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LECTURE NOTES ON PARTNERSHIPS

Articles 1767-1867, NCC

STATUTORY DEFINITION - By a contract of partnership, two or

more persons bind themselves to contribute money, property or

industry to a common fund with the intention of dividing the profits

among themselves.

Two or more persons may also form a partnership for the

exercise of a profession. (Article 177!

1. There can be no non"profit partnership

CHARACTERISTICS OF A CONTRACT OF PARTNERSHIP

1. #enerally $ since it is a contract it is%

a. consensual $ perfected by consent

b. bilateral&multilateral $ entered into by two or more

persons

c. nominate $ designated by a specific name

d. onerous $ contributions are given

e. principal $ its existence does not depend on the life of

another contract

f. preparatory $ to carry into effect its purposes, othercontracts have or may have to be entered unto (1771"7'!

. There must be a contribution of money, property or industry to

a common fund.

a. )f industry is contributed, it must be physical or

intellectual

b. A limited partner cannot contribute industry (Art.

1*+!. the value of industry increases over time, hence it runs counter

to the concept of a limited partnership.

'. The ob-ect and purpose must be lawful and it must be

established for the common benefit or interests of all partners. hen

an unlawful partnership is dissolved by -udicial decree, the profits

shall be confiscated in favor the /tate, without pre-udice to the

application of the 0evised enal 2ode governing the confiscation of

the instrument and effects of a crime (Art. 1773!.

a. 4ence, it means that ob-ect&purpose must be within the

commerce of man, not contrary to law, morals, good customs, public

order or public policy

b. hen a partnership is formed for an unlawful purpose,

the contract is void ab initio. 5o partnership is actually formed.

c. 5ote that while Article 1+36, 522 is the basis to hold it

as void ab initio, there is no need for a -udicial decree to dissolve a

partnership that does not exist. The provision applies to an instance

where unlawfulness is in dispute or occurs at a later stage.

+. There must be an intention to divide profits among the partners

since it is for their benefit.

. There must be A82T)9 /92)8T)/ $ desire to formulate anactive union with and among people in whom mutual confidence and

trust exists.

. A -uridical person is created, separate and distinct from that of

the persons composing it, even in case of failure to comply with the

re:uirements of Article 177 (Art. 17*!

a. The primary effects of having a -uridical personality

would be to allow it to ac:uire property, which when so ac:uired in

1



the partnership name can only be conveyed in the partnership name

(Article 177+! and it can sue and be sued under the partnership name.

b. The creation of a -uridical person ta;es place even if

there is no compliance with Article 177 which re:uires every contract

of partnership having a capital of 4 '333.33 in money or property

to appear in a public instrument recorded with the /82 because failure

does not affect liability to third persons. urpose is to set a condition

for the issuance of a license.

c. 4owever, no such personality will result if the articles

(of societies or associations! are ;ept secret among the members and

anyone of the members may contract in his own name with third

persons. They are to be governed by the provisions on co"ownership

(Article 177!

OTHER CRITERIA TO DETERMINE PARTNERSHIP

EISTENCE

1. 8xcept as provided in Article 1* persons who are not

partners as to each other are not partners as to third persons.

a. #enerally, if you are not partner there is no partnership

except if you or an entity may be considered as% A0T580 )5

8/T98< $ when a person represents himself by words spo;en or

written or by conduct or consents to another representing him as a partner in an existing partnership to anyone, he is liable to such

persons to whom the representation is made if such person acted or

gave credit to such or if the representation is made in a public manner,

he is liable to such persons whether the representation has or has not

been made and relied upon. The liability is li;e that of an actual

partner if partnership liability results. )f there is no partnership liability

he is liable pro"rata with other persons consenting to the contract or

representation.

b. The =828)>80 )/ A A0T580 B? 8/T98<. )f a

partnership exists and consents, there is a partnership by estoppel

. 2o"ownership or co"possession does not by itself establish a

partnership whether such co"owners or co"possessors do or do not

share in any of the profits made by the use of the property

a. 5ote the rulings in A/2@A< vs. 29)//)9580

(13 / 3! where a series of transactions were considered )/9<AT8=

T0A5/A2T)95/ and did not result in a holding that there is a

partnership and in 8>A5#8<)/TA vs. 29<<82T90 9

)5T805A< 08>85@8 (13 1+3! where a series of transactions

were considered as indicative of 4AB)T@A<)T? )T4 )5T85T T9

#A)5 and resulted in a holding that there is a partnership.

'. /haring of gross returns does not of itself establish a

partnership whether or not the persons sharing them have a -oint or

common interest in any property from which they are derived.

a. 0ules and ' $ =9 59T 88T T48 20)T80)A

T4AT% there must be intention to create a partnership there is a

common fund obtained from contributions there is -oint interest in the

profits

+. 4owever, receipt by a person of a share of the profits of a business is 0)A A2)8 evidence that he is a partner 8C28T%

(a! debt by installment or otherwise $ creditor receives part of the

profits of the business in settlement of his credit

(b! wages of an employee or rent to a landlord $ employee receives

wages depending on level of profit or a fixed percentage thereof

(c! as an annuity to a widow or representative of a deceased partner $

in lieu of immediate dissolution, the widow or representative will

receive an annuity

2



(d! as interest on a loan, through the amount of the payment varies

with the profits of the business" interest payments are ta;en or paid out

from the profits

(e! as consideration for the sale of goodwill or other property" payment

is ta;en out of profits.

DISTIN!UISHIN! A PARTNERSHIP FROM"

#OINT $ENTURE

1. )t has no firm name or separate personality, while a partnership

has a firm name and is considered separate and distinct from the

partners composing it

. articipants are free to transact separately in their own names

and be individually liable therefore, while in a partnership, partners

cannot transact under their own names'. Activity is usually limited to a single transaction though it may

ta;e a longer period to complete, while in a partnership, there are

several transactions of a certain ;ind. (5ote% Tan 8ng Dee vs. 2A, '+1

/20A 7+3" a -oint venture appears to be a particular partnership due to

the fact that a partnership can have for its ob-ect a specific underta;ing

(Article 17*'!, the /upreme 2ourt distinguished between a -oint

venture and a partnership when it held that while a corporation cannot

be a partner, it may enter into a -oint venture!

$OLUNTARY OR!ANI%ATIONS

1. )t has no -uridical personality, while a partnership has -uridical

personality

. )t may be organiEed for any lawful purpose, while a partnership

is always organiEed for profit

'. 2ontributions are collected to maintain the organiEation, while

in a partnership, contributions go to capital

+. There is individual liability, while in a partnership individual

liability is not primary

CON#U!AL PARTNERSHIP OF !AINS

1. Arises by agreement between spouses, while a partnership is

created by voluntary agreement of two or more partners

. #overned by law, while a partnership is primarily governed by

the stipulations in the contract

'. 4as no -uridical personality, while a partnership has -uridical

personality

+. 2ommences upon marriage, while a partnership commences

upon execution of the agreement, unless otherwise stipulated

. /hares of spouses in profits is e:ual, while in a partnership it is

according to the agreement or in proportion to contributions

. anagement generally is vested in both spouses, while in a

partnership it is vested in all partners unless they designate a managing partner

7. urpose is to regulate property relations between spouses,

while in a partnership it is to obtain profits

*. /hare of a spouse cannot be disposed while in partnership, the

interest of a partner may be disposed.

CO-O&NERSHIP

1. )t is created by law, while a partnership is created by contract. )t has no -uridical personality, while a partnership has -uridical

personality

'. urpose is common en-oyment of a right&property, while in a

partnership it is realiEation of profit

+. An agreement to ;eep a thing undivided in co"ownership for

more than 13 years is not allowed (Article +6+!, while a partnership

has no fixed duration

. A co"owner may feely dispose of his interest, while a partner

cannot freely dispose so as to ma;e his assignee a partner, unless

consented to by all

3



. A co"owner cannot generally represent a co"ownership, hence

any -udgment against a co"owner is not a -udgment against the co"

ownership, while in a partnership, in the absence of a stipulation, a

partner can represent the partnership and a -udgment so issued is

generally one against the partnership

7. =eath of a co"owner does not necessarily result in dissolution

of the co"ownership, while death of a partner results in dissolution of

the partnership.

&HO CAN 'ECOME PARTNERS

1. Any person who is capacitated to enter into contracts

. A married woman may enter into a contract of partnership but

the consent of the other spouse is re:uired because it is an act of

dominion or an encumbrance of community or con-ugal property ,

unless court authority is obtained.'. A partnership in the absence of a prohibition. A corporation

cannot enter into a contract of partnership as it is contrary to public

policy as it can be bound by its partners and not by an act of its

B9A0= as re:uired by /ection ' of the 2orporation 2ode

. Aliens $ can be partners sub-ect to restrictions on

ownership&leases and engaging in nationaliEed or partially nationaliEed

businesses.

IN &HAT FORMS MAY A CONTRACT OF PARTNERSHIP

'E EECUTED

A partnership may be constituted in any form except where immovable

property or real rights are contributed, in which case a public

instrument is necessary (Article 1771!

)n such a case, an inventory of the immovable property so contributed

must be made and attached to the public instrument. ailing in which,

the contract of partnership is void. (Article 177'!.

5ote though that while partnerships with capital of 4 ',333.33 or

more are re:uired to be in a public instrument and duly registered with

the /82, non compliance shall not affect liability to third persons

(Article 177!

)t is however re:uired that the articles of partnership be written if

what is to be constituted is a <))T8= A0T580/4) (Article

1*++!

&HAT ARE THE (INDS OF PARTNERSHIPS

1. As to ob-ect $ it is universal or particular

a. A particular partnership is one which has for its ob-ect a

determinate thing, their use or fruits, or specific underta;ings, or the

exercise of a profession or a vocation (Article 17*'!.

b. A universal partnership has two ;inds. A universal

partnership of A<< 08/85T 0980T? or 9 09)T/ (Article

1777!.

b.1 A U)i*ers+l P+rt)ersi ./ All Prese)t Pr.ert0 is

one where all partners contribute A<< 0980T? which actually

belong to them to a common fund with the intention of dividing the

same as well as all profits which they may ac:uire therewith (Article

177*!.

b. All present property belonging to the partners at the

time of constitution becomes the common property of all partners as

well as all the profits which they may ac:uire therewith. They can also

stipulate on the common en-oyment of any other profits from other

sources B@T, property which the partners may subse:uently ac:uire

by inheritance, legacy, or donation cannot be included in such

stipulation except the fruits thereof (Article 1776!

4



b.' The property to be ac:uired by inheritance, legacy or

donation cannot be the ob-ect of a stipulation as (1! contracts regarding

successional rights are not allowed. (! 2ontributions must be

determinate, ;nown and certain ('! since it implies a donation, future

properties cannot be donated

b.+ A U)i*ers+l P+rt)ersi ./ Pr./its is one where

which is comprised of all that the partners may ac:uire by their

industry or wor; during the existence of the partnership (Article 17*3!.

4ence, if not so ac:uired by their industry or wor;, it does not pertain

to the partnership

b. ovables or immovables which each of the partners

possess at the time of the celebration of the contract shall continue to

pertain exclusively to each, only the usufruct shall pass.

b. )f there is no specification of nature (presupposes a

writing!, the partnership shall be considered a universal partnership of

profits (Article 17*1!. The reason is because it is less onerous that a

universal partnership of all present property. )f what is desired is that it

be a universal partnership of all present property, reformation under

Article 1'6 is the proper remedy.

PERSONS PROHI'ITED FROM ENTERIN! INTO A

UNI$ERSAL PARTNERSHIP

ersons who are prohibited from giving each other donations

or advantage li;e (a! husband and wife (b! those guilty of adultery or

concubinage (c! those guilty of the same criminal offense if the

partnership was entered into in consideration of the same. This

prohibition exists because a universal partnership is virtually a

donation, thus persons should not be allowed to do indirectly what

they cannot do directly.

OTHER (INDS OF PARTNERSHIPS

artnerships may be distinguished as to <iability (#eneral"<imited!,

0epresentation (9rdinary"artnership by 8stoppel! and =uration

(artnership for a /pecific @nderta;ing&ith a eriod" At ill!

&HEN DOES THE RELATIONSHIP AS PARTNERS 'E!IN

)t begins from the moment of the execution of the contract unless a

different period is stipulated. 4ence, there can be no partnership if the

intention is to create in the future.

a. Agreement to form a partnership does not create a partnership. )f there are conditions to be fulfilled or a certain period is

to lapse or to arrive, the partnership is not formed even if one party

without waiting for the fulfillment of the condition or arrival of the

term, has already advanced his contribution.

b. Also if they orally agree to form a partnership 1 F year

from today. )t is merely an agreement to form a partnership $ T4808

)/ 59 A0T580/4) ?8T. A</9, since it is orally constituted and

is not a partnership, the /tatute of rauds apply, hence it cannot be

enforced (Article 1+3', ar. "a!. 5ote that it cannot be obliged because the obligation is to =9 not to #)>8, it is a personal act that

cannot be compelled (oodhouse v. 4alili <"+*11"Guly '1,16'!

c. The rules are thus as follows% (1! )f there is no contrary

stipulation, the partnership commences to have existence on the date

of execution of the contract (! )f a contract states that it is to be

effective at a certain date, the partnership is to begin on the stipulated

date. ('! )f a contract states that contributions are still to be given on a

particular date. There is a partnership as they have bound themselves

5



to contribute (+! )f contract states that we become partners on the date

the contributions are given there is no partnership yet.

&HEN DOES A PARTNERSHIP END

#enerally $ it ends on the expiration of the fixed term or the

accomplishment of a particular underta;ing. ) )T =98/ 59T 85=

95 T48 BA/)/ 9 8)T480 T9

)t becomes a HA0T580/4) AT )<<I (Article 17*!

a. There is also a partnership at will (1! when there is no

term, express or implied $ hence, there is an agreement that it will

continue to exist as long as they will it to exist (! artners or such of

them who have so acted, habitually continues the business without

settlement or li:uidation of the partnership affairs. /@24 A2T is

prima facie evidence of the continuation of the partnership.2onse:uently, the rights and duties of the partners remain the same as

they were at such termination

&HAT HAPPENS &HEN PERSONS DECIDE AND DO FORM

A PARTNERSHIP

The formation of a partnership gives rise to the following

relationships% (1! The persons who have decided to form the

partnership become partners as to each other. 2onse:uently, they nowhave to comply with their obligations to be able to exercise their rights

as partners (! 0elationship between the partner and the partnership $

refers to the obligations of a partnership to the partner ('! 0elationship

between the partner and third persons $ refers to the obligations of the

partners to third persons (+! 0elationship between the partnership and

third persons $ refers to the conduct of the business of the corporation

SPECIFIC O'LI!ATIONS OF PARTNERS

1. =@T? T9 295T0)B@T8" 8very partner is a debtor of the

partnership for whatever he may have promised to contribute thereto.

