Partnership - San Beda

150 2005 CENTRALIZED BAR OPERATIONS
PARTNERSHIP
PARTNERSHIP contract is covered by the statute of

By the contract of partnership frauds and thus requires a written
two or more persons bind themselves to agreement to be enforceable.
contribute money, property or industry 3. Where the contract of partnership
to a common fund, with the intention of has a capital of 3,000 pesos or more, in
dividing the profits among themselves. money or property, it shall appear in a
Two or more persons may also public instrument and must be recorded
form a partnership for the exercise of a in the Office of the Securities and
profession. (Art. 1767) Exchange Commission. However, a
 A partnership has a juridical partnership has a juridical personality
personality which is separate and even in case of failure to comply with
distinct from that of the partners. this requirement.
 A partnership may sue and be sued in
its name or by its duly authorized Requisites:
representatives. A managing partner 1. intention to create a partnership
of the partnership may execute all 2. common fund obtained from the
acts of administration including the contributions
right to sue debtors of the 3. joint interest in the profits
partnership in the case of their
failure to pay their obligation when Essential Features:
it becomes demandable. (Tai Tong 1. there must be a valid contract;
Chuache & Co. vs. Insurance 2. the parties must have legal capacity
Commission 158 SCRA 336 [1988]) to enter into the contract;
FORM OF PARTNERSHIP CONRTRACT NOTE: With regard to number 2 (legal

No special form is capacity of contracting parties),
required for the validity or existence of individuals not legally incapacitated to
the contract of partnership. contract and partnerships may enter into
a contract of partnership. With respect
1. Where immovable property or real to corporations, the court held in
rights are contributed, the partnership Aurbach vs. Sanitary Wares
contract shall be void unless: Manufacturing Corporation 180 SCRA 130
a. It is reduced to writing in a [1989] that although a corporation
public instrument (Art. 1771). cannot enter into a partnership contract,
b. An inventory of the property it may however engage in a joint venture
contributed is made, signed by the with others. A joint venture has been
parties and attached to the public generally understood to mean an
instrument. (Art.1773). organization formed for some temporary
 A partnership contract which purpose.
states that the partnership is There is nothing against one
established to operate a fishpond is corporation being represented by a
not rendered void because no natural or juridical person in a suit in
inventory of the fishpond was made court, for the true rule is that “although
(where it did not clearly appear in the a corporation has no power to enter a
articles of partnership that the real partnership, it may nevertheless enter
property had been contributed by into a joint venture with another where
anyone of the partners). (Agad vs. the nature of that venture is in line with
Mabolo and Mabolo Agad and Co., the business authorized by the charter.
23 SCRA 1223[1968]) (JM Tuazon and Co., Inc vs. Bolanos 95
2. Where the contract is by its terms not PHIL 106 [1954])
to be performed within a year from the
making thereof, such partnership
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)
San Beda College of Law 151
MEMORY AID IN CIVIL LAW
3. there must be mutual contribution of assignee a partner

money, property and industry to a without unanimous
common fund consent
6. Power to act with third persons
NOTE: A partnership of a civil nature In the absence of A co-owner cannot
stipulation to the represent the co-
was formed because Gatchalian & Co.
contrary, a partner ownership
put up money to buy a sweepstakes may bind the
ticket for the sole purpose of dividing partnership
equally the prize which they may win as 7. Dissolution
they did in fact in the amount of Death or incapacity Death or incapacity
P50,000. (Gatchalian vs. CIR 67 PHIL 666 of a partner results of a co-owner does
[1939]) in the dissolution of not necessarily
Where the father sold his rights over partnership dissolve the co-
2 parcels of land to his 4 children so they 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
mutual agency mutual
capital gains, they should not be treated
representation
to have formed an unregistered (although it is
partnership and taxed corporate income enough for a co-
tax on the sale and on dividend income owner to bring an
tax on their shares of the profits from action for ejectment
the sale. (Obillos Jr. vs. CIR [1985]) against a stranger)
4. the object must be lawful; and 9. Profits
5. the primary purpose must be to May be stipulated Must always depend
obtain profits upon upon proportionate
KEY: CJP3 - D2AFT shares and any
stipulation to the
contrary is VOID
Partnership Co-ownership (Art.485)
1. Creation 10. Form
Always created by a Generally created by May be in any from No public instrument
contract, either law, but may exist except when real is needed even if
express or implied even without a property is real property is the
contract contributed (here a object of the co-
public instrument is ownership
2. Juridical personality required)
Has a juridical Has no juridical
personality separate personality KEY: CNJ – PMERET2 - FPG
and distinct from
that of each partner Partnership Corporation
3. Purpose 1. Creation
Realization of Common enjoyment Created by mere Created by law
profits of a thing or right; agreement of the or by operation
does not necessarily parties of law
involve sharing of 2. Number of incorporators
profits May be organized by at Requires at
least two persons least five
4. Duration incorporators
No limitation upon An agreement to (except a
the duration is set keep the thing corporation
by law undivided for more sole)
than 10 years is not
allowed 3. Commencement of juridical
5. Transfer of interests personality
A partner may not A co-owner can Acquires juridical Acquires
dispose of his dispose of his share personality from the juridical
individual interest in without the consent moment of execution of personality from
the partnership so of the others the contract of the date of
as to make the partnership issuance of the
certificate of
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)
incorporation by 10. Term of existence

the Securities partnership may be corporation may
and Exchange established for any not be formed
Commission period of time for a term in
4. Powers stipulated by the excess of 50
Partnership may Corporation can partners years extendible
exercise any power exercise only to not more
authorized by the the powers than 50 years in
partners (provided it is expressly any one
not contrary to law, granted by law 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 Code Code
mismanages the 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 contemplates a general business
succession
with some degree of continuity,
8. Extent of liability to third persons while 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 commercial enterprise; generally all
his interest in the generally the
contribute assets and share risks. Its
partnership so as to right to transfer
make the transferee a his shares
requisites are:
partner without the without prior a. A community of interest in
unanimous consent of consent of the the performance of the
all the existing partners other subject matter;
because the partnership stockholders b. A right to direct and govern
is based on the principle because the policy in connection
of delectus personarum corporation is therewith;
not based on c. Duty to share profits and
this principle
losses.

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

the profits which they may acquire GENERAL PARTNERSHIP

therewith. A partnership consisting of
A stipulation for the common general partners who are liable pro rata
enjoyment of any other profits may also and subsidiarily and sometimes solidarily
be made; but the properties which the with their separate property for
partners may acquire subsequently by partnership debts.
inheritance, legacy or donation cannot
be included in such stipulation, except LIMITED PARTNERSHIP
the fruits thereof. One formed by two or more
persons having as members one or more
 Where the articles of partnership do general partners and one or more limited
not specify the nature of the universal partners, the latter not being personally
partnership, whether it is one of liable for the obligations of the
“present property” or of “profits” only, partnership.
it will be presumed that the parties
intended merely a partnership of profits. PARTNERSHIP AT WILL
NOTE: Future properties cannot be A partnership wherein no time is
contributed. Thus, property specified and is not formed for a
subsequently acquired by (1) particular undertaking or venture and
inheritance, (2) legacy or (3) donation which may be terminated at anytime by
cannot be included by stipulation except mutual agreement of the partners, or by
the fruits thereof. the will of anyone partner alone; or one
for a fixed term or particular
2. A universal partnership of profits is undertaking but has been continued by
one which comprises all that the the partners after termination of such
partners may acquire by their industry or term or particular undertaking without
work during the existence of the express agreement.
partnership and the usufruct of movable
or immovable property which each of PARTNERSHIP WITH A FIXED TERM
the partners may posses at the time of A partnership wherein the term
the celebration of the contract. for which the partnership is to exist is
fixed or agreed upon or one formed for a
 Movable or immovable property particular undertaking, and upon the
which each of the partners may posses at expiration of the term or completion or
the time of the celebration of the the particular enterprise, the
contract shall continue to pertain partnership is dissolved, unless
exclusively to each, only the usufruct continued by the partners.
passing to the partnership.
OTHER KINDS OF PARTNERSHIP
NOTE: Persons who are prohibited from 1. De Jure Partnership- one which has
giving each other any donation or complied will all the legal
advantage cannot enter into a universal requirements for its establishment.
partnership. (Art. 739, Art. 87, Family 2. De Facto Partnership- one which
Code) has failed to comply with all the
Profits acquired by their partners legal requirements for its
through chance (i.e. lottery) without establishment.
employment of any physical or 3. Ordinary or real partnership- one
intellectual efforts are not included. which actually exists among the
partners and also as to third persons.
PARTICULAR PARTNERSHIP 4. Ostensible partnership or
A particular partnership is one partnership de facto- one which in
which has for its object determinate reality is not a partnership, but is
things, their use and fruits, or a specific considered a partnership only in
undertaking, or the exercise of a relation to those who, by their
profession or vocation. conduct or admission, are precluded
to deny or disprove its existence.
Ethics)
5. Secret partnership- one wherein the b) Secret partner- one who takes
existence of certain persons as active part in the business by is not
partners is not avowed or made known to be a partner by outside
known to the public by any of the parties nor held out as a partner by
partners. the other partners. c) Dormant
6. Open or notorious partnership- one partner- one who does not take
whose existence is avowed or made active part in the business and is not
known to the public by the members known or held out as partner.
of the firm.
7. Commercial or trading partnership- KEY: CP2L
one formed for the transaction of Capitalist Partner Industrial
business. Partner
8. Professional or non-trading 1. as to contribution
partnership- one formed for the contributes money contributes his
exercise of a profession. or property industry (mental
or physical)
CLASSIFICATION OF PARTNERS
1. as to CONTRIBUTION: 2. as to prohibition to engage in
other business
a) Capitalist partner- one who
Cannot generally cannot engage in
contributes money or property to the engage in the same any business for
common fund. or similar enterprise himself
b) Industrial partner- one who as that of his firm
contributes only his industry or
personal service. 3. as to profits
1. shares in the receives a just
2. as to LIABILITY: profits according and equitable
a) General partner- one whose to agreement share
liability to third persons extends to thereon;
his separate property, he may either 2. if none, pro rata
to his
be a capitalist or industrial partner.
contribution
b) Limited partner- one whose 4. as to losses
liability to third persons is limited to 1. first, the exempted as to
his capital contribution. stipulation as to losses (as
losses; between
3. as to MANAGEMENT: 2. if none, the partners); but is
a) Managing partner- one who agreement as to liable to third
manages the business or affairs of profits; persons, without
the partnership; he may be 3. if none, pro rata prejudice to
appointed in the articles of to contribution reimbursement
from the
partnership or after constitution of
capitalist
the partnership. partners
b) Silent partner- one who does not
take any active part in the business
although he may be known to be a OBLIGATIONS OF PARTNERS AMONG
partner. THEMSELVES:
c) Liquidating partner- one who
takes charge of the winding up of I. Obligation with respect to
the partnership affairs upon contribution of property
dissolution. a) To contribute what had been
promised
4. Miscellaneous: b) To answer for eviction in case
a) Ostensible partner- one who the partnership is deprived of
takes active part and known to the determinate property
public as a partner in the business, contributed
whether or not he has actual interest
in the firm.
CIVIL LAW COMMITTEE
c) To answer to the partnership for partner and the partnership and to

