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PARTNERSHIP (BOOK IV TITLE IX)

Arts. 1767-1867
I.

General Provisions (Chapter 1) Arts. 1767 -1783


Partnership Two or more persons bind themselves to contribute money,
property or industry to a common fund, with the intention of dividing the profits
among themselves. 2 or more persons may also form a partnership for the exercise
of profession. If the object is merely for common enjoyment and not profit, it is
only co-ownership.
Essential Requisites Of Partnership
1. Valid Contract
2. Contribution of Property, Money Or Industry To Common Fund
3. Organized For Gain Or Profit
4. Must Have Lawful Object Or Purpose

Case Study:
Litonjua vs. Litonjua Sr. (477 SCRA 576)
Petitioners complaint for delivery and accounting of partnership property based
on such void or legally non-existent actionable document is dismissible for failure to
state of action. The unsigned Annex "A-1" does not meet the public instrumentation
requirements exacted under Article 1771 of the Civil Code. Being unsigned and doubtless
referring to a partnership involving more than P3,000.00 in money or property, Annex
"A-1" cannot be presented for notarization, let alone registered with the Securities and
Exchange Commission (SEC), as called for under the Article 1772 of the Code. Since
real property was contributed, in which case an inventory of the contributed property
duly signed by the parties should be attached to the public instrument, else there is
legally no partnership to speak of. The contract-validating inventory requirement under
Article 1773 of the Civil Code applies as long real property or real rights are initially
brought into the partnership.
Commissioner of Internal Revenue vs. Suter (27 SCRA 152) (Only applicable if it is
not a universal
partnership)
William J. Suter "Marcoin" Co., Ltd. was not a universal partnership, but a
particular one. The individual interest of each consort in William J. Suter "Morcoin" Co.,
Ltd. did not become common property of both after the marriage of the partners in 1948.
The partnership: (a) has a juridical personality of its own, distinct and separate from that
of its partners; (b) not a mere business conduit of the partner-spouses; (c) was organized
for legitimate business purposes; (d) conducted its own dealings with its customers prior
to appellee's marriage, and had been filing its own income tax returns as such
independent entity. The change in its membership, brought about by the marriage of the

partners and their subsequent acquisition of all interest therein, is no ground for
withdrawing the partnership from the coverage of Section 24 of the Tax Code . The
partners did not enter into matrimony and thereafter buy the interests of the remaining
partner with the premeditated scheme or design to use the partnership as a business
conduit to dodge the tax laws.
Two Kinds Of Partners In General Partnership:
a.

Industrial Partner, who contributes his industry, cannot engage in business


for himself unless the partnership expressly permits, otherwise capitalist
partners may either exclude him from firm or avail themselves of benefits,
with damages

b.

Capitalist Partners cannot engage in any operation which is of the same


kind in which partnership is engaged, unless there is a stipulation to
contrary, otherwise he must bring profits to the common fund, and
personally bear all the loss

Distinction Between Partnership and Corporation


Partnership
Voluntary

Corporation
Legitimate authority or
general law
Private property not
subject to corporate
liability
Valid

1.

Creation

2.

Liability

Private property subject to


partnership liability

3.

Transfer of Interest

Delectus personae

4.

Partners/Incorporators
Dissolution
Death or Bancruptcy
Acts of Partners/
As agents
Incorporators/Stockholders

No effect

Commencement

Issuance by SEC of
Articles of Incorporation

5.
6.

Upon execution of contract

Not binding on
corporation

Kinds of Partnership
1.
As to Object Universal (Art. 1777) Vs. Particular (Art. 1783)
2. As to Liability Of Partners General Vs. Limited
3.
Partnership By Estoppel
4.
Partnership V. Joint Venture
5. Professional Partnership
C.
D.

Rules To Determine Existence Art. 1769


How Partnership Is Formed

E.
II.

Partnership Term

Obligations Of Partners (Chapter 2) Arts. 1784 -1826


A.

