up 2010 civil law (partnership and agency)

CIVIL LAW REVIEWER TABLE of CONTENTS

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AGENCYTable of Contents

Chapter I. Nature, Form, and Kinds of Agency.......................................................................341

I. Definition [Art. 1868, CC] ..................341II. Purpose.............................................341III. Characteristics [CNPPBF].................342IV. Essential Elements............................342V. Determination of Existence of Agency

342VI. Agency v Similar Contracts ...............343VII. Kinds .............................................344

Chapter II. Obligations of the Agent...........348I. To Carry Out the Agency ..................348III. To Advance the Necessary Funds [Art.1886, CC] ...................................................349IV. To Act in Accordance with PrincipalsInstructions.................................................349V. To Prefer Interest of Principal OverPersonal Interest........................................349VI. To Render Accounts and Deliver ThingsReceived by Virtue of the Agency..............349VII. To Be Responsible for Substitutes350VIII. To Pay Interest .............................350IX. To Answer for His Negligence or Fraud[Art. 1909, CC] ...........................................350X. Special Obligations of Factor/Commission Agents ...................................350

Chapter III. Liabilities of the Agent.............352I. Liability to Third Persons...................352II. Liability to the Principal .....................352III. Liability of Two or More Agents.........353

Chapter IV. Obligations of the Principal ...354I. To Comply with the obligationscontracted by the agent .............................354II. To Advance the Necessary Sums andReimburse the Agent .................................355III. To Indemnify the Agent for Damages355IV. To Pay the Agents Compensation ...356V. To Be Solidarily Liable ......................356

Chapter V. Extinguishment of Agency......357Extinguishment of Agency [EDWARD] ......357I. Expiration of the period for which it wasconstituted..................................................357II. Death, civil interdiction, insanity,insolvency ..................................................357III. Withdrawal of the agent ....................357IV. Accomplishment of the object of theagency .......................................................357V. Revocation ........................................357VI. Dissolution of the firm/corp. Whichentrusted/accepted the agency..................358

CIVIL LAW REVIEWER Chapter I. NATURE, FORM, and KINDS of AGENCY

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Chapter I. Nature, Form, and Kinds ofAgency

I. DEFINITIONII. PURPOSEIII. CHARACTERISTICSIV. ESSENTIAL ELEMENTSV. DETERMINATION OF EXISTENCEVI. AGENCY V SIMILAR CONTRACTSVII. KINDS

I. Definition [Art. 1868, CC]By the contract of agency,1. a person (agent) binds himself2. to render some service or to do something in

representation or on behalf of another(principal),

3. with the consent or authority of the latter.

II. PurposeThe purpose of agency is to extend theprincipals personality.

The personality of the principal is extendedthrough the facility of the agent. In so doing,the agent, by legal fiction, becomes theprincipal, authorized to perform all actswhich the latter would have him do. Therelationship can only be effected with theconsent of the principal, which must not, inany way, be compelled by law or by anycourt. (Litonjua, Jr. v. Eternit Corp.)

What acts may be authorized1. General Rule: What a man may do in

person, he may do thru another.2. Exceptions

a. Personal actsb. Criminal actsc. Unlawful acts

Theory of Imputed knoweldge1. General Rule: For knowledge of agent to be

imputed to the principal, there must be:a. Actual notice to the agent;b. The notice must pertain to a matter of

fact and not of law; andc. The fact must be within the scope of the

agents authority.2. Exceptions

a. Agents interests are adverse to those ofthe principal;

b. Agents duty is not to discloseinformation;

c. 3rd person claiming the benefit of therule colludes with agent to defraudprincipal.

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ARTN

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HIP

AGENCY & PARTNERSHIP TEAM

Prof. Roberto N. DioFaculty Editor

Genevieve E. JusiLead Writer

Joyce Anne C. RoldanWriter

CIVIL LAW

Kristine BongcaronPatricia TobiasSubject Editors

ACADEMICS COMMITTEE

Kristine BongcaronMichelle Dy

Patrich LeccioEditors-in-Chief

PRINTING & DISTRIBUTION

Kae Guerrero

DESIGN & LAYOUT

Pat HernandezViktor FontanillaRusell Aragones

Romualdo Menzon Jr.Rania Joya

LECTURES COMMITTEE

Michelle AriasCamille MarananAngela Sandalo

Heads

Katz ManzanoSam Nuez

Arianne Cerezo

Mary Rose BeleyKrizel MalabananMarcrese Banaag

Volunteers

MOCK BAR COMMITTEE

Lilibeth Perez

BAR CANDIDATES WELFARE

Dahlia Salamat

LOGISTICS

Charisse Mendoza

SECRETARIAT COMMITTEE

Jill HernandezHead

Loraine MendozaMary Mendoza

Faye CelsoJoie Bajo

Members


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NoteThe theory of imputed knowledgeascribes the knowledge of the agent, to theprincipal, not the other way around. Theknowledge of the principal cant be imputed to itsagent. (Sunace Internatl Mgt. Services v. NLRC,2006)

III. Characteristics [CNPPBF]1. Consensual: perfected by mere consent2. Nominate: has its own name3. Preparatory: purpose is the execution of a

juridical act in relation to a third person4. Principal: can stand by itself without need of

another contract5. Bilateral: gives rise to reciprocal rights and

obligations6. Fiduciary: since it is based on trust and

confidence

IV. Essential ElementsEssential Elements [CORS] (Rallos v Felix GoChan, 1978)1. Consent, express or implied, of the parties

to establish the relationship2. Object is the execution of a juridical act in

relation to a third person3. Agent acts as a Representative and not for

himself4. Agent acts within the Scope of his authority

Intent to establish agency essentialGeneral Rule1. On the part of the principal there must be an

intention to appoint or an intention naturallyinferable from his words or actions; and

2. On the part of the agent, there must be anintention inferable from words or deeds toaccept the appointment and act on it.

Exception1. Agency by estoppel; and2. Agency by operation of law

Agency by Estoppel1. The principal manifested a representation of

the agents authority or knowlingly allowedthe agent to assume such authority;

2. The third person, in good faith, relied uponsuch representation;

3. Relying upon such representation, such thirdperson has changed his position to hisdetriment. (Litonjua vs. Eternit Corporation,G.R. No. 144806)

Apparent AuthorityIt imposes liability, not as the result of thereality of a contractual relationship, butrather because of the actions of a principalor an employer in somehow misleading the

public into believing that the relationship orthe authority exists.

The principal is bound by the acts of hisagent with the apparent authority which heknowingly permits the agent to assume, orwhich he holds the agent out to the public aspossessing. The question in every case iswhether the principal has by his voluntaryact placed the agent in such a situation thata person of ordinary prudence, conversantwith business usages and the nature of theparticular business, is justified in presumingthat such agent has authority to perform theparticular act in question. (ProfessionalServices Inc. vs. Agana, G.R. No. 126297)

One who clothes another with apparentauthority as his agent, and holds him out tothe public as such, cannot be permitted todeny the authority of such person to act ashis agent, to the prejudice of innocent thirdparties dealing with such person in goodfaith. (Macke v Camps, 1907)

Capacity of the partiesThe principal must be capacitated to giveconsent.

The agent must have the capacity to enterinto contracts although he/she may not havethe capacity to enter into the particularcontract subject of the agency

However, as between the principal and theagent, the agent can set up his incapacityprovided he is not estopped. [Paras, CivilCode of the Philippines Annotated]

V. Determination of Existence of AgencyDesignation by partiesis not controlling.

Fact of existenceIf relations that constitute agency exist, thereis agency regardless of whether or not theparties understood the exact nature of therelation.

No presumption of existence1. General Rule: Agency must exist as a fact.2. Exceptions:

a. When agency arises ipso jureb. To prevent unjust enrichment

Intention of the parties to createThe nature of the contract depends on theintention of the parties as gathered from


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their words and actions and thecircumstances of the case.

As between principal and 3rd person,however, agency may exist without theexpress consent of the agent.

Keeler Rule (Harry Keeler Electric vRodriguez, 1922)1. Against the principal, the third party has the

obligation to determine existence and scopeof agency and has the burden of proof incase the principal denies it

2. Against the agent, the third person dealswith him at his own peril. A third person mayrequire the presentation of the POA or theprincipals instructions as regards theagency (Art. 1902)

3. The person dealing with the agent must alsoact with ordinary prudence and reasonablediligence. If he knows or has good reason tobelieve that the agent is exceeding hisauthority, he cannot claim protection.

VI. Agency v Similar Contracts

Partnership1. An agent acts not for himself, but for his

principal; a partner can act for himself, forhis firm, and for his partners

2. Parity of Standing TestA partnership generally presupposes aparity of standing between the partners, inwhich each party has an equal proprietaryinterest in the capital or property contributes& where each party exercises equal rights inthe conduct of the business. (Sevilla v CA,1988)

Independent Contractor (IC)Agency IC

1. ControlThe agent acts underthe control andinstruction of theprincipal.

The IC is authorized todo the work accordingto his own method,without being subjectto the other partyscontrol, except insofaras the result of thework is concerned

2. Liability for tortPrincipal is liable fortorts committed by theagent within the scopeof his authority.

Employer not liable fortorts committed by theindependentcontractor.

