Vous êtes sur la page 1sur 50

AGENCY, TRUST, PARTNERSHIP CIVIL LAW

Agency couched in general terms ...................11


Table of Contents Agency couched in specific terms ...................11
Agency, Trusts, Partnership .. 4 F. AS TO ITS NATURE AND EFFECTS ...................11
APPARENT OR OSTENSIBLE AGENCY ................11
Giving Notice of Agency: ..........................11
AGENCY .............................. 5 By Special Information ................................11
By Public Advertisement ..............................11
I. Definition .......................................5
AGENCY BY ESTOPPEL ................................12
A. PURPOSE .................................................5 Estoppel in pais ........................................12
What acts may be authorized ......................... 5 AGENCY BY ESTOPPEL VS IMPLIED AGENCY ........11
B. CHARACTERISTICS ......................................5 III. Agency requiring Special Power of
AGENCY AS A CONTRACT ..............................5
Attorney .........................................12
Consensual ............................................5
Principal ...............................................5 Definition ...............................................12
Preparatory ...........................................5 IV. Rights & Obligations of Agent ............13
Onerous ................................................5 GENERAL OBLIGATIONS ...............................13
Bilateral (Only for agency with compensation) .5 SPECIFIC OBLIGATIONS ...............................13
Commutative..........................................5 A. TO CARRY OUT THE AGENCY........................13
Nominate ..............................................5 TO ACT WITHIN THE SCOPE OF HIS AUTHORITY ..13
AGENCY AS A RELATION ................................5 Distinction between Authority and the Principal’s
Fiduciary character ..................................5 Instructions .............................................13
Representative character...........................5 DEATH of the Principal ...............................14
C. Essential Elements of a Contract of Agency .......5 TO ACT ON BEHALF OF HIS PRINCIPAL .............14
CONSENT OF BOTH PARTIES ...........................6 Liability of two or more agents ......................14
Principal ...............................................6 Doctrine of Agency by Necessity ....................15
CAPACITY OF THE PRINCIPAL ......................... 6 B. TO RENDER AN ACCOUNTING OF HIS
Agent ...................................................6 TRANSACTIONS AND TO DELIVER ......................15
CAPACITY OF AGENT ................................... 6 C. TO BE RESPONSIBLE FOR THE ACTS OF THE
Power of attorney ...................................... 6 SUBSTITUTE ...............................................15
OBJECT: EXECUTION OF A JURIDICAL ACT ..........7 D. RULES APPLICABLE TO A COMMISSION AGENT: ..16
CAUSE: PRESUMED TO BE FOR COMPENSATION ....7 Factor or Commission Agent .........................16
FORM: 1869, 1874, 1878 ...............................7 RULES APPLICABLE TO A GUARANTEE COMMISSION
AGENT’S AUTHORITY: ..................................7 AGENT: DEL CREDERE AGENT .......................17
D. DISTINGUISHED FROM OTHER CONTRACTS .........7 Guarantee commission (DEL CREDERE COMMISSION)
PARTNERSHIP ............................................7 ...........................................................17
LEASE OF WORK OR SERVICE ..........................8 DEL CREDERE AGENT ..................................17
CONTRACT FOR A PIECE OF WORK ...................8 V. Rights and Obligation of Principal .......17
NEGOTIORUM GESTIO ..................................8 To advance to the agent the sums necessary… ....17
LOANS .....................................................8 To reimburse the agent the sums advanced… .....18
SALE .......................................................8 Liability when there are 2 or more principals:
TRUST .....................................................9 solidary .................................................18
BROKER ...................................................9 Rights of Third Persons in Incompatible contracts
GUARDIANSHIP ...........................................9 with agent and principal .............................18
Agent’s Right of Retention ...........................19
BAILMENT .................................................9
Principal’s Liability for Expenses: ...................19
II. Classifications of Agency ....................9 VI. Modes of Extinguishment .................19
A. AS TO MANNER OF CREATION ........................9 A. REVOCATION OF AGENCY BY PRINCIPAL ..........19
EXPRESS AGENCY ....................................... 9
IMPLIED AGENCY ........................................ 9 AGENCY COUPLED WITH AN INTEREST .............19
B. AS TO COMPENSATION ............................... 10 MANNER OF REVOCATION: ...........................19
Gratuitous Agency ..................................... 10 Agent with General Power ...........................19
Onerous Agency........................................ 10 Agent with Specific power ...........................19
Implied Revocation ....................................19
COMPENSATION ........................................ 10
B. WITHDRAWAL OF THE AGENT FROM THE AGENCY
BROKER’S COMPENSATION ........................... 10
Broker ................................................... 10 ..............................................................20
C. AS TO EXTENT OF BUSINESS COVERED ............ 10 C. DEATH OF THE PRINCIPAL or AGENT ..............20
General Agency ........................................ 10 D. OTHER MODES OF EXTINGUISHMENT: .............20
Special Agency ......................................... 10
D. AS TO NATURE AND EXTENT OF THEIR AUTHORITY
.............................................................. 10
Universal Agent ........................................ 10
TRUSTS ............................. 22
General Agent ......................................... 10 I. Definition .....................................22
Special Agent .......................................... 10
E. AS TO SCOPE OF AUTHORITY ....................... 10 DISTINGUISHED FROM OTHER FORMS:..............22

1
AGENCY, TRUST, PARTNERSHIP CIVIL LAW

PARTIES IN TRUST ..................................... 22 Universal partnership of profits .....................32


Trustor .................................................. 22 Presumption when kind of universal partnership not
Trustee ................................................. 22 specified ................................................32
Beneficiary or cestui que trust ...................... 22 2. PARTICULAR PARTNERSHIP .......................32
II. Kinds of Trust ............................... 23 B. AS TO LIABILITY OF PARTNERS .....................33
1. GENERAL PARTNERSHIP (ORDINARY) ............33
A. EXPRESS TRUST ....................................... 23 2. LIMITED PARTNERSHIP (SOCIEDAD EN
Elements ................................................ 23
How created ........................................... 23
COMANDITA) ............................................33
MODES OF EXTINGUISHMENT ......................... 23 C. AS TO EMPLOYMENT OR BUSINESS .................33
B. IMPLIED TRUST ........................................ 23 1. COMMERCIAL PARTNERSHIP (TRADING).........33
KINDS OF IMPLIED TRUST ............................ 23 2. NON-COMMERCIAL PARTNERSHIP (NON-
1. Resulting trust ................................... 23 TRADING) ...............................................33
2. Constructive trust .............................. 24 Significance of Distinction ............................33
D. AS TO DURATION ......................................33
III. Subject Matter ............................. 24 PARTNERSHIP WITH A FIXED TERM .................33
PARTNERSHIP FOR A PARTICULAR UNDERTAKING 33
PARTNERSHIP AT WILL ................................33
PARTNERSHIP ....................... 26 III. Kinds of Partners ...........................33
I. Contract of Partnership .................... 26 Basis of Classification ................................33
A. General and Limited Partners ......................33
A. DEFINITION ............................................ 26 B. Capitalist and Industrial Partners ..................33
B. ELEMENTS .............................................. 26 C. Original and Incoming Partners ....................34
Essential elements: ................................... 26
D. Managing Partner & Liquidating Partner .........34
Essential Features: .................................... 26
E. Ostensible, Nominal, & Dormant Partners .......34
C. CHARACTERISTICS .................................... 26
Existence of a Valid contract ........................ 26 F. Retiring, Continuing & Surviving Partners ........35
Articles of Partnership ................................ 26 G. Partner by Estoppel ..................................35
Partnership Fiduciary in Nature ..................... 26 IV. Rights & Obligations of Partnership .....35
Partnership by Estoppel .............................. 26
Legal Capacity ......................................... 26 RESPONSIBILITIES OF THE PARTNERSHIP TO
Contribution of Money, Fund, Property, or Industry PARTNERS: ..............................................35
........................................................... 27 V. Rights & Obligations of Partners Among
Legality of the Object ................................ 27
Purpose to obtain profits ............................. 27
Themselves ......................................35
D. Parties ................................................. 27 A. PROMISED CONTRIBUTION ...........................35
CONSENT OR INTENTION TO BECOME A PARTNER 27 Obligations with respect to contribution of
INTENTION IS TO BE DETERMINED FROM: ......... 27 property: ...............................................35
LAWFUL SUBJECT MATTER AND CAUSE ............ 27 Effect of Failure to Contribute Property Promised35
Obligations with respect to contribution of money
Effect of Illegality.................................. 28
and money converted to personal use (Art. 1788) 36
Effect on the parties .................................. 28
Obligations with respect to contribution to
Effect on third persons ............................... 28
partnership capital (Art 1790) .......................36
Contribution to Common Fund ................... 28
B. FIDUCIARY DUTY ......................................36
Business for Profit.................................. 28 Prohibition against engaging in Competitive
Community of Interest ............................ 28 Business .................................................36
Co-ownership of Capital or Property................ 28 OBLIGATIONS WITH RESPECT TO MANAGEMENT ..36
Joint Management and Control ...................... 29
C. DISTRIBUTION OF PROFITS AND LOSSES ...........37
Co-ownership of Profits and Participation in Profits
and Losses .............................................. 29 D. PROPERTY RIGHTS OF A PARTNER .................37
E. RULES TO DETERMINE EXISTENCE OF PARTNERSHIP VI. Obligations of Partnership / Partners to
.............................................................. 30 Third Persons....................................38
F. HOW PARTNERSHIP IS FORMED ..................... 30
When Capital at Least P3,000 ....................... 30
A. ACTS WITHIN APPARENT AUTHORITY ..............38
When Immovables or Real Rights Contributed ..... 30 PARTNERS AS AGENTS ................................38
G. PARTNERSHIP TERM .................................. 31 1. Contractual Obligations ........................38
COMMENCEMENT ...................................... 31 Third Persons ...........................................38
Contracts of Employment ............................38
TERM .................................................... 31 Purchases of Property .................................38
H. SEPARATE AND JURIDICAL PERSONALITY ......... 31 Conveyance or Disposal of Property ................38
IN GENERAL ............................................ 31 2. Real Property ....................................39
Consequences of Legal Personality ................. 31 Title is in the name of the partnership .............39
When No Juridical Personality Acquired ........... 31 Title is in the name of one or more but not all the
II. Kinds of Partnership ....................... 32 partners .................................................39
Title is in the name of one, more, or all of the
A. AS TO OBJECT......................................... 32 partners or a third person in trust for the
1, UNIVERSAL PARTNERSHIP......................... 32 partnership .............................................39
Universal partnership of present property ......... 32

2
AGENCY, TRUST, PARTNERSHIP CIVIL LAW

Title is in the name of all the partners ............. 39 formation of partnership .............................48
3. Personal Property ............................... 39 On Application of Assignee or Purchases of
Leases ................................................... 39 Partner’s Interest......................................48
Borrowing Money ...................................... 39 BY OPERATION OF LAW ...............................48
Negotiable Instruments ............................... 39 Supervening Illegality .................................48
Pledges and Mortgages ............................... 39 Loss of Specific Thing Contributed ..................48
Collection and Enforcement of Claims ............. 39 Death of Partner .......................................48
B. ACTS NOT WITHIN APPARENT AUTHORITY ....... 39 Insolvency ..............................................49
GUARANTY AND SURETYSHIP ........................ 39 Civil Interdiction of a Partner........................49
PAYMENT OF PARTNER’S SEPARATE DEBT ........ 40 D. Limited Partnership ..................................49
SUBSCRIPTION TO STOCK ............................ 40 CHARACTERISTICS: ....................................49
GIFTS AND OTHER GRATUITOUS ACTS ............. 40 RIGHTS OF LIMITED PARTNERS ......................49
ACTS REQUIRING UNANIMOUS CONSENT .......... 40 LIABILITIES OF LIMITED PARTNER ...................50
ASSIGNMENT FOR BENEFIT OF CREDITORS ........ 40 To the Partnership ....................................50
As a trustee for the partnership .....................50
DISPOSAL OF GOODWILL ............................. 40
DISSOLUTION OF LIMITED PARTNERSHIP ...........50
OTHER ACTS MAKING IT IMPOSSIBLE TO CARRY ON
ORDINARY BUSINESS .................................. 40
CONFESSION OF JUDGMENT ......................... 40
COMPROMISE OF PARTNERSHIP CLAIM OR LIABILITY
........................................................... 41
SUBMISSION TO ARBITRATION ....................... 41
RENUNCIATION OF PARTNERSHIP CLAIM .......... 41
ABANDONMENT OF BUSINESS ........................ 41
KNOWN RESTRICTIONS ON AUTHORITY ............ 41
LIABILITY FOR WRONGFUL ACTS OR OMISSIONS . 41
1. Tortious Acts ........................................ 41
2. Criminal Acts........................................ 41
3. Fraud and Misrepresentation ..................... 42
4. Conversion and Misappropriation ................ 42
5. Admissions or Representations ................... 42
6. Notice or Knowledge ............................... 42
PARTNERSHIP LIABILITY BY ESTOPPEL ............. 42
INDIVIDUAL LIABILITY OF PARTNERS FOR
PARTNERSHIP ACTS ................................... 43
All Partners.......................................... 43
For Contracts .......................................... 43
For Torts and Delicts .................................. 43
For Workmen’s Compensation ....................... 43
Partner by Estoppel................................ 43
Incoming Partner ................................... 43
SUIT BY OR AGAINST PARTNERSHIP ................ 43
Capacity to Sue or be Sued .......................... 43
Joinder of Firm and Partners ........................ 44
Execution Against Partners’ Separate Property ... 44
VII. Dissolution ................................. 44
A. CONCEPTS AND DEFINITIONS ....................... 44
B. CAUSES OF DISSOLUTION ............................ 45
1. VOLUNTARY, EXTRAJUDICIAL AND WITHOUT
VIOLATION OF AGREEMENT .......................... 46
Expiration of term or undertaking .................. 46
In a partnership at will, by express will of any
partner .................................................. 46
Express will or mutual assent of all partners ...... 46
Expulsion of a partner pursuant to agreement .... 47
2. VOLUNTARY, EXTRAJUDICIAL & IN
CONTRAVENTION OF AGREEMENT .................. 47
3. JUDICIAL ............................................ 47
Who May Apply......................................... 47
C. Grounds ................................................ 47
INSANITY ................................................ 47
MISCONDUCT OR BREACH OF AGREEMENT ........ 48
OPERATION AT LOSS .................................. 48
OTHER CIRCUMSTANCES: ............................ 48
Dissensions, fraud and misrepresentations in

3
AGENCY, TRUST, PARTNERSHIP CIVIL LAW

Agency, Trusts,
Partnership

4
AGENCY, TRUST, PARTNERSHIP CIVIL LAW

PREPARATORY
AGENCY it is entered into as a means to an end, i.e., the
creation of other transactions or contracts.
I. Definition ONEROUS
Bar 2003 only if there is no stipulation to the contrary. The law
Art. 1868. presumes that the agency is for compensation. The
By the contract of agency a person binds himself to one, either the principal or the agent, who alleges
render some service or to do something in otherwise has the burden of proof.
representation or on behalf of another, with the
consent or authority of the latter. An agent may allege that the contract is gratuitous
because if he committed fault or negligence, he will
A. PURPOSE be judged with less severity. His liability will be
mitigated.
The purpose of agency is to extend the personality of
the principal through the facility of the agent. (11 BILATERAL (ONLY FOR AGENCY WITH
Manresa 434)
COMPENSATION)
It enables a man to increase the range of his individual An agency is unilateral, if it is gratuitous because it
and corporate activity by enabling him to be creates obligations for only one of the parties, i.e. the
constructively present in many places and to carry on agent; or
diverse activities at the same time. (Mechem, Outlines
of Agency, 3rd Ed., p. 5) Bilateral, if it is for compensation because it gives
rise to reciprocal rights and obligations.
WHAT ACTS MAY BE AUTHORIZED
NOMINATE
General Rule: Any act a man may do in person, he may
do thru another. it has its own name and is governed primarily by the
Civil Code.
Exceptions:
FIDUCIARY CHARACTER
1. Personal acts The relations of an agent to his principal are fiduciary
2. Criminal acts in character since they are based on trust and
3. Unlawful acts confidence, on a degree which varies considerably
from situation to situation.
B. CHARACTERISTICS
AGENCY AS A CONTRACT REPRESENTATIVE CHARACTER
The agent renders some service or does something “in
CONSENSUAL representation or on behalf of another.”
it is based on the agreement of the parties which is
perfected by mere consent. Representation constitutes the basis of agency. As it
is a personal contract of representation based on trust
An agency is consensual because the contract is and confidence reposed by the principal on his agent,
perfected by mere consent (Art. 1315). No other act is agency is generally revocable.
required to perfect the contract.
The acts of the agents within the scope of their
The contract is perfected upon the meeting of the authority, by legal fiction, are the acts of the
minds upon the object and the cause of the contract. principal. The actual or real absence of the principal
is converted into his legal or juridical presence and is
PRINCIPAL an essential element of a contract of agency.
it can stand by itself without need of another
contract. All preparatory contracts are principal
contracts as well.
C. ESSENTIAL ELEMENTS OF A CONTRACT
OF AGENCY

1. STATUTORY ELEMENTS

5
AGENCY, TRUST, PARTNERSHIP CIVIL LAW

a. A person binds himself to render He may be a natural or juridical person.


some service or to do something;
b. In representation or on behalf of An emancipated minor child can be a principal, so may
another; and a married woman.
c. With the consent or authority of
the latter. A husband as administrator of the conjugal
partnership is in that sense an agent who can bind
2. JURISPRUDENTIAL ELEMENTS conjugal property, subject to legal restrictions.

a. CONSENT AGENT
Consent of the parties to establish
the relationship, whether express or Other names: attorney, attorney-in-fact, proxy,
implied. delegate, and representative.
b. OBJECT
It is the execution of a juridical He who acts or stands for another. He is given full or
act in relation to third persons. partial discretion depending on the principal’s specific
c. REPRESENTATION command.
The agent acts as a representative
and not for himself. An agent may have his own agent, who is thus referred
d. LIMITATION to as sub-agent.
The agent must act within the
scope of his authority. CAPACITY OF AGENT
(Tuazon vs. Heirs of Bartolome, 463 His capacity is in general the same as in the law of
SCRA 408) contracts, that is, he must be able to bind himself,
but only insofar as his obligations to his principal are
concerned.
CONSENT OF BOTH PARTIES
A person may express his consent: An agent assumes NO PERSONAL LIABILITY.
1. By contract (Art. 1868), orally or in writing,
2. By conduct (Art. 1869) Even if the agent is a minor, the principal having
3. By ratification (Art. 1910) capacity assumes that the agency is valid. Provided he
4. By presumption or operation of law. (i.e. the is not in estoppel.
law presumes that a person has authority to act
for another in certain situations. For example, in Between persons who are present, when is acceptance
law, partners are considered as agents of the deemed implied?
partnership and of each other.) A: When the principal delivers his power of attorney
and the agent receives it without any objection. (Art.
Note: Only the consent of the principal and agent are 1871)
essential. Consent of the third person is not
necessary. The third person is not a party to the Is this presumption conclusive?
agency but a party to the contract entered into by the No. The presumption of acceptance may be rebutted
agent in representation of his principal. by contrary proof (such as a power of attorney).

