AGENCY agent must ask or bind himself to execute a juridical act,
meaning the act that will be executed by the agent on behalf
Definition 1868, 1874 and 1878 - formalities
Because a form is required for the validity or for the
enforceability of the contract entered by the agent-1878,
1874
1892 - pertain to appointment of the substitute- effect- may
the agent nonetheless be held liable for the loss that incurred
by the principal as the result of the appointment of the
substitute.
Other provisions pertain to the right and obligations of
commission agent or more importantly the guaranty
commission agent 1907 - 1908
Effect of death -1919, 1930 and 1931
Either of the agent or principal
Revocation - kind of agency - agency coupled with interest -
1927
BE: A asked her best friend to B buy for her certain
items in a grocery store. Is there a nominate contract
created between A and B?
A: Better answer, if B agreed to the request of A, an agency
relationship has been created, a nominate contract has been
created.
Alternative Answer: I can agree with the answer given by the
UP Law Center that a lease of service may have been
created so long as there was no principal agency created or
existing between A and B, although from the facts hindi ito
lease of service, bestfriend eh, good possibility, so thats why
I can agree with the alternative answer of the UP Law Center
the absence of principal agency relationship may result in a
lease of service.
Q: Im sure all of you or most of you must have been a
proxy in a baptismal or wedding ceremony, but also you
may have ask by a politician to represent in gathering
because probably he may be in another gathering in
another place, so if youve been a proxy in a wedding
ceremony or baptismal ceremony, actually accepted the
request of the real ninong or ninang then it mean an
agency relationship created between you and the actual
ninong or ninang? Or if you have accepted the request
of the politician were for you to deliver the speech in a
gathering would that result an agency relationship?
A: In both instances, no. It may appear under the definition of
agency under 1868, that there is such an agency relationship
because as defined, a contract of agency at first bind himself
to render some service or to do something in representation
or on behalf another with the consent or authority of the
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latter. So, kung proxy ka that would fall under 1868 di ba but
the definition has been criticized by some authors, one of
them is Justice Reyes, that the definition of a contract of
agency under 1868 does not contemplate social and
political representation, hindi kasama ang social
representation, political representation in order to have a
contract of agency under the New Civil Code, the purpose of
the agency must be the execution of the juridical act, the
of the principal should either create, modify or extinguish a
legal relationship between the principal and a third person.
Concretely if the agent was authorized to buy, the
act - the contract entered into by the agent with the third
person would create a legal relationship between the
principal and the third person, that would be a seller-buyer
relationship, so it is a juridical act.
On the other hand, if the agent is authorized to pay
an indebtedness of the principal to a certain person or to a
bank and he in fact paid the said amount, the result of the act
is the extinguishment of the existing legal relationship, the
legal relationship would be the debtor-creditor relationship
between the principal and third person, which would be
extinguished by the act of the agent known as payment.
Again therefore for a contract of agency to arise the
subject matter or the object of the contract must be the
execution of the juridical act, mere social or political
representative would not result to a contract of agency.
Q: If a contract well first if the instrument is titled or
denominated as with agency does it mean that there is
an agency relationship between the parties entered into
a contract?
A: Not necessarily, again the contract is not the what parties
want to call it to be, but rather how the law will consider such
contract if it is the law determines the nature of the contact
depending on the stipulation of the parties.
Q: But what if the agency was used by the parties in the
stipulation? Does it mean that it is a contract of agency?
A: Not necessarily, in Quiroga vs. Parsons the word
agency appeared about 3 times in the contract but the word
agency does not pertain to a contract of agency but it
pertains to another concept of the word agency. You can use
the word agency several times in another concept like it may
be an instrumentality like a travel agency, security agency, or
even a government agency, but their is no agency
relationship or it may pertain to exclusive right to sell in a
particular territory diba, so there is an exclusive he is
considered an exclusive agenct to sell a particular brand in
the province of Iloilo, there is actually no agency relationship
created, it is done only in an exclusive right to sell a particular
brand / product in a territory .
Distinguishing Contact of Agency from other Contract
and other Legal Relationship
Consider the characteristics of a contract of agency as a
contract and as a legal relationship business organization.
CHARACTERISTICS OF A CONTRACT OF AGENCY
Q: Real? Formal?
A: Definitely it is not a real contract and also not a formal
contract.
1. Consensual - conclude that it is consensual contract. It is
perfected by mere meeting of the minds as to the object and
consideration of the contract.
2. Principal - Why it is a preparatory contract? This is a
distinct feature of agency similar to partnership, they are both
preparatory contracts, they can stand on their own dont
depend on any other contract for their validity, which means
that even if the agent did not enter into another contract,
which means he did not perform their obligation it doesnt
mean that the contract of agency is void, he may be held
liable to such other contract for not performing his
obligations, this is an agency in problems pertaining to
agency, you should always consider the facts that normally, 2
contracts involved, you have to deal with the requisite of both
contracts, in order to enable to reach the correct conclusion,
this is the principal - agent with the contract of agency and
second contract will be the contract entered into by the agent
with the third person, this other contract may be a lease,
sale, or any other contract an act made by the agent.
As of Principal contract, it can stand on its own even if
the agent did not enter into another contract
Q: Now, is this contract similar to sale as to cause, in
that it is also essentially an onerous contract?
A: No, but it is presumed to be for compensation, presumed
to be onerous, however it may be deemed gratuitous.
Gratuitous also different from partnership, because
partnership is essentially onerous, a partner will always have
to contribute something, now after this a nominate contract -
commutative contract.
As distinguished from other legal relation, you have to go
into the feature of a contract of agency, how it is created?
Then you will know, for example that is different from other
legal relationships, which are created by operation of law like,
negotiorum gestio, agency and negotiorum gestio may be
similar in the sense that there is representation in its legal
relationship but they can be distinguished as to their manner
of creation in that agency is created by mere agreement of
the parties, negotiorum gestio created by operation of law.
A feature of agency which is peculiar is representation.
No representative in a contract - he cannot be considered as
an agent.
Nielson vs. Lepanto Minning (LM)
Held: While there was a claim by LM that there is an agency,
the SC ruled that not a contract of agency. Nielson has no
power of representation to bind LM with third person even it
has power to buy certain items he still has to obtain or seek
the opinion or approval of the BOD of the LM in order to buy
certain items, which means he is not really an agent as to
their has no right of representation.
But a feature which would make agency similar to
partnership
It is based on trust and confidence that there are fiduciary
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obligations of an agent as much as there are fiduciary
obligations of a partner unlike in sales or other legal
relationships which are not based on trust and confidence.
Another very important feature of Agency is the manner
of termination.
This is unusual for a contract that it can be
terminated at will by the principal agent, maski sino. If the
termination was made by the principal, it is called revocation.
if made by the agent it is called withdrawal.
Mariano Case
To extend the contract of one party over another - in agency
the principal has almost full control of the agent, he can give
specific instructions to the agent, on how the obligations are
to be performed, the manner of the obligations, the remedies
performed, with whom, where it is to be performed, lahat, that
would be the extent of the control of the principal over the
agent.
But as held in the case of control of one party over
another which only goes into the result, it cannot be
considered as a contract of agency but it may be considered
a contract for a piece of work.
Another important feature as to effect of delivery of the
thing
If there is a transfer of ownership upon delivery of one
party to the other party, that is not a contract of agency. In a
contract of agency, when the principal delivers the thing to
the agent, only possession is transferred to the agent,
ownership is retained by the principal (owner) in fact in
agency to sell, an agent who was not able to sell he has the
right to return the goods to the seller.
Whether there was a stipulation as to there would be no
transfer of ownership despite the delivery of the goods from
one party to another, and ownership of the goods, first party
will only be terminated upon the sale of the goods to a third
person, despite another stipulation stating that there is no
agency relationship created between the parties. The SC
ruled actually principal agent ang relationship nila.
2 concepts similar in agency and partnership Both of
them are business organizations, both are based on trust and
confidence, there would be normally a representation,
however the very important distinction between the two - in
partnership, there is a juridical personality created separate
and distinct from that of the individual partner. In agency,
despite the perfection of a contract of agency, wala sila pa
rin, the only personalities would be that personality of the
principal and the personality of the agent.
Some authors would classify contract of agency into
three:
1. Actual agency
2. Apparent / Ostensible
3. Estoppel
1. Estoppel
Kang Case
Facts: Flores appears to have full control in a restaurant
(Washington Caf) owned by Kang and in the administration
of the restaurant he bought certain items from Mack - items
needed for restaurant. But a portion / price was not paid by
Flores. So Mack (seller) went after the owner of the
restaurant. The only defense raised by the owner was that
Flores was not his agent.

Take note: It is very difficult to prove actual agency, because
an agreement between 2 persons, eh kung verbal lang ang
agreement dun, how would you be able to prove?
Held: The owner of the restaurant can be held liable by
estoppel because he clothed Flores with full power as if he
had the authority to buy those items necessary for the
administration of the restaurant. Aside from that, Mack was
able to prove pieces of evidence - like in the lease agreement
over the building where the restaurant was located and
comes the owner of the restaurant as lessee and Flores
signed as an agent of the lessee with all these the SC ruled
that the owner of the restaurant is liable under the Principle
of Estoppel.
2. Apparent / Ostensible
Rallos Case
Facts: Letter was sent by B to X, informing X that A has the
authority to enter into a contract with X specifically to obtain
goods from X, like copra, abaca which goods will be sold by
A. After the sale a portion can be deducted as a commission
and the rest to be delivered to X. After a certain period, the
goods obtained by A from X remained unpaid. In other words,
A will get the goods from X. A did not deliver the proceeds of
the sale. X demanded payment from B. The defense of B
was as of that moment from that certain period he has
already revoked the authority of the agent and therefore be
bound by any contract entered into by A in representation of
B with 3rd person. Is the claim of B tenable?
No, 1873 so far as 3 rd person are concerned, this notice itong
letter nya kay X remain in full force and effect until it is
rescinded in the same manner it was given.
Q: What if B was able to prove that he posted the notice
in Manila Bulletin - notice of fact of revocation of A. If
there was such publication of notice, would the ruling of
the SC be different?
A: No, still the same (Article 1873)
(See phraseology of 1873)
Q: What if in this problem he had actual knowledge of
the revocation even if he did not receive the letter eh
under 1873 he should be sent a letter in order that the
revocation of authority of A will be effective as to third
person?
A: If the 3rd person has actual knowledge of the revocation, it
is bad faith on his part to continue transacting with the agent.
The agent acting on behalf of the principal and thus he
should not be allowed to recover.
Pwede nabasa yung publication, informed by phone,
telephone conversation but it is very hard to prove because
the word of the principal is against the 3rd person.
3 another principal, na alam nyang was acting on his behalf.
As far as 3rd person are concerned they would have the right
to believe that the agency has the authority until they have
receive a notice in the same manner that he received notice
as to the authority of the agent.
Q: In agency by estoppel / apparent agency, is there
really an actual agency existing?
A: It does not matter, the principal can be held liable under
the Principle of Estoppel because it is very hard to prove the
existence of the actual agency. It can only be the principal in
estoppel that can be held liable. Just like in apparent /
ostensible agency sa totoo lng it is possible that he did not
revoke the authority pwede pa din diba, pwedeng kunwari
nirevoke na niya just to avoid liability to 3 rd person but that is
a matter or a claim that he already revoked. Pati mga letter,
halimbawa even assuming the principal held a letter to the
agent that letter can be easily denied kunwari, pinadala nya 3
months ago pero ngaun lng pinadala nilagay nya lng ung
date nung unang panahon. Thus, it only protects 3 rd person.
Thus, 1873 is included in the law in agency.
3. Actual Agency
The law itself classifies actual agency into as to manner of
creation, express or implied. There is no problem with
express agency.
A. Express Agency - it is a kind of agency wherein the
consent of both parties is expressly given.
B. Implied Agency - were the consent of one of the
parties was only impliedly given on the part of
principal.
Dela Pena vs. Hidalgo
Facts: Dela Pena authorized Hidalgo to administer his
properties in the Philippines, He has to leave the country.
Hidalgo managed the properties of Dela Pena, after a while
he has to leave the country also and go to Spain for health
reasons. So he appointed another person, another Hidalgo to
administer said properties of Dela Pena and wrote a letter to
Dela Pena informing him of the appointment of another
person to replace him as the administrator of his property.
Dela Pena received a letter, he did not reject the
appointment, he did not question the acts of the new
administrator. After a while he died and his heirs (Dela Pena
heirs) filed an action against Hidalgo (the 1st agent) for
accounting, damages etcetera for the period after the
appointment of the other agent.
Issues: (1) Who was then the agent during the period?; (2)
Can the 1st agent be held liable after the appointment of
another administrator?
Held: From the silence of the principal, due to his inaction,
due to his failure to repudiate the acts of the substitute, he is
thereby deemed impliedly consented to the appointment of
another person as the new agent, therefore implied agency
was created.