3. SubagentsAgents of the agentcan be controlled bythe principal

The employees of thecontractor are not theemployees of theemployer of thecontractor

Lease of ServiceAgency Lease of Service

1. BasisBasis isrepresentation

Basis is employment

2. PurposeExecution of a juridicalact in relation to athird person

Execution a piece ofwork or rendering ofservice

3. Authorized ActsThe agent is destinedto execute juridicalacts (creation,modification orextinction of relationswith third parties)

Lease of servicescontemplate onlymaterial acts.

4. DiscretionAgent exercisesdiscretionary powers.

Lessor ordinarilyperforms onlyministerial functions.

5. Parties3 parties: Principal,agent and the 3rdperson with whom theagent contracts

2 parties: Lessor andlessee.

Lease of PropertyAgency Lease of Property

1. ControlThe agent acts underthe control andinstruction of theprincipal.

Lessee is notcontrolled by thelessor

2. Things involvedAgency may involvethings other thanproperty

Lease of property onlyinvolves property

3. Binding powerAgent can bind theprincipal

Lessee cannot bindthe lessor

Agency to Sell v SaleAgency to Sell Sale

1. Ownership of goodsAgent receives thegoods as the goods ofthe principal

Buyer receives thegoods as owner

2. PaymentAgent deliversproceeds of the sale tothe principal

Buyer pays the price


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3. Return of goodsGenerally, the agentcan return the goodsin case he is unable tosell them to a thirdperson

generally, buyercannot return thegoods bought



5. PartiesAgent in dealing withthing received isbound to act accordingto the instructions ofhis principal;

Buyer can deal withthe thing as hepleases, being theowner.

Agency to Buy v SaleAgency to Buy Sale

1. Ownership of goodsThe agent acquiresownership in behalf ofthe principal

The buyer acquiresownership for himself.

2. Changes in priceGenerally, any changein the price should beborne by the principal

Buyer cannot adjustthe price alreadyagreed upon.

3. PaymentThe agent pays thepurchase price inbehalf of the principal

Buyer pays the price

GuardianshipAgency Guardianship

1. Person representedAgent represents acapacitated person

A guardian representsan incapacitatedperson.

2. Source of authorityAgent is appointed bythe principal and canbe removed by thelatter.

Guardian is appointedby the court or by law.

3. ControlThe agent acts underthe control of theprincipal.

Guardian is not subjectto the directions of theward but must act forthe benefit of the latter.



5. Binding powerAgent can make theprincipal personallyliable.

Guardian has nopower to imposepersonal liability on theward.

VII.KindsAs to Manner of Creation1. Express

a. Agent has been actually authorized bythe principal

b. Agency may be oral or in writing, unlessthe law requires a specific form. [Art.1869, CC]

2. Implieda. On the part of the principal:

From his acts his silence or lack of action; his failure to repudiate the agency

knowing that another person isacting on his behalf without authority[Art. 1869, CC]

b. On the part of the agent: from his acts which carry out the

agency; from his silence or inaction

according to the circumstances [Art.1870, CC]

Acceptance of the Agency Between persons who are present

Principal delivers his power ofattorney to the agent; and

Agent receives it withoutobjection [Art. 1871, CC]

Between persons who are absent: General Rule: Acceptance

cannot be implied from thesilence of the agent

Exceptionsi. when the principal transmits

his POA to the agent, whoreceives it without anyobjection;

ii. when the principal entrusts tohim by letter or telegram aPOA with respect to thebusiness in which he ishabitually engaged as anagent, and he did not reply tothe letter [Art. 1872, CC]

c. Agency by estoppel If a person specially informs another

or states by public advertisementthat he has given a power ofattorney to a third person, the latterbecomes a duly authorized agent,even if previously there was never ameeting of minds between them.

The power shall continue to be infull force until the notice is rescindedin the same manner in which it wasgiven. [Art. 1869, CC]


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d. In Litonjua, Jr. v. Eternit Corp. (2006),the following must be present for agencyby estoppels to exist: the principal manifested a

representation of the agentsauthority or knowingly allowed theagent to assume such authority;

the third person, in good faith, reliedupon such representation;

relying upon such representation,such third person has changed hisposition to his detriment.

As to FormalitiesGeneral Rule

Agency may be oral or in writing [Art. 1869,CC]

Exceptionsa. When the law requires a specific form

[Art. 1869, CC]b. Sale of a piece of land or any interest

thereinWhen a sale of a piece of land or anyinterest therein is through an agent, theauthority of the latter shall be in writing;otherwise, the sale shall be void. [Art.1874, CC]

It is not necessary that the real propertyto be sold be precisely described in thewritten authority of the agent. It issufficient if the authority is so expressedas to determine without doubt the limitsof the agents authority. [Jimenez vRabot, 1918]

As to Cause or ConsiderationAgency may be onerouse or gratuitous

a. General RuleAgency is presumed tobe for compensation [Art. 1875, CC]

b. ExceptionThere is proof to thecontrary [Art. 1875, CC]

As to Extent of Business Covered1. Universal

A universal agent is one authorized todo all acts for his principal which canlawfully be delegated to an agent.[Siasat v. IAC (1985)]

2. GeneralIt comprises all the business of theprincipal [Art. 1876, CC]

3. SpecialIt comprises one or more specifictransactions [Art. 1876, CC]

General Agency Special Agency1. Scope of authority

All acts connected withthe business oremployment in which heis engaged.

Specific acts inpursuance of particularinstructions or withrestrictions necessarilyimplied from the act to bedone.

2. Nature of service authorizedInvolves continuity ofservice.

No continuity of service.

3. Extent to which agent may bind principalMay bind his principal byan act within the scope ofhis authority although itmay be contrary to thelatters specialinstructions.

Cannot bind his principalin a manner beyond oroutside the specific actswhich he is authorized toperform.

4. Termination of authorityApparent authority doesnot terminate by the mererevocation of his authoritywithout notice to the 3rdparty.

Duty imposed upon the3rd party to inquiremakes termination of therelationship as betweenthe principal and agenteffective as to such 3rdparty, unless the agencyhas been entrusted forthe purpose ofcontracting with such 3rdparty.

5. Construction of principals instructionsMerely advisory in nature. Strictly construed as they

limit the agents authority.

As to Authority Conferred1. Agency may be couched in general or

specific termsa. Couched in general terms [Art. 1877,

CC]If couched in general terms, it comprisesonly acts of administration, EVEN IF: the principal states that he withholds

no power; or he states that the agent may

execute such acts as he mayconsider appropriate; or

the agency should authorize ageneral and unlimited management

b. Couched in specific termsauthorizingonly the performance of specific act/acts

2. Power of AttorneyDefinition

Written authorization to an agent toperform specified acts in behalf of hisprincipal which acts, when performed,shall have binding effect on the principal[2 Am. Jur. 30]

PurposeNot to define the agents authority, but toevidence such authority to 3rd parties


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InterpretationGeneral Rule: Power of Attorney shouldbe strictly construedException: When strict construction willdestroy the very purpose of the power

Special Power of AttorneyA special power of attorney is anauthority granted by the principal to theagent where the act for which it is drawnis expressly mentioned. [Strong v.Repide, 1906]

A special power can be included in ageneral power of attorney, either bygiving authority for all acts of a particularcharacter or by specifying therein theact/transaction for which a special poweris needed. [Tolentino]

3. When special powers are necessary [Art.1878, CC] (PNC-WIG-LLB-PORIRS):a. to make such Payments as are not

usually considered acts of administrationb. to effect Novations which put an end to

obligations already in existence at thetime the agency was constituted

a. Compromise, to submit questions toarbitration, to renounce the right toappeal from a judgment, to waiveobjections to the venue of an action or toabandon a prescription already acquired

b. to Waive any obligation gratuitouslyc. to enter into any contract by which the

ownership of an Immovable istransmitted or acquired eithergratuitously or for a valuableconsideration

d. to make Gifts, except customary onesfor charity or those made to employeesin the business managed by the agent;

e. to Loan or borrow money, unless thelatter act be urgent and indispensablefor the preservation of the things whichare under administration

f. to Lease any real property to anotherperson for more than one year

g. to Bind the principal to render someservice without compensation

h. to bind the principal in a contract ofPartnership

i. to Obligate the principal as a guarantoror surety

j. to create or convey Real rights overimmovable property

k. to accept or repudiate an Inheritancel. to Ratify or recognize obligations

contracted before the agencym. any other act of Strict dominion

Notea. Art. 1878 refers to the nature of the

authorization, not to its form. Even if adocument is titled as a general power ofattorney, the requirement of specialpower of attorney is met if there is aclear mandate from the principalspecifically authorizing the performanceof the act (Bravo-Guerrero v Bravo,2005)

b. What SPA to sell/mortgage does notinclude [Art. 1879, CC] A special power to sell excludes the

power to mortgage; Special power to mortgage does not

include the power to sell.c. A special power to compromise does not

authorize submission to arbitration. [Art.1880, CC]

d. The power to legally compel thepayment of debts owing to the principalis an express grant of the right to bringsuit for the collection of such debts.(Germann & Co v Donaldson, 1901)

e. A power of attorney to loan and borrowmoney and to mortgage the principalsproperty does not carry with it or implythat that the agent has a legal right tomake the principal liable for the personaldebts of the agent. (BPI v De Coster,1925)

f. Unless the contrary appears, theauthority of an agent must be presumedto include all the necessary and usualmeans of carrying the agency into effect.(Macke v Camps, 1907)

g. If agent is empowered to borrowmoneythe agent may be the lender atthe current rate of interest.

h. If agent is empowered to lend money atinterestthe agent cannot borrow themoney without the consent of theprincipal

i. Effect of lack of SPA where one isrequired It is neither accurate notcorrect to conclude that the absence ofSPA (where one is required by law)renders the contract entered into byvirtue of said SPA void. The contract ismerely unenforceable. (Dungo vLopena, 1962, citing Art. 1403(1), CC)

As to Nature and Effects1. Ostensible or Representativeagent acts in

the name and representation of the principal2. Simple or Commissionagent acts in his

own name but for the principals account3. Agency by Estoppelthere is no agency,

and the alleged agent seemed to have


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apparent or ostensible, but not real,authority to represent another

Apparent Authority Agency by EstoppelThough not actuallygranted, principalknowingly permits orholds out the agent aspossessing thenecessary powers to actin a certain way.