Obligations Of
Partners Among
Themselves (Sec. 1)
Art. 1784 - 1809

Principle of Delectus Personae Inherent principle in partnership that not one can
become a member of the partnership without the consent of all the other partners.
Pactum Leonina a stipulation which excludes one or more partners from any share in
the profits or losses is void (except industrial partner) Art. 1799
As among partners, the industrial partner is not liable for losses; however insofar as third
persons are concerned, industrial partners are liable, like the capitalist partners, pro-rata
with their property after partnership assets are exhausted (Art. 1816)
Case Study:
The Director of Lands vs. Catalan vs. Gatchalian (105 Phil 1270)
Unreported case
A partner is an agent of the partnership (Art. 1803 par. 1, new Civil Code).
Furthermore, every partner becomes a trustee for his copartner (Art. 1807, new Civil
Code). Consequently when a partner redeemed during the redemption period, the
partnership properties in question, he became a trustee and the same in trust for his
copartner, subject to his right to demand from the latter his contribution to the amount of
redemption.
B.

Property Rights Of A
Partner (Sec. 2) Arts.
1810-1814

Charging Order remedy available to the judgment creditor of the debtor partner to
charge the interest of the latter in the partnership by means of levy or attachment . This
is without prejudice to the rights of the partnership creditors (Art. 1814)
C.

Obligations Of
Partners To 3rd Persons
(Sec. 3) Arts. 18151827
Liability for contracts: pro-rata; (Art. 1816)
Liability for quasi-delicts & crimes : solidary (Arts. 1822 & 1823)

D.

Management of
Partnership Arts.
1800-1803
1. All partners shall be considered agents and whatever anyone of them
may do alone shall bind the partnership (Art. 1803 No. 1). Exception
(Art. 1801):
However, if two or more partners have been entrusted with the
management of the partnership, each one may separately execute all
acts of administration and in case of conflict, the decision of the
majority shall prevail. In case of a tie, the matter shall be decided by
the partners owning the controlling (financial) interest (Art. 1801)
2. None of the partners may, without the consent of others, make any
alteration in the immovable property of the partnership even if it may
be useful to the partnership (Art. 1803 No. 2)

III.

Dissolution, Winding Up and Termination (Chapter 3) Arts. 1828 -1842

Dissolution change in the relation among partners by any partner ceasing to be a partner
Winding Up is the process of settling business affairs after dissolution
Termination is the point in time after all partnership affairs have been wound up.
IV.

Limited Partnership (Chapter 4) Arts. 1843 -1867

Limited Partnership one formed by two or more persons under the provisions of the
following article having as members one or more general partners and one or more
limiated partners. The limited partners shall not be bound by the obligations of the
partnership.
B.
C.

How Limited Partnership Is Formed/Amended Art. 1844/Arts. 1864-5


Rights And Obligations Of A Limited Partner

EXCLUDE: Questions requiring application of SEC opinions or regulations


AGENCY (BOOK IV TITLE X)
Arts. 1868-1932
I.

Nature, Form and Kinds of Agency (Chapter 1) Arts. 1868-1883

Agency a person binds himself to render some service or to do something in


representation or on behalf of antoher, with the consent or authority of the latter. (Art.
1868)
Agency enables a person to increase the range of his individual and corporate activity by
enabling him to be constructively present in many places and to carry on diverse

