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Civil Law Partnership, Agency & Trusts: Artnership
Civil Law Partnership, Agency & Trusts: Artnership
No required form is necessary but the contract is 4. The object or purpose must be lawful. (Art. 1770);
subject to the provisions of Articles 1771 & 1773 and to 5. The primary purpose must be to obtain profits to divide
the Statute of Frauds the same among the parties; and
6. There must be at least one general partner.
The Articles of Co-Partnership is the written document
stating the name, nature or purpose and location of the It is also required that the articles of partnership must not
firm, and defining, among members, the powers, rights, be kept secret among the members; otherwise, the
duties, and liabilities of the partners among themselves, association shall have no legal personality and shall be
their contributions, the manner by which the profits and governed by the provisions of the Civil Code relating to
losses are to be shared, and the procedure for co-ownership (Art. 1775).
dissolving the partnership.
COMMON FUND
2. The parties must have legal capacity to enter into the A partnership may be deemed to exist among parties who
contract; agree to borrow money to pursue a business and to divide
the profits or losses that may arise therefrom, even if it is
shown that they have not contributed any capital of their Note: The property of a man and a woman who live
own to a common fund, as their contribution to such fund together as husband and wife shall be governed by the
could be an intangible like credit or industry (Lim Tong Lim rules on co-ownership.
v. Phil. Fishing Gear Industries, Inc., GR No. 136448,
November 3, 1999). The co-ownership of inherited properties is
automatically converted into an unregistered
MERCANTILE VIEW OF THE NATURE OF A partnership the moment the said common properties
PARTNERSHIP (Art. 1768) and/or the income derived therefrom are used as a
A partnership has a juridical personality separate and common fund with intent to produce profits for the heirs
distinct from that of each of the partners even in case of in proportion to their respective shares in the
failure to comply with the requirements of Article 1772 (1). inheritance as determined in a project partition (Oa vs.
Commissioner of Internal Revenue, G.R. No. L-19342,
Article 1768 provides that the partnership retains its May 25, 1972).
juridical personality even if it fails to register, so long as
the contract has the essential requisites (Sunga-Chan v. 3. Sharing of gross returns alone does not indicate a
Chua, G.R. No. 143340, August 15, 2001). partnership, whether or not the persons sharing them
have a joint or common right or interest in any property
Partnership for the practice of Law from which the returns are derived.
The right to practice law is not a natural or constitutional
right but a privilege or franchise. The use of a nom de Reason: When a business is carried on in behalf of a
plume, assumed, or trade name in law practice is given person as a partner, he is conceived as being
improper. interested in its failures as well as its successes; it is the
chance of gain or loss which characterizes a business.
RULES TO DETERMINE EXISTENCE OF A Take note that in a partnership, the partners share
PARTNERSHIP (Art. 1769) profits AFTER satisfying all of the partnerships liabilities
1. General Rule: Persons who are not partners as to each (De Leon, Comments and Cases on Partnership,
other are not partners as to third persons. Agency and Trusts, 2010 ed., p. 35).
Exception: Partnership by estoppel
Example: Atoy, owner of a passenger jeepney, agrees
Example: If Atoy and Joey are not partners as to each with Jerick, a driver, that the latter shall have full control
other, neither will they be partners with respect to Cath, and use of the jeepney to carry passengers, pay for
a third person. But if Atoy, with the consent of Joey, gasoline and oil, and shoulder the cost of repairs, and
represents to Cath that they are partners, then Atoy and that the gross receipts are to be divided between them.
Joey will be considered partners as to Cath even if they No partnership is established as no sharing of profits is
are not really partners (See De Leon, Comments and contemplated.
Cases on Partnership, Agency and Trusts, 2010 ed., p. Note: To regard the petitioners as having formed an
20). unregistered partnership would result in oppressive
taxation. Their original purpose was to divide the lots for
2. Co-ownership of a property does not of itself establish a residential purposes, but they were compelled to resell
partnership, whether such co-owners or co-possessors because of the high cost of construction. There must be
do or do not share any profits made by the use of the an unmistakable intention to form a partnership or joint
property. venture (Obillos v. CIR, et al, G.R. No. L-68118,
October 29, 1985; Pascual v. CIR G.R. No. 78133,
Reason: The law does not imply a partnership between October 18, 1988).
co-owners or co-possesors because of the fact that they
develop or operate a common property, since they may 4. Receipt of share in the profits is a prima facie evidence
rightfully do this by virtue of their respective titles or that he is a partner in the business (Sharing in the NET
common dominion over the property (De Leon, profits presupposes sharing in the losses).
Comments and Cases on Partnership, Agency and
Trusts, 2010 ed., p. 31). HOWEVER, NO such inference will be drawn if such
profits were received in payment: (DWAIC)
Example: Atoy and Joey inherited from their father an a. As a debt by installments or otherwise;
apartment which is leased to third persons. They are b. As wages of an employee or rent to a landlord;
merely co-owners and not partners.
Note: These may be modified by stipulation of the Salient Features of Ordinary Partnership
partners. 1. Community of interest in profits and losses.
2. Community of interest in the capital employed.
OBJECT OR PURPOSE 3. Community of power in administration.
A partnership shall have a lawful object or purpose, and
must be established for the common benefit or interest of FORM OF PARTNERSHIP CONTRACT
the partners. General Rule: A partnership may be constituted in any
form (for VALIDITY and ENFORCEABILITY of the
When an unlawful partnership is dissolved by a judicial contract among the parties, regardless of the value of the
decree, the profits shall be confiscated in favor of the contribution).
State, without prejudice to the provisions of the Penal
Code governing the confiscation of the instruments and Exceptions:
effects of a crime (Art. 1770). 1. If real property or real right is contributed
2. If it is covered by the Statute of Frauds.
Note: The illegality of the object will not be presumed; it
must appear to be of the essence of the relationship. Problem:
Today, Atoy and Joey orally agreed to form a partnership
EFFECTS OF UNLAWFUL PARTNERSHIP one and one half years from today, each one to contribute
1. The contract is void ab initio P1K. If at the arrival of the period, Joey refuses to go
ahead with the agreement, can Atoy enforce the of Property of the province where the real property
agreement? contributed is found.
No. Since the agreement is to be enforced after one year
from the making thereof, the same should be in writing Reason:
under the Statute of Frauds (Paras, Civil Code of the a. To show how much is due from each partner to
Philippines, Volume V, 2008 ed., p. 564). complete his share and how much is due to
each of them in case of liquidation.
3. A limited partnership, however, cannot be constituted b. The execution of a public instrument would be
orally. The requirements of the statute must be useless if there is no inventory of the property
followed; otherwise, the liability of the limited partners contributed, because without its designation and
becomes the same as that of general partners (De description, they cannot be subject to inscription
Leon, Comments and Cases on Partnership, Agency in the Registry of property. This will result in
and Trusts, 2010 ed., p. 303). fraud to those who contract with the partnership
in the belief of the efficacy of the guaranty in
Note: Partnerships existence may be implied from the which the immovables may consist (Tolentino,
acts or conducts of the parties, as well as other Civil Code of the Philippines, Volume V, 1992
declarations. In determining whether or not a particular ed., p.326).
transaction constitutes partnership, as between the
parties, the intention should be ascertained (De Leon, Note: The more important consideration is that
Comments and Cases on Partnership, Agency and the real property was contributed, in which case
Trusts, 2010 ed., p. 63). an inventory of the contributed property duly
signed by the parties should be attached to the
A. Personal Property public instrument, or else there is legally no
1. If Capital is Less than P3,000 No special form is partnership to speak of (Litonjua, Jr. v. Litonjua,
required for its validity or existence (Art. 1772). Sr., et al., G.R. Nos. 166299-300, December 13,
2. Where the contract of partnership has a capital of 2005).
3,000 pesos or more, in money or property - it shall
appear in a public instrument and must be recorded Art. 1773 applies also if aside from real property,
in the Office of the Securities and Exchange cash or personal property is contributed. The
Commission. Failure to comply with the inventory, however, need not include the
requirements of the preceding paragraph shall not personalty (Paras, Civil Code of the Philippines,
affect the liability of the partnership and the Volume V, 2008 ed., p. 566).
members thereof to third persons (Art. 1772 (2)). c. Must be recorded with the Register of Deeds
where the immovable is located to bind third
Purpose of registration: To set a condition for the persons.
issuance of licenses to engage in business or trade
and to give notice to third parties. It can be assumed Partnership vs. Voluntary Association
that the members themselves knew of the contents of
their contract (Tolentino, Civil Code of the Philippines, Partnership Voluntary Association
Volume V, 1992 ed., p.326). Registration is effective Juridical Personality
from the date the partnership papers are presented to Has juridical personality Has no juridical personality
and left for record in the SEC. Purpose
Always for profit Not always for profit
B. Real Property Contribution of Members
Where immovable property or real rights are There is contribution of There is no contribution of
contributed, regardless of the value thereof: capital. capital although fees are
1. The CONTRACT ITSELF must be in writing in a usually collected from the
public instrument members to maintain the
2. An inventory of the property contributed, signed by organization.
the parties is attached to the public instrument
Liability of Members
(Article 1773). If there is no inventory contract of
The partnership is the one Members are individually
partnership is void and no juridical personality.
liable liable for the debts of
Moreover, to be effective against third parties, the
corporation.
partnership must also be registered in the Registry
property of all the them. Only the usufruct 2. Limited partner liability to third persons is limited to
partners and the (use and fruits) shall his capital contribution.
partnership. become common
property. C. As to MANAGEMENT:
Profits 1. Managing partner manages the business or affairs
Only profits derived from All profits acquired of the partnership;
the property contributed through the industry or 2. Silent partner does not take any active part in the
become common work of the partners business although he may be known to be a partner.
property but not profits become common 3. Liquidating partner takes charge of the winding up
arising from other property. of the partnership affairs upon dissolution.
property of the partners.
The latter profits, D. As to EXPOSURE to public perception:
however may by 1. Ostensible partner one who takes active part and
stipulation be known to the public as a partner in the business,
considered as common whether or not he has actual interest in the firm.
property for the 2. Secret partner takes active part in the business but
enjoyment of all. is not known to be a partner by outside parties nor
held out as a partner by the other partners.
PARTICULAR PARTNERSHIP (D-FUSE) 3. Dormant partner does not take active part in the
One which has for its object determinate things, their use business and is not known or held out as partner.
or fruits, or a specific undertaking, or the exercise of a
profession or vocation (Art. 1783). E. As to MEMBERSHIP:
1. Real partner one who is really a contributing
In a universal partnership, the object is vague and member of an existing legal partnership.
indefinite, contemplating a general business with some 2. Partner by Estoppel or quasi-partner. One who is
degree of continuity. In particular partnership, the object is not really a partner but represents himself as one.
well defined and limited, being confined to an undertaking
of a single, temporary or ad hoc nature (De Leon, F. As to CONTINUATION of the business affairs after
Comments and Cases on Partnership, Agency and Trusts, dissolution:
2010 ed., p. 87). A. Continuing partner one who continues the
partnership business after the dissolution of the
PROFESSIONAL PARTNERSHIP partnership due to the reasons stated in Article 1840.
Under Art. 1767, two or more persons may also form a B. Discontinuing partner one who does not participate
partnership for the exercise of A PROFESSION. A in the partnership business after its dissolution.
profession has been defined as a group of men
pursuing a learned art as a common calling in the spirit of G. As to the VALUE of contribution:
public service (De Leon, Comments and Cases on 1. Majority partner one whose contribution represents
Partnership, Agency and Trusts, 2010 ed., p. 10). the majority or controlling interest;
2. Nominal partner one whose contribution represents
A partnership that has for its object the exercise of A only a minority interest.
PROFESSION is a particular partnership (Art. 1783). This
is one case where a partnership is composed entirely of H. As to the NATURE OF MEMBERSHIP:
industrial partners (See Tolentino, Civil Code of the 1. Original partner one who is a member of the
Philippines, Volume V, 1992 ed., p.329). partnership from the time of its commencement as a
juridical person.
KINDS OF PARTNERS 2. Incoming partner one who becomes a member
A. As to the NATURE of contribution: subsequent to the establishment of the firm or one
1. Capitalist partner contributes money or property. who is about to be admitted by the consent of all the
2. Industrial partner contributes only his industry or members.
personal service.
I. As to the state of SURVIVORSHIP:
B. As to LIABILITY: 1. Surviving partner one who remains alive while one
1. General partner liability to third persons extends to of the partners dies or one who continues to be in the
his separate property.
2. To warrant property contributed in case of eviction B. Obligations with respect to contribution of money and
(Art. 1786) money converted to personal use
3. To deliver the fruits of the property from the time they 1. To contribute on the date due the amount promised to
should have been delivered, without the need of any be given (Art. 1788)
demand (Art. 1786) Note: Liability arises from the commencement of
partnership unless otherwise stipulated.
