PARTNERSHIP
A contract of two or more persons who bind
themselves to contribute money, property or
industry to a common fund, with the intention of
dividing the profits among themselves.
Two or more persons may also form a partnership
for the exercise of a profession
It is both:
o A contract
o A business organization
CHARACTERISTICS OF A CONTRACT OF
PARTNERSHIP
1. Consensual perfected by mere consent
2. Principal does not depend upon any other
contract for its validity or existence
3. Bilateral entered into by 2 or more persons
whose rights and obligations are reciprocal
4. Nominate has a special name given to it by law
5. Preparatory a means by which other contracts
will be entered into as the partnership pursues its
business
6. Onerous partners contribute money, property or
industry to a common fund
ESSENTIAL REQUISITES OF PARTNERSHIP
1. There must be a valid contract
a. Operates under the doctrine of delectus
personae a person is free to choose
those whom he wants to be associated
with in partnership
2. There must be a mutual contribution of money,
property or industry to a common fund
3. It must have a lawful object or purpose
4. The partnership must be established for the
common benefit or interest of the partners which is
to obtain profits and to divide the profits among
the partners
FORM OF A PARTNERSHIP CONTRACT
GR: A partnership contract may be constituted in
any form (oral or written)
XPN:
o Where immovable property or real rights
are contributed to the partnership
Partnership contract must be in a
PUBLIC INSTRUMENT
An inventory of the said property
must be MADE, SIGNED by the
parties and ATTACHED to the
public instrument
Effect if the above
requirements are not
complied with:
o Partnership is
void
o Partnership will
not have any
juridical
personality
o Where the capital of the partnership is
P3,000 or more, in money or property
Partnership contract must be in a
PUBLIC INSTRUMENT
REGISTERED with the SEC
Effect if above requirements are
not complied with:
Partnership is still valid
Partnership still acquires
juridical personality
Liability of the partnership
and the members to third
persons are not affected
o If a partnership is a limited partnership, a
certificate SIGNED under oath by the
partners and RECORDED with the SEC is
required
Effect if requirements are not
complied with:
Partnership will be
considered as a
GENERAL
PARNTERSHIP
WHO MAY BECOME PARTNERS
1. Any NATURAL person who is CAPACITATED
2. ARTIFICIAL persons (partnership and corporation)
a. Joint venture entered into between 2
corporations
b. GR: corporations are prohibited from
entering into partnership
RULES TO DETERMINE WHETHER A PARTNERSHIP
EXIST
1. Persons who are not partners as to each other are
rd
not partners as to 3 persons
a. XPN: When a person represents himself
or consents to another representing him to
anyone, as a partner in an existing
partnership or with one or more persons
not actual partners
2. Co-ownership or co-possession does not of itself
establish a partnership
3. The sharing of gross returns does not of itself
establish a partnership
4. The receipt by a person of a share of the profits of
a business is a prima facie evidence that he is a
partner in the business
a. XPN: No such inference shall be drawn if
such profits were received in payment as:
i. A debt by installments or
otherwise
ii. Wages of an EE or rent to a
landlord
iii. Annuity to a widow or
representative of a deceased
partner
iv. Interest on loan, though the
amount of payment vary with the
profits of the business
v. The consideration for the sale of
goodwill of a business or other
property by installment or
otherwise
KINDS OF PARTNERSHIP
1. As to OBJECT:
a. Universal Partnership may either be a:
i. Universal partnership of all
present property all the partners
contribute all the property which
actually belonged to them to the
common fund, with the intention
of dividing the same among
themselves, as well as the profits
which they acquire therewith
Property which shall belong to the common fund:
o Property belonging to the partners at the
time of the constitution of the partnership
(present property)
 o Profits that may be acquired from the
present property
o Property acquired by each partner after
the formation of the partnership but only if
stipulated and shall include:
Property itself except that the
stipulation shall not include
property acquired by inheritance,
legacy or donation
The profits and fruits therefrom
including those from property
acquired by inheritance, legacy or
donation
ii. Universal partnership of profits
comprises all that the partners
may acquire by their work or
industry during the existence of
the partnership
Profits or property which shall belong to the
partnership:
o Profits obtained by the partners by their
work or industry during the existence of
the partnership
XPN: those acquired by chance or
lucrative title
The usufruct of the property
belonging to each partner at the
time of the constitution of the
partnership
Ownership of the property shall
continue to pertain exclusively to
each partner
The profits or fruits from the
properties aforementioned
Profits and fruits if stipulated, of
property acquired by each partner
after the constitution of the
partnership
RULE IN CASE UNIVERSAL PARTNERSHIP IS
WITHOUT ANY SPECIFICATION:
o Presumed to be a universal partnership of
profits because it transmits less rights
and interest
PROHIBITION TO ENTER INTO A UNIVERSAL
PARTNERSHIP (ART. 87 FC, ART 789 NCC):
o Donations between spouses during the
marriage
XPN: Moderate gifts on the
occasion of a family rejoicing
o Those made between persons who were
guilty of adultery or concubinage at the
time of the donation
o Those made between 2 persons found
guilty of the same criminal offense, in
consideration thereof
o Those made to a public officer or his wife,
descendants or ascendants by reason of
his office
b. Particular partnership has for its object
determinate things, their use or fruits, or a
specific undertaking, or the exercise of a
profession
2. As to LIABILITY
a. General partnership where all the
partners are general partners who are
liable to the extent of their separate
property after the partnership assets have
been exhausted
b. Limited partnership where there is at
least one general partner and at least one
limited partner
i. The general partners are liable up
to the extent of their separate
property
ii. While the limited partners are
liable only to the extent of their
investment in the partnership
3. As to DURATION
a. Partnership for a fixed term one for
which a period for its duration is fixed by
the partners
b. Partnership for a particular undertaking
one which is organized for a certain
undertaking which, when attained, will
cause the termination of the partnership
c. Partnership at will one where no period
is fixed by the parties for its duration;
hence may be terminated at will by the
partners
i. If a partnership for a fixed term or
a particular undertaking is
continued after the expiration of
the said term or the attainment of
the said undertaking without any
express agreement, the
partnership becomes a
PARTNERSHIP AT WILL
ii. The continuation of the business
in such a case has the ff. effects:
01. Rights and duties of the
partners remain the same
02. Absence of settlement or
liquidation of partnership
affairs is a prima facie
evidence of the
continuation of the
partnership
4. As to REPRESENTATION to others
a. Ordinary partnership one which actually
exists among the partners as well as to
third persons
b. Partnership by estoppel one which in
reality is not a partnership but is
considered as one with respect to those
who, by reason of their conduct or
admission, are precluded from denying its
existence
May arise through any of the ff means:
o When a person represents himself as a
partner in an existing partnership
If all the partners consent
partnership by estoppel is created
between the actual partners and
the person who made the
misrepresentation
Partnership liability results
Assets of the partnership shall be
used to pay the liability and after
the exhaustion, both the actual
partners and the person who
made the misrepresentation shall
be liable with their separate
properties

If not all the partners consented
no partnership liability results
Actual partners who consented to
the misrepresentation and the
person who made the
misrepresentation, each one of
whom shall be liable jointly or pro
rata with their separate properties
When a person represents
himself as a partner in a non-
existing partnership
No partnership liability arises
The person who made the
misrepresentation and all persons
who consented to it are liable
jointly or pro rata
5. As to LEGALITY OF EXISTENCE
a. De jure partnership complied with all the
legal requirements for its establishment
b. De facto partnership did not comply with
all the legal requirements for its
establishment
6. As to PUBLICITY
a. Secret partnership existence of certain
persons not avowed or made known to
the public
b. Open partnership existence is avowed
or made known to the public
7. As to PURPOSE
a. Commercial formed for the transaction
of business
b. Professional formed for the existence of
profession
KINDS OF PARTNERS
1. As to LIABILITY
a. General partner one who is liable for
partnership debts to the extent of his
separate property after all the assets of
the partnership have been exhausted
b. Limited partner one who is liable for
partnership debts to the extent of his
capital contribution only
c. General limited partner one who has
all the rights and powers and is subject to
all the restrictions of a general partner,
except that, in respect to his contribution,
he shall have the rights against the other
members which he would have had if he
were not also a general partner
2. As to CONTRIBUTION
a. Capitalist partner one who contributes
money or property to the common fund
b. Industrial partner one who contributes
his services or industry to the partnership
c. Capitalist industrial partner one who
contributes not only money or property but
also his services to the partnership
3. Other classifications:
a. Managing partner one who manages the
business or the affairs of the partnership
b. Liquidating partner one who takes
charge of the winding up of the affairs of
the partnership after it dissolved
c. Partner by estoppel (Nominal partner)
one who is not actually a partner but who
may become liable as such to third
persons
d. Ostensible partner one who is active
and known to the public as a partner, such
as by allowing his name to be included in
the firm name
e. Secret partner one whose connection
with the partnership is kept from the public
f. Silent partner one who has no voice in
the management of the business
g. Dormant partner one who does not
participate in the management of the
business and not known to the public as a
partner
RULES ON DIVISION OF PROFIT AND LOSS
1. If all are capitalist partners
a. Profits and losses shall be divided
according to their agreement
b. If only the sharing of the partners in the
profits has been agreed upon, the share
of each partner in the losses shall be in
the same proportion as the share of each
in the profits (profit-sharing ratio)
c. In the absence of both, the share of each
partner in the profits and losses shall be in
proportion to his capital contribution (pro
rata)
2. If aside from the capitalist partners, there is also
an industrial partner
a. PROFITS
i. Agreement
ii. In the absence of any agreement,
the industrial partner shall first
receive a just and equitable share
of the profits, and thereafter, each
capitalist partner shall share in the
profits in proportion to his capital
contribution
b. LOSSES
i. Industrial partner shall not share
in the losses
ii. Capitalist partners shall share in
the losses as follows:
1. Agreement
2. Profit-sharing ratio
3. Pro rata
3. If aside from capitalist partners, there is also a
capitalist-industrial partner
a. PROFITS
i. Agreement
ii. Absence of agreement:
1. Capitalist-industrial
partner shall first receive
a just and equitable share
of the profits in his
capacity as industrial
partner
2. Each capitalist partner,
including the capitalist-
industrial partner in his
capacity as capitalist
partner, shall share in the
profits in proportion to his
capital contribution
 b. LOSSES
i. Agreement including capitalist-
industrial partner
ii. Profit sharing ratio including
capitalist-industrial partner
iii. In both cases, the capitalist-
industrial partner shall not share
in the losses in his capacity as
industrial partner
GR: Any stipulation which excludes one or more
partners from any share in the profits and losses is
void
XPN: Industrial partner because the law
provides that he shall not be liable therefore
DESIGNATION OF SHARE IN THE PROFITS AND
LOSSES BY A THIRD PERSON OR BY A PARTNER
If entrusted by the partners to a 3 person
rd
o Same shall be binding upon the partners
o May be impugned only when it is
manifestly inequitable
rd
o However, even if such designation by a 3
person is manifestly inequitable, it can no
longer be impugned:
By a partner who has begun to
execute it
By any partner if 3 months had
already lapsed from the time he
obtained knowledge thereof
If entrusted to one of the partners
o Designation is void
o Profits and losses shall be divided among
the partners as if there was no stipulation
thereon
RULES OF MANAGEMENT
When a partner has been appointed manager in
the articles of partnership
o Scope of authority he may execute ALL
acts of administration despite the
opposition of his partners
XPN: if he is in bad faith
o Revocation of appointment of managing
director
With just or lawful cause by a
vote of the partners owning the
controlling interest
Without just or lawful cause only
with the consent of all the
partners including the managing
partner
When a partner has been appointed manager
after the partnership has been constituted
o Scope of authority may execute ALL
acts of administration but incase of
opposition by the other partners, the
partners owning the controlling interest
may resort to voting for his removal as
manager
o Revocation of his appointment as
managing partner
May be removed with or without
just or lawful cause by the vote of
the partners owning the
controlling interest
When two or more partners have been appointed
as managers
o When there is a specification of their
respective duties
Scope of authority each
managing partner shall perform
only the duties specified in his
appointment
o When there is no specification of their
duties or there is no stipulation that one
shall not act without the consent of the
others
Scope of authority each one
may separately execute all acts of
administration
Rule in case of opposition of the
other managers;
Decision of the majority of
the managing partners
shall prevail
In case of tie, the decision
of the managing partners
owning the controlling
interest shall prevail
o When there is a stipulation that none of
the managing partners shall act without
the consent of the others:
Vote required the concurrence
of all of them shall be necessary
for the validity of the acts
Rule in case of absence or
disability of one of the managing
partners
GR: Other managing
partners are not
authorized to act for the
partnership
XPN: There is imminent
danger of grave or
irreparable injury to the
partnership
When the manner of management has not been
agreed upon
o All the partners shall be considered
agents of the partnership all of them are
managers
None of them may, without the
consent of the others, make any
important alteration in the
immovable property of the
partnership, even if it may be
useful to the partnership
But if the refusal to give consent
by the other partners is manifestly
prejudicial to the interest of the
partnership, the courts
intervention may be sought
o Whatever any one of them may do alone
shall bind the partnership
o Rule in case of opposition of the other
partners:
Decision of the majority shall
prevail
In case of tie, the decision of the
partners owning the controlling
interest shall prevail
RIGHT OF PARTNERS TO ENGAGE IN BUSINESS
1. Industrial partner
a. GR: Cannot engage in business for
himself
b. XPN: The partnership expressly permits
him to do so
c. Effect if IP engages in business for
himself without the express permission of
the partnership:
i. Capitalist partners may:
 1. Exclude him from the
partnership, with a right to
damages
2. Avail themselves of the
benefits obtained from the
business he engaged in,
with a right to damages
2. Capitalist partner
a. Kinds of business a capitalist partner may
engage in:
i. Different from the partnership
business
ii. Same kind as the partnership
business, but there is a stipulation
allowing him to engage in that
business
b. Effect if capitalist partner engages in the
same kind of business without stipulation
allowing him to engage in that business:
i. CP shall bring to the common
fund any profits accruing to him
from his transaction
ii. He shall personally bear all the
losses
RULES OF SHARING OF PARTNERSHIP LIABILITIES
TO THIRD PERSONS
1. Nature of Liability
a. Pro rata liability of the partnership shall
be equally divided among the partners
b. Subsidiary each partner shall be liable
with his separate property after all the
assets of the partnership have been
exhausted
2. Partners liable
a. All general partners, whether:
i. Capitalist partner
ii. Industrial partner
3. Status of stipulation exempting a partner from pro
rata and subsidiary liability after the exhaustion of
partnership assets
rd
a. Void as to 3 persons
b. Valid among the partners
4. If there is a stipulation, the liabilities shall be paid
as follows:
a. The assets of the partnership shall first be
used to pay the liabilities
b. If the partnership assets are not sufficient,
the liability shall be paid equally from the
separate assets of the partners including
any industrial partner
c. Thereafter, the partners not exempted
from pro rata and subsidiary liability shall
reimburse according to the partners profit
and loss sharing agreement or in the ratio
of their capital contribution, whichever is
applicable, to the ff partners the amount
paid by them:
i. Industrial partner whom the law
exempts from losses
ii. General partners exempted from
pro rata and subsidiary liability
REQUIREMENT TO OPERATE UNDER FIRM NAME
A partnership shall operate under a firm name,
which may or may not include the name of one or
more of the partners
Those who, not being members of the partnership,
include their names in the firm name, shall be
subject to the liability of a partner
OBLIGATIONS OF PARTNERS
1. Contribution of capital
a. To contribute equally to the capital of the
partnership, unless there is a stipulation to
the contrary
2. Obligations with respect to contribution of property
a. To DELIVER to the partnership at the time
it was constituted or on the date stipulated
the property he has promised to contribute
b. To TAKE CARE of the property before its
delivery to the partnership with the
diligence of a good father of a family
c. To be LIABLE for damages in case of
default
d. To ANSWER for eviction in case the
partnership is deprived of the specific or
determinate thing he has contributed to
the partnership
e. To be liable for the FRUITS of the thing
from the time they should have been
delivered without the need of any demand
3. Obligations with respect to contribution of money
a. To DELIVER to the partnership at the time
it was constituted or on the date stipulated
the money he has promised to contribute
b. To PAY INTEREST on the amount he had
promised to contribute from the time he
should have complied with his obligation
c. To PAY DAMAGES suffered by the
partnership by reason of the default
4. Obligations with respect to the amount
appropriated
a. To REIMBURSE to the partnership the
amount that he has taken from the
partnership coffers
b. To PAY INTEREST on the amount he had
converted for his own use from the time of
conversion
c. To PAY the DAMAGES suffered by the
partnership by reason of the conversion
5. Obligation to contribute additional capital
a. To CONTRIBUTE additional share to the
capital in case of an IMMINENT LOSS of
the business of the partnership
i. XPN:
1. Industrial partner
2. If there is an agreement
to the contrary
b. To SELL his interest to the other partners
if he REFUSES to contribute such
additional capital
6. Obligation of a partner who has received his share
of the partnership credit
a. To BRING to the partnership capital his
share of a partnership credit which he has
received in whole or in part even if he may
have given his receipt, only if the ff.
