(Art.
1767) THE CML CODE 321
Title IX
PARTNERSHIP
Chapter 1
GENERAL PROVISIONS
Art. 1767. By the contract of partnership two or more
persons bind themselves to contribute money, property, or in•
dustry to a common fund, with the intention of dividing the
profits among themselves.
Two or more persons may also form a partnership for the
exercise of a profession. (1665a)
Source of Article.-Taken from article 1665, old Civil Code.
Requisites of Partnership.-The essential points upon
which the minds of the parties must meet in a contract of
partnership are: (1) mutual contribution to a common stock
and (2) a joint interest in the profits. If the contract contain~
these two elements the partnership relation results, and the
law itself fixes the incidents of this relation if the parties fail to
do so. 1 Thus, where two persons entered into an agreement, one
to furnish the capital needed, and the other to manage it, the
two of them sharing equally in the property or profits, the
relation was held to be that of a partnership. 2
The consent to contribute to a common fund cannot be
implied from the mere fact that a man and a woman lived
together in a state of concubinage. 3
A credit may be contributed to the common fund provided
that notice thereof is given to the debtor. Commercial credit is
the facility of a person, who is well-known and respected, to
1
Fernandez vs. De la Roea, I Phil. 676; Cau:halian et al. vs. Collecwr of Internal
Revenue, On'. GH., May 17, 1941, p. 1370. See also Evangelista vs. Collector oflnu:rnal
Revenue, 54 On'. Gaz. 996; Tablazon vs. Bolloo°", (C.A.) 61 Ott Caz. 1006.
• Kiel vs. Estate of Sabert, 46 Phil. 193; Duterte vs, Ratlos, 2 Phil. 509.
'Sentencias(Cuba) of December 3, 1926, January 21, 1928, and February 4, 1930.
320
obtain funds on credit; this is sometimes very important in a
partnership commencing business. But political credit cannot
be contributed to the partnership. 4
Samej Intent Controlling.-Parties cannot, by using thE1
word "partnership", create such a relationship where the con-•
tract between them clearly provides that there was to be no
community of interest in the business as such, and no right to
participate in the management of the business. Although the
fact that parties to an agreement may refer to their relationship
as one of partnership is a circumstance entitled to great weight
in determining whether partnership actually exists, it is not
conclusive. 5
On the other hand, a partnership may be established al-
though the parties may not have used the word partner or part-
nership. 6 Hence, where three men unite their experience, ener•
gies and capital in a common enterprise, agreeing to share the
profit€, each having the same authority to manage and control
the business, they arc partners regardless of an express·stipula•
tion to the contrary. 7
In determining whether or not a particular transaction
constitutes a partnership as between the parties, their inten-
tion as disclosed by the entire transaction, and as gathered from
the facts and from the language employed by them, as well as
their conduct, should be ascertained. 8
Persons who attempt but fail to form a corporation and
who carry on business under the corporate name occupy the
position of partners inter se. Such a relation does not necessar-
ily exist, however, for ordinarily persons cannot be· made to
assume the relation of partners as between themselves when
their purpose is that no partnership shall exist. No de facto
partnership was created among the parties which would entitle
the petitioner to a reimbursement of the supposed losses of the
proposed corporation. 8•
• l l Planiol & Ripert, 271-272.
'Peterson vs. Eppler, 67 N. Y. S. (2nd) 498.
1 Cal.Employment Stabilization Commission vs. Walters, 147 P. (2nd) 17, 64 Cal.
App. (2nd) 554.
'Randall Co. VB. Briggs, 248 N. W, 752, 189 Minn. 175.
• Negado et al. vs. Ma~abent.a, (C.A.) 64 Off. Caz. 4082.
"Pioneer Insurance VB, Court of Appeals, 176 SCRA 668.
 322 THE CML CODE (Arts. 17 68-1 769)
Partnership Between Husband and Wife.-There is a
clear division among.writers on whether husband and wife can
enter into a partnership with each other. Those who believe
that they cannot, maintain that the same principle which for-
bids donations and sales by one to the other also invalidates a
partnership between them. The better view, however, which is
more in consonance with the principles of our new Code eman-
cipating married women, is that such partnership is perfectly
valid, so long as it does not violate the fundamental provisions
on conjugal partnerships, 9 and so long as the partnership is not
universal, for this is prohibited by article 1782.
Art. 1768, The partnership has a juridical personality
separate and distinct from that of each of the partners, even in
case of failure to comply with the requirements of article 1772,
f'll'st paragraph. (n)
Source of Article.-This is a new provision.
Juridical Personality of Partnership.-In view of the
legal fiction ascribing to a partnership, a personality separate
and distinct from that of the partners therein, it has been held
that in case of suit against a partnership, a partner, being rep-
resented by the firm, has no right to appear or be made a party
as an individual separate from the firm. 10 If a partnership com-
mits an act ofinsolvency, it may be adjudged insolvent although
its members may not be insolvent. 11 It may sue or be sued in its
own name. 11 •
Art. 1769. In determining whether a partnership exists,
th_ese rules shall apply:
• 6 Salvat 16-16.
•• Hongkong Bank VII. Jurado & Co., 2 Phil. 671.
"Campoe Rueda & Co. vs. Paci!ic Commercial Co., 44 Phil. 916.
'" Tai Tong vs. Insurance Commiaeion, 158 SCRA 366.
(Art. 1769) THE CML CODE 323
(1) Except as provided by article 182l'i, persons who ~re
not part,1 ers as to each other are not partners as to third
persons; • If
(2) Co-ownership or co-posseSBion does not of 1tse es•
tablish a partnership, whether such co-owners or co-polllies•
sors do or do not share any profits made by the use of the
property; . b
(3) The sharing of gross returns does not of itself esta •
lish 8 partnership, whether or not the persons sharing them
have a joint or common right or interest in any property from
which t.he returM are derived;
(4) The receipt by a person of a shar? of the profi~s of a
busines,- is prima facie evidence that he 1s a ~artner in the
businen, but no such inference shall be drawn 1f such profits
were received in payment:
(a} As a debt by installments or otherwise;
(b) As wages of an employee or rent to a land!ord;
(c) As an annuity to a widow or representative of a de-
ceased partner;
(d) As an in~erest on a loan, though the amount of pay-
ment vary with the profi.ts of the business; •
(e) As the consideration for the sale of a good~1ll of a
business or other prop<:lrty by installments or otherwise, (n)
Source of Article.-This is a new provision taken from Section 7 of the
Uniform Partnership Act.
Joint Ownership of Property.-Joint ownership ofbusi-
. 12 no f·
ness or property, does not of itself create a p~rtnersh 1p,
withstanding that profits are shared. 13 Thus, it has been held,
that an agreement to share profits and losses on the sale ofland
purchased by two or more persons, does not create a partner-
ship, but the partners are only co-owners. 14 _ .
Sharing in Profits.-The presumption of partnership
arising from a participation in profits isprimafacie, and may b_e
rebutted and outweighed by other circumstances, such as eVJ•
dence that the participation was referable to some other rea-
11 Pratt vs. Martig, 234 N. W. 464, 182 Minn. 250; Bell VII. Johnston, 126 A. 187,281
Pa. St.. 67.
u Brown va. \filler, 141 P. (2nd) 682,111 Colo. 327.
"Jenkerui vs. Harris, 83 S. W. (2nd) 562, 19 Tenn. App. 113.
 324 THE CIVIL CODE (Art. 1770)
sons, such as compensation for services rendered as agent,
broker, salesman, or otherwise. 16
The sharing of returns does not of itself establish a
partnership. is..
Thus, the sharing of profits does not make the recipient a
partner in the following cases: (1) where profits are paid as
compensation for services rendered by an employee, in lieu of a
fixed salary, or is the basis upon which this compensation
should be determined, 16 or in addition to a fixed salary or
compensation;17 (2) where part of the profits is paid in lieu of
interest on a loan. 18
Art. 1770. A partnership must have a lawful object or
purpose, and must be established for the common benefit or
interest of the partners.
When an unlawful partnership is dissolved by a judicial
decree, the profits shall be confiscated in favor of the State,
without prejudice to the provisions of the Penal Code govern•
ing the confiscation of the instruments and effects of a crime.
(1666a)
Source of Article.-Taken from article 1666, old Civil Code.
Illegal Purpose Separable.-Where a partnership is
sought to be formed for several purposes, and only one of the
purposes of the partnership is illegal, the partnership will b:,
sustained if the illegal object can be clearly separated from the
legal objects of the partnership. 19
Same; Right to Demand Capital-Only the profits of an
unlawful partnership are confiscated. The partners may re-
cover the capital contributed by them, because the action for
that purpose does not have to be based on the existence of the
partnership.20
"40 Anl. Jur. 152.
''" Pa&cual VII, Commi88ioner of Internal Revenue, 166 SCRA 560.
"Forl:ie vs. Gutierre,: Hermanoa, 6 Phil. 100; Butida ve. Menii & Co., 68 Phil. 188'.
Sardane vs. Court of Appeals, 167 SCRA 524.
"See People vs. Alegre, (C.A.) 48 Off. Ga,:. 5341.
"Paator v1. Gupar, et.. al., 2 Phil, 592.
,.40Am.Jur. l«-146.
"Arbee 'I'll, Poliatim, li3 Plu1. 489,
(Arut. 177M 772) THE CIVIL CODE 325
Art. l?'/1. A partnership may be constituted in any form,
except where immovable property or real rights are contri•
buted thereto, in whit-ch case a public instrument shall be nec-
essary. (1667a)
Source of Article.-Taken from article 1667, old Civil Code.
Form of Contract.-An oral contract of partnership is
valid and binding between the parties, if the contribution of the
partners is not in the form of immovables or rights in immov-
ables even if the amount of capital contributed is in excess of
five hundred pesos. 1 As a consequence, one partner may ~ring
an action against the other partner or partners, based on s'?ch
an oral contract, without first bringing an action under _article
1358 to compel the execution of a written instrument. 2
Art. 1772. Every contract of partnership having a capi•
tal of three thousand pesos or more, in money or property,
shall apµear in a public instrument, which must~ i:ecoroed in
the Offfoe of the Securities and Exchange Comnuss1on.
Failure to comply with the requirements of the preceding
paragraph shall not affect the liability of the partnership and
the members thereof to thfrd persons. (n)
Souxce of Article.-This is a new provision similar to Article 24, Code of
Commerce.
Effect of Failure to Register.-As implied from this
article, partnerships with a capital ofless than P~,000 ne~d not
register, because the article requires only th?~e with a capital of
P3 000 or more to register with the Securities and Exchange
Co~mission. But the mere failure to register the contract of
partnership does not invalidate the same as. among_t?e part-
ners so long as the contract has the essential requmtes, be-
caus~ the main purpose ofregistration is to give notice to third
parties, and it can be assumed that the members themselves
• Fernande,: ve. De la Rosa, l Phil. 671; Magalona va. Peeay,::o, 69 Phil. ~53.
• Tr.unga Chui ve. Que Bent.ec, 2 Phil. 561; Magalona VII, Peeay,::o, 69 Phil. 4.53,
326 THE CIVIL CODE (Arts. 1773-1774)
knew of the contents of their contract.3 Neither does failure to
register affect the liability of the partnership and the members
to third persons. Lastly, the partnership still has juridical per-
sonality, even if it fails to register. (Article 1768.)
Art. 1773. A contract of partnership is void, whenever
immovable property is contributed thereto, if an inventory of
said property is not made, signed by the parties, and attached
to the public instrument. (1668a)
Source of Article.-Taken from article 1668, old Civil Code.
Effect ot Omission.-This article is a complement of
article 1771; the execution of a public instrument would be
useless if there is no inventory of the property contributed,
because without its designation and description, they cannot be
subject to inscription in the Registry of Property, and their
contribution cannot prejudice third persons. This will result in
fraud to those who contract with the partnership in the belief of
the efficacy of the guaranty in which the immovables may
consist. Thus, the contract is declared void by the law when no
such inventory is made. 4
Art. 1774. Any immovable property or an interest therein
may be acquired in the partnership name. Title so acquired
can be conveyed only in the partnership name. 1 (n)
Source of Article.-Thls is a new provision taken from Section 8 (3) of
the Uniform Partnership Act.
• Tolentino, Commercial Lawe, Vol. !, p. 20, 23.
• 11 Mamesa 278-279.
• The rule contained in the second sentence of this article seems to be contradictory to
that contained in the second paragraph of Article 1819. Under this article partnership
property can be conveyed only in the partnership name; but under Article 1819 tiUe to
realty in the name of the partnership can be conveyed by a part.ner by conveyance in hie own
name (par. 2).
(Arts. 1775-1779) THE CIVIL CODE 327
Art. 1775. Associations and societies, whose articles a~
kept secret among the memben, and wherein any one of.the
members may contract in his own name with third persons,
shall have no juridical personality, and shall he governed by
the provisions relating to co-ownership. (1669)
Source of Article.-Taken from article 1609, old Civil Code.
Art. 1776. As to its object, a partnenhip is either univer-
sal or partfoular.
As reg&J'ds the liability of the partners. a partnership may
be general or limited. (1671a)
Source ofArticle.-Taken from article 1671, old Civil Code.
Art. 1777. A universal partnership may refer to all the
present property or to all the profits. (1672)
Sour.oe of Article.-Taken from article 1672, old Civil Code.
Art. 1778. A partnership of all present property is that in
which the partners contiibute all the property which actually
belongs to them to a common fund, with the intention of divi•
ding the same among themselves, llfl well llfl all the profits
which they may acquire therewith. (1673)
Source of Article.-Taken from article 1673, old Civil Code.
Art. 1779.8 In a universal partnership of all present pro-
perty, the property which belonged to each of the partnen at
• -Why •hould the property be 'common property' of an partneni?" Dos it not beking
p,:,rmtrthip "" a eeparate juridical entltyl (Cf. Art. 1768r (Justke J.B. L. Reyt,s,
to the
Lawyers Journal, February 28, 1951. p. 95.)
 THE CIVIL CODE (Arts. 1782•1783) THE CML CODE 329
328 (Arts. 1780-1781)

Art. 1782, Persons who are prohibited from giving each

the time of the constitution of the partnership, becomes the
other any donation or advantage cannot enter into universal
common property of all the partners, as well as all the profits
which they may acquire therewith. partnership. (1677)
A stipulation for the common enjoyment of any other pro•
fits may also be made; but the property which the partners Source of Article.-Taken from article 1677, old Civil Code.
may acquire subsequently by inheritance, legacy, or donation
cannot be included in such stipulation, except the fruits thereof:
(1674a)
Art. 1783. A particular partnership has for its object de•
Source ot Article.-Taken from article 1674, old Civil Code. terminat<a things, their use or fruits, or a specific undertaking,
or the exercise of a profession or vocation. (1678)

Source of Article.-Taken from article 1678, old Civil Code.

Art. 1780. A universal partnership of profits comprises
all that the partners may acquire by their industry or work
during the enstence of the partnership.
Movable or immovable property which each of the part•
ners may possess at the time of the celebration of the contract
shall continue to pertain exclusively to each, only the usufruct
passing to the partnership. (1675)
Source ot Article.-Taken from article 1675, old Civil Code.
Partners' Private Property.-It might very well happen
in partnerships of this kind that no one of the partners would
have any private property, and that if they did, the usufruct
thereof would be inconsiderable. 7 Should th,e partners, how-
ever, have personal or real property which each of them pos-
sesses at the time of the execution of the contract, it continue:,
to be his private property, only the usufruct passing to the
partnership.8
Pal'ticular Partnerships.-Pursuant to this article, there
can be a partnership composed entirely of industrial partners,
as in the case of two or more lawyers associating themselves in
the practice oflaw. 9
Where two individuals have not formed a general relation
of partnership between them, but have been jointly associated
in various real estate deals, it must be considered that they had
a particular partnership for each deal. Hence when one of them
makes a transaction while the other is away, without using any
funds of the latter, and without the latter having agreed to be a
party to such deal, it cannot be said that this particular deal is
for their joint account but must be held only for the account of
the individual who executes it. 10

Art. 1781. Articles of universal partnership, entered into

without specification of its nature, only constitute a universa.l
partnership of profits. (1676)

Source of Article.-Taken from article 1676, old Civil Code.

• Compaliia Mari ti ma vs. Munoz, 9 Phil. 326.

'Compailia Maritima vs. Muiloz et al., 9 Phil. 326. "Lyons vs. Roscnst<x:k, 56 Phil. 632.
• Jackson vt1. Blum et al., l Phil. 4.

Chapter 2
OBLIGATIONS OF THE PARTNERS
Section 1.--0bligations of the Partners Among Themselves
Art. 1784. A partnership begins from the moment of the
execution of the contract, unless it is otherwise stipulated.
(1679)
Source of Article.-Taken from article 1679, old Civil Code,
Agreement to Form Partnership.-There is a marked
distinction between a partnership actually perfected and an
agreement to enter into partnership at a future time. A partner-
ship in fact cannot be predicated on an agreement to enter into
a co-partnership at a future day unless it is shown that such
agreement was actually consummated. So long as an agree-
ment remains executory the partnership is inchoate. 1 Hence, an
agreement to form a partnership upon terms and conditions on
which the parties, however, failed to agree, does not of itself
create a partnership. 2
Art. 1785. When a partnership for a fixed term or par•
ticular undertaking is continued after the termination of such
term or particular undertaking without any express agree•
ment, the rightFJ and duties of the partners remain the same as
they were at such termination, so far as is consistent with a
partnership at will.
A continuation of the business by the partners or such of
them as habitually acted therein during the term, without any
settlement or liquidation of the partnership affairs, is prima
facie evidence of a continuation of the partnership. {n)
'40 Am. Jur. 142-143.
1 Limuco vs. Calinao, (C.A.) G.R. No. 10099-R, Sept. 30, 1953.
330
(Art. 1786) THE CIVIL CODE 331
Sou.roe of Article.-Thls is a new provision, taken from Section 23 of the
Uniform Partnership Act.
Art. 1786. Every partner is a debtor of the partnership
for whatever he may have promised to contribute thereto.
He shall also be hound for warranty in ease of eviction
with regard to specific and determinate things whi-oh he may
have contributed to the partnership, in the same cwiee and in
the same manner. as the vendor is bound with respect to the
vendee. He shall also be liable for the fruits thereof from the
time they should have been delivered, without the need of any
demand. (1681a)
Source of Article.-Taken from article 1681, old Civil Code, except that
the last eentence of the second pare.graph of this article is new.
Warranties of Partner.-This article refers expressly to
the partner's <Narranty against eviction. Although it does not
mention warranty against hidden defects, this must _be cons~-
dered as included, because the contribution to the partnership
is an onerous contract of alienation, and the provisions in the
law on sales, so far as pertinent, should be applied.8
Where the thing has been delivered to the partnership for
its use only, the relation is not similar to sale but to lease. In
this case, the warranties against eviction and hidden defects
still exist by virtue of the principle contained in article 1653.t
When the contribution consists of a credit, the partner
warrants only its existence; he does not warrant the solvency of
the debtor unless expressly so provided. 5
Same; Remedy for Breach.-Ordinarily, in case of evic-
tion, the partnership is only entitled to enforce the warranty by
recovering the proper indemnity from the partner. But if the
other partners can prove that they would not have entered into
the partnership contract had it not been for the contribution
which has been lost forough the eviction, they may ask for the
' 11 Pl"niol & Ripert 275; Perez, Gonzalez & Alguer: 2-II EMeccarus, Kipp & Wolff
396.
" Per••·• Go,;:zalez 7 Alguer: Enneccerus, Kipp & Wolff 396.
• 11 Plani0] & rtipert 276.
332 THE CML CODE (Arts. 1787•1788)
dissolution 'of the partnership. 6 An example of this would be
when the property is the very thing to be exploited by the
partnership.
Art. 1787. When the capital or a part thereof which a
partner is bound to contribute consists of goods, their ap•
praisal must be made in the manner prescribed in the contract
of partnership, and in the absence of stipulation, it shall be
made by experts chosen by the partners, and according to
current prices, the subsequent changes thereof being for the
account ofthe partnership. (n)
Souree ot Artlcle.-Taken from article 172, Code of Commerce.
Art. 1788. A partner who has undertaken to contribute a
sum of money and fails to do so becomes a debtor for the
interest and damages from the time he should have complied
with his obligation.
The same rule applies to any amount he may have taken
from the partnership coffers, and his liability shall begin from
the time he converted the amount to his own use. (1682)
Source or Artlcle.-Taken from article 1682, old Civil Code.
Effect of Failure to Pay Contribution.-The failure of a
partner to pay to the partnership the whole amount which he
bound himself to pay, makes him indebted to it for the remain-
der, with interest and any damages occasioned thereby, but
does not entitle the other partner or partners to demand rescis-
sion of the partnership contract. 7
A partner in a construction venture who failed to stand by
his commitment to the partnership will b~ ordered to reimburse
to his co-partner whatever the latter invested and spent for the
projects of the venture. Indemnification for damages includes
• 11 Planiol & Ripert 276.
'Sancho vs. Lizarraga, 55 Phil. 601; Mota Electric Co. vs. Ma tic, et al., 6S Phil. 356.
See Moran vs. Court of Appeals, 133 SCRA 88.
THE CML CODE 333
(Art. 1789)
losses suffereci and profits obligee failed to obtain.7"
Accounting for Partnership Funds.-Where a partner,
without any authority, takes and uses the money of the part•
nership in the purchase and acquisition of property which he
later registers in his own name, he will be required, in a suit for
the dissolution of the partnership, to account to his partners for
the money which he used in such purchase.8
Art, 1789, An industrial partner cannot engage hi busi•
ness for himself, unless the partnership expressly permits him
to do so; and if he should do so, the capitalist partners may
either exclude him from the firm or avail themselves of the
benefits which he may have obtained in violation ofthis provi•
sion, with a right to damages in either case. (n)
Source or Articla.-This is a new provision taken from article 138, Code
of Commerce. ·
Partnership Owns Services.-The industrial partner
does not contribute money or property, but only his industry.
The partnership, therefore, is considered the owner of his serv-
ices. The industrial partner himself can not exploit his own
services for his profit without the express permission of the
owner, the partnership. The prohibition seeks to prevent any
conflict of interest between the industrial partner. and the
partnership, and to insure faithful compliance by said partner
with his prestation. Hence, during the existence of the partner-
ship, the industrial partner must devote his full time to such
partnership. The prohibition is absolute and extends to all
business out:kide of the partnership, even if the partnership is
engaged in only one trade, because if the industrial partner is
allowed to engage in other business, the partnership will be
prejudiced because of the reduction of the time or the effort
which he will have for it. 9 · · ·
" Uy vs. Puzon, 79 SCRA 590. . . . . . .: •... ·
• Teague vs. Martin, 53 Phil. 604. See aleo, Colbert vs. Bachrach, 12 Phil. 83.
• Limuco vs. Calinao, CC.A.) G. R. No. 10099-R, SepL 30, 1953.