Where the principal, byhis acts or omission,permits his agent toexercise powers notgranted to him, eventhough the principal mayhave no notice orknowledge of the conductof the agent.

Implied Agency Agency by EstoppelPrincipal alone is liable. If caused by the principal,

he is responsible. Ifcaused by the agent, heis responsible. Provided,3rd person in good faith.

4. When the principal ratifies the acts of theagenta. Conditions for ratification (CaP-DECK)

i. The principal must have Capacityand Power to ratify

ii. The act must be Done in behalf ofthe principal

iii. He must ratify the acts in its Entiretyiv. The act must be Capable of

ratificationv. He must have had Knowledge of

material facts.b. Effects of ratification

i. With respect to the agent: It relievesthe agent from liability. He may alsorecover compensation

ii. With respect to the principal: Heassumes responsibility for theunauthorized act, as fully as if theagent had acted under originalauthority; but he is not liable for actsoutside the authority approved byhis ratification.

iii. With respect to 3rd persons: Theyare bound by ratification. Theycannot question agents authority.

Ratification EstoppelRests on intention Rests on prejudiceAffects the entiretransaction from thebeginning.

Affects only relevantparts of the transaction.

The substance ofratification is confirmationof unauthorized acts orconduct after it has beendone.

The substance ofestoppel is the principalsinducement to another toact to his prejudice.

As to Kinds of Principal1. Principal may be:

a. Disclosedb. Partially disclosedthird persons are

unaware of principals identityc. Undisclosedagent acts in his own

name2. General Rule [Art. 1883, CC]

If the principal is undisclosed (agent acts inhis own name):a. the agent is the one directly bound in

favor of the person with whom he hascontracted, as if the transaction were hisown

b. the principal has no right of actionagainst the persons with whom theagent has contracted; neither have suchpersons against the principal.

Exception [Art. 1883, CC]a. When the contract involves things

belonging to the principalb. Exception qualified by National Bank v

Agudelo, 1933For the principal to be bound by theact of an agent who contracted inhis [agents] own name, it is notsufficient that the contract involvedthings belonging to the principal.The agent should also have actedwithin his scope of authority.[National Bank v Agudelo, 1933;Rural Bank of Bombon v CA, 1992]

3. Agent may still be sued even if principal isundisclosed and contract involved thingsbelonging to the principal.

Even if the principal is undisclosed andthe contract involved things belonging tothe principal, the third person whocontracted with the agent has a right ofaction not only against the principal butalso against the agent, when the rightsand obligations which are the subjectmatter of the litigation cannot be legallyand juridically determined withouthearing both of them. In such case, theagent being a necessary party to the fulland complete determination of the casewhich originated from his act should beincluded in the case as defendant.[Beaumont v Prieto, 1921]

CIVIL LAW REVIEWER Chapter II. OBLIGATIONS of the AGENT

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Chapter II. Obligations of the Agent

I. TO CARRY OUT THE AGENCYII. TO ACT WITHIN THE SCOPE OF HIS

AUTHORITYIII. TO ADVANCE NECESSARY FUNDSIV. TO ACT IN ACCORDANCE WITH

INSTRUCTIONSV. TO PREFER PRINCIPALS INTEREST OVER

PERSONAL INTERESTVI. NOT TO LOAN TO HIMSELF WITHOUT

PRINCIPALS CONSENTVII. TO RENDER ACCOUNT AND DELIVER

THINGS RECEIVED BY VIRTUE OF AGENCYVIII. TO BE RESPONSIBLE FOR SUBSTITUTESIX. TO PAY INTERESTX. TO ANSWER FOR HIS FRAUD/NEGLIGENCEXI. SPECIAL OBLIGATIONS OF

FACTOR/COMMISSION AGENTS

I. To Carry Out the AgencyObligation to carry out the agency heaccepted [Art. 1884, CC]1. The agent is bound by his acceptance to

carry out the agency own2. He shall be liable for damages that the

principal may suffer due to his non-performance [Art. 1884, CC]

Exception: An agent shall not carry out anagency if its execution would manifestly result inloss or damages to the principal. [Art. 1888, CC]

Obligation to finish business began onprincipals death [Art. 1884, CC]

The agent must finish the business alreadybegun on the death of the principal, shoulddelay entail any danger

Obligation should he decline the agency [Art.1885, CC]1. He is bound to observe the diligence of a

good father of a family in the custody andpreservation of the goods forwarded to himby the owner until the latter should appointan agent or take charge of the goods

2. However, the owner must act as soon aspracticable either by appointing an agent orby taking charge of the property

Obligation to continue agency should hewithdraw [Art. 1929, CC]

The agent, even if he should withdraw fromthe agency for a valid reason, must continueto act until the principal has had reasonableopportunity to take the necessary steps tomeet the situation.

II. To Act Within the Scope of HisAuthority [Art. 1881, CC]

Authority is the power of the agent to affect thelegal relations of his principal by acts done inaccordance with the principals manifestations ofconsent.

When agent acting within the scope of hisauthority1. When he is performing acts which are

conducive to the accomplishment of thepurpose of the agency [Art. 1881, CC]

2. If the agency has been performed in amanner more advantageous to the principalthan that specified by him [Art. 1882, CC]

3. Insofar as third persons, when the agentsact is within the terms of the power ofattorney, as written, even if the agent has infact exceeded the limits of his authorityaccording to an understanding between theprincipal and the agent. [Art. 1900, CC]

Note:1. A 3rd person with whom the agent wishes to

contract on behalf of the principal mayrequire the presentation of a power ofattorney or the principals instructions [Art.1902, CC]

2. The scope of the agents authority is whatappears in the written terms of the power ofattorney. While third persons are bound toinquire into the extent or scope of theagents authority, they are not required to gobeyond the terms of the written power ofattorney. [Siredy Enterprises, Inc. v CA,2002]

Effect when agent acts within the scope ofhis authority1. General Rule The agent who acts as such

is not personally liable to the party withwhom he contracts

2. Exceptionsa. If he expressly bound himself [Art. 1897,

CC]b. If he exceeds the limits of his authority

without giving such party sufficientnotice of his powers [Art. 1897, CC]

c. If he acted in his own name; except ifthe contract involves things belonging tothe principal [Art. 1883, CC]


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III. To Advance the Necessary Funds[Art. 1886, CC]

General RuleThe agent is bound to advance necessaryfunds, should there be a stipulation to do so.

ExceptionWhen the principal is insolvent

IV. To Act in Accordance with PrincipalsInstructions

Obligation to act in accordance withprincipals instructions

In the execution of the agency, the agentshall act in accordance with the instructionsof the principal. [Art. 1887, CC]

Obligation in the absence of instructionsAgent shall do all that a good father of afamily would do, as required by the nature ofthe business [Art. 1887, CC]

When private orders and instructions notbinding to third persons

Private or secret orders and instructions ofthe principal do not prejudice third personswho have relied upon the power of attorneyor instructions shown them. [Art. 1902, CC]

Effect when agent acts in accordance withprincipals orders

Principal cannot set up the ignorance of theagent as to circumstances whereof hehimself was, or ought to have been aware[Art. 1899, CC]

Authority v InstructionsAuthority Instructions

The sum total of thepowers committed orpermitted to the agent

Only a private rule ofguidance to the agent

Relates to the subject(biz/transaction) withwhich the agent isempowered to deal oract.

Refers to the manneror mode of agentsaction with respect tomatters within thepermitted scope ofaction.

Limits of authority tooperate vs those whohave/are charged withknowledge of them.

Binding only on theprincipal and agent

V. To Prefer Interest of Principal OverPersonal Interest

Rule in case of conflict of interest1. General Rule

The agent shall be liable for damages if,there being a conflict between hisinterests and those of the principal, heshould prefer his own. [Art. 1889, CC]

2. Exceptionsa. The principal waives the benefit of the

rule, provided he does so with fullknowledge of the facts.

b. The interests of the agent are superior,ex., agency coupled with an interest.

Agent prohibited from purchasing propertyof principal1. General Rule

The agent cannot acquire by purchase,even at a public or judicial auction,either in person or through the mediationof another property whoseadministration or sale may have beenentrusted to them.