requirements are present:
i. Other partners have NOT
COLLECTED their shares
ii. Debtor becomes INSOLVENT
7. Obligation to pay damages to the partnership
a. Suffered by it through his fault
b. He cannot compensate them with the
profits and benefits which he may have
earned for the partnership by his industry
i. Courts may equitably lessen this
responsibility if through the
partners extraordinary efforts in
other activities of the partnership,
unusual profits have been
realized
 8. Obligation to bear risk for property contributed with the formation, conduct or liquidation
a. To bear risk of SPECIFIC and of the partnership or from use by him of its
DETERMINATE things owned by him property
which are not fungible, contributed to the d. Whenever other circumstances render it
partnership so that only their use and just and reasonable
fruits may be for the common benefit 4. Property rights of a partner
b. Partnership shall bear the risk for the ff a. His rights in the specific partnership
contributions of partners: property
i. FUNGIBLE things or those that i. A partner is co-owner with his
cannot be kept without partners of specific partnership
deteriorating property. Such co-ownership has
ii. Things contributed to be SOLD the ff incidents:
iii. Things BROUGHT and 1. A partner, except as
APPRAISED in the inventory provided by law and as
unless there is a stipulation agreed upon by the
9. Obligation to render information partners, has an EQUAL
a. To render on demand TRUE and FULL RIGHT with his partners
information on all things affecting the to POSSESS specific
partnership to: partnership property for
i. Any partner partnership purposes;
ii. Legal representative of any however, he has no right
deceased partner to possess such property
iii. Legal representative of any for any other purpose
partner under legal disability without the consent of his
10. Obligation to account partners
a. To account to the partnership for any 2. The right is NOT
benefit, and hold as trustee for it any ASSIGNABLE except in
profits, derived by him without the consent connection with the
of the partners from any transaction assignment of rights of all
connected with the formation, conduct or the partners in the same
liquidation of the partnership or from use property
by him of its property 3. The right is NOT subject
11. Liability of a newly-admitted partner for obligations to ATTACHMENT or
of the partnership EXECUTION except on a
a. Obligations existing at the time of his claim against the
admission partnership
i. He is liable but only to the extent 4. The right is NOT subject
of his contribution to LEGAL SUPPORT
ii. XPN: if there is an agreement that b. Interest in the Partnership
his liability shall extend to his i. A partners interest in the
separate property partnership is his SHARE of the
b. Obligations incurred after his admission PROFITS and SURPLUS
i. He shall be liable like the other ii. He may CONVEY his whole
partners PRO RATA with their interest in the partnership
separate property after the 1. Conveyance does not
partnership assets have been cause the dissolution of
exhausted the partnership
2. Assignee does not
RIGHTS OF PARTNERS become a partner.
1. To ASSOCIATE another person with him in his Accordingly, he has no
share right:
a. Share referred to is the partners share of a. INTERFERE in
the profits the management
b. Associate shall not be admitted into the of the business
partnership without the consent of all the b. REQUIRE any
partners, even if the partner having an information of
associate should be a manager partnership
2. To have ACCESS to and INSPECT and COPY the transactions
partnership books at reasonable hours c. INSPECT
a. Partnership books shall be kept at the partnership books
principal place of business of the 3. Assignees rights shall be
partnership limited to the ff:
3. To have a FORMAL ACCOUNT of partnership a. RECEIVE the
affairs: profits to which
a. If he is wrongfully excluded from the the assigning
partnership business or possession of its partner would
property by his co-partners otherwise be
b. If the right exists under the terms of any entitled
agreement b. AVAIL himself of
c. With respect to benefits or profits derived the usual
by a partner without the consent of the remedies in case
partners from any transaction connected
 of fraud in
management
c. In case the
partnership is
dissolved, to
REQUIRE an
account from the
date only of the
last account
agreed to by all
the partners
iii. A partners interest in the
partnership may be ATTACHED
for his separate debts, subject to
the preference for partnership
creditors
c. His rights to participate in management
APPLICATION OF PAYMENT WHEN A PERSON OWES
SEPARATE DEMANDABLE DEBTS TO THE
PARTNERSHIP AND TO THE PARTNER AUTHORIZED
TO RECEIVE PAYMENT
1. If the partner authorized to receive payment
issues the receipt for the partnership, payment
shall be applied to the partnership credit
2. If the partner authorized to receive payment
issues his own receipt, payment shall be applied
to the two credits proportionately
a. There shall be no proportional application,
i.e., payment shall be applied to the
partners credit in its entirety in any of the
ff cases:
i. Debt is owed to a partner NOT
authorized to receive payment
ii. Debt to the partnership is NOT yet
DUE
iii. Debt owed to the partner
authorized to receive payment is
more onerous to the debtor and
the latter exercises his right to
apply the payment to such debt
OBLIGATIONS OF THE PARTNERSHIP TO THE
PARTNERS
1. To PAY to the partner any AMOUNTS he may
have DISBURSED for the partnership with interest
from the time the expenses were made
2. To PAY for the OBLIGATIONS which a partner
may have contracted in good faith in the interest of
the partnership business
3. To ANSWER for RISKS in consequence of its
management
OBLIGAITONS OF PARTNERSHIP FOR WRONGFUL
ACTS OF PARTNER/S
--- The partnership shall be SOLIDARILY liable with all the
partners in the ff cases:
rd
1. For LOSS or INJURY caused to a 3 person or
any PENALTY is incurred by reason of the
wrongful act or omission of any partner ACTING in
the ordinary course of the business of the
partnership and with the authority of his co-
partners
2. Where one partner ACTING within the scope of
his apparent authority RECEIVES money or
rd
property of a 3 person and misapplies it
3. Where the partnership in the course of the
rd
business RECEIVES money or property of a 3
person and such money or property is misapplied
by any partner while it is in the CUSTODY of the
partnership
--- NOTE: The solidary liability applies obly if the act of the
partner is done:
1. In the ordinary course of business
2. With actual or apparent authority
LIABILITY OF PARNTERSHIP TO THIRD PERSONS
FOR ACTS OF PARTNERS
1. When partnership is BOUND
a. If the partners is AUTHORIZED to act for
the partnership, the partnership is bound
WON the act is for apparently carrying on
in the usual way the business of the
partnership
b. If the partner is NOT authorized to act for
the partnership, the partnership is bound
if:
i. Act is for APPARENTLY
CARRYING ON in the usual way
the business of the partnership
ii. The third person has NO
KNOWLEDGE of the partners
lack of authority
2. When partnership is NOT bound
a. When, although the act is for the
apparently carrying on in the usual way
the business of the partnership, the
partner is NOT authorized to act for the
rd
partnership and the 3 person HAS
KNOWLEDGE of the partners lack of
authority
b. When the partner is NOT authorized to act
for the partnership and the act is NOT for
apparently carrying on in the usual way
the business of the partnership
rd
i. Immaterial whether the 3 person
has knowledge or not of the
partners lack of authority
--- Acts not considered for apparently carrying on:
GR: May not be performed by a partner
XPN: He is authorized by all the other partners, or
the other partners have abandoned the business:
1. ASSIGNMENT of partnership property in trust for
creditors or on the assignees promise to pay the
debts of the partnership
2. DISPOSITION of the goodwill of the business
3. Acts which would make it IMPOSSIBLE to carry
on the ordinary business of the partnership
4. CONFESSION of a judgment
5. ENTERING into a OCMPROMISE concerning a
partnership claim or liability
6. SUBMISSION of a partnership claim or liability to
ARBITRATION
7. RENUNCIATION of a claim of the partnership
RULES ON CONVEYANCE OF REAL PROPERTY BY A
PARTNER OR THE PARTNERS
1. Title to real property is in the name of the
PARTNERSHIP and the conveyance is executed
by a partner in the name of the PARTNERSHIP
without authority:
a. Effect conveyance passes title to the
transferee
b. When the partnership may recover:
i. If the act is NOT for apparently
carrying on in the usual way of the
business of the partnership
rd
ii. The 3 person HAS knowledge of
the partners lack of authority
c. When the partnership may NOT recover:
i. When the real property has been
conveyed by the grantee to a
HOLDER IN VALUE without
 knowledge that the partner, in 2. Knowledge of a partner
making the conveyance, had a. Knowledge of a partner ACTING on the
exceeded his authority particular matter
2. Title to real property is in the name of ONE or i. Such knowledge is also
MORE but NOT ALL of the PARTNERS but the knowledge of the partnership if he
record does not disclose the right of the acquired the same:
partnership and the conveyance is executed 1. While ALREADY a
WITHOUT authority in the name of the partner
PARTNER/S in whose name the title stands: 2. BEFORE his admission to
a. Rules on effect, recovery and non- the partnership, provided
recovery are the same as in number 1. the same was still
3. Title to real property is in the name of the PRESENT to his MIND
PARTNERSHIP and the conveyance is executed b. Knowledge of ANY OTHER partner
by a PARTNER in his own name WITHOUT i. Such knowledge is also
authority knowledge of the partnership
a. Effect provided the ff requisites are
i. The transferee does NOT become present
the owner of the real property. 1. Acquired the same while
However, EQUITABLE ALREADY a partner
INTEREST passes to him if: 2. He COULD and SHOULD
1. Act is for apparently have reasonably
carrying on in the usual communicated the same
way the business of the to the partner acting on
partnership the particular matter
2. Third person has NO 3. When notice or knowledge NOT binding on the
knowledge of the partnership
partners lack of authority a. In case of fraud on the partnership:
b. Equitable interest does NOT pass to the i. COMMITTED by the partner
transferee if: having notice or knowledge
i. Act is NOT for apparently carrying ii. CONSENTED to by such partner
on in the usual way the business having notice or knowledge
of the partnership
ii. Third person HAS knowledge of PREFERENCE OF PARTNERSHIP CREDITORS IN
the partners lack of authority PARTNERSHIP ASSETS OVER PRIVATE CREDITOR
c. Equitable interest all the beneficial OF A PARTNER
interest in the property like the use thereof 1. Partnership creditors shall be paid first OUT of
and its fruits, but NOT the title partnership assets
4. Title to real property is in the name of ONE or 2. Partners separate creditor shall be paid out of the
MORE or ALL the PARTNERS, or in a THIRD SHARE of the partner owing him if there is an
PERSON in trust for the partnership and the EXCESS
conveyance is executed by a partner in the name a. Separate creditor may ask for the
of the PARTNERSHIP or in HIS name WITHOUT attachment and public sale of the share of
authority the partner in the partnership assets for
a. Effect his claim but without prejudice to the
i. Same as in number 3 preferential right of partnership creditors
5. Title to real property is in the name of ALL the thereto
partners and the conveyance is executed by ALL 3. If in the SHARE of the debtor partner in the
the partners in their names remaining assets is NOT enough to settle his
a. Effect private debts, his private creditor can go after the
i. Conveyance passes ALL their partners SEPARATE ASSETS over which he has
rights in the property preference

EFFECT OF ADMISSION OR REPRESENTATION OF A DISSOLUTION AND WINDING UP

PARTNER DISSOLUTION the change in the relation of the partners
Evidence against the partnership if the ff requisites caused by any partner ceasing to be associated in the
are present: carrying on of the business
o Admission or representation must WINDING UP the process of settling the business or
CONCERN partnership affairs affairs of the partnership after dissolution
o Must be made within the scope of the TERMINATION refers to the point when all the business
AUTHORITY of the partner making the or affairs of the partnership are completely wound up
admission or representation CAUSES OF DISSOLUTION
o Must be made DURING the existence of 1. Without violation of the agreement of the partners
the partnership a. By the TERMINATION of the definite term
o EXISTENCE of the partnership must be or particular undertaking specified in the
shown by EVIDENCE other than by such agreement
admission or representation b. By the EXPRESS WILL:
i. Of any partner who must act in
EFFECT OF NOTICE TO AND KNOWLEDGE OF A GF when no definite term or
PARTNER particular undertaking is specified
1. Notice to a partner ii. Of all the partners who have not
a. Notice to a partner relating to partnership assigned their interest or suffered
affairs is notice to the partnership them to be charged for their
 separate debts, either before or
after the termination of any
specified term or undertaking
c. By the EXPULSION of any partner from
the business bone fide in accordance with
such a power conferred by the agreement
between the partners
2. In CONTRAVENTION of the agreement between
the partners, by the express will of any partner at
anytime
3. When ANY EVENT makes it unlawful for the
business of the partnership to be carried on or for
the members to carry it on in partnership
4. In the ff. cases of LOSS:
a. Loss before or after delivery of property
where the partner contributed only its use
or enjoyment, he having reserved the
ownership thereof
i. Partner who owns the property
bears the loss
b. Loss before delivery of specific thing
which a partner had promised to
contribute to the partnership
i. If loss occurs after delivery, the
partnership is not dissolved
ii. Partnership being already the
owner, bears the loss
5. By the DEATH of any partner
6. By the INSOLVENCY of any partner or of the
partnership
7. By the CIVIL INTERDICTION of any partner
8. By DECREE OF COURT in the ff cases:
a. On the application by or for a partner to
dissolve the partnership whenever:
i. A partner has been declared
insane in any judicial proceeding
or is shown to be of unsound
mine
ii. A partner becomes in any way
incapable of performing his part of
the partnership contract
iii. A partner has been guilty of such
conduct as tends to affect
prejudicially the carrying on of the
business
iv. A partner willfully or persistently
commits a breach of the
partnership agreement, or
otherwise so conducts himself in
matters relating to the partnership
business that it is not reasonably
practicable to carry on the
business in partnership with him
v. The business of the partnership
can only be carried on at a loss
vi. Other circumstances render a
dissolution equitable
b. On the application of the purchaser of a
partners interest:
i. After the termination of the
specific term or particular
undertaking
ii. At any time when the partnership
was a partnership at will when the
interest was assigned or the
charging order was issued
EFFECT OF DISSOLUTION ON AUTHORITY OF A
PARTNER
GR: Dissolution terminates all authority of any
partner to act for the partnership
XPN: with respect to the following:
o Acts to wind up partnership affairs
o Acts to complete transactions begun
before dissolution
In the above cases, the act of the partner binds
the partnership
If the assets of the partnership are not sufficient to
pay the liabilities, the partners can be held liable to
the extent of their separate properties
WHEN AUTHORITY OF A PARTNER TO ENTER INTO
NEW TRANSACTIONS IS TERMINATED AMONG THE
PARTNERS
1. If the cause of dissolution is NOT by the act,
insolvency or death of a partners
a. Notice or knowledge of the acting partner
of the cause of dissolution is immaterial
2. If the cause of dissolution is the ACT of a partner
and the partner who entered into the new
transaction had knowledge of the dissolution
3. If the cause of dissolution is the INSOLVENCY or
DEATH of a partner and the partner who entered
into the new transaction had notice or knowledge
of such insolvency or death
WHEN AUTHORITY OF A PARTNER TO ENTER INTO
NEW TRANSACTION IS NOT TERMINATED AMONG
THE PARTNERS
1. If the cause of dissolution is the ACT of the
partner and the acting partner had NO knowledge
of the dissolution
2. If the cause of dissolution is the INSOLVENCY or
DEATH of a partner and the acting partner had
NO notice or knowledge of such insolvency or
death
WHEN THE ACT OF A PARTNER AFTER
DISSOLUTION BINDS THE PARTNERSHIP
1. When the act is necessary for WINDING UP of
partnership affairs
2. When the act is necessary to COMPLETE
TRANSACTIONS begun before dissolution
3. In case of a NEW TRANSACTION or business in
the ff cases:
a. If the other party to the transaction had
EXTENDED CREDIT to the partnership
before dissolution and he had NO
knowledge or notice of the dissolution
i. Actual delivery
ii. Mere publication of the dissolution
is not notice to him
iii. However, he will be bound by the
dissolution if he had read the
publication if there was one or
had obtained knowledge of the
dissolution is some other manner
b. If the other party to the transaction had
not so extended credit before dissolution
but had nevertheless KNOWN of the
partnership before dissolution, and the
fact of dissolution had NOT been
advertised in a newspaper of general
circulation in the place at which the
business is regularly carried on
