purchase money
resulting trust, it is essential that
RESULTING CONSTRUCTIVE there be:
TRUST TRUST a) an actual payment of money,
1. Intention to create trust: property or services or an
The intent of The trust is created equivalent, constituting valuable
the parties to irrespective of or even consideration;
create a trust contrary to the b) and such consideration must be
is presumed or intention of the parties furnished by the alleged beneficiary
implied by law to promote justice, of a resulting trust.
from the frustrate fraud and to
nature of their prevent unjust EXCEPTIONS:
transaction enrichment. a) Where A pays the purchase
2. Prescriptive period: money and title is conveyed by
The 10 year The 10 year absolute deed to A’s child or to a
prescriptive prescriptive period person to whom A stands in loco
period shall be shall be counted from parentis and who makes no express
counted from the time that the promise, a trust does not result, the
the time constructive trust presumption being that a gift was
repudiation is arises. intended;
made known b) Where an actual contrary
to beneficiary. intention is proved;
3. Examples: c) Where the purchase is made in
Illustrated in Illustrated in Articles violation of an existing statute and in
Articles 1448, 1450, 1454, 1455, 1456 evasion of its express provision, no trust
1449, 1451, can result in favor of the party who is
1452, 1453 guilty of fraud. (Tigno vs. Court of Appeals
280 SCRA 262 [1997])
EXPRESS TRUST IMPLIED TRUST
1. As to creation
Created by the Come into being by
intention of the parties operation of law.
2. Donations made to a person but the Requisites before period or
beneficial interest is vested in prescription may start in regard to
another. The donee is the trustee an action based on an implied
while the designated third person is trust:
the beneficiary. (ART 1449). a) the trustee has performed
3. Purchase with borrowed funds and unequivocal acts of repudiation
the conveyance is made to lender to amounting to an ouster of the cestui
secure payment of debt. ART 1450 ) que trust.
4. Legal title to land inherited by heir b) Such positive acts of repudiation
placed in the name of another. have been made know to the cestui
(Article 1451) que trust; and
5. Legal title to property purchased c) Evidence thereon is clear and
taken in one co-owner. (ART 1452) positive. (Vda. De Cabrera vs. Court
6. Conveyance under a promise to hold of Appeals 267 SCRA 339 [1997].)
for, or transfer to another. (ART
1453) NOTE: The enumeration is not exclusive.
7. Absolute conveyance to a person to
secure performance of grantor’s Other examples of implied trust:
obligation. 1. The registration of land under
8. (ART 1454) torrens in the name of one person do
9. Purchase of property with use of not bar evidence to show it was only
trust funds (ART 1455) held in trust for another.
10. Acquisition of property through 2. Certificate of registration of vehicle
mistake or fraud. (ART 1456). placed in the name of a person
although the price was not paid by
NOTE: An action for reconveyance of him but by another.
a parcel of land based on an implied 3. One arising from the agent’s willful
or constructive trust prescribes in violation of the trust reposed in him
ten years, the point of reference by the principal by buying for
being the date of registration of the himself the property he was
deed or the date of the issuance of supposed to buy for the principal
the certificate of title over the who designated and appointed him
property. BUT, this rule applies only to negotiate with the owner.
when the plaintiff (or person 4. In consonance with the trust fund
enforcing the trust) is not in doctrine in Corporation Law, the
possession of the property, since if a assets of the corporation, as
person claiming to be the owner represented by the capital stock, are
thereof is in actual possession of the regarded as “trust fund” to be
property, the right to seek maintained unimpaired for the
reconveyance, which in effect seeks payment of corporate creditors.
to quiet title to property, does not
prescribe.