Professional Documents
Culture Documents
Notes On Partnership and Agency
Notes On Partnership and Agency
Notes On Partnership and Agency
and from that moment, the parties are
Effect: In effect, obligations arising from
bound not only to the fulfillment of what
contracts have the force of law between the
has been expressly stipulated but also to all
contracting parties and should be complied
the consequences which, according to their
with in good faith (Article 1159, NCC).
nature, may be keeping with good faith,
Essential elements (COC): usage and law (Article 1315).
4. Relativity. Contracts, as a general rule, take
1. Consent. It is the conformity or effect only between the parties, their
concurrence of wills (offer and acceptance) assigns and heirs (Article 1311).
and with respect to contracts, it is the
agreement of the will of one contracting History of Partnership as a business organization
party with that of another or others, upon
According to Professor Rowley (1916), the earliest
the object and terms of the contract (De
form of partnership was that of the first man and
Leon). In the Philippines, the theory of
first woman who joined forces against the elements
cognition is followed. This means that the
and the dangers while they gave one another mutual
offer and the acceptance concur only when
protection and assistance. He described such
the offeror comes to know, and not when
partnership as the rudest sort, with no laws
the offeree merely manifests his
governing the subject except the law of the
acceptance.
strongest arm, the quickest eye, and the heaviest
2. Object. It is the subject matter of the
club.
contract.
3. Conside atio /Cause. It is the h of the De Leon and De Leon (2010) have noted that,
contract. between 3,000 BC and 1,000 BC at the time of
Babylonian civilization, people have learned to pool
Form: Contracts are obligatory in whatever form
their resources to a common fund. Hence,
they may have been entered into, provided that all
Hammurabi provided for the regulation of
the essential requisites for their validity are present.
partnerships in his compilation of the system of laws
However, when the law requires that a contract be
during that time. It can be gainsaid therefore that
in some form in order that it may be valid or
the idea of forming partnerships was undoubtedly
enforceable, or that a contract be proved in a certain
practiced from the earliest time among those
way, that requirement is absolute and indispensable.
individuals who did not have sufficient capitals and
Principal characteristics of contracts (AMOR = love) not in a position to conduct business or to undertake
certain enterprises singly (Espiritu, 1918).
Partnership Agency
Partnership Trust
A partner is both a An agent never acts for
All of the members are The trustee is only a
principal and an agent himself, but only for his principals and are agents principal and is not an
for the firm and the principal. of each other. agent. Only the trustee
others. and not the beneficiaries
is empowered to make
contracts to carry on the
Partnership Joint Stock Company business affairs and the
It is an association of It is association of only one who has legal
title to the property.
persons. capital.
Capital is not divided Although a special form
into shares. of partnership, its capital Paragraph 2 relates to the exercise of a profession.
is divided into shares, Strictly speaking, the practice of a profession is not a
like in a corporation. business or an enterprise for profit. However, the
Generally, all the Generally, management law allows the joint pursuit thereof by two or more
partners are involved in is with the board of persons as partners. In such case, it is the individual
the management of the directors. partners, and not the partnership, who engages in
enterprise. the practice of the profession and are responsible
Partners may be liable Liability of the members for their own acts as such.
with their individual is only up to the extent
properties after the of their shares if such is Under Section 22 of the National Internal Revenue
exhaustion of what the statute Code, the term corporation includes partnerships,
partnership assets. provides. no matter how created or organized, joint-stock
Transferee of the Transferee of the companies, joint accounts, association, or insurance
pa t e s sha e does ot e e s sha es hi self companies, but does not include general
become a partner unless becomes a member professional partnerships and a joint venture or
all the partners consent. without any necessity of consortium formed for the purpose of undertaking
consent from the other construction projects or engaging in petroleum, coal,
members. geothermal and other energy operations pursuant to
Antonio Chua and Peter Yao against Lim
Lim Tong Lim v. Philippine Fishing Gear
Tong Lim for (a) declaration of nullity of
Industries, Inc., GR 136448, November 3,
commercial documents; (b) reformation of
1999
contracts; (c) declaration of ownership of
On the existence of a partnership: fishing boats; (d) injunction; and (e)
damages.
Specifically, both lower courts ruled that a 9. That the case was amicably settled through
partnership among the three existed based on the a Compromise Agreement executed
following factual findings: between the parties-litigants the terms of
which are already enumerated above.
1. That Petitioner Lim Tong Lim requested
Peter Yao who was engaged in commercial From the factual findings of both lower courts, it is
fishing to join him, while Antonio Chua was clear that Chua, Yao and Lim had decided to engage
al ead Yao s pa t e ; in a fishing business, which they started by buying
2. That after convening for a few times, Lim boats worth P3.35 million, financed by a loan
Chua, and Yao verbally agreed to acquire secured from Jesus Lim who was petitioners
two fishing boats, the FB Lourdes and the FB brother. In their Compromise Agreement, they
Nelson for the sum of P3.35 million; subsequently revealed their intention to pay the
3. That they borrowed P3.25 million from loan with the proceeds of the sale of the boats, and
Jesus Lim, brother of Petitioner Lim Tong to divide equally among them the excess or loss.
Lim, to finance the venture. These boats, the purchase and the repair of which
4. That they bought the boats from CMF were financed with borrowed money, fell under the
Fishing Corporation, which executed a Deed term common fund under Article 1767. The
of Sale over these two (2) boats in favor of contribution to such fund need not be cash or fixed
Petitioner Lim Tong Lim only to serve as assets; it could be an intangible like credit or
security for the loan extended by Jesus Lim; industry. That the parties agreed that any loss or
5. That Lim, Chua and Yao agreed that the profit from the sale and operation of the boats
refurbishing , re-equipping, repairing, dry would be divided equally among them also shows
docking and other expenses for the boats that they had indeed formed a partnership.
would be shouldered by Chua and Yao;
so much in buying the boat but not in the acquisition
of the aforesaid equipment, without which the Evangelista v. CIR, L-9996, October 15, 1957
business could not have proceeded.
Pursuant to this article, the essential elements of a
Given the preceding facts, it is clear that there was, partnership are two, namely: (a) an agreement to
among petitioner, Chua and Yao, a partnership contribute money, property or industry to a
engaged in the fishing business. They purchased the common fund; and (b) intent to divide the profits
boats, which constituted the main assets of the among the contracting parties. The first element is
partnership, and they agreed that the proceeds from undoubtedly present in the case at bar, for,
the sales and operations thereof would be divided admittedly, petitioners have agreed to, and did,
among them. contribute money and property to a common fund.
Hence, the issue narrows down to their intent in
Partner vs. Lessor acting as they did. Upon consideration of all the facts
and circumstances surrounding the case, we are fully
Verily, as found by the lower courts, petitioner satisfied that their purpose was to engage in real
entered into a business agreement with Chua and estate transactions for monetary gain and then
Yao, in which debts were undertaken in order to divide the same among themselves, because:
finance the acquisition and the upgrading of the
vessels which would be used in their fishing 1. Said common fund was not something they
business. The sale of the boats, as well as the found already in existence;
division among the three of the balance remaining 2. They invested the same, not merely in one
after the payment of their loans, proves beyond cavil transaction, but in a series of transactions;
that F/B Lourdes, though registered in his name, was 3. The affairs relative to said properties have
not his own property but an asset of the partnership. been handled as if the same belonged to a
It is not uncommon to register the properties corporation or business enterprise operated
acquired from a loan in the name of the person the for profit;
lender trusts, who in this case is the petitioner 4. The foregoing conditions have existed for
himself. After all, he is the brother of the creditor, more than 10 years, or, to be exact, over 15
Jesus Lim. years, since the first property was acquired,
and over 12 years, since Simeon Evangelista
We stress that it is unreasonable indeed, it is absurd became the manager; and,
for petitioner to sell his property to pay a debt he 5. Petitioners have not testified or introduced
did not incur, if the relationship among the three of any evidence, either on their purpose in
them was merely that of lessor-lessee, instead of creating the set-up already adverted to, or
partners. on the causes for its continued existence.
Pascual v. CIR, GR 78133, October 18, 1988 Although, taken singly, they might not suffice to
establish the intent necessary to constitute a
On how a partnership is established
partnership, the collective effect of these
The sharing of returns does not in itself establish a circumstances is such as to leave no room for doubt
partnership whether or not the persons sharing on the existence of said intent in petitioners herein.
formally organized.
Estanislao v. CA, L-49982, April 27, 1988
A careful review of the records persuades us to
The Joint Affidavit of April 11, 1966 (Exhibit A), affirm the CA decision. The evidence presented by
clearly stipulated by the members of the same family petitioners falls short of the quantum of proof
that the P15,000.00 advance rental due to them required to establish that: (1) Jose was the partner
from Shell shall augment their "capital investment" and not Elfledo; and (2) all the properties acquired
in the operation of the gasoline station. Moreover by Elfledo and respondent form part of the estate of
other evidence in the record shows that there was in Jose, having been derived from the alleged
fact such partnership agreement between the partnership.
parties. This is attested by the testimonies of private
respondent Remedios Estanislao and Atty. Angeles. Agreeing with the findings of the CA, the Court
Petitioner submitted to private respondents periodic rendered:
accounting of the business. Petitioner gave a written
authority to private respondent Remedios It is notable too that Jose Lim died when the
Estanislao, his sister, to examine and audit the books partnership was barely a year old, and the
of their "common business" (aming negosyo). partnership and its business not only
Respondent Remedios assisted in the running of the continued but also flourished. If it were true
business. There is no doubt that the parties hereto that it was Jose Lim and not Elfledo who was
formed a partnership when they bound themselves the partner, then upon his death the
to contribute money to a common fund with the partnership should have been dissolved and
intention of dividing the profits among themselves. its assets liquidated. On the contrary, these
The sole dealership by the petitioner and the were not done but instead its operation
issuance of all government permits and licenses in continued under the helm of Elfledo and
the name of petitioner was in compliance with the without any participation from the heirs of
afore-stated policy of Shell and the understanding of Jose Lim.
the parties of having only one dealer of the Shell
Whatever properties appellant and her
products.
husband had acquired, this was through their
Heirs of Lim v. Lim, GR 172690, March 3, own concerted efforts and hard work. Elfledo
2010 did not limit himself to the business of their
partnership but engaged in other lines of
A partnership exists when two or more persons businesses as well.
agree to place their money, effects, labor, and skill in
lawful commerce or business, with the Sevilla v. CA, GR 41182-83, April 15, 1988
understanding that there shall be a proportionate
Employer-employee relationship vs. partnership vs.
sharing of the profits and losses among them. A
agency
contract of partnership is defined by the Civil Code
as one where two or more persons bind themselves The records will show that the petitioner, Lina
to contribute money, property, or industry to a Sevilla, was not subject to control by the private
common fund, with the intention of dividing the respondent Tourist World Service, Inc., either as to
profits among themselves. the result of the enterprise or as to the means used
in connection therewith. In the first place, under the
The fact that Sevilla had been designated 'branch But unlike simple grants of a power of attorney, the
manager" does not make her, ergo, Tourist World's agency that we hereby declare to be compatible
employee. As we said, employment is determined with the intent of the parties, cannot be revoked at
by the right-of-control test and certain economic will. The reason is that it is one coupled with an
parameters. But titles are weak indicators. interest, the agency having been created for mutual
interest, of the agent and the principal. It appears
In rejecting Tourist World Service, Inc.'s arguments that Lina Sevilla is a bona fide travel agent herself,
however, we are not, as a consequence, accepting and as such, she had acquired an interest in the
Lina Sevilla's own, that is, that the parties had business entrusted to her. Moreover, she had
embarked on a joint venture or otherwise, a assumed a personal obligation for the operation
partnership. And apparently, Sevilla herself did not thereof, holding herself solidarily liable for the
recognize the existence of such a relation. In her payment of rentals. She continued the business,
letter of November 28, 1961, she expressly using her own name, after Tourist World had
'concedes your [Tourist World Service, Inc.'s] right to stopped further operations. Her interest, obviously,
stop the operation of your branch office in effect, is not to the commissions she earned as a result of
accepting Tourist World Service, Inc.'s control over her business transactions, but one that extends to
the manner in which the business was run. A joint the very subject matter of the power of
venture, including a partnership, presupposes management delegated to her. It is an agency that,
generally a of standing between the joint co- as we said, cannot be revoked at the pleasure of the
venturers or partners, in which each party has an principal. Accordingly, the revocation complained of
equal proprietary interest in the capital or property should entitle the petitioner, Lina Sevilla, to
contributed and where each party exercises equal damages.
rights in the conduct of the business. Furthermore,
the parties did not hold themselves out as partners, Torres v. CA, GR 134559, December 9, 1999
and the building itself was embellished with the
ele t i sig "Tou ist Wo ld “e i e, I . i lieu of a Under the above-quoted Agreement, petitioners
distinct partnership name. would contribute property to the partnership in the
form of land which was to be developed into a
It is the Court's considered opinion, that when the subdivision; while respondent would give, in
petitioner, Lina Sevilla, agreed to (wo)man the addition to his industry, the amount needed for
private respondent, Tourist World Service, Inc.'s general expenses and other costs. Furthermore, the
Ermita office, she must have done so pursuant to a income from the said project would be divided
contract of agency. It is the essence of this contract according to the stipulated percentage. Clearly, the
distinction cited by most opinions in common law
Sardane v. CA, 167 SCRA 524
jurisdictions is that the partnership contemplates a
On who is a partner general business with some degree of continuity,
while the joint venture is formed for the execution
The fact that he had received 50% of the net profits of a single transaction, and is thus of a temporary
does not conclusively establish that he was a partner nature. (Tufts v. Mann. 116 Cal. App. 170, 2 P. 2d.
of the private respondent herein. Article 1769(4) of 500 [1931]; Harmon v. Martin, 395 Ill. 595, 71 NE 2d.
the Civil Code is explicit that while the receipt by a 74 [1947]; Gates v. Megargel 266 Fed. 811 [1920]).
person of a share of the profits of a business is prima This observation is not entirely accurate in this
facie evidence that he is a partner in the business, no jurisdiction, since under the Civil Code, a partnership
such inference shall be drawn if such profits were may be particular or universal, and a particular
received in payment as wages of an employee. partnership may have for its object a specific
Furthermore, herein petitioner had no voice in the undertaking. (Art. 1783, Civil Code). It would seem
management of the affairs of the basnig. therefore that under Philippine law, a joint venture
is a form of partnership and should thus be governed
Can a corporation become a partner in a
by the law of partnerships. The Supreme Court has
partnership? NO. The majority view is that a
however recognized a distinction between these two
corporation cannot become a partner on grounds of
business forms, and has held that although a
public policy; otherwise, people other than its
corporation cannot enter into a partnership
officers may be able to bind it. However, a
contract, it may however engage in a joint venture
corporation can enter into a joint venture with
with others. (At p. 12, Tuazon v. Bolaños, 95 Phil.
another where the nature of that venture is in line
906 [1954]) (Campos and Lopez — Campos
with the business authorized in its charter.
Comments, Notes and Selected Cases, Corporation
Aurbach v. Sanitary Wares, 180 SCRA 350 Code 1981)
venture corporations often contain provisions which
do one or more of the following: (1) require greater Heirs of Tan Eng Kee v. CA, GR 126881,
than majority vote for shareholder and director October 3, 2000
action; (2) give certain shareholders or groups of
Thus, in order to constitute a partnership, it must be
shareholders power to select a specified number of
established that (1) two or more persons bound
directors; (3) give to the shareholders control over
themselves to contribute money, property, or
the selection and retention of employees; and (4) set
industry to a common fund, and (2) they intend to
up a procedure for the settlement of disputes by
divide the profits among themselves. The
a it atio “ee I O Neal, Close Co po atio s,
agreement need not be formally reduced into
ed., Section 1.06a, pp. 15-16) (Decision of SEC
writing, since statute allows the oral constitution of
Hearing Officer, p. 16)
a partnership, save in two instances: (1) when
Moreover, the usual rules as regards the immovable property or real rights are contributed,
construction and operations of contracts generally and (2) when the partnership has a capital of three
appl to a o t a t of joi t e tu e. O Ha a . thousand pesos or more. In both cases, a public
Harman 14 App. Dev. (167) 43 NYS 556). instrument is required. An inventory to be signed by
the parties and attached to the public instrument is
Tocao v. CA, GR 127405, October 4, 2000 also indispensable to the validity of the partnership
whenever immovable property is contributed to the
On the doctrine of attributes of proprietorship: partnership.
It is a means to prove or disprove the existence of a The trial court determined that Tan Eng Kee and Tan
partnership. This was used in the above case. In Eng Lay had entered into a joint adventure, which it
brushing aside the assertions of no contract of said is akin to a particular partnership. A particular
partnership, the Court, apart from holding that a partnership is distinguished from a joint adventure,
contract of partnership need not be in writing to be to wit:
valid and enforceable, held that all three parties had
the evidence adduced exercised rights of (a) A joint adventure (an American concept
proprietorship on the business ventures as to show similar to our joint accounts) is a sort of
without doubt the existence of a partnership informal partnership, with no firm name and
(Villanueva). The Court held: no legal personality. In a joint account, the
participating merchants can transact
Petitio e s ad it that p i ate espo de t business under their own name, and can be
had the expertise to engage in the business individually liable therefor.
of distributorship of cookware. Private
respondent contributed such expertise to (b) Usually, but not necessarily a joint adventure
the partnership and hence, under the law, is limited to a single transaction, although
she was the industrial or managing partner. the business of pursuing to a successful
It was through her reputation with the West termination may continue for a number of
Bend Company that the partnership was years; a partnership generally relates to a
able to open the business of distributorship continuing business of various transactions
of that companys cookware products; it was of a certain kind.
through the same efforts that the business
was propelled to financial success.
Article 1837 of the Civil Code and to the sharing
Rojas v. Maglana, GR 30616, December 10, profits between them of "share and share alike" as
1990 stipulated in the registered Articles of Co-
Partnership (Exhibit "A").
The main issue in this case is the nature of the
partnership and legal relationship of the Maglana- After a careful study of the records as against the
Rojas after Pahamotang retired from the second conflicting claims of Rojas and Maglana, it appears
partnership. evident that it was not the intention of the partners
to dissolve the first partnership, upon the
The lower court is of the view that the second
constitution of the second one, which they
partnership superseded the first, so that when the
unmistakably called an "Additional Agreement"
second partnership was dissolved there was no
(Exhibit "9-B") (Brief for Defendant-Appellee, pp. 24-
written contract of co-partnership; there was no
25). Except for the fact that they took in one
reconstitution as provided for in the Maglana, Rojas
industrial partner; gave him an equal share in the
and Pahamotang partnership contract. Hence, the
profits and fixed the term of the second partnership
partnership which was carried on by Rojas and
to thirty (30) years, everything else was the same.