PRINCIPAL POWER OF ATTORNEY


An instrument in writing by which one person, as
Art. 1869 principal, appoints another as his agent and confers
Other names: Mandante, employer, constituent, chief. upon him the authority to perform certain specified
acts or kinds of acts on behalf of the principal. Its
He whom the agent represents and from whom he primary purpose is not to define the authority of the
derives authority; he is the one primarily concerned in agent as between himself and his principal but to
the contract. evidence the authority of the agent to third parties
within whom the agent deals.
A person who cannot legally enter into contracts
directly should not be permitted to do it indirectly Between persons who are absent, when is acceptance
through another. deemed implied?
(1) The Principal transmits his power of attorney to
CAPACITY OF THE PRINCIPAL the agent, who receives it without any objection.
Generally, if he can act for himself, he can act
through an agent. If any special capacity is needed, it (2) When the principal entrusts to him by letter or
is he who must possess it and not the agent, for the telegram a power of attorney with respect to the
latter only acts on his behalf. business in which he is habitually engaged as an

6
AGENCY, TRUST, PARTNERSHIP CIVIL LAW

agent, and he did not reply to the letter or has exceeded his authority and such third party
telegram has knowledge of the scope of the agent’s
authority. (Article 1898)
• All acts of the substitute appointed against the
Note: Mere silence of the agent does not imply prohibition of the principal (Article 1892)
acceptance of the agency if the letter or telegram is
not related to the business in which he is habitually AGENT’S AUTHORITY:
engaged as an agent.
The agent’s authority may be oral or written. It may
be in public or private writing.
OBJECT: EXECUTION OF A JURIDICAL ACT
Rule if the authority was made orally: The
If the purpose of the agency is not to establish rights requirements of an SPA in Art. 1878 and of a special
and obligations between the principal and a third authority in Rule 138 of the Rules of Court refer to the
person, it is no longer a contract of agency because nature of the authorization and not its form. The
the object of a contract of agency is the execution requirements are met if there is a clear mandate from
of a juridical act, one which would either create, the principal specifically authorizing the performance
modify or extinguish a juridical relationship. An of the act. Such mandate may either be oral or
example of a juridical act by an agent is when an written, the one valid thing that it shall be express.
agent pays. Payment extinguishes the debtor-creditor Importantly, if the SPA is not written, then it must
relationship. be established by evidence. (Lim Pin vs. Liao Tan,
115 SCRA 290)
CAUSE: PRESUMED TO BE FOR
Under Article 1403 (No.2, par. [e]) of the Civil Code,
COMPENSATION1
an oral agreement for the sale of real property or of
an interest therein is unenforceable even if there is no
If the agency is gratuitous, the cause is the liberality agent.
of the agent. If the agency is onerous, the cause, as
to the principal, is the promise of service of the If authority of the agent is not in writing and the
agent. As to the agent, the cause is the promise of agent entered into a contract of sale with a third
the thing. person, the status of the contract between the agent
and the third person may still be valid. As a rule, the
FORM: 1869, 1874, 1878 contract will be valid and binding as to the principal
(Article 1868). The principal may not be bound by the
General Rule: There is no law requiring a contract of
contract of sale if the sale is void.
agency to be in a particular form for it to be valid.
If a contract is a sale of an immovable property and
Exceptions: there are certain laws requiring the
the authority of the agent is not in writing, as a rule,
contract to be in a particular form:
the contract of sale is unenforceable because
whenever the ownership of an immovable property is
Those falling under the Statue of Frauds under
transmitted, a special power of attorney is required
Number 2 of Article 1403 of the Civil Code, which
(Article 1878). However, if the immovable property is
requires that they be in writing or else it is
a parcel of land, the contract of sale will be void
UNENFORCEABLE,
(Article 1874).
1. If a transaction falls under the cases requiring a
special power of attorney, absence of which shall D. DISTINGUISHED FROM OTHER
render it UNENFORCEABLE.2 CONTRACTS
NOTE: The following cases shall render the acts of the
PARTNERSHIP
agent VOID when there is no authority:
Esteban B. Bautista, Treatise on Philippine partnership
• When an agent, without written authority, sells a Law, pp. 55-56; Art. 1767
piece of land or any interest therein. Sale shall be
void. (Article 1874) Partnership Agency
• When the agent does not have a special power or A partner’s power to
An agent must submit
bind his co-partner is
a general and sufficient power to accept to the principal’s
Extent not subject to the co-
donation. Donation shall be void. (Article 745) right to control the
of partner’s right to
• When a third person transacts with the agent who agent’s conduct in
Control control, unless there is
regard to the subject
an agreement to that
of the agency.
effect.
1 Art 1875 Liability A partner acting as The ordinary agent
2 Duñgo v. Lopena

7
AGENCY, TRUST, PARTNERSHIP CIVIL LAW

of the agent for the assumes no personal authorized to purchase office supplies, is in this
agent partnership binds not liability where he acts respect acting as an agent).
only the firm members within the scope of
but himself as well. his authority.
Partners are solidarily CONTRACT FOR A PIECE OF WORK
liable in a subsidiary Contract for a piece of work Agency
capacity. The assets of The independent contractor is
the partnership must be authorized to do the work
exhausted first. according to his own method, Agent is subject to control
The alleged owner or without being subject to the and direction of the
partner takes his other party’s control, except principal. (Shell Company
The profits belong to all agreed share of insofar as the RESULT of the v Firemen’s Insurance)
Sharing
the parties as common profits, not as owner work is concerned. (Fressel v
of
proprietors in agreed but as an agreed Uy Chaco and Sons)
profits
proportions. measure of Generally, the employer is not
compensation for his liable for the torts or injury
services or the like. inflicted by the independent
The agent or partner can bind the principal or his co-partner In general, the principal or
contractor or by the employees
only by such contracts as are entered into within the scope employer is liable for the
of such contractor.
of his authority. acts of the agent or
In general, both conceptions import the idea of a fiduciary servant within the scope
Employer is liable only if injury
relationship. of his authority or
is caused by his negligence or
employment applying the
the result of his interference in
doctrine of vicarious
Each partner is regarded as an agent of his co-partners the work of the independent
liability.
when he is acting and as principal of his co-partners contractor or the work is
when they are acting. intrinsically dangerous or a
nuisance.
Both contracts involve service.
A partnership is, in effect, a contract of mutual
agency.
NEGOTIORUM GESTIO
The contract of partnership and the contract of Arts. 2144-2145
agency are very much similar. It is important to Negotiorum Gestio Agency
distinguish the two in order to ensure that there is no Not only without the authority of
confusion. Representation is
the owner of the business but is
expressly conferred.
without his knowledge.
LEASE OF WORK OR SERVICE Acts according to the presumed Acts according to the
will of the owner by exercising express will of the
Art. 1644
“all the diligence of a good father principal
Lease of work or service Agency
of a family”
Basis is employment Basis is representation
Quasi-contract Contract
The lessor (like a servant)
The agent exercises In both cases, the officious manager/negotiorum gestor or
ordinarily performs only
discretionary powers. The agent represents the owner of the business or principal.
ministerial functions. Lease
agent is destined to execute
of services contemplate
juridical acts (creation,
only material (non-
modification or extinction of
LOANS
juridical) acts. (Nielson &
relations with third parties). Art. 1933
Co. v. Lepanto
(Nielson & Co. v. Lepanto Loan Agency
Consolidated Mining Co)
Consolidated Mining Co) A borrower is given money
An agent may be given
Only two persons are for purposes of his own and
Three persons are involved: funds by the principal to
involved: the lessor he must generally return it
the principal, the agent, and advance the latter's
(master or employer) and whether or not his own
the third person with whom business.
the lessee (servant or business is successful.
the agent has contracted. Something is given to the agent or borrower.
employee).
Lease of service relates
more to matters of mere SALE
manual or mechanical
Agency relates to commercial Art. 1458
execution, which the
or business transactions.
servant acts under the Bar 2000
direction and control of the Sale Agency to sell
master. The buyer receives the The agent receives the goods
In both agency and lease of services one of the parties binds goods as owner. (Ker & as the goods of the principal.
himself to render some service to the other party. (Nielson Co. v Lingad) (Ker & Co. v Lingad)
& Co. v. Lepanto Consolidated Mining Co) The agent delivers the
The buyer pays the price.
proceeds of the sale.
A person may be employed to perform the duties of The buyer, as a general The agent can return the
both agent and servant (i.e., bookkeeper who is also rule, cannot return the object in case he is unable

8
AGENCY, TRUST, PARTNERSHIP CIVIL LAW

object sold. to sell the same to a third


person. GUARDIANSHIP
The agent, in dealing with
The buyer can deal with Guardianship Agency
the thing received, is bound
the thing as he pleases,
to act according to the The guardian, although he
being the owner.
instructions of his principal. acts for and on behalf of his
The essence is the The essence involves the ward, does not derive his Agent derives his authority
transfer of title to a thing idea of an appointment of authority to act from the from the principal.
from one to another. one to act for another. ward but from the court who
There is transfer of There may be transfer of appointed him as such.
possession of goods to the possession of goods to the The relation of guardian and The relation of principal
buyer. buyer. ward may be created and agent is founded upon
irrespective of the consent or consent of the parties
capacity of the ward. thereto.
Guardians are not subject to Agents are subject to the
TRUST the direction of their wards. control of their principals.
Art. 1440 Ordinarily, an agent is the
Trust Agency A legal guardian is substituted appointee of the principal
by law and stands in loco and his power may at any
The title and control of the
parentis. time be abrogated or
property under the trust
The agent represents and modified by the principal.
instrument passes to the
acts for his principal. A guardian represents one An agent represents one
trustee who acts in his own
name. who has no legal capacity to who has capacity to
contract for himself. contract for himself.
A trust may ordinarily be
An agency may in general (Fessenden v Jones) (Fessenden v Jones)
terminated only by the
be revoked at any time.
fulfillment of its purpose.
BAILMENT
While Trust is not an agency, it is possible for a Bailment Agency
trustee to be an agent also where extensive direction The bailee is possessed of no
and control are kept over the trustee. Agent may bind the
power to bind in personal
principal.
liability.
BROKER The bailee owes neither
loyalty nor obedience to the
One who is engaged for others on a commission; a bailor. The only obligation Agent owes loyalty and
negotiator between other parties, never acting in his of the Bailee is to safe keep obedience to the principal.
own name but in the name of those who employed or properly use the object
him. deposited to him.

Brokerage
A broker has no relation with the
Agency
A commission agent is II. Classifications of Agency
thing he buys or sells. He is one engaged in the
merely an intermediary, purchase or sale for A. AS TO MANNER OF CREATION
negotiator or “middle man” another of personal Art. 1869
between the vendor and the property which for this
Agency may be express, or implied from the acts of
vendee with regard to the real purpose, is placed in his
property subject of their possession and at his the principal, from his silence of lack of action, or
transaction. disposal. his failure to repudiate the agency, knowing that
He has no concern over the another person is acting on his behalf without
custody or possession of the real authority.
property.
He maintains a relation
not only with his Agency may be oral, unless the law requires a
His only office is to bring specific form.
principal and the
together the parties to the
purchases or vendor,
transaction never acting in his
but also with the EXPRESS AGENCY
own name but in the name of
property which is the One where the agent has been actually authorized by
those who employed him. In
subject matter of the the principal, either orally or in writing.
effecting a transaction, he acts
transaction.
in a certain sense as the agent of
both parties. (Pacific IMPLIED AGENCY
Commercial Co. v Yatco) One which is implied from:
A broker earns his An agent receives 1. Principal’s act
pay/commission merely by commission upon the 2. Principal’s silence
bringing the buyer and the seller successful conclusion of
together to obtain a meeting of a transaction such as 3. Principal’s lack of action
the minds. sale. 4. Principal’s failure to repudiate the agency

Ratification may produce the effect of an express or

9
AGENCY, TRUST, PARTNERSHIP CIVIL LAW

implied agency. It results in agency by ratification.


He is not entitled to recover his expenses during the
Note that in these cases of implied agency, the negotiations for the sale, such expenses having been
principal knows that another person is acting on his incurred at his own risk and in consideration of the
behalf without authority. commission agreed upon.

General rule: Agency is not presumed. The relation When the negotiations thru the broker’s efforts have
between principal and agent must exist as a fact. reached such a stage that it would be unfair to deny
the commission earned, the principal cannot revoke
Exception: the authority he has given.
1. Agency may arise by operation of law.
2. Agency may arise to prevent unjust enrichment. There is evident bad faith if the principal breaks off
B. AS TO COMPENSATION from negotiations with a buyer brought by the agent
in order to deliberately deal later with the buyer
Art. 1875
personally. Justice demands compensation for the
Agency is presumed to be for a compensation, unless agent.
there is proof to the contrary.
A broker is entitled to commission on a sale effected
GRATUITOUS AGENCY by the owner to the person produced by the broker
One which the agent receives no compensation for his after the breaking of the original negotiations, if the
services. breaking up was a mere subterfuge, and a sale was in
fact brought about by what the broker had done. This
ONEROUS AGENCY is the doctrine of procuring cause.
One which the agent receives compensation for his
services.
C. AS TO EXTENT OF BUSINESS COVERED
Note: An agent may allege that the contract is Art. 1876
gratuitous because if he committed fault or An agency is either general or special.
negligence, he will be judged with less severity if the
contract was not for compensation. The former comprises all the business of the
principal. The latter, one or more specific
COMPENSATION transactions.
May be in the form of gratuitous use by the agent of GENERAL AGENCY
the principal’s real estate
One which comprises all the business of the principal
Absence of stipulation, the agent is entitled to
Bar 1992
compensation only after he has completely or
SPECIAL AGENCY
substantially completed his obligation as agent.
One which comprises one or more specific
transactions.
BROKER’S COMPENSATION
BROKER D. AS TO NATURE AND EXTENT OF THEIR
A duly registered and licensed natural person who, for AUTHORITY
a professional fee, commission or other valuable
consideration, acts as an agent of a party in a real
estate transaction to offer, advertise, solicit, list, UNIVERSAL AGENT
promote, mediate, negotiate or effect the meeting of One employed to do all acts that the principal may
the minds on the sale, purchase, exchange, mortgage, personally do, and which he can lawfully delegate to
lease or joint venture, or other similar transactions on another the power of doing.
real estate or any interest therein.3
GENERAL AGENT
If the broker does not succeed in bringing the mind of One employed to do all acts connected with a
the purchaser and the vendor to an agreement with particular trade, business or employment.
reference to the terms of a sale, he is not entitled to
a commission. SPECIAL AGENT
One authorized to act in one or more specific
So long as the sale is pushed thru, the broker is transactions, or to do one or more specific acts, or to
entitled to a commission, even if the sale had been act upon a particular occasion.
temporarily delayed due to the principal’s lack of
tact. E. AS TO SCOPE OF AUTHORITY
Bar 1992
3 Republic Act No. 9646

10
AGENCY, TRUST, PARTNERSHIP CIVIL LAW

Art. 1877 radio, etc. and by billboards or posters.


An agency couched in general terms comprises only
acts of administration, even if the principal should
state that he withholds no power or that the agent AGENCY BY ESTOPPEL
may execute such acts as he may consider
appropriate, or even though the agency should Art. 1431
authorize a general and unlimited management. Through estoppel an admission or representation is
rendered conclusive upon the person making it, and
AGENCY COUCHED IN GENERAL TERMS cannot be denied or disproved as against the person
One created in general terms and is deemed to relying thereon.
comprise only acts of administration. (Ex. General
Power of Attorney GPA) The principal cannot deny the existence of the agency
AGENCY COUCHED IN SPECIFIC TERMS after third parties, relying on his conduct, have had
One authorizing only the performance of a specific act dealings with the supposed agent.
or acts.
AS TO THIRD PERSONS
Note: An agency couched in general terms may be a If the estoppel is If the estoppel is caused by the
general or a special agency. caused by the agent
principal

F. AS TO ITS NATURE AND EFFECTS The principal is Liable only if the third person
OSTENSIBLE OR REPRESENTATIVE AGENCY always liable. acted on the misrepresentation
One where the agent acts in the name and
The agent is not
representation of the principal It is only the agent who is liable,
personally liable.
never the alleged principal
SIMPLE OR COMMISSION AGENCY
One where the agent acts in his own name but for the If the estoppel is on the ground of negligence or fraud
account of the principal. on the part of the principal, the agency is allowed
upon the theory that, when one of two innocent
APPARENT OR OSTENSIBLE AGENCY persons must suffer loss, the loss should fall upon him
whose conduct brought about the situation.
Art. 1873
If a person specially informs another or states by One who clothes another with apparent authority as
public advertisement that he has given a power of his agent, and holds him out to the public as such,
attorney to a third person, the latter thereby cannot be permitted to deny the authority of such
becomes a duly authorized agent, in the former case person to act as his agent, to the prejudice of
with respect to the person who received the special innocent third parties dealing with such person in
information, and in the latter case with regard to good faith and in the honest belief that he is what he
any person. appears to be, for the following presumptions or
deductions, which the law expressly directs to be
The power shall continue to be in full force until the made from particular facts, are deemed conclusive.4
notice is rescinded in the same manner in which it
was given.
AGENCY BY ESTOPPEL VS IMPLIED AGENCY
At the time the transaction was made, the principal
has already revoked the agency but as far as the law is IMPLIED AGENCY AGENCY BY ESTOPPEL
concerned, the agency is still in full force and effect Agent is the true Agent is not a true agent; hence,
and the principal shall still be liable if he did not agent, with rights he has no rights as such.
inform the third person of the revocation. This is in and duties of an
order to avoid fraud. agent.

GIVING NOTICE OF AGENCY: Reliance by third Can be invoked only by a third


person is not person who in good faith relied
BY SPECIAL INFORMATION necessary. on the conduct of the principal
The agent is considered as such with respect to the in holding out the agent as being
person who received the special information. authorized.
BY PUBLIC ADVERTISEMENT
The agent is considered as such with regard to any
person.