This goes to implied agency pertaining to the principal
because of the silence of the principal, because of lack of
action of principal, because of failure to repudiate the acts of
Q: However, is this rule applicable also to the agents or
to the other party? Concretely, if a person was asked to
administer the property of another or to sell the
property, and he said nothing - by his silence, by his
inaction, may he be deemed to have accepted agency?
A: Not necessarily, thus under the law, you have to make
distinction to determine the scenario under which the said
appointment was made, okie! The law would say when the 2
parties are absent, and when the 2 parties are present.
When 2 parties are absent - 1 is in Manila and the other is in
Cebu.
When 2 parties are present - present in the same room
(A) 2 persons present - present in the same conference
hall
Q: When both parties are within the same conference
hall, A said to B that he would sell his (B) parcel of land
in Cagayan De Oro City but that B did not react, he just
stared at the speaker, nakatingin lng sya, he said
nothing, by his silence would have deemed the agency?
A: No.
Q: But if B delivered a special power of attorney to A,
sabi nya Here is the SPA, I am authorizing you to sell
my parcel of land in Cagayan De Oro City. The SPA was
accepted by B but he said nothing, basta tinanggap na
lng nya, deemed impliedly consented to that agency?
A: Yes.
(B) If 2 persons are in different place, one in Manila and
the other one in Cebu
Q: What if A was in Manila B in Cebu. A asked B to be his
agent to sell a parcel of land and B did not say anything,
wala lng, is B considered to have impliedly consented as
an agent?
A: No.
Q: But this time again a SPA was sent by A (Manila)
through DHL to B (Cebu) which was accepted / received
by B, now he did nothing by his inaction, by silence he
is deemed to have accepted the agency?
A: Not necessarily, it will depend on the nature of the
business of B, kung ang negosyo, again under the facts in
the Special Power of Attorney he was authorized to sell the
parcels of land of A, if B was in the business of piggery /
poultry ay walang kinalaman yan sa selling of a parcel of
land. He will not be considered to have impliedly accepted
the agency. However, if B is a real estate broker, talagang
ganun yung negosyo nya di ba, buying and selling parcels of
land, then and only then on his silence, he is deemed to have
impliedly consented to the agency.
COMPENSATION OF THE AGENT
Q: As to the compensation in a contract of agency
consider again if agency is gratuitous or onerous?
A: Agency is presumed to be for compensation. If that
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principal is claiming that the agent agreed to render service
without compensation the burden is on him (the principal) to
prove that in fact it is gratuitous because the law presumes
that it is for compensation. But there is one other relevance in
this distinction - for example, due to the negligence of the
agent the principal suffered damages in the amount of 100k.
It was actually proven that the agency was gratuitous. The
agency in other words sa abogado, pro bono or libre ang
serbisyo nang agent, may the agent be held liable?
A: Of course sa abogado even if pro bono yan if he caused
damage to the principal or client due to his negligent acts, he
can be held liable. However, under the law if the contract of
agency is gratuitous in character, the court may mitigate the
liability of the agent, dahil gratuitous.
Atty. Uribes Comment: I definitely agree with the provision.
As to this, the only recognition of human nature, pag walang
sweldo mahirap mgtrabaho, in fact, mahirap gumising sa
umaga. Buti na lng nauna ang sweldo sakin ditto sa review
kaya ganado ako magsalita
Article 1909 - The liability of the agent for causing damage
to the principal due to his negligence or even bad faith or
fraud committed against the principal may be mitigated if the
agency is gratuitous in character.
BE: What is the scope of authority of the agent - whether
it only pertains to the acts of administration or acts of
strict dominion?
A: Under Article 1877, if the agency is in general term this
only comprises acts of administration. Even if the principal
beholds power to the agent or it is stated that the agent may
execute any act as may be deemed appropriate, that will still
be an agency pertaining to act of administration.
FORM OF A CONTRACT OF AGENCY
As to form, the law is clear that it may be oral however, the
law may require a particular form or specific form for
what? for the validity of agency? Is there a law which
requires a particular form for the validity of the agency?
A: Wala, there is no such form.
Q: Is there a particular form required by law for the
agency to be enforceable?
A: At least one, under the statutes of frauds if in the terms
or agreement if it is not to be performed within 1 year, it
should be in writing otherwise, it is unenforceable. The effect
of the agency if the authority of the agent it is not in writing
would go into the contract entered into by the agent with the
3rd person. 1874 and 1878 - formalities.
REQUISITES OF A CONTRACT OF AGENCY
Essential requisites of a contract of agency are like any other
contract - there are 3 essential elements:
(1) consent of the contracting parties; (2) as mentioned a
while ago, the object of a contact of agency is the execution
of the juridical act; (3) as to cause, as far as the principal is
concerned it is the service to be rendered by the agent and
as to the agent, it is the compensation to be paid by the
principal or it may just be liberality in gratuitous contract.
Rallos Case
Held: The SC enumerated the essential elements or the
alleged essentials elements of a contract of agency:
1. Consent
2. Execution of the juridical act - subject matter
3. Acts within the scope of authority
4. The acts must be in representation of the
principal
Atty. Uribes Comment: These are allegedly the essential
elements. Again, some authors would discuss in their books
that these are the essential elements. With due respect to the
ponente of this case, medyo mali mali ang enumeration, first
there was nothing mentioned about the cause or
consideration as a contract, a contract will never validly have
a cause or consideration. Well, it may be liberality, pwede
naman cause yan but there must have a cause. That the
agent act within the scope and that the agent must act in
representation are not essential elements of a contract of
agency. They are actually obligations of the agent which
means they have already perfected the contract of agency.
No obligation will arise kung void yung kontrata kung wala
pang valid contract. So the essential elements are only those
elements necessary for the validity of the contract. Once the
contract is valid then the obligations will arise.
Q: If the agent acted outside the scope of his authority,
does it mean that the contract of agency is void?
A: Of course not. He can be held liable for acting outside the
scope of his authority or if he acted not in representation of
the principal.
Q: Does it mean that there was no agency at all?
A: Of course not. There is a contract of agency. Under the
rule, there are consequences if the agent did not act in
representation of the principal.
PARTIES IN A CONTRACT OF AGENCY
Going to the consent of the parties, 1 author may
claim that there are 3 parties in a contract of agency that is
totally wrong!
There are only 2 parties in a contract of agency the
principal and the agent. However, in problems involving
agency, normally, there are three persons involved. The third
person with whom the agent transacted is no longer part of
the concept agency. The contract entered into between the
principal and the agent is the contract of agency. But when
the agent entered into another contract, it may be a sale,
lease or other contract and the 3rd person is not a party to
this contract. The 3rd person is a party to a 2nd contract.
Again the parties are the principal and the agent.
They may be called in other names the principal may also be
called the employer, constituent, chief. The agent may be
called attorney-in-fact, proxy, representative.
1. Consent of the Contracting Parties
Q: What if the principal authorized an agent who was
then 16 years old to sell a house and lot, giving him a
Special Power of Attorney. Pursuant to his mandate, the
agent (minor) sold the house and lot to X, a 3 rd person,
thereafter X filed an action to annul the contract of sale
on the ground that the agent is minor at the time of the
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sale, will the action prosper?
A: It will not prosper. On 2 grounds:
(1) In that contract of lease entered into by the agent
and the third person or the contract of sale between
the third person and the agent, while A is considered
as the seller but only acting on behalf of the principal
still the real party in the contract is the principal and
not the agent
(2) The other reason is under the rules in contracts In
annulment of contract, only the incapacitated
person has the right to have the contract annulled,
the party in the contract who is not otherwise
incapacitated has no right to institute an action for
annulment.
Either ground would be a valid ground to dismiss the
case.
2. Object of the Contract of Agency
As to the object of the contract of agency we have mentioned
already that this is the execution of juridical act.
Q: Is it correct to say that any act which a person can
lawfully do, he can delegate to a 3rd person or to an
agent?
A: Not all. There are acts which are considered purely
personal acts. This he may not delegate to an agent like
the execution of an affidavit, you cannot ask somebody to
sign on her behalf in an affidavit or even in succession you
cannot delegate the execution of a will to a 3 rd person, note
that it is execution not drafting of the will. You can ask
somebody to sign for you, under certain circumstances, but
the execution per se cannot be left to a 3 rd person, it is a
purely personal act.
Q: The right to vote may be delegated to another
person?
A: The answer is - it depends. Voting in national / local
election cannot at least be validly delegated. Well it may be
delegated, may have been delegated by other people, pero
pag nahuli ka, pag bad ka, kulong ka sabi ni Joker But in a
corporation, as for corporation can there be a valid
delegation of the right to vote? Yes. In a stockholders
meeting, this cannot happen but in a BODs meeting, in a
BOD meeting it is the personal presence of the Director
which will be counted for the purposes of quorum but for
purposes of voting, you can ask somebody to observe dun
sa proceedings. The members of the Board would normally
not exclude you as an observer, as a representative of the
other BOD.
But obviously if the person himself cannot lawfully do, cannot
delegate anyone like if the agent cannot buy a parcel of land
in the Philippines, he cannot also delegate such acts to
another person that is void sale.
FORM OF CONTRACT OF AGENCY
As mentioned earlier, agency may be oral. It doesnt matter if
the contract of agency would be valid but the parties even if it
is by verbal agreement, any effect in the verbal authorization,
the agreement between the agent and the principal if it was
only verbal will only be in the contract entered into by the
agent. Concretely, under 1874, if the agent was authorized to
sell a parcel of land and his authority is not in writing, the sale
itself is void under 1874, however, if for example, the agent
was authorized to sell a car and his authority is not in writing,
what is the status of the sale? Would that be valid and
enforceable against the principal?
A: No, it is unenforceable under 1878. San yung car sa
1878? It falls under the last paragraph of 1878 - any other act
of strict dominion would require special power of attorney. So
1878 would enumerate cases, acts of contracts where the
law requires the authority of the agent in writing, it should
have a Special Power of Attorney, otherwise the contract
entered into by the agent is unenforceable against the
Principal.
Q: Concretely, the agent was authorized to administer a
rice land. In the administration of the rice land, he had to
buy fertilizer, if he paid the sellers of fertilizer without
Special Power of Attorney, would the payment be
binding against the principal?
A: Yes because that payment is only considered as an act of
administration.
Q: However, kung na-harvest na ung palay then he used
the proceeds of the palay to pay the indebtedness of his
principal with a certain bank (PNB) without SPA, would
that payment be valid and binding as against the
principal?
A: No because that would fall under the first paragraph of
1878 to make such payment not in the matter of acts of
administration without SPA.
Other Acts / Contracts which Require a SPA
1. Entering into a compromise agreement with SPA. He
cannot submit the matter to the arbitrator without
another SPA, those are 2 and separate distinct
powers - the power to submit matters in the
arbitrator and the power to compromise.
BE: The agent of the principal entered into a contract of
lease (without SPA) with X and the period of lease is for
3 years. Would the contract of lease be valid and
enforceable as against the principal?
A: It depends on the object of the lease. If this lease involves
immovable like a parcel of land, for a period of 3 years
without a SPA, would that be valid and Binding?
Unahin natin ung car, if it would be a car for 3 years without
SPA, even if it is for 3 years this would be a valid and binding
contract of lease as against the principal. However, if this is
an immovable like a parcel of land, would this be valid
and binding against the principal? It depends on whether
in this contract of lease if the principal is the lessor or the
lessee. Under Article 1878, this contract is unenforceable as
against the principal only if: (1) in the contract of lease the
principal is the lessor; (2) the object is immovable and (3) the
period is more than 1 year. Take note of the 3 requirements.
Under 1878, it is to lease the property of the principal to
another. Therefore, if the principal is the lessee SPA is not
required, kasi ang burden wala naman sa principal, dun sa
lessor, kc property ng lessor yan di ba? Thus, the law only
required the SPA if the principal is a lessor, and the lease
contract involves immovable property and the period is more
than 3 years.
6 1. Primarily, the obligation of the agent is to carry out the
Q: Lease contract was entered into by A in
representation of B, with B as the lessor, the period of
lease of a parcel of land is 3 years. A has a SPA. May this
contract be unenforceable as against the principal?
A: Yes, it is possible if this lease is not in writing. This time
under the Statute of Frauds. Kanina ang discussion natin ay
under 1878 but if you remember the SOF, a lease over
immovable property for more than 1 year must be in writing
to be enforceable (Article 1403).
There is an author again who would claim that a Power of
attorney may be oral. He is really wrong. A power of
Attorney by its nature is in writing, by definition it is a written
authority. It cannot be called a power of attorney if it is not in
writing, in fact, if you consider the specific provision in the
agency all this provisions pertain to a power of attorney in a
written instrument. For example, Article 1871, pertains to the
delivery of a power of attorney; 1872 refers to transmittal of a
power of attorney; 1900 - power of attorney is written; 1902-
presentation of a power of attorney.
