Partnership Agency and Trust

150 2005 CENTRALIZED BAR OPERATIONS
PARTNERSHIP
PARTNERSHIP 2. Where the contract is by its terms not

By the contract of partnership to be performed within a year from the
two or more persons bind themselves to making thereof, such partnership
contribute money, property or industry contract is covered by the statute of
to a common fund, with the intention of frauds and thus requires a written
dividing the profits among themselves. agreement to be enforceable.
Two or more persons may also 3. Where the contract of partnership
form a partnership for the exercise of a has a capital of 3,000 pesos or more, in
profession. (Art. 1767) money or property, it shall appear in a
A partnership has a juridical public instrument and must be recorded
personality which is separate and in the Office of the Securities and
distinct from that of the partners. Exchange Commission. However, a
A partnership may sue and be sued in partnership has a juridical personality
its name or by its duly authorized even in case of failure to comply with
representatives. A managing partner this requirement.
of the partnership may execute all
acts of administration including the Requisites:
right to sue debtors of the 1. intention to create a partnership
partnership in the case of their 2. common fund obtained from the
failure to pay their obligation when contributions
it becomes demandable. (Tai Tong 3. joint interest in the profits
Chuache & Co. vs. Insurance
Commission 158 SCRA 336 [1988]) Essential Features:
1. there must be a valid contract;
FORM OF PARTNERSHIP CONRTRACT 2. the parties must have legal capacity
GENERAL RULE: No special form is to enter into the contract;
required for the validity or existence of
the contract of partnership. NOTE: With regard to number 2 (legal
EXCEPTIONS: capacity of contracting parties),
1. Where immovable property or real individuals not legally incapacitated to
rights are contributed, the partnership contract and partnerships may enter into
contract shall be void unless: a contract of partnership. With respect
a. It is reduced to writing to corporations, the court held in
in a public instrument (Art. 1771). Aurbach vs. Sanitary Wares
b. An inventory of the property Manufacturing Corporation 180 SCRA 130
contributed is made, signed by the [1989] that although a corporation
parties and attached to the public cannot enter into a partnership contract,
instrument. (Art.1773). it may however engage in a joint venture
A partnership with others. A joint venture has been
contract which states that the generally understood to mean an
partnership is established to operate organization formed for some temporary
a fishpond is not rendered void purpose.
because no inventory of the fishpond There is nothing against one
was made (where it did not clearly corporation being represented by a
appear in the articles of partnership natural or juridical person in a suit in
that the real property had been court, for the true rule is that although
contributed by anyone of the a corporation has no power to enter a
partners). (Agad vs. Mabolo and partnership, it may nevertheless enter
Mabolo Agad and Co., 23 SCRA into a joint venture with another where
1223[1968]) the nature of that venture is in line with
the business authorized by the charter.
2005 CENTRALIZED BAR OPERATIONS EXECUTIVE COMMITTEE AND SUBJECT
CHAIRPERSONS
Maricel Abarentos (Over-all Chairperson), Ronald Jalmanzar (Over-all Vice Chair), Yolanda
Tolentino(VC-Acads), Jennifer Ang(VC- Secretariat), Joy Inductivo (VC-Finance), Elaine Masukat (VC-
EDP), Anna Margarita Eres (VC-Logistics) Jonathan
Mangundayao (Political Law), Francis Benedict Reotutar (Labor Law), Romuald Padilla (Civil Law),
Charmaine Torres (Taxation Law), Mark David Martinez (Criminal Law), Garny Luisa Alegre (Commercial
Law), Jinky Ann Uy (Remedial Law), Jackie Lou Bautista (Legal Ethics)
(JM Tuazon and Co., Inc vs. Bolanos 95 the partnership so of the others
PHIL 106 [1954]) as to make the
3. there must be mutual contribution of assignee a partner
money, property and industry to a without unanimous
consent
common fund
6. Power to act with third persons
In the absence of A co-owner cannot
NOTE: A partnership of a civil nature was stipulation to the represent the co-
formed because Gatchalian & Co. put up contrary, a partner ownership
money to buy a sweepstakes ticket for may bind the
the sole purpose of dividing equally the partnership
prize which they may win as they did in 7. Dissolution
fact in the amount of P50,000. Death or incapacity Death or incapacity
(Gatchalian vs. CIR 67 PHIL 666 [1939]) of a partner results of a co-owner does
Where the father sold his rights over in the dissolution of not necessarily
2 parcels of land to his 4 children so they partnership dissolve the co-
ownership
can build their residences, but the latter
8. Agency or representation
after 1 year sold them and paid the
As a rule, there is As a rule, there is no
capital gains, they should not be treated mutual agency mutual
to have formed an unregistered representation
partnership and taxed corporate income (although it is
tax on the sale and on dividend income enough for a co-
tax on their shares of the profits from owner to bring an
the sale. (Obillos Jr. vs. CIR [1985]) action for ejectment
4. the object must be lawful; and against a stranger)
5. the primary purpose must be to 9. Profits
obtain profits May be stipulated Must always depend
upon upon proportionate
KEY: CJP3 - D2AFT shares and any
stipulation to the
Partnership Co-ownership contrary is VOID
1. Creation (Art.485)
Always created by a Generally created by 10. Form
contract, either law, but may exist May be in any from No public instrument
express or implied even without a except when real is needed even if
contract property is real property is the
contributed (here a object of the co-
2. Juridical personality public instrument is ownership
Has a juridical Has no juridical required)
personality separate personality
and distinct from
that of each partner
KEY: CNJ PMERET2 - FPG
3. Purpose Partnership Corporation
Realization of Common enjoyment 1. Creation
profits of a thing or right; Created by mere Created by law
does not necessarily agreement of the or by operation
involve sharing of parties of law
profits 2. Number of incorporators
May be organized by at Requires at least
4. Duration least two persons five
No limitation upon An agreement to incorporators
the duration is set keep the thing (except a
by law undivided for more corporation
than 10 years is not sole)
allowed
5. Transfer of interests 3. Commencement of juridical
A partner may not A co-owner can personality
dispose of his dispose of his share Acquires juridical Acquires
individual interest in without the consent personality from the juridical

CHAIRPERSONS
San Beda College of Law
152
MEMORY AID IN CIVIL LAW

moment of execution of personality from because the partnership stockholders
the contract of the date of is based on the principle because
partnership issuance of the of delectus personarum corporation is
certificate of not based on
incorporation by this principle
the Securities 10. Term of existence
and Exchange partnership may be corporation may
Commission established for any not be formed
4. Powers period of time for a term in
Partnership may Corporation can stipulated by the excess of 50
exercise any power exercise only partners years extendible
authorized by the the powers to not more
partners (provided it is expressly than 50 years in
not contrary to law, granted by law any one instance
morals, good customs, or implied from 11. Firm name
public order, public those granted or limited partnership is corporation may
policy) incident to its required by law to add adopt any name
existence the word Ltd. To its provided it is
5. Management name not the same as
When management is The power to do or similar to any
not agreed upon, every business and registered firm
partner is an agent of manage its name
the partnership affairs is vested 12. Dissolution
in the board of may be dissolved at any can only be
directors or time by any or all of the dissolved with
trustees partners the consent of
the State
6. Effect of mismanagement 13. Governing Law
governed by the governed by the
A partner as such can The suit against contract and the Civil Corporation
sue a co-partner who a member of the Code Code
mismanages board of
directors or
trustees who
mismanages JOINT VENTURE
must be in the It is hardly distinguishable from
name of the partnership, since their elements are
corporation similar, i.e. community of interest in
the business, sharing of profits and
7. Right of succession losses, and a mutual right of control.
The main distinction in common law
Partnership has no right Corporation has
jurisdiction is that partnership
of succession right of
succession contemplates a general business with
some degree of continuity, while
8. Extent of liability to third persons joint venture is formed for the
Partners are liable Stockholders are execution of a single transaction and
personally and liable only to is thus of temporary nature
subsidiarily (sometimes the extent of In Kilosbayan, Incorporated vs.
solidarily) for the shares Guingona, Jr 232 SCRA 110 [1994],
partnership debts to subscribed by the court defined a joint venture as
third persons them
an association of persons or
9. Transferability of interest
companies jointly undertaking some
Partner cannot transfer Stockholder has
his interest in the generally the commercial enterprise; generally all
partnership so as to right to transfer contribute assets and share risks. Its
make the transferee a his shares requisites are:
partner without the without prior
unanimous consent of consent of the
all the existing partners other
CIVIL LAW COMMITTEE
CHAIRPERSON: Romuald Padilla ASST.CHAIRPERSON: Vida Bocar, Joyce Vidad EDP: Alnaiza Hassiman, Dorothy Gayon
SUBJECT HEADS: Christopher Rey Marasigan (Persons and Family Relations), Alejandro Casabar(Property), Ma.
Rhodora
Ferrer(Wills and Succession), Ian Dominic Pua(Obligations and Contracts), Sha Elijah Dumama(Sales and Lease),
John Stephen
Quiambao(PAT), Christopher Cabigao(Credit Transactions), Ligaya Alipao(Torts and Damages), Anthony
Purganan(LTD),
Ma. Ricasion Tugadi (Conflicts of Law)
a. A community of interest in (a) as a debt by installments or

the performance of the otherwise; (b) as wages of an
subject matter; employee or rent to a
b. A right to direct and govern landlord;
the policy in connection (c) as an annuity to a widow or
therewith; representative of a deceased
c. Duty to share profits and partner;
losses. (d) as interest on a loan, though the
NOTE: Under the Civil Code, a amount of payment vary with the
partnership may be particular or profits of the business; and
universal, and a particular partnership (e) as the consideration for the sale
may have for its object a specific of a goodwill of a business or
undertaking. Hence, a joint venture other property by installments or
may be treated like any other contract, otherwise.
innominate in nature to be regulated and
governed primarily by the stipulations of CLASSIFICATION OF PARTNERSHIP
the parties thereto and suppletorily by 1. as to object:
the general provisions of the Civil Code a) universal partnership
on obligations and contracts, by rules i. universal partnership of all
governing the most analogous contracts present property
(e.g. law on partnership), and by the ii. universal partnership of
customs of the place. profits
b) particular partnership
Other Similar Contracts
1. Collaboration- the act of working 2. as to liability of partners:
together in a joint project. a) general partnership
2. Association- act of a number of b) limited partnership
persons uniting together for some special
purpose or business. 3. as to duration:
a) partnership at will
RULES TO DETERMINE EXISTENCE OF b) partnership with a fixed
PARTNERSHIP (ART 1769) period
1. GENERAL RULE: Persons who are
4. as to legality of existence:
not partners as to each other are not
a) de jure partnership
partners as to third persons.
b) de facto partnership
EXCEPTION: partnership by
estoppel 5. as to representation to others:
2. Co-ownership of a property does not a) ordinary or real partnership
itself establish a partnership, even b) ostensible or partnership by
though the co-owners share in the estoppel
profits derived from the incident of
joint ownership. 6. as to publicity:
3. Sharing of gross returns alone does a) secret partnership
not indicate a partnership, whether b) notorious or open partnership
or not the persons sharing them have
a joint or common right or interest 7. as to purpose:
in any property from which the a) commercial or trading
returns are derived. b) professional or non-trading
4. Receipt of share in the profits is a
strong presumptive evidence of UNIVERSAL PARTNERSHIP
partnership. However, no such 1. A universal partnership of all
inference will be drawn if such present property is one wherein the
profits were received in payment: partners contribute all the property
which actually belong to them to a
CHAIRPERSONS
154