334 THE CML CODE (Arts. 1790• l 793)
Art. 1790. Unless there is a stipulation to the contrary,
the partners shall contribute equal shares to the capital of thu
partnership. (n)
Source of Artiele.-This is a new provision,
Art, 1791. If there is no agreement to the contrary, in
case of an imminent loss of the business of the partnership, any
partner who refuses to contribute an additional share to the
capital, except an industrial partner, to save the venture, shall
be obliged to sell his interest to the other partners. (n)
Source of Article.-This is a new provision.
Art. 1792. If a partner authorized to manage collects a
demandable sum, which wa11 owed to him in his own name,
from a person who owed the partnership another sum also de••
mandable, the sum thus collected shall be applied to the two
credits in proportion to their amounts, even though he may
have given a receipt for his own credit only; but should he have
given it for the account of the partnership credit, the amount
shall be fully applied to the latter.
The provisions of this article are understood to be without
prejudice to the right granted to the debtor by article 1252, but
only if the personal credit of the partner should be more oner•
ous to him. (1684)
Source of Article.-Taken from article 1684, old Civil Code.
Art. 1793. A partner who has received, in whole or in
part, his share of a partnership credit, when the other part•
ners have not collected theirs, shall be obliged, if the debtor
should thereafter become insolvent, to bring to the partner•
ship capital what he received even though he may have given
receipt for his share only. (1685a)
Source of Article.-Taken from article 1685, old Civil Code, except that
(Art. 1794) THE CML CODE 335
the old Code refers only to a payment of the full share of the partner, while the
present article refers both to full and part payments.
Reason for the Rule.-When the debtor becomes insol-
vent the debt in favor of the partnership becomes a bad debt
is
and a loss which must be borne by all the partners, including
the partner who has already received his share in the partner-
ship credit, because they have a community of interest and a
10
proportionate share in profits and losses.
Art, 1794. Every partner is responsible to the partner•
ship for dama~es suffered by it through his fault, and he can•
not compensate them with the profits and benefits which he
may have earned for the partnership by ?is indust?': ~o":•
ever, the courts may equitably lessen this respons1b1_li!Y. if
through the partner's extraordinary efforts in oth~r activ1t1es
of the p,.rtnership, unusual profits have been realized. (1686a)
Source c,l Article.-Taken from article 1686, old Civil Code, except that
the last sentence of the present article is new.
Necessity ofLiquidation.-For the purpose of adjudicat-
ing to n partner damages alleged to have been suffered by
reason of the supposed fraudulent management of the partner-
ship business by another partner, it is first necessary that a
liquidation of the business be made so that the profits and
losses may be known and the causes of the latter and the
responsibility of the managing partner, as well as the damages
. each partner may have suffered, may b e d etermme
which . d .11
Claim Against Deceased Partner .-Any claim against a
deceased partner or his estate, for a sum of money due the
partnership by reaeon of any misappropriation of its fund by
him or for damages resulting from his wrongful acts as man-
age;, should be prosecuted against his estate in administration
12
as provided for in the Rules of Court.
" 11 Manresa 363, .
n Songcuya VI!. De LuM, 67 Phil. 646; Po Yeng Cheo vs. Lim Ka Yam, 44 Phil. 172.
"Po Yeng Cheovs. Lim Ka Yam, 44 Phil. 177,
336 THE CIVIL CODE (Arts. 1795-1796)
Art. 1795. The risk of specific and determinate things,
which are not fungible, contributed to the partnership so that
only their use and fruits may be for the common benefit, shall
be borne by the partner who owns them.
If the things contributed are fungible, or cannot be kept
without deteriorating, or if they were contributed to be sold,
the risk shall be borne by the partnership, In the absence of
stipulation, the risk of things brought and appraised in the
inventory, shall also be borne by the partnership, and in such
case the claim shall be limited to the value at which they were
appraised. (1687)
Source of Article.-Taken from article 1687, old Civil Code.
Owner Bears Risk.-The rule of res perit domino applies
to determine who bears the risk of loss of property held by the
partnership, except as to fungible things and those under ap-
praisal.
Appraised Property.-Although the law refers to ap-
praisal in the inventory, the same solution applies even when
the appraisal is separate from the inventory. 13
Art. 1796. The partnership shall be responsible to every
partner for the amounts he may have disbursed on behalf of
the partnership and for the corresponding interest, from the
time the expenses are made; it shall also answer to each part-
ner for the obligations he may have contracted in good faith in
the interest of the partnership business, and for risks in conse•
quence ofits management. (1688a)
SourceofArticle.-Taken from article 1688, old Civil Code.
Reimbursement.-On the adjustment of the accounts of
the partnership, the managing partner may be allowed funds
borrowed or advanced, and necessary for the completion of the
work, within the scope of the business and expressly provided
for by agreement among the partners.H Thus, where the land
11 Planlol It Ripert 274.
11
"Agustfo VB. Inocencio, ll Phil. 134.
(Art. 1797) THE CML CODE 337
tax levied 0n real property owned by the partnership is paid by
a partner out of his private funds, such partner is entitled to be
reimbursed therefor. 15
This article is, however, not applicable where no money
other than that contributed as capital is involved. 16
Art. 1797. The losses and profits shall be distributed in
conformity with the agreement. If only the share of each part•
ner in the profits has been agreed upon, the share of each in
the losses shall be in the same proportion.
In the absence of stipulation, the share of each partner in
the profits and losses shall be in proportion to what he may
have contributed, but the industrial partner shall not be liable
for the losries. As for the profits, the industrial partner shall
receive such share as may be just and equitable under the
circumstances. If besides his services he has contributed capi•
tal, he shall also recoive a share in the profits in proportion to
his capital. (168Sa)
Source o! Article.-Taken from article 1689, old Civil Code, except as to
the industrialist partner. Under the old Code, the industrialist partner could
by agreement ho exempted from losses (Art. 1691, par. 2), while under the
present article he is exempted by law. As to profits, the industrial partner
under the old Code had the same share as the capitalist who contributed the
least capital, while under the present article he receives what is just and
reasonable under the circumstances.
Scope of Article.--This article relates exclusively to the
settlement of partnership affairs among the partners them-
selves, and has nothing to do with the liability of the partners to
third persons. 17
Profits and Losses.-Where there is an agreement as to
the manner of sharing profits, the losses will be divided in the
same proportion. 18 The parties, however, can validly stipulate a
distribution oflosses different from that of the profits, so long as
nobody is excluded from the profits or the losses. 19
" Pab,.Jan vs. Velez, 22 Phfl. 29.
"Martinez vs, Ong Pong Co., 14 Phil. 726.
11 See Compailia Maritima vs. Muil->Z, et al., 9 Phil. 326.
"Duterte vs. Ranos, 2 Phil. 509; Chaves vs. Linan, 2 Phil. 12.
"Perez, Gonzalez & Alguer: 2-ll Enneccerua, Kipp & Wolff 385.
338 THE CIVIL CODE (Arts. 1798-1799)
An inclustrial partner cannot claim for himself any part of
the property contributed; he can share only in the profits and
benefits, in conformity with this article, if the contrary is not
stipulated. 20
Where a partner has paid certain expenses which repre-
sent a loss to the partnership, and there is no income from the
partnership property to reimburse him, he has a right to look to
the estate of his other partner for such reimbursement. 1
The partnership profits distributable to the partners should
be reduced by the amounts of income tax assessed against the
partnership. 1"
Liability of Industrial Partner for Losses.-Although
under the provisions of this article, the industrial partner shall
not be liable for losses, he may, nevertheless, be held liable, ifby
stipulation, he is specifically made to participate in the losses. 2
Art. 1798. If the partners have agreed t:o intrust t:o a
third person the designation of the share of each one in the
profits and losses, such designation may be Impugned only
when it is manifestly inequitable. In no case may a partner
who has begun t:o execute the decision of the third person, or
who has not impugned the same within a period of three
months from the time he had knowledge thereof, complrJ.n of
such decision.
The designation of loMes and profit& cannot be intruste<ll
t:o one of the partnen. (1690)
Source of Article.-Taken from article 1690, old Civil Code.
Art. 1799. A stipulation which excludes one or more
partners from any share in the profits or losses is void. (1691)
Source of Article.-Taken from article 1691, par. 1, old Civil Code.
• Chavea ve. Lilian, 2 Phil. 12.
1 Hibberd vs. Estate oCMcElroy, 26 Phil. 164.
,. Ona vs. Commissioner oflnternal Revenue, 45 SCRA 74.
• People vs. Tenorio, (C.A.) 53 OtT. Gaz. 8577.
(Art. 1800) THE CIVIL CODE 339
Prohibited Stipulation.-The essence of partnership is
that the partners share in profits and losses.2a The law does not
prohibit a. stipulation in which the distribution of the losses is
not in propo.·t;ion to that of the profits; what is prohibited is the
exclusion of one or more partners from the profits or losses.
When such a prohibitP.d stipulation is made, the profits and
losses will be distributed in accordance with the second para-
graph of Article 1797, as if there had been no agreement on the
matter. 3 French jurisprudence and writers consider that a vio-
lation of the present article nullifies, not only the particular
stipulation of profits and losses, but the entire contract of
partnership. This conclusion is maintained by analogy to obli•
gations based on an illicit condition, which annuls the obliga•
tion dependent upon it}
There is, however, no reason why a stipulation to exempt
the industrial partner from losses should be void. 11
Art. 1800. The partner who has been appointed manager
in the articles of partnership may execute all act& of admlni•
stration despite the opposition of his partners, unless he should
act in bad faith; and his power is irrevocable without just or
lawful cause. The vote of the partners representing the con•
trolling interest shall be necessary for such revocation of power.
A power granted after the partnership has bef!n consti•
tuted may be revoked at any time. (1692a)
Sourc,, of Article.-Taken from article 1692, old Civil Code, except that
the second sentence of the fint paragraph of the present article la new,
Powers of Managing Partner.-A managing partner
can be presumed to have all the incidental powers to can-y out
the object of the partnership in the transaction of business,
subject to the exception, however, that when the powers are
specifically reBtricted, he cannot exercise the powers expressly
'"Moran VB, Court of Appeal•, 133 SCRA 88.
' 6 Llerena 412.
• 11 Planiol & Ripert 306-307.
• Jutice J. B. L. Reye&, Lawyer1 Joomal, Feb. 28, 1961, p. 96.
340 THE CIVIL CODE (Art. 1801)
(Art. 1802}
THE CIVIL CODE
341
denied him. When the articles of association do not specify the
powers of the managing partner, he has, on principle, the But it wilJ be valid with
powers of a general agent, and even more; and when the object contracted with a part ./espect to the third person who
of the compar.y is determined, the manager has all the powers formed of the oppositio~er, l such third person was riot in-
necessary for the attainment of such object.6 A managing part- scope of_ the administratio~n~/~e contract is_ one within the
ner has been held to have the power to contral:t for services,7 to contracting is an agent ofth pa:tnersh1p. The partner
dismiss employees, especially when there is a justifiable cause o'. his authority, his contra:f :.~~rsh1~, and within the scope
for dismissal,8 and to issue official receipts for amounts deli- bmds the principal. II an innocent third person
vered to the partnership through him. 9 To have any legal effect h .
made_ beforn the particular ~ t~ev:r, _th_e opp~sition must be
effective. The circumstanres / \ a mm~strat1on has become
the opposition was made in do eatc· case will determine whether
S 'fi . ue ime or not i2
Art. 1801, H two or more partners have been intrusted pec1 ication of Duties -If .
with the management of the partnership without specification managers are ~pecified, such ~s w:he sepa_ra~ duties of the
of their respective duties, or without a stipulation that one of sales and another of h en one is given charge of
them shall not act without the consent of all the others, each e~clusive and sole man~~;; a~s:;,theach on~ i~ considered as
one may separately execute all acts of administration, but ;if his authority.ta . e acts w1thm the sphere of
any of them should oppose the acts of the others, the decisiou
of the majority shall prevail. In case of a tie, the matter shall be
decided by the partners owning the controlling interest. (16939')

Source of Article.-Taken from article 1693, old Civil Code, except that: Art. 1802. In case it should h
none of the mana,,,.;ng rt ave been stipulated that
the laat sentence of the present article is new. th h .,.. pa ners shall a t 'th
. ~ ot ers, the concurrence of all sha; WI out the consent of
lid1ty of the acts and th b be necessary for the Va•
Solidary Management.-This article deals with what is them cannot be ~Ueged euna I senche or disability of any one of
known as solidary management, which is also provided for in er.. • , ess t ere i · ,
.,.ave or irreparable injury to th s un?11nent danger of
Article 1803. e partnership. (1694}
Opposition.-Generally, each manager may execute any Source or Articl T k
act of administration without asking for the consent of the other . e.- a en from article 1694, old Civil Code.
managers. Each manager, however, has the right to object to Joint Management -Th' . l
any act or operation before it is celebrated. Such opposition by m
en t · In such case the obl· • f is art1c e refe··'s to Joint
· • manage-
one partner to the projected act by another is sufficient to other partner resi;s,upon the1ga rt1on to secure the consent. of the
prevent it; and if the latter, ignoring such objection, goes ahead It · pa ner ente · ·
is not imposed upon the third nng mto the contract.
and executes the act, it shall be void, not only as among the contract and who is not . d person who enters into the
members but also as to third persons, who had knowledge, or . . reqmre to ve 'fy h h
entering mto the contract has . n w e.t er the partner
who could have known, of such opposition. 10 of the other. It is presumed th p;eVJo~sly obtained the consent

• Ng Ya vs. Sugbu Commercial Co., (C.A.) 50 Off. Gaz. 4913.