Maglana after the dissolution of the second
Thus, they adopted the same name, Eastcoast
partnership was a de facto partnership and at will. It
Development Enterprises, they pursued the same
was considered as a partnership at will because
purposes and the capital contributions of Rojas and
there was no term, express or implied; no period
Maglana as stipulated in both partnerships call for
was fixed, expressly or impliedly (Decision, R.A. pp.
the same amounts. Just as important is the fact that
962-963).
all subsequent renewals of Timber License No. 35-36
On the other hand, Rojas insists that the registered were secured in favor of the First Partnership, the
partnership under the firm name of Eastcoast original licensee. To all intents and purposes
Development Enterprises (EDE) evidenced by the therefore, the First Articles of Partnership were only
Articles of Co-Partnership dated January 14, 1955 amended, in the form of Supplementary Articles of
(Exhibit "A") has not been novated, superseded Co-Partnership (Exhibit "C") which was never
and/or dissolved by the unregistered articles of co- registered (Brief for Plaintiff-Appellant, p. 5).
partnership among appellant Rojas, appellee Otherwise stated, even during the existence of the
Maglana and Agustin Pahamotang, dated March 4, second partnership, all business transactions were
1956 (Exhibit "C") and accordingly, the terms and carried out under the duly registered articles. As
stipulations of said registered Articles of Co- found by the trial court, it is an admitted fact that
Partnership (Exhibit "A") should govern the relations even up to now, there are still subsisting obligations
between him and Maglana. Upon withdrawal of and contracts of the latter (Decision, R.A. pp. 950-
Agustin Pahamotang from the unregistered 957). No rights and obligations accrued in the name
partnership (Exhibit "C"), the legally constituted of the second partnership except in favor of
partnership EDE (Exhibit "A") continues to govern Pahamotang which was fully paid by the duly
the relations between them and it was legal error to registered partnership (Decision, R.A., pp. 919-921).
consider a de facto partnership between said two
partners or a partnership at will. Hence, the letter of
the partners, even in case of failure to
comply with the requirements of Article Sunga-Chan v. Sunga, GR 143340, August
1772, first paragraph. 15, 2001
Its juridical personality is separate and distinct from A partnership may be constituted in any form,
that of each of the partners. Hence, a partnership except where immovable property or real rights are
can, in general: contributed thereto, in which case a public
instrument shall be necessary. Hence, based on the
1. Acquire and possess property of all kinds; intention of the parties, as gathered from the facts
2. Incur obligations; and ascertained from their language and conduct, a
3. Bring civil or criminal actions; and, verbal contract of partnership may arise. The
essential points that must be proven to show that a
whether such co-owners or co-
Syjuco v. Castro, GR 70403, July 7, 1989 possessors do or do not share any
profits made by the use of the
The respondent partnership is composed exclusively
property;
of the individual Lims in whose name all the cases
3. The sharing of gross returns does not of
herein referred to, with the sole exception of Civil
itself establish a partnership, whether
Case No. Q-36485, were brought and prosecuted,
or not the persons sharing them have a
their contribution to the partnership consisting
joint or common right or interest in any
chiefly, if not solely, of the property subject of the
property from which the returns are
Syjuco mortgage. It is also a fact that despite its
derived;
having been contributed to the partnership,
4. The receipt by a person of a share of
allegedly on March 30, 1959, the property was never
the profits of a business is prima facie
registered with the Register of Deeds in the name of
evidence that he is a partner in the
the partnership, but to this date remains registered
business, but no such inference shall be
in the names of the Lims as owners in common. The
drawn if such profits were received in
original mortgage deed of November 14, 1964 was
payment:
executed by the Lims as such owners, as were all
a. As a debt by instalments or
subsequent amendments of the mortgage. There
otherwise;
can be no dispute that in those circumstances, the
b. As wages of an employee or
respondent partnership was chargeable with
rent to a landlord;
knowledge of the mortgage from the moment of its
c. As an annuity to a widow or
execution. The legal fiction of a separate juridical
representative of a deceased
personality and existence will not shield it from the
partner;
conclusion of having such knowledge which naturally
d. As interest on a loan, though
and irresistibly flows from the undenied facts. It
the amount of payment vary
would violate all precepts of reason, ordinary
with the profits of the
experience and common sense to propose that a
business;
partnership, as such, cannot be held accountable
e. As the consideration for the
with knowledge of matters commonly known to all
sale of a goodwill of a business
the partners or of acts in which all of the latter,
or other property by
without exception, have taken part, where such
instalments or otherwise.
matters or acts affect property claimed as its own by
said partnership The purpose of this article is to indicate some tests
to determine if what may seem to be a partnership
Article 1769: Rules to Determine the existence of a
really is one, or it is not.
partnership
The est e ide e to p o e pa t e ship s e iste e is
In determining whether a partnership
still a contract of partnership or articles of
exists, these rules shall apply:
partnership. Should this not be present, as culled
1. Except as provided by Article 1825, from the cases of Heirs of Lim v. Lim and Heirs of Tan
persons who are not partners as to Eng Kee v. CA, he ho alleges the pa t e ship s
each other are not partners as to third existence must prove the existence of the elements,
persons; as provided for by Article 1767.
influenced to some extent by what the parties call
their contract (De Leon). Sardane v. CA, supra.
In determining whether a partnership exists, it is The fact that he had received 50% of the net profits
important to distinguish between tests or indicia and does not conclusively establish that he was a partner
incidents of partnership. of the private respondent herein. Article 1769(4) of
the Civil Code is explicit that while the receipt by a
Tests or indicia Incidents person of a share of the profits of a business is prima
Only those terms of a 1. Partners share in facie evidence that he is a partner in the business, no
contract upon which the profits and losses. such inference shall be drawn if such profits were
parties have reached an This community of received in payment as wages of an employee.
actual understanding interest in profits is
Furthermore, herein petitioner had no voice in the
may afford a test by not incidental to the
which to ascertain the ordinary agency; management of the affairs of the basnig.
legal nature of the 2. They have equal
contract. Once the legal rights in the Tocao v. CA, supra.
nature of a contract as management and
one of partnership has conduct of the While it is true that the receipt of a percentage of
been established, certain partnership net profits constitutes only prima facie evidence that
consequences or business; the recipient is a partner in the business, the
incidents follow as a 3. Every partner is an evidence in the case at bar controverts an employer-
matter of law, agent of the employee relationship between the parties. In the
irrespective of any actual partnership, and first place, private respondent had a voice in the
understanding between entitled to bind the
management of the affairs of the cookware
the parties. other partners by
his acts, for the distributorship, including selection of people who
purpose of its would constitute the administrative staff and the
business; sales fo e. “e o dl , petitio e To ao s ad issio s
4. All partners are militate against an employer-employee relationship.
personally liable for She admitted that, like her who owned Geminesse
the debts of the
Enterprise, private respondent received only
partnership with
commissions and transportation and representation
their separate
property except that allowances and not a fixed salary.
limited partners are
not bound beyond Culled from the cases of Sardane and Tocao, it is
the amount of their therefore not sufficient to establish that one receives
investment. his share in the net profits to prove that he is a
5. A fiduciary relation partner. It must likewise be established that he has a
exists between the role or power in the management of a business.
rather than get immediate returns, a deferment of
Heirs of Tan Eng Kee v. CA, supra. sharing in the profits is perfectly plausible. But in
the situation in the case at bar, the deferment, if
Undoubtedly, the best evidence would have been
any, had gone on too long to be plausible. A person
the contract of partnership itself, or the articles of
is presumed to take ordinary care of his concerns
partnership but there is none. The alleged
partnership, though, was never formally organized. In the light of the aforequoted legal provision, we
conclude that Tan Eng Kee was only an employee,
Unfortunately for petitioners, Tan Eng Kee has
not a partner. Even if the payrolls as evidence were
passed away. Only he, aside from Tan Eng Lay, could
discarded, petitioners would still be back to square
have expounded on the precise nature of the
one, so to speak, since they did not present and
business relationship between them. In the absence
offer evidence that would show that Tan Eng Kee
of evidence, we cannot accept as an established fact
received amounts of money allegedly representing
that Tan Eng Kee allegedly contributed his resources
his share in the profits of the enterprise. Petitioners
to a common fund for the purpose of establishing a
failed to show how much their father, Tan Eng Kee,
partnership. The testimonies to that effect of
received, if any, as his share in the profits of Benguet
petitioners witnesses is directly controverted by Tan
Lumber Company for any particular period. Hence,
Eng Lay. It should be noted that it is not with the
they failed to prove that Tan Eng Kee and Tan Eng
number of witnesses wherein preponderance lies
Lay intended to divide the profits of the business
the quality of their testimonies is to be considered.
between themselves, which is one of the essential
None of petitioners witnesses could suitably
features of a partnership.
account for the beginnings of Benguet Lumber
Company, except perhaps for Dionisio Peralta whose In the instant case, we find private respondents
deceased wife was related to Matilde Abubo. He arguments to be well-taken. Where circumstances
stated that when he met Tan Eng Kee after the taken singly may be inadequate to prove the intent
liberation, the latter asked the former to accompany to form a partnership, nevertheless, the collective
him to get 80 pieces of G.I. sheets supposedly owned effect of these circumstances may be such as to
by both brothers. Tan Eng Lay, however, denied support a finding of the existence of the parties
knowledge of this meeting or of the conversation intent. Yet, in the case at bench, even the aforesaid
between Peralta and his brother. Tan Eng Lay circumstances when taken together are not
consistently testified that he had his business and his persuasive indicia of a partnership. They only tend to
brother had his, that it was only later on that his said show that Tan Eng Kee was involved in the
brother, Tan Eng Kee, came to work for him. Be that operations of Benguet Lumber, but in what capacity
as it may, co-ownership or co-possession (specifically is unclear. We cannot discount the likelihood that as
here, of the G.I. sheets) is not an indicium of the a member of the family, he occupied a niche above
existence of a partnership. the rank-and-file employees. He would have
enjoyed liberties otherwise unavailable were he not
Besides, it is indeed odd, if not unnatural, that
kin, such as his residence in the Benguet Lumber
despite the forty years the partnership was allegedly
Company compound. He would have moral, if not
in existence, Tan Eng Kee never asked for an
actual, superiority over his fellow employees,
accounting. The essence of a partnership is that the
thereby entitling him to exercise powers of
partners share in the profits and losses. Each has
supervision. It may even be that among his duties is
the right to demand an accounting as long as the
to place orders with suppliers. Again, the
partnership exists. We have allowed a scenario
approved by the court in the corresponding testate
Oña v. CIR, L-19342, May 25, 1972 or intestate proceeding. The reason for this is
simple. From the moment of such partition, the heirs
On when co-ownership ceases and an unregistered
are entitled already to their respective definite
partnership commences
shares of the estate and the incomes thereof, for
From the moment petitioners allowed not only the each of them to manage and dispose of as
incomes from their respective shares of the exclusively his own without the intervention of the
inheritance but even the inherited properties other heirs, and, accordingly he becomes liable
themselves to be used by Lorenzo T. Oña (who individually for all taxes in connection therewith. If
managed the properties) as a common fund in after such partition, he allows his share to be held in
undertaking several transactions or in business, with common with his co-heirs under a single
the intention of deriving profit to be shared by them management to be used with the intent of making
proportionally, such act was tantamount to actually profit thereby in proportion to his share, there can
contributing such incomes to a common fund and, in be no doubt that, even if no document or instrument
effect, they thereby formed an unregistered were executed for the purpose, for tax purposes, at
partnership within the purview of the provisions of least, an unregistered partnership is formed. This is
the Tax Code. exactly what happened to petitioners in this case.
In cases of inheritance, there is a period when the I this o e tio , petitio e s elia e o A ti le
heirs can be considered as co-owners rather than 1769, paragraph (3), of the Civil Code, providing
unregistered co-partners within the contemplation that: The sharing of gross returns does not of itself
of our corporate tax laws. Before the partition and establish a partnership, whether or not the persons
distribution of the estate of the deceased, all the sharing them have a joint or common right or
income thereof does belong commonly to all the interest in any property from which the returns are
heirs, obviously, without them becoming thereby derived, and, for that matter, on any other
unregistered co-partners. provision of said code on partnerships is unavailing.
The co-ownership of inherited properties is Obillos v. CIR, L-68118, October 29, 1985
automatically converted into an unregistered
Article 1769(3) of the Civil Code provides that the
partnership, for it is easily conceivable that after
sharing of gross returns does not of itself establish a
knowing their respective shares in the partition, they
partnership, whether or not the persons sharing
(heirs) might decide to continue holding said shares
them have a joint or common right or interest in any
under the common management of the
property from which the returns are derived. There
administrator or executor or of anyone chosen by
must be an unmistakable intention to form a
them and engage in business on that basis.
partnership or joint venture.
On the application of the provision
In the case at bar, no intent was present.
As already indicated, for tax purposes, the co-
As testified by Jose Obillos, Jr., they had no such
ownership of inherited properties is automatically
intention. They were co-owners pure and simple. To
converted into an unregistered partnership the
consider them as partners would obliterate the
moment the said common properties and/or the
Every contract of partnership having a Agad v. Mabato, L-24193, June 28, 1968
capital of PhP 3,000.00 or more, money or
The issue before us hinges on whether or not
property, shall appear in a public
"immovable property or real rights" have been
instrument, which must be recorded in the
contributed to the partnership under consideration.
Office of the Securities and Exchange
Mabato alleged and the lower court held that the
Commission.
answer should be in the affirmative, because "it is
Failure to comply with the requirements of really inconceivable how a partnership engaged in
the preceding paragraph shall not affect the the fishpond business could exist without said
liability of the partnership and the members fishpond property (being) contributed to the
thereof to third persons. partnership." It should be noted, however, that, as
stated in Annex "A" the partnership was established
Article 1773: Contribution of immovable property "to operate a fishpond", not to "engage in a fishpond
in contract of partnership business." Moreover, none of the partners
contributed either a fishpond or a real right to any
A contract of partnership is void, whenever fishpond. Their contributions were limited to the
immovable property is contributed thereto, sum of PhP 1,000.00 each. Indeed, Paragraph 4 of
if an inventory of said property is not made, the Annex "A" provides:
signed by the parties, and attached to the
public instrument. "That the capital of the said partnership is
Two Thousand (P2,000.00) Pesos Philippine
Required to appear in a public instrument: Currency, of which One Thousand
(P1,000.00) pesos has been contributed by
1. Where immovable property or real right is
Severino Mabato and One Thousand
contributed;
Effect: Contract of partnership is
(P1,000.00) Pesos has been contributed by
Mauricio Agad.
void.
2. Where capital is P 3,000.00 or more, as in The operation of the fishpond mentioned in Annex
the case of personal property.
Effect: As provided by Article 1768,
"A" was the purpose of the partnership. Neither said
fishpond nor a real right thereto was contributed to
failure to comply with above the partnership or became part of the capital
provision does not affect its thereof, even if a fishpond or a real right thereto
acquisition of juridical personality. could become part of its assets.
proceeds realized. Consequently, the plaintiff
brought into this transaction certain chattels in Angeles v. Secretary of Justice, GR 142612,
compliance with her obligation. The same has been July 29, 2005
done by the herein brother and the herein
The Angeles spouses position that there is no
defendant who started to work in the business. A
partnership because of the lack of a public
cursory examination of the evidences presented no
instrument indicating the same and a lack of
proof that a partnership, whether oral or written had
registration with the Securities and Exchange
been constituted at the inception of this transaction.
Commission (SEC) holds no water. First, the Angeles
True it is that even up to the filing of this complaint
spouses contributed money to the partnership and
whose movables brought by plaintiff for the use in
not immovable property. Second, mere failure to
the operation of the business remain registered in
register the contract of partnership with the SEC
her name.
does not invalidate a contract that has the essential
Torres v. CA, supra. requisites of a partnership. The purpose of
registration of the contract of partnership is to give
First, Article 1773 was intended primarily to protect notice to third parties. Failure to register the
third persons. Thus, the eminent Arturo M. contract of partnership does not affect the liability of
Tolentino states that under the aforecited provision the partnership and of the partners to third persons.
which is a complement of Article 1771, the execution Neither does such failure to register affect the
of a public instrument would be useless if there is no partnerships juridical personality. A partnership may
inventory of the property contributed, because exist even if the partners do not use the words
without its designation and description, they cannot partner or partnership.
be subject to inscription in the Registry of Property,
was [petitioners] industry and his share in the family
Litonjua v. Litonjua, GR 166299-30, [theatre and land development] business leaves no
December 13, 2005 room for speculation as to what petitioner
contributed to the perceived partnership.
Annex A-1, on its face, contains typewritten entries,
personal in tone, but is unsigned and undated. As an Lest it be overlooked, the contract-validating
unsigned document, there can be no quibbling that inventory requirement under Article 1773 of the Civil
Annex A-1 does not meet the public instrumentation Code applies as long real property or real rights are
requirements exacted under Article 1771 of the Civil initially brought into the partnership. In short, it is
Code. Moreover, being unsigned and doubtless really of no moment which of the partners, or, in this
referring to a partnership involving more than case, who between petitioner and his brother
P3,000.00 in money or property, Annex A-1 cannot Eduardo, contributed immovables. In context, the
be presented for notarization, let alone registered more important consideration is that real property
with the Securities and Exchange Commission (SEC), was contributed, in which case an inventory of the
as called for under the Article 1772 of the Code. And contributed property duly signed by the parties
inasmuch as the inventory requirement under the should be attached to the public instrument, else
succeeding Article 1773 goes into the matter of there is legally no partnership to speak of.
validity when immovable property is contributed to
the partnership, the next logical point of inquiry Petitioner, in an obvious bid to evade the
turns on the nature of petitioners contribution, if application of Article 1773, argues that the
any, to the supposed partnership. immovables in question were not contributed,
but were acquired after the formation of the
The CA, addressing the foregoing query, correctly supposed partnership. Needless to stress, the
stated that petitioner s contribution consisted of Court cannot accord cogency to this specious
immovables and real rights. Wrote that court: argument. For, as earlier stated, petitioner
himself admitted contributing his share in the
A further examination of the allegations in
supposed shipping, movie theatres and realty
the complaint would show that [petitioners]
development family businesses which already
contribution to the so-called
owned immovables even before Annex A-1 was
partnership/joint venture was his supposed
allegedly executed.
share in the family business that is
consisting of movie theaters, shipping and Considering thus the value and nature of
land development under paragraph 3.02 of petitioners alleged contribution to the
the complaint. In other words, his purported partnership, the Court, even if so
contribution as a partner in the alleged disposed, cannot plausibly extend Annex A-1 the
partnership/joint venture consisted of legal effects that petitioner so desires and
immovable properties and real rights. pleads to be given. Annex A-1, in fine, cannot
support the existence of the partnership sued
Significantly enough, petitioner matter-of-factly
upon and sought to be enforced. The legal and
concurred with the appellate courts observation
factual milieu of the case calls for this
that, prescinding from what he himself alleged in his
disposition. A partnership may be constituted in
Article 1778: Universal partnership of present Article 1782: Persons prohibited from entering into
property defined a universal partnership
A partnership of all present property is that Persons who are prohibited from giving
in which the partners contribute all the each other any donation or advantage
property which actually belongs to them to cannot enter into universal partnership.
a common fund, with the intention of
dividing the same among themselves, as Article 1783. Particular partnership; definition and
well as all the profits which they may object
acquire therewith.
Definitions: Cases:
have been used in the Articles of Partnership in a
Ortega v. CA, GR 109248, July 3, 1995
generic sense to mean the dissociation by a partner,
On partnership at will and its dissolution inclusive of resignation or withdrawal, from the
partnership that thereby dissolves it.
A partnership that does not fix its term is a
partnership at will. That the law firm "Bito, Misa &
harm and damage upon the partnership, bad faith
Moran v. CA, L-59956, October 31, 1984
cannot be said to characterize the act. Bad faith, in
the context here used, is no different from its The rule is, when a partner who has undertaken to
normal concept of a conscious and intentional contribute a sum of money fails to do so, he
design to do a wrongful act for a dishonest purpose becomes a debtor of the partnership for whatever
or moral obliquity. he may have promised to contribute and for
interests and damages he should have complied with
Article 1786: Obligations of a partner with respect
his obligation.
to contribution of property
If the partnership venture is a failure, a partner is not
Every partner is a debtor of the partnership
entitled to his promised commission, if said promise
for whatever he may have promised to
does not state the basis of the commission.
contribute thereto.
Who owns the property before it is delivered?