common fund, with the intention of partnership. (Art. 739, Art. 87, Family
dividing the same among themselves, as Code)
well as all the profits which they may Profits acquired by their partners
acquire therewith. through chance (i.e. lottery) without
employment of any physical or
In a universal partnership of all intellectual efforts are not included.
present property, the property which
belongs to each of the partners at the PARTICULAR PARTNERSHIP
time of the constitution of the A particular partnership is one
partnership, becomes the common which has for its object determinate
property of all the partners, as well as things, their use and fruits, or a specific
the profits which they may acquire undertaking, or the exercise of a
therewith. profession or vocation.
A stipulation for the common
enjoyment of any other profits may also GENERAL PARTNERSHIP
be made; but the properties which the A partnership consisting of
partners may acquire subsequently by general partners who are liable pro rata
inheritance, legacy or donation cannot and subsidiarily and sometimes solidarily
be included in such stipulation, except with their separate property for
the fruits thereof. partnership debts.
Where the articles of partnership do LIMITED PARTNERSHIP

not specify the nature of the universal One formed by two or more
partnership, whether it is one of persons having as members one or more
present property or of profits only, general partners and one or more limited
it will be presumed that the parties partners, the latter not being personally
intended merely a partnership of profits. liable for the obligations of the
NOTE: Future properties cannot be partnership.
contributed. Thus, property
subsequently acquired by (1) PARTNERSHIP AT WILL
inheritance, (2) legacy or (3) donation A partnership wherein no time is
cannot be included by stipulation except specified and is not formed for a
the fruits thereof. particular undertaking or venture and
which may be terminated at anytime by
2. A universal partnership of profits is mutual agreement of the partners, or by
one which comprises all that the the will of anyone partner alone; or one
partners may acquire by their industry or for a fixed term or particular
work during the existence of the undertaking but has been continued by
partnership and the usufruct of movable the partners after termination of such
or immovable property which each of the term or particular undertaking without
partners may posses at the time of the express agreement.
celebration of the contract.
PARTNERSHIP WITH A FIXED TERM
Movable or immovable property A partnership wherein the term
which each of the partners may posses at for which the partnership is to exist is
the time of the celebration of the fixed or agreed upon or one formed for a
contract shall continue to pertain particular undertaking, and upon the
exclusively to each, only the usufruct expiration of the term or completion or
passing to the partnership. the particular enterprise, the
partnership is dissolved, unless
NOTE: Persons who are prohibited from continued by the partners.
giving each other any donation or
advantage cannot enter into a universal OTHER KINDS OF PARTNERSHIP
CIVIL LAW COMMITTEE

Rhodora
John Stephen
Purganan(LTD),
1. De Jure Partnership- one which has a) Managing partner- one who

complied will all the legal manages the business or affairs of
requirements for its establishment. the partnership; he may be
2. De Facto Partnership- one which has appointed in the articles of
failed to comply with all the legal partnership or after constitution of
requirements for its establishment. the partnership.
b) Silent partner- one who does not
3. Ordinary or real partnership- one
take any active part in the business
which actually exists among the although he may be known to be a
partners and also as to third persons. partner.
4. Ostensible partnership or c) Liquidating partner- one who
partnership de facto- one which in takes charge of the winding up of
reality is not a partnership, but is the partnership affairs upon
considered a partnership only in dissolution.
relation to those who, by their
conduct or admission, are precluded 4. Miscellaneous:
to deny or disprove its existence. a) Ostensible partner- one who
5. Secret partnership- one wherein the takes active part and known to the
existence of certain persons as public as a partner in the business,
partners is not avowed or made whether or not he has actual interest
known to the public by any of the in the firm.
partners. b) Secret partner- one who takes
6. Open or notorious partnership- one active part in the business by is not
whose existence is avowed or made known to be a partner by outside
known to the public by the members parties nor held out as a partner by
of the firm. the other partners. c) Dormant
7. Commercial or trading partnership- partner- one who does not take
one formed for the transaction of active part in the business and is not
business. known or held out as partner.
8. Professional or non-trading
KEY: CP2L
partnership- one formed for the
Capitalist Partner Industrial
exercise of a profession.
Partner
1. as to contribution
CLASSIFICATION OF PARTNERS contributes money contributes his
1. as to CONTRIBUTION: or property industry (mental
a) Capitalist partner- one who or physical)
contributes money or property to the
common fund. 2. as to prohibition to engage in
b) Industrial partner- one who other business
contributes only his industry or Cannot generally cannot engage in
personal service. engage in the same any business for
or similar enterprise himself
2. as to LIABILITY: as that of his firm
a) General 3. as to profits
partner- one whose liability to third 1. shares in the receives a just
persons extends to his separate profits according and equitable
property, he may either be a to agreement share
capitalist or industrial partner. thereon;
b) Limited partner- one whose 2. if none, pro rata
liability to third persons is limited to to his
his capital contribution. contribution
4. as to losses
1. first, the exempted as to
3. as to MANAGEMENT: stipulation as to losses (as
losses; between
CHAIRPERSONS
156

2. if none, the partners); but is conversion of any sum for his
agreement as to liable to third personal benefit.
profits; persons, without
3. if none, pro rata prejudice to III. Obligation Not to Engage in Other
to contribution reimbursement
Business for Himself
from the
capitalist 1. Industrial partner- cannot engage in
partners any business for himself unless the
partnership expressly permits him to
do so. The other partners have the
OBLIGATIONS OF PARTNERS AMONG remedy of either excluding the
THEMSELVES: erring partner from the firm or of
availing themselves of the benefits
I. Obligation with respect to which he may have obtained.
contribution of property Note: The prohibition is absolute and
a) To contribute what had been applies whether the industrial
promised partner is to engage in the same
b) To answer for eviction in case business in which the partnership is
the partnership is deprived of engaged or in any kind of business. It
determinate property is clear that the reason for the
contributed prohibition exists in both cases,
c) To answer to the partnership for which is to prevent any conflict of
the fruits of the property the interest between the industrial
contribution of which is delayed, partner and the partnership and to
from the date they should have insure faithful compliance by said
been contributed to the time of partner with his prestation
actual delivery (Evangelista & Co. vs. Abad Santos,
d) To preserve the property with 51 SCRA 416, 1973)
the diligence of a good father of
a family pending delivery to the 2. Capitalist partner- The prohibition
partnership extends only to any operation which
e) To indemnify the partners for is of the same kind of business in
any damages caused to it by the which the partnership is engaged
retention of the same or by unless there is a stipulation to the
delay in its contribution. contrary.
II. Obligations with respect to IV. Obligation to Contribute Additional

contribution of money and money Capital
converted to personal use As a general rule, a capitalist
a) To contribute on the date due partner is not bound to contribute to the
the amount he has undertaken to partnership more than what he agreed to
contribute to the partnership contribute but in case of an imminent
b) To reimburse any amount he may loss of the business, and there is no
have taken from the partnership agreement to the contrary, he is under
coffers and converted to his own obligation to contribute an additional
personal use share to save the venture. If he refuses
c) To pay the agreed or legal to contribute, he shall be obliged to sell
interest, if he fails to pay his his interest in the partnership to other
contribution on time or in case partners.
he takes any amount from the
common fund and converted to V. Obligation of Managing Partner who
his own personal use Collects Debt
d) To indemnify the partnership for Where a person is separately
the damages caused to it by the indebted to the partnership and to the
delay in the contribution or the managing partner at the same time, any
CIVIL LAW COMMITTEE
Rhodora
John Stephen
Purganan(LTD),
sum received by the managing partner

shall be applied to the two credits in IX. Obligation to account for any
proportion to their amounts, except benefit and hold as trustee
where he received it entirely for the unauthorized personal profits
account of the partnership, in which Every partner must account to
case the whole sum shall be applied to the partnership for any benefit, and hold
the partnership credit only. as trustee for it any profits derived by
him without the consent of the other
Requisites for the application of the partners from any transaction connected
rule: with the formation, conduct, liquidation
1) There exists two debts, one where of the partnership or form any use by
the collecting partner is creditor, the him of its property.
other, where the partnership is
creditor. RIGHTS OF A PARTNER:
2) Both debts are demandable 1. Property rights of a partner
3) The partner who collects is a) His rights in the specific
authorized to manage and actually partnership property
manages the partnership. b) His interest in the partnership
c) His right to participate in the
VI. Obligation of Partner Who Receives management
Share in Partnership Credit 2. Right to reimbursement for amounts
A partner who receives, in whole advanced to the partnership and to
or in part, his share in the partnership, indemnification for risks in
when the others have not collected consequence of management
theirs, shall be obliged, if the debtor 3. Right to associate with another
should thereafter become insolvent, to person in his share
bring to the partnership capital what he 4. Right of access and inspection of
received even though he may have given partnership books
receipt for his share only. 5. Right to true and full information of
all things affecting the partnership
Requisites for application of rule: 6. Right to a formal account of
1) A partner has received, in whole or partnership affairs under certain
in part, his share in the partnership circumstances
credit NOTE: The ten year period to
2) The other partners have not demand an accounting by a partner
collected their shares. begins at the dissolution of the
3) The partnership debtor has become partnership.
insolvent. 7. Right to have partnership dissolved
under certain conditions.
VII. Obligation of Partner for Damages
to Partnership RULES FOR DISTRIBUTION OF PROFITS
Every partner is responsible to the AND LOSSES
partnership for damages suffered by it 1. Distribution of profits
through his fault. He cannot compensate a) According to their agreement
them with the profits and benefits which (but not inequitously to defeat
he may have earned for the partnership Art.1799)
by his industry. b) If none,
1) Share of capitalist partner
VIII. Duty to Render Information shall be in proportion to his
Partners shall render on demand capital contribution
true and full information of all things 2) Industrial partner shall
affecting the partnership to any partner receive such share as may be
or the legal representative of any just and equitable under the
deceased partner of any partner under circumstances
legal disability. 2. Distribution of losses
CHAIRPERSONS
158

