Professional Documents
Culture Documents
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(13) Silent partner, who does not take active part PARTNERSHIP AND OTHER
in the business, but may be known to be a
partner by third persons; CONTRACTS DISTINGUISHED
(14) Dormant partner, who does not take active
part in the business and is not known or Partnership Joint venture
held out as a partner; Operates with firm Operates without firm
(15) Original partner, who has been a partner name and legal name and legal
since the constitution of the partnership; personality personality
(16) Incoming partner, who is about to be taken
Generally relates to a Usually limited to a
as a member into an existing partnership;
continuing business of single transaction
(17) Retiring partner, who is withdrawing from various transactions of
the partnership. a certain kind
Corporations may not Corporations may
Industrial Capitalist
enter into a enter into joint
partner partner
partnership ventures
Form of contribution
Industry Money or property Under Philippine law, a joint venture is a form of
Share in profits partnership and should thus be governed by the
laws of partnership [Auerbach vs. Sanitary Wares
Just and equitable According to Manufacturing Corp. (1989)].
share agreement; if none, in
proportion to
Partnership Co-ownership
contribution
Generally created by Generally created by
Share in losses
either express or law and may exist
Exempted as to losses According to implied contract even without a
as between partners, agreement; if none, in contract
but liable to third the same proportion
Has a separate Has no separate
persons, without as the agreed share in
juridical personality juridical personality
prejudice to profits; if none, in
reimbursement from proportion to Generally, the purpose The purpose is the
capitalist partners contribution is to obtain profits common enjoyment of
a thing or right
Engagement in business
Duration has no An agreement to keep
Cannot engage in Cannot engage, for his
limitation a thing undivided for
business for himself, own account, in the
more than ten years is
unless the partnership same kind of business
not allowed, but may
expressly permits him as that of the
be extended
to do so; should he do partnership, unless
so without permission, there is a stipulation There is mutual There is no mutual
the capitalist partners to the contrary; should agency between representation among
may: (1) exclude him he do so, he shall partners co-owners
from the firm; or (2) bring to the common Death or incapacity of Death or incapacity of
avail themselves of fund any profits a partner dissolves the a co-owner does not
the benefits obtained accruing to him from partnership dissolve the co-
in violation of the his transactions and ownership
prohibition, with right shall personally bear
to damages in either all the losses [Art. A partner cannot A co-owner can
case [Art. 1789] 1808] dispose of his interest, dispose of his share
so as to make the without consent of
assignee a partner, others
without consent of
others
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Rights and Obligations of (2) The majority of the capitalist partners are of
the opinion that an additional contribution
the Partnership to the common fund would save the
business;
(3) The capitalist partner refuses deliberately
RIGHT TO CONTRIBUTION (not because of financial inability) to
The partnership has a right to the contribution contribute an additional share to the
(or the partners are obliged to contribute). The capital; and
money or property thus contributed, or their use (4) There is no agreement that even in case of
or fruits, become the property of the imminent loss of the business, the partners
partnership. are not obliged to contribute.
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Ratio: The partner has the obligation to secure This arrangement refers to a contract of
the benefits for the partnership. As such, the subpartnership, which is a partnership within a
requirement for compensation, that the partner partnership, distinct and separate from the
be both a creditor and a debtor of the main partnership. It is considered a modification
partnership at the same time, is not complied of the original contract [De Leon (2010)].
with [Art. 1278; De Leon (2010)].
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cannot claim any right under the court, may be purchased without causing
homestead or exemption laws. dissolution:
(6) The right is not subject to legal support (1) With separate property, by one or more of
under Article 291 [Art. 1811]. the partners; or
(2) With partnership property, by one or more
INTEREST IN PARTNERSHIP of the partners, will consent of all, except
A partner’s interest in the partnership is his the debtor partner [Art. 1814].
share of the profits and surplus [Art. 1812].
RIGHT TO PARTICIPATE IN
ASSIGNMENT OF INTEREST MANAGEMENT
Assignment by a partner of his whole interest in Management of the partnership is primarily
the partnership, of itself: governed by the agreement of the partners in
(1) Does not dissolve the partnership; or the articles of partnership. It may be stipulated
(2) Does not entitle the assignee to: that the partnership will be managed by:
(a) Interfere in the management or (1) All the partners; or
administration of the partnership (2) A number of partners appointed as
business or affairs; managers, which may be appointed:
(b) Require information or account of (a) In the articles of partnership; or
partnership; or (b) After constitution of the partnership.
(c) Inspect the partnership books.
POWERS OF A MANAGING PARTNER
It merely entitles the assignee to:
General rule: The partner designated as
(1) Receive the profits to which the assigning
manager in the articles may execute all acts of
partner was entitled;
administration despite opposition by the other
(2) In case of fraud in management, avail
partners.
himself of the usual remedies;
(3) In case of dissolution:
Exception: He cannot do so when he acts in bad
(a) Receive his assignor’s interest; and
faith.