the fruits of the property the insure faithful compliance by said
contribution of which is delayed, partner with his prestation
from the date they should have (Evangelista & Co. vs. Abad Santos,
been contributed to the time of 51 SCRA 416, 1973)
actual delivery
d) To preserve the property with 2. Capitalist partner- The prohibition
the diligence of a good father of extends only to any operation which
a family pending delivery to the is of the same kind of business in
partnership which the partnership is engaged
e) To indemnify the partners for unless there is a stipulation to the
any damages caused to it by the contrary.
retention of the same or by
delay in its contribution. IV. Obligation to Contribute Additional
Capital
II. Obligations with respect to As a general rule, a capitalist
contribution of money and money partner is not bound to contribute to the
converted to personal use partnership more than what he agreed to
a) To contribute on the date due contribute but in case of an imminent
the amount he has undertaken to loss of the business, and there is no
contribute to the partnership agreement to the contrary, he is under
b) To reimburse any amount he may obligation to contribute an additional
have taken from the partnership share to save the venture. If he refuses
coffers and converted to his own to contribute, he shall be obliged to sell
personal use his interest in the partnership to other
c) To pay the agreed or legal partners.
interest, if he fails to pay his
contribution on time or in case V. Obligation of Managing Partner who
he takes any amount from the Collects Debt
common fund and converted to Where a person is separately
his own personal use indebted to the partnership and to the
d) To indemnify the partnership for managing partner at the same time, any
the damages caused to it by the sum received by the managing partner
delay in the contribution or the shall be applied to the two credits in
conversion of any sum for his proportion to their amounts, except
personal benefit. where he received it entirely for the
account of the partnership, in which
III. Obligation Not to Engage in Other case the whole sum shall be applied to
Business for Himself the partnership credit only.
1. Industrial partner- cannot engage in
any business for himself unless the Requisites for the application of the
partnership expressly permits him to rule:
do so. The other partners have the 1) There exists two debts, one where
remedy of either excluding the the collecting partner is creditor,
erring partner from the firm or of the other, where the partnership is
availing themselves of the benefits creditor.
which he may have obtained. 2) Both debts are demandable
Note: The prohibition is absolute and 3) The partner who collects is
applies whether the industrial authorized to manage and actually
partner is to engage in the same manages the partnership.
business in which the partnership is
engaged or in any kind of business. It VI. Obligation of Partner Who Receives
is clear that the reason for the Share in Partnership Credit
prohibition exists in both cases, A partner who receives, in whole
which is to prevent any conflict of or in part, his share in the partnership,
interest between the industrial when the others have not collected
Ethics)
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
a) According to their agreement as
IX. Obligation to account for any to losses (but not inequitously to
benefit and hold as trustee defeat Art.1799)
unauthorized personal profits b) If none, according to their
Every partner must account to agreement as to profits
the partnership for any benefit, and hold c) If none, in proportion to his
as trustee for it any profits derived by capital contribution, but the
him without the consent of the other purely industrial partner shall
partners from any transaction connected not be liable for the losses
with the formation, conduct, liquidation
of the partnership or form any use by A stipulation excluding
him of its property. a partner from any share in the profits or
losses is VOID (Article 1799)
RIGHTS OF A PARTNER: Article 1797(2) excludes an
1. Property rights of a partner industrial partner from losses. Thus, a
a) His rights in the specific stipulation excluding an industrial
partnership property partner from losses is VALID, but he is
b) His interest in the partnership NOT exempted from liability insofar as
c) His right to participate in the third persons are concerned.
management NOTE: In general, LIABILITY refers to
2. Right to reimbursement for amounts responsibility towards third persons, and
advanced to the partnership and to LOSSES refers to responsibility as among
indemnification for risks in partners
consequence of management
CIVIL LAW COMMITTEE

CONTRACT OF SUB-PARTNERSHIP 3. assignee cannot interfere in the

 One formed between a member of a management or administration of
partnership and a third person for a the partnership business or affairs
division of profits owing to him from 4. assignee cannot demand
the partnership enterprise. information, accounting and
 It is a partnership within a inspection of the partnership books
partnership distinct and separate Remedies of separate judgment
from the main or principal creditor of a partner
partnership.  Application for a charging order
after securing judgment on his credit
NOTE: In the absence of unanimous to subject the interest of the debtor
consent of all the partners, a sub- partner with payment of unsatisfied
partner does not become a member of amount of the judgment debt
the partnership. Hence, a sub-partner
does not acquire the rights of a partner Redemption of interest charged
nor is he liable for its debts 1. General partnership
a) with separate property of a
PROPERTY RIGHTS OF A PARTNER partner; or
1. Right to specific partnership b) with partnership property, with
property the consent of all the partners
 contemplates tangible property whose interests are not so
 The specific partnership property charged or sold
belongs to the partnership as a 2. Limited partnership (interest of
separate juridical personality. The limited partner)
partners have no actual interest in it a) with separate property of any
until after dissolution. general partner but NOT with
 equal right with other partners to partnership property
possess specific partnership property
for partnership purposes 3. Right to participate in the
 not assignable, except in connection management
with the assignment of rights of all
partners in the same property MANAGEMENT OF PARTNERSHIP
 not subject to attachment or I. When the manner of management
execution, except on a claim against has been provided for in the
the partnership partnership agreement
 not subject to legal support
A. When a managing partner has
NOTE: Any immovable property or an been appointed
interest therein may be acquired in the 1) Appointment in the articles of
partnership name. The title so acquired partnership
may be conveyed only in the partnership a. Power is irrevocable without
name subject to the provisions of Article just or lawful cause
1819 of the Civil Code. i. to remove him for JUST
2. Interest in the partnership cause, vote of partners
 share in the profits and surplus representing controlling
 A partner actually owns his interest is necessary
ii. to remove him without just
respective share. cause or for an UNJUST cause,
there must be unanimity
Effects of conveyance by a partner of including his own vote
his interest in the partnership b. Extent of power
1. conveyance of his whole interest – i. if he acts in good faith, he
partnership may either remain or be may do all acts of
dissolved ADMINISTRATION, despite
2. assignee does not necessarily opposition of his partners
become a partner ii. if in bad faith, he cannot.

Ethics)
2) Appointment other than in the b) Unanimous consent required for

articles of partnership alteration of immovable property
a. Power to act may be revoked
at any time, with or without OBLIGATIONS OF PARTNERS TO THIRD
just cause PERSONS
b. Extent of power: as long as he I. Liability for contractual obligations
remains manager, he can perform (ART 1816)
all acts of administration, but if 1. All partners, including industrial
others oppose and he persists, he partners, are personally liable
can be removed with all their property. Their
individual liability is pro rata and
B. When two or more managing subsidiary, unless otherwise
partners have been entrusted stipulated
with the management of 2. Liability of partnership for acts
partnership of partners
1)Without specification of their a) Acts for apparently carrying
respective duties and without on in the usual way the
stipulation requiring unanimity of business of the partnership
action Act binds
Each managing the partnership.
partner may execute all acts of Partnership is
administration not bound if:
If any of the i. acting partner has in fact
managing partners should no authority and
oppose, ii. the third person knows
a) Decision of the majority that the acting partner
has no authority
of the managing partners
b) Acts of Strict Dominion or
shall prevail
Ownership (acts which are
b) In case of a tie, decision
not apparently for carrying
of the partners
on in the usual way the
representing the
business of the partnership)
controlling interest shall
Act does
prevail
not bind the partnership.
Partnership is
2) With stipulation requiring
bound if:
unanimity of action i. the act is authorized by all
Unanimous the partners; or
consent of all the managing ii. they have abandoned the
partners shall be necessary for business
the validity of the acts and c) Acts in contravention of a
absence or inability of any restriction on authority
managing partner cannot be i. Partnership is not liable to
alleged third persons having actual
When there is an or presumptive knowledge
imminent danger of grave or of the restrictions
irreparable injury to the
partnership, partner may act II. Liability arising from partner’s tort
alone without the consent of the (ART 1822) or Breach of Trust (ART
partner who is absent or under 1823)
disability 1. Where, by any wrongful act or
omission of any partner acting in
II. When manner of management has the ordinary course of business
not been agreed upon of the partnership or with
a) All partners shall be considered authority of his co-partners, loss
managers and agents or injury is caused to any person,
CIVIL LAW COMMITTEE