a) According to their agreement as not assignable, except in connection
to losses (but not inequitously to with the assignment of rights of all
defeat Art.1799) partners in the same property
b) If none, according to their not subject to attachment or
agreement as to profits execution, except on a claim against
c) If none, in proportion to his the partnership
capital contribution, but the not subject to legal support
purely industrial partner shall
not be liable for the losses NOTE: Any immovable property or an
interest therein may be acquired in the
GENERAL RULE: A stipulation excluding partnership name. The title so acquired
a partner from any share in the profits or may be conveyed only in the partnership
losses is VOID (Article 1799) name subject to the provisions of Article
EXCEPTION: Article 1797(2) excludes 1819 of the Civil Code.
an industrial partner from losses. Thus, a 2. Interest in the partnership
stipulation excluding an industrial share in the profits and surplus
partner from losses is VALID, but he is A partner actually owns his
NOT exempted from liability insofar as respective share.
third persons are concerned.
NOTE: In general, LIABILITY refers to Effects of conveyance by a partner of
responsibility towards third persons, and his interest in the partnership
LOSSES refers to responsibility as among 1. conveyance of his whole interest
partners partnership may either remain or be
dissolved
2. assignee does not necessarily
CONTRACT OF SUB-PARTNERSHIP become a partner
One formed between a member of a 3. assignee cannot interfere in the
partnership and a third person for a management or administration of the
division of profits owing to him from partnership business or affairs
the partnership enterprise. 4. assignee cannot demand
It is a partnership within a information, accounting and
partnership distinct and separate inspection of the partnership books
from the main or principal Remedies of separate judgment
partnership. creditor of a partner
Application for a charging order after
NOTE: In the absence of unanimous securing judgment on his credit to
consent of all the partners, a sub- subject the interest of the debtor
partner does not become a member of partner with payment of unsatisfied
the partnership. Hence, a sub-partner amount of the judgment debt
does not acquire the rights of a partner
nor is he liable for its debts Redemption of interest charged
1. General partnership
PROPERTY RIGHTS OF A PARTNER a) with separate property of a
1. Right to specific partnership partner; or
property b) with partnership property, with
contemplates tangible property the consent of all the partners
The specific partnership property whose interests are not so
belongs to the partnership as a charged or sold
separate juridical personality. The 2. Limited partnership (interest of
partners have no actual interest in it limited partner)
until after dissolution. a) with separate property of any
equal right with other partners to general partner but NOT with
possess specific partnership property partnership property
for partnership purposes
CIVIL LAW COMMITTEE
Rhodora
John Stephen
Purganan(LTD),
3. Right to participate in the a) Decision of the majority

management of the managing partners
shall prevail
MANAGEMENT OF PARTNERSHIP b) In case of a tie, decision
I. When the manner of management of the partners
has been provided for in the representing the
partnership agreement controlling interest shall
prevail
A. When a managing partner has
been appointed 2) With stipulation requiring
1) Appointment in the articles of unanimity of action
partnership GENERAL RULE: Unanimous
a. Power is irrevocable without consent of all the managing
just or lawful cause partners shall be necessary for
i. to remove him for JUST the validity of the acts and
cause, vote of partners absence or inability of any
representing controlling managing partner cannot be
interest is necessary alleged
ii. to remove him without just EXCEPTION: When there is an
cause or for an UNJUST cause, imminent danger of grave or
there must be unanimity
including his own vote
irreparable injury to the
b. Extent of power partnership, partner may act
i. if he acts in good faith, he alone without the consent of the
may do all acts of partner who is absent or under
ADMINISTRATION, despite disability
opposition of his partners
ii. if in bad faith, he cannot. II. When manner of management has
not been agreed upon
2) Appointment other than in the a) All partners shall be considered
articles of partnership managers and agents
a. Power to act may be revoked b) Unanimous consent required for
at any time, with or without alteration of immovable property
just cause
b. Extent of power: as long as he OBLIGATIONS OF PARTNERS TO THIRD
remains manager, he can perform PERSONS
all acts of administration, but if I. Liability for contractual obligations
others oppose and he persists, he (ART 1816)
can be removed 1. All partners, including industrial
partners, are personally liable
B. When two or more managing with all their property. Their
partners have been entrusted individual liability is pro rata and
with the management of subsidiary, unless otherwise
partnership stipulated
1) Without specification of 2. Liability of partnership for acts
their respective duties and of partners
without stipulation requiring a) Acts for apparently carrying
unanimity of action on in the usual way the
GENERAL RULE: Each managing business of the partnership
partner may execute all acts of GENERAL RULE: Act binds
administration the partnership.
EXCEPTION: If any of the EXCEPTION: Partnership is
managing partners should not bound if:
oppose, i. acting partner has in fact
no authority and

CHAIRPERSONS
160

ii. the third person knows wrongdoing is regarded as individual
that the acting partner in character. But where the crime is
has no authority statutory, especially when it involves
b) Acts of Strict Dominion or a fine rather than imprisonment,
Ownership (acts which are criminal liability may be imposed
not apparently for carrying
on in the usual way the LIABILITY OF STOCKHOLDERS IN A
business of the partnership) DEFECTIVELY FORMED CORPORATION
GENERAL RULE: Act does It is ordinarily held that persons who
not bind the partnership. attempt but fail to form a
EXCEPTION: Partnership is corporation and carry on business
bound if: under the corporate name occupy
i. the act is authorized by all the position of partners inter se.
the partners; or Thus where persons associate
ii. they have abandoned the themselves together under articles
business to purchase property to carry on a
c) Acts in contravention of a business, and their organization is so
restriction on authority defective as to come short of
i. Partnership is not liable to creating a corporation within the
third persons having actual statute, they become in legal effect
or presumptive knowledge partners inter-se.
of the restrictions
Exception: One who takes no part
II. Liability arising from partners tort except to subscribe for stock in a
(ART 1822) or Breach of Trust (ART proposed corporation, which was
1823) never legally formed, does not
1. Where, by any wrongful act or become a partner with other
omission of any partner acting in subscribers who engage in business
the ordinary course of business under the name of the pretended
of the partnership or with corporation, so as to be liable as
authority of his co-partners, loss such in an action for settlement of
or injury is caused to any person, the alleged partnership and
not being a partner in the contribution. (Pioneer Insurance &
partnership (Article 1822) Surety Corporation vs. Court of
2. Where one partner, acting within Appeals, 175 SCRA 668 [1989].)
the scope of his apparent PRINCIPLE OF DELECTUS PERSONARUM
authority, receives money or A rule inherent in every partnership
property of a third person and wherein no one can become a
misapplies it (Article 1823) member of the partnership without
3. Where the partnership, in the the consent of all the partners.
course of its business, receives
money or property and it is NOTE: This element of delectus
misapplied by any partner while personae is true only in case of a general
it is in the custody of the partner, but NOT as regards a limited
partnership (Article 1823) partner.
NOTE: All partners are solidarily liable MUTUAL AGENCY

with the partnership for any penalty or Partnership is a contract of mutual
damage arising from a partnership tort agency, each partner acting as a
or breach of trust principal on his own behalf, and as
an agent of his co-partners and the
c) Criminal liability partnership.
of partnership
Partnership liability does not extend Requisites When A Partner Binds The
to criminal liability where the Partnership
CIVIL LAW COMMITTEE
Rhodora
John Stephen
Purganan(LTD),
1. when he is expressly or impliedly the partnership, nor the relations of the

authorized partners among themselves who remain
2. when he acts in behalf and in the as co-partners until the partnership is
name of the partnership terminated.
PARTNERSHIP BY ESTOPPEL WINDING UP

Arises when a person, by words Process of settling the partnership
spoken or written or by conduct, business or affairs after dissolution.
represents himself or consents to
another representing him to anyone, TERMINATION
as partner in an existing partnership, Point in time when all partnership
or with one or more persons not affairs are wound up or completed
actual partners; he is liable to any and is the end of the partnership
such person to whom such life.
representation has been made, who
has, on the faith of such CAUSES OF DISSOLUTION
representation given credit to the 1. Extrajudicial dissolution (ART 1830)
actual or apparent partnership. (Art - the parties may agree to expand
1825) the grounds provided under Art 1830
but NOT to delimit them. The
NOTE: Art. 1825 does not create a causes enumerated are as follows:
partnership as between the alleged a. Without violation of the
partners. A contract, express or implied agreement between the partners
is essential to the creation of i. By the termination
partnership. The law considers them of the definite term or
partners and the association as a particular undertaking
partnership insofar as it is favorable to specified in the agreement;
ii. By the express will
third persons. However, partnership
of any partner, who must
liability is created only in favor of act in good faith, when no
persons who on the faith of such definite term or particular
representation given credit to the actual undertaking is specified;
or apparent partnership iii. By the express will
of all the partners who
have not assigned their
interest or suffered them to
be charged for their
separate debts, either
DISSOLUTION
before or after the
Change in the relation of the termination of any specified
partners caused by any partner term or particular
ceasing to be associated in carrying undertaking;
on the business. (Article 1828) iv. By the expulsion
It is the point in time when the of any partner from the
partners cease to carry on the business bona fide in
business together. It represents the accordance with such
power conferred by the
demise of a partnership.
agreement between the
partners;
NOTE: The dissolution of a partnership b. In contravention of the
must not be understood in the absolute agreement between the
and strict sense so that at the partners, where the
termination of the object for which it circumstances do nor permit a
was created the partnership is dissolution under any other
extinguished. (Testate of Mota vs. provision of this article by the
Serra, 47 PHIL 464, 1926.) Dissolution express will of any partner at
does not automatically result in the any time.
termination of the legal personality of
CHAIRPERSONS
162