Reason: Without the contributions, the partnership is 2. To reimburse any amount he may have taken from
useless (time is of the essence); failure to contribute the partnership coffers and converted to his own
makes the partner ipso jure a debtor of the personal use (Art. 1788)
partnership even in the absence of demand (De 3. To pay the agreed or legal interest, if he fails to pay
Leon, Comments and Cases on Partnership, Agency (a & b) in due time (Art. 1788)
and Trusts, 2010 ed., p. 99). 4. To indemnify the partnership for the damages caused
to it by the delay in the contribution (a, b & c)
Note: No demand is necessary to put the partner in Note: This double responsibility (interest and
default. damages) of a partner is in harmony with the principle
that every partner is responsible to the partnership for
The warranty referred to includes that of against damages suffered by it through his fault and is
hidden defects; the contribution to the partnership is justified by the nature of the contract of partnership.
an onerous contract of alienation, and the provisions
of the law on sales, so far as pertinent, should be Liability of Partner for failure to return partnership
applied (Tolentino, Civil Code of the Philippines, money received:
Volume V, 1992 ed., p.331). a. Where fraudulent misappropriation committed
partner is guilty of estafa
4. When contribution is in goods, the amount thereof b. Where there was mere failure to return partner
must be determined by proper appraisal of the value not guilty of estafa and the action is a civil one for
thereof at the time of contribution (Art. 1787) liquidation of the partnership and levy of its assets.
Reason for appraisal: To determine how much has C. Obligation Not to Engage in Other Business for
been contributed (Paras, Civil Code of the Himself
Philippines, Volume V, 2008 ed., p. 583). 1. Industrial partner cannot engage in any business for
himself unless the partnership expressly permits him
to do so. The other partners have the remedy of
either excluding the erring partner from the firm or of contribute an additional share to save the venture. If
availing themselves of the benefits which he may he refuses to contribute, he shall be obliged to sell his
have obtained (Art. 1789). interest in the partnership to other partners (Art.
1791).
Although Art. 1789 mentions only the capitalist
partners, the industrial partners are also entitled to Requisites: (RIMA)
the remedy since they are equally prejudiced by the a. There is imminent loss of the business
act of their co-partner engaging in business for b. Majority of the capitalist partners are of the opinion
himself (De Leon, Comments and Cases on that an additional contribution would save the
Partnership, Agency and Trusts, 2010 ed., p. 99). business.
c. Capitalist partner refuses deliberately (not due to
Reason: To prevent conflict of interest and to ensure financial difficulty) to contribute
compliance by said partner with his prestation (De d. There is no agreement that even in case of an
Leon, Comments and Cases on Partnership, Agency imminent loss of the business the partners are not
and Trusts, 2010 ed., p. 99). obliged to contribute.
Note: Industrial partners are exempted as he is
The prohibition applies to a capitalist-industrial already giving his entire industry.
partner (Pineda, Partnership, Agency and Trusts, p.
58). E. Obligation of Managing Partner who Collects Debt
Where a person is separately indebted to the
2. Capitalist partner the prohibition extends only to any partnership and to the MANAGING partner at the same
operation which is of the same or similar kind of time, any sum received shall be applied to the two
business in which the partnership is engaged unless credits in proportion to their amounts even though he
there is a stipulation to the contrary. The test is the may have given a receipt for his own credit only, except
possibility of unfair competition (Art. 1808). where he received it entirely for the account of the
partnership, in which case the whole sum shall be
A partner occupies a fiduciary position with respect to applied to the partnership credit only (Art. 1792). The
his co-partners imposing duties of utmost good faith debtor is given the right to prefer payment of the credit
and he may not carry on any other business in rivalry of the partner ONLY if it should be more onerous to him
with the business of the partnership whether in his (De Leon, Comments and Cases on Partnership,
own name or for the account of another at the Agency and Trusts, 2010 ed., p. 103).
expense of the partnership (De Leon, Comments and
Cases on Partnership, Agency and Trusts, 2010 ed., Art. 1792 does not apply if the collecting partner is not a
p. 153). managing partner. There is no basis for the suspicion
that the partner is in bad faith (Paras Civil Code of the
The violator can be ousted from the firm on the Philippines, Volume V, 2008 ed., p. 591).
ground of loss of trust and confidence. This would of
course result in the dissolution of the firm (Paras, Civil Requisites for application of rule:
Code of the Philippines, Volume V, 2008 ed., p. 615). 1. There exists at least two debts, one due to
partnership and one due to the managing partner.
D. Obligation to Contribute Capital and Additional 2. Both debts are demandable
Capital 3. The partner who collects is authorized to manage and
1. Contribution to Partnership Capital actually manages the partnership.
General Rule: It depends upon the stipulation of
parties. In the absence of stipulation, the presumption Reason: to protect the interest of the partnership
is that the contribution shall be in equal shares. from being subordinated by the managing partners
own interest (De Leon, Comments and Cases on
2. Contribution of Additional Capital. Partnership, Agency and Trusts, 2010 ed., p. 102).
General Rule: A partner is not bound to contribute
additional capital. F. Obligation of Partner Who Receives Share in
Partnership Credit Such partner is obliged, if the
Exception: In case of an imminent loss of the debtor should become insolvent, to bring to the
business, and there is no agreement to the contrary, partnership capital what he received even though he
CAPITALIST partners are under obligation to may have given receipt for his share only (Art. 1793).
Credit Collected After Dissolution By information is meant that which can be used for
The collecting partner need not bring the same to the partnership purposes, it is in the sense of a property
partnership capital. Art. 1793 presupposes that there which the partnership has a valuable right.
exists a partnership capital. Upon dissolution of the
partnership and the return to each principal of what The duty to account continues until the partnership
he contributed, the community of interest between relation is terminated, i.e. the winding up of partnership
them disappears altogether (De Leon, Comments and affairs is completed. The words and hold as trustee in
Cases on Partnership, Agency and Trusts, 2010 ed., Art. 1787 indicate that the partnership can claim as its
p. 104). own any property or money that can be traced. Thus,
should the partner be insolvent, the partnership claim
G. Obligation of Partner for Damages to Partnership against him is a claim to specific property. In this case,
Every partner is responsible to the partnership for the partnership is not regarded as an ordinary creditor.
damages suffered by it through his fault and he cannot
compensate them with the profits and benefits which he RISK OF LOSS OF THINGS CONTRIBUTED
may have earned for the partnership by his industry. 1. Specific and determinate things which are not fungible-
However, the courts may equitably lessen this The risk of loss is borne by the partner because he
responsibility if through the partners extraordinary remains the owner of the things;
efforts in other activities of the partnership, unusual 2. Specific and determinate things the ownership of which
profits have been realized (Art. 1794). is transferred to the partnership- The risk of loss is for
the account of the partnership, being the owner;
Take note that liquidation of the business must first be 3. Fungible things- The risk of loss is borne by the
effected to know the extent of the damage (Tolentino, partnership since use is impossible without the things
Civil Code of the Philippines, Volume V, 1992 ed., being consumed or impaired;
p.335). 4. Things contributed to be sold- The partnership bears
risk of loss for there cannot be any doubt that the
H. Duty to Render Information Partners shall render partnership was intended to be the owner; and
on demand true and full information of all things 5. Things brought and appraised in the inventory- The
affecting the partnership to any partner or the legal partnership bears the risk of loss because the intention
representative of any deceased partner of any partner of the parties was to contribute to the partnership the
under legal disability (Art. 1806). price of the things contributed with an appraisal in the
inventory. There is thus an implied sale.
Even without demand, honesty demands the giving of
vital information; the refraining from all kinds of RESPONSIBILITY OF THE PARTNERSHIP TO
concealment (Paras, Civil Code of the Philippines, PARTNERS
Volume V, 2008 ed., p. 564). 1. To refund amounts disbursed by the partner in behalf of
the partnership plus the corresponding interest from the
I. Obligation to account for any benefit and hold as time the expenses are made. This refers to loans and
trustee unauthorized personal profits Every partner advances made by the partner other than capital.
must account to the partnership for any benefit, and 2. To answer for the obligations the partner may have
hold as trustee for it any profits derived by him without contracted in good faith in the interest of the partnership
the consent of the other partners from any transaction business
connected with the formation, conduct, or liquidation of 3. To answer for risks in consequence of management.
Note: The partner must be free from all fault and he acted Designation by a third person of share in profits and
within the scope of his authority. losses: If agreed by the partners, such designation may
be impugned only when it is manifestly inequitable. In no
RULES FOR DISTRIBUTION OF PROFITS AND case may a partner who has begun to execute the
LOSSES decision of a third person, or who has not impugned the
1. Distribution of profits same within a period of 3 months from the time he had
a. According to their agreement (but not iniquitously to knowledge thereof, complain of such decision (Art. 1798).
defeat Art. 1797) subject to Art. 1799
b. If none, MANAGEMENT OF PARTNERSHIP
i. Share of capitalist partner shall be in proportion to I. When the manner of management has been
his capital contribution provided for in the partnership agreement
ii. Industrial partner shall receive such share, which A. When a managing partner has been appointed
must be satisfied first before the capitalist partners 1. Appointment as manager in the Articles of
shall divide the profits, as may be just and Partnership (Art. 1800)
equitable a. Power is irrevocable without just or lawful cause
i. To remove him for JUST cause, vote of
2. Distribution of losses partners having controlling interest is
a. Same as 1.a necessary
b. If none, according to their agreement as to profits ii. To remove him without just cause or for unjust
c. No profit agreement, in proportion to his capital cause, there must be unanimity including his
contribution. own vote
Reason for (2): This represents a change in
General Rule: A stipulation excluding a partner from any the will of the parties, requiring unanimity
share in the profits or losses is VOID (Art. 1799) Note that
the stipulation only is void but the partnership subsists b. Extent of power
and the profits/losses shall be apportioned as if there was i. If he acts in good faith, he may perform all acts
no stipulation on the same. of administration, despite opposition of his
partners
Exception: Art. 1797(2) excludes an industrial partner ii. If in bad faith, he cannot.
from losses, but he is NOT exempted from liability insofar
as third persons are concerned. He may, however, 2. Appointment as manager AFTER the constitution of
recover what he has given to third persons from the other the partnership
partners, for he is exempted by law from losses. a. Power to act may be revoked at any time for any
cause whatsoever
Note: In general, LIABILITY refers to responsibility Reason: Such appointment is a mere delegation
towards third persons, and LOSSES refers to of power, revocable at any time. Removal,
responsibility as among partners. however, should also be done by the controlling
interest.
Problem: Atoy and Joey are partners, the former being an
industrial partner. During the first year of operation, the b. Extent of power: as long as he remains
firm made a profit of P20K. In the second year of manager, he can perform all acts of
operation, a loss of P10K was sustained. Should the administration, but if others oppose and he
agreement state that Atoy would get of the profits, how persists, he can be removed
much is he entitled to receive?
Note: The partner generally is not entitled to
Answer: 5K. Take note that the net profit for the two years compensation although in proper cases, the law may
is only 10K. While it is true that an industrial partner does imply a contract for compensation.
not share in the losses, this only means that he will not
share in the NET LOSSES. It is understood that he shares B. When two or more managing partners have been
in the losses insofar as these can be accommodated in entrusted with the management (Art. 1801)
the profits (Paras, Civil Code of the Philippines, Volume V, 1. Without specification of their respective duties and
2008 ed., p. 598). without stipulation that one of them shall not act
without the consent of all the others
General Rule: Each one may execute all acts of interest of the partnership, the courts intervention
administration may be sought.
Exceptions: If any such partner should oppose, Reason: In comparison with personalty, immovable
a. Decision of the MAJORITY of the managing property is of greater importance. In a proper case,
partners shall prevail immovables should be returned to partners in the
b. In case of a tie, decision of the partners having same condition as when they are delivered to the
the CONTROLLING INTEREST shall prevail, partnership (Paras, Civil Code of the Philippines,
provided that they are also managers (Paras, Volume V, 2008 ed., p. 605). Any important alteration
Civil Code of the Philippines, Volume V, 2008 in the immovable property of the partnership is an act
ed., p. 601). of strict dominion.
The right to oppose is not given to non-managers Alteration contemplates useful expenses, not
because in appointing their other partners as necessary ones.
managers, they have stripped themselves of all
participation in the administration. In case of conflict, the rules provided by Art. 1801
shall govern
In case of an irreconcilable deadlock, those who
vote against the contract shall prevail, the same CONTRACT OF SUB-PARTNERSHIP (Art. 1804)
having been entered into without authority. Every partner may associate another person with him in
his share, but the associate shall not be admitted into the
2. With stipulation requiring unanimity ofaction (Art. partnership without the consent of all the other partners,
1802) even if the partner having an associate should be a
manager.
General rule: Unanimous consent of ALL the
managing partners (even if one of the managers is One formed between a member of a partnership and a
absent or incapacitated) shall be necessary for the third person for a division of profits owing to him from the
validity of the acts and absence or disability of any partnership enterprise
managing partner cannot be alleged
It is a partnership within a partnership distinct and
Exception: When there is an imminent danger of separate from the main or principal partnership
grave or irreparable injury to the partnership
The sub-partners are partner inter se. Not being a
Note: The requirement of previous approval member of the partnership, he does not acquire the rights
applies only to execution of formal contracts in of a partner nor is he liable for its debts.
writing and not to routine transactions, such as
ordinary purchases and sales for a firm engaged in RIGHTS OF A PARTNER (PRA3ID)
the buying and selling merchandise of all kinds, 1. Property rights of a partner (Art. 1810) (SIM)
which naturally come within the scope of the a. Specific partnership property
general authority of the manager of a business Example: Atoy and Joey each contributed a car to
(Tolentino, Civil Code of the Philippines, Volume V, the partnership. The two cars are specific partnership
1992 ed., p.342). property.