not being a partner in the PRINCIPLE OF DELECTUS PERSONARUM

partnership (Article 1822)  A rule inherent in every partnership
2. Where one partner, acting within wherein no one can become a
the scope of his apparent member of the partnership without
authority, receives money or the consent of all the partners.
property of a third person and
misapplies it (Article 1823) NOTE: This element of delectus
3. Where the partnership, in the personae is true only in case of a general
course of its business, receives partner, but NOT as regards a limited
money or property and it is partner.
misapplied by any partner while
it is in the custody of the MUTUAL AGENCY
partnership (Article 1823)  Partnership is a contract of “mutual
agency”, each partner acting as a
NOTE: All partners are solidarily liable principal on his own behalf, and as
with the partnership for any penalty or an agent of his co-partners and the
damage arising from a partnership tort partnership.
or breach of trust
Requisites When A Partner Binds The
III. Criminal liability of partnership Partnership
 Partnership liability does not extend 1. when he is expressly or impliedly
to criminal liability where the authorized
wrongdoing is regarded as individual 2. when he acts in behalf and in the
in character. But where the crime is name of the partnership
statutory, especially when it involves
a fine rather than imprisonment, PARTNERSHIP BY ESTOPPEL
criminal liability may be imposed  Arises when a person, by words
spoken or written or by conduct,
LIABILITY OF STOCKHOLDERS IN A represents himself or consents to
DEFECTIVELY FORMED CORPORATION another representing him to anyone,
 It is ordinarily held that persons who as partner in an existing partnership,
attempt but fail to form a or with one or more persons not
corporation and carry on business actual partners; he is liable to any
under the corporate name occupy such person to whom such
the position of partners inter se. representation has been made, who
Thus where persons associate has, on the faith of such
themselves together under articles representation given credit to the
to purchase property to carry on a actual or apparent partnership. (Art
business, and their organization is so 1825)
defective as to come short of
creating a corporation within the NOTE: Art. 1825 does not create a
statute, they become in legal effect partnership as between the alleged
partners inter-se. partners. A contract, express or implied
 Exception: One who takes no part is essential to the creation of
except to subscribe for stock in a partnership. The law considers them
proposed corporation, which was partners and the association as a
never legally formed, does not partnership insofar as it is favorable to
become a partner with other third persons. However, partnership
subscribers who engage in business liability is created only in favor of
under the name of the pretended persons who on the faith of such
corporation, so as to be liable as representation given credit to the actual
such in an action for settlement of or apparent partnership
the alleged partnership and
contribution. (Pioneer Insurance &
Surety Corporation vs. Court of
Appeals, 175 SCRA 668 [1989].)
Ethics)
DISSOLUTION debts, either before or

 Change in the relation of the after the termination of any
partners caused by any partner specified term or particular
ceasing to be associated in carrying undertaking;
iv. By the expulsion of any
on the business. (Article 1828) partner from the business
 It is the point in time when the bona fide in accordance
partners cease to carry on the with such power conferred
business together. It represents the by the agreement between
demise of a partnership. the partners;
b. In contravention of the
NOTE: The dissolution of a partnership agreement between the
must not be understood in the absolute partners, where the
and strict sense so that at the circumstances do nor permit a
termination of the object for which it dissolution under any other
was created the partnership is provision of this article by the
extinguished. (Testate of Mota vs. express will of any partner at
Serra, 47 PHIL 464, 1926.) Dissolution any time.
does not automatically result in the c. By any event which makes it
termination of the legal personality of unlawful for the business of the
the partnership, nor the relations of the partnership to be carried on or
partners among themselves who remain for the members to carry it on in
as co-partners until the partnership is partnership.
terminated. d. When a specific thing, a partner
had promised to contribute,
WINDING UP perishes before its delivery. Or
 Process of settling the partnership where the partner only
business or affairs after dissolution. contributed the use or
enjoyment of the thing and has
TERMINATION reserved ownership thereof, its
 Point in time when all partnership loss, before or after delivery
affairs are wound up or completed dissolves the partnership.
and is the end of the partnership e. By the death of any partner;
life. f. By the insolvency of any partner
or the partnership;
CAUSES OF DISSOLUTION g. By the civil interdiction of any
1. Extrajudicial dissolution (ART partner;
1830) - the parties may agree to
expand the grounds provided under 2. Judicial dissolution (ART 1831) -
Art 1830 but NOT to delimit them. when so decreed by the court, the
The causes enumerated are as presiding judge may place the
follows: partnership under receivership and
a. Without violation of the direct an accounting to be made
agreement between the partners towards winding up the partnership
i. By the termination of the affairs.
definite term or particular On application by or for any partner,
undertaking specified in the court shall decree a dissolution
the agreement; whenever:
ii. By the express will of any
partner, who must act in
a. A partner has been declared
good faith, when no insane in any judicial proceeding
definite term or particular or is shown to be of unsound
undertaking is specified; mind;
iii. By the express will of all b. A partner becomes in any other
the partners who have not way incapable of performing his
assigned their interest or part of the partnership contract;
suffered them to be c. A partner has been guilty of such
charged for their separate conduct as tend to affect
CIVIL LAW COMMITTEE
prejudicially the carrying on of b) Dissolution is by act, insolvency

the business; or death of a partner:
d. A partner willfully or persistently Authority of
commits a breach of the partners inter se to act for the
partnership agreement, or partnership is NOT deemed
otherwise so conducts himself in terminated. Thus, each partner
matters relating to the is liable to his co-partners for his
partnership business that it is share of any liability created by
not reasonably practicable to any partner acting for the
carry on the business in partnership as if the partnership
partnership with him. has not been dissolved
e. The business of the partnership
can only be carried on in a loss;
f. Other circumstances render a 1) The cause of dissolution is
dissolution equitable. the ACT of a partner and the
On application of the purchaser of a acting partner had
partner’s interest under Article 1813 KNOWLEDGE of such
or 1814: dissolution
a. After the termination of the 2) The cause of dissolution is
specified term or particular the DEATH or INSOLVENCY of
undertaking; a partner and the acting
b. At any time if the partner had KNOWLEDGE or
partnership was a partnership at NOTICE of such dissolution
will when the interest was 2. With respect to persons not
assigned or when the charging partners (third persons)
order was issued. a) When partnership is bound to
third persons after dissolution
EFFECTS OF DISSOLUTION 1) Act appropriate for winding
A. As to partner’s authority to act for up partnership affairs
the partnership 2) Act appropriate for
Dissolution terminates completing unfinished
all authority of any partner to act for the transactions
partnership 3) Completely NEW transaction
which would bind the
1. Acts necessary to wind up partnership if dissolution had
partnership affairs not taken place provided:
2. Acts necessary to complete the other party is in good
transactions begun but not then faith, meaning:
finished i. Previous creditor (had
Note: Thus, dissolution terminates previously extended
the ACTUAL authority of a partner to credit) AND he had NO
undertake NEW business for the KNOWLEDGE or NOTICE
partnership of the dissolution, OR
ii. NOT a previous creditor
QUALIFICATIONS TO THE GENERAL AND the fact of
RULE: dissolution had not been
1. With respect to the partners (in so published in a newspaper
far as partners themselves are of general circulation
concerned) b) When partnership is NOT bound
a) Dissolution is not by act, to third persons after dissolution
insolvency or death of a partner: 1) Where partnership was
General Rule applies. Hence, dissolved because it was
dissolution terminates the unlawful to carry on the
ACTUAL authority of a partner to business, except when the
undertake NEW business for the act is for winding up
partnership
Ethics)
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
circumstances as defined agreed term of the
above) partnership, by themselves
4) Where act is NOT or jointly with others
appropriate for winding up 5) To possess partnership
partnership affairs or for property should they decide
completing unfinished to continue the business
transactions b) Rights of a partner who has
5) completely NEW transaction wrongfully caused the dissolution
which would bind the 1) If the business is not
partnership if dissolution had continued by the other
not taken place with third partners
persons in bad faith i. To have partnership
property applied to
B. As to partner’s existing liability discharge partnership
Dissolution does not liabilities
ii. To receive in cash his share
automatically discharge the existing of the surplus less damages
liability of any partner caused by his wrongful
A partner may be relieved dissolution
from all existing liabilities upon 2) If the business is continued
dissolution ONLY by an agreement i. To have the value of his
between: interest in the partnership
1. Partner concerned at the time of the
2. Other partners dissolution, surplus less
3. Partnership creditors damages caused by his
Note: The consent of the partnership wrongful dissolution to his
co-partners, ascertained
creditors and the other partners to and paid in cash or secured
the novation may be implied from by a bond approved by the
their conduct. court; AND
ii. To be released from all
RIGHTS OF A PARTNER UPON existing and future
DISSOLUTION liabilities
1. Where dissolution is NOT in NOTE: The value of the
contravention of the partnership goodwill of the business is
agreement not considered in
a) To have partnership property ascertaining the value of the
applied to discharge partnership interest of the guilty
liabilities partners.
b) To receive in cash his share of
the surplus RIGHTS OF A PARTNER WHERE
2. Where dissolution is in PARTNERSHIP CONTRACT IS RESCINDED
contravention of the partnership ON THE GROUND OF FRAUD OR
agreement MISREPRESENTATION
a) Rights of a partner who has not (NOTE: The following are the rights of
caused the dissolution wrongfully the partner entitled to rescind)
1) To have partnership property 1. Right of LIEN on, or RETENTION of,
applied to discharge the surplus of partnership property
partnership liabilities after satisfying partnership liabilities
CIVIL LAW COMMITTEE