2. ExceptionThe principal has consented to thepurchase. [Art. 1491(2), CC]

VI. To Render Accounts and DeliverThings Received by Virtue of theAgency

Obligation to account and deliver [Art. 1891,CC]Every agent is bound to:1. render an account of his transactions; and2. deliver to the principal whatever he may

have received by virtue of the agency, eventhough it may not be owing to the principal.

Effect of failure to complyIf he fails to do so or uses themoney/property for his own use, the agent isliable for estafa [Art. 315, RPC]

Contrary stipulation voidEvery stipulation exempting the agent fromthe obligation to render an account shall bevoid [Art. 1891, CC]

When not applicable (LIM)1. A right of Lien exists in favor of the agent.2. The agent or broker Informed the principal of

the gift or bonus or profit he received fromthe vendee, and the principal did not object.


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3. If the agent or broker acted only as aMiddleman with the task of merely bringingtogether the vendor and vendee (Domingo vDomingo)

VII.To Be Responsible for Substitutes

The agent shall be responsible for the acts ofhis substitute:1. when he was not given the power to appoint

one; or2. when he was given such power, but without

designating the person, and the personappointed was notoriously incompetent orinsolvent.

The agent may appoint a substitute if theprincipal has not prohibited him from doing so.All acts of the substitute appointed against theprohibition of the principal shall be void

Principal may also bring an action against thesubstitute with respect to the obligations whichthe latter has contracted under the substitution.[Art. 1893, CC]

VIII. To Pay InterestThe agent owes interest on:1. the sums he has applied to his own use from

the day on which he did so2. those which he owes after the

extinguishment of the agency

IX. To Answer for His Negligence orFraud [Art. 1909, CC]

The agent is responsible not only for fraud, butalso for negligence

Liability shall be judged with more or less rigorby the courts, according to whether the agencywas or was not for a compensation

X. Special Obligations of Factor/Commission Agents

Definitionone whose business is to receive & sellgoods for a commission, and is entrusted bythe principal with its possession [Mechemon Agency]

Obligations of a commission agent1. For goods received [Art. 1903, CC]

a. He shall be responsible for the goodsreceived by him in the terms andconditions and as described in theconsignment

b. To avoid liability, he should make awritten statement of the damage anddeterioration suffered by the same uponreceiving them

2. When handling goods of the same kind andmark with different owners [Art. 1904, CC]

He should distinguish the goods bycountermarks, and designate themerchandise respectively belonging toeach principal.

3. Not to sell on credit without express consent[Art. 1905, CC]

The commission agent cannot, withoutthe express or implied consent of theprincipal, sell on credit.Should he do so:a. the principal may demand from him

payment in cashb. but the commission agent shall be

entitled to any interest or benefit,which may result from such sale

4. To inform the principal of sale made oncredit, if authorized to do so [Art. 1906,CC]a. Should the commission agent, with

authority of the principal, sell on credit,he shall so inform the principal, with astatement of the names of the buyers

b. Should he fail to do so, the sale shall bedeemed to have been made for cashinsofar as the principal is concerned.

5. To indemnify principal for damages forfailure to collect the credits of his principalwhen they fall due [Art. 1908, CC]General Rule:

The commission agent who does notcollect the credits of his principal at thetime when they become due anddemandable shall be liable for damages

ExceptionIf he proves that he exercised duediligence for that purpose

6. When he receives a guarantee commission(del credere commission) [Art. 1907, CC]a. Bear the risk of collectionb. Pay the principal the proceeds of the

sale on the same terms agreed uponwith the purchaser

Ordinary Agent v Commission AgentOrdinary Agent Commission Agent

Acts for and inbehalf of theprincipal.

Acts in his own name orin that his principal.

Need not havepossession of thegoods of theprincipal.

Must be in possessionof the goods of theprincipal.


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Broker v Commission Agent (PacificCommercial v Yatco, 1939)

Broker Commission AgentHas no custody orpossession of thething he disposes;merely acts as anintermediary betweenthe sellers and thebuyer.

Engaged in thepurchase and sale, fora principal, of personalproperty which has tobe placed in hispossession anddisposal.

Maintains no relationwith the thing whichhe purchases or sells.

Has a relation with theprincipal (buyers orsellers) and theproperty which is theobject of thetransaction.

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Chapter III. Liabilities of the Agent

I. LIABILITITY TO THIRD PERSONSII. LIABILITY TO THE PRINCIPALIII. LIABILITY OF TWO OR MORE AGENTS

I. Liability to Third Persons

Agent not personally liable as a generalruleGeneral Rule

An agent who acts as such is not personallyliable to the party with whom contracts [Art.1897, CC]

Exceptions1. When he acts in his own name, except when

the contract involves things belonging to theprincipal [Art. 1883, CC]

2. If he expressly binds himself [Art. 1897, CC]3. If he exceeds the limits of his authority

without giving such party sufficient notice ofhis powers [Art. 1897, CC]

NoteWhen an agent contracts in hisown name and without the expressauthority of his principal, the obligationso contracted by him is personal and isnot binding on his principal. [PNB v.Agudelo]

BUT Third persons cannot set up thefact that the agent has exceeded hispowers if the principal has ratified, orhas signified his willingness to ratify theagents acts [Art. 1901, CC]

4. Under Art. 1898, CCa. Agent contracts in the name of the

principal;b. He exceeds the scope of his authority;c. The party with whom he contracted with

is aware of the limits of his powers; ANDd. The agent undertook to secure the

principals ratification.

Note Under Art. 1898, CC, the contractshall be void if the principal does not ratifythe contract and the party with whom theagent has contracted is aware of the limits ofthe powers granted by the principal.

Agent liable for damages to third personsunder Art. 1916 & 1917, CC1. When two persons contract with regard to

the same thing, one of them with the agentand the other with the principal;

2. the two contracts are incompatible with eachother

3. the agent acted in bad faith4. agent shall be liable for damages to third

person whose contract must be rejected

II. Liability to the Principal

Agent is liable for damages1. Due to non-performance of agency

The agent is liable for the damages which,thru his non-performance, the principalmay suffer [Art. 1884, CC]

2. For preferring personal interest to that ofprincipal

The agent shall be liable for damages if,there being a conflict between his interestsand those of the principal, he shouldprefer his own. [Art. 1889, CC]

3. Damages due to his withdrawal [Art. 1928,CC]

The agent must indemnify the principal forany damage that the principal may sufferby reason of the withdrawal of the agent;

Exception: The agent should base hiswithdrawal upon the impossibility ofcontinuing the performance of the agencywithout grave detriment to himself.

Liability of agent for acts of substitute underArt. 1892, CCThe agent shall be responsible for the acts of thesubstitute:1. when he was not given the power to appoint

one; or2. when he was given such power, but without

designating the person, and the personappointed was notoriously incompetent orinsolvent.

Principal may bring an action against thesubstitute with respect to the obligations whichhe has contracted under the substitution. [Art1893, CC]

All acts of the substitute appointed against theprohibition of the principal is void. [Art 1893, CC]

Responsibility for fraud or negligenceThe agent is responsible not only for fraud,but also for negligence, which shall bejudged with more or less rigor by the courts,according to whether the agency was or wasnot for compensation. [Art. 1909, CC]

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Interest under Art. 1896, CCThe agent owes interest on:1. the sums he has applied to his own use from

the day on which he did so2. those which he owes after the

extinguishment of the agencya. If he converted for personal use, his

liability is without prejudice to a criminalaction that may be brought against him.

b. If for the sum he owes afterextinguishment, demand is notnecessary because the agent is requiredto deliver to the principal whatever hemay have received by virtue of theagency. [Art 1891, CC]

Liablity of Commission Agents1. For any damage or deterioration of the

goods in the terms and conditions and asdescribed in the consignment

Exception: Upon receiving the goods, theagent makes a written statement of thedamage and deterioration suffered [Art1903, CC]

2. For commingling goods belonging todifferent owners [Art 1904, CC]

3. For selling on credit without the express orimplied consent of the principal [Art 1905,CC]

III. Liability of Two or More AgentsLiability is joint as a general rule [Art. 1894,CC]General Rule: Responsibility of two or moreagents, even though they have been appointedsimultaneously, is joint

Exception: Solidarity is expressly stipulated

Liability of two or more agents [Art. 1895,CC]If solidarity has been agreed upon, each of theagents is responsible for:1. the non-fulfillment of agency; and2. for the fault or negligence of his fellows

agents, except: When the fellow agentsacted beyond the scope of their authority incase of fault or negligence.