(b) Require an accounting from the date
only of the last account agreed to by all
the partners [Art. 1813]. REVOCATION OF POWER BY
MANAGING PARTNER
INTEREST BY PERSONAL CREDITORS The powers of the managing partner may be
General rule: Partnership creditors are preferred revoked:
over the personal creditors of the partners as (1) If appointed in the articles of partnership,
regards partnership property. when:
(a) There is just or lawful cause for
Exception: On due application by any judgment revocation; and
creditor of a partner, a competent court may: (b) The partners representing the
(1) Charge the interest of the partner for the controlling interest revoke such power.
satisfaction of the judgment debt; (2) If appointed after the constitution of the
(2) Appoint a receiver of the share of the profits partnership, at any time and for any cause
and of any other money due or to fall due to [Art. 1800].
the partner; and
(3) Make all other orders, directions, accounts MANAGING BY TWO OR MORE
and inquiries, which the debtor partner PARTNERS
might have made, or which the When there are two or more managing partners
circumstances may require. appointed, without specification of their duties
or without a stipulation on how each one will
The interest charged may be redeemed before act:
foreclosure or, in case of sale directed by the
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(1) Each one may separately execute all acts of MUTUAL AGENCY
administration. In addition to the Article 1801, there is effectively
(2) If any of them opposes the acts of the a mutual agency in the following cases:
others, the decision of the majority prevails. (1) Partners can dispose of partnership
(3) In case of a tie, the partners owning the property even when in partnership name
controlling interest will decide [Art. 1801]. [Art. 1819].
(2) An admission or representation made by
Requisites: any partner concerning partnership affairs is
(1) Two or more partners have been appointed evidence against the partnership [Art. 1820].
as managers; (3) Notice to any partner of any matter relating
(2) There is no specification of their respective to partnership affairs is notice to the
duties; and partnership [Art. 1821].
(3) There is no stipulation that one of them (4) Wrongful act or omission of any partner
shall not act without the consent of all the acting for partnership affairs makes the
others. partnership liable [Art. 1822].
(5) Partnership is bound to make good losses
STIPULATION OF UNANIMITY for wrongful acts or misapplications of
partners [Art. 1823].
Art. 1802. In case there is a stipulation that none
of the managing partners shall act without the RIGHT TO PROFITS AND
consent of others, the concurrence of all is OBLIGATIONS FOR LOSSES
necessary for the validity of the acts, and the
absence or disability of one cannot be alleged,
unless there is imminent danger of grave or RULES FOR DISTRIBUTION OF
irreparable injury to the partnership. PROFITS AND LOSSES
The distribution of profits and losses shall be in
MANAGEMENT WHEN MANNER NOT accordance with the following rules:
AGREED UPON (1) They shall be distributed in conformity with
the agreement.
When there is no agreement as to the manner (2) If only the share in profits has been
of management, the following rules apply: stipulated, the share in the losses shall be in
(1) All the partners are considered agents the same proportion.
(mutual agency). Whatever any one does (3) In the absence of any stipulation:
alone binds the partnership, unless there is (a) The share in the profits of the capitalist
a timely opposition to the act, under Article partners shall be in proportion to their
1801. contributions.
(2) Any important alteration in the immovable (b) The losses shall be borne by the
property of the partnership, even if useful to capitalist partners, also in proportion to
the partnership, requires unanimity. If the the contributions.
alteration is necessary for the preservation (c) The share of the industrial partners in
of the property, however, consent of the the profits is that share as may be just
others is not required [De Leon (2010)]. and equitable. If he also contributed
capital, he will receive a share of the
If the refusal is manifestly prejudicial to the profits in proportion to his contribution;
partnership, court intervention may be sought and
[Art. 1803]. (d) The industrial partner, who did not
contribute capital, is not liable for losses
[Art. 1797].
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Article 1834 does not affect the liability under WINDING UP PARTNERS
Article 1825 of any person who, after
dissolution, represents himself or consents to
another representing him as a partner in a
WHO MAY WIND UP
The following partners have the right to wind up
partnership engaged in carrying on business
the partnership affairs:
[Art. 1834].
(1) Those designated in an agreement;
(2) Those who have not wrongfully dissolved
ON LIABILITY FOR CONTRACTS the partnership; or
AFTER DISSOLUTION BY SPECIFIC (3) The legal representative of the last surviving
CAUSES partner, who was not insolvent.
General rule: A contract entered into by a
partner acting for the partnership after Any partner or his legal representative or
dissolution by act, death or insolvency of a assignee may obtain winding up by the court,
partner binds the other partners. upon cause shown [Art. 1836].
In case of dissolution by death, the individual This is a right as against his co-partners and all
property of a deceased partner is liable for partners claiming through them in respect of
obligations of the partnership incurred while he their interests in the partnership. It cannot be
was a partner, after payment of his separate availed if there is an agreement to the contrary
debts [Art. 1835]. [Art. 1837, par. 1].
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AMOUNT OF CONTRIBUTION FOR (3) Anything left from either shall be applied to
LIABILITIES satisfy the other [Art. 1839(8)].
The rules for distribution of losses shall
determine the contributions of the partners [Art. DISTRIBUTION OF PROPERTY OF
1839(4)]. As such: INSOLVENT PARTNER
(1) The contribution shall be in conformity with Where a partner has become insolvent or his
the agreement. estate is insolvent, the claims against his
(2) If only the share in profits has been separate property shall rank in the following
stipulated, the contribution shall be in the order:
same proportion. (1) Those owing to separate creditors;
(3) In the absence of any stipulation, the (2) Those owing to partnership creditors;
contribution shall be in proportion to the (3) Those owing to partners by way of
capital contribution [Art. 1797]. contribution [Art. 1839(9)].