for any sum of money paid or

contributed by him DOCTRINE OF MARSHALLING OF ASSETS
2. Right of SUBROGATION in place of (Article 1839(8))
the partnership creditors after 1. Partnership creditors have
payment of partnership liabilities; preference in partnership assets
and 2. Separate or individual creditors have
3. Right of INDEMNIFICATION by the preference in separate or individual
guilty partner against all debts and properties
liabilities of the partnership 3. Anything left from either goes to the
other
MANNER OF WINDING UP
1. Extrajudicial – by the partners PARTNER’S LIEN
themselves without the intervention  Right of every partner to have the
of the court partnership property applied to
2. Judicial – under the control and discharge partnership liabilities AND
direction of the court upon proper to have the surplus assets, if any,
cause shown by any partner, his distributed in cash to the respective
legal representative or his assignee partners, after deducting what may
be due to the partnership from them
PERSONS AUTHORIZED TO WIND UP as partners.
1. partners designated by the
agreement LIMITED PARTNERSHIP
2. in the absence of such agreement,  One formed by two or more persons
all partners who have not wrongfully having as members one or more
dissolved the partnership general partners and one or more
3. legal representative of last surviving limited partners, the latter not being
partner not insolvent personally liable for partnership
debts.
ORDER OF PAYMENT IN WINDING UP
1. General Partnership (ART 1839 (2)) NOTE: The Supreme Court, declared a
a) those owing to creditors other firm to be a general partnership in a
than partners case where it appears that the inclusion
b) those owing to partners other of “Ltd.” (limited) in the firm was only a
than for capital or profits subterfuge resorted to by the partners in
c) those owing to partners in order to evade liability for possible
respect of capital losses, while assuming their enjoyment
d) those owing to partners in of advantages to be derived from the
respect of profits relation. Jo Chung Cang vs. Pacific
2. Limited Partnership (ART 1863) Commercial Co. 45 PHIL 142 [1923]). In
a) those owing to creditors, except other words if the parties intended a
those to limited partners on general partnership, they are general
account of their contribution, partners although their purpose is to
and to general partners avoid the creation of such a relation.
b) those owing to limited partners
in respect of their share of the Characteristics of Limited Partnership
profits and other compensation 1. Limited partnership is formed by
by way of income substantial compliance in good faith
c) those owing to limited partners with the statutory requirements
in respect of their capital 2. One or more general partners control
contributions the business and are personally
d) those owing to general partners liable to creditors
other than for capital and profits 3. One or more limited partners
e) those owing to general partners contribute to the capital and share
in respect of profits in the profits but do not participate
f) those owing to general partners in the management of the business
in respect of capital and are not personally liable for
Ethics)
partnership obligations beyond the 5. Transferability of interest

amount of their capital contributions
4. The limited partners may ask for the Limited partner’s General
return of their capital contributions interest is freelypartner’s
under the conditions prescribed by assignable, withinterest in the
assignee acquiring all partnership
law the rights of the limited may not be
5. The partnership debts are paid out partner subject toassigned as to
of the common fund and the certain qualifications make the
individual properties of the general assignee a new
partners partner without
the consent of
General the other
Limited partners,
Partner/
Partner/Partnership although he
Partnership
may associate a
1. Extent of liability
third person
Limited partner’s General with him in his
liability extends only to partner is share
his capital contribution personally
6. Inclusion of partner’s name in the
liable for
firm name
partnership
obligations
As a general rule, name Name of a
2. Right to participate in the
of a limited partner general partner
management of partnership
must not appear in the may appear in
Limited partner has no General firm name the firm name
share in the partners have
management of a an equal right
7. Prohibition to engage in other
limited partnership and in the
business
renders himself liable to management of
partnership creditors as the business
No such prohibition in General
a general partner if he (when the
the case of a limited partner is
takes part in the control manner of
partner who is prohibited from
of the business management
considered a mere engaging in a
has not been
contributor to the business which
agreed upon)
partnership is of the SAME
3. Contribution
kind of business
Limited partner must General in which the
contribute cash or partner may partnership is
property to the contribute engaged, if he
partnership but not money, is a capitalist
services property or partner, or in
industry to the ANY of business
partnership for himself if
he is an
4. Proper party to proceedings by or industrial
against the partnership partner
Limited partner is not a General 8. Effect of retirement, death, insanity
proper party to partner is the or insolvency
proceedings by or proper party to
against a partnership proceedings by Retirement, death, Retirement,
Unless: or against a insanity or insolvency of death, insanity
1. he is also a general partnership a limited partner does or insolvency of
partner, or not dissolve the a general
2. where the object of partnership for his partner
the proceeding is to executor or dissolves the
enforce a limited administrator shall have partnership
partner’s right the rights of a
against or liability to limited partner for the
the partnership purpose of selling his
estate
CIVIL LAW COMMITTEE
9. Creation As to third persons or creditors

Limited partnership is General guilty of estoppel, the firm shall not be
created by the members partnership, as treated as a general partnership despite
after substantial a general rule, lack of substantial compliance to the
compliance in good may be requirements of a limited partnership. If
faith with the constituted in
requirements set forth any form by
creditors deal with the firm as a limited
by law contract or partnership, they will be estopped from
conduct of the insisting that there is no such
partnership partnership, or that the terms of the
partnership were not sufficiently stated
10. Members of the partnership in the notice of its formation. (40 Am.
Composed of one or Composed only Jur. 476.)
more general partners of general
and one or more limited partners CONTENTS OF THE CERTIFICATE OR
partners
ARTICLES OF LIMITED PARTNERSHIP
11. Firm name
1. Name of the partnership, adding
Firm name must be No such
followed by the word requirement
thereto the word “limited;”
Limited 2. Character of the business;
12. Rules governing dissolution and 3. Location of the principal place of
winding up business;
Governed by Art. 1839 Governed by 4. Name and place of residence of each
Art. 1863 member, general and limited
partners being respectively
ESSENTIAL REQUIREMENTS FOR designated;
FORMATION OF LIMITED PARTNERSHIP 5. Term for which the partnership is to
1. A certificate or articles of limited exist;
partnership which states the matters 6. Amount of cash and description of
enumerated in Article 1844, which and the agree value of the other
must be signed and sworn; property contributed by each limited
2. Such certificate must be filed for partner;
record in the Office of the Securities 7. Additional contributions to be made
and Exchange Commission. by each limited partner and the
times at which or events on the
NOTE: A strict compliance with the legal happening of which they shall be
requirements is not necessary. It is made;
sufficient that there is substantial 8. Time, if agreed upon, when to
compliance in good faith. If there is no contribution of each limited partner
substantial compliance, the partnership is to be returned;
becomes a general partnership as far as 9. Share in the profits or other
third persons are concerned, in which all compensation by way of income
the members are liable as general which each limited partner shall
partners. (Jo Chung Cang vs. Pacific receive by reason of his
Commercial Co., 45 PHIL 142 [1923].) contribution;
However, a firm which fails to 10. Right, if given, of a limited partner
substantially comply with the formal to substitute an assignee as
requirements of a limited partnership is contributor in his place, and the
a general partnership only as to its terms and conditions of the
relations to third persons. The firm is a substitution;
limited partnership, subject to all rules 11. Right, if given, of the partners to
applicable to such partnership; and as admit additional partners;
between the partners they are bound by 12. Right, if given, of one or more of the
their agreement; and that all the limited limited partners to priority over
partner’s relations to his co-partners and other limited partners, as to
their obligations to him growing out of contributions or as to compensation
the relation remain unimpaired. by way of income, and the nature of
such priority;
Ethics)
13. Right, if given, of the remaining 4. Possess partnership property, or

general partner or partners to assign their rights in specific
continue the business on the death, partnership property, for other
retirement, civil interdiction, that a partnership purpose;
insanity or insolvency of a general 5. Admit a person as a general
partner; and partner;
14. Right, if given, of a limited partner 6. Admit a person as a limited
to demand and receive property partner, unless the right to do so
other than cash in return of his is given in the certificate
contribution. 7. Continue the business with the
partnership property on the
LIABILITY FOR FALSE STATEMENT IN death, retirement, insanity, civil
CERTIFICATE interdiction or insolvency of a
Any partner to the certificate general partner, unless the right
containing a false statement is liable to to do so is given in the
one who suffers loss by reliance on such certificate.
certificate provided the following  A limited partner is liable as a
requisites are present: general partner for the firm’s
1. He knew the statement to be false obligations if he takes part or
at the time he signed the interferes in the management of the
certificate, or subsequently having business.
sufficient time to cancel or amend
it or file a petition for its RIGHTS OF A LIMITED PARTNER
cancellation or amendment, he KEY: BIF2AR2
failed to do so; 1. To have the partnership books kept
2. The person seeking to enforce at the principal place of business of
liability has relied upon the false the partnership
statement in transacting business 2. To inspect, at a reasonable hour,
with the partnership; partnership books and copy any of
3. The person suffered a loss as a them
result of reliance upon such false 3. To demand true and full information
statement. of the things affecting the
partnership
MANAGEMENT OF LIMITED 4. To demand a formal account of the
PARTNERSHIP partnership affairs whenever
 A general partner in a limited circumstances render it just and
partnership is vested with the entire reasonable
control of the firm’s business and 5. To ask for dissolution and winding up
has all the rights and powers and is by decree of court
subject to all the liabilities and 6. To receive a share in the profits or
restrictions of a partner in a general other compensation by way of
partnership. income
 A general partner in a limited provided: that the partnership
partnership however has no assets are in excess of partnership
authority, without written consent liabilities after such payment
or ratification of all limited partners, 7. To receive the return of his
to: contribution provided:
1. Do any act in contravention of a) All the liabilities of the
the certificate; partnership have been paid
2. Do any act which would make it OR the partnership assets
impossible to carry on the are sufficient to pay
ordinary business of the partnership liabilities
partnership; b) The consent of all the
3. Confess judgment against the members (general and
partnership; limited partners) has been
obtained
CIVIL LAW COMMITTEE
SUBSTITUTED LIMITED PARTNER