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Chapter IV. Obligations of the Principal

I. TO COMPLY WITH THE OBLIGATIONSCONTRACTED BY THE AGENT

II. TO ADVANCE NECESSARY SUMS ANDREIMBURSE THE AGENT

III. TO INDEMNIFY AGENT FOR DAMAGESIV. TO PAY THE AGENTS COMPENSATIONV. BE SOLIDARILY LIABLE

General Rule: THE ACT OF THE AGENT ISTHE ACT OF THE PRINCIPAL

Principal is bound by the acts of his agent.He has an obligation to deal fairly and ingood faith with his agent

SPECIFIC OBLIGATIONS OF THE PRINCIPAL[CARICS]3. to Comply with the obligations contracted by the

agent4. To Advance necessaty sums and Reimburse the

agent5. To Indemnify agent for damages6. To pay the agents Compensation7. be Solidarily liable

I. To Comply with the obligationscontracted by the agent

Obligations principal is bound to complywith1. obligations which the agent may have

contracted within the scope of his authority[Art. 1910, CC]

Note: Principal is directly liable to creditor fordebt incurred by agent acting within thescope of his authority. That the agent alsobound himself personally does not relieveprincipal from liability if the debt wasincurred for his benefit. [Tuason v. Orozco]

2. obligations which the agent may havecontracted beyond the scope of his authoritybut were ratified expressly or tacitly by theprincipal [Art. 1910, CC]

Note: Conditions for ratification (CaP-DECK)a. The principal must have Capacity and

Power to ratify.b. The act must be Done in behalf of the

principalc. He must ratify the acts in its Entiretyd. The act must be Capable of ratificatione. He must have had Knowledge of

material facts.

3. When an agent acts in his own name, butthe contract involves things belonging to theprincipal, the contract must be consideredas entered into between the principal andthe third person. [Art. 1883, CC; Sy-Jucoand Viardo v Sy-Juco, 1920]

4. The principal is solidarily liable with theagent who has exceeded his authority if theformer allowed the latter to act as though hehad full power. [Art. 1911, CC]

5. If two persons contract simultaneously withagent & principal for the same thing:a. Contract of prior date prevailsb. If applicable, follow the rule on double

sales in Art. 1544, CC. [Art. 1916, CC]

Liability of Principal for Tort of Agent [Art.1910, CC]

The principal is civilly liable to third personsfor torts of an agent if he commit such in thecourse and within the scope of the agency.

Agents negligence or disobedience to theprincipal does not relieve him from liability,even if he had no knowledge about the tort.

Agent and principal are solidarily liable tothird persons.

Liability of Joint Principals: Solidary [Art1915]

Each principal may be sued by the agent forthe entire amount due, not just forproportionate shares.

Any of the principals may revoke the agency

Requisites of Solidary Liability:a. Two or more principalsb. All principals concurred in the

appointment of the same agentc. Agent was appointed for a common

undertaking

Rules on Double Sale by Principal and Agent[Art. 1916-1917]General Rule:1. When two persons contract with regard to

the same thing, one of them with the agentand the other with the principal

2. two contracts are incompatible with eachother

3. the agent acted in good faith4. the principal shall be liable for damages to

the third person whose contract must berejected

In case of double sale, which contracts areincompatible with each other, that of PRIOR


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DATE shall be preferred, without prejudice to Art1544.

Art. 1544 provides that:a. If the same movable property is sold to

different persons, ownership istransferred to whoever first tookpossession in good faith.

b. If it be immovable, ownership belongs tothe person who in good faith firstrecorded it in the Registry of Property.

c. If there is no inscription, ownership shallbelong to the person who, in good faithwas first in possession; and in theabsence of such, to the one whopresents the oldest title, provided thereis good faith.

Principal not liable in the following cases1. Void or inexistent contracts under Art. 1409,

CC2. Sale of a piece of land or any interest

therein & the authority of the agent is not inwriting [Art. 1874, CC]

3. Acts of the substitute appointed against theprohibition of the principal [Art. 1892, CC]

4. Art. 1898, CCRequisites:a. agent contracts in the name of the

principalb. he exceeds the scope of the his

authorityc. the principal does not ratify the contractd. the party with whom the agent

contracted is aware of the limits of thepowers granted by the principal; andi. the agent did not undertake to

secure the principals ratification5. Agent has no authority or acted beyond the

scope of his authority [Arts. 1403(1); 1910,CC; Dungo v Lopena, 1962]

6. When the agent acts in his own name,persons with whom the agent hascontracted have no right of action againstthe principal, except when the contractinvolves things belonging to the principal.[Art. 1883, CC]

7. Unenforceable contracts under Art. 1403,CC

II. To Advance the Necessary Sums andReimburse the Agent

Obligation to advance sums [Art. 1912, CC]The principal must advance to the agent,should the latter so request, the sumsnecessary for the execution of the agency.

Obligation to reimburse [Art. 1912, CC]1. Should the agent have advanced sums, the

principal must reimburse him even if thebusiness or undertaking was not successful,provided the agent is free from all fault.

2. The reimbursement shall include interest onthe sums advanced, from the day on whichthe advance was made.

Exceptions to obligation to reimburse[Art.1918] (FCKS)1. When the expenses were due to the Fault of

the agent;2. If the agent acted in Contravention of the

principal's instructions, unless the lattershould wish to avail himself of the benefitsderived from the contract;

3. When the agent incurred them withKnowledge that an unfavorable result wouldensue, if the principal was not awarethereof;

4. When it was Stipulated that the expenseswould be borne by the agent, or that thelatter would be allowed only a certain sum.

Note: Under Art. 1236(2), CC:whoever pays for another may demandfrom the debtor what he has paid, exceptthat if he paid without the knowledge oragainst the will of the debtor, he can recoveronly insofar as the payment has beenbeneficial to the debtor.

Agents right to retain in pledge object ofagency should principal fail to reimburse him1. The agent may retain in pledge the things

which are the object of the agency until theprincipal:a. effects the reimbursement set forth in

Art. 1912, CC; andb. pays indemnity set forth in Art. 1913, CC

2. But agent is not entitled to the excess incase the thing was sold to satisfy his claim,and the proceeds are more than his claim[Arts. 2115, 2121, CC]. Also he mustpossess the thing lawfully in his capacity asagent [2 C.J.S. 457]

III. To Indemnify the Agent for Damages

Obligation to pay indemnity for damages[Art. 1913, CC]

The principal must indemnify the agent forall the damages which the execution of theagency may have caused the latter, withoutfault or negligence on his part.


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The agents has the right to retain in pledge theobject of the agency should principal fail to paythe indemnity set forth in Art. 1913, CC.

IV. To Pay the Agents Compensation

Agency is presumed to be for a compensation,unless there is proof to the contrary. [Art. 1875,CC]

General Rule on CommissionThe agent must be the efficient procuringcause in order to be entitled tocompensation [Inland Realty v. Court ofAppeals]. His efforts must have resulted infinding a ready, able and willing buyer of thegoods.

But for equity purposes, commission may begranted if the agent, even if he is not theprocuring cause, nonetheless took diligentsteps to bring back the parties which led tothe consummation of the sale [Prats v. Courtof Appeals]

Compensation of BrokersSince the brokers only job is to bringtogether the parties to a transaction, itfollows that if the broker does not succeed inbringing the mind of the purchaser and thevendor to an agreement with reference tothe terms of a sale, he is not entitled to acommission. [Rocha v Prats, 1922]

Doctrine of Procuring CauseWhen a party is not the efficientprocuring cause in bringing about a sale,he is not entitled to the stipulatedbrokers commission. [Inland Realty vCA, 1997]

If the principal breaks off from negotiationswith a buyer brought by the agent in order todeliberately deal later with the buyerpersonally, this is evident bad faith. In suchcase, justice demands compensation for theagent. [Infante v Cunanan, 1953]

V. To Be Solidarily Liable

With agent, if agent acted beyond scope ofauthority and principal allowed him to act asthough he had full powers

Even when the agent has exceeded hisauthority, the principal is solidarily liable withthe agent if the former allowed the latter to

act as though he had full powers. [Art. 1911,CC]

With person who appointed an agent withhim for a common transaction

If two or more persons have appointed anagent for a common transaction orundertaking, they shall be solidarily liable tothe agent for all the consequences of theagency. [Art. 1915, CC]

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Chapter V. Extinguishment of Agency

I. EXPIRATION OF THE PERIOD FOR WHICH ITWAS CONSTITUTED

II. DEATH, CIVIL INTERDICTION, INSANITY,INSOLVENCY

III. WITHDRAWAL OF THE AGENTIV. ACCOMPLISHMENT OF THE OBJECT OF THE

AGENCYV. REVOCATIONVI. DISSOLUTION OF THE FIRM/CORPORATION

WHICH ENTRUSTED/ACCEPTED THEAGENCY

Extinguishment of Agency [EDWARD]1. Expiration of the period for which it was

constituted2. Death, civil interdiction, insanity, insolvency3. Withdrawal of the agent4. Accomplishment of the object of the agency5. Revocation6. Dissolution of the firm/corp. Which

entrusted/accepted the agency

I. Expiration of the period for which itwas constitutedIf created for fixed period, expiration of theperiod extinguishes agency even if thepurpose was not accomplished

If no time is specified, Art. 1197 shall apply.The courts may fix the period as under thecircumstances have been probablycontemplated by the parties.

Period may be implied from terms ofagreement, purpose of agency, and thecircumstances of the parties

II. Death, civil interdiction, insanity,insolvency

Death extinguishes agencyGeneral Rule: Death extinguishes agency

Exceptions:1. Agency coupled with an interest

a. Interest common to principal and agent;or

b. Interest of a 3rd person who hasaccepted the stipulation in his favor. [Art.1930, CC]

2. Anything done by the agent, withoutknowledge of the death of the principal or ofany other cause which extinguishes theagency, is valid and fully effective withrespect to 3rd persons who may have

contracted with him in good faith. [Art. 1931,CC]

3. Agent must finish business already begunon the death of the principal, should delayentail any danger. [Art. 1884, CC]

Obligation of heirs of agent upon agentsdeath [Art. 1932, CC]1. They must notify the principal of the agents

death2. They should adopt such measures as the

circumstances may demand in the interestof the principal in the meantime.