'Garcia VB. ComJ"'llia de Minas de Ba tan, 12 Phil. 130.
unless the contrary ha b
person. But ever. if th: a ~uc consent has been given
ee; preVJously n:1anifested to the third
con ract entered mto by one partner is
'Matela vs. Chua Sintek, et.. al., (C.A.) G.R. No. 12165-R, April 6, 1955,
• Ng Ya vs. Sugbu Commercial Co., (C.A.) 50 Off. Gaz. 4913. "5 Llerena 447.
"11 Planiol & Ripert 293-294; 5 Llerena 447. "7 Oyueloe 103.
" 11 Planiol & Ripert 292 .
342 THE CIVIL CODE (Art. 180&)
made, not' only without the consent of the other but even
against his will, if the third person acted in good faith and the
transaction refers to matters within the business of the part-
nership, the contract cannot be annulled, without prejudice to
the liability of the guilty partner to his co-partner. The reason
for this rule is the necessity of protecting third persons from
fraud and deceit, of which they can be easy victims. 14 Further-
more, the requirement of a previous approval by the other
partner obviously refers to the execution of formal contracts in
writing, and not to routine transactions, such as ordinary pur-
chases and sales for a firm engaged in the business of buying
and selling merchandise of all kinds, naturally come within the
scope of the general authority of the manager of a business. 16
Art. 1803. When the manner of management has not been
agreed upon, the following rules shall be observed:
(1) All the partners shall be considered agents and what-
ever any one of them may do alone shall bind the partnership,
without prejudice to the provisions of article 1801.
(2) None of the partners may, without the consent of the
others, make any important alteration in the immovable pro-
perty of the partnership, even if it may be useful to the part•
nership. But if the refusal of consent by the other partners is
manifestly prejudicial to the interest of the partnership, the
court's intervention may be sought. (1695a)
Source of Article.-Taken from article 1695, pan. 1 and 4, old Civil
Code, but the last sentence of the second paragraph of the present article is
new.
Partners are Partnership Agents.-When the articlefl
of partnership make no provision for the management of the
partnership business, one partner is empowered to contract in
the name of the partnership, 16 and under such circumstances,
all the partners are considered as agents of the partnership. 17
" Litton vs. Hill &. Ceron, 67 Phil. 509.
11 Smith, Bell & Co. va. A.znar & Co., Off. Gaz., Aug. 30, 1941, p. 1882.
11 Red Men VB, Veteran Army, 7 Phil. 686.
"Bachrach vs. La Pi-otectora, 37 Phil. 441.
(Art. 1804) THE CML CODE 343
When, however, the articles of association declare the duties of
the several officers, and the power of making contracts is not
expressly given to any officer, the act, to be valid, must be
passed upon and consented to by the requisite number .required
in the articles. 18
Wbere.:two persons receive from another a sum of money
for the establishment of a business, and agree to share with the
latter the profits or losses that may result therefrom, the said
two persons, as the ·apparent administrators of the partnership,
act as agents of the capitalist partner under the provisions of
the first paragraph of this article, and by virtue thereof are
bound to fulfill the contract which implies the management' of
the business. 19 ·
Acts Requiring Unanimity.-In general, the authority
granted to each manager or to each partner when no managers
are designated, is only for acts of administration. For acts• of
disposition or any modification of the partnership articles,
unanimous consent is required; even a majority will not suf-
fice. 20
Thus, it has been held, that a partner cannot validly sell or
convey the partnership business, without the consent of all the
other partners forming the partnership. 1
Art.• 1804. Every partner may associate another person
with him fr. his share, but the associate shall not be admitted
into the partnership without the consent of all the other part•
ners, even if the partner having an associate should be a
manager. (1696)
S01.1.rce of Article.-Taken from article 1696, old Civil Code.
" Red Men vs. Veteran Army, 7 Phil. 686.
" Martinez VB, Ong Porg Co., 14 Phil. 726.
,. 11 P!aniol & Ripert 295. See Article 1818, for caeee where unanimity is required.
1
Santos vo. Villanueva, et.. al., (C.A.) 50 Off. Gaz. 175.
344 THE CML CODE (Arts. 1805-1806)
Art, 1&15, The partnership books shall he kept, subject
to any agreement between the partners, at the principal plact•
of business of the partners.hip, and every partner shall at any
reasonable hour have access to and may inspect and copy any
of them. (n)
Source ofArticle.-This is a new provision taken from Section 19 of the
Uniform Partnership Act.
Keeping Books in Place of Business.-This article re-
fers to a going partnership, and on dissolution, in the absence of
other agreement, express or implied, the books to alJ the part-
ners but no. one partner is obliged to continue the place cf
business to preserve the books for the benefit of the others, nor
is there a duty on the part of the purchaser of goodwill and
business of a firm to store the books so that the former partners
may inspect them. 2
Right to lnspect.-Generally, each partner should have
free access to the partnership books for the purpose of inspect.•
ing them. 8 Equity will intervene to prevent one partner from
keeping or concealing the partnership books so that they cannot
be inspected by his co-partner. 4
Same; "Reasonable Hours" Defined.--The phrase "at
reasonable hours," has been held to mean at reasonable hours
on business days throughout the year, and not merely during
some arbitrary period of a few days chosen by the managers. 5
. Art. 1806. Partners shall render on demand true and full
information of all things affecting the partnership to any part•
ner or the legal representative of any deceased partner or of
any partner under legal disability. (n)
Source of Article.-This is a new provision taken from Section 20 of the
Uniform Partnership Act.
'Sanderl!On vs. Cooke, 175 N.E. 518,266 N.Y. 73.
'Geist va. Buratine, 20 N.Y.S. (2nd) 417,259 App. Div. 1015.
'Seeley V8. Dunlop, 146 Atl. 271.
1 See Penlo va. Hercules Lumber Co. and Ferrer, 47 Phil. 9U.
(Art. 1807) THE CML CODE 345
Duty to Make Disclosure.-Good faith not only requires
that a partner should not make any false concealment to his
partner, but also that he should abstain from all concealment. 6
Co-partners are accountable between themselves as fiduciary
and under all circumstances it is the duty of each co-partner to
render true and full information to the other.7
Art. 1807. Every partner must account to the partner•
ship for any benefit, and hold as trustee for it any profits
derived by him without the consent of the other partners from
any transaction connected with the formation, conduct, or
liquidation of the partnership or from any use by him of its
property. (n)
Source of Article.-This is a new provision taken from Section 21 (1) of
the Uniform Partnership Act.
Relation of Partners.-Above all other persons in busi-
ness relativ:.1s, partners are required to exhibit towards each
other the highest degree of good faith. In fact, the relation
betwflen partners is essentially fiduciary, each being consid-
ered in law, as he is in fact, the confidential agent of the other.
It is therefore accepted as fundamental in equity jurisprudence
that one partner cannot, to the detriment of another, apply
exclusiv,aly to his own benefit the results of the knowledge and
information gained in the character ofpartner. 8
The partner assuming control and management of the
business will not be allowed to derive personal advantage from
the use of partnership assets or business or goodwill.9 Partners
cannot derive a secret profit from partnership transactions
unknown to the others. 10
Seme; Duration.-No fiduciary relation exists between
person;, negotiating for the formation of a partnership con-
• P088 vs. Gottlieb, 193 N.Y.S. 418,118 Misc. 318.
'Penner VII. De Nike, 286 N.W. 33,288 Mich. 488.
• Pang Lim •nd Galvez va. Lo Seng, 42 Phil. 282.
• Einsweiler vs. Eineweiter, 61 N.E. (2nd) 377, 390 11. 286.
"Bode_vs. Prettyman, 30 N.W. (2nd) 627,149 Neb. 179; Seliguor. vs. Weiss, 227
N.Y.S. 338.
346 THE CIVIL CODE (Arts. 1808-1809)
tract. 11 Such fiduciary relation exists only during the existence
of the partnership.
But after the termination of the partnership the party who
stood in fiduciary relation to the other is free to act in his own
interest with respect to the same subject matter provided he
has done nothing during the continuance of the relation to lay a
foundation for an undue advantage to himself. To act as a
fiduciary of another does not necessarily imply the creation of a
permanent disability in the fiduciary to act for himself in
regard to the same subject matter. 12
Art. 1808. The capitalist partners cannot engage for their
own account in any operation which is of the kind of business
in which the partnership is engaged, unless there is a stipula-
tion to the contrary.
Any capitalist partner violating this prohibition shall bring
to the common funds any profits accruing to him from hii;
transactions, and shall personally bear all the losses. (n)
Source of Article.-Thls is a new provision taken from Article 137,
Code of Commerce.
Acquisition ofRealty.-There is no prohibition on any of
the partners, even though an active member in the partnership,
from acquiring realty, on his own private account, and the
acquisition of realty does not give the other partners interest
therein. 1211
Art. 1809. Any partner shall have the right to a for:m11l
account as to partnership affairs:
(1) If he is wrongfully excluded from the partnership
business or possession of its property by his co-partners;
(2) If the right exists under the terms of any agreement;
(3) As provided by arlicle 1807;
(4) Whenever other circwnstances render it just and rea-
sonable. (n)
"Walker, vs. Patterson, 208 N.W. 3, 166 Minn. 215.
11
Hanlon ve. Hau88erman and Beam, 40 Phil. 796.
""Aldecoa & Co. vs. Warner, Barnes, & Co., 30 Phil. 153.
(Arl. 1810) THE .CIVIL CODE 347
Sou.roe of Article.-Thia is" new provision, taken from Section 22 o(the
Uniform Partnership ht.
Right to Formal Aecount.-Ordinarily, a partner is not
entitled to a formal account, except on dissolution. He has equal
access with his partners to the partnership books, and there is
no reason why they should constantly render to him accounts in
the formal sense of th'¼t word, which is the sense iri which it is
here used. When, however, he is excluded from the business or
the possession of partnership property, without any express
agreement authorizing such exclusion, he should have the right
to demand a formal account from his partners, without neces-
sarily requiring him to dissolve the partnership. The right to
demand an accounting exists as long as the partnership ex-
ists.13
The reason for paragraph (4) is that there frequently arises
circumstances which impose on one or more of the partners the
duty of rendering a formal account to the co-partner, as where
one partner is traveling for a long period of time on partnership
business, and the other partners are in possession of the part-
nership books. These various circumstances cannot be detailed
in any act. In view of the wording of paragraph (4), the total
effect of this article is to emphasize the fact, that a partner, the
partnership not being dissolved, has not necessarily the right to
demand formal accounts, except at particular times and under
particular circumstances. 14
Effect of Approval of Accounts.-The approval of the
last and final statement of accounts precludes any right on the
part of the complaining partners to a further liquidation, unless
the latter can show there was fraud, deceit, error or mistake in
said approval. 15
.,
Section 2.-Property Rights of a Partner
Art. 1810. The property rights ola partner are:
" Fue Long ve. IntermediRte Appellate Court, 169 SCRA 946.
" Commiamonera• Note, Section 22, Unlrorm Partnership AcL
"Ornum vs. L88ala, 74 Phil. 242.
348 THE CML CODE (Art. 1811)
(1) His rights in specific partnership property;
(2) His interest in the partnership; and
(3) Ilia right to participate in the management. (n)
Source of Article.-This is a new provision taken from Section 24 of the
Uniform Partnenhip Act.
Extent of Property Rights.-Under this article, a part-
ner has three distinct interests arising from his partnership,
one being his co-ownership in the specific property of the part-
nership, another being his interest in the partnership as such,
and the third being his right to participate in the management. 1
Art. 1811.1 A partner is co-owner with his partners of
specific partneNhip property.
The incidents of this co-ownership are such that:
(1) A partner, subject t.o the provisions of this Title and
to any agreement between the partners, has an equal right
with his partneN to po88ess specific partnership property for
partneNhip purposes; but he has no right t.o possess such
property for any other pw·pose without the consent of his
partners;
(2) A partner's right in specific partnership property h
not assignable except in connection with the a88ignment of
rights of all the partners in the same property;
(3) A partner's right in specific partnership property is
not subject to attachment or execution, except on a claim
against the partnership. When partnership property is attached
for a partnership debt the partners, or any olthem, or the rep ..
resentatives of a deceased partner, cannot claim any right
under the homestead or exemption laws;
1 Stilgenbaur VII, United State&, Cal. 115 F. (2nd) 283.
• Thi• article aeemo to be ineonaistent with the idea of a oeparate juridical personal-
ity of the partnership. The partnership, aa a juridical person, owna every property in the
common patrimony. (Perez, Gonzales & Alguer: 2·1I Enneccerus, Kipp & Wolff391-392.)
The eocial patrimony doe<! not belong to the partners, but to the partnership itoelr. (Perez,
Gonzalez & Alguer: 2-Il Ennecrerus, Kipp & Wolff441.)
The idea of a partner being co--0wner of specific partnel'!lhip property, ia contrary lO
the basic principle that the peraonalilyofthe partnership io eeparate and distinct from that
of each partner, (Article 1768) on the basis or which the partnership property belongs to the
partnership and to no one else, while the partnership exists. The partners can only be co-
ownel'!l or the net remainder of the assets after winding up and liquidation. (Juatice J. B. L.
Reyes, Lawyera Journal, Feb. 1951, p. 95.)
(Art. 1811) THE CIVIL CODE 349
(4) A partner's right in specific partnership property is
not subject to legal suppori under article 291. (n)
Sow:ce of Article.-This is a new provision taken from Section 25 of the
Uniform Pa rtnerahi p Act.
Partner's Interest in Assets.-A partner has no indivi-
dual property in any specific assets of the firm, but each part-
ner's interest in partnership property is his share in the surplus
after partnership debts are paid and partnership accounts have
been settled.3 The interest of one partner in the assets of a part-
nership does not entitle him to any particular portion of such
assets, but merely confers upon him a right to an accounting
with other members of the partnership, and when affairs. of the
partnership &re settled, such partner shall receive the share to
which he is entitled. 4
A partner, however, subject to agreement between the
partners, has an equal right with his partners to possess spe•
cific partnership property for partnership purposes, but has _no
right to possess such property for his personal or other purposes
without the other partners' consent. 5 One partner has no right
to the exclusive possession and control of specific partnership
property as against the other partners,6 until a balance of
accounts is struck between him and his co-partner and the
amount of his interest is ascertained. 7
Same; Transfer of Rights.-Under this article, the right
of a p11.rtner as co-owner in specific partnership property is not
separately assignable or subject to attachment and. execution.
This peculiarity of tenancy in partnership is a necessary conse-
quence of the partnership relation. If A and B are partners and
A attempts to assign all his right in some partnership property,
say a particular chattel, to C, and the law recognizes the possi-
bility of such a transfer C, would pro tanto become a partner
with B; for the rights of A in the chattel are to possess the
chattel for a partr.ership purpose. But partnership is a volun•
'State vs. Elsbury, 175 P. (2nd) 430, 63 Nev. 463, 169 A.L.R. 364.
• Clarke vn. Fiedler, 113 P. (2nd) 275, 44 Cal. App. (2nd) 838.
• Bxle v•. Prettyman, 30N.W. (2nd)627, 149Neb, 149. ·
'St.ate ve. Rooy, 254 P. 210, 43 ldaho724; Cook va. Lauten, 80N.E:(2nd)280, 335nI.
App. 92. • , · ·
'Hillmer VII, Chicago Bank of Commerce, 51 N.E. (2nd) 71, 320lll. App: 362.
350 THE CIVIL CODE (Art& 1812-1813)
tary relation. B cannot have a partner thrust upon him by A
without his (B's) consent. For the same reason, a creditor of one
of the partners cannot be forced into the partnership by invo-
luntary assignment thru attachment and execution. 8
Art. 1812. A partner's interest in the partnership 11!1 his
share of the profits and surplus. (n)
Source ofArticle.-This is a new provision taken from Se¢ion 26 of the
Uniform Partnership Act.
Interest of Partner.-The interest of a partner in part-
nership property and business is the net balance found to be
due him after payment of partnership debts and adjustment of
partnership accounts between himself and his co-partner. 9 Such
interest is "property" and is susceptible of being seized under
legal process, or of being sold and conveyed,10 as well as of being
made liable for his separate debts. 11
Art. 1813. A conveyance by a partner of his whole inte-
rest in the partnership does not of itself dissolve the partner-
ship, or, as against the other partners in the absence of agree-
ment, entitle the aasignee, during the continuance of the part-
nership, to interfere in the management or administration of:
the partnership business or affairs, or to require any informa•
tion or account of partnership transactions, ,or to inspect the
partnership books; but it merely entitles the aSBignee to rt::-
ceive in accordance with his contract the profits to which the
assigning partner would otherwise be entitled. However, in
case of fraud in the management of the partnership, the as•
signee may avail himself of the usual remedies.
• Commilllioner'a Not.a, Section 26, Uniform Partnership AcL
1Swinslly va. Horwich, 47 N.E. (2nd) 452, 382 DI. 468; Preston v1. State lnduatrial
Accident Commiaaion, 149 P. (2nd) 957, 147 Or. 563.
•• Terral VI, Terral, 206 S.W. (2nd) 198,212 Ark. 221, 1 A.L.R, 1092.
"Adler VII, Nicolae, 166 F. (2nd) 67-4.
(Art. 1814) THE CIVIL CODE 351
In case of a dissolution of the partnership, the assignee is
entitled to receive his assignor's interest and may require an
account from the date only of the last account agreed to by all
the partners. (n)
Sow_-ce of Article.-This is a new provision taken from Section 27 of the
Uniform P11.rtnership Act.
Effect 'i>f Assignment of Interest.-The assignment or
conveyance of a partner's interest in the partnership does not of
itself operate as a dissolution of the partnership, 12 in the ab-
sence of a showing of an intent that it should so operate;13 but
the remaining partners may refuse to recognize the right of the
assignee to join in the conduct of the business, i. and make such
refusal a ground for dissolution. 15 This is true, even if the
assignment or conveyance is made by one partner to another
partner, ifitis in contravention of the rights ofa third partner,
who thus is entitled to ask for dissolution and an accounting. 16
Same; Rights of Assignee.-The transfer by a partner of
his partnership interest does not make the assignee of such
interest a partner in the firm, 17 nor entitle the assignee to
interfere in the management of the partnership business or to
receive anything ,ixcept the assignee's profits.18 The assign-
ment does not purport to transfer an interest in the partner-
ship, but only a future contingent right to a portion of the
ultimate residue as the assignor may become entitled to receive
by virtue of his proportionate interest in the capital. 19
Art. 1814. Without prejudice to the preferred rights of
partnership creditors under article 1827, on due application to
a comI'etent court by any judgment creditor of a partner, the
court which entered the judgment, or any other court, may
u White vs. Long, 137 A. 673, 289 Pa. SL 525.
"Meinhard vs. Salmon, 164 N.E. 546, 2-49 N.Y. -458.
"White vs. Long, 137 A. 673,289 Pa, SL 52(;.
11 Murdock w. Murdock, 123 A. 683,279 Pa. SL 97.
"Rosenstein VB. Weisen, 73 N.Y.S. (2nd) .f.02.
" Hazen vs. Warwick, 162 N.E. 342, 256 M8B8, 302.
11
Ifalley Spring Holding Corp. va. Carlson, 227 N.W. 841, 56 S.D. 163.
11 Machuca vs. Chuidian, Buenaven~ura & Co., 2 Phil. 210.
 THE CIVIL CODE (Art. 1814)
352
charge the interest of the debtor partner with payment of the
unsatisfied amount of such judgment debt with interest
thereon; and may then or later appoint a receiver of his share
of the profits, and of any other money due or to fall due to him
in respect of the partnership, and make all other orders, direc•
tions, accounts and inquiries which the debtor partner might
have made, or which the circumstances of the case may re•
quire.
The interest charged m.BY he redeemed at any time before
foreclosure, or in case of a sale being directed by the court,
may be purchased without thereby causing a dissolution:
(1) With separate property, by any one or more of the
partners; or
(2) With partnership property, by any one or more of the
partners with the consent of all the partners whose interests
are not so charged or sold.
Nothing in this Title shall he held to deprive a partner of
his right, if any, under the exemption laws, as regards his
interest in the partnership. (n)
Source ofArticle.-This is a new provision taken from Section 28 of the
Uniform Partnership Act.
Enforcement of Judgment.-The proper method of reach-
ing a judgment debtor's interest in a partnership is by applying
for a charging order,20 and for the appointment of a receiver
under this article, rather than by attaching any particular part-
nership property .1
Same; Powers ofReceiver.-A receiver appointed on the
application of a judgment creditor of a partner and acting under
a charging order is entitled to any relief necessary to conserve
the partnership assets for partnership purposes and particu-
larly to a decree nullifying unlawful efforts of a partner to
assign or encumber his interest in specific partnership pro-
perty.2 He may also be authorized to enforce any personal liabi-
lity of partners for firm debts because such liability constitutR.s
partnership assets.3
"Sherwood VB, Jackson, 212 Cal. App. 354, 8 P. (2nd) 943.
1 Rader vs. Goldoff, 228 N.Y.8. 463,223 App. Div. 456.
1 Windom Nat. Bank VB. Klein, 266 N.W. 602, 191 Minn. 447.
• Upton VII. Upton, 266 N.W. 376, 268 Mich. 26.
(Arts. 1815-1816) THE CIVIL CODE 353
&ction 3.-0bligations of the Partners With Regard
To Third Persons,
Art. 1815. Every partnership shall operate under a firm
name, wl..o'.ch may or may not include the name of one or more
of the partners.
Those who, not being members of the partnership, includ,!
their names in the firm name, shall he subject to the liability ol'
a partner. (n)
Source of Article.-This is a new provision taken from Article 126,
Code of Commerce.
Change of Firm Name.-Where the partners of a gen-
eral partnership doing business under the firm name of."'Shar-
ruf & Co." obtained insurance policies issued to said firm, but
later the firm name was changed to "Sharruf & Eskenazi,"
which are the names of the same and only partners of the firm
"'Sharruf & Co." continuing the same business, it was held that
the new firm retained the rights of the former firm under the
same policies, and therefore, had juridical personality to sue. 1
Art. 1816.1 All partners, including industrial ones, shall
be liable pro rota with all their property and after all the part•
nership assets have been exhausted, for the contracts which
may ho entered in the name and for the account of the partner•
ship, under its signature and by a person authorized to act for
the pa.rtnership. However, any partner may enter into a sepa•
rate obligation to perform a partnership contract. (n)
Source of Article.-Taken from article 1698, old Civil Code. The last
aentenc.a of the present article is from Section 15 (b) of the Uniform Partner,
ship Act.
Against Whom Action Filed.-In order to enforce the
liability of the partners for partnership debts and obligations,
1 Sharruf & Co. VII, Baloise Fire Insurance Co., et al., 64 Phil. 268.
'The rule of joint liability of partners has been applied in the follow!~g caoes, Co-
Pit.co va. Yulo, 8 Phil. 544; Martinez vs. Ong Pong Co., 14 Phil. 726; Dietrich vs. Freeman, l 8
Phil, 341; Bachrach vs. La Protectora, 37 Phil. 441; Manila Railroad Co, vs. Salmon, 48 Phi\.
132; U.S. Commercial Co. vs. Cuevarr~, 48 OIT. Caz. 612.
354 THE CML CODE (Art. 1816}
.
both the partnership and the separate partners may be joined
in the same action, but the private property of the latter cannot.
be taken in payment of the partnership debt until the common
property of the concern is exhausted. Where the partnership
has no visible assets, the partners individually must respond
for its debts. 8
A withdrawing partner, however, is not liable for debts and
obligations of the partnership after he has ceased to be a
member of the partnership and has only the position of e.
creditor, unless the withdrawal was with intent to defraud
existing creditors, in which ease, he is still liable as a partner. 4
Condonation by a creditor of the share in the partnership
debt of one of the partners does not increase the pro rata
liability of the other partners. 4•
Industrial Partner Also Liable.-An industrial partner
is liable, to the same extent, and in the same way, as capitalist
partners, for the debts and obligations of the partnership, 5
although under article 1797, industrial partners shall not be
liable for losses. If he has paid such debts out of his private
property during the life of the partnership, then, when its
affai s _are settled, he is entitled to credit for the amount so paid,
7
and 1f 1t results that there is not enough property in the part-
nership, then the capitalist partners must pay him. 6
There is a marked distinction between a liability and a loss,
and the inability of a partnership to pay a debt to a third party
at a particular time does not necessarily mean that the partner-
ship business, as a whole, has been operated at a loss. The part-
nership may have outstanding credits which for the moment
may be unavailable for the payment of debts, but which eventu-
ally may be realized upon and yield profits more than sufficient
to cover all losses.7
'Compania Maritima vs, Munoz, 9 Phil, 326; Vda. de Chan Dioeo vs, Peng, 63 PhiL
906.
• Robles vs. Pardo y Robles Hermanos, 69 Phil, 482.
"Island Sales vs. United Pioneers, 65 SCRA 554.
'Compailia Maritime. vs. Munoz, et. al., 9 Phil. 326; Pacific Commercial Co. va.
Aboi tiz &. Martinez, 4 Phil. 841.
• Compallia Maritima vs. Munoz, et. al., 9 Phil. 326,
'Pacific Commercial Co. vs. Aboitii & Martinez, 48 Phil. 841.
(Arts, 1817-1818) THE CML CODE 355
Art. 181 7, Any stipulation against the liability lajd down
in the preceding article shall be void, except as among the
partners. (n)
Source of Article,-This is a new provision restating opinions of com•
mentators,
Art. 1818. Every partner is an agent of the partnership
for the purpose of its business, and the act of every partner, in•
eluding the execution in the partnership name of any instru•
ment, for apparently carrying on in the usual way the business
of the partnership oCwhich he is a member hinds the partner•
ship, unless the partner so acting has in fact no authority to act
for the partnership in the particular matter, and the person
with whoru. he is dealing has knowledge of the fact that he has
no such authority,
An act of a partner which is not apparently for the carry•
ing on ofb·.. sine1111 of the partnership in the usual way does not
bind tho partnership unless authorized by the other partners.
Except when authorized by the other partners or unless
they have abamfonuO: the business, one or more but less than
all the partners have no authority to:
(1} Assign the partnership property in trust for creditors
or on the assignee's promise to pay the debts of the partner•
ship;
(2} Dispose of the goodwill of the business;
(3) Do any other act which would make it impossible to
carry on the ordinary business of a partnership;
(4} Confess a judgment;
(5) Enter into a compromise concerning a partnership
claim o;,◄ liability;
(6) Submit a partnership claim. or liability to arbitration;
(7) Renounce a claim of the partnership,
No act of a partner in contravention of a restriction on
authority shall bind the partnership to persons having knowl-
edge oft.he restriction, (n}
Source of Article.-This is a new provision taken from Section 9 of the
Uniform Partnership Act.
Authority of Partner.-Where the express and avowed
purposa of the partnership is to buy and sell real estate (as in
356 THE CML CODE (Art. 1819)
the present case), the immovables thus acquired by the firr.1
form part of its stock-in-trade, and the sale thereofi3 in pursu-
ance of partnership purposes, hence within the ordinary powers
of the partner.7•
Ratification of Unauthorized Act.-The principle of
agency that one who accepts or retains benefits of unauthorized
acts ofhis agents, with knowledge of material facts surrounding
the transaction, will be deemed to have ratified those acts, is
equally applicable to a question of ratification of unauthorized
acts of a partner. 8
Art. 1819. Where title to real property is in the partner-
ship name, any partner may convey title to such property by a
conveyance executed in the partnership name; hut the part.•
nership may recover such property unless the partner's act
binds the partnership under the provision .of the first par11.-
graph of article 1818, or unless such property has been con•
veyed by the grantee or a person claiming through such grantee
to a holder for value without knowledge that the partner, in
making the conveyance, has exceeded his authority.
Where title to real property is in the name of the partner•
ship, a conveyance executed by a partner, in his own name,
passes the equitable interest of the partnership, provided the
act is one within the authority of the partner under the provi-
sions of the first paragraph of article 1818.
Where title to real property is in the name of one or mol'e
but not all the partners, and the record does not disclose the
right of the partnership, the partners in whose name the title
stands may convey title to such property, but the partnership
may recover such property if the partners' act does not bind
the partnership under the provisions of the first paragraph of
article 1818, unless the purchaser or his assignee, is a holdel'
for value, without knowledge.
Where the title to real property is in the name of one o!I'
more or all the partners, or in a third person in trust for the
partnership, a conveyance executed by a partner in the part•
nership name, or in his own name, passes the equitable inter•
'• Goquiolay vs. Syd p, 9 SCRA 663.
'Park & Tilford Import Corp. vs. Vaux Hall Liquors, 39 A. (2nd)404, 132 N.J.L. I 78.
(Arts. 1820-1821) THE CML CODE 357
est of the portnership, provided the act is one within the
authority of the partner under the provisions of the first para-
graph of article 1818.
Where the title to real property is in the names of all the
partners a conveyance executed by all the partners passes all
their rights in such property. (n)
Source of Article.-This is a new provision taken from Section 10 of the
Unifo1m Partn~rship Act.
Conveyance Includes Mortgage.-The right to mort-
gage is included in the right to convey under this articl~. 9
, . I , ,,
Art. 1820, An admission or representation made by any
partner concerning partnership affairs within the scope of his
authority in accordance with this Title is evidence against the
partnt!rship. (n)
Source of Article.-This is a new provision taken from Se-.--tion 11 of the
Uniform Partnership Act.
Admissions After Dissolution.-Where the admission is
made aft.er dissolution and is not for the winding up of partner-
ship affairs, it should not affect the partnership. 10
The partnership is not bound by admissions or statements
made by a former partner aft.er the latter has withdrawn from
the partners!'lip as to what took place during the period of
partnership.11
Art. 1821. Notice to any partner of any matter relating to
partnel'ship affairs, and the knowledge of the partner acting in
the particular matt"r, acquired while a partner or then pres•
ent to his mind, and the knowledge of any other partner who
reasonably could and should have communicated it to the act-
ing partner, operate as notice to or knowledge of the partner-
• E~lcr vs. Sealfon, 82 Pa. Sup. Ct.. 264.
"Commissionera' Note, Sec. 11, Uniform Partnerahip Act..
11 Lieherman vs. Dubin, 62 N.Y.S. (2nd) 880.
358 THE CML CODE (Art. 1822)
ship, except in the case of a fraud on the partnership, commit-
ted by or with the consent of that partner. (n)
Source of Article.-This is a new provision taken from Section 12 ofthi!
Uniform Partnership Act.
Notice.-When notice is given to the partner while heist.
partner, the effect is the same as if notice was had by all thtl
partners. Where the knowledge or notice has been received by
one before he became a partner, and his partners are ignorant
of this, and he is not the partner acting in the particular matter,
there is no doubt that there has been neither knowledge of nor
notice to the partnership. Where, however, the partner acting
in the particular matter acquired knowledge before he became
a partner, and the knowledge is then present in his mind, th0
partnership should be charged with knowledge. 12
Art. 1822. Where, by any wrongful act or omission of any
partner acting in the ordinary course of the business of thP-
partnership or with the authority of his co-partners, loss or
injury is caused to any person, not being a partner in the
partnership, or any penalty is incurred, the partnership is
liable therefor to the same extent as the partner so acting or
omitting to act. (n)
Source of Article.-This is a new provision tnkcn from Section 13 of the
Uniform Partnership Act.
Liability for Wrongful Acts.-On the principle of mu-
tual agency, the partnership, or every member of a partnership,
is liable for torts committed by one of the members acting in the
scope ofthefirm business, although they do not participate in,
ratify, or have knowledge of such torts. Such liability is net
dependent on the personal wrong of the individual member of
the partnership against which the liability is asserted. The test
of the liability is based on a determination of the question
whether the wrong was committed in behalf of and within tne
reasonable scope of the business of the partnership. Ifit was s:>
committed, the partners are liable as joint tort-feasors.
"Commissioner's Note, SecLion 12, Uniform Partnership Act.
(Arts. 1823-1824) THE CIVlL CODE 359
!ft.he injury, however, results from a wanton or willful act
of one of the parties committed outside the agency or common
busineAs, then the person doing the act and causing the injury
is alone responsible, unless the act which constituted the tort
was authorized by the members of the partnership or subse-
quently ratified by them, the act itself having been done in their
behalf and interest. 13
Art. 1823. Tha partnership is bound to make good the
loss:
(1) Where one partner acting within the scope of his ap•
parent authority receives money or property of a third person
and misapplies it; and
(2) Where the partnership in the course of its business
receives money or property of a third person and the money or
property so received is misapplied by any partner while it is in
the custody orthe partnership. (n)
Source of Article.-This is a new provision taken from Section 14 of the
Uniform Partner!lhip Act.
Art. 1~24. All partners are liable solidarily with the part•
nership for everything chargeable to the partnership under
articles 1822 and 1823, (n)
Sou.roe of Article.-This is a new provision taken· from Section 16 (a) of
the Uniform Partner!lhip Act.
Nature of Liability.-The liability of a partner for the
wrongful act of another partner is analogous to that of a princi-
pal for the acts of his agent, since each partner acts both as
principal and as agent of the other as to acts done within the
apparent scope ofbusiness and purpose of the partnership and
for its benefit. 14 All partners are liable jointly and severally for
everything chargeable to the partnership by reason of a part-
ner's wrongful act or breach of trust wherein a third person is
"See 4-0 Am. Jur. 261-262; Iron""· Sauve, 27 Waoh. (2nd) 562, 179 Pac. (2nd) 327;
Schloes ""· Silverman, 172 Md. 632, 192 Atl. 343; Gerdeo, va. Reynolds, 28 N.Y.S. (2nd) 622.
"&hloes vs Silverman, 192 All. 343, 172 Md. 632.
860 THE CIVIL CODE (Art. 1825)
.
adversely affected. 16
While the liability of partners are merely joint in transac-
tions entered into by the partnership, the partners are liable ro
third persons solidarily for the whole obligation if the case
involves loss or injury caused to any person not a partner in the
partnership, and misapplication of money or property of a third
person received by a partner or the partnership. The obligati,m
of partners to third persons is solidary because the law protects
the latter, who in good faith relied upon the authority of a
partner, whether such authority is real or apparent. 1&.
Art. 1825. When a person, bywordsspokenorwritt.enor
by conduct, represents himself, or consents to another rep re•
senting him to anyone, as a partner in an e:rlsting partnership
or with one or more persons not actual partners, he is liable to
any such persons to whom such representation has been madr,
who has, on the faith of such representation, given credit to
tlie actual or apparent partnership, and if he has made such
representation or consented to its being made in a public
manner he is liable to such person, whether the representation
has or has not been made or communicated to such person so
giving credit by or with the knowledge of the apparent partner
making the representation or consenting to its being made:
(1) When a partnership liability results, he is liable as
though he were an actual member of the partnership;
(2) When no partnership liability results, he is liable pro
rata with the other persons, if any, so consenting to the con•
tract or representation as to incur liability, otherwise sepa•
rately.
When a person has been thus represented to be a partner
in an existing partnership, or with one or more persons not
actual partners, he is an agent of the persons consenting to
such representation to bind them to the same extent and in the
same manner as though he were a partner in fact, with respect
to persons who rely upon the representation. When all the
members of the existing partnership consent to the represen-
tation, a partnership act or obligation results; hut in all other
11 Kadota Fig Alla'n of Producers ve. Case-Swayne Co., 167 P. (2nd) !HS, 73 Cal. App.