It may be made in any form—through newspaper,


4 Macke vs Camps

11
AGENCY, TRUST, PARTNERSHIP CIVIL LAW

c. Contracts where personal trust or confidence


III. Agency requiring is of the essence of the agreement. (J.B.L.
Reyes, Observations on the New Civil Code, 16
Special Power of Attorney L.J. 138)
Bar 1992
Art. 1878 REASON FOR THE RULE
Special powers of attorney are necessary in the In the cases enumerated under this Article, they are
classified as GENERAL ACTS OF STRICT OWNERSHIP or
following cases:
DOMINION, and NOT merely acts of administration,
1. To make such payments as are not usually
considered as acts of administration; hence the necessity of special powers of attorney
2. To effect novations which put an end to except in the cases expressly so mentioned. (Paras,
obligations already in existence at the time the Civil Code of the Philippines Annotated Special
Contracts, 18th ed., 2016)
agency was constituted;
3. To compromise, to submit questions to
arbitration, to renounce the right to appeal NOTE: Sale of PERSONAL PROPERTY falls under “Any
from a judgment, to waive objections to the other act of strict dominion” (Paras, Civil Code of the
venue of an action or to abandon a prescription Philippines Annotated Special Contracts, 18th ed.,
2016)
already acquired;
4. To waive any obligation gratuitously;
5. To enter into any contract by which the COMPROMISE
ownership of an immovable is transmitted or 1. JUDGMENT BASED COMPROMISE AGREEMENT
acquired either gratuitously or for a valuable A compromise agreement is a contract
whereby the parties make reciprocal concessions,
consideration;
avoid litigation, or put an end to one already
6. To make gifts, except customary ones for
charity or those made to employees in the commenced. Its validity depends on its fulfillment
business managed by the agent; of the requisites and principles of contracts
7. To loan or borrow money, unless the latter act dictated by law; its terms and conditions being
not contrary to law, morals, good customs, public
be urgent and indispensable for the preservation
policy and public order. (Gaisano v. Akol, 2011)
of the things which are under administration;
8. To lease any real property to another person for
more than one year; 2. REQUISITES OF VALID COMPROMISE
9. To bind the principal to render some service a. The consent of the parties to the
compromise;
without compensation;
b. An object certain that is the subject
10. To bind the principal in a contract of
partnership; matter of the compromise; and
11. To obligate the principal as a guarantor or
c. The cause of the obligation that is
surety; established.
12. To create or convey real rights over immovable
3. EFFECT OF NON-INCLUSION OF PARTY IN A
property;
13. To accept or repudiate an inheritance;
COMPROMISE AGREEMENT
14. To ratify or recognize obligations contracted
The only legal effect of the non-
before the agency; conclusion of a party in a compromise
agreement is that said party cannot be
15. Any other act of strict dominion. (n)
bound by the terms of the agreement.
The Compromise Agreement shall
DEFINITION however be valid and binding as to the
Refers to a clear mandate (express or implied) parties who signed thereto. (Domingo
specifically authorizing the performance of the act, Realty v. CA, 2007)
and must therefore be distinguished from an agency
couched in general terms. CONTRACT OF LOAN
As mandated by the foregoing provision,
Execution of a GPA or SPA does not need the payment of monetary interest shall be due only if:
intervention of any notary public to make it binding (1) there was an express stipulation for the
and effective. payment of interest; and
(2) the agreement for such payment was
WHEN SPECIAL POWERS OF ATTORNEY NEEDED reduced in writing.
The acts referred to under Art. 1878 can be reduced
to three: Thus, the collection of interest without
a. Acts of strict dominion or ownership (as stipulation thereof in writing is
distinguished from acts of mere prohibited by law. (Sps. Albos v. Sps.
administration.) Embisan, 2014)
b. Gratuitous contracts.

12
AGENCY, TRUST, PARTNERSHIP CIVIL LAW

EFFECT OF ABSENCE OF SPECIFIC AUTHORITY 12. Distinguish goods by countermarks and


If an agent performs a transaction under Article 1878 designate the merchandise respectively
without specific authority therefor, the transaction is belonging to each principal, in the case of a
UNENFORCEABLE. However, the agent can still seek commission agent who handles goods of the
the principal's ratification. [Dungo v. Lopena, GR. No. same kind and mark, which belong to
L-18377 (1962)] different owners (Art. 1904, NCC)

13. Be Responsible in certain cases for the acts of


IV. Rights & Obligations of the substitute appointed by him (Art. 1890,
NCC)
Agent
14. Pay interest on funds he has applied to his
GENERAL OBLIGATIONS own use (Art. 1896, NCC)
1. Act with utmost good faith and loyalty for the
furtherance of principal’s interest. 15. Inform the principal, where an authorized
2. Obey principal’s instructions. sale of credit has been made, of such sale
3. Exercise reasonable care. (Art. 1906, NCC)

SPECIFIC OBLIGATIONS Bar


16. Bear the risk of collection and pay the
1. Carry out the agency which he has accepted principal the proceeds of the sale on the
same terms agreed upon with the
2. Answer for damages which through his non‐ purchaser, should he receive also on sale, a
performance the principal may suffer guarantee commission (Art. 1907, NCC)
3. Finish the business already begun on the
17. Indemnify the principal for damages for his
death of the principal should delay entail any
failure to collect the credits of his principal
danger at the time that they become due (Art. 1908,
NCC)
4. Observe the diligence of a good father of a
family in the custody and preservation of the
18. Be Responsible for fraud or negligence (Art.
goods forwarded to him by the owner in case
1909, NCC; De Leon, Comments and Cases on
he declines an agency, until an agent is Partnership, Agency, and Trust, pp. 478‐479,
appointed (Art. 1885, NCC) 2005 ed)
5.

6. Advance the necessary Funds should there A. TO CARRY OUT THE AGENCY
be a stipulation to do so (Art. 1886, NCC)
REQUISITES:
7. Act in accordance with the instructions of the 1. The agent must act within the scope of his
principal, and in default thereof, to do all authority
that a good father of a family would do (Art. 2. The agent must act in behalf of the principal.
1887, NCC)

8. Not to carry out the agency of its execution TO ACT WITHIN THE SCOPE OF HIS
would manifestly result in loss or damage to AUTHORITY(ART. 1881)
the principal (Art. 1888, NCC)
DISTINCTION BETWEEN AUTHORITY AND THE
9. Answer for damages if there being a conflict
PRINCIPAL’S INSTRUCTIONS
between his interests and those of the
principal, he should prefer his own (Art.
Authority Instruction
1889, NCC)
Contemplates only a
Sum total of the powers private rule of guidance
10. Not to Loan to himself if he has been
committed to the agent by to the agent;
authorized to lend money at interest (Art.
the principal independent and
1890, NCC)
distinct in character
Relates to the
11. Render an Account of his transactions and to
subject/business with Refers to the manner or
deliver to the principal whatever he may
which the agent is mode of agent’s action
have received by virtue of the agency (Art.
empowered to deal or act
1891, NCC)
Limitations of authority Without significance as

13
AGENCY, TRUST, PARTNERSHIP CIVIL LAW

are operative as against against those with LIABILITY OF TWO OR MORE AGENTS
those who have/charged neither knowledge nor
with knowledge of them notice of them In a joint obligation, each debtor is liable only for a
Contemplated to be made Not expected to be proportionate part of the debt. If it is solidary, each
known to third persons made known to those debtor is liable for the entire obligation. The
dealing with the agent whom the agent deals presumption is that an obligation is joint. This follows
the general principle respecting solidarity. The
The agent is NOT deemed to have exceeded the limits innocent agent has a right later on to recover from the
of his authority should he perform the agency in a guilty or negligent agent.
manner more advantageous to the principal than that
indicated by him since he is authorized to do such acts A person is NOT bound by the act of another when:
as may be conducive to the accomplishment of the
purpose of the agency. 1. The AGENT acts without or beyond the scope of
his authority in the PRINCIPAL’S name; and
WITH AUTHORITY WITHOUT AUTHORITY
Valid; principal Unauthorized and 2. The AGENT acts within the scope of his authority
IN but in his own name, except when the transaction
is bound; agent unenforceable, but
PRINCIPAL’S involves things belonging to the PRINCIPAL
BEHALF is not personally may be ratified
liable
Apply ARTICLE Valid, whether or not General rule: The principal is not bound by the acts of
1883, generally the subject matter an agent beyond his limited powers. Third persons
not binding on belongs to the dealing with an agent do so at their risk and are bound
principal; agent principal, provided to inquire as to the scope of his powers.
IN AGENT’S and third person that at the time
BEHALF are the only delivery is to be Exceptions:
parties, except made, the agent can 1. Where principal’s acts have contributed to
regarding things transfer legally the deceive a third person in good faith (Art. 1911);
belonging to the ownership of the
principal thing Bar 1994
2. Where the limitations upon the power created
An agent must act within the scope of his authority. A by him could not have been known by the third
act beyond the scope of authority given does no bind person (Art. 1900);
the principal. (Pacific Rehouse v. EIB, 2010)
3. Where the principal has placed in the hands of
DEATH OF THE PRINCIPAL the agent instruments signed by him in blank; and

General rule: The agent shall no longer carry out the 4. Where the principal has ratified the acts of the
agency upon the death of the principal because death agent.
is a mode of extinguishment of agency. This is also
based on the representative character of agency such General Rule: A third person may hold the agent who
that the death of one extinguishes the relationship. acted beyond the scope of his authority liable for
whatever damage he may have caused to the third
Exceptions: person.

1. Should delay entail any danger (Art. 1884); Exceptions:

2. If the agency has been constituted in the common 1. A third person cannot set up the fact that the
interest of the principal and of the agent, or in agent exceeded his powers if the principal has
the interest of a third person who has accepted ratified or has signified his willingness to ratify
the stipulation in his favor (Art. 1930); or the agent’s acts.

3. If the agent has done any act on behalf of the 2. If the third person was aware that the agent was
principal without knowledge of his death. The acting in excess of his authority, the contract is
act shall be fully effective with respect to third void and the agent cannot be held liable
persons who may have contracted with him in
good faith. (Art. 1931) Exception to exception: If the agent undertook to
secure the principal’s ratification and he fails to do
so, the agent is STILL liable
TO ACT ON BEHALF OF HIS PRINCIPAL
(Art. 1868) General Rule: The agent who acts as such is not
personally liable to the person with whom he
contracts (Art. 1897).

14
AGENCY, TRUST, PARTNERSHIP CIVIL LAW

D. TO RENDER AN ACCOUNTING OF HIS


Exceptions: TRANSACTIONS AND TO DELIVER
1. He expressly binds himself (Art. 1897); (Art. 1891)

2. He exceeds the limits of his authority without Note: Every stipulation exempting the agent from the
giving the third person sufficient notice of his obligation to render an account shall be void (par. 2,
powers (Art. 1897); or Art. 1891, NCC)

3. The agent is liable not only for fraud, but If the agent fails to deliver and instead converts or
also for negligence (Art. 1909). appropriates for his own use the money or property
belonging to the principal, the agent is liable for
Despite the fact that the agent acted for himself, the estafa.
law gives the third person a cause of action against
the principal if the contract involves things belonging Exceptions to Article 1891:
to the principal because there might be a possible
collusion between the principal and the agent. Also, it 1. If the agent or broker acted only as a middleman
is usually the principal who has money. The third with the task of merely bringing together the
person may not recover anything from the agent, vendor and the vendee like a Broker (Domingo vs.
which is why the law permits the third person to have Domingo)
a cause of action against the principal. 2. If the agent or broker had informed the principal
of the gift or bonus or profit he received from the
DOCTRINE OF AGENCY BY NECESSITY purchaser and his principal did not object
An agency can NEVER be created by necessity; what is thereto.
created is an additional authority in an agent 3. Where a right of lien exists in favor of the agent.
appointed and authorized before the emergency
arose. The existence of agency or other unusual Note: The Article does NOT apply to the case of
conditions may operate to invest in an agent authority solutio indebiti for in such cases, recovery can be had
to meet the emergency, provided: (PURE) by the payor against the agent himself. Therefore,
the agent, for the meantime, can keep what had been
1. The agent’s enlarged authority is exercised given to him by error. (Paras, Civil Code of the
for the principal’s protection Philippines Annotated Special Contracts, p. 833, 18th
2. The agents is unable to communicate with ed.)
the principal
3. The means adopted are reasonable under the Note: The forfeiture of the commission will take place
circumstances EVEN IF the principal does not suffer any injury by
4. The emergency really exists reason of such breach of loyalty. It does not matter
that the agency was a gratuitous one, or that the
principal obtained better results, or that usage or
B. TO OBSERVE THE DILIGENCE OF A GOOD
custom allows the receipt of such a bonus. Indeed, an
FATHER OF A FAMILY ON ACCOUNT OF THE agent has an ABSOLUTE DUTY to make a full disclosure
GOODS RECEIVED BY HIM OWNED BY THE or accounting to his principal of all transactions and
PRINCIPAL material facts that may have some relevance with the
agency. (Domingo vs. Domingo)
RULE IF A PERSON DECLINES THE AGENCY
A person is of course free to refuse to be an agent;
E. TO BE RESPONSIBLE FOR THE ACTS OF
DUTY OF THE OWNER THE SUBSTITUTE
Upon the other hand, the owner must also act as soon Bar 1999
as possible: Art. 1892
a. By appointing an agent, or
The agent may appoint a substitute if the principal
b. By taking charge of the goods.
has not prohibited him from doing so; but he shall be
responsible for the acts of the substitute:
1. When he was not given the power to appoint
C. TO ADVANCE THE NECESSARY FUNDS one;
SHOULD THERE BE A STIPULATION TO DO 2. When he was given such power, but without
SO designating the person, and the person
Exception: The duty to advance shall not prosper if appointed was notoriously incompetent or
the principal is proven to be insolvent. insolvent.
All acts of the substitute appointed against the
prohibition of the principal shall be void. (1721)

15
AGENCY, TRUST, PARTNERSHIP CIVIL LAW

principal is given a right of action against the third


Note: person (Art. 1893).
SUBAGENT SUBSTITUTE Note: Just because losses were incurred by the
principal, the substitute may still not be held liable if
1. A subagent is 1 The
he acted within the scope of his authority, exercised
contracted by substit
due diligence, and the reason for the losses was
an agent to help ute
because of a fortuitous event.
him in the takes
accomplishment the
Can the principal directly hold the agent liable?
of the purpose place of
It must be considered whether the agent is prohibited
of the agency. the
from appointing a substitute or not. If the agent is
agent
prohibited and he appointed one, he is liable.
2. When an agent
appoints a
If the agent is not prohibited from appointing a
subagent, he
substitute, there are two scenarios:
does not
disassociate
(a) If he was not given the power to appoint a
himself from
substitute and he appointed one, he will be
the agency.
responsible for the acts of the substitute. If
he was given power, it doesn’t mean he’s
The agent is responsible for the acts of the subagent liable. The law states he will be responsible.
but is not responsible for the acts of the substitute.
But, the agent will be liable if he acted in bad
The right of action against the substitute is an faith. However, it must be kept in mind that the
exception to the general rule that contracts are agent is not the insurer of the business of the
binding only between the contracting parties, their principal
assign and heirs. (Privity of Contracts); (Art. 1311)
(b) If the agent was given the power to appoint a
Prohibited
substitute, he is still not necessarily liable.
from
Not prohibited from appointing a substitute
appointing a
substitute If principal designated a person to be appointed as
Not given the substitute, the agent may still be liable if he carried
power to Given the power to out the agency even though its execution would
appoint a appoint a substitute manifestly result in loss or damage (Art. 1888- all
substitute. provisions should be qualified by this provision). A
Person to scenario where the principal designated the person
The
If the be but he should not have appointed this person because
principal
substitution appointed
Agent is
designates
was not
it would result in loss or damage: if person designated
has
the is notoriously incompetent or insolvent.
liable if he occasioned designate
substitute
appoints a damage to d
substitute. the principal, The agent If the person to be appointed was not designated
the agent may still be although he was authorized, he will only be liable if:
Agent will
All acts of shall be liable if he person appointed is notoriously incompetent or
be liable
the primarily carried out insolvent.
if the
substitute responsible the agency
person
shall be void. for the acts of even
the though its
appointed F. RULES APPLICABLE TO A COMMISSION
is noto-
substitute. execution
riously
AGENT:
But the agent would
incompet FACTOR OR COMMISSION AGENT
will be liable manifestly
ent or One whose business is to receive and sell goods for a
if he acted in result in
insolvent. commission (also called factorage) and who is
bad faith. loss or
damage. entrusted by the principal with the possession of
goods to be sold, and usually selling in his own name.
Article 1892 would be relevant if while the property is
being managed by the substitute, losses were incurred He may act in his own name or in that of the
by the principal. principal. An ordinary agent need not have possession
of the goods of his principal, while the commission
Where the agent was given authority, can the principal agent must be in possession.
hold the substitute directly liable?
Not always. The substitute may invoke as a defense COMMISSION AGENT BROKER
that he has no privity of contract with the principal. One engaged in the purchase His only function is to bring
However, by express provision of the law, the and sale for a principal of the two parties together. As

16
AGENCY, TRUST, PARTNERSHIP CIVIL LAW

PERSONAL PROPERTY, which such, he does not have


for this purpose shall have to custody or possession of the The liability of the del credere agent is a contingent
be placed in his possession thing that he disposes of. pecuniary liability- to make good in the event the
and at his disposal.
buyer fails to pay the sum due. It does not extend to
Maintains no relation with
He has a relation not only other obligations of the contract such as damages for
the thing which he
with his principal, and the failure of the buyer to accept and pay for the goods.
purchases or sells. He is
buyers or sellers, but also
supposed to be merely a g-
with the property which
between, an intermediary The del credere agent may sue in his name for the
constituted the object of
between the seller and purchase price in the event of non-performance by the
transaction
buyer. buyer.

General rule: The agent must hold the property only in Note: Where the agent is not liable, the principal’s
the name of the principal. Where he violates that duty remedy is to proceed against the debtor. This article
by mingling the property with his own, he becomes a does not apply to a case where there is a guarantee
debtor of the principal and liable to him for any losses commission.
suffered as a result of the mingling.

Exceptions: By custom, some agents, such as V. Rights and Obligations


auctioneers, normally are permitted to mingle their
principal’s property with their own. of Principal
Some agents, such as collecting banks, are permitted 1. To comply with all the obligations which the
to mingle the funds of their principal (depositor) with agent may have contracted within the scope and
their own and the property of other principals. in representation of the principal
2. Advance sums necessary for the execution of the
If agent sells on credit without authority, the principal agency, when agent so requests; liable for
may: reimbursement regardless of the undertaking’s
success whenever agent has advanced & has no
(a) Require the payment in cash but any interest fault; interest inclusive
or benefit from the sale on credit shall 3. Indemnify the agent for all the damages which
belong to the agent since the principal the execution of the agency may have caused the
cannot be allowed to enrich himself at the latter without fault or negligence on his part
agent’s expense; or 4. Pay the agent the compensation agreed upon or
(b) Ratify the sale on credit in which case it will the reasonable value of the latter’s services.
have all the risks and advantages to him.
TO COMPLY WITH THE OBLIGATIONS CONTRACTED BY
The purpose is to prevent the agent from stating that THE AGENT
the sale was on credit when in fact is made for cash. Art. 1910.
The principal must comply with all the obligations
RULES APPLICABLE TO A GUARANTEE which the agent may have contracted within the
COMMISSION AGENT: DEL CREDERE AGENT scope of his authority.

GUARANTEE COMMISSION (DEL CREDERE COMMISSION) As for any obligation wherein the agent has
exceeded his power, the principal is not bound
1. One where, in consideration of an increased except when he ratifies it expressly or tacitly.
commission, the factor or commission agent
guarantees to the principal the payment of If the agent acts wherein the agent has exceeded his
debts arising through his agency. power, the principal is not bound except when he
ratifies it expressly or tacitly.
2. It is that commission given in return for the
risks the agent will have to bear in the TO ADVANCE TO THE AGENT THE SUMS NECESSARY
collection of credits. (Paras, Civil Code of the Art. 1912
Philippines Annotated Special Contracts, 18th
The principal must advance to the agent, should the
ed., 2016)
latter so request, he sums necessary for the
execution of the agency.
DEL CREDERE AGENT
The agent who guarantees payment of the customer’s
Should the agent have advanced them, the principal
account in consideration of a higher commission.
must reimburse him therefor, even if the business or
undertaking was not successful, provided the agent
The principal may sue the buyer in his own name
is free from all fault.
notwithstanding the del credere commission, so that
the latter amounts to no more than a guaranty.