Obviously in a power of attorney, you cannot do that if it is
merely a verbal authorization. How can a third person
demand the presentation of a power of attorney if that
alleged power of attorney is verbal? By its nature, it is in
writing.
Q: Would that power of attorney be valid and binding as
against the principal if it is not in a public instrument?
A: Yes, even if a power of attorney is only in a private
instrument, the power of attorney is valid and binding against
the principal. The law does not require that it must be in a
public instrument.
Jimenez vs. Rabot
Facts: Jimenez was the owner of certain parcels of land in
Pangasinan. He was then in the province of North Luzon
when he sent a letter to his sister asking his sister to sell one
of his parcels of land. With that letter, the sister indeed sold
one of his parcels of land to Rabot. However, the sister did
not remit the proceeds of the sale, binulsa lng nya, so when
Jimenez went back to Pangasinan, he demanded the
property, yun ay na kay Rabot na, so he filed an action
against Rabot, the defense raised by him is that the letter
would not be sufficient a power of attorney to bind him as a
principal in the sale of the parcels of land.
Held: A letter suffices as a power of attorney. When you sent
a letter to your brothers or sisters you do not notarize such
letter.
OBLIGATIONS OF THE AGENT
1. To carry out the agency.
2. In carrying out the agency, there are 2 obligations of the
agent:
(a) To act within the scope of authority
(b) To act in behalf of the principal or in representation of the
principal.
3. To render an account of his transactions and to deliver to
the principal whatever he may have receive pursuant to an
agency even if it not owing to the principal.
agency. If he failed to carry out, he may be held liable.
Q: Should he carry out the agency after the death of the
principal?
A: As a rule no, because there is no one to be represented.
In fact under 1919, the agency is extinguished by the death
of the principal. However, the law provides for an exception -
if delay would impair danger for an already began but then
unfinished contract, he should continue to carry out the
agency. Again, if it would cause danger.
Q: But if he did not carry out agency, he may not be held
liable?
A: As a rule, he is liable for not carrying out the agency.
Q: So what is the exception?
A: Professor de Leon gave an example of this, if the agent
was authorized to buy a specific car from a specific person.
When the agent was about to buy the car, he was informed
by the seller that there is a defect in the brake system of the
car. Nonetheless, without informing the principal he bought
the car. If damage was caused to the principal because of the
defective brake system and a claim is filed against the agent,
can the agent invoke that he merely carried out the
agency? No, here the law is very clear that he should not
carry out agency if it would result in loss / damage in the
principal.
Another Example
An agency to buy a parcel of land before the Mt. Pinatubo
eruption. During that time, agents all over Luzon, will buy a
parcel of land not only in Metro Manila but also in Pampanga
and South CALABARZON but if the agent was given
authority and he bought parcels of land immediately after the
eruption somewhere in Porac / Bacolor Pampanga, mukhang
you can be held liable for buying those parcels of land. That
it would be a valid sale?
A: Yes, that would be a valid and binding sale as far as the
3rd person is concerned. If nakita naman na puro lahar, nakita
mo pa binili mo pa, the agent can be held liable because the
act definitely would result in loss or damage to the principal
at least for about 15 years.
2. In carrying out the agency, there are 2 obligations of
the agent, he should always remember:
(a) To act within the scope of authority
(b) To act in behalf of the principal or in representation of the
principal.
(a) To act within the scope of authority
Q: How would you know if the agent was acting within
the scope of authority?
A: You will be guided by the power of authority. In fact, as a
3rd person, you can demand the power of attorney, so that
you will know whether in fact he had authority to enter into a
contract. But sa totoo lng there are some SPAs which would
be subject of the case up to the SC pertaining to the scope of
authority of the agent.
Linal vs. Puno
Q: Was Puno authorized to sell the land or merely
authorize to administer the land?
7 There was a dissenting opinion.
A:
Atty. Uribe: Mas magaling ang dissenting opinion. Sa
phraseology ng authority ni Puno he was only to buy, to sell,
etcin the administration of land, so the buying and selling
should not be construed as a separate authority from the
administration and should be construed as a buying and
selling in relation to the administration. If you have to
administer a parcel of land, you have to buy so many things,
lalo na kapag agricultural land yan. You have to buy tools,
fertilizers, and therefore you have the authority to buy. Do
you have to authority to sell? Yes, the products of that
land. You have the authority to sell pero ung ginawa ni Puno,
binenta nya mismo yung land. When the case reached the
SC, the majority of the decision was he has the authority to
sell under the power of authority.
One of the bases of the SC in the conclusion that
there was a power to sell also because the fact that the agent
acted in good faith, that is an incredible argument, by the
mere allegation that the agent acted in good faith he
already acted within the scope of the his authority?
Parang malabo yung dalawang yun. Even if I would claim
that I thought I am authorized, does it mean therefore that I
was authorized? Those are 2 different things - believing in
good faith that you have the authority is different from in fact
having the authority.
Nonetheless, again, as a rule you can be guided by
the power of attorney but even if without the power of
attorney or despite the fact there was a specific mandate of
the power of attorney, you should be guided by specific
provisions of law whether the act is within the scope of your
authority. For example: 1881 - the agent may do such acts as
may be conducive for the accomplishment of the purpose of
agency. This particular provision has been cited by the SC in
the case of Mack vs. Kang, if a person who is an agent has
the authority to manage the restaurant, necessarily, he must
have the authority to purchase items for the management of
the restaurant - the act of buying these items, like plates,
these are reasonable and necessary for the accomplishment
of the agency.
Another Article which would help you in determining
if the act is within the scope of the authority is Article 1882.
Example of this, the principal authorized his agent to sell his
car, a specific car for 300k. The agent sold the car for 400K.
It is possible for the principal to say that you acted outside
the scope of authority, galit pa cya 300k na binebenta pero
400k nabenta. Technically, yes, the agent indeed may be
considered to have or may be claimed to have acted outside
or in excess of his authority because he told to sell the car for
300k.
Q: What is the reason that the principal would claim that
the agent acted outside the scope of his authority?
A: Many reasons: for example he asked to buy somebody to
sell his car because he expected sum money to arrive from
abroad to buy a brand new car but wala napornada, di
binigay ng kapatid yung pera. Therefore, if the car will be
sold wala na syang kotse and it is an excuse that the agent
acted outside the scope of his authority but the common
reason would be because the principal already talked to
somebody else which will really buy the car for 400k. When
you may choose this 1? Because dun sa isa, walang
commission di ba sa 1 may commission. He may not
recognize this contract.
Article 1882 - the limits of the agents authority shall
not be considered exceeded should it have been performed
in a manner more advantageous to the principal than that
specified by him. So under the law, that the act is deemed
not in extent of his authority, even on its face parang in
excess, the law will consider it as not in excess merely
because it is advantageous to the principal.
You distinguish these transactions from an agency to
sell 100 kilos of mangoes and there is a specific instruction
that the mangoes will be sold 30 pesos per kilo. If you sold
the mangoes for 50 pesos, 30 lang binenta 50 pesos per kilo
ang nangyari out of 100 kilos sisenta lng ang nabenta, 60
sisenta, 70 sitenta, so instead of 30 pesos per kilo he sold 50
per kilo. Actually, this is a violation of the instructions of the
principal kaya siguro di lahat nabenta ung mga mangga
binenta nya with a much higher price.
Another Article 1879 - the law specifically provides
that the special power to sell excludes the power to
mortgage. Even if the agent was authorized to sell, he cannot
mortgage that without another power of attorney, as much as
the power to mortgage does not include the power to sell as
mentioned a while ago the power to compromise does not
authorize for the submission to arbitration.
Q: However, if the principal authorized the agent to
borrow money without the authority of the principal can
the agent himself be the lender?
A: The law provides yes, as long as the interest rate will be
the market rate, so the agent may be the lender.
Q: The agent was authorized to lend money of the
principal, may the agent himself be the borrower of the
money without the consent of the principal?
A: This time hindi na pwede. He may be a good agent to lend
the money to other person but he may not be a good debtor.
Thus, the law would protect the principal in that case.
But also, be guided by the decision of the SC as to the extent
of the authority of the agent. For example in the case of
Insular Drug vs. PNB
Facts: The agent here was authorized to collect sums of
money including checks from the client of Insular. So may
agent ang Insular. He did collect the sums of money and the
checks, and the checks were payable to Insular but instead
of delivering the checks in the Insular, he encashed the
check or deposited the checks in his account in PNB.
Issue: Does the authority to collect the checks includes the
power to indorse the checks or even the power to encashed
the check?
Held: No, the power to collect does not include the power to
indorse or the power to encash the checks. So kasalanan ng
PNB kung bakit nila tinanggap ung check without the proper
indorsement samantalang ang payee ay Insula. Hindi naman
si agent.
8
Atty. Uribe: In fact, the money involved here is 18,000 and I
would still remember na Philippine Reports pa itong case.
The agent (Mr. Foster) committed suicide when that fraud
was committed. Sabi nung isang nagbasa for sure ahead pa
sa akin, encircle nya 18,000, gago naman ito 18,000 lng
maliit lng ang amount. But there was another guy,
sumunod dun sa isa, sinagot nya, mas gago ka 1932 pa eto
eh
Q: The obligation to act on behalf of the principal - If the
agent acted for himself and did not disclose his
principal, would that 3rd person has a cause of action
against the principal?
A: No.
Q: Would that principal have a cause of action against
the 3rd person?
A: Wala din. But there is an exception in this rule if the object
involved in the contract entered into by the agent and the 3 rd
person belongs to the principal - the law grants / gives a
cause of action to the 3 rd person against the principal and
vice-versa. It is because of the possible collusion between
the principal and the agent di ba, so that sasabihin ng
principal alam ko yang kotse na yan sira sira na makina (may
katok). Thus, in actual case the SC said, the vehicle has a
knock , SC decicion yan! Hehehehehe Kasi may katok
ang kotse, the principal would agree with the agent just to
sell it by yourself in your own name so that if there would be
a complaint the 3rd person has no cause of action against me
and the principal. But to avoid such possibility the law would
grant a cause of action to the 3rd person if the object of the
contract belongs to the principal.
BE: A authorized B to borrow sum of money from any
bank and he also authorized B to mortgage a specific
parcel of land to secure that loan. What B did, he
borrowed money for himself from a certain bank without
disclosing his principal. Later on, he defaulted. Can the
bank go after the principal?
A: Of course no, the contract is between the agent and the
bank only. The principal has nothing to do with the contract.
Under the facts, the agent borrowed for himself.
However, if you have read the suggested answer,
may 2nd paragraph - to the effect that the bank can at least
foreclose the mortgage they can. If you remember the
question, di tinatanong ng examiner can the bank go after the
principal as far as the thing is concerned. The only question
pertains to the payment of loan.
Another thing in the suggested answer which is
totally wrong - under the facts, the principal authorized the
agent to mortgage the property for the loan that will be
obtained by the agent in the name of the principal. If indeed
he mortgaged the land for a loan in his name, would that
mortgage be valid?
A: Definitely not. If he mortgaged it as a mortgagor the
mortgage is void. The law requires that the mortgagor must
be the absolute owner of the thing mortgaged. On other
hand, even if the agent mortgaged the thing on behalf of the
principal, the principal is the mortgagor. Would that be a
valid and binding mortgage as against the principal?
A: Also not. His authority to have the property mortgaged to
secure a loan, not to secure any other persons loan and that
therefore it cannot be within the authority of the agent and
therefore any foreclosure of such mortgage will not prosper.
Q: If the agent acted within the scope of his authority
and in representation of the principal, who will be bound
in such contract?
A: Aside from the 3rd person, it will be the principal because
again the agent is merely representing the principal.
Q: However, is it possible for the agent himself to be
bound in such contract or be held liable under such
contract?
A: Yes. If he expressly binds himself to that contract, why he
would do that? Agent lang naman sya, when he would bind
himself personally / expressly? In the very nature of the
agency the 3rd person actually knows that it is the agent and
not the principal. Ang nakikita lang ng 3 rd person sa palengke
eh ung nagtitinda baka ung principal nasa espana.
Therefore, the 3rd person to whom a thing is offered for sale
for example the agency to sell, the 3 rd person will say that I
will buy that if you also bind yourself as one of the sellers
because I dont know the principal. Eh ang agent gusto
kumita, sige na din di ba. He will bind himself personally in
the contract as a seller and not as an agent.
The agent may be held liable in the contract even if
he acted within the scope, acted in representation of the
principal, he acted negligently or in bad faith di ba.
Article 1909 is consistent also on the law on
obligations that every person who is guilty of fraud,
negligence, etc.. will be held liable for damages.
But aside from these 2 scenarios, of course, the agent may
be held liable if he acted beyond the scope of authority. Also,
if he acted beyond the scope of his authority, however, he
may not be held liable under such contracts and under
certain circumstances:
(a) The principal ratified - then the principal will be held
liable and be bound on such contract.