3. The law does not impose a duty on theprincipals heirs to notify the agent of theprincipals death. [Rallos vs Felix Go Chan]

III. Withdrawal of the agent

1. General Rule: Agent may withdraw from theagency by giving due notice to the principal[Art. 1928, CC]

But: If the principal should suffer anydamage by reason of the withdrawal, theagent must indemnify him;

Exception: If the agent based his withdrawalupon the impossibility of continuingperformance of the agency without gravedetriment to himself. [Art. 1928, CC]

2. The agent, even if he should withdraw fromthe agency for a valid reason, must continueto act until the principal has had reasonableopportunity to take the necessary steps tomeet the situation. [Art. 1929, CC]

IV. Accomplishment of the object of theagencyBetween principal and agent, the fulfilmentof the purpose for which agency wascreated ipso facto terminates agency even ifit be expressly made irrevocable. If thepurpose has not been accomplished, theagency continues indefinitely for as long asthe intent to continue is manifested throughwords or actions of the parties

V. Revocation

Principal may revoke the agency at will as ageneral ruleGeneral Rule:

The principal may revoke the agency at will,and compel the agent to return thedocument evidencing the agency. Such

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revocation may be express or implied. [Art.1920, CC]

Exceptions:1. The right of the principal to terminate the

authority of his agent is absolute andunrestricted, except only that he may not doso in bad faith [Danon v Brimo, 1921]

2. Agency is coupled with an interest [Art.1927, CC]a. A bilateral contract depends upon itb. It is the means of fulfilling an obligation

already contracted;c. Partner is appointed manager of a

partnership in the contract of partnershipand his removal from the managementis unjustifiable.

Note:1. Powers of attorney falling under 1927

cannot be revoked at the pleasure of theprincipal, but may be revoked for a justcause, such as when the attorney-in-factbetrays the interest of the principal.(Coleongco v Claparols, 1964)

2. A mere statement in the power of attorneythat it is coupled with an interest is notenough. In what does such interest consistmust be stated in the power of attorney. (DelRosario v Abad, 1958)

3. Irrevocability of the contract cannot affect3rd persons and is obligatory only on theprincipal who executed the agency. (NewManila Lumber v Republic, 1960)

Revocation may be express or implied1. Expressprincipal clearly and directly

makes a cancellation of the authority of theagent in writing or orally

2. Implieda. The appointment of a new agent for the

same business or transaction revokesthe previous agency from the day onwhich notice thereof was given to theformer agent, without prejudice to theprovisions Art. 1921 and Art. 1922, CC[Art. 1923, CC]

b. The agency is revoked if the principaldirectly manages the business entrustedto the agent, dealing directly with thirdpersons. [Art. 1924, CC]

c. A general power of attorney is revokedby a special one granted to another

agent, as regards the special matterinvolved in the latter [Art. 1926, CC]

d. In all three cases, there is impliedrevocation only where the newappointment is incompatible with theprevious one.

When revocation makes principal liable fordamages1. If there is a period stipulated in the agency

contract, the agent may still revoke theagents authority at will; but principal will beliable for damages.

2. No period fixed: principal liable if the agentcan prove the former acted in bad faith.

Effect of revocation with respect to 3rdpersons [Arts. 1921-1922,CC]

Agency to contractwith specific

persons

Agency to contractwith general public

Wont prejudice 3rdpersons until notice isgiven them.

Wont prejudice thosein good faith & w/oknowledge.

Notice must bepersonal.

Notice must bepublished (Arts. 1873,1922).

Revocation in case of solidary principals[Art. 1925, CC]

When two or more principals have granted apower of attorney for a common transaction,any one of them may revoke the samewithout the consent of others.

Notice of Revocation as against thirdpersons1. If agent had general powers:

Revocation DOES NOT prejudice thirdpersons who acted in good faith andwithout knowledge of the revocation

Notice of revocation in a newspaper ofgeneral circulation is a sufficient warningto third persons

2. If agency is for the purpose of contractingspecified persons: to prejudice personsspecified, they must be given actual notice.

VI. Dissolution of the firm/corp. Whichentrusted/accepted the agency

- end of Agency -

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PARTNERSHIPTable of Contents

Chapter I. Nature, Creation, Kinds ofPartnership ...................................................361

I. Essential Features ............................361II. Characteristics ..................................362III. Distinctions........................................362IV. Rules to Determine Existence...........363V. How Partnership is Formed ..............363VI. Partnership Term ..............................363VII. Kinds of Partnerships....................363

Chapter II. Obligations of thePartnership/Partners Among Themselves 366

CRRAMP-LS..............................................366I. Make Contributions as Promised ......366III. Manage the Partnership....................367IV. Render Full Information.....................368V. Account for benefits ..........................368VI. Reimburse expenses ........................368VII. Liable for Partnership Contracts ...368VIII. Solidarily Liable with Partnership.369

Chapter III. Obligations of thePartnership/Partners as to Third Persons.370

LANN .........................................................370I. Operate Under a Firm Name (Art. 1815,CC) 370II. Bound by Partnership Admission......370III. Bound by Notice Partner ...................370IV. Liable for Acts of the Partnership......370

Chapter IV. Rights of Partners...................371I. Share in Losses and Profits ..............371II. Associate Another in His Interest......371III. Access to Partnership Books ............371IV. Obtain Formal Account .....................371V. Property Rights .................................371VI. Convery Real Property (Art. 1819, CC)

372

Chapter V. Rights of the Partnership ........374I. Acquire Immovables..........................374II. Preference of Creditors .....................374

Chapter VI. Dissolution and Winding Up ..375I. Definitions .........................................375II. Causes for Dissolution ......................375III. Consequences of Dissolution ...........375IV. Partners Liability...............................376

Chapter VII. Rights of Partners UponDissolution....................................................377

I. Right to Wind Up ...............................377II. Right to Damages for or to ContinueBusiness on Wrongful Dissolution .............377

III. Right to Lien or Retention, to Stand inPlace of Creditor, to be Indemnified ..........377IV. Right of Retiring/Deceased Partner (Art.1841, CC) ..................................................377V. Right of Account (Art. 1842, CC) ......378

Chapter VIII. Rules on Settlement (Art. 1839,CC).................................................................379

Chapter IX. Limited Partnership ................380I. Definition ...........................................380II. Forming/Amending a LimitedPartnership (Art. 1844, CC) .......................381III. Limited Partner..................................382IV. General Partner ................................384V. Dissolution ........................................384VI. Settling Accounts for Dissolution ......385


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Chapter I. Nature, Creation, Kinds ofPartnership

I. ESSENTIAL FEATURESII. CHARACTERISTICSIII. DISTINCTIONSIV. RULES TO DETERMINE EXISTENCEV. HOW PARTNERSHIP IS FORMEDVI. PARTNERSHIP TERMVII. CLASSES OF PARTNERSVIII.KINDS OF PARTNERSHIPS

Art. 1767. By the contract of partnership two ormore persons bind themselves to contributemoney, property, or industry to a common fund,with the intention of dividing the profits amongthemselves.

Two or more persons may also form apartnership for the exercise of a profession.(1665a)

I. Essential Features1. A mutual contribution of money, property, or

industry to a common fund;2. With the intention of dividing profits among

themselvesNote: The object must be for profit andnot merely for common enjoyment;otherwise only a co-ownership has beenformed.

3. The parties must have legal capacity.Exception: corporation cannot become apartner on grounds of public policy.

4. It has a separate juridical personality (Art.1768, CC) apart from the separatepersonality of each of the member.

Note: Associations and societies, whosearticles are kept secret among themembers, and wherein any one of themembers may contract in his own namewith third persons, shall have nojuridical personality, and shall begoverned by the provisions relatingto co-ownership. (Art. 1775, CC)

Although not a juridical entity, it may stillbe sued by third persons under thecommon name it uses. (Sec. 15, Rule 3,Rules of Court)A

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AGENCY & PARTNERSHIP TEAM

Prof. Roberto N. DioFaculty Editor

Genevieve E. JusiLead Writer

Joyce Anne C. RoldanWriter

CIVIL LAW

Kristine BongcaronPatricia TobiasSubject Editors

ACADEMICS COMMITTEE

Kristine BongcaronMichelle Dy

Patrich LeccioEditors-in-Chief

PRINTING & DISTRIBUTION

Kae Guerrero

DESIGN & LAYOUT

Pat HernandezViktor FontanillaRusell Aragones

Romualdo Menzon Jr.Rania Joya

LECTURES COMMITTEE

Michelle AriasCamille MarananAngela Sandalo

Heads

Katz ManzanoSam Nuez

Arianne Cerezo

Mary Rose BeleyKrizel MalabananMarcrese Banaag

Volunteers

MOCK BAR COMMITTEE

Lilibeth Perez

BAR CANDIDATES WELFARE

Dahlia Salamat

LOGISTICS

Charisse Mendoza

SECRETARIAT COMMITTEE

Jill HernandezHead

Loraine MendozaMary Mendoza

Faye CelsoJoie Bajo

Members


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5. Has a lawful object (Art. 1770, CC)a. A partnership must have a lawful object

or purpose, and must be established forthe common benefit or interest of thepartners.