He shall also be bound for warranty in case
According to Paras, both in the case of money or
of eviction with regard to specific and
property, it is the partner who still owns the same
determinate things which he may have
before delivery, for it is delivery, actual or
contributed to the partnership, in the same
constructive, that transfers ownership.
cases and in the same manner as the
vendor is bound with respect to the vendee. If a partner fails to contribute within the stipulated
He shall also be liable for the fruits thereof time what was promised, may the partnership
from the time they should have been contract be rescinded? As a general rule, no. The
delivered, without the need of any demand. reason is, rescission is not the proper remedy; the
remedy should be to collect what is owing, as well as
Three important duties of every partner:
damages. However, if the defaulting partner is
1. The duty to contribute what had been already dead, rescission may prosper.
promised;
Article 1787: When contribution consists of goods;
2. The duty to deliver the fruits of what should
appraisal of property
have been delivered;
3. The duty to warrant in cases of eviction, as When the capital or a part thereof which a
it applies only to specific and determinate partner is bound to contribute consists of
things already contributed; goods, their appraisal must be made in the
4. The duty to preserve the property with the manner prescribed in the contract of
diligence of a good father of a family partnership, and in the absence of
pending delivery to the partnership; and,
If Puzon gave to the partnership all that were earned 1. Exclusion from the firm, plus damages; or,
and due it under the subcontract agreements, the 2. Benefits he had obtained from the other
money would have been used as a safe reserve for businesses can be availed of by the other
the discharge of all obligations of the firm and the partners, plus damages.
partnership would have been able to successfully
and profitably execute the projects it subcontracted. Cases:
Does an industrial partner then have a right to Article 1791: Obligation of capitalist partner to
demand for a formal accounting and receive share in contribute additional capital
the net profit? YES. In the words of the Court in the
case of Evangelista: If there is no agreement to the contrary, in
case of an imminent loss of the business of
What has gone before persuades us to hold the partnership, any partner who refuses to
with the lower Court that appellee is an contribute an additional share to the
industrial partner of appellant company, capital, except an industrial partner, to save
with the right to demand for a formal the venture, shall be obliged to sell his
accounting and to receive her share in the interest to the other partners.
net profit that may result from such an
accounting, which right appellants take When is a capitalist partner obliged to sell his
exception under their second assigned interest to the other partners? There are four
error. Our said holding is based on the requisites, to wit:
following article of the New Civil Code:
1. There is an imminent los of the
ART. 1809. Any partner shall have the right pa t e ship s usi ess;
to a formal account as to partnership 2. The majority of the capitalist partners are of
affairs: the opinion that an additional contribution
to the common fund would save the
1. If he is wrongfully excluded from the business;
partnership business or possession of 3. The capitalist partner deliberately refuses
its property by his co-partners; to contribute an additional share to the
capital; and,
The provisions of this article are understood Every partner is responsible to the
to be without prejudice to the right granted partnership for damages suffered by it
to the debtor by Article 1252 but only if the through his fault and he cannot
personal credit of the partner should be compensate them with the profits and
more onerous to him. benefits which he may have earned for the
partnership by his industry. However, the
For this article to apply, the following requisites courts may equitably lessen his
must concur: espo si ilit if th ough the pa t e s
extraordinary efforts in other activities of
1. The existence of at least 2 debts – one
the partnership, unusual profits have been
where the firm is the creditor and the
realized.
other, where the partner is the creditor;
2. Both sums are demandable; and, Article 1795: Risk of loss of things contributed
3. The collecting partner is a managing
partner. The risk of specific and determinate things,
which are not fungible, contributed to the
Who is a managing partner? One who manages partnership so that only their use and fruits
a ti el the fi s affai s. may be for the common benefit, shall be
borne by the partner who owns them.
Article 1252 provides that a debtor may declare at
the time of the payment to which of the debts is the If the things contributed are fungible, or
payment applied. In relation to Article 1792, it cannot be kept without deteriorating, or if
applies he pa t e s edit is o e o e ous tha they were contributed to be sold, the risk
that of the pa t e ship s. shall be borne by the partnership. In the
absence of stipulation, the risk of things
Article 1793: Obligation of partner who received
brought and appraised in the inventory,
shares of partnership credit
shall also be borne by the partnership, and
A partner who has received, in whole or in in such case the claim shall be limited to the
part, his share of a partnership credit, when value of which they were appraised.
the other partners have not collected
Who bears risk of loss?
stated in the Acknowledgement of Participating
Reason: He consented to the stipulation. Capital. However, petitioner fails to realize that this
Hence, the contract becomes the law document specifically enumerated the businesses
between the parties. covered by the partnership: Manila Athletic Supply,
Remotigue Trading in Iloilo City and Remotigue
The general rule is that a stipulation excluding one or
Trading in Cotabato City. Since there was a clear
more partners from any share in the profits or losses
agreement that the capital the partners contributed
is void.
went to the three businesses, then there is no
Generally, an industrial partner is exempted from reason to deviate from such agreement and go
losses unless there is a stipulation to the effect and beyond the stipulations in the document. Therefore,
he consented to it. the Court of Appeals did not err in limiting
petitioners share to the assets of the businesses
Cases: enumerated in the Acknowledgement of
Participating Capital.
Marsman Drysdale Land, Inc. v. Philippine
Geoanalytics, Inc. & Gotesco Properties, Ramnani v. Ramnani, GR 85494 & 85496,
Inc., GR 183374 & 183376, June 29, 2010 May 7, 1991
In the JVA, Marsman Drysdale and Gotesco agreed Nevertheless, under the peculiar circumstances of
on a 50-50 ratio on the proceeds of the project. this case and despite the fact that Choithram, et al.,
They did not provide for the splitting of losses, have committed acts which demonstrate their bad
however. Applying the above-quoted provision of faith and scheme to defraud spouses Ishwar and
Article 1797 then, the same ratio applies in splitting Sonya of their rightful share in the properties in
the P535,353.50 obligation-loss of the joint litigation, the Court cannot ignore the fact that
venture. Choithram must have been motivated by a strong
conviction that as the industrial partner in the
The appellate ou t s de isio ust e odified,
acquisition of said assets he has as much claim to
however. Marsman Drysdale and Gotesco being
said properties as Ishwar, the capitalist partner in
jointly liable, there is no need for Gotesco to
the joint venture. Through the industry and genius of
reimburse Marsman Drysdale for 50% of the
Choith a , Ish a s p ope t as de eloped a d
aggregate sum due to PGI.
improved into what it is now — a valuable asset
Allowing Marsman Drysdale to recover from worth millions of pesos. As of the last estimate in
Gotesco what it paid to PGI would not only be 1985, while the case was pending before the trial
contrary to the law on partnership on division of court, the market value of the properties is no less
losses but would partake of a clear case of unjust than P22,304,000.00. It should be worth much more
enrichment at Gotescos expense. The grant by the today. We have a situation where two brothers
lower courts of Marsman Drysdale cross-claim engaged in a business venture. One furnished the
against Gotesco was thus erroneous. capital, the other contributed his industry and talent.
Justice and equity dictate that the two share equally
Jarantila v. Jarantila, GR 154486, December the fruit of their joint investment and efforts.
1, 2010 Perhaps this Solomonic solution may pave the way
towards their reconciliation. Both would stand to
It is clear from the foregoing that a partner is
entitled only to his share as agreed upon, or in the
Article 1800: Appointment of a manager When the manner of management has not
been agreed upon, the following rules shall
The partner who has been appointed be observed:
manager in the articles of partnership may
execute all acts of administration despite 1. All the partners shall be considered
the opposition of his partners, unless he agents and whatever any one of them
should act in bad faith; and his power is may do alone shall bind the
irrevocable without just or lawful cause. partnership, without prejudice to the
The vote of the partners representing the provisions of Article 1801.
controlling interest shall be necessary for 2. None of the partners may, without the
such revocation of power. consent of the others, make any
important alteration in the immovable
A power granted after the partnership has property of the partnership, even if it
been constituted may be revoked at any may be useful to the partnership. But if
time. the refusal of consent by the other
partners is manifestly prejudicial to the
Article 1801: Rule when there are two or more
i te est of the pa t e ship, the ou t s
managers
intervention may be sought.
If two or more partners have been intrusted
Appointment in articles of partnership:
with the management of the partnership
without specification of their respective 1. Power is irrevocable without just or lawful
duties, or without a stipulation that one of cause. Therefore, to remove him for just
them shall not act without the consent of all cause, the controlling partners should vote
the others, each one may separately to oust him. To remove him without cause
execute all acts of administration, but if any or for an unjust cause, there must be
of them should oppose the acts of the unanimity.
others, the decision of the majority shall be 2. As to the extent of power, should the
prevail. In case of a tie, the matter shall be articles of partnership be silent on the
decided by the partners owning the specification of their respective duties or on
controlling interest. the need for the consent of all the others, if
he acts in good faith, he may do all acts of
Article 1802: Unanimity of action by managing
administration despite the opposition of his
partners
partners. However, if he is in bad faith, he
In case it should have been stipulated that cannot do any act.
none of the managing partners shall act 3. When there are two or more managers,
without the consent of the others, the each may separately execute all acts of
concurrence of all shall be necessary for the administration. In case of opposition, the
validity of the acts, and the absence or majority prevails. In case of tie, partners
disability of any one of them cannot be having controlling interest prevail.
alleged unless there is imminent danger or 4. Should there be a stipulation requiring
grave or irreparable injury to the unanimity in the acts of management, none
partnership. of the managing partners should act
without the consent of the others.
Rules to be observed when manner of management This article underscores the doctrine of delectus
has not been agreed upon or there is no stipulation personae. It is because:
to that effect:
1. Before an associate may become a partner,
1. Partners are considered agents and all of the partners must consent.
whatever any one of them may do alone 2. However, for a partner to have an associate
will bind the partnership. However, should in his share, consent of the other partners is
a o e of the opposed, the ajo it s not required.
decision prevails.
Article 1805: Partnership books
2. None of the partners may, without the
consent of the others, make any important The partnership books shall be kept, subject
alteration in the immovable property of the to any agreement between the partners, at
partnership, even if it may be useful to the the principal place of business of the
partnership. However, when refusal of partnership, and every partner shall at any
consent is manifestly prejudicial to the reasonable hour have access to and may
pa t e ship s i te est, a o e of the a inspect and copy any of them.
seek the ou t s i te e tio .
Article 1806: Duty to give information
Cases:
Partners shall render on demand true and
Bachrach v. La Protectora, L-11624, January full information of all things affecting the
21, 1918 partnership to any partner or the legal
representative of any deceased partner or
Several members of a civil partnership executed a
of any partner under legal disability.
document authorizing one of the members to buy
two automobile trucks in the name and Article 1807: Duty to account
representation of the firm. The partner holding this
authority effected the purchase and signed the Every partner must account to the
name of the partnership to the purchase money partnership for any benefit, and hold as
notes and added his own name as an individual, trustee for it any profits derived by him
thereby assuming, as to himself, joint and several without the consent of the other partners
liability with the firm. It was held that the partners from any transaction connected with the
who emitted the authority were not liable on the formation, conduct, or liquidation of the
note, as the document in question contained no partnership or from any use by him of its
authority to bind them personally and in fact the property.
notes did not purport to do so; but they were liable
Article 1808: Prohibition for capitalist partner to
in their capacity as partners.
engage in business
gain from operation (in) the amount of P865.64" (id.,
per Exhibit VV-Pre-trial.) From what then did his Leung v. IAC, GR 70926, January 31, 1989
Honor gather the conclusion that all the properties
Regarding the prescriptive period within which the
registered in his name have come from funds
private respondent may demand an accounting,
malversed from the partnership?
Articles 1806, 1807, and 1809 show that the right to
It is rather unusual that His Honor delved into demand an accounting exists as long as the
financial statements and books of Glory Commercial partnership exists. Prescription begins to run only
Co. without the aid of any accountant or without the upon the dissolution of the partnership when the
same being explained by any witness who had final accounting is done.
prepared them or who has knowledge of the entries
Emnace v. CA, GR 126334, November 23,
therein. This must be the reason why there are
2001
apparent inconsistencies and inaccuracies in the
conclusions His Honor made out of them. In Exhibit The three (3) final stages of a partnership are: (1)
SS-Pre-trial, the reported total assets of the dissolution; (2) winding-up; and (3) termination. The
company amounted to P2,328,460.27 as of partnership, although dissolved, continues to exist
December, 1965, and yet, Exhibit TT-Pre-trial, and its legal personality is retained, at which time it
according to His Honor, showed that the total value completes the winding up of its affairs, including the
of goods available as of the same date was partitioning and distribution of the net partnership
P11,166,327.62. On the other hand, per Exhibit XX- assets to the partners. For as long as the partnership
Pre-trial, the supposed balance sheet of the exists, any of the partners may demand an
company for 1966, "the value of inventoried accounting of the partnerships business.
merchandise, both local and imported", as found by Prescription of the said right starts to run only upon
His Honor, was P584,034.38. Again, as of December the dissolution of the partnership when the final
31, 1966, the value of the company's goods available accounting is done.
for sale was P5,524,050.87, per Exhibit YY and YY-
Pre-trial. Then, per Exhibit II-3-Pre-trial, the Contrary to petitioners protestations that
supposed Book of Account, whatever that is, of the respondents right to inquire into the business affairs
company showed its "cash analysis" was of the partnership accrued in 1986, prescribing four
P12,223,182.55. We do not hesitate to make the (4) years thereafter, prescription had not even
observation that His Honor, unless he is a certified begun to run in the absence of a final accounting.
public accountant, was hardly qualified to read such Article 1842 of the Civil Code provides:
exhibits and draw any definite conclusions
therefrom, without risk of erring and committing an The right to an account of his interest shall
injustice. In any event, there is no comprehensible accrue to any partner, or his legal
explanation in the decision of the conclusion of His representative as against the winding up
The property rights of a partner are: ART. 1811. A partner is co-owner with his
partners of specific partnership property. The
1. His rights in specific partnership incidents of this co-ownership are such that:
property;
2. His interest in the partnership; and, 1. A partner, subject to the provisions of
3. His right to participate in the this Title and to any agreement
management. between the partners, has an equal
right with his partners to possess
The rights enumerated above are considered as specific partnership property for
principal property rights of a partner. partnership purposes; but he has no
right to possess such property for any
Distinction:
other purpose without the consent of
his partners;
Partnership property Partnership capital
2. A pa t e s ight i spe ifi pa t e ship
In terms of changes in In terms of changes in
property is not assignable except in
value, partnership value, partnership
connection with the assignment of
property is variable. Its capital is constant. It
rights of all the partners in the same
value may vary from day remains unchanged as
property;
to day with changes in the amount fixed by the
3. A pa t e s ight i spe ifi pa t e ship
the market value of the agreement of the
property is not subject to attachment
partnership assets. partners, and is not
or execution, except on a claim against
affected by fluctuations
the partnership. When partnership
in the value of
property is attached for a partnership
partnership property,
debt the partners, or any of them, or
although it may be
Partners have equal right of possession. However, This provision, by its terms, allows either Karen or
the rules on co-ownership do not necessarily apply; Glenn Go to speak and act with authority in
the ules o o-o e ship a e appli a le. managing their conjugal property, i.e., Kargo
Enterprises. No need exists, therefore, for one to
In general he has an equal right with his partners to obtain the consent of the other before performing
possess the partnership property but only for an act of administration or any act that does not
partnership purposes. A partner, as such, does not dispose of or encumber their conjugal property.
actually own any part of partnership property or
property owned by the partnership as a separate Under Article 108 of the Family Code, the conjugal
business entity, although he does have rights in partnership is governed by the rules on the
specific partnership assets. contract of partnership in all that is not in conflict
with what is expressly determined in this Chapter
1. Equal right of possession for partnership or by the spouses in their marriage settlements. In
purposes; other words, the property relations of the husband
2. A partner cannot separately assign his right and wife shall be governed primarily by Chapter 4
to specific partnership property but all of on Conjugal Partnership of Gains of the Family
them can assign their rights in the same Code a d, suppleto il , the spouses a iage
property. settlement and by the rules on partnership under
3. No particular partnership property or any the Civil Code. In the absence of any evidence of a
specific or an aliquot part thereof can be marriage settlement between the spouses Go, we
considered the separate or individual look at the Civil Code provision on partnership for
property of any partner. The whole of guidance.
partnership property belongs to the
partnership considered as a juridical person A ule o pa t e ship appli a le to the spouses
and a partner has no interest in it but his circumstances is Article 1811 of the Civil Code,
share of what remains after all partnership which states:
debts are paid.
Art. 1811. A partner is a co-owner
Cases: with the other partners of specific
partnership property.
Navarro v. Escobido, GR 153788, November
27, 2009 The incidents of this co-ownership
are such that:
Article 124 of the Family Code, on the
administration of the conjugal property, provides: (1) A partner, subject to the
provisions of this Title and to any
Art. 124. The administration and agreement between the partners,
enjoyment of the conjugal has an equal right with his
partnership property shall belong partners to possess specific
to both spouses jointly. In case partnership property for
of disag ee e t, the hus a d s partnership purposes; xxx
The evidence of record shows that the machines in The assignee does not necessarily become a partner.
contention originally belonged to the defendant and He can neither interfere in the management or
from him were transferred to the partnership Galvan administration of the partnership business or affairs.
y Compañia. This being the case, said machines He cannot also demand information, accounting, and
belong to the partnership and not to him, and shall inspection of the accounting book. The assignor is
belong to it until partition is effected according to still the partner, with a right to demand accounting
the result thereof after the liquidation. and settlement.
Arti le : Nature of part er’s i terest i the Effect of assignment: No dissolution of the
partnership partnership. The assignor is still the partner.
any judgment creditor of a partner, the
Villareal v. Ramirez, supra. court which entered the judgment, or any
other court, may charge the interest of the
We hold that respondents have no right to demand
debtor partner with payment of the
from petitioners the return of their equity share.
unsatisfi ed a ou t of su h judg e t de t
Except as managers of the partnership, petitioners
with interest thereon; and may then or later
did not personally hold its equity or assets. The
appoi t a e ei e of his sha e of the p ofi
partnership has a juridical personality separate and
ts, and of any other money due or to fall
distinct from that of each of the partners. Since the
due to him in respect of the partnership,
capital was contributed to the partnership, not to
and make all other orders, directions,
petitioners, it is the partnership that must refund the
accounts and inquiries which the debtor
equity of the retiring partners.
partner might have made, or which
Realubit v. Jaso, GR 178782, September 21, circumstances of the case may require.
2011
The interest charged may be redeemed at
From the foregoing provision, it is evident that (t)he any time before foreclosure, or in case of a
transfer by a partner of his partnership interest does sale being directed by the court, may be
not make the assignee of such interest a partner of purchased without thereby causing a
the firm, nor entitle the assignee to interfere in the dissolution:
management of the partnership business or to
1. With separate property, by any one or
receive anything except the assignees profits. The
more of the partners; or,
assignment does not purport to transfer an interest
2. With partnership property, by any one
in the partnership, but only a future contingent right
or more of the partners with the
to a portion of the ultimate residue as the assignor
consent of all the partners whose
may become entitled to receive by virtue of his
interests are not so charged or sold.
proportionate interest in the capital. Since a
pa t e s i te est i the pa t e ship i ludes his Nothing in this Title shall be held to deprive
share in the profits, we find that the CA committed a partner of his right, if any, under the
no reversible error in ruling that the Spouses Jaso exemption laws, as regards his interest in
a e e titled to Bio do s share in the profits, despite the partnership.
Jua ita s la k of o se t to the assig ment of said
Frenchmans interest in the joint venture. Although This provision provides for the available remedies.
Eden did not, moreover, become a partner as a While a separate creditor of a partner cannot attach
consequence of the assignment and/or acquire the or levy upon specific partnership property for the
right to require an accounting of the partnership satisfaction of his credit because partnership assets
business, the CA correctly granted her prayer for are reserved for partnership creditors, he can secure
dissolution of the joint venture conformably with the a judgment on his credit and then apply to the
ight g a ted to the pu hase of a pa t e s i te est proper court for a charging order.
under Article 1831 of the Civil Code.