(2nd) '196; Southgate va. Linton, 181 S.W. (2nd), 888, 181 Tenn, 540.
,.. Muftaeque vs. Court of Appeals, 139 SCRA 533.
(Art. 1826) THE CIVIL CODE 861
cases it is the joint act or obligation of the person acting and
the persons consenting to the representation. (n)
Source of Article.-Thie le a new provision taken from Section 16 ofthe
Uniform Partnership Act,
Persona Protected.-This article is for the benefit of
third persons who are misled by the representation holding out
an individual as a partner, and who act to their detriment; but
it does not create a partnership as between the alleged partners
or as respect third persons who have not in fact been misled. 16
Where a former partner entered into agreement with re~·
maining partners to continue the business of the partnership,
and third parties were misled into believing .that they are
dealing with the sam, old partnership, that partner who has
withdrawn is still liable for partnership liabilities.11111
Partnership by Estoppel.-This article states the doc-
trine of "partnership by estoppel."17 A partnership, not duly
organized, which has been recognized· as such in its dealings
with third persons, shall be considered as a "partnership by
estoppel" as far as third persons are concerned, and for pur-
poses of its de facto existence, has such attribute of a partner-
ship as domicile. 18
Art. 1826. A person admitted as a partner into an exist-
ing partnership i11 liable tor all the obligations of the partner-
ship arising before his admission as though he had been a
partner when such obligations were incurred, except that this
liability shall be satisfied only out of partnership property,
unless there is a stipulation to the contrary. (n)
Source of Article.-This is a new provision taken from Section 17 of the
U nifonn Partnership Act.
Reason and Meaning or Article.-The present article
eliminates the difficulty which arises when a new partner is ad-
mitted with?ut liquidation of firm debts. The difficulty which is
"In re Ganapoeki, 27 F. (Supp.) 41.
"' Singsong vs. Ieabela Sawmill, 88 SCRA 623.
"McBriety ve. Philips, 26 A. (2nd) 400, 180 Md. 669.
"MacDonald vs. National City Bank of New York, 53 Off. Gaz.1783.
362 THE CML CODE (Art. 1827)
.
overcome by this article as worded, is illustrated by the common
case where all the property of the existing partnership is taken
over, without notice of any break in the conduct of business, by
the new partnership composed of all the members of the exist-
ing partnership and the incoming partner; thereby depriving
the existing partnership of all its property. Both the existing
and subsequent creditors may believe it is one and the same
partnership. There is no peculiar equity in the subsequent
creditors giving them a right to be preferred, as against the
property employed in the business, to the existing creditors.
Therefore, existing and subsequent creditors have equal rights
as against partnership property and the separate property of all
the previously existing members of the partnership, while only
the subsequent creditors have rights against the separate es-
tate of the newly admitted partner.
This article should be read in connection with article 1840,
infra. Both articles are based on the principle that where there
has been one continuous business, the fact that A has been
admitted to the business, or C ceased to be connected with it,
should not be allowed to cause endless confusion as to the
claims of creditors on the property employed in the business;
but that all creditors of the business, irrespective of the time~
when they became creditors and the exact combinations cf
persons then owning the business, should have equal rights in
such property. 19
Art. 1827,20 The creditors of the partnership shall be pr,e-
ferred to those of each partner as regards the partnership
property. Without prejudice to this right, the private creditor»
of each partner may ask the attachment and public sale of the
share of the latter in the partnership assets. (n)
Source of Article.-Taken from article 1699, old Civil Code.
"Commissioners' Note, Section 17, Uniform Partnership Act.
"The retention of the second sentence of this article from the old Civil Code produces
a conDictbetween this article and Art. 1811, No. 3, as interpreted by the courts, and violates
Art. 1814. The rule in Art. 174, Code of Commerce, allowing the attachment only of that
"which may correspond to the debtor member as prolite or share in the liquidation," is more
in harmony with Art. 1811, No. 3, which came from the Uniform Partnership Law.
Chapter 3
DISSOLUTION AND WINDING UP
Art. 1828. The dissolution of a partnenhip is the change
in the relation of the partners caused by any partner ceasing to
be associated in the carrying on as distinguished from the
winding up of the business. (n)
Source of Article.-This ia a new provision taken from Section 29 of the
Uniform Partneni-hip Act.
Dissolution Defined.-As used in the Uniform Partner-
ship Act, from which the above article is copied, dissolution des-
ignates the point in time when the partners cease to carry on
the business together; termination is the point in time when all
the partnership affairs are wound up; winding up, the process
of settling partnership affairs after dissolution. 1
The term "dissolution" is thus descriptive of that change in
the partnership relation which ultimately culminates in its ter-
mination. Dissolution is not in itself a termination of the part-
nershir, or of the rights and powers of partners, for many of
these persist during the winding up process which follows dis-
solution.2
Art. 1829. On dissolution the partnership is not termi•
nated, but continues until the winding up of partnership af•
fairs is completed. (n)
Source of Article.-This is a new provision taken from Section 30ofthe
Uniform Partnership Act.
Partnership Not Terminated.-The dissolution ofa part-
nership affects only future obligations of the business, and as to
past transactions the partnership continues until it satisfies all
' Commissioners' Note Section 29, Uniform Partnership Act..
• 40 Am. J ur. 291.
363
 364 THE CML CODE (Art. 1830)
its pre-existing obligations. 3 Dissolution of partnership does not
abrogate its contracts, which continue until performed or other-
wise become inoperative.• Dissolution has no effect on debts due
from the partnership to third parties except that partners may
not act for each other any further than may joint debtors. 5
The dissolution of a partnership must not be understood in
the absolute and strict sense so that at the termination of the
object for which it was created, the partnership is extinguished
pending the winding up ofsome incidents and obligations ofth~
partnership, but in such case, the partnership will be reputed
as existing until the juridical relations arising out of the con-
tract are dissolved. 6
But, where a dissolution agreement completely wound up
partnership affairs, the partnership can not continue in force
thereafter by force of this article. 7
Art. 1830. Dissolution is caused:
(1) Without violation of the agreement between the part-
ners:
(a) By the termination of the definite term or particular
undertaking specified in the agreement;
(b) By the express will of any partner, who must act in
good faith, when no definite term or particular undertaking is
specified;
(c) By the express will of all the partners who have not
assigned their interests or suffered them to be charged for
their separate debts, either before or after the termination of
any specified term or particular undertaking;
(d) By the expulsion of any partner from the business
bona fi.de in accordance with such a power conferred by the
agreement between the partners;
(2) In contravention of the agreement between the pan-
ners, where the circumstances do not permit a dissolution
1
Yahr-Donen Corp. vs. Crocker, 182 P. (2nd) 209, 80 Cal. App. (2nd) 675.
'Stewart vs. Angle, 172 A. 898,315 Pa. 135.
'Cotten Vl!I. Perishable Air Conditioners, 110 P. (2nd) 1010, subsequent opbion 116
P. (2nd) 603, 18 Cal. (2nd) 676. See Singsong vs. lsabela Sawmill, 88 SCRA 623.
• Testate Estate of Mota vs. Serra, 47 Phil. 464.
'McNenyvs. Touchstone, 54 P. (2nd) 1124.
(Art. 1830) THE CML CODE 365
under any t)ther provision of this article, by the express will of
any partner at any time;
(3) By any event which makes it unlawful for the busi-
ness of the partnership to he carried on or for the members to
carry it on in partnEwship; . " ..
(4) When a specific thing, which a partner had promised
to contribute to the partnership, perishes before the delivery;
in any case by the loss otthe thing, when the partner who con•
tributed it having reserved the ownership thereof, has only
transferred to the partnership the use
or enjoyment of the
same; but the partnership shall not he dissolved by the loss of
the thing when it occurs after the partnership has acquired
the ownership thereof;
(5) By the death of any partner;8
(6) By the insolvency of any partner or of the partner•
ship;
(7) By the civil interdiction of any partner;
(8) By decree of court under the following article, (1700a
andl70la) · ·
Source of Article.-This is a new provision taken from Section 31 of the
Uniform Partnership Act, except paragraph 4, which was taken from Article
1701, old Civil Code.
Termination of Term or Purpose.-If a fixed duration
is agreed on, either expressly or impliedly, the partnership is
dissolved by the lapse of time on the expiration of such period.
Irrespective of any agreement as to the period of duration of a
partnership, however, it is dissolved eo instanti on the comple-
tion of the enterprise for which it was formed. 9
Express Will of Any Partner.-If there is no time pre-
scribed by agceement for the duration of a general partnership,
it may be dissolved totally by the express will of any partner. 10 A
partnership at will may be dissolved by one partner unequivo-
cably bringing home notice to the other partners that he no
longer intends to be a partner. 11 ·
• Applied: Bearneza vs. Dequilla, 43 Phil. 237; Guidote vs. B()rja, 53 Phil. 900.
'See 40 Am. Jur. 2\11-2!'2.
" Fisher Vll. Fisher, 188 Pac. (2nd) 802; Jackson vs. Blum. et al. 1, Phil. 4.
"Graham vs. Street, 166 Pac. (2nd) 524, 109 Utah 460; Pri~kcr vs. Stern, 51 Atl.
(2nd) 69.
 366 THE CML CODE <Art. 1831)
Same;'In Contravention of Agreement.-Any partner-
ship,-whether under the articles of partnership it is to exist for
a definite period of time or for the accomplishment of a particu-
lar purpose, or whether those articles contain any stipulation,
e;x:press or implied, as to the time of existence,-may be dis-
solved by the act of any partner alone in accordance with his
own will and pleasure.
The only difference, so far as concerns the right of dissolu-
tion by one partner, between a partnership for an indefinite
period and one for a specified term, is that in the case of a
partnership for a definite term, a dissolution before the expira-
tion of the stipulated time is a breach of agreement which
subjects such partner to a claim for damages for breach of
contract if the dissolution is not justified, whereas the dissolu-
tion of a partnership at will affords the other partner no ground
for complaint; in either case the action of one partner actually
dissolves the partnership. This is due to the fact that a partner-
ship is, in its essence, a contract of agency based on the assent of
each of the partners, which may be retracted at any time as to
future dealings although the term of the partnership may not
have expired. All that is required is that notice of the dissolu-
tion must be communicated forthwith to the other members of
the firm. By such notice the partnership is dissolved. 12
The rights of the parties upon a dissolution in contraven-
tion of the agreement are safeguarded by Article 1837, subdivi-
sion (2). 13
Art. 1831, On application by or for a partner the court
shall decree a dissolution whenever:
(1) A partner has been declared insane in any judicial
proceeding or is shown to be of unsound mind;
(2) A partner becomes in any other way incapable of per-
forming his part of the partnership contract;
(3) A partner has been guilty of such conduct as tends to
affect prejudicially the carrying on of the business;
"See 40 Am; Jur. p. 293.
"Commissioners' Notes, Sec. 31, Uniform Partnership Act,
(Art. 1831) THE CIVIl.. CODE 367
(4) A partner wilfully or persistent]y commits a breach of
the partnership agreement, or otherwiffe so conducts himself
in mattel"S relating to the partnership business that it is not
reasonably practicable to carry on the business in partnership
with him; •
(5) The business of the partnership can only be earned
on at a lose; ta.hi · ia.
(6) Other circumstances render a dissolution equi e.
On the application of the purchaser of a partner's interest
under artk!e 1813 or 1814:
(1) After the tennlnatlon of the specified term or par-
ticular undertaking; .
(2) At any time if the partnership was a partnership at
will when the interest was assigned or when the charging
order was issued. (n)
Sow-oe of Article.-This is a new provision taken from Section 32 ofthe
Uniform Partnership Act. ·
Misconduct, G1'088 Neglect, or Breach ot Duty .-Courts
of equity will intel"l1ene and decree the dissoluti~n of a partne~-.
ship for various acts done by one partner in disregard of his
duties toward his co-partners. Courts of equit~ are, ho~ever,
properly cautious about dissolving partnerships for _miscon-
duct for it is difficult to draw a line indicating what misbehav-
ior ~r what degree of misconduct, will authorize a decree. They
re~uire a strong case to. be established ~d w~ll not act for
trifling causes, or temporary grievances, mvolvmg no perma-
nent mischiefs. Nevertheless, it may be laid down as a general
rule that gross misconduct, want of good faith, wilful neglect of
partnership obligations, and such other causes as are ~roduc-
tive of serious and permanent injury to the partnership con-
cern or which render it impracticable to carry on the partner-
ship' business, are proper grounds for the dissolutio~ of the
partnership by a court of equity at the instance of the innocent
partner. Likewise, habitual drunkenness, great extrav~ance,
or unwo.rrantable negligence on the part of a partner m con-
ducting the business of the partnership justifies ajudicial disso•
lution of the partnership at the instance of the other partner,
,., Fue Leung va. lm.ermediate Appellate Court, 169 SCRA 746,
 368 THE CML CODE (Art. 1832)
although such facts do not authorize the ot.her of his own
to
motion, to treat the partnership as ended and take himself all
the benefits of their joint labors and joint property. 14
Dissension, Lack of Confidence.-Viewing the continu-
ance of a partnership inexpedient where the purposes of its
~reation can no longer be accomplished harmoniously or prof-
itably because of serious dissensions, personal ill-will irrecon-
cilable differ~nces, and lack of confidence between the ~artners,
courts of eqm ty regard such circumstances as grounds for disso-
lutio!1 of the partnership by the court. However, a partner who
by his own conduct has caused a want of confidence or is the
author of the ill-feeling between himself and his partners will
not be permitted to make the strained relation he has induced
the ground of a dissolution of the partnership.
The complaining partner must show that the things relied
upon are of such serious and permanent character as to prevent
the pro~~bl~ c~ntinua?ce of the partnership business. Equity
h~s _no Junsd1~tion t~ dissolve a partnership merely because of
trifling and minor gnevances involving no permanent mischief-
in such cases equity will go no further than to act upon th~
guilty by way of injunction. Equity will not dissolve a going and
prosperous ~artnership merely because of friction among the
partners, or interfere to determine which contending faction is
more at fault. 16
Art. 1_832. ~xcept so far as may be necessary to wind up
partnership affairs or to complete transactions begun but not
then finished, dissolution terminates all authority of any part•
ner to act for the partnership:
(I) With respect to the partners,
(a) When the dissolution is not by the act, insolvency or
death of a partner; or
(b) When the dissolution is by suca act, insolvency or
death of a partner, in cases where article 1833 so requires·
. (2) With respect to persons not partners, as declared in
article 1834. (n)
"See 40 Am. Jur., pp. 300-301.
"See 40 Am. Jur., pp. 302-303.
(Art. 1833) THE CML CODE 369
Source or Article.-Thie is a new provision taken from Section 33 oft he
Uniform Partnership Act.
Authority and Powers of Partners.-The dissolution of
a partnership terminates the general agency of one partner for
his co-partners, but leaves each of the partners with an equal
duty and an equal power to do whatever is necessary to collect
the debts due the partnership, and to adjust, settle, and pay its
debts, including authority as before to represent his firm in all
acts necessary to complete partnership contracts. Where the
conversion of property into cash is necessary for the completion
of the winding-up process, each partner is deemed to have
power after dissolution to dispose of such firm property. One
partner may, after dissolution of the partnership, assign to a
creditor firm assets without consent of the other partner. A
member of a dissolved partnership cannot, however, by borrow-
ing money, bind his. co-partners, except when such power has
been expressly or impliedly conferred upon him, inasmuch as
such borrl;)wing, whether to meet pre-existing obligations or
not, is generally considered a new contract. 16
Art. 1833. Where the dissolution is caused by the act,
death or insolvency .:,fa partner, each partner is liable to his
co-partners for his share of any liability created by any part-
ner acting for the partnership as if the partnership had not
been dissolved unless:
(1) The dissolution being by act of any partner, the part•
ner acting for the partnership had knowledge of the dissolu•
tion; or
(2) The dissolution being by the death or insolvency of a
partner, the partner acting for the partnership had knowledge
or notice of the death or insolvency.
Source or Article.-This is a new provision taken from Section 34 of the
Uniform Partnership Act.
Scope of Article.-Where the dissolution has been caused
by the act of one of the parties, if the partner acting is subject to
"S,,e 40 Am. Jur. 318.
370 THE CIVIL CODE
a liabilit)' to third persons, he can call on his co-partners to
contribute towards this liability to the same extent as if there
has been no disso1ution, provided he had no knowledge of the
dissolution, at the time ofthe act. Thus, A, B and C are part-
ners. A, in accordance with his right, or in contravention of the
agreement between the partners, declared a dissolution of the
partnership. B, subsequently, makes a contract for the partner-
ship in ignorance of the dissolution. B under this article would
have the right to ca11 upon A and C to assume their share of the
burden. The same principle applies when the dissolution is
caused by the death or insolvency of a partner, and that fact
was unknown to the partner who subsequently makes a con-
tract for the partnership. 17
Knowledge and Notice.-This article, like some other
provisions taken from the Uniform Partnership Act, makes use
of the words "knowledge" and "notice", without defining those
terms. These words, however, are expressly defined in the
Uniform Partnership Act as follows:
"A person has 'knowledge' of a fact within the meaning )f
the Act not only when he has actual knowledge thereof, but also
when he has knowledge of such other facts as in the circum-
stances show£ bad faith.
"A person has 'notice' of a fact within the meaning of this
Act when the person who claims the benefit of the notice, states
the fact to such person, or delivers through the mail, or by other
means of communication, a written statement of the fact lo
such persons or to a proper person at his place of business or
residence."18
It is submitted that these definitions should be considered
as read into our law.
Art. 1834, After dissolution, a partner can hind the part•
nership, except as provided in the third paragraph of this
article:
17
Commissioners' Note, Section 34, Uniform Partnership Act.
"Section 3, Uniform Partnership Act.
(Art. 183,l) (Art. 1834) THE CIV1L CODE 371
(1) By any act 11.ppropriate for winding up partnership
affairs or completing transactions unfinished at dissolution;
(2) By any tranS&ction which would bind the partner•
ship if dissolution had not taken place, provided the other
party to the transaction:
(a) Had extended credit to the partnership prior to dis•
solution and had no knowledge or notice of the dissolution; or
(b) Though he had not so extended credit, had neverthe•
less known of the partnership prior to dissolution, and, having
no knowledge or notice of dissolution, the fact of dissolution
had not been advertised in a newspaper of general circulation
in the place f,or in each place if more than one) at which the
partnership business was regularly carried on.
The liability or a partner under the first paragraph, No. 2,
shall he satisfied out of partnership assets alone when such
partner had been prior to dissolution:
(1) Unknown as a partner to the person with whom the
contract is made; and
(2) So far unknown and inactive in partnership affairs
1
that the business reputation of the partnership could not be
said to h'lve been in any degree due t.o his connection with it.
The partnership is in no case bound by any act of a part·
ner after dissolution:
(1) Where the partnership is dissolved because it is un•
lawful to carry on the business, unless the act is appropriate
for winding up partnership affairs; or ·
(2) Where the partner has become insolvent; or
(3) Where the partner has no authority to wind up part•
nership affairs; except by a transaction with one who-
(a) Had extended credit to the partnership prior to dis-
solution and he.d no knowledge or notice of his want of author•
ity; or
(h) Had not extended credit to the partnership prior to
dissolution, ~nd, having no knowledge or notice of his want of
authority, the fact of his want of authority has not been adver·
tised in the ·manner provided for advertising the fact of disso•
lution in the first paragraph, No. 2 (b).
Nothing in this a':'ticle shall affect the liability under ar•
ticle 1825 of any person who after dissolution represents him•
self or consents to another representing him as a partner in a
partnership engaged in carrying on business. (n)
 THE CML CODE (Art. 1885)
372
Source of Article.-This is a new provision taken from Section 35 of the
Unifonn Partnership Act.
Acceptance of Bill.-After the dissolution of a partner-
ship, a partner cannot bind the partnership or his co-partn~r~
by accepting a bill drawn on the firm, unless he has special
authority to do so. 19
Liability Limited by Notice of Dissolution.-Li_abilit: 1
of partnership property for partnership debts does not extend t,::,
debts contracted by one pa1tner after a dissolution with one
having knowledge of dissolution. 20 Persons dealing with a sur·
viving partner with notice of the co-partner's death are bound
to recognize the limitation on his authority, and act at their
peril when they give credit to the survivor in a new transac-
tion.1 . any partner without express or implied agreement between
Notice of Dissolution.-Since a partnership once estah-
lished is, in the absence of anything to indicate its terminatiori,
presumed to continue to exist, the law, for the protection of in-
nocent third persons, imposes upon partners, when they dis-
solve the partnership relation or when dissolution is effected by
the retirement or withdrawal of one of the partners, the duty of
giving notice of the dissolution of the partnership; otherwise,
they run the risk of being bound to third persons by the subfe-
quent exercise of the authority which they have given to each
other as partners. Under this rule, the members of a partner-
ship after dissolution continue to be liable to those with whom
they have previously dealt as partners who have no notice or
knowledge of the dissolution of the firm and who in good faith
continue to act in the belief that the firm is still in existence. 2
Art. 1835. The dissolution of the partnership does not of
itself discharge the existing liability of any partner.
A partner is discharged from any existing liability upon
dissolution of the partnership by an agreement to that effect
11 40 Am. Jur. p. 323.
"J.C.H. Service Stations vs. Patrikes, 46 N.Y.S. (2nd) 228, 181 Misc. 401.
1 Eroea va. Froese, 137 A. 124, 289 Pa. St. 69.
• See 40 Am. Jur. 307,308.
(Art. 1838) THE CML CODE 373
between himself, the p&rtnership creditor and the person or
partnership continuing the business; and such agreement may
be inferred from the course of dealing between the creditor
having knowledge of the dissolution and the person or part•
nership continuing the business.
The individual property of a deceased partner shall be
liable for all obligations of the partnership incurred while he
was a partner, but subject to the prior payment of his separate
debts. (n)
Source of Article.-This is a new provision taken from Section 36ofthe
Uniform Partnership A~t.
Continuation of Liability.-Dissolution of partnership
does not, by itself, discharge the existing contractual liability of
himself, the partnership creditor, and the partnership continu-
ing the business or without novation; and in the absence of such
factors, a retiring partner's liability on contracts of the partner-
ship made before a dissolution, continues as that of a principal
or as a co-principal debtor. 3
A partner who has withdrawn from the partnership is
released from liability only when there has been liquidation
and his withdrawal has been published. 3•
Art. 1836. Unless otherwise agreed, the partners who
have not wrongfully dissolved the partnership or the legal rep•
resentative of the last surviving partner, not insolvent, has the
right to wind up the partnership affairs, provided, however,
that any partner, his legal representative or his assignee, upon
cause shown, may obtain winding up by the court. (n)
Source of Article.-This is a new provision taken from Section 37 of the
Uniform Partnership Act.
'Patnk,,s vs. Service Stations, 41 N.Y.S. (2nd) 158, 180 Misc. 917.
•• Sin~song vs. fsabcla Sawmill, 88 SCRA 623.
374 THE CML CODE (Art. 183'/)
Art. 1837, When dissolution is caused by any way, excr.pt
in contravention of the partnership agreement, each partner,
as against his co-partners and all persons claiming through
them in respect of their interests in the partnership, unlPss
otherwise agreed, may have the partnership property applied
to discharge its liabilities, and the surplus applied to pay in
cash the net amount owing to the respective partners. But if
dissolution is caused by expulsion of a partner, bona fide
under the partnership agreement and if the expelled partm r is
discharged from all partnership liabilities, either by payuent
or agreement under the second paragraph of article 1835, he
shall receive in cash only the net amount due him from the
partnership.
When dissolution is caused in contravention of the part•
nership agreement the rights of the partners shall be as fol•
lows:
(1) Each partner who has not caused dissolution wrcng•
fully shall have:
(a) All the rights specified in the first paragraph of !,his
article, and
(b) The right, as against each partner who has caused
the dissolution wrongfully, to damages for breach of the agree-
ment.
(2) The partners who have not caused the dissolution
wrongfully, if they all desire to continue the business in th;;:,
same name either by themselves or jointly with others, may do
so, during the agreed term for the partnership and for that
purpose may possess the partnership property, provided they
secure the payment by bond approved by the court, or pay to
any partner who has caused the dissolution wrongfully, the
value of his interest in the partnership at the dissolution, less
any damages recoverable under the second paragraph, No. 1
(b) of this article, and in like manner indemnify him agair,st all
present or future partnership liabilities,
(3) A partner who has caused the dissolution wrongfully
shall have:
(a) If the business is not continued under the provision
of the second paragraph, No. 2, all the rights of a partner under
the first paragraph, subject to liability for damages in the
second paragraph, No. 1 (b), of this article.
(b) If the business is continued under the second para•
graph, No. 2, of this article, the right as against his co-partners
and all claiming through them in respect of their interests in
the partnership, to have the value of his interest in the part-
(Art. 1838) THE CIVIL CODE
nership, less any damage caused to his co-partners by the dis•
solution, ascertain ad and paid to him in cash, or the payment
secured by a bond approved by the court, and to be released
from all existing liabilities of the partnership; but in ascertain•
ing the value of the partner's interest the value of the good-will
of the business shall not be considered. (n)
Source of Article.-This is II new provision taken from Section 38 ofthe
Uniform Partn.;rshipAct.
Discharge of Liabilities.-Generally, partnership pro-
perty nust, on dissolution, first be applied to the payment of
partnership debts, and the co-partners or their creditors are
entitled to only such property as remains after satisfaction of
partnership debts. 4 Hence, upon the dissolution of a partner-
ship by the death of a partner, all members of the firm are
entitled to a division of the surplus of the assets over the
amount necessary to discharge the liabilities of the partner-
ship.5
Art. 1838. Where a partnership contract is rescinded on
the ground of the fraud or misrepresentation of one of the
parties theretn, the party entitled to rescind is, without preju-
dice w any other right, entitled:
(1) Toa lien on,orrightofretentionof, the surplus of the
partnership pMperty after satisfying the partnership liabili,
ties to third persons for any sum of money paid by him for thti
purchase of an interest in the partnership and for any capital
or advances contributed by him;
(2) To stand, after all liabilities to third persons have
been satisfied, in the place of the creditors of the partnership
for any payments made by him in respect of the partnership
liabilities; and
(3) To be indemnified by the person guilty of the fraud or
making the representation against all debts and liabilities of
the partnership. (n)
Source of Article.-This is a new provision taken from Section 39 of the
Uniform Partnership Act.
• Columbia Trust Co. vs. Nielson, 287 Pac. 926, 76 Utah 129.
• Moffat vs. Pierce, 24 AU. (2nd) 448, 344 Pa. 16.
 THE CML CODE (Art. 1839)
876
Rescission Due to Fraud.-Where one is induced to form
a partnership by reason of the fraud or misrepresentations of
another, a court of equity will, on the prompt application of the
injured party after the deceit becomes known, rescind the con-
tract of partnership. The deceit must be material, for mere
exaggerations by one partner of the prospects cf an enterprise,
or of the value of property which he has put into the firm as
capital, is not ground for dissolution. When the fraud or misrep-
• resentation is established, the court will compel the repayment
of whatever sums may have been improperly obtained. 6
Art. 1839. In settling accounts between the partners af•
ter dissolution, the following rules shall be observed, subject
to any agreement to the contrary:
(1) The assets of the partnership are:
(a) The partnership property,
(b) The contributions of the partners necessary for the
payment of all the liabilities specified in No. 2.
(2) The liabilities of the partnership shall rank in order
of payment, as follows:
(a) Those owing to creditors other than partners,
(b) Those owing to partners other than for capital and
profits,
(c) Those owing to partners in respect of capital,
(d) Those owing to partners in respect of profits.
(3) The assets shall be applied in the order of their decla•
ration in No. 1 of this article to the satisfaction of the liabili•
ties.
(4) The partners shall contribute, as provided by article
1797, the amount necessary to satisfy the liabilities.
(5) An assignee for the benefit of creditors or any person
appointed by the court shall have the right to enforce the
contributions specified in the preceding number.
(6) Any partner or his legal representative shall have the
right to enforce the contributions specified in No. 4, to the •
extent of the amount which he has paid in excess of his share of
the liability.
• See 40 Am. Jur. 303-304.
(Art. 1839) THE CML CODE 877
(7) The individual property of a deceased partner shall
be liable for the contributions specified in No, 4.
(8) When partnership property and the individual prop•
erties of the partners are in possession of a court for distribu-
tion, partnership creditors shall have priority on partnership
property and separate creditors on individual property, sav•
ing the r-ights of lien or secured creditors,
(9) Where a partner has become insolvent or his estate is
insolvent, the claims against his separate property shall rank
in the fo\lowing order:
(a) Those owing to separate creditors;
(b) Those owing to partnership creditors;
(c) Those owing to partners by way of contribution. (n)
Source oC Article.-This is a new provision taken from Section 40 of the
Unifonn Partnership Act.
Conversion of Assets into Cash.-Generally, after tak-
ing an accounting on dissob.tion of a partnership, the court
should require a sale of the r,artnership property and distribute
the proceeds to the partners after payment of costs, expenses
and debts, but this rule is not inflexible,7 and is subject to excep-
tions, among which are: when there are no debts, and a division
in kind may be fairly and equitably made;8 if the sale of assets
would be prejudicial to an innocent partner who has not con-
sented to the sale;9 and where dissolution of the partnership is
had on suit of a partner upon violation of a partnership agree-
ment, and a judicial sale of the assets would amount to confisca-
tion.10 In these cases ii sale of the assets is not necessary, and
will not be ordered.
Agreement as to Distribution of Assets.-Co-partners
may agree among themselves in what proportion assets of the
partnership, including capital assets, may be divided between
them upon dissolution, 11 and where there is no fraud and the
partners are both familiar with the business, an agreement of
dissolution and settlement will not be set aside merely because
'Swarthout vs. G<>ntry, 144 Pac. (2nd) 38, 62 Cal. App. (2nd) 68.
• Hooper vs, Barran ti, 184 Pac. (2nd) 688.
• Weissman vs. Henkin, 34 Atl. (2nd) 007, 154 Pa. Super. 12.
"Dow vs. Beal, 268 N. Y.S. 425, 149 Misc. 631.
11
Hunter vs. Allen, 147 Pac, (2nd) 213.
378 THE CML CODE (Art. 1840)
one partner has made an improvident agreement and the set-
tlement is on the basis different from that provided by the
articles. 12
A partner's share can not be returned without first dissolv-
ing and liquidating the partnership, for the return is dependent
on the discharge of the creditors, whose claims enjoy preference
over those of the partners; and it is self-evident that all mem-
bers of the partnership are interested in its assets and business,
and are entitled to be heard in the matter of the firm's liquida-
tion and the distribution of its property. 12"
Art. 1840. In the following cases creditors of the dis•
solved partnership are also creditors of the person or partner-
ship continuing the business:
(1) When any new partner is admitted into an existing
partnership, or when any partner retires and assigns (or the
repi:esentative of the deceased partner assigns) his rights in
partnership property to two or more of the partners, or to one
or more of the partners and one or more third persons, if the
business is continued without liquidation of the partnership
affairs;
(2) When all but one partner retire and assign (or the
representative of a deceased partner assigns) their rig~ts in
partnership property to the remaining partne~, who ?onti~ues
the business without liquidation of partnership affairs, either
alone or with others;
(3) When any partner retires or dies and the business of
the dissolved partnership is continued as set forth in Nos. 1
and 2 of this article, with the consent of the retired partners or
the representative of the deceased partner, but without any
assignment of his right in partnershi~ property; . .
(4) When all the partners or their representatives as,ngn
their rights in partnership property to one or m~re third pe~-
sons who promise to pay the debts and who continue the bus1·
ness of the dissolved partnership;
(5) When any partner wrongfully causes a dissolution
and the remaining partners continue the business under tlie
12Guenther vs. Kutz, 112 At!. 919, 270 Pa. SL 144.
"' Magdusa vs. Albaran, 5 SCRA 51 l.
(Art. 1840)- THE CML CODE 379
provl!nons of article· 1837, second paragraph, No. 2, either
alone or with others, and without liquidation of the partner•
ship affairs;
(6) When a partner is expelled and the remaining part-
ners continue the business either alone or with others without
liquidation of the partnership affairs.
The liability of a third person becoming a partner in the
partnership continuing the business, under this article, to the
creditors of the dissolved partnership shall be satisfied out of
the partnership property only, unless there is a stipulation to
the contrary.
When the business of a partnership after dissolution is
continued under any conditions set forth in this article the
creditors of the dissolved partnership, as against the separate
creditors of the retiring or deceased partner or the representa•
tive of the deceased partner, have a prior right to any claim of
the retired partner or the representative of the deceased part•
ner against the person or partnership continuing the business,
on account of the retired or deceased partner's interest in the
dissolved partnership or on account of any consideration prom•
ised for such interest or for his right in partnership property.
Nothing in this article shall be held to modify any right of
creditors to set aside any assignment on the ground of fraud.
The use by the person or partnership continuing the busi•
ness of the partnership name, or the name of a deceased part•
ner as part thereof, shall not of itself make the individual
property of the deceased partner liable for any debts con•
tracted by such person or partnership. (n)
Source of Article.--This is a new provision taken from Section 41 ofthc
Uniform Partnership Act.
Scope of Article.-This article as a whole deals primarily
with the rights of creditors w:ien a new partner is admitted or a
partner retires, is expelled or dies and the business is continued
without liquidation of all debts of the partnership dissolved by
the change in personnel.
The article does not alter the rule that any change in mem-
bership dissolves a partnership, and creates a new partnership;
neither does it alter the rule that on any change of personnel,
the pr0perty of the dissolved partnership becomes the property
of the partnership continuing the business. Under the article,
creditors of the dissolved partnership become creditors of the
· 380 THE CIVIL CODE (Art. 1841} (Art. 1842) THE CIVIL CODE 381