activities at the same time. (Mechem) At present, there is no more commercial agency but
only civil agency because of the repeal of the Code of Commerce provisions on agency
(Art. 2270).
The true essence of the distinction between lease of services is that the agent enters into
or is designed to enter juridical relations with or without representation of the principal
(JBL Comments)
Case Studies:
Quiroga vs. Parsons (38 Phil 501) (Distinction Between Contract Of Sale and Agency To
Sell)
In the contract its cause and subject matter was that the plaintiff was to furnish the
defendant with the beds which the latter might order, at the stipulated price, and that the
defendant was to pay this price in the manner agreed upon. The features of a contract of
purchase and sale are there was the obligation on the part of the plaintiff to supply the
beds, and, on that of the defendant, to pay their price. These exclude the legal conception
of an agency or order to sell whereby the mandatary or agent receives the thing to sell it,
and does not pay its price, but delivers to the principal the price he obtains from the sale
of the thing to a third person, and if he does not succeed in selling it, he returns it.
Africa vs. Caltex (16 SCRA 448) (Distinction Between Contract of Agency and
Independent Contractor)
A fire broke out at the Caltex service station while gasoline was being hosed from a
tank into the underground storage and spread to and burned several neighboring houses
owned by appellants. Caltex should be held liable for the damages caused to appellants
since the operator was virtually an employee of Caltex, not an independent contractor.
Under the license agreement the operator: (a) would pay Caltex the purely nominal sum
of P1.00 for the use of the premises and all equipment therein; (b) could sell only Caltex
products; (c) could not assign or transfer his rights as license without the consent of
Caltex. Caltex had: (a) control over the maintenance of the station and its equipment;
(b) the right to grant termination of the contract.
Forms of Agency (Art. 1869):
A.
B.

Express vs. Implied Agency (Art. 1869-1872)


Agency By Estoppel (Art. 1873)

Case Study:
B.H. Macke et. al. vs. Camps (7 Phil 553)
One who clothes another with apparent authority as his agent and holds him out
to the public as such, can not be permitted to deny the authority of such person to act as

his agent to the prejudice of innocent third parties dealing with such agent in good faith
and in the honest belief that he is what he appears to be. Unless the contrary appears, the
authority of an agent must be presumed to include all the necessary and usual means of
carrying his agency into effect.
C.

D.

Agency By Necessity although agency can never be created by necessity,


by virtue of the existence of an emergency, the authority of the agency is
correspondingly enlarged to cope with the exigencies or necessities of the
moment. Example: Driver may engage the services of doctors during
vehicular accidents.
General vs. Special Agency (Art. 1876-1877)
1.
General Agency Couched In General/Special Terms
2.
Special Agency Couched in General/ Special Terms
a. Cases where SPA necessary (Arts. 1878) (JBL Reyes
observations)
1. Acts of strict dominion
2. Gratuitous contracts
3. Contracts where personal trust & confidence is of the
essence

Case Studies:
Delos Reyes vs. CA (313 SCRA 632)
Renato Gabriel was neither the owner of the subject property nor a duly designated
agent of the registered owner (Daluyong Gabriel) authorized to sell subject property in
his behalf. The registered owner did not subsequently ratify Renato's act. Under Article
1874 of the Civil Code, when the sale of a piece of land or any interest therein is
through an agent, the authority of the latter shall be in writing; otherwise the sale shall
be void. For want of capacity (to give consent) on the part of Renato Gabriel, the oral
contract of sale lacks one of the essential requisites for its validity prescribed under
Article 1318, supra and is therefore null and void ab initio.
Dizon vs. CA (396 SCRA 151)
Per Art. 1874 of the Civil Code, when the sale of a piece of land or interest therein is
through an agent, the authority of the latter shall be in writing; otherwise, the sale shall
be void. There is absolutely no written proof of Alice A. Dizon's authority to bind
petitioners, therefore, petitioners cannot be deemed to have received partial payment of
the supposed purchase price for the land through Alice A. Dizon. Secondly, there could
not have been a perfected contract of sale. (see also Estate of Lino Olaguer vs. Ongjoco
(563 SCRA 373)
Bicol Savings & Loan Association vs. CA (171 SCRA 630)