II. When manner of management has not been agreed b. Interest in the partnership
upon (Art. 1803) Example: The partners share of the profits and
A. All partners shall be considered managers and losses (without mentioning any specific property)
agents. (They shall have equal rights. Whatever any
one of them may do alone binds the partnership c. Management participation
subject to Art. 1801)
B. Unanimous consent required for any important 2. Right to Reimbursement for amounts advanced to the
alteration of immovable property, even if it may be partnership and to indemnification for risks in
useful to the partnership. But if the refusal of consent consequence of management (Art. 1796)
by the other partners is manifestly prejudicial to the 3. Right to Associate with another person in his share (Art.
1804)
4. Right of Access and inspection of partnership books b. Not assignable, except in connection with the
(Art. 1805) assignment of rights of all partners in the same
property
Note: The partnership books shall be kept, subject to c. Not subject to attachment or execution, except on a
the agreement between the claim against the partnership
d. Not subject to legal support
5. Right to true and full Information of all things affecting
the partnership (Art. 1806) Reason: The property belongs to the partnership and
6. Right to a formal Account of partnership affairs under not to the partners. His interest in the partnership,
certain circumstances (Art. 1809) (WAPO) however, is subject to legal support.
a. If he is wrongfully excluded from the partnership
business or possession of its property by his co- Note: Any immovable property or an interest therein
partners; may be acquired in the partnership name. The title
b. If the right exists under the terms of any agreement; so acquired may be conveyed only in the partnership
c. If a partner has derived profits from any transaction name subject to the provisions of Article 1819 of the
connected with the formation, conduct, or liquidation Civil Code.
of the partnership or from any use by him of its
property; or Partnership Capital and Partnership Property
d. Whenever other circumstances render it just and distinguished
reasonable. (e.g. if a partner has been assigned
abroad for a long period of time in connection with Partnership Capital Partnership Property
partnership business) Susceptibility to change in value
Its value is constant. It is Its value varies from time
Note: As long as the partnership exists, any of the not affected by fluctuations to time in accordance
partners may demand an accounting of the in the value of the property. with the fluctuations of
partnership business. Prescription of the said right the market value of the
starts to run only upon the dissolution of the partnership assets.
partnership when the final accounting is done (Emilio Extent
Emnace v. Court of Appeals. G.R. No. 126334, It includes only the actual It includes not only the
November 23, 2001). capital contributed and original capital
promised to the contributed but also all
It is a personal action which may be commenced and partnership. property subsequently
tried where the defendant resides or may be found, or acquired on account of
where the plaintiff resides, at the election of the latter. the partnership.
7. Right to have partnership Dissolved under certain Note: A partners interest in partnership property is
conditions. assignable under Art. 1840.
PROPERTY RIGHTS OF A PARTNER 2. Interest in the partnership
1. Right to specific property (Art. 1811) a. A partners interest in the partnership is his share of
a. Contemplates tangible property the profits and surplus. (Art. 1812)
b. The specific partnership property belongs to the b. Share in the profits (excess of returns over
partnership. The partners have no actual interest in it expenditures in a transaction or series of
until after dissolution. transactions) and surplus (assets of the partnership
c. The right over a specific partnership property is not after partnership liabilities are paid and the rights of
subject to attachment or execution except if the the partners among themselves are adjusted)
based on a claim against the partnership itself. c. A partners interest is not a debt due from
partnership.
A partner is co-owner with his partners of specific
partnership property. Effects of assignment of partners whole interest in
the partnership (Art. 1813)
Incidents of this co-ownership: (RAEL) A conveyance by a partner of his whole interest in the
a. Equal right with other partners to possess specific partnership does not of itself dissolve the partnership.
partnership property for partnership purposes
Assignee does not necessarily become a partner. Flor may go to the same court (or any other court
He cannot: possessed of jurisdiction) and ask that Joes interest the
a. Interfere in the management or administration partnership be charged for the payment to her of
b. Require information and accounting whatever has not been paid by him with interest thereon
c. Inspect the partnership books (Paras, Civil Code of the Philippines, Volume V, 2008
ed., p. 624).
But the assignee is entitled to the following rights:
a. To receive in accordance with his contract the profits Take note, however, that partnership creditors are
which the assigning partner would otherwise be entitled to priority over partnership assets.
entitled.
b. To avail himself of the usual remedies provided by Redemption of interest charged (Art. 1814)
law in event of fraud in management 1. General partnership
c. To receive the assignors interest in case of a. With separate property of a partner; or
dissolution b. With partnership property, with the consent of all the
d. To require an account of partnership affairs but ONLY partners whose interests are not so charged or sold
in case the partnership is dissolved, and such 2. Limited partnership (limited partner)
account shall cover the period from the date only of With separate property of any general partner but NOT
the last account agreed to by all the partners with partnership property
The partner shall not be deprived of his right under the OBLIGATIONS OF PARTNERS TO THIRD PERSONS
exemption laws, as regards his interest in the A. Liability for contractual obligations (Arts. 1816)
partnership. 1. All partners, including industrial partners, are
personally liable with all their property. Their
Example: Joe and Gil are partners. Joe personally individual liability is pro rata and subsidiary, unless
owes Flor a sum of money. Flor sues Joe and obtains a otherwise stipulated
final judgment in his favor. However, Joe has no money.
After all partnership assets have been exhausted, c. Acts in contravention of a restriction on authority
pro-rating is based on the number of partners and not
on the amount of their contributions to the common Partnership is not liable to third persons having
fund, subject to adjustment among the partners (De actual or presumptive knowledge of the restrictions,
Leon, Comments and Cases on Partnership, Agency whether or not the acts are for apparently carrying
and Trusts, 2010 ed., p. 170). on in the usual business of the partnership.
Note: Stipulation against liability laid down in Art.1816 One or more but less than all partners have no
shall be VOID except as among the partners (Art. authority to: (AGO-CESR)
1817). 1. Assign the partnership property in trust for creditors or
on the assignees promise to pay the debts of the
Article 1799 provides A stipulation which excludes partnership.
one or more partners from any share in the profits or Reason: the firm will be virtually dissolved.
losses is void. Whereas, under Article 1817 the
partners, may stipulate among themselves that a 2. Dispose of the Goodwill of the business
partner may be exempted from liability. Reason: Goodwill is a valuable property.
3. Title in name of one or more partners, conveyance in c. Where the partnership, in the course of its business,
name of partner or partners in whose name title stands receives money or property and it is misapplied by
and the records does not disclose the right of the any partner while it is in the custody of the former.
partnership passes title to the property but the
partnership may recover. The effect is same in Note: All partners are solidarily liable with the
paragraph 1. partnership for any penalty or damage arising from a
4. Title in the name of one or more or all partners, or in a partnership tort or breach of trust (Art. 1824). This is
third person in trust for the partnership, conveyance in an exception to Art. 1816.
partnership name or in a partners name- passes the
equitable interest provided the act is one with authority The rule of respondeat superior (also called the rule
of the partner and is in the usual course of business of of vicarious liability) applies to the law of partnership
the partnership. in the same manner as other rules governing the
5. Title in name of all partners, conveyance in name of all agency relationship.
partners passes title to the property.
It is not only the partners are liable in solidum; it is
ADMISSION BY A PARTNER also the partnership (Art. 1824). The injured party
An admission or representation made by any partner may proceed against the partnership or any partner,
concerning partnership affairs within the scope of his
authority in accordance with this Title is evidence against Requisites of Art. 1822: (GOLAP)
the partnership (Art. 1820). 1. The partner must be guilty of a wrongful act or
omission; and
Note: The above article is an EXCEPTION to the general 2. He must be acting in the ordinary course of business or
rule that a person is not bound by the act, admission, with the authority of his co-partners even if the act is
statement, or agreement of another of which he has no unconnected with the business.
knowledge or to which he has not given his consent. 3. Loss or injury is suffered by a third person as a result of
the wrongful act or omission
Before the partnership could be charged, its existence 4. The aggrieved third person is not a partner in the firm
should be proved. 5. There is no pre-existing contract between the
partnership and the third person; if there is, but it was
INSTANCES WHERE KNOWLEDGE OF A PARTNER IS grossly and deliberately violated, this itself constitutes
CONSIDERED KNOWLEDGE OF THE PARTNERSHIP quasi-delict.
1. Knowledge of the partner acting in the particular matter
acquired while a partner; Criminal Liability for criminal acts
2. Knowledge of the partner acting in the particular matter A non-acting partner in a partnership engaged in a lawful
then present to his mind; business is not criminally liable for the criminal acts of
3. Knowledge of any other partner who reasonably could another partner but he is criminally liable if the partnership
and should have communicated it to the acting partner. is involved in an unlawful enterprise with his knowledge or
consent.
Note: Such knowledge operates as notice to or
knowledge of the partnership except in case of fraud on MUTUAL AGENCY
the partnership, committed by or with the consent of Partnership is a contract of mutual agency; each partner
that partner. acts as a principal on his own behalf, and as an agent of
his co-partners and the partnership.
4. Liability arising from partners tort or Breach of
Trust (Arts. 1822-23) Principle of Delectus Personarum
a. Where, by any wrongful act or omission of any A rule inherent in partnership wherein no one can become
partner acting in the ordinary course of business of partner without the consent of all the partners.
the partnership or with authority of his co-partners,
loss or injury is caused to a non-partner or any Requisites when a Partner Binds the Partnership
penalty is incurred. 1. When he is expressly or impliedly authorized
b. Where one partner, acting within the scope of his 2. When he acts in behalf and in the name of the
apparent authority, receives money or property of a partnership
third person and misapplies it
PARTNERSHIP BY ESTOPPEL The question of liability is not what the parties intended
Arises when a person by any means represents himself or but whether third persons had a right to rely on their joint
consents to another representing him to anyone, as credit.
partner in an existing partnership, or with one or more
persons not actual partners; he is liable to any such Elements to establish liability as a partner on ground
person to whom such representation has been made, who of estoppel:
has, on the faith of such representation given credit to the 1. Proof by plaintiff that he was individually aware of the
actual or apparent partnership (Art 1825). defendants representations or that such
representations were made by others and not denied or
If he has made such representation or consented to its refuted by defendant
being made in a public manner, he is liable to such person 2. Reliance on such representations by the plaintiff
whether the representation has or has not been made or 3. Lack of any denial or refutation of the statements by the
communicated to such person so giving credit or with the defendant.
knowledge or the apparent partner making the
representation or consenting to its being made. Note: All persons who assume to act as a corporation
knowing it to be without authority to do so shall be liable
A person not a partner may become a partner by estoppel as general partners for all debts, liabilities, and damages
and thus liable to third persons as if he were a partner incurred or arising as a result thereof (Sec. 21,
when by words or by conduct he: Corporation Code)
1. Directly represents himself to anyone as a partner in an
existing partnership or in a non-existing partnership LIABILITY OF INCOMING PARTNER FOR
(with one or more persons not actual partners); or PARTNERSHIP OBLIGATIONS (Art. 1826)
2. Indirectly represents himself by consenting to another Liability is limited to his share in partnership property for
representing him as a partnership in an existing existing obligations but this liability extends to his separate
partnership or in a non-existing partnership. property for subsequent obligations.
PARTNERSHIP LIABILITY Note: When the incoming partner has assumed the
1. When partnership liability results If all actual partners obligation of retiring partner, he is liable directly to the old
consented to the representation, it is considered a partnership if the assumption was made primarily to
partnership liability. This is a case of a partnership by benefit the form creditors. This is because he partakes of
estoppel. the benefits o the partnership property and an established
2. When liability pro rata when there is no existing business.
partnership and all those represented as partners
consented to the representation, or not all of the PREFERENCE OF PARTNERSHIP CREDITORS IN
partners of an existing partnership consented to the PARTNERSHIP PROPERTY
representation, the liability of all those who made and With respect to partnership assets, the partnership
consented to the representation is joint. creditors are entitled to priority of payment. However, the
3. When liability separate when there is no existing private creditors of each partner may ask the attachment
partnership and not all but only some of those and public sale of the share of the latter in the partnership
represented as partners consented to the assets.
representation, or none of the partners in an existing
partnership consented to such representation. The purchaser at a public sale does not become a
partner.
Note: Art. 1825 does not create a partnership as between
the alleged partners. The law only considers them
partners and the association as a partnership insofar as it D ISSOLUTION
is favorable to third persons. However, partnership
liability is created only in favor of persons who on the faith Change in the relation of the partners caused by any
of such representation given credit to the partnership. partner ceasing to be associated in carrying on the
business (Art. 1828).