new partnership. 13 be due him after a liquidation. But no liquidation is necessary

Art. 1841. When any partner retires or dies, and the busi-
ness is continued under any of the conditions set forth in the
preceding article, or in article 1837, second paragraph, No. 2,
without any settlement of accounts as between him or his
estate and the person or partnership continuing the business,
unless otherwise agreed, he or his legal representative as
against such person or partnership may have the value of his
interest at the date of dissolution ascertained, and sh~l re•
ceive as an ordinaey creditor an amount equal to the value of
his interest in the dissolved partnership with interest, or, at
his option or at the option of his legal representative, in lieu of
interest, the profits attributable to the use of his right in the
property of the dissolved pa.-tnership; provided that the credi-
tors of the dissolved partnership as against the separate credi-
tors, or the representative of the retired or deceased partner,
shall have priority on any claim arising under this article, as
provided by article 1840, third paragraph. (n)
where there is already a settlement or an agreement as to what
the retiring partner shall receive. Where the reburn of the con-•
tributions of the retiring partners was understood and intended
by all the parties as a final settlement of whatever rights or
claim the withdrawing partners might have in the dissolved
partnership, the acceptance of such payment precludes the
retiring partners from later on claiming their supposed share in
the profits of the firm at the time of its dissolution. 16 ·
Art. 1842. The right to an account of his interest shall
accrue to any partner, or his legal representative as against
the winding up pai-tners or the surviving partners or the per-
son or partnership continuing the business, at the date of.
dissolution, in the absence of any agreement to the country. (n)
Source of Artide.-This is a nc,w provision tnken from Section 43 oftr.c
llnifonn Pnrtncrship Act. ·

Source or Article.-Thia is n new provision taken from SecLion 42 oflhe Presc_riptio~ of Action.-Prescription begins to run only
Uniform Partnership Act. upon the d1ssolut10n of the partnership when the final account-
ing is done. 17
Agreements as to Liquidation.-No specific amounts or
properties may be adjudicated to the heirs of the deceased
partner without the liquidation being first termina.ted. 13a The
liquidation of a partnership dissolved by the death of a member
is controlled by partnership law only in the absence ofa particu-
lar agreement on the subject made by the partners themselves.
Agreements between partners with respect to liquidation of the
partnership on the death of one of the members are binding. 14
All rights against the surviving partner are merged in said
agreement, and the deceased partner's representative have no
rights outside said agreement. 15
It has been held, that as a general mle, when a partner
retires from the firm, he is entitled tot.he payr:::ient of what may

"See Commillllionen,' Note, Section 41, Uniform Partnership AcL

"' Lim Tanhu va. Ramolete, 66 SCRA 425.
"ln re Eddy'• E&t.at.e, 26 N.Y.S. (2nd) I 15, 175 Mis.1011. "Bonnevie vs. Hernandez, G.R. No. L-5837, May 31, 1954.
"KaYanaugh YS. Johnson, 195 N.E. 797,290 Maas. 687. "Fue Leung vs. Intermediate Appellate Court., 169 SCRA 746.

Chapter 4
LIMITED PARTNERSHIP (n)
Art. 1843. A limited partnership is one formed by two or
more persons under the provisions of the following article,
having as members one or more general partners and one or
more limited partners. The limited partners as such shall not
be bound by the obligations of the partnership.
Source of Article.•-This is a new provision taken from Section 1 of the
Uniform Limited Partnership Act.
Limited Partnership; Nature of Liability.-A limited
partnership is one in which the liability of some members, but
not all, is limited; such a partnership is formed under laws per-
mitting an individual to contribute a specified sum to the
capital of a firm and then 1imiting his liability for losses to th at
amount on the parties complying with certain established re-
quirements.1
Succession to General Partner.--Mere acceptance of
the inheritance does not make the heir of a general partner a
general partner himself. But by authorizing the widow o_f the
managing partner to manage partnership property which a
limited partner could not be authorized to do, the other gener~l
partner recognized her as a general partner, and 1s now in
estoppel to deny her position as a general partner, with author-
1 (n) The right, if given, of a limited partner to demand
ity to administer and alienate partnership property. •
Art. 1844, Two or more persons desiring to form a lim•
ited partnership shall:
(1) Sign and swear to a certificate, which shall state-
(a) The name of the partnership, adding thereto the word
"Limited";
'See 40 Am. Jur. 474.
•• Goquiolay vs. Sycip, 9 SCRA 663.
382
(Art. 1844) THE CML CODE 383
(b) The character of the business;
(c) T!;1e location of the principal place of business;
(d) The name and place of residence of each member,
general and limited partners 'being respectively designated;
(e) The term for which the partnership is to exist;
(f) The amount of cash and a description of and the
agreed value of the other property contributed by each limited
partner;
(g) The additional contributions, if any, to be made by
each limited partner and the times at which or events on the
happening of which they shall be made;
Cn) The time, if agreed upon, when the contribution of
each limited partner is to be returned;
(i) The share of the profits or the other compensation by
way of income which each limited partner shall receive by
reason of his contribution;
(j) The right, if given, of a limited partner to substitute
an assignee as contributor in his place, and the terms and con•
ditions of the substitution;
(k) The right, if given, of the partners to admit additional
limited partners;
(I) The I"ight, if given, of one or more of the limited part•
ners to priority over other limited partners, as to contribu•
tions or a·s to compensation by way of income, and the nature
of such priarity;
(m) The right, if given, of the remaining general partner
or partner·!i to continue the business on the death, retirement,
civil interdiction, insanity or insolvency of a general partner;
and
and receive property other than cash in return for his contri-
bution.
(2) File for record the certificate in the Office of the Se-
curities aud Exchange Commission.
A limited partnership is formed if there has been substan•
tial compliance in good faith with the foregoing requirements.
Source of Article.-This is n new provision taken from Section 2 of the
Uniform Limited Partnership Act.
Compliance with Law.-A partnership transacting busi-
ness is, prim.a facie, a general partnership, and those who seek
to avail themselves of the protection of laws permitting th,~

THE CIVIL CODE (Arts. 1845-1846)
384
creation of a limited partnership must show due compliance
with such laws. In other words, to obtain the privilege oflimited
liability, one must conform to the statutory require~~nts regu-
lating the formation of limited partnerships.~ A hm1~d _part-
nership that has not complied with the law of its creation 1s not
considered a limited partnership at all, but a general partner-
ship in which all the members are liable. 3
Same· Defective Certificate.-Where a certificate of for-
mation of ~ limited partnership is defective and shows on its
face that the statutory requirements have not been complied
with a court can of its own motion hold that a limited partner-
ship 'has not been formed. But if attaching creditors recognize
and deal with a firm as a limited partnership, they will be
estopped from insisting that there is no such partnership, or
that the terms of the partnership were not sufficiently stated in
the notice of its formation. 4
Art, 1845. The contributions ofa limited partner may be
cash or other property, but not services.
Source ot Article.-This is a new pruvision taken from Section 4 oflh<'
Uniform Limited Partnership Act.
Art. 1846. The surname of a limited partner shall not ap•
pear in the partnership name unless
(1) It is also the surname of a general partner, or
(2) Prior to the time when the limited partner became
such, the business had been carried on under a name in which
his surname appeared.
A limited partner whose surname appears in a partner•
ship name contrary to the provisions of the first paragraph is
liable as a general partner to partnership creditors who ex•
tend credit to the partnership without actual knowledge that
he is not a general partner,
1 See 40 Am. Jur. 475.
'Jo Chung Caing vs. Pacific Commercial Company, 46 Phil. 142, citing Mechem,
ElemenlB or Partnership, p. 412; Gilmore, Partnership, pp. 499,595; 20 R.C.L., 1064.
• See 40 Am. Jur. 476.
(Arts. 1847-1850) THE CML CODE 385
Source of Article.-This is a new provision taken from Sect.ion 6 of the
Uniform Limited Partnership Act.
Art. 1847. If the certificate contains a false statement,
one who suffers loss by reliance on such statement may hold
liable any party to the cel'tificate who knew the statement to
be false:
(1) At the time he signed the certificate, or
(2) Subsequently, but within a sufficient time before the
statement was relied upon to enable him to cancel or amend
the certificate, or to file a petition for its cancellation or amend•
ment as provided in article 1865,
S,.>Urce ot Article.-This is a new provision taken from Section 6 of the
Uniform Limited Partnership Act.
Art. 1848. A limited partner shall not become liable as a
generul partner unless, in addition to the exercise of his rights
and powers as a limited partner, he takes part in the control of
the business.
Source of Article.-This is a new provision taken from Section 7 ofthn
Uniform Limited Partnershl p Act.
Art. 1849. After the formation of a limited partnership,
additlonal limited _partners may be admitted upon filing an
amendment to the original certificate in accordance with the
requirements of article 1865.
Source of Artide.-This is a new provision taken from Section 8 of the
Uniform Limited Partnership Act.
Art. 1850, A general partner shall have all the rights and
powers ar..d be subject to all the restrictions and liabilities of a
partner in a partnership without limited partners. However,
without ihe written consent or ratification of the specific act
by all the limited partners, a general partner or all of the
386 THE CML CODE (Art. 1851)
general partners have no authority to:
(1) Do any act in contravention of the certificate;
(2) Do any act which would make it impossible to carry
on the ordinary business of the partnership;
(3) Confess a judgment against the partnership;
(4) Possess partnership property, or assign their rights
in specific partnership property, for other than a partnership
purpose;
(5) Admit a person as a general partner;
(6) Admit a person as a limited partner, unless the right
so to do is given in the certificate;
(7) Continue the business with partnership property on
the death, retirement, insanity, civil interdiction or insolvency
of a general partner, unless the right so to do is given in the
certificate.
Source of Article.-This is a new provision taken from Seclion 9 of the
Uniform Limited Partnership Act.
Art. 1851. A limited partner shall have the same rights
as a general partner to:
(1) Have the partnership books kept at the principal
place of business of the partnership, and at a reasonable hour
to inspect and copy any of them;
(2) Have on demand true and full information of all things
affecting the partnership, and a formal account of partnership
affairs whenever circumstances render it just and reasonable;
and
(3) Have dissolution and winding up by decree of court.
A limited partner shall have the right to receive a share of
the profits or other compensation by way of income, and to the
return of his contribution as provided in articles 1856 and
1857.
Source of Article.-This is a new provision taken from Section 10 of the
Uniform Limited Partnership Act.
Power to Contract.-Under a provision of the Kansas act
embodying the restrictions contained in this article and in
article 1848, it has been held that the limited partner has no
(Arts. 1852-1853) THE CML CODE 387
power to bind the partnership by a contract. 5
Art. 1852. Without prejudice to the provisions of article
1848, a person who has contributed to the capital of a business
conducted by a person or partnership erroneously believing
that he has become a limited partner in a limited partnership,
is not, by reason of his exercise of the rights of a limited
partner, a general pa!:'tner with the person or in the partner•
ship c9rrying on the business, or bound by the obligations of
such person or partnership; provided that on ascertaining the
mistake he promptly reno,mces his interest in the profits of
the business, or other compensation by way of income.
Source of Article.-This is a new provision taken from Section 11 of the
Uniform Limited Partnership Act.
Applicability.-Persons advancing money to a limited
partner and who deny that they are partners are within the
protection of this provision. 6 The language is comprehensive,
and covers all cases where one has contributed to the capital of
a business conducted by a partnership or person erroneously
believing that he is a limited partner. 7 It would seem that a
violation of Article 1848 is the only exception to the right of a
partner to take advantage of the provisions of this article. 8
Art.. 1853. A person may be a general partner and a lim•
ited partner in the same partnership at the same time, pro-
vided that tJlis fact shall be stated in the certificate provided
for in article 1844.
A person who is a general, and also at the same time a
limit4"d partner, shall have all the rights and powers and be
subject to all the restrictions of a general partner; except that,
in respect to his contribution, he shall have the rights against
the other members which he would have had if he were not
also a general partner.
• C)lumbia Land, etc. Co. vs. Daly, 46 Kan. 504, 26 Pac. 1042.
' l n re Marcuse, 281 Fed. 928.
'Giles vs. Vctte, 26:l U.S. 553, 44 S. Ct. 157, 68 L. ed. 44 J.
• Cmnmissioncrs' Now, Section 11, Uniform Limited Partnership Act.
388 THE CML CODE (Arts. 1854-1856)
Source of Article.-This is a new provision taken from Section 12 oflhc,
Uniform Limited Partnership Act.
Art. 1854, A limited partner also may loan money to and
transact other business with the partnership, and, unless he is
also a general partner, receive on account of resulting claims
against the partnership, with general creditors, a pro rata
share of the assets. No limited partner shall in respect to any
such claim:
(1) Receive or hold as collateral security any partner•
ship property, or
(2) Receive from a general partner or the partnership
any payment, conveyance, or release from liability, if at the
time the assets of the partnership are not sufficient to dis-
charge partnership liabilities to persons not claiming as ge11-
eral or limited partners.
The receiving of collateral security, or a payment, convey-
ance, or release in violation of the foregoing provisions is a
fraud on the creditors of the partnership.
Source of Article.-This is a new provision taken from Section 13 of the
Uniform Limited Partnership Act.
Art. 1855. Wh~re there are several limited partners thn
members may agree that one or more of the limited partner;;
shall have a priority over other limited partners as to the
return of their contributions, as to their compensation by way
of income, or as to any other matter. If such an agreement is
made it shall be stated in the certificate, and in the absence of '
such a statement all the limited partners shall stand upon
equal footing.
Source of Article.-This is a new provision taken from Section 14 of the
Uniform Limited Partnership Act.
Art. 1856. A limited partner may receive from the part-
nership the share of the profits or the compensation by way of
income stipulated for in the certificate; provided, that after
such payment is made, whether from the property of the part.-
nership or that of a general partner, the partnership assets are
in excess of all liabilities of the partnership except liabilities to
(Art. 1857) THE CML CODE 389
limited pa1-tners on account of their contributions and to gen•
eral partners.
Source of Article.-This is a new provision taken from Section 16 of the
Uniform Limited Partnership Act.
Art. 1857. A limited partner shall not receive from a gen•
eral partner or out of partnership property any part of his
contributions until:
(1) All liabilities of the partnership, except liabilities to
general partners and to limited partners on account of their
contributions, have been paid or there remains property of the
partnership sufficient to pay them;
(2) The consent of all members is had, unless the return
of the contribution may be rightfully demanded under the pro-
visions of the second paragraph; and
(3) The certificate is cancelled or so amended as to set
forth the withdrawal or reduction.
Subject to the provisions of the first paragraph, a limited
partner may rightfully demand the return of his contribution:
(1) On the dissolution ofa partnership, or
(2) When the date specified in the certificate for its re•
turn has arrived, or
(3) After he has given six months' notice in writing to all
other members, if no time is specified in the certificate, either
for the return of the contribution or for the dissolution of the
partnership.
In the absence of any statement in the certificate to the
contrary or the consent of all members, a limited partner,
irrespective of the nature of his contribution, has only the
right to demand and receive cash in return for his contribu•
tion.
A limited partner may have the partnership dissolved and
its affairs wound up when:
(1) He rightfully but unsuccessfully demands the return
of his contribution, or
(2) The other liabilities of the partnership have not been
paid, or the partnership property is insufficient for their pay•
ment as required by the first paragraph, No, 1, and the limited
partner would otherwise be entitled to the return of his contri•
bution.
Source of Article.-'l'his is a new provision taken from Section 16 of the
390 THE CIVIL CODE (Art. 1858)
Uniform Limited Partnership Act.
Liability after Withdrawal-If the assets are insuffi-
cient to pay the debts, the limited partner is liable for all sums
withdrawn by him, but insufficiency of assets must be alleged in
an action against him. 9 The obligation of a limited partner who
has withdrawn from the partnership to creditors of the firm in
which he was a partner, to the extent ofhis limited liability, can
be discharged by nothing less than payment, notwithstanding
that at the time of his withdrawal the assets left with the
general partners were sufficient, at a fair valuation, to dis-
charge the outstanding liabilities. Where they thereafter be-
came inadequate, the risk of the change was on him and not on
the creditors. Liability is limited to the capital contribution as
long as it is left at the risk of the business. When withdrawn,
the interest presumably earned must be included as part of the
sum available to creditors. 10
Art. 1858. A limited partner is liable to the partnership:
(1) For the difference between his contribution as actu•
ally made and that statL>d in the certificate as having bee"
made,and
(2) For any unpaid contribution which he agreed in the
certificate to make in the future at the time and on the condi-
tions stated in the certificate.
A limited partner holds as trustee for the partnership:
(1) Specific property stated in the certificate as contri-
buted by him, but which was not contributed or which has
been wrongfully returned, and
(2) Money or other property wrongfully paid or conveyed
to him on account of his contribution.
The liabilities of a limited partner as set forth in this
article can be waived or compromised only by the consent of
all members; but a waiver or compromise shall not affect the
right of a creditor of a partnership who extended credit or
whose claim arose after the time and before a cancellation or
amendment of the certificate, to enforce such liabilities.
• Synder vs. Leland, 127 Mass. 291.
"Kittredge vs. Langley, 252 N.Y. 405, 169 N.E. 626.
(Arti,. 1859-1860) THE CIVIL CODE 391
Wheu a contributor has rightfully received the return in
whole or in part of the capital of his contribution, he is never•
theless liable to the partnership for any sum, not in excess of
such return with interest, necessary to discharge its liabilities
to all creditors who extended credit or whose claims arose
before such return.
Source of Article.-This is a new provision taken from Section 17 ofthe
Uniform Limited Partnership Act.
Art. 1859. A limited partner's interest is assignable,
A substituted limited partner is a person admitted to all
the rights uf a limited partner who has died or has assigned his
interest in a partnership.
An aRsignee, who does not become a substituterl limited
partner, h.as no right to require any information or account of
the partnership transac~ions or to inspect the partnership
books; he is only entitled to receive the share of the profits or
other compensation by way of income, or the return of his con•
tribution, to which his assignor would otherwise be entitled.
An assignee shall have the right to become a substituted
limited partner if all the members consent thereto or if the
assignor, being thereunto empowered by the certificate, gives
the assignee that right.
An assignee becomes a substituted limited partn11r when
the certificate is appropriately amended in accordance with
article 1865.
The substituted limited partner has all the rights and
powers, and is subject to all the restrictions and liabilities of
his assignor, except those liabilities of which he was ignorant
at the time he became a limited partner and which could not be
ascertained from the certificate.
The substitution of the assignee as a limited partner does
not release the assignor from liability to the partnership under
articles 1847 and 1858.
Source of Article.---This is a new provision taken from Section 19 of the
Uniform Limited Partnership Act.
Art. 1860. The retirement, death, insolvency, insanity or
civil interdiction of a general partner dissolves the partner•
392 THE CIVll.. CODE (Arts. 1861-1863)
ship, unless the business is continued by the remaining gen-
eral partners:.
(1) Under a right to do so stated in the certificate, or
(2) With the consent of all members.
Source of Article.-This is a new provision taken from Section 20 of the
Uniform Limited Partnership Act.
Art. 1861. On the death ofa limited partner his executor
or administrator shall have all the rights of a limited partner
for the purpose of settling his estate, and such power as the de-
ceased had to coruititute his assignee a subslituted limited
partner.
The estate of a deceased limited partner shall be liable for
all his liabilities as a limited partner.
Source of Article.-This is a new provision taken from Section 21 of the
Uniform Limited Partnership Act.
Art. 1862. On due application toacourtofcompetentju-
risdiction by any creditor of a limited partner, the court may
charge the interest of the indebted limited partner with pay•
ment of the unsatisfied amount of such claim, and may appoint
a receiver, and make all other orders, directions, and inquiries
which the circumstances of the case may require.
The interest may be redeemed with the separate property
of any general partner, but may not be redeemed with partner-
ship property.
The. remedies conferred by the first paragraph shall not
be deemed exclusive of others which may exist.
Nothing in this Chapter shall be held to deprive a limited
partner of his statutory exemption.
Source of Article.-This is a new provision.taken from Section 22 ofLhe
Uniform Limited Partnership Act.
Art. 1863. In settling accounts after dissolu lion the lia-
bilities of the partnership shall be entitled to payment in t:ic
following order:
(Art. 1864) THE crvn.. CODE 393
(1) Those to creditors, in the order of priority as pro•
vided by la,v, except those to limited partners on account of
their contributions, and to general partners;
(2) Those to limited partners in respect to their share of
the profits and ot!1er compensation by way of income on their
contributions;
(3) Those to limited partnel."8 in respect to the capital of
their contributions;
(4) Those to general partners other than for capital and
profits;
(5) Those to general partners in respect to profits;
(6) Those to general partners in respect to capital.
Subject to any R":atement in the certificate or to subse•
quent agreement, limited partners share in the partnership
assets in respect to their claims for capital, and in respect to
their claims for profits or for compensation by way of income
on their r-ontribution respectively, in proportion to the respec•
tive amounts of such claims.
Source of Article.-This is a new provision taken from Se<:tion 23 of the
Uniform Limited Partnership /let.
Art. 1864. The certificate shall be cancelled when the
partnership is dissolved or all limited partners cease to be
such.
A certificnte shall be an1ended when:
(1) There is a change in the name of the partnership or in
the amount or character of the contribution of any limited
partner;
(2) A person is stipulated as a limited partner;
(3) An additbnal limited partner is admitted;
(4) A person is admitted as a general partner;
(5) A general partner retires, dies, becomes insolvent or
insane, or is sentenfJed to civil interdiction and the business is
continued under article 1860;
(6) There is a change in the character of the business of
the partnership;
(7) There is a false or erroneous statement in the certifi•
cate;
(SJ There is a change in the time as stated in the certifi-
cate for the dissolution of the partnership or for the return of a
contribution;

394 THE CIVIL CODE
(9) A time is iixed for the dissolution of the partnership,
or the return of a contribution, no time having been specified
in the certificate, or
(10) The members desire to make a change in any other
statement in the certificate in order that it shall accurately
represent the agreement among them.
Source of Article.-This is a new pr_ovision taken from Section 24 oft he
Uniform Limited Partnership Act.
Effect of Failure to Amend.--It would seem that failure
to amend the certificate under this article and the business is
continued after the time fixed, the limited partner is liable
generally. 11
Art. 1865. The writing to amend a certificate shall:
(l} Conform to the requirements of article 1844 as far aa
necessary to set forth clearly the change in the certificate
which it is desired to make; and
(2} Be signed and sworn to by all members, and an amend-
ment substituting a limited partner or adding a limited or
general partner shall he signed also by the nwmber to lw
substituted or added, and when u limited partner is to bee
substituted, the amendment shall also be signed by the assign-
ing limited partner.
The writing to cancel a certificate shall be signed by all
members.
A person desiring the cancellation or amendment of a
certificate, if any person designated in the first and second
paragraphs as a person who must execute the writing refuses
to do so, may petition the court to order a cancellation or
amendment thereof.
Irthe court finds that the petitioner has a right to have the
writing executed by a person who refuses to do so, it shall
order the Office of the Securities and Exchange Commission
where the certificate is recorded, to record the cancellation or
amendment of the certificate; and when the certificate is to be
amended, the court shall also cause to be filed for record in
said office a certified copy of its decree setting forth the amend-
ment.
ii Case Notes, Section 24, Uniform Limited Partnership Act.
(Arts. 1866-1867) THE CIVIL CODE 395
(Art. 1865)
A certificate is amended or cancelled when there is filed
for record in the Office of the Seeurities and Exchange Com•
mission, where the certificate is recorded:
(1) A writing in accordance with the provisions of the
first or second paragraph, or
(2) A certified copy of the order of court in accordance
with the provisions of the fourth paragraph;
(3) After the certificate is duly amended in accordance
with this article, the amended certificate shall thereafter be
for all pm-poses the certificate provided for in this Chapter.
Source of Article.-This is anew provision taken from Section 25 ofthe
Uniform Limited Partnership Act.
Art. 1866. A contributor, unless he is a general partner,
is not a proper party to proceedings by or against a partner-
ship, except where the object is to enforce a limited partner's
right against or liability to the partnership.
Source of Article.-This is a new provision taken from Section 26 of the
Uniform Limit.cd Partnership Act.
Art. 1867. A limited partnership formed under the law
prior to the effectivity of this Code, may become a limited part.
nership under this Chnpter by complying with the provisions
of article 1844, provided the certificate sets forth:
(1) The amount of the original contribution of each lim•
ited partner, and the time when the contribution was made;
and
(2} Tl.at the property of the partnership exceeds the
amount sufficient to discharge its liabilities to persons not
claiming as general or limited partners by an amount greater
than the sum of the contributions of its limited partners.
A limited partnership formed under the law prior to the
effectivity of this Code, until or unless it becomes a limited
partnership under this Chapter, shall continue to be governed
by the provisions of the old law.
Source of Article.-This is a new provision taken from Section 30 of the
Uniform Limited Partnership Act.