c. By any event which e. The business of the
makes it unlawful for the partnership can only be carried
business of the partnership to be on in a loss;
carried on or for the members to f. Other circumstances
carry it on in partnership. render a dissolution equitable.
d. When a specific thing, a On application of the purchaser of a
partner had promised to partners interest under Article 1813
contribute, perishes before its or 1814:
delivery. Or where the partner a. After the termination of the
only contributed the use or specified term or particular
enjoyment of the thing and has undertaking;
reserved ownership thereof, its b. At any time if the
loss, before or after delivery partnership was a partnership at
dissolves the partnership. will when the interest was
e. By the death of any assigned or when the charging
partner; order was issued.
f. By the insolvency of any
partner or the partnership; EFFECTS OF DISSOLUTION
g. By the civil interdiction A. As to partners authority to act for
of any partner; the partnership
GENERAL RULE: Dissolution terminates
2. Judicial dissolution (ART 1831) - all authority of any partner to act for the
when so decreed by the court, the partnership
presiding judge may place the EXCEPTIONS:
partnership under receivership and 1. Acts necessary to wind up
direct an accounting to be made partnership affairs
towards winding up the partnership 2. Acts necessary to complete
affairs. transactions begun but not then
On application by or for any partner, finished
the court shall decree a dissolution Note: Thus, dissolution terminates
whenever: the ACTUAL authority of a partner to
a. A partner has been undertake NEW business for the
declared insane in any judicial partnership
proceeding or is shown to be of
unsound mind; QUALIFICATIONS TO THE GENERAL
b. A partner becomes in any RULE:
other way incapable of 1. With respect to the partners (in so
performing his part of the far as partners themselves are
partnership contract; concerned)
c. A partner has been guilty a) Dissolution is not by act,
of such conduct as tend to affect insolvency or death of a partner:
prejudicially the carrying on of General Rule applies. Hence,
the business; dissolution terminates the
d. A partner willfully or ACTUAL authority of a partner to
persistently commits a breach of undertake NEW business for the
the partnership agreement, or partnership
otherwise so conducts himself in b) Dissolution is by act, insolvency
matters relating to the or death of a partner:
partnership business that it is GENERAL RULE: Authority of
not reasonably practicable to partners inter se to act for the
carry on the business in partnership is NOT deemed
partnership with him. terminated. Thus, each partner
is liable to his co-partners for his
share of any liability created by
CIVIL LAW COMMITTEE
Rhodora
John Stephen
Purganan(LTD),
any partner acting for the circumstances as defined

partnership as if the partnership above)
has not been dissolved 4) Where act is NOT
appropriate for winding up
EXCEPTIONS: partnership affairs or for
1) The cause of dissolution is completing unfinished
the ACT of a partner and the transactions
acting partner had 5) completely NEW transaction
KNOWLEDGE of such which would bind the
dissolution partnership if dissolution had
2) The cause of dissolution is not taken place with third
the DEATH or INSOLVENCY of persons in bad faith
a partner and the acting
partner had KNOWLEDGE or B. As to partners existing liability
NOTICE of such dissolution GENERAL RULE: Dissolution does not
2. With respect to persons not automatically discharge the existing
partners (third persons) liability of any partner
a) When partnership is bound to EXCEPTION: A partner may be relieved
third persons after dissolution from all existing liabilities upon
1) Act appropriate for winding dissolution ONLY by an agreement
up partnership affairs between:
2) Act appropriate for 1. Partner concerned
completing unfinished 2. Other partners
transactions 3. Partnership creditors
3) Completely NEW transaction Note: The consent of the partnership
which would bind the creditors and the other partners to
partnership if dissolution had the novation may be implied from
not taken place provided: their conduct.
the other party is in good
faith, meaning: RIGHTS OF A PARTNER UPON
i. Previous creditor (had DISSOLUTION
previously extended 1. Where dissolution is NOT in
credit) AND he had NO contravention of the partnership
KNOWLEDGE or NOTICE agreement
of the dissolution, OR a) To have partnership property
ii. NOT a previous creditor applied to discharge partnership
AND the fact of liabilities
dissolution had not been b) To receive in cash his share of
published in a newspaper the surplus
of general circulation 2. Where dissolution is in
b) When partnership is NOT bound contravention of the partnership
to third persons after dissolution agreement
1) Where partnership was a) Rights of a partner who has not
dissolved because it was caused the dissolution wrongfully
unlawful to carry on the 1) To have partnership property
business, except when the applied to discharge
act is for winding up partnership liabilities
2) Where the acting partner in 2) To receive in cash his share
the transaction has become of the surplus
insolvent 3) To be indemnified for
3) Where the partner is damages caused by the
unauthorized to wind up, partner guilty of the
except if the transaction is wrongful dissolution
with third persons in good 4) To continue the business in
faith (under the same the same name during the
CHAIRPERSONS
164

agreed term of the 3. Right of INDEMNIFICATION by the
partnership, by themselves guilty partner against all debts and
or jointly with others liabilities of the partnership
5) To possess partnership
property should they decide MANNER OF WINDING UP
to continue the business 1. Extrajudicial by the partners
b) Rights of a partner who has themselves without the intervention
wrongfully caused the dissolution of the court
1) If the business is not 2. Judicial under the control and
continued by the other direction of the court upon proper
partners cause shown by any partner, his legal
i. To have partnership representative or his assignee
property applied to
discharge partnership PERSONS AUTHORIZED TO WIND UP
liabilities 1. partners designated by the
ii. To receive in cash his share
of the surplus less damages
agreement
caused by his wrongful 2. in the absence of such agreement,
dissolution all partners who have not wrongfully
2) If the business is continued dissolved the partnership
i. To have the value of his 3. legal representative of last surviving
interest in the partnership partner not insolvent
at the time of the
dissolution, surplus less ORDER OF PAYMENT IN WINDING UP
damages caused by his 1. General Partnership (ART 1839 (2))
wrongful dissolution to his a) those owing to creditors other
co-partners, ascertained
than partners
and paid in cash or secured
by a bond approved by the b) those owing to partners other
court; AND than for capital or profits
ii. To be released from all c) those owing to partners in
existing and future respect of capital
liabilities d) those owing to partners in
NOTE: The value of the respect of profits
goodwill of the business is 2. Limited Partnership (ART 1863)
not considered in a) those owing to creditors, except
ascertaining the value of the those to limited partners on
interest of the guilty account of their contribution,
partners. and to general partners
b) those owing to limited partners
RIGHTS OF A PARTNER WHERE in respect of their share of the
PARTNERSHIP CONTRACT IS RESCINDED profits and other compensation
ON THE GROUND OF FRAUD OR by way of income
MISREPRESENTATION c) those owing to limited partners
(NOTE: The following are the rights of in respect of their capital
the partner entitled to rescind) contributions
1. Right of LIEN on, or RETENTION of, d) those owing to general partners
the surplus of partnership property other than for capital and profits
after satisfying partnership liabilities e) those owing to general partners
for any sum of money paid or in respect of profits
contributed by him f) those owing to general partners
2. Right of SUBROGATION in place of in respect of capital
the partnership creditors after
payment of partnership liabilities; DOCTRINE OF MARSHALLING OF ASSETS
and (Article 1839(8))
CIVIL LAW COMMITTEE

Rhodora
John Stephen
Purganan(LTD),
1. Partnership creditors have 4. The limited partners may ask for the
preference in partnership assets return of their capital contributions
2. Separate or individual creditors have under the conditions prescribed by
preference in separate or individual law
properties 5. The partnership debts are paid out
3. Anything left from either goes to the of the common fund and the
other individual properties of the general
partners
PARTNERS LIEN
Right of every partner to have the General
Limited
partnership property applied to Partner/
Partner/Partnership
discharge partnership liabilities AND Partnership
to have the surplus assets, if any, 1. Extent of liability
distributed in cash to the respective Limited partners General partner
partners, after deducting what may liability extends only to is personally
be due to the partnership from them his capital contribution liable for
partnership
as partners.
obligations
2. Right to participate in the
LIMITED PARTNERSHIP management of partnership
One formed by two or more persons Limited partner has no General
having as members one or more share in the partners have
general partners and one or more management of a an equal right
limited partners, the latter not being limited partnership and in the
personally liable for partnership renders himself liable to management of
debts. partnership creditors as the business
a general partner if he (when the
takes part in the control manner of
NOTE: The Supreme Court, declared a of the business management
firm to be a general partnership in a has not been
case where it appears that the inclusion agreed upon)
of Ltd. (limited) in the firm was only a 3. Contribution
subterfuge resorted to by the partners in Limited partner must General partner
order to evade liability for possible contribute cash or may contribute
losses, while assuming their enjoyment property to the money,
of advantages to be derived from the partnership but not property or
relation. Jo Chung Cang vs. Pacific services industry to the
partnership
Commercial Co. 45 PHIL 142 [1923]). In
other words if the parties intended a 4. Proper party to proceedings by or
general partnership, they are general against the partnership
partners although their purpose is to
avoid the creation of such a relation. Limited partner is not a General partner
proper party to is the proper
Characteristics of Limited Partnership proceedings by or party to
1. Limited partnership is formed by against a partnership proceedings by
substantial compliance in good faith Unless: or against a
with the statutory requirements 1. he is also a general partnership
partner, or
2. One or more general partners control
2. where the object of
the business and are personally the proceeding is to
liable to creditors enforce a limited
3. One or more limited partners partners right
contribute to the capital and share against or liability to
in the profits but do not participate the partnership
in the management of the business
and are not personally liable for 5. Transferability of interest
partnership obligations beyond the
amount of their capital contributions
CHAIRPERSONS
166

9. Creation
Limited partners General Limited partnership is General
interest is freelypartners created by the members partnership, as
assignable, withinterest in the after substantial a general rule,
assignee acquiring all partnership compliance in good may be
the rights of the limited may not be faith with the constituted in
partner subject toassigned as to requirements set forth any form by
certain qualifications make the by law contract or
assignee a new conduct of the
partner without partnership
the consent of
the other 10. Members of the partnership
partners, Composed of one or Composed only
although he more general partners of general
may associate a and one or more limited partners
third person partners
with him in his 11. Firm name
share Firm name must be No such
6. Inclusion of partners name in the followed by the word requirement
firm name Limited
12. Rules governing dissolution and
As a general rule, name Name of a winding up
of a limited partner general partner Governed by Art. 1839 Governed by
must not appear in the may appear in Art. 1863
firm name the firm name
7. Prohibition to engage in other ESSENTIAL REQUIREMENTS FOR