4e shall also be bound for warranty in case of eviction with regard to

specific and determinate things in some cases and in the same manner

as the vendor may be found with respect to the vendee. 4e shall also

be liable for the fruits thereof from the time they should have been

delivered without need of demand (Article 17*!.

a. 4ence, after the execution of the contract, a partner

must (1! deliver what he has promised to contribute, no demand is

necessary because time is of the essence as without the contribution

the partnership cannot function (!. =eliver the fruits of the specific

and determinate things that he promised to contribute , if any, accruing

from the time they must have been delivered ('! To warrant against

eviction for the ob-ects already delivered. 8viction arises whenever by

final -udgment based on a right prior to the sale or an act imputable to

the partner. The partnership is deprived of the things contributed inwhole or in part. This however may be suppressed, increased or

diminished by the partners.

b. The remedy if a partner fails to contribute is bring an

action for collection because the defaulting partner is a =8BT90

c. roperties to be contributed are considered properties of

the partner until A2T@A< or 295/T0@2T)>8 delivery has been

had, it being the operative act to convey ownership

d. The specific rules that govern the contributions are%

(1! )f it consists of goods, they must be appraised in the manner

prescribed (a! in the articles of partnership (b! by experts chosen at

current prices, with charges for the account of the partnership (Article

17*7!. 59T4)5# 498>80 094)B)T/ T48 A0T580/

09 A#088)5# 95 T48 >A<@AT)95 (! )f what is

contributed is 958?, a partner who fails to contribute is liable for

interest and damages from the time he should have complied (Article

17**! , the same Article also applies to amounts that a partner may

have converted to his own use ('! )f what is contributed is

6



)5=@/T0?, the partner&s so contributing cannot engage in any other

business unless he is 8C08//<? allowed to do so by the capitalist

partner&s. )f he does so without consent, he (a! can be excluded from

the firm (b! the firm can avail of the benefits which he obtained, plus

damages, if any (Article 17*6!. The article applies whether or not there

is competition as all his industry must be given to the partnership

d.1 DISTIN!UISHIN! 'ET&EEN

CAPITALISTINDUSTRIAL PARTNERS

2 )

2ontribution money or industry

roperty

rohibition as generally can cannot engage

to engaging in engage as long without consent

business no competition

(Article 1*3*!

rofits by agreement or a -ust and

pro"rata to e:uitable share

contribution

there being no agreement

<osses stipulation or exempt as

agreement as to between partners

profits if 5958" but liable to

prorata 'rd personssub-ect to

reimbursement

(Article 1*1!

e. 0is; of loss is borne as follows% (1! rior to delivery, it

is borne by the partner (! )f what is contributed is the use or fruits of

specific or determinate things, it is borne by the partner&s who own

them $ 59T A<)2AB<8 T9 A @5)>80/A< A0T580/4) 9

A<< 08/85T 0980T?, AT T48 95/8T 0980T?

B8<95#/ T9 T48 A0T580/4) ('! )f things contributed is

@5#)B<8 or cannot be ;ept with deteriorating "ris; of loss is borne

by the partnership as ownership is transferred upon delivery otherwise

use is impossible (+! )f thing is contributed to be sold" partnership

bears ris; as it cannot be sold unless ownership has passed to it

(Article 176!

f. @nless there is a contrary stipulation, a partner shall

contribute an e:ual share to the capital of the partnership.

2onse:uently, there may be une:ual contributions. )f however, there is

no proof as to the extent of the contribution, the presumption is that

they contributed e:ually (Article 1763!

g. A partner may also be obliged to contribute an

additional amount, there being no stipulation to the contrary, in case of

an imminent loss. )f he refuses (it must be deliberate! the partner is

obliged to sell his interest to the other partners. The 08A/95 is thathis apparent lac; of interest should warrant that he leave the

partnership. The 8C28T)95 is that it does not apply to an industrial

partner&s because he has already given his entire industry.

. =@T? T9 208=)T T9 T48 )0 A?85T A=8 A

=8BT90 49 98/ 4) A5= T48 )0 A5= T9 /4A08

4)/ 0828)T 9 A0T580/4) 208=)T A<08A=?

29<<82T8=

a. )f a partner authoriEed to manage collects a demandable

sum, which was owed to him in his own name, from a person who

owed the partnership another sum also demandable, the sum thus

collected shall be applied to the two credits in proportion to their

amounts, even though he may have given a receipt for his own credit

only but should he have given it for the account of the partnership

credit, the amount shall be fully applied to the latter.The provisions of

this article are understood to be without pre-udice to the right granted

to the debtor by article 1, but only if the personal credit of the

partner should be more onerous to him. (Article 176!

7



1. The re:uisites for the application of the article are% (a!

There are two debts from the same debtor (b! Both debts are due and

demandable (c! The collecting partner is a managing partner ) 59T

T4808 )/ 59 BA/)/ 90 T48 /@/)2)95 T4AT T48

A0T580 )/ A2T)5# 90 4)/ 95 B858)T. A</9, 48

=98/ 59T 922@? 90 )/ )5 A 9/)T)95 T9 #)>8

08808528.

. The rules of application are% (a! )f the partner gives

credit for the firm, it is the firms credit that is extinguished (b! )f

partner gives receipt for his debt, the amount collected shall be applied

in proportion (c! By way of exception, the debtor may exercise the

right of application if the debt to partner is more onerous to him.

b. A partner receiving in whole or in part of his share of

partnership credit, shall, if the other partners have not collected their

share and the debtor becomes insolvent, bring to the partnership

capital what he may have received even if he gave receipt for his share

only (Article 176'!

1. The provision applies to any partner. )f however, the

firm is dissolved, the obligation does not exist.

'. =@T? T9 A? 90 =AA#8/ 2A@/8= B? 4)/ A@<T

a. 8very partner is liable for damages suffered by the

partnership through his fault. )n so being responsible, it cannot be

compensated with the profits and benefits which he may have earned

for them with his industry. 498>80, courts may e:uitably lessen

his responsibility if through the partners 8CT0A90=)5A0? efforts

in other partnership activities, unusual 09)T/ have been realiEed

(Article 176+!.

1. The damages cannot be offset because a partner has a

duty to secure benefits. /ince it is a duty (it has to be done!

compensation cannot ta;e place as compensation presupposes two

persons who are reciprocally debtor and creditors of each other.

. The obligation to pay damages also exists in relation to

the liability arising from conversion of amounts ta;en from partnership

coffers and is computed from the time the partner converts it to his

own use (Article 17**!.

+. 9B<)#AT)95 T9 A229@5T 90 A5= 49<= A/

T0@/T88 A5? @5A@T490)J8= 09)T/

a. 8very partner must account for any benefit and hold as

trustee any profits derived by him without consent of the others from

any transaction connected with the formation, conduct or li:uidation of

the partnership or from any use by him of partnership property withoutconsent (Article 1*37!

1. The reason for the obligation is that a partner has a

fiduciary obligation not to abuse the trust and confidence bestowed

upon each other.

. The article covers the period from formation to

li:uidation. rofits are unauthoriEed if they are realiEed without the

consent of the partnership.

. 9B<)#AT)95 59T T9 85#A#8 )5 B@/)58//

a. The obligation applies specifically to a capitalist partner

who engages in a business similar to or li;e the business the

partnership is engaged in @5<8// (1! )t is expressly stipulated that he

can engage in business (! when other partners expressly or impliedly

allow him to do so ('! partnership ceases to engage in the competing

business (+! participation in other business is that of a limited partner

(Article 1*3*!

8



b. The 882T 9 85#A#)5# )5 B@/)58// is that

(1! he shall bring to the partnership all profits he obtained (! he shall

bear all the losses, if any ('! he can also be ousted from the firm for

loss of trust and confidence

SPECIFIC RI!HTS OF A PARTNER

1. 0980T? 0)#4T/ 9 A A0T580

a. The property rights of a partner are (1! right to specific

partnership property (! his right to his interest ('! right to participate

in management

b. A partnerKs right to specific partnership property ma;es

him a co"owner of all partnership property (Article 1*11!. The

incidents of such are% (1! partners, sub-ect to provisions of law and any

agreement between partners has an 8L@A< right with his co"partner

to possess /82))2 A0T580/4) property for A0T580/4)@09/8/, but he has no right to possess them for any other purpose

without the consent of the partners (! a partner cannot assign his

rights to specific partnership property except in connection with an

assignment of rights of all the partners. Any assignment in violation is

>9)= as the value of the interest cannot be determined until after

li:uidation. ('! a partnerKs right is not sub-ect to attachment or

execution $ 8C28T on a claim against the partnership. 5either can

the partners claim ( or the representatives of a deceased partner! claim

any right under homestead or exemption laws under /ection 1, 0ule

'6 of the 0ules of 2ourt because it is property of the partnership. )tcannot be attached because to allow it would be to let the partner do

what he cannot do (assign it! directly (+! the right is not sub-ect to

legal support (Article 1*11!.

c. A partnerKs interest consists of his share in the profits

and surplus (Article 1*1!. rofit referring to his share of the net

income from business, surplus referring to his share of assets after

settlement of debts and liabilities.

c.1 A partnerKs interest may be conveyed to another

(Article 1*1'!. The effects are (1! artnership may either remain, if it

is the intention of the partners concerned not to withdraw on account

of the change of partners 90 dissolved, but the mere conveyance does

not by itself dissolve the partnership, hence there is a need for action

on the part of the partners as such constitutes a change in the relations

of the partners as the conveying partner shall cease to be associated in

carrying on of business (! Assignee does not become a partner in the

absence of any agreement to the contrary. 2onse:uently, the assignor

is still recogniEed as the partner with the right to demand accounting

and settlement ('! Assignee cannot interfere in management or

administration of partnership business or affairs (+! Assignee cannot

demand information, accounting or inspection of boo;s

c. The rights of the assignee are (1! To receive whatever

profits the assignor would have obtained. 4e is not considered an

outside creditor who is preferred, so he can have no better right thanthe assignor $ partner (! 4e can avail of the usual remedies in case of

fraud" interfere in management, inspect boo;s, re:uire information or

accounting ('! )n case of dissolution, he may demand an accounting

but only from the date of the last accounting (+! 4e may as; for

annulment of the assignment if he has induced though any of the vices

of consent or that he has incapable of giving it.

c.' A partnerKs interest may also be charged (Article 1*1+!.

)t applies without pre-udice to Article 1*7 giving preference to

partnership creditors. The manner of charging is as follows% (1! dueapplication with a court of competent -urisdiction by a -udgment

creditor of a partner $ 9T)95 90 8C82@T)95 (! court charges

the interest of the debtor partner with the payment of the unsatisfied

amount of the -udgment debt plus interest 90 an order is given to the

partnership&partners to refrain from paying the partner (c! the court

may appoint (then or later! a receiver for partnerKs share of the profits

or any money due or to fall due to him. The receiver may perform all

acts that the court may authoriEe him to do (d! the court may ma;e all

other orders, directions, accounts and in:uiries which the debtor may

have made or which circumstances of the case re:uire.

9



) T48 )5T808/T )/ /9 24A0#8= )T A? B8 08=888=

(meaning the charge is extinguished! B8908 9082<9/@08

( when sub-ected to a mortgage!, 90 )5 2A/8 9 /A<8 @95

90=80 9 T48 29@0T, )T A? B8 @024A/8= )T49@T

T4808B? 2A@/)5# =)//9<@T)95 (partner may become

insolvent, which is a cause for dissolution! )T4% (1! with separate

property $ by one or more of the partners (! ith partnership

property by one or more of the partners, with the consent of the

partner&s whose interest has not been charged or sold B@T $ nothing

shall be held to deprive a partner of his right, if any, under exemption

laws as regards his interest $ )T 4)/ 95 0980T?

c.+ The =8T80)5AT)95 9 09)T&<9// )/ A/

9<<9/% (1! )n conformity with the agreement and if only share of

the profits have been agreed upon, it will be distributed in the same proportion (! )n the absence of an agreement ,it shall be in proportion

to what they may have contributed B@T 90 A5 )5=@/T0)A<

A0T580 (a! he is not liable for the net loss (b! he receives a -ust

and e:uitable share of the profits. )n addition, if he contributes a sum,

he receives a proportionate share of profits ('! they can agree to

entrust it to a third person not a partner. 4owever, the designation can

be impugned if it is manifestly ine:uitable, except when (a! the

aggrieved partner has began to execute the designation (b!

the designation was not impugned within three months from time he

had ;nowledge. 5ote that a A0T580 B858)T8= 2A5 )@#5as long as the designation is manifestly e:uitable. there being no

distinction (Articles 1767, 176*!. )n determining the share in profit or

loss, note that any stipulation excluding one or more partners in the

profit or loss is void (Article 1766!. An exception is the )5=@/T0)A<

A0T580 as stated in Article 1767.

d. 0ight to participate in management is exercised by

becoming a managing partner or consenting to the appointment of one

or more of the partners as managing partners.

d.1 An appointment as managing partner can be done by

means of a designation in (1! Articles of artnership" (a! it is

generally irrevocable without -ust or lawful cause. )f there is cause, the

vote of the partners holding controlling interest is necessary. )f there is

no cause, the vote of all, including the managing partner is necessary,

as it parta;es of the nature of a change in the contract (b! 4e can

perform all acts of administration. )n case of opposition, if he acts in

good faith, he can proceed to act. )f he is in bad faith he can ousted (!