The sale proscribed by a special power to mortgage under Article 1879 is a


voluntary and independent contract, and not an auction sale resulting from extrajudicial
foreclosure, which is precipitated by the default of a mortgagor. Absent that default, no
foreclosure results. The power to foreclose is not an ordinary agency that contemplates
exclusively the representation of the principal by the agent but is primarily an authority
conferred upon the mortgagee for the latter's own protection. That power survives the
death of the mortgagor (Perez vs. PNB, supra).
Right To Compensation Of An Agent Arts. 1875
Case Study:
Hahn vs. CA (266 SCRA 537)
An agent receives a commission upon the successful conclusion of a sale. On the
other hand, a broker earns his pay merely by bringing the buyer and the seller together,
even if no sale is eventually made. The fact that Hahn invested his own money to put up
these service centers and showrooms does not necessarily prove that he is not an agent of
BMW. For as already noted, there are facts in the record which suggest that BMW
exercised control over Hahn's activities as a dealer and made regular inspections of
Hahn's premises to enforce compliance with BMW standards and specifications.
Powers Art. 1877-8
A.
B.

To Bind Principal Arts. 1897-1902


Exception Art. 1883
In Article 1874, if it involves sale of immovable and the agency is not in
writing, it is void. In Articles 1317 and 1403 (no. 1), if it involves sale of
movables, the unauthorized contract entered into by the agent, is
unenforceable.

II.

Obligations Of The Agent (Chapter 2) Arts. 1884-1909


Fundamental Obligations Of An Agent:
1. To carry out the agency;
2. To act within the scope of his authority
3. To act on behalf of the principal

Commission Agent one who is engaged in the purchase and sale for the principal of
personal property which has to be placed in his possession. He has a relation not only
with the principal, and the buyers or sellers, but also with the property which is the object
of the transaction.
Broker has no relation with the thing he purchases or sells. He is an intermediary or gobetween of both the seller and the buyer. He does not have the custody or possession of
the thing that he disposes of.

Guarantee Commission or del credere commission Agent an additional commission


to the agent if he assumes the risk of collection. This is applicable to both cash and credit
sales. (Art. 1907).
Case Studies:
Domingo vs. Domingo (42 SCRA 131)
The duties and liabilities of a broker to his employer are essentially those which an
agent owes to his principal. Articles 1891 and 1909 NCC of the demand: (a) the utmost
good faith, fidelity, honesty, candor and fairness on the part of the agent/real estate
broker to his principal, the vendor; (b) full disclosure/complete account by agent to his
principal of all his transactions and other material facts relevant to the agency.Any
stipulation exempting the agent from such an obligation is void. The duty of an agent is
the same as a trustee. An agent who takes a secret profit in the nature of a bonus, gratuity
or personal benefit from the vendee, without revealing the same to his principal, the
vendor, is guilty of a breach of his loyalty to the principal and forfeits his right to collect
the commission from his principal, even if the principal does not suffer any injury by
reason of such breach of fidelity, or that he obtained better results or that the agency is a
gratuitous one, or that usage or custom allows it, because the rule is to prevent the
possibility of any wrong, not to remedy or repair an actual damage.
E Macias & Co. vs. Warner Barnes (43 Phil 155)
A resident agent of a foreign insurance company doing business in the Philippine
Islands is not liable, as principal or agent, on insurance contracts issued in the name of
the company. The policies on their face show that the defendant was the agent of the
respective companies, and that it was acting as such agent in dealing with the insured
plaintiff. That in the issuance and delivery of the policies, the defendant was doing
business in the name of, acting for, and representing, the respective insurance companies.
The different policies expressly recite that, in the event of a loss, the respective companies
agree to compensate the insured plaintiff for the amount of the loss. The defendant
company did not insure the property of the insured plaintiff, or in any manner agree to
pay the insured plaintiff the amount of any loss. There is no contract of any kind, either
oral or written, between the plaintiff and insured Warner, Barnes & Co. Plaintiff's
contracts are with the insurance companies, and are in writing, and the premiums were
paid to insurance companies and the policies were issued by, and in the name of, the
insurance companies, and on the face of the policy itself, the insured plaintiff knew that
the defendant company was acting as agent for, and was representing, the respective
insurance companies in the issuance and delivery of the policies. The defendant company
did not contract or agree to do anything or to pay the insured plaintiff any money at any
time or on any condition, either as agent or principal.
US vs. Domingo Reyes (36 Phil 791)

The right to a commission does not make one a joint owner with a right to money
collected, but establishes the relation of principal and agent. The agent is under
obligation to turn over to the principal the amount collected minus his commission. But
the agent, having unlawfully retained more than his commission, is guilty of estafa.
In Re: H.V. Bamberger (49 Phil 962)
Lawyers are bound to promptly account for money or property received by them on
behalf of their clients and failure to do so constitutes professional misconduct. The fact
that a lawyer has a lien for fees on money in his hands collected for his clients does not
relieve him from the duty of promptly accounting for the funds received.
III.