business FORMATION OF LIMITED PARTNERSHIP
1. A certificate or articles of limited
No such prohibition in General partner partnership which states the matters
the case of a limited is prohibited enumerated in Article 1844, which
partner who is from engaging must be signed and sworn;
considered a mere in a business 2. Such certificate must be filed for
contributor to the which is of the record in the Office of the Securities
partnership SAME kind of
and Exchange Commission.
business in
which the
partnership is NOTE: A strict compliance with the legal
engaged, if he requirements is not necessary. It is
is a capitalist sufficient that there is substantial
partner, or in compliance in good faith. If there is no
ANY of business substantial compliance, the partnership
for himself if he becomes a general partnership as far as
is an industrial third persons are concerned, in which all
partner
the members are liable as general
8. Effect of retirement, death, insanity
partners. (Jo Chung Cang vs. Pacific
or insolvency Commercial Co., 45 PHIL 142 [1923].)
However, a firm which fails to
Retirement, death, Retirement, substantially comply with the formal
insanity or insolvency of death, insanity requirements of a limited partnership is
a limited partner does or insolvency of a general partnership only as to its
not dissolve the a general relations to third persons. The firm is a
partnership for his partner limited partnership, subject to all rules
executor or dissolves the applicable to such partnership; and as
administrator shall have partnership
between the partners they are bound by
the rights of a
limited partner for the their agreement; and that all the limited
purpose of selling his partners relations to his co-partners and
estate
CIVIL LAW COMMITTEE
Rhodora
John Stephen
Purganan(LTD),
their obligations to him growing out of by way of income, and the nature of
the relation remain unimpaired. such priority;
As to third persons or creditors 13. Right, if given, of the remaining
guilty of estoppel, the firm shall not be general partner or partners to
treated as a general partnership despite continue the business on the death,
lack of substantial compliance to the retirement, civil interdiction,
requirements of a limited partnership. If insanity or insolvency of a general
creditors deal with the firm as a limited partner; and
partnership, they will be estopped from 14. Right, if given, of a limited partner
insisting that there is no such to demand and receive property
partnership, or that the terms of the other than cash in return of his
partnership were not sufficiently stated contribution.
in the notice of its formation. (40 Am.
Jur. 476.) LIABILITY FOR FALSE STATEMENT IN
CERTIFICATE
CONTENTS OF THE CERTIFICATE OR Any partner to the certificate
ARTICLES OF LIMITED PARTNERSHIP containing a false statement is liable to
1. Name of the partnership, adding one who suffers loss by reliance on such
thereto the word limited; certificate provided the following
2. Character of the business; requisites are present:
3. Location of the principal place of 1. He knew the statement to be false
business; at the time he signed the
4. Name and place of residence of each certificate, or subsequently having
member, general and limited sufficient time to cancel or amend
partners being respectively it or file a petition for its
designated; cancellation or amendment, he
5. Term for which the partnership is to failed to do so;
exist; 2. The person seeking to enforce
6. Amount of cash and description of liability has relied upon the false
and the agree value of the other statement in transacting business
property contributed by each limited with the partnership;
partner; 3. The person suffered a loss as a
7. Additional contributions to be made result of reliance upon such false
by each limited partner and the statement.
times at which or events on the
happening of which they shall be MANAGEMENT OF LIMITED PARTNERSHIP
made; A general partner in a limited
8. Time, if agreed upon, when to partnership is vested with the entire
contribution of each limited partner control of the firms business and has
is to be returned; all the rights and powers and is
9. Share in the profits or other subject to all the liabilities and
compensation by way of income restrictions of a partner in a general
which each limited partner shall partnership.
receive by reason of his contribution; A general partner in a limited
10. Right, if given, of a limited partner partnership however has no
to substitute an assignee as authority, without written consent or
contributor in his place, and the ratification of all limited partners,
terms and conditions of the to:
substitution; 1. Do any act in
11. Right, if given, of the partners to contravention of the certificate;
admit additional partners; 2. Do any act which would
12. Right, if given, of one or more of the make it impossible to carry on
limited partners to priority over the ordinary business of the
other limited partners, as to partnership;
contributions or as to compensation
CHAIRPERSONS
168

3. Confess judgment are sufficient to pay
against the partnership; partnership liabilities
4. Possess partnership b) The consent of all the
property, or assign their rights in members (general and
specific partnership property, for limited partners) has been
other that a partnership obtained
purpose; EXCEPTION:
5. Admit a person as a When the return of the
general partner; contribution may be
6. Admit a person as a rightfully demanded:
limited partner, unless the right 1) On the dissolution of the
to do so is given in the partnership
certificate 2) Upon the arrival of the
7. Continue the business date specified in the
with the partnership property on certificate for the return
the death, retirement, insanity, 3) After he has given 6
civil interdiction or insolvency of months notice in writing
a general partner, unless the to all other partners, if
right to do so is given in the no time is specified in
certificate. the certificate their for
A limited partner is liable as a the return of the
general partner for the firms contribution or for the
obligations if he takes part or dissolution of the
interferes in the management of the partnership
business. c) The certificate is cancelled
or so amended as to set forth
RIGHTS OF A LIMITED PARTNER the withdrawal or reduction
KEY: BIF2AR2
1. To have the partnership books kept LIABILITIES OF A LIMITED PARTNER
at the principal place of business of 1. Liability for unpaid contribution
the partnership a) For the difference between his
2. To inspect, at a reasonable hour, contribution as actually made
partnership books and copy any of and that stated in the certificate
them as having been made; AND
3. To demand true and full information b) For any unpaid contribution
of the things affecting the which he has agreed in the
partnership certificate to make in the future
4. To demand a formal account of the at the time and the conditions
partnership affairs whenever stated in the certificate
circumstances render it just and 2. Liability as trustee
reasonable a) Specific property stated in the
5. To ask for dissolution and winding up certificate as contributed by
by decree of court him, but which was not
6. To receive a share in the profits or contributed or which has been
other compensation by way of wrongfully returned; AND
income b) Money or other property
provided: that the partnership wrongfully paid or conveyed to
assets are in excess of partnership him on account of his
liabilities after such payment contribution
7. To receive the return of his
contribution provided: NOTE: These liabilities can be waived or
a) All the liabilities of the compromised only by consent of all the
partnership have been paid members; but a waiver or compromise
OR the partnership assets shall NOT affect the right of a creditor of
CIVIL LAW COMMITTEE
Rhodora
John Stephen
Purganan(LTD),
a partnership who extended credit or PROHIBITED TRANSACTIONS OF A

whose claim arose after the filling and LIMITED PARTNER
before the cancellation or amendment of 1. receiving or holding as collateral
the certificate, to enforce such security any partnership property; or
liabilities. 2. receiving any payment, conveyance,
or release from liability if it will
prejudice the partnership creditors
SUBSTITUTED LIMITED PARTNER
A person admitted to all the rights of
a limited partner who has died of has NOTES:
assigned his interest in the Violation of the prohibition will give
partnership. rise to the presumption that it has
been made to defraud partnership
GENERAL RULE: He has all, the rights creditors
and powers, and is subject to all the
restrictions and liabilities of his assignor.
The prohibition is NOT ABSOLUTE,
EXCEPTION: Those liabilities which he there is no such prohibition if the
was ignorant at the time he became a partnership assets are sufficient to
limited partner AND which could not be discharge partnership liabilities to
ascertained from the certificate. persons not claiming as general or
limited partners.
REQUISITES IN ORDER THAT THE
ASSIGNEE MAY BECOME A SUBSTITUTED
LIMITED PARTNER
AGENCY
1. All the members must consent to the
CONTRACT OF AGENCY
assignee becoming a substituted
A contract whereby a person (agent)
limited partner, OR the limited
binds himself to render some service
partner, being empowered by the
or to do something in representation
certificate must give the assignee
or on behalf of another (principal),
the right to become a limited
with the consent or authority of the
partner
latter. (Article 1868)
2. The certificate must be amended in
accordance with Art.1865
The parties to the contract are:
3. The certificate as amended must be
registered in the Securities and 1. Principal- one whom the agent
Exchange Commission represents and from whom he
derives authority; he is the
ALLOWABLE TRANSACTIONS OF A person represented.
LIMITED PARTNER 2. Agent- one who acts for and
Being merely a contributor to the represents another; he is the
person acting in a representative
partnership is not prohibited from:
capacity.
1. granting loans to the partnership
2. transacting other business with the
partnership
3. receiving a pro rata share of the AGENCY LEASE OF
partnership assets with the general SERVICES
1. Principle of 1. Principle of
creditors if he is NOT also a general
representation is employment is
partner applied. applied.
2. Extinguished at 2. Concurrence of
NOTE: In transacting a business with the will of the principal. parties is necessary.
partnership as a non-member, the 3. Agent exercise 3. Employee exercise
limited partner is considered a non- discretionary power ministerial functions
partner creditor to attain an end for only.
which he was
appointed.
CHAIRPERSONS
170

4. Preparatory 4. Principal Contract the extent of the agents authority
Contract to act, whether it be a general or a
special agency, depends on how the
AGENCY TO SELL SALE agency is couched.
1. Agent receives the 1. The buyer
goods as the goods of receives goods as C. Cause
the principal. owner May be onerous or gratuitous but
2. Agent delivers the 2. Buyer pays the presumed for compensation
proceeds of the sale price.
NOTE: The agent may not be deprived
3. Agent can return 3. the buyer, as a
of his right to compensation by an
the object in case he rule, cannot return
is unable to sell the the object sold unjustified revocation of the agency
same
4. Bound to act 4. The buyer can KINDS OF AGENCY
according to the deal with the thing 1. as to manner of creation
instructions of his as he please being a) express- one where the agent
principal. the owner. has been actually authorized
by the principal, either orally
PURPOSE OF AGENCY or in writing;
The purpose of agency is to extend b) implied- one which is implied
the personality of the principal from the
through the facility of the agent. It i. acts of the
principal- from his silence or
enables the activity of man which is lack of action, or his failure
naturally limited in its exercise by to repudiate the agency
the impositions of his physiological knowing that another person
conditions to be legally extended by is acting on his behalf
permitting him to be constructively without authority.
present in many different places and ii. Acts of the agent-
to perform diverse juridical acts and when he carries out the
carry on many different activities agency, or from his silence or
through another when physical inaction according to the
circumstances.
presence is impossible or inadvisable
at the same time. (11 Manresa 434) 2. as to its character
a) gratuitous- one where the
ELEMENTS OF AGENCY agent receives no
A. Consent compensation for his services.
Any person or entity having juridical b) compensated or onerous-
capacity and capacity to act and not one where the agent receives
otherwise disqualified, may enter compensation for his services.
into an agency.
But as regards the party with whom 3. as to extent of business covered
the agent acts or contracts, the legal a) general- one which comprises
capacity of the principal rather than all the business of the
the agent, is of the greater import. principal;
b) special- one which comprises
one or more specific
B. Object transactions.
the services to be undertaken by the
agent 4. as to authority conferred
may cover all acts pertaining to a a) couched in general terms-
business of the principal (general one which is created in
agency) or one or more specific general terms and is deemed
transactions (special agency) to comprise only acts of
administration;
CIVIL LAW COMMITTEE