(b) Even if the principal did not ratify, if the 3 rd person
was notified of the fact that the agent was in excess
of his authority or even if he was not notified, he was
aware of the fact that the agent was in excess of his
authority, the agent will not be held liable because
under 1898 that contract is void. So this contract
being void, the third person cannot hold him liable
for acting within the scope of authority.
3. One important obligation of an agent is to render an
account of his transactions and to deliver to the
principal whatever he may have receive pursuant to an
agency even if it not owing to the principal.
In fact, any stipulation exempting him from this obligation to
render an accounting is void.
Domingo vs. Domingo
Facts: The relationship between the principal and the agent
was not mentioned in this case but the agent Domingo was
authorized to sell a property of the principal Domingo but in
pursuant to this authority, he introduced a perspective buyer
to the principal Oscar de Leon. Oscar, just any other
9
prospective buyer wanted the price to be lowered. So he was
asking that the price be lowered. During the negotiation, this
Oscar de Leon bid 1,000 to the agent, which amount the
agent did not disclose to the principal. However, may
violation na ng obligation ang agent. The principal on the
other hand, somehow to only accommodate the demand of
the prospective buyer, nakaisip ng paraan, what he did, he
had an agreement with the prospective buyer that kunwari
the sale would no longer push through so they have this
drama that the prospective buyer was expecting money from
abroad and therefore the principal would have a reason to
the agent na hindi na matutuloy ang agency and therefore I
am revoking your authority as an agent.
Thereafter, the agent discovered that something is
wrong with what happened. He went to the register of deeds
and he discovered that in fact a sale was executed between
Domingo and Oscar de Leon. The agent demanded for his
commission. May sub agent pa sya dahil inintroduce cya kay
Oscar, did the action prosper?
Held: No, the SC ruled that for the failure of the obligation to
deliver to the principal for whatever he may have received
pursuant to the agency, even if that is not only to the
principal, that is a breach of fiduciary relation which resulted
in not giving the agent his commission. But is the 1,000
important? Supposedly, parang 10,000 ang marereceive
nya as commission?
A: The answer would be yes because why would the
prospective buyer give 1,000 sa agent? hindi dahil mahal nya
ang agent?! That would be because he wanted the agent to
continue with the principal to lower the price of the thing
which would be sold, which is inconsistent with the interest of
the principal. As an agent of the principal, he is supposed to
protect the interest of the principal not to lower the price to be
paid by the buyer. If only for this the SC will not dismiss the
case. In fact, ginawa pa syang liable for the share of the sub-
agent.
Obligation to deliver to the principal what he may have
receive
In fact this obligation is so serious. If the agent would fail to
perform this obligation, he may be imprisoned.
US vs. Reyes
Facts: The agent was authorized to collect sums of money
for convenience of the principal. More or less 800 lang yun or
800+ is the amount to be collected. Now he was able to
collect only 500 instead of 800. He claimed that he is entitled
to 20% as a commission (20% of 800 is 160). So hee only
remitted 340 to the principal, because of that the principal
demanded a greater amount than the 340. A criminal
complaint was filed (for estafa).
Held: Regardless of the commission whether 10% or 20%,
the agent was not entitled to retain 160 because even if 20%
the 20% of the 500 and he is not entitled to the 20% of 800.
The commission should be based on the actual amount he
collected not the total amount which he is supposed to
collect. And because of his failure to deliver 400 to the
principal he was convicted.
Obligation to render an accounting
Q: The principal authorized the agent to sell a car for
300k, the description of the car was mentioned in the
SPA. However, before the agent would sell the car, the
principal called him by phone and instructed him to sell
the car in QC to a member of IBP chapter. Instead of
selling the car in QC to an IBP member, he sold the car
in Manila to a person not known by the principal for
300k.
(1) Can the principal recover the car from the buyer if
that car is already delivered to the buyer?
(2) Any remedy provided by the law to the seller or to the
principal?
A: (1) It depends, if that buyer has no knowledge of that
instruction of the principal then he has all the right to retain
the car and that sale will be valid and binding as against the
principal. As provided under Art. 1900 so far as 3 rd persons
are concerned they only rely on the SPA as written. They
have no obligation to inquire on the special instructions made
by the principal which are not mentioned in the SPA, eh wala
naman dun sa SPA na it will be sold to an IBP member
chapter in QC.
(2) To go after the agent for damages, if there is any damage
sustained by him for his failure to follow the instructions of
the principal.
Article 1898 - if the agent acted outside the scope of his
authority and this was known to the 3 rd person the contract is
void. Take note by the specific provision of the law this
contract is void and subject to ratification. This is only the
void contract which can be ratified under Article 1898.
Q: Is it possible that the agent be held liable to the 3 rd
person even if the 3rd person was aware of the fact that
the agent was in excess or outside his authority?
A: Yes, if the agent promised to obtain the ratification of the
principal and failed to obtain the ratification. Nagkwento sya
sa 3rd person
you know I was acting in excess of my authority, but dont
worry I will get the ratification of my principal. If he failed to
get the ratification of the principal he will be held liable not
because of the contract itself is void but because of failure to
get the ratification of the principal. If the principal ratifies the
contract, he cannot be held liable even if it is a void contract
because the principal is bound to the contract.
APPOINTMENT OF SUBSTITUTE
Another possible obligation of an agent may result from an
appointment of substitute
BE: X appoints Y as his agent to sell his (X) products in
Cebu City. Can Y appoint sub-agent? And if he does
what are the effects of this appointment?
A: Yes, the agent may appoint a substitute or sub-agent, if
the principal does not prohibit him in doing so. But he shall
be responsible for the acts of the substitute (because he was
not given authority by the principal) especially if one
appointed turns to be incompetent or insolvent.
Atty. Uribe: Is this correct?
Mukhang mali. Mukhang confused ang sagot. Ang tanong
sub-agent? Can Y appoint sub-agent? Yes, the agent may
appoint substitute or sub-agent which means apparently
there is no distinction between a sub-agent and substitute.
10 due respect to the answer of the UP Law Center,
With
Professor de Leon is really good on this matter, a sub-agent
is very much different from a substitute.
If it is in replacement (kapalit) that is a substitute
which means that the agent would be disassociating himself
from the agency (Aalis na sya or lalabas na sya ng Pilipinas
etc.) and somebody else must take over his functions.
An agent who appoints a sub-agent will continue to
be an agent in that agency relationship. He does not
disassociate himself from the relationship. He is still the
agent and therefore all the rights and obligations would still
be there even if he appointed a sub-agent. But if the agent
appointed a substitute, the answer will depend on Art 1892.
Kung ang tanong ay substitute and during the
management of the business by the substitute, losses were
incurred by the principal, mask isang taon pa lng ang
substitute 2M was incurred by the principal, may the
principal hold the agent liable? Iba ung can the principal
hold the substitute liable?
A: The first thing you have to consider is if he was prohibited
in appointing a substitute or not. If he was prohibited he will
be held liable because he appointed 1 despite the prohibition.
In fact, under the law all acts of the substitute appointed, if it
is against the prohibition, such acts are void. If he was not
prohibited under the law, he shall be responsible for the acts
of the substitute under certain circumstances. Take note that
the operative word here is responsible and not liable. You
may be responsible - there are consequences.
If he was not prohibited there are 2 scenarios:
(1) Not prohibited but he was neither given the power to
appoint or
(2) He was not prohibited precisely because he was given
the power to appoint.
Kung he was not prohibited he but he also lacks the power to
appoint, ang scenario dito wala lng namention sa SPA so
nothing was mentioned in the SPA regarding the appointment
of the substitute. Ang ibig sabihin nun he was not prohibited
and he was neither given the power to appoint. If that is the
case will he be liable necessarily because of losses
which were incurred by the principal?
A: Hindi naman. If the substitute acted within the scope of
authority in representation of the principal and the substitute
acted in good faith with the diligence of a good father of the
family, nonetheless losses were incurred by the principal -
Pwede bang mangyari un? Yes, ang negosyo ay negosyo
kahit na napakagaling mo pang negosyante kung palugi na
talaga negosyo, there are forces beyond the control of every
person. To be factual about this kapag ngcoconstruct ng LRT
halimbawa sa Aurora boulevard, during the construction
stage ilang taon yan 2 or 3 years, sa tingin nyo kung may
restaurant pa dyan buhay pa ba? Wala na kakain dyan
puro alikabok na.
As long as he acted within the scope of his authority,
in representation of the principal and he acted with good
faith, the agent cannot be held liable. He is responsible for
the acts of the substitute and if the substitute acted within the
scope of authority di ba. This is consistent to the principle of
agency - that the agent is not the insurer of the success of
the business of the principal. Otherwise, wala na mag-a-
agent dahil kapag nalugi liable sya.
However, if in the management of the business of
the principal losses were incurred because the substitute
misappropriated the income of the business or acted with
gross negligence, mga once a week lng nya dinadalaw ang
business, if that is the case, the agent will be responsible for
the acts of the substitute and he may be held liable for the
losses incurred by the principal because the substitute acted
negligently, outside the scope of the authority and in bad
faith.
However, if the agent was given the power to
appoint, there may be 2 scenarios:
(1) The person to be appointed as the substitute may have
been designated or (2) the person to be appointed was not
designated.
Sabi ng principal ok you can appoint a substitute
but if you will appoint a substitute, appoint Pedro. If the
agent appointed Pedro, would he be held liable for the
losses incurred by the principal coz of the acts of
Pedro?
A: Hindi naman. The substitute was designated because the
principal said that he should appoint Pedro kaya inaapoint
nya si Pedro but this should be subjected to the provision of
agency that he should not carry out the agency if such would
manifest loss or damage to the principal.
Example
At the time of the appointment, the agent was at that time
fully aware that the person was notoriously incompetent. He
should have at least informed the principal that the substitute
is notoriously incompetent. If he failed to do so having the
opportunity to inquire, then he can be held liable.
If the person to be appointed was not designated, he
will only be liable if the substitute turns out to be notoriously
incompetent or insolvent. (Article 1892).
LIABILITIES OF 2 OR MORE AGENTS
Q: If the principal appointed 2 or more agents for a
certain transaction, what would be the nature of their
liability? Can they be held liable jointly or solidarily?
A: Agents can only be held jointly liable unless they expressly
bound themselves solidarily.
But in fact, even if they bound themselves solidarily and
damage was incurred by the principal due to the act of one of
the agents, it is still possible that they may not be held
solidarily liable despite that there is an express agreement, if
that agent who caused damage to the principal acted outside
the scope of his authority.
Commission Agent
Authorized to sell and he would have a commission as to the
price.
Q: If the agent sold a refrigerator on credit without the
consent of the principal pag on credit, he can still sell
it at a higher price. Kung normally 10k ang sabi ng
principal, he may be able to sell it at 15k pero 4 gives. If
11
payable every other month, the next day after the sale,
the principal having been informed of the sale, he
demanded for the proceeds of the sale. Can the agent be
compelled to pay or deliver the proceeds of the sale
kahit hindi pa nya na-collect?
A: Yes, he can be compelled to deliver the proceeds as if it
was sold on a cash basis because he sold it on credit without
the consent of the principal.
Q: How much would the commission agent deliver if he
was able to sell it at 15k, payable in 4 months but under
the agreement of the principal and the commission
agent, it should be sold only at 10k? (Assuming that the
agents commission is 10%)
A: He should deliver 9,000 to the principal (10,000 x 10% =
1,000 commission... 10,000 1,000 = 9,000)
Q: What if 4 months after, he have already collected 15k,
can the principal claim di ba you only gave me 9k which
is based on the 10k price but you were able to sell it at
15k, so I should get 90% of the 15k. Is that a valid
claim?
A: No, under the law, if the commission agent sold the thing
on credit without the consent of the principal, he is entitled to
any profit which he would derive from such obligation.
Q: If he was obliged to collect or sell 10 refrigerators but
he was able to sell only 1 refrigerator, can he be held
liable for not selling the remaining refrigerator?
A: Normally, he would be because that is failure to comply
with his obligations as an agent. But he has a defense
exercise of the diligence required. If there was no law or
stipulation, it will be diligence of a good father of a family. The
fact that he was able to prove that he exercised the diligence
of a good father of a family xxx nonetheless, he was not able
to sell, he can no longer be held liable. Again, he is not the
insurer of the success of the principal.
BE: The agent was authorized to sell 20 units of
refrigerator. He received in addition to his commission, a
guaranty commission. He was able to sell the
refrigerators and received his guaranty. However, the
buyer failed to pay the price of these refrigerators. The
principal demanded from the agent the money which he
could have delivered to the principal as a guaranty
commission agent. The defense raised by the agent is
that he has no obligation to collect the price. The agent
said that his only obligation is to sell the refrigerator. Is
that correct?