17
AGENCY, TRUST, PARTNERSHIP CIVIL LAW

The reimbursement shall include all the sums wish to avail himself of the benefits derived from
advanced, from the day on which the advance was the contract;
made. 2. When the expenses were due to the fault of the
agent;
3. When the agent incurred them with knowledge
General rule: If it was stipulated that the agent should that an unfavorable result would ensue, if the
advance the necessary sums but the agent didn’t, he principal was not aware thereof;
will be liable.
Exception: The agent will not be liable if the principal When it was stipulated that the expenses would be
is insolvent. borne by the agent, or that the latter would be
allowed only a certain sum.
TO REIMBURSE THE AGENT THE SUMS ADVANCED
Art. 1912 LIABILITY WHEN THERE ARE 2 OR MORE PRINCIPALS:
SOLIDARY
The principal must advance to the agent, should the
Art. 1915
latter so request, he sums necessary for the
execution of the agency. If two or more persons have appointed an agent for a
common transaction or undertaking they should be
Should the agent have advanced them, the principal solidarily liable to the agent for all the consequences
must reimburse him therefor, even if the business or of the agency.
undertaking was not successful, provided the agent
is free from all fault.
Requisites:
The reimbursement shall include all the sums (1) There are two or more principals
advanced, from the day on which the advance was (2) The principals have all concurred in the
made. appointment of the same agent
(3) The agent is appointed for a common transaction
Art. 1918 or undertaking
The principal is not liable for the expenses incurred RIGHTS OF THIRD PERSONS IN INCOMPATIBLE
by the agent in the following cases: CONTRACTS WITH AGENT AND PRINCIPAL
The principal authorized the agent to enter into a
specific contract over a determinate thing. The agent
(1) If the agent acted in contravention of the entered into a contract over such thing with A but the
principal also entered into a similar contract with B
principal's instructions, unless the latter should wish
over the same thing. To determine who has a better
to avail himself of the benefits derived from the right, the contract entered into must be identified
contract; first. If it is a contract of sale, “priority in time,
priority in right” will not apply. Article 1544 is the
applicable rule.
(2) When the expenses were due to the fault of the
Art. 1544
agent;
If the same thing should have been sold to different
vendees, the ownership shall be transferred to the
person who may have first take possession thereof in
(3) When the agent incurred them without good faith, if it should be movable property.
knowledge that an unfavorable result would ensue,
if the principal was not aware thereof; Should it be immovable property, the ownership
shall belong to the person acquiring it who in good
faith first recorded it in the Registry of Property.
(4) When it was stipulated that the expenses would Should there be no inscription, the ownership shall
be borne by the agent, or that the latter would be pertain to the person who in good faith was first in
allowed only a certain sum. the possession; and, in the absence thereof, in the
person who presents the oldest title, provided there
is good faith.

One of the third persons may suffer damage. If such


The principal is not liable for the expenses incurred by
person filed an action for damages against both the
the agent in the following cases:
principal and the agent.
1. If the agent acted in contravention of the
principal's instructions, unless the latter should

18
AGENCY, TRUST, PARTNERSHIP CIVIL LAW

AGENT’S RIGHT OF RETENTION agency


1. Specific (only for those goods connected with the 4. When the agency means of fulfilling an obligation
agency) already contracted
2. Until the principal effects the reimbursement and 5. In the case of a partner appointed manager in the
pays the indemnity. contract of partnership and his removal from the
management is unjustifiable.
PRINCIPAL’S LIABILITY FOR EXPENSES 6. When there has been a WAIVER by the principal
7. When the principal is obliged not to revoke (he
General Rule: Principal is liable for the expenses can revoke but he may be held liable for damages
incurred by the agent. for breach of contract)
8. When the revocation is done in bad faith
Exceptions: (AFUS) (principal may revoke but cannot prejudice third
1. If the agent acted in contravention of the persons)
principal’s instructions, unless principal derives
benefits from the contract AGENCY COUPLED WITH AN INTEREST
2. When the expenses were due to the fault of the
agent If the authority of an agent is coupled with an
3. When the agent incurred them with knowledge interest, it is not revocable by the death, act, or
that an unfavorable result would ensue, if the condition of the principal, unless there is some
principal were not aware thereof agreement to the contrary between the parties.
4. When it was stipulated that the expenses would
be borne by the agent, or that the latter would be An agency coupled with an interest may still be
allowed only a certain sum. revoked if there is JUST CAUSE.

A mere statement in the power of attorney that it is


VI. Modes of coupled with interest is not enough.

Extinguishment A mere indication in the power of attorney that the


agency is coupled with an interest does not
Bar 1997
automatically make it irrevocable. The interest must
Agency is extinguished: (EDWARD Art. 1919)
be clearly indicated to make it irrevocable. (Del
1. By the expiration of the period for which the Rosario v. Abad)
agency was constituted
2. By the death, civil interdiction, insanity or
insolvency of the principal or of the agent MANNER OF REVOCATION:
3. By the withdrawal of the agent
4. By the accomplishment of the object or AGENT WITH GENERAL POWER
purpose of the agency Notice in the newspaper of general circulation is a
5. By its revocation sufficient warning to third persons.
6. By the dissolution of the firm or corporation
which entrusted or accepted the agency AGENT WITH SPECIFIC POWER
Notice is rescinded in the same manner in which it
was given (Art. 1872, par. 2)
A. REVOCATION OF AGENCY BY PRINCIPAL IMPLIED REVOCATION
Art. 1920 1. By the act of the principal in appointing another
The principal may revoke the agency at will, and agent for the same business or transaction
compel the agent to return the document evidencing 2. By the act of the principal in directly managing
the agency. Such revocation may be express or the business entrusted to the agent
implied. 3. By the act of the principal in subsequently
granting a special power of attorney as regards
General Rule: Agency is revocable at will of the the same business to another agent, where he had
principal, regardless of the term of agreement. previously granted a general power of attorney to
one agent.
Exceptions:
1. When it is coupled with an interest – interest
possessed by the agent not in the proceeds arising Art. 1926
from the exercise of power, but interest in the A general power of attorney is revoked by a special
subject matter of the power one granted to another agent, as regards the special
2. In the cases mentioned under Art. 1927 matter involved in the latter.
Bar
3. When a bilateral contract depends on the The making and accepting of a new power of attorney,

19
AGENCY, TRUST, PARTNERSHIP CIVIL LAW

whether it enlarges or decreases the power of the reasonable opportunity to appoint a new agent in
agent under a prior power of attorney, must be held order to prevent damage and prejudice to the
to supplant and revoke the latter when the two are principal.
inconsistent. If the new appointment with limited
powers does not revoke the general power of NOTE: If the agent files a complaint against his
attorney, the execution of the second power of principal, then he is understood to have renounced
attorney would be a mere futile gesture. (De Buncio & the agency because his act was more expressive than
Co. v Ong Guan Gan ) words and could not have caused any doubt. [Valera
v.Velasco, G.R. No. L-28050 (1928)]
Art. 1925
When two or more principals have granted a power C. DEATH OF THE PRINCIPAL OR AGENT
of attorney for a common transaction, any one of
General Rule: Agency is extinguished upon the death
them may revoke the same without the consent of
of either principal or agent.
the others.
Exceptions:
As a rule, the appointment of an agent by two or more 1. The agency is coupled with interest;
principals for a common transaction or undertaking 2. The act of the agent was executed without
makes them solidarily liable for the acts of agent in the knowledge of the principal’s death; and
accordance with the agency, hence, any one of them the third person who contracted with the
can revoke the same without the consent of the agent is in good faith; or
others. 3. The agent does any act without the
knowledge of the principal’s death. Such
act shall be valid and fully effective with
B. WITHDRAWAL OF THE AGENT FROM THE respect to third persons who may have
AGENCY contracted with the agent in good faith. (Art.
1931)
Art. 1928
4. Unfinished business
The agent may withdraw from the agency by giving
due notice to the principal. If the latter should Art. 1884 par. 2
suffer any damage by reason of the withdrawal, the
agent must indemnify him therefor, unless the agent He must also finish the business already begun on
should base his withdrawal upon the impossibility of the death of the principal, should delay entail any
continuing the performance of the agency without danger.
grave detriment to himself.
If the Agent dies, the heirs must:
General rule: 1. Notify the principal
2. Adopt measures as the circumstance may
1. The agent must give notice to the principal demand in the interest of the principal.
2. Must indemnify the principal should the latter
suffer damages by reason of the withdrawal NOTE: If the agent dies, his heirs should inform the
principal of such death. However, if the principal dies,
Exception: The agent based his withdrawal from the his heirs have no obligation to notify the agent.
impossibility of continuing the performance of the
agency without grave detriment to himself. D. OTHER MODES OF EXTINGUISHMENT:
1. Novation
The fact that an agent institutes an action against his 2. Termination by mutual consent
principal for the recovery of the balance in his favor 3. Termination by the lawyer.
resulting from the liquidation of the accounts between
them arising from the agency, and renders a final
CANON 22, RULE 22.01, CODE OF
account of his operations, is equivalent to an express
PROFESSIONAL RESPONSIBILITY
renunciation of the agency, and terminates the
juridical relation between them. (Valera v. Velasco)
A lawyer may withdraw his services in any of
the following cases:
Art. 1929
The agent, even if he should withdraw from the 1. When the client pursues an illegal or
agency for a valid reason, must continue to act until immoral course of conduct in
the principal has had reasonable opportunity to take connection with the matter he is
the necessary steps to meet the situation. handling;
2. When the client insists that the
Even if the agent’s withdrawal is for a valid reason, he lawyer pursue conduct violative of
must continue to act until the principal shall have these canons and rules;

20
AGENCY, TRUST, PARTNERSHIP CIVIL LAW

3. When his inability to work with co-


counsel will not promote the best
interest of the client;
4. When the mental or physical
condition of the lawyer renders it
difficult for him to carry out the
employment effectively;
5. When the client deliberately fails to
pay the fees for the services or fails
to comply with the retainer
agreement;
6. When the lawyer is elected or
appointed to public office; and
7. Other similar cases.

4. Outbreak of war inconsistent of the agency.

5. Loss of the thing

General Rule: The Loss or destruction of the


subject matter terminates the agency.

Exceptions:

a. If the thing lost or destroyed is capable of


substitution
b. In case of partial loss or destruction
The agency was extinguished by the loss of the
thing which is the object of the contract. The
agent was not held liable since the pendant was
lost due to a fortuitous event. The perpetrators
need not be convicted for the agency to be
extinguished. Mere proof as to the happening of
the incident is enough.10

6. Insolvency of the Agent


If the agent caused injury to the principal or third
person, the injured party cannot go after the
insolvent agent. This is a protection for the
principal.

10 Austria vs CA

21
AGENCY, TRUST, PARTNERSHIP CIVIL LAW

TRUSTS
obligation based on an ownership, embracing a set
undertaking supported by a of rights and duties fiduciary
consideration which in character which may be
obligation may or may not created by a declaration

I. Definition be fiduciary in character. without a consideration

Art. 1440 DEBT TRUST


Beneficiary of a trust has a
A person who establishes a trust is called the trustor; beneficial interest in the
one in whom confidence is reposed as regards A creditor only has a
trust property
property for the benefit of another person is known personal claim against the
as the trustee; and the person for whose benefit the debtor.
There if a fiduciary relation
No such fiduciary
trust has been created is referred to as the relationship between debtor
between a trustee and
beneficiary. beneficiary
and creditor.
A debt implies an obligation
A trust refers to a duty to
The fiduciary relationship between one person having to pay a certain sum of
deal with a specific
an equitable ownership in property and another owing money
property for the benefit of
the legal title to such property, the equitable another.
ownership of the former entitling him to the
performance of certain duties and the exercise of PARTIES IN TRUST
certain powers by the latter for the benefit of the
beneficiary. General rule: at least 3 people are needed for express
trust
It is a legal arrangement whereby the trustor transfers
his legal title to property to the trustee to be TRUSTOR
administered by the latter for the benefit of the Person who intentionally creates or establishes the
beneficiary. trust. He transfers legal ownership of property to a
person for the benefit of a third party, who owns the
What distinguishes a trust from other legal relations is equitable title.
the separation of the legal title and the equitable
ownership of the subject property between two or TRUSTEE
more people. Person who takes and holds the legal title to the
property in trust solely for the benefit of another,
General Rule: The trustee’s possession is NOT adverse with certain powers and subject to certain duties.
and therefore cannot ripen into a title by prescription.
BENEFICIARY OR CESTUI QUE TRUST
Exception: Unless he repudiates. Person who has the equitable title or interest in the
property and enjoys the benefit of the administration
DISTINGUISHED FROM OTHER FORMS: of the trust by the trustee.
BAILMENT TRUST Art. 1442
Delivery of property in trust
It is a characteristic in
necessarily involves a transfer
The principles of the general law of trusts, insofar as
bailment that the bailee they are not in conflict with this Code, the Code of
of legal title, or at least a
has possession of, without Commerce, the Rules of Court and special laws are
separation of equitable
legal title to, the property hereby adopted.
interest and legal title, with
subject to the bailment.
the legal title in the trustee.

DONATION TRUST
A trust is an existing legal relationship
and involves the separation of legal and
equitable title; and except in the case
of a gift in trust, involves a disposition
of both legal and equitable ownership.
A gift is a
The beneficiary of a trust may demand
transfer of
performance of the obligation without
property.
having formally accepted the benefit of
the trust in a public document, upon
mere acquiescence in the formation of
the trust and acceptance under the
second paragraph of Art 1311 of the
NCC

CONTRACT TRUST
A contract is a legal A trust always involves an

22
AGENCY, TRUST, PARTNERSHIP CIVIL LAW

II. Kinds of Trust Art. 1444


Art. 1441 No particular words are required for the creation of
Trusts are either express or implied. Express trusts are an express trust, it being sufficient that a trust is
created by the intention of the trustor or of the clearly intended.
parties. Implied trusts come into being by operation of
law. HOW CREATED
1. By conveyance to the trustee by an act inter
Express trust Implied trust vivos or mortis causa (as in a will)
Created by the intention Come into existence by 2. By admission of the trustee that he holds the
property only as a trustee. Paras, Volume IV,
of the trustor or parties operation of law p.894; Julio v. Dalandan
An express trust
An implied trust
concerning an Art. 1445
concerning an immovable
immovable or any No trust shall fail because the trustee appointed
or any interest therein
interest therein cannot declines the designation, unless the contrary should
may be proved by oral
be proved by parol appear in the instrument constituting the trust.
evidence
evidence
Resulting Trust: Does not Reason: The Court will appoint a new trustee, unless
prescribe unless expressly otherwise provided for in the trust instrument. (Sec.
repudiated by the trustee 3, Rule 98 of the Rules of Court)
(Ramos et. al v. Ramos, Ty
v. CA) Art. 1446
Does not prescribe as
long as it has not been Acceptance by the beneficiary is necessary.
Constructive Trust: An
repudiated (Diaz v. Nevertheless, if the trust imposes no onerous
action for reconveyance of
Garricho) condition upon the beneficiary, his acceptance shall
a real property prescribes
be presumed, if there is no proof to the contrary.
10 years from the issuance
of the title over the
For the trust to be effective, the beneficiary must
property. (Heirs of Olviga
accept: Expressly Or impliedly Or presumably (If the
v. CA)
granting of benefit is purely gratuitous, unless proven
In order that laches or Laches constitutes a bar
that he really did not accept) Paras, Volume IV, p.
acquisitive prescription to actions to enforce an 898
may bar an action to implied trust even where
enforce an express trust, there is no repudiation, MODES OF EXTINGUISHMENT
an express repudiation unless there is
1. Mutual agreement by all the parties
made known to the concealment of the fact
2. Expiration of the term
beneficiary is required giving rise to the trust 3. Fulfillment of the resolutory condition
4. Rescission or annulment
Art. 1457 5. Loss of the subject matter of the trust
An implied trust may be proved by oral evidence. 6. Order of the Court
7. Merger
8. Accomplishment of the purpose of the trust
A. EXPRESS TRUST
One which can come into existence only by the B. IMPLIED TRUST
execution of an intention to create it by the trustor or One which can comes into existence only by the
the parties. execution of an intention to create it by the trustor or
the parties.
ELEMENTS
a. A competent trustor and trustee
b. An ascertainable trust res; and
KINDS OF IMPLIED TRUST
c. Sufficiently certain beneficiaries. 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
Article 1442 shall be applicable.

1. RESULTING TRUST
2. CONSTRUCTIVE TRUST
1. RESULTING TRUST
Trust raised by implication of law and presumed

23
AGENCY, TRUST, PARTNERSHIP CIVIL LAW

always to have been contemplated by the parties, the upon his declared intention to hold it for, or transfer
intention as to which is to be found in the nature of it to another or the grantor, there is an implied trust
their transaction, but not expressed in the deed or in favor of the person whose benefit is
instrument of conveyance (Articles 1448, 1449, 1451, contemplated.
1452, and 1453);
2. CONSTRUCTIVE TRUST
They are based on the equitable doctrine that
valuable consideration and not legal title determines Trust created to satisfy the demands of justice and
the equitable title or interest. (Osorio Pension prevent unjust enrichment to the prejudice of the
Foundation v. CA, 621 SCRA 606) true owner. (Articles 1450, 1454, 1455, and 1456).

Art. 1448 Art. 1450


There is an implied trust when property is sold, and If the price of a sale of property is loaned or paid by
the legal estate is granted to one party but the price one person for the benefit of another and the
is paid by another for the purpose of having the conveyance is made to the lender or payor to secure
beneficial interest of the property. The former is the the payment of the debt, a trust arises by operation
trustee, while the latter is the beneficiary. of law in favor of the person to whom the money is
However, if the person to whom the title is loaned or for whom its is paid. The latter may
conveyed is a child, legitimate or illegitimate, of the redeem the property and compel a conveyance
one paying the price of the sale, no trust is implied thereof to him.
by law, it being disputably presumed that there is a
gift in favor of the child. Art. 1454
If an absolute conveyance of property is made in
order to secure the performance of an obligation of
NOTE: WHEN THERE IS NO IMPLIED TRUST the grantor toward the grantee, a trust by virtue of
1. If title is conveyed to a child. law is established. If the fulfillment of the obligation
2. Actual contrary intention is proved. is offered by the grantor when it becomes due, he
3. If purchase was made in violation of a may demand the reconveyance of the property to
statute. him.
PRESUMPTION: He who pays for a thing intends a Art. 1455
beneficial interest therein for himself. When any trustee, guardian or other person holding
a fiduciary relationship uses trust funds for the
Art. 1449 purchase of property and causes the conveyance to
There is also an implied trust when a donation is be made to him or to a third person, a trust is
made to a person but it appears that although the established by operation of law in favor of the
legal estate is transmitted to the donee, he person to whom the funds belong.
nevertheless is either to have no beneficial interest
or only a part thereof. NOTE: It is the duty of the trustee to make the funds
productive for the beneficiary by investing it in some
Art. 1451 PROPER SECURITY.
When land passes by succession to any person and he
causes the legal title to be put in the name of Art. 1456
another, a trust is established by implication of law If property is acquired through mistake or fraud, the
for the benefit of the true owner. person obtaining it is, by force of law, considered a
trustee of an implied trust for the benefit of the
Art. 1452 person from whom the property comes.
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 III. Subject Matter
in proportion to the interest of each.
The subject matter of a trust may be any property of
REQUISITES: value – real, personal, funds or money, or choses in
1. Two or more persons agree to purchase action.
property;
2. That they consent that one should take the The trust property must consist of property actually in
title in his name for everyone’s benefit. existence in which the trustor has a transferable
interest or title although it may, as a rule, be any kind
of transferable property either real or personal
Art. 1453 including undivided, future, or contingent interest
When property is conveyed to a person in reliance therein.