Rhodora
John Stephen
Purganan(LTD),
b) couched in specific terms- failure to repudiate the agency,

one authorizing only the knowing that another person is
performance of a specific act acting on his behalf without
or acts. authority. (Article 1869)
5. as to its nature and effects NOTE: In an implied agency, the

a) ostensible or principal is still bound by the acts of the
representative- one where agent just as in case of express agency
the agent acts in the name
and in representation of the GENERAL RULE: There are no formal
principal. requirements governing the appointment
b) simple or commission- one of an agent. The agents authority may
where the agent acts in his be oral or written. It may be in a public
own name but for the or private writing.
account of the principal. EXCEPTION: When the law requires a
ACTS WHICH MAY BE DELEGATED TO AN specific form
AGENT
GENERAL RULE: What a man may do in Example: Sale of a piece of land or
person, he may do thru another. any interest therein through an
EXCEPTIONS: agent:
1. Personal acts- if personal
performance is required the doing of NOTES:
an act by a person on behalf of authority to sell must be in writing;
another does not constitute otherwise the sale is VOID (Art.1874)
performance by the latter. the sale itself should be in writing in
a) Voting during an election;
order to be enforceable.
b) Making a will;
c) Making statements which are The authority of an agent to execute
required to be done under oath; a contract of sale of real estate must
d) A member of the board of be conferred in writing and must
directors or trustees in a give him specific authority, either to
corporation cannot validly act as conduct the general business of the
such by proxy principal or to execute a binding
e) An agent cannot delegate to contract containing terms and
a sub-agent the performance of conditions which are in the contract
acts which he has been he did execute. (Dizon et al. vs. CA
appointed to perform in person. et al., GR 124741, January 28, 2003)
2. Criminal Acts or Acts not allowed by
law- There can be no agency in the FORM OF ACCEPTANCE BY AGENT
perpetration of a crime or unlawful act. Acceptance by the agent may also be
Examples: express or implied from his acts
a) An alien principal using which carry out the agency, or from
an agent to acquire lands; his silence or inaction according to
b) Persons who, because of their the circumstances
position and relation with the
persons under their charge or Kinds of Implied Acceptance
property under control, are 1. Where persons are present
prohibited from acquiring said Acceptance may be implied if:
property and cannot do so through a. principal delivers his power of
an agent. attorney to the agent and
b. agent receives it without any
FORM OF AGENCY objection
Agency may be express or implied 2. Where persons are absent
from the acts of the principal, from
his silence or lack of action, or his
CHAIRPERSONS
172

GENERAL RULE: Acceptance General Agent Special Agent
cannot be implied from silence of
the agent 1. Scope of Authority
EXCEPTION:
1. principal transmits his power of Usually authorized to Authorized to
attorney to the agent, who do all acts connected do only acts in
with the business or pursuance of
receives it without any
employment in which particular
objection; he is engaged. instructions or
2. principal entrusts to him by with restrictions
letter or telegram a power of necessarily
attorney with respect to the implied from
business in which he is the acts to be
habitually engaged as an agent, done
and he did not reply to the letter
or telegram 2. Continuity
IMPLIED AGENCY BY Conducts a series of Usually involves

transactions involving a single
ACCEPTANCE ESTOPPEL
a continuity of transaction or a
1. De Jure Agent 1. Not really an service. series of
agent transactions not
2. Binds the 2. Only the involving
principal for acts purported agent is continuity
within the scope liable. 3. Extent by which agent may bind
of his authority. principal
RULE ON AGENCY BY ESTOPPEL Binds his principal by Cannot bind his
One who clothes another with an act within the principal in a
apparent authority as his agent, and scope of his authority manner beyond
holds him out to the public as such, although it may be or outside the
cannot be permitted to deny the contrary to his special specific acts
instructions which he is
authority of such person in good
authorized to
faith, and in the honest belief that perform on
he is what he appears to be. (Cuison behalf of the
vs. CA, GR.88531, October 26, 1993) principal
4. Termination of Authority
CLASSES AND KINDS OF AGENTS Apparent authority Mere revocation
1. Universal Agent- one employed to do does not terminate by is effective to
the mere revocation terminate the
all acts that the principal may
of his authority authority as to
personally do, and which he can without notice to the third persons
lawfully delegate to another the third party because the
power of doing. third person has
2. General Agent- one employed to a duty to
transact all the business of the inquire
principal, or all the business of a 5. Construction of Instructions of
particular kind or in a particular Principal
place, or in other words to do all Statement of Authority of agent
acts, connected with a particular principal with must be strictly
respect to the pursued
trade, business or employment.
agents authority
3. Special or Particular Agent- one would ordinarily
authorized to act in one or more regarded as
specific transactions, or to do one or advisory only
more specific acts, or to act upon a
particular occasion. SPECIAL POWER OF ATTORNEY (SPA)
An instrument in writing by which
one person, as principal, appoints
CIVIL LAW COMMITTEE
Rhodora
John Stephen
Purganan(LTD),
another as his agent and confers NOTE: a third person with whom the
upon him the authority to perform agent wishes to contract on behalf of the
certain specified acts or kinds of acts principal may require the presentation of
on behalf of the principal. the power of attorney or the instructions
NOTE: It need not be notarized; except as regards the agency; except private or
where it is executed in a foreign country, secret orders.
must be certified in accordance with the
Rules of Court. NOTE: The scope of the agents
authority is what appears in the written
INSTANCES WHERE SPA IS NECESSARY terms of the power of attorney. While
(ART 1878) (PECWEM- LLB- BOCARO) third persons are bound to inquire into
1. To make such payments as are not the extent or scope of the agents
usually considered as acts of authority, they are not required to go
administration; beyond the terms of the written power
2. To effect novation which put an end of attorney. Third persons cannot be
to obligations already in existence at adversely affected by an understanding
time the agency was constituted; between the principal and his agent as
3. To compromise, to submit questions to the limits of the latters authority. In
to arbitration, to renounce the right the same way, third persons need not
to appeal from a judgment, to waive concern themselves with instructions
objections to the venue of an action given by the principal to his agent
or to abandon a prescription already outside the written power of attorney.
acquired; (Siredy Enterprises, Inc. vs. CA, et al.
GR 129039, September 27, 2002)
4. To waive any obligation gratuitously; NOTES:
5. To enter into any contract by which SPA to sell does not include the
the ownership of an immovable is power to mortgage; and vice versa.
transmitted or acquired either SPA to mortgage includes the power
gratuitously or foe a valuable
to allow the extrajudicial foreclosure
consideration;
of the mortgaged property.
6. To make gifts, except customary
ones for charity or those made to SPA to compromise does not
employees in the business managed authorize submission to arbitration
by the agents; SPA for an agent to institute any
7. To loan or borrow money, unless the action in court to eject all persons in
latters act be urgent and the principals lots so that the
indispensable for the preservation of principal could take material
the things which are under possession thereof, and for this
administration; purpose, to appear at the pre-trial
8. To lease any real property to another and enter into any stipulation of
person for more than one year; facts and/or compromise agreement
9. To bind the principal to render some but only insofar as this is protective
service without compensation; of the rights and interests of the
10. To bind the principal in a contract of principal in the property, does not
partnership; grant any power to the agent to sell
11. To obligate the principal as the subject property nor a portion
guarantor or surety; thereof. (Cosmic Lumber Corp vs. CA
12. To create or convey real rights over 265 SCRA 168)
immovable property;
13. To accept or repudiate an EFFECT OF LACK OF SPA WHERE ONE IS
inheritance; REQUIRED: UNENFORCEABLE
14. To ratify or recognize obligations
contracted before the agency; When principal bound by act of agent
15. Any other act of strict dominion. 1. Agent must act within the scope of
his authority
CHAIRPERSONS
174

2. Agent must act in behalf of the warranty against eviction;
principal Article 1883 does NOT apply
NOTE: The limits of the agents authority OCCASIONS WHEN PRINCIPAL IS BOUND
shall not be considered exceeded should BY THE ACTS OF THE AGENT BEYOND
it have been performed in a manner THE LATTERS POWERS
more advantageous to the principal than
that specified by him. General Rule: The principal is not bound
by the acts of the agent beyond his
When a person NOT bound by act of limited powers.
another Exceptions:
1. Latter acts without or beyond the 1. Where the principals acts have
scope of his authority in the formers contributed to deceive the third person
name; and in good faith;
2. Latter acts within the scope of his 2. Where the limitations upon the
authority but in his own name power created by him could not have
(UNDISCLOSED PRINCIPAL), except been known by the third person;
when the transaction involves a thing 3. Where the principal has placed in
belonging to the principal. In such the hands of the agent instruments
case, the contract is deemed as signed by him in blank (Strong vs.
entered between the principal and Gutierrez Repide 6 PHIL 680 [1906])
the third person. 4. Where the principal has ratified the
acts of the agent.
EFFECTS OF AGENTS ACTS

1. With Authority Doctrine of Agency by Necessity
a. in principals name valid; By virtue of the existence of an
principal is bound; agent not emergency, the authority of an agent is
personally liable unless he bound correspondingly enlarged in order to
himself (Article 1897) cope with the exigencies or the
b. in his own name Apply Article necessities of the moment
1883; generally not binding on Requisites:
the principal; agent and 1. Real existence of an emergency
stranger are the only parties, 2. Inability of the agent to
except regarding things communicate with the principal
belonging to the principal or 3. Exercise of the additional
when the principal ratifies the authority for the principals own
contract or derives benefit protection
therefrom. 4. Adoption of fairly reasonable
2. Without Authority means, premises duly considered
a. in principals name
unauthorized and NOTE: Agency can never be created by
unenforceable but may be necessity; what is created is additional
ratified, in which case, may be authority in an agent appointed and
validated retroactively from the authorized before the emergency arose.
beginning (Article 1407)
b. in his own name valid, whether GENERAL OBLIGATIONS OF AGENT TO
or not the subject matter PRINCIPAL:
belongs to the principal, 1. To act with utmost good faith and
provided that at the time of loyalty for furtherance of principals
delivery, the agent can interests
transfer legally the ownership of 2. To obey all lawful orders and
the thing. Otherwise, he will be instructions of principal within the
held liable for breach of scope of the agancy
CIVIL LAW COMMITTEE
Rhodora
John Stephen
Purganan(LTD),
3. To exercise reasonable care, skill and 15. To bear the risk of collection, should
diligence he receive also on sale, a guarantee
commission
SPECIFIC OBLIGATIONS OF AGENT TO 16. To indemnify the principal for
PRINCIPAL damages for his failure to collect the
1. To carry out the agency which he has credits of his principal at the time
accepted that they become due
2. To answer for damages which 17. To be responsible for fraud or
through his performance the negligence
principal may suffer
3. To finish the business already begun NOTE: A stipulation exempting the agent
on the death of the principal should from the obligation to render an account
delay entail any danger shall be VOID.
4. To observe diligence of a good father GENERAL RULE: Knowledge of agent is
of a family in the custody and knowledge of principal.
preservation of the goods forwarded EXCEPTIONS
to him by the owner in case he 1. Agents interests are adverse to
declines an agency, until an agent is those of the principal
appointed 2. Agents duty is not to disclose the
5. To advance the necessary funds information (confidential
should there be a stipulation to do so information)
6. To act in accordance with the 3. Where the person claiming the
instructions of the principal, and in benefit of the rule colludes with the
default thereof, to do all that a good agent to defraud the principal
father of a family would do
7. Not to carry out the agency if its
execution would manifestly result in SUB-AGENT
loss or damage to the principal A person to whom the agent
8. To answer for damages if there being delegates, as his agent, the
a conflict between his interest and performance of an act for the
those of the principal, he should principal which the agent has been
prefer his own empowered to perform through his
9. Not to loan to himself if he has been representative.
authorized to lend money at interest
10. To render an account of his NOTE: The agent may appoint a
transactions and to deliver to the substitute (sub-agent) except when he
principal whatever he may have has been prohibited by the principal.
received by virtue of the agency (ART 1892)
11. To distinguish goods by countermarks
and designate the merchandise Instances when agent shall be
respectively belonging to each responsible for the acts of the
principal, in the case of a substitute:
commission agent who handles goods 1. when he was not given the power to
of the same kind and mark, which appoint; or
belong to different owners 2. when he was given such power but
12. To be responsible in certain cases for without designating the person, and
the acts of the substitute appointed the person appointed was notoriously
by him incompetent or insolvent.
13. To pay interest on funds he has 3. in these two cases the principal may
applied to his own use further bring an action against the
14. To inform the principal, where an substitute with respect to the
authorized sale of credit has been obligations which the latter has
made, of such sale contracted under the substitution.