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(3) When the cause of dissolution is the right in the property of the dissolved
assignment by all the partners or their partnership [Art. 1841].
representatives of their rights in partnership
property to one or more third persons who RIGHT TO AN ACCOUNT
promise to pay the debts and who continue In the absence of any agreement to the
the business of the partnership [Art. 1840, contrary, the right to an account of his interest
par. 1]. shall accrue to any partner, or his legal
representative at the date of dissolution, as
LIABILITY OF A NEW PARTNER against:
The liability to the creditors of the dissolved (1) The winding up partners;
partnership of a new partner in the partnership (2) The surviving partners; or
continuing the business shall be satisfied out of (3) The person or partnership continuing the
the partnership property alone. However, he business [Art. 1842].
may, through agreement, assume individual
liability [Art. 1840, par. 2].
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A general partner shall have the rights and He holds as trustee for the partnership:
powers and be subject to all restrictions and (1) Specific property stated in the certificate as
liabilities of a partner in a partnership without contributed by him, but which was not
limited partners. Thus, he has general authority contributed or which has been wrongfully
over the business. returned; and
(2) Money or other property wrongfully paid or
However, written consent or ratification by all conveyed to him on account of his
limited partners is necessary to authorize the contribution [Art. 1858, par. 2].
general partners to:
(1) Do any act in contravention of the These liabilities can be waived or compromised
certificate; only by the consent of all members. Such waiver
(2) Do any act which would make it impossible or compromise, however, shall not affect the
to carry on the ordinary business of the right to enforce said liabilities of a creditor:
partnership; (1) Who extended credit; or
(3) Confess a judgment against the (2) Whose claim arose, after the filing or before
partnership; a cancellation or amendment of the
(4) Possess partnership property, or assign certificate, to enforce such liabilities [Art.
their rights in specific property, for other 1858, par. 3].
than a partnership purpose;
(5) Admit a person as a general partner; Even after a limited partner has rightfully
(6) Admit a person as a limited partner, unless received the return in whole or in part of his
the right to do so is given in the certificate; capital contribution, he is still liable to the
(7) Continue the business with partnership partnership for any sum, not in excess of such
property on the death, retirement, insanity, return with interest, necessary to discharge its
civil interdiction or insolvency of a general liabilities to all creditors:
partner, unless the right so to do is given in (1) Who extended credit; or
the certificate. (2) Whose claims arose before such return [Art.
1858, par. 4].
OBLIGATIONS OF A LIMITED
A person who has contributed capital to a
PARTNER partnership, erroneously believing that he has
become a limited partner, but his name appears
OBLIGATIONS RELATED TO in the certificate as a general partner or he is
CONTRIBUTION not designated as a limited partner, is not
The contributions of a limited partner may be personally liable as a general partner by reason
cash or other property, but not services [Art. of his exercise of the rights of a limited partner,
1845]. provided:
(1) On ascertaining the mistake, he promptly
A limited partner is liable for partnership renounces his interest in the profits of the
obligations when he contributes services business or other compensation by way of
instead of only money or property to the income [Art. 1852];
partnership [De Leon (2010)]. (2) He does not participate in the management
of the business [Art. 1848]; and
A limited partner is liable to the partnership: (3) His surname does not appear in the
(1) For the difference between his actual partnership name [Art. 1846].
contribution and that stated in the
certificate as having been made; and LIABLITY TO PARTNERSHIP
(2) For any unpaid contribution which he CREDITORS
agreed in the certificate to make in the General rule: A limited partner is not liable as a
future at the time and on the conditions general partner. His liability is limited to the
stated in the certificate [Art. 1858, par. 1]. extent of his contributions [Art. 1843].
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(3) The certificate is cancelled or so amended who has died or has assigned his interest in a
as to set forth the withdrawal or reduction partnership. He has all the rights and powers,
[Art. 1857, par. 1]. and is subject to all the restrictions and
liabilities of his assignor, except those liabilities
The return of his contributions may be which:
demanded, as a matter of right (i.e., even when (1) The assignee was ignorant of; and
not all the other partners consent), when (1) and (2) Cannot be ascertained from the certificate
(2) above are complied with: [Art. 1859, pars. 2 and 6].
(1) On the dissolution of the partnership;
(2) Upon the arrival of the date specified in the An assignee is only entitled to receive the share
certificate for the return; or of the profits or other compensation by way of
(3) After the expiration of a 6-month notice in income, or the return of contribution, to which
writing given by him to the other partners, if the assignor would otherwise be entitled. He
no time is fixed in the certificate for: has no right:
(a) The return of the contribution; or (1) To require any information or account of the
(b) The dissolution of the partnership [Art. partnership transactions;
1857, par. 2]. (2) To inspect the partnership books [Art. 1859,
par. 3].
General rule: A limited partner, irrespective of
the nature of his contribution has only the right An assignee has the right to become a
to demand and receive cash in return for his substituted limited partner if:
contribution. (1) All the partners consent thereto; or
(2) The assignor, being empowered to do so by
Exceptions: He may receive his contribution in a the certificate, gives him that right [Art.
form other than cash when: 1859, par. 4].
(1) There is a statement in the certificate to the
contrary; or An assignee becomes a substituted limited
(2) All the members of the partnership consent partner when the certificate is appropriately
[Art. 1857, par. 3]. amended [Art. 1859, par. 5].
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(1) Under a right to do so stated in the (2) There is a subsequent agreement fixing
certificate; or their share [Art. 1863].
(2) With the consent of all members [Art. 1860].