i. Mere publication is constructive
notice to him although he had not
read it
NOTE: Number 3 (a & b)
A partner is NOT liable with his separate property
after the exhaustion of partnership assets:
o If he is UNKNOWN as a partner to the
person with whom the contract is made

o So far UNKNOWN and INACTIVE in
partnership affairs that the business
reputation of the partnership could not be
said to have been in any degree due to
his connection with it
4. Where although the partner has NO authority to
wind up partnership affairs, the other party to the
transaction is:
a. One who had EXTENDED CREDIT to the
partnership before dissolution and he had
NO notice or knowledge of the partners
lack of authority
b. One who had not so extended credit
before dissolution and having NO notice
or knowledge of the partners lack of
authority, the FACT of WANT of
AUTHORITY has not been advertised in a
newspaper of general circulation in the
place at which the business is conducted
WHEN THE ACT OF A PARTNER AFTER
DISSOLUTION DOES NOT BIND THE PARTNERSHIP
1. When the partnership is dissolved because it is
UNLAWFUL to carry on the business
a. Unless the act is appropriate for winding
up partnership affairs
2. Where the acting partner is INSOLVENT
3. Where the partner had NO AUTHORITY to wind
up partnership affairs
a. Except with innocent third persons
4. Where a partners authority is already
TERMINATED among the partners and the third
person had ACTUAL or CONSTRUCTIVE
knowledge, as the case may be, of the dissolution
of the firm
SUMMARY OF RULES ON LIABILITY OF THE
PARTNERS AND THE PARTNERSHIP FOR ACTS OF A
PARTNERS AFTER DISSOLUTION
1. If a partners authority is TERMINATED among the
partners or such partner has NO AUTHORITY to
act, but the partnership is BOUND by the
transaction
rd
a. The 3 person can go after the assets of
the partnership
b. If the assets of the partnership are not
rd
sufficient, the 3 person can go after the
separate assets of each partner
c. The other partners can go after the acting
partner to recover the amount they paid
out of their separate assets and to
demand the return of the amount paid out
of the partnership assets
2. If a partners authority is NOT TERMINATED
among the partners and the partnership is
BOUND by the transaction
rd
a. The 3 person can go after the assets of
the partnership
b. If the assets of the partnership are not
rd
sufficient, the 3 person can go after the
separate assets of each partner
c. The other partners CANNOT go after the
acting partner for recovery because after
all the authority of the latter was not
terminated among all the partners
3. If a partners authority is TERMIANTED among the
partners or has NO AUTHORITY to act for the
partnership and the partnership is NOT BOUND
by the transaction
a. The partnership assets CANNOT be held
rd
to answer for the liability to the 3 person
rd
b. The acting partner alone is liable to the 3
person with whom he contracted, and he
cannot call on the other partners to share
in the payment
4. If a partners authority is NOT TERMINATED
among the partners, but the partnership is NOT
BOUND by the transaction
a. The transaction does not bind either the
partnership or the acting partner by
rd
reason of bad faith of the 3 person (if he
has knowledge of the dissolution of the
partnership
RULES ON EXISTING LIABILITY OF A PARTNER
UPON DISSOLUTION
1. The dissolution does not of itself DISCHARGE the
partners liability
2. A partner is discharged from any existing liability
upon dissolution by the agreement of the ff:
a. The partner himself
b. The partnership creditor
c. The person continuing the business
3. The individual property of a deceased partner
shall be liable for obligations of the partnership
while he was a partner, but subject to the prior
payment of his separate debts
WHO MAY WIND UP PARTNERSHIP AFFAIRS
1. Extra-judicially
a. By the partner/s DESIGNATED by the
agreement
b. If NONE was designated:
i. By the partner/s who have NOT
wrongfully dissolved the
partnership
ii. If all the partners are dead, the
LEGAL REPRESENTATIVE of
the last surviving partner who was
not insolvent
2. Judicially
a. Under direction of the court, upon proper
cause shown by:
i. Any partner
ii. His legal representative
iii. Legal assignee
b. The appointee of the court should be a
surviving partner, NOT the legal
representative of the deceased partner
who was not insolvent
i. XPN: when he was the last
surviving partner
APPLICATION OF PARTNERSHIP PROPERTY AND
OTHER RIGHTS OF PARTNERS ON DISSOLUTION
1. Dissolution without contravention of the
partnership agreement
a. Each partner shall have the ff rights:
i. To have the partnership property
APPLIED to discharge the
liabilities of the partnership
ii. To have the SURPLUS, if any,
applied to pay in cash the net
amount owing to the respective
partners
2. Dissolution in contravention of the partnership
agreement
a. Rights of partner who has NOT caused
the dissolution wrongfully
i. To have the PARTNERSHIP
PROPERTY applied to discharge
the liabilities of the partnership
 ii. To have the SURPLUS, if any, LIQUIDATION OF DISSOLVED PARTNERSHIP
applied to pay in cash the net 1. Liquidation or winding up, concept
amount owing to the respective a. Involves:
partners i. The SALE of the assets of the
iii. To be INDEMNIFIED for damages partnership
from the partner who has caused ii. The PAYMENT of its liabilities
the wrongful dissolution of the iii. The DISTRIBUTION of the
partnership remaining cash or other property
iv. To CONTINUE the business of to the partners
the partnership in the same name, 2. Order of payment of partnership liabilities
either by themselves or jointly a. Those owing to the CREDITORS other
with others, and for that purpose than partners
possess partnership property b. Those owing to partners OTHER THAN
provided that: for capital and profits
1. They PAY the partner c. Those owing to partners in respect of
who has caused the CAPITAL
wrongful dissolution of the d. Those owing to partners in respect of
partnership the VALUE of PROFITS
his interest in the 3. Assets of the partnership
partnership less a. To be applied in the order they are
damages; or declared for the payment of the liabilities
2. They SECURE its in the order of their payment:
payment by a bond i. Partnership property
approved by the court ii. The contributions of the partners
b. Rights of partner who has caused the necessary for the payment of
dissolution wrongfully such liabilities
i. If the business is NOT continued 1. The contributions shall be
1. To have the partnership in accordance with the
property applied to rules on the division of
discharge the liabilities of profits and losses
the partnership 2. The individual property of
2. To receive his share in a deceased partner shall
the surplus, less damages be liable for such
suffered by the other contributions
partners by reason of his 3. The ff may enforce
having caused the payment of the
wrongful dissolution of the contributions:
partnership a. An assignee for
ii. If the business is CONTINUED the benefit of
1. To have the value of his creditors
interest in the partnership b. Any person
less damages paid to him appointed by the
in cash or have its court
payment secured by a c. Any partner or his
bond approved by the legal
court representative to
2. To be released from all the extent of the
existing liabilities of the amount which he
partnership paid in excess of
his share of the
RESCISSION OF PARTNERSHIP CONTRACT liability
1. Grounds for rescission: 4. Priority in the payment of liabilities if partnership
a. Fraud property and the individual property of the partners
b. Misrepresentation to enter into the are in possession of the court for distribution
partnership contract a. Subject to the rights of lien or of secured
2. Rights of partners who was INDUCED by fraud or creditors, the priority in payment of the
misrepresentation liabilities shall be as follows:
a. Right of LIEN on, or RETENTION of, the i. Partnership creditors for
SURPLUS of the partnership property, partnership property
after the satisfaction of partnership ii. Separate creditors for individual
liabilities for any sum of money paid by property
him to the partnership by way of capital or 5. Priority of claims against separate property of a
advances debtor who is insolvent or whose estate is
b. Right of SUBROGATION in place of insolvent
partnership creditors for any payment a. Those owing to SEPARATE CREDITORS
made by him for partnership liabilities b. Those owing to PARTNERSHIP
c. Right of INDEMNIFICATION from the CREDITORS
person guilty of fraud or misrepresentation c. Those owing to PARTNERS BY WAY OF
against all debts of the partnership CONTRIBUTION
WHEN LIABILITIES OF DISSOLVED PARTNERSHIP
ARE ALSO LIABILITIES OF THE PERSON OR
PARTNERSHIP CONTINUING THE BUSINESS
1. When a new partner is admitted into an existing
partnership
a. His liability for the obligations of the
dissolved partnership shall be satisfied out
of partnership property only, unless there
is a contrary stipulation
2. When a partner retires and assigns his rights in
partnership property to two or more partners, or to
one or more of the partners and one or more third
persons
3. When all but one partner retire and assign their
rights in partnership property to the remaining
partner, who continues the business without
liquidation of partnership affairs, either alone or
with others
4. When any partner retires or dies and the business
of the dissolved partnership is continued, with the
consent of the retired partner or the representative
of the deceased partner, but without any
assignment of his right in specific partnership
property
5. When all the partners or their representatives
assign their rights in partnership property to one or
more third persons who promise to pay the debts
and who continue the dissolved partnership
6. When any partner wrongfully causes the
dissolution of the partnership and the remaining
partners continue the business without liquidation
of partnership affairs
7. When a partner is expelled and the remaining
partners continue the business either alone or with
others without liquidation of the partnership affairs
RIGHTS OF PARTNER WHO RETIRES OR THE LEGAL
REPRESENTATIVE OF A DECEASED PARTNER IF
BUSINESS IS CONTINUED WITHOUT SETTLEMENT
OF ACCOUNTS
1. To have the value of the interest of the retiring or
deceased partner ascertained as of the date of
dissolution
2. To receive as ordinary creditor an amount equal to
value of his interest in the dissolved partnership
with interest, or at his option, in lieu of the interest
on such value, the profits attributable to the use of
his right in the property of the dissolved
partnership
PREFERENCE OF PARTNERSHIP CREDITORS
Partnership creditors enjoy a prior right as against
the separate creditors of a retiring or deceased
partner with respect to the claim of a retiring
partner or of a deceased partners legal
representative
RIGHT TO ACCOUNTING
Any partner or the legal representative of a
deceased partner has a right to an accounting of
his interest against the ff:
o Winding up partners
o The surviving partners
o The person or partnership continuing the
business
o practicable to carry on the
DISSOLUTION AND WINDING UP
DISSOLUTION the change in the relation of the partners
caused by any partner ceasing to be associated in the
carrying on of the business
WINDING UP the process of settling the business or
affairs of the partnership after dissolution
TERMINATION refers to the point when all the business
or affairs of the partnership are completely wound up
CAUSES OF DISSOLUTION
9. Without violation of the agreement of the partners
a. By the TERMINATION of the definite term
or particular undertaking specified in the
agreement
b. By the EXPRESS WILL:
i. Of any partner who must act in
GF when no definite term or
particular undertaking is specified
ii. Of all the partners who have not
assigned their interest or suffered
them to be charged for their
separate debts, either before or
after the termination of any
specified term or undertaking
c. By the EXPULSION of any partner from
the business bone fide in accordance with
such a power conferred by the agreement
between the partners
10. In CONTRAVENTION of the agreement between
the partners, by the express will of any partner at
anytime
11. When ANY EVENT makes it unlawful for the
business of the partnership to be carried on or for
the members to carry it on in partnership
12. In the ff. cases of LOSS:
a. Loss before or after delivery of property
where the partner contributed only its use
or enjoyment, he having reserved the
ownership thereof
i. Partner who owns the property
bears the loss
b. Loss before delivery of specific thing
which a partner had promised to
contribute to the partnership
i. If loss occurs after delivery, the
partnership is not dissolved
ii. Partnership being already the
owner, bears the loss
13. By the DEATH of any partner
14. By the INSOLVENCY of any partner or of the
partnership
15. By the CIVIL INTERDICTION of any partner
16. By DECREE OF COURT in the ff cases:
a. On the application by or for a partner to
dissolve the partnership whenever:
i. A partner has been declared
insane in any judicial proceeding
or is shown to be of unsound
mine
ii. A partner becomes in any way
incapable of performing his part of
the partnership contract
iii. A partner has been guilty of such
conduct as tends to affect
prejudicially the carrying on of the
business
iv. A partner willfully or persistently
commits a breach of the
partnership agreement, or
otherwise so conducts himself in
matters relating to the partnership
business that it is not reasonably
business in partnership with him
v. The business of the partnership
can only be carried on at a loss
vi. Other circumstances render a
dissolution equitable
 b. On the application of the purchaser of a
partners interest:
i. After the termination of the
specific term or particular
undertaking
ii. At any time when the partnership
was a partnership at will when the
interest was assigned or the
charging order was issued
EFFECT OF DISSOLUTION ON AUTHORITY OF A
PARTNER
GR: Dissolution terminates all authority of any
partner to act for the partnership
XPN: with respect to the following:
o Acts to wind up partnership affairs
o Acts to complete transactions begun
before dissolution
In the above cases, the act of the partner binds
the partnership
If the assets of the partnership are not sufficient to
pay the liabilities, the partners can be held liable to
the extent of their separate properties
WHEN AUTHORITY OF A PARTNER TO ENTER INTO
NEW TRANSACTIONS IS TERMINATED AMONG THE
PARTNERS
4. If the cause of dissolution is NOT by the act,
insolvency or death of a partners
a. Notice or knowledge of the acting partner
of the cause of dissolution is immaterial
5. If the cause of dissolution is the ACT of a partner
and the partner who entered into the new
transaction had knowledge of the dissolution
6. If the cause of dissolution is the INSOLVENCY or
DEATH of a partner and the partner who entered
into the new transaction had notice or knowledge
of such insolvency or death
WHEN AUTHORITY OF A PARTNER TO ENTER INTO
NEW TRANSACTION IS NOT TERMINATED AMONG
THE PARTNERS
3. If the cause of dissolution is the ACT of the
partner and the acting partner had NO knowledge
of the dissolution
4. If the cause of dissolution is the INSOLVENCY or
DEATH of a partner and the acting partner had
NO notice or knowledge of such insolvency or
death
WHEN THE ACT OF A PARTNER AFTER
DISSOLUTION BINDS THE PARTNERSHIP
5. When the act is necessary for WINDING UP of
partnership affairs
6. When the act is necessary to COMPLETE
TRANSACTIONS begun before dissolution
7. In case of a NEW TRANSACTION or business in
the ff cases:
a. If the other party to the transaction had
EXTENDED CREDIT to the partnership
before dissolution and he had NO
knowledge or notice of the dissolution
i. Actual delivery
ii. Mere publication of the dissolution
is not notice to him
iii. However, he will be bound by the
dissolution if he had read the
publication if there was one or
had obtained knowledge of the
dissolution is some other manner
b. If the other party to the transaction had
not so extended credit before dissolution
but had nevertheless KNOWN of the
partnership before dissolution, and the
fact of dissolution had NOT been
advertised in a newspaper of general
circulation in the place at which the
business is regularly carried on
i. Mere publication is constructive
notice to him although he had not
read it
NOTE: Number 3 (a & b)
A partner is NOT liable with his separate property
after the exhaustion of partnership assets:
o If he is UNKNOWN as a partner to the
person with whom the contract is made
o So far UNKNOWN and INACTIVE in
partnership affairs that the business
reputation of the partnership could not be
said to have been in any degree due to
his connection with it
8. Where although the partner has NO authority to
wind up partnership affairs, the other party to the
transaction is:
a. One who had EXTENDED CREDIT to the
partnership before dissolution and he had
NO notice or knowledge of the partners
lack of authority
b. One who had not so extended credit
before dissolution and having NO notice
or knowledge of the partners lack of
authority, the FACT of WANT of
AUTHORITY has not been advertised in a
newspaper of general circulation in the
place at which the business is conducted
WHEN THE ACT OF A PARTNER AFTER
DISSOLUTION DOES NOT BIND THE PARTNERSHIP
5. When the partnership is dissolved because it is
UNLAWFUL to carry on the business
a. Unless the act is appropriate for winding
up partnership affairs
6. Where the acting partner is INSOLVENT
7. Where the partner had NO AUTHORITY to wind
up partnership affairs
a. Except with innocent third persons
8. Where a partners authority is already
TERMINATED among the partners and the third
person had ACTUAL or CONSTRUCTIVE
knowledge, as the case may be, of the dissolution