A: No, as he received a guaranty commission, he is known
as a guaranty commission agent. He is also known as del
credere agent and as such, he bears the risk of collection.
OBLIGATIONS OF THE PRINCIPAL
(1) To comply with the obligations which the agent may have
contracted within the scope of his authority and in
representation of the principal.
(2) Obligation to advance the money necessary for the
accomplishment of the purpose of the agency.
(3) Obligation to Reimburse
(1) To comply with the obligations which the agent may
have contracted within the scope of his authority and in
representation of the principal.
This is the main obligation of the principal.
If the agent acted outside the scope of his authority, the
principal may not be bound to such contract. But even if the
agent acted beyond or outside the scope of his authority, the
principal may be bound if:
1. He ratified
 2. He contributed to deceive the 3 rd person into
believing that the agent acted outside the scope of
his authority (estoppel). The principal and the agent
will be solidarily liable.
3. When the 3rd person could not have known of the
limitations on the power of the agent (Example:
Verbal limitation)
Article 1900 the third person will only have to rely on the
power of attorney as written.
(2) Obligation to advance the money necessary for the
accomplishment of the purpose of the agency.
The principal, unless otherwise stipulated or unless the he is
already insolvent, must advance the money. Even if the
agent bound himself to advance, if the principal is already
insolvent, he need not advance the sum of money kasi wala
ng mag-re-reimburse sa kanya.
(3) Obligation to Reimburse
G.R.: The principal
Exc: 1918
a. If the agent is acting in contravention of the
instructions of the principal.
Example: He sold items in Cebu instead in Cagayan.
However, if the principal wants to avail of the
benefits derived by the agent, the principal will be
obliged to reimburse.
b. Agent was at fault
TWO OR MORE PRINCIPALS APPOINTED AN AGENT
Q: An agent was appointed to a single and common
transaction and damage was incurred by the agent.
What is the nature of the liability of the principals?
A: Solidary.
Q: Ayce was authorized to lease a specific property
(warehouse). She entered into a lease contract with
Dian. However, the principal (Chato) also entered into a
contract of lease over the same property with another
person named Gerard. Which contract will be
recognized?
A: Based on priority in time, priority in right. The prior date
should prevail. Take note that this is a lease of property.
In sale, priority in time is not applicable. See Article 1544
(double sale).
Q: What if the person filed an action for damages
against both principal and agent, who will be liable?
A: G.R.: The principal
EXC.: If agent acted in bad faith (incompatible
contracts)
MODES OF EXTINGUISHING AGENCY
12 xpiration of the period
E Facts: The agent was a brother of his two sisters. He was
D eath, civil interdiction, insanity
W ithdrawal
A ccomplishment of purpose
R evocation
D issolution of the entity
Q: Is this enumeration exclusive?
A: No, the other modes of extinguishing obligations are
equally applicable to agency. Example: mutual dissent, loss
of the thing due to fortuitous event.
BE: Ariel authorized Jessica to sell a pendant with a
diamond valued at 5k. While Jessica was on her way
home, 2 persons snatched the bag containing the
pendant. Thus, Jessica was not able to sell the pendant.
Ariel sued Jessica. Jessica raised the defense that
robbery is a fortuitous event and therefore he cannot be
held liable for the loss of the pendant. Ariel claimed that
before Jessica could invoke fortuitous event, there has
to be conviction of the perpetrators of the crime and
even though this is a fortuitous event, there was
negligence on the part of Jessica in walking alone with
that pendant. Decide.
A: The case is identical to Austria vs. CA. As to the
contention of Ariel, conviction is not required. Preponderance
of evidence is sufficient. Jessica cannot be held liable
because walking alone is not a negligent act.
Atty. Uribes Comment: The answer is erroneous. In the
case of Austria which was decided on June 10, 1971, the
incident happened in the 60s. The SC said, we cannot
consider the agent negligent in going home alone. SC said
that if the incident happened today (referring to year 1971),
the agent can be held liable for concurring negligence,
considering the crime rate.
Problem Areas in Extinguishment
BE: What is the effect of the death of the agent?
A: G.R.: The agency is extinguished (Article 1919).
EXC.: Article 1930 if the agency was constituted for the
benefit of both parties or for the benefit of a third person who
accepted the benefit, then that agency shall continue even
after the death of the agent.
BE: P authorized A to sell a land (14 hectares). In 1950,
before A could sell, P died. After P died, in 1954, the
heirs sold the land to X. In 1956, A sold it to Y. Who has a
better right?
A: If A has no SPA, this sale is void under Article 1874. X
would have a better right. If there was a SPA, it depends if A
has knowledge of the death of P or if he was in good faith. If
A has knowledge of the death, X has a better right. If Y is in
bad faith (he knows of the death of P), X has a better right.
Under Article 1931, the act of an agent after the death of the
principal will be valid if he had no knowledge of the death of
the principal and the third person is in good faith.
Q: What if A has no knowledge and Y is in good faith?
A: This will be incompatible contracts. Apply Article 1544.
Rallos vs. Felix
authorized to sell the land. The brother sold the land only
after the death of one of the sisters. He sold it to Felix. The
administrator of his sister filed an action to recover the
property.
Issue: What is the effect of the death of one of the principals?
Held: As to the surviving sisters portion, it is valid and
binding. But as to the deceased sister (Article 1919), the
authority of agent was terminated after the death. But if agent
has no knowledge of the death it is valid. But obviously, the
brother had knowledge of the death of her sister.
Note: Civil interdiction accessory penalty (more than 12
years penalty)
Revocation
It is an act of the principal. The principal can revoke the
authority of the agent at will at any time.
Q: Would this be correct if the parties agreed for the
period of agency? Can the agent hold the principal liable
for breach of contract?
A: Baretto vs. Sta. Maria the principal can revoke anytime
even when there is a period agreed upon because agency is
based on trust and confidence.
the agent which is commission and must be stated in the
SPA.
Q: If agency coupled with interest possible that it
could be revoked?
A: SC said in Collongco Yes, if the revocation was with a
just cause. In the case of Collongco, there was a just cause
because the agent committed acts contrary to the interest of
the principal. Collongco attempted to ask the superintendent
of the factory to destroy the machinery by pouring acid. Agent
also sent derogatory letters to banks where Claparol applied
for a loan. The agents motive is because he had an
agreement with another person (Mr. So) that they wanted to
take over the business of Claparol.

Q: If he has the power to revoke, may the principal be

held liable?
A: Yes because even in the exercise of a right, it must be
exercised in good faith. If there is abuse of right, the liability
would be under the provisions on human relations.

Domingo vs. Domingo

The reason of the principal is that in order for him to avoid
payment of commission, that revocation is a bad faith
revocation. However, in this case, the agent is also in bad
faith.

BE: A sold a land to B at 100M. They agreed that it will be

paid in 10 years. The seller reserved title over the land.
In order for B to pay the price, A constituted B as his
agent for the development of the land subdividing the
land, constructing houses and selling the house and lot.
Proceeds to be delivered to the seller who is also the
principal as payment of the price in the sale of land.
However, in the 5th year, the principal revoked the
authority of the agent. Was the revocation valid?
A: Not valid, because this is an agency which is coupled with
interest. Here, (1) a bilateral contract depends upon the
agency and (2) the agency is the means of fulfilling an
obligation which has already been contracted.

Atty. Uribe: #2 is correct but #1 is not applicable to the

problem. Ang mas applicable is the case of Collongco vs.
Claparol.
Facts: Claparol was the owner of a nail factory and he
needed additional capital. Collongco offered to advance the
money needed by Claparol only on the condition that he will
be constituted as agent for some aspects of the business
(example: agent for advertisement). Partnership
Held: From that arrangement, it is clear that a bilateral
contract depends upon the agency. Bilateral contract which is
13 contract of loan. He would not have advanced that BE: Chato, using all his savings in the total amount of
the
2,000, decided to establish a restaurant. Faye, however,
money, had he not been constituted as an agent by Claparol.
gave 4,000 as financial assistance with the agreement
These contracts are considered agency coupled with interest.
that Faye will have 22% share of the profits of the
business. After 22 years, Faye filed an action to compel
Note: The SC said that for an agent to claim that the agency
Chato to deliver to her the share in the profits claiming
is coupled with interest and hence cannot be revoked by the
that she was a partner. Chato denied that Faye was her
principal, the interest must not be the usual compensation of
partner. Is Faye a partner of Chato?
A: Yes, Faye was a partner in the business because there
was a contribution of money to a common fund and there
was an agreement to divide the profit among themselves.
Atty. Uribes Comment: I do not agree with the answer. Id
rather agree with the alternative answer. WHY? In the
alternative answer as can be seen from the facts, Faye gave
4,000 only as a financial assistance. It was not a contribution
to a common fund. As such, she actually became a creditor
of Chato. Therefore, she did not contribute to a common
fund.
Q: What about the stipulation that Faye will have 22%
share of the profits?
A: The law on partnership is very clear that a sharing in the
profits does not necessarily result in a partnership contract
because the sharing of the profits may only be a way of
compensating the other person, in fact that can be a mode of
payment of the loan. Kasi yung loan, supposedly pwede
payable every month with a fixed amount. But mas maganda
ang agreement na ito, 22% of the profits, so that if walang
profit sa isang taon, wala munang bayad. Di ba thats
reasonable agreement. Only kung may profit, saka lang
babayaran. Kumbaga, friendly loan ito. The sharing in the
profits as expressly provided by law does not necessarily
result in a partnership contract. Thus, it can be said that
really Faye was not a partner but is actually a creditor of
Chato.
DEFINITION OF PARTNERSHIP
Q: What if two or more persons agreed to put up a
partnership but they never intended to divide the profits
among themselves, would that still be considered a valid
partnership contract?
A: Yes, under the second paragraph of the article, two or
more persons can form a partnership for the exercise of a
profession.
Partnership vs. Co-ownership
Consider the essential features:
Creation:
Partnership is obviously created by agreement. Co-
ownership may be created by agreement, but it may also be
created by operation of law. In fact, by express provision of
the law, the fact that there is co-ownership does not
necessarily mean that there is a partnership existing between
two persons.
Example: Two persons may inherit a property from their
father or mother, and under the law, they may be considered
as co-owners of the same property.
Purpose:
Partnership: either to divide profits or exercise a profession.
Co-ownership: Common enjoyment of the thing or right
owned in common; merely to enjoy the property, thus they
14 have different purposes.
may
A very important feature of partnership in relation to co-
ownership: it has a juridical personality, separate and distinct
from the individual partner which is obviously not present in
co-ownership. In co-ownership, they have their respective
personalities and no new personality will be created.
Powers of the Members:
Partnership: Unless otherwise agreed upon, each partner is
an agent of the other partners and of the partnership.
Co-ownership: As a rule, a co-owner cannot act as an agent
of the other co-owners unless otherwise agreed upon
between the co-owners.
PROFITS:
Co-owner: Mas malaki ang profits, mas malaki ang interest.
But not necessarily in partnership, because the sharing in the
profits may be stipulated upon by the parties. Pero kung
walang stipulation, it may be based on the capital
contribution.
Q: Will death extinguish co-ownership?
A: No, Kapag namatay ang isang co-owner, his heirs will be
the co-owners of the surviving co-owners at pwedeng tulou-
tuloy lang yan. However in partnership, if it is a general
partnership, if one of the partners dies, the partnership is
dissolved.
ESSENTIAL ELEMENTS OF PARTNERSHIP
Like any other contract, it should have the three essential
requisites:
1.) Consent
2.) Object: to engage to a lawful activity, whether a
business or profession.
3.) Cause or consideration: the promise of each partner
to contribute money, property or industry
Note: From the definition alone, it can be known that a
contract of partnership is essentially onerous-each partner
has to contribute either property, money or industry. Walang
free rider sa partnership.
1. Consent of the contracting parties:
The rules in contract would be equally applicable but, just like
in sales and lease, there are persons who are prohibited from
entering into a contract of partnership:
1.) Spouses:
BE: May the spouses enter into a limited partnership to
engage in a realty business, with the wife as a limited
partner?
A: Yes, because spouses are only prohibited, under the New
Civil Code, to enter into a universal partnership. Therefore, if
they form a limited partnership, they can constitute only
Php100,000 each, and that will not be a universal partnership
because that would be a particular partnership.
2.) Corporations:
BE: Can a corporation enter into a contract of
partnership with an individual? Can a corporation enter
into a contract of partnership with another corporation?
A: To these two questions, the answer is no.
Ruled by the Supreme Court in the Case of Tuazon,
while a corporation may enter into a joint venture, it cannot
validly enter into a contract of partnership. Under the
Corporation Code, the business of the corporation is
supposed to be governed by the board of directors, and if
such a corporation will enter into a contract of partnership,
the other partners may bind the corporation in certain
activities without the consent of the board of directors.