24
AGENCY, TRUST, PARTNERSHIP CIVIL LAW

Trust property cannot be a mere expectancy without


right or interest or a mere interest in the performance
of a contract although such interest is in the nature of
a property right.

25
AGENCY, TRUST, PARTNERSHIP CIVIL LAW

PARTNERSHIP
ARTICLES OF PARTNERSHIP
A written document stating the name, nature or
purpose and location of the firm, and defining, among
others, the powers, rights, duties, and liabilities of
I. Contract of Partnership the partners among themselves, their contributions,
the manner by which the profits and losses are to be
A. DEFINITION shared, and the procedure for dissolving the
Art. 1767. Civil Code partnership.
By the contract of partnership two or more persons
bind themselves to contribute money, property, or PARTNERSHIP FIDUCIARY IN NATURE
industry to a common fund, with the intention of Personal relation in which the element of delectus
dividing the profits among themselves. personae (choice of the person) exists, involving as it
does trust and confidence between the partners.
Two or more persons may also form a partnership for
the exercise of a profession. Unless otherwise provided in the partnership
agreement, no one can become a member of the
partnership association without the consent of all the
other associates.
B. ELEMENTS
ESSENTIAL ELEMENTS: Neither would the presence of a period for its specific
a. Meeting of minds duration or the statement of a particular purpose for
b. To form a common fund its creation prevent the dissolution of any partnership
c. With intention that profits (and losses) will be by an act or will of a partner.
divided among the contracting parties
Mutual agency arises and the doctrine of delectus
ESSENTIAL FEATURES: personae allows them to have the power, although not
1. There must be a valid contract necessarily the right to dissolve the partnership.
2. The parties must have legal capacity to enter into
contract The partner must however, act in good faith, not that
3. There must be mutual contribution of money, the attendance of bad faith can prevent the
property, or industry to a common fund dissolution of the partnership but that it can result in
4. There must be a lawful object a liability for damages.
5. The purpose or primary purpose must be to obtain
profits and divide the same among the parties PARTNERSHIP BY ESTOPPEL
A partnership liability may be imposed upon a person
C. CHARACTERISTICS under principles of estoppel where he holds himself
out, or permits himself to be held out, as a partner in
The contract of partnership is: an enterprise.
1. Consensual: Perfected by mere consent.
2. Nominate: Designated by a specific name There is no actual or legal partnership relation but
3. Bilateral/Multilateral: Entered into by two or merely a partnership liability imposed by law in favor
more persons of third persons.
4. Onerous: Certain contributions have to be
made. It is the substance and not the name of the
5. Principal, because it does not depend for its arrangement, which determines the legal relationship
existence or validity upon some other although the designation adopted by the parties
contracts; and should be considered as indicative of their intention.
6. Preparatory, because it is entered into as a
means to an end The existence and non-existence of a partnership must
be determined from the conduct of the parties, any
EXISTENCE OF A VALID CONTRACT documentary evidence bearing thereon, and the
Partnership is a voluntary relation created by testimony of the parties.
agreement of the parties
LEGAL CAPACITY
The contract may be oral or written, express or Under Art. 1782, persons who are prohibited from
implied from the acts and declarations of the parties, giving each other any donation or advantage cannot
subject to the provisions of Article 1771 to 1773 and enter into a universal partnership.
to the Statute of Frauds
There is no prohibition against a partnership being a
There must be a valid consideration (contribution) partner in another partnership
existing as between the partners.
Unless authorized by statute or by its charter, a

26
AGENCY, TRUST, PARTNERSHIP CIVIL LAW

corporation is without capacity or power to enter into D. PARTIES


a contract of partnership.
Who may become a Partner?
CONTRIBUTION OF MONEY, FUND, PROPERTY, OR Any person capacitated to contract may enter into a
INDUSTRY contract of partnership.
The partners must contribute capital which may be
money or property, or their services, or both, to a Bar 1994
common fund. Persons prohibited from giving each other any
donation or advantage cannot enter into universal
Property contributed may be real, personal, corporeal partnership.
or incorporeal.
Bar 1994
Credit or even mere goodwill may be contributed. May a corporation be a partner?
General rule: a corporation cannot become a member
The word “industry” has been interpreted to mean the of a partnership in the absence of express
active cooperation, the work of the party associated, authorization by statute or charter. (J.M.T. Wason and
Co., Inc. v. Bolanos)
which may be either intellectual or physical.
Exception: a corporation may enter into a joint
venture with another where the nature of that
Political credit or personal influence cannot be
venture is in line with the business authorized by its
contributed.
charter.
A limited partner cannot contribute mere “industry”
A joint venture is a form of partnership governed by
the law on partnerships (Philex Mining v. CIR)
There must be proof that there be contribution of
money, property or industry to a common fund with
the intention of dividing the income profits obtained CONSENT OR INTENTION TO BECOME A
therefrom. PARTNER
General Rule: No person can be held liable as a partner
If one of the parties takes part in carrying on the
nor may he assert rights as such without having given
enterprise, and thus subjects himself to partnership his consent.
liability to outsiders, he furnishes sufficient Exception: Estoppel
consideration for the promise and acquires all the
rights of a co-partner.
INTENTION IS TO BE DETERMINED FROM:
LEGALITY OF THE OBJECT 1. The nature of the relation agreed upon rather
When the object is unlawful (i.e. contrary to law, than the name the parties have given to it.
morals, good customs, public order, or public policy) 2. If there is a written agreement, from the
no partnership can arise therefrom as the contract is terms of the writing
void ab initio. 3. Action and conduct of the parties

No partnership can arise as the contract is inexistent LAWFUL SUBJECT MATTER AND CAUSE
and void ab initio
Art. 1347. Civil Code
A partnership may be organized for any purpose All things which are not outside the commerce of
except that it may not engage in an enterprise for men, including future things, may be the object of a
which the law requires a specific form of business contract. All rights which are not intransmissible
organization. may also be the object of contracts.

PURPOSE TO OBTAIN PROFITS No contract may be entered into upon future


It is necessary that there be an intention to divide the inheritance except in cases expressly authorized by
profits among the members, although not necessarily law.
in equal shares.
All services which are not contrary to law, morals,
A stipulation which excludes one or more partners good customs, public order or public policy may
from any participation in the profits (or losses) is void. likewise be the object of a contract.

Art. 1770. Civil Code


A partnership must have a lawful object or purpose,
and must be established for the common benefit or
interest of the partners.

27
AGENCY, TRUST, PARTNERSHIP CIVIL LAW

not come into existence and therefore, the


Art. 1411. Civil Code contribution was without any consideration. Thus, he
When the nullity proceeds from the illegality of the who has paid in his share is entitled to recover it.
cause or object of the contract, and the act
constitutes a criminal offense, both parties being in However, a party may not recover the profits earned
pari delicto, they shall have no action against each in the course of the partnership because they do not
other, and both shall be prosecuted. Moreover, the constitute the partner’s contribution but are the
provisions of the Penal Code relative to the disposal result of the object of the partnership. Considering
of effects or instruments of a crime shall be the contract is non-existent by reason of its illicit
applicable to the things or the price of the contract. object, it cannot give rise to the necessary action. It
would be immoral and unjust for the law to permit a
This rule shall be applicable when only one of the profit from an industry prohibited by it.
parties is guilty; but the innocent one may claim
what he has given, and shall not be bound to comply EFFECT ON THIRD PERSONS
with his promise When a third person deals with a partnership knowing
its unlawful object or purpose, he can expect no aid
Art. 1412. Civil Code from the law.
If the act in which the unlawful or forbidden cause
consists does not constitute a criminal offense, the Where third persons deal with the partnership without
following rules shall be observed: being aware of its illegal character, their good faith
1. When the fault is on the part of both cannot inject life into an inexistent contract.
contracting parties, neither may recover what
he has given by virtue of the contract, or Good faith may serve only as basis for the third party
demand the performance of the other's to demand indemnity from the partner/s
undertaking;
2. When only one of the contracting parties is at CONTRIBUTION TO COMMON FUND
fault, he cannot recover what he has given by
The cause of a contract of partnership which also
reason of the contract, or ask for the fulfillment
constitutes part of its subject matter is the mutual
of what has been promised him. The other, who
undertaking of the parties to contribute money,
is not at fault, may demand the return of what
property or industry to a common fund.
he has given without any obligation to comply
his promise.
Such mutual undertaking is an essential characteristic
of partnership, and its absence is considered an index
Art. 1414. Civil Code
that no partnership relation exists, although its
When money is paid or property delivered for an presence is not necessarily a conclusive evidence of
illegal purpose, the contract may be repudiated by the opposite.
one of the parties before the purpose has been
accomplished, or before any damage has been
caused to a third person. In such case, the courts
may, if the public interest will thus be subserved, BUSINESS FOR PROFIT
allow the party repudiating the contract to recover Not only must the partnership be formed to carry on a
the money or property. business. It must do so for the purpose of livelihood or
profit.

EFFECT OF ILLEGALITY COMMUNITY OF INTEREST


Art. 1409. Art. 1770
The following contracts are inexistent and void from A partnership must have a lawful object or purpose,
the beginning: and must be established for the common benefit or
(1) Those whose cause, object or purpose is contrary interest of the partners. xxx
to law, morals, good customs, public order or public
policy; xxx The fact that a partnership has a common fund and
established for the common benefit or interest of the
EFFECT ON THE PARTIES partners imply co-ownership of capital or property
As a result of the nullity of the partnership contract, employed, joint powers of management and control,
the parties thereto have no right to enforce claims and co-ownership of and joint participation in the
which depend upon its validity. profits and losses.

A party to the void partnership agreement may CO-OWNERSHIP OF CAPITAL OR PROPERTY


recover the amount contributed by him. Being void, The partners become co-owners of what is contributed
the purpose for which the contribution was made did to the firm capital and of all property that may be
acquired thereby and through the efforts of the

28
AGENCY, TRUST, PARTNERSHIP CIVIL LAW

members. division of profits by virtue of their respective titles as


part owners.
Property or stock of the enterprise forms a community
of goods, a common fund, in which each party has a CONJUGAL BUSINESS
proprietary interest. PARTNERSHIP PARTNERSHIP
Arises in case the
Created by
This should not be understood to mean that each and future spouses
voluntary
every partner should be a proportionate joint owner agree that it shall
agreement of two
govern their
of every partnership property. property relations
or more partners
belonging to either
during the
Art. 1769 sex
marriage.
In determining whether a partnership exists, these Governed by the
LAWS It is governed by
rules shall apply; xxx GOVERNING laws
stipulation of the
parties
(2) Co-ownership or co-possession does not of itself JURIDICAL
None Present
PERSONALITY
establish a partnership, whether such-co-owners or
Commences A partnership
co-possessors do or do not share any profits made by precisely on the begins from the
the use of the property; xxx date of the moment of
COMMENCEMENT celebration of the execution of the
Without the other elements of partnership, this single marriage and any contract, unless it
circumstance could only constitute the relation of stipulation to the is otherwise
simple co-ownership. contrary is void. stipulated
Regulate property
of husband and
CO-OWNERSHIP PARTNERSHIP PURPOSE Obtain profits
wife during
Generally created It is always created by marriage
Creation by law. It may exist a contract whether Profits are divided
without a contract express or implied according to the
Juridical Separate and juridical The shares of the agreement to the
None.
personality personality of his own DISTRIBUTION spouses in the agreement of the
It is the common OF PROFITS profits are partners or in
enjoyment of a divided equally proportion to their
thing or right which respective capital
Purpose Realization of profits
does not necessarily contributions
involve the sharing Management is
of profits shared equally by
Agreement to keep all the partners
the thing undivided There is no limitation The husband’s
unless one or more
Duration for more than 10 upon the duration of a decision shall
MANAGEMENT of them are
years is not partnership prevail in case of
appointed
allowed. disagreement
managers in the
A partner may not articles of
dispose of his partnership
individual interest in
Disposal of Co-owners may the partnership so as JOINT MANAGEMENT AND CONTROL
interests freely do so. to make the assignee a
All partners have equal rights in the management and
partner unless agreed
upon by all of the conduct of the partnership business. This rule does not
partners preclude the associates from vesting, by agreement,
A co-ownership in one member the sole management of the enterprise
cannot represent or any part of it without thereby defeating their
Power to
act with
the co-ownership.
A partner may bind
intent to form a partnership. In that case, the making
Hence, judgment of the agreement to relinquish control is itself an
third the partnership
against one co- exercise of the requisite right of control.
persons
owner will not bind
the co-owners
CO-OWNERSHIP OF PROFITS AND PARTICIPATION IN
Death of a co-owner
Death of s partner PROFITS AND LOSSES
Effect of does not necessarily
results in dissolution of A mutual promise or undertaking of the parties to
death dissolve the co-
the partnership share in the profits of the business and make good the
ownership.
losses is an indispensable essential of a partnership
Joint purchase of land or personalty for the purpose of contract.
selling them at profit to be divided in proportion to
the interest of the purchasers, does not necessarily
make them partners since they make such sale and

29
AGENCY, TRUST, PARTNERSHIP CIVIL LAW

E. RULES TO DETERMINE EXISTENCE OF


PARTNERSHIP WHEN CAPITAL AT LEAST P3,000

Art. 1769 Art. 1772


In determining whether a partnership exists, these Every contract of partnership having a capital of
rules shall apply; xxx three thousand pesos or more, in money or property,
shall appear in a public instrument, which must be
(4) The receipt by a person of a share of the profits of recorded in the Office of the Securities and
a business is prima facie evidence that he is a partner Exchange Commission. xxx
in the business, but no such inference shall be drawn
if such profits were received in payment: 
 The registration is to set “a condition for the issuance
1. As a debt by installments or otherwise; of licenses to engage in business or trade. In this way,
2. As wages of an employee or rent to a the tax liabilities of big partnerships cannot be
landlord; evaded, and the public can also determine more
3. As an annuity to a widow or representative accurately their membership and capital before
of a deceased partner; 
 dealing with them” (Dean Capistrano, IV, Civil Code of
4. As interest on a loan, though the amount of the Philippines, p. 260)
payment vary with the profits of the business;

 WHEN IMMOVABLES OR REAL RIGHTS CONTRIBUTED
5. As the consideration for the sale of a
goodwill of a business or other property by Art. 1771
installments or otherwise. A partnership may be constituted in any form, except
where immovable property or real rights are
The importance of this element is such that the law contributed thereto, in which case a public
considers the receipt by a person of a share in the instrument shall be necessary.
profits of a business prima facie evidence that he is a
partner in the business. Art. 1773
A contract of partnership is void, whenever immovable
Art. 1769 property is contributed thereto, if an inventory of said
In determining whether a partnership exists, these property is not made, signed by the parties, and
rules shall apply; xxx attached to the public instrument.

(2) Co-ownership or co-possession does not of itself What Article 1773 imposes as a requirement is the
establish a partnership, whether such-co-owners or making of an inventory and its being attached to the
co-possessors do or do not share any profits made by public instrument, not the execution of the public
the use of the property; xxx instrument.

Agreement to share gross returns is inconsistent with Art. 1768


the idea of community of interest in the business, The partnership has a judicial personality separate
joint ownership of the profits, and joint sharing of the and distinct from that of each of the partners, even in
losses. Partners are supposed to share the fortunes of case of failure to comply with the requirements of
the business; they should be interested in its failure as Article 1772, first paragraph.
well as successes. Consequently, if no profits have
been made, no partner is entitled to any share as Noncompliance of Article 1772 does not prevent the
against the others, for there is nothing to share. But acquisition of juridical personality. Acquisition of
where the agreement is to share gross returns, the juridical personality presupposes a valid contract.
share is independent of the existence of profits, and
may be taken when there is loss.

F. HOW PARTNERSHIP IS FORMED


General Rule
Art. 1771
A partnership may be constituted in any form xxx

Owing to its consensual character, a partnership, as a


general rule, may be oral or written, express or
implied from the conduct of the parties as well as
from their declarations.

30
AGENCY, TRUST, PARTNERSHIP CIVIL LAW

G. PARTNERSHIP TERM H. SEPARATE AND JURIDICAL PERSONALITY


COMMENCEMENT IN GENERAL
Art. 1784 Art. 1768
A partnership begins from the moment of the The partnership has a judicial personality separate
execution of the contract, unless it is otherwise and distinct from that of each of the partners, even in
stipulated. case of failure to comply with the requirements of
Article 1772, first paragraph.
TERM
Art. 1772
The length of a partnership’s life depends, first of all, Every contract of partnership having a capital of three
upon the agreement of the parties on the matter. No thousand pesos or more, in money or property, shall
statutory time limit is prescribed. The partnership will
appear in a public instrument, which must be
last until the expiration of the term, unless in the recorded in the Office of the Securities and Exchange
meantime an event supervenes which causes it Commission.
dissolution.
Failure to comply with the requirements of the
If no term is fixed but the partnership is formed for a
preceding paragraph shall not affect the liability of
particular undertaking, the partnership will last until the partnership and the members thereof to third
the completion of that undertaking, subject to the
persons.
condition that there is no dissolution due to other
causes.
CONSEQUENCES OF LEGAL PERSONALITY
a. Acquire and possess property of all kinds
If neither a fixed term nor a particular undertaking is
b. Incur obligations
specified, the partnership is one at will, lasting only
c. Bring civil or criminal actions, in conformity
during the mutual consent of the partners, and thus
with the laws and regulations of their
subject to dissolution at any time by their mutual
organization
agreement or by the act of any one of them alone.
WHEN NO JURIDICAL PERSONALITY ACQUIRED
Art. 1785
Art. 1775
When a partnership for a fixed term or particular
Associations and societies, whose articles are kept
undertaking is continued after the termination of such
secret among the members, and wherein any one of
term or particular undertaking without any express
the members may contract in his own name with third
agreement, the rights and duties of the partners
persons, shall have no juridical personality, and shall
remain the same as they were at such termination, so
be governed by the provisions relating to co-
far as is consistent with a partnership at will.
ownership.
A continuation of the business by the partners or such
The secrecy is not directed to third persons but to
of them as habitually acted therein during the term,
some of the partners.
without any settlement or liquidation of the
partnership affairs, is prima facie evidence of a
The rule is intended to preserve the equality, which
continuation of the partnership.
must exist among the partners, and to prevent any of
them from defrauding the partnership or the other
members. This being the case it does not prohibit
secret stipulations which are not designed to produce
this result.

