JD 701: AGENCY, TRUST AND PARTNERSHIP

ON THE DIVISION OF PROFIT: EXAMPLE:

1. The partners share the profits according to their agreement X, Y, and Z agreed to
subject to Article 1799; contribute P20,000.00 each to
2. In the event that there is no agreement: operate a food business. They
a) The share of each capitalist partner shall be in proportion also agreed that since Z is a
to his capital contribution; cook, he would also be an
b) The industrial partner shall receive a just and equitable industrial partner. It is
share under the circumstances, in which it must be stipulated in their contract that
satisfied first before the capitalist partners shall divide 10% of the total profit will go to
the profits the industrial partner and the
❖ Under the Code of Commerce (Art. 140 remaining profit will be equally
thereof.), the industrial partner was “placed in distributed to each of them.
the distribution in the same position as the Thus, if they will have a profit
RULES ON capitalist partner having the smallest interest. of P10,000.00, the P1,000.00
DIVISION OF c) A partner is entitled to receive only his share of the profits which is the 10% of the total
PROFIT AND LOSS actually realized by the venture. Thus, there is a need to profit will be given to Z as the
consider the hidden risk in a venture. industrial partner and the
remaining profit of P9,000.00
will be equally given to X, Y,
and Z.
ON THE DIVISION OF LOSS: EXAMPLE:
1. The losses shall be divided according to their agreement In the same example, the
subject to Article 1799; partners have no agreement
2. If there is no such agreement for the division of losses, but the for the division of losses but
contract provides for the share of the partners in the profits, since they have a profit-
then the profit-sharing ratio shall then be the basis for the share sharing agreement, the same
of each in the losses; will be applied to the division
3. If there is no such agreement for the division of losses, the of losses in which it will be
industrial partner shall not be liable for the losses;

RUTH N. ROBLE
JD-2
 JD 701: AGENCY, TRUST AND PARTNERSHIP

4. If there is also no profit-sharing stipulated in the contract, thenequally distributed among the
losses shall be borne by the partners in proportion to their partners.
capital contributions, but the purely industrial partner shall not
be liable for the losses

1. The designation of the share in the profits and losses may be X, Y, and Z agreed to
delegated to a third person by common consent. contribute a cash capital of
2. To avoid impartiality, designation of the share in the profits and P10,000.00 each as well as
losses should not be done by one of the partners. their properties to put up a
DESIGNATION BY A 3. The designation by the third person would generally be binding business. Since their
THIRD PERSON OF unless manifestly inequitable. properties came in different
SHARE IN PROFITS 4. The designation of the share in the profits and losses by a third values, they decided to hire
AND LOSSES. person is impugnable within the period of three months from the the services of an attorney to
time it came into the knowledge of the partners. Once the period laid down all their
has lapsed, the partners could no longer complain unless contributions so as to know
otherwise the decision is inequitable. their profit and loss- sharing
ratio.
1. Each partner in a general partnership has a right to an equal Example:
voice in the conduct and management of the partnership
A, B, C, D, and E are partners
business regardless on the amount or size of their capital
in a coffee shop business. C,
contribution or services to the business.
D, and E have been appointed
2. For managers who are appointed by common agreement in the
as managing partners. C
articles of partnership, he/she may execute all acts of
RULES ON decided to acquire additional
administration notwithstanding the opposition of the other
MANAGEMENT coffee maker in order to
partners, unless he should act in bad faith. His power is
accommodate more orders.
revocable only upon just and lawful cause and upon the vote of
C’s decision was supported
the partners representing the controlling interest.
and conformed by E but was
In case of mismanagement, the other partners may avail of the
opposed by D. In this
usual remedies allowed by law, including an application for
scenario, though there was an
dissolution of the partnership by a judicial decree.
opposition from one of the

RUTH N. ROBLE
JD-2
 JD 701: AGENCY, TRUST AND PARTNERSHIP

3. For managers who are appointed by partners independently of managing partners but
the articles of partnership, his appointment may be revoked at because majority rules, then
any time for any cause whatsoever. C’s decision is valid.
4. As a general rule, a partner appointed as manager has all the
powers of a general agent as well as all the incidental powers
necessary to carry out the object of the partnership in the
transaction of its business except when there are specific
restrictions.
5. If two or more partners have been entrusted with the
management of the partnership without specification of their
respective duties, each one may separately perform acts of
administration. In case there are oppositions from one or more
of the managing partners, then the decision of the majority of
the managing partners shall prevail. If there is a tie, the matter
shall have to be decided by the vote of the partners owning the
controlling interest.
1. Persons who, not being partners, include their names in the firm
name do not acquire the rights of a partner (see Art. 1767.) but
under Article 1815, they shall be subject to the liability of a
RULES ON partner (Art. 1816.) insofar as third persons without notice are
SHARING OF concerned.
PARTNERSHIP 2. Partners are principals to the other partners and agents for them
LIABILITIES TO and the partnership. They are liable to third persons who have
THIRD PERSONS dealt with one of them in the same way that a principal is liable
to third persons who have dealt with an agent. There is a general
presumption that each individual partner is an agent of the firm
and that he has authority to bind the firm in carrying on the
partnership transactions.