Note: When an unlawful partnershipis dissolved by a judicial decree, theprofits shall be confiscated in favorof the State, without prejudice to theprovisions of the Penal Codegoverning the confiscation of theinstruments and effects of a crime

II. Characteristics1. Fiduciary2. Nominate designated by a specific name3. Consensual perfected by mere consent4. Bilateral/Multilateral entered into between

two or more persons5. Principal - existence does not depend on

another contract6. Onerous money, property or industry must

be contributed1. Preparatory other contracts essential in

the carrying out of its purposes can beentered into

III. Distinctions

Partnership CorporationCreated by mereagreement of theparties;

Created by operation of law

May be organized byonly two persons

Requires at least 5incorporators;

Juridical personalitycommences fromthe moment ofexecution of thecontract ofpartnership

Personality commences fromSECs issuance of thecertificate of incorporation

May exercise anypower authorized bythe partners as longas it is not contraryto law, etc.

Can exercise such powersexpressly granted by law orincident to its existence

If no agreement asto mgt. - everypartner is an agentof the partnership

Power to do business isvested in the board ofdirectors/ trustees

A partner as suchmay sue a co-partner whomismanages

Suit against the board/directorwho mismanages must bebrought in the corp.s name

Has no right ofsuccession

Has right of succession

The partners areliable personally andsubsidiarily forpartnership debts

The stockholders are liable tothe extent of the sharessubscribed by them

Partnership CorporationBased on delectuspersonam*

Not based on delectuspersonam

May be establishedfor any period oftime stipulated

May not be formed for aperiod exceeding 50 years

May be dissolved atanytime by the will ofany or all partners

May be dissolved only withthe consent of the state

Governed by theCivil Code

Governed by the CorporationCode

*Delectus personam: the right of partners toexercise their choice and preference as to theadmission of any new members to thepartnership, and as to the persons to be soadmitted, if any.

Partnership Co-ownershipCreation Always

created by acontract

General,created by law,may exist evenwithout acontract

JuridicalPersonality

Has aseparate,distinctjuridicalpersonality

Has no juridicalpersonality

Purpose Realization ofprofits

Commonenjoyment of athing or right

Duration No limitationupon theduration is setby law

An agreementto keep thethingundivided, notexceeding tenyears, shall bevalid. (Art. 494,CC)

Transfer ofInterests

Needunanimousconsent ofpartners tomakeassignee ofinterest apartner

A co-owner candispose of hisshare withoutthe consent ofthe others

Power toact withThirdPersons

A partner maybind thepartnership

A co-ownercant representthe co-ownership

Dissolution Death orincapacity of apartnerdissolves thepartnership

Death orincapacity of aco-owner doesnot dissolve theco-ownership

Representa-tion

There ismutual agency

There is nomutual agency


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Partnership Co-ownershipProfits Must be

stipulatedupon

Must alwaysdepend uponproportionateshares and anystipulation tothe contrary isvoid.

IV. Rules to Determine ExistenceArt. 1769. In determining whether a partnershipexists, these rules shall apply:1. General Rule: Persons who are not partners

to each other are not partners as to thirdpersons

Exception: partnership by estoppel.

2. Co-ownership or co-possession and sharingof gross returns DO NOT establish apartnership

3. Prima facie evidence of partnership: receiptof a share of the business profits

Except if received in payment as:a. A debt by instalment or otherwise;b. As wages to an employee or rent to a

landlord;c. An annuity to a widow or representative

of a deceased partner;d. As Interest on a loan, though the

amount of payment vary with the profitsof the business; and

e. As the consideration for the sale ofgoodwill of a business or other propertyby instalment or otherwise.

V. How Partnership is Formed

1. Form of ContractGeneral Rule: The contract may beconstituted in any form (Art. 1771, CC)

Exceptionsa. Where immovable property or real rights

are contributed (Art. 1771, CC)i. The contract must appear in a public

instrument (1771)ii. It must have an inventory of such

immovable property signed by theparties and attached to theinstrument (1773)

b. Where the capital is at least P3,000, inmoney or propertyi. The contract must appear in a public

instrument which must be recorded

in the Securities and ExchangeCommission (SEC). (Art. 1772, CC)

ii. FAILURE to comply with thisrequirement shall NOT affect theliability of the partnership and themembers to third persons.

VI. Partnership TermCommencement of the partnership1. General Rule: A partnership begins from the

moment of the execution of the contract2. Exception: When otherwise agreed upon by

the parties (Art. 1784, CC)

A Partnership may either be for1. Fixed term or particular undertaking2. at will

Extension of Life of Partnership1. By express renewal of the agreement2. By implied renewalRequisites:

a. A partnership is for a fixed term orparticular undertaking

b. It is continued after the termination ofsuch term or particular undertakingwithout any express agreemen

Note: Prima facie evidence of continuationa. Continuation of the business by the

partners without any settlement orliquidation of the partnership affairs(1785)

b. Effect: The rights and duties of thepartners remain the same as they wereat such termination, so far as isconsistent with a partnership at will(1785)

VII.Kinds of Partnerships

As to legality of existence1. De jure has complied with all the

necessary requisites for lawfulestablishment (Arts. 1772, 1773, CC)

2. De facto failed to comply with therequisites

As to its object1. Universal (Art. 1777, CC)

a. As to all present property (Art. 1778,CC)Partners contribute all their properties toa common fund with the intention ofdividing them among themselves as wellas all the profits they may acquire

Includes all properties which belongedto each partner at the time of the


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constitution of the partnership

Partners may stipulate that all may enjoyall other profits made except thoseproperties which may be acquiredsubsequently through inheritance,legacy or donation

b. As to profits (Art. 1780, CC)Partners contribute all that they mayacquire by their industry or work duringthe existence of the partnership

Does not include properties which eachpartner may possess at the time of thecelebration of the contract

Articles of Universal PartnershipIf the Articles of a universal partnershipdo not state its nature, it only constitutesa universal partnership of profits. (Art.1781, CC)

Persons prohibited to enter into a universalpartnershipThose persons who areprohibited from giving donation (Art. 133and 739, CC):a. Between husband and wifeb. Those guilty of adultery or concubinagec. Those guilty of a criminal offense, if the

partnership was entered into inconsideration of the same

d. A person and a public officer (or hiswife, descendants, ascendants) byreason of his office

2. Particular (Art. 1783, CC)The object may be determinate things, theiruse or fruits, or specific undertaking or theexercise of a profession or vocation.


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As to partners liability1. General2. Limited

General LimitedAll partners are generalpartners liable forpartnership obligationspro rata with all theirproperty after exhaustionof partnership assets

Formed by two or morepartners, with one ormore general partnersand one or more limitedpartners

Industrialist Partner v Capitalist PartnerIndustrialist

PartnerCapitalistPartner

Contribution Contributes hisindustry

Contributesmoney orproperty

Prohibition toengage inotherbusiness

Cannot engagein any businessfor himself

Cannotengage inthe same orsimilarenterprise

Profits Receives a justand equitableshare

Shares inprofitsaccording toagreementthereon; ifnone, prorata to hiscontribution

Losses Exempted as tolosses asbetweenpartners but itis liable to 3rdpersons withoutprejudice toreimbursementfrom thecapitalistpartners

1. stipulationas to losses

2. if none,theagreementas to profits

3. if none,pro rata tocontribution

Partnership by Estoppel1. Requisites of Partner By Estoppel:

a. The person represents himself as a partner of

an existing partnership or of two ormore persons not actual partners, or

consents to another representinghim as a partner of an existingpartnership or of two or morepersons not actual partners

b. Third person relied on themisrepresentation, unaware of thedeception.

c. On the faith of the misrepresentation,the 3rd person gave credit to theactual/apparent partnership.

d. The person representing or consentingto the representation is liable: as an actual member if a

partnership liability results pro rata with other persons when no

partnership liability results (Art.1825, CC)

2. No real partnership is created by estoppel. Itis only insofar as 3rd persons are involvedand for the purpose of protecting them thatthe principal of estoppel is recognized.

3. As to liability resulting from therepresentation:a. when all the members consent,

partnership obligation resultsb. if not all consent, only a joint obligation

of the one representing and of thosewho consented results

Note: Corporation by estoppelAll persons are liable as general partners(Sec. 21, Corp. Code). A de factopartnership is created.

CIVIL LAW REVIEWER Chapter II. OBLIGATIONS of the PARTNERSHIP

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Chapter II. Obligations of thePartnership/Partners Among Themselves

I. MAKE THE CONTRIBUTIONS AS PROMISEDII. PAY DAMAGESIII. MANAGE THE PARTNERSHIPIV. RENDER FULL INFORMATIONV. ACCOUNT BENEFITSVI. REIMBURSE EXPENSESVII. LIABILITY FOR PARTNERSHIP CONTRACTSVIII. SOLIDARY LIABILITY WITH PARTNERSHIP

CRRAMP-LS1. Make Contributions as promised2. Render full information3. Account benefits4. Manage the partnership5. Pay damages6. Liability for partnership contracts7. Solidary liability with partnership

I. Make Contributions as PromisedA partner is a debtor: for whatever he hadpromised to contribute thereto (Art. 1786, CC)

When promised contribution is property: ingeneral1. Partner is a warrantor in case of eviction

with regard to specific and determinatethings he may have contributed (Art. 1786,CC)Note: If breached

Partnership may recover indemnity fromcontributing partner.