31
AGENCY, TRUST, PARTNERSHIP CIVIL LAW

II. Kinds of Partnership ALL PRESENT PROPERTY ALL PROFITS


A. AS TO OBJECT All the property actually Only the USUFRUCT of the
Art. 1776 belonging to the partners properties of the partners
As to its object, a partnership is either universal or are contributed—and said becomes COMMON
particular. As regards the liability of the partners, a properties become PROPERTY (owned by them
partnership may be general or limited. COMMONE PROPERTY and the partnership);
(owned by all the NAKED OWNERSHIP is
1. UNIVERSAL PARTNERSHIP partners and by the retained by each of the
partnership.) partners.
Art. 1777
A universal partnership may refer to all the present ALL PROFITS acquired by
property or to all the profits. As a rule, aside from the the industry or work of the
contributed properties, partners become COMMON
only the PROFITS of said PROPERTY (regardless of
UNIVERSAL PARTNERSHIP OF PRESENT PROPERTY contributed COMMON whether or not said profits
Art. 1779 PROPERTY (not other were obtained through the
In a universal partnership of all present property, the profits.) usufruct contributed.)
property which belongs to each of the partners at the
time of the constitution of the partnership, becomes (NOTE: Profits from other (Paras, Civil Code of the
the common property of all the partners, as well as all sources may become Philippines Annotated
the profits which they may acquire therewith. COMMON, but only if Special Contracts, 18th
there is a stipulation to ed., 2016)
A stipulation for the common enjoyment of any other such effect.)
profits may also be made; but the property which the
partners may acquire subsequently by inheritance, Properties subsequently
legacy, or donation cannot be included in such acquired by inheritance,
stipulation, except the fruits thereof. legacy, or donation,
cannot be included in the
The prohibition is in consonance with and gives effect stipulation, BUT fruits
to the general provision of the Code disallowing can be included.
contracts upon future inheritance, except in cases
expressly authorized by law.

Art. 1347 PRESUMPTION WHEN KIND OF UNIVERSAL PARTNERSHIP


No contract may be entered into upon future NOT SPECIFIED
inheritance except in cases expressly authorized by
law. Art. 1781
Articles of universal partnership, entered into without
specification of its nature, only constitute a universal
UNIVERSAL PARTNERSHIP OF PROFITS partnership of profits.
Art. 1780
A universal partnership of profits comprises all that Art. 1378
the partners may acquire by their industry or work When it is absolutely impossible to settle doubts by
during the existence of the partnership. the rules established in the preceding articles, and the
doubts refer to incidental circumstances of a
Movable or immovable property which each of the gratuitous contract, the least transmission of rights
partners may possess at the time of the celebration of and interests shall prevail. If the contract is onerous,
the contract shall continue to pertain exclusively to the doubt shall be settled in favor of the greatest
each, only the usufruct passing to the partnership. reciprocity of interests. xxx

It does not extend to separate or joint acquisitions of A universal partnership of present property obviously
the partners through any means not requiring the involves greater transmission of rights or is more
exertion of human effort or intelligence, such as gifts onerous than universal partnership of profits.
or lottery prizes.
2. PARTICULAR PARTNERSHIP
Usufruct of future property does not pass to the
partnership, unless there is a stipulation to that Art. 1776
effect. As to its object, a partnership is either universal or
particular. As regards the liability of the partners, a

32
AGENCY, TRUST, PARTNERSHIP CIVIL LAW

partnership may be general or limited.


PARTNERSHIP FOR A PARTICULAR
Art. 1783 UNDERTAKING
A particular partnership has for its object determinate
things, their use or fruits, or specific undertaking, or A specific undertaking is indicated without
the exercise of a profession or vocation. specification of the term but owing to the nature of
its purpose. The partnership shall end upon the
Even a partnership involving or contemplating several completion of the undertaking.
transactions or undertakings in a particular kind of
business constitutes a particular partnership. PARTNERSHIP AT WILL
Partnership is designated to continue for no fixed
B. AS TO LIABILITY OF PARTNERS period of time and is formed to last only during the
Art. 1776 mutual consent or pleasure of the parties, its
xxx. As regards the liability of the partners, a existence being terminable at the will of any one or
partnership may be general or limited. more of them.

1. GENERAL PARTNERSHIP (ORDINARY)


A general partnership is one wherein all the partners III. Kinds of Partners
are liable with their individual property for BASIS OF CLASSIFICATION
partnership obligations. This is the most common Partnership may be classified from the point of view
form. of their:
a. liability;
2. LIMITED PARTNERSHIP (SOCIEDAD EN b. contribution;
COMANDITA) c. degree or manner their connection with the
partnership is known or made known;
Limited partnership is one when only some partners
d. time they joined the partnership;
are personally liable for partnership obligations; the
e. special duties;
others’ liability are limited to their capital
f. status after dissolution.
contribution.

C. AS TO EMPLOYMENT OR BUSINESS A. GENERAL AND LIMITED PARTNERS


As to liability
1. COMMERCIAL PARTNERSHIP (TRADING) General Partner Limited Partner
A commercial partnership is one which has for its Has control and Not entitled to participate in the
object the realization of some mercantile or management of management and control of the
commercial act either as a means or an end. It is a the business business
partnership devoted exclusively to the buying and Exempt from personal liability
Personally liable
selling of personal property or merchandise for profit. for the partnership obligations,
for partnership
his liability being limited to his
obligations
2. NON-COMMERCIAL PARTNERSHIP (NON- capital contribution
TRADING)
B. CAPITALIST AND INDUSTRIAL PARTNERS
Partnership formed by professionals for the exercise
of their professions. As to their contribution
Capitalist Partner Industrial Partner
SIGNIFICANCE OF DISTINCTION Contributed only his industry or
Non-Commercial services.
Commercial Partnership
Partnership
Deemed a merchant and Cannot be regarded as Cannot engage in business for
subject to the provisions merchant and is exempt himself UNLESS the partnership
of the Code of Commerce from the application of expressly permits him to do so;
relating to merchants. those provisions. Contributes money and if he should do so, the
A partner has more A partner has less powers or property to the capitalist partners may either:
powers of representation of representation partnership capital
1. Exclude him from the
firm; or
D. AS TO DURATION 2. Avail themselves of the
benefits which he may
PARTNERSHIP WITH A FIXED TERM have obtained in
violation of such
A time period has been stipulated in the agreement.

33
AGENCY, TRUST, PARTNERSHIP CIVIL LAW

prohibition with contract is


damages. (Art. 1789) made; and
b. So far unknown
and inactive in
C. ORIGINAL AND INCOMING PARTNERS partnership
affairs that the
As to the time they joined the partnership business
Original Partner reputation of the
(Charter Incoming Partner
partnership
member)
could not be said
One brought in as a new member to have been in
of an existing partnership. any degree due
to his connection
Liable for all the obligations of the with it.
partnership arising before his
One who
admission as though he had been a
becomes a His connection with
partner when such obligations were
member at the the partnership is
incurred. But his liability in respect concealed and his
time of the
to such obligations shall be
organization. name is not used by
satisfied only out of partnership
the firm, and he does
property unless he stipulates not take any active
otherwise. As to old obligations, his part in it so that he is
individual or separate property is generally unknown to
not liable. those dealing with
the partnership.
D. MANAGING PARTNER & LIQUIDATING
PARTNER
As to special duties
Liquidating Partner
Managing Partner
(Winding)
One who is charged, by
One to whom the other
agreement after
partners have entrusted
dissolution, or by law,
or delegated the
with the duty of
responsibilities of
liquidating the affairs of
management.
the partnership.

E. OSTENSIBLE, NOMINAL, & DORMANT


PARTNERS
As to degree or manner their connection with the
partnership is known or made known
Ostensible Nominal
Dormant Partner
Partner Partner
Silent or secret
Name is made partner
Also appears
known and
or is held out
appears or is Art. 1834. The
to the world
held to the liability of a partner
as a partner,
world as a under the first
but has no
partner, paragraph, No. 2,
real interest
whether or shall be satisfied out
in the firm or
not in reality of partnership assets
business.
he is such. alone when such
partner had been
Also comes
If in fact he is prior to dissolution:
within the
not a partner,
concept of a
he is a a. Unknown as a
partner by
partner by partner to the
estoppel.
estoppel person with
whom the

34
AGENCY, TRUST, PARTNERSHIP CIVIL LAW

F. RETIRING, CONTINUING & SURVIVING partnership


PARTNERS begins
from the
As to their status after dissolution moment of
Continuing the
Retiring Partner Surviving Partner
Partner execution
One who, after of the
dissolution, ceases Partners Partners who contract,
to be a partner, who remain after unless it is
which is carries on continue dissolution by otherwise
by the others. He is the business death. On them stipulated .
liable for after it has are reposed the
partnership been duty of Upon perfection of the contract of partnership, the
obligations dissolved liquidating the partners are immediately bound by certain obligations
incurred while he due to the partnership which exist even if not expressly agreed upon by them
was a partner, but retirement affairs unless because they are provided by law. These obligations
not subsequent or death of continuation of form part of their contract as natural elements
ones, provided he one or more the business has thereof.
has given the of the other been agreed
necessary notice of partners. upon.
dissolution.
A. PROMISED CONTRIBUTION
G. PARTNER BY ESTOPPEL OBLIGATIONS WITH RESPECT TO CONTRIBUTION OF
PROPERTY:
Although not an actual partner, he has made himself
liable as such by holding himself out as a partner or 1. To contribute at the beginning of the partnership
allowing himself to be so held out. or at the stipulated time the money, property or
industry which he may have promised to
contribute
IV. Rights & Obligations of 2. To answer for eviction in case the partnership is
deprived of the determinate property contributed
Partnership 3. To answer to the partnership for the fruits of
the property, the contribution of which he
delayed, from the date they should have been
RESPONSIBILITIES OF THE PARTNERSHIP TO contributed up to the time of actual delivery
4. To preserve said property with the diligence of a
PARTNERS: good father of a family pending delivery to the
partnership
1. Refund the amounts disbursed by partner in
Art. 1796
behalf of the partnership plus corresponding
interest from the time the expenses are The partnership shall be responsible to every partner
made (e.g. loans and advances made by a for the amounts he may have disbursed on behalf of
partner to the partnership aside from capital the partnership and for the corresponding interest,
contribution) from the time the expense are made; it shall also
answer to each partner for the obligations he may
2. Answer for obligations a partner may have have contracted in good faith in the interest of the
contracted in good faith in the interest of the partnership business, and for risks in consequence of
partnership business its management.
5. To indemnify partnership for any damage caused
3. Answer for risks in consequence of its to it by the retention of the same or by the delay
management (Art. 1796) in its contribution

EFFECT OF FAILURE TO CONTRIBUTE PROPERTY


V. Rights & Obligations of PROMISED
(1) Partners become ipso jure a debtor of the
Partners Among partnership even in the absence of any demand
(2) Remedy of the other partners is not rescission but
Themselves specific performance with damages from the
defaulting partner

Art. 1784 Bearing Risk of Loss of things Contributed


A Specific and determinate things which Partner

35
AGENCY, TRUST, PARTNERSHIP CIVIL LAW

are not fungible where only the use is PROHIBITION AGAINST ENGAGING IN COMPETITIVE
contributed BUSINESS
Specific and determinate things the Bar 2001
ownership of which is transferred to the Partnership 1. Capitalist Partner
partnership Cannot engage in business (within the same line of
Fungible things Partnership business with the partnership) unless partnership
Things contributed to be sold Partnership expressly permits him to do so. (Art. 1789)
Things bought and appraised in the
Partnership Consequences:
inventory
Specific and determinate things which 1. He may be required to bring to the common fund
are not fungible where only the use is Partner the profits he derived from the other business
contributed 2. He shall personally bear the losses
3. He may be ousted from the partnership,
OBLIGATIONS WITH RESPECT TO CONTRIBUTION OF especially if there is a warning
MONEY AND MONEY CONVERTED TO PERSONAL USE
(ART. 1788) 2. Industrial Partner
1. To contribute on the date fixed the amount Cannot engage in business (within the same line of
he has undertaken to contribute to the business with the partnership) for his own account,
partnership unless there is stipulation to the contrary. (Art. 1808
2. To reimburse any amount he may have taken
from the partnership coffers and converted Consequences:
to his own use 1. He can be excluded from the partnership
3. To pay for the agreed or legal interest, if he 2. The capitalist partners can avail of the benefit he
fails to pay his contribution on time or in case obtained from the business
he takes any amount from the common fund 3. The capitalist partners have the right to file an
and converts it to his own use action for damages against the industrial partner,
4. To indemnify the partnership for the damages in either case.
caused to it by the delay in the contribution
or conversion of any sum for his personal OBLIGATIONS WITH RESPECT TO
benefit MANAGEMENT
General Rule: All partners have equal rights in the
OBLIGATIONS WITH RESPECT TO CONTRIBUTION TO
PARTNERSHIP CAPITAL (ART 1790) management and conduct of the partnership business.
1. Partners must contribute equal shares to the
capital of the partnership unless there is Power of
managing
stipulation to the contrary. Vote of partners
Partner is partner is
2. Partners (capitalist) must contribute representing
additional capital in case of imminent loss to appointed irrevocable
controlling
the business of the partnership and there is
manager in the without
Articles of interest
no stipulation otherwise; refusal to do so just/lawful
Partnership necessary to
cause; Revocable
shall create an obligation on his part to sell revoke power
only when in bad
his interest to the other partners.
faith
Partner is Power is
B. FIDUCIARY DUTY appointed
revocable at any
manager after
A partnership is a fiduciary relation – one entered into constitution of time for any
and to be maintained on the basis of trust and Partnership cause
confidence. A partner must observe the utmost good In case of
faith, fairness, and integrity in his dealings with the 2 or more persons opposition,
others: entrusted with
decision of
management of
1. He cannot directly or indirectly use majority shall
partnership
partnership assets for his own benefit without Each may prevail; In case
2. He cannot carry on a business of the specification of execute all acts of a tie, decision
partnership for his private advantage duties/ of administration of the partners
3. He cannot, in conducting the business of the stipulation that
owning
each shall not act
partnership, take any profit clandestinely controlling
w/o the other’s
4. He cannot obtain for himself that he should consent interest shall
have obtained for the partnership prevail
5. He cannot avail himself of knowledge or Stipulated that Concurrence of Absence or
information which may be properly regarded none of the
all partners to disability of any
as the property of the partnership managing
partners shall act uphold validity of one cannot be
w/o the consent the act alleged unless

36
AGENCY, TRUST, PARTNERSHIP CIVIL LAW

of the others there is for his share only (Art. 1793)


imminent danger
or grave or Requisites:
irreparable
injury to 1. A partner has received in whole or in part, his
partnership share of the partnership credit
If refusal of one 2. The other partners have not collected their
1. All partners
partner is shares
are agents of the
manifestly 3. The partnership debtor has become insolvent
partnership
Manner of prejudicial to
2. Unanimous
management not interest of
agreed upon consent required
partnership,
C. DISTRIBUTION OF PROFITS AND LOSSES
for alteration of
court’s A stipulation, which excludes one or more partners
immovable
intervention may from any share in the profits or losses, is void
property
be sought
PROFITS LOSSES
With According to According to
Except when authorized by the other partners or agreement agreement agreement
unless they have abandoned the business, one or more If sharing of
but less than all the partners have NO AUTHORITY to: profits is
1. Assign the partnership property in trust for stipulated - same
Share of capitalist
creditors or on the assignee's promise to pay applied to losses
partner is in
the debts of the partnership;
proportion to his
2. Dispose of the good-will of the business; If no profit
capital contribution
3. Do any other act which would make it sharing
Without
impossible to carry on the ordinary business agreement
stipulated –
Share of industrial
of a partnership; borne according
partner is not fixed –
4. Confess a judgment; 
 to capital
as may be just and
5. Enter into a compromise concerning a contribution
equitable under the
partnership claim or liability; 
 circumstances
6. Submit a partnership claim or liability to Purely industrial
arbitration; partner is not
7. Renounce a claim of the partnership. liable for losses

No act of a partner in contravention of a restriction on


authority shall bind the partnership to persons having
knowledge of the restriction.
D. PROPERTY RIGHTS OF A PARTNER
(Art. 1810)
OBLIGATION OF MANAGING PARTNERS WHO COLLECTS 1. His rights in specific partnership property
DEBT FROM PERSON WHO IS ALSO OWED THE 2. His interest in the partnership
PARTNERSHIP (ART. 1792) 3. His right to participate in the management

1. Apply sum collected to 2 credits in proportion Nature of Partner’s Right in Specific Partnership
to their amounts Property (Art. 1811)
2. If he received it for the account of
partnership, the whole sum shall be applied 1. Partners have equal rights to
to partnership credit possession,
2. Which are not assignable,
Requisites: 3. Such right is limited to the share of
1. There exists at least 2 debts, one where the what remains after partnership
collecting partner is creditor and the other, debts have been paid
where the partnership is the creditor; 4. Is not subject to attachment or
2. Both debts are demandable execution, except on a claim against
3. The partner who collects is authorized to the partnership.
manage and actually manages the partnership 5. It is not subject to legal support.

OBLIGATION OF PARTNER WHO RECEIVES SHARE OF Nature of Partner’s Interest in the Partnership
PARTNERSHIP CREDIT (A1812)– share in the profits and surplus.

Obliged to bring to the partnership capital what he


has received even though he may have given receipt

37
AGENCY, TRUST, PARTNERSHIP CIVIL LAW

VI. Obligations of Exception: When 3rd person


has no authority
Partnership / Partners to Acts of agency in NOT
DOES NOT bind partnership
carrying the USUAL
Third Persons business of the
unless authorized by other
partners
1. Every partnership shall operate partnership
under a firm name. Partnership not liable to 3rd
Acts in contravention of
2. Person who include their names in persons having actual or
granted authority
the partnership name even if they presumptive knowledge of
are not members shall be liable as a the restrictions
partner (Art. 1815)
3. All partners shall be liable for
contractual obligations of the 1. CONTRACTUAL OBLIGATIONS
partnership with their property, General Rule: Each partner is the agent of the
after all partnership assets have partnership for the conduct of its business,
been exhausted: Pro rata or Where an act of a partner is within his apparent
Subsidiary authority, it is incumbent upon an objecting partner
4. Admission or representation made by to prove not only the acting partner’s lack of authority
a partner concerning partnership but also knowledge of such lack of authority in the
affairs within scope of his authority person with whom such acting partner dealt.
is evidence against the partnership
5. Notice to partner of any matter THIRD PERSONS
relating to partnership affairs The authority of a partner must be sought in the
operates as notice to partnership, actual agreement of the partners, or through
except in case of fraud: implication arising from the nature of the business or
a) Knowledge, of partner acting in the the actual or usual manner in which it is conducted by
particular matter, acquired while a the particular partnership or by similar partnerships in
partner the same locality, or else from a reasonable inference
b) Knowledge of the partner acting in of its necessity or fitness for the successful operation
the particular matter then present of a particular business.
to his mind
c) Knowledge of any other partner who A contract executed by a partner in behalf of the
reasonably could and should have partnership is binding upon it if the same is essential
communicated it to the acting or reasonably necessary to the furtherance of the
partner. partnership business.