/ubse:uent to the Articles, in another instrument or orally" (a! it is

revocable at any time, with or without cause, as it is a mere delegation

(b! 4e can perform all acts of administration. )n case of opposition, he

can be ousted if he continues to act (Article 1*33!.

d. There can be T9 90 908 A5A#80/% (a! )f

there is no designation and unanimity is not re:uired (1! each mayexecute acts of administration (! any of the managers may oppose, if

there is an opposition ma-ority governs. )f there is a tie, it is to be

resolved by the partner holding controlling interest as he stands with

the most to lose. 59T8 not all partners can oppose, as those who have

appointed cannot oppose as they have stripped themselves of the right

to participate in management by voting to appoint a managing

partner&s (Article 1*31! (b! ) @5A5))T? )/ 08L@)08=% (1!

neither of the managers may act without the consent of the other (!

the concurrence of all shall be necessary for the validity of acts ('! the

absence or disability of one cannot be alleged to defeat theagreement 8C28T $ if there is imminent danger of grave or

irreparable in-ury to the partnership but the re:uirement should be held

to apply only to those acts that are not routine or are underta;en

casually in the regular course of business operations (Article 1*3!.

d.' ) T4808 A08 59 A9)5T8= A5A#80/ 90

T48 A5580 9 A5A#885T )/ 59T A#088= @95 % (1!

all partners are considered agents of the partnership and any one of

them can bind the firm except when opposed. )n such case, the

provisions of Article 1*31 will apply (! none of the partners may,

10



without the consent of the others, ma;e any important alteration on the

immovable property of the partnership even if it be @/8@<. )f the

refusal is manifestly pre-udicial, court intervention may be sought

(Article 1*3'!.

. A A0T580 4A/ A 0)#4T T9 A//92)AT8

a. A partner is allowed to associate another person with

him in his share, but the associate cannot be admitted into the

partnership without the consent of all the partners, even if the one

having an associate is the managing partner (Article 1*3+!

b. An A//92)AT8 -ust shares in the 58T 09)T/ as it

does not constitute and an assignment of interest

'. )5/82T B99D/ A5= 08290=/, 08L@)08

)590AT)95

a. artnership boo;s shall be ;ept sub-ect to any

agreement between the partners at the principal place of business of

the partnership and any partner shall at any reasonable hour have

access to and may inspect or copy them (Article 1*3!. 0easonable

hour refers to any hour during a business day throughout the year not

-ust any day which the managing partner may arbitrarily set.

b. artners are obligated to render on demand, true and

full information of all things affecting the partnership to any partner or

legal representative of a deceased partner or any partner under a legaldisability (Article 1*3!

+. 0)#4T T9 A 90A< A229@5T

a. A partner has the right to a formal account if (1! 4e is

wrongfully excluded from the partnership business or possession of its

property by the other partners (! )f the right exists under the terms of

the agreement ('! As provided in Article 1*37 if a partner derives

unauthoriEed profits (+! henever circumstances render it -ust and

reasonable, li;e when a traveling partner returns (Article 1*3!.

T4)/ 0)#4T )/ T9 B8 8C802)/8= 95<? ) A5? 9 T48

2)02@/TA528/ A08 08/85T B? 4)24 T4808 )/

A228// T9 B99D/ A<08A=?

. 0)#4T T9 =)//9<>8 T48 A0T580/4)

a. A artner has an absolute right to cause the dissolution

of the partnership for any reason (Article 1*'3! sub-ect to the liabilityfor damages (Article 1*'7! and loss of the right to participate in

winding up (Article 1*'!

O'LI!ATIONS OF THE PARTNERSHIP TO THE PARTNERS

@pon the creation of the partnership, the partnership shall be

responsible for% (a! all amounts that a partner may have disbursed on

behalf of the partnership and for the corresponding interest from thetime the expenses were made (b! answer to each partner for

obligations he may have entered into good faith in the interest of the

partnership business and for ris;s in the conse:uence of management

(Article 176!, and (c! in relation to Articles 1*3+ and 1*3, it must

allow an associate and maintain boo;s and records.

O'LI!ATIONS OF PARTNERSHIP AND OF THE PARTNERS

&ITH RE!ARDS TO THIRD PERSONS

11



1. 980AT8 @5=80 A )0 5A8

a. 8very partnership must operate under a firm name

which may or may not include the name of one or more partners.

Those not being partners who include their names in the partnership

name shall be sub-ect to the liability of a partner.

1. 5ote the use of the phrase% Hmay or may not include the

name of one or more partnersI indicates that not all partners are

re:uired to have their names appear in the firm name if it were

otherwise, HallI should have been utiliEed.

. )f a person allows his name to be utiliEed in the firm

name but he is not a partner, all liabilities of a partner will be imposed

on him.

'. )f it is a limited partnership, the <))T8=A0T580K/ 5A8 /49@<= 59T A8A0 (Article 1*+! unless

he has the same name as a general partner or prior to his becoming a

limited partner the business was carried out under a name in which his

surname appeared.

08<8>A528 $ so third persons may ;now who they are dealing with

$ )T )/ T48 5A8 9 T48 G@=)2)A< 85T)T? T4AT )/

208AT8= @95 8C82@T)95 9 T48 295T0A2T&A0T)2<8/

9 A0T580/4). 5ote that if in the course of its business

operations it changes itKs name, it retains all its rights under the oldname

. <)AB)<)T? 9 A0T580/4) A5= A0T580/

a. All partners including industrial ones are liable pro"rata

with all their property, after all partnership assets are exhausted, 90%

(a! contracts entered into in the name of the partnership and for its

account under its signature by a person authoriEed to act for the

partnership. 5ote that , any partner may enter into a separate

obligation to perform a partnership contract under Article 176 $ those

entered into in good faith (Article 1*1!.

1. T4)/ <)AB)<)T? 0880/ T9 T4AT )52@008=

)5 A>90 9 '0= 80/95/, hence, an industrial partner is not

exempt.

. A withdrawing partner is not liable for those contracted

after his withdrawal. /ubse:uent to withdrawal, he is not liable as it is

presumed that the partnership has ta;en all liabilities into account

before allowing withdrawal.

'. Any stipulation against the liability laid down shall be

void, except as among partners (Article 1*17!.

a. 5ote that the partners can therefore agree as to the

extent of their liabilities, but such will not affect third persons.

b. Thus, it is possible for a capitalist partner to be exempt

from liability. ?8/, if liability will extend only to the contribution, the

provisions of Article 1766 stipulation excluding a partner from profit

or less is not violated.

+. T48 <)AB)<)T? )<< A<? when the act of the partner is considered as AA085T<? 2A00?)5# 95 )5 T48

@/@A< A? T48 B@/)58// 9 T48 A0T580/4) as every

partner is an agent of the partnership for the purpose of its business

and every act, including the execution in the partnership name of any

instrument binds the partnership 8C28T 485% (a! partner so

acting has in fact no authority to act for the partnership in the

particular matter, and (b! person with whom he deals has ;nowledge of

the fact that he has no such authority.

12



A5? 9T480 A2T 59T AA085T<? 90 T48 2A00?)5#

95 9 T48 B@/)58// 9 T48 A0T580/4) =98/ 59T

B)5= @5<8// A@T490)J8= B? T48 A0T580/

@sual way $ depends on the nature of the partnership business and if it

is essential or reasonably necessary to the furtherance of partnership

business

. T48 <)AB)<)T? )<< 59T A<? 90 T48

A0T580/4) )/ 59T B9@5= 485% (a! partner has no

authority and it is ;nown to third person with whom he contracts

(b! act is not apparently carrying on in the usual way the business of

the partnership (c! acts are the following $ 8C28T 485

A@T490)J8= B? A<< 90 T48 B@/)58// )/ ABA5=958=,

958 90 908 B@T <8// T4A5 A<< 9 T48 A0T580/

4A>8 59 A@T490)T? T9 (1! Assign property in trust for

creditors or on assigneeKs promise to pay debts of the partnership(! dispose of the goodwill ('! do any act which ma;es it impossible

to carry on the ordinary business of the partnership (+! confess

-udgment (! enter into a compromise concerning a partnership claim

or liability (! submit a partnership claim or liability to arbitration

(7! renounce a partnership claim (d! no act with the partner in

contravention of a restriction or authority shall bind the firm to persons

having ;nowledge of the restriction

b. As regards dealings regarding immovables, the rules are

as follows%

1. )f property is in the partnership name, any partner may

convey it in the partnership name. )t is recoverable unless Article

1*1* applies or the grantee or person claiming through such grantee

has conveyed the property to a holder for value without ;nowledge

that the partner so conveying has exceeded his authority $ T)T<8

A//8/

. )f property is in partnership name is conveyed by a

partner in his own name $ 8L@)TAB<8 T)T<8 A//8/ provided it

is one within the authority of a partner under Article 1*1*. )f not

applicable, no interest will pass. The remedy of the buyer is

reformation of the contract.

'. )f property is in the name of one or more of the partners

but not all and the records do not disclose the right of the partnership,

the partners named may convey title but it may be recovered if the

partners act does not bind as provided by Article 1*1* unless the purchaser or his assignee is a holder for value without ;nowledge

+. )f property is in the name of one or more or all or a

third person in trust, a conveyance executed by a partner in the

partnership name or his own name passes e:uitable interest, provided

the act is within the authority of the partner as laid down in Article

1*1*.

. hen all partners are named as owners, a conveyanceexecuted by all passes all rights to the property

c. )n enforcing the liability of the partnership and the

partners, note that%

1. An admission or representation made by any partner

convening parnership attains within the scope of his authority in

accordance with this title is evidence against the partnership (Article

1*3!. 5ote that )T @/T 2952805 A0T580/4) AA)0/and )T @/T B8 )T4)5 T48 /298 9 4)/ A@T490)T?.

. (a! Admissions made before dissolution are binding

only if the partners has authority to act on the matter (b! Admissions

made after dissolution are binding only if necessary to wind up the

affairs&business as dissolution terminates all authority to act

(c! Admissions made after one ceases to be partner are not binding

(d! revious admission after one ceases to be a partner, if made within

scope of authority of the partner and during its existence is binding

provided existence if partnership is proven by other evidence.

13



'. 59T)28 (a! to a partner relating to partnership affairs

(b! ;nowledge of a partner acting on a particular matter (he is

managing partner or assigned a particular tas;! ac:uired 4)<8 A

A0T580 90 T485 08/85T T9 4)/ )5= (c! Dnowledge of a

partner (A2L@)08= 4)<8 A<08A=? A A0T580! who

reasonably (so situated as to be able to give notice! could and should

have communicated it to the acting partner, shall operate as notice toor ;nowledge of the partnership 8C28T, in case of fraud on the

partnership committed by or with the consent of the partner (Article

1*1!.

d. The partnership is liable to the same extent as the

partner acting or omitting to act for loss or in-ury to any person, not a

partner, or any penalty incurred for (1! rongful act, or (! 9mission

in the ordinary course of business or with the authority of his co"

partners (Article 1*!. This extends to liability for T90T/ and)5G@0)8/ T9 8<9?88/. The is 59T <)AB<8 though for (1!

wrongful act or omission which was not done within the scope of the

partnership business (! act or omission is not wrongful ('! although

wrongful, partner is not held liable (+! act is committed after the firm

is dissolved and was not in connection with the process of winding up

e. The partnership is also bound to ma;e good the loss

arising from (1! a partner misapplying money or property received

from third person while acting within the scope of his apparent

authority. There is 59 <)AB)<)T? if without authority ( ApparentAuthority is that which appears to a third person as the basis for the

partner to accept money or property! (! where the partnership in the

course of its business receives money or property from a third person

and the money or property so received is misapplied by any partner

while in the custody of the partnership (Article 1*'!

1. @nder Article 1*+, all partners are solidarily liable

with the partnership for everything chargeable to the partnership under

Articles 1* and 1*'. 4ence, the partner or firm can be held

liable.

f. )f the partnership&partner consents to a representation

made by a person by words, spo;en or written, by conduct that he is a

A A0T580 )5 A5 8C)/T)5# A0T580/4) 90 A/ A

A0T580 )T4 958 90 908 80/95/ 59T A0T580/,

it&they will be liable to any such persons upon whom the

representation was made who on the faith of which has given credit to

the actual or apparent partnership. )f the representation was made orconsented to its being made in public manner, there is liability even if

the representation has not been made directly or communicated to the

person giving credit or with the ;nowledge of the apparent partner

ma;ing the representation or consenting to its being made (Article

1*!. 485 A 80/95 )/ T4@/ 0808/85T8= T9 B8 A

A0T580 )5 A5% existing partnership or with one or more persons

not partners, he (person ma;ing representation! is an agent of the

person consenting to such representation to find them to the same

extent or in the same manner as though he were a partner in fact whichrespect to persons who rely on the representation.

ARE PERSONS &HO 'ECOME PARTNERS AFTER

INCURRIN! LIA'ILITIES LIA'LE FOR THEM

A person admitted as a partner into an existing partnership is liable for

all obligators of the partnership arising before his admission as though

he was a partner at the time they were incurred, except that the liability

shall be satisfied out of partnership property only unless there is acontrary stipulation (Article 1*!. )t is so because, a person who

enters into a partnership is presumed to have exercised the reasonable

diligence to verify the status of its affairs. )n effect, a new firm is

created and should not affect partnership creditors as per Article 1*+3

which provides that the creditors of the old firm are still the creditors

of the new firm continuing the business.

&HAT IS THE PREFERENCE EN#OYED 'Y PARTNERSHIP

CREDITORS

14



2reditors of the partnership are preferred as regards partnership

property, A<T49@#4 it is without pre-udice to the right of private

creditors of each partner to as; for the attachment and public sale of

the share with the partner in partnership assets.

DISSOLUTION AND &INDIN! UP

DISSOLUTION DEFINED

)s the charge in the relation of the partners caused by a partner ceasing

to be associated with the carrying on of the business as distinguished

from winding up (Article 1**!. )t designates the point in time when

the partners cease to carry on the business together. The partnership is

not considered terminated, as it continues until all or the winding up of partnership affairs is completed (Article 1*6!. This is the process of

)5=)5# @ or the settlement of affairs after dissolution.

EFFECT ON O'LI!ATIONS

Those that are validly contracted have to be paid and cannot be

avoided. 9bligations that are new 2A559T B8

295T0A2T8= unless it is essential to winding up partnership

business.

CAUSES OF DISSOLUTION

a. ithout violation of the agreement of the partners (1!

by the termination of the definite term or underta;ing specified in the

agreement (! by the express will of the partner who must act in good

faith when no particular term or underta;ing is specified (dissolution

of a partnership at will! 4ere, good faith must attend the dissolution

and that ade:uate notice is given to all partners ('!by express will of

all partners who have not assigned their interest or suffered then to be

charged for their separate debts, either before or after termination of

the term or particular underta;ing. 4ere, there must be an express

desire to dissolve which is manifested orally, written or by words or

acts indicating an intention to dissolved and with unanimity of the

concerned partners (+! expulsion in good faith in accordance with such

power conferred by agreement of the partners

b. )n contravention of the agreement of the partners wherecircumstances do not permit a dissolution under any provision of this

article, by express will of any partner at any time. This refers to the

)5=88A/)B<8 right of a partner to cause dissolution but this action

is not without /A52T)95 as there is liability for damages

( Article1*'7! and loss of right to participate in winding up ( Article

1*'!

c. By any event which ma;es it unlawful for the business

of the partnership to be carried on or for the members to carry it on inthe partnership. 59T8 under Article 1773, if business is unlawful

from the beginning there is nothing to dissolve

d. hen a specific thing, which a partner had promised to

contribute perishes before delivery. )n any case by the loss, when the

partner who contributed it had reserved ownership having -ust

transferred use or en-oyment. B@T, dissolution does not result

through loss if it occurs after the partnership has ac:uired ownership.