No preference is given to creditors who relied on the
existence of the fictitious partnership (Paras, Civil Code of Note: The dissolution of a partnership must not be
the Philippines, Volume V, 2008 ed., p. 652). understood in the absolute and strict sense so that at the
termination of the object for which it was created the
partnership is extinguished (Testate of Mota v. Serra. G.R. d. By the EXPULSION OF ANY PARTNER from the
No. L-22825, February 14, 1925). business bona fide in accordance with such a
power conferred by the agreement between the
Dissolution does not automatically result in the termination partners
of the legal personality of the partnership, nor the relations
of the partners among themselves who remain as co- If a partner is expelled in bad faith, there can also
partners until the partnership is terminated. be eventual dissolution as there would be apparent
lack of confidence, without prejudice to the liability
The partnership, although dissolved, continues to exist for damages
until its termination, at which time the winding up of its
affairs should have been completed and the net 2. In CONTRAVENTION OF THE AGREEMENT
partnership assets are partitioned and distributed to the between the partners, where the circumstances do
partners (Ortega, et al. v. CA. et al., G.R. No. 109248, not permit a dissolution under any other provision of
July 3, 1995). this article, by the express will of ANY partner at any
time;
Winding Up
Process of settling the partnership business or affairs after This may be made even though the partnership was
dissolution. entered for a definite term or particular undertaking.
The withdrawing partner shall be liable for damages
Termination for unjustified dissolution. It is a power and not
Point in time when all partnership affairs are wound up or necessarily a right to dissolve a partnership.
completed and is the end of the partnership life.
3. By any event which MAKES IT UNLAWFUL for the
On dissolution, the partnership is not terminated, but business of the partnership to be carried on or for the
continues until the winding up of partnership affairs is members to carry it on in partnership;
completed (Art. 1829).
Take note, however, that if the business or the object
CAUSES OF DISSOLUTION had been unlawful from the very beginning, the firm
A. EXTRAJUDICIAL dissolution (Art. 1830) - the parties never had juridical personality.
may agree to expand the grounds provided under Art
1830 but NOT to delimit them. 4. When a SPECIFIC thing which a partner had
promised to contribute to the partnership, perishes
Causes: BEFORE the delivery; IN ANY CASE by the loss of
1. WITHOUT violation of the agreement between the the thing, when the partner who contributed it having
partners: reserved the ownership thereof, has only transferred
a. By the TERMINATION of the definite term or to the partnership the use or enjoyment of the same;
particular undertaking specified in the agreement; but the partnership shall NOT be dissolved by the
b. By the EXPRESS WILL OF ANY PARTNER, who loss of the thing when it occurs AFTER the
must act in good faith, when no definite term or partnership has acquired the ownership thereof;
particular undertaking is specified;
Reason: The partnership is dissolved because the
Note: If the partner insists in leaving the partner has NOT or is deemed to have not given his
partnership in bad faith, the firm is dissolved, but he contribution.
may be responsible for damages
c. By the EXPRESS WILL OF ALL the partners who 5. By the DEATH of any partner;
have NOT assigned their interests or suffered them 6. By the INSOLVENCY of any partner or of the
to be charged for their separate debts, either partnership;
BEFORE OR AFTER the termination of any
specified term or particular undertaking; Note: By the insolvency of the partner, his credit is
impaired, it would be impossible for him to pay for
The agreement must be unanimous. Majority alone partnership liabilities in case the partnership assets
cannot dissolve the partnership without breach of have been exhausted. Insolvency of the partnership
contract (De Leon, Comments and Cases on results to inability to continue the business which
Partnership, Agency and Trusts, 2010 ed., p. 218). practically amounts to dissolution.
7. By the CIVIL INTERDICTION of any partner; On the application of the purchaser of a partners
One who is without capacity to manage his own interest:
property should not be allowed to manage 1. After the termination of the specified term or particular
partnership property undertaking
2. At any time if the partnership was a partnership at will
8. By DECREE OF COURT under Art. 1831 (Art.1830) when the interest was assigned or when the charging
order was issued.
B. JUDICIAL dissolution (Art. 1831) - when so decreed by
the court, the presiding judge may place the partnership EFFECTS OF DISSOLUTION
under receivership and direct an accounting to be made A. As to partners authority to act for the partnership
towards winding up the partnership affairs.
General Rule: Dissolution terminates all authority of
The court shall decree dissolution, on application by any partner to act for the partnership
or for a partner, whenever: (BI2LGO)
1. A partner willfully or persistently commits a breach of Exceptions:
the partnership agreement, or otherwise conducts 1. Acts necessary to wind up partnership affairs
himself in matters relating to the partnership business 2. Acts necessary to complete transactions begun but
that it is not reasonably practicable to carry on the unfinished
business in partnership with him;
Qualifications to the General Rule:
Reason: They defeat and materially affect and obstruct 1. With respect to the partners (in so far as partners are
the purpose of the partnership. concerned):
a. Dissolution is not by act, insolvency or death (AID)
2. A partner has been declared insane in any judicial of a partner: General Rule applies. Hence,
proceeding or is shown to be of unsound mind; dissolution terminates the ACTUAL authority of a
partner to undertake NEW business for the
Note: The partner may have been previously declared partnership (Art. 1832);
insane in a judicial proceeding; otherwise, his insanity b. Dissolution is by act, insolvency or death of a
must be duly proved. It must materially affect the partner: Authority of partners inter se to act for the
capacity of partner to perform his contractual duties as partnership is NOT deemed terminated when the
such. dissolution is caused by the act, death, or
insolvency of partner. Thus, each partner is liable
3. A partner becomes in any other way incapable of to his co-partners for his share of any liability
performing his part of the partnership contract; created by any partner acting for the partnership as
if the partnership has not been dissolved.
Note: The incapacity must be lasting, from which the
prospect of recovery is remote. Exceptions to letter b (Art. 1833):
i. The cause of dissolution is the ACT of a partner
4. The business of the partnership can only be carried on and the acting partner had KNOWLEDGE of
at a loss; such dissolution
5. A partner has been guilty of such conduct as tends to ii. The cause of dissolution is the DEATH or
affect prejudicially the carrying on of the business; INSOLVENCY of a partner and the acting partner
6. Other circumstances render that dissolution equitable. had KNOWLEDGE or NOTICE of such
dissolution
Reason for necessity of court decree: In the
instances mentioned in Art. 1831, the facts may be so Note: A person has knowledge of a fact not only
far open to dispute as to make a necessary judicial when he has actual knowledge but also when has
determination as to dissolution rather than allow them to knowledge of such other facts as in circumstances
be the occasion for automatic dissolution by operation show bad faith. A person has notice of a fact when
of law (De Leon, Comments and Cases on Partnership, the person who claims the benefit of notice (1)
Agency and Trusts, 2010 ed., p. 245). states the fact to such person, or (2) delivers
through the mail or other means a written statement
of the fact to such person or to a proper person at
his place or business or residence.
3. The partnership is generally bound by new contract General Rule: Dissolution does not automatically
although authority if acting partner is already discharge the existing liability of any partner
deemed terminated but the innocent partners can
recover from the guilty partners. Exception: A partner may be relieved from all
existing liabilities upon dissolution ONLY by an
a. When partnership is bound to third persons after agreement between:
dissolution (Art. 1834) 1. Partner concerned
i. Act appropriate for winding up partnership 2. Other partners
affairs 3. Partnership creditors
ii. Act for completing unfinished transactions
iii. Completely NEW transaction which would The individual property of a deceased partner shall be
bind the partnership if dissolution had not liable for all obligations of the partnership incurred
taken place provided: the other party is in while he was a partner, subject to prior payment of
good faith, meaning: his separate debts.
1. Previous creditor (had previously extended
credit) AND he had NO KNOWLEDGE or Note: The consent of the creditors and partners to the
NOTICE of the dissolution;OR novation may be implied from their conduct.
2. NOT a previous creditor AND the fact of
dissolution had not been published in a RIGHTS OF A PARTNER UPON DISSOLUTION (Art.
newspaper of general circulation 1837)
1. Dissolution is not in contravention of the
b. When partnership is NOT bound to third persons partnership agreement
after dissolution a. Have partnership property applied to discharge
i. Where partnership was dissolved because it partnership liabilities
was unlawful to carry on the business, except b. Receive in cash his share of the surplus
when the act is for winding up
ii. Where the acting partner in the transaction Note: When dissolution is caused by expulsion, expelled
has become insolvent partner may be discharge from all partnership liability in
iii. Where the partner is unauthorized to wind up, the same manner as above but he shall receive in cash
except if the transaction is with third persons only the net amount due him from the partnership.
in good faith (same circumstances as defined
above) If dissolution is proper, no partner is liable for any loss
iv. Where act is NOT appropriate for winding up sustained as a result of the dissolution.
or for completing unfinished transactions
v. Completely NEW transaction which would 2. Dissolution is in contravention of the partnership
bind the partnership if dissolution had not agreement
taken place with third persons in bad faith a. Rights of a partner who has not caused the
dissolution wrongfully
Notice of Dissolution to creditors i. To have partnership property applied to discharge
1. Person had extended credit prior to dissolution partnership liabilities
they must have knowledge or notice of dissolution. ii. To receive in cash his share of the surplus
2. Persons who had known of partnership existence iii. To be indemnified for damages caused by the
publication is sufficient. partner guilty of the wrongful dissolution
iv. To continue the business in the same name during
Character of notice the agreed term of the partnership, by themselves
1. Prior dealer notice must be actual. A prior dealer or jointly with others
is one who has extended credit on the faith of the v. To possess partnership property should they
partnership, through confidence in the solvency decide to continue the business
and probity of the partnership. b. Rights of a partner who has wrongfully caused the
2. Others publication is sufficient. dissolution
i. Business is not continued by the other partners
Note: Dormant partner need not give notice.
rights in partnership property to the remaining partner, The creditors of the dissolved and new partnership were
who continues the business without liquidation of given equal rights in partnership property.
partnership affairs, either alone or with others;
3. When any partner retires or dies and the business of The creditors of dissolved partnership have an equitable
the dissolved partnership is continued as set forth in lien on the consideration paid to the retiring or deceased
Nos. 1 and 2 of this article, with the consent of the partner by the purchaser (new partner) thereof.
retired partners or the representative of the deceased
partner, but without any assignment of his right in When a corporation deemed a mere continuation of prior
partnership property; partnership, the weight of authority supports the view that
4. When all the partners or their representatives assign such corporation is presumed to have assumed
their rights in partnership property to one or more third partnership debts and is prima facie liable thereof.
persons who promise to pay the debts and who
continue the business of the dissolved partnership; However, when said obligation is of extraordinary value,
a. When any partner wrongfully causes a dissolution and the company was brought out not to continue its
and the remaining partners continue the business business but to stop its operation in order to eliminate
under the provisions of article 1837, second competition, it cannot be said that the vendee assumed all
paragraph, No. 2, either alone or with others, and the obligations of the rival company (Phil. Airlines, Inc. vs.
without liquidation of the partnership affairs; Balinguit, 99 Phil. 486)
b. When a partner is expelled and the remaining
partners continue the business either alone or with Art. 1840 treats more of a commercial partnership with
others without liquidation of the partnership affairs. goodwill to protect rather than professional partnerships
5. The liability of a third person becoming a partner in the with no saleable goodwill but whose reputation depends
partnership continuing the business, under this article, on the personal qualifications of the individual members
to the creditors of the dissolved partnership shall be (De Leon, Comments and Cases on Partnership, Agency
satisfied out of the partnership property only, unless and Trusts, 2010 ed., p. 268).
there is a stipulation to the contrary.
6. When the business of a partnership after dissolution is RIGHTS OF RETIRING, OR OF ESTATE OF
continued under any conditions set forth in this article DECEASED PARTNER WHEN BUSINESS IS
the creditors of the dissolved partnership, as against the CONTINUED (Art. 1841)
separate creditors of the retiring or deceased partner or 1. Have the value of the interest of the retiring or
the representative of the deceased partner, have a prior deceased partner ascertained as of the date of
right to any claim of the retired partner or the dissolution, i.e. retirement or death
representative of the deceased partner against the 2. Receive, as an ordinary creditor, an amount equal to his
person or partnership continuing the business, on share to the value of his share in the dissolved
account of the retired or deceased partner's interest in partnership with interest, or, at his option, in lieu of
the dissolved partnership or on account of any interest, the profits attributable to the use of his right.
consideration promised for such interest or for his right
in partnership property. Note: If the surviving partners continue the business
without the consent of the deceased partners estate, they
Nothing in this article shall be held to modify any right of do so without any risk to the estate, if the estate consents,
creditors to set aside any assignment on the ground of it, in effect becomes a new partner and would be
fraud. answerable for all debts and losses after the death but
only to the extent of the decedents share in the
The use by the person or partnership continuing the partnerships assets (De Leon, Comments and Cases on
business of the partnership name, or the name of a Partnership, Agency and Trusts, 2010 ed., p. 269).
deceased partner as part thereof, shall not of itself make
the individual property of the deceased partner liable for PARTNERS LIEN
any debts contracted by such person or partnership. Right of every partner to have the partnership property
applied to discharge partnership liabilities AND to have
Continuation of Partnership without liquidation the surplus assets, if any, distributed in cash to the
The remaining partners (and/or new partners) may respective partners, after deducting what may be due to
continue the business by simple taking over the business the partnership from them as partners.
enterprise and continuing the use of the old name.