AMENDMENT OR
Upon the death of a limited partner, his
executor or administrator shall have: CANCELLATION OF
(1) All the rights of a limited partner for the CERTIFICATE
purpose of settling his estate; and
(2) The power to constitute an assignee as a CANCELLATION OF CERTIFICATE
substituted limited partner, if the deceased The certificate shall be cancelled when:
was so empowered in the certificate. (1) The partnership is dissolved; or
(2) All limited partners cease to be such limited
The estate of a deceased limited partner shall partners.
be liable for all his liabilities as a limited partner
[Art. 1861].
AMENDMENT OF CERTIFICATE
A certificate shall be amended when:
SETTLEMENT OF ACCOUNTS (1) There is a change in the name of the
partnership or in the amount or character of
ORDER OF PAYMENT the contribution of any limited partner;
In settling accounts after dissolution, the (2) A person is substituted as a limited partner;
liabilities of the partnership shall be entitled to (3) An additional limited partner is admitted;
payment in the following order: (4) A person is admitted as a general partner;
(1) Those to creditors, including limited (5) A general partner retires, dies, becomes
partners except those on account of their insolvent or insane, or is sentenced to civil
contributions, in the order of priority as interdiction and the business is continued;
provided by law; (6) There is a change in the character of the
(2) Those to limited partners in respect to their business of the partnership;
share of the profits and other compensation (7) There is a false or erroneous statement in
by way of income in their contributions; the certificate;
(3) Those to limited partners in respect to the (8) There is a change in the time as stated in
capital of their contributions; the certificate for the dissolution of the
(4) Those to general partners other than for partnership or for the return of a
capital and profits; contribution;
(5) Those to general partners in respect to (9) A time is fixed for the dissolution of the
profits; partnership, or the return of a contribution,
(6) Those to general partners in respect to no time having been specified in the
capital [Art. 1863, par. 1]. certificate; or
(10) The members desire to make a change in
Note: In settling accounts of a general any other statement in the certificate in
partnership, those owing to partners in respect order that it shall accurately represent the
to capital enjoy preference over those in respect agreement among them [Art. 1864].
to profits.
REQUIREMENTS FOR AMENDMENT
SHARE IN PARTNERSHIP ASSETS OR CANCELLATION
The share of limited partners in respect to their To amend or cancel a certificate:
claims for capital, profits, or for compensation (1) The amendment or cancellation must be in
by way of income, is in proportion of their writing;
contribution, unless: (2) It must be signed and sworn to by all the
(1) There is a statement in the certificate as to members including the new members, and
their share in the profits; or the assigning limited partner in case of
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INTENT
CHARACTERISTICS (1) On the part of the principal, there must be
The contract of agency is: an actual intention to appoint or an
(1) Consensual, perfected by mere consent; intention naturally inferable from his words
(2) Nominate, has its own name; or actions; and
(3) Preparatory, entered into as a means to (2) On the part of the agent, there must be an
enter into other contracts; intention to accept the appointment and act
(4) Principal, does not depend on another on it [Victorias Milling v. CA (2000)].
contract for existence and validity;
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(8) To lease any real property to another person accurate nor correct to conclude that its
for more than one year; absence renders the compromise agreement
(9) To bind the principal to render some service void. In such a case, the compromise is merely
without compensation; unenforceable [Duñgo v. Lopena (1962)].
(10) To bind the principal in a contract of
partnership; SPECIAL KINDS
(11) To obligate the principal as a guarantor or
surety;
(12) To create or convey real rights over AGENCY BY ESTOPPEL
immovable property; Through estoppel:
(13) To accept or repudiate an inheritance; (1) An admission or representation;
(14) To ratify or recognize obligations contracted (2) Is rendered conclusive upon the person
before the agency; making it; and
(15) Any other act of strict dominion (3) Cannot be denied or disproved as against
the person relying thereon [Art. 1431].
The requirement of special power of attorney
refers to the nature of the authorization, not to Ratification Estoppel
its form. Thus, even if a document is titled as a Rests on intention Rests on prejudice
general power of attorney, the requirement of a Retroacts as if Affects only relevant
special power of attorney is met if there is a originally authorized parts of the
clear mandate from the principal specifically transaction
authorizing the performance of the act [Bravo-
Guerrero v. Bravo (2005)]. Substance is Substance is the
confirmation of principal’s
A special power of attorney can be included in unauthorized acts inducement for third
the general power when it is specified therein after it has been done party to act to his
the act or transaction for which the special prejudice
power is required [Veloso v. CA (1996)].
For an agency by estoppel to exist, the following
must be established:
Art. 1879. A special power to sell excludes the
(1) The principal manifested a representation
power to mortgage; and a special power to
of the agent’s authority or knowingly
mortgage does not include the power to sell.
allowed the agent to assume such
authority;
Art. 1879. A special power to compromise does (2) The third person, in good faith, relied upon
not authorize submission to arbitration. such representation;
(3) Relying upon such representation, such
The power to “exact the payment” of sums of third person has changed his position to his
money “by legal means” includes the power to detriment [De Leon (2010)].
institute suits for their recovery [Germann & Co.,
v. Donaldson, Sim & Co. (1901)]. In agency by estoppel, there is no agency. The
alleged agent seemed to have apparent or
A power of attorney “to loan and borrow ostensible authority, but not real authority to
money” and to mortgage the principal’s represent another.
property does not carry with it or imply that that
the agent has a legal right to make the principal An agency by estoppel, which is similar to the
liable for the personal debts of the agent [BPI v. doctrine of apparent authority, requires proof of
De Coster (1925)]. reliance upon the representations, and that, in
turn, needs proof that the representations
Although the Civil Code expressly requires a predated the action taken in reliance [Litonjua v.
special power of attorney in order that one may Eternit Corp. (2006)].
compromise an interest of another, it is neither
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As to liability, implied agency and agency by Qualification: The exception only applies if the
estoppel are different in that, in the former, the agent contracts with the properties of the
principal is liable, while in the latter, the person principal within the scope of his authority [PNB
who acts in bad faith is liable. v. Agudelo (1933)].