Another reason is that the properties r investments of the
stockholders may be exposed to a risk not contemplated by
the stockholders.
3.) Those persons who are prohibited from giving each
other any donation or advantage cannot enter into a
UNIVERSAL partnership:
a.) those guilty of adultery or concubinage at the time of
the execution of the contract because it would be easy to
circumvent the provision on donation if they would enter into
a universal partnership, kasi pwedeng yung paramour ang
na-contribute lang Php10.00, while yung isa ang na-
contribute Php10 Million, however, pagdating ng sharing,
kabaligtaran. Yung paramour, 90%, while yung nag-
contribute ng Php10 Million, 10% lang ng profit. In fact, sa
dissolution, pwedeng ganun din ang agreement. That would
be a circumvention of the provision on donation.
Other persons prohibited are those mentioned in Art.
1739, those persons mentioned in the law on donation.
2. Object of Partnership:
To engage in a lawful activity.
Q: If the object is to engage in a lawful activity,
necessarily the partnership is valid?
A: No. There are specific business activities wherein the law
would require particular business organization which may
engage in such business activity, specifically the Corporation
Code which provides that only corporation may engage in
insurance and banking business, therefore there can be no
partnership engaging in such business: banking and
insurance.
3. Cause of Partnership
The promise of each partner to contribute either money,
property or industry.
Q: What would be the effect if either the cause or the
object of the partnership is illegal or if the partnership
has an unlawful cause or object?
A: The contract of partnership is void and under the law,
when the contract is void, it produces no legal effects
whatsoever, therefore, action to compel a party to the
contract to distribute the profits will never prosper. In fact,
under the law on partnership, the State will confiscate the
profits of such illegal partnership.
Q: Will an action to compel a partner to render an
accounting prosper?
A: No. Any action to enforce a void contract will never
prosper.
Q: May a party to such void contract at least be able to
recover what he contributed or delivered pursuant to
that void contract?
15 As a rule, no, because of the in pari delicto rule under
A:
Article 1411.
EXCEPTIONS: Article 1411, 1412, 1414,1415 and 1416.
Under these circumstances, a party to a void contract may be
able to recover what he contributed.
Atty. Uribe: I would always consider one of these provisions
as a very practical one:
In a contract that is void, it is so provided that a party to such
contract may recover what contributed if he repudiated the
contract before the consummation of the contract and before
damage is incurred by a third person.
FORMALITIES:
Q: If the agreement of the parties to a contract of
partnership was only a verbal agreement, would that be
a valid and binding contract? Will there be a juridical
personality created?
A: As a rule, yes. Even if under Art. 1772, the law provides
that every contract of partnership, having a capital of more
than Php3,000 or more, shall be in a public instrument and
must be registered with the SEC.
The 2nd paragraph of Art. 1772 provides that despite
failure to comply with the requirements in the preceding
paragraph, this is without prejudice to the liability of the
partnership and the individual partners to third persons. From
that article alone, it is clear that despite non-compliance with
the requirements of the law as to form, there is a partnership
created, because this is without prejudice to the liability of the
partnership (kung may partnership). But more directly, Art.
1768, the law provides, the partnership has a juridical
personality separate and distinct from that of each if the
partners, even in case of failure to comply with the
requirements of Art. 1772, par.1.
After all, a verbal partnership contract is valid and binding
between the parties.
Q: Is there a partnership agreement which would require
a particular form for the validity of the partnership
agreement?
A: Yes. There is only one scenario here: if one of the
contracting parties promised to contribute an immovable,
there has to be an inventory of such immovable and signed
by the contracting parties. If there is no inventory, the law is
very clear, the partnership is void.
Q: What if there was an agreement to contribute an
immovable and there was an inventory signed by all the
partners, however, the partnership agreement itself was
not put into writing, what is the status of that
partnership contract?
Atty. Uribe: I agree with the position of Professors Agbayani
and Bautista that, despite Art. 1771, as long as there is an
inventory of such immovable, the partnership agreement is
valid and binding and the juridical personality will be created.
Why?: As ruled by the SC consistently, like in the case of
Dauden-Hernaez vs. delos Angeles, for a contract to be
void for non-compliance with the requirements of the law as
to form, the law itself must provide for the nullity of the
contract. If the law only required a form, but the law itself did
not provide for the nullity of the contract, if the parties failed
to comply with that form, then that form is not necessary for
the validity. It may be necessary for the enforceability of the
contract or greater efficacy of that contract. Thus, in
partnership, it is said that this requirement as to form will only
be necessary for the greater efficacy, kasi kailangan naka-
register sa SEC. That is apparently the only reason why the
law would require a particular form in partnership where there
is an immovable contributed by one of the contracting
parties.
Atty. Uribe: The position of Prof. Agbayani is well-supported
by the SC.
A partnership has a juridical personality which is
separate and distinct. This is consistent with the legal
person theory, as opposed to the partnership in the United
States which adheres to the aggregate theory which states
that their partnership has n juridical personality separate and
distinct from the contracting parties.
Consequences: separate and distinct personality
1.) It can own its properties;
2.) It can sue and be sued;
3.) It may be found guilty of an act of insolvency;
4.) It may be dissolved for committing an act of
insolvency.
Concretely, in the case of Campos-Rueda vs. Pacific
Commercial
Facts: The partnership here filed a petition for the dissolution
of the partnership, but one of the creditors opposed the
petition for dissolution on the ground that there was no
showing that the individual partners are already insolvent.
Held: The solvency or insolvency of the individual partners is
irrelevant as to the petition of the dissolution of the
partnership. The partnership itself, having a separate and
distinct personality may be dissolved or may commit acts of
insolvency regardless of the solvency or insolvency of the
partners.
Actually, if one of the partners in a general
partnership is insolvent, there is already dissolution of the
partnership by operation of law, if the same be proven.
CLASSIFICATION OF PARTNERSHIP:
As to the object of the partnership is only to determine
whether a person may enter such partnership, there is a
need to distinguish whether a partnership is a UNIVERSAL
or PARTICULAR partnership.
2 Kinds of Universal Partnership:
1.) Universal Partnership of Property
2.) Universal Partnership of Profit
Under the law, if the partners agreed to form a universal
partnership, however, they failed to state what kind of
universal partnership, it shall be treated merely as a universal
partnership of profit, meaning, it shall comprise only the
result of their work and industry. In universal partnership of
property, the partners are deemed to have contributed all
their property, not literally all, for there some properties which
are exempt from execution and under the law may not be
considered as having been contributed by the partners.
16
TERM OF PARTNERSHIP
Q: If the partners failed to fix a period, does it mean that
the partners agreed a partnership at will and may be
dissolved at any time without any liability so long as
they acted in good faith?
A: No, because a partnership may be a partnership for a
particular undertaking even if no period was fixed by the
parties.
In one case, a partner, dissolved a partnership, claiming
it to be a partnership at will, the partnership being involved in
a bowling business. The SC ruled that even if the partners
failed to fix a period, the partnership cannot be considered as
a partnership at will because there was a stipulation in the
partnership agreement that the debt of the partnership shall
paid out of the profits that will be obtained by the bowling
business. Thus, after all, it cannot be dissolved at will, for the
debts will have to be paid. Therefore, the SC ruled that the
said partnership is a partnership for a particular undertaking.
CLASSIFICATION OF PARTNERS:
According to the liability of the partners:
1.) General
2.) Limited
This classification is relevant only in limited partnership.
In general partnership, partners are general partners
and they are liable for partnership obligations up to their
personal property. Each one of them has the right to
participate in the management of the partnership unless
otherwise agreed upon by the partners.
In limited partnership, while a limited partner cannot be
held liable up to his personal property, the liability of a limited
partner will only be up to his capital contribution. He also
would not have the right to participate in the management of
the business of the partnership.
G.R.: A limited partner cannot be held personally liable for
partnership obligations.
EXC: Instances when a limited partner may be held liable up
to his personal property:
1.) If he participates in the management of the business
of the partnership.
2.) If his surname appears in the firm name.
Except: a.) even if a limited partners name appears
in the firm name, if the surname of a general partner
is the same as that of the limited partner. b.) such
surname was already in the firm name prior to his
entry in the partnership.
3.) When he is a general partner and a limited partner in
the same partnership at the same time.
Who? A person who is both a general and limited
partner at the same time and in the same
partnership would have all the rights and obligations
of a general partner, however, he would have a right
as to his contribution as against the other partners,
which he would not have, had he not been a limited
partner. When it comes to division of assets upon
dissolution he has the priority as a limited partner.
That is the only edge, otherwise, he has all the rights
and obligations of the general partner.
4.) When there is failure to comply substantially as to
the formalities prescribed by law in the formation of a
limited partnership.

Under the law, if there is a failure to comply
substantially with the formalities for the creation of a
limited partnership, that agreement will be valid
among the partners, however, all of them can be
treated as general partners by third persons.
Therefore, a third person, in this scenario, can hold
a limited partner liable up to his personal properties.
The limited partners remedy is to seek
reimbursement from his other partners.
As to the contribution:
1.) Capitalist
2.) Industrial
Q: An industrial partner, may be a general partner?
A: Yes. A capitalist partner may either be an industrial or
general partner.
Q: May an industrial partner be a limited partner?
A: No. A limited partner can only contribute money or
property. He cannot contribute service.
Q: But can a partner be both capitalist and industrial?
A: Yes, he can contribute both money and industry. He can
be both capitalist and industrial and there will be
consequences to that.
BE: A and B formed a partnership to operate a car repair
shop. A contributed money, B contributed industry.
While the car repair shop was already in operation, A
operated a coffee shop beside the car repair shop. B
also operated a car accessories store on the other side
of the shop. May these partners engage in those
business activities?
A: As far as A is concerned, he can validly engage in such
business because the law would only prohibit him from
engaging in a similar activity. As far as B, an industrial
partner, is concerned, he cannot engage in any business
activity without any express authority or grant by the
partnership for him to engage in such business. Thus, if A did
not give his consent, B cannot validly engage in ANY
business, not only similar business, for B, as industrial
partner, is supposed to give his time in the said partnership
business.
Incoming Partner:
Q: ABC Partnership is composed of A, B and C.
Thereafter, D became a member of the partnership. Six
months after Ds entry as a member, a certain obligation,
3 Million became due and demandable. For this
partnership obligation, can D be held liable?
A: As was provided in the facts, the 3 Million became due
and demandable. Thus, this obligation may have been
incurred after Ds entry or before his entry, although it
17
became due after his entry or admission to the partnership.
If the obligation is incurred after his entry, there is no
question that, if he is a general partner, he can be held liable
up to his personal properties.
Q: If this obligation is incurred prior to his entry as a
partner, can he be held liable?
A: Yes. As a rule, he may be held liable, but only to the extent
of partnership property which would include his capital
contribution, unless there is a stipulation to the contrary.
Even if the obligation was incurred prior to his entry, however,
if in the partnership agreement, he agreed to be bound by
those obligations, then he can be held liable even to the
extent of his personal property, though he is a new partner.
Q: X is indebted to ABC Partnership which may be
limited. The same debtor of the partnership is also a
debtor of one of the partners. The debt to the
partnership is 100,000, while the debt to the partner is
50,000. X delivered 30,000 to A. Should this 30,000 be
distributed in proportion to the debts to the partnership
and to A, meaning, 20,000 will go to the partnership and
10,000 will go to A.
A: If A is a limited partner, there shall be no distribution in
proportion to the credit of these two creditors. The law which
requires that payment be distributed in proportion to the two
credits will only apply if the partner to whom the amount is
delivered is a managing partner. If he is a limited partner,
normally, he would not have any participation in the
management of the partnership business. Thus, if he is a
limited partner, then he can have the right t receive
everything he received.
Q: Assuming that A is in fact a managing partner and he
received the 30,000 from X, is it possible still for A to
retain everything which he received?
A.: Yes, if this debt is already due and demandable. In this
scenario, the debt is not yet due and demandable. Such debt
MUST be due and demandable in order for the law on the
proportional distribution to apply to both debts.
Q: A is a managing partner and both debts are due and
demandable. 30,000 was delivered to A. Is it possible for
the partnership to have the right to the entire 30,000?
A: If A receipted the amount in the name of the partnership.
By specific provision of the law, if the managing partner who
received such amount, receipted the same in the name of the
partnership, the partnership will be entitled to the entire
amount.
Q: If A, as managing partner, and both debts being due
and demandable, he received the amount of Php30,000
and receipted the same in his own name, may he be
entitled to retain everything?
A: Yes, if Xs debt to A is more onerous and X chose to have
this amount paid to this debt. Under the law, the debtor has
the right to choose to pay the debt which is more onerous.
Again, the premise is the debt to A is more onerous than the
debt to the partnership.
If A, as managing partner, received the same amount,
receipted in the name of the partnership, both debts are due
and demandable and are of the same burden, there will be a
proportional distribution of the amount, 20,000 will go to the
partnership, and 10,000 will go to A, the debt to the
partnership being 100,000 and the debt to A being 50,000.