When the return of the  A person admitted to all the rights of
contribution may be a limited partner who has died of has
rightfully demanded: assigned his interest in the
1) On the dissolution of the partnership.
partnership
2) Upon the arrival of the RAL RULE: He has all, the rights
date specified in the and powers, and is subject to all the
certificate for the return restrictions and liabilities of his assignor.
3) After he has given 6 Those liabilities which he
months notice in writing was ignorant at the time he became a
to all other partners, if limited partner AND which could not be
no time is specified in ascertained from the certificate.
the certificate their for
the return of the REQUISITES IN ORDER THAT THE
contribution or for the ASSIGNEE MAY BECOME A SUBSTITUTED
dissolution of the LIMITED PARTNER
partnership 1. All the members must consent to the
c) The certificate is cancelled assignee becoming a substituted
or so amended as to set limited partner, OR the limited
forth the withdrawal or partner, being empowered by the
reduction certificate must give the assignee
the right to become a limited
LIABILITIES OF A LIMITED PARTNER partner
1. Liability for unpaid contribution 2. The certificate must be amended in
a) For the difference between his accordance with Art.1865
contribution as actually made 3. The certificate as amended must be
and that stated in the certificate registered in the Securities and
as having been made; AND Exchange Commission
b) For any unpaid contribution
which he has agreed in the ALLOWABLE TRANSACTIONS OF A
certificate to make in the future LIMITED PARTNER
at the time and the conditions  Being merely a contributor to the
stated in the certificate partnership is not prohibited from:
2. Liability as trustee 1. granting loans to the partnership
a) Specific property stated in the 2. transacting other business with the
certificate as contributed by partnership
him, but which was not 3. receiving a pro rata share of the
contributed or which has been partnership assets with the general
wrongfully returned; AND creditors if he is NOT also a general
b) Money or other property partner
wrongfully paid or conveyed to
him on account of his NOTE: In transacting a business with the
contribution partnership as a non-member, the
limited partner is considered a non-
NOTE: These liabilities can be waived or partner creditor
compromised only by consent of all the
members; but a waiver or compromise PROHIBITED TRANSACTIONS OF A
shall NOT affect the right of a creditor of LIMITED PARTNER
a partnership who extended credit or 1. receiving or holding as collateral
whose claim arose after the filling and security any partnership property; or
before the cancellation or amendment of 2. receiving any payment, conveyance,
the certificate, to enforce such or release from liability if it will
liabilities. prejudice the partnership creditors

Ethics)
NOTES: 3. Agent can return 3. the buyer, as a

 Violation of the prohibition will give the object in case he rule, cannot return
rise to the presumption that it has is unable to sell the the object sold
same
been made to defraud partnership
4. Bound to act 4. The buyer can
creditors
according to the deal with the thing
 The prohibition is NOT ABSOLUTE, instructions of his as he please being
there is no such prohibition if the principal. the owner.
partnership assets are sufficient to
discharge partnership liabilities to PURPOSE OF AGENCY
persons not claiming as general or  The purpose of agency is to extend
limited partners. the personality of the principal
through the facility of the agent. It
AGENCY enables the activity of man which is
naturally limited in its exercise by
the impositions of his physiological
CONTRACT OF AGENCY
conditions to be legally extended by
 A contract whereby a person (agent)
permitting him to be constructively
binds himself to render some service
present in many different places and
or to do something in representation
to perform diverse juridical acts and
or on behalf of another (principal),
carry on many different activities
with the consent or authority of the
through another when physical
latter. (Article 1868)
presence is impossible or inadvisable
at the same time. (11 Manresa 434)
 The parties to the contract are:
1. Principal- one whom the agent
ELEMENTS OF AGENCY
represents and from whom he
A. Consent
derives authority; he is the
 Any person or entity having juridical
person represented.
capacity and capacity to act and not
2. Agent- one who acts for and
otherwise disqualified, may enter
represents another; he is the
into an agency.
person acting in a representative
 But as regards the party with whom
capacity.
the agent acts or contracts, the legal
capacity of the principal rather than
the agent, is of the greater import.
AGENCY LEASE OF
SERVICES
1. Principle of 1. Principle of
B. Object
representation is employment is
applied. applied.  the services to be undertaken by the
2. Extinguished at 2. Concurrence of agent
will of the principal. parties is necessary.  may cover all acts pertaining to a
3. Agent exercise 3. Employee exercise business of the principal (general
discretionary power ministerial functions agency) or one or more specific
to attain an end for only. transactions (special agency)
which he was  the extent of the agent’s authority
appointed. to act, whether it be a general or a
4. Preparatory 4. Principal Contract special agency, depends on how the
Contract
agency is couched.
AGENCY TO SELL SALE C. Cause
1. Agent receives the 1. The buyer  May be onerous or gratuitous but
goods as the goods of receives goods as
presumed for compensation
the principal. owner
NOTE: The agent may not be deprived
2. Agent delivers the 2. Buyer pays the
proceeds of the sale price. of his right to compensation by an
unjustified revocation of the agency
CIVIL LAW COMMITTEE

KINDS OF AGENCY ACTS WHICH MAY BE DELEGATED TO AN

1. as to manner of creation AGENT
a) express- one where the agent
has been actually authorized person, he may do thru another.
by the principal, either orally
or in writing; 1. Personal acts- if personal
b) implied- one which is implied performance is required the doing of
from the an act by a person on behalf of
i. acts of the principal- from another does not constitute
his silence or lack of action, performance by the latter.
or his failure to repudiate a) Voting during an election;
the agency knowing that b) Making a will;
another person is acting on
c) Making statements which are
his behalf without authority.
ii. Acts of the agent- when he required to be done under oath;
carries out the agency, or d) A member of the board of
from his silence or inaction directors or trustees in a
according to the corporation cannot validly act as
circumstances. such by proxy
e) An agent cannot delegate to
2. as to its character a sub-agent the performance of
a) gratuitous- one where the acts which he has been
agent receives no appointed to perform in person.
compensation for his services. 2. Criminal Acts or Acts not allowed by
b) compensated or onerous- law- There can be no agency in the
one where the agent receives perpetration of a crime or unlawful act.
compensation for his services. Examples:
a) An alien principal using an
3. as to extent of business covered agent to acquire lands;
a) general- one which comprises b) Persons who, because of their
all the business of the position and relation with the
principal; persons under their charge or
b) special- one which comprises property under control, are
one or more specific prohibited from acquiring said
transactions. property and cannot do so through
an agent.
4. as to authority conferred
a) couched in general terms- FORM OF AGENCY
one which is created in  Agency may be express or implied
general terms and is deemed from the acts of the principal, from
to comprise only acts of his silence or lack of action, or his
administration; failure to repudiate the agency,
b) couched in specific terms- knowing that another person is
one authorizing only the acting on his behalf without
performance of a specific act authority. (Article 1869)
or acts.
NOTE: In an implied agency, the
5. as to its nature and effects principal is still bound by the acts of the
a) ostensible or agent just as in case of express agency
representative- one where
the agent acts in the name There are no formal
and in representation of the requirements governing the appointment
principal. of an agent. The agent’s authority may
b) simple or commission- one be oral or written. It may be in a public
where the agent acts in his or private writing.
own name but for the When the law requires a
account of the principal. specific form
Ethics)
IMPLIED AGENCY BY and he did not reply to the letter