Note: Art. 1842 speaks of accounting to be done upon Note: A strict compliance with the legal requirements is
dissolution of the partnership, while Art. 1809 refers to a not necessary. It is sufficient that there is substantial
demand for accounting before dissolution by reason of the compliance in good faith (Jo Chun v. Pacific Commercial
circumstances mentioned in the article. Co. GR No. 19892. September 6, 1923).
Persons liable to render an account However, a firm which fails to substantially comply with
1. The winding up partners the formal requirements of a limited partnership is a
2. The surviving partner general partnership only as to its relations to third
3. The person or partnership continuing the business. persons. The firm is a limited partnership, subject to all
rules applicable to such partnership; and as between the
Liquidation necessary for determination of partners partners they are bound by their agreement; and that all
share the limited partners relations to his co-partners and their
1. Share in the profits obligations to him growing out of the relation remain
2. Share in the partnership unimpaired.
Note: No liquidation is necessary when there is already a A limited partnership cannot be constituted orally.
settlement or agreement as to what he shall receive (De
Leon, Comments and Cases on Partnership, Agency and A partnership transacting business is, prima facie, a
Trusts, 2010 ed., p. 273). general partnership and those who seek to avail
themselves of the protection of laws permitting the
creation of limited partnerships must show due
L IMITED P AR TNERSHIP compliance with such laws.
One formed by two or more persons having as members A partnership cannot be a limited partner (De Leon,
one or more general partners and one or more limited Comments and Cases on Partnership, Agency and Trusts,
partners, the latter not being personally liable for 2010 ed., p. 286).
partnership debts (Art. 1843).
Contributions of a limited partner: CASH or OTHER
CHARACTERISTICS OF A LIMITED PARTNERSHIP PROPERTY, but NOT SERVICES (Art. 1845).
(C3RD)
1. Formed by substantial compliance in good faith with the A check may be treated as an actual payment in cash
statutory requirements where the limited partner has money actually in the bank
2. One or more general partners control the business and to his credit, and he gives the general partner absolute
are personally liable to creditors and final of the amount named therein, e.g. certified check
3. One or more limited partners contribute to the capital (De Leon, Comments and Cases on Partnership, Agency
and share in the profits but do not participate in the and Trusts, 2010 ed., p. 287).
management of the business and are not personally
liable for partnership obligations beyond the amount of STATUS OF PARTNER WHERE THERE IS FAILURE
their capital contributions TO CREATE A LIMITED PARTNERSHIP
4. The limited partners may ask for the return of their The one who has contributed to the capital erroneously
capital contributions under the conditions prescribed by believing that he has become a limited partner in a limited
law or general partnership is exempted from liability as a
5. The partnership debts are paid out of the common fund general partner (Art. 1852).
and the individual properties of the general partners.
Conditions for exemption from liability:
ESSENTIAL REQUIREMENTS FOR THE FORMATION 1. On ascertaining the mistake, he promptly renounces his
OF A LIMITED PARTNERSHIP interest in the profits of the business or other
1. A certificate or articles of limited partnership which compensation by way of income (before the partnership
states the matters enumerated IN ARTICLE 1844, has become liable to third persons)
which must be signed and sworn; and 2. His surname does not appear in the partnership name
2. Such certificate must be filed for record in the Office of 3. He does not participate in the management of the
the Securities and Exchange Commission. business.
Note: An heir of a deceased partner ordinarily becomes a Exception: A general partner in a limited partnership
limited partner for his own protection but he may elect to however has no authority, without written consent or
become a general partner. ratification of all limited partners, to (Art. 1850) (CIC-
PAAC)
A partner may be a general partner and a limited partner 1. Do any act in contravention of the certificate;
in the same partnership at the same time, provided that 2. Do any act which would make it impossible to carry on
this fact shall be stated in the certificate provided for in the ordinary business of the partnership;
Article 1844 (Art. 1853). 3. Confess a judgment against the partnership;
4. Possess partnership property, or assign their rights in
SURNAME of a limited partner shall not appear in the specific partnership property, for other than a
partnership name unless: partnership purpose;
1. It is also the name of a general partner, or 5. Admit a person as a general partner;
2. Prior to the time when the limited partner became 6. Admit a person as a limited partner, unless the right to
such, the business had been carried on under a name do so is given in the certificate
in which his surname appeared (Art. 1846). 7. Continue the business with the partnership property on
the death, retirement, insanity, civil interdiction or
Violation of such will make the limited partner liable to insolvency of a general partner, unless the right to do so
partnership creditors without, however, the rights of a is given in the certificate.
general partner.
Limited and General Partner/Partnership
LIABILITY FOR FALSITY IN CERTIFICATE Distinguished: (R2EF-P2C2-TIME)
Requisites: Limited Partner/ General Partner/
1. He knew the statements to be false at the time he Partnership Partnership
signed the certificate, or subsequently, but having
Rules governing dissolution and winding up
sufficient time to cancel or amend it or file a petition for
Governed by Art. 1863 Governed by Art. 1839
its cancellation or amendment.
2. The person seeking to enforce liability has relied upon Right to participate in the management of
the false statement in transacting business with the partnership
partnership; and Limited partner has no General partners have an
3. The person suffered loss as a result of reliance upon share in the management equal right in the
false statement. of a limited partnership and management of the
renders himself liable to business (when the
A limited partner contributing greater than that specified is partnership creditors as a manner of management
not liable for making a false statement. general partner if he takes has not been agreed
part in the control of the upon)
A limited partner shall not be liable as a general partner, business
unless he takes part in the control of the business. (Art.
1848) The limited partner takes part in the management of
the business if e.g. the business is carried on by board of
Extent of liability
directors chosen by the limited partners (De Leon,
Comments and Cases on Partnership, Agency and Trusts, Limited partners liability General partner is
2010 ed., p. 281). extends only to his capital personally liable for
contribution partnership obligations
After the formation of the partnership, additional limited Firm name
partners may be admitted upon filing an amendment to Firm name must be No such requirement
the original certificate in accordance with the requirements followed by the word
of law. limited
Proper party to proceedings by or against the
MANAGEMENT OF A LIMITED PARTNERSHIP partnership
Limited partner is not a General partner is the
General Rule: Limited partner has no management proper party to proper party to
powers proceedings by or proceedings by or
against a partnership against a partnership
Unless:
Effect of retirement, death, insanity or insolvency
1. He is also a general
partner (his liability is to Retirement, death, insanity Retirement, death,
the partners not to the or insolvency of a limited insanity or insolvency of
creditors), or partner does not dissolve a general partner
2. Where the object of the the partnership for his dissolves the partnership
proceeding is to enforce executor or administrator
a limited partners right shall have the rights of a
against or liability to the limited partner for the
partnership purpose of selling his
Prohibition to engage in other business estate
No such prohibition in the General partner is
case of a limited partner prohibited from engaging RIGHTS OF A LIMITED PARTNER: (BIF2AR2)
who is considered a mere in a business which is of 1. To have the partnership books kept at the principal
contributor to the the SAME kind of place of business of the partnership (Art. 1851)
partnership business in which the 2. To inspect, at a reasonable hour, partnership books and
partnership is engaged, if copy any of them (Art. 1851)
he is a capitalist partner, 3. To demand true and full information of the things
or in ANY of business for affecting the partnership (Art. 1851)
himself if he is an 4. To demand a formal account of the partnership affairs
industrial partner whenever circumstances render it just and reasonable
Contribution (Art. 1851)
Limited partner must General partner may 5. To ask for dissolution and winding up by decree of court
contribute cash or property contribute money, (Art. 1851)
to the partnership but not property or industry to 6. To receive a share in the profits or other compensation
services the partnership by way of income provided: that the partnership assets
Creation are in excess of partnership liabilities after such
Limited partnership is General partnership, as a payment (Art. 1856)
created by the members general rule, may be 7. To receive the return of his contribution provided (Art.
after the substantial constituted in any form 1857):
compliance in good faith by contract or conduct of a. All the liabilities of the partnership have been paid OR
with the requirements set the partnership the partnership assets are sufficient to pay
forth by law partnership liabilities
Transferability of interest b. The consent of all the members (general and limited
partners) has been obtained
Limited partners interest is General partners interest
freely assignable, with in the partnership may
Exception:
assignee acquiring all the not be assigned as to
When the return of the contribution may be rightfully
rights of the limited partner make the assignee a new
demanded:
subject to certain partner without the
i. On the dissolution of the partnership
qualifications consent of the other
ii. Upon the arrival of the date specified in the
partners, although he
certificate for the return
may associate a third
iii. After he has given 6 months notice in writing to all
person with him in his
other partners, if no time is specified in the
share
certificate their for the return of the contribution or
Inclusion of partners name in the firm name for the dissolution of the partnership
As a general rule, name Name of a general
of a limited partner must partner may appear in c. The certificate is cancelled or so amended as to set
not appear in the firm the firm name forth the withdrawal or reduction.
name
Members of the partnership A limited partner may have the partnership dissolved
Composed of one or more Composed only of and its affairs wound up when:
general partners and one general partners 1. He rightfully but unsuccessfully demands the return of
or more limited partners his contribution.
2. When his contribution is not paid although he is entitled b. For any unpaid contribution which he has agreed in
to its return because the other liabilities of the the certificate to make in the future at the time and
partnership have not been paid. the conditions stated in the certificate
In transacting a business with the partnership as a non- General Rule: He has all the rights and powers, and is
member, the limited partner is considered a non-partner subject to all the restrictions and liabilities of his assignor.
creditor
Exception: Those liabilities which he was ignorant at the
Prohibited Transactions: time he became a limited partner AND which could not be
1. Receiving or holding as collateral security any ascertained from the certificate.
partnership property; or
2. Receiving any payment, conveyance, or release from Requisites in Order that the Assignee May Become a
liability if the partnership assets are less than its Substituted Limited Partner
liabilities. 1. All the members must consent to the assignee
becoming a substituted limited partner, OR the limited
Note: Violation of the prohibition will give rise to the partner, being empowered by the certificate must give
presumption that it has been made to defraud partnership the assignee the right to become a limited partner
creditors 2. The certificate must be amended in accordance with
Art. 1865
The prohibition is NOT ABSOLUTE, there is no such 3. The certificate as amended must be registered in the
prohibition if the partnership assets are sufficient to Securities and Exchange Commission
discharge partnership liabilities to persons not claiming as
general or limited partners. CAUSES OF DISSOLUTION OF A LIMITED
PARTNERSHIP
PREFERRED LIMITED PARTNERS 1. Retirement, death, insolvency, insanity, or civil
This is made by agreement of partners as stated in the interdiction (CDI2R) of a GENERAL PARTNE
certificate as to the:
1. Return of contributions Note: Unless the business is continued by remaining
2. Compensation by way of income general partners (under a right so to do stated in the
3. Any other matter. certificate or with the consent of all members) (Art.
1860)
LIABILITIES OF A LIMITED PARTNER (Art. 1858)
1. Liability for unpaid contribution 2. When all limited partners ceased to be such (Art. 1864,
a. For the difference between his contribution as par. 1)
actually made and that stated in the certificate as 3. Expiration of the term or period of existence of the
having been made; AND partnership (Art. 1844, par. 1)
4. By agreement of all partners before the lapse of the Cancellation or amendment must be recorded in the SEC.
period of existence;
5. Misconduct of a general partner or fraud committed by a A limited partner is a mere contributor, hence, he
general partner against the limited partner/s CANNOT be a proper party in a case for or against the
6. When the limited partner demanded the return of his partnership (Art. 1866).
contribution but same was unjustifiably denie 1. Unless the action is to enforce his individual rights
against the partnership as authorized in Art. 1851.
Note: Not exclusive 2. He can be a defendant on an action filed against him by
the partnership to enforce his liability to the latter (Art.
The executor or administrator of the estate of the 1858)
deceased LIMITED PARTNER shall acquire all the
rights of a limited partner for the purpose of settling the
estate (Art. 1861).
A G ENCY
The estate of the deceased limited partner shall be A CONTRACT OF AGENCY is a contract whereby a
liable for all his obligations or liabilities to the person (agent) binds himself to render some service or to
partnership as a limited partner. do something in representation or on behalf of another
(principal), with the consent or authority of the latter (Art.
The creditors a limited partner may apply to the proper 1868).
court for an order charging the limited partners interest
in the partnership for the payment of any unsatisfied CHARACTERISTICS OF AN AGENCY CONTRACT:
amount of his claim. (Art. 1862) (PF-BORN-CP)
1. Preparatory
LIQUIDATION OF A LIMITED PARTNERSHIP (Art. 2. Fiduciary
1863) 3. Bilateral (but may be unilateral)
Order of priority in the payment of the liabilities of the 4. Onerous (generally)
limited partnership: 5. Representative Relation
1. Those owing to creditors, in order of priority as provided 6. Nominate
by law, except those to limited partners on account of 7. Consensual
their contributions and to general partners. 8. Principal
2. Those owing to limited partners in respect to their share
of the profits and other compensation by way of income PARTIES TO THE CONTRACT OF AGENCY
on their contributions. 1. Principal one whom the agent represents and from
3. Those owing to limited partners in respect to the capital whom he derives authority;
of their contributions. 2. Agent one who acts for and represents another.