CHAIRPERSONS
176

NOTE: All acts of the substitute If the commission agent received
appointed against the prohibition of the goods consigned to him, he is
principal shall be VOID. responsible for any damage or
deterioration suffered by the same
JOINT AGENTS in the terms and conditions and as
Agents appointed by one or more described in the consignment.
principals under such circumstances The commission agent who handles
as to induce the inference that it goods of the same kind and mark,
was the principals intent that all which belong to different owners,
should act in conjunction in shall distinguish them by
consummating the transaction for countermarks, and designate the
which they were appointed. merchandise respectively belonging
Their responsibility is JOINT; except to each principal.
if solidarity has been expressly A commission agent can sell on
stipulated. credit only with the express or
If solidarity has been agreed upon, implied consent of the principal. If
each agent is responsible for the: such sale is made without authority,
a. non-fulfillment of the agency the principal is given two
b. fault or negligence of his fellow alternatives:
agents; except when the fellow i. He may require payment in cash,
agents acted beyond the scope in which case any interest or
of their authority. benefit from the sale on credit
shall belong to the agent since the
principal cannot be allowed to
NOTE: innocent agent has a right later enrich himself at the agents
on to recover from the guilty or expense;
negligent agent (ART 1217(2)) ii. He may ratify the sale on credit in
Instances when agent may incur which case it will have all the risks
personal liability: and advantages to him.
1. When the agent expressly binds If the commission agent is authorized
himself to sell on credit, he shall inform the
NOTE: The individual liability of the principal with a statement of the
agent can be considered a further names of the buyers. With such
security in favor of the creditor and statement, the sale shall be deemed
does not affect or preclude the to be for cash as far as the principal
liability of the principal; both are is concerned.
liable The commission agent who does not
2. When agent exceeds his authority collect the credits of his principal at
3. When agent by his acts prevents the time when they become due and
performance on the part of the demandable shall be liable for
principal damages, unless he proves the
4. When a person acts as an agent exercise of due diligence for that
without authority or without a purpose.
principal
5. A person who acts as an agent of an BROKER
incapacitated principal unless the A middleman or intermediary who, in
third party was aware of the behalf of others and for a
incapacity at the time of the making commission or fee, negotiates
of the contract contracts/transactions relating to
real or personal property.
FACTOR/COMMISSION AGENT
- one engaged in the purchase and sale Factorage
for a principal of personal property, Compensation of a factor or
which for this purpose, has to be placed commission agent.
in his possession and at his disposal.
CIVIL LAW COMMITTEE
Rhodora
John Stephen
Purganan(LTD),
Ordinary Commission
Compensation for the sale of goods LIABILITY OF PRINCIPAL FOR TORT OF
which are placed in his possession or AGENT RULE: The principal is civilly
at his disposal. liable to third persons for torts of an
agent committed at the principals
Guaranty Commission (Del credere) direction or in the course and within the
Fee that is given in return for the scope of the agents authority.
risk, which the agent has to bear in Reason for liability: The rule is based
the collection of credits. upon the principle that he who does an
An agent with a del credere act through another does it himself.
commission is liable to the principal
if the buyer fails to pay or is CONDITIONS FOR RATIFICATION
incapable of paying. 1. principal must have capacity and
power to ratify
GENERAL OBLIGATIONS OF PRINCIPAL 2. principal must have had knowledge
TO AGENT of material facts
Duties and liabilities of the principal 3. principal must ratify the acts in its
are primarily based upon the entirety
contract and the validity of the 4. act must be capable of ratification
contract between them 5. act must be done in behalf of the
principal
SPECIFIC OBLIGATIONS OF PRINCIPAL TO
AGENT (CARIP) ESTOPPEL BY PRINCIPAL
1. To comply with all the obligations Even when the agent has
which the agent may have exceeded his authority, the principal is
contracted within the scope of his solidarily liable with the agent if the
authority and in the name of the former allowed the latter to act as
principal though he had full powers.
2. To advance to the agent, should the
latter so request, the sums necessary JOINT PRINCIPALS
for the execution of the agency Two or more persons who appoint an
3. To reimburse the agent for what the agent for a common transaction or
latter has advanced (plus interest), undertaking.
even if the business was not Liability: solidarily liable to the
successful, provided the agent was agent for all the consequences of the
free from fault agency.
4. To indemnify the agent for all the Requisites of solidary liability:
damages, which the execution of the 1. There are two or more principals
agency may have caused the latter 2. The principals have all concurred
without fault or negligence on his in the appointment of the same
part agent; and
NOTE: The agent may retain in 3. The agent is appointed for a
pledge the things which are the common transaction or
object of the agency until the undertaking
principal effects this reimbursement NOTE: Any one of them may revoke the
and pays the indemnity. agency
5. To pay the agent the compensation
agreed upon, or if no compensation RULES ON DOUBLE SALE BY PRINCIPAL
was specified, the reasonable value AND AGENT
of the agents services 1 When two persons contract with
regard to the same thing, one of
them with the agent and the other
with the principal, and the two
contracts are incompatible with each
CHAIRPERSONS
178

other, that of prior date shall be 2. If it has been constituted in the
preferred, without prejudice to interest of a third person who has
Article 1544(double sale). accepted the stipulation in his favor
2 If the agent has acted in good faith,
the principal shall be liable in Revocation of Agency by Principal
damages to the third person whose GENERAL RULE: Agency is revocable at
contract must be rejected. If the will of the principal, regardless of the
agent is in bad faith, he alone shall term of the agreement.
be responsible. EXCEPTIONS:
1. If a bilateral contract depends upon
Instances when principal is not liable it;
for the expenses incurred by the 2. If it is the means of fulfilling an
agent: obligation already contracted;
1. if the agent acted in contravention 3. If a partner is appointed manager of
of the principals instructions, unless a partnership and his termination is
the latter should wish to avail unjustifiable; and
himself of the benefits derived from 4. If it is created not only for the
the contract; interest of the principal but also for
2. when the expenses were due to the the interest of third persons, who
fault of the agent; have accepted the stipulation in
3. when the agent incurred them with their favor
knowledge that an unfavorable result
would ensure, if the principal was Agency coupled with an interest
not aware thereof;
4. when it was stipulated that the An agency wherein the agent has
expenses would be borne by the acquired some interest of his own in
agent, or that the latter would be the execution of the authority
allowed only a certain sum. granted to him, in addition to his
mere interest in the contract of
MODES OF EXTINGUISHMENT OF employment with the resulting gains.
AGENCY (EDWARD) The agency becomes merely a part
1. Expiration of the period of another obligation or agreement,
2. Death, civil interdiction, insanity or or an incidental element thereof so
insolvency of the principal or of the it cannot be unilaterally revoked.
agent NOTE: However, in Coleongco vs.
3. Withdrawal of the agent Claparals (10 SCRA 577), the SC made a
agent may withdraw by giving sweeping statement that coupled with
notice to the principal, but must an interest or not, the authority (agency)
indemnify the principal for can certainly be revoked for a just
damages that he may suffer by cause.
reason of such withdrawal.
Implied Revocation may be effected:
4. Accomplishment of the object or the
1. By the act of the principal in
purpose of the agency
appointing another agent for the
5. Revocation
same business or transaction;
6. Dissolution of the firm or
2. By the act of the principal in directly
corporation, which entrusted or
managing the business entrusted to
accepted the agency.
the agent; or
3. By the act the principal in
Instances when death of principal does
subsequently granting a special
not terminate agency
power of attorney as regards the
1. If the agency has been constituted in
same business to another agent,
the common interest of the principal
where he had previously granted a
and the agent
general power of attorney to one
agent.
CIVIL LAW COMMITTEE
Rhodora
John Stephen
Purganan(LTD),
3. Beneficiary or the cestui que trust

TRUSTS - the one who has the equitable
interest in the property and enjoys
the benefit of administration by the
TRUST trustee. He may be a natural person
A legal relationship between one or a legal entity. The trustor may
person having an equitable establish a trust with himself as the
ownership in property and another beneficiary (usual case).
owning the legal title to such
property. ELEMENTS OF EXPRESS TRUST
1. Competent trustor and trustee;
CLASSIFICATIONS
2. Ascertainable trust res; and
1. Effectivity - from the viewpoint of
3. Sufficiently certain beneficiaries.
whether they become effective after
the death of the trustor or during his
TRUST PROPERTY
life, it may be either:
The concept of a trust arises from or is
a. testamentary trusts
the result of a fiduciary relation
b. trusts inter vivos (sometimes
between the trustee and the cestui que
called living trusts)
trust as regards certain property- real,
2. Creation - from the viewpoint of the
personal, funds or money, choses in
creative force bringing them into
action held by the trustee. (Pacheco vs.
existence, it may be either:
Arro, 85 PHIL 505 )
a) Express trust - created by the
intention of the trustor or of the The trust property is owned by two
parties or more persons at the same time, the
b) Implied trust - one which comes relation between the two owners being
into being by operation of law. such that one of them is under an
This may be either: obligation to use his ownership for the
1) Resulting trust - one in which benefit of the other.
the intention to create a trust TRUST CONTRACT
is presumed by law to exist Always involves A legal obligation
from the transaction and facts owner-ship, based on an
of the case embracing a set of undertaking
2) Constructive trust - one rights and duties supported by a
imposed by law irrespective of fiduciary in consideration,
character which may which obligation
and even contrary to the
be created by a may or may not be
intention of the parties. It is declaration without fiduciary in
designed to promote justice, consideration. character.
frustrate fraud and prevent TRUST DONATION
unjust enrichment. 1. An existing legal There is a transfer
relationship and of property as well
involves the as the disposition of
Persons involved in the creation of a separation of legal both legal and
trust: and equitable title equitable ownership
1. Trustor - the one who intentionally except in cases of
gifts in trust.
creates a trust
2. The beneficiary of 2. The donee must
2. Trustee - the person who holds the a trust may demand comply with the
legal title to the trust property for performance of the legal requirements
the benefit of another and with obligation without in accepting
certain powers and subject to having formally donations.
certain duties accepted the
benefit of the trust
in public document,
upon mere
2005 CENTRALIZED BAR OPERATIONS acquiescence
EXECUTIVE in Cthe
OMMITTEE AND SUBJECT
CHAIRPERSONS formation of the
Maricel Abarentos (Over-all Chairperson), Ronald trust and Vice Chair), Yolanda
Jalmanzar (Over-all
acceptance under
Mangundayao (Political Law), Francis Benedict Reotutarthe (Labor Law),second
Romuald Padilla (Civil Law),
Charmaine Torres (Taxation Law), Mark David Martinez (CriminalparagraphLaw),ofGarny
article
Luisa Alegre (Commercial
Law), Jinky Ann Uy (Remedial Law), Jackie Lou Bautista (Legal1311(stipulations
Ethics)
pour autrui).
180