Title X
AGENCY
Chapter 1
NATURE, FORM AND KINDS OF AGENCY
Art. 1868. By the contract of agency a person binds him•
self to render some service or to do something in representa•
tion Of on behalf of another, with the consent or authority of
the latter. (1709a)
Source of Article.-Taken from article 1709, old Civil Code.
Elements of Agency.-The essential elements of agency
are: (1) there is consent, express or implied, of the parties to es-
tablish the relationship; (2) the object is the execution of a
juridical act in relation to a third person; (3) the agent acts as a
representative and not for himself; and (4) the agent acts withir.
the scope of his authority.
Agency and Lease of Services, Distinguished.-Most
writers, including Sanchez Roman, Buron, Manresa and
V_al~erd:, con~ider that the idea of representation in agency
d1stmgu1shes 1t from lease of services. 1 The agent executes a
juridical act on behalf of another while the lessor of services
performs a material act for the benefit of another. Thus, thr-
physician, the architect, the painter, the professor, and the
notary public, are lessors of services, just as are employees or
house-helpers. 2
But, according to Castan and De Buen, the legal possibility
of an agency without representation may be inferred from the
provisions of Article 1883, particularly the last paragraph. 3 The
existence of an agency is perfectly consistent with the circum-
1
Castan 221-225.
' 11 Planiol &. Ripert 769.
' De Buen: 4 Colin &. Caphant 882.
396
(Art. 1868) THE CML CODE 397
stance that the agent acts exclusively in his own name.4 The
true essence of the distinction in such case, between lease of
services and agency, lies in that the agent enters or is designed
to enter into juridical relations, with or without representation
of the principal.5
Agent ahd Independent Contractor, Distinguished.-
Where it appeared that the operator of a gasoline and service
station owed his position to the company and the latter could
remove him or terminate his services at will; that the service
station belonged to the company and bore its tradename and
the }:>perator sold only the products of the company; that the
equipment used by the operator belonged to the company and
were just loaned to the operator and the company took charge of
their myair and maintenance; that an employee of the company
supervised the operator and conducted periodic inspection of
the company's gasoline and service station; that the price of the
products sold by the operator was fixed by the company and not
by the operator; and that the receipts signed by the operator
indicated that he was a mere agent, it has been HELD, that the
operator is an agent of the company and not an independent
contractor. Consequently, his negligence as such agent is im•
putable to his principal and the latter is answerable to third
persons. 6
An agency was not established between a sugar planter
and its creditor where, under the crop loan agreement, the
creditor was authorized to sell the planter's sugar and to credit
the planter·with the proceeds of the sale. 6•
A uni-:-n that entered into a stevedoring contract with the
shipping company cannot be regarded as an agent of the com-
pany since an agent cannot represent two conflicting interests.Sb
Impersonation.-There is no agency in impersonation.
Thus, if Juan pretends to be Pedro, and enters into a contract
with Jose, who thinks he is contracting actually with Pedro,
there is no agency. The element ofrepresentation is absent. On
• Sentencia of0ctooor26. 1929.
• Justice J,B,L. Reyes, i.,,;wyers Journal, March :n, 1951, p. 138.
'Shell Company of thJ Philippines vs. Firemen's Ins. Co. of Newark, et al, 53 Otr.
Caz. 6084.
"&>riano vs. Compa~ia General, 18 SCRA 999.
"'Allied Free Workers' Union vs. ·compailia Maritima, 19 SCRA 258.

398 THE CML CODE
the p&rt of Jose, there is no knowledge that the contract is on
behalf of a person other than the one before him or with whom
he is negotiating. And on the pe.rt of Juan, he is not acting in an-
other's name, but under another name. This is Juan's own
contract, binding upon him, unless it is annulled on the ground
of error or fraud on the part of Jose. 7
Acts Susceptible of Agency.-As a general rule, agency
is admissible in all contracts or acts. However, there are certain
acts which cannot be performed through an agent such as: the
entering into a marriage contract, the making of wills and
testaments, and the presence of the accused during the trial of
a criminal case. 8
The spouses, as between themselves, can enter into a
contract ofagency. 9
Creation of Agency.-The testimony of the person who
drafted the contract that his purpose was to establish an agency
does not determine its nature; the parties did not perform the
contract in accordance with its terms and a contract must be
considered, not as the parties stipulated, but as they performed
it. 10 The mere use of the term "agency" in one clause can not
dominate the whole contract. n
Capacity of Part.ics.-Uoth parties must have the capac-
ity to give consent. If any special capacity is required for the act
entrusted to the agent, it is the principal and not the agent who
must have such special capacity, 12 in addition to the general
capacity to contract. It is necessary that the principal have the
capacity required for the act entrusted to the agent, because he
is the one Who will receive the benefits and incur the obligations
or losses arising therefrom. 13
Same; Agent.-With respect to the effectiveness of the act
executed by the agent on behalf of the principal, no particular
capacity is required for the agent, so long as he has sufficient
intelligence and freedom of will. But with respect to his obliga-
7
6 Von 'l'uhr 16.
• 11 Planiol & Ripert 801; 6 Von Tuhr 6.
• De Buen: 4 Colin & Capit.ant 884.
10
Quiroga vs. Parsons Hardware Co., 38 Phil. 501.
11 Albaladejo & Co. va. Phil. Refining Co., 4.5 Phil. 556.
"De Buen: 4 Colin & Capitanl 884.
"4 Colin & Ca pit.ant 861-852.
(Art. 1869) THE CIVIL COD:E 399
(Art. 1868)
tions and responsibilities towards the·principal, the agent must
have th<! capacity to bind himself. An incapacitated agent can
set up his incapacity against the principal, and such agent
would be liable to the principal only in cases of illicit acts and
unjust enrichment 14 He cannot invoke his incapacity to the
extent of refusing to deliver the things he has received for the
principal; the law does not sanction such fraudulent acts. 16
Relation of Principal and Agent.-The relations of an
agent to his principal are fiduciary and in regard to the pro-
perty forming the subject-matter of the agency, he is estopped
from acquiring or asserting a title adverse to that of the princi-
pal.16 So that an agent cannot represent both himself and his
principal in a. transc1ction involving the shifting to another
person of the agent's liability for a debt to the principal. 17
Where a person undertakes to act as agent for another, re-
ciprocal relations are created between such parties, even where
the owner of the business or property has not given his consent
thereto, by ~~rtue of a quasi-contract. 18 .
Binding Effect.--The agent is the representative of his
principal. Hence, the principal is deemed a purchaser in bad
faith if the agent purchased property in bad faith. 18a Notice to
the agent is notice to the principal. 18b
Art. 1869. Agency may be express, or implied from the
acts oft.he principal, from his silence or lack of action, or his
failure to repudiate the agency, knowing that another person
is acting on his behalf without authority.
Agency may be oral, unless the law requires a specific
form. (1710a)
Source of Artiole.-Taken from article 1710, pars. 1 and 2, old Civil
Code.
" 11 Planiol & Rip;,rt 787.
"4 Colin & CapitanL 862.
"Severino vs. Severino, 44 Phil. 343; Thoma• vs. Pineda, G.R. No. L-2411, June 28,
1951; Palma vs. Cristobal, 77 Phil. 712.
"Aboi ll, vs. De Silva, 45 Phil. 883.
"Smith and Reyes vs. Lopez, 6 Phil.78.
•.. c.ram VB. Laurel.a, 103 SCRA 7.
"' Air France vs. Court of Appeals, 126 SCRA 448.
 400 THE CML CODE (Art. 1869)
Implied Agency.-The person who took charge of the ad-
ministration of property without express authorization and
without a power of attorney executed by the owner thereof, but
with the knowledge of the latter, and performed for nine years
the duties of his office without opposition or absolute prohibi-
tion on the owner's part, expressly communicated to the said
person, is considered to have administered the said property by
virtue ofan implied agency. Although the owner did not send a
power of attorney to the said person who took charge of his
property, if during the period stated, he neither opposed nor
prohibited the agent with respect to the administration, nor did
he appoint another person in his confidence, there arises an
implied agency, equivalent to a legitimate agency, tacitly con-
ferred by the owner of the property administered. 19 Implied
agency is created from silence or lack of action or failure to
~pudiate the re pre sen tation. 19•
Where several communications are addressed to a person
as representing a certain company and it also appears that
during the preliminary negotiations made for extrajudicial set-
tlement of the claim against said company, it was such person
.. who acted and made representations in its behalf, and these
communications as well as acts led a third person to believe
that such person really acted as the representative of the
company, service upon such person is binding upon the com-
pany.20
Under the same principle, it was held that where a person
who sold a parcel ofreal estate appears later not to be its owner,
and when the real owner thereof, upon being questioned in a
criminal case instituted against the vendor, states that he
consented to such sale, so that the vendor was acquitted of the
charge against him, the owner must be deemed to have con-
ferred verbal, or at least implied, power of agency upon the
vendor, who accepted it in the same way by selling the said
property. The principal must therefore fulfill all the obligations
contracted by the agent, who acted within the scope of his au-
11 De la Pena vs. Hidalgo, I 6 Phil. 450.
"' Conde vs. Court of Appeals, I 19 SCRA 245.
"'Johnlo Trading Company vs. Flores and F1orenLino & Co., G.H. No. L-1987, May
18, !951.
(Arts. 1870-1871) THE CML CODE 401
thority. 1
Same; Compared with Offjcious Management.-The
administration and management, by virtue of an implied agency,
is essentially distinguished from the management of another's
business in that, while the former originate,rfrom a contract,
the latter is derived only from a quasi-contr;<ct. Implied agency
is founded on the lack of contradiction or opposition, which
constitutP,S simultaneous agreement on the part of the pre-
sumed principal to the 3xecution of the contract, while in the
management of another's business there is no simultaneous
consent, either express or implied, but a fiction or presumption
of consent because of the benefit received. 2
Art. 1870. Acceptance by the agent may also be express,
or implied from his acts which carry out the agency, or from
his silence or inaction according to the circumstances. (n)
Source of Article.-This is n new provision lnken from the Argentine
Code and similar lo Article 1710, par.~. old Civil Code.
Art. 1871. Between persons who are present, the accep•
tance of the agency may also be implied if the principal deliv•
ers his power of attorney to the agent and the latter receives it
without any objection. (n)
Source of Article.-This is a new provision taken from Article 1877 of
the Argentine Code.
Presumption.--This article presumes the acceptance of
the agency; but such presumption is only prima facie, and may
be defeated by proof to the contrary. 3
1
Guli~rrei Hermanos vs. Orense, 28 Phil. 571.
' Do la Pe~n vs. Hidalgo, 16 Phil. 450; Senlencio, July 7, 1881.
'6 Sal vat 199.
 (Arts. 1874-1875) THE CML CODE 403
402 THE CML CODE (Arts. 1872-1873)

The power shall continue to be in full force until the notice

Art. 1872. Between persons who are absent, the accep• is rescinded in the same manner in which it was given, (n) ,,
tance of the agency cannot be implied from the silence of the
agent, except: Source of Article.-This is a new provision taken from the Gorman
(1) When the principal transmits his power of attorr.ey Code.
to the agent, who receives it without any objection;
(2) When the principal entrusts to him by letter or tele-
gram a power of attorney with respect to the business in which
Art. 1874. When a sale of a piece of land or any interest
he is habitually engaged as an agent, and he did not reply to
therein is through an agent, the authority of the latter shall be
the letter or telegram. (n)
in writing otherwh,e, the sale shall be void. (n) ·
Source of Article.-This is a new provision taken from Article 1878 of
the Argentine Code. Source of Article.-This is a new provision taken from the Statute of
Frauds under Act 190. '