4. Those owing to general partners other than for capital
and profits. PURPOSE OF AN AGENCY
5. Those owing to general partners in respect to profits. To extend the personality of the principal through the
6. Those owing to general partners in respect to capital. facility of the agent. It enables the activity of man which is
naturally limited in its exercise by the impositions of his
CANCELLATION OF CERTIFICATE OR ARTICLES OF physiological conditions to be legally extended by
PARTNERSHIP (Art. 1864) permitting him to be constructively present in many
1. When the partnership is dissolved. different places and to perform diverse juridical acts and
2. When all the limited partners ceased to be such. carry on many different activities through another when
physical presence is impossible or inadvisable at the
AMENDMENT OF CERTIFICATE OR ARTICLES OF same time (11 Manresa 434).
PARTNERSHIP (Art. 1865)
In case any of the ten enumerated changes and ELEMENTS OF AN AGENCY (COC-RW)
circumstances in Art. 1864, par. 2 are present. 1. Consent
a. Express or Implied
Must be signed and sworn to by all the members including b. Any person or entity having juridical capacity and
the new members if some are added; in case of capacity to act and not otherwise disqualified, may
substitution, the assigning limited partner must also sign. enter into an agency
c. But as regards the party with whom the agent acts or ACTS WHICH MAY BE DELEGATED TO AN AGENT
contracts, the legal capacity of the principal rather
than the agent, is of the greater import. General Rule: What a man may do in person, he may do
d. A principal must be capacitated or have a legal thru another.
capacity to enter into a contract. The agents capacity
is usually immaterial, he does not have to possess full Exceptions:
capacity to act for himself insofar as third persons are 1. Personal acts
concerned (De Leon, Comments and Cases on 2. Criminal Acts / Acts not allowed by law if done by the
Partnership, Agency and Trusts, 2010 ed., p. 332). principal.
e. Insofar as his obligations to his principal are
concerned, the agent must be competent to bind Note: The relations of an agent to his principal are
himself. The extent to which an agent is a fiduciary fiduciary in character since they are based on trust and
and is subjected to duties and liabilities to his confidence.
principal depends upon his capacity (De Leon,
Comments and Cases on Partnership, Agency and KNOWLEDGE OF AGENT IS IMPUTED TO PRINCIPAL
Trusts, 2010 ed., p. 333).
f. In an agent-principal relationship, the personality of General Rule: The knowledge of the agent is imputed to
the principal is extended through the facility of the the principal even though the agent never communicated
agent. In so doing, the agent, by legal fiction, such knowledge to the principal.
becomes the principal, authorized to perform all acts
which the latter would have him do. Such a Exceptions: (CAD)
relationship can only be effected with the consent of 1. Where the agents interest are adverse to those of the
the principal, which must not, in any way, be principal;
compelled by law or by any court (Orient- Air Services 2. Where the agents duty is not to disclose the
and Hotel Representatives vs. Court of Appeals, G.R. information, as where he is informed by way of
No. 76931-33, May 29, 1991). confidential information; and
3. Where the person claiming the benefit of the rule
2. Object: execution of a juridical act in relation to a third colludes with the agent to defraud the principal
person.
a. May cover all acts pertaining to a business of the KINDS OF AGENCY (C2BANE)
principal (general agency) or one or more specific A. As to manner of creation
transactions (special agency) 1. Express
b. The extent of the agents authority to act, whether it 2. Implied
be a general or a special agency, depends on how
the agency is couched. B. As to its character
1. Gratuitous
3. Cause: may be onerous or gratuitous but presumed for 2. Compensated or onerous
compensation (Art. 1875)
4. The agent acts as representative of the principal. C. As to extent of business covered:
5. The agent acts within the scope of his authority. 1. General comprises all the business of the principal
2. Special comprises one or more specific
The agent may not be deprived of his right to transactions
compensation by an unjustified revocation of the agency.
D. As to authority conferred
The agent must act as a representative and not for 1. Couched in general terms- one which is created in
himself, and he must act within the scope of his authority. general terms and is deemed to comprise only acts of
administration;
One factor which most clearly distinguishes agency from 2. Couched in specific terms
other legal concepts is control (Victorias Milling Co., Inc. v.
CA, G.R. No. 117356, June 19, 2000; Amon Trading E. As to its nature and effects
Corp., et al. v. CA, et al., G.R. No. 158585, December 13, 1. Ostensible / representative - agent acts in the name
2005). and in representation of the principal.
2. Simple / commission - agent acts in his own name but
for the account of the principal.
General and Special Agent Distinguished: (SEC2T) Agency and Trusts, 2010 ed., p. 378). However, should
General Agent Special Agent the law require that such special authority be in writing in
order for the same or the resulting contract to be valid or
Scope of Authority enforceable, such requirement is absolute and
Authorized to do only acts in indispensable.
Usually authorized to do all pursuance of particular
acts connected with the instructions or with Note: It need not be notarized; except where it is
business or employment in restrictions necessarily executed in a foreign country, it must be certified in
which he is engaged. implied from the acts to be accordance with the Rules of Court.
done
Instances Where SPA is Necessary (Art. 1878)
Extent by which agent may bind principal
(PECWEM-LLB-BOCARO)
Binds his principal by an act Cannot bind his principal in 1. To make payments as are not usually considered as
within the scope of his a manner beyond or outside acts of administration;
authority although it may be the specific acts which he is 2. To effect novations which put an end to obligations
contrary to his special authorized to perform on already in existence at time the agency was constituted;
instructions behalf of the principal 3. To compromise, submit questions to arbitration,
Continuity renounce the right to appeal from a judgment, waive
objections to the venue of an action or abandon a
Usually involves a single
Conducts a series of prescription already acquired;
transaction or a series of
transactions involving a 4. To waive any obligation GRATUITOUSLY;
transactions not involving
continuity of service. 5. To enter into any contract by which the ownership of AN
continuity
IMMOVABLE is transmitted or acquired either
Construction of Instructions of Principal gratuitously or for a valuable consideration.
Statement of principal with Note: The authority of an agent to execute a contract of
respect to the agents Authority of agent must be sale of real estate must be conferred in writing and must
authority would ordinarily strictly pursued give him specific authority, either to conduct the general
regarded as advisory only business of the principal or to execute a binding
Termination of Authority contract containing terms and conditions which are in
the contract he did execute. The express mandate
Apparent authority does not Mere revocation is effective required by law to enable an appointee of an agency
terminate by the mere to terminate the authority as (couched) in general terms to sell must be one that
revocation of his authority to third persons because the expressly mentions a sale or that includes a sale as a
without notice to the third third person has a duty to necessary ingredient of the act mentioned. For the
party inquire principal to confer the right upon an agent to sell real
estate, a power of attorney must so express the powers
Note: Agency comprises all the business of the principal of the agent in clear and unmistakable language. When
(Article 1876) but couched in general terms, it is limited there is any reasonable doubt that the language so
only to acts of administrations (Dominion Insurance Corp. used conveys such power, no such construction shall
v. CA, G.R. No. 129919, February 6, 2002). be given to the document (332 Phil. 948 (1996)).
Acts of administration are those which do not imply the It has been repeatedly held that the absence of a
authority to alienate (De Leon, Comments and Cases on written authority to sell a PIECE OF LAND is ipso jure,
Partnership, Agency and Trusts, 2010 ed., p. 436). void, precisely to protect the interest of an unsuspecting
owner from being prejudiced by the unwarranted act of
SPECIAL POWER OF ATTORNEY (SPA) another (Pahud, et al. v. CA, et al., G.R. No. 160346,
An instrument in writing by which one person, as principal, August 25, 2009) .
appoints another as his agent and confers upon him the
authority to perform certain specified acts or kinds of acts 6. To make gifts, except customary ones for charity or
on behalf of the principal. those made to employees in the business managed by
the agents;
Art. 1878 does not state that the special authority be in
writing (De Leon, Comments and Cases on Partnership,
7. To loan or borrow MONEY, unless the latter act be WHEN PRINCIPAL IS BOUND BY ACT OF AGENT
urgent and indispensable for the preservation of the 1. Agent must act within the scope of his authority (Art.
things which are under administration; 1881); and
8. To lease any real property to another person for more 2. Agent must act in behalf of the principal
than one year;
9. To bind the principal to render some service without Note: The limits of the agents authority shall not be
compensation; considered exceeded should it have been performed in a
10. To bind the principal in a contract of partnership; manner more advantageous to the principal than that
11. To obligate the principal as guarantor or surety; specified by him (Art. 1882).
12. To create or convey real rights over immovable
property; Authority is the power of the agent to affect the legal
13. To accept or repudiate an inheritance; relations of the principal by acts done in accordance by
14. To ratify or recognize obligations contracted before the acts done in accordance with the principals manifestation
agency; of consent to him.
15. Any other act of strict dominion.
WHEN A PRINCIPAL IS NOT BOUND BY THE ACT OF
Note: A third person with whom the agent wishes to THE AGENT
contract on behalf of the principal may require the 1. Agent acts without or beyond the scope of his authority
presentation of the power of attorney or the instructions as in the principals name; and
regards the agency; except private or secret orders and 2. Agent acts within the scope of his authority but in his
instructions of the principal (Art. 1902). own name (UNDISCLOSED PRINCIPAL), except when
the transaction involves a thing belonging to the
The scope of the agents authority is what appears in the principal (Art. 1883).
written terms of the power of attorney. While third
persons are bound to inquire into the extent or scope of Kinds of Authority
the agents authority, they are not required to go beyond 1. Actual
the terms of the written power of attorney. Third persons 2. Express
cannot be adversely affected by an understanding 3. Implied
between the principal and his agent as to the limits of the 4. Apparent or ostensible
latters authority. In the same way, third persons need not 5. Genera
concern themselves with instructions given by the 6. Special
principal to his agent outside the written power of attorney 7. By necessity or operation of law
(Siredy Enterprises, Inc. v. CA, et al. GR No. 129039.
September 27, 2002). EFFECTS OF AGENTS ACTS
1. With Authority
SPA to sell does not include the power to mortgage; and a. In principals name valid; principal is bound; agent
vice versa (Art. 1879). not personally liable UNLESS he bound himself (Art.
1897);
A special power of attorney cannot be the basis of a valid b. In his own name Apply Art. 1883; generally not
mortgage contract (Lao v. Villones-Lao, G.R. No. 126777, binding on the principal; agent and stranger are the
April 29, 1999). only parties, EXCEPT regarding things belonging to
the principal or when the principal ratifies the contract
SPA to mortgage includes the power to allow the or derives benefit therefrom.
extrajudicial foreclosure of the mortgaged property (Art. 2. Without Authority
1879). a. In principals name unauthorized & unenforceable
BUT may be ratified by the principal, in which case,
SPA to compromise does not authorize submission to may be validated retroactively from the beginning
arbitration (Art. 1880). (Art. 1407);
b. In his own name valid (in case of sale), whether or
Effect of Lack of SPA Where One is Required: not the subject matter belongs to the principal,
Unenforceable provided that at the time of delivery, the agent can
transfer legally the ownership of the thing. Otherwise,
he will be held liable for breach of warranty against
eviction; Art. 1883 does NOT apply.
Note: If not sale, ALWAYS invalid 4. To observe diligence of a good father of a family in the
custody and preservation of the goods forwarded to him
Occasions When Principal is bound by the Acts of the by the owner in case he declines an agency, until an
Agent beyond the Latters Powers (DL-BR) agent is appointed (Art. 1885)
1. Where the principals acts have contributed to deceive 5. To advance the necessary funds should there be a
the third persons; stipulation to do so (Art. 1886)
2. Where the limitations upon the power created by him Except: when the principal is insolvent
could not have been known by the third person; 6. To act in accordance with the instructions of the
3. Where the principal has placed in the hands of the principal, and in default thereof, to do all that a good
agent instruments signed by him in blank father of a family would do (Art. 1887)
4. Where the principal has ratified the acts of the agent. 7. Not to carry out the agency if its execution would
manifestly result in loss or damage to the principal (Art.
DOCTRINE OF AGENCY BY NECESSITY 1888)
By virtue of the existence of an emergency, the authority 8. To answer for damages if there being a conflict between
of an agent is correspondingly enlarged in order to cope his interest and those of the principal, he should prefer
with the exigencies or the necessities of the moment. his own (Art. 1889)
9. Not to loan to himself if he has been authorized to lend
Requisites: money at interest (Art. 1890)
1. Real existence of an emergency 10. To render an account of his transactions and to
2. Inability of the agent to communicate with the principal deliver to the principal whatever he may have received
3. Exercise of the additional authority for the principals by virtue of the agency (Art. 1891)
own protection
4. Adoption of fairly reasonable means, premises duly Note: A stipulation exempting the agent from the
considered obligation to render an account shall be VOID (Art.