Article 1911 states that: “Even when the agent AGENCY BY OPERATION OF LAW
has exceeded his authority, the principal is An agency may exist by operation of law, such
solidarily liable with the agent if the former as in the following cases:
allowed the latter to act as though he had full (1) Every partner is an agent of the partnership
powers.” In this case, there is a duly formed for the purpose of its business [Art. 1818];
agency and estoppel only applies to the excess (2) When the principal’s actions would
of authority. This is an application of the reasonably lead a third person to conclude
doctrine of apparent authority. that an agency exists, an agency by
estoppel is created by operation law [Black’s
The doctrine of apparent authority is to the Law Dictionary (9th)];
effect that: One who clothes another with (3) In case of certain necessity or emergency, an
apparent authority as his agent, and holds him agency by necessity may arise.
out to the public as such, cannot be permitted
to deny the authority of such person to act as his
agent, to the prejudice of innocent third parties
IRREVOCABLE AGENCY
Article 1927 (on agency coupled with an
dealing with such person in good faith.
interest) mentions three instances where the
sole will of the principal cannot terminate an
Under the doctrine of apparent authority, the
agency:
question in every case is whether the principal
(1) A bilateral contract depends upon it;
has, by his voluntary act, placed the agent in
(2) It is the means of fulfilling an obligation
such a situation that a person of ordinary
already contracted; or
prudence, conversant with business usages and
(3) A partner is appointed manager of a
the nature of the particular business, is justified
partnership in the contract of partnership
in presuming that such agent has authority to
and his removal from the management is
perform the particular act in question
unjustifiable.
[Professional Services v. Agana (2008)].
Qualifications:
AGENCY WITH UNDISCLOSED (1) Coupled with interest or not, the authority
PRINCIPAL certainly can be revoked for a just cause,
General Rule: If an agent acts in his own name such as when the attorney-in-fact betrays
(the principal is undisclosed), the agent is the interest of the principal. It is not open to
directly bound in favor of the person with whom serious doubt that the irrevocability of the
he has contracted as if the transaction were his power of attorney may not be used to shield
own. the perpetration of acts in bad faith, breach
of confidence, or betrayal of trust, by the
Ratio: There is no representation of the principal agent for that would amount to holding
when the agent acts in his own name. The third that a power coupled with an interest
person cannot allege that he was misled by any authorizes the agent to commit frauds
representation since he did not know of the against the principal [Coleongco v. Claparols
existence of the undisclosed principal. (1964)].
(2) A mere statement in the power of attorney
Exception: The principal is bound when the that it is coupled with an interest is not
contract involves things belonging to him [Art. enough. In what does such interest consist
1883]. In this case, the contract is considered as must be stated in the power of attorney [Del
one between the principal and the third person. Rosario v. Abad (1958)].
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(3) An agency couple with an interest cannot possession of the goods involved in the
affect third persons. They are obligatory transaction.
only on the principal who executed the (5) Cashier in bank is one whose business is to
agency [New Manila Lumber v. Republic represent a banking institution in its
(1960)]. financial transactions;
(6) Attorney-in-fact is one who is given
KINDS OF AGENTS authority by his principal to do a particular
act not of a legal character. In its strict legal
AS TO NATURE AND EXTENT OF sense, it means an agent having a special
authority.
AUTHORITY
According to the nature and extent of their Attorneys have authority to bind their clients in
authority, agents have been classified into: any case by any agreement in relation thereto
(1) Universal agents are authorized to do all made in writing, and in taking appeals, and in
acts for his principal which can lawfully be all matters of ordinary judicial procedure. But
delegated to an agent. So far as such a they cannot, without special authority,
condition is possible, such an agent may be compromise their client’s litigation, or receive
said to have universal authority. anything in discharge of a client’s claim but the
(2) General agents are authorized to do all acts full amount in cash [Sec. 23, Rule 138, Rules of
pertaining to a business of a certain kind or Court].
at a particular place, or all acts pertaining to
a business of a particular class or series. He
has usually authority either expressly
conferred in general terms or in effect made Powers of the Agent
general by the usages, customs or nature of
the business which he is authorized to AUTHORITY OF AN AGENT
transact. An agent, therefore, who is Authority is the power of the agent to affect the
empowered to transact all the business of legal relations of his principal by acts done in
his principal of a particular kind or in a accordance with the principal’s manifestations
particular place, would, for this reason, be of consent. An agent can make the principal
ordinarily deemed a general agent. legally responsible only when he is authorized
(3) Special agents are authorized to do some by the principal to act the way he did [De Leon
particular act or to act upon some particular (2010)].