of the firm
SUMMARY OF RULES ON LIABILITY OF THE
PARTNERS AND THE PARTNERSHIP FOR ACTS OF A
PARTNERS AFTER DISSOLUTION
5. If a partners authority is TERMINATED among the
partners or such partner has NO AUTHORITY to
act, but the partnership is BOUND by the
transaction
rd
a. The 3 person can go after the assets of
the partnership
b. If the assets of the partnership are not
rd
sufficient, the 3 person can go after the
separate assets of each partner
c. The other partners can go after the acting
partner to recover the amount they paid
out of their separate assets and to
demand the return of the amount paid out
of the partnership assets
6. If a partners authority is NOT TERMINATED
among the partners and the partnership is
BOUND by the transaction
rd
a. The 3 person can go after the assets of
the partnership
 b. If the assets of the partnership are not i. To have the partnership property
rd
sufficient, the 3 person can go after the APPLIED to discharge the
separate assets of each partner liabilities of the partnership
c. The other partners CANNOT go after the ii. To have the SURPLUS, if any,
acting partner for recovery because after applied to pay in cash the net
all the authority of the latter was not amount owing to the respective
terminated among all the partners partners
7. If a partners authority is TERMIANTED among the 4. Dissolution in contravention of the partnership
partners or has NO AUTHORITY to act for the agreement
partnership and the partnership is NOT BOUND a. Rights of partner who has NOT caused
by the transaction the dissolution wrongfully
a. The partnership assets CANNOT be held i. To have the PARTNERSHIP
rd
to answer for the liability to the 3 person PROPERTY applied to discharge
rd
b. The acting partner alone is liable to the 3 the liabilities of the partnership
person with whom he contracted, and he ii. To have the SURPLUS, if any,
cannot call on the other partners to share applied to pay in cash the net
in the payment amount owing to the respective
8. If a partners authority is NOT TERMINATED partners
among the partners, but the partnership is NOT iii. To be INDEMNIFIED for damages
BOUND by the transaction from the partner who has caused
a. The transaction does not bind either the the wrongful dissolution of the
partnership or the acting partner by partnership
rd
reason of bad faith of the 3 person (if he iv. To CONTINUE the business of
has knowledge of the dissolution of the the partnership in the same name,
partnership either by themselves or jointly
with others, and for that purpose
RULES ON EXISTING LIABILITY OF A PARTNER possess partnership property
UPON DISSOLUTION provided that:
4. The dissolution does not of itself DISCHARGE the 1. They PAY the partner
partners liability who has caused the
5. A partner is discharged from any existing liability wrongful dissolution of the
upon dissolution by the agreement of the ff: partnership the VALUE of
a. The partner himself his interest in the
b. The partnership creditor partnership less
c. The person continuing the business damages; or
6. The individual property of a deceased partner 2. They SECURE its
shall be liable for obligations of the partnership payment by a bond
while he was a partner, but subject to the prior approved by the court
payment of his separate debts b. Rights of partner who has caused the
dissolution wrongfully
WHO MAY WIND UP PARTNERSHIP AFFAIRS i. If the business is NOT continued
3. Extra-judicially 1. To have the partnership
a. By the partner/s DESIGNATED by the property applied to
agreement discharge the liabilities of
b. If NONE was designated: the partnership
i. By the partner/s who have NOT 2. To receive his share in
wrongfully dissolved the the surplus, less damages
partnership suffered by the other
ii. If all the partners are dead, the partners by reason of his
LEGAL REPRESENTATIVE of having caused the
the last surviving partner who was wrongful dissolution of the
not insolvent partnership
4. Judicially ii. If the business is CONTINUED
a. Under direction of the court, upon proper 1. To have the value of his
cause shown by: interest in the partnership
i. Any partner less damages paid to him
ii. His legal representative in cash or have its
iii. Legal assignee payment secured by a
b. The appointee of the court should be a bond approved by the
surviving partner, NOT the legal court
representative of the deceased partner 2. To be released from all
who was not insolvent existing liabilities of the
i. XPN: when he was the last partnership
surviving partner
RESCISSION OF PARTNERSHIP CONTRACT
APPLICATION OF PARTNERSHIP PROPERTY AND 3. Grounds for rescission:
OTHER RIGHTS OF PARTNERS ON DISSOLUTION a. Fraud
3. Dissolution without contravention of the b. Misrepresentation to enter into the
partnership agreement partnership contract
a. Each partner shall have the ff rights: 4. Rights of partners who was INDUCED by fraud or
misrepresentation
 a. Right of LIEN on, or RETENTION of, the
SURPLUS of the partnership property,
after the satisfaction of partnership
liabilities for any sum of money paid by
him to the partnership by way of capital or
advances
b. Right of SUBROGATION in place of
partnership creditors for any payment
made by him for partnership liabilities
c. Right of INDEMNIFICATION from the
person guilty of fraud or misrepresentation
against all debts of the partnership
LIQUIDATION OF DISSOLVED PARTNERSHIP
6. Liquidation or winding up, concept
a. Involves:
i. The SALE of the assets of the
partnership
ii. The PAYMENT of its liabilities
iii. The DISTRIBUTION of the
remaining cash or other property
to the partners
7. Order of payment of partnership liabilities
a. Those owing to the CREDITORS other
than partners
b. Those owing to partners OTHER THAN
for capital and profits
c. Those owing to partners in respect of
CAPITAL
d. Those owing to partners in respect of
PROFITS
8. Assets of the partnership
a. To be applied in the order they are
declared for the payment of the liabilities
in the order of their payment:
i. Partnership property
ii. The contributions of the partners
necessary for the payment of
such liabilities
1. The contributions shall be
in accordance with the
rules on the division of
profits and losses
2. The individual property of
a deceased partner shall
be liable for such
contributions
3. The ff may enforce
payment of the
contributions:
a. An assignee for
the benefit of
creditors
b. Any person
appointed by the
court
c. Any partner or his
legal
representative to
the extent of the
amount which he
paid in excess of
his share of the
liability
9. Priority in the payment of liabilities if partnership
property and the individual property of the partners
are in possession of the court for distribution
a. Subject to the rights of lien or of secured
creditors, the priority in payment of the
liabilities shall be as follows:
i. Partnership creditors
partnership property
ii. Separate creditors for individual
property
10. Priority of claims against separate property of a
debtor who is insolvent or whose estate is
insolvent
a. Those owing to SEPARATE CREDITORS
b. Those owing to PARTNERSHIP
CREDITORS
c. Those owing to PARTNERS BY WAY OF
CONTRIBUTION
WHEN LIABILITIES OF DISSOLVED PARTNERSHIP
ARE ALSO LIABILITIES OF THE PERSON OR
PARTNERSHIP CONTINUING THE BUSINESS
8. When a new partner is admitted into an existing
partnership
a. His liability for the obligations of the
dissolved partnership shall be satisfied out
of partnership property only, unless there
is a contrary stipulation
9. When a partner retires and assigns his rights in
partnership property to two or more partners, or to
one or more of the partners and one or more third
persons
10. When all but one partner retire and assign their
rights in partnership property to the remaining
partner, who continues the business without
liquidation of partnership affairs, either alone or
with others
11. When any partner retires or dies and the business
of the dissolved partnership is continued, with the
consent of the retired partner or the representative
of the deceased partner, but without any
assignment of his right in specific partnership
property
12. When all the partners or their representatives
assign their rights in partnership property to one or
more third persons who promise to pay the debts
and who continue the dissolved partnership
13. When any partner wrongfully causes the
dissolution of the partnership and the remaining
partners continue the business without liquidation
of partnership affairs
14. When a partner is expelled and the remaining
partners continue the business either alone or with
others without liquidation of the partnership affairs
RIGHTS OF PARTNER WHO RETIRES OR THE LEGAL
REPRESENTATIVE OF A DECEASED PARTNER IF
BUSINESS IS CONTINUED WITHOUT SETTLEMENT
OF ACCOUNTS
3. To have the value of the interest of the retiring or
deceased partner ascertained as of the date of
dissolution
4. To receive as ordinary creditor an amount equal to
value of his interest in the dissolved partnership
with interest, or at his option, in lieu of the interest
on such value, the profits attributable to the use of
his right in the property of the dissolved
partnership
PREFERENCE OF PARTNERSHIP CREDITORS
Partnership creditors enjoy a prior right as against
the separate creditors of a retiring or deceased
partner with respect to the claim of a retiring
partner or of a deceased partners legal
representative
RIGHT TO ACCOUNTING
Any partner or the legal representative of a
for deceased partner has a right to an accounting of
his interest against the ff:
 o Winding up partners
o The surviving partners
o The person or partnership continuing the
business
LIMITED PARTNERSHIP
A limited partnership is a partnership which has
one or more general partners and one or more
limited partners. The limited partners as such shall
not be bound by the obligations of the partnership,
except up to the extent of their contribution.
REQUIREMENTS FOR FORMATION:
1. They must SUBSCRIBE and SWEAR to a
certificate, which shall state:
a. The NAME of the partnership, adding
thereto the word LIMITED
i. Effect of omission of the term
the name cannot be considered
as the firm name of a limited
partnership, and the partnership
will therefore be a GENERAL
PARTNERSHIP
b. The CHARACTER of the business
c. The LOCATION of the principal place of
the business
d. The name and place of RESIDENCE of
each member, general and limited
partners being respectively designate
e. The TERM for which the partnership is to
exist
f. The AMOUNT of cash and
DESCRIPTION of and the AGREED
VALUE of the other property contributed
by each limited partner
i. A limited partner may contribute
money or property but not
services (Art. 1845)
g. The ADDITIONAL CONTRIBUTIONS, if
any, to be made by each limited partner
and the TIMES at which or EVENTS on
the happenings of which they shall be
made
h. The TIME, if agreed upon, when the
contribution of each limited partner is to
be returned
i. The SHARE of the profits or the
compensation by way of income which
each limited partner shall receive by
reason of his contribution
j. The RIGHT, if given, of a limited partner to
SUBSTITUTE an assignee or contributor
in his place and the terms and conditions
of the substitution
k. The right, if given, of the partners to
ADMIT additional limited partner
l. The right, if given, of one or more of the
limited partners to PRIORITY over the
other limited partners, as to contributions
or as to compensation by way of income,
and the nature of such priority
m. The right, if given, of the REMAINING
general partner/s to continue the business
on the death, retirement, civil interdiction,
insanity or insolvency of a general partner
n. The right, if given, of a limited partner to
DEMAND and RECEIVE property other
than case in return for his contribution
2. They must FILE for record the certificate with the
SEC (Art. 1844)
a. Effect of substantial compliance
i. A limited partnership is formed if
there has been substantial
compliance in GF of the above
requirements
b. Effect of failure to register with SEC
i. The partnership will be
considered a GENERAL
PARTNERSHIP since the
requirements are intended to
protect the public
LIABILITY FOR FALSE STATEMENT (ART. 1847)
One who suffers loss by reason of a false
statement in the certificate may hold liable any party to the
certificate who knew the same to be false:
1. At the TIME he SIGNED the certificate
2. SUBSEQUENTLY, but within a sufficient time
BEFORE the statement was relied upon to enable
him to cancel or amend the certificate, or petition
for its cancellation or amendment
ADMISSION OF ADDITIONAL LIMITED PARTNERS
AFTER FORMATION
Additional limited partners may be admitted after
formation by filing an AMENDMENT to the original
certificate (Art. 1849)
However, this right must be stated in the original
certificate (Art. 1844)
RIGHTS AND LIABILITIES OF A GENERAL PARTNER
IN A LIMITED PARTNERSHIP (ART. 1850)
1. RIGHTS
a a. A GP has ALL the rights and powers of a
GP in a partnership without LP
2. LIABILITIES
a. A GP shall be subject to ALL restrictions
and liabilities of a partner in a partnership
without LPs
b. Restrictions of a GP (no authority to
perform the ff. acts without the WRITTEN
CONSENT or RATIFICATION by ALL the
LPs)
i. Do any act in CONTRAVENTION
of the certificate
ii. Do any act which would make it
IMPOSSIBLE to carry on the
business of the partnership
iii. CONFESS a judgment against
the partnership
iv. POSSESS partnership property,
or ASSIGN their rights in specific
property, for other than a
partnership purpose
v. ADMIT a person as a GP
vi. ADMIT a person as a LP, unless
the right to do so is given in the
certificate
vii. CONTINUE the business with
partnership property on the
dearth, retirement, civil
interdiction or insolvency of a GP
unless the right to do so is given
in the certificate
OBLIGATIONS OF A LIMITED PARTNER
1. Not to allow the INCLUSION of his surname in the
partnership name (Art. 1846)
a. XPNs:
i. If it is also the surname of a GP
ii. The business had been carried on
under a name in which his
 surname appeared prior to his
admission as a limited partner
b. Effect if a limited partner allows the
inclusion of his surname in the partnership
name
i. He is liable as a GP to partnership
creditors who EXTEND CREDIT
to the partnership without actual
knowledge that he is not a GP
2. To be LIABLE as a GP if he takes part in the
control of the business (Art. 1848)
3. To be LIABLE to the PARTNERSHIP for the ff:
a. For the DIFFERENCE between his actual
contribution and that stated in the
certificate
b. For any UNPAID contribution which he
agreed in the certificate to make in the
future at the time and on the conditions
stated in the certificate (Art. 1858)
4. To HOLD as TRUSTEE for the partnership the ff:
a. SPECIFIC PROPERTY stated in the
certificate as contributed by him, but
which was not contributed
b. Specific property which has been
WRONGFULLY returned to him
c. MONEY or property wrongfully paid or
conveyed to him on account of his
contribution
Note: WAIVER OR COMPROMISE OF LPs LIABILITY
IN NOS. 3 AND 4
The said liabilities may be waived or compromised
provided:
o All the partners CONSENT thereto
o The RIGHT of a partnership creditor who
extended credit or whose claims arose
after the filing and before the cancellation
or amendment of the certificate is not
affected
5. To be LIABLE to the partnership AFTER he has
rightfully received the return of his capital
contribution, for any sum not in excess of such
return with interest, which is necessary to
discharge its liabilities to all creditors who
extended credit or whose claims arose before
such return (Art. 1858)
6. NOT to RECEIVE or HOLD as collateral security
any partnership property on account of his claims
for loan granted to or other business transaction
with the partnership. (Art. 1854)
7. NOT to RECEIVE from a GP or the partnership on
account of such claims any payment, conveyance
or release from liability, if at the time the assets of
the partnership are not sufficient to discharge
partnership liabilities to person not claiming as
general or limited partners (Art. 1854)
Note: EFFECT OF VIOLATION OF NOS. 6 OR 7
Such violation is considered fraud on the creditors
of the partnership
RIGHTS OF A LIMITED PARTNER
1. To have the PARTNERSHIP BOOKS kept at the
principal place of business of the partnership (Art.
1851)
2. To INSPECT and COPY the partnership books or
any of them at a reasonable hour (Art. 1851)
3. To have on DEMAND TRUE and FULL
INFORMATION of all things affecting the
partnership (Arts. 1806, 1851)
4. To have on demand a FORMAL ACCOUNT of
partnership affairs whenever circumstances
render it just and equitable (Arts. 1809, 1851)
5. To have DISSOLUTION and WINDING UP by
decree of court (Arts. 1831, 1851, 1857)
6. To RECEIVE a SHARE of the profits or other
compensation by way of income stipulated in the
certificate (Arts. 1851, 1856)
a. This right however is subject to the
condition that after such payment,
whether from the property of the
partnership or of a general partner, the
partnership assets are in excess of all
liabilities of the partnership except
liabilities to limited partners on account of
their contributions and to GPs (Art. 1856)
7. To receive the RETURN of his contribution
provided partnership assets exceed the liabilities
(Arts. 1851, 1857)
8. To LOAN money to the partnership (Art. 1854)
9. To TRANSACT business with the partnership
10. To RECEIVE, unless he is also a GP, on account
of resulting claims against the partnership, with
general creditors, a pro rata share of the asset
11. To AGREE with other limited partners that one or
more of them shall have priority over other limited
partners as to:
a. Return of their contributions
b. Compensation by way of income
c. Any other matter
This agreement, when made, must be stated in
the certificate. In the absence thereof, all the
limited partners shall stand on equal footing. (Art.