What is a charging order? It is that which is applied
Article 1814: Remedies of separate judgment for by a judgment creditor of a partner after he had
creditor of a partner secured a judgment on his credit. By virtue of the
charging order, the interest of the debtor-partner in
Without prejudice to the preferred rights of the partnership is used to secure for the payment of
partnership creditors under article 1827, on the unsatisfied amount of such judgment with
but with the consent of all the partners whose
interests are not so charged or sold. Redemption In re: Petition for authority to continue use
here merely means the extinguishment of the charge of the fi a e Ozaeta, ‘o ulo, De
o atta h e t o the pa t e s i te est i the Leo , Ma a ta & ‘e es, G‘ X -1, July 30,
profits. 1979
How is this redemption made? It is clearly tacit in the above provision that names in
a firm name of a partnership must either be those of
1. The charge may be redeemed or bought at living partners and, in the case of non-partners,
anytime before foreclosure. should be living persons who can be subjected to
2. After foreclosure, it may still be bought with liability. In fact, Article 1825 of the Civil Code
separate property by any one or more of prohibits a third person from including his name in
the partners, or with partnership property the firm name under pain of assuming the liability of
with consent of all the other partners. a partner. The heirs of a deceased partner in a law
firm cannot be held liable as the old members to the
Article 1815: Partnership name creditors of a firm particularly where they are non-
lawyers. Thus, Canon 34 of the Canons of
Professional Ethics "prohibits all agreement for the
payment to the widow and heirs of a deceased
separate the firm names of general
Pro rata. It means equally or jointly, not
partnerships from the juridical entity for the
proportionately because it is based on the
creation of which it was formed."
number of partners and not on the amount
of their contributions to the common fund.
The legal intention deducible from the acts of the
parties controls in determining the existence of a Subsidiary. It is secondary because the
partnership. If they intend to do a thing which in law partners become personally liable only after
constitute a partnership, they are partners, although all the partnership assets have been
their purpose was to avoid the creation of such exhausted.
relation. Here, the intention of the persons making
Note that while an industrial partner is exempted by
up Teck Seing & Co., Ltd. was to establish a
law from losses, he is not exempted from liability
partnership which they erroneously denominated a
insofar as third persons are concerned. This means
limited partnership. If this was their purpose, all
that the third person can sue the firm and the
subterfuges resorted to in order to evade liability for
partners, including the industrial partner.
possible losses, while assuming their enjoyment of
the advantages to be derived from the relation must What is the liability of a partner who has withdrawn
be disregarded. The partners who have their identity from the partnership? A partner who withdraws is
under a designation distinct from that of any of the not liable for liabilities contracted after he has
members of the firm should be penalized, and not withdrawn, for then he is no longer a partner. If his
the creditors who presumably have dealt with the interest has not yet been paid him, his right to the
partnership in good faith. same is that of a mere creditor.
Article 1816: Liability of partners for contractual What is the effect of a stipulation exempting liability
obligations of the partnership to third persons? The stipulation would be null and
void, pursuant to Article 1817. Such stipulation will
All partners, including industrial ones, shall
be valid insofar as among the partners.
be liable pro rata with all their property and
after all the partnership assets have been The provision likewise recognizes a partner assuming
exhausted, for the contracts which may be a separate undertaking in his name with a third party
entered into in the name and for the to perform a partnership contract or make himself
account of the partnership, under its solidarily liable on a partnership contract. In such
signature and by a person authorized to act case, the partner is personally bound by his contract
for the partnership. However, any partner even if only the partnership is shown to have derived
may enter into a separate obligation to benefits from it.
perform a partnership contract.
Cases:
judgment. One of the partners appealed claiming
Lim Tong Lim v. Philippine Fishing Gear
that the liability of each partner should not exceed
Industries, Inc., supra.
1/5 of the obligation due inasmuch as there are five
partners in the company. There is no dispute that the respondent, Philippine
Fishing Gear Industries, is entitled to be paid for the
The Supreme Court ruled that under Art. 1816 of the
nets it sold. The only question here is whether
Civil Code, the liability of partners shall be pro-rata;
petitioner should be held jointly liable with Chua and
that the dismissal of the complaint to favor one of
Yao. Petitioner contests such liability, insisting that
the general partners results in the condonation of
only those who dealt in the name of the ostensible
the de t of that pa t e s i di idual sha e a d that
corporation should be held liable. Since his name
appella t s sha e i the o ligatio shall ot e
does not appear on any of the contracts and since he
increased thereby but shall be limited to 1/5 of the
never directly transacted with the respondent
obligation of defendant company.
corporation, ergo, he cannot be held liable.
Muñasque v. CA, L-39780, November 11,
Unquestionably, petitioner benefited from the use of
1985
the nets found inside F/B Lourdes, the boat which
While it is true that under Article 1816 of the Civil has earlier been proven to be an asset of the
Code, "All partners, including industrial ones, shall partnership. He in fact questions the attachment of
be liable pro rata with all their property and after all the nets, because the Writ has effectively stopped
the partnership assets have been exhausted, for the his use of the fishing vessel.
contracts which may be entered into the name and
It is difficult to disagree with the RTC and the CA that
for the account of the partnership, under its
Lim, Chua and Yao decided to form a corporation.
signature and by a person authorized to act for the
Although it was never legally formed for unknown
partnership. . . .", this provision should be construed
reasons, this fact alone does not preclude the
together with Article 1824 which provides that: "All
liabilities of the three as contracting parties in
partners are liable solidarily with the partnership for
representation of it. Clearly, under the law on
everything chargeable to the partnership under
estoppel, those acting on behalf of a corporation and
Articles 1822 and 1823." In short, while the liability
those benefited by it, knowing it to be without valid
of the partners are merely joint in transactions
existence, are held liable as general partners.
entered into by the partnership, a third person who
Assuming this to be so, the right could have been
Syjuco v. Castro, supra. asserted at the time that the Lims instituted their
first action on December 24,1968 in the Manila
On failure to impugn mortgage for more than 17
Court of First Instance, Civil Case No. 75180, or when
years (estoppel by silence)
they filed their subsequent actions: Civil Case No.
If, therefore, the respondent partnership was 112762, on December 19, 1977; Civil Case No. 83-
inescapably chargeable with knowledge of the 19018, in 1983, and Civil Case No. Q-39294, also in
mortgage executed by all the partners thereof, its 1983. The claim could have been set up by the Lims,
silence and failure to impugn said mortgage within a as members composing the partnership, "Heirs of
reasonable time, let alone a space of more than Hugo Lim." It could very well have been put forth by
seventeen years, brought into play the doctrine of the partnership itself, as co-plaintiff in the
estoppel to preclude any attempt to avoid the corresponding complaints, considering that the
mortgage as allegedly unauthorized. actions involved property supposedly belonging to it
and were being prosecuted by the entire
On acts of all the individual members being membership of the partnership, and therefore, the
considered as acts of the partnership partnership was in actuality, the real party in
i te est. I fa t, o siste tl ith the Li s theo ,
Equally or even more preclusive of the respondent
they should be regarded, in all the actions presented
partnership s lai to the o tgaged p ope t is the
by them, as having sued for vindication, not of their
last paragraph of Article 1819 of the Civil Code,
individual rights over the property mortgaged, but
which contemplates a situation duplicating the
those of the partnership. There is thus no reason to
circumstances that attended the execution of the
distinguish between the Lims, as individuals, and the
mortgage in favor of Syjuco and therefore applies
partnership itself, since the former constituted the
foursquare thereto:
entire membership of the latter. In other words,
"Where the title to real property is in the despite the concealment of the existence of the
names of all the partners a conveyance partnership, for all intents and purposes and
executed by all the partners passes all their o siste tl ith the Li s o theo , it as that
rights in such property." partnership which was the real party in interest in all
the actions; it was actually represented in said
The term "conveyance" used in said provision, which actions by all the individual members thereof, and
is taken from Section 10 of the American Uniform o se ue tl , those e e s a ts, de la atio s
Partnership Act, includes a mortgage. and omissions cannot be deemed to be simply the
individual acts of said members, but in fact and in
Interpreting Sec. 10 of the Uniform Partnership Act, law, those of the partnership.
it has been held that the right to mortgage is
included in the right to convey. This is different from Article 1820: Admission by a partner
All partners are liable solidarily with the Article 1825: Partnership by estoppel
partnership for everything chargeable to
the partnership under articles 1822 and When a person, by words spoken or writ-
1823. ten or by conduct, represents himself, or
consents to another representing him to
The above three articles provide for the solidary anyone, as a partner in an existing
liability of the partners and also the partnership to partnership or with one or more persons
third persons for the wrongful act or omission, or not actual partners, he is liable to any such
breach of trust of a partner acting within the scope persons to whom such representation has
of the fi s usi ess o ith the autho it of his o- been made, who has, on the faith of such
partners. representation given credit to the actual or
apparent partnership, and if he has made
Cases:
such representation or consented to its
Muñasque v. CA, supra. being made in a public manner he is liable
to such person, whether the representation
The obligation is solidary because the law protects has or has not been made or communicated
him, who in good faith relied upon the authority of a to such person so giving credit by or with
partner, whether such authority is real or apparent. the knowledge of the apparent partner
That is why under Article 1824 of the Civil Code, all making the representation or consenting to
partners, whether innocent or guilty, as well as the its being made:
legal entity, which is the partnership, are solidarily
liable. 1. When a partnership liability results, he
is liable as though he were an actual
In the case at bar the respondent Tropical had every member of the partnership;
reason to believe that a partnership existed between 2. When no partnership liability results,
the petitioner and Galan and no fault or error can be he is liable pro rata with the other
imputed against it for making payments to "Galan persons, if any, so consenting to the
and Associates" and delivering the same to Galan contract or representation as to incur
because as far as it was concerned, Galan was a true liability, otherwise separately.
partner with real authority to transact on behalf of
the partnership with which it was dealing. This is When a person has been thus represented
even more true in the cases of Cebu Southern to be a partner in an existing partnership, or
Hardware and Blue Diamond Glass Palace who with one or more persons not actual
supplied materials on credit to the partnership. partners, he is an agent of the persons
Thus, it is but fair that the consequences of any consenting to such representation to bind
wrongful act committed by any of the partners them to the same extent and in the same
therein should be answered solidarily by all the manner as though he were a partner in fact,
partners and the partnership as a whole. with respect to persons who rely upon the
representation. When all the members of
However, as between the partners Muñasque and the existing partnership consent to the
Galan, justice also dictates that Muñasque be representation, a partnership act or
What is the effect of a sale by a partner of his share 1. Change in the relation dissolves the
to a third party? If a partner sells his share to a third partnership but will not disturb the
party, but the firm itself remains solvent, creditors of continuance by the remaining partners:
the partnership cannot assail the validity of the sale a. Dissolution of existing partnership
by alleging that it is made in fraud of them since they and formation of a new one.
have not really been prejudiced. b. Regard all partners as incoming
partners. All partners forming the
DISSOLUTION AND WINDING UP new partnership upon the
admission of the new person into
Article 1828: Definition of dissolution of
the usi ess a e i o i g
partnership
pa t e s, e e though the sa e
The dissolution of a partnership is the business had theretofore been
change in the relation of the partners conducted by the others through
caused by any partner ceasing to be the medium of partnership.
associated in the carrying on as c. Continuance by remaining partners
distinguished from the winding up of the of partnership as before. A
business. partnership is a contractual and
fiduciary relation dependent upon
Article 1829: Effects of dissolution the personality of its members,
and the withdrawal or admission
On dissolution the partnership is not
of a member changes so radically
terminated, but continues until the winding
the contractual rights and duties
up of partnership affairs is completed.
inter se as to produce essentially a
Definitions: new relation even though the
parties contemplate no actual
1. Dissolution is the change in the relation of dissolution of the firm.
the partners caused by any partner ceasing 2. Change in the relation of the partners
to be associated in the carrying on of the caused the dissolution and the partners
business. It is that point of time when the may choose to proceed with winding up
partners cease to carry on the business and termination of the partnership.
together.
2. Winding up is actual process of settling the Cases:
business or partnership affairs after
Yu v. NLRC, GR 97212, June 30, 1993
the relationship among the partners. The
Sunga-chan v. Chua, supra. partnership, although dissolved, continues to exist
until its termination, at which time the winding up of
With ega d to petitio e s i siste e that la hes
its affairs should have been completed and the net
and/or prescription should have extinguished
partnership assets are partitioned and distributed to
respondents claim, we agree with the trial court and
the partners.
the Court of Appeals that the action for accounting
filed espo de t th ee ea s afte Ja i to s Article 1830: Causes of dissolution
death was well within the prescribed period. The
Civil Code provides that an action to enforce an oral Dissolution is caused:
contract prescribes in six (6) years while the right to
de a d a a ou ti g fo a pa t e s i te est as 1. Without violation of the agreement
against the person continuing the business accrues between the partners:
at the date of dissolution, in the absence of any a. By the termination of the
contrary agreement. Considering that the death of a definite term or particular
partner results in the dissolution of the partnership, undertaking specified in the
i this ase, it as afte Ja i to s death that agreement;
respondent as the surviving partner had the right to b. By the express will of any
an account of his interest as against petitioners. It partner, who must act in good
bears stressing that while Jacinto s death dissol ed faith, when no definite term or
the partnership, the dissolution did not immediately particular undertaking is
terminate the partnership. The Civil Code expressly specified;
provides that upon dissolution, the partnership c. By the express will of all the
continues and its legal personality is retained until partners who have not
the complete winding up of its business, culminating assigned their interests or
in its termination. suffered them to be charged
for their separate debts, either
Sy v. CA, GR 94285, August 31, 1999 before or after the
termination of any specified
On dissolution vs. winding up vs. partition or term or particular
distribution undertaking;
d. By the expulsion of any
Petitioners fail to recognize the basic distinctions
partner from the business
underlying the principles of dissolution, winding up
o a fi de i a ordance with
and partition or distribution. The dissolution of a
such a power conferred by the
partnership is the change in the relation of the
agreement between the
parties caused by any partner ceasing to be
partners;
associated in the carrying on, as might be
2. In contravention of the agreement
distinguished from the winding up, of its business.
between the partners, where the
Upon its dissolution, the partnership continues and
circumstances do not permit a
its legal personality is retained until the complete
dissolution under any other provision
winding up of its business culminating in its
of this article, by the express will of any
termination. The dissolution of the partnership did
partner at any time;
not mean that the juridical entity was immediately
3. By any event which makes it unlawful
terminated and that the distribution of the assets to
for the business of the partnership to
of partners is one of mutual agency, a distinct
Fue Leung v. IAC, GR 70926, January 31,
feature among partnerships. By way of obiter in the
1989
case of Tocao, the Court ruled that an unjustified
dissolution of a partner can subject him to action for The private respondent is a partner of the petitioner
damages because by mutual agency that arises in a in Sun Wah Panciteria. The requisites of a
partnership, the doctrine of delectus personae partnership which are — 1) two or more persons
allows the partners to have the power, although not bind themselves to contribute money, property, or
necessarily the right to dissolve the partnership. industry to a common fund; and 2) intention on the
part of the partners to divide the profits among
In the absence of an express agreement to that
themselves (Article 1767, Civil Code; Yulo v. Yang
effect, there exists no right or power of any member,
Chiao Cheng, 106 Phil. 110) — have been
or even a majority of the members, to expel all other
established. As stated by the respondent, a partner
members of the firm at will. Nor can they at will
shares not only in profits but also in the losses of the
forfeit the share or interest of a member or
firm. If excellent relations exist among the partners
members and compel him or them to quit the firm,
at the start of business and all the partners are more
even paying what is due him.
interested in seeing the firm grow rather than get
The insolvency of the partner or of the partnership, a immediate returns, a deferment of sharing in the
ground enumerated in Article 1830, must be profits is perfectly plausible. It would be incorrect to
adjudged by court. Will it be recognized as a ground state that if a partner does not assert his rights
under Article 1831 then, and not of Article 1830? No. anytime within ten years from the start of
This is so in pursuance to the Insolvency law. The operations, such rights are irretrievably lost. The
dete i atio is to the e te t of the pa t e s p i ate espo de t s ause of a tio is p e ised
insolvency only, and no judicial decree is rendered upon the failure of the petitioner to give him the
o de i g the pa t e ship s dissolutio . agreed profits in the operation of Sun Wah
Panciteria. In effect the private respondent was
Can the partners in their contract decrease or limit asking for an accounting of his interests in the
the causes of dissolution? No. In the case of partnership.
Lichauco v. Lichauco, the Court held that a
contractual provision prohibiting dissolution except Considering the facts of this case, the Court may
by authorization of two-thirds of the members decree a dissolution of the partnership under Article
cannot be sustained when the firm had lost its 1831 of the Civil Code.
capital, or had become bankrupt, or had utterly
There shall be a liquidation and winding up of
abandoned the enterprise for which it had been
partnership affairs, return of capital, and other
organized.
incidents of dissolution because the continuation of
Who can sue for dissolution? the partnership has become inequitable
Article 1834: Power to bind dissolved partnership The partnership is in no case bound by any
to third persons act of a partner after dissolution:
After dissolution, a partner can bind the 1. Where the partnership is dissolved
partnership, except as provided in the third because it is unlawful to carry on the
paragraph of this article: business, unless the act is appropriate
for winding up partnership affairs; or
1. By an act appropriate for winding up 2. Where the partner has become
partnership affairs or completing insolvent; or
transactions unfinished at dissolution; 3. Where the partner had no authority to
2. By any transaction which would bind wind up partnership affairs, except by a
the partnership if dissolution had not transaction with one who —
taken place, provided the other party a. Had extended credit to the
to the transaction: partnership prior to
a. Had extended credit to the dissolution and had no
partnership prior to knowledge or notice of his
dissolution and had no want of authority; or
knowledge or notice of the b. Had not extended credit to the
dissolution; or partnership prior to
dissolution, and, having no
continues until the winding up of partnership affairs
Claridades v. Mercader, L-20341, May 14,
is completed. Winding up means the administration
1966
of the assets of the partnership for the purpose of
An action for the liquidation of a partnership is a terminating the business and discharging the
personal one which may be brought in the place of obligations of the partnership.
residence of either the plaintiff or the defendant.
The transfer of the possession of the parcels of land
The fact that plaintiff prays for the sale of the assets
and the improvements thereon to respondents was
of the partnership, including a fishpond located in a
only for a specific purpose: the winding up of
province other than that where the action was
partnership affairs, and the partition and distribution
brought, does not change the nature or character of
of the net partnership assets as provided by law.
the action, such sale being merely a necessary
After all, Article 1836 of the New Civil Code provides
incident of the liquidation of the partnership, which
that unless otherwise agreed by the parties in their
should precede and/or is part of its proper
JVA, respondents have the right to wind up the
dissolution.
partnership affairs.
Ortega v. CA, GR 109248, July 3, 1995
It must be stressed, too, that although respondents
Upon its dissolution, the partnership continues and acquired possession of the lands and the
its legal personality is retained until the complete improvements thereon, the said lands and
winding up of its business culminating in its improvements remained partnership property,
termination. The liquidation of the assets of the subject to the rights and obligations of the parties,
partnership following its dissolution is governed by inter se, of the creditors and of third parties under
various provisions of the Civil Code, however, an Articles 1837 and 1838 of the New Civil Code, and
agreement of the partners, like any other contract, is subject to the outcome of the settlement of the
binding among them and normally takes precedence accounts between the parties as provided in Article
to the extent applicable ove the Code s ge e al 1839 of the New Civil Code, absent any agreement
provisions. And here, the term "retirement" must of the parties in their JVA to the contrary. Until the
have been used in the Articles of Partnership in a partnership accounts are determined, it cannot be
generic sense to mean the dissociation by a partner, ascertained how much any of the parties is entitled
inclusive of resignation or withdrawal, from the to, if at all.
partnership that thereby dissolves it.
It was thus premature for petitioner Primelink to be
Primelink Properties and Development demanding that it be indemnified for the value of
Corporation v. Lazatin-Magat, GR 167379, the improvements on the parcels of land owned by
June 27, 2006 the joint venture/partnership. Notably, the JVA of
the parties does not contain any provision
When the RTC rescinded the JVA on complaint of designating any party to wind up the affairs of the
respondents based on the evidence on record that partnership.
affairs, either alone or with others;
Villareal v. Ramirez, supra.