2. Liable for fruits from the time they shouldhave been delivered without need of anydemand (Art. 1786, CC)

3. Other duties of contributing partners:a. to preserve the property with the

diligence of a good father of a family(Art. 1163, CC)

b. to indemnify the partnership fordamages caused to it by delay incontribution of property (Art. 1170, CC)

4. Risk of loss of things contributed (Art. 1795,CC)a. Borne by the partner who owns them

If they are not fungible, so that onlytheir use and fruits may be for thecommon benefit

b. Borne by the partnershipIf the things contributed are:i. fungible;ii. cannot be kept without deteriorating;

iii. if they were contributed to be sold

But in the absence of stipulation, the riskof things brought and appraised in theinventory, shall also be borne by thepartnership, and in such case the claimshall be limited to the value at whichthey were appraised.

When promised contribution is goods (Art.1787, CC)1. Appraisal must be made in a manner

prescribed in the contract of partnership2. In the absence of stipulation

a. Made by experts chosen by the partnersb. Made by experts chosen by the partners

When promised contribution is immovableproperty (Art. 1771-1773, CC)1. An inventory of the property is signed by the

parties, and attached to the publicinstrument

2. The public instrument must be filed with theSEC if the capital is more than P3,000.00.

When promised contribution is a sum ofmoney Sanctions:1. Partner becomes the firms debtor for

interest and damages from the time of hisfailure to contribute or from time ofconversion (Art. 1788, CC)

2. When money or property has been receivedby a partner for a specific purpose and helater misappropriated it, such partner isguilty of estafa. (Liwanag v CA, 2008)

Bring to partnership capital credit receivedEqual contribution by general partners:capitalist partners shall contribute equalshares to the capital of the partnership (Art.1790, CC).

Obligation of capitalist partner to contributeadditional capital1. To contribute additional capital in case of

imminent loss, requisites:a. There is an imminent loss of the

businessb. There is a need to contribute additional

capital to save the venturec. Capitalist partner refuses deliberately to

contribute an additional shared. There is no agreement to the contrary

2. If refused to contribute: the partner must sellhis interest in the partnership to the otherpartners (Art. 1791, CC)

3. Industrial partner is exempted fromcontributing.


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Obligation of managing partner who is also acreditor of the same partnership debtor1. Requisites:

a. 2 separate credits, both demandable,b. one credit is owed to the partnership,c. the other to the collecting partner whos

a managing partner.2. Managing partner should:

a. If issued receipt for own account only apply the sum to the 2 credits inproportion to their amounts

b. Issued receipt for partnerships account apply whole sum to partnershipscredit (Art. 1792, CC)

When the partner who has received, in wholeor in part, his share of a partnership creditPartner shall give to the partnership what hereceived if:1. a debtor made a partial payment of his debt

to the partnership2. a partner received his share of the credit

and the others havent3. the debtor later becomes insolvent, (Art.

1793, CC).4. Cf. 1792: in 1793 theres only 1 debt where

the partnership is the creditor

II. Pay Damages

Liability for damages due to partners faultThe damages cannot be compensated withthe profits and benefits he may have earnedfor the partnership by his industry (Art.1794, CC).

Mitigation of liabilityThe courts may equitably lessen hisresponsibility if through his extraordinaryefforts in other activities unusual profits havebeen realized (Art. 1794, CC)

Before a partner may sue another foralleged fraudulent management andresultant damages, a liquidation must firstbe effect to determine the extent of thedamage. Without liquidation of partnershipaffairs, partner cannot claim damages.(Soncuya v. De Luna)

III. Manage the Partnership

General Rules1. Right of management is primarily governed

by agreement of the partners as provided inthe articles of partnership (Art. 1800, CC)

2. Right to manage may either be:a. exercised by all the partners, orb. limited to a certain number of partners

called managing partners

If a specific person has been appointed asmanager (Art. 1800, CC)1. If right is conferred in the articles of

partnershipa. Manager may execute all acts of

administration despite the opposition ofother partners unless he is in bad faith

b. Power is irrevocable without just orlawful cause.

Note: The vote of the controllinginterest of the partners is necessaryfor revocation.

2. If power is granted after constitution ofpartnership, it may be revoked at anytime

If two or more partners are appointed asmanagers1. Without specification of their duties or

without a stipulation of how each one willact-- (Art. 1801, CC)a. Each one may separately execute all

acts of administrationb. If opposed, decision of majority prevailsc. In case of a tie, the matter is to be

decided by the controlling interest.2. If there is a stipulation that managers must

act jointly (Art. 1802, CC)a. The concurrence of all managers is

necessary for validity of the actsb. Their absence or disability cannot be

alleged as a defense unless there isimminent danger or grave or irreparableinjury to the partnership.

If the manner of management has not beenagreed upon (Art. 1803, CC)1. All partners are considered agents and the

act of anyone bind the partnership withoutprejudice to Art. 1801

2. To make important alterations in theimmovable property of the partnership, evenif useful, need the consent of all the partners

If refusal to give consent is manifestlyprejudicial to the partnership, the courtsintervention may be sought

Every partner is considered an agent (Art.1818, CC)General Rule:

Every partner is considered an agent of thepartnership for the purpose of its businessand any act of the agent for apparently


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carrying on the usual business of thepartnership binds the partnership.

Exception:If the partner has no authority to act; ANDthe third person dealing with him knew thatthe partner had no authority

If the acts are not for carrying out thebusiness of the partnership(Art. 1818, CC)General Rule:

Acts of the partner not apparently forcarrying out the business of the partnershipdo not bind the partnership.

Exceptions:When authorized by other partners; OR other

partners have abandoned the business

Acts not usual in the business of partnership(Art. 1818, CC) [ADD-CRES]1. Assign the partnership property in trust for

creditors or on the assignee's promise topay the debts of the partnership;

2. Dispose of the good-will of the business;3. Do any other act which would make it

impossible to carry on the ordinary businessof a partnership;

4. Confess a judgment;5. Renounce a claim of the partnership.6. Enter into a compromise concerning a

partnership claim or liability;7. Submit a partnership claim or liability to

arbitration;

IV. Render Full Information

Duty to give information:1. On demand, to give true and full information

of all things affecting the partnership to anypartner or their legal representatives (Art.1806, CC).

2. Voluntary disclosure of material facts withinhis knowledge relating to/affectingpartnership affairs (Art. 1821, CC).

V. Account for benefitsDuty to account (Art. 1807, CC)Every partner must:1. Account to the partnership for any benefit;

AND2. Hold as trustee for it any profits derived by

him without the consent of the other partnersfrom any transaction connected with theformation, conduct or liquidation of thepartnership

VI. Reimburse expensesThe partnership is responsible to everypartner for:1. Amounts disbursed on behalf of the

partnership plus interest from the time theexpense is made

2. Obligations contracted in good faith in theinterest of the business

3. Risks in consequence of management

VII.Liable for Partnership Contracts

Liability of partnership and partners forpartnership contracts-- (Art. 1816, CC)1. All partners shall be liable pro rata with all

their property butThe private property of the partnerscannot be seized for satisfaction ofpartnership debts until all thepartnership assets have been exhausted

2. For the contracts which may be entered into:a. in the name and for the account of the

partnershipb. under its signature andc. by a person authorized to act for the

partnership.

The exemption of an industrial partner frompaying losses relates exclusively to thesettlement of the partnership affairs among thepartners themselves, and not to the partnerssubsidiary liability to 3rd persons (La CompaniaMaritima v Munoz, 1907).

While the liability of the partners is joint intransactions entered into by the partnership, a3rd person who transacted with the partnershipcan hold partners solidarily liable for the wholeobligation if the 3rd persons case falls underArts. 1822-1823 (Muasque v. CA, 1985)

However, any party may enter into a separateobligation to perform a partnership contract.(Art. 1816, CC)

Stipulation against pro-rata liability void1. General Rule: Stipulation against pro rata

liability is void2. Exception:such stipulation is valid among

the partners (Art. 1817, CC)

Art. 1817 vs. 1799it is permissible to stipulate among partnersthat a capitalist partner will be exemptedfrom liability in excess of the original capitalcontributed; but wont be exempted insofaras his capital is concerned (Paras).


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Liability of a newly-admitted partner1. Obligations contracted before his admission:

liable only up to his share in the partnershipproperty unless theres a contrary stipulation(Art. 1826, CC).

2. Obligations contracted after admission:liable as an ordinary original partner

Liability of outgoing partner1. When he gives notice of his retirement or

withdrawal, hes freed from liability oncontracts entered into thereafter but stillliable on existing

up 2010 civil law (partnership and agency)

Documents

contract of agency

person agent

purposethe purpose of

agency v similar contractsvii

civil law reviewer chapter

kinds ofagencyi

principal overpersonal

civil interdiction