1855)
Status of a person who has contributed to the capital
of the partnership erroneously believing that he has
become a limited partner
Such person is not, by reason of his exercise of
the rights of a LP, a GP provided:
1. On ascertaining the mistake, he promptly
renounces his interest in the profits of the
business or other compensation by way of income
(Art. 1852), and
2. He does not take part in the control of the
business (Arts. 1848, 1852)
GENERAL LIMITED PARTNER (ART. 1853)
A person may be a general partner and a limited
partner at the same time provided that this fact is stated in
the certificate.
He shall have all the rights and powers and
subject to all restrictions of a GP; except that, in respect to
his contribution, he shall have all the rights of a LP (Art.
1853)
RETURN OF A LIMITED PARTNERS CONTRIBUTION
(ART. 1857)
1. Requisite for the return of the contribution
a. All liabilities of the partnership have been
paid or there remains sufficient
partnership property to pay them, except
liabilities to general and to limited partners
on account of their contributions
b. The consent of all the partners (general
and limited) has been obtained, unless the
return of the contribution may be rightfully
demanded; and
c. The certificate is cancelled or so amended
to set forth the withdrawal or reduction
2. When limited partner may rightfully demand return
of his contribution
a. On the dissolution of the partnership
b. When the date specified in the certificate
for its return has arrived
 c. After he has given six months notice in
writing to all members, if no time is
specified in the certificate, either for the
return of his contribution or the dissolution
of the partnership
3. Contribution of limited partner to be returned in
cash
Irrespective of the nature of his
contribution, a limited partner has only the
right to demand and receive cash except
in the ff:
a. When the certificate contains a statement
that the contribution may be returned in a
form other than cash, or
b. There is an agreement among the
partners (general and limited) that the
contribution may be in a form other than
cash
4. When limited partner may have the partnership
dissolved and wound up
a. When he rightfully but unsuccessfully
demands the return of his contribution
b. When, although he is entitled to the return
of his contribution, the same is not paid to
him because the other liabilities of the
partnership have not been paid or the
property of the partnership is insufficient
for their payment
ASSIGNMENT OF LIMITED PARTNERS INTEREST
(ART. 1859)
1. RULE: A limited partners interest is assignable
2. Effect of Assignment:
a. If the assignee does not become a
substituted partner
i. The assignee is only entitled to
receive the following to which the
assignor partner would otherwise
be entitled:
1. Share of the profits
2. Other compensation by
way of income
3. Return of the contribution
ii. He has no right to:
1. Require any information
or account of partnership
transactions
2. Inspect partnership books
b. If the assignee becomes a substituted
limited partner
i. Substituted limited partner,
concept
1. A substituted limited
partner is a person
admitted to all the rights
of a limited partner who
has died or has assigned
his interest in the
partnership
ii. Requisites in order that assignee
may become a substituted limited
partner
1. All the members of the
partnership must consent
to the assignee becoming
a substituted limited
partner, unless the
assignor is empowered by
the certificate to give the
assignee such right
2. The certificate must be
amended to reflect the
substitution
3. The certificate must be
registered with the SEC
iii. Rights and liabilities of the
substituted limited partner
He has all the rights and powers,
and is subject to all restrictions and
liabilities of the assignor, except those
liabilities of which he is ignorant at the
time he became a limited partner and
which could not be ascertained from the
certificate.
iv. Liabilities of the assignor
The substitution of the assignee
as a limited partner does not release
the assignor from the following
liability.
1. To persons who rely on a
false statement in the
certificate
2. To creditors who
extended credit or whose
claims arose before the
assignment (Art. 1858)
RETIREMENT, DEATH, CIVIL INTERDICTION,
INSANITY OR INSOLVENCY OF A PARTNER (ART.
1860)
1. Effect
a. Partner is a general partner Here, the
partnership is dissolved (Art. 1860)
b. Partner is a limited partner Here, the
partnership is not dissolved except if there
is no more limited partner because in such
a case, the requirement that there must
be at least one limited partner in a limited
partnership is no longer complied with
(Arts. 1843, 1864)
2. Continuation of business
a. The business may be continued by the
remaining general partners if:
i. The right to do so is stated in the
certificate
ii. All the members consent
RIGHTS OF EXECUTOR/ADMINISTRATOR ON THE
DEATH OF A LIMITED PARTNER (ART. 1861)
1. All the rights of a LP for the purpose of settling his
estate
2. To have the same power as the deceased had to
constitute his assignee as a substituted limited
partner
CHARGING OF LIMITED PARTNERS INTEREST
1. Creditors right to charge
a. The creditor of a limited partner may
charge the latters interest in the
partnership
2. Redemption
a. The interest charged may be redeemed
with the separate property of any general
partner, but not with partnership property
b. This should be distinguished from the
redemption of a partners interest in a
general partnership which may be
redeemed not only with the property of
one or more general partners but also with
partnership property
ORDER OF PAYMENT OF LIABILITIES
1. In settling accounts after dissolution, the liabilities
of the partnership shall be entitled to payment in
the ff order:
a. Those to creditors, including limited
partners, in the order of priority as
provided by law, except those to limited
partners on account of their contributions,
and to general partners
b. Those to limited partners by way of their
share of the profits and other
compensation by way of income on their
contributions
c. Those to limited partners in respect to the
capital of their contributions
d. Those to general partners other than for
capital and profits
e. Those to general partners in respect to
profits
f. Those to general partners in respect to
capital
2. Sharing among limited partners in partnership
assets
a. Limited partners share in the partnership
assets in respect to their claim for capital,
and in respect to their claims for profits or
for compensation by way of income on
their contributions respectively in
proportion to the respective amounts of
such claims unless otherwise stated:
i. In the certificate
ii. Subsequent agreement
CANCELLATION OR AMENDMENT OF CERTIFICATE
(ART. 1864)
1. When cancelled
a. When the partnership is dissolved
b. When all the limited partners cease to be
such
2. When amended
a. When there is a change in the name of
the partnership or in the amount or
character of the contribution of any limited
partner
b. When a person is substituted as a limited
partner
c. When an additional limited partner is
admitted
d. When a person is admitted as a general
partner
e. When a general partner retires, dies,
becomes insolvent or insane, or is
sentenced to civil interdiction and the
business is continued by the remaining
general partners:
i. Under a right to do so stated in
the certificate
ii. With the consent of all the
members
f. When there is a change in the character
of the business of the partnership
g. There is a false or erroneous statement in
the certificate
h. There is a change in the time as stated in
the certificate for the dissolution of the
partnership or for the return of a
contribution
i. When a time is fixed for the dissolution of
the partnership, or the return of a
contribution, no time having been
specified in the certificate
j. When the members desire to make a
change in any other statement in the
certificate in order that it shall accurately
represent the agreement among them
REQUIREMENTS FOR AMENDMENT OF CERTIFICATE
(ART. 1865)
1. The amendment must be in writing
2. It must be signed and sworn to by all members
including
a. The assigning limited partner and the
substituted limited partner, in case of
substitution
b. The newly-admitted limited partner/s
c. The newly-admitted general partner/s
3. The amended certificate must be filed with the
SEC
REQUIREMENTS FOR CANCELLATION OF
CERTIFICATES (ART. 1865)
1. The cancellation must be in writing
2. It must be signed by all members
3. It must be filed with the SEC
LIMITED PARTNER, NOT A PROPER PARTY TO
PROCEEDINGS (ART. 1866)
1. A limited partner is not a proper party to
proceedings
a. By partnership
b. Against a partnership
2. Exceptions:
a. If he is also a general partner
b. Where the object of the proceedings is to
enforce a limited partners right against
the partnership
c. Where the object of the proceedings is to
enforce a limited partners liability to the
partnership
AGENCY
Agency, concept
Agency
- a contract whereby a person binds himself to
render some service or to do something in
representation or in behalf of another, with the
consent and authority of the latter. (Art. 1868)
Importance of agency
Agency enables a person to perform diverse juridical acts
at the same time enabling him to be constructively present
in many places, which would not be possible for him to do
physically.
The underlying principle of the contract of agency is to
accomplish results by using the services of others- to do a
great variety of things like selling, buying, manufacturing,
and principal or the party for whom another acts and from
whom he derives his authority.
The basis of agency is representation.
Ex: The agent acts for and on behalf of the principal on
matters within the scope of his authority and said acts
have the same legal effects as if they were personally
executed by the principal.
By this legal fiction, the actual or real absence of the
principal is converted into his legal or juridical presence-
qui facit per alium facit per se, (Eurotech Industrial
Technologies, Inc. vs. Cuizon, G.R. No. 167552, April 23,
2007).
Ex: He who acts thru another, acts by himself. (Bank of the
Philippine Islands vs. De Coster, 49 Phil 593; Rallos vs.
Felix Go Chan and Sons, 81 SCRA 259).
Agency is basically:
a. personal
b. representative and
c. derivative in nature.
The authority of the agent to act emanates from the
principal if done within the scope of the authority. (Sps.
Viloria vs. Continental Airlines, Inc., G.R. No. 188288,
January 16, 2012).
ELEMENTS OF A CONTRACT OF AGENCY
1. Consent, express or implies, of the parties to
establish the relationship.
2. The object is the execution of a juridical act in
relation to a third person.
3. The agent acts as representative and not for
himself.
4. The agent acts within the scope of his authority.
(Eurotech Industrial Technologies, Inc. vs. Cuizon,
supra)
CHARACTERISTICS OF AGENCY
1. Principal
- It can stand by itself.
2. Preparatory
- It is a means by which other contracts
may be entered into.
3. Consensual
- It is perfected by mere consent.
4. Onerous
- It is presumed to be for a compensation,
unless there is proof to the contrary. (Art.
1875)
5. Nominate
- It has a name given to it by law. (Art.
1868)
6. Bilateral
- The parties are bound reciprocally to each
other.
7. Commutative
- The parties give and receive almost
equivalent values; hence, there is real
fulfillment.
PARTIES TO A CONTRACT OF AGENCY, CAPACITY
OF THE PARTIES
1. Principal
- The person represented by the agent and
from whom the latter derives his authority,
he is the party primarily and originally
concerned in the contract of agency.
a. Capacity to be a principal
Agency being a contract, any
person with legal capacity may
appoint an agent for any legal
purpose whatsoever.
b. Effect if principal is incapacitated
If the principal is incapacitated
but the agent is capacitated, the
contract of agency is voidable at
the instance of the principal.
Should the agent enter into a
contract in behalf of his
principal, such contract is
likewise voidable because the
real party to such contract is the
principal, the agent being
merely an extension of the
personality of the principal.
2. Agent
He who acts for and represents the
principal and from whom he derives his
authority.
a. Capacity to be an agent
A person acting for himself can be an
agent of another.
Legal capacity is not required for the
validity of the agents acts which are
considered those of the principal since the
agent is merely an extension of the
personality of the principal.
The agent, however, needs to possess
some mental capacity.
b. Effect if agent is incapacitated
The contract of agency is voidable if the
agent is incapable of giving consent.
While the contract entered into by the
agent in behalf of the principal is really
that of the principal and which will be valid
as long as the principal and which is
incapacitated, the contract of agency itself
is voidable because one of the parties is
incapable of giving consent.
In case of dispute between the principal and
the agent who is incapable, the latter may
avail himself of his incapacity as a defense
or as a ground to set aside the contract of
agency.
ACTS THAT MAY BE DELEGATED
Any act which one may lawfully do personally may be
delegated.
However, the following acts may not be delegated:
1. Acts which are personal in nature.
2. Acts that are prohibited by law to be delegated.
Examples:
1. The right of stockholder to vote during stockholders
meetings may be delegated
- since this is something that one can lawfully do. (Sec.
5, Corp. Code).
- however, a director cannot be represented by proxy
during board meetings because this is prohibited by law.
(Sec. 25, Corp. Code)
2. The right to vote and to run for public office cannot be
delegated.
- since delegation thereof is prohibited by law.
3. The right to be represented in a marriage ceremony
where the principal is a party to the marriage cannot be
delegated
- this act being purely personal.
3. An alien cannot purchase land in the Philippines
because this is prohibited by the Constitution.
Accordingly, he cannot delegate such act to a
Filipino. What an alien cannot lawfully do, he may
not do it thru another.
RELATIONSHIP BETWEEN PRINCIPAL AND AGENT
The relation of an agent to his principal is FIDUCIARY
since it is based on trust and confidence. (Palma v.
Cristobal, 440 O.G. 67; Severino v. Severino, 44 Phil 343).
HOW AGENCY RELATIONSHIP IS CREATED
1. By appointment
- usually made by giving a person a power of attorney.
2. By ratification
- created when a person adopts or confirms an act
performed by another in his behalf without prior authority.
Example:
A sells the car of P to B without Ps authority. The sale is
in the name of P. The sale cannot be enforced by B
against P. If P ratifies the sale, then he will be bound by it.
An agency is deemed created between P and B by reason
of Ps ratification of the sale.
3. By estoppel
- For an agency by estoppel to exist, the following must be
established:
a. The principal manifested a representation
of the agents authority or knowingly
allowed the agent to assume such
authority;
b. The third person is in good faith, relied
upon such representation; and
c. Relying upon such representation, such
third person has changed his position to
his detriment. (Country Bankers Insurance
Corp. v. Keppel Cebu Shipyard. G.R. No.
166044, June 18, 2012).
Example:
S, a salesman, has been persistently offering goods to P,
a store owner. P, however, does not want to buy goods
from S. In order to avoid S, P tells S, You better talk to A.
He is there. He is my agent. A is not really Ps agent but
his employee. S, believing that A is Ps agent, transacts
with A who buys goods from S in in Ps behalf. P will be
bound by the act of A since he has led S to believe that A
is his agent.
4. By necessity
- arises when an emergency makes it necessary for one to
act for another without receiving any authority from the
latter.
Example:
W, wife and mother of a minor child, buys necessaries in
the name of H, her husband who has not been giving them
support. An agency by necessity is created between W as
agent, and H as principal. H is bound by the purchase
made by W.
KINDS OF AGENCY
1. According to FORM
a. Express
i. Oral agreement
- An oral agency is valid unless the law
requires a specific form. (Art. 1869)
ii. Written agreement
a. Those that require a special power of
attorney, such as those enumerated under
Art. 1878.
The act performed is not enforceable
against the principal of the power of
attorney is not special.
b. When the sale of a piece of land or an
interest therein (such as easement and
usufruct) is made thru an agent, the
authority of the agent must be in writing,
otherwise the sale is void. (Art. 1874)
b. Implied
- An agency may be implied from the
following:
1. Acts of the principal.
2. Silence of the principal.
3. Lack of action of the principal.
4. Failure of the principal to repudiate
the agency knowing that another
person is acting in his behalf without
authority. (Art. 1869)
Examples:
1. P learns that A is selling his car in his (Ps) name
without any authority. P does not do anything to
stop A. Later, A brings the buyer to P who
voluntarily accepts the payment and delivers the
car to B. An agency is implies fro the acts of P.
2. P noticed that the financial reports of his business
were being signed by B and not A whom he had
appointed as his agent to manage the business.
He learned on inquiry with the relatives of A that
the latter was seriously ill and that he had turned
over the management of the business to B before
he became sick. P continued to receive without
any protest or question the reports coming from B
and did not designate a new agent or give B to
discharge the functions of a manager for over a
year. Here, an implied agency is deemed created
by the failure of P to repudiate the agency
knowing that another person was acting in his
behalf without any authority.