Acceptance.-In the cases contemplated by this article,

Letter Sufficient Authority.-Where the owner of cer-
the acceptance of the agency is not compulsory; but if the age.1 l
tain parcels of land left them in the care of his sister as his
wants to refuse it, he must act immediately, so that his silence
agent, and later, while absent, wrote to her to sell one parcel of
may not be interpreted as an acceptance, and so that he may not
land which she did, it has been held that the letter containing
incur responsibilities. ◄
the authority to sell was suflicient.6
Receipt Without Objection.-Under the first paragraph,
the mere fact that the agent does not a!lswer refusing the
agency, cannot be interpreted as an acceptance. The retention
of the power of attorney, says Pothier, is not as clear a proof of Art. 1875. Agency is presumed to be for a compensation,
acceptance in this case as when it is delivered personally; the unless there is proof to the contrary. (n)
failure to answer may be merely due to negligence on the part vf
the agent, or to his desire to deliberate on whether to accept or Source of Article.-This provision follows tho principle embodied in
Article 277, Code of Commer~e, reversing the presumption under Article 1711,
not. Under the second paragraph, the acceptance is implied old Civil Code, that an agency is presumed to be gratuitous.
from the failure to reply to the letter or telegram; therefore, in
cases falling outside of paragraph (2), more than mere failure to Right to Compensation.-When an agent employed to
reply is required. The court should consider all the special sell or lease property has complied with the terms of his con-
circumstances of each case to determine whether there has tract by furnishing a purchaser or lessee ready, able and willing
been an acceptance or not. 5 to buy or lease the property, he is entitled to his commission.7
But a broker, not having quite succeeded in bringing the minds
ofbuyer and seller to an agreement in regard to the terms of the
Art. 1873. If a person specially informs another or states
sale, is not entitled to commission,e nor if his exclusive author-
by public advertisement that he has given a power of attorney
to a third person, the latter thereby becomes a duly authorized
ity to such has expired. 8•
agent, in the former case with respect to the person who re•
ceived the special information, and in the latter case with
• Jimenez vs. Habot, 38 Phil. 378.
regard to any person. ' Henry vs. Velasco, 34 Phil. 587,
• Rocha vs. Prats & Co., 43 Phil. 397,
" !'rats vs. Court of Appeels, 81 SCHA 360.
' 6 Salvat 2CX(.
'6 Llerena 134-135, citingTroplong and Laurene.
 THE CIVIL CODE (Art. 1878)
404
In order that a broker could earn a commission, it is not
sufficient for him to find a buyer, but to find one who will
actually buy the property on the terms 9;t1d ~nditions impci~ed
by the owner, and until that is done, his nght to comm1ss1on
does not accrue. Hence, where the actual sale was perfected and
consummated without the intervention of the broker, his au-
thority to sell the property having been withdrawn at a time
when there was still no meeting of the minds of the buyer and
seller he is not entitled to his commission.9
The special condition in a contract entitli~g the bn:ike_r to
the stipulated commission when the property 1s sold w1thm a
certain period following the expiration of the agency agreement
to a purchase procured by the broker during the life of such
agency, does not justify a departure from ~e rule that the
broker must be the efficient agent or procurmg cause of the
sale. The efficient-and-procuring-cause principle is synonym~us
with the ready-willing-and-able rule, and these words provide
off hand the test in determining whether the agent was t,1e
procuring cause of the sale. 10
An agent will not be entitled to compensation when the
terms of his contract have not been complied with. 11 But if the
principal had broken negotiations with the buyer for the pur-
pose oflater making a direct contract with the latter, the agent
will be entitled to compensation. 12
Art. 1876. An agency is either general or special The for-
mer comprises all the business of the principal. The latter, one
or more specific transactions. (1712)
Source of Article.-Taken from article 1712, old Civil Code.
• Reyes, et al VI, Moequeda, et al. 53 Oft'. Gaz. 2158.
,. F. Calero & Co. vs. Navarette, et al., (C.A.) 53 Off. Gaz. 705.
11 Fiege & Brown vB. Smith, Bell & Co,, '3 Phil. 113.
11Pere1 de Tagle v1. Lw:onSuretyCo., 38 OIi', Gaz.1212; Infante ve. Cunanan, eta!.
G.:R. No. L-5180, Aug. 31, 1953; Heimbrod et al. VB, Ledesma, (C.A.) G.R. No. 7183-R, Jan.
27, 1953.
(Arts. 1877-1878) THE CML CODE 405
Art. 1877. An agency couched in general terms comprises
only acts of adminh,tration, even if the principal should state
that he withholds no power or that the agent may execute such
acts as he may consider appropriate, or even though the agency
should authorize a general and unlimited management. (n)
Source of Article.-This is a new provision, taken from article 1880 of
the Argentine Code and similar to Article 1713, par. 1, old Civil Code;
Acts of Administration.-A general power permits the
agent to do all acts for which the law does not require a special
power.13 The right to commence suits to collect debts owing to
the principal, 14 or to appoint servants or employees of a firm, 15
are mere acts of administration.
Art, 1878. Special powers of attorney are necessary in
the following cases:
(1) To make such payments as are not usually considered
as acts of adminisf;ration;
(2) To effect novations which put an end to obligations
already in existence at the time the agency was constituted;
(3) To compr<'mise, to submit questions to arbitration, to
renounce the right to appeal from a judgment, to waive objec•
tion<J to the venue of an action or to abandon a prescription
already acquired; 15 •
(4) To waive any obligation gratuitously;
(5) To enter into any contract by which the ownership of
an immovable is transmitted or acquired either gratuitously
or for a valuitble consideration;
(6) To make gifts, except customary ones for charity or
those made to employees in the business managed by the
agent;
(7) To loan or borrow money, unless the latter act be ur•
gent and indispensnble for the preservation of the things which
are und10r administration;
(8) To lease any real property to another person for more
11
6 Llerena 13 7.
14German & Co. va. Donaldson, Sim & Co., 1 Phil. 63.
" Yn Chuck VI. Kong Li Po, .«! Phil. 608.
'" Dung,, vs. Lapei'ia, 6 SCRA 100?,
406 THE CML CODE (Art. 1879)
than one year;
(9) To bind the principal to render some service without
compensation;
(10) To bind the principal in a contract of partnership;
(11) To obligate the principal as a guarantor or surety;
(12) To create or convey real rights over immovable prop•
erty;
(13) To accept or repudiate an inheritance;
(14) To ratify or recoguize obligations contracted before
the agency;
(15) Any other act of strict dominion. (n)
Source ot Article.-This is a new provision taken from the Argentine
Code and similar to Article 1713, par. 2, old Civil Code.
Special Powers.-The power of attorney, as required by
this article, should expressly mention the act for which it is
drawn. 16 But such special power can be included in a general
power of attorney, either by giving authority for all acts of a
particular character or by specifying therein the act or transac-
tion for which a special power is needed. Thus, when in a
general power of attorney the agent is authorized to sell the
principal's immovable property, such agent is empowered to
sell any real property of the principal, without the necessity of a
special power to sell for every specific property. 17
Art. 1879. A special power to sell excludes the power to
mortgage; and a special power to mortgage does not include
the power to sell. (n)
Source ot Article.-This is a new provision taken from the Argentimi
Code.
Power to Sell.-A power to sell must be understood as for
cash, and not on credit, unless the latter is expressly author-
ized. If the sale is for cash the agent is also considered author•
ized to receive the price. 18
"Strong vs. Repide, 6 Phil. 680.
" 6 Llerena 139- I 40.
"6 Llerena 144-145.
(Art& :\880-1881) THE CIVIL CODE 407
By the very nature of things, an agent cannot sell in a
foreign C(mntry without making some kind of a contract, and if
he had power to sell, it would carry with it the authority t.o
ma.:-.e and enter int.o the usual and customary contract for its
sale. 19
Power to Raise Money.-If the power is to raise i. sum of
money for which purpose the agent is authorized to· sell a
particular real property, or t.o avail himself of any other means,
the agent is considered as empowered t.o mortgage the property;
In this ease the real object of the agency is to raise the sum of
money, and the sale is merely one of the means indicated for
attaining that object.20 But a special power t.o mortgage real
estate does not include the power to contract· 1oans for the
principal.oo.
Arl. 1880. A special power to compromise does not au•
thorize submission to a.rbitratien. (1713a)
Source ot Article.-Taken from artic1e 1713, par. 3, old Civil Code.
Art. 1881, The agent must act within the scope of his au•
thority. He may do such act.a as may be conducive t.o the
accomplishment of the purpose of the agency. (1714a)
Source of Arlicle.-Taken rrom article 1714, old Civil Code.
Limitation on Authority.-The powers and duties of an
agent ar,3 confined and limited to those which are specified and
defined in his power of attorney, which limitation is a notice to,
and is binding upon, the person dealing with such agent. 1 The
agent alone cannot enlarge or extend his authority, by his own
acts or statements, nor can he a1one remove the limitations or
waive conditions imposed by his principal; to charge the princi-
"Robinson, Fleming & Co. va. CMl:! & Tan Chong Say, •9 Phil, ◄ 2, .
" 6 Llerena 145.
"' PNB vs. St.a. Maria, 29 SCRA 303.
1
Bank of the P.I. Vll. De Coeter, •1 Phil. 594.
408 THE CML CODE (Art. 1881)
pal in sucn case, the principal's consent or concurrence must bfl
shown. 1
Same; mustrations.-The authority given by a wife to
her husband "to loan and borrow money" and to mortgage her
property, does not carry with it or imply that he has a legal right
to sign her name to a promissory note which would make her
liable for the payment of a pre-existing debt of the husband or
that of his firm, for which she was not previously liable, or to
mortgage her property to secure such debt. 3
A power of attorney of a special character, authorizing an
agent to borrow any amount of money which he deemed neces-
sary, cannot be interpreted as also authorizing the agent to use
the money as he pleased; and in applying the money borrowed
to pay his personal obligations, he exceeds his authority. In
such cases, it should be understood that the agent is oblig~d to
turn over the money to the principals, or, at least, place 1t at
their disposal."
An agent which does not disclose to a third person wishing
to purchase crude sulfur from its principal, that the principal
told it via cable that it should not sign the sales contract unless
it wished to assume sole responsibility for the shipment, ex-
ceeds the limits of its authority in subsequently signing the
contract. 4•
Where an agent has no authority to collect payments for
his principal, and a debtor pays to him, relying upon ~is repre-
sentations as to his authority to make such collections and
receipt for the money, such debtor pays at his own risk, and
6
such payment is not a valid defense as aga~nst the princip~l.
And an agent whose authority has long termmated, cannot g1wi
a release of a debt owing to his former principal. 6 Nor may an
agent authorized only to collect, enter into a new contract with
the debtor modifying the terms of the original contract and re-
leasing sureties bound thereunder. 7
• Keeler Electric Co. vs. Rodriguez, 44 Phil. 19.
• Bank of the P.I. VB. De Coeter, 47 Phil. 694.
• Hodgee ve. Sal1111, 63 Phil. 667.
.. National Power Corp. VII. National Mercltandiaing Corp., 117 SCRA 789.
1 Keeler Electric Co. VII. Rodriguez, « Phil. 19.
• Ormaehea v,. Trillana, 13 Phil. UM.
'Villa VB. Garcia Bosque, 49 Phil, 126.
(Art. 1882) THE CML CODE 409
But where the principal authorized the agent to sell any
kind of realty that "might belong' to him, using the subjunctive
"pertenezcan" (might belong) and not the indicative "pertene-
cen" (belong), it means that the authority given by the principal
referred. not only to the property he had at the time the power
was conferred, but also to such as he might afterwards have
during the time that it was in force. 8
Effect of Unauthorized Acts.-Where an agent or repre-
sentative, in entering into a contract on behalf of his principal,
exceeds his authority, the contract is not an absolute nullity,·
but only voidable at the instance of the party who has been
improperly represented. 9 When an agent exceeds the scope of
his authority, only the principal is prejudiced, and the latter is
the only one who can impugn the former's act. 10 The agent ,
becomes personally liable for damages. He must disclose the
limits of his authority to avoid persohal liability for ultra vires
con tracts. 1o,;
But v.here powers of attorney were forged by an agent,
purporting to have been executed by the owners of certain
registered lands, ano. mortgages were made by such agent by
virtue thereof, it was held that such powers of attorney Were
without force and effect, and the registration of the mortgages
executed thereunder were likewise null and void and could not
in any way prejudice the rights of the registered owners of the
property in question. 11 And when an attorney-in-fact is not
authorized under his power of attorney to sell the business or
establishment of his principal, the sale and conveyance thereof
in favor of a third person is unenforceable, and the latter
acquires no title thereto. 12
Art. 1882. The limits of the agent's authority shall not be
considex-ed exceeded should it have been performed in a man•
1
2 C.J. 614; Katigball: vs, Tai Hing Co., 62 Phil. 622.
' Zay,oo va. Sen-a, 49 Phil. 985.
1
• Sentencia (Cuba) of June 16, 1931. See Commi&1ioner of Public Highways vs. San
Diego, 31 SCRA 616 .
'" National Power Corp. vs. National Merchandising Corp., 117 SCRA 789.
11 Veloeo vs. La Urbana, 68 Phil, 681.
11 Yu Eng Yu vs. Ransem Philippine Corporation, (C.A.) Oft Gai. (Supp.), August 23,
1941, p. 65.
410 THE CML CODE (Art. 1883)
ner more advantageous to the principal than that specified by
him. <1115>
Source of Article.-Taken from Article 1716, old Civil Code.
Scope of Article.-The condition of the agency can be im-
proved, hut not made worse. The agent, therefore, is not deemed
to have exceeded his authority when he acts in a manner more
advantageous to the principal than that specified by the latter,
because it is assumed that if the principal were the one acting,
he would have also followed the more advantageous course. 13
What is prohibited, in case of commission agents, is that
they sell the goods of the principal at a lower price than that
fixed by the latter; they are not prohibited from selling at a
higher price than that fixed, if such higher price is obtained. 14
This article refers to an advantage which can be obtained
without modifying the conditions, the form or the object of the
agency. Thus, if an agent is empowered to sell for cash, and he
sells on credit at a higher price, he cannot allege the advantage
of the higher price to escape liability to the principal if the latter
demands that the cash price be paid by him. 15
Art. 1883. If an agent acts in his own name, the principal
has no right of action against the persons with ~hom the a~en.t
has contracted; neither have such persons against the prmc1•
pal.
In such case the agent is the one directly bound in favor of
the person with whom he has contracted, as if the transaction
were his own, except when the contract involves things be·
longing to the principal.
The provisions of this article shall be understood to be
without. prejudice to the actions between the principal and
agent. (1717)
Source of Article.-Takeu from article 1717, old Civil Code.
" 7 Oyueloo 175.
"Tan Tiong Teck vs. Commissioner, 69 Phil, 416.
" 6 Llerena 167.
(Art. 1888) THE CIVIL CODE 411
Scope of Article.-The rule contained in this article is a~
plicahle only to cases where it is material to the third person to
know with whom he is contracting. But there are cases where it
is immaterial to the third person t.o know with whom he con--
tracts. Thus, when a person contracts with' the driver of ari
ordinary .vehicle for hire, he does not troublehimselft.o find out
who owns the vehicle. In that case he enters int.o a transport.a~
tion contr~~t without knowing the principal; he may not even
know that there is a· principal. In such case, even if the agent is
acting in his own name, the principal is houn·d in the transpor-
tation contract. 14 • ·•· •;, ·- . ,,,-,?,. ,,.,
Personal Liability of Agent.-When an agent transacts
business in his own name, it shall not be necessary for him' t.o
state the name of his principal, and he shall be directly liable, as
if the business were for his own account, t.o the persons with
whom he transacts the same, said persons not having any right
of action against the principal, nor the latter against them.1 7
Likewise, an agent is personally liable for acts beyond the scope
of his authority, and for acts in violation of the terms of the
written authority. 18
Liability of Principal.-When it is clear that the agent is
acting only in behalf of a disclosed principal, the agent cannot
be held persona11y liable on the contract entered into in such
manncr. 19 Likewise, even if the contract is entered into the
name of the agent, if the things involved are those belonging t.o
the principal, it shall be deemed that the contract is made on
behalf of the principal.20 Thus, where the owner of all the
capital stock of a corporation entered int.o a contract with a
third persim, in his own name and not in the name of the
corporation, hut the latter dealt with the third person under the
said conti'act, it was held that the contract must be considered
"l Von Tuhr, Obligaciooea, pp. 251,253.
"Ca.oUe Broe. v•. Go Juno, 7 Phil. 144; Pa1tel11 & Regordou va. Hollman & Co.,~
Phil. 235; Lim Tiu vo. Rui• & Rement.eria, 15 Phil. 367; Smith, Bell&. Co. va. Sot.tlo Matti,
44 Phil. 874; Philippine Sugar Eat.ai.. VII, Ptrlza~ 48 Phil, 636; Buetamant.t YI, Rato, &'3
Phil. <il8; National Bank VII, Agudelo, 68 Phil. 666; Lim Tek Goan vs. iucrea, 16 Phil. 3&.
11
G<ildenberg&.Co. ""· Labrador, 35 Olf. Gu. 2415,ChuaChiong Pio6Co. n. Devil
& Co., (C.A.) 38 Olt Gu. 203.
• Macias & Co. va. Warner, Barnes & Co., 43 Phil. 155,
"Sy,luco va. Sy-Juoo, 40 Phil. 634.
412 THE CML CODE
as a contract of the corporation, and the latter is bound under
it.I
In such cases, where the third person may be in doubt as to
who should be responsible to him under a contract by an agent
involving property belonging to the principal, suit may be
brought by him against both the principal and the agent. 2 On
the other hand, the principal may sue the person with wh?m
the agent dealt with in his own name, when the transaction
involves things belonging to the principal.2a
Judgment Against Agent.-A judgment, for or against
an agent, in no way binds the real party in interest. An acti~~ is
brought for a practical purpose, to obtain actual and positive
relief. If the party sued upon is not the proper party, any
decision that may be rendered against him would be futile, for i':.
cannot be enforced or executed.3
t Arnold w. Willits & Patt,iraon, 44 Phil. 634.
• Beaumont w. Prieto, 41 Phil. 670, atrd in 249 U.S. 554, 63 L. ed. 770, 41 Phil. 985.
,. Gold Star Mining Co. ••· Lim.Jimenaz, 25 SCRA 597.
I Salmon & Pacific Commercial Co. vs. Tan Cueco, 36 Phil. 556; Arroyo""· Granada
and Centeno, 18 Phil. 484; Salonga vs. Warner, Barnes & Co., Ltd., G.R. No. L-2246, Jan.
31, 1951.
(Art. 1883)
Chapter 2
OBLIGATIONS OF THE AGENT
Art. 1884. The agent ls hound by his ecceptance to carry
out the agency, and la liable for the damages which, through
his non-performance, the principal may suffer.a.
He must also finish the business already begun on the
death of the principal, should delay entail any danger. (1718)
Sow·ce of Article.-Taken from article 1718, old Civil Code. ·
Arl. 1885. In case a person declines an agency, he Is
bound to observe the diligence of a good father of a family in.
the cu11tody and preservation of the goods forwarded to him by
the owner until the latter should appoint an agent. The owne1·
shall as soon as practicable either appoint an agent or take
charg-e of the goods. (n) · ·
Source of Article.-This Is a new provision taken from article 248, Code
of Commerce. · · ··
Art. 1886. Should there be a stipulation that the agent
shall advance the necessary funds, he shall be hound to do so
exoept when the principal is insolvent. (n)
Source of Arlicle.-This is a new provision taken from article 251, Code
ofCom,nerce.
Art. 1887. In the execution of the agency, the agentshall
act in accordance with the instructions of the principal.
In default thereof, he shall do all that a good father of a
family would do, art required by the nature of the business.
(1719)
.. PNB ve. Manila Surety, 14 SCRA 776.
413
414 THE CIVIL CODE (Art.
Source'of Arlicle.-Taken from article 1719, old Civil Code.
Interpretation of Instructions.-In~truc~ions of the Pri?•
cipal must be interpreted in accordance with hi~ ~resum~d ~111
and the usages of trade. Thus, in case of doubt, it 1s peni:1ss1ble
to deposit in a bank the money realized fro:m the a?ency; m c~se
ofbig amounts, such deposit may even be 1mperat1ve. The pnce
indicated in case of agency to sell must be construed as the
minimum and in case of agency to buy as th e maximum. . 1 advised the principal and received instructions from him. Ifhe
Eff~t ofinstructions.-The instructions of the principal
to the agent form part of the agency; they constitute the meam
or the orders carrying out the power granted; hence, to depart
from them is to exceed the authority conferred on. th~ agent.
But such instructions are binding only upon the prmc1pal and
the agent; they cannot prejudice third persons. 2 • • being Ill conflict between his interests and those otthe princi-
Responsibility of Agent.-When an agen: m execut1~g
the orders and commissions of his principal carries out the in-
structions he has received from his principal, and does ~ot
appear to have exceeded his authority or to have acted with
negligence, deceit, or fraud, he cannot be held res!J:'lnsible for
the failure of his principal to accomplish the obJect of the
agency.s It was held, however, that where no actual power to
sell is given, the principal may be estopped by an ap~earance of
power for which he is responsibl~, ~ut n~t wher~ his acts are
consistent with the power of adm1mstrat1on only.
Art. 1888. An agent shall not carry out an agency if its
execution would manifestly result in loss or damage to the
principal. (n)
Source of Arlicle.-This is a new provision taken from the Argentine
Code.
Result in Loss.-In order that this article may apply, the
• 2•!1 Enneccerua, Kipp & Wollf, 326.
• 7 Oyueloe 197, 198. .
• Gutierrez Hermanoe va. Oria Hermano,i & Co., 30 Phil. 491.
'Strong et al. vs. Repide, 6 Phil. 680.
1888) <Arts. 1889-1890) THE CIVIL CODE
415
possible loss or damage must not be a matter of appreciation; it
is necessary that to anyone the transaction is undoubtedly
prejudicial. For instance, if the agent authorized to buy _real
property knows that the vendor is not the owner or that the
property has considerable defects; or if the agent empowered to
lend money knows that the future borrower has become insol-
vent. In these cases, the agent must suspend action until he has
proceeds, then he wiH !.iecome liable to the principal for the
damages the latter may suffer. 6
Art. 1889. The agent shall be liable for damages i( there
pal. he should prefer bis own, (n)
Source of Arlicle.-This is a new provision taken from article 1908 of
the Argentine Code.
Applies to All Agents.-The distinction made by French
writers between gratuitous and remunerated agency cannot be
made under this article, which makes no distinction; in one or
the other kind of agency, strict fidelity in the discharge of his
powers is required of the agent. When a conflict arises, and he
wishes to prefer his own interests, he should renounce· the
agency, provided the renunciation is not for the purpose of
personally profiting from the transaction. 8 ·
Art. 1890. If the agent has been empowered to borrow
money, he may himself be the lender at the current rate of
interest. Ifhe has been authorized to lend money at interest, he
cannot horrow it without the consent ofthe principal. ,(n) ·
So= of,Arlicle.-This is a new provision taken from the A;.pntine
Code. ' .. · ·. ·· ·
• 6 Llerena 168.
• 6 Llerena 170.
416 THE CML CODE (Art. 1891)
Art. 1891. Every agent is bound to render an account of
his transactions and to deliver to the principal whatever he
may have received by virtue of the agency, even though it may
not be owing to the principal.
Every stipulation exempting the agent from the obliga•
tion to render an account shall be void. (1720a)
Source of Article.-Taken from article 1720, old Civil Code, except that
the second paragraph of the present article is new.
Delivery of What is Received.-When the agent is au-
thorized to :sell a piece ofland at a certain price, and he sells it
for a higher price, the principal can demand the entire pric£:
paid. Or, when the agent is authorized to lend money without
interest to one person, and he lends with interest to another,
the principal can demand the interest. Or, where the loan is
without interest, but the debtor pays interest to the agent, the
latter must deliver the interest to the principal. And when an
agent is authorized to sell property at a fixed price, but instead
of selling it he exchanges it for another, the principal ma;,
demand either the thing received or the price fixed.
This article, however, does not apply to over-payment by
mistake. If a debtor, by mistake, pays to the agent more than
what is owing to the principal, such agent may keep the excess,
because he is the one against whom an adion may be brought
by the payor to recover the excess amount paid. 7
An agent who takes a secret profit in the nature of a bonus,
gratuity or personal benefit from the vendee without revealing
the same to his principal is guilty of a breach ofhis loyalty to the
latter and forfeits his right to collect the commission that may
be due him, even if the principal does not suffer any injury br
reason of such breach of fidelity, or that he obtained bette1·
results or that the agency is a gratuitous one, or that usage or
custom allows it. 7•
Obligation to Accoun.t.-The duty of the agent to ac-
count to his principal for all money ana property which may
have come into his hands during and by virtue of the agency
' 6 Llerena 17ll-173.
•• Domingo n. Domingo, 42 SCRA 131.
(Art. 1892) THE CIVIL CODE 417
embraces not only such money and property as may be received
directly from the principal, but also that which comes into the
agent's hands as the result of his agency. 8
The agent is relieved from the obligation to r~turn to the
principal things received from the latter but are lost by unfore-
seable events without any concurrent fault on the agent's part.Sa
The obligation of the agent to render an account is trans-
missiblo to his heirs. 9 The right of a principal to an accounting is
also transmissible to his heirs. Thus, an agent who makes use of
his power of attorney after the death of his principal, has the
obligation to deliver the amount collected by him. by virtue of
said power, to the administratrix of the estate of his principal 10
An order reqi.:..iring an agent to render a detailed account of
the business of the agency to the principal is simply a conse-
quence of the rescisi,ion of a contract of agency, since every
agent must give an account, of his transactions. 11
Lawyers are bound to promptly account for money or pro-
perty received by them on behalf of their clients and failure to
do so constitutes professional misconduct. The fact that a law-
yer has a lien for fees on money in his hands collected for his
clients does not relieve him from the duty of promptly account-
ing for the funds received. 12
A"."t. 1892. The agent may appoint a substitute if the prin-
cipal ha.s not prohibited him from doing so; but he shall be
responsible for the acts of the substitute:
(1) When he was given such power to appoint one;
(2) When he WM given such power, but without designat-
ing the person, and the person appointed was notoriously in•
competent or insolvent.
All acts of the substitute appointed against the prohibi•
tion of the principal shall be void. (1721)
Source of Artfole.-Taken from article 1721, old Civil Code.
'Asiatic Pet.role um •,a, Quey Sim Poo, (C.A.) 40 Off. Gu. (Supp. 12) p. «.
" Austria vs. Court of Appeals, 39 SCRA 527.
• Valverde 623.
"Ramoe VII. Caoibee, 50 0ft'. Gaz. 1032.
11
Duhart ~'reres y Cie VII. Macilll!, 5-1 Phil. 613,
"In re Bamberger, 49 Phil. 962.
418 THE CML CODE {Arts. 1893-1894)
Use of'.Employees.-The use of employees by the agent is
different from a substitution. The agent can make use of his
employees in carrying out the agency, unless this is expressly
prohibited by the principal, or excluded by the nature and
purpose of the agency. The agent, however, shall always be
liable to the principal for the fault or negligence of such employ-
ees.13
Art. 1893. In the cases mentioned in Nos. 1 and 2 of the
preceding article, the principal may furthermore bring an ac-
tion against _the substitute with respect to the obligations
which the latter has contracted under the substitution. {1722a)
Source of Article.-Taken from article 1722, old Civil Code.
Art. 1894. The responsibility of two or more agents, even
though they have been appointed simultaneously, is not soli•
dary, if solidarity has not been expressly stipulated. (1723)
Source of Article.-Taken from article 1723, old Civil Code.
Joint Agency.-This article has reference to the relatior,
of the agents to the principal; each agent is responsible for his
own acts to the principal. It does not regulate joint agency in
relation to the third persons with whom the agents may con-
tract.
Under a joint agency, properly speaking, several agents
are appointed to act collectively. The declaration of one of them
to a third person in relation to the agency does not become
effective until the others make the same declaration to the
same person or ratify the declaration already made by the first
agent. In other words, whether they act together or separately,
they are considered as a single unit; all must act towards fie
same end to bind the principal. But the knowledge of a fact by
one of them is considered as knowledge of all. 14
"Perez, Gonzalez & Alguer: 2-ll Enneccerus, Kipp & Wolff 328.
"Perez, Gonzalez & Alguer: 1-11 Enneccerus, Kipp & WolfT270,273.
(Art. 1895) . THE CML CODE -419
Liability is Personal.-Where there is no solidarity; each
agent is liable only for his own acts or omissions. It is.necessary
to determine what each one should do under the agency. Thus,
if the agents are charged with a joint undertaking, so that one
cannot act without the others, and the agency is not performed
due to the omission of one agent, then he alone bears the entire
responsibility for the injury caused. But if each one .can act
separat.ely, then he is liable only for his own omission or fault. 15
Art. 1895. If 80lidarity has been agreed upon, each oft.he
agents i& responsible for the non-fulfillment of the agency, and
for the fault or negligence of his fellow agents, except. in the
latter case when the fellow agents acted beyond the. scope of
their authority. (n) . ·
Source of Article.-This is e. new provision taken from the Argentine
Code.
Solidary Agency.-This article governs solidarity in the
relation cf the agents to the principal and not in their relation to
third persons. Properly speaking, a solidary agency is one in
which, there being several agents for the same purpose, each
one acts independently of the others, and can bind the principal
without the intervention of the others. 16 When a person ap-
points two agents independently, the consent of one will not be
required to validate the acts of the other, unless that appears
positively to have been the principal's intention. 17
The present article really governs a joint agency where the
agents act collectively ae a unit in relation to third persons, but
where it is stipulated that they shall be solidarily liable to-the
principal. It cannot govern B. solidary agency in the true sense,
in which ear.h agent is absolutely independent of the other. In
other words, both article 1894 and the present one apply to a
joint or collective agency, but are limited to the liability of the
agents to the principal. The relations of the agents to third
persons are governed by other principles.
" 6 Llerena 186-187, citi'1g Ouillouard, Aubry and Rau.
"Perez, Gonzalez & Algucr: 1-11 Enneccerwi, Kipp & WolIT270-271, 273.
" Mun. <'.,ouncil or lloilo v•. Evangelista, 55 Phil. 290. · ·
 420 THE CIVIL CODE (Art& 1800-1897)
Fault' or Negligence.-The fault or negligence mentioned
in this article includes fraud or dolo. 18
Acts Beyond Powers.-An act of one agent beyond the
scope of the agency does not concern the other agents; they have
no power to prevent it, and they should not be held liable for it.
But this does not relieve the other agents from liability for the
non•perfonnance of the agency itself, because the mere fact that
one agent oversteps the limits of his authority does not exempt
the others from discharging the agency, nor does it deprive the
principal of the guaranty arising from the stipulated solidar-
ity.19 These principles may be illustrated as follows:
(1) Two agents are authorized solidarily to sell a parcel of
land No. 1 at Pl0,000. One of the agents se11s parcel No. 2
instead. The other agent cannot be held liable for this act. But if
parcel No. 1 had been sold, for P6,000, instead of Pl0,000 this
irregular performance of the agency makes both agents solidar-
ily liable to the principal for damages.
(2) The agents empowered to sell an immovable are au-
thorized to receive only part of the price. One agent collects the
entire price. The other agents are not liable to the principal for
the excess co11ected, because as to that excess the act is beyond
the scope of the agency. 20
Art. 1896.1 The agent owes interest on the sums he has
applied to his own use from the day on which he did so, and on
those which he still owes after the extinguishment of the agency.
(1724a)
Source of Article.-Taken from article 1724, old Civil Code.
Art. 1897. The agent who acts as such is not personally
liable to the party with whom he contracts, unless he expressly
binds himself or exceeds the limits of his authority without
giving such party sufficient notice of his powers. (1725)
"68alvat23L
,. 6 Llerena 183-185, c:iting Pout, Laurent, Aubry and Rau,
• 6 Llerena l&l-186, c:iting Dalloi and French Jurispn,dence.
' Arl/.ck Applud: Mendoza vs. Viud4 de G<litia, 54 Phil. 657; Lyone vs. Ro6cntock, 66
Phil.632.
(Art. 1808) THE CML CODE 421
Sourc(J of Article.-Taken from article 1725, old Civil Code.
Liability of Agent.-When the agent acts in the name of
the principal, within the scope of the agency, he cannot be held
persona11y Hable on the contract. 2 The fact that the agent has
also hound himself to pay the debt does not relieve from liability
the principal for whose benefit the debt was incurred. The
individual liability of the agent constitutes a further security in
favor of the .::reditor and does not affect or preclude the liability
o+' the principal.3 .
But an administr'ltor who gives his conformity to a con•
tract without authority of the court, and without stipulating
against personal liability, and who fails to pay a claim which it
was his duty to pay, may be sued on his promise in his individ-
ual capacity. The fact that he describes himself as administra-
tor does not alter his personal liability. The judgment against
him will be de bonis propiis. 4
Improper Acts of Agent.-An agent who obligates his
principal to deliver specific property to a third party may not
thereafter, to the prejudice of such third party, appropriate and
apply the same property, or its proceeds, to the payment of
debts owing by the principal to the agent; and the circumstance
that the p~·incipal assents to such application of the property
does not alter the case. An agent is precluded from doing any
positive act that could prevent performance on the part of his
principal.6
Art. 1898. If the agent contracts in the name of the prin•
cipal, exceeding the scope of his authority, and the principal
does not ratify the contract, it shall be void if the party with
whom tha agent contracted is aware of the limits of the powers
granted by the principal. In this case, however, the agent is
liable ifhe undertook to secure the principal's ratification. (n)
1 Macias & Co. vs. Warner, flames & Co., 43 Phil. 156; Banque General Beige, el al.
vs. Walter Bull & Co., Inc., 47 Off. Gaz, 138; Pacific Engineering Co. vs, F.J. Edwards Ltd.,
(C.A.) 53 Orr. Gaz. 3481.
• Tuazon vs. Orosco, 5 Phil. 696.
• Pacific Commercial Co. vs. Hernnez and Alunan, 61 Phil. 494.
'National Bank vs. Welch, Fai,child & Co., 44 Phil. 780.
422 THE CML CODE
Source.of Article.-This is a new provision taken from the Argentine
Code.
Excess of Authority.-The liability of an agent who has
exceeded the scope of his authority, if the principal does not
ratify his act, depends upon whether or not the third person
knows the limits of the agent's power. If he knows such limits,
he is to blame and he is not entitled to recover damages from the
agent, unless the latter undertook to secure the principal's rati-
fication. But if the third person is unaware of the limits of the
authority conferred, he has been deceived, and the agent is
liable for damages to him . .This result is to be implied in article
1897.6
Ratification.-The acts of an agent beyond the scope of
his authority does not bind the principal, unless he ratifies
them, expressly or impliedly. 7 If the principal receives the
benefits from the unauthorized acts of the agent, it is evident
that he tacitly ratifies them. 8 But there is no ratification where
the principal, after its agents made unauthorized loans to third
persons, filed suits against said third persons to collect at least
part of the unauthorized loans, the principal, not intending to
ratify the act of its agents, merely tried to diminish as much as
possible the loss to itself and automatically decrease the finan-
cial liability of its agents. 9
Only the principal can ratify; the agent cannot ratify his
own unauthorized acts. And the principal must have knowledge
of the acts he is to ratify. to
Art. 1899, If a duly authorized agent acts in accordance
with the orders of the principal, the latter cannot set up the
ignorance of the agent as to circumstances whereof he himself
was, or ought to have been, aware. (n)
Source of Article.-This is a new provision taken from the German
Code.
• De Buen: 4 Colin & Capitant 901; Sentencia (Cuba) of Sepl. 25, 1907.
'Sentencia of June 30, 1932.
• Sentencia of April 6, 1934.
• National Bank 1111. Ragamaapad, et al., G.R No. L-3407, June 29, 1951.
•• Brownell vs. Parreilo, (C.A.) 54 on: Gaz. 7419.
(Art. 1800) (Arts. 1900-1903) THE CML CODE 423
Art. 1900. So far as third persons are concenied, an act
is deemed to have been performed within the scope of_ the
agent's suthority, ifsuch act is within the terms of the power of
attorney, as written, even if the agent has in fact exceeded the
limits of his authority according to an understanding between
the principal and the agent. (n)
· Source of Article,-This is new provision taken from the Argentine
O.:.de.
Art. 1901. A third person cannot set up the fact that the
agent has exceeded his powers, if the principal has ratifted, or
has signified his willingness to ratify the agent's acts. (n)
Source of Article.-This is a new provision taken from the Argentine
Code.
Art. 1~2. A third person with whom the agent wishes to
contract on behalf of the principal may require the presents•
tion ofth~ power of attorney, or the instructions as regards the
agency. Pri,,_qu:, or secret orders and instructions of the princi•
pal do not prejudice third persons who have relied upon the
power of attorney or instructions shown them. (n)
Source of Article.-This is a new provision taken from the Argentine
Code.
Art. 1903. The commission agent shall be responsible for
the good1,1 received by him in the terms and conditions and as
described in the consignment, unless upon receiving them he
should make a written statement of the damage and deteriora•
tion suffered by the same. (n)
Source of Article.-This is a new provisi-:m taken from article 265, Code
of Commerce.
424 THE CML CODE (Arts. 1904-1908) {Art. 1909) THE CIVIL CODE 425

Art. 1004. The commisaion agent who handles goods of Source of Article,-Thie le a new provision taken from article 273,
the same kind and mark, which belongs to different owners, Code of Commerce.
shall distinguish them by countermarks, and designate the
merchandise respectively belonging to each principal. {n)

Source ofArticle.-This is a new provision taken from article 268, Code

of Commerce.
Art. 1005. The commission agent cannot, without the ex•
press or implied consent of the principal, sell on credit. Should
he do so, the principal may demand from him payment in cash,
but the commission agent shall be entitled to any interest er
benefit, which may result from such sale. {n)
Source or Article.-This is a new provision taken from article 270, Code
of Commerce,
Art. 1909. The agent is responsible not only for fraud,
but also for negligence, which shall be judged with more or less
rigor by the courts, according to whether the agency was or
was not for a compensation. (1726)
Source of Artlcle.-Taken from article 1726, old Civil Code.
Breach ofTrust.-An agent may not, without the permis-
sion of the principal, directly or indirectly buy for himself what
he was comm;:_,sioned to sell, or sell what he has been commis•
sioned to buy. 11 This prohibition ceases upon the termination of
the agency. 12 ·

Art. 1006. Should the commission agent, with authority

of the principal, sell on credit, he shall so inform the principal,
with a statement of the names of the buyers. Should he fail to
do so, the sale shall be deemed to have been made for casn
insofar as the principal is concerned. {n)

8oUl'ceofArticle.-This is a new provision taken from article 271, Code

of Commerce.