ACCEPTANCE ESTOPPEL or telegram
1. De Jure Agent 1. Not really an
agent RULE ON AGENCY BY ESTOPPEL
2. Binds the 2. Only the  One who clothes another with
principal for acts purported agent is apparent authority as his agent, and
within the scope liable. holds him out to the public as such,
of his authority.
cannot be permitted to deny the
authority of such person in good
Example: Sale of a piece of land or faith, and in the honest belief that
any interest therein through an he is what he appears to be. (Cuison
agent: vs. CA, GR.88531, October 26, 1993)
NOTES:
CLASSES AND KINDS OF AGENTS
 authority to sell must be in writing;
otherwise the sale is VOID (Art.1874) 1. Universal Agent- one employed to do
all acts that the principal may
 the sale itself should be in writing in personally do, and which he can
order to be enforceable.
lawfully delegate to another the
 The authority of an agent to execute power of doing.
a contract of sale of real estate must 2. General Agent- one employed to
be conferred in writing and must transact all the business of the
give him specific authority, either to principal, or all the business of a
conduct the general business of the particular kind or in a particular
principal or to execute a binding place, or in other words to do all
contract containing terms and acts, connected with a particular
conditions which are in the contract trade, business or employment.
he did execute. (Dizon et al. vs. CA 3. Special or Particular Agent- one
et al., GR 124741, January 28, 2003) authorized to act in one or more
specific transactions, or to do one or
FORM OF ACCEPTANCE BY AGENT more specific acts, or to act upon a
 Acceptance by the agent may also be particular occasion.
express or implied from his acts
which carry out the agency, or from
his silence or inaction according to General Agent Special Agent
the circumstances
1. Scope of Authority
Kinds of Implied Acceptance
1. Where persons are present Usually authorized to Authorized to
 Acceptance may be implied if: do all acts connected do only acts in
with the business or pursuance of
a. principal delivers his power of
employment in which particular
attorney to the agent and he is engaged. instructions or
b. agent receives it without any with
objection restrictions
2. Where persons are absent necessarily
Acceptance cannot implied from
be implied from silence of the agent the acts to be
done
1. principal transmits his power of
attorney to the agent, who 2. Continuity
receives it without any
Conducts a series of Usually involves
objection; transactions involving a single
2. principal entrusts to him by a continuity of transaction or a
letter or telegram a power of service. series of
attorney with respect to the transactions not
business in which he is involving
habitually engaged as an agent, continuity
CIVIL LAW COMMITTEE
3. Extent by which agent may bind 4. To waive any obligation gratuitously;

principal 5. To enter into any contract by which
Binds his principal by Cannot bind his the ownership of an immovable is
an act within the principal in a transmitted or acquired either
scope of his authority manner beyond gratuitously or foe a valuable
although it may be or outside the
contrary to his special specific acts
consideration;
instructions which he is 6. To make gifts, except customary
authorized to ones for charity or those made to
perform on employees in the business managed
behalf of the by the agents;
principal 7. To loan or borrow money, unless the
4. Termination of Authority latter’s act be urgent and
Apparent authority Mere revocation indispensable for the preservation of
does not terminate by is effective to the things which are under
the mere revocation terminate the administration;
of his authority authority as to
without notice to the third persons
8. To lease any real property to
third party because the another person for more than one
third person has year;
a duty to 9. To bind the principal to render some
inquire service without compensation;
5. Construction of Instructions of 10. To bind the principal in a contract of
Principal partnership;
Statement of Authority of agent 11. To obligate the principal as
principal with must be strictly guarantor or surety;
respect to the pursued
12. To create or convey real rights over
agent’s authority
would ordinarily
immovable property;
regarded as 13. To accept or repudiate an
advisory only inheritance;
14. To ratify or recognize obligations
SPECIAL POWER OF ATTORNEY (SPA) contracted before the agency;
 An instrument in writing by which 15. Any other act of strict dominion.
one person, as principal, appoints
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
on behalf of the principal. of the power of attorney or the
NOTE: It need not be notarized; except instructions as regards the agency;
where it is executed in a foreign except private or secret orders.
country, must be certified in accordance
with the Rules of Court. NOTE: The scope of the agent’s
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 agent’s
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 latter’s 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)
Ethics)
NOTES: EFFECTS OF AGENT’S ACTS

 SPA to sell does not include the 1. With Authority
power to mortgage; and vice versa. a. in principal’s name – valid;
 SPA to mortgage includes the power principal is bound; agent not
to allow the extrajudicial foreclosure personally liable unless he bound
of the mortgaged property. himself (Article 1897)
 SPA to compromise does not b. in his own name – Apply Article
authorize submission to arbitration 1883; generally not binding on
the principal; agent and
 SPA for an agent to institute any stranger are the only parties,
action in court to eject all persons in
except regarding things
the principal’s lots so that the
belonging to the principal or
principal could take material
when the principal ratifies the
possession thereof, and for this
contract or derives benefit
purpose, to appear at the pre-trial
therefrom.
and enter into any stipulation of
2. Without Authority
facts and/or compromise agreement
a. in principal’s name –
but only insofar as this is protective
unauthorized and
of the rights and interests of the
unenforceable but may be
principal in the property, does not
ratified, in which case, may be
grant any power to the agent to sell
validated retroactively from the
the subject property nor a portion
beginning (Article 1407)
thereof. (Cosmic Lumber Corp vs. CA
b. in his own name – valid, whether
265 SCRA 168)
or not the subject matter
belongs to the principal,
EFFECT OF LACK OF SPA WHERE ONE IS
provided that at the time of
REQUIRED: UNENFORCEABLE
delivery, the “agent” can
transfer legally the ownership of
When principal bound by act of agent
the thing. Otherwise, he will be
1. Agent must act within the scope of held liable for breach of
his authority warranty against eviction;
2. Agent must act in behalf of the Article 1883 does NOT apply
principal
OCCASIONS WHEN PRINCIPAL IS BOUND
NOTE: The limits of the agent’s BY THE ACTS OF THE AGENT BEYOND
authority shall not be considered THE LATTER’S POWERS
exceeded should it have been performed
in a manner 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
limited powers.
When a person NOT bound by act of
Exceptions:
another
1. Where the principal’s acts have
1. Latter acts without or beyond the contributed to deceive the third person
scope of his authority in the former’s in good faith;
name; and 2. Where the limitations upon the
2. Latter acts within the scope of his power created by him could not have
authority but in his own name been known by the third person;
(UNDISCLOSED PRINCIPAL), except 3. Where the principal has placed in
when the transaction involves a the hands of the agent instruments
thing belonging to the principal. In signed by him in blank (Strong vs.
such case, the contract is deemed as Gutierrez Repide 6 PHIL 680 [1906])
entered between the principal and 4. Where the principal has ratified the
the third person. acts of the agent.
CIVIL LAW COMMITTEE

Doctrine of Agency by Necessity 7. Not to carry out the agency if its

 By virtue of the existence of an execution would manifestly result in
emergency, the authority of an agent is loss or damage to the principal
correspondingly enlarged in order to 8. To answer for damages if there being
cope with the exigencies or the a conflict between his interest and
necessities of the moment those of the principal, he should
 Requisites: prefer his own
1. Real existence of an emergency 9. Not to loan to himself if he has been
2. Inability of the agent to authorized to lend money at interest
communicate with the principal 10. To render an account of his
3. Exercise of the additional transactions and to deliver to the
authority for the principal’s own principal whatever he may have
protection received by virtue of the agency
4. Adoption of fairly reasonable 11. To distinguish goods by countermarks
means, premises duly considered and designate the merchandise
respectively belonging to each
NOTE: Agency can never be created by principal, in the case of a
necessity; what is created is additional commission agent who handles goods
authority in an agent appointed and of the same kind and mark, which
authorized before the emergency arose. belong to different owners
12. To be responsible in certain cases for
GENERAL OBLIGATIONS OF AGENT TO the acts of the substitute appointed
PRINCIPAL: by him
1. To act with utmost good faith and 13. To pay interest on funds he has
loyalty for furtherance of principal’s applied to his own use
interests 14. To inform the principal, where an
2. To obey all lawful orders and authorized sale of credit has been
instructions of principal within the made, of such sale
scope of the agancy 15. To bear the risk of collection, should
3. To exercise reasonable care, skill he receive also on sale, a guarantee
and diligence commission
16. To indemnify the principal for
SPECIFIC OBLIGATIONS OF AGENT TO damages for his failure to collect the
PRINCIPAL credits of his principal at the time
1. To carry out the agency which he has that they become due
accepted 17. To be responsible for fraud or
2. To answer for damages which negligence
through his performance the
principal may suffer NOTE: A stipulation exempting the agent
3. To finish the business already begun from the obligation to render an account
on the death of the principal should shall be VOID.
delay entail any danger Knowledge of agent is
4. To observe diligence of a good father knowledge of principal.
of a family in the custody and
preservation of the goods forwarded 1. Agent’s interests are adverse to
to him by the owner in case he those of the principal
declines an agency, until an agent is 2. Agent’s duty is not to disclose the
appointed information (confidential
5. To advance the necessary funds information)
should there be a stipulation to do so 3. Where the person claiming the
6. To act in accordance with the benefit of the rule colludes with the
instructions of the principal, and in agent to defraud the principal
default thereof, to do all that a good
father of a family would do

Ethics)
SUB-AGENT Instances when agent may incur

 A person to whom the agent personal liability:
delegates, as his agent, the 1. When the agent expressly binds
performance of an act for the himself
principal which the agent has been NOTE: The individual liability of the
empowered to perform through his agent can be considered a further
representative. security in favor of the creditor and
does not affect or preclude the
NOTE: The agent may appoint a liability of the principal; both are
substitute (sub-agent) except when he liable
has been prohibited by the principal. 2. When agent exceeds his authority
(ART 1892) 3. When agent by his acts prevents
performance on the part of the
Instances when agent shall be principal
responsible for the acts of the 4. When a person acts as an agent
substitute: without authority or without a
1. when he was not given the power to principal
appoint; or 5. A person who acts as an agent of an
2. when he was given such power but incapacitated principal unless the
without designating the person, and third party was aware of the
the person appointed was incapacity at the time of the making
notoriously incompetent or of the contract
insolvent.
3. in these two cases the principal may FACTOR/COMMISSION AGENT
further bring an action against the - one engaged in the purchase and sale
substitute with respect to the for a principal of personal property,
obligations which the latter has which for this purpose, has to be placed
contracted under the substitution. in his possession and at his disposal.
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 principal’s 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 agent’s
on to recover from the guilty or expense;
negligent agent (ART 1217(2)) ii. He may ratify the sale on credit in
which case it will have all the
risks and advantages to him.
CIVIL LAW COMMITTEE