2. According to EXTENT
a. General agency
- one that comprises all the business of the
principal. (Art. 1876)
b. Special agency
- one that comprises one or more specific
transactions. (Art. 1876)
3. According to AUTHORITY CONFERRED
a. Agency couched in general terms (general power of
attorney)
- comprises only acts of administration. This is true even of
the principal should state:
i. That her withholds no power; or
ii. That the agent may execute acts as he may
consider appropriate; or
iii. Even though the agency should authorize a
general and unlimited management. (Art. 1877)
Power of attorney, concept
Power of attorney is a written instrument
given by a principal to his agent authorizing the
latter to perform specified acts in behalf of the
former, which acts, when performed, shall have a
binding effect on the principal. This may be a:
a. general power of attorney or
b. special power of attorney
b. Agency couched in specific terms
A special power of attorney is required for the performance
of the ff. specific acts (Art. 1878):
1. To make such payments as are not
usually considered acts of administration.
2. To effect novations which put an end to
obligations already in existence at the time
the agency was constituted.
3. To compromise.
a. In compromise, the parties make
reciprocal concessions to avoid or
put an end to a litigation.
b. A special power to compromise
does not authorize submission to
arbitration. (Art. 1880).
4. To submit questions to arbitration.
a. Arbitration is an extra-ordinary
method of settlement by referring
a dispute to a third person known
as arbitrator whose judgment will
substitutes that of the agent
representing his party principal.
Thus, a special power of attorney
is required.
5. To renounce the right to appeal from a
judgment.
6. To waive objections to the venue of an
action.to abandon as prescription already
acquired.
7. To abandon a prescription already
acquired.
8. To waive obligations gratuitously.
9. To enter into any contract by which the
ownership of an immovable is transmitted
or acquired either gratuitously or for a
valuable consideration.
10. To make gifts, except the ff. where a
general power of attorney is sufficient:
a. Customary ones for charity.
b. Those made to employees in the
business managed by the agent.
11. To loan or borrow money, except that no
special power of attorney is required if the
borrowing of money is urgent and
indispensable for the preservation of the
things which are under administration.
12. To lease any real property to another
person fro more than a year.
13. To bind the principal to render some
service without any compensation.
14. To bind the principal in a contract of
partnership.
15. To obligate the principal as a guarantor or
surety.
16. To create or convey real rights over
immovable property.
a. A special power to sell excludes
the power to mortgage; a special
power to mortgage does not
include the power to sell. (Art.
1879)
17. To accept or repudiate an inheritance.
18. To ratify or recognize obligations
contracted before the agency.
19. Any other act of strict dominion.
KINDS OF ACCEPTANCE OF AGENCY BY THE AGENT
1. Express
- May be made orally or in writing.
2. Implied
- Acceptance by the agent may be implied
from:
a. His acts which carry out the
agency.
b. His silence or inaction according
to the circumstances. (Art. 1870)
Cases when there id implied acceptance
a. Between two persons who are present, i.e., they
are fact to face
i. There is implied acceptance if the principal
delivers his power of attorney to the agent
and the latter accept it without any
objection. (Art. 1871)
b. Between two persons who are absent
i. Acceptance by the agent can be implied
from the silence of the agent in the ff.
cases:
1. When the principal transmits his
power of attorney to the agent, and
the latter receives it without any
objection. (Art. 1872)
a. This will require the agent to
at least acknowledge receipt
of the power of attorney to
distinguish it from the second
situation where the authority
pertains to the business in
which the agent is habitually
engaged.
2. When the principal entrusts to him
by letter or telegram a power of
attorney with respect to the
business in which he is habitually
engaged as an agent, and he did
not reply to the letter or telegram.
(Art. 1872)
ANNOUNCEMENT OF APPOINTMENT OF AN AGENT
1. By special information
- usually made thru a letter addressed to a specified
person or persons
The person appointed will be considered a
duly authorized agent with respect to the
person who received the special
information. (Art. 1873)
2. By public advertisement
- may be made by publication in the newspapers, signs,
leaflets, posters, or billboards.
The person appointed will be considered
as agent with regard to any person. (Art.
1873)
ANNOUNCEMENT OF THE REVOCATION OF
APPOINTMENT OF AGENT
1. If the announcement of the appointment is by
special information
- The announcement of the revocation of
the appointment shall also be made by
special information (Art. 1873)
2. If the announcement of the appointment is by
public advertisement
- The announcement of the revocation of
the appointment shall also be by public
advertisement. (Art. 1873)
BASIC PRINCIPLES OF AGENCY
1. The agent must act within the scope of his
authority (Art. 1881)
a. The agent must do such acts as may be
conductive to the accomplishment of the
purpose of the agency. (Art. 1881)
b. The limit of the agents authority shall not
be considered exceeded should it have
been performed in a manner more
advantageous to the principal than that
specified by him. (Art. 1882)
2. The agent must act in behalf of his principal. (Art.
1868)
EFFECTS IF AN AGENT ACTS WITHIN THE SCOPE OF
HIS AUTHORITY AND IN BEHALF OF THE PRINCIPAL
(DISCLOSED PRINCIPAL)
1. Act is valid.
2. The principal alone is liable unless the agent
expressly bound himself. (Art. 1897)
EFFECT IF ONE OR BOTH PRINCIPLES ARE ABSENT
1. Agent acts WITHIN the scope of his authority but
in hid (agents) own behalf (undisclosed principal)
a. The principal has no right of action against
the person with whom the agent has
contracted.
b. The person with whom the agent has
contracted has no right of action against
the principal.
c. The agent is the one directly bound in
favor of the one with whom he has
contracted as if the transaction was his
own except when the contract involves
things belonging to the principal, (Art.
1883) in which case, the principal shall
have a right of action against the third
person and the third person against the
principal. (Syjuco v. Syjuco, 40 Phil 634)
Note: This is without prejudice to the actions between
the principal and the agent. (Art. 1883)
Examples:
a. P authorizes A to borrow money from a
bank. A, however, borrows money in his
own name and not that of P. The loan is a
contract between A and the bank. P and
the bank shall have no right of action
against each other.
b. P authorizes A to sell Ps computer. A
sells the computer in is (As) name and
delivers it to B. P shall have a right of
action against B since the contract
involves a thing belonging to him (P). in
case B has paid the price but has not yet
received the computer, he shall have a
course of action against P for the delivery
of the computer.
2. Agent acts IN EXCESS of the authority of the
principal and in the principals behalf or a person
acts WITHOUT the authority of another but in the
latters behalf
a. The act is unenforceable against the
principal or the person in whose name the
contract was entered into unless the latter
ratifies the same. (Arts. 1317 & 1403)
Example:
A was authorized by P to sell Ps car for at
least P100, 000.00 cash. A, however, sold
the car in the name of P to B for the price
but on credit. B cannot enforce the sale
against P unless P ratifies the contract. A
alone will be liable to B.
3. Agent acts IN EXCESS of the authority of his
principal and in his own (agents) behalf or a
person acts WITHOUT the authority of another but
in his (the formers) own behalf
a. The act is deemed to be that of the agent
himself or of the person acting without
authority.
b. The act is generally valid between the
agent acting in excess of authority (or
person acting without authority) and the
third person.
c. Accordingly, if the agent or such person
cannot perform his part of the contract, he
shall be liable thereon in his personal
capacity.
d. In the case of a contract of sale, a person
may sell in his own name something
belonging to another provided he can
transfer its ownership thereof at the time
of delivery. The act is therefore valid. If he
cannot transfer such ownership, he can
be held liable for breach of warranty
against eviction. (Art. 1459 & 1548)
Example:
P is the owner of a house and lot. A, with the
intention of buying the house and lot from P, sells
the house and lot in his (As) name to B without
any authority from P. The sale is a binding
contract between A and B. If A cannot transfer the
ownership of the house and lot at the time of
delivery, then A can be held liable for breach of
warranty against eviction.
OBLIGATIONS OF THE AGENT
Obligations of a person who declines an agency
If a person is appointed as an agent but declines the
appointment, he is bound to observe the diligence of a
good father of a family in the custody and preservation of
the goods forwarded to him by the owner. (Art. 1885).
The owner shall as soon as practicable either:
1. Appoint an agent. or
2. Take charge of the goods. (Art. 1885)
OBLIGATIONS, IN GENERAL, OF A PERSON WHO
ACCEPTS AN AGENCY
1. To carry out the agency.
2. To be liable for damages which, thru his non-
performance, the principal may suffer.
3. To finish the business already begun on the death of the
principal, should delay entails any danger. (Art. 1884)
SPECIFIC OBLIGATIONS OF AN AGENT
1. To advance the necessary funds if there was a
stipulation to that effect, except when the principal
is insolvent. (Art. 1886)
2. To act in accordance with the instructions of the
principal in the execution of the agency. In the
absence of specific instructions from the principal,
he shall do all that a good father of a family would
do, as required by the nature of the business. (Art.
1887)
a. Instructions, concept; distinguished from
authority
i. Instructions
- Refer to the orders given by the
principal to his agent relating to
the manner by which the
agency shall be carried out.
- Refer to private orders given by
the principal to his agent to
guide him in carrying out the
agency. (C.J.S. 1200-1201).
- Need not be known by third
persons because they affect
only the principal and the agent.
ii. Authority
- Refers to the subject matter
upon which the agent is
commissioned to act.
- Third persons are bound to
know whether an agent is acting
within his authority or not.
- Accordingly, they have the right
to require the agent to present
his authority as written. (Art.
1900)
- Example: P gives a general
power of attorney to A to lease
Ps apartments to third persons.
This is As authority. The power
of attorney does not indicate the
persons with whom A shall
transact. But P tells A privately
not to lease the apartments to
any foreigner. This prohibition
on leasing to a foreigner is a
matter between P and A and
refers to instruction.
b. Rule if agent acts in accordance with the
order of the principal
i. The principal cannot set up the
ignorance of the agent as to
circumstances which he himself
was, or ought to have been,
aware. (Art. 1899)
ii. Thus, the principal cannot claim
the good faith of the agent in case
the buyer should lose by eviction
the property sold if the principal
ought to have known that there
was a rightful claimant to the
property.
3. Not to carry out an agency if its execution would
manifestly result in loss or damage to the principal
(Art. 1888)
4. To be liable for damages of there being a conflict
between his interest and that of the principal, he
should prefer his own (Art. 1889)
a. This is by reason of the fiduciary nature of
an agency relationship.
b. Example: P gives a special power of
attorney to A to sell Ps lot. On meeting
with a prospective buyer who offers a very
good price, A sells instead his lot to B. A
shall be liable for damages to P for
preferring his own interest.
5. Not to borrow the money of the principal without
the principals consent, if the latter has authorized
him to lend the principals money at interest. (Art.
1890)
a. This is so because the agent may not be a
good credit risk. He may not subject
himself to the same strict requirements he
imposes on prospective borrowers.
b. If he has been empowered to borrow
money, he may himself be the lender at
the current rate of interest. (Art. 1890)
6. To render an accounting of his transactions and to
deliver to the principal whatever he may have
received by virtue of the agency, even though it
may not be owing to the principal. Any stipulation
exempting the agent from the obligation to render
an account shall be void. (Art. 1891)
a. Thus, the agent must account and deliver
to his principal any excess price and
interest he collects including those on
unauthorized credit sales.
7. Agents liability when he appoints a substitute
a. The following rules shall be observed
when the agent appoints a substitute:
i. Agent is not prohibited to appoint
a substitute
Here, the power of
attorney does not expressly
authorize or prohibit the
appointment of a substitute.
o Ex: It is silent on this
point.
The agent may appoint a
substitute. However, he shall be
responsible for the acts of the
substitute. (Art. 1892).
The principal may furthermore
bring an action against the
substitute with respect to the
obligations which the latter has
contracted. (Art. 1893)
ii. Agent is authorized to appoint a
substitute
1. If the principal did not designate
the person to be appointed as
substitute:
a. Agent shall be liable of the
person he appointed as
substitute is notoriously
incompetent or insolvent.
(Art. 1892). The principal may
furthermore bring an action
against the substitute with
respect to the obligations
which the latter has
contracted. (Art. 1893)
 b. Agent shall not be liable of
the person he appointed as
substitute is not notoriously
incompetent or insolvent, i.e.,
the substitute is a reasonably
prudent man. (Art. 1892). The
substitute himself will be
liable.
2. If the principal designated the
person to be appointed as
substitute
a. The agent is not responsible
for the acts of the substitute
even if the latter is notoriously
incompetent or insolvent
since the agent had no
choice as to whom he would
appoint as substitute.
b. In this case, the substitute
himself will be liable to the
principal for his own acts.
(Art. 1892)
iii. Agent is prohibited to appoint a
substitute
1. The agent cannot appoint a
substitute. If he appoints one, all
the acts of the substitute shall be
void. (Art. 1892)
8. Liability of two or more agents if they have been
appointed simultaneously
a. GR: Each agent is liable only for his own
acts or omissions. (Art. 1894) If all are at
fault, their liability shall be joint.
b. XPN: The agents liability shall be solidary
if the same has been agreed upon. (Art.
1894) In this case, each of the agents
shall be responsible for the ff:
i. For the non-fulfillment of the
agency
ii. For the fault or negligence of his
fellow agents, except when the
latter acted beyond the scope o
their authority. (Art. 1895)
c. Examples:
i. P appointed A1 and A2 as his
agents to sell his Toyota car. The
appointment did not indicate
whether the agents liability was
joint or solidary. While A1 was
drunk one day, he alone drove the
car to a prospective buyer. Not
being in control of his senses, he
caused the car amounting to
P10,000. A1 alone will be
responsible for the payment of the
damages of P10,000.
ii. If both A1 and A2 were driving
alternately while drunk, and A1,
while driving, caused the car to
bump an electric post resulting in
damages to the car amounting to
P10,000, each one will be liable
for only P5,000. This is so
because their liability shall only be
joint.
iii. In both cases above, if the liability
of the agents as indicated in their
authority were solidary, either A1
or A2 can be held liable for the
whole amount of P10,000.
iv. P appointed A1 and A2 to sell his
Toyota car for P200,000 cash.
The agents appointment
indicated that their liability shall be
solidary. One day, A1 received a
call from a prospective buyer who
was interested in buying the car
for P200,000 but on credit. So A1
brought the car to the buyer but
along the way he caused the car
to bump into an electric post
resulting in damages of P10,000.
A1 alone shall be liable because
he exceeded his authority since
he and A2 were authorized only to
sell the car on cash basis.
9. To be liable for interest on the sums he has
applied to his own use from the day on which he
did so, and on those which he still owes after the
extinguishment of the agency. (Art. 1896)
10. Agents liability if the contracts in the name of the
principal
a. GR: The agent who acts as such shall not
be liable to the party with whom he
contracts. (Art. 1897)
b. XPNS: The agent shall be personally
liable in the ff cases:
i. If he expressly binds himself (Art.
1897)
1. In this case, both the agent and
the principal shall be liable to the
party with whom the agent has
contracted
ii. If he exceeds the limits of his authority
without giving such party sufficient
notice of his powers. (Art. 1897)
(Eurotech Industrial Technologies, Inc.
vs. Cuizon, supra)
1. Rule if the other party was aware
of the agents acting beyond the
limits of his authority
a. If the agent did not
undertake to secure the
principals ratification, the
contract shall be void. The
agent here will not be liable.
(Art. 1898)
b. If the agent undertook to secure
the principals ratification of the
act and the principal does not
ratify the same, the agent shall
be liable. (Art. 1898)
c. If the principal ratifies the
contract, the contract shall be
enforceable against the principal.
(Art. 1910)
2. Rights and obligations of third persons
who have contracted with an agent
who has exceeded his authority
rd
a. As to 3 persons, an act is
deemed to have been performed
within the scope of the agents
authority, if such act is within the
power of attorney, as written,
even if the agent has in fact
exceeded the limits of his
authority according to an
understanding between the
principal and the agent. (Art.
1900)
 rd
b. A 3 person cannot set up the
fact that the agent has exceeded
his powers, if the principal has
ratified, or has signified his
willingness to ratify the agents
acts. (Art. 1901)
rd
c. A 3 person may require the
agent to present his power of
attorney, or the instructions as
regards the agency. Private or
secret orders and instructions as
regards the agency of the
principal do not prejudice third
persons who have relied upon
the power of attorney or
instructions shown them. (Art.