occasion (i.e., acts usually in accordance
with specific instructions or under
limitations necessarily implied from the KINDS OF AUTHORITY
nature of the act to be done) [Siasat v. IAC (1) Actual, when it is actually granted, and it
(1985)]. may be express or implied. It is the authority
that the agent does, in fact, have. It results
from what the principal indicates to the
SPECIAL TYPES OF AGENTS agent;
(1) Attorney-at-law is one whose business is to (2) Express, when it is directly conferred by
represent clients in legal proceedings; words;
(2) Auctioneer is one whose business is to sell (3) Implied, when it is incidental to the
property for others to the highest bidder at transaction or reasonably necessary to
a public sale; accomplish the main purpose of the agency;
(3) Broker is one whose business is to act as (4) Apparent or ostensible, when it arises by the
intermediary between two other parties acts or conduct of the principal giving rise to
such as insurance broker and real estate an appearance of authority. It makes the
broker; principal responsible to third persons for
(4) Factor or commission merchant is one certain actions of the agent that were not
whose business is to receive and sell goods really authorized;
for a commission, being entrusted with the
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(5) General, when it refers to all the business of POWER TO BIND THE
the principal;
(6) Special, when it is limited only to one or PRINCIPAL
more specific transactions; Requisites:
(7) By necessity or by operation of law, when it (1) The agent must act within the scope of his
is demanded by necessity or by virtue of the authority; and
existence of an emergency. The agency (2) The agent must act in behalf of the
terminates when the emergency passes. principal.
SCOPE OF AUTHORITY Even when the agent acts in his own name the
principal is still bound in the following
General rule: The scope of the authority of instances:
the agent is what appears in the terms of the (1) When the contract involves things
power of attorney [Siredy Enterprises v. CA belonging to the principal [Art. 1883]; or
(2002)]. (2) When the principal ratifies the contract,
expressly or tacitly [Art. 1910].
Exceptions: An agent is considered acting within
the scope of his authority when:
(1) He performs acts which are conducive to the EFFECTS OF THE ACTS OF AN
accomplishment of the purpose of the AGENT
agency [Art. 1881]; When the agent acts:
(2) He performed the agency in a manner more (1) With authority of the principal:
advantageous to the principal than that (a) If done in the name of the principal, the
specified by said principal [Art. 1881]; principal is bound to comply with the
(3) The principal ratifies the act, expressly or obligations contracted [Art. 1910] and
tacitly [Art. 1910]. the agent is not personally liable to the
party with whom he contracts [Art.
Art. 1900. So far as third persons are concerned, 1897];
an act is deemed to have been performed within (b) If done in the name of the agent, the
the scope of the agent’s authority, if such act is agent is directly bound in favor of the
within the terms of the power of attorney, as person with whom he has contracted,
written, even if the agent has in fact exceeded except when the contract involves
the limits of his authority according to an things belonging to the principal;
understanding between the principal and the (2) Without authority or beyond the authority
agent. granted by the principal:
(a) If done in the name of the principal, it is
While third persons are bound to inquire into unenforceable against him, unless he
the extent or scope of the agent’s authority, they ratifies it expressly or tacitly [Art. 1910];
are not required to go beyond the terms of the (b) If done in the name of the agent, the is
written power of attorney. Third persons cannot personally liable.
be adversely affected by an understanding
between the principal and his agent as to the
limits of the latter’s authority. Third persons
need not concern themselves with instructions
given by the principal to his agent outside of the
written power of attorney [Siredy Enterprises v.
CA (2002)].
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(2) On the sums which he still owes after the PRESENTATION OF POWER OF
agency is extinguished [Art. 1896]. ATTORNEY
A third person, with whom the agent wishes to
The liability of the agent for interest for sums contract on behalf of the principal may require
converted to his own use is without prejudice to the presentation of:
a criminal action that may be brought against (1) The power of attorney; or
him [De Leon (2010)]. (2) The instructions as regards the agency.
The sums referred to as still owing to the Private or secret orders and instructions of the
principal after extinguishment of the agency are principal do not prejudice third persons who
those which were not misapplied by the agent, have relied upon the power of attorney or
but were found to be owing to the principal after instructions shown them [Art. 1902].
such extinguishment.
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circumstances whereof he himself was, or ought damage and deterioration suffered by the
to have been, aware [Art. 1899]. same [Art. 1903].
(2) The commission agent who handles goods
Ratio: If the principal appoints an agent who is of the same kind and mark, which belong to
ignorant, the fault is his alone. He is bound by different owners, shall:
the acts of the agent. The agent is not liable to (a) Distinguish them by countermarks; and
third persons in this case. (b) Designate the merchandise respectively
belonging to each principal [Art. 1904].
OBLIGATIONS OF A
COMMISSION AGENT SALE OF GOODS ON CREDIT
WITHOUT AUTHORITY
FACTOR OR COMMISSION AGENT General rule: The commission agent cannot sell
A factor or commission agent is one whose on credit. Should he do so, the principal may:
business is to receive and sell goods for a (1) Demand from him payment in cash, in
commission (also called factorage) and who is which case the commission agent shall be
entrusted by the principal with the possession of entitled to any interest or benefit, which
goods to be sold, and usually selling in his own may result from such sale [Art. 1905]; or
name. He may act in his own name or in that of (2) Ratify the sale on credit, in which case the
the principal. principal will have all the risks and
advantages to him [De Leon (2010)].
An ordinary agent need not have possession of
the goods of the principal, while the commission Exception: The commission agent can sell on
agent must be in possession [De Leon (2010)]. credit with the express or implied consent of the
principal.
Ordinary agent Commission agent
SALE OF GOODS ON CREDIT WITH
Acts for and in behalf Acts in his own name
of the principal or that of his principal
AUTHORITY
If the commission agent was authorized to sell
Need not have Must have possession on credit and should he so sell on credit, he
possession of the of the goods shall inform the principal of such sale, with a
goods statement of the names of the buyers. Should
he fail to inform the principal, the sale is
Broker Commission agent deemed to have been made for cash as far as
the principal is concerned [Art. 1906].