B@T 59 =)//9<@T)95 922@0/ ) (1! partners agree to

substitute (! thing contributed is generic

e =eath of a partner means that the partnership continues

to li:uidation, but a stipulation allowing a substitute is allowable. )f

the partnership continues, the partnership so continuing the business is

to be regarded as a new partnership

f. )nsolvency of the partner or the partnership. A -udicial

decree is not necessary as the fact that assets are less than liabilities is

sufficient

15



g. 2ivil )nterdiction as it results in incapacity to enter into

contract

h. By decree of the court in cases where Article 1*'1

applies upon application by a partner or by one acting in his behalf in

the following cases% (1! partner has been declared insane in a -udicial

proceeding or is shown to be of unsound mind. An action for

dissolution at which time is insanity is proven is allowed (! a partnerin anyway becomes incapable of performing his part of the partnership

contract. This refers to any inability that will render a partner

incapable ('! a partner has been guilty of such conduct as tends to

affect pre-udicially the carrying on of the business. This encompasses

failure to act in the appropriate manner for the benefit of the

partnership or negligent actions. (+! a partenr willfully or persistently

commits a breach of the partnership agreement or otherwise conducts

himself in matters relating to the partnership business that it is not

reasonably practicable to carry on the business of the partnership withhim. 8xamples% fraud or misuse of partnership assets (!

the partnership can only be carried on at a loss (! other

circumstances that will render dissolution e:uitable. As opposed to

prevailing situation, dissolution is preferred (7! on application of the

purchaser of a partnerKs interest under Articles 1*1' and1*1+ (a! after

termination of period or expiration of a particular underta;ing, or (! at

any time, if the partnership is one at will when the interest was

assigned or charged. )5 T48/8 )5/TA528/, dissolution comes into

being upon finality of -udgment in cases where -udicial intervention is

had.

&HAT HAPPENS &HEN THERE IS DISSOLUTION

=issolution terminates all authority of a partner to act for the

partnership. This means that the general agency between partners is

automatically terminated. The partners cannot create any new

obligation for the partnership and partners are 59T <)AB<8 90

<)AB)<)T)8/ 8C28T (1! as between partners ( meaning they must

contribute! (a! The act is necessary to wind up partnership affairs

(b! )t is necessary to complete transactions began but not then finished

(Article 1*'! (c! hen the dissolution is by act, insolvency or death

(A)=! of a partner (each partner is liable to his co"partners for his

share of liability as if the partnership had not been dissolved @5<8//

(1! dissolution be by act, the partner acting for the partnership had

;nowledge of the dissolution (! dissolution being by death or

insolvency, the partner acting had ;nowledge or notice of the death or

insolvency (Article 1*''!.

a. )T4 08/82T T9 9T480/ or persons not

partners, a partner can bind the partnership (1! )n any act appropriate

for winding up partnership affairs or completing transactions

unfinished at dissolution (! Any act which would bind the partnership

if dissolution had not ta;en place, 09>)=8=, the other party to the

transaction (a! had extended credit (previous creditor! to the

partnership prior to dissolution and had no ;nowledge or notice of

dissolution (b!

though no credit (new creditor! is extended had nevertheless ;nown ofthe partnership prior to dissolution, and having no ;nowledge or notice

of dissolution, the fact of dissolution not having been advertised in a

newspaper of general circulation in the place (each place where the

partnership conducts its business if more than 1! at which partnership

business is carried out (Article 1*'+! B@T in both instances, the

liability of a partner under the provision shall be satisfied out of

partnership assets alone if such partner prior to dissolution is

(1! un;nown as a partner to the person with whom the contract is

made (! so far un;nown or inactive in partnership affairs that the

business reputation of the partnership could not be said to have been inany degree due to his connection with it. (T48 9BG82T )/ T9

08>85T 0A@= 95 9T480 A0T580/! 8xample% Dnown

partner with no means to pay will use the others to settle their share of

liability.

B@T @5=80 T48 9<<9)5#, the partnership is not bound when

(1! the partnership is dissolved because it is unlawful to carry on the

business except when the act is appropriate for winding up (! the

partner acting has become insolvent ('! where the partner has no

16



authority to wind"up partnership affairs (must be in connection with

the process of winding"up! except by a transaction with one who must

be connection with (a! extends credit prior to dissolution and had no

;nowledge or notice of his want of authority (b! had not extended

credit prior to dissolution and having no ;nowledge or notice of the

want of authority, the fact of his want of authority has not been

advertised in a newspaper of general circulation in the place of

business

<A/T<?, nothing in Article 1*'+ shall affect the liability of any

person under Article 1* if any person who after dissolution

represents himself or consents to another representing himself as a

partner in a partnership engaged in carrying on the business. 8A5/

$ if a stranger represents himself AT80 =)//9<@T)95 to be a

partner although he is not one, is still liable as a partner by estoppel.

485 )/ A A0T580 295/)=808= A/ 4A>)5# 59<)AB)<)T?

@nder Article 1*', the dissolution of the partnership does not of itself

discharge the liabilities of any partner. The =)/24A0#8 $ is

effective only upon agreement to such effect between the partner,

creditor and the person or partnership continuing the business, if any.

The agreement can be one that is orally constituted as it can be

inferred from the course of the dealing between the creditor having

;nowledge of the dissolution and the person or partnership continuing

the business

The individual property of a deceased partner shall be liable for

partnership obligations incurred while a partner, but sub-ect to prior

payment of his separate debts.

0)#4T/ 9 A0T580/ @95 =)//9<@T)95

1. The partners can participate in the process of winding up

(collating assets paying creditors, delivering and distributing

profit&surplus! the affairs of the partnership as long as (a! they have not

wrongfully dissolved the partnership (b! he is the legal representative

of the last surviving partner, not insolvent, or (c! any partner, his legal

representative or assignee, upon cause, may obtain winding up from

the court (Article 1*'! B@T a designation as contained in the

A0T)2<8/ or a subse:uent agreement is binding.

. (a! )f dissolution is caused in any manner other than in

contravention of the agreement , a partner or person claiming rights

under them and @5<8// 9T480)/8 A#088=, shall have the

right to have A0T580/4) 0980T? A<)8= T9

=)/24A0#8 <)AB)<)T)8/ A5= T48 /@0<@/ applied to pay in

cash the 58T amount owing to respective partners (b! if it be through

8C@</)95, and the partner expelled is discharged from all partnership liabilities either by payment or agreement (Article 1*'!

he shall receive in cash the net amount due him (c! )f the dissolution

be in contravention of the agreement, a partner who has not caused

dissolution shall have the right to " <)L@)=AT)95, A?85T,

=AA#8/ 90 B08A24 9 A#08885T. They can also

continue the business in the /A8 5A8 either by themselves or

with others during the agreed term of the partnership and possess

partnership property 09>)=8= " they secure payment by bond

approved by the court or pay to the partner who has wrongfully caused

dissolution, the value of his interest less damages and in the li;emanner indemnify him for present or future liabilities B@T for

ascertaining the interest, the value of the #99=)<< is not to be

included as conse:uence of his action&bad faith. The partner who has

caused dissolution is entitled to (a! if the business is not continued, he

is entitled to li:uidation and payment but sub-ect to payment of

damages (b! if the business is continued, he has the right against

partners or those claiming rights under them in respect to their interest,

to have his interest in the partnership <8// damage ascertained and

paid to him in cash and be released from all existing liabilities. )f

payment cannot be made, to secure it by bond (Article 1*'7!.

17



59T8% That in the enforcement of their rights, a right to an account

accrues against winding"up partners&surviving partners&persons or

partnership continuing the business at the =AT8 9 =)//9<@T)95

in the absence of a contrary stipulation (Article 1*+!

'. )f the partnership is dissolved on account of the exercise of the

right to rescind (properly annulment as fraud or misrepresentation are

not grounds for rescission! the partnership contract on the ground of

fraud or misrepresentation, without pre-udice to his other rights shall

have the following rights% (a! lien or right of retention of the surplus,

after paying partnership liabilities for the sum paid by him to purchase

interest or capital or advances contributed (b! to stand, after all

liabilities to third persons are paid or satisfied, in place of creditors for

any payment made by him in respect to partnership liabilities (c! to be

indemnified by the person guilty of fraud or misrepresentation against

all debts or liabilities of the partnership

0@<8/ T9 /8TT<8 A229@5T/ AT80 =)//9<@T)95

/@BG82T T9 A5? A#08885T T9 T48 295T0A0?

5ote though that any agreement must give way to the preferred right

of partnership creditors 8C28T when it involves property of

deceased partner used to pay liabilities, in which case his separate

creditors are preferred.

(1! partnership A//8T/ are partnership property, contribution of

partners necessary to pay liabilities (! 90=80 9 A?85T of

liabilities $ partnership creditors, partners other than for capital&profit,

partner capital, then partner profits ('! A<)2AT)95 9 A//8T/

shall be partnership properties, followed by contributions to settle

liabilities (+! partners must contribute as provided by Article 1767

(proportion of profit&loss! the amount necessary to satisfy liabilities in

accordance with the agreement or pro"rata (! an assignee for the

benefit of creditors or any person appointed by the court shall have the

right to enforce contributions in items 1 to + (! any partner or legal

representative shall have the right to enforce contributions specified in

item + to the extent of what he has paid in excess of his share (7! the

individual property of a deceased partner is liable for the contribution

in item + /@BG82T to the condition that the liabilities where incurred

while a partner and that his separate debts are paid (5ote% Art. 1*'!

(*! when partnership property and individual properties are in the

possession of the court for distribution" partnership property" partnership creditors are preferred, individual property" individual

creditors are preferred )5 B9T4 )5/TA528/ saving the right of

liens for secured creditors (6! when a partner is insolvent or his estate

is insolvent, claims against his property shall ran; as follows% separate

creditors, then partnership creditors, then partnership contributions

(Article 1*'6!

PREFERENCES OF PARTNERSHIP CREDITORS

5ote that partnership creditors have the right to have their credits

preferred in payment and that creditors do not lose their preferred

rights upon dissolution as they are also considered as creditors of the

partnership&person continuing the business in the following instances%

1. A new partner is admitted into an existing partnership, or when

any partner retires and assigns (or the representative of the deceased

partner assigns! his right to partnership property to two or more

partners&one or more of the partners& one or more third persons, if business is continued without li:uidation of the partnership affairs

. All but one partner retires or assigns (or the representative of

the deceased partner assigns! their rights in partnership property to the

remaining partner without li:uidation of partnership affairs, either

alone or with others

'. artner retires&dies and the business of the dissolved

partnership is continued as set forth in 5os. 1 and of this article with

the consent of the retired partners or the representative of the deceased

partner but without assignment of his right to partnership property

18



+. All partners or their representatives assign their rights to

partnership property to one or more third persons who promise to pay

debts and continue the business of the dissolved partnership

. hen a partner wrongfully dissolves the partnership and the

remaining partners continue the business under Article 1*'7,

nd paragraph either alone or with others and without li:uidation of the

partnership affairs

. A partner is expelled and the remaining partners continue the business either alone or with others without li:uidation of partnership

affairs.

59T8% AB/8528 9 <)L@)=AT)95

T48 <)AB)<)T? 9 A T4)0= 80/95 B829)5# A A0T580

in the partnership continuing the business under this article shall be

satisfied out of partnership property only, unless there is a stipulation

to the contrary.

08808528 is also given to creditors of the dissolved partnership

as against creditors of a retiring&deceased partner or his representative

to any claim which the retiring&deceased partner may have against the

person partnership continuing the business on account of said partnerKs

interest or on account of any consideration promised for such interest

or for his right to partnership property. 8A5)5# that is a partner

retires&dies, his claim for the payment of his interest cannot defeat the

preference of partnership creditors.

59T4)5# in Article 1*+3 shall be held to modify any right of

creditors to set aside any assignment on the ground of fraud.

The use of a person or partnership continuing the business of the

A0T580/4) 5A8 or T48 5A8 of a deceased partner as part

thereof, shall 59T B? )T/8< ma;e the individual property of the

deceased partner liable for any debts contracted by such person or

partnership. This constitutes an exception to Article 1*1 as

the situation presupposes dissolution and business is continued under

any of the above"mentioned instances.

hen any partner =)8/&08T)08/, and the business is continued

under Article 1*+3 or aragraph of Article 1*'7 (partners who do

not cause dissolution! without settlement of accounts as between

him&his estate and the person&partnership continuing the business, the

partner or his legal representative shall have the right to (1! to have the

value of his interest at the date of dissolution ascertained and he shall

receive as an ordinary creditor an amount e:ual to the value of hisinterest, with interest 90 at his&legal representativeKs 9T)95 the

profits attributable to the use of his right in the property in lieu of his

interest 09>)=8= that partnership creditors are nevertheless

preferred (Article 1*+1!

LIMITED PARTNERSHIPS

DEFINED

)s one formed by two or more persons under the provisions of Article

1*++ having as members one or more general partners and one or more

limited partners. The limited partners as such shall not be bound by

the obligators of the partnership (Article 1*+'!

1. )f all want to be limited partners, the remedy is to form a

corporation

. The existence of a general partner is the assurance to creditors

that if partnership property be insufficient, their credits may still besatisfied out of personal property of the general partner. A</9 for

management purposes and to enable and encourage persons with

capital not desiring to engage in a particular business to invest and

become partners with those possessed with business s;ill and to en-oy

profits without liability as a general partner.

STATUTORY RE2UIREMENTS

The members must sign and swear to a certificate stating the following

(a! 5A8 of the partnership, adding H<T=I. )f not appended it is

19



presumed to be a general partnership. @nder Article 1*+, the name of

a limited partner must not appear unless (1! it is also the name of a

general partner (! rior to the time when he became a limited

partner, the business has been carried under name carrying his

surname. )f a limited partner name appears, he is liable as general

partner to partnership creditors who extend credit without actual

;nowledge that he is not a general partner (b! 24A0A2T80 9 T48

B@/)58// (c! <92AT)95 9 T48 0)52)A< B@/)58// (d! 5A8 A5= 08/)=8528 9 8A24 8B80, #8580A< A5=

<))T8= A0T580/ B8)5# 08/82T)>8<? =8/)#5AT8=.