3. When any partner retires or dies and
Petitioners further argue that respondents acted the business of the dissolved
negligently by permitting the partnership assets in partnership is continued as set forth in
their custody to deteriorate to the point of being Nos. 1 and 2 of this article, with the
almost worthless. Supposedly, the latter should consent of the retired partners or the
have liquidated these sole tangible assets of the representative of the deceased partner,
partnership and considered the proceeds as but without any assignment of his right
payment of their net capital. Hence, petitioners in partnership property;
argue that the turnover of the remaining partnership 4. When all the partners or their
assets to respondents was precisely the manner of representatives assign their rights in
liquidating the partnership and fully settling the partnership property to one or more
latte s sha e i the pa t e ship. third persons who promise to pay the
debts and who continue the business of
We disagree. The delivery of the store furniture and the dissolved partnership;
equipment to private respondents was for the 5. When any partner wrongfully causes a
purpose of storage. They were unaware that the dissolution and the remaining partners
restaurant would no longer be reopened by continue the business under the
petitioners. Hence, the former cannot be faulted for provisions of article 1837, second
not disposing of the stored items to recover their paragraph, No. 2, either alone or with
capital investment. others, and without liquidation of the
partnership affairs;
Article 1840: Dissolution because of change in
6. When a partner is expelled and the
membership
remaining partners continue the
In the following cases, creditors of the business either alone or with others
dissolved partnership are also creditors of without liquidation of the partnership
the person or partnership continuing the affairs.
business:
The liability of a third person becoming a
1. When any new partner is admitted into partner in the partnership continuing the
an existing partnership, or when any business, under this article, to the creditors
partner retires and assigns (or the of the dissolved partnership shall be
representative of the deceased partner satisfied out of the partnership property
assigns) his rights in partnership only, unless there is a stipulation to the
property to two or more of the contrary.
The contributions of a limited partner may Article 1848: Liability of limited partner for
be cash or other property, but not services. participating in management
Article 1846. Name of limited partnership; effects A limited partner shall not become liable as
of surname of limited partner found in partnership a general partner unless, in addition to the
name exercise of his rights and powers as a
limited partner, he takes part in the control
The surname of a limited partner shall not of the business.
appear in the partnership name unless:
The following acts do not constitute taki g pa t i
1. It is also the surname of a general the o t ol of the usi ess :
partner, or
2. Prior to the time when the limited 1. Mere dealing with a customer;
partner be- came such, the business 2. Mere consultation on one occasion with the
had been carried on under a name in general partners.
which his surname appeared.
It would seem that such control contemplates active
A limited partner whose surname appears participation in the management of the partnership
in a partnership name contrary to the business and does not comprehend the mere giving
provisions of the first paragraph is liable as of advice to general partners as to specific matters
a general partner to partnership creditors which the latter may follow or not.
who extend credit to the partnership
without actual knowledge that he is not a Article 1849: Admission of additional limited
general partner. partners
Article 1847: False statement in certificate filed After the formation of a limited partnership,
with the SEC; effects; liability additional limited partners may be admitted
upon filing an amendment to the original
If the certificate contains a false statement, certificate in accordance with the
one who suffers loss by reliance on such requirements of Article 1865.
statement may hold liable any party to the
certificate who knew the statement to be Even after a limited partnership has already been
false: formed, the firm may still admit new limited
partners, provided there is a proper amendment to
1. At the time he signed the certificate, or the certificate.
2. Subsequently, but within a sufficient
time be- fore the statement was relied Article 1850: Rights, powers, and liabilities of a
general partner is a limited partnership
In the absence of an agreement to the contrary, a 1. To require that the partnership books be
limited partner is not entitled to compensation for kept at the principal place of business of the
his services beyond his share of the profits. partnership;
2. To inspect and copy at a reasonable hour
Does the general partner enjoy plenary powers in a partnership books or any of them;
limited partnership? As a rule, a general partner 3. To demand true and full information of all
may bind the partnership by any act of things affecting the partnership;
administration, but he has no power to do the 4. To demand a formal account of partnership
specific acts enumerated in the article above, even if affairs whenever circumstances render it
agreed to by all the general partners, without the just and reasonable;
written consent or at least ratification of all the 5. To ask for dissolution and winding up by
limited partners. decree of court;
6. To receive a share of the profits or other
The general partners have no power to bind the
compensation by way of income; and,
li ited pa t e s e o d the latte s i est e t.
7. To receive the return of his contributions
provided the partnership assets are in
excess of all its liabilities.
Without prejudice to the provisions of Article 1853: Rights and powers of a person who is
Article 1848, a person who has contributed both a general and limited partner
to the capital of a business conducted by a
person or partnership erroneously believing A person may be a general partner and a
that he has become a limited partner in a limited partner in the same partnership at
limited partnership, is not, by reason of his the same time, provided that this fact shall
exercise of the rights of a limited partner, a be stated in the certificate provided for in
general partner with the person or in the article 1844.
partnership carrying on the business, or
A person who is a general, and also at the
bound by the obligations of such person or
same time a limited partner shall have all
partnership; provided that on ascertaining
the rights and powers and be subject to all
the mistake he promptly renounces his
the restrictions of a general partner; except
interest in the profits of the business or
that, in respect to his contribution, he shall
other compensation by way of income.
have the rights against the other members
The article grants exemption from liability in favor of which he would have had if he were not
one who has contributed to the capital of a business also a general partner.
conducted by a person or partnership erroneously
A person may be a general and a limited partner at
believing that he has become a limited partner in a
the same time, provided that this fact is stated in the
limited partnership or in a general partnership
certificate signed, sworn to, and recorded in the
thinking that it is a limited partnership.
office of the SEC.
Conditions for exemption from liability as a general
Generally, his rights and powers are those of a
partner:
general partner. Hence, he is liable with his separate
1. Renunciation of his interest upon property to third persons. However, with respect to
ascertaining mistake; his contribution as a limited partner, he would have
2. Does not participate in the management of the right of a limited partner insofar as the other
business; and, partners are concerned. This means that while he is
3. Surname does not appear in the not relieved from personal liability to third persons
partnership name. for partnership debts, he is entitled to recover from
the general partners the amount he has paid to such
The person, however, must promptly renounce his third persons; and in settling accounts after
interest before the partnership has become liable to dissolution, he shall have priority over general
third persons who cannot be blamed for considering partners in the return of their respective
him a general partner. However, where partnership contributions.
creditors are not prejudiced, it would seem that
renunciation of his interest is not necessary. Article 1854: Loan and other business transactions
with a limited partnership by a limited partner
An heir of a deceased general partners admitted as a
partner under the articles of partnership providing A limited partner also may loan money to
for such admission, ordinarily becomes a limited and transact other business with the
partner for his own protection, because he would partnership, and, unless he is also a general
normally prefer to avoid any liability in excess of the partner, receive on account of resulting
claims against the partnership, with general
Subject to the provisions of the first A limited partner holds as trustee for the
paragraph, a limited partner may rightfully partnership:
demand the return of his contributions:
1. Specific property stated in the
1. On the dissolution of a partnership, or certificate as contributed by him, but
2. When the date specified in the which was not contributed or which
certificate for its return has arrived, or has been wrongfully returned, and
3. After he has given six months notice in 2. Money or other property wrongfully
writing to all other members, if no time paid or conveyed to him on account of
is specified in the certificate, either for his contribution.
the return of the contribution or for the
The liabilities of a limited partner as set
dissolution of the partnership.
forth in this article can be waived or
In the absence of any statement in the compromised only by the consent of all
certificate to the contrary or the consent of members; but a waiver or compromise shall
all members, a limited partner, irrespective not affect the right of a creditor of a
of the nature of his contribution, has only partnership who extended credit or whose
the right to demand and receive cash in claim arose after the filing and before a
return for his contribution. cancellation or amendment of the
certificate, to enforce such liabilities.
A limited partner may have the partnership
dissolved and its affairs wound up when: When a contributor has rightfully received
the re- turn in whole or in part of the capital
1. He rightfully but unsuccessfully of his contribution, he is nevertheless liable
demands the return of his contribution, to the partnership for any sum, not in
or, excess of such return with interest,
In settling accounts after dissolution the When the firm is dissolved by the expiration of the
liabilities of the partnership shall be entitled term fixed in the certificate, notice of the dissolution
to payment in the following order: need not be given since the papers filed and
recorded in the SEC are notice to the world of the
1. Those to creditors, in the order of term of the partnership.
priority as provided by law, except
those to limited partners on account of The consequences of the dissolution of a general
their contributions, and to general partnership apply to limited partnership. Therefore,
partners; the partnership continues in operation while winding
2. Those to limited partners in respect to up.
their share of the profits and other
compensation by way of income on Article 1864: Amendment or cancellation of
their contributions; certificate
3. Those to limited partners in respect to
The certificate shall be cancelled when the
the capital of their contributions;
partnership is dissolved or all limited
4. Those to general partners other than
partners cease to be such. A certificate shall
for capital and profits;
be amended when:
5. Those to general partners in respect to
profits; 1. There is a change in the name of the
6. Those to general partners in respect to partnership or in the amount or
capital. character of the contribution of any
limited partner;
Subject to any statement in the certificate
2. A person is substituted as a limited
or to subsequent agreement, limited
partner;
partners share in the partnership assets in
3. An additional limited partner is
respect to their claims for capital, and in
admitted;
respect to their claims for profits or for
4. A person is admitted as a general
compensation by way of income on their
partner;
contribution respectively, in proportion to
5. A general partner retires, dies,
the respective amounts of such claims.
becomes insolvent or insane, or is
A limited partnership is dissolved in much the same sentenced to civil interdiction and the
way as an ordinary partnership. It may be dissolved business is continued under article
for the misconduct of a general partner, for fraud 1860;
practiced on the limited partner by the general 6. There is change in the character of the
partner, or on the retirement, death, etc. of a business of the partnership;
general partner or when all the limited partners 7. There is a false or erroneous statement
in the certificate;
was formed.
Agency may not be Trust involves control Rallos v. Felix Go Chan & Sons Realty
connected at all with over the property. Corporation, L-24332, January 31, 1978
property.
It is a basic axiom in civil law embodied in our Civil
Agent has authority to Trustee does not
Code that no one may contract in the name of
make contracts which necessarily or even
another without being authorized by the latter, or
will be binding on his possess such authority
unless he has by law a right to represent him. A
principal. to bind the trustor or the
contract entered into in the name of another by one
cestui que trust.
who has no authority or the legal representation or
Agency is really a A trust may be the result
who has acted beyond his powers, shall be
contractual relation, of the contract or not; it
unenforceable, unless it is ratified, expressly or
may be created also by
impliedly, by the person on whose behalf it has been
law.
executed, before it is revoked by the other
contracting party.
Agency to Sell Sale Out of the above given principles, sprung the
Ownership of the goods Ownership is transferred creation and acceptance of the relationship of
is not transferred to the to the buyer after agency whereby one party, caged the principal
agent. delivery. (mandante), authorizes another, called the agent
The agent delivers the The buyer pays the price. (mandatario), to act for and in his behalf in
Agreement.
Orient Air Services & Hotel Representatives
v. CA, GR 76931 & 76933, May 29, 1991 By affirming this ruling of the trial court, respondent
appellate court, in effect, compels American Air to
It is a well settled legal principle that in the extend its personality to Orient Air. Such would be
interpretation of a contract, the entirety thereof violative of the principles and essence of agency,
must be taken into consideration to ascertain the defined by law as a contract whereby "a person
meaning of its provisions. The various stipulations in binds himself to render some service or to do
the contract must be read together to give effect to something in representation or on behalf of another,
all. After a careful examination of the records, the WITH THE CONSENT OR AUTHORITY OF THE
Court finds merit in the contention of Orient Air that LATTER." (Emphasis supplied) In an agent-principal
the Agreement, when interpreted in accordance relationship, the personality of the principal is
with the foregoing principles, entitles it to the 3% extended through the facility of the agent. In so
overriding commission based on total revenue, or as doing, the agent, by legal fiction, becomes the
referred to by the parties, "total flown revenue." principal, authorized to perform all acts which the
latter would have him do. Such a relationship can
As the designated exclusive General Sales Agent of
only be effected with the consent of the principal,
American Air, Orient Air was responsible for the
which must not, in any way, be compelled by law or
p o otio a d a keti g of A e i a Ai s services
by any court. The Agreement itself between the
for air passenger transportation, and the solicitation
parties states that "either party may terminate the
of sales therefor. In return for such efforts and
Agreement without cause by giving the other 30
services, Orient Air was to be paid commissions of
da s oti e lette , teleg a o a le." We,
two (2) kinds: first, a sales agency commission,
therefore, set aside the portion of the ruling of the
ranging from 7-8% of tariff fares and charges from
respondent appellate court reinstating Orient Air as
sales by Orient Air when made on American Air
general sales agent of American Air.
ticket stock; and second, an overriding commission
of 3% of tariff fares and charges for all sales of Eurotech Industrial Technologies v. Cuizon,
passenger transportation over American Air services. GR 167552, April 23, 2007
It is immediately observed that the precondition
attached to the first type of commission does not In a contract of agency, a person binds himself to
obtain for the second type of commissions. The render some service or to do something in
latter type of commissions would accrue for sales of representation or on behalf of another with the
principal or the party for whom another acts and
from whom he or she derives the authority to act. It Dizon v. CA, GR 122544, January 28, 1999
is said that the basis of agency is representation,
In an attempt to resurrect the lapsed option, private
that is, the agent acts for and on behalf of the
respondent gave P300,000.00 to petitioners (thru
principal on matters within the scope of his authority
Alice A. Dizon) on the erroneous presumption that
and said acts have the same legal effect as if they
the said amount tendered would constitute a
were personally executed by the principal. By this
perfected contract of sale pursuant to the contract
legal fiction, the actual or real absence of the
of lease with option to buy. There was no valid
principal is converted into his legal or juridical
consent by the petitioners (as co-owners of the
presence qui facit per alium facit per se
leased premises) on the supposed sale entered into
The elements of the contract of agency are: (1) by Alice A. Dizon, as petitioners alleged agent, and
consent, express or implied, of the parties to private respondent. The basis for agency is
establish the relationship; (2) the object is the representation and a person dealing with an agent is
execution of a juridical act in relation to a third put upon inquiry and must discover upon his peril
person; (3) the agent acts as a representative and the authority of the agent. As provided in Article
not for himself; (4) the agent acts within the scope of 1868 of the New Civil Code, there was no showing
his authority. that petitioners consented to the act of Alice A.
Dizon nor authorized her to act on their behalf with
Bordador v. Luz, GR 130148, December 15, regard to her transaction with private respondent.
1997 The most prudent thing private respondent should
have done was to ascertain the extent of the
The basis for agency is representation. Here, there is authority of Alice A. Dizon. Being negligent in this
no showing that Brigida consented to the acts of regard, private respondent cannot seek relief on the
Deganos or authorized him to act on her behalf, basis of a supposed agency.
much less with respect to the particular transactions
i ol ed. Petitio e s atte pt to foist liability on Reiterating the rule in delaing with an agent in
respondent spouses through the supposed agency Bacaltos Coal Mines v. Court of Appeals:
relation with Deganos is groundless and ill-advised.
E e pe so deali g ith a age t is put
Besides, it was grossly and inexcusably negligent of upon inquiry and must discover upon his
petitioners to entrust to Deganos, not once or twice peril the authority of the agent. If he does
but on at least six occasions as evidenced by six not make such inquiry, he is chargeable
receipts, several pieces of jewelry of substantial ith k o ledge of the age t s autho it ,
value without requiring a written authorization from and his ignorance of that authority will not
his alleged principal. A person dealing with an agent be any excuse. Persons dealing with an
is put upon inquiry and must discover upon his peril assumed agent, whether the assumed
the authority of the agent. agency be a general or special one, are
bound at their peril, if they would hold the
The records show that neither an express nor an principal, to ascertain not only the fact of
implied agency was proven to have existed between the agency but also the nature and extent
Deganos and Brigida D. Luz. Evidently, petitioners, of the authority, and in case either is
and STM. The fact alone that it (STM) had
Victorias Milling Co., Inc. v. CA, GR 117356, authorized withdrawal of sugar by plaintiff-
June 19, 2000 appellee "for and in our (STM's) behalf"
should not be eyed as pointing to the
Petitioner heavily relies upon STM's letter of
existence of an agency relation ...It should
authority allowing CSC to withdraw sugar against
be viewed in the context of all the
SLDR No. 1214M to show that the latter was STM's
circumstances obtaining. Although it would
agent. The pertinent portion of said letter reads:
seem STM represented plaintiff-appellee as
This is to autho ize Co solidated “uga being its agent by the use of the phrase "for
Corporation or its representative to and in our (STM's) behalf" the matter was
withdraw for and in our behalf (stress cleared when on 23 January 1990, plaintiff-
supplied) the refined sugar covered by appellee informed defendant-appellant that
Shipping List/Delivery Receipt = Refined SLDFR No. 1214M had been "sold and
Sugar (SDR) No. 1214 dated October 16, endorsed" to it by STM (Exhibit I, Records,
i the total ua tit of , ags. p. 78). Further, plaintiff-appellee has shown
that the 25, 000 bags of sugar covered by
It is clear from Article 1868 that the basis of agency the SLDR No. 1214M were sold and
is representation. On the part of the principal, there transferred by STM to it ...A conclusion that
must be an actual intention to appoint or an there was a valid sale and transfer to
intention naturally inferable from his words or plaintiff-appellee may, therefore, be made
actions and on the part of the agent, there must be thus capacitating plaintiff-appellee to sue in
an intention to accept the appointment and act on it its own name, without need of joining its
and in the absence of such intent, there is generally imputed principal STM as co-plai tiff.
no agency. One factor which most clearly
distinguishes agency from other legal concepts is In the instant case, it appears plain to us that private
control; one person - the agent - agrees to act under respondent CSC was a buyer of the SLDFR form, and
the control or direction of another - the principal. not an agent of STM. Private respondent CSC was
Indeed, the very word "agency" has come to not subject to STM's control. The question of
connote control by the principal. The control factor, whether a contract is one of sale or agency depends
more than any other, has caused the courts to put on the intention of the parties as gathered from the
contracts between principal and agent in a separate whole scope and effect of the language employed.
category. The Court of Appeals, in finding that CSC, That the authorization given to CSC contained the
was not an agent of STM, opined: phrase "for and in our (STM's) behalf" did not
establish an agency. Ultimately, what is decisive is
This Court has ruled that where the the intention of the parties That no agency was
relation of agency is dependent upon the meant to be established by the CSC and STM is
acts of the parties, the law makes no clearly shown by CSC's communication to petitioner
presumption of agency, and it is always a that SLDR No. 1214M had been "sold and endorsed"
fact to be proved, with the burden of proof to it. The use of the words "sold and endorsed"
resting upon the persons alleging the means that STM and CSC intended a contract of sale,
agency, to show not only the fact of its and not an agency. Hence, on this score, no error
existence, but also its nature and extent was committed by the respondent appellate court
(Antonio vs. Enriquez [CA], 51 O.G. 3536]. when it held that CSC was not STM's agent and could
Here, defendant-appellant failed to independently sue petitioner.
appoint, an intention naturally inferable from the
Yoshizaki v. Joy Training Center of Aurora,
principals words or actions. In the same manner,
GR 174978, July 1, 2013
there must be an intention on the part of the agent
to accept the appointment and act upon it. Absent Article 1868 of the Civil Code defines a contract of
such mutual intent, there is generally no agency. age as a o t a t he e a pe so i ds
himself to render some service or to do something in
This Court finds no reversible error in the findings of
representation or on behalf of another, with the
the courts a quo that petitioners were the rice
o se t o autho it of the latte . It a e
buyers themselves; they were not mere agents of
express, or implied from the acts of the principal,
respondents in their rice dealership. The question of
from his silence or lack of action, or his failure to
whether a contract is one of sale or of agency
repudiate the agency, knowing that another person
depends on the intention of the parties.
is acting on his behalf without authority.
The declarations of agents alone are generally
Jusayan v. Sombilla, GR 163928, January 21,
insufficient to establish the fact or extent of their
2015
authority. The law makes no presumption of
agency; proving its existence, nature and extent is Yet, the lease of an agricultural land can be either a
incumbent upon the person alleging it. In the civil law or an agricultural lease. In the civil law lease,
present case, petitioners raise the fact of agency as one of the parties binds himself to give to another
an affirmative defense, yet fail to prove its existence. the enjoyment or use of a thing for a price certain,
and for a period that may be definite or indefinite.