Art. 1907. Should the commission agent receive on a sale,,

in addition to the ordinary commission, another called a guar•
antee commission, he shall bear the risk of collection and shall
pay the principal the proceeds of the sale on the same terms
agreed upon with the purchaser. (n}

Source of Article.-This is a new provision taken from article 272, Code

of Commerce,

Art. 1908. The commission agent who does not collect

the credits of his principal at the time when they become due
and demandable shall be liable for damages, unless he proves
that he exercised due diligence for that purpose. (n)
11 Cadwallader & Co. vs. Smith, Bell & Co., 7 Phil. 461; Barlon vs. Leyt.e Al!phaU, 46
Phil. 938; Moreno vs. Villones, Off. Gaz., Sept. 13, 1941, p. 2322; Palma vs. Crislobal, Off.
Gaz., Jan. 1948, p. 67. ·
"Bald•vino vs. Amenos, 9 Phil. 537; Florida vs. Yearsley, 44 Phil. 645; Valera v&,
Velasco, 5 I Phil. 696.

Chapter 3
OBLIGATIONS OF THE PRINCIPAL
Art. 1910.1 The principal must comply with all the ohli•
gations which the agent may have contracted within the scope
of his authority.
AB for any obligation wherein the agent has exceeded hi11
power, the principal is not bound except when he ratifies i'.
expressly or tacitly. (1727)
Source of Article.-Taken from article 1727, old Civil Code.
Liability for Agent's Illicit Acts.-When the agent is in
the performance ofan obligation of the principal, the fault of the
agent is attributable to the principal; this is culpa contractual.
The rule is the same, even if the illicit act of the agent amounts
to a crime. Thus, if an agent entrusted with the delivery of a
thi~g ~o a third person misappropriates the things, the princi-
pal 1s liable to the third person for the restitution oft.he thing or
indemnity for damages.
. But where the fault or crime committed by the agent is not
m the pe~ormance of an obligation of the principal, the latter
generally 1s not bound by the illicit act of the agent, even if it is
done in connection with his functions. This rule, however, hns
some exceptions:
(1) When the delict or quasi-delict was committed by the
agent because of defective instructions from the principal, or
due to the lack of necessary vigilance or supervision on his part
the principal is liable because of his own negligence.
(2) When the agent secures a contract through fraud, or
makes a fraudulent alienation, or executes a simulated con-
tract, all of these acts are imputable to the principal as if done
by him, because the illicit act is inseparable from the transac-
tion 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
1
Artie/,! Applied: National Bank vs. Palma Gi, 55 Phil. 639.
426
(Arts. 1911-1913) THE CIVIL CODE 427
only because of the m,mner in which the agent has performed it;
the principal is liable to third persons who act in good fait!l,~ 2 '
Where a sale ofland is effected on the strength of the mis-·
representation of the agent of the vendor, the latter cannot
accept the benefit of such representations and at the sam~ time
deny the responsibility for them. 3 · ·
Mismanagement by the agent does not relieve the princi.."
pal of liability to third persons.3a ·
Art. 1911. Even when the agent has exceeded his autho•
rity, the principal is solidarily liable with the agent if the for-
mer allowed the latt-£,ir to act u though he had full powers: (n)
Source of Article.-Thls is a new provision.
Basis of Liability.-The liability of the principal under
this article is based on his failure to adopt the necessary meas-
ures to prevent third persons from being deceived by the appar-
ent authority of the agent. The liability, therefore, extends only
in favor of third persons who have lawfully supposed the-'exis~
tence of the authority. ·,\ -, · ·· ·
Art. 1912;' The principal must advance to the. ,':'Cent,
should the latter so request, the sums necessary for the.-,x~.c\l~
tion of the a 6:.?ncy. . . · '· · '
Should the agent have advanced them, the principal mus{
reimburse him therefor, even if the business or undertaking
' was not successful, provided the agentis free from all fault.;":
The reimbursement shall include interest on the au:itul
advanced, from the day on which the advance was made. (1728)
Source of Article.-Taken from article 1728, old Civil Code'.
Art. 1913. The principal must also indemnify the ·agent
'11 Planiol & Ripert 861-863.
• Gonzalez and Gomez vs. Haberer, 47 Phil. 380. .
" Commercial Bank vs. Republic Armored Car, 8 SCRA 425, 9 SCRA 112.
• Artie/,! Applied: Forti• vs. Gutierrez Hermano<t, 6 Phil. 100,

428 THE CIVIL CODE (Art& 1914•1915\
for all the •damages which the e::r.ecution of the agency may
have caused the latter, withoutfaultor negligence on his part.
(17i9a)
Source of Arlicle.-Taken from article 1729, old Civil Code.
Professional Services.-The princiµal must reimburse
the agent for amounts the latter may have paid as reasonable
compensation for professional services rendered by third per-
sons in the execution of the agency. 6
Art. 1914. The agent may retain in pledge the thingY
which are the object of the agency until the principal effects
the reimbursement and pays the indemnity set forth in the two
preceding articles. (1730)
Source ot Arliole.-Taken from article 1730, old Civil Code.
Art. 1915, If two or more persons have appointed an
agent for a common transaction or undertaking, they shall be
solldarily liable to the agent for all the consequences of the
agency. (1731)
Source of Arlicle.-Taken from article 1731, old Civil Code.
Solidarity of Principale.-The rule in this article applies
even when the appointments were made by the principals in
separate acts, provided that they are for the same transaction.
The solidarity arises from the common interest of the princi•
pals, and not from the act of constituting the agency. By virtue
of this solidarity, the agent can recover from any principal the
whole compensation and indemnity owing to him by the others.
The parties, however, may, by express agreement, negate this
solidary responsibility. 6 The solidarity does not disappear by
the mere partition effected by the principals after the accom-
plishment of the agency.1
If the undertaking is one in which several are interested,
but only some create the agency, only the latter are solidarily
• 1 Antokolet.z 639, citing Argentine deciaiona.
• 11 Planiol & Ripert 839-840.
• 6 Llerena 214-216.
(Arts. 1916•1918) THE CML CODE 429
liable without prejudice w the effects ofnegotiorum gestio with
respe~t to the others. And if the power granted includes various
transactions some of which are common and others are not,5
only those interested in each transaction shall be liable for it.
Art. 1916. When two persons contract with regar~ to the
same thing, one of them with the agent and the ~ther ~th the
principal, and the two contracts are incomp~tible wit~ ea.ch
other, that of prior date shall be preferred, without preJud1ce
to the provisions of article 1544. (n)
Sour<-e of Arlicle.-This is a new provision taken from the Argentine
Code.
Art. 1917. In the case referred to in the preceding ar•
ticle, if the.agent has acted in good faith, the principal shall be
liable in damages to th.a third person whose contract must be
rejected. If the agent acted in bad faith, he alone shall be re•
sponsible. (n)
Source of Article.-This is a new provision taken from the Argentine
Code.
Art, 1918. The principal is not liable for the expenses in•
curred by the agent in the following case!: • . ,
(1) If the agent acted in contravention of the prmcipal s
instructions, unless the latter should wish to avail himself of
the benefits derived from the contract;
(2) When the expenses were due to the fault of the agent;
(3) When the agt»nt incurred them with knowledge that
an unfavorable result would ensue, if the principal was not
aware thereof;
· (4) When it was stipulated that the expenses would be
borne by the agent, or that the lat.ter would be allowed only a
certain sum. (n)
Source of Article.-This is a new provision taken from the Argentine
Code.
• 6 Ll"ren~ 214-216.

Chapter 4
MODES OF EXTINGUISHMENT OF AGENCY
Art. 1919. Agency is extinguished:
(1) By its revocation;
(2) By the withdrawal of the agent;
(3) By the death, civil interdiction, insanity or insolvency
of'the principal or of the agent;
(4) By the dissolution of the firm or corporation which
entrusted or accepted the agency;
(5) By the accomplishment of the object or purpose of the
agency;
(6) By the expiration of the period for which the agency
was constituted. (1732a)
Source ot Article.-Taken from article 1732, old Civil Code, except that
Nos. (4), (5) and (6) are new.
Death of Principal.-An agency is terminated by the
death of the principal, even if the agency is for a definite period
and the period has not yet expired. 1 Hence, the authorization b;
a principal to another to furnish necessaries to the former's
grandson could not be made to extend after his death, not only
because the obligation to furnish support is personal and i1:,
extinguished upon the death of the person obliged to give
support, but also because, upon the death of a principal his
agent's authority is deemed terminated. 2
Articles 1930 and 1931 are exceptions to the general rule
provided in this article on the revocation of the agency by the
death of the principal.2a
Art. 1920. The principal may revoke the agency at will,
and compel the agent to return the document evidencing the
agency. Such revocation may be express or implied. (1733a)
1 • De Buen: 4 Colin & Capiuint 865; 905; 11 Planiol & Ripert844-846; 3 Cut.an 236-
Gabin et al. vs. Villanueva, (C.A.) 51 OIT, Gaz. 5749.
• Hermosa vs. Longara, G.R. No. L-5267, Oct. 27, 1953.
,. Rall0& vs. Felix Go Chan, 81 SCRA 251.
430
(Art. 1920) THE CML CODE 431
Source of Article.-Taken from article 1733, old Civil Code.
Power to Revoke.-The right of the principal to revoke
the agency at will, constitutes an exception to the general rules
of contract, and is founded on the principle that, representation
and conficience being the bases of the contract, it is the will of
the person represented that may put an end to the representa-
tion. If it were not so, the representation would be converted
into a truP. alienation of the personality, either in perpetuity or
for a definite period. Hence, when the confidence of the princi,
pal ceases, he may terminate the agency, and the agent has no
power to oppose such termination, even if there was a definite
period fixed for the agency. 3 This rule applies whether the
agency is gratuitous or remuneratory. 4
Same; Indemnity to Agent.-As a rule, the principal is
not liable for damages for having made use of his power to
revoke the agency. 5 However, if the revocation has been made
in such a manner ai, to constitute an abuse of right, the agent
can recover damages from the principal. 6 The principal cannot
revoke the agency in bad faith and as a means to avoid paying
compensation to the agent. 7 In such case, the court should give
the agent the reward due him. 8
Stipulation on Irrevocability.-The parties may validly
stipulate that the agency shall be irrevocable for a certain
period. 9 Although Spanish jurisprudence consider agency as
essentially revocable, 10 to the effect that permanent revocabil•
ity is an essential characteristic of agency, there is no reason
why it cannot become irrevocable by agreement, so long as the
agreement is according to the purpose of the agency and not
contrary to morals. The agreement may take one of two forms:
(1) a renunciation of t,he right to revoke, in which case the
principal cannot revoke the agency; or (2) a mere obligation of
• 11 Manresa 557; Barretto vs. Santa Marina, 26 Phil. 440.
• 3 Cast.an 326; 3 Valverde 626; 3 Camus 449.
• Sentencia of January 24, 1923.
237.
' Danon vs. Brimo & Co., 42 Phil. 133; Reyes vs. Moequeda, 53 Otr. Oaz: 2168.
• Infante vs. Cunan,n, 49 Off. Gai. 3320. · · ·
• Bevilaqua, Obligaciones, p. 282,
"See Sent.enclaa vfOecember 22, 1908, October 27, 1909, and November 9, 1926.

432 THE CIVIL CODE (Art.
the principal not to revoke, in which case the agency may be
revoked but the principal becomes liable for breach of con-
tract.11
Where the agency contract stipulated that the agent is au-
thorized to dispose the subdivided property until the same is
fully disposed of, the authority to sell continues until all lots are
sold. The contract cannot be terminated by the land owner
before then.11•
Even an irrevocable power, however, does not prevent the
principal from executing the delegated act himself. 12
A power of attorney coupled with interest can be revoked
for juat cauae. 12a
Agency Not Exclusive.-An agency conferred to carry
out certain transactions is not exclusive; it does not prevent the
principal from concluding the transaction himself or naming
other persons with the same authority. The agent cannot pre-
vent third persons from exercising their right to deal directly
with the principal, 13 even when the agency is granted as exclu-
sive, because the principal cannot renounce future acts. 14
Art. 1921. If the agency has been entrusted for the pur-
pose of contracting with specified persons, its revocation shall
not prejudice the latter if they were not given notice thereof
(1734)
Source oC Article.-Taken from article 1734, old Civil Code.
Scope of Article.-It is the duty at a principal on the ter-
mination of the agency, to give due and timely notice thereof to
third persons to whom he has given special invitation to deal
with his agent and failure to do so renders him liable to them for
whatever goods may have been in good faith and without
"Perez, Gonzalez & Alguer: 2-11 Enneccerus, Kipp & Wolff335-336.
,,. Dial088 va. Court of Appeals, 130 SCRA 350.
11 1 Von Tuhr, ObligacionM, p. 242.
""Caleongco va. Claparoloe., 10 SCRA 577.
11 6 Von Tuhr 92.
" I Von Tuhr, Obligaciooes 247.
(Arts. 1922-19~.3) THE CIVIL CODE 433
1921)
negligence sent to the agent without knowledge, actual or
constructive, of th~ ter-:nination of the agency. 16 This article
applies also to all cases where the authority of the agent has
been communicated to particular persons, even if they were not
indicated at the time the agency was created. If the third
persons have knowledge of the revocation, this is equivalent to
notification .16
Art. J922. If the agent had general powers, revocation of
the agency does not prejudice third persons who acted in good
faith and without knowledge of the revocation. Notice of the
revocation in a newspaper of general circulation is a sufficient
warning to third persons. (n)
Sourcti or Article.-This is a new provision taken from the Argentine
Code.
Application of Article.-This article refers to the agency
in which t.he person with whom the agent is to contract, is not
specified. 17
Art. 1923. The appointment of a new agent for the same
business or transaction revokes the previous agency from the
day on ·which notice thereof was given to the former agent,
without prejudice to the provision of the two preceding ar-
ticles. (1735a)
Source or Article.-Taken from article 1735, old Civil Code.
Incompatibility of Pol!•ers.-A new agency revokes an
existing one, only when the two are incompatible with each
other, or when the principal makes known to the first agent
that his powers have ceased by the appointment of the new
agent. Thus, an agency to purchase a particular piece of land
"Rall011 vs. Yangeo, 20 Phil. 269.
n Perez, Gonzalez & Alguer: l•ll EMeccerus, Kipp & Wolff288,
" 3 Valverde 628.
 434 THE CML CODE
would ta~itly revoke a former agency to buy the very same
property. 18
But where there is no incompatibility, the new agency may
only mean a division of the agency and the two agencies can -00-
exist. Thus, an agent may be appointed to buy lands in ceertain
locality without specification of the particular propertiea, his
authority being limited to the amount stated in his powers. If a
second agent is appointed to buy lands in the same locality. this
is not necessarily incompatible with the first agency, which is
not thereby revoked. 19
Notice to First Agent.-The grant of a new power of
:attorney to the new agent, must be made known to the fir!!t
agent, in order to revoke the power granted to the latter,
other,wise, it must be considered that the first agent acted
under ,a valid power of attorney which had not been legally
revoke.a .on the date of the transaction being questioned. 20
Exclusive Agency.--In cases where the agency is for a
compensation, and the compensation depends upon the success
ofthetransaetion entrusted to the agent, it is usual to stipulate
that the agency shall be exclusive. In this case, the principal is
deprived.of the right to appoint a new agent for the same
transaction, whether jointly with the exclusive agent or by way
of revocation of his powers. This stipulation is valid, provided
that it is limited with respect to the transaction or with respect
to time; otherwise, it will be contrary to the revocability of the
agency. 1
Art. 1924. The agency is revoked if the principal directly
manages the business entrusted to the agent, dealing directly
with third persons. (n)
Source of Article.-This is a new provision taken from the Argentine
Code.
"Prineipl, Applkd: Dy Buncio & Co. vs. Ong Guan Can, 60 Phil. 696.
" 6 Llerena 242, citing Freitas.
,. Garcia V8, De Manzano, 39 Phil. 577.
1
11 Planiol & Ripert 839.
(Art. 1924)
(Arts. 192u•l926) THE CML CODE 435
Direct Intervention by Principal.-The direct inter-
vention by the principal will revoke the agency, only when such
intervention is incompatible with the agency. Thus, when an
agent authotized to sell real property to Mr. X, and then the
principal himself directly negotiates with Mr. X for the sale of
the same property, there would be ~ revocation of the agency.
But, when the authority of the agent 1s to sell~ any ~ers_o~, and
then the owner negotiates to sell to one pa1_'t1cular 1~d~~1duaJ,
· there is no n;vocation, because there is no mcompatib;hty be-
tween such inforvention and the ageney. 2
Under the Argentine Code (article ~97~) even ~he_n there
is incompatibility the agency will subsist 1f the pnne~pal ex-
pressly manifest; that he has no intention of .revoking the
agency. It is submil;ted -that the same rule apphe~ under our
Jaw, because the expressed intention must preva1J over that
whir.his merely presumed by law.
Art 1925. When two or more principals have granted a
power 0 °£ attorney fo; a common transaction, any one of them
may revoke the same without the consent of the others. (n)
Sourc" of Article.-This is a new provision taken from the Argentine
(',ode.
Art. 1926. A general power of attorney is revoked b~ a
special 011 e granted to another agent, as regards the 11pec1al
matter in•1olved in the latter. (n)
Sou.roe of Article.-This is a new provision taken from the Argentine
Code.
Subsequent General Power.-Our Code does not ex-
pressly regulate a situation which is the reverse of that\~r?-
vided in tt.is article, or one where a general power of atto~ey 1s
given to one agent after a special power had been prevtously
• Llerena 243-244.
436 THE CML CODE (Art. 1927)
given to another. In the Argentine Code (article 1976) it 1s
expressly provided that the special power is not revoked by a
subsequent general power of attorney given to another agent,
unless the latter refers also to the act authorized under the
special power. It is submitt-E>d that this rule is aeceptable in this
jurisdiction.
Art. 1927, An agency cannot he revoked if a bilateral
contract depends upon it, or if it is the means of fulfilling 8n
obligation already contracted, or if a partner is appointed
manager of a partnership in the contract of partnership and
his removal from the management is unjustifiable. (n)
Source of Article.-This is a new provision taken from Article 1977 of
the Argentine Code.
Condition in Bilateral Contract.-An example of this
would be: A buys a piece ofland from B, with part of the price on
credit, but stipulating that he appoints B as an agent to collect
a certain amount from C and to apply the same to the unpaid
price. In this case, A cannot revoke the ageney of B.3
Means of Fulfillment.-If, in a contract of loan with :..
mortgage or pledge, the creditor is appointed as an agent to srll
the property given as security or to collect the fruits therefrom,
in order to apply the price or the fruits to the payment of the
loan, the agency is irrevocable.'
Other Cases of lrrevocability.-To those mentioned in
this article, it is generally held that the following are irrevo-
cable: (1) When there is an express stipulation to that effect,
and (2) When the agency is for the benefit of the agent. 5
Same; Stipulation of lrrevocability.-Many writers
agree that the irrevocability of an agency can be validly stipu·
lated. Valverde and Sal vat, however, believe that such stipula-
tion violates the very nature of agency, which is based on confi-
dence, and therefore is without legal effect. At any rate, even
• 6 SalvaL 260.
• Valverde 627 fn. l; 6 Salva, 260-261.
• Bevilaqua, Obligaciones, p. 282,
(Art. 1928) THE CML CODE 437
writers who sustain the validity of such stipulation admit that
the irrevocable agency cannot be perpetual.6 It must be limited
to a particular transaction or to a determinate period, because
public order is against indefinite .or irrevocable obligations. 7
Ef.'fect of Irrevocable Agency.-The irrevocability of the
agency does not merely insure an indemnity to the agent or
third persons prejudiced by the revocation; except when other-
wise sti 1JUlated, it extends the agency even against the will of
the principal, in the sense that the acts of the agent will bind
the principal notwithstanding the untimely revocation. 8
Art. 1928. Thee.gent may withdraw from the agency by
giving due notice to the principal. Uthe latter should suffer
any damage by reason of the withdrawal, the agent must in-
demnify him therefor, unless the agent should base his with-
drawal upon the impossibility of continuing the performance
of the agency without grave detriment to himself. (1736a)
Source of Artide.-Takcn from article 1736, old Civil CodE>.
What"Constitutes Withdrawal.-When an agent informs
his urincipa~ that for reasons of health he is about to depart
from th€ phce where he is exercising his agency, abandons the
property, turns it over to a third party, renders his accounts,
and asks his principal to execute a power of attorney to the
third party, it is shown that he renounced his agency; but he
must turn over any balance ofnoney to the principal. 9
The filing of a complaint by an agent against his principal
for the collecti'Jn of a balance in his favor resulting from a liqui-
dation of the agency accounts between them, and his rendering
of a final account of his operations, are equivalent to an express
renunciation of the agency and terminate the juridical relation
between them. 10
• 3 Valverde 626-627 fn.; 6 Salvat 261.
1
l l Planiol &. Ripert 845.
• l l 1'laniol &. Ripcrt 847.
• D<l la Poila vs. Hidalgo, 16 Phil. 450.
10
Va!era vs. Velasco, 51 Phil. 696.
438 THF, CIVIL CODE (Arts. 1929-1931)
Waiver of Right to Withdraw.-The agent may renounce
his right to withdraw from the agency; but even in such case,
the relationship may be terminated in case of an impossibility
of continuing the agency without serious injury to himself.11
Art. 1929. The agent. even if he should withdraw from
the agency for a valid reason, must continue to act until the
principal has had reasonable opportunity to take the neces-
sary steps to meet the situation. (1737a)
Source of Article.-Taken from article 1737, old Civil Code.
Art. 1930. The agency shall remain in full force and ef•
feet even after the death of the principal, iflthas been consti•
tuted in the common interest of the latter and of the agent, or
in the interest of a third person who has accepted the stipula-
tion in his favor. (n)
Source of Article.-This is a new provision taken from the Argentir e
Code.
Common Interest.-This is illustrated by a case where a
debtor has authorized his creditor, upon non-payment of the
debt, to sell certain properties of the debtor. 12 The power of sale
given in a mortgage, has been held to be a power coupled with
interest which survives the death of the grantor. 13
Benefit of Third Person.-This is illustrated by a case
where a debtor in selling his land, authorizes the buyer to
deliver part of the purchase price to his creditor. 14
Art. 1931. 14& Anything done by the agent, without know-
ledge of the death of the principal or of any other cause which
11
Perez. Conzalez & Alguer: 2·11 Ennecccrus, Kipp & WollT 336.
11
6 Llerena 264.
"Paano vs. Ravina, et al., 64 Phil. 378.
"6 Llerena 264.
'"' Herrera vs. Luy Kim Guan, 1 SCRA 406.
(Art. 1932) THE CIVIL CODE 439
extinguishes the agency, is valid and shall be fully effective
with r-espect to third person11 who may have contracted with
him in good faith. (1738)
Source of Article.-Taken from article 1738, old Civil Code.
Good Faith of Third Pel."Son.-The protection of this
article extends to third persons contracting in good faith with
the agent, event if the agent has knowledge of the cause of revo-
cation. Where the revocation of power is unknown to a third
person, there being a basis for confidence previously created by
the principal and on which the third person can rely, it is proper
to impute the risk to the principal. The good faith of the third
person is, therefore, a sufficient basis in itself for his protec-
tion.15
Death of Principal.-Revocation by an act of tha ;,nnci-
pal as a mode of terminating agency is distinguished from
revocation by operation of law such as death of the principal.
The g3neral rule is that an act of the agent after the death of his
principal is void ab initio unless the same falls under the
exceptions in Articles 1930 and 1931 of the Civil Code; Article
1931 being an exception to the general rule is to be strictly
construed. The contention that despite the death of the princi-
pal the art of an attorney-in-fact in selling his principal's share
of the disputed property is valid and enforceable since the buyer
acted in good faith, is untenable because of the established
knowledge of the attorney-in-fact of the death of his principal.
The law does not impose a duty on the heirs of the principal
to notify the agent of the death of the principal; but if the agent
dies, his heirs must notify the principal thereof. 1&
Art. 1932. If the agent dies, his heirs must notify the
principal thereof, and in the meantime adopt such measures as
the circumstances may demand in the inlerest of the latter.
(1739)
"Perez, Conzalez & Algucr: !·II Enneccerus, Kipp & WollT289.
,.. Ralloe vs. Felix Go Ch,·n, 81 SCRA 261.
440 THE CML CODE (Art, 1932)

Source of Article.-Taken from article 1739, old Civil Code. Title XI

When Notice lmpoasible.-When the heirs of the agent LOAN
cannot give notice required by this article, because the where-
GENERAL PROVISIONS
abouts of the principal is unknown, or for any other cause, they
should consign the things object of the agency in court. 16 Art. 1933. By the contract of loan, one of the parties de•
livers to another, either something not consumable so that the
J.atter may u.se the same for a certain time and return it, in
which case the contra:,t is called a commodatum; or money or
other consumable thing, upon the condition that the same
amount of the same kind and quality shall be paid, in which
case the contract is simply called a loan or mutuum.
Commodatum is essentially gratuitous.
Simple loan may be gratuitous or with a stipulation to pay
interest. )
In commodatum the bailor retains the ownership of the
thing loaned, while in simple loan, ownership passes to the
borrower. (1740a)
Sou.roe of Artlcle.-Taken from article 1740, old Civil Code, as inter•
preted by Manresa.

Commodatum and Simple Loan.-Commodatum refers

to non-fungible things, while a simple loan (mutuum) refers to
fungible.;. But apart from this distinction with respect to the
condition of the objects, the following differences may be pointed
out: (1) Commodatum is essentially gratuitous, while simple
loan may be for remuneration. (2) In commodatum, the owner•
ship of the thing is not transferred to the borrower, while in
simple loan it is transferred. 1 (3) Consequently, in simple loan,
the borrower bears the risk of lo~s of the thing, because he
becomes th£:: owner thereof; but in commodatum, the lender,
who retains the ownership of the thing, suffers the loss. 2
When petitioner borrowed the house of private respon•
dent's pTedecessors, and petitioner was allowed its free use,
private respondents became bailors in commodatum, and peti•
tioner, the bailee.2a

1 11 Manresa 582,683.
' 3 Camus 463.
"Catholic Vicar vs. Court of Appeals, 165 SCRA 515.
•• 6 Llerena 240.
441