5ote that under Article 1*', a person can be both a general partner or

limited partner at the same time provided such fact is stated in the

certificate. As such, he shall have the rights and powers of a general

partner and be sub-ect to all restrictions 8C28T that with respect to

his contribution he shall have the right against all other members

which he would have if he were not also a general partner. 8A5/ $

that if he is held answerable by third persons, he is entitled to recover

what he has paid from general partner. A</9, he would have

preference in the distribution of partnership assets to the extent of his

contribution (e! T80 90 4)24 T48 A0T580/4) )/ T9

8C)/T. There can be no limited partnership as will as aragraph 6,

Article 1*+ states that there is need to amend the certificate when no

time for dissolution is fixed, if not done, there is liability for a false

statement under Article 1*+7 (f! A9@5T 9 2A/4,

=8/20)T)95 9 A5= A#088= >A<@8 9 T48 0980T?

295T0)B@T8= B? A <))T8= A0T580. 5ote the prohibition

on industry.

)f services are contributed, the limited partner is an industrial partner

and the value of service that he contributes increases, thus it

runs counter to the concept of limited (Article 1*+!

( g! additional contributions to be given by limited partners, the

time or event at which they will be made (h! the time if agreed, when

the contribution of a limited partner will be returned (i! the share of

profits or other compensation by way of income which a limited

partner will receive by reason of his contribution (-! the right, if given

of a limited partner to substitute an assignee as contributor in his place

and its terms and conditions (;! the right if given of the partners to

admit other limited partner 59T8" admission becomes effective upon

the filing of an amendment to the original certificate (Article 1*+6! as

there is a need to designate who the limited partners are. )f there is no

amendment there is a false statement (l! the right if given of one or

more limited partners to priority over other limited partners to their

contribution, compensation by way of income and the nature of such

priority. @nder Article 1*, if not contained, the presumption is thatthey stand on e:ual footing (m! the right if given, of the remaining

general partner to continue the business on the =eath,0etirement,

)nsolvency, )nsanity or 2ivil )nterdiction of a general partner (n! the

right if given, of a limited partner to demand and receive property

other than cash in return of his contribution

/aid certificate or articles must be filed for the record with the /82.

59T8 T4AT (1! )t must be duly sworn to as one who suffers loss by

reliance on a statement may hold a party who ;new the statement to be

false at (a! the time it is signed (b! subse:uently, but within a sufficient

time before the statement is relied upon, to enable him to 2A528< or

A85= or to file a etition for its

2A528<<AT)95&A85=85T under Article 1* may bring an

action for damages (Article 1*+7! (! )f not filed with the /82, it is

presumed to be a general partnership, but the liability as a #eneral

artner applies to third persons as between them the limited liability

stays ('! /ubstantial compliance in #99= A)T4 gives rise to the

formation of a limited partnership but the absence of the following will bar it (a! 2ertificate is not sworn to as it is necessary to impress upon

the partners that the contents of the Articles are true and correct so that

third persons are not misled (b! )tKs articles are not registered (c! The

identity of <imited artners is not disclosed

)f a limited partnership is formed under the law effective prior to the

522 (2ode of 2ommerce&old 2ivil 2ode!, it may become a limited

partnership under the 5ew 2ivil 2ode by complying with Article

1*++. urther, it must set forth the (a! amount of original contribution

of each limited partner and time contribution was made (b! that the

20



property of the partnership exceeds the amount sufficient to discharge

liabilities to persons not claiming as #eneral artners or <imited

artners by an amount greater than the sum of the contributions of

<imited artners. )f they donKt do anything, they continue to be

governed by old law under which they were formed (Article 1*7!.

4AT A08 0)#4T/, 980/, 08/T0)2T)95/ A5=<)AB)<)T)8/ 9 A0T580/

1. A #eneral artner has the (a! 0ight and power to control the

affairs of the partnership, as such he is the sole person who can act for

the partnership in consideration of his personal liability for debts

without limitation (b! 8xcept with the written consent or ratification of

the specific act by all <imited artners, he cannot perform the

following (because they are acts of dominion and cannot be considered

essential or in the ordinary course of business! (1! do any act in

contravention of the agreement, this refers to other business (! do any

act that would ma;e it impossible to carry on the ordinary business of

the partnership ('! confess -udgment (+! possess partnerhsip property

or assign rights to specific partnership property other than for

partnership purpose (! admit a person as a #eneral artner (! admit a

<imited artner unless expressly allowed in the certificate (7! continue

the partnership with partnership property on the =0))) of a #eneral

artner unless allowed in the certificate (Article 1*3!. )n the same

manner as a limited partner, he shall also have the right to (1! have partnership boo;s ;ept at the principal place of business of the

partnership, and at a reasonable hour, to inspect and copy them (!

have on demand, true and full information of all things affecting the

partnership, and a formal account of partnership affairs whenever

circumstances render it -ust and e:uitable, and ('! have dissolution and

winding up by decree of the court (Article 1*1!

. A <imited artner on the other hand, is (a! 5ot bound by

partnership obligations unless he (1! participates in management under

Article 1*+* (! allows his name to be used under Article 1*+ ('! he

is also a general partner under Article 1*' and (+! he is liable under

Article 1* when he contributes capital to a business erroneously

believing that he has become a limited partner is not by reason of such

exercise of his rights as a limited partner, a general partner with the

person or partnership carrying on the business or is bound by their

obligations 09>)=8= That on ascertaining the mista;e, he

promptly renounces his interest in the profits of the business orcompensation by way of income and creditors are not pre-udiced.

8A5)5#" that since he has not been designated as a limited partner,

he appears as a general partner. 4ence, he is so liable unless he

renounces. 5ote though that this provision is without pre-udice to

Article 1*+*. 8A5)5#% that if the limited partner has already

participated in management, he cannot avail of the provisions of

Article 1* to limit his liability by renouncing. )f the exceptions =9

59T A<?, a limited partner is liable only up to the extent of his

contributions. (b! a limited partner also has the rights prescribed under

Article 1*1 as discussed, and in addition, the right to receive a share

of the profits or other compensation by way of income, and to the

return of contributions as per Article 1* and 1*7.

485 )/ A <))T8= A0T580 85T)T<8= T9 0828)>8 4)/

/4A08 9 T48 09)T/ 90 2985/AT)95 B? A? 9

)5298

A limited partner is entitled to his share of the profits&compensation by

way of income on the date stipulated in the certificate. /aid amounts

may come from the property of the partnership or that of the general

partner. 09>)=8=, that after payment, partnership assets are in

excess of liabilities except liability to both limited and general partners

for their contributions (Article 1*!

485 A08 295T0)B@T)95/ /@9/8 T9 B8 08T@058=

21



The contributions of a limited partner as coming from partnership

property or that of a general partner cannot be returned @5<8// (a!

all partnership liabilities except liabilities to (contributions of! general

or limited partners, have been paid or assets set aside to satisfy them

(b! the consent of all members is had unless return has been rightfully

demanded. )T )/ 0)#4T@<<? =8A5=8=% (1! on the dissolution

of the partnership (! when the date stated in the certificate for its

return has arrived ('! when months written notice has been given toall members, if no time is stipulated for return or dissolution. (c!

2ertificate is amended or cancelled to reflect withdrawal or reduction.

49 A)= $ a limited partner, in the absence of a contrary

stipulation or the consent of all members, shall, irrespective of the

nature of his contribution, have the right to demand and receive 2A/4

in return for his contribution

)5 A==)T)95 $ a limited partner has the right to have the partnership

dissolved and its affairs wound"up when (1! he rightfully but

unsuccessfully demands the return of his contribution (! other

liabilities have not been paid or partnership property is insufficient for

their payment A5= the limited partner is or would otherwise be

entitled to the return of his contribution (Article 1*7!

0)#4T T9 T0A5/A2T B@/)58// )T4 T48 A0T580/4)

A limited partner may (1! <oan money to the partnership, 90 (!

transact other business with the partnership and ('! unless he is also ageneral partner, receive on account of resulting claims against the

partnership, together with general creditors, a pro"rata share or assets

(59T8 T4AT 485 48 T0A5/A2T/ B@/)58//, the limited

partner is treated as a non"member creditor! B@T )5/9A0 A/

2<A)/ A#A)5/T T48 A0T580/4) $ 48 2A559T% (1!

receive or hold as collateral any partnership property, 90 (! receive

from a general partner or the partnership, any A?85T,

295>8?A528, 90 08<8A/8 09 <)AB))T?, if at that time,

the assets of the partnership are not sufficient to discharge liabilities to

persons not claiming as general or limited partners. 48528, the

receiving of collateral, security, payment or conveyance or release , in

violation of the provision is 0A@= on creditors of the partnership

(Article 1*+!.

0)#4T T9 A//)#5 )5T808/T

A limited partnerKs interest is assignable. The effects of an assignment

is to (a! constitute the assignee as a /ubstituted <imited artner (/<!.

This occurs when the assignee is admitted to all the rights of a limited

partner who has died (/ee Article 1*1 giving the executor or

administrator of the deceased partner the right to exercise all rights as

a limited partner to settle his estate and such power as the deceased

had to constitute an assignee as a /<! or has assigned his interest in

the partnership (the assignor partner must have the right to constitute

the assignee as a /<!. As a conse:uence, he has all the rights of a

limited partner and is sub-ect to all liabilities and restrictions on the

A//)#590 8C28T, those which he was ignorant of at the time he

became a limited partner and which could not be ascertained from the

certificate. B@T, the A//)#590 is not released from liability under

Articles 1*+7 (alse statements! and 1**, The 882T)>)T? )/ 95

A85=85T 9 280T))2AT8, 90 (b! he is a mere assignee. As

such he has no right to re:uire information or an account&s of

partnership transactions or to inspect the boo;s. 48 4A/ 0)#4T T9

$ (1! receive his share of profits or compensation by way of income

90 the return of contribution, to which the assignor would otherwise be entitled. 48 2A5 B8298 A /<, if (a! all the members consent

90 (b! the assignor is given the right by or in the certificate to

constitute him as a /<. )t is possible that if A//)#590 does not

desire, the assignee cannot be a /< (Article 1*6!.

B@T, the constitution of the assignee as a /< becomes effective only,

in both cases 485 T48 280T))2AT8 )/ A85=8=. 5ote% )f

no consent is given, =)//9<@T)95 A? TAD8 <A28

22



4)<8 T48 )5T808/T )/ A//)#5AB<8, )T A? A</9 B8

24A0#8=. The procedures is as follows% (a!due application of a

court of competent -urisdiction but exemption laws apply (b! court

may then appoint a receiver, ma;e any orders, directions or in:uiries.

)5 T48 )<885TAT)95 9 T48 24A0#)5# 90=80, the (a!

the limited partner cannot interpose that prior resort has been had to

other remedies as it is not deemed exclusive (b! the interest may be

redeemed with the separate property of any general partner but notwith partnership property (as it constitutes an untimely return of

contribution and gives a limited partner a concession that is

inconsistent with limited liability!. =issolution may result by the

express will if the members whose interest have not been charged

(Article 1*!

A <))T8= A0T580 A</9 4A/ T48 0)#4T 59T T9 B8

)<8A=8= A/ A A0T? T9 A5 A2T)95 A/ contributor unless

he is a general partner cannot be a proper party in a proceeding by or

against the partnership except when the ob-ect is to enforce the limited

partner right against or liability of the partnership (Article 1*!.

&HAT ARE THE LIA'ILITIES OF LIMITED PARTNERS

A limited partner is liable to the partnership for (1! the difference between his contribution as actually made and that stated in the

certificate as having been made (! the unpaid contribution which he

agreed in the certificate to ma;e in the future, at the time and on the

conditions stated in the certificate. 48 A</9 49<=/ A/ T0@/T88

(1! specific property stated in the certificate as contributed but has not

been contributed or was wrongfully returned (! money or other

property wrongfully paid or conveyed to him on account of his

contribution.

T48 <)AB)<)T)8/ 9 A <))T8= A0T580 may be A)>8= or

2909)/8= with the consent of all members, but the waiver or

compromise shall not affect creditors who extend credit or whose

claim arose after the filing and before a cancellation or amendment of

the certificate, to enforce such liabilities.

A limited partner is also liable, if he has rightfully received the return

in whole or in part of his contribution, to the partnership for any sum,not in excess of what he received, with interest, necessary to discharge

liabilities to all creditors who extend credit or whose claim arose

before such return (Article 1**!. This applies to all transactions

validly incurred but not considered at the time the return is made

=)//9<@T)95

The grounds&causes for dissolution as provided for by Articles 1*'3

and 1*'1 apply. The additional grounds are those provided for under

Article 1*7 (when the limited partner rightfully demands for return of

contributions but is unsuccessful, or, there is non"payment of

liabilities! and Article 1*3, upon the =0))) of a general partner,

which as a rule dissolves the partnership @5<8//, the business is

continued by the remaining general partner under (a! right granted in

the certificate , 90 (b! consent of all members is obtained

T48 90=80 9 /8TT<)5# A229@5T/ )/% (1! creditors in the

order provided for by law, except those owing general or limited partners by way of contribution (! those owned to limited partners in

respect to their share of profits and other compensation by way of

income on their contribution ('! limited partnerKs contributions (+!

general partner other than for capital or profits (! general partnerKs

profits (! general partnerKs capital. /ub-ect to agreements, a limited

partner shares in proportion to his contribution (Article 1*'!.

485 @/T T48 280T))2AT8 B8 2A528<<8= 90

A85=8=

23



The certificate is to be cancelled when the partnership is to be

dissolved or limited partners cease to be such. )t is to be amended

when% (1!change in name, character of the partnership or contribution

of a limited partner (! a person is substituted as a limited partner ('!

an additional limited partner is admitted (+! a person is admitted as a

general partner (! a general partner =0))) and business is continued

(! there is a change in the character of the business (7! there is a false

or erroneous statement contained in the certificate (*! there is achange in time for dissolution or return of contribution (6! the time for

dissolution or return of contribution is fixed (13! the members desire a

change in order to accurately represent their agreement (Article 1*+!.