Has no custody of the Has custody or
thing to be disposed possession of the
of, only acts as things to be sold The commission agent is obliged to collect the
intermediary between credits of his principal when they become due
seller and buyer and demandable [Art. 1908].
Maintains no relations Maintains relations General rule: Failing to so collect, the agent
with things to be with the thing, the shall be liable for damages.
sold/bought buyer and the seller
Exception: He is not liable if he proves that he
RESPONSIBILITY FOR GOODS exercised due diligence for that purpose.
RECEIVED
(1) The commission agent shall be responsible Should the commission agent receive a
for goods received by him in the terms and guarantee commission (del credere
conditions and as described in the commission) on a sale, in addition to the
consignment, unless upon receiving them ordinary commission, he shall:
he should make a written statement of the (1) Bear the risk of collection; and
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(2) Pay the principal the proceeds of the sale on entered into between the principal and the third
the terms agreed upon with the purchaser person [Sy-Juco and Viardo v. Sy-Juco (1920)].
[Art. 1907].
RATIFICATION
RESPONSIBILITY FOR FRAUD Ratification is the adoption or affirmance by a
AND NEGLIGENCE person of a prior act which did not bind him, but
In the fulfillment of his obligation, the agent is which was done or professed to be done on his
responsible for: account, thus giving effect to the acts as if
(1) Fraud; and originally authorized.
(2) Negligence.
Aside from the intent to ratify, the following
The circumstance that the agency is or is not conditions must be fulfilled for ratification to be
gratuitous will be considered by the courts in effective:
fixing the liability for negligence only [Art. 1909]. (1) The principal must have the capacity and
The liability may be to the principal or to third power to ratify;
persons. (2) He must have had knowledge or had reason
to know of material or essential facts about
the transaction;
Obligations of the (3) He must ratify the acts entirely;
(4) The act must be capable of ratification; and
Principal (5) The act must be done in behalf of the
principal [De Leon (2010)].
IN GENERAL
In addition to his duties specified under the Ratification has the following effects:
contract itself, the principal is under obligation (1) With respect to the agent, it relieves him of
to deal fairly and in good faith with his agent, liability. He may thus recover compensation
who owes the same to his principal. from the principal.
(2) With respect to the principal, he assumes
responsibility for the unauthorized act as
OBLIGATION TO COMPLY WITH fully as if the agent had acted under an
CONTRACTS original authority. But he is not liable for
General rule: The principal must comply with all acts outside the authority affirmed by his
the obligations which the agent may have ratification.
contracted within the scope of his authority [Art. (3) With respect to third persons, they are
1910, par. 1]. As for any obligation where in the bound by the ratification and cannot set up
agent has exceeded his power, the principal is the fact that the agent has exceeded his
not bound. powers [Art. 1901].
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The liability for damages suffered by the third Procuring cause refers to a cause originating a
person whose contract must be rejected shall series of events which, without break in their
be borne by: continuity, result in the accomplishment of the
(1) The principal, if the agent acted in good prime objective of the employment of the broker
faith; or – producing a purchaser ready, willing and able
(2) The agent, if he acted in bad faith [Art. 1918]. to buy on the owner’s terms.
WHEN PRINCIPAL IS NOT LIABLE, IN Since the broker’s only job is to bring together
SUMMARY the parties to a transaction, it follows that if the
(1) Void or inexistent contracts [Art. 1409]; broker does not succeed in bringing the mind of
(2) Sale of a piece of land or any interest the purchaser and the vendor to an agreement
therein when the authority of the agent is with reference to the terms of a sale, he is not
not in writing [Art. 1874]; entitled to a commission [Rocha v. Prats (1922)].
(3) Acts of the substitute appointed against the
prohibition of the principal [Art. 1892]; If the principal breaks off from negotiations with
(4) Acts done in excess of the scope of the a buyer brought by the agent in order to
agent’s authority [Art. 1898 and 1910]; deliberately deal later with the buyer personally,
(5) When the agent acts in his own name, this is evident bad faith. In such case, justice
except when the contract involves things demands compensation for the agent [Infante v.
belonging to the principal [Art. 1883]; Cunanan (1953)].
(6) Unenforceable contracts [Art. 1403].
LIABILITY FOR EXPENSES AND
OBLIGATION FOR DAMAGES
COMPENSATION OF AGENT
NECESSARY FUNDS
Art. 1875. Agency is presumed to be for a (1) The principal must advance to the agent,
compensation, unless there is proof to the should the latter so request, the sums
contrary. necessary for the execution of the agency.
(2) In case the agent already advanced them,
the principal must reimburse him therefor:
AMOUNT (a) Even if the business or undertaking was
The principal must pay the agent:
not successful;
(1) The compensation agreed upon; or (b) Provided that the agent is free from all
(2) The reasonable value of the agent's services fault [Art. 1912].
if no compensation was specified.
The reimbursement shall include the interest on
the sums advanced from the day the advances
were made.
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WHEN THE PRINCIPAL IS NOT (3) The agent is appointed for a common
LIABLE FOR EXPENSES transaction or undertaking.
The principal is not liable for the expenses
incurred by the agent in the following cases: LIABILITY FOR QUASI-DELICT BY AN
(1) If the agent acted in contravention of the AGENT
principal’s instructions, unless the latter The principal is solidarily liable to third persons
should wish to avail himself of the benefits for torts of an agent committed:
derived from the contract; (1) At the principal’s direction; or
(2) When the expenses were due to the fault of (2) In the course and within the scope of the
the agent; agent’s employment.