PROPERTY RIGHTS
3 Major property rights of a partner:
1.) Right in specific partnership property;
2.) Interest in the partnership; and
3.) The right of the partner to participate in the management
of the business of the partnership.
Property rights considered as minor:
1.) Right to have access to the books of the partnership;
2.) Rght to demand for a formal accounting.
Q: Can a partner demand for a formal accounting at any
time?
A: No. The law will only give a right to a formal accounting
under very specific circumstances. Why? Because a partner
already has access to the books, thus, it may be
unnecessary to demand for a formal accounting at any time.
Right in specific partnership property:
Under the law, a partner is a co-owner with the other
partners as to specific partnership property. Again, he is a co-
owner with his partners and NOT with the partnership over
specific partnership properties.
Q: How could a person be a co-owner of a property
owned by another if he is not a co-owner of that other
person? The owner is the partnership. How can a
partner be a co-owner of that property if he is not a co-
owner with the partnership?
A: Other authors would say that the problem with this
provision is that it was copied from the Uniform Partnership
Act of the United States, where a partnership has no
separate and distinct personality, thus making them merely
co-owners.
But, in fairness with the Code commission, the 2 nd
sentence would tell you that this co-ownership has its own
incidence. In other words, this is no ordinary co-ownership
under the property law. Thats why some authors would call it
co-ownership sui generis.
Q: Concretely, in property law, if two persons are co-
owners of a parcel of land, can a co-owner sell his
interest over the parcel of land without the consent or
even knowledge of the other co-owner? Would that be a
valid assignment of interest?
A: Yes. However, in specific partnership property, there can
be no valid assignment of interest by one partner. The
assignment of interest of a specific partnership property
would only be valid if all the partners would likewise assign
their interests.
Q: May a creditor of a co-owner of a parcel of land levy
upon such portion of the land interest over that land
owned by the debtor / co-owner?
A: Yes, there can be such valid levy.
Q: In partnership, can a creditor of a partner levy upon
18 rights of the partner over a specific partnership
the
property?
A: That is not possible. Only partnership creditors can levy
upon partnership assets or partnership property. This is
different in the partners interest in the partnership for this
interest in the partnership can be validly assigned by one of
the partners even without the consent or knowledge of the
other partners.
Interest in the Partnership
Simply put, this is a partners share in the profit and surplus.
Whatever is his share in the profit or surplus is his interest in
the partnership.
Q: What would be the share of a partner in a
partnership?
1.) Stipulation. For instance, in a partnership of 3
persons, they can agree that one may have 95% of
the profits, while the 2 other partners may have 5%
of the same respectively.
Q: What if, in such agreement, one of the partners was
excluded in sharing in the profits?
A: Such stipulation is void. Take note that only such
stipulation is void and not the whole partnership agreement.
Q: Thus, if the stipulation as to the sharing of the profits
is void, or that there is no stipulation with this regard,
what would be the sharing in the profits of the partners?
A: It will depend on their capital contribution.
Q: What if one of the partners is an industrial partner?
A: By express provision of the law, he shall be given his
share by determining the value of the service rendered.
Thus, determine first the value of the service rendered, give
the same to the industrial partners, then the balance will be
distributed to the capitalist partners in accordance to their
capital contribution.
BE: A, B and C are partners. In their partnership
agreement, they agreed in the equal sharing of the
profits. Thereafter, C assigned his whole interest in the
partnership to X. X now demanded that he be allowed to
participate in the management of the business of the
partnership and also his share in the profits in the
business of the partnership. Are the claims f X valid?
A: As to Xs claim t participate in the management of the
business, he has no such right as an assignee. By express
provision of the law, an assignee has no right to participate in
the management of the business of the partnership, unless
otherwise agreed upon. He will not even have the access to
the books of the partnership. His only right would be to
receive whatever the assigning partner may receive as share
in the profits and in the surplus.
Q: If profits were declared, for instance, in the amount of
360,000, would the assignee have the right to share in
the profits?
A: Yes. X is entitled to share of Php120,000, since the
agreement is equal sharing of profits.
Right to participate in the management of the business
of the partnership
BE: W, X, Y and Z formed a partnership. W and X
contributed industry; Y contributed 50,000; Z contributed
20,000. In a meeting, the partners unanimously agreed to
designate W and X as managing partners, such
appointment having no stipulation as to their respective
duties nor was there any statement that neither can act
without the consent of the other. Thereafter, 2 persons
applied for two positions: 1.) as secretary; and 2.) as an
accountant. As far as the secretary is concerned, it was
W and X who appointed the secretary, opposed by W
and Z. The accountant was appointed by W concurred
by Z, which was opposed by X and Y. Whose
appointment would bind the partnership?
A: This management arrangement is known as joint
management. Any managing partner may execute acts which
are merely acts of administration even if opposed by all the
other partners, kung mag-isa lang sya. But, if there are two or
more managing partners, they have to decide by a majority
vote.
Q: Is the appointment of the secretary an act of
administration?
A: Yes.
Q: Would it bind the partnership?
A: Yes, even if opposed by the other partners, the capitalist
partners, the latter would not have any right for this is merely
an act of administration well- within the powers of a
managing partner.
Q: With regard to the accountant, take note that the
appointment by W was opposed by another managing
partner. How will this tie be resolved?
A: Under the law, this will be resolved by all the partners with
the controlling interest. The partners with controlling interest
will prevail.
Q: In this case, who has the controlling interest?
A: Y. The determination as to who has controlling interest
depends on the capital contribution. Thus, an industrial
partner is excluded in such cases. In this case, it is obvious
that 50,000 is more than the capital contribution, and
because Y opposed to the appointment, such appointment
will not bind the partnership.
Other management arrangements are provided in Articles
1800, 1801, 1802, 1803.
TYPES OF MANAGEMENT:
1.) Solidary Management:
-without specification as to each others duties or
without stipulation that one of them shall act without the
consent of all.
2.) Joint Management:
-two or more managing partners with the stipulation that
none of them shall act without the consent of all others. The
incapacity of one of the partners, or his absence will not be a
valid ground not to obtain his consent to a contract. It has to
be by unanimous consent, unless, in obtaining his consent
(he is absent or incapacitated) it would result in irreparable
damage to the partnership, then the consent of the absent or
19
incapacitated managing partner may be dispensed with. This
is also known as management by consensus.
3.) If there was management arrangement agreed upon
between the partners, each partner is considered as an
agent of the partnership.
Into these arrangements, if only one partner is appointed as
a manager, he can execute any acts of administration even if
opposed by all the other partners.
Q: In a partnership of which the business is into buying
and selling cars, the managing partner decided to buy a
vintage Mercedes Benz, to the opposition of the other
partners for they consider it bad investment, will the
decision or the act of the managing partner in buying the
said car bind the partnership?
A: Yes, because such act is merely an act of administration.
The problem is, if the managing partner continues to not
consider the sentiments of the other partners, he may be
removed as a managing partner.
Q: The question now is, can he be easily be removed?
A: No. The requirements for the removal of a managing
partner would depend on whether he was constituted as such
in the articles of partnership or he was merely appointed as
managing partners after the constitution of the partnership.
If he was constituted as a managing partner in the
articles f partnership, he can only be validly removed under
two conditions:
1.) There has to be just cause; and
2.) by those partners having controlling interests.
Absent one of these conditions, he cannot be validly
removed. In fact, even if there is just cause, if the managing
partner controls 51% of the partnership, he can never be
removed.
However, if he was appointed as a managing partner
only after the constitution of the partnership, he can be validly
removed even without just cause, so long as it was done by
those partners having controlling interests.
OBLIGATIONS OF THE PARTNERS AMONG
THEMSELVES AND AS TO THE PARTNERSHIP AND IN
CASE OF NON-PERFORMANCE OF THE OBLIGATION
3 Obligations of the partners:
1.) To make good his promised contribution;
2.) Fiduciary duties; and
3.) To participate in the losses incurred by the partnership
business.
1. To make good his promised contribution:
A. Money:
In order to know the remedies that may be availed of
by the non-defaulting partners and the partnership, it must be
known first what was promised by the partner, whether he
promised to contribute money, property or industry.
If the partner promised to contribute money, for
instance, the partners agreed to contribute 1 Million with 4
partners, without an agreement as to respective amount to
be contributed, the law provides that they will have to share
equally. Thus, in this example, 1 Million will have to be
divided into 4 or the respective contribution will be 250,000. If
one partner failed to make good his promised contribution
which is a sum of money, he can be held liable by the non-
defaulting partners up to the amount promised plus interest.
If no rate was stipulated by the parties, it will be the legal rate
of 12%, because this is forbearance in money. Aside from
paying the interest, which is unusual, not only will that
defaulting party be held liable to pay interest, he will also be
liable to pay damages.
Normally, in obligations involving money, in case of
damage incurred by another party, the liability will only be
payment of interest. In partnership, not only will he be liable
to pay interest, but also of damages.
Remedies that may be invoked by the non-defaulting
partners:
1.) Specific performance - the other partners can
compel him to make good his promised
contribution.
2.) Dissolution - may be an option by the non-
defaulting partners, if that is the only amount that
they are expecting for the partnership.
Q: Can a non-defaulting partner rescind the partnership
agreement?
A: In a SC decision, it held that rescission is not a remedy of
the non-defaulting partners. Under the law, the defaulting
partners are treated as a debtor of the partnership by specific
provision of the law. Therefore, the SC held that provision
prevails over the general rule in obligations and contracts
under Art. 1191, wherein rescission may be a remedy in case
of serious breach.
B. Property:
If a partner promised to contribute property, it must
be determined as to what was really contributed: was it the
property itself or the use of the property.
If it was the ownership of the property that was
contributed then he would have the obligation to deliver and
transfer ownership, aside from that, under the law, he would
have the obligation to warrant the thing.
Before the delivery of the thing to the
partnership, who will bear the loss? The partner will bear
the loss. The partnership will bear the loss when the thing is
already in its possession
If what was contributed was merely the use of the
property, the risk of loss will be with the contributing partner
for there was no transfer of ownership in this case. Under the
res perit domino rule, even if possession of the thing is with
the partnership, so long as there is no fault on the part of the
partnership, then the contributing partner-owner will bear the
loss.
EXCEPTIONS:
1.) When the thing contributed is fungible;
2.) or it cannot be kept without deteriorating;
20
3.) If contributed by the partner to be sold; and
4.) When it has an appraised value of such property.
In all these circumstances, it is the partnership which will
bear the loss if the thing was lost or destroyed while in the
possession of the partnership.
Again, if the contributing partners fails to make good his
promise to contribute property, he will be treated as a debtor
of the partnership, thus specific performance will likewise be
a remedy.
C. Industry
If a partner fails to render service as promised, will
specific performance be a remedy?
Ans.: Definitely not. It would be a violation of his rights
against involuntary servitude. The remedy would be to
demand for the value of the service plus damages. It can be
easily done because there is an industry rate.
2. Fiduciary Duties:
The duty to observe utmost good faith, honesty, fairness,
integrity in being with each other. This duty commences even
during the negotiation stage.
Test to determine whether there was a violation of this
duty:
Whether the partner has an advantage himself at the
expense of the partnership. If he has such advantage at the
expense of the partnership, then there is a breach of the
fiduciary duty. There need not be a proof of evil motive so
long as he has this advantage at the expense of the
partnership.
This duty lasts, normally, until the termination of the
partnership.
Q: May a partner may be held liable for breach of
fiduciary duty even after the termination of the
partnership?
A: Yes. The SC held that even if the act of a partner was
made after the termination of the partnership, if the
foundation of that act was made during the existence of the
partnership that can still be considered as a breach of
fiduciary duty. In other words, pinaghandaan na nya yun act
during the existence of the partnership, however, it was
executed only after the termination of the partnership.
3. Participate in the Losses:
Q: What will be the share of the partner in the losses
incurred in the partnership?
A: Consider first whether there was a stipulation as to losses
or there was no stipulation.
If there was a stipulation as to losses, the first scenario
would pertain to, for instance, A, B and C agreed to share
50%, 30% and 20% of the losses. This will be a valid and
binding stipulation among the partners.
Q: Would this still be a valid stipulation if one of them is
an industrial partner?
Atty. Uribe: Yes, this would still be a valid stipulation. If the
industrial partner agreed to share in the losses, then who are
we to deny him that?
Q: What if in the stipulation regarding losses, one or
more of the partners is excluded in sharing with the
same, what will be the status of the stipulation?
A: It depends on who was excluded. If the excluded partner
is a capitalist partner, that stipulation is definitely void, 100%.