 If the commission agent is authorized 2. To advance to the agent, should the

to sell on credit, he shall inform the latter so request, the sums necessary
principal with a statement of the for the execution of the agency
names of the buyers. With such 3. To reimburse the agent for what the
statement, the sale shall be deemed latter has advanced (plus interest),
to be for cash as far as the principal even if the business was not
is concerned. successful, provided the agent was
 The commission agent who does not free from fault
collect the credits of his principal at 4. To indemnify the agent for all the
the time when they become due and damages, which the execution of the
demandable shall be liable for agency may have caused the latter
damages, unless he proves the without fault or negligence on his
exercise of due diligence for that part
purpose. NOTE: The agent may retain in
pledge the things which are the
BROKER object of the agency until the
 A middleman or intermediary who, in principal effects this reimbursement
behalf of others and for a and pays the indemnity.
commission or fee, negotiates 5. To pay the agent the compensation
contracts/transactions relating to agreed upon, or if no compensation
real or personal property. was specified, the reasonable value
of the agent’s services
Factorage
 Compensation of a factor or LIABILITY OF PRINCIPAL FOR TORT OF
commission agent. AGENT RULE: The principal is civilly
liable to third persons for torts of an
Ordinary Commission agent committed at the principal’s
 Compensation for the sale of goods direction or in the course and within the
which are placed in his possession or scope of the agent’s authority.
at his disposal. Reason for liability: The rule is based
upon the principle that he who does an
Guaranty Commission (Del credere) act through another does it himself.
 Fee that is given in return for the
risk, which the agent has to bear in CONDITIONS FOR RATIFICATION
the collection of credits. 1. principal must have capacity and
 An agent with a del credere power to ratify
commission is liable to the principal 2. principal must have had knowledge
if the buyer fails to pay or is of material facts
incapable of paying. 3. principal must ratify the acts in its
entirety
GENERAL OBLIGATIONS OF PRINCIPAL 4. act must be capable of ratification
TO AGENT 5. act must be done in behalf of the
 Duties and liabilities of the principal principal
are primarily based upon the
contract and the validity of the ESTOPPEL BY PRINCIPAL
contract between them Even when the agent has
exceeded his authority, the principal is
SPECIFIC OBLIGATIONS OF PRINCIPAL solidarily liable with the agent if the
TO AGENT (CARIP) former allowed the latter to act as
1. To comply with all the obligations though he had full powers.
which the agent may have
contracted within the scope of his JOINT PRINCIPALS
authority and in the name of the  Two or more persons who appoint an
principal agent for a common transaction or
undertaking.

Ethics)
 Liability: solidarily liable to the 3. Withdrawal of the agent

agent for all the consequences of the  agent may withdraw by giving
agency. notice to the principal, but must
 Requisites of solidary liability: indemnify the principal for
1. There are two or more principals damages that he may suffer by
2. The principals have all concurred reason of such withdrawal.
in the appointment of the same 4. Accomplishment of the object or the
agent; and purpose of the agency
3. The agent is appointed for a 5. Revocation
common transaction or 6. Dissolution of the firm or
undertaking corporation, which entrusted or
NOTE: Any one of them may revoke the accepted the agency.
agency
Instances when death of principal does
RULES ON DOUBLE SALE BY PRINCIPAL not terminate agency
AND AGENT 1. If the agency has been constituted in
1 When two persons contract with the common interest of the principal
regard to the same thing, one of and the agent
them with the agent and the other 2. If it has been constituted in the
with the principal, and the two interest of a third person who has
contracts are incompatible with each accepted the stipulation in his favor
other, that of prior date shall be
preferred, without prejudice to Revocation of Agency by Principal
Article 1544(double sale).
2 If the agent has acted in good faith, will of the principal, regardless of the
the principal shall be liable in term of the agreement.
damages to the third person whose
contract must be rejected. If the 1. If a bilateral contract depends upon
agent is in bad faith, he alone shall it;
be responsible. 2. If it is the means of fulfilling an
obligation already contracted;
Instances when principal is not liable 3. If a partner is appointed manager of
for the expenses incurred by the a partnership and his termination is
agent: unjustifiable; and
1. if the agent acted in contravention 4. If it is created not only for the
of the principal’s instructions, unless interest of the principal but also for
the latter should wish to avail the interest of third persons, who
himself of the benefits derived from have accepted the stipulation in
the contract; their favor
2. when the expenses were due to the
fault of the agent; Agency coupled with an interest
3. when the agent incurred them with
 An agency wherein the agent has
knowledge that an unfavorable
acquired some interest of his own in
result would ensure, if the principal
the execution of the authority
was not aware thereof;
granted to him, in addition to his
4. when it was stipulated that the
mere interest in the contract of
expenses would be borne by the
employment with the resulting gains.
agent, or that the latter would be
 The agency becomes merely a part
allowed only a certain sum.
of another obligation or agreement,
or an incidental element thereof so
MODES OF EXTINGUISHMENT OF
it cannot be unilaterally revoked.
AGENCY (EDWARD)
NOTE: However, in Coleongco vs.
1. Expiration of the period
Claparals (10 SCRA 577), the SC made a
2. Death, civil interdiction, insanity or
sweeping statement that coupled with
insolvency of the principal or of the
an interest or not, the authority (agency)
agent
CIVIL LAW COMMITTEE
can certainly be revoked for a just

cause.
TRUST CONTRACT
Implied Revocation may be effected: Always involves A legal obligation
1. By the act of the principal in owner-ship, based on an
appointing another agent for the embracing a set of undertaking
same business or transaction; rights and duties supported by a
fiduciary in consideration,
2. By the act of the principal in directly
character which may which obligation
managing the business entrusted to be created by a may or may not be
the agent; or declaration without fiduciary in
3. By the act the principal in consideration. character.
subsequently granting a special TRUST DONATION
power of attorney as regards the 1. An existing legal There is a transfer
same business to another agent, relationship and of property as well
where he had previously granted a involves the as the disposition of
general power of attorney to one separation of legal both legal and
agent. and equitable title equitable ownership
except in cases of
gifts in trust.
TRUSTS
2. The beneficiary 2. The donee must
of a trust may comply with the
TRUST
demand legal requirements
 A legal relationship between one performance of the in accepting
person having an equitable obligation without donations.
ownership in property and another having formally
owning the legal title to such accepted the
property. benefit of the trust
in public document,
CLASSIFICATIONS upon mere
1. Effectivity - from the viewpoint of acquiescence in the
formation of the
whether they become effective after
trust and
the death of the trustor or during his acceptance under
life, it may be either: the second
a. testamentary trusts paragraph of article
b. trusts inter vivos (sometimes 1311(stipulations
called “living trusts”) pour autrui).
2. Creation - from the viewpoint of the
creative force bringing them into Persons involved in the creation of a
existence, it may be either: trust:
a) Express trust - created by the 1. Trustor - the one who intentionally
intention of the trustor or of the creates a trust
parties
b) Implied trust - one which comes 2. Trustee - the person who holds the
into being by operation of law. legal title to the trust property for
This may be either: the benefit of another and with
1) Resulting trust - one in which certain powers and subject to
the intention to create a trust certain duties
is presumed by law to exist
from the transaction and facts 3. Beneficiary or the cestui que trust
of the case - the one who has the equitable
2) Constructive trust - one interest in the property and enjoys
imposed by law irrespective of the benefit of administration by the
and even contrary to the trustee. He may be a natural person
intention of the parties. It is or a legal entity. The trustor may
designed to promote justice, establish a trust with himself as the
frustrate fraud and prevent beneficiary (usual case).
unjust enrichment.
Ethics)
ELEMENTS OF EXPRESS TRUST courts will appoint a trustee to fill

1. Competent trustor and trustee; the office that he declines. (see
2. Ascertainable trust res; and Sec.3 Rule 98 of the Rules of Court).
3. Sufficiently certain beneficiaries. NOTE: But a trustee’s acceptance of the
trust is necessary to charge him with the
TRUST PROPERTY office of the trustee and the
The concept of a trust arises from or is administration of the trust and to vest
the result of a fiduciary relation the legal title in him.
between the trustee and the cestui que
trust as regards certain property- real, 2. Acceptance of the beneficiary
personal, funds or money, choses in  The acceptance by the beneficiary is
action held by the trustee. (Pacheco vs. essential to the creation and validity
Arro, 85 PHIL 505 ) of a trust. However, such
acceptance is presumed if there is
 The trust property is owned by two no proof to the contrary and the
or more persons at the same time, the trust does not impose any onerous
relation between the two owners being condition upon the beneficiary.
such that one of them is under an
obligation to use his ownership for the Requisites for a Trustee to claim title
benefit of the other. by prescription:
 The trustee is not a mere agent 1. He has performed open and
but an owner. But his ownership is a unequivocal acts of repudiation
mere matter of form rather than 2. Such positive acts of repudiation
substance, and nominal rather than real. have been made known to the
beneficiary or the cestui que trust
PROOF OF TRUST 3. The evidence thereon should be
clear and convincing and
or implied may be proved by parol or 4. The period fixed by law has expired.
oral evidence (10 years from the time that the
repudiation is made known to the
immovable property or any interest beneficiary in cases of express trust
therein. This latter requirement or resulting trust while 10 years from
however is not for validity but only for the time a constructive trust arises).
purposes of proof.
 In order that a trustee may sue or be
NOTES: sued alone, it is essential that his
 Trusts cannot be established in trust should be express, that is a
violation of law. Trust is founded in trust created by the direct and
equity such that it cannot result positive acts of the parties, by some
from a contract formed for an illegal writing deed or will, or by
purpose. proceedings in court. Rule 3, sec 3
 Neither may a trust be created for does not apply in cases of implied
the purpose of evading a legal trust that is, a trust which may be
prohibition. Example: there cannot inferred merely by the acts of the
be a trust created for the purpose of parties or from other circumstances.
obtaining homestead patents, in (PAL vs. Heald Lumber Co.)
favor of a person already disqualified
to obtain additional homesteads. NOTES:
 the 10-year prescriptive period in
Necessity of Acceptance to the case of implied trust begins to run
creation and validity of trust from the date the trustee repudiates
relationship the express trust. In the case Sps.
1. Acceptance of the trustee Pascual, et al. vs. CA, et al. GR
 The acceptance of the trustee is not 115925, August 15, 2003, it was held
necessary to its existence and that repudiation takes place when
validity since if he declines, the the adverse party registers the land.
CIVIL LAW COMMITTEE
 the 4-year prescriptive period under 2. As to proof of trust