A5? 0)T)5# T9 A85= /4A<< (1! conform to Article 1*++

and as far as necessary must set forth clearly the change in the

agreement&certificate (! it must be signed and sworn to by all

members, and if amendment is to add a partner (he must sign! or if it

pertains to a /< (assigning partner and substitute must sign!. ) )T )/

T9 B8 2A528<<8=, it should be signed by all partners.

A person desiring cancellation or amendment may petition the court to

order cancellation&amendment if the person designated refuses to

execute the writing. )f found meritorious, the court will order the /82

to cause cancellation or amendment

T48 280T))2AT8 )/ A85=8= 90 2A528<<8= 485 (1!

The writing in compliance with Articles 1*+ and 1* is filed with

the /82, and (! ) 29@0T A2T)95 )/ )5)T)AT8=, a copy of the90=80 of the court must be filed also. The Amended certificate then

ta;es the place of the original certificate. 59T8% that the /82 has

discretion to pass upon compliance with Article 1*++.

A!ENCY

Civil Law; Agency; The right of a broker to his commission for

finding a suitable buyer for the seller’s property even though the seller

himself consummated the sale with the buyer recognized by the

Court . )n acondary M &co. v. /ellner, the court recogniEed the right

of the bro;er to his commission for finding a suitable buyer for the

sellerKs property even though the seller himself consummated the sale

with the buyer. The court held that it would be in the height of

in-ustice to permit the principal to terminate the contract of agency tothe pre-udice of the bro;er when he had already reaped the benefits of

the bro;erKs efforts.

Same; Same; The seller’s withdrawal in bal faith of the

broker’s authority cannot unustly deprive the brokers of their

commission as the seller’s duly constituted agents. )n )nfante v.

2unanan, et al., the 2ourt upheld the right of the bro;ers to their

commission although the seller revo;ed their authority to act in his

behalf after they found a buyer for his properties and negotiated the

sale directly with the buyer whom he met through the bro;erKs

effort. The 2ourt ruled that the sellerKs withdrawal in bad faith of the

bro;erKs authority cannot un-ustly deprive the bro;ers of their

commissions as the sellerKs duly constituted agents.

Same; Same; Agency Coupled with an !nterest; An agency is

deemed as one coupled with an interest where it is established for the

mutual benefit of the principal and of third persons" and it cannot be

revoked by the principal so long as the interest of the agent or of a

third person subsists. @nder Article 167 of the 2ivil 2ode, an agencycannot be revo;ed if a bilateral contract depends upon it, or if it is the

means of fulfilling an obligation already contracted, or if a partner is

appointed manager of a partnership in the contract of partnership and

his removal from the management is un-ustifiable. /tated differently,

an agency is deemed as one coupled with an interest where it is

established for the mutual benefit of the principal and of the agent, of

for the interest of the principal and of third persons, and it cannot be

revo;ed by the principal so long as the interest of the agent or of a

third person subsists. )n an agency coupled with an interest, the

agentKs interest must be in the sub-ect matter of the power conferred

24



and not merely an interest in the exercise of the power because it

entitles him to compensation. hen an agentKs interest is confined to

earning his agreed compensation, the agency is not one coupled with

an interest, since an agentKs interest in obtaining his compensation as

such agent is an ordinary incident of the agency relationship. N1O

5ature, orms and Dinds of Agency

/TAT@T90? =8)5)T)95

By a contract of agency, a person binds himself to render some service

or do something in representation or in behalf of another, with the

consent or authority of the latter (Article 1**!

5ote that by going by the definition, agency includes relationships li;e

master"servant, employer, employees or lessor $ independent

contractor, such is however is )5290082T as agency pertains to the

performance of a -udicial act (one that binds a person to an obligation!

in the performance of which discretion may be exercised, while in the

other relationship what is done in behalf of the other is purely

ministerial.

A59T480 =8)5)T)95 $ it is a relationship by which two parties

whereby one party called the 0)52)A<, authoriEes another, called

the A#85T to act for and in his behalf.

4AT A08 T48 8//85T)A< 08L@)/)T8/ 9 A 295T0A2T

9 A#852?

1. There is consent, express or implied of the parties to establish

the relationship

. The ob-ect is the execution of a -uridical act in relation to a

third person

'. The agent acts as a representative and not for himself

+. The agent acts within the scope of his authority

A0T)8/ T9 A 295T0A2T 9 A#852?

1. Pri)ci+l $ one who has permitted or directed another to act

for his benefit and sub-ect to his direction and control. 4e is the one

whom the agent represents and from whom he derives authority. 4e is

the one primarily concerned with the contract

2AA2)T? )/8 $ he must be able to give legally effective consent

and the act to be performed must be delegable (whether or not the act

can be done by the person himself. )f ?8/ $ it is delegable 8C28T $

if it is strictly personal. 8xample% swear under oath, execute a will or

exercise a profession.

0)52)A</ $ can be natural or artificial&-uridical persons,

foreigners&aliens.

. A3e)t $ he who act or stands for another, usually he is given

full or partial discretion, at times he acts under a specific command.

2AA2)T? )/8, he must have the capacity to bind himself to the

principal, with third persons, it is not necessary as it is the principal

who is bound, he assumes no personal liability

5AT@08 9 A 295T0A2T 9 A#852?

)t is a fiduciary relationship, as a conse:uence of which% (a! noac:uisitive prescription exists in favor of the agent as his possession is

in the capacity as agent not owner (b!agent cannot deny the title of the

principal (c!agent cannot represent conflicting interests (d! agent is

obligated to render and give proper information and full disclosure

A5580 9 295/T)T@T)95 9 A 295T0A2T 9 A#852?

A contract of agency can be constituted 8C08//<? or )<)8=

from the acts of the principal, silence, lac; of action or failure to

repudiate and in all cases ;nowing that the other person is acting on

25

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his behalf without authority (Article 1*6!, )5 /@24 2A/8/, burden

of proof is on the party claiming or alleging agency. There is no

presumed agency except under Art. 1*3' as between partners when the

manner of management has not been agreed upon and when lawyers

appear before the court.

A/ T9 90

A contract of agency can be orally constituted unless the law re:uires

it to be written. The law re:uires it to be written under Articles 1*7+

(sale of land or any interest shall be in writing, otherwise the sale is

void! Article 1*7* (when a special power of attorney is re:uired! and

in relation thereto, Articles 1*76 and 1**3

49 )/ )T 8082T8=

A contract of agency is perfected by A228TA528, which can

be express or implied from acts that carry out the agency or silence or

inaction according to circumstances (Article 1*73 )t can also be

implied Hbetween persons presentI when the principal delivers his

power of attorney to the agent who receives it without ob-ection such

is prima facie proof of acceptance (Article 1*71! A5= as between

persons who are absent it cannot be implied from the silence of theagent 8C28T% (1! if the principal transmits his power of attorney to

the agent who receives it without ob-ection (!when the principal

entrusts to him by letter or telegram, a power of attorney with re:uest

to the business in which he is habitually engaged in as an agent and he

did not reply to the letter or telegram (Article 1*7!

A/ T9 T4)0= 80/95/ $ it is perfected when a person specifically

informs another or states by public advertisement that he has given a

power of attorney to a third person, the latter becomes an agent insofar

as (a! person to whom specific information is given, (b! anyone if it be

by public advertisement (Article 1*7'!. The power of attorney shall

remain in full force until notice of rescission is made in the manner

notice of constitution is given, or by actual ;nowledge, such is

sufficient to ma;e rescission effective.

)5 08<AT)95 T9 A0T. 1*7' " if the principal leads another to

believe that a certain person is his agent but it is not in fact true and

such representation is acted upon $ that creates an A#852? B?8/T98<. 5ote however that such can also be created by the

supposed agent.

=)/T)5#@/)4)5# B8T885 Agency by 8stoppel and )mplied

Agency. )n the former, the agent is not a true agent, the supposed

principal or agent is the one liable always depending upon who gave

rise to the agency by estoppel. )n the latter, the agent is true agent and

it is the principal who is liable.

A#852? )/ 08/@8= T9 B8 90 2985/AT)95 @5<8//

T4808 )/ 099 T9 T48 295T0A0?

hen there is no compensation mentioned, there is still a contract of

agency. The absence or presence of compensation not being a

necessary or essential re:uirement (Article 1*7!. 5either does the

agent have to prove that the agency is for compensation.

(INDS OF A!ENCY

Agency is either #eneral (when it comprises all of the business of the

principal! or /pecial (when it comprises one or more specific

transactions!. 2onse:uently, if one is appointed as a #eneral Agent,

he shall be authoriEed to conduct a series of transactions )nvolving

continuity of service. )f one is appointed as a /pecial Agent , he shall

be authoriEed to conduct a single&series of transactions not involving

continuity of service (Article 1*7!

HO& CONSTRUED

26



)f it is couched in general terms, it only comprises of acts of

administration, even if the principal should state that he withholds no

power or that the agent may execute such acts as he may deem

appropriate or even if agency should authoriEe a general or unlimited

management (Article 1*7!. Acts of administration are those that are

necessary in the day to day affairs of the business of the principal.

295/8L@85T<?, ) 4AT )/ T9 B8 80908= )/ 59T A5A2T 9 A=)5/T0AT)95, A /82)A< 980 9

ATT9058? )/ 08L@)08= )5 T48 9<<9)5# )5/TA528/%

(1! to ma;e payments as not usually considered acts of administration

(! to effect novations which put an end to obligations already in

existence at the time the agency was constituted ('! to compromise

submit :uestions to arbitration, to renounce the right to appeal, to

waive ob-ections to venue or to abandon prescription already ac:uired

(+! to waive any obligation gratuitously (! to enter into a contract by

which ownership over an immovable is transmitted or ac:uired

gratuitously or for valuable consideration (! to ma;e gifts, except

customary ones for charity or those made to employees in the business

managed by the agent (7! to loan or borrow money, unless the latter

act be urgent and indispensable for the preservation of the things

which are under administration (*! to lease real property to another for

a period exceeding one year (6! to bind the principal to render service

without compensation (13! to bind the principal in a contract of

partnership (11! to obligate the principal as a guarantor or surety (1!

to create real rights or convey real rights over immovable property

(1'! to accept or repudiate an inheritance (1+! to ratify obligationscontracted before the agency (1! any other act of strict dominion

(Article 1*7*!

There is need for a /pecial ower of Attorney to give the agent a clear

mandate specifically authoriEing the performance of an act as the acts

are classified as (a! acts of strict dominion or ownership (b!

gratuitous contracts, or (c! contracts where personal trust or confidence

is of the essence. )f an act of the agent re:uires a special power of

attorney, its absence renders the contract unenforceable. 5ote% A

#8580A< 980 9 ATT9058? 295TA)5)5#

A@T490)JAT)95 90 A2T/ 4)24 08L@)08/ A /82)A<

980 9 ATT9058? )/ A<<98= (>eloso vs. 2A , 3

/20A 6'!.

)n relation to Article 1*7*, note that (1! a special power of attorney to

sell excludes the power to mortgage, and a special power of attorney to

mortgage does not include the power to sell (Article 1*76! as the real

ob-ect is to dispose of the property, if however the power given is toraise money for which an agent may sell property or avail of all other

means $ then a mortgage would be valid (! a special power of

attorney to compromise does not authoriEe submission to arbitration.

The principal trusts the -udgment of the agent but not the -udgment of

the arbitrator.

0@<8/ T4AT #9>805 T48 8090A528 B? T48 A#85T

9 T48 A#852?

There being a contract of agency, the general obligations and scope of

power of the agent are%

(a! 4e must act within the scope of his authority (Article

1**1!. 4e may do such acts as may be conducive to the

accomplishment of the purpose of the agency. A@T490)T?

=8)58=" The right of the agent to effect legal relations with his

principal by the performance of acts effectuated by and in accordance

with the principalKs manifestation of consent. D)5=/ 9

A@T490)T? (a! 8xpress $ the authority is clearly defined and isspelled out in terms that the agent fully understands what is to be done

(b! )mplied $ only the general nature of the authority is defined, but is

deemed to include acts necessary to accomplish the purpose (c!

#eneral $ the agentKs discretion is complete (d! /pecial $ particular

instructions are given (e! Apparent" when the agent or a third person is

led to believe by the principal that he is an agent. A@T490)T? A/

=)/T)5#@)/48= 09 980" authority may be considered as

the cause while power is the effect. Authority given by the principal to

the agent is the one that empowers the agent, who can now act.

27



(b! The limits of an agentKs authority shall not be considered

exceeded should it have been performed in a manner more

advantageous to the principal than that specified by him (Article

1**!. The conditions of the agency can be improved, but not made

worse. The agent cannot be said to have exceeded the scope of his

authority because it is presumed that if it were the principal so acting,

he would have followed the more advantageous course. 2<8A0<?,

)T )/ 9//)B<8 T4AT T48 980 9 T48 A#85T B8B09A=80 T4A5 T48 0)52)A< it should be characteriEed by

the fact that it is more advantageous to the principal.

) A5 A#85T )/ 295/T0A)58= T9 A2T B8?95= T48

A@T490)T? #)>85 4). )T 2A5 B8 G@/T))8= ) )T )/

295/)=808= A5 A#852? B? 5828//)T?. This refers to the

concept that the agentKs authority is correspondingly enlarged to cope

with the necessities or exigencies of the moment $ B@T T4)/

/49@<= A<A?/ 08"/@9/8 T4AT A5 A#852? )/

A<08A=? )5 8C)/T8528. The conditions are (1! real existence of

an emergency (! inability to communicate with the principal ('!

exercise of additional authority is for principalKs protection (+! he

adopts family reasonable means, premises duly considered, and (!

authority ceases the moment the emergency no longer demands it

(c! )f an agent acts in his own name, the principal has no right of

action against the persons with whom the agent contracted, neither

have such persons against the principal. )n such is the case, the agent

is directly responsible to the persons with whom he contracted as if thetransaction has his own except when the contract involves things

belonging to the principal. )t is also without pre-udice to actions

between the principal and the agent. (Article 1**'!. This is an

A#852? )T4 A5 @5=)/2<9/8= 0)52)A<. This will apply

only when there is a contract of agency as the agent here A/

A@T490)J8= B@T A2T8= )5 4)/ 95 5A8, as opposed to an

agency by estoppel. 4ere the agent is liable alone as the fact of

representation disappears insofar as the third person and the principal.

Applying 1**1

)n this four instances the effects are%

1. Acts in principalKs behalf of authority $ valid $ principal is

bound

. Agent acts with authority but in his behalf $ valid $ principal is

not bound except if 1** applies

'. HAgentI without authority but in behalf of the principal $

unenforceable $ but principal can ratify.