1. Partners and the partnership are solidarily liable CONTRACTS OF EMPLOYMENT


to 3rd persons for the partner's tort or breach of Generally, each partner has, in the ordinary course of
trust the partnership’s business, the power to bind the firm
2. Liability of incoming partner is limited to: and other partners by the employment of third
persons whose services are reasonable necessary for
1. His share in the partnership property for carrying on its business.
existing obligations
2. His separate property for subsequent PURCHASES OF PROPERTY
obligations Purchases made by a partner of property within the
scope of the partnership’s business come within his
3. Creditors of partnership preferred in partnership apparent authority and are binding on the partnership.
property & may attach partner's share in
partnership assets CONVEYANCE OR DISPOSAL OF PROPERTY
Disposal of partnership assets in the usual course of
4. Every partner is an agent of the partnership. business (assets which are its stock in trade or held for
the purpose of sale) comes within the scope of a
partner’s apparent authority. Any such disposal is,
A. ACTS WITHIN APPARENT AUTHORITY therefore, binding on the partnership even though it
be made in bad faith by a partner for the purpose of
PARTNERS AS AGENTS defrauding his copartner if the other party to the
Acts of agency in Every Partner is an agent transaction is in good faith.
carrying the USUAL and may execute acts with
business of the binding effect even if he
partnership has no authority.

38
AGENCY, TRUST, PARTNERSHIP CIVIL LAW

2. REAL PROPERTY partnership


The transaction is held to be No such power is
TITLE IS IN THE NAME OF THE PARTNERSHIP within the implied power of a recognized in the
A conveyance by a partner, in his own name, passes partner to enter into and absence of proof that it
the equitable interest of the partnership. Provided, hence the partnership is liable, is necessary or
that the act in one within the partner’s authority even if the borrowing partner customary in the
under Art. 1818. misapplies or converts the pursuance of its
money. business.
TITLE IS IN THE NAME OF ONE OR MORE BUT NOT ALL
THE PARTNERS Regardless of the trading or non-trading character of
If the record does not disclose the right of the the partnership, it is not liable on a loan made to one
partnership, the partners may convey title to such partner solely on his credit, even though he uses the
property. But, the partnership may recover the money for the partnership.
property if the partners’ act does not bind the
partnership under Art. 1818, unless the purchaser is a But the fact that the note given for the loan was
holder for value without knowledge. signed by the partner individually, while a
circumstance in determining the intention of the
TITLE IS IN THE NAME OF ONE, MORE, OR ALL OF THE parties, does not necessarily relieve the partnership of
PARTNERS OR A THIRD PERSON IN TRUST FOR THE liability, if the partner had authority to bind the firm
PARTNERSHIP and the action was taken with this intent and was so
A conveyance by a partner in the partnership name or accepted.
in his own name passes the equitable interest of the
partnership. Provided, that the act in one within the NEGOTIABLE INSTRUMENTS
partner’s authority under Art. 1818. Notes executed by a partner in the ordinary course of
business are binding on the other partners even
TITLE IS IN THE NAME OF ALL THE PARTNERS though they had no knowledge of the execution
Their conveyance passes all their rights in such thereof.
property.
PLEDGES AND MORTGAGES
NOTE: The right to convey conferred by Article 1819 The authority of the partner, even without the
includes the right to mortgage. knowledge or consent of his copartner or copartners,
to pledge or mortgage any or all of the personal
3. PERSONAL PROPERTY property of the firm to secure its debts is generally
recognized.
A partner’s power of disposition extends, not to
tangible chattels alone, but to intangible ones (choses
But he is not allowed to apply firm assets to the
in action) as well.
payment of his separate obligations. He has no
authority to pledge or mortgage them for said
Scope of authority of a Scope of authority of a
partner in a commercial partner in a non- obligations without his partners’ consent.
partnership commercial partnership
Partner has, in the course of With respect to real estate, Article 1819 applies.
trade and within the scope of Since ownership of the
the firm’s business, an partnership property is COLLECTION AND ENFORCEMENT OF CLAIMS
absolute right to dispose of indispensable to its Each partner has implied authority to collect and
and sell the effects and continuation, a partner is receive payment of debts due the firm in the absence
personal property of the without power to sell of an agreement to the contrary, and even if such an
firm, even the whole of such and dispose of all the agreement exists it will not affect the firm debtor
effects, albeit they joint property if the unless he has notice thereof.
constitute the entirety of its other partner or partners
assets, so long as he acts in have not given their Payment to one partner is payment to the
absolute good faith and the assent. partnership, and this result is not affected by the
sale is not fraudulent. subsequent misapplication or conversion by said
partner of the funds received, unless the debtor has
LEASES knowledge of his intent to misapply or convert it.
A lease signed by one partner only binds the
partnership where the lease is made in furtherance of
the partnership’s business.
B. ACTS NOT WITHIN APPARENT
BORROWING MONEY AUTHORITY
Scope of authority of a Scope of authority of a GUARANTY AND SURETYSHIP
partner in a commercial partner in a non-
partnership commercial A partner lack authority to bind the partnership on a

39
AGENCY, TRUST, PARTNERSHIP CIVIL LAW

contract of guaranty or suretyship because normally, a 2. Dispose of the good-will of the business; 

partnership is organized to carry on business for its 3. Do any other act which would make it
members; it is not usual for persons in business to impossible to carry on the ordinary business of a
assist other persons by making themselves answerable partnership;
for their debts. 4. Confess a judgment;
5. Enter into a compromise concerning a
To bind the partnership by such a contract, showing partnership claim or liability; 

must be made, in the absence of ratification, that 6. Submit a partnership claim or liability to
authority to execute it was specially given for the arbitration;
purpose, or could be implied from the common course 7. Renounce a claim of the partnership.
of the firm’s business or from the previous course of
dealing between the parties.
ASSIGNMENT FOR BENEFIT OF CREDITORS
PAYMENT OF PARTNER’S SEPARATE DEBT
In the absence of evidence that the other partner or
A partner has no apparent or implied authority to use partners have abandoned the business, the
partnership property for the payment or to secure the partnership assets cannot, without their consent, be
payment of his separate debts or any other purely assigned to a trustee for the benefit of the firm’s
personal purpose. creditors by one partner.
Even in cases where the other partners give their An assignment made in violation of this rule is void.
consent to or ratify an application by a partner of firm
property to his own uses, partnership creditors may
DISPOSAL OF GOODWILL
have such application set aside for being in fraud of “Good will” of a business refers to the reasonable
them. expectation of its continues profitable operation, it
involves the name of the firm, its reputation for doing
SUBSCRIPTION TO STOCK business, the location, the number and character of
its customers, the former success of its business, and
As a general rule, one partner has no apparent or other elements which would be advantageous in the
implied authority to bind his firm by subscribing to the operation of the business.
stock of a corporation where the ownership of such
stock does not appear to be within the scope of the The prohibition refers to an agreement not to
firm business, or where there was no special authority continue and compete in the same business to which
to make such subscription. the good will is attached. Such a disposition is void,
unless the other partners ratify it or are incapable of
Ratification by the other partners would be necessary acting or have abandoned the business to the partner
to make the firm liable on it. making it.
Such subscription may be deemed within the scope of
the business of the firm if it is engaged in the sale of
OTHER ACTS MAKING IT IMPOSSIBLE TO
stocks. CARRY ON ORDINARY BUSINESS
An act of bankruptcy, such as an admission in writing
GIFTS AND OTHER GRATUITOUS ACTS made by one partner purportedly in behalf of his firm,
that it is unable to pay its debts and willing to be
The giving by a partner of firm property as gifts or of
firm services for free is inconsistent with the adjudged bankrupt on that ground.
partnership’s main purpose in carryon on its business,
The cancellation of a contract the performance of
namely, the making of profit.
which constitutes the entire business of the
partnership.
The donee of the firm property may thus be
compelled to account for it to the nonassenting
The act may be ratified by the other partners, either
partners.
expressly or by implication.
ACTS REQUIRING UNANIMOUS CONSENT
CONFESSION OF JUDGMENT
Art. 1818
A partner is expected to exert diligence and observe
xxx Except when authorized by the other partners or
utmost good faith in defending the interests of the
unless they have abandoned the business, one or
partnership in suits against it. He is not supposed to
more but less than all the partners have no authority
waive or give up defenses available to the firm.
to:
1. Assign the partnership property in trust for
A judgment resulting from such a transaction is void as
creditors or on the assignee's promise to pay the
to the non-assenting partners but valid as to the
debts of the partnership;
partner confessing. It will be binding on the other

40
AGENCY, TRUST, PARTNERSHIP CIVIL LAW

partners if they subsequently ratify it or are guilty of Art. 1823


laches. The partnership is bound to make good the loss:
1. Where one partner acting within the scope of his
Creditors may file an action if the confession is apparent authority receives money or property of
fraudulent. a third person and misapplies it; and
2. Where the partnership in the course of its
COMPROMISE OF PARTNERSHIP CLAIM OR business receives money or property of a third
LIABILITY person and the money or property so received is
misapplied by any partner while it is in the
This is an act of strict dominion. custody of the partnership.

SUBMISSION TO ARBITRATION Art. 1824


A partner has no implied authority to compromise a All partners are liable solidarily with the partnership
partnership claim or liability and if he does not have for everything chargeable to the partnership under
that authority he cannot grant it to an arbitrator. Articles 1822 and 1823.

1. TORTIOUS ACTS
RENUNCIATION OF PARTNERSHIP CLAIM
On the principle of mutual agency, the partnership, or
This is an act of strict dominion. every member of a partnership, is liable for torts
committed by one of the members acting within the
ABANDONMENT OF BUSINESS scope of the firm business, though they do not
participate in, ratify, or have knowledge of such torts.
The Code authorizes a partner, or any number of them
which is less than all, to do any or all of the foregoing
The test of liability is whether the wrong was
acts if the others have abandoned the business.
committed in behalf of the partnership and within the
reasonable scope of its business, and, if so committed,
KNOWN RESTRICTIONS ON AUTHORITY the partners are all liable as joint tortfeasors.
By agreement among the partners. If no agreement
exists, a partner may limit the authority of a co- Innocent partners will not be held responsible for the
partner to bind him and may exempt himself from tortious acts of a partner done outside the scope of
liability by giving notice that he is not bound by his the partnership.
partner’s act in some particular matters.
2. CRIMINAL ACTS
If the restriction refers to a matter within the scope Partnership can violate a criminal statute quite apart
of the partnership business, a third person dealing from the participation and knowledge of the partners
with the partner to whom the restriction is addressed as individuals, although its conviction cannot be used
is not required to inquire the power of the partner to to punish the individual partners, who might be
bind the firm. completely free of personal guilt, and can lead only to
a fine on its assets.
If such third person has knowledge or notice of
restriction, the partner’s act done in contravention If the partnership itself obtains the fruits of the
thereof will not bind the partnership. violations which are committed knowingly by its
agents within the scope of their employment, the
Art. 1818 business entity cannot be left free to break the law
xxx No act of a partner in contravention of a merely because owners (the partners) do not
restriction on authority shall bind the partnership to personally participate in the infraction.
persons having knowledge of the restriction.
A partnership may be held responsible for the
LIABILITY FOR WRONGFUL ACTS OR commission of a criminal act to the same extent as
the partner or partners committing the act.
OMISSIONS
Art. 1822 With respect to the partners, the absence of personal
Where, by any wrongful act or omission of any partner participation in the criminal act, one partner cannot
acting in the ordinary course of the business of the be held liable for the intentional criminal act of his
partnership or with the authority of co-partners, loss co-partner with the knowledge and consent of its
or injury is caused to any person, not being a partner members.
in the partnership, or any penalty is incurred, the
partnership is liable therefor to the same extent as Civil liability arising from such acts: The partnership
the partner so acting or omitting to act. and the partners are solidarily liable.

41
AGENCY, TRUST, PARTNERSHIP CIVIL LAW

3. FRAUD AND MISREPRESENTATION of another by estoppel under Article 1825.


A partnership is responsible for fraud committed by a
partner on behalf of the partnership. Art. 1769
xxx Except as provided by Article 1825, persons who
4. CONVERSION AND MISAPPROPRIATION are not partners as to each other are not partners as
Partnership, or all the members thereof, may be liable to third persons; xxx
for a conversion of goods committed by a member of
the firm acting within the scope of his authority, even Art. 1825
where the other members of the firm had no When a person, by words spoken or written or by
knowledge of the errant partner’s action at the time, conduct, represents himself, or consents to another
and did not consent thereto. representing him to anyone, as a partner in an
existing partnership or with one or more persons not
5. ADMISSIONS OR REPRESENTATIONS actual partners, he is liable to any such persons to
Art. 1820 whom such representation has been made, who has,
An admission or representation made by any partner on the faith of such representation, given credit to
concerning partnership affairs within the scope of his the actual or apparent partnership, and if he has
authority in accordance with this Title is evidence made such representation or consented to its being
against the partnership. made in a public manner he is liable to such person,
whether the representation has or has not been
Statements made by a partner during the life of the made or communicated to such person so giving
partnership and in connection with the conduct of the credit by or with the knowledge of the apparent
firm’s business are admissible in evidence as partner making the representation or consenting to
admissions against the partnership or the other its being made:
members thereof even though the declarant is not a 1. When a partnership liability results, he is
party to the action. liable as though he were an actual member
of the partnership;
Majority of the courts recognize that a partner has the 2. When no partnership liability results, he is
authority to bind the other members of the firm by liable pro rata with the other persons, if
statements made after dissolution of the partnership any, so consenting to the contract or
only when the statements are made in the process of representation as to incur liability,
winding up the partnership affairs. otherwise separately.

6. NOTICE OR KNOWLEDGE When a person has been thus represented to be a


Art. 1820 partner in an existing partnership, or with one or
Notice to any partner of any matter relating to more persons not actual partners, he is an agent of
partnership affairs, and the knowledge of the the persons consenting to such representation to
partner acting in the particular matter, acquired bind them to the same extent and in the same
while a partner or then present to his mind, and the manner as though he were a partner in fact, with
knowledge of any other partner who reasonably respect to persons who rely upon the representation.
could and should have communicated it to the acting When all the members of the existing partnership
partner, operate as notice to or knowledge of the consent to the representation, a partnership act or
partnership, except in the case of fraud on the obligation results; but in all other cases it is the
partnership, committed by or with the consent of joint act or obligation of the person acting and the
that partner. persons consenting to the representation.

The exception is when fraud on the partnership is Example of this is when a person, who, not being a
committed by or with the consent of the partner member of a partnership, includes his name in the
having such notice or knowledge or that partner is partnership’s firm name. (Art. 1815).
acting beyond his power.

PARTNERSHIP LIABILITY BY ESTOPPEL


No person who has not given his consent therefor can
be held liable as a partner nor may he assert rights as
such.

Art. 1769
xxx Except as provided by Article 1825, persons who
are not partners as to each other are not partners as
to third persons; xxx

An exception is when a person may be held a partner

42
AGENCY, TRUST, PARTNERSHIP CIVIL LAW

INDIVIDUAL LIABILITY OF PARTNERS FOR FOR WORKMEN’S COMPENSATION


PARTNERSHIP ACTS Since the Workmen’s Compensation was enacted to
give full protection to the employee, reason demands
ALL PARTNERS that the nature of the obligation of the employers to
pay compensation to the heirs of their employee who
FOR CONTRACTS
died in line of duty, should be solidary; otherwise the
Art. 1816
purpose of the law could not be attainted.
All partners, including industrial ones, shall be liable
pro rata with all their property and after all the
partnership assets have been exhausted, for the PARTNER BY ESTOPPEL
contracts which may be entered into in the name and The liability of a partner by estoppel is according to
for the account of the partnership, under its signature whether or not a partnership liability results from his
and by a person authorized to act for the partnership. representing himself, or his consenting to be
However, any partner may enter into a separate represented, as a partner.
obligation to perform a partnership contract.
Art. 1825
Art. 1817 xxx (1) When a partnership liability results, he is
Any stipulation against the liability laid down in the liable as though he were an actual member of the
preceding article shall be void, except as among the partnership;
partners.
(2) When no partnership liability results, he is liable
The individual liability of each partner under pro rata with the other persons, if any, so consenting
partnership contracts is thus only pro rata and to the contract or representation as to incur
secondary or subsidiary, not solidary and primary. liability, otherwise separately.

Solidary liability was extraordinary for obligations


arising from contract and served as a deterrent to the INCOMING PARTNER
formation of partnerships.
Art. 1826
But a partner may enter into a separate obligation to A person admitted as a partner into an existing
perform a partnership contract. In that case, his partnership is liable for all the obligations of the
liability becomes primary, not merely secondary or partnership arising before his admission as though he
subsidiary. had been a partner when such obligations were
incurred, except that this liability shall be satisfied
FOR TORTS AND DELICTS only out of partnership property, unless there is a
Art. 1822 stipulation to the contrary.
Where, by any wrongful act or omission of any partner
acting in the ordinary course of the business of the SUIT BY OR AGAINST PARTNERSHIP
partnership or with the authority of co-partners, loss CAPACITY TO SUE OR BE SUED
or injury is caused to any person, not being a partner Being a juridical person, a partnership may sue or be
in the partnership, or any penalty is incurred, the sued. (Art. 46) It may bring civil or criminal actions.
partnership is liable therefor to the same extent as It may sue or be sued in its firm name, a change in
the partner so acting or omitting to act. which will not affect this right or capacity.
Art. 1823 A partnership guilty of an act of insolvency may be
The partnership is bound to make good the loss: proceeded against and declared bankrupt in
1. Where one partner acting within the scope of insolvency proceedings despite the solvency of each of
his apparent authority receives money or the partners composing it.
property of a third person and misapplies it;
and In an action to dissolve the partnership, the
2. Where the partnership in the course of its partnership must be included as a party since it is
business receives money or property of a entitled to be heard in matters affecting its existence
third person and the money or property so as well as the appointment of a receiver applied for.
received is misapplied by any partner while it
is in the custody of the partnership. It is not necessary in a suit against the partnership to
serve summons or other process to each of the
Art. 1824 partners, it being sufficient, that the same be served
All partners are liable solidarily with the partnership on its managing agent or any other official.
for everything chargeable to the partnership under
Articles 1822 and 1823. The death of any of the partners does not justify the
dismissal of a pending action against the partnership.

43
AGENCY, TRUST, PARTNERSHIP CIVIL LAW

JOINDER OF FIRM AND PARTNERS (1) When any new partner is admitted into an existing
Both the partnership and the separate partners may partnership, or when any partner retires and assigns
be joined as defendants in the same action under the (or the representative of the deceased partner
condition that the judgment should recognize or assigns) his rights in partnership property to two or
protect the right of the partners to prior exhaustion of more of the partners, or to one or more of the
the partnership property. partners and one or more third persons, if the business
is continued without liquidation of the partnership
EXECUTION AGAINST PARTNERS’ SEPARATE PROPERTY affairs; xxx
Where the partner’s liability for a partnership
obligation is only secondary or subsidiary, their right If two of the partners of a partnership got married,
to prior exhaustion of the partnership assets is the partnership will not be dissolved because a mere
deemed already satisfied where at the time the change in the relations does not dissolve the
judgment is executed against the partnership they are partnership. The change should result to the partner
unable to show that they possess any more assets. ceasing to be a partner.

This also hold true where the court finds that If no partner ceased to be associated in the business
partnership property no longer exists at the time the of the partnership, the partnership may still be
action is brought. dissolved when a person is admitted into the
partnership as a new partner.