1902)
11. To be responsible not only for the fraud, but also
for negligence, which shall be judged with more or
less rigor by the courts, according to whether the
agency was or was not for a compensation. (Art.
1909)
COMMISSION AGENT
1. Concept
a. A commission agent is one who buys and
sells goods or chattels consigned or delivered
to him by his principal, for a compensation
known as commission.
2. Distinctions between a commission agent and a
broker:
COMMISSION AGENT BROKER
Maintains a relation not Merely an intermediary
only with his principal and between the buyer and the
the buyer or seller but also seller and has no relation
with the property subject to the property. He does
matter of the transaction not acquire either the
which is placed in his custody or possession of
possession and at his the thing. His function is to
disposal bring together the parties
to the transaction.
Receives commission upon Earns his pay merely by
the successful conclusion bringing the buyer and the
of a sale. seller together, even if no
sale is eventually made
3. Obligations of a commission agent
a. To be responsible for the goods received by
him in the terms and conditions and as
described in the consignment unless upon
receiving them he should make a written
statement of the damage and deterioration
suffered by the same. (Art. 1903)
b. To distinguish by countermarks goods of the
same kind and mark which belong to
different owners, and designate the
merchandise respectively belonging to each
principal. (Art. 1904)
c. Authority of commission agent to sell on
credit
i. GR: The commission agent cannot sell
on credit. (Art. 1905)
ii. XPN: The commission agent can sell on
credit only with the express or implied
consent of the principal. (Art. 1905)
iii. Effects if the commission agent sells on
credit without principals consent
1. The principal may demand
payment from him in cash
2. The commission agent, however,
shall be entitled to any interest or
benefit, which may result from
such sale. (Art. 1905)
iv. Example:
1. P gives a general power of
attorney to A to sell Ps goods for
P10,000 cash for a commission. A
sells the goods on a 15-day credit
term for P11,000 to B without
authority from P. In this case:
a. P may demand the
immediate payment of
P10,000, but when A
collects the amount of
P11,000 from B, A gets
the excess of P1,000; or
b. P may ratify the sale on
credit, in which case,
when A collects the
amount of P11,000 from
B, the said amount shall
be accounted in full by a
to P.
v. Obligation of the commission agent if he
is authorized to sell on credit
1. The commission agent who sells
on credit must so inform the
principal, with a statement of the
names of the buyers. If the fails to
do so, the sale shall be deemed to
have been made in cash insofar
as the principal is concerned. (Art.
1906)
d. To bear the risk of collection and to pay the
principal the proceeds of the sale on the same
terms agreed upon with the purchaser if he
receives on a sale, in addition to the ordinary
commission, another called a guarantee
commission. (Art. 1907) Guarantee commission
is also known as del credere commission
i. Example: P gave a general power of
attorney to A to sell Ps goods. The
parties agreed that A will receive an
ordinary commission of 5% and
guarantee commission of 10%. A sold
Ps goods on credit for P50,000. Later, A
could not collect the amount due
because the customer had become
insolvent. In this case, A will be liable to
P for the price of P50,000 because as a
guarantee commission agent, he bears
the risk of collecting the price from the
customer
e. To be liable for damages if he does not collect
the credits of the principal at the time when they
become due and demandable, unless he proves
that he exercised due diligence for that purpose.
(Art. 1908) This applies only to an ordinary
commission agent.
OBLIGATIONS OF THE PRINCIPAL
I. To comply with all the obligations which the agent
may have contracted within the scope of his
authority. (Art. 1910)
II. To be bound for any obligation wherein the agent
has exceeded his power if he ratifies such
obligation expressly to tacitly. (Art. 1910)
III. To be solidarily liable with the agent if he allowed
the latter to act as though he had full powers when
the agent exceeded his authority, (Art. 1911)
 IV. To advance to the agent the sums necessary for
the execution of the agency should the agent so
request. (Art. 1912)
V. To reimburse the agent the sums advanced by the
latter even if the business or undertaking was not
successful provided the agent is free from all fault.
(Art. 1912)
The reimbursement shall include interest on
the sums advanced from the date on which
the advance was made. (Art. 1912)
When principal not liable for expenses
incurred by the agent
o When the agent acted in contravention
of the principals instructions, unless
the latter should wish to avail himself
of the benefits derived from the
contract
o When the expenses were due to the
fault of the agent
o When the agent incurred them with
knowledge that an unfavorable result
would ensue, if the principal was not
aware thereof
o When it is stipulated that the expenses
would be borne by the agent, or that
the latter would be allowed only a
certain sum. (Art. 1918)
VI. To indemnify the agent for all damages which the
execution of the agency may have caused the
latter, without fault or negligence on his part. (Art.
1913)
VII. Liability when there are two or more principals
a. When to or more persons have appointed
an agent for a common transaction or
undertaking, they shall be solidarily liable
for the consequences of the agency. (Art.
1915)
RIGHT OF RETENTION OF AGENT
The agnet shall have the right to retain in
pledge the things which are the object of the agency until
the principal:
1. Reimburses him for the sums necessary for the
execution of the agency which he had advanced,
even if the business or undertaking was not
successful, provided the agent is free from all
fault.
2. Pays him the indemnity for all damages which the
execution of the agency may have caused the
agent, without fault or negligence on his part. (Art.
1914)
Note: The right of retention of the agent is in the nature of
legal pledge.
INCOMPATIBLE CONTRACTS WITH AGENT AND
PRINCIPAL
1. Rules in incompatible contracts
a. When two persons contract with regard to
the same thing, one of them with the
agent, and the other with the principal,
and the two contracts are incompatible
with each other, the ff rules shall be
observed:
i. If the thing is a movable
ownership shall belong to:
1. The first possessor in
good faith
2. In the absence thereof,
the contract with a prior
date shall be preferred
(Arts. 1544 , 1916)
ii. If the thing is an immovable
ownership shall belong to:
1. The first registrant in good
faith
2. In the absence thereof,
the first possessor in
good faith
3. In the absence of both,
the one who presents the
oldest title in good faith
(Art. 1544)
2. Liability for damages to third persons whose
contract is rejected in incompatible contracts
a. Agent is liable if he acted in bad faith
b. Principal is liable if the agent acted in
good faith (Art. 1917)
EXTINGUISHMENT OF AGENCY
MODES OF EXTINGUISHMENT OF AGENCY
1. By revocation
2. By withdrawal of the agent
3. By the death, civil interdiction, insanity or
insolvency of the principal or of the agent
a. Death
i. There is no one to be represented
if the principal dies. If it is the
agent who dies, there is no one to
represent the principal
b. Civil interdiction
i. A person civilly interdicted is not
only in prison. He cannot manage
his property or dispose of it by an
act or conveyance inter vivos. In
the case of the principal, his acts
are restricted. In the case of the
agent, he will not be able to carry
out the agency because he is
deprived of his liberty.
c. Insanity
i. The principal cannot give his
consent if he is insane. An insane
agent, on the other hand, cannot
be expected to carry out the
agency.
d. Insolvency
i. The insolvency of the principal
modifies or limits his capacity to
act. The insolvency of the agent,
on the other hand, results in his
not being able to effectively carry
out the agency because the trust
originally reposed upon him is
affected.
NOTE: Under Art. 1323, an offer
becomes ineffective upon the death,
civil interdiction, insanity or
insolvency of either the offerer or
the offeree before acceptance is
conveyed. Therefore, if the principal
dies, is civilly interdicted, or
becomes insane or insolvent, any
offer previously made by him or his
agent becomes ineffective before
any acceptance is conveyed to him
(principal) or through his agent.
4. By the dissolution of the firm or corporation which
entrusted or accepted the agency
a. This is equivalent to the death of a natural
person
5. By the accomplishment of the object or purpose of
the agency
 a. There is nothing more to do after the
purpose of the agency is accomplished
6. By the expiration of the period for which the
agency was constituted (Art. 1919)
a. The duration of the agency is limited to the
period agreed upon by the parties
REVOCATION BY PRINCIPAL
1. Concept
a. Revocation refers to the act of the
principal of terminating the agency at will
confidence and representation being the
foundation of the contract,
b. The principal may revoke the agency at
will, and compel the agent to return the
document evidencing the agency (Art.
1920)
2. Who may revoke agency when there are two or
more principals
a. When the power of attorney was granted
for a common transaction, any one of the
principals may revoke the same without
the consent of the others. (Art. 1925) This
is consistent with the solidary liability of
the principals. (Art. 1915)
3. Kinds of revocation
a. Express when made orally or in writing
b. Implied When revocation can be inferred
from the act of the principal as in the ff:
i. When a new agent is appointed for
the same business or transaction,
the previous agency is revoked from
the day on which notice thereof was
given to the former agent (Art. 1923)
1. Example : P gave a general
power of attorney to A1 to
manage Ps building. Later, P
gave an exclusive authority to
A2 to manage Ps building and
notified A2 of the giving of such
exclusive authority to A2. A1s
authority is impliedly revoked
upon the giving of the notice.
The notice need not indicate
that A1s authority is being
revoked; otherwise, it will
become an express revocation
ii. If the principal directly manages the
business entrusted to the agent,
rd
dealing directly with 3 persons
1. If the purpose of the principal is
just to assist the agent, the
latters authority is not deemed
revoked
2. Example: P gave a general
power of attorney to A to
manage Ps building. Later, P
wrote all the tenants of the
building to transact all business
with him alone. As authority is
impliedly revoked
3. If P goes to the building from
time to time to help A in
managing the building, As
authority is not deemed
revoked
iii. A general power of attorney is revoked
by a special one granted to another
agent, as regards the special matter
involved in the latter (Art. 1926)
1. Example: P gave a general
power of attorney to A2 to
manage Ps building. As
manager, A1s authority
includes, among other powers,
building administration,
maintenance, repairs, electrical
works. Later, P appointed A2,
who is an expert electrician, to
manage the electrical works of
the building. A1s authority with
respect to electrical works is
impliedly revoked.
4. When agency may not be revoked at will
a. If a bilateral contract depends upon the
agency
i. EX: P sold his lot and building to A for
P2M under the ff terms: down
payment of P800,000; balance of
P1.2M to be paid in 24 equal monthly
installments of P50,000. The parties
stipulated that (1) the transfer
certificate of title to the lot and
building will be delivered to A upon
full payment of the balance of the
purchase price; and (2) A will be
given a general power of attorney to
manage the building with his salary of
P50,000 to be applied in installments.
Here, P cannot revoke the agency at
will because a bilateral contract
depends upon it with A being
obligated to pay the purchase price
and P to deliver the transfer
certificate of title to the property.
b. If the agency is a means of fulfilling an
obligation already contracted
i. EX: P borrowed P50,000 from A. To
pay the debt, P appointed A as his
agent to collect Ps receivables and
apply the amounts collected to the
debt. P cannot revoke the agency at
will.
c. If a partner is appointed manager of a
partnership in the contract of partnership and
his removal from the management is
unjustifiable (Art. 1927)
i. Removal of a partner appointed as
manager in the articles of partnership
without justifiable reason is an act of
novation which will require the
consent of all the partners including
the manager who is sought to be
replaced.
5. Notice of revocation
a. If the agency has been entrusted for the
purpose of contracting with specified
persons, the principal must give a timely
notice of the revocation to such third
persons.
i. Without such notice, said third persons
will not be prejudiced, i.e., the act
done shall be legally operative
against the principal.
b. If the agent had general powers, i.e., he was WITHDRAWAL BY THE AGENT
entrusted to contract with the public or any
person, revocation of the agency does not
prejudice third persons who acted in good
faith and without knowledge of the revocation
i. Notice of revocation in a newspaper of
general circulation is sufficient warning
to third persons (Art. 1922) However,
the revocation is in any case binding
against third persons who had
knowledge thereof.
ii. EXAMPLES:
1. P gave a power of attorney to A to
sell his Toyota altis car to T. Later,
P wrote a letter to A revoking the
latters authority to sell the car to
T. P did not give any notice to T of
the revocation of As authority but
had such revocation published in a
newspaper of general circulation.
T, however, was not able to read
the publication. Should A still sell
the car to T, will P be bound by the
sale? DEATH OF THE PRINCIPAL
a. Yes, P will still be
bound by the sale. For
the revocation of As
authority to be binding
upon T, P should have
given a notice of
revocation to T since
As authority was to
transact with a 1. EX: P borrowed P50,000 from
specified person. The
publication of the
revocation of As
authority was therefore
not binding upon T. T,
however, will be bound
by the revocation if he
had read the
publication of the
revocation of As
authority.
2. P gave a power of attorney to
A to sell his Toyota altis car.
Later, P revoked As authority
by giving the latter a notice of
revocation. P also had the
revocation published in a
newspaper of general
circulation. Despite the
revocation, A still sold the car
to T who was not able to read
the publication of the
revocation of As authority. Will
P be bound by the sale made
by A?
a. No, because the power
given to A was to
transact with anybody.
Hence, the publication
of the revocation of As
authority was binding
on any person, whether
or not they have read
such publication.
1. How withdrawal is made
a. By the agent giving due notice to the
principal of his withdrawal (Art. 1928)
2. Liability or obligation of an agent who withdraws
a. The agent must indemnify the principal for
any damage suffered by the latter by
reason of the withdrawal, unless the agent
should base his withdrawal upon the
impossibility of continuing the
performance of the agency without grave
detriment to himself (Art. 1928)
i. Thus, the agent will not be liable if
the reason for his withdrawal is
his failing health
b. The agent who withdraws must continue
to act as such until the principal has had
reasonable opportunity to take the
necessary steps to meet the situation,
even if he withdraws for a valid reason.
(Art. 1929)
1. When death of the principal does not extinguish
the agency
a. As a general rule, the death of the principal
extinguishes the agency. However, the
agency is not extinguished in the ff:
i. If the agency has been constituted in
the common interest of the principal
and the agent
A. P delivered his gold bracelet
to A by way of pledge and gave
A the authority to sell the
bracelet if P defaults in the
payment of his debt. Should P
dies before the debt is paid, A
remains an agent until his
claim is collected.
ii. If the agency has been constituted in
rd
the interest of a 3 person who has
accepted the stipulation in his favor
(Art. 1930)
1. EX: P sells his lot to A for
P100,000 which is payable in
10 equal monthly installments
of P10,000. P appointed A as
his agent to make the monthly
payment to T, a creditor of P,
who accepted the stipulation in
his favor. Even if P dies before
the payments are completed,
the agency remains. This is a
case of stipulation pour autrui.