The Court notes that petitioners, on their own
In the agricultural lease, also termed as a leasehold
behalf, sued Evangeline Santos for collection of the
tenancy, the physical possession of the land devoted
amounts represented by the bounced checks, in a
to agriculture is given by its owner or legal possessor
separate civil case that they sought to be
(landholder) to another (tenant) for the purpose of
consolidated with the current one. If, as they claim,
production through labor of the latter and of the
they were mere agents of respondents, petitioners
members of his immediate farm household, in
should have brought the suit against Santos for and
consideration of which the latter agrees to share the
on behalf of their alleged principal, in accordance
harvest with the landholder, or to pay a price certain
with Section 2 of Rule 3 of the Rules on Civil
or ascertainable, either in produce or in money, or in
Procedure. Their filing a suit against her in their own
the landholding in leasehold tenancy is devoted to
agriculture; in civil law lease, the purpose may be for Spouses Fernando v. Continental Airlines,
any other lawful pursuits; and (4) as to the law that Inc., GR 188288, January 16, 2012
governs, the civil law lease is governed by the Civil
According to the CA, agency is never presumed and
Code, but the leasehold tenancy is governed by
that he who alleges that it exists has the burden of
special laws.
proof. Spouses Viloria, on whose shoulders such
The sharing of the harvest in proportion to the burden rests, presented evidence that fell short of
respective contributions of the landholder and indubitably demonstrating the existence of such
tenant, otherwise called share tenancy, was agency.
abolished on August 8, 1963 under Republic Act No.
We disagree. The CA failed to consider undisputed
3844. To date, the only permissible system of
fa ts, dis editi g CAI s de ial that Holida T a el is
agricultural tenancy is leasehold tenancy, a
one of its agents. Furthermore, in erroneously
relationship wherein a fixed consideration is paid
characterizing the contractual relationship between
instead of proportionately sharing the harvest as in
CAI and Holiday Travel as a contract of sale, the CA
share tenancy.
failed to apply the fundamental civil law principles
In Teodoro v. Macaraeg, this Court has synthesized governing agency and differentiating it from sale.
the elements of agricultural tenancy to wit: (1) the
Reiterating the ruling of the Court in Rallos v. Felix
object of the contract or the relationship is an
Go Chan & Sons Realty Corp:
agricultural land that is leased or rented for the
purpose of agricultural production; (2) the size of the Out of the above given principles, sprung
landholding is such that it is susceptible of personal the creation and acceptance of the
cultivation by a single person with the assistance of relationship of agency whereby one party,
the members of his immediate farm household; (3) called the principal (mandante), authorizes
the tenant-lessee must actually and personally till, another, called the agent (mandatario), to
cultivate or operate the land, solely or with the aid act for and in his behalf in transactions with
of labor from his immediate farm household; and (4) third persons. The essential elements of
the landlord-lessor, who is either the lawful owner agency are: (1) there is consent, express or
or the legal possessor of the land, leases the same to implied of the parties to establish the
the tenant-lessee for a price certain or ascertainable relationship; (2) the object is the execution
either in an amount of money or produce. of a juridical act in relation to a third
person; (3) the agent acts as a
It can be gleaned that in both civil law lease of an
representative and not for himself, and (4)
agricultural land and agricultural lease, the lessor
the agent acts within the scope of his
gives to the lessee the use and possession of the
autho it .
land for a price certain. Although the purpose of the
As regards implied acceptance by the agent, the law In No. 1 as distinguished from No. 2, just because the
distinguishes between cases where persons are offeree did not reply does not mean that the agency
present, and where persons are absent. Agency is has been accepted. For if this would be equivalent
impliedly accepted if the agent receives a power of to implied acceptance, there would be no difference
attorney from the principal himself personally between the two. A good instance of implied
without any objection, both being present. acceptance in No. 1 would be when the offeree
writes a letter acknowledging the receipt of the
What is a power of attorney? It is a written
offer, but offers no objection to the agency. If he
authorization to an agent to perform specified acts
does not write such a letter, it may be because he
in behalf of his principal which acts, when
simply wants to ignore the offer, or he may have
performed, shall have binding effect on the principal.
forgotten about it, or he is still undecided; hence, in
A power of attorney is strictly construed and strictly this latter case, it would be unfair to presume
pursued. Under this rule, the instrument will be held acceptance. Another instance of implied acceptance
to grant only those powers which are specified and is when the silent offeree begins to act under the
defined, and the agent may neither go beyond nor authority conferred upon him. Indeed, acceptance
deviate from the power of attorney. In other words, can be implied from the acts which carry out the
the act done must be legally identical with that agency.
authorized to be done. Moreover, where the mode
Distinctions:
of exercising a power is prescribed in the instrument
in which it is created, there must be a strict Article 1871 Article 1872
compliance therewith in every substantial particular.
The principal personally The principal transmits
This is but in accord with the disinclination of courts delivers the power of the power of attorney to
to enlarge the authority granted attorney to the agent. the agent.
Article 1872: Acceptance of agency between
persons absent
Article 1873: Communication of existence of agency
Between persons who are absent, the
If a person specially informs another or
acceptance of the agency cannot be implied
states by public advertisement that he has
from the silence of the agent, except:
given a power of attorney to a third person,
1. When the principal transmits his power the latter thereby becomes a duly
of attorney to the agent, who receives authorized agent, in the former case with
it without any objection; respect to the person who received the
specified persons, its revocation shall not prejudice
Naguiat v. CA, GR 118375, October 3, 2003
the latter if they were not given notice thereof.
Naguiat questions the admissibility of the various
Kinds of estoppel to deny agency:
written representations made by Ruebenfeldt on the
1. Estoppel of agent: One professing to act as ground that they could not bind her following the res
agent for another may be estopped to deny inter alia acta alteri nocere non debet rule. The
his agency both as against his asserted Court of Appeals rejected the argument, holding that
principal and the third persons interested in since Ruebenfeldt was an authorized representative
the transaction in which he engaged. or agent of Naguiat the situation falls under a
2. Estoppel of principal, discussed in Article recognized exception to the rule. Still, Naguiat
1911: insists that Ruebenfeldt was not her agent.
3. Estoppel of third persons: A third person,
Suffice to say, however, the existence of an agency
having dealt with one as an agent may be
relationship between Naguiat and Ruebenfeldt is
estopped to deny the agency as against the
supported by ample evidence. As correctly pointed
principal, agent, or third persons in interest.
out by the Court of Appeals, Ruebenfeldt was not a
He will not, however, be estopped where
stranger or an unauthorized person. Naguiat
he has withdrawn from the contract made
instructed Ruebenfeldt to withhold from Queao the
with the unauthorized agent before
checks she issued or indorsed to Queao, pending
receiving any benefits thereunder.
delivery by the latter of additional collateral.
be an intention to accept the appointment and act
Yun Kwan Byung v. PAGCOR, GR 163553, on it. Absent such mutual intent, there is generally
December 11, 2009 no agency.
Petitioner alleges that there is an implied agency. There is no implied agency in this case because
Alternatively, petitioner claims that even assuming PAGCOR did not hold out to the public as the
that no actual agency existed between PAGCOR and principal of ABS Corporation. PAGCORs actions did
ABS Corporation, there is still an agency by estoppel not mislead the public into believing that an agency
based on the acts and conduct of PAGCOR showing can be implied from the arrangement with the
apparent authority in favor of ABS Corporation. junket operators, nor did it hold out ABS Corporation
Petitioner states that one factor which distinguishes with any apparent authority to represent it in any
agency from other legal precepts is control and the capacity. The Junket Agreement was merely a
following undisputed facts show a relationship of contract of lease of facilities and services.
implied agency:
The players brought in by ABS Corporation were
1. Three floors of the Grand Boulevard Hotel covered by a different set of rules in acquiring and
were leased to PAGCOR for conducting encashing chips. The players used a different kind of
gambling operations; chip than what was used in the regular gaming areas
2. Of the three floors, PAGCOR allowed ABS of PAGCOR, and that such junket players played
Corporation to use one whole floor for specifically only in the third floor area and did not
We disagree. The Court of Appeals correctly used When a sale of a piece of land or any
the intent of the contracting parties in determining interest therein is through an agent, the
whether an agency by estoppel existed in this case. authority of the latter shall be in writing;
An agency by estoppel, which is similar to the otherwise, the sale shall be void.
doctrine of apparent authority requires proof of
reliance upon the representations, and that, in turn, Under this article, the sale of a piece of land or any
needs proof that the representations predated the interest thereon, like usufruct, mortgage, etc.,
action taken in reliance. through an agent is void unless the authority of the
agent is in writing. Hence, a letter containing the
There can be no apparent authority of an agent authority to sell is held sufficient.
without acts or conduct on the part of the principal
and such acts or conduct of the principal must have Does the ph ase a y i te est the ei i lude
been known and relied upon in good faith and as a usufruct, easement and buildings? Strictly speaking,
result of the exercise of reasonable prudence by a it does not. But, if this would be the construction, it
third person as claimant, and such must have would follow that in an agency to sell a building, it
produced a change of position to its detriment. does not have to be in writing.
Such proof is lacking in this case.
Effect if the article is violated: The sale is void, not
In the entire duration that petitioner played in merely unenforceable. Therefore, the principal
Casino Filipino, he was dealing only with ABS cannot technically ratify. If he does so, there should
Corporation, and availing of the privileges extended be no retroactive effect.
only to players brought in by ABS Corporation. The
More so, under Article 1403(2)(e), an oral agreement
facts that he enjoyed special treatment upon his
for the sale of real property or of an interest is
arrival in Manila and special accommodations in
unenforceable even if there is no agent.
Grand Boulevard Hotel, and that he was playing in
special gaming rooms are all indications that Cases:
petitioner cannot claim good faith that he believed
he was dealing with PAGCOR. Petitioner cannot be Pahud v. CA, GR 160346, August 25, 2009
considered as an innocent third party and he cannot
The focal issue to be resolved is the status of the sale
claim entitlement to equitable relief as well.
of the subject property by Eufemia and her co-heirs
For his third and final assigned error, petitioner to the Pahuds. We find the transaction to be valid
asserts that PAGCOR ratified the acts of ABS and enforceable.
Corporation.
Also, under Article 1878, a special power of attorney
The trial court has declared, and we affirm, that the is necessary for an agent to enter into a contract by
Junket Agreement is void. A void or inexistent which the ownership of an immovable property is
contract is one which has no force and effect from transmitted or acquired, either gratuitously or for a
absence of a written authority to sell a piece of land
AF Realty & Development, Inc. v. Dieselman
is, ipso jure, void, precisely to protect the interest of
Freight Services Co., GR 111448, January 16,
an unsuspecting owner from being prejudiced by the
2002
unwarranted act of another.
Involved in this case is a sale of land through an
Based on the foregoing, it is not difficult to conclude,
agent. Thus, the law on agency under the Civil Code
in principle, that the sale made by Eufemia, Isabelita
takes precedence. This is well stressed in Yao Ka Sin
and her two brothers to the Pahuds sometime in
Trading vs. Court of Appeals:
1992 should be valid only with respect to the 4/8
portion of the subject property. The sale with Since a corporation, such as the private
respect to the 3/8 portion, representing the shares respondent, can act only through its officers
of Zenaida, Milagros, and Minerva, is void because and agents, all acts within the powers of
Eufemia could not dispose of the interest of her co- said corporation may be performed by
heirs in the said lot absent any written authority agents of its selection; and, except so far as
from the latter, as explicitly required by law. This limitations or restrictions may be imposed
was, in fact, the ruling of the CA.
protect the rights and interest of the corporation in
Cosmic Lumber Corporation v. CA, GR the aforementioned lots." In the context of the
114311,, November 29, 1996 specific investiture of powers to Villamil-Estrada,
alienation by sale of an immovable certainly cannot
When the sale of a piece of land or any interest
be deemed protective of the right of petitioner to
thereon is through an agent, the authority of the
physically possess the same, more so when the land
latter shall be in writing otherwise, the sale shall be
was being sold for a price of P80.00 per square
void. Thus the authority of an agent to execute a
meter, very much less than its assessed value of
contract for the sale of real estate must be conferred
P250.00 per square meter, and considering further
in writing and must give him specific authority,
that petitioner never received the proceeds of the
either to conduct the general business of the
sale. It is therefore clear that by selling to
principal or to execute a binding contract containing
respondent Perez a portion of petitioner's land
terms and conditions which are in the contract he
through a compromise agreement, Villamil-Estrada
did not execute. A special power of attorney is
acted without or in obvious authority. The sale ipso
services if no compensation was specified. This
Spouses Bautista v. Spouses Jalandoni, GR
presupposes, however, that the agent has complied
171464, November 27, 2013
with his obligation as such to the principal.
Before resolving the issue on whether Spouses
Under the old Civil Code, agency was presumed to
Bautista were purchasers in good faith for value, the
be gratuitous. In the present Code, agency is
Court shall first discuss the validity of the sale.
presumed to be for compensation.
Likewise, Article 1878 paragraph 5 of the Civil Code
In the absence of stipulation, the agent is entitled to
specifically mandates that the authority of the agent
compensation only after he has completely or
contract to sell that Oriental Petroleum concluded
Oriental Petroleum and Minerals
with Gateway was a valid and binding contract to
Corporation v. Tuscan Realty, Inc., GR
sell, which precluded Oriental Petroleum from
195481, July 10, 2013
peddling the properties to others. Indeed, Oriental
The CA i oked the p i iple of p o u i g ause Petroleum executed a deed of absolute sale in
(Prats doctrine) in orde i g the pa e t of oke s A heta s fa o i tue of Gate a s assig e t
commission to Tuscan ‘ealt . The te po ui g to him of its rights under the contract to sell.
ause efe s to a ause hi h sta ts a se ies of Consequently, it cannot be said that Oriental
events and results, without break in their continuity, Petroleum found a direct buyer in Ancheta without
i the a o plish e t of a oke s p i e o je ti e the intermediate contract to sell in favor of
of producing a purchaser who is ready, willing, and Gate a , Tus a ‘ealt s p oposed u e .
able to buy on the o e s te s. This is si ila to
Oriental Petroleum further points out that Tuscan
the concept of proximate cause in Torts, without
Realty took no part in its negotiation with Gateway.
which the injury would not have occurred. To be
That may be the case but the reason why Tuscan
ega ded as the p o u i g ause of a sale, a oke s
Realty refrained from doing so was because of
efforts must have been the foundation of the
O ie tal Pet oleu s ad i e that it ould he efo th
negotiations which subsequently resulted in a sale.
directly negotiate the sale with Gateway. Besides,
Here, it was Tuscan Realty that introduced Gateway assuming that the advice amounted to a revocation
to Oriental Petroleum as an interested buyer of its of Tus a ‘ealt s autho it to sell, the Cou t has
o do i iu u its. O ie tal Pet oleu s o always recog ized the oke s ight to his
Executive Vice President attested to this, saying that commission, although the owner revoked his
they learned of Gateway s i te est i the p ope ties authority and directly negotiated with the buyer
from Mr. Capotosto of Tuscan Realty. ho he et th ough the oke s effo ts. It ould
be unfair not to give the broker the reward he had
The evidence shows that on August 14, 1996, Tuscan earned for helping the owner find a buyer who
Realty submitted an initial list of prospective buyers would pay the price.
with contact details. It twice updated this list with
Gateway always on top of the lists. Clearly then, it Lim v. Saban, GR 163720, December 16,
as o a ou t of Tus a ‘ealt s effo t that 2004
Oriental Petroleum got connected to Gateway, the
The Court affirms the appellate courts finding that
prospective buyer, resulting in the latter two
the agency was not revoked since Ybaez requested
entering into a contract to sell involving the two
that Lim make stop payment orders for the checks
condominium units. Although Gateway turned
payable to Saban only after the consummation of
around and sold the condominium units to Ancheta,
the sale on March 10, 1994. At that time, Saban had
the fact that such ultimate sale could not have
already performed his obligation as Ybaezs agent
happe ed ithout Gate a s i dispe sa le
when, through his (Sabans) efforts, Ybaez executed
intervention as intermediate buyer. Applying the
the Deed of Absolute Sale of the lot with Lim and the
principle of procuring cause, therefore, Tuscan
Spouses Lim.
Realty should e gi e its oke s o issio .
Article 1879: Scope of authority to sell/mortgage Demetrio s special power of attorney granting the
powers to sell and/or mortgage reads in part:
A special power to sell excludes the power
to mortgage; and a special power to 1. To sell and/or mortgage in favor of any
mortgage does not include the power to person, corporation, partnership,
sell. private banking or financial institution,
government or semi-government
The power to sell carries with it the: banking or financial institution for such
price or amount and under such terms
1. Power to find a purchaser or to sell directly;
and conditions as our aforesaid
2. Power to deliver the property;
attorney-in-fact may deem just and
3. Power to make the usual representation
proper, parcels of land more
and warranty;
particularly described as follows:
4. Power to execute the necessary transfer
2. To carry out the authority aforestated,
documents;
to sign, execute and deliver such deeds,
5. Power to fix the terms of the sale, including
instruments and other papers that may
the time, place, mode of delivery, price of
be required or necessary;
the goods, and the mode of payment unless
3. To further attain the authority herein
there be set conditions stipulated by the
given, to do and perform such acts and
principal;
things that may be necessary or
6. Power to sell only for cash;
incidental to fully carry out the
7. Power to receive the price, unless he was
authority herein granted.
authorized only to solicit orders
It is in the context of this vesture of power that
The power to mortgage does not include the power:
Demetrio, representing his shared interest with
1. To sell; Carolina and Margarita, entered into the MOA with
2. To execute a second mortgage; PMRDC. It is likewise within this same context that
3. To o tgage fo the age t s pe so al Demetrio later on entered into the DAC and
benefit or for the benefit of any third accordingly extinguished the previously subsisting
person, unless contrary has been clearly obligation of PMRDC to deliver the stipulated option
indicated. money and replaced said obligation with the delivery
instead of participation certificates in favor of
Power to revoke and right to revoke authority: The Demetrio.
principal always has the power to revoke but not
having the right to do so in those cases wherein he The powers conferred on Demetrio were exclusive
has agreed not to exercise his power during a certain only to selling and mortgaging the properties.
period. The authority may be withdrawn at any Between these two specific powers, the power to
moment but the contract cannot be terminated in sell is quite controversial because it is the sale
violation of its terms, without making the principal transaction which bears close resemblance to the
liable for damages. deal contemplated in the DAC. In fact, part of the
testimony of Atty. Danilo Javier, counsel for
Cases: respondent HIGC and head of its legal department at
the time, is that in the execution of the DAC,
respondents had relied on Demetrio s special power
Thus, it becomes clear that Demetrio s special power The li its of the age t s autho it shall ot
of attorney to sell is sufficient to enable him to make be considered exceeded should it have
a binding commitment under the DAC in behalf of been performed in a manner more
Carolina and Margarita. In particular, it does include advantageous to the principal than that
the authority to extinguish PMRDC s obligation specified by him.
under the MOA to deliver option money and agree
to a more flexible term by agreeing instead to There are two very important principles of a true
receive shares of stock in lieu thereof and in agency:
consideration of the assignment and conveyance of
1. The agent must act within the scope of his
the properties to the Asset Pool. Indeed, the terms
authority; and,
of his special power of attorney allow much leeway
2. The agent must act on behalf of his
to accommodate not only the terms of the MOA but
principal.
also those of the subsequent agreement in the DAC
which, in this case, necessarily and consequently has Distinctions:
resulted in a novation of PMRDC s integral
obligations. Authority Power
Cause Effect
Article 1880: Scope of special power to compromise
It emanates from a It is that given to the
A special power to compromise does not principal. agent.
authorize submission to arbitration.