1891).
Note: Agency can never be created by necessity; what is
created is additional authority in an agent appointed and Obligation to account not applicable (MIL):
authorized before the emergency arose. a. The duty embodied in Art. 1891 will not apply if the
agent or broker acted only as a middleman with the
Kinds of Principal task of merely bringing together the vendor and the
1. Disclosed vendee, who themselves thereafter will negotiate on
2. Partially disclosed the terms and conditions of the transaction (Domingo
3. Undisclosed vs. Domingo, G.R. No. L-30573, October 29, 1971).
b. Neither would the rule apply if the agent or broker had
informed the principal of the gift or bonus or profit he
O BLIG ATIONS OF THE A G ENT received from the purchaser and his principal did not
object thereto. (Ibid.)
GENERAL OBLIGATIONS OF AN AGENT TO c. Where a right of lien exists in favor of the agent, the
PRINCIPAL (AOE) rule is not also applicable.
1. To act with utmost good faith and loyalty for furtherance i. The agent may, under Art.1914, retain in pledge
of principals interests the things which are the object of the agency until
2. To obey all lawful orders and instructions of principal the principal effects the reimbursement and pays
within the scope of the agency the indemnity provided in Articles 1912 and 1913.
3. To exercise reasonable care, skill and diligence ii. A lawyer shall have a lien upon the funds,
documents and papers of his client and may retain
SPECIFIC OBLIGATIONS OF AN AGENT TO the same until his lawful fees and disbursements
PRINCIPAL (CAFO-A2DALARPD-IBIR) have been paid (Sec. 37, Rule 138, Rules of
1. To carry out the agency which he has accepted (Art. Court)
1884)
2. To answer for damages which through his non- Note: An agent who takes a secret profit is guilty of
performance the principal may suffer (Art. 1884) breach of his loyalty and forfeits his right to collect the
3. To finish the business already begun on the death of commission.
the principal should delay entail any danger (Art. 1884)
Report imports a statement of collections. Accounting 2. He was given such power but without designating the
means settling of account of administration or agency person, and the person appointed was notoriously
which includes payment. incompetent or insolvent.
An agent has both the physical and juridical possession In these two cases the principal MAY further bring an
but he may not set up his right of possession as against action against the substitute with respect to the
that of the principal until the agency is terminated. obligations which the latter has contracted under the
substitution (Art. 1893).
Distinguished from possession of teller in bank.
AGENT BANK TELLER Note: All acts of the substitute appointed against the
Right to Possession prohibition of the principal shall be VOID.
Has independent, Has no independent right,
autonomous right. payment to him is payment EFFECT OF DEATH OF PRINCIPAL/AGENT
to the bank itself. He is a If the authority of the sub-agent proceeds from the
mere custodian. principal, the death of the agent who appointed him does
In case of misappropriation not affect his authority. But where he acts under the
He is guilty of estafa. He is guilty of qualified authority, the death of the agent terminates his authority
theft. even though the power of substitution is given in the
original power.
11. To be responsible in certain cases for the acts of the
substitute appointed by him (Art. 1892) EFFECTS OF SUBSTITUTION
12. To pay interest on funds he has applied to his own use 1. Substitution prohibited all acts of the substitute shall
(Art. 1896) - from the day on which he did so and on be void.
those which he still owes after the extinguishment of the 2. Substitution authorized it has the effect of releasing
agency. the agent from his responsibility unless the person
13. To distinguish goods by countermarks and designate appointed is notoriously incompetent or insolvent. But if
the merchandise respectively belonging to each the substitute is the person designated by the principal,
principal, in the case of a commission agent who the consequences is the absolute exemption of the
handles goods of the same kind and mark, which agent.
belong to different owners (Art. 1904) 3. Substitution not authorized, but not prohibited if the
14. To inform the principal, where an authorized sale of substitution has occasioned damage to principal, the
credit has been made, of such sale (Art. 1906) agent shall be primarily responsible for the acts of the
15. To bear the risk of collection, should he receive also substitute.
on sale, a guarantee commission (Art. 1907)
16. To indemnify the principal for damages for his failure JOINT AGENTS
to collect the credits of his principal at the time that they Agents appointed by one or more principals under such
become due (Art. 1908) circumstances as to induce the inference that it was the
17. To be responsible for fraud or negligence (Art. 1909) principals intent that all should act in conjunction in
consummating the transaction for which they were
A person who declines an agency is still bound to observe appointed.
diligence of a good father of a family.
Their responsibility is JOINT; except if solidarity has been
SUB-AGENT expressly stipulated (Art. 1894).
A person to whom the agent delegates as his agent the
performance of an act for the principal which the agent If solidarity has been agreed upon, each agent is
has been empowered to perform through his responsible for the:
representative. 1. Non-fulfillment of the agency, and
2. Fault or negligence of his fellow agents; except when
Note: The agent may appoint a substitute except when he the fellow agents acted beyond the scope of their
has been prohibited by the principal (Art. 1892). authority (Art. 1895).
INSTANCES WHEN AGENT SHALL BE RESPONSIBLE Note: An innocent agent has a right later on to recover
FOR THE ACTS OF THE SUBSTITUTE: from the guilty or negligent agent (Art. 1217[2]).
1. He is not given the power to appoint;
4. By certain doctrines The commission agent who handles goods of the same
a. Of apparent authority; kind and mark, which belong to different owners, shall
b. Of liability by estoppel; and distinguish them by countermarks, and designate the
c. Of ratification. merchandise respectively belonging to each principal (Art.
1904).
5. By the rule of ejusdem generis.
A commission agent can sell on credit only with the
Third partys liabilities toward agent: (CBIT) express or implied consent of the principal. If such sale is
1. Where the agent contracts in his own name for an made without authority, the principal is given two
undisclosed principal, in which case, the agent may sue alternatives (Art. 1905):
the third party to enforce the contract; 1. He may require payment in cash, in which case any
2. Where the agent possesses a beneficial interest in the interest or benefit from the sale on credit shall belong to
subject matter of the agency; the agent since the principal cannot be allowed to
3. Where the agent pays money of his principal to a third enrich himself at the agents expense;
party by mistake or under a contract which proves 2. He may ratify the sale on credit in which case it will
subsequently to be illegal, the agent being ignorant with have all the risks and advantages to him.
respect to its illegal nature; and
4. Where the third party commits a tort against the agent. If the commission agent is authorized to sell on credit, he
shall inform the principal with a statement of the names of
Principals responsibility where agent acted with the buyers. With such statement, the sale shall be
improper motives deemed to be for cash as far as the principal is concerned
General Rule: Motive of agent is immaterial. (Art. 1906).
Principals responsibility for agents The commission agent who does not collect the credits of
misrepresentation his principal at the time when they become due and
1. Within the scope of authority principal is liable. demandable shall be liable for damages, unless he proves
2. Beyond the scope of agents authority principal is not the exercise of due diligence for that purpose (Art. 1908).
bound but he cannot take advantage of the contract
Broker
A middleman or intermediary who, in behalf of others and O BLIG ATIONS OF THE P RINCIP AL
for a commission or fee, negotiates contracts/transactions
relating to real or personal property. General Obligations of Principal to Agent
Duties and liabilities of the principal are primarily based
The brokers are entitled to their commission because they upon the contract and the validity of the contract between
were instrumental in the sale of the property. They were them
the procuring cause (Tan v. Gullas, G.R. No. 143978,
December 3, 2002). SPECIFIC OBLIGATIONS OF PRINCIPAL TO AGENT
(CARIP)
In the absence of an express contract between the broker 1. To comply with all the obligations which the agent may
and his principal, the implication generally is that the have contracted within the scope of his authority and in
broker becomes entitled to the usual commissions the name of the principal (Art. 1910)
(Medrano, et al. v. CA. et al., G.R. No. 150678, February 2. To advance to the agent, should the latter so request,
18, 2005). the sums necessary for the execution of the agency
(Art. 1912)
Factorage 3. To reimburse the agent for what the latter has
Compensation of a factor or commission agent. advanced (plus interest), even if the business was not
successful, provided the agent was free from fault (Art.
Ordinary Commission 1912)
Compensation for the sale of goods which are placed in 4. To indemnify the agent for all the damages, which the
his possession or at his disposal. execution of the agency may have caused the latter
without fault or negligence on his part (Art. 1913)
GUARANTY COMMISSION (Del Credere) (Art. 1907): 5. To pay the agent the compensation agreed upon, or if
Is one where, in consideration of an increased no compensation was specified, the reasonable value of
commission, the factor or commission agent guarantees the agents services
to the principal the payment of debt arising through his
agency. Note: Even when the agent has exceeded his authority,
the principal is solidarily liable with the agent if the
An agent with a del credere commission is liable to the former allowed the latter to act as though he had full
principal if the buyer fails to pay or is incapable of paying. powers (Art. 1911).
Either the principal or the del credere agent may sue the LIABILITY FOR AGENTS ILLICIT ACTS
buyer. The suit of one will bar the subsequent suit of the General Rule: Where the fault or crime committed by
other. agent is not in the performance of an obligation of the
principal, the latter is not bound by the illicit act of the
Doctrine of Procuring Cause agent, even if it is not done in connection with his
In order for an agent to be entitled to a commission, he functions.
must be the procuring cause of the sale, which simply
means that the measures employed by him and the efforts Exceptions:
he exerted must result in the sale (Ramos v. CA, G.R. No. 1. Where the delict or the quasi-delict was committed by
25463, April 4, 1975). the agent because of defective instructions from the
principal, or due to the lack of necessary vigilance or
However, for the purpose of EQUITY, an agent who is not supervision on his part, the principal is liable for his own
the efficient procuring cause is nonetheless entitled to his negligence;
commission, where he, notwithstanding the expiration of 2. When the agent secures a contract through fraud, or
his commission, nonetheless took diligent steps to bring makes a fraudulent alienation, or executes a simulated
back together the parties, such that a sale was contract, all of these acts are imputable to the principal
consummated (Prats v. CA, GR No. 39822, January 31, as if done by him, because the illicit act is inseparable
1978). from the transaction executed for him.
3. When the crime consists in the performance of an act
which is within the powers of the agent, but becomes
criminal only because of the manner in which the agent
has performed it, the principal is liable to third persons
Apparent authority and authority by estoppel Note: In implied agency, there is actual agency. The
distinguished principle alone is liable. In agency by estoppel, the
authority of the agent is not real but only apparent: (1) if
Apparent Authority Authority by Estoppel
the estoppel is caused by the principal, he is liable to nay
Definition third person who relied on the misrepresentation. (2) If it is
That which though not Where the principal, by caused by the agent, then only the agent is liable.
actually granted, the his culpable negligence,
principal knowingly permits his agent to AGENCY BY OPERATION OF LAW OR FROM
permits the agent to exercise power not NECESSITY
exercise or holds him granted to him, even An agency from necessity is created, or the ordinary
out as possessing. It is though the principal has powers of an agent may be enlarged, when an emergency
founded in the no notice or knowledge occurs and an employee or an agent is unable to get in
conscious permission of of the conduct of the touch with his employer (De Leon, p, 560)
acts beyond the powers agent.
granted. Liability of Principal for Tort of Agent Rule:
Basis The principal is civilly liable to third persons for torts of an
Founded in conscious Based on negligence of agent committed at the principals direction or in the
permission of acts the principal in failing course and within the scope of the agents authority. The
beyond the powers properly to supervise agent is also liable with the principal and their liability is
granted the affairs of agent, solidary.
allowing him to exercise
powers not granted to Three main factual situations:
him, and so justifies 1. Where third person damages or injures property or
others in believing he interest of the principal in agents possession;
possesses the requisite 2. Where third person colludes with the agent to injure or
authority. defraud the principal;
3. Where third person induces the agent to violate his
Ratification and Estoppel distinguished contract with the principal to betray the trust reposed
upon him by the principal.
Ratification Estoppel
Basis Motivation-Deviation Test
Rests on intention, Rests on prejudice The bounds of the agents authority are not the limits of
express or implied, rather than intention. the principals tort liability, but rather the scope of the
regardless of prejudice employment which may or may not be within the bounds
to another.
of authority. Scope of employment is much wider than each other, that of prior date shall be preferred, without
scope of authority. prejudice to Art. 1544 (double sale) (Art. 1916).
2. If the agent has acted in good faith, the principal shall
Requisites for vicarious liability: be liable in damages to the third person whose contract
1. Satisfactory evidence that the employee in doing the must be rejected. If the agent is in bad faith, he alone
act, in doing of which the tort was committed, was shall be responsible (Art. 1917).
motivated in part, at least, by a desire to serve his
employer; and INSTANCES WHEN PRINCIPAL IS NOT LIABLE FOR
2. Satisfactory evidence that the act, in the doing of which THE EXPENSES INCURRED BY THE AGENT (Art.
the tort is committed, was not an extreme deviation from 1918):
the normal conduct of such employee. 1. If the agent acted in contravention of the principals
instructions, unless the latter should wish to avail
NATURE OF AGENTS RIGHT OF LIEN (Art. 1914) himself of the benefits derived from the contract;
The agent may retain in pledge the things which are the 2. When the expenses were due to the fault of the agent;
object of the agency until the principal effects this 3. When the agent incurred them with knowledge that an
reimbursement and pays the indemnity (Art. 1914). Unlike unfavorable result would ensure, if the principal was not
contractual pledges, however, the agent is not entitled to aware thereof;
the excess in case the things are sold to satisfy is claim 4. When it was stipulated that the expenses would be
and the proceeds thereof are more than the amount due borne by the agent, or that the latter would be allowed
(De Leon, Comments and Cases on Partnership, Agency only a certain sum.
and Trusts, 2010 ed., p. 602). Limited to subject matter of
agency M ODES OF E XTI NGUISHM ENT OF
1. Requires possession by agent of subject matter.
2. Generally only in favor of agent A G ENCY
Note: Any one of them may revoke the agency (Art. Note: The list is not exclusive.