Art. 1+3' $ paragraph ) Those entered into in the name of another person by one who

has given a authority or legal representative or who has cited beyond

his powers.

+. HAgentI without authority in his behalf $ valid $ provided at

the time of delivery he can deliver

O'LI!ATIONS OF THE A!ENT

). 2A00? 9@T T48 A#852?

Art. 1**+ $ the agent is bound by his acceptance to carry out

the agency $ ) 48 =98/ 59T $ he is liable through non"

performance for damages that may be sustained by his principal.

4e must also $ finish business already began on the death of the

principal $ should delay enPP any damages

</. 59T8% That if he carries PPP the agency in good faith and in

accordance with is authority but damages still result. 4e is not liable.

B@T $ under Art. 1*** $ the agent shall not carry out the agency if its

execution would manifestly result in loss or =AA#8

anifestly $ execution will definitely damage the principal

)f the A#85T =82<)58/ (or Art. 1*73, 71, or 7 does not apply!

A. 9bserve the diligence of a good father of the family in the custody

and preservation of the goods forwarded to him.

28



@5T)<%

the principal shall have appointed an agent, or

the principal shall have as soon as practicable ta;en charge of

)f the A#85T exercises the re:uire diligence $ loss PPP have to be

borne by the 9580&0)52)A<

) 48 A228T/ $ Art. 1**7 The agent in the execution shall act.

a. in accordance with the instructions of the principal

()nstructions as opposed to authority are the specific acts to be

underta;en to carry out the agency!

)5 /9 #)>)5# )5/T0@2T)95/ $ the principal must ma;e

his terms clear and PPPPPPPPP, if it be susceptible to two meanings,

adoption in good family does not cause liability for loss in constituting

the instructions they shall be construed as Ha plain non ac:uainted with

the ob-ect and attending reasonably to the language used, has in fact

construed.

b. )5 =8A@<T 9 )5/T0@2T)95/ $ he shall do all that a good

father of the family will do as re:uired by the nature of the business.

(That which an ordinary prudent man would exercise as regards his

own property!

he must careful $ agent is responsible not also fraud, but also for

negligence which shall be -udged with more or less PPP by costs

depending or whether agency was or was not for compensation.

)5 A==)T)95, )5 2A00?)5# 9@T T48 A#852?

Art. 1** $ if there be a stipulation that the agent shall advance

the necessary funds, he shall be found to do so except of the principal

is insolvent.

" this applies whether the agency is gratuitous or onerous.

" if PPPPP the agent $ (Art. 161*! (see 161 A</9!

" actual in contravention of being authority unless he avails

himself of the benefits.

" expenses are due to his PP

" incurred the expenses with ;nowledge that an unfavorable

result will ensure

" or, it is stipulated that expenses are to be PPP by him

" when even if he (A#85T! advances the amount no right for a

reimbursement exists

)). A#85T /49@<= 59T 0808/85T PP Art. 1**6 $ the A#85T is liable for damages, if there is a

conflict between his interests and that of the principal he should prefer

his own.

))). ) 48 )/ A@T490)J8= T9 <85= 90 B9009 958?

(1*63!

" if he is authoriEed to borrow, he may be the lender at the

current rate

" if he has been authoriEed to lend money at interest, he cannot

borrow it without the consent of the principal $ as there is a damages

that the interest of the principal will be -eopardiEed

)>. 9B<)#AT)95 T9 085=80 A5 A229@5T 9 4)/

T0A5/A2T)95/

" =8<)>80 T9 T48 0)52)A< 4AT8>80 48 A?

4A>8 0828)>8= B? >)0T@8 9 T48 A#852?, 8>85 ) )T )/

59T 9)5# T9 T48 0)52)A<

Any stipulation exempting him from rendering an accounting is void.

" ailure to account or return without -ustifiable reason shall be

ground for prosecution under Art. '1 par 1 (! of the 0< for estafa

>. 5AT@08 9 <)AB)<)T? 9 T48 A#85T T9 T48

0)52)A<

Art. 1*6+ $ the responsibility of two or more agents, even

though they have been appointed. /imultaneously, is 59T

/9<)=A0?, if solidarily has not been expressly agreed upon.

<iability is -oint.

29



But Art. 1*6 $ if solidarily has been agreed upon each of the

agents is responsible for the non"fulfillment of the agency and for the

PPP and negligence of his PP agents except in the latter case the agent

acted beyond the scope of their authority.

)f the co"agent PP beyond the scope of his authority $ no

liability is imposed on the other agent.

rincipal can sue either agent without pre-udice to any action&s

for recovery between them.

)5 A==)T)95

Art. 1*6 $ of the agent

4as%

converted and applied PPP to his own use, or

ones PP after the agency is extinguished

48 )/ <)AB<8 90 )5T808/T 95 T48 /A)= A9@5T/

)T49@T 08/@PPP T9 A 09/82@T)95 90 8/TAA ) /9

A00A5T?

2A5 T48 A#85T A9)5T A /@B/T)T@T8

Art. 1*6 $ The agent is allowed to appoint a substitute of the

principal has not prohibited from doing so, but if he does appoint, the

agent shall be responsible for all the acts of the substitute if%

a. he has not given the power to appoint one

b. he was given the power to appoint but without designating the

person and the person appointed was notoriously incompetent or

insolventA</9, all the actKs of the substitute shall be void if it is

counter to the principalKs prohibition to appoints.

Article 1*6' $ in cases where there is no power to appoint or

the person appointed is incompetent or insolvent. The principal may

bring an action against the substitute with regards to the obligation

which has been contracted under substitution.

8xecution on the 0ule of priPP

Art. 1'11 $ contracts ta;e effect between the parties only

)5/9A0 A/ <)AB)<)T)8/ T9 T4)0= 80/95/

Article 1*67 $ agent is not personally liable to the party with

whom he contracts $ @5<8//

a. 4e expressly binds himself in which case the principal is still

liable.

b. 4e exceeds the PP of his authority without giving such party

sufficient notice of his powers but if party is aware then he is estopped

from claiming otherwise

Art. 1*6* $ if the agent contracts in the name of the principal

exceeding the scope of his authority A5= the principal does not ratify

the contract is >9)=, if the party is aware of the PP of the power

granted by the principal.

)f the agent undertoo; to secure ratification and it is not given,

the agent is liable even if the third party is aware or unaware.

08L@)/)T8/ 90 >A<)= 0AT))2AT)95

1. contract is one which would have been valid or legal had the

agent been authoriEed

. principal must be existing and legally competent at the PP of

ratification

'. contract must purport to be in the principalKs behalf

+. same formalities re:uired for ratification as original

authoriEation

. principal must have full ;nowledge of the facts

Art. 1*66 $ if the duly authoriEed agent acts in accordance with

the order of the principal the principal cannot set up the ignorance ofthe agent as to circumstances whereof he himself was on ought to have

been aware.

e.g. agent was to adopt to a situation that is foreseen

principal cannot say PP in attribute to agent if he was aware

0@<8/ 29>80)5# T4)0= 80/95/

Art. 1633 $ they can consider an act performed by the agent to

be within the scope of granted authority, if it is within the terms of the

0)TT85 980 9 ATT9058?, even if in fact it has been

30



exceeded according to an understanding between the principal and

agent.

Art. 1633 $ has no application of the agency is not written

95 T48 9T480 4A5= $ under Art. 1631" a third person

cannot set up the fact that the agent has exceeded his power of the

principal has%

a. ratified the act or b. has expressed a willingness to ratify

c. to ensure that the agent acts with his authority

Art. 163 $ a second person has the right and the agent the obligation

to%

a. re:uire&present the power of attorney or

b. re:uire&present the instructions

)f there are private or secret orders or instructions, third parties

will not be pre-udiced if they have relied on what has been shown to

them.

Art. 163' $ 163* $ 2ommission Agent

Agent is a bro;er or a penchant who has the option with actions

in his own name or that of the principal for which purpose $ goods are

placed in his PPP of PP, engaged in purchase and sale of proposed

property.

Art. 163' $ he shall be responsible for the goods received by him inthe terms and conditions and as described in the consignment unless

upon receiving them he should ma;e a written statement of the

damage and deterioration.

Art. 163+ $ if he handles goods of the same ;ind and wor;, which

belong to different owners, he should distinguish then by countermar;s

and designate the merchandise belonging to each principal.

'. 4e cannot sell the goods on credit without the express or

implied consent of the principal. )f he sells on credit, the principal can

demand cash but the agent shall be entitled to any benefit or interest

(B@T 0)52)A< 2A5 0AT)? /A<8!. )f he sells on credit with

the authority of the principal, he shall inform the principal with a

statement of the names of the buyers. /hould he fail, the sale shall be

deemed to have been made in cash insofar as the principal is

concerned T4)/ )/ T9 08>85T A#85T 09 /A?)5# T4AT

A 2A/4 /A<8 A/ 95 208=)T (Articles 163 and 163!.

+. )f the agent is entitled to a #@A0A5T88 29)//)95 (in

addition to the ordinary commission! he shall bear the ris; of

collection and shall pay the principal the proceeds of the sale on the

terms agreed upon with the purchaser (Article 1637!. 4ere

the )5/9<>852? 9 T48 =8BT90 )/ 59T A =885/8.

. )f the commission agent does not collect the credits of his

principal when they become due and demandable, he is liable for

damages unless he proves he exercised due diligence (Article 163*!.

O'LI!ATIONS OF THE PRINCIPAL

1. T9 29<? comply with all obligations that the agent may

have contracted )T4)5 T48 /298 9 4)/ A@T490)T?. As for

any obligation contracted when his power is exceeded, the principal is

not bound 8C28T if he 0AT))8/ expressly or tacitly (Article

1613!. )f the agent exceeded his authority the principal is/9<)=A0)<? <)AB<8 with the agent ) 48 A<<98= the latter to

act as if he had full powers (Article 1611!.

. T9 A=>A528 , ) T48 A#85T 08L@)08/, the /@/

necessary to execute the agency. )f it is not advanced, the principal

must reimburse the agent even if the business or underta;ing was

unsuccessful 09>)=8=, the agent is free from any fault or

negligence, to include )5T808/T form the day on which the advance

is made (Article 161!.

31



59T8% That under Article 161* $ the principal is not liable for

expenses incurred by the agent in (+! instances% (a! Agent acted in

contravention of the principalKs instructions, unless he chooses to avail

himself with the benefits (b! 8xpenses are due to the agentKs fault (c!

hen they are incurred by the agent with ;nowledge that an

unfavorable result would ensue, if the principal not aware thereof

(d! hen it has been stipulated that the agent would bear the expenseor that the latter would only be allowed a certain sum.

'. T9 )5=85)? the agent for damages which the execution

of the agency may have caused the agent, who is without fault or

negligence (Article 161'!.

To enforce payment of the sums due under aragraphs (! and ('!, the

agent may retain in <8=#8 the things which are the ob-ect of the

agency until the principal effects reimbursement and payment of the

indemnity. This is an 8C28T)95 T9 T48 =@T? T9 =8<)>80

@5=80 A0T)2<8 1*61.

4AT )/ 5AT@08 9 T48 <)AB)<)T? 9 T48 0)52)A< )5

2A/8/ 4808 90 908 80/95/ 4A>8 A9)5T8= A5

A#85T 90 A 2995 T0A5/A2T)95 90 @5=80TAD)5#

The liability of the principal )/ /9<)=A0? $ for all conse:uences of

the agency (Article 161!

4AT 4A85/ 485 T9 80/95/ 295T0A2T

08#A0=/ T48 /A8 T4)5#, 958 )T4 T48 0)52)A<,

T48 9T480 )T4 T48 A#85T

hen persons contract with regards the same thing, one of them

with the agent, the other with the principal and the contracts are

incompatible with each other. T4AT 9 T48 0)90 =AT8

088008=, unless Art. 1++ applies% 9>AB<8/ $ first to ta;e

possession in good faith, )9>AB<8 $ first in good faith records it

in the registry of property. 59 )5/20)T)95 $ first having

possession in good faith, and in its absence, person who presents the

oldest title, provided there is good faith (Article 161!.

)f the agent acted in good faith, the principal must be held for damages

suffered by the person whose contract is re-ected (Article 1617!. )f he

is in bad faith, he alone shall be responsible

4AT A08 T48 9=8/ 9 8CT)5#@)/4)5# T48

295T0A2T 9 A#852?

The contract of agency is extinguished by (a! 0evocation (b!

ithdrawal of the agent (c! =eath, civil interdiction, insanity or

insolvency of the agent (d! =issolution of the firm or corporation

entrusted with or accepting the agency (e! Accomplishment of the

ob-ect or purpose of the agency (f! 8xpiration of the period for with

the agency was constituted (Article 161*!

9ther ;nown causes are termination by mutual consent, novation, loss

of the sub-ect matter, outbrea; of war if inconsistent with agency.

08>92AT)95

(1! 0evocation is underta;en by the principal at will and he may

compel the agent to return the document evidencing the agency. )t may

be done (a! 8C08//<?, or (b! )<)8=<? (Article 163!

(! )mplied revocation ta;es place when% (a! a new agent is

appointed for the same business or transaction which becomes

effective on the day notice thereof was given without pre-udice to

Articles 161 and 16 (Article 16'!, (b! when the principal directly

manages the business entrusted to the agent by dealing directly with

third persons (Article 16+!, and (c! grant to another agent of a special

power of attorney revo;es a general power of attorney as regards the

special matter involved in the special power of attorney (Article

16!.

32



49 2A5 08>9D8 ) T4808 A08 T9 90 908

0)52)A</

)f two or more principals have granted a power of attorney for a

common transaction, any one of them may revo;e without the consent

of the others (Article 16!. This is due to their solidary liability.

882T)>)T? 9 08>92AT)95

)n A<< )5/TA528/, the revocation is effective only when%

(1! 5otice has been given to specified persons, in cases where the

agency has been entrusted for the purpose of contracting with third

persons (Article 161!, 90 (! )f the agent had general powers,

revocation will not pre-udice third persons who acted in good faith and

without ;nowledge of the revocation. 5otice of the revocation in a

newspaper of general circulation is sufficient warning to third persons.

(Article 16!

485 T4808 2A5 B8 59 08>92AT)95

(1! )t is coupled with interest, but a mere statement that it is

coupled with an interest is not sufficient $ )5T808/T )5 T48

/@BG82T AT80 )/ 08L@)08=

(! )n cases mentioned under Article 167 (a! when a bilateral

contract depends on the agency. 8xample% A buys a parcel of landfrom B by installment. To pay balance, A appoints 2 to sell another

property if he cannot pay the balance and deliver the proceeds to B. (b!

if the agency is a means of fulfilling an obligation already contracted.