What is the doctrine of authority by necessity? By Liability of principal or agent for acts of agent
virtue of the existence of an emergency, the beyond his authority of power:
authority of an agent is correspondingly enlarged in
order to cope with the exigencies or the necessities 1. For the principal: As a general rule, the
of the moment. Five conditions were laid down by principal is not bound by the acts of an
the U“ “up e e Cou t fo autho it of age agent beyond his limited powers. There are
e essit : however four qualifications whereby the
principal is held liable:
1. The real existence of an emergency a. Where his acts have contributed to
2. Inability of the agent to communicate with deceive a third person in good
the principal faith;
3. The exercise of the additional authority for b. Where the limitations upon the
the p i ipal s o p ote tio power created by him could not
4. The adoption of fairly reasonable means, have been known by third persons;
premises duly considered c. Where the principal has placed in
5. The ceasing of the authority the moment the hands of the agent instruments
the emergency no longer demands the signed by him in blank; and,
same d. Where the principal has ratified
the acts of the agent.
Effects:
2. For the agent: The agent who exceeds his
1. With authority authority is personally liable either to the
principal or to the third party in the absence
O pri ipal’s ehalf O age t’s ehalf of ratification by the principal.
Valid, which means that Generally, it is not a. If the principal is liable to the third
the principal is bound binding on the principal; party on the ground of apparent
and the agent is not agent and stranger are autho it , the age t s lia ilit is to
personally liable unless the only parties, except the principal.
he bound himself. regarding things b. If the principal is not liable to the
belonging to the third person because the facts are
principal such not apparent authority is
2. Without authority p ese t, the the age t s lia ilit is
to the third party.
O pri ipal’s ehalf O age t’s ehalf c. If the agent personally assumes
Unauthorized and Valid, whether or not the responsibility for the particular
The facts in the cases at bar are different. The It is a general rule in the law of agency
charterer did not represent itself as a carrier and that, in order to bind the principal by a
indeed assumed responsibility only for the unloading mortgage on real property executed by an
of the cargo, i.e, after the goods were already agent, it must upon its face purport to be
outside the custody of the vessel. In supervising the made, signed and sealed in the name of the
unloading of the cargo and issuing Daily Operations principal, otherwise, it will bind the agent
Report and Statement of Facts indicating and only. It is not enough merely that the agent
describing the day-to-day discharge of the cargo, was in fact authorized to make the
Maritime acted in representation of the charterer mortgage, if he has not acted in the name
and not of the vessel. It thus cannot be considered a of the principal. x x x (Emphasis and
ship age t. As a e e ha te e s age t, it a ot e underscoring supplied)
held solidarily liable with Transcontinental for the
losses/damages to the cargo outside the custody of Rural Bank of Bombon, Inc. v. CA, GR 95703,
the vessel. Notably, Transcontinental was disclosed August 3, 1992
as the ha te e s p i ipal a d the e is o uestio
In view of this rule, Aquino's act of signing the Deed
that Maritime acted within the scope of its authority.
of Real Estate Mortgage in his name alone as
Gozun v. Mercado, GR 167812, December mortgagor, without any indication that he was
19, 2006 signing for and in behalf of the property owner,
Ederlinda Gallardo, bound himself alone in his
By the contract of agency a person binds himself to personal capacity as a debtor of the petitioner Bank
render some service or to do something in and not as the agent or attorney-in-fact of Gallardo.
representation or on behalf of another, with the The Court of Appeals further observed:
consent or authority of the latter. Contracts entered
into in the name of another person by one who has It will also be observed that the deed of
been given no authority or legal representation or mortgage was executed on August 26, 1981
who has acted beyond his powers are classified as therein clearly stipulating that it was being
unauthorized contracts and are declared executed "as security for the payment of
unenforceable, unless they are ratified. certain loans, advances or other
accommodation obtained by the Mortgagor
Generally, the agency may be oral, unless the law from the Mortgagee in the total sum of
requires a specific form. However, a special power Three Hundred Fifty Thousand Pesos only
of attorney is necessary for an agent to, as in this (P350,000.00)" although at the time no
case, borrow money, unless it be urgent and such loan or advance had been obtained.
If the agent has been empowered to They duty embodied in this Article will not apply if
borrow money, he may himself be the the agent or broker acted only as a middleman with
lender at the current rate of interest. If he the task of merely bringing together the vendor and
has been authorized to lend money at the vendee, who themselves thereafter negotiate on
interest, he cannot borrow it without the the terms and conditions of the transaction.
consent of the principal.
Doctrines on the duty to account:
The agent cannot, without a special power of
attorney, loan or borrow money. 1. Whoever ad i iste s a othe s affai s ust
render an account because of the
1. If he has been expressly empowered to representative relation and because of the
borrow money, he may himself be the fiduciary position;
lender at the current rate of interest for 2. If an agent refuses to account when it is his
there is no danger of the principal suffering duty to do so, the principal may at once
any damage since the current rate of terminate the agency and sue for the
interest would have to be paid in any case if balance due. If the principal dies, the
the loan were obtained from a third person; agency is extinguished but the duty to
2. If the agent has been authorized to lend account subsists, and can be demanded by
money at interest, he cannot be the the p i ipal s hei s o legal
borrower without the consent of the representatives;
principal because the agent may prove to 3. The principal, or his legal representative,
be a bad debtor. There is here a possible has the right to pass upon the correctness
conflict of interest; hence, it may be of the accounting;
prejudicial to the principal. 4. Corollary to his right to demand an
accounting, a principal has the right to
Article 1891: Obligations to render account make a reasonable inspection of the book
of account and memoranda, including the
Every agent is bound to render an ac- count
original entries;
of his transactions and to deliver to the
5. An agent, as a consequence of his duty to
principal whatever he may have received by
account, cannot dispute his p i ipal s title
virtue of the agency, even though it may
to the property in his possession.
not be owing to the principal.
Article 1892: Appointment of sub-agent; sub-agent
Every stipulation exempting the agent from
defined
the obligation to render an account shall be
void. The agent may appoint a substitute if the
principal has not prohibited him from doing
The article does not apply to case of solutio indebiti
so; but he shall be responsible for the acts
for in such cases, recovery can be had by the payor
of the substitute:
against the agent himself. Therefore, the agent
meantime can keep what had been given to him by 1. When he was not given the power to
error. appoint one;
2. When he was given such power, but
If the agent fails to deliver and instead converts or
without designating the person, and the
appropriates for his own use the money or property
prohibition of the principal shall be void.
Escueta v. Lim, 512 SCRA 411
What is a sub-agent? A sub-agent is a person to
whom the agent delegates as his agent, the Applying the above-quoted provision to the special
performance of an act for the principal which the power of attorney executed by Ignacio Rubio in favor
agent has been empowered to perform through his of his daughter Patricia Llamas, it is clear that she is
representative. not prohibited from appointing a substitute. By
authorizing Virginia Lim to sell the subject
Unless prohibited by the principal, the agent may properties, Patricia merely acted within the limits of
appoint a subagent or substitute. While ordinarily the authority given by her father, but she will have
the selection of an agent is determined largely by to be responsible for the acts of the sub-agent,
the trust and confidence that the principal has in the among which is precisely the sale of the subject
agent, the principal need not fear prejudice as he properties in favor of respondent.
has a right of action not only against the agent but
also against the substitute. Even assuming that Virginia Lim has no authority to
sell the subject properties, the contract she
Effects of substitution: executed in favor of respondent is not void,
but simply unenforceable.
1. When the substitute is appointed by the
agent against the express prohibition of the Serona v. CA, GR 130423, November 18,
principal, the agent exceeds the limits of his 2002
authority. The law says that all acts of the
substitute in such a case shall be void. Where, as in the present case, the agents to whom
2. If in the contract of agency, the agent is personal property was entrusted for sale,
given the power to appoint a substitute, the conclusively proves the inability to return the same
substitution has the effect of releasing the is solely due to malfeasance of a subagent to whom
agent from his responsibility unless the the first agent had actually entrusted the property in
person appointed is notoriously good faith, and for the same purpose for which it
incompetent or insolvent. But if the was received; there being no prohibition to do so
substitute is the person designated by the and the chattel being delivered to the subagent
principal, the consequence is the absolute before the owner demands its return or before such
exemption of the agent. return becomes due, we hold that the first agent
3. If the agent appoints a substitute when he cannot be held guilty of estafa by either
was not given the power to appoint one, misappropriation or conversion. The abuse of
the law recognizes the validity of the confidence that is characteristic of this offense is
substitution if the same is beneficial to the missing under the circumstances.
principal because the agency has thus been
Labrador admitted that she received the jewelry
executed in fulfillment of its object. If the
from petitioner and sold the same to a third person.
substitution has occasioned damage to the
She further acknowledged that she owed petitioner
principal, the agent shall be primarily
P441,035.00, thereby negating any criminal intent
responsible for the acts of the substitute as
on the part of petitioner. There is no showing that
if he himself executed them. But the
petitioner derived personal benefit from or
conspired with Labrador to deprive Quilatan of the
In the cases mentioned in Nos. 1 and 2 of The agent owes interest on the sums he has
the preceding article, the principal may applied to his own use from the day on
furthermore bring an action against the which he did so, and on those which he still
substitute with respect to the obligations owes after the extinguishment of the
which the latter has contracted under the agency.
substitution.
The article contemplates 2 distinct cases:
Under the premises given in the Article, the principal
can sue both the agent and the substitute. This is 1. One refers to sums belonging to the
one exception to the principle of privity of contracts. principal which the agent applied to his own
use;
Article 1894: Responsibility of two or more agents 2. Another refers to sums which the agent still
owes the principal after the expiration of
The responsibility of two or more agents,
the agency.
even though they have been appointed
simultaneously, is not solidary, if solidarity This article is without prejudice to a criminal action
has not been expressly stipulated. that may be brought because of conversion.
Article 1895: Solidarity of responsibility of two or Is it always necessary that a demand for payment be
more agents made by the principal in order that delay on the part
of the agent shall exist? No. It is clear that if, by
If solidarity has been agreed upon, each of
provision of law, the agent is bound to deliver to the
the agents is responsible for the non-
principal whatever he may have received by virtue of
fulfillment of the agency, and for the fault
the agency, demand is no longer necessary.
or negligence of his fellow agents, except in
the latter case when the fellow agents Article 1897: Duties and liabilities of agent to third
acted beyond the scope of their authority. persons
acts of the agent done within the scope of his
authority and should bear any damage caused to Eurotech Industrial Technologies, Inc. v.
third persons. The agent acquires no rights Cuizon, GR 167552, April 23, 2007
whatsoever, nor does he incur any liabilities arising
Article 1897 reinforces the familiar doctrine that an
from the contract entered into by him on behalf of
agent, who acts as such, is not personally liable to
his principal.
the party with whom he contracts. The same
An agent who acts as such within the scope of his provision, however, presents two instances when an
authority represents the principal so that his agent becomes personally liable to a third person.
o t a t is eall the p i ipal s. He e, the age t is The first is when he expressly binds himself to the
not personally liable to the party with whom he obligation and the second is when he exceeds his
contracts unless he expressly binds himself or he authority. In the last instance, the agent can be held
exceeds the limits of his authority without giving liable if he does not give the third party sufficient
such party sufficient notice of his powers. notice of his powers. We hold that respondent
Moreover, action must be brought against the Edwin does not fall within any of the exceptions
principal; otherwise, there is no cause of action. contained in this provision.
If the agent pays, even if he expressly binds himself Soriamont Steamship Agencies, Inc. v.
to the transaction, to the benefit of the principal, the Sprint Transport Services, Inc., GR 174610,
p i ipal s o ligatio to pa is still ot elie ed. July 14, 2009
A thi d pa t s lia ilit o age t s o t a ts is to the Alternatively, if PTS is found to be its agent,
principal, not to the agent, because such contracts Soriamont argues that PTS is liable for the loss of the
a e ot his o ut his p i ipal s. The e a e fe subject equipment, since PTS acted beyond its
instances in which a third party subjects himself to authority as agent. Soriamont cites Article 1897 of
liability at the hands of an agent: the Civil Code, which provides:
1. Where the agent contracts in his own name Art. 1897. The agent who acts as such is
for an undisclosed principal, in which case, not personally liable to the party with
the agent may sue the third party to whom he contracts, unless he expressly
enforce the contract; binds himself or exceeds the limits of his
2. Where the agent possesses a beneficial authority without giving such party
interest in the subject matter of the agency. sufficient notice of his powers.
A factor selling under a del credere
The burden falls upon Soriamont to prove its
commission would illustrate such an agent,
affirmative allegation that PTS acted in any manner
as would also an auctioneer by virtue of his
in excess of its authority as agent, thus, resulting in
lien;
the loss of the subject equipment. To recall, the
3. Where the agent pays money of his
subject equipment was withdrawn and used by PTS
principal to a third person by mistake or
with the authority of Soriamont. And for PTS to be
Safic Alcan & Cie v. Imperial Vegetable Oil The most prudent thing petitioner should have done
Co., Inc., GR 126751, March 28, 2001 was to ascertain the extent of the authority of
Dominador Monteverde. Being remiss in this regard,
It can be clearly seen from the foregoing provision of petitioner cannot seek relief on the basis of a
IVO s By-laws that Monteverde had no blanket supposed agency.
authority to bind IVO to any contract. He must act
according to the instructions of the Board of Under Article 1898 of the Civil Code, the acts of an
Directors. Even in instances when he was authorized agent beyond the scope of his authority do not bind
the principal unless the latter ratifies the same
principal cannot be held liable for the acts of the
agent. If the said third person is aware of such limits DBP v. CA, GR 109937, March 21, 1994
of authority, he is to blame, and is not entitled to
Under Article 1897 of the Civil Code of the
recover damages from the agent, unless the latter
Philippines, "the agent who acts as such is not
undertook to secure the principals ratification.
personally liable to the party with whom he
There was no such ratification in this case. When contracts, unless he expressly binds himself or
Monteverde entered into the speculative contracts exceeds the limits of his authority without giving
with Safic, he did not secure the Boards approval. such party sufficient notice of his powers."
He also did not submit the contracts to the Board
The DBP is not authorized to accept applications for
after their consummation so there was, in fact, no
MRI when its clients are more than 60 years of age
occasion at all for ratification. The contracts were
(Exh. "1-Pool"). Knowing all the while that Dans was
not reported in IVOs export sales book and turn-out
ineligible for MRI coverage because of his advanced
book. Neither were they reflected in other books
age, DBP exceeded the scope of its authority when it
and records of the corporation. It must be pointed
accepted Da s appli atio fo M‘I olle ti g the
out that the Board of Directors, not Monteverde,
i su a e p e iu , a d dedu ti g its age t s
exercises corporate power. Clearly, Monteverdes
commission and service fee.
speculative contracts with Safic never bound IVO
and Safic cannot therefore enforce those contracts The liability of an agent who exceeds the scope of his
against IVO. authority depends upon whether the third person is
aware of the limits of the agent s po e s. The e is
Cervantes v. CA, GR 125138, March 2, 1999
no showing that Dans knew of the limitation on
From the aforestated facts, it can be gleaned that DBP s autho it to soli it appli atio s fo M‘I.
the petitioner was fully aware that there was a need
If the third person dealing with an agent is unaware
to send a letter to the legal counsel of PAL for the
of the limits of the authority conferred by the
extension of the period of validity of his ticket.
principal on the agent and he (third person) has
Since the PAL agents are not privy to the said been deceived by the non-disclosure thereof by the
Agreement and petitioner knew that a written agent, then the latter is liable for damages to him (V
request to the legal counsel of PAL was necessary, Tolentino, Commentaries and Jurisprudence on the
he cannot use what the PAL agents did to his Civil Code of the Philippines, p. 422 [1992], citing
advantage. The said agents, according to the Court Sentencia [Cuba] of September 25, 1907). The rule
of Appeals, acted without authority when they that the agent is liable when he acts without
confirmed the flights of the petitioner. authority is founded upon the supposition that there
has been some wrong or omission on his part either
Under Article 1898 of the New Civil Code, the acts of in misrepresenting, or in affirming, or concealing the
an agent beyond the scope of his authority do not authority under which he assumes to act (Francisco,
bind the principal, unless the latter ratifies the same V., Agency 307 [1952], citing Hall v. Lauderdale, 46
expressly or impliedly. Furthermore, when the third N.Y. 70, 75). Inasmuch as the non-disclosure of the
person (herein petitioner) knows that the agent was limits of the agency carries with it the implication
acting beyond his power or authority, the principal that a deception was perpetrated on the
cannot be held liable for the acts of the agent. If the unsuspecting client, the provisions of Articles 19, 20
said third person is aware of such limits of authority,
also as to the nature and extent of authority of the
Eugenio v. CA, GR 103737, December 15,
agent.
1994
If the authority of the agent is in writing, such person
The next inquiry then would be as to what exactly is
is not required to inquire further than the terms of
the nature of the TPRs insofar as they are used in the
the written power of attorney. As far as he is
day-to-day business transactions of the company.
concerned, an act of the agent within the terms of
These trade provisional receipts are bound and given
confirmed original copies thereof."
Toyota Shaw, Inc. v. CA, L-116650, May 23,
We do not agree with the strained implication 1995
intended to be adverse to petitioners. The TPRs
presented in evidence by petitioners are disputably Moreover, Exhibit "A" shows the absence of a
presumed in evidence as evidentiary of payments meeting of minds between Toyota and Sosa. For one
made on account of petitioners. There are thing, Sosa did not even sign it. For another, Sosa
presumptions juris tantum in law that private was well aware from its title, written in bold letters,
transactions have been fair and regular and that the viz.,
ordinary course of business has been followed. The
AGREEMENTS BETWEEN MR. SOSA &
role of presumptions in the law on evidence is to
POPONG BERNARDO OF TOYOTA SHAW,
relieve the party enjoying the same of evidential
INC.
burden to prove the proposition that he contends
for, and to shift the burden of evidence to the that he was not dealing with Toyota but with Popong
adverse party. Private respondent having failed to Bernardo and that the latter did not misrepresent
rebut the aforestated presumptions in favor of valid that he had the authority to sell any Toyota vehicle.
payment by petitioners, these would necessarily He knew that Bernardo was only a sales
continue to stand in favor in this case. representative of Toyota and hence a mere agent of
the latter. It was incumbent upon Sosa to act with
Besides, even assuming arguendo that herein private
ordinary prudence and reasonable diligence to know
espo de t s ashie e e e ei ed the a ou ts
the extent of Bernardo's authority as an agent in
reflected in the TPRs, still private respondent failed
respect of contracts to sell Toyota's vehicles. A
to prove that Estrada, who is its duly authorized
person dealing with an agent is put upon inquiry and
agent with respect to petitioners, did not receive
must discover upon his peril the authority of the
those amounts from the latter. As correctly
agent.
explained by petitioners, "in so far as the private
The commission agent is not allowed to escape the This article only talks of the relations between the
effects of this article by proving that the profits commission agent and the principal; third parties
would have been less had the sale been made on a should not be prejudiced.
cash basis. This defense on the part of the agent is
not tenable because if this were to be allowed, the Article 1907: Guarantee commission; definition;
way will be open for delay, fraud, and bad faith. purpose; del credere commission
Two choices are given to the principal if such sale Should the commission agent receive on a
was made, absent any authority: sale, in addition to the ordinary
commission, another called a guarantee
1. He may require payment in cash, in which commission, he shall bear the risk of
case, any interest or benefit from the sale collection and shall pay the principal the
shall belong to the agent since the principal proceeds of the sale on the same terms
cannot be allowed to enrich himself at the agreed upon with the purchaser.
age t s e pe se; o ,
2. He may ratify the sale on credit in which What is a guarantee commission? Also called a del
case it will have all the risks and advantages credere commission, it is one where, in
to him. consideration of an increased commission, the factor
or commission agent guarantees to the principal the
Cases: payment of the debts arising through his agency. An
age t ho gua a tees pa e t of the usto e s
Green Valley Poultry & Allied Products, Inc. account in consideration of the higher commission is
v. IAC, L-49395, December 26, 1984 called a del credere agent.