VII. Dissolution The death of a partner does not terminate a


partnership. At best, it only dissolves the partnership
(Art. 1830) because termination is a different stage. After
dissolution, the next stage is the winding up of the
partnership affairs.
A. CONCEPTS AND DEFINITIONS
Art. 1828 As a general rule, upon dissolution, no act of a partner
The dissolution of a partnership is the change in the may bind the partnership and the other partners.
relation of the partners caused by any partner ceasing
to be associated in the carrying on as distinguished Generally, the effect of the dissolution is the
from the winding up of the business. termination of the authority of the partners to act for
the partnership except when there are unfinished
Bar 1993 transactions entered into before the dissolution.
Art. 1829
On dissolution the partnership is not terminated, but DOCTRINE OF DELECTUS PERSONAE: Any one of the
continues until the winding up of partnership affairs is partners may cause the dissolution of the partnership
completed. when no express term was specified for its existence.
However, it is required that this action be done in
Dissolution designates the point in time when the good faith. Among partners, mutual agency arises and
partners cease to carry on the business together; the doctrine allows them to have the power, although
termination is the point in time when all the not necessarily the right, to dissolve the partnership.
partnership affairs are wound up; winding up, the This dissolution by one partner done in bad faith will
process of settling partnership affairs after not nullify the action but it entitles the other partners
dissolution. to damages.

Article 1828 is not comprehensive enough to cover all Art. 1832


kinds of dissolution contemplated by the Code. Except so far as may be necessary to wind up
partnership affairs or to complete transactions begun
There is judicial opinion to the effect that a change in but not then finished, dissolution terminates all
the personnel of a partnership dissolves it. When a authority of any partner to act for the partnership:
person becomes a member of an existing partnership, 1. With respect to the partners:
that partnership is, in legal theory, dissolved and a 1. When the dissolution is not by the act,
new partnership comes into being composed of the old insolvency or death of a partner; or
members and the new. This is supported by Art. 2. When the dissolution is by such act,
1840(1). insolvency or death of a partner, in cases
where article 1833 so requires;
Art. 1840 3. With respect to persons not partners, as
In the following cases creditors of the dissolved declared in article 1834.
partnership are also creditors of the person or
partnership continuing the business: Example of transactions entered into after the
dissolution which may still bind the partnership are

44
AGENCY, TRUST, PARTNERSHIP CIVIL LAW

selling of all the property or assets and payment of admission of a new partner into an existing
partnership debts (winding up of the partnership partnership, the retirement of any partner who assigns
affairs). his rights in specific partnership property, and the
assignment by all partners or their representatives of
A contract in the usual way of carrying on the their rights in partnership property to one or more
business, not for the winding up of the partnership third persons who promise to pay this partnership
affairs, but entered into after the dissolution may still debts.
bind the partnership when the partner entering into
the contract has no knowledge of the dissolution
caused by the act, death or insolvency of a partner.
The third person must also have acted in good faith.

B. CAUSES OF DISSOLUTION
Bar 1993, 1995, 1997
Art. 1830
Dissolution is caused:
(1) Without violation of the agreement between the
partners:
(a) By the termination of the definite term or
particular undertaking specified in the
agreement;
(b) By the express will of any partner, who
must act in good faith, when no definite
term or particular is specified;
(c) By the express will of all the partners who
have not assigned their interests or suffered
them to be charged for their separate
debts, either before or after the
termination of any specified term or
particular undertaking;
(d) By the expulsion of any partner from the
business bona fide in accordance with such
a power conferred by the agreement
between the partners;
(3) In contravention of the agreement between the
partners, where the circumstances do not permit
a dissolution under any other provision of this
article, by the express will of any partner at any
time;
(4) By any event which makes it unlawful for the
business of the partnership to be carried on or for
the members to carry it on in partnership;
(5) When a specific thing which a partner had
promised to contribute to the partnership,
perishes before the delivery; in any case by the
loss of the thing, when the partner who
contributed it having reserved the ownership
thereof, has only transferred to the partnership
the use or enjoyment of the same; but the
partnership shall not be dissolved by the loss of
the thing when it occurs after the partnership has
acquired the ownership thereof;
(6) By the death of any partner;
(7) By the insolvency of any partner or of the
partnership;
(8) By the civil interdiction of any partner;
(9) By decree of court under the following article.

Is the Statutory Enumeration Exclusive? No


The list is not exclusive because the Code
recognizes other causes in Art. 1840 such as the

45
AGENCY, TRUST, PARTNERSHIP CIVIL LAW

1. VOLUNTARY, EXTRAJUDICIAL AND


WITHOUT VIOLATION OF AGREEMENT IN A PARTNERSHIP AT WILL, BY EXPRESS WILL OF ANY
PARTNER
Art. 1830.
Art. 1830. Dissolution is caused:
Dissolution is caused: (b) By the express will of any partner, who must act in
good faith, when no definite term or particular is
1. Without violation of the agreement between the specified; 

partners:
a. By the termination of the definite term or A partnership at will (one with no definite term or
particular undertaking specified in the specified particular undertaking) is designed to endure
agreement; for no longer than the mutual consent of the partners.
b. By the express will of any partner, who must
act in good faith, when no definite term or Accordingly, it may be dissolved by the express will of
particular is specified; 
 any partner when he pleases and at a moment’s
c. By the express will of all the partners who notice.
have not assigned their interests or suffered
them to be charged for their separate debts, The notice, though, must be communicated to the
either before or after the termination of any other partners, and it is only then that the partnership
specified term or particular undertaking; 
 is dissolved.
d. By the expulsion of any partner from the
business bona fide in accordance with such a No particular form of notice is required; it is sufficient
power conferred by the agreement between that unequivocal acts or circumstances are brought to
the partners; the knowledge of the other partners that signify
exercise of the will or purpose to terminate the
EXPIRATION OF TERM OR UNDERTAKING partnership.
Art. 1830.
Dissolution is caused: An improper or unreasonable time is when things are
(a) By the termination of the definite term or no longer entire that were of consequence to
particular undertaking specified in the agreement; partnership, and which should have deferred the
dissolution. However, there is no express requirement
A partnership formed to continue for a definite term is that dissolution must not be made unseasonably.
dissolved ipso facto on the expiration of the term.
EXPRESS WILL OR MUTUAL ASSENT OF ALL PARTNERS
Each partner is entitled to have the value of his Art. 1830
interest in the firm fixed as of the time and eventually Dissolution is caused:
paid to him after the settlement of all firm liabilities. (c) By the express will of all the partners who have
not assigned their interests or suffered them to be
Once the undertaking terminates, the purpose of the charged for their separate debts, either before or
partnership’s formation is fulfilled, and it will have no after the termination of any specified term or
more reason to exist. particular undertaking; 


Art. 1785 This may be done by express agreement, oral or


When a partnership for a fixed term or particular written, or by words and acts implying or indicating an
undertaking is continued after the termination of such intention to dissolve the partnership.
term or particular undertaking without any express
agreement, the rights and duties of the partners The partners may agree upon the terms of dissolution
remain the same as they were at such termination, so differing from those originally provided in the
far as is consistent with a partnership at will. partnership agreement, and in case of conflict with
the partnership agreement, the terms of the
A continuation of the business by the partners or such dissolution agreement control.
of them as habitually acted therein during the term,
without any settlement or liquidation of the Where the partnership is not a partnership at will, the
partnership affairs, is prima facie evidence of a decision to dissolve must be unanimous among all the
continuation of the partnership. partners, or at least among those who have not
assigned their interests or suffered them to be
In Art. 1785, There is a change in the relationship charged for their separate debt.
among the partners, and a new partnership is created
by implied agreement, this time a partnership at will, The mere assignment by a partner of his interest in
no longer one with a term or particular undertaking. the partnership or his suffering it to be charged for his
separate debt does not cause a dissolution of

46
AGENCY, TRUST, PARTNERSHIP CIVIL LAW

partnership. This fact merely provides the other 3. JUDICIAL


partners with a ground for dissolving the partnership
by mutual consent. WHO MAY APPLY
Bar 1995
Art. 1831
EXPULSION OF A PARTNER PURSUANT TO AGREEMENT On application by or for a partner the court shall
Art. 1830 decree a dissolution whenever: xxx
Dissolution is caused:
(d) By the expulsion of any partner from the business On the application of the purchaser of a partner's
bona fide in accordance with such a power conferred interest under Article 1813 or 1814: xxx
by the agreement between the partners;
Dissolution may be decreed on the application of the
No statutory power is vested in any of the partners or assignee or purchaser of a partner’s interest under
even a majority of them to expel a co-partner from Art. 1813 or Art. 1814, provided such application is
the firm. Such power may, however, be conferred by filed after the termination of the specified term or a
agreement. particular undertaking; but if the partnership was a
partnership at will when the interest was assigned or
Such is a simple, practical and speedy method of the charging order was issued, then the application
separating a partner whenever that is found necessary may be filed at any time.
for the maintenance of a harmonious functioning of
the partnership. This power must be exercise in good C. GROUNDS
faith. Bar 1995
Art. 1831.
On application by or for a partner the court shall
2. VOLUNTARY, EXTRAJUDICIAL & IN decree a dissolution whenever:
CONTRAVENTION OF AGREEMENT 1. A partner has been declared insane in any judicial
proceeding or is shown to be of unsound mind;
No one can be forced to continue as partner against 2. A partner becomes in any other way incapable of
his will. Every partner is possessed of an indefeasible
performing his part of the partnership contract; 

option to dissolve the partnership at any time even
3. A partner has been guilty of such conduct as tends
though the dissolution is in contravention of the
to affect prejudicially the carrying on of the
partnership agreement.
business;
4. A partner willfully or persistently commits a
Art. 1830
breach of the partnership agreement, or
Dissolution is caused:
otherwise so conducts himself in matters relating
In contravention of the agreement between the to the partnership business that it is not
partners, where the circumstances do not permit a reasonably practicable to carry on the business in
dissolution under any other provision of this article, by
partnership with him; 

the express will of any partner at any time;
5. The business of the partnership can only be
carried on at a loss; 

The relation of partners is one of agency. The agency
is such a personal one that equity cannot enforce it 6. Other circumstances render a dissolution
even where the agreement provides that it shall equitable.
continue for a definite time.
On the application of the purchaser of a partner's
He renders himself liable for damages to the other interest under Article 1813 or 1814:
partners which they may deduct from the value of his 1. After the termination of the specified term or
interest in the partnership (Art. 1837). He also loses particular undertaking;
the right to wind up (Art. 1836). 2. At any time if the partnership was a partnership
at will when the interest was assigned or when
the charging order was issued.

INSANITY
The insanity of a partner does not of itself work a
dissolution.

It merely provides a ground upon which the other


partners may apply for dissolution by decree of court.
The court must look to the effect produced upon the
partnership relation and business, and may order

47
AGENCY, TRUST, PARTNERSHIP CIVIL LAW

dissolution thereof only if insanity materially affects under Art. 1813 or its sale in consequence of its
the capacity of the partner to discharge the duties being subject to a charging order under Art. 1814
imposed by his contractual relation. does not of itself cause a dissolution.

INCAPACITY But in such a case the assignee or purchaser is entitled


This refers to incapacity other than insanity. It to apply for a judicial dissolution after the
considers incapacity which is lasting and from which termination of the specified term or particular
recovery is remote. It is also a ground for dissolution undertaking or at any time if the partnership was a
since a partner is expected to devote his time, effort partnership at will when the interest was assigned or
and ability and likewise, his partners are entitles to when the charging order was issued.
receive such. Hence, failure to perform to a degree,
the rule will apply where courts have the power to BY OPERATION OF LAW
decree the dissolution of the partnership because of Bar 1995
the incapacity of the partner which materially affects Art. 1830
his duties to discharge his duties on the partnership. Dissolution is caused:
xxx
1. By any event which makes it unlawful for the
MISCONDUCT OR BREACH OF AGREEMENT business of the partnership to be carried on or
Misconduct or breach must be of a gross or serious for the members to carry it on in partnership; 

nature, something which goes to the substance of the 2. When a specific thing which a partner had
contract. promised to contribute to the partnership,
it must be willful or so persistent in character as to perishes before the delivery; in any case by the
show lack of good faith, or be such as to be productive loss of the thing, when the partner who
of serious and permanent injury to the partnership or contributed it having reserved the ownership
to render it impracticable to carry on its business. thereof, has only transferred to the partnership
A limited partner who is a limited partner in another the use or enjoyment of the same; but the
partnership is not a serious misconduct because a partnership shall not be dissolved by the loss of
limited partner is not allowed to participate in the the thing when it occurs after the partnership
management of the business and therefore he will has acquired the ownership thereof; 

never know the trade secrets. There is no conflict of 3. By the death of any partner; 

interest. 4. By the insolvency of any partner or of the
Discourtesy to partnership clients is a valid ground for partnership; 

dissolution only when it causes serious damage or 5. By the civil interdiction of any partner;
injury.
SUPERVENING ILLEGALITY
OPERATION AT LOSS A partnership is required to be formed for the pursuit
A partnership is formed for the purpose of realizing of a lawful object in order that it may validly exist
profits. If this purpose cannot be attained and instead (Art. 1770). This requirement carries with it the
of profits there is only the prospect of incurring condition that its existence and operation continue to
losses, the partnership loses its reason for existing. It be lawful.
would then be inequitable to force a partner to
remain in the partnership. When the loss occurs after the partnership has
acquired the ownership, it may still be dissolved if the
use or enjoyment of the thing is the sole object of the
OTHER CIRCUMSTANCES: partnership.
DISSENSIONS, FRAUD AND MISREPRESENTATIONS IN 

FORMATION OF PARTNERSHIP LOSS OF SPECIFIC THING CONTRIBUTED
Quarrels, dissensions and disagreements of such a Partnership is dissolved because it becomes impossible
nature and to such extent that all confidence and for the partner to comply with his undertaking and for
cooperation between the partners have been the partnership to pursue or realize an essential part
destroyed or where bitter antagonistic feeling of its object, the utilization of the promised thing.
between the partners has developed to the point that
they can no longer continue the partnership to their DEATH OF PARTNER
mutual advantage. The ceasing to be associated by any of the partners in
the carrying on of the business together, death of any
of the partners dissolves the partnership without
ON APPLICATION OF ASSIGNEE OR PURCHASES OF exception, regardless of any agreement to the
PARTNER’S INTEREST contrary.
Bar 1998
Assignment of a partner’s interest in the partnership The only meaning and effect of an agreement

48
AGENCY, TRUST, PARTNERSHIP CIVIL LAW

purporting to continue the partnership even after the engaging in separate prohibition)
death is to suspend the consequences of dissolution business of similar
(winding up and termination). nature
Retirement, death, Death of limited partner
Any partnership continuing the business pursuant to insolvency, insanity of does not have same
such an agreement must be regarded as a new general partner dissolves effect, maybe assigned
partnership. partnership to legal representatives

CHARACTERISTICS:
INSOLVENCY
Such insolvency must necessarily be one decreed by a 1. Formed by compliance with statutory
court. requirements
2. One or more general partners control the
It is from the moment of such a decree that all the business
property and effects of the partnership or of the 3. One or more general partners contribute to the
partner concerned are taken away from the partners capital and share in the profits but do not
or from the insolvent partner and become vested in participate in the management of the business
the assignee or trustee who shall thenceforth manage and are not personally liable for partnership
and dispose of the same for the benefit of the obligations beyond their capital contributions
creditors. 4. May ask for the return of their capital
contributions under conditions prescribed by law
The insolvent partner’s interest in the partnership 5. Partnership debts are paid out of common fund
passes to the assignee, and he then becomes and the individual properties of general partners.
incapable of performing his dues as partner because if
he cannot manage his own property, there is no 2 ESSENTIAL REQUIREMENTS FOR FORMATION OF
reason why he should be allowed to manage that of LIMITED PARTNERSHIP
the partnership. 1. Certificates or Articles of Limited Partnership,
which must be signed and sworn to.
CIVIL INTERDICTION OF A PARTNER
Civil interdiction deprives him, among other things, of 2. Certificates/Articles must be recorded with SEC.
the right to manage his property and of the right to
dispose of such property by any act of conveyance When General Partner needs consent of Limited partners
inter vivos. 1. Do any act in contravention of the certificate
2. Do any act which would make it impossible to
It is incongruous that he should be allowed to manage carry on the ordinary business of the partnership
partnership property, which may be considered the 3. Confess judgment against partnership
property of another or of which he is only a co-owner. 4. Possess partnership property/assign rights in
specific partnership property other than for
partnership purposes
5. Admit person as general partner
VII. Limited Partnership 6. Admit person as limited partner – unless
authorized in certificate
GENERAL Partners LIMITED Partners 7. Continue business with partnership property on
Liability is only up death, retirement, civil interdiction, insanity or
Personally liable for
limited to capital insolvency of gen partner unless authorized in
partnership obligations
contribution certificate
Absent any stipulation to
the contrary, all general
No participation in
partners have an equal
management RIGHTS OF LIMITED PARTNERS
right in the management
of the business 1. Right to have partnership books kept at principal
Contribute cash, Cash and property place of business
property or industry contribution ONLY 2. Right to inspect/copy books at reasonable hour
Proper party to 3. Right to have on demand true and full info of all
Not proper party things affecting partnership
proceedings by/against
by/against partnership 4. Right to have formal account of partnership affairs
partnership
Interest not assignable whenever circumstances render it just and
Interest is freely reasonable
without consent of other
assignable 5. Right to ask for dissolution and winding up by
partners
Name of partners may Names of partners MUST decree of court
appear in the firm name appear in the firm name 6. Right to receive share of profits/other
Prohibition against Allowable (no compensation by way of income

49
AGENCY, TRUST, PARTNERSHIP CIVIL LAW

7. Right to receive return of contributions provided


the partnership assets are in excess of all its (Ampil, ATP, S.Y. 2016-2017, 1st Semester)
liabilities

LIABILITIES OF LIMITED PARTNER


TO THE PARTNERSHIP
For the difference between his contribution as
actually made and that stated in the certificate as
having been made, and

For any unpaid contribution which he agreed in the


certificate to make in the future time

AS A TRUSTEE FOR THE PARTNERSHIP


For the specific property stated in the certificate as
contributed by him but which he had not contributed;

For the specific property of the partnership which had


been wrongfully returned to him; and

Money or other property wrongfully paid or conveyed


to him on account of his contribution.

DISSOLUTION OF LIMITED PARTNERSHIP


(Priority in Distribution of Assets):
1. Those due to creditors, including limited
partners
2. Those due to limited partners in respect of their
share in profits/compensation
3. Those capital due to limited partners of return of
capital contributed
4. Capital due to general partner other than &
profits
5. Those due to general partner in respect to profits
6. Those due to general partner for return of
capital contributed

SUMMARY OF AGENCY, TRUSTS, AND


PARTNERSHIPS

MUTUAL
CONTRACT TRUST AUTHORITY
AND
CONFIDENCE
AGENCY YES YES YES
TRUSTS SOMETIMES SOMETIMES NO
PARTNERSHIP YES YES YES
CO-OWNERSHIP NO NO NO
CORPORATION NO NO NO

SEPARATE
REPRESENTATION JURIDICAL
ENTITY
AGENCY YES YES
TRUSTS NO NO
PARTNERSHIP YES YES
CO-OWNERSHIP NO NO
CORPORATION NO YES

50