2. Validity of agents acts without knowledge of the
death of the principal or other cause of
extinguishment of the agency
a. The acts of the agent which are done
without knowledge of the death of the
principal or of any other cause which
extinguishes the agency are valid and
shall be fully effective with respect to third
persons who may have contracted with
him in good faith (Art. 1931)
i. The agent must finish the
business already begun on the
death of the principal, should
delay entail any danger. This
presupposes that the agent had
knowledge of the principals death
DEATH OF THE AGENT If a creditor-debtor relationship exists, but not a
1. Effect of death of an agent on agency fiduciary relationship between the parties, there is
a. The death of the agent extinguishes the no express trust
agency It is understood that when the purported trustee of
2. Duty of agents hers funds is entitled to use them as his or her own, a
a. To notify the principal of the agents death debtor-creditor relationship exists, not a trust.
b. To adopt in the meantime such measures Persons involved in the creation of an express trust
as the circumstances may demand in the 1. Trustor (creator/settler/grantor) the person who
interest of the principal (Art. 1932) intentionally creates or establishes the trust.
a. He transfers legal ownership of property
or assets to a person for the benefit of a
TRUSTS third party, who owns the equitable title
Art. 1440. A person who establishes a trust is called the 2. Trustee the person who takes and holds the
trustor; one in whom confidence is reposed as regards the legal title to the property in trust and manages it
property for the benefit of another person is known as the solely for the benefit of another, with certain
trustee; and the person for whose benefit the trust has powers and subject to certain duties.
been created is referred to as the beneficiary. a. The trustee may be a natural person or a
Concept of Trust legal entity
Trust the fiduciary relationship between one 3. Beneficiary (cestui que trust) the person who
person having an equitable ownership in property has the equitable title or interest in the property
and another owning the legal title to such property, and enjoys the benefit of the administration of the
the equitable ownership of the former entitling him trust by the trustee
to the performance of certain duties and the a. He is the recipient of the trust
exercise of certain powers by the latter for the b. May also be a natural person or a legal
benefit of the former. entity
The right to the beneficial use and enjoyment of c. Trust may provide for more than one
property the legal title to which is vested in beneficiary
another Trust property
Trust distinguished from other relations The SM of a trust may be any property of value
What distinguishes a trust from other legal real, personal, funds or money, or choses in
relations is the separation of the legal title and the action
equitable ownership of the subject property The property so held is referred to as the trust
between two or more people. property or trust res
TRUST BAILMENT Corpus and principal are names also used for
A delivery of property in It is a characteristic of a the trust property
trust necessarily involves a bailment that the bailee The trust res must consist of property actually in
transfer of legal title, or at has possession of, without existence in which the trustor has a transferable
least a separation of legal title to, the property interest or title although it may, as a rule, be any
equitable interest and legal subject to the bailment. kind of transferable property either realty or
title, with the legal title in personalty including undivided, future, or
the trustee contingent interest therein
But a trust res cannot be a mere expectancy
TRUST DONATION without right or interest or a mere interest in the
An exiting legal A gift is a transfer of performance of a contract although such interest
relationship and involves property and except in the is in the nature of a property right
the separation of legal and case of a gift in trust, Nature of ownership of trustee or beneficiary
equitable title involves a disposition of 1. Ownership by two persons at the same time
both legal and equitable a. The relation between the 2 owners being
ownership such that one of them with legal title under
an obligation to use his ownership for the
TRUST CONTRACT benefit of the other
Always involves an A contract is a legal b. The former is called the trustee, and his
ownership, embracing a obligation based on an ownership is trust-ownership
set of rights and duties undertaking supported by c. The other is called the beneficiary, and his
fiduciary in character a consideration, which is beneficial ownership
which may be created by a obligation may or may not 2. Ownership of trustee, a mere matter of form and
declaration without a be fiduciary in character nominal
consideration a. The ownership of the trustee is a mere
matter of form rather than of substance,
TRUST DEBT and nominal rather than real
- The beneficiary of a trust - A creditor has merely a b. A trustee is not an owner at all, but a sort
has a beneficial interest in personal claim against the of an agent, upon whom the law has
the trust property debtor conferred the power and imposed the duty
- There is a fiduciary - There is no such relation of administering the property of another
relation between a trustee between a debtor and person
and a beneficiary creditor 3. Trustee, not mere agent
- Trust refers to a duty to - A debt implies merely an a. In legal theory, however, the trustee is not
deal with a specific obligation to pay a certain a mere agent but an owner
property for the benefit of sum of money b. He is a person to whom the property of
another someone else is fictitiously attributed by
the law, to the extent that the rights and
 powers thus vested in a nominal owner
shall be used by him on behalf of the real
owner
4. Transfer of equitable title
a. The interests of the beneficiary in the trust
can, in general, be reached by his
creditors, and he can sell or otherwise
dispose of them
b. However, he can only transfer the interest
he holds the equitable title
5. Rights of beneficiary
a. The beneficiary may receive the income
from the:
i. Assets of the trust
ii. Assets themselves
iii. Both
b. The beneficiary has no obligation to the
trust unless he is also serving in some
other capacity
Character of office of trustee
1. As principal
a. Acts for himself in the administration of
the trust estate, although subject to the
terms of the trust and the law of trusts
b. He cannot act as an agent of the trust
estate for the reason that it lacks juristic
personality
c. Trust and agency are distinguishable on
the basis of the non-representative role of
the trustee and the representative role of
the agent
2. As agent
a. For the purpose of imputing to the
beneficiaries of the trust notice given to
the trustee
b. A trustee is a general agent for the trust
property and that his acts within the scope
of his authority bind the trust estate to the
same extent as the acts of an agent bind
his principal
3. As fiduciary
a. Holds an office of trust
b. Duties are usually governed by the
intention of the trustor or of the parties, if
established by a contract
Necessity of existence of beneficiary
Trust is not void for indefiniteness if by its terms
the whole property will go to the beneficiary/ies
who is/are undetermined but will be determined at
the termination of the trust, at the latest
It is not necessary to the creation of a trust that
the cestui que trust be named or identified or even
be in existence at the time of its creation
Trustor can simply specify as the beneficiaries a
class of persons who are readily identifiable
Art. 1441. Trusts are either express or implied. Express
trusts are created by the intention of the trustor or of the
parties. Implied trusts come into being by operation of law.
Classifications of trusts
1. Creation
a. Express trust one which can come into
existence only by the execution of an
intention to create it by the trustor or the
parties
b. Implied trust one which comes into
being by operation of law; may either be:
i. Resulting trust one in which the
intention to create a trust is
implied or presumed in law
ii. Constructive trust one imposed
by law irrespective of, and even
contrary to, any such intention for
the purpose of:
1. Promoting justice
2. Frustrating fraud, or
3. Preventing unjust
enrichment
- Otherwise known in American law
as:
o Trust ex melecio
o Trust ex delicto
o De son tort
2. Effectivity
a. Testamentary trust one which is to take
effect upon the trustors death
i. Usually included as part of the will
and does not have a separate
trust deed
b. Inter vivos trust (living trust) one
established effective during the owners
life
i. The grantor executes a trust
deed, and once the trust is
created, legal title to the trust
property passes to the named
trustee with duty to administer the
property for the benefit of the
beneficiary
3. Revocability
a. Revocable trust one which can be
revoked or cancelled by the trustor or
another individual given the power
b. Irrevocable trust one which may not be
terminated during the specified term of the
trust
- Whether the trust is revocable or irrevocable
depends on the wordings or language used in the
creation of the trust
- Presumption revocable
o Unless the creator has expressed a
contrary intention in the trust deed
Elements of express trust
1. Competent trustor and trustee
2. Ascertainable trust res
3. Sufficiently certain beneficiaries
Art. 1442. The principles of the general law of trusts,
insofar as they are not in conflict with this Code, the Code
of Commerce,, the Rules of Court and special laws are
hereby adopted.
Termination of express trust
1. Expiration of period fixed
2. Accomplishment of purpose
a. If the trust purpose is fulfilled before the
date, the trust will terminate
b. Otherwise, on the date specified even
when the purpose has not yet been
fulfilled
c. Or when the purpose has become
unlawful or impossible
3. Mutual agreement of beneficiaries
4. Exercise of power to terminate
- Upon termination of a trust, any balance of funds
reverts to the trustor or is disposed of in
accordance with the instructions contained in the
trust
- If the trust does not make any provision, they can
be distributed to those entitled under the law
Chapter 2. EXPRESS TRUST
Art. 1443. No express trusts concerning an immovable or
any interest therein may be proved by parol evidence.
Evidence to prove express trust:
1. Burden of proof
GR: burden of proving is on the party alleging its
existence
Proof must be clear and convincing
2. Trust concerns immovable therein
A writing is necessary to prove an express trust
concerning an immovable or any interest therein.
Writing is required not for validity but for purposes
of proof
3. Failure to object to parol evidence
The defense that express trusts cannot be proved
by parol evidence may be waived, either by:
o Failure to interpose timely objections
against the presentation of oral evidence
not admissible under the law
o Cross-examining the adverse party and
his witnesses along the prohibited lines
An express trust over personal property or an interest
therein, and an implied trust, whether the property subject
to the trust is real or personal, may be proved by oral
evidence
Art. 1444. No particular words are required for the creation
of an express trust, it being sufficient that a trust is clearly
intended.
Creation of an express trust
Express trusts are those trusts voluntarily and
intentionally, created by direct and positive act of
the trustor, by some writing, deed, will, or oral
declaration evincing an intention to create the
trust.
Consideration is not required to establish a trust.
What is important is whether the trustor or the
party manifested a intention to create the kind of
relationship which in law is known as a trust.
Kinds of express trust
1. Charitable trust
a. One designed for the benefit of a segment
of the public or of the public in general
b. One created for charitable, educational,
social, religious, or scientific purposes, or
for the general benefit of humanity
c. Private trust not for the good of the
public in general or society as a whole
2. Accumulation trust
a. One that will accumulate income to be
reinvested by the trustee in the trust for
the period of time specified
3. Spendthrift trust
a. One established when the beneficiary
need to be protected, because of his
inexperience or immaturity from his
imprudent spending habits or simply
because the beneficiary is spendthrift
b. Income will be paid to the beneficiary only
when actually necessary
4. Sprinkling trust
a. One that gives the trustee the right to
determine the income beneficiaries who
should receive income each year and the
amount thereof
b. Income that is not distributed in any given
year is added to the corpus, as in an
accumulation trust
c. Discretionary trust gives the trustee the
discretion to pay or not to pay the income
or principal
When trustee may sue or be sued
o It is essential that his trust be express
Art. 1445. No trust shall fail because the trustee appointed
declines the designation, unless the contrary should
appear in the instrument constituting the trust.
Acceptance, declination, or renunciation by the trustee
o In the case of an express trust, acceptance of trust
by a trustee 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
o However, his acceptance of the trust is not
necessary to its existence and validity
o If he declines the trust the courts will appoint a
trustee to fill the office that he declines
o Renunciation of a trust after its acceptance can
only be by:
o Resignation or retirement with court
approval or at least
o With agreement of beneficiaries and
o On satisfaction of all legal liabilities
growing out of the acceptance of the trust
Art. 1446. Acceptance by the beneficiary is necessary.
Nevertheless, if the trust imposes no onerous condition
upon the beneficiary, his acceptance shall be presumed, if
there is no proof to the contrary.
Acceptance of trust by the beneficiary
o Essential to the creation and validity of a trust
o His acceptance is presumed if there is no proof to
the contrary
o However, if the trust imposes some onerous
condition, acceptance must be shown
o Acceptance may be express or implied
Chapter 3. IMPLIED TRUST
Art. 1447. The enumeration of the following cases of
implied trust does not exclude others established by the
general law of trust, but the limitation laid down in Art.
1442 shall be applicable.
Concept of implied trust
o Implied trust those which, without being express,
are deducible from the nature of the transaction as
matters of intent, or which are superinduced on
the transaction by operation of law, as matters of
equity, independently of the particular intention of
the parties.
o Not created voluntarily but imposed by law or
inferred from the conduct or dealings of the parties
o Created by operation of law based on the owners
presumed intention
Kinds of implied trust
1. Resulting trust
a. Broadly defined as a trust which is raised
or created by the act or construction of
law
b. Restricted sense a trust raised by
implication of law and presumed always to
have been contemplated by the parties,
the intention as to which is to be found in
the nature of their transaction, but not
expressed in the deed or instrument of
conveyance
c. Based on the equitable doctrine that
valuable consideration and not legal title
determines the equitable title or interest
d. Intention-enforcing trust
 2. Constructive trust o An action for reconveyance will not prescribe as
a. Also a trust raised by construction of law long as the property stands in the name of the
or arising by operation of law trustee
b. Restricted sense a trust not created by o Settled rule in constructive implied trusts is that
any words, either expressly or impliedly, prescription may supervene even if the trustee
evincing a direct intention to create a trust does not repudiate the relationship
but by the construction of equity in order
to satisfy the demands of justice and Repudiation of trust
prevent unjust enrichment. o By trustee
c. Does not arise by agreement or intention o The express trusts disable the trustee
but by operation of law against one who, from acquiring for his own benefit the
by fraud, duress, or abuse of confidence property committed to his management or
obtains or holds the legal right to property custody, at least while he does not openly
which he ought not, in equity and good repudiate the trust and makes such
conscience, to hold repudiation know to the beneficiary
o Trustee may claim title by prescription
Implied trust founded on equity founded on adverse possession where it
o Consequences of an implied trust are: appears that:
o The implied trustee shall deliver the He has performed open and
possession and reconvey title to the unequivocal acts of repudiation
property to the beneficiary of the trust amounting to an ouster of the
o To pay to the latter the fruits and other cestui que trust or the other co-
net profits received from such property owners
during the period of wrongful holding Such positive acts of repudiation
o To adjust the equities between the have been made known to the
trustee holding the legal title and the cestui que trust or the other co-
beneficiary of the trust owners
The evidence thereon should be
Distinctions between express trusts and implied trusts clear and conclusive or
EXPRESS IMPLIED convincing
TRUST TRUST The period fixed by law has
CREATION OF Created by the Come into being prescribed
TRUST intention of the by operation of o By third persons
trustor or parties law o A third person who holds actual, open,
PROOF OF Concerning an Concerning an public and continuous possession of a
TRUST immovable or immovable or land, adversely to the trust, acquires title
any interest any interest to the land by prescription as against such
therein cannot therein may be trust
be proved by proved by oral
parol evidence evidence Kinds of resulting trust
REPUDIATION Express No repudiation, 1. Art. 1448. There is an implied trust when property
OF TRUST in repudiation unless there is is sold, and the legal estate is granted to one party
order that laches made known to concealment of but the price is paid by another for the purpose of
or acquisitive the beneficiary is the fact giving having the beneficial interest of the property. The
prescription may required rise to the trust former is the trustee, while the latter is the
bar an action beneficiary. However, if the person to whom the
EXISTENCE OF Beneficiary and Constructive title is conveyed is a child, legitimate or
FIDUCIARY a trustee are trust there is illegitimate, of the one paying the price of the sale,
RELATIONS linked by a neither a no trust is implied by law, it being disputably
confidential or promise nor any presumed that there is a gift in favor of the child.
fiduciary relation fiduciary relation a. Presumption he who pays for a thing
to speak of intends a beneficial interest therein for
himself
Implied trust converted to express trust b. It is essential that:
o An implied trust may be converted to an express i. There be an actual payment of
trust by the recognition by the implied trustee of money, property or service, or an
the right to the property of the owner. equivalent constituting valuable
o Trustee acknowledged in a public consideration
instrument sale of land by his parents to ii. Such consideration must be
beneficiary furnished by the alleged
o Trustee directed his tenant to pay rentals beneficiary of a resulting trust
to beneficiary and allowed latter to take c. Trust created is sometimes referred to as
possession a purchase money resulting trust
d. No trust is implied if the person to whom
Acquisition of property through prescription the legal estate is conveyed is a child,
o The rule that a trustee cannot acquire by legitimate or illegitimate, of the payor,
prescription ownership over property entrusted to because it is presumed that a gift or
him until and unless he repudiates the trust, donation was intended in favor of the child
applies to express trust and resulting implied
trusts
 2. Art. 1449. There is also an implied trust when a
donation is made to a person but it appears that
although the legal estate is transmitted to the
donee, he nevertheless is either to have no
beneficial interest or only a part thereof.
3. Art. 1451. When land passes by succession to
any person and he causes the legal title to be put
in the name of another, a trust is established by
implication of law for the benefit of the true owner.
4. Art. 1452. If two or more persons agree to
purchase property and by common consent the
legal title is taken in the name of one of them for
the benefit of all, a trust is created by force of law
in favor of the others in proportion to the interest of
each
5. Art. 1453. When property is conveyed to a person
in reliance upon his declared intention to hold it
for, or transfer it to another or the grantor, there is
an implied trust in favor of the person whose
benefit is contemplated.
Kinds of constructive trust
1. Art. 1450. If the price of a sale of property is
loaned or paid by one person for the benefit of
another and the conveyance is made to the lender
or payor to secure the payment of the debt, a trust
arises by operation of law in favor of the person to
whom the money is loaned or for whom it is paid.
The latter may redeem the property and compel a
conveyance thereof to him.
2. Art. 1454. If an absolute conveyance of property
is made in order to secure the performance of an
obligation of the grantor toward the grantee, a
trust by virtue of law is established. If the
fulfillment of the obligation is offered by the grantor
when it becomes due, he may demand the
reconveyance of the property to him.
3. Art. 1455. When any trustee, guardian or other
person holding a fiduciary relationship uses trust
funds for the purchase of property and causes the
conveyance to be made to him or to a third
person, a trust is established by operation of law
in favor of the person to whom the funds belong.
4. Art. 1456. If property is acquired through mistake
or fraud, the person obtaining it is, by force of law,
considered a trustee of an implied trust for the
benefit of the person from whom the property
comes.
Art. 1457. An implied trust may be proved by oral
evidence.