Bus Org Notes (2)
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Transcript of Bus Org Notes (2)
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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
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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
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(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
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. 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!
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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
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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
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)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!
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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*!
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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.
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) 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,
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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
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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.
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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.
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'. 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
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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
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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
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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!.
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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
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+. 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
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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
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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=
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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
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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=
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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
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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
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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
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)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.
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(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.
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@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.
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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
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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!.
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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!.
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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!.
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('! )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
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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=
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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++!.
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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 '