The trustee is not a mere agent
but an owner. But his ownership is a Requisites for a Trustee to claim title
mere matter of form rather than by prescription:
substance, and nominal rather than real. 1. He has performed open and
unequivocal acts of repudiation
PROOF OF TRUST 2. Such positive acts of repudiation
GENERAL RULE: trust whether express have been made known to the
or implied may be proved by parol or beneficiary or the cestui que trust
oral evidence 3. The evidence thereon should be
EXCEPTION: An express trust over an clear and convincing and
immovable property or any interest 4. The period fixed by law has expired.
therein. This latter requirement (10 years from the time that the
however is not for validity but only for repudiation is made known to the
purposes of proof. beneficiary in cases of express trust
or resulting trust while 10 years from
NOTES: the time a constructive trust arises).
Trusts cannot be established in
violation of law. Trust is founded in In order that a trustee may sue or be
equity such that it cannot result sued alone, it is essential that his
from a contract formed for an illegal trust should be express, that is a
purpose. trust created by the direct and
Neither may a trust be created for positive acts of the parties, by some
the purpose of evading a legal writing deed or will, or by
prohibition. Example: there cannot proceedings in court. Rule 3, sec 3
be a trust created for the purpose of does not apply in cases of implied
obtaining homestead patents, in trust that is, a trust which may be
favor of a person already disqualified inferred merely by the acts of the
to obtain additional homesteads. parties or from other circumstances.
(PAL vs. Heald Lumber Co.)
Necessity of Acceptance to the
creation and validity of trust NOTES:
relationship the 10-year prescriptive period in
1. Acceptance of the trustee case of implied trust begins to run
The acceptance of the trustee is not from the date the trustee repudiates
necessary to its existence and the express trust. In the case Sps.
validity since if he declines, the Pascual, et al. vs. CA, et al. GR
courts will appoint a trustee to fill 115925, August 15, 2003, it was held
the office that he declines. (see that repudiation takes place when
Sec.3 Rule 98 of the Rules of Court). the adverse party registers the land.
NOTE: But a trustees acceptance of the the 4-year prescriptive period under
trust is necessary to charge him with the Article 1391 applies only if the fraud
office of the trustee and the does not give rise to an implied
administration of the trust and to vest trust, and the action is to annul a
the legal title in him. voidable contract under Article 1390.
2. Acceptance of the beneficiary TRUST PURSUIT RULE

The acceptance by the beneficiary is Equity will pursue property that is
essential to the creation and validity wrongfully converted by the fiduciary, or
of a trust. However, such otherwise compel restitution to the
acceptance is presumed if there is beneficiary. A trust will follow the
no proof to the contrary and the property through all changes in its state
trust does not impose any onerous and form, provided its product or
condition upon the beneficiary. proceeds are capable of identification.
CIVIL LAW COMMITTEE

Rhodora
John Stephen
Purganan(LTD),
express trust.
IMPLIED TRUST
Are those, without being express, KINDS OF IMPLIED TRUSTS
are deducible from the nature of the 1. Purchase money resulting trust
transaction as matters of intention, or (Article 1448) There is a resulting
which are superinduced on the trust when property is sold, and the
transaction by operation of law, as legal estate is granted to one party
matters of equity independently of the but the price is paid by another
particular intention of the parties. party for the purpose of having the
beneficial interest of the property.
RESULTING CONSTRUCTIVE To give rise to a purchase money
TRUST TRUST resulting trust, it is essential that
1. Intention to create trust: there be:
The intent of The trust is created a) an actual payment of money,
the parties to irrespective of or even property or services or an
create a trust contrary to the equivalent, constituting valuable
is presumed or intention of the parties consideration;
implied by law to promote justice, b) and such consideration must be
from the frustrate fraud and to furnished by the alleged beneficiary
nature of their prevent unjust of a resulting trust.
transaction enrichment.
2. Prescriptive period: EXCEPTIONS:
The 10 year The 10 year
a) Where A pays the purchase
prescriptive prescriptive period
money and title is conveyed by
period shall be shall be counted from
absolute deed to As child or to a
counted from the time that the
person to whom A stands in loco
the time constructive trust
parentis and who makes no express
repudiation is arises.
promise, a trust does not result, the
made known
presumption being that a gift was
to beneficiary.
intended;
3. Examples:
b) Where an actual contrary
Illustrated in Illustrated in Articles
intention is proved;
Articles 1448, 1450, 1454, 1455, 1456
1449, 1451, c) Where the purchase is made in
1452, 1453 violation of an existing statute and in
evasion of its express provision, no
trust can result in favor of the party
who is guilty of fraud. (Tigno vs.
EXPRESS TRUST IMPLIED TRUST
Court of Appeals 280 SCRA 262
1. As to creation
[1997])
Created by the Come into being by
intention of the parties operation of law.
2. As to proof of trust
An express trust over An implied trust
an immovable property over an immovable 2. Donations made to a person but the
or any interest therein or any interest beneficial interest is vested in
cannot be proved by therein may be another. The donee is the trustee
parol evidence proved by oral while the designated third person is
evidence. the beneficiary. (ART 1449).
3. As regards repudiation of trust 3. Purchase with borrowed funds and
An express repudiation In constructive the conveyance is made to lender to
made known to the trusts, even if secure payment of debt. ART 1450 )
beneficiary is there is no 4. Legal title to land inherited by heir
necessary in order that repudiation, laches placed in the name of another.
laches or acquisitive may bar an action
(Article 1451)
prescription may bar to enforce an
an action to enforce an implied trust.
CHAIRPERSONS
182

5. Legal title to property purchased b) Such positive acts of
taken in one co-owner. (ART 1452) repudiation have been made know to
6. Conveyance under a promise to hold the cestui que trust; and
for, or transfer to another. (ART c) Evidence thereon is clear
1453) and positive. (Vda. De Cabrera vs.
7. Absolute conveyance to a person to Court of Appeals 267 SCRA 339
secure performance of grantors [1997].)
obligation.
8. (ART 1454) NOTE: The enumeration is not exclusive.
9. Purchase of property with use of
trust funds (ART 1455) Other examples of implied trust:
10. Acquisition of property through 1. The registration of land under
mistake or fraud. (ART 1456). torrens in the name of one person do
not bar evidence to show it was only
NOTE: An action for reconveyance of held in trust for another.
a parcel of land based on an implied 2. Certificate of registration of vehicle
or constructive trust prescribes in placed in the name of a person
ten years, the point of reference although the price was not paid by
being the date of registration of the him but by another.
deed or the date of the issuance of 3. One arising from the agents willful
the certificate of title over the violation of the trust reposed in him
property. BUT, this rule applies only by the principal by buying for
when the plaintiff (or person himself the property he was
enforcing the trust) is not in supposed to buy for the principal
possession of the property, since if a who designated and appointed him
person claiming to be the owner to negotiate with the owner.
thereof is in actual possession of the 4. In consonance with the trust fund
property, the right to seek doctrine in Corporation Law, the
reconveyance, which in effect seeks assets of the corporation, as
to quiet title to property, does not represented by the capital stock, are
prescribe. regarded as trust fund to be
maintained unimpaired for the
payment of corporate creditors.
Requisites before period or

prescription may start in regard to
an action based on an implied
trust:
a) the trustee has performed
unequivocal acts of repudiation
amounting to an ouster of the cestui
que trust.
CIVIL LAW COMMITTEE

Rhodora
John Stephen
Purganan(LTD),

Partnership Agency and Trust

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150 2005 CENTRALIZED BAR OPERATIONS

PARTNERSHIP 2. Where the contract is by its terms not

2005 CENTRALIZED BAR OPERATIONS EXECUTIVE COMMITTEE AND SUBJECT

MEMORY AID IN CIVIL LAW

a. A community of interest in (a) as a debt by installments or

MEMORY AID IN CIVIL LAW

Where the articles of partnership do LIMITED PARTNERSHIP

CIVIL LAW COMMITTEE

1. De Jure Partnership- one which has a) Managing partner- one who

MEMORY AID IN CIVIL LAW

II. Obligations with respect to IV. Obligation to Contribute Additional

sum received by the managing partner

MEMORY AID IN CIVIL LAW

3. Right to participate in the a) Decision of the majority

2005 CENTRALIZED BAR OPERATIONS EXECUTIVE COMMITTEE AND SUBJECT

MEMORY AID IN CIVIL LAW

NOTE: All partners are solidarily liable MUTUAL AGENCY

1. when he is expressly or impliedly the partnership, nor the relations of the

PARTNERSHIP BY ESTOPPEL WINDING UP

MEMORY AID IN CIVIL LAW

any partner acting for the circumstances as defined

MEMORY AID IN CIVIL LAW

CIVIL LAW COMMITTEE

MEMORY AID IN CIVIL LAW

7. Prohibition to engage in other ESSENTIAL REQUIREMENTS FOR

MEMORY AID IN CIVIL LAW

a partnership who extended credit or PROHIBITED TRANSACTIONS OF A

MEMORY AID IN CIVIL LAW

CIVIL LAW COMMITTEE

b) couched in specific terms- failure to repudiate the agency,

5. as to its nature and effects NOTE: In an implied agency, the

MEMORY AID IN CIVIL LAW

IMPLIED AGENCY BY Conducts a series of Usually involves

MEMORY AID IN CIVIL LAW

EFFECTS OF AGENTS ACTS

2005 CENTRALIZED BAR OPERATIONS EXECUTIVE COMMITTEE AND SUBJECT

MEMORY AID IN CIVIL LAW

MEMORY AID IN CIVIL LAW

3. Beneficiary or the cestui que trust

MEMORY AID IN CIVIL LAW

2. Acceptance of the beneficiary TRUST PURSUIT RULE

CIVIL LAW COMMITTEE

MEMORY AID IN CIVIL LAW

Requisites before period or

CIVIL LAW COMMITTEE

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