Obligations Of The Principal (Chapter 3) Arts. 1910-1918


Obligations of Principal
1.
Comply with obligations contracted by agent within latters
authority
2.
Advance sums necessary for execution of agency
3.
Indemnify agent for damages in relation to execution of agency provided
agent was not at fault or negligent

IV.

Modes of Extinguishment of Agency (Chapter 4) Arts. 1919-1932


Agency Is Extinguished By:
1. its revocation by the principal
Except:
a. a bilateral contract depends on it
b. it is a means of fulfilling an obligation already contracted
c. if a partner is appointed manager of a partnership contract and his removal
from management is unjustiable.
d. If it is coupled with interest
2. withdrawal of agent
3. death, civil interdiction, insanity or insolvency of principal or agent
Except (in cases of death of principal):
a. it was constituted in the common interest of principal and agent
b. it was constituted in the interest of a third person who has accepted the
stipulation in his favor
4. dissolution of firm/corporation which entrusted or accepted the agency
5. accomplishment of the object/purpose of agency
6. expiration of the period for which agency was constituted
Agency Coupled With Interest refers to an agency wherein the agent has
acquired some interest of his own in the execution of the authority
granted him, in addition to his mere interest in the contract of
employment with the resulting gains (Mechem on Agency)

Case Studies:
Dela Rama Steamship vs. Tan (99 Phil 1034)
Where the agent had a previous option to buy the vessel and assigned that option to
a steamship company on the condition that he be appointed agent of the vessel for 5
years, the agency being coupled with interest, cannot be revoked at will by the principal.
Buason vs. Panuyas (105 Phil 795)
The death of the principal will not nullify sale by the agent with third persons who
contracted with agent and the third person in good faith, even if sale is made after the
death of the principal provided agent knew did not know of his principal's demise. (Art.
1723, Old Civil Code, 1931, New Civil Code).
Philex Mining Corp vs. Commissioner of Internal Revenue (551 SCRA 428)
In an agency coupled with interest, it is the agency that cannot be revoked or
withdrawn by the principal due to an interest of a third party that depends upon it, or the
mutual interest of both principal and agent. Art. 1927 provides that an agency cannot be
revoked if a bilateral contract depends upon it, or if it is the means of fulfilling an
obligation already contracted, or if a partner is appointed manager of a partnership in
the contract of partnership and his removal from the management is unjustifiable.
Rallos vs. Felix Go Chan (81 SCRA 251)
The general rule is that death of the principal effects instantaneous and absolute
revocation of the authority of the agent unless the power be coupled with an interest.
Articles 1930 and 1931 of the Civil Code provide the exceptions to the general rule
aforementioned.
ART. 1930. The agency shall remain in full force and effect even after the death
of the principal, if it has been constituted in the common interest of the latter and of the
agent, or in the interest of a third person who has accepted the stipulation in his favor.
ART. 1931. Anything done by the agent, without knowledge the death of the
principal or of any other cause which extinguishes the agency, is valid and shall be fully
effective with respect to third persons who may have contracted with him in good faith.
Under this provision, an act done by the agent after the death of his principal is valid and
effective only under two conditions, viz: (1) that the agent acted without knowledge of the
death of the principal, and (2) that the third person who contracted with the agent
himself acted in good faith. Good faith here means that the third person was not aware of
the death of the principal at the time he contracted with said agent. These two requisites
must concur: the absence of one will render the act of the agent invalid unenforceable.