1925).
DEATH
The rule in Art. 1945 applies even when the appointments General Rule: Agency is extinguished ipso jure upon the
were made by the principals in separate acts, provided death of either principal or agent.
that they are for the same transaction. The solidarity
arises from the common interest of the principals, and not Exceptions:
from the act of constituting agency (Constante Amor de A. The agency is coupled with an interest. (Art. 1930)
Castro v. CA, G.R. No. 115838, July 18, 2002). 1. If the agency has been constituted in the common
interest of the principal and the agent
RULES ON DOUBLE SALE BY PRINCIPAL AND
AGENT Note: In an agency coupled with an interest, the
1. When two persons contract with regard to the same agents interest must be in the subject matter of the
thing, one of them with the agent and the other with the power conferred and not merely an interest in the
principal, and the two contracts are incompatible with exercise of the power because it entitles him to
2. If it has been constituted in the interest of a third General Rule: Where there is a basic change in the
person who has accepted the stipulation in his favor circumstances surrounding the transaction, which was not
contemplated by the parties and which would reasonably
B. The act of the agent was executed without knowledge lead the agent to believe that the principal would not
of the death of the principal and the third person who desire him to act, the authority of agent.
contracted with the agent in good faith (Art. 1931).
Exceptions:
Note: The power of sale in a deed of mortgagee 1. If the original circumstances are restored within a
survives death of the principal (mortgagor) as it is reasonable period of time.
primarily an authority conferred upon the mortgagee for 2. Where agent has reasonable doubts as to whether the
the agents own protection. The right to foreclose exists principal would desire him to act, his authority will not
independently. be terminated if he acts reasonably.
3. Where the principal and agent are in close daily contact,
Anything done by the agent, without knowledge of the the agents authority to act will not terminate upon a
death of the principal or of any other cause which change of circumstances if the agent knows the
extinguishes the agency, is valid and shall be fully principal is aware of the change and does not give him
effective with respect to third persons who may have new instructions.
contracted with him in good faith (Art. 1931).
REVOCATION OF AGENCY BY PRINCIPAL
Agents heirs have duty to notify the principal thereof and
in the meantime adopt such measures as the General Rule: Agency is revocable at will of the principal,
circumstances may demand in the interest of the latter. regardless of the term of the agreement.
ACCOMPLISHMENT OF OBJECT OR PURPOSE Example: Joe wanted to make Gil his surety so Joe
It ipso facto terminates the agency even though it is made Gil his agent as a sort of inducement to safeguard
expressed to be irrevocable. An agency may also be him from eventual loss (Paras, Civil Code of the
terminated by the non-accomplishment of the object or Philippines, Volume V, 2008 ed., p. 820).
purpose within a reasonable time.
2. If it is the means of fulfilling an obligation already
EXPIRATION OF TERM contracted;
1. Time is specified upon the arrival of the time agreed
upon. Example: Joe is indebted to Gil for the purchase price
2. Time not specified at the end of a reasonable time. of a fountain pen. But Joe in the meantime has no
Either party can terminate the relationship at will by money. So he appoints Gil as his agent to collect from
giving notice to the other. Renz some money which Renz owes him, which money
3. Period implied the period may be implied from the will in turn be applied to the purchase price of the
terms of the agreement, the purpose of the agency, and fountain pen.
the circumstances of the parties.
3. If a partner is appointed manager of a partnership and
LOSS OR DESTRUCTION OF SUBJECT MATTER his termination is unjustifiable; and
4. If it is created not only for the interest of the principal but
General Rule: Agency is terminated. also for the interest of third persons, who have accepted
the stipulation in their favor
General Rule: The principal may revoke an agency at Note: The trustee is not an agent of the trust estate or of
will. the cestui que trust, but he acts for himself in the
administration of the trust estate, although subject to the
Exceptions: When the agency is coupled with interest. terms of the trust and the law of trusts.
AGENCY COUPLED WITH AN INTEREST Exception: A trustee has been regarded as agent of
An agency wherein the agent has acquired some interest beneficiaries of the trust at least for certain purposes,
of his own in the execution of the authority granted to him, such as for the purpose of imputing to the beneficiaries of
in addition to his mere interest in the contract of the trust notice given to the trustee.
employment with the resulting gains.
Persons Involved in a Trust
Note: Agency coupled with interest may be revoked for a 1. Trustor the one who intentionally creates a trust
just cause (De Leon, Comments and Cases on 2. Trustee the person who holds the legal title to the
Partnership, Agency and Trusts, 2010 ed., p. 606). trust property, for the benefit of another, and with
certain powers and subject to certain duties
AGENT MAY WITHDRAW FROM THE AGENCY 3. Beneficiary or the cestui que trust the person who has
1. Must give notice to the principal the equitable interest in the property and enjoys the
2. Must indemnify should the principal suffer damages by benefit of administration by the trustee. He may be a
reason of the withdrawal unless the agent should base natural person or a legal entity. The trustor may
his withdrawal from the impossibility of continuing the establish a trust with himself as the beneficiary (usual
performance of the agency without grave detriment to case).
himself (Art. 1928).
trustee is not a mere agent, but an owner. the repudiation, otherwise from knowledge of
prescribed. repudiation, otherwise
Note: A trust is not void for indefiniteness if by its terms prescribed.
the whole property will go to beneficiaries who are In constructive trust: It must
undetermined but will be determined at the termination of be made with 10 years from
the trust, at the latest. It is not necessary to the creation of date of registration.
a trust that the cestui que trust be named or even be in As to applicability of the Doctrine of Laches
existence at the time of its creation. An express repudiation In constructive trusts, even if
made known to the there is no repudiation,
CLASSIFICATIONS OF TRUSTS beneficiary is necessary in laches may bar an action to
A. As to effectivity from the viewpoint of whether they order that laches or enforce an implied trust
become effective after the death of the trustor or during acquisitive prescription may
his life, it may be either: bar an action to enforce an Exception: if there is
1. Testamentary trusts express trust concealment
2. Trusts inter vivos (sometimes called living trusts)
Note: The principles of the general law of trusts, insofar
B. As to creation from the viewpoint of the creative as they are not in conflict with this Code, the Code of
force bringing them into existence, it may be either: Commerce, the Rules of Court, and special laws are
1. Express trust created by the intention of the trustor hereby adopted (Art. 1442).
or of the parties. It is created by the direct and
positive acts of the parties, by some writing, deed, PROOF OF TRUST
will or by words, either expressly or impliedly, General Rule: Trust whether express or implied may be
evincing an intention to create a trust. proved by parol or oral evidence.
Elements:
a. Competent trustor and trustee; Exception: An express trust over an immovable or any
b. Ascertainable trust res; and interest therein (Art. 1443). This latter requirement is not
c. Sufficiently certain beneficiaries for validity but for purposes of proof.
2. Implied trust one which comes into being by Note: No particular words are required for the creation of
operation of law. This may be either: an express trust, it being sufficient that a trust is clearly
a. Resulting trust one in which the intention to intended (Art. 1444).
create a trust is presumed by law to exist from the
transaction and facts of the case No trust shall fail because the trustee appointed declines
b. Constructive trust one imposed by law the designation, unless the contrary should appear in the
irrespective of and even contrary to the intention instrument constituting the trust (Art. 1445).
of the parties. It is designed to promote justice,
frustrate fraud and prevent unjust enrichment. NECESSITY OF ACCEPTANCE FOR THE CREATION
AND VALIDITY OF A TRUST RELATIONSHIP
Reason: no one shall be unjustly enriched at the 1. Acceptance of the trustee
expense of another a. Not necessary to its existence and validity since if he
declines, the courts will appoint a trustee to fill the
Express Trust and Implied Trust Distinguished (CPR): office that he declines (see Sec. 3 Rule 98 of the
Express Trust Implied Trust Rules of Court).
As to creation b. But a trustees acceptance of an express trust is
Created by the intention of Come into being by necessary to charge him with the office of the trustee
the parties operation of law and the administration of the trust and to vest the
As to proof of trust legal title in him.
An express trust over an An implied trust over an c. As between the mother and the uncle, the former is
immovable property or any immovable or any interest preferred to be the trustee of the proceeds of the
interest therein cannot be therein may be proved by insurance policy in the absence of any showing that
proved by parol evidence oral evidence the former is incompetent. (Cabanas vs. Pilapil, G.R.
As to prescription No. L-25843, July 25, 1974).
Action must be made within In resulting trust: Action must
10 years from knowledge of be made within 10 years
2. Acceptance of the beneficiary Torrens title over property held in trust by him for another
a. Essential to the creation and validity of a trust. cannot repudiate the trust by relying on the registration.
However, such acceptance is presumed if there is no (Sotto v. Teves, G.R. No. L-22571, May 25, 1973). The
proof to the contrary and the trust does not impose rule requires a clear repudiation of the trust duly
any onerous condition upon the beneficiary. communicated by the beneficiary. The only act that can be
b. Even if real property is involved, the acceptance need construed as repudiation was when respondents filed the
not be in a public instrument (Cristobal vs. Gomez, petition for reconstitution in October 1993. And since
G.R. No. L-27014, October 5, 1927, as cited in petitioners filed their complaint in January 1995, their
Pineda). cause of action has not yet prescribed, laches cannot be
attributed to them.
EXTINGUISHMENT OF EXPRESS TRUST
1. Accomplishment of the purpose of trust TRUST PURSUIT RULE
2. Expiration of the agreed term Equity will pursue property that is wrongfully converted by
3. Mutual agreement of all parties the fiduciary, or otherwise compel restitution to the
4. Happening of the resolutory condition, if one had been beneficiary. A trust will follow the property through all
imposed. changes in its state and form, provided its product or
5. Total loss of the object of the trust proceeds are capable of identification.
6. Annulment or rescission of the trust
7. Decision of court declaring the trust terminated IMPLIED TRUST
8. Merger of the rights of the trustor and the trustee, as Those which, without being express, are deducible from
when the trustor waived his beneficial rights in favor of the nature of the transaction as matters of intention, or
the trustee, or vice versa which are superinduced on the transaction by operation of
9. Prescription law, as matters of equity independently of the particular
intention of the parties.
REQUISITES OF A TRUSTEE TO CLAIM TITLE BY
PRESCRIPTION (PACK) While implied trusts may be proved by oral evidence, the
1. He has performed open and unequivocal acts of evidence must be trustworthy and received by the courts
repudiation with extreme caution, and should not be made to rest on
2. Such positive acts of repudiation have been made loose, equivocal or indefinite declarations. The proof
known to the beneficiary or the cestui que trust should be as fully convincing as if the acts giving rise to
3. The evidence thereon should be clear and convincing the trust obligation are proven by an authentic document
and (Filipinas Port Services Inc. v. Go, G.R. NO. 161886,
4. The period fixed by law has expired (10 years from the March 16, 2007).
time that the repudiation is made known to the
beneficiary in cases of express trust or resulting trust Resulting and Constructive Trust Distinguished
while 10 years from the time a constructive trust arises). Resulting Trust Constructive Trust
Intention to create trust
Note: The reckoning point is repudiation of the trust by
the trustee because from that moment his possession The trust is created
becomes adverse which gives rise to a cause of action. The intent of the parties to irrespective of or even
create a trust is presumed contrary to the intention of
A mere silent possession by the trustee unaccompanied or implied by law from the the parties to promote
by acts amounting to an ouster of the cestui que trust nature of their transaction justice, frustrate fraud and to
cannot be construed as an adverse possession. Mere prevent unjust enrichment.
collection of the rents and profits by the trustee and Prescriptive period
erecting fences and buildings adapted for cultivation of the
land held in trust are not equivalent to unequivocal acts of The 10 year prescriptive
The 10 year prescriptive
ouster of the cestui que trust (Laguna v. Levantino, G.R. period shall be counted from
period shall be counted from
No. L-47386, April 18, 1941; Valdez v. Olorga, G.R. No. L- the time that the
the time repudiation is made
22571, May 25, 1973). constructive trust arises, i.e.
known to beneficiary.
from the date of registration.
Respondents cannot rely on the fact that the Torrens title Examples
was issued in the name of Epifanio and the other heirs of Illustrated in Articles 1448, Illustrated in Articles 1450,
Jose. It has been held that a trustee who obtains a 1449, 1451, 1452, 1453 1454, 1455, 1456