RUTH N. ROBLE
JD-2
 JD 701: AGENCY, TRUST AND PARTNERSHIP

3. In a partnership, the partners (except limited partners) are liable

personally and subsidiarily (sometimes solidarily) for
partnership debts to third persons.
4. An industrial partner is not exempted from liability to third
persons for the debts of the partnership.
APPLICATION OF 1. If the partner authorized to receive issues the receipt for the
PAYMENT OF partnership, payment shall be applied to the partnership credit
SEPARATE in its entirety.
DEMANDABLE 2. If the partner authorized to receive issues his own receipt,
DEBTS OWED TO payment shall be applied to the partnership credit and
PARTNERSHIP partner’s credit proportionally.
AND TO PERSON 3. If the debt to the partnership is not yet due, payment shall be
AUTHORIZED TO applied to the partner’s credit in its entirety.
RECEIVE IT 4. If the debt owed to the partner is more onerous, the selection
by the debtor of the more onerous debt as to the application of
payment shall be followed.
1. Every partner is an agent and may execute such acts with EXAMPLE:
binding effect on the partnership even if he has in fact no
A, B, and C are partners in the
authority unless the third person has knowledge of such lack of
buying and selling of home
authority.
appliances. The sale of a
LIABILITY OF 2. For acts which are not apparently for carrying on in the usual
refrigerator by C to D is
PARTNERSHIP TO way the business of the partnership, the partnership is not
binding upon the partnership
THIRD PERSONS bound, unless authorized by all the other partners or unless
because it is apparently for
FOR ACTS OF they have abandoned the business. The general rule is that
carrying on in the usual way
PARTNERS powers not specifically delegated in a partnership agreement
the business of the
are presumed to be withheld. So, if the purposes of a
partnership even if C had, in
partnership are limited or special, third persons cannot obtain
fact, no authority. But if D had
credit on the faith of the fi rm in relation to a matter foreign to its
knowledge of such lack of
objects, although if the objects of the partnership are general,
authority, then the partnership
the power to bind may be equally general.

RUTH N. ROBLE
JD-2
 JD 701: AGENCY, TRUST AND PARTNERSHIP

3. The partnership is not liable to third persons having actual or would not be bound by the act
presumptive knowledge of the restrictions, whether or not the of C.
acts are for apparently carrying on in the usual way the business
of the partnership.
RULES ON 1. The title to the property is not held by the partnership, although Example:
CONVEYANCE OF as between the partners there is no question that it is a
A, B, and C are partners in a
REAL PROPERTY partnership property. The presumption is that, property
partnership known as X & Co.
BY A PARTNER OR purchased with partnership funds belongs to the partnership
A sold a parcel of land
PARTNERS unless a contrary intent is shown;
registered in the name of X &
2. Article 1819 gives the legal effects of the conveyance of real
Co. to D without express
property belonging to the partnership depending in whose name
authority. The conveyance
it is registered and in whose name it is conveyed.
passes title to D; but X & Co.
can recover the property if (a)
the conveyance was not in the
usual way of business, or (b)
D had knowledge of the fact
that A has no authority even
though the conveyance was
made in the usual way of
business. In no case may the
partnership recover if D had, in
turn, conveyed the property to
E who had no knowledge o
EFFECT OF 1. Admissions by a party as testified to by a third person are
ADMISSION, admissible in evidence against him in litigation.
REPRESENTATION, 2. The admission of a partner made during the existence of the
NOTICE TO AND partnership are binding against the partnership (and co-
KNOWLEDGE OF A partners) when such admissions refer to a matter concerning
PARTNER partnership affairs and made within the scope of his authority.

RUTH N. ROBLE
JD-2
 JD 701: AGENCY, TRUST AND PARTNERSHIP

3. When a partner makes admissions for himself only without

purporting to act for the partnership, he alone shall be
chargeable with his admissions.
4. After dissolution, admission made by a partner will bind the co-
partners if connected with the winding up of partnership affairs.

RUTH N. ROBLE
JD-2