(3) When the agent incurred them with
knowledge that an unfavorable result would
ensue, if the principal was not aware
thereof; Modes of Extinguishment
(4) When it was stipulated that:
(a) The expenses would be borne by the IN GENERAL
agent; or Agency is extinguished:
(b) That the latter would be allowed only a (1) By its revocation;
certain sum [Art. 1918]. (2) By the withdrawal of the agent;
(3) By the death, civil interdiction, insanity or
DAMAGES insolvency of the principal or of the agent;
(4) By the dissolution of the firm or corporation
Art. 1913. The principal must also indemnify the which entrusted or accepted the agency;
agent for all the damages which the execution (5) By the accomplishment of the object or
of the agency may have caused the latter, purpose of the agency;
without fault or negligence or his part. (6) By the expiration of the period for which the
agency was constituted [Art. 1919].
RIGHT OF RETENTION BY AN AGENT The provision enumerates only those which are
The agent may retain in pledge the things which peculiar to agency and is, therefore, not
are the object of the agency until the principal exclusive. Agency may also be extinguished by
effects: the modes of extinguishment of obligations in
(1) Reimbursement of necessary funds general [De Leon (2010)].
advanced; and
(2) Payment of indemnity for damages [Art. The modes of extinguishment may be classified
1914]. into three:
(1) By agreement (Nos. 5 and 6);
This is a case of legal pledge. However, the (2) By subsequent acts of the parties:
agent is not entitled to the excess in case the (a) By the act of both parties or by mutual
things are sold to satisfy his claims. consent; or
(b) By the unilateral act of one of them
MULTIPLE PRINCIPALS (Nos. 1 and 2);
If there are two or more principals who (3) By operation of law (Nos. 3 and 4).
appointed the agent for a common transaction
or undertaking, they shall be solidarily liable for REVOCATION BY PRINCIPAL
all the consequences of the agency [Art. 1915].
General rule: The principal may:
(1) Revoke the agency at will; and
Requisites:
(2) Compel the agent to return the document
(1) There are two or more principals;
evidencing the agency.
(2) The principals have all concurred in the
appointment of the same agent; and
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Qualifications: The right of the principal to There is implied revocation only where the new
terminate the authority of his agent is absolute appointment is incompatible with the previous
and unrestricted, except that he is liable for one.
damages in case:
(1) He revokes the agency in bad faith [Danon EFFECT OF REVOCATION IN
v. Brimo (1921)]; or RELATION TO THIRD PARTIES
(2) He revokes the agency before the expiration
of the period stipulated in the agency
contract. Art. 1921. If the agency has been entrusted for
the purpose of contracting with specified
Exception: Agency cannot be revoked if it is persons, its revocation shall not prejudice the
coupled with an interest, such that: latter if they were not given notice thereof.
(1) A bilateral contract depends upon it;
(2) It is the means of fulfilling an obligation If the agent had general powers, revocation of
already contracted; or the agency does not prejudice third persons who
(3) A partner is appointed manager of a acted:
partnership in the contract of partnership (1) In good faith; and
and his removal from the management is (2) Without knowledge of the revocation.
unjustifiable.
Notice of the revocation in a newspaper of
general circulation is a sufficient warning to
Art. 1925. When two or more principals have third persons [Art. 1922].
granted a power of attorney for a common
transaction, any one of them may revoke the
same without the consent of the others. WITHDRAWAL BY AGENT
The agent may withdraw from the agency by
giving due notice to the principal.
MANNER
Revocation may be express or implied.
General rule: If the principal should suffer any
damage by reason of the withdrawal, the agent
There is express revocation when the principal
must indemnify him therefor.
clearly and directly makes a cancellation of the
authority of the agent orally or in writing. Exception: The agent is not liable for damages if
he should base his withdrawal upon the
There is implied revocation in the following impossibility of continuing the performance of
cases: the agency without grave detriment to himself
(1) The appointment of a new agent for the [Art. 1928].
same business or transaction revokes the
previous agency from the day on which
notice thereof was given to the former Art. 1929. The agent, even if he should withdraw
agent, without prejudice to the requirement from the agency for a valid reason, must
of notice to third persons [Art. 1923]. continue to act until the principal has had
(2) The agency is revoked if the principal reasonable opportunity to take the necessary
directly manages the business entrusted to steps to meet the situation.
the agent, dealing directly with third
persons [Art. 1924].
(3) A general power of attorney is revoked by a
special one granted to another agent, as
regards the special matter involved in the
latter [Art. 1926].
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DEATH OF AGENT
If the agent dies, his heirs must:
(1) Notify the principal thereof; and
(2) In the meantime adopt such measures as
the circumstances may demand in the
interest of the latter [Art. 1932].
ACCOMPLISHMENT OF OBJECT
OR PURPOSE
The fulfillment of the purpose for which agency
was created ipso facto terminates agency even
though it was expressly made irrevocable. If the
purpose has not been accomplished, the agency
continues indefinitely for as long as the intent to
continue is manifested through words or actions
of the parties.
DISSOLUTION OF FIRM OR
CORPORATION
The dissolution of a partnership or corporation
which entrusted (principal) or accepted (agent)
the agency extinguishes its juridical existence,
except for the purpose of winding up its affairs.
It is equivalent to death.
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