8xample% )n a contract of loan with a mortgage. )f the mortgagor is

unable to pay, the mortgagee is constituted as the mortgagorKs attorney

in fact to sell the property given as security upon foreclosure(c! a

partner is appointed as a managing partner and his removal is

un-ustified under Article 1*33

('! hen there is a waiver by the principal as to revocation

(+! hen the principal is obliged not to revo;e

(! 0evocation is underta;en in bad faith. 4ere there is actual

revocation but third parties will not be pre-udiced.

)T4=0AA<

)t is the agent who may withdraw from the agency by giving notice to

the principal B@T if the principal suffers any damage due to the

withdrawal, the agent must indemnify him @5<8// $ the basis of

withdrawal is impossibility of carrying or continuing the agency

without grave detriment to himself (Article 16*!. 498>80,

despite notice and withdrawal for a valid reason, the agent must

continue to act until the principal has had reasonable opportunity to

ta;e necessary steps to need the situation (Article 166!. T4)/ )/ T9

08>85T =AA#8 T9 T48 0)52)A<

=8AT4 9 T48 0)52)A< 90 T48 A#85T

(1! As a general rule, the death of the principal extinguishes the

agency but if 59T /9 if it has been constituted in% (a! 2995

)5T808/T 9 T48 0)52)A< A5= A#85T. 8xample% A

borrows from B and entrusts an item to B, which he can sell if the debt

is not paid, the agency shall remain even if A should die. The common

interest being the payment of the loan. (b! T48 )5T808/T 9 A

T4)0= 80/95 49 4A/ A228T8= T48 /T)@<AT)95 )54)/ A>90. 8xample% A sells property to B and appoints B as his

agent to pay 2 from the proceeds of the sale. The agency will exist

even if A dies (Article 16'3!

(! Anything done by the agent without ;nowledge of the death of

the principal or any other cause that will extinguish the agency, is

valid and shall be fully effective with respect to third persons who may

have contracted with him in good faith (Article 16'1!.

33



('! )f the A#85T =)8/, it extinguishes the contract of agency.

2onse:uently (a! his heirs must notify the principal, and (b! adopt

measures as the circumstances may demand in the interest of the

principal (Article 16'!. hen notice is impossible, consignment is

the remedy.

notesrsr.busorgn.pc'

TRUST

4AT )/ A T0@/T " )t is a fiduciary relationship concerning

property which obliges the person holding it to deal with the property

for the benefit of another. rom the beneficiaryKs viewpoint, it is the

right to beneficial en-oyment of property, the legal title over which is

vested in another

4AT A08 T48 24A0A2T80)/T)2/ 9 A T0@/T

The characteristics of a trust are (1! it is a fiduciary relationship (! it

is created by law or by agreement (Article 1++1! ('! legal title is held

by one, while e:uitable&beneficial title is held by another

=)/T)5#@)/48= 09 9T480 <8#A< 08<AT)95/4)/

1. rom #uardianship&8xecutorship, a trustee has legal title, not

so for a guardian&executor

. rom a stipulation pour autri ((a stipulation in a contract in

favor of a person not a party to the contract, the parties thereto not

being under any legal obligation to grant a benefit!, (a! a trust exists

because of a legal provision or a contract, a stipulation pour autri

arises only in case of contracts (b! a trust refers to specific property

only, a stipulation pour autri can refer to both specific things or other

things.

)/ 29"9580/4) A T0@/T

)n the cases of /otto vs. Teves (* /20A 1+! and 2astrillo vs. 2A

(13 /20A +6!, the /upreme 2ourt held that a co"ownership is a form

of trust, with each co"owner being a trustee for each of the others, thushe may not any act pre-udicial to the interest of his co"owners and an

agreement to preserve property in co"ownership is an express trust.

49 A08 T48 A0T)8/ T9 A T0@/T

The parties to a trust are (1! Trustor $ the person who establishes the

trust (! Trustee $ the person in whom confidence is reposed as

regards property for the benefit of another person ('! Beneficiary $

the person for whose benefit the trust has been created. 4e is

the Hcestui :ue trustI. )/ 9//)B<8 T9 4A>8 A0T)8/ 95<?,

if the beneficiary and trustor are one and the same (Article 1++3!.

4AT A08 T48 8<885T/ 9 A T0@/T

The elements of a trust are% (1! arties (! Trust property (trust estate

or sub-ect matter of the trust!

D)5=/ 9 T0@/T/

The ;inds of trusts are% (1! 8C08// $ one created by the direct and

positive acts of the parties by writing deed, will or by words

evidencing an intention to create a trust. )t is shown by the intention of

the trustor or the parties. 5o particular form is re:uired (! )<)8=

$ one created by operation of law. The D)5=/ 9 )<)8=

T0@/T/ A08 (1! 0esulting trust $ where a person ma;es or causes to

be made a disposition of property under circumstances which raise an

inference that he does not intend the person holding or ta;ing the

34



property to have beneficial interest. (Article 1++*! (! 2onstructive

trust $ imposed where a person holding title to property is sub-ect to an

e:uitable duty to convey to another on the ground that he could be

un-ustly enriched if he were permitted to retain it (Art. 1++7"1+!. A/

=)/T)5#@)/48= 09 /9<@T)9 )5=8B)T) where something is

received when there is no right to demand it or is unduly delivered

through mista;e or there is a payment by reason of mista;e in the

construction or application of a doubtful or difficult :uestion of law,T)T<8 =98/ 59T A//, )5 A 295/T0@2T)>8 T0@/T, T)T<8

A//8/.

A<)2AT)95 9 <A/

5ote that the principles of the general law of trusts, insofar as they are

not inconsistent with the 2ivil 2ode, the 2ode of 2ommerce, the 0ules

of 2ourt and special laws are hereby adopted (Article 1++!. e may

also draw freely from @nited /tates or @nited Dingdom precedents.

90 9 8C08// T0@/T/

5o particular words are re:uired for the creation of an express trust, it

being sufficient that a trust is clearly intended (Article 1+++!.

2onse:uently, an express trust is created by the direct and positive acts

of the parties as manifested by some writing or deed or will, or by

words evidencing an intention to create a trust.

B@T no express trust concerning an immovable or any interest therein

may be proven by parol evidence (Article 1++'! 498>80, if thetrust be )<)8=, it can be proven by parol evidence (Article 1+7!

A09< 8>)=8528 $ if terms of an agreement has been reduced to

writing, it is considered as containing all such terms, thus, as between

parties and their successors no terms other than the writing is allowed,

8C28T (a! mista;e is of fact (b! mista;e is common or mutual to

both, and (c! evidence of the mista;e is clear and convincing

48528, as far as express trusts are concerned, there is no specified

form. The trust may be constituted orally or in written form,

498>80, (1! if an express trust is over an immovable $ it must be

written to be enforceable B@T 95<? 90 859028AB)<)T?

59T 90 >A<)=)T? as the law does not so preclude the creation of

an express trust orally. This article can thus be considered as part of

the statute of frauds (! by implication, if the sub-ect is a movable, it

may be constituted orally and if so, it is valid and enforceable

08L@)/)T8/ 9 A5 8C08// T0@/T

The re:uisites of an express trust are% (1! a competent trustor $

one who is capacitated to convey property (! a competent trustee $

one who can hold property and enter into contract. 59T8% no trust

shall fail because the trustee appointed declines the designation, unless

the contrary appears in the instrument creating the trust (Article 1++!.

This applies even if trust is already subsisting or the trustee becomes

incapacitated. The 08A/95 being that to permit it to fail would

render nugatory or negate the trustorKs intention to create a trust. The

primary consideration being the dispositon of beneficial interest not

the appointment of trustee. 295/8L@85T<?, a court will have

to appoint a trustee unless the terms of the document provide for the

appointment of a successor. ('! a competent beneficiary $ one who is

capacitated to receive gratuitously from the trustor (5ote those who

cannot be donees and those who cannot be a legatee or devisee"

Articles 7'6, 137, 13*, 522!. 59T8 that the beneficiary is re:uiredto accept the trust to ma;e the trust effective (Article 1++!. The

acceptance may be 8C08// 90 )<)8= 90 08/@8= only if

no onerous condition is imposed on the beneficiary, except if there is

proof to the contrary or he did not accept (+! Ascertainable trust res

(!There must be present a clear and complete disposition of property (

indanao =evelopment Authority vs. 2A 11' /20A +6!

49 )/ A T0@/T A=)5)/T808=

35



A trust is to be administered in accordance with the provisions of 0ule

6* of the 0ules of 2ourt, which re:uires the trustee to (1! file a bond

(! render a true and clear account ('! ma;e an inventory (+! manage

and dispose of the estate faithfully in accordance with the law and the

terms of the trust agreement.

49 A08 8C08// T0@/T/ 85=8=

An express trust is ended by (1! mutual agreement (! expiration of theterm ('! fulfillment or a resolutory condition which extinguishes the

obligation (+! recission or annulment (! loss of the sub-ect matter (!

order of the court (7! merger (*! accomplishment of the purpose

8CA<8/ 9 )<)8= T0@/T/

The enumeration of implied trusts does not exclude those established

by general law but the limitation laid down in Article 1++ that it not

be contrary to the 2ivil 2ode, 2ode of 2ommerce, 0ules of 2ourt, and

/pecial <aws shall be applicable ( Article 1++7!.

1. 08/@<T)5# T0@/T/

a. hen property is sold and the legal estate is granted to one

party but the price is paid by another for the purpose of having

beneficial interest over the property. 8xample% A buys property from

B, but title is put in 2Ks name. 498>80, if the title is conveyed to achild $ legitimate or illegitimate of the one paying the price, no trust is

implied, it being disputably presumed, that there is a gift in favor of

the child (Article 1++*!. A</9, a document expressing a different

intent does not create a trust. 8xample% A pays for a lot but title is put

in BKs name. )f A is shown to have paid because he is paying B, there

is no T0@/T

b. hen a donation is made to a person but it appears that

although legal estate is transmitted to donee, he nevertheless is either

to have no beneficial interest or only part thereof (Article 1++6!.

8xample% Blind Trusts

c. hen land passes by succession to any person and he causes

legal title to be put in the name of another, a trust is established by

implication of law for the benefit of the true owner (Article 1+1!.

d. )f two or more persons agree to purchase property and bycommon consent, legal title is ta;en in the name of one if them for the

benefit of all, a trust is created by force of law in favor of the others in

proportion to the interest of each re:uisites (Article 1+!. 0e:uisites

are% (1! two or more agree to purchase (! there is consent that one

should ta;e title in his name (5ito vs. 2A, /20A 1!

e. When property is conveyed to a person in RELIANCE

upon his declared intention to held it for, or transfer it to another,

or the grantor, there is an implied trust in favor of the person

whose enefit is contemplated !Article "#$%&.

. 295/T0@2T)>8 T0@/T/

a. )f the price of the property is loaned or paid by one person for

the benefit of another and the conveyance is made to the lender or

payor to secure the payment of a debt, a trust arises by operation of

law or favor of the person to whom the money is loaned or for whom itis paid (Article 1+3!.

b. )f an absolute conveyance is made in order to secure the

performance of an obligation of the grantor toward the grantee, a trust

by virtue of law is established. )f fulfillment of the obligation is

offered by the grantor when it becomes due, he may demand

reconveyance of the property to him (Article 1++!.

36



c. hen any trustee, guardian or other person holding a fiduciary

relationship uses trusts funds for the purchase of property and causes

the conveyance to be made to him, a trust is established by operation

of law in favor of the person to whom the funds belong (Article 1+!.

d. )f property is ac:uired through mista;e or fraud, the person

obtaining it is by force of law considered a trustee of an implied trust

for the benefit of the person from whom the property comes (Article1+!. )f what is concerned is the ac:uisition by fraud of an

immovable, it cannot be ac:uired by prescription under Article11''.

As far as movables, if possessed through a crime, they can never be

ac:uired through prescription by the offender

2A5 T0@/T88 A2L@)08 0980T? /@BG82T 9 T48 T0@/T

B? 08/20)T)95

The trustee cannot ac:uire the property sub-ect of the trust by

prescription unless the trust has been repudiated. The re:uisites of

repudiation are% (1! the trustee has performed une:uivocal acts

amounting to the ouster of the cestui :ue trust (! the acts of

repudiation are made ;nown to the cestui :ue trust ('! the evidence of

repudiation are clear and conclusive (>A<=8J vs. 9<A0#A , 1

/20A 71!

08<AT8= G@0)/0@=8528

1. An action for reconveyance of a parcel of land based on an

implied&constructive trust prescribes in 13 years from registration of

the deed&issuance of title. This applies only when the person see;ing

reconveyance is not in actual possession $ as the action for

reconveyance is actually an action to :uiet title which does not

prescribe. (/88% 48)0/ 9 9<>)#A vs. 2A 7 /20A ''3, >=A

=8 2AB080A vs. 2A 7 /20A ''6, A5A5#A5 vs. 2A, #.0.

1176+, Gune 13, 1666!

. A resulting trust is imprescriptable unless repudiated (9K<A29

vs 29 249 24)<, 3 /20A !

'. A buyer at auction sale to enforce a widowKs obligation holds

the share of the other heirs in trust ( 598< vs. 2A +3 /20A 7*!

+. rescriptive period of 13 years from repudiation runs from the

moment possession becomes adverse ( 4@A5# vs. 2A ' /20A+3!. 0econveyance of registered land based on an implied trust is 13

years (A0A85T9 vs. 2B, 6 /20A 17*!

. An action for reconveyance based on an implied or

constructive trust prescribes in ten years from the alleged fraudulent

registration or date of issuance of a certificate of title (2risostomo v.

#arcia, Gr. +*1 /20A +3! /ee ascual v 2A, +36 /20A 13, /ee

also /ps. Alfredo v /ps. Borras, +3+ /20A 1+

0esulting trust is presumed to have been contemplated by the parties,

the intention as to which is to be found in the nature of their

transaction but not expressed in the deed itself. A constructive trust is

created, not by any word evincing a direct intention to create a trust,

but by operation of law in order to satisfy the demands of -ustice and

to prevent un-ust enrichment.

An implied trust was created in favor of respondent when petitioners

transferred the properties to their names in violation of the trust placed

in them as overseers. (Be-oc vs. 2abreros, ++ /20A 7*!

N1O <im v /aban, ++7 /20A '

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