Article 1391 applies only if the fraud An express trust over An implied trust
does not give rise to an implied an immovable property over an immovable
trust, and the action is to annul a or any interest therein or any interest
voidable contract under Article cannot be proved by therein may be
parol evidence proved by oral
1390.
evidence.
3. As regards repudiation of trust
TRUST PURSUIT RULE
An express repudiation In constructive
 Equity will pursue property that is made known to the trusts, even if
wrongfully converted by the fiduciary, or beneficiary is there is no
otherwise compel restitution to the necessary in order that repudiation, laches
beneficiary. A trust will follow the laches or acquisitive may bar an action
property through all changes in its state prescription may bar to enforce an
and form, provided its product or an action to enforce an implied trust.
proceeds are capable of identification. express trust.
IMPLIED TRUST KINDS OF IMPLIED TRUSTS

 Are those, without being express, 1. Purchase money resulting trust
are deducible from the nature of the (Article 1448) – There is a resulting
transaction as matters of intention, or trust when property is sold, and the
which are superinduced on the legal estate is granted to one party
transaction by operation of law, as but the price is paid by another
matters of equity independently of the party for the purpose of having the
particular intention of the parties. beneficial interest of the property.
 To give rise to a purchase money
RESULTING CONSTRUCTIVE resulting trust, it is essential that
TRUST TRUST there be:
1. Intention to create trust: a) an actual payment of money,
The intent of The trust is created property or services or an
the parties to irrespective of or even equivalent, constituting valuable
create a trust contrary to the consideration;
is presumed or intention of the parties b) and such consideration must be
implied by law to promote justice, furnished by the alleged beneficiary
from the frustrate fraud and to of a resulting trust.
nature of their prevent unjust
transaction enrichment. EXCEPTIONS:
2. Prescriptive period:
a) Where A pays the purchase
The 10 year The 10 year
money and title is conveyed by
prescriptive prescriptive period
absolute deed to A’s child or to a
period shall be shall be counted from
person to whom A stands in loco
counted from the time that the
parentis and who makes no express
the time constructive trust
promise, a trust does not result, the
repudiation is arises.
presumption being that a gift was
made known
intended;
to beneficiary.
b) Where an actual contrary
3. Examples:
intention is proved;
Illustrated in Illustrated in Articles c) Where the purchase is made in
Articles 1448, 1450, 1454, 1455, 1456 violation of an existing statute and
1449, 1451, in evasion of its express provision, no
1452, 1453 trust can result in favor of the party
who is guilty of fraud. (Tigno vs.
Court of Appeals 280 SCRA 262
EXPRESS TRUST IMPLIED TRUST [1997])
1. As to creation
Created by the Come into being by
intention of the parties operation of law.

Ethics)
2. Donations made to a person but the Requisites before period or

beneficial interest is vested in prescription may start in regard to
another. The donee is the trustee an action based on an implied
while the designated third person is trust:
the beneficiary. (ART 1449). a) the trustee has performed
3. Purchase with borrowed funds and unequivocal acts of repudiation
the conveyance is made to lender to amounting to an ouster of the cestui
secure payment of debt. ART 1450 ) que trust.
4. Legal title to land inherited by heir b) Such positive acts of repudiation
placed in the name of another. have been made know to the cestui
(Article 1451) que trust; and
5. Legal title to property purchased c) Evidence thereon is clear and
taken in one co-owner. (ART 1452) positive. (Vda. De Cabrera vs. Court
6. Conveyance under a promise to hold of Appeals 267 SCRA 339 [1997].)
for, or transfer to another. (ART
1453) NOTE: The enumeration is not exclusive.
7. Absolute conveyance to a person to
secure performance of grantor’s Other examples of implied trust:
obligation. 1. The registration of land under
8. (ART 1454) torrens in the name of one person do
9. Purchase of property with use of not bar evidence to show it was only
trust funds (ART 1455) held in trust for another.
10. Acquisition of property through 2. Certificate of registration of vehicle
mistake or fraud. (ART 1456). placed in the name of a person
although the price was not paid by
NOTE: An action for reconveyance of him but by another.
a parcel of land based on an implied 3. One arising from the agent’s willful
or constructive trust prescribes in violation of the trust reposed in him
ten years, the point of reference by the principal by buying for
being the date of registration of the himself the property he was
deed or the date of the issuance of supposed to buy for the principal
the certificate of title over the who designated and appointed him
property. BUT, this rule applies only to negotiate with the owner.
when the plaintiff (or person 4. In consonance with the trust fund
enforcing the trust) is not in doctrine in Corporation Law, the
possession of the property, since if a assets of the corporation, as
person claiming to be the owner represented by the capital stock, are
thereof is in actual possession of the regarded as “trust fund” to be
property, the right to seek maintained unimpaired for the
reconveyance, which in effect seeks payment of corporate creditors.
to quiet title to property, does not
prescribe.
CIVIL LAW COMMITTEE


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150 2005 CENTRALIZED BAR OPERATIONS

PARTNERSHIP contract is covered by the statute of

FORM OF PARTNERSHIP CONRTRACT NOTE: With regard to number 2 (legal

MEMORY AID IN CIVIL LAW

3. there must be mutual contribution of assignee a partner

CIVIL LAW COMMITTEE

incorporation by 10. Term of existence

2005 CENTRALIZED BAR OPERATIONS EXECUTIVE COMMITTEE AND SUBJECT CHAIRPERSONS

MEMORY AID IN CIVIL LAW

CIVIL LAW COMMITTEE

the profits which they may acquire GENERAL PARTNERSHIP

MEMORY AID IN CIVIL LAW

c) To answer to the partnership for partner and the partnership and to

MEMORY AID IN CIVIL LAW

theirs, shall be obliged, if the debtor 3. Right to associate with another

CIVIL LAW COMMITTEE

CONTRACT OF SUB-PARTNERSHIP 3. assignee cannot interfere in the

2005 CENTRALIZED BAR OPERATIONS EXECUTIVE COMMITTEE AND SUBJECT CHAIRPERSONS

MEMORY AID IN CIVIL LAW

2) Appointment other than in the b) Unanimous consent required for

CIVIL LAW COMMITTEE

not being a partner in the PRINCIPLE OF DELECTUS PERSONARUM

MEMORY AID IN CIVIL LAW

DISSOLUTION debts, either before or

prejudicially the carrying on of b) Dissolution is by act, insolvency

MEMORY AID IN CIVIL LAW

2) Where the acting partner in 2) To receive in cash his share

CIVIL LAW COMMITTEE

for any sum of money paid or

MEMORY AID IN CIVIL LAW

partnership obligations beyond the 5. Transferability of interest

9. Creation As to third persons or creditors

MEMORY AID IN CIVIL LAW

13. Right, if given, of the remaining 4. Possess partnership property, or

SUBSTITUTED LIMITED PARTNER

2005 CENTRALIZED BAR OPERATIONS EXECUTIVE COMMITTEE AND SUBJECT CHAIRPERSONS

MEMORY AID IN CIVIL LAW

NOTES: 3. Agent can return 3. the buyer, as a

CIVIL LAW COMMITTEE

KINDS OF AGENCY ACTS WHICH MAY BE DELEGATED TO AN

MEMORY AID IN CIVIL LAW

IMPLIED AGENCY BY and he did not reply to the letter

3. Extent by which agent may bind 4. To waive any obligation gratuitously;

MEMORY AID IN CIVIL LAW

NOTES: EFFECTS OF AGENT’S ACTS

CIVIL LAW COMMITTEE

Doctrine of Agency by Necessity 7. Not to carry out the agency if its

2005 CENTRALIZED BAR OPERATIONS EXECUTIVE COMMITTEE AND SUBJECT CHAIRPERSONS

MEMORY AID IN CIVIL LAW

SUB-AGENT Instances when agent may incur

CIVIL LAW COMMITTEE

 If the commission agent is authorized 2. To advance to the agent, should the

2005 CENTRALIZED BAR OPERATIONS EXECUTIVE COMMITTEE AND SUBJECT CHAIRPERSONS

MEMORY AID IN CIVIL LAW

 Liability: solidarily liable to the 3. Withdrawal of the agent

can certainly be revoked for a just

MEMORY AID IN CIVIL LAW

ELEMENTS OF EXPRESS TRUST courts will appoint a trustee to fill

 the 4-year prescriptive period under 2. As to proof of trust

IMPLIED TRUST KINDS OF IMPLIED TRUSTS