Whether viewed as an agency to sell or as a contract An agent with a del credere commission is liable to
of sale, the liability of Green Valley is indubitable. the principal if the buyer fails to pay or is incapable
Adopti g G ee Valle s theo that the o t a t is of paying. But he is not primarily the debtor. On the
an agency to sell, it is liable because it sold on credit contrary, the principal may sue the buyer in his own
without authority from its principal, contrary to name notwithstanding the del credere commission,
Article 1905 of the Civil Code. so that the latter amounts to no more than a
guaranty.
Article 1906: Obligation of commission agent to sell
on credit Liability of a del credere agent is a contingent
pecuniary liability in the event the buyer fails to pay
Should the commission agent, with
or is incapable of paying.
authority of the principal, sell on credit, he
shall so inform the principal, with a Does this article include both cash and credit sales?
statement of the names of the buyers. Yes, since the law makes no distinction. Moreover,
Should he fail to do so, the sale shall be there are cash sales which may give a short term or
deemed to have been made for cash insofar period (Paras).
as the principal is concerned.
If the agent receives a guarantee commission, he
Under this article, an authorized sale on credit shall cannot put up the defense that the debtor-third
be deemed to have been on a cash basis insofar as person possesses property. This is precisely the risk
the principal is concerned, upon failure of the agent the commission agent assumed.
collect credit
NAPOCOR v. National Merchandising
The commission agent who does not collect Corporation, L-33819 & L-33897, October
the credits of his principal at the time when 23, 1982
they become due and demandable shall be
liable for damages, unless he proves that he An agent who exceeds the limits of his authority is
exercised due diligence for that purpose. personally liable
A commission agent who has made an authorized Under Article 1897 of the Civil Code, the agent who
sale on credit must collect the credits due the exceeds the limits of his authority without giving the
principal at the time they become due and party with whom he contracts sufficient notice of his
demandable. powers is personally liable to such party.
If a commission agent without a guarantee In the present case, Namerco, the agent of a New
commission should prove he exercised due diligence York-based principal, entered into a contract of sale
in the collection of the credit, and the credit is not with the NAPOCOR without disclosing to NAPOCOR
collected because of the fault of the third party, the the li its of its po e s a d, o t a to its p i ipal s
agent is freed from responsibility. In such an prior cable instructions that the sale should be
eventuality, the debtor can be directly proceeded subject to availability of a steamer, it agreed that
against by the principal. The principal need not fear non-availability of a steamer was not a justification
in this case that the debtor can put defences which for non-payment of the liquidated damages.
the debtor could have set up against the agent. Namerco, therefore, is liable for damages.
Article 1909: Liability of agent for fraud and The rule that every person dealing with an agent is
negligence put upon inquiry and must discover upon his peril
the authority of the agent would only apply in cases
The agent is responsible not only for fraud, where the principal is sought to be held liable on the
but also for negligence, which shall be contract entered into by the agent. The said rule is
judged with more or less rigor by the not applicable in the instant case since it is the
courts, according to whether the agency agent, not the principal, that is sought to be held
was or was not for a compensation. liable on the contract of sale which was expressly
repudiated by the principal because the agent took
In the fulfillment of his obligation, the agent is chances, it exceeded its authority and, in effect, it
responsible to the principal not only for fraud acted in its own name.
committed by him but also, for negligence.
On the liability of an agent
1. For fraud, he is always liable.
2. For negligence, liability is affected by Defe da t s o te tio that Na e o s lia ilit
whether the agency is gratuitous or not. should be based on tort or quasi-delict as held in
some American cases is not well-taken. As correctly
Mismanagement of the enterprise by a principal, argued by the NAPOCOR, it would be unjust and
through his agent, does not relieve him from his inequitable for Namerco to escape liability of the
responsibilities he had contracted with third contract after it had deceived the NAPOCOR by not
persons. disclosing the limits of its powers and entering into
the contract with stipulations contrary to its
Remedy of the principal: Sue the agent for the
p i ipal s i st u tio s.
damages he suffered.
the transaction;
Air France v. CA, L-57339, December 29,
4. He must ratify the acts in its entirety;
1983
5. The act must be capable of ratification; and,
6. The act must be done on behalf of the Knowledge of agent is chargeable as knowledge of
principal. principal; hence, third party is not liable for damages
for failure of the agent to give notice.
Effects of ratification:
Filipinas Life Assurance Company v.
1. With respect to agent. It relieves the agent
Pedroso, GR 159489, February 4, 2008
from liability to third party to the
unauthorized transaction, and to his Filipinas Life, as the principal, is liable for obligations
principal for acting without authority and contracted by its agent Valle. By the contract of
he may recover compensation for agency, a person binds himself to render some
performing the act which has been ratified; service or to do something in representation or on
2. With respect to the principal himself. The behalf of another, with the consent or authority of
principal who ratifies thereby assumes the latter. The general rule is that the principal is
responsibility for the unauthorized act, as responsible for the acts of its agent done within the
fully as if the agent had acted under original scope of its authority, and should bear the damage
authority but he is not liable for acts caused to third persons. When the agent exceeds
outside the authority approved by his his authority, the agent becomes personally liable
ratification; for the damage. But even when the agent exceeds
conjunction tickets and that it issued its
China Airlines v. Chiok, GR 152122, July 30, own ticket is not decisive of its liability. The
2003 new ticket was simply a replacement for the
unused portion of the conjunction ticket,
In American Airlines v. Court of Appeals, we have
both tickets being for the same amount of
noted that under a general pool partnership
US$ 2,760 and having the same points of
agreement, the ticket-issuing airline is the principal
departure and destination. By constituting
in a contract of carriage, while the endorsee-airline
itself as an agent of the principal carrier the
is the agent.
petitioners undertaking should be taken as
x x x Members of the IATA are under a part of a single operation under the
general pool partnership agreement contract of carriage executed by the private
wherein they act as agent of each other in respondent and Singapore Airlines in
the issuance of tickets to contracted Manila.
passengers to boost ticket sales worldwide
PNB v. Bagamaspad, L-3407, June 29, 1951
and at the same time provide passengers
easy access to airlines which are otherwise To us who have always had the impression and the
inaccessible in some parts of the world. idea that the business of a Bank is conducted in an
Booking and reservation among airline orderly, methodical and businesslike manner, that its
members are allowed even by telephone papers, especially those relating to loans with their
and it has become an accepted practice corresponding securities, are properly filed, well-
among them. A member airline which kept and in a safe place, its books kept up-to-date,
enters into a contract of carriage consisting and that its funds are not given out in loans without
of a series of trips to be performed by careful and scrupulous scrutiny of the responsibility
different carriers is authorized to receive and solvency of the borrowers and the sufficiency of
the fare for the whole trip and through the the security given by them, the conditions obtaining
required process of interline settlement of in the Cotabato Agency due to the apparent
accounts by way of the IATA clearing house indifference, carelessness or negligence of the
an airline is duly compensated for the appellants, is indeed shocking. And it is because of
segment of the trip serviced. Thus, when these shortcomings of the appellants their disregard
the petitioner accepted the unused portion of the elementary rules and practice of banking and
of the conjunction tickets, entered it in the their violation of instructions of their superiors, that
IATA clearing house and undertook to these anomalies resulting in financial losses to the
transport the private respondent over the Bank were made possible.
route covered by the unused portion of the
conjunction tickets, i.e., Geneva to New The trial court based the civil liability of the
York, the petitioner tacitly recognized its appellants herein on the provisions of Arts. 1718 and
commitment under the IATA pool 1719 of the Civil Code, defining and enumerating the
though the principal may
have no notice or The Manila Remnant Co. v. CA, GR 82978,
knowledge of the November 22, 1990
conduct of the agent.
More in point, we find that by the principle of
It is not founded in Its basis is the negligence
estoppel, Manila Remnant is deemed to have
negligence of the of the principal in failing
allowed its agent to act as though it had plenary
principal but in the properly to supervise the
powers. Article 1911 of the Civil Code provides:
conscious permission of affairs of the agent,
acts beyond the powers allowing him to exercise Even when the agent has exceeded his
granted. powers not granted to authority, the principal is solidarily liable
him and so justifies with the agent if the former allowed the
others in believing he latter to act as though he had full po e s.
possesses the requisite
authority. The above-quoted article is new. It is intended to
protect the rights of innocent persons. In such a
situation, both the principal and the agent may be
This article also provides for solidary liability. This is considered as joint feasors whose liability is joint and
an instance when solidarity is imposed by law. It solidary.
would seem however, that this Article is unjust for if
the agent is considered innocent and acting within Authority by estoppel has arisen in the instant case
the scope of his authority, he should be exempted because by its negligence, the principal, Manila
from liability (Paras). Remnant, has permitted its agent, A.U. Valencia and
Co., to exercise powers not granted to it. That the
Cases: principal might not have had actual knowledge of
the age t s isdeed is of o o e t. Co side the
Litonjua v. Eternit Corporation, supra. following circumstances:
For an agency by estoppel to exist, the following Firstly, Manila Remnant literally gave carte blanche
must be established: to its agent A.U. Valencia and Co. in the sale and
disposition of the subdivision lots. As a disclosed
1. The principal manifested a representation
principal in the contracts to sell in favor of the
of the age t s autho it o k o i gl
Ventanilla couple, there was no doubt that they
allowed the agent to assume such
were in fact contracting with the principal. Section 7
authority;
of the Ve ta illas o t a ts to sell states:
2. The third person, in good faith, relied upon
such representation; 7. That all payments whether
deposits, down payment and monthly
installment agreed to be made by the
Indeed, once Manila Remnant had been furnished
with the usual copies of the contracts to sell, its only Rural Bank of Milaor v. Ocfemia, GR
participation then was to accept the collections and 137686, February 8, 2000
pay the commissions to the agent. The latter had
In passing upon the liability of a corporation in cases
complete control of the business arrangement.
of this kind it is always well to keep in mind the
Secondly, it is evident from the records that Manila situation as it presents itself to the third party with
Remnant was less than prudent in the conduct of its whom the contract is made. Naturally he can have
business as a subdivision owner. For instance, little or no information as to what occurs in
Manila Remnant failed to take immediate steps to corporate meetings; and he must necessarily rely
avert any damage that might be incurred by the lot upon the external manifestation of corporate
buyers as a result of its unilateral abrogation of the consent. The integrity of commercial transactions
agency contract. The publication of the cancelled can only be maintained by holding the corporation
contracts to sell in the Times Journal came three strictly to the liability fixed upon it by its agents in
years after Manila Remnant had revoked its accordance with law; and we would be sorry to
agreement with A.U. Valencia and Co. announce a doctrine which would permit the
property of man in the city of Paris to be whisked
Moreover, Manila Remnant also failed to check the out of his hands and carried into a remote quarter of
records of its agent immediately after the revocation the earth without recourse against the corporation
of the agency contract despite the fact that such whose name and authority had been used in the
revocation was due to reported anomalies in manner disclosed in this case. As already observed, it
Vale ia s olle tio s. Altogethe , as poi ted out is familiar doctrine that if a corporation knowingly
the counsel for the Ventanillas, Manila Remnant permits one of its officers, or any other agent, to do
could and should have devised a system whereby it acts within the scope of an apparent authority, and
could monitor and require a regular accounting from thus holds him out to the public as possessing power
A.U. Valencia and Co., its agent. Not having done so, to do those acts, the corporation will, as against any
Manila Remnant has made itself liable to those who one who has in good faith dealt with the corporation
have relied on its agent and the representation that through such agent, be estopped from denying his
such agent was clothed with sufficient powers to act authority; and where it is said "if the corporation
on behalf of the principal. permits this means the same as "if the thing is
permitted by the directing power of the
Even assuming that Manila Remnant was as much a corporation."
victim as the other innocent lot buyers, it cannot be
gainsaid that it was precisely its negligence and laxity In this light, the bank is estopped from questioning
in the day to day operations of the real estate the authority of the bank manager to enter into the
Unquestionably, petitioner has authorized Tena to The principal must also indemnify the agent
enter into the Deed of Sale. Accordingly, it has a for all the damages which the execution of
clear legal duty to issue the board resolution sought the agency may have caused the latter,
by respondent's. Having authorized her to sell the without fault or negligence on his part.
property, it behooves the bank to confirm the Deed
The liability of the principal for damages is limited
of Sale so that the buyers may enjoy its full use.
only to that which the execution of the agency has
Article 1912: Obligation to advance funds caused the agent.
The principal must advance to the agent, Naturally, this Article can be made use of only if the
should the latter so request, the sums agency exists, otherwise this Article cannot apply. In
necessary for the execution of the agency. such a case, the supposed agent is not acting on
behalf of a true principal and the reason for the law
Should the agent have advanced them, the would cease.
principal must reimburse him therefor,
even if the business or undertaking was not Article 1914: Right of agent to retain in pledge
successful, provided the agent is free from object of agency
all fault.
The agent may retain in pledge the things
The reimbursement shall include interest on which are the object of the agency until the
the sums advanced, from the day on which principal effects the reimbursement and
the advance was made. pays the indemnity set forth in the two
preceding articles.
In the absence of stipulation that the agent shall
advance the necessary funds, the principal must This Article speaks of one kind of pledge by
advance to the agent upon his request the sums operation of law.
necessary for the execution of the agency.
Rules from 1912 to 1914:
If the principal fails to do so, the agent will not be
1. Reimbursement with interest for advances
liable for the damage, which through his non-
made by agent
performance, the principal may suffer.
2. Indemnification for damages caused by the
In case the agent advanced the sums necessary for execution of the agency
the execution of the agency, whether on his own 3. ‘e ed of age t s lie should p i cipal fail
initiative or by virtue of stipulation, the said in reimbursing or indemnifying the agent
advances must be reimbursed by the principal with
Natu e of age t s ight of lie :
interest from the day the advance was made.
the agent.
Constante Amor de Castro v. CA, GR
115838, July 18, 2002
Rallos v. Felix Go Chan & Sons Realty Is the general rule provided for in Article 1919 that
Corporation, supra. the death of the principal or of the agent
extinguishes the agency, subject to any exception,
There are various ways of extinguishing agency, but
and if so, is the instant case within that exception?
here We are concerned only with one cause - death
That is the determinative point in issue in this
of the principal Paragraph 3 of Art. 1919 of the Civil
litigation. It is the contention of respondent
Code which was taken from Art. 1709 of the Spanish
corporation which was sustained by respondent
Civil Code provides:
court that notwithstanding the death of the principal
ART. 1919. Agency is extinguished: Concepcion Rallos the act of the attorney-in-fact,
Simeon Rallos in selling the former's sham in the
xxx xxx xxx property is valid and enforceable inasmuch as the
Kinds of revocation:
Article 1922: Agency when third parties are not Essential requisites of a valid substitution of counsel
specified of record:
If the agent had general powers, revocation 1. There must be a written request for
of the agency does not prejudice third substitution;
persons who acted in good faith and 2. It must be filed with the written consent of
without knowledge of the revocation. the client;
Notice of the revocation in a newspaper of 3. It must be with the written consent of the
general circulation is a sufficient warning to attorney to be substituted; and,
third persons. 4. In case the consent of the attorney to be
substituted cannot be obtained, there must
Distinctions: be at least a proof of notice, that the
motion for substitution was served on him
Article 1921 Article 1922
in the manner prescribed by the Rules of
Third persons have been Third persons have not
Court.
specified. been specified.
Revocation must be Revocation may be Article 1924: Effect if the principal directly manages
personal. personal. the business
Article 1923: Effect of appointment of new agent Article 1924 should be distinguished from Article
1916 which governs the relations as between
The appointment of a new agent for the themselves of third persons who separately contract
same business or transaction revokes the with the agent and the principal with regard to the
previous agency from the day on which same thing.
notice thereof was given to the former
agent, without prejudice to the provisions Cases:
of the two preceding articles.
CMS Logging, Inc. v. D.R. Aguinaldo
Appointment of a new agent revokes the first agency Corporation, L-41420, July 10, 1992
only in case of incompatibility. This is an implied
The principal may revoke a contract of agency at will
revocation of the previous agency. It does not
and such revocation may be express or implied, and
become effective however as between the principal
may be availed of even if the period fixed in the
Article 1927: When an agency cannot be revoked; 1. Where the agent has parted with value or
agency coupled with an interest i u ed lia ilit at the p i ipal s e uest,
looking to the exercise of the power as the
An agency cannot be revoked if a bilateral
means of reimbursement or indemnity; or,
contract depends upon it, or if it is the
2. Where the interest in the thing concerning
means of fulfilling an obligation already
which the power is to be exercised arises
contracted, or if a partner is appointed
from an assignment, pledge or lien created
manager of a partnership in the contract of
by the principal with the agent being given
partnership and his removal from the
the power to deal with the thing in order to
management is unjustifiable.
make the assignment, pledge or lien
This enumerates three instances of irrevocability: effectual.
1. If a bilateral contract depends upon the As to what constitutes a sufficient interest to take
agency; the holder out of agency relation, it is sometimes
2. If the agency is the means of fulfilling an said it must be present interest in the subject matter
obligation already contracted; itself and that an interest in the proceeds of the
3. If a partner is appointed manager of a po e s e e ise as o pe satio is i suffi ie t.
partnership in the contract of partnership
Article 1928: Withdrawal by agent
and his removal from the management is
unjustifiable. The agent may withdraw from the agency
by giving due notice to the principal. If the
According to De Leon, the rule that the principal may
latter should suffer any damage by reason
revoke an agency at will is subject to two exceptions:
of the withdrawal, the agent must
1. When the agency is created not only for the indemnify him therefor, unless the agent
interest of the principal but also for the should base his withdrawal upon the
interest of third persons; and, impossibility of continuing the performance
2. When the agency is created for the mutual of the agency without grave detriment to
interest of both principal and agent. himself.
An agency coupled with an interest cannot be It is based on the constitutional prohibition against
terminated by the sole will of the principal although involuntary servitude.
it is so revocable after the interest ceases. Hence, if
The law imposes upon the agent the duty to give due
the government allows the De la Rama Steamship
notice to the principal and if the withdrawal is
Co. to a age the fo e s essel fo ea s i
without just cause, to indemnify the principal should
When an agent files a complaint against the principal It is a well-settled general rule that if the authority of
fo a o eta lai i the fo e s fa o , dig it an agent is coupled with an interest, it is not
and decorum will not ordinarily permit the revocable by the death, act, or condition of the
continuation of the agency. Such a complaint is principal, unless there is some agreement to the
therefore equivalent to withdrawal of the agent contrary between the parties. This is a well-
from the agency. recognized exception to the rule that the death of
the principal revokes the authority of an agent
Article 1929: Obligation of agent to continue to act appointed by him. However, it must be noted that
after withdrawal an agent whose agency is coupled with an interest
cannot stand on a better ground than a partner
The agent, even if he should withdraw from
appointed as manager in the articles of partnership
the agency for a valid reason, must
insofar as revocability of authority or power is
continue to act until the principal has had
concerned. Inasmuch as a partner appointed as
reasonable opportunity to take the
manager in the articles of partnership can be
necessary steps to meet the situation.
divested of his power if there is a just or lawful
The law reconciles the interests of the agent with cause, it follows that an agent whose agency is
those of the principal, and if it permits the coupled with an interest can also be stripped of is
withdrawal of the agent, it is on the condition that power of attorney, if there is just cause.
no damage results to the principal, and if the agent
Cases:
desires to be relieved of the obligation of making
reparation when he withdraws for a just cause, he del Rosario v. Abad, 104 Phil 648
must continue to act so that no injury may be caused
to the principal. The sale is not valid because the principal had
already died when it was made. The agency was
Article 1930: When agency continues even after the certainly not one coupled with an interest. The
death of the principal mere mention of the interest in the power of
attorney is not enough. The power of attorney
The agency shall remain in full force and
should have stated what precisely the interest
effect even after the death of the principal,
consisted of. The mere fact that the improvements
if it has been constituted in the common
on the land had been mortgaged in favor of Abad,
interest of the latter and of the agent, or in
which fact, incidentally, was not even mentioned in
the interest of a third person who has
the power of attorney, is immaterial. The mortgage
accepted the stipulation in his favor.
of the improvement had nothing to do with the
power of attorney. The proper remedy of Abad is to