If the partner excluded is an industrial partner, it
depends. As among the partners, this stipulation is valid,
however, this is void among third persons. In other words,
despite the stipulation among partners, in excluding the
industrial partner in sharing in the losses, the creditors of the
partnership can still hold such industrial partner liable for his
contractual obligations. The remedy of the industrial partner,
if held liable, is to go after his partners, for the agreement is
valid among themselves.
Q: What if there is no stipulation as to the sharing of the
losses, or that the stipulation in void?
The first scenario is, there is an agreement as to profits.
If there is an agreement as to profits, then the sharing in the
profits will be the same basis in the sharing of the losses
which is a very reasonable rule. Thus, for instance, if A, in the
agreement, is entitled to 90%, B-% and C-5%, then it would
also be reasonable that A share 90% of the loss, B&C 5% of
the loss respectively.
The last scenario, there is no stipulation as to losses and
there is also no stipulation as to profits. In this case, it would
depend on their capital contribution. Their share in the losses
would depend on their capital contribution.
Thus, in this scenario, would the industrial partner share
in the losses?
A: Wala, kasi wala syang capital contribution.
Note: Under Art. 1816, even if he is excluded by the
partners/partnership in sharing in the losses, that is a void
stipulation as to third persons and can still hold the industrial
partner liable as to the contractual obligation of the
partnership.
Q: If indeed a partner, assuming that the assets of the
partnership are not sufficient to cover the obligations of
the partnership, what would be the nature of the
obligation of the partner? Would the partners be held
solidarily liable? Or would they only be held jointly
liable?
A: It would depend on the nature of the liability. For
contractual obligations, as a rule, the partners would only be
jointly liable, unless they bound themselves solidarily, for
contractual obligations. However, under Art. 1824, if the
obligation arose from a tortuous act or a wrongful act under
Arts. 1822 and 1823, for example, while in the performance
of his obligation, a partner received a sum of money from one
of its clients which sum of money was misappropriated that
partner, such partner will be held solidarily liable with his
partners and with the partnership. Also, if a sum of money
was delivered, even if it was delivered to the partnership,
however, one of the partners misappropriated the same, all
the partners will be considered solidarily liable among
21
themselves and with the partnership.
In the United Pioneers General Construction Case,
the creditor filed a collection suit impleading the 5 general
partners. During the pendency of the case, the creditor asked
for the dismissal of the action as against one of the partners.
Ultimately, the court decided in favor of the plaintiff.
Assuming the amount which was found to be the liability of
the partnership was Php100,000, the court ruled that the
partnership will have to pay the said amount and in case that
the assets of the partnership will not be sufficient to cover
this indebtedness, the partners will be liable to pay equally.
So, naging issue yung equally, meaning silang apat na
lang? for the case as against one of the partners was
dismissed. If the amount of the obligation is 100,000, should
they be liable 25,000 each or 20,000 each including the 5 th
partner?
The SC ultimately held, in this case, that the liability
of the partners is only joint, therefore, the condonation of the
liability of one partner will not increase the liability of the other
partners. Even if the partnership has no assets remaining,
each partner shall only be held liable up to his share in the
partnership indebtedness. Thus, if the debt is 100,000 and
there is no agreement as the share in the losses, they have
to share in the losses, equally into 20,000, yung apat na lang
na defendants, kasi yung isa, condoned na yung obligation.
OBLIGATIONS OF PARTNER RE: 3RD PERSONS
Q: When would a contract entered into by a partner bind
the partnership?
Ex.: If a partner went to a furniture shop to buy furniture
the of which is Php100,000, and such amount remained
unpaid, can the seller demand payment from the
partnership?
A: It depends as to whether the contract was entered into in
the name of the partnership, for the account of the
partnership, under its signature, by a partner who is
authorized to enter into that contract to bind the partnership.
Thus, in this example, if in the agreement the buyer was the
partner himself and not the partnership, that partner should
be held liable, for the furniture was not bought in the name of
the partnership.
The problem, if the contract would be binding in the
partnership, then would be, whether the partner who
represented the partnership had the authority to bind the
partnership.
Normally, if a partner would enter into a contract, a
partnership resolution is not necessary. Whether or not a
contract would bind the partnership would depend on the
nature of the act of such partner and the nature of the
business of the partnership.
Q: Concretely, if a partner bought a complete set of
SCRA in the name of the partnership and signed by that
partner, would that contract bind the partnership for the
set was bought in the name of the partnership?
A: It would depend on the nature of the act and the nature of
the business of the partnership. In this example, the partner
bought the set of SCRA, pero naman, and business ng
partnership ay restaurant, hindi naman ata na i-bind nya ang
partnership to such contract, ang negosyo nila restaurant.
Q: But the seller would raise the defense, hindi ko
naman alam na restaurant yung business, e ang
nagrepresent ng partnership si Atty. ABC, so akala law
firm. Is that a valid defense?
A: No. The SC would tell that the third party contracting with
the partnership has the obligation to know at least the nature
of the business of the partnership. In fact, he can demand for
the presentation of the articles of partnership in order for the
third party to know the nature of the business of the
partnership. For, if this time, the partnership is a law office,
and the partner bought a set of SCRA, that act of buying a
set of SCRA will be considered apparently for carrying the
business of the partnership the usual way. Therefore, that
contract will bind the partnership.
Q: Even if he had no authority from the partners?
A: Yes.
Q: Even if there was a resolution among partners that he
should not be the one who will enter into the contract?
For instance, A,B,C,D, and E did decide to buy the set,
but designated A to buy the same and not E, but the E
bought the SCRA, would that contract bind the
partnership?
A: Yes, as long as the third person was not aware of that
agreement of the partnership because such act is an act
apparently for carrying on the business of the partnership the
usual way. So, if the partnership is a law office, but the
partner bought certain things for a restaurant, then such act
is not apparently for carrying on the business the usual way,
thus such act would require the consent of the partners in
order to bind the partners.
Under Article 1818, there are certain acts which law requires
the unanimous consent of the partners for such a contract or
act to bind the partnership, like, disposing the goodwill of the
partnership or to contest a judgment against the partnership
or renounce a claim of the partnership.
DISSOLUTION, WINDING UP AND TERMINATION
These are three different concepts. Upon dissolution of the
partnership, it is NOT DEEMED dissolved. It will still have to
go through the process of winding up of the affairs of the
business of the partnership before the partnership itself will
be terminated.
Q: When would there be a dissolution of a partnership?
A: Under the law, there will be a dissolution if there is a
change in the relation of the partners caused by any of the
partners ceasing to be associated in the carrying on of the
business of the partnership. That will result in the dissolution
of the partnership. Again, if one of the partners ceased to be
associated in the carrying on of the business of the
partnership, that will result in the dissolution of the
partnership.
Q: May there be a dissolution even if none of the
partners ceased to be associated with the carrying on of
the business of the partnership despite the definition of
dissolution under Art. 1828?
A: Yes. One scenario is the admission of a new partner. With
22 admission of a new partner, under Art. 1840, the
the
partnership is dissolved.
Q: What is the effect of the dissolution?
A: Again, it will not result in the termination, it will only start
the winding up process, effectively, this will terminate the
authority of all partners to bind the partnership, EXCEPT, if
that act is necessary for the winding up of the partnership or
necessary to complete a business which was then began but
was not yet finished at the time of the dissolution of the
partnership.
CAUSES OF THE DISSOLUTION
1.) Extrajudicial;
2.) Judicial.
Extrajudicial causes:
1.) Voluntary;
2.) Involuntary.
Judicial causes are necessarily voluntary because it is by
application.
Under voluntary causes would fall, the cause of the
dissolution may result on the violation of the agreement or it
may be without violation of the partnership agreement.
Concretely, the expiration of the period would be voluntary,
extrajudicial but without violation of the agreement. The fixing
of the term is an agreement of the parties therefore, it is
voluntary.
Termination of a definite term or a particular
undertaking: voluntary but without violation.
By the will of one of the partners: the partnership may
be dissolved without liability on the part of the partner, if the
partnership is a partnership at will and he dissolved the
partnership in good faith. Those are the two requirements, in
order for a partner to be able to dissolve the partnership
without liability on his part. Again, in an express will of any
partner who acted in good faith, when no definite term or
particular undertaking is specified, which means, again that a
partnership is a partnership at will.
BE: A, B and C agreed to form a partnership for a period
of five years. After 2 years of business, C assigned his
whole interests to Philip. The two other partners,
realizing that they would not be able to deal with Philip,
decided to dissolve the partnership. Philip, not knowing
of the dissolution done by the 2 partners, filed a petition
for the dissolution of the partnership with the court. Was
the partnership dissolved by the act of the two partners?
May the action filed by Philip to dissolve the partnership
prosper?
A: As already mentioned, by the express will of all the
partners who have not assigned their interest is a cause for
the dissolution of the partnership. Therefore, the 2 partners
validly dissolved the partnership by mere will of the partners.
Q: As far as Philip was concerned, will his petition
prosper, even assuming that no dissolution was made
by the 2 partners?
A: No. With the assignment of the interest of a partner to
another person that does make the assignee a partner of the
partnership without the consent of the other partners,
therefore, he has no personality to file a petition for the
dissolution of the partnership.
Expulsion of any partner in good faith, it maybe because
the grounds for expulsion was agreed upon by the partners
and one of the partners violated such agreement, thus he
may be expelled in good faith, therefore it may be voluntary
and without violation.
In contravention, because one of the partners may
dissolve a partnership, even if the partnership has a fixed
period or it is a partnership for a particular undertaking and
that particular undertaking has not yet been completed, that
would be in contravention of the agreement of the partners.
INVOLUNTARY CAUSES:
Q: If one of the partners in a partnership was elected a
Senator, would this dissolve the partnership by
operation of law?
A: No.
Q: Even if it is a partnership of lawyers or a law office?
A: No.
Under the Constitution, these elected officials are prohibited
only from appearing before tribunals and not from private
pratice.
Q: If a lawyer was appointed in the cabinet, for instance
as Presidential Legal Counsel, would that result in the
dissolution of the partnership by operation of law?
A: Yes. Under the Constitution, Cabinet Secretaries are
prohibited from private practice of their profession.
Classic ex.: The Firm (Carpio Villaraza Cruz Law) This also
includes appointment in the judiciary.
Q: What if the law partner was elected as governor of his
province will it result in the dissolution of the
partnership?
A: Yes. Under the Local Government Code, chief executives
are also prohibited from the private practice of their
profession.
Q: What if the partner who died is a partner in a limited
partnership? Would that dissolve automatically the
partnership?
A: It depends as to who is the partner.
If he is a general partner, as a rule, it dissolves the
partnership, unless there was an agreement in the articles of
partnership that they would continue with business of the
partnership even after the death of the partner. Or even
without such agreement in the articles of partnership, if the
surviving partners decide to continue with the business of the
partnership, then the partnership is not deemed dissolved
even if the partner who died is a general partner.
If the partner who died is a limited partner, that does
not result in the dissolution of the partnership. In fact, the
executor or administrator of the estate of the deceased
23
limited partner will the right to choose or to appoint a
substitute limited partner in the said partnership.
Insolvency or civil interdiction of any partner will result in the
dissolution of the partnership.
Judicial Causes: Grounds:
1.) Insanity or incapacity:
-The courts require that it should be permanent in
character; and
-such incapacity or insanity must affect the performance
of such partner of his obligations with respect to the
partnership business. In other words, kung wala syang
pakialam sa management ng business ng partnership,
insanity or incapacity is not a valid ground.
2.) Gross misconduct:
a.) wrongful expulsion;
b.) if one partner would refuse to allow another partner
in the management of the partnership business, if he has
such right to participate in the management ;
c.) if the managing partner would refuse to distribute the
profits of the partnership when there is such obligation to
distribute the profits;
d.) misappropriation of the income of the partnership
business.
Note: If a limited partner becomes a limited partner in
another partnership, that is not a valid ground to file a petition
for the dissolution of the partnership. Limited partners has
nothing to do with the management of the partnership
business, thus, there is no conflict of interest.
Note: The fact that the partnership incurred losses for the
past three years is not necessarily a ground for dissolution.
However, even if the partnership incurred losses
once and it can be shown by the partners that there is no
prospect for recovery, it can be a valid ground for the filing of
the petition for the dissolution of the partnership.
Q: Quarrels among partners, valid ground?
A: Normally, no. However, if such quarrels give rise to
dissension among the partners, affecting the conduct of the
business of the partnership, this can also be a valid ground,
falling under other circumstances which would render the
dissolution equitable.
Q: Upon the dissolution of the partnership, and there
were assets left, how will these be distributed? To whom
these assets be given?
A: As far as partnership assets are concerned:
1.) Partnership creditors who are not partners.
2.) Partnership creditors
3.) If there are remaining assets, to the capitalist
partners;
4.) Excess - profits based on their agreement as to
profits.
Q: What if, in their agreement, Partner A contributed
100,000; Partner B, 50,000; Partner C, industrial partner.
The total assets of the partnership is 1 Million at the time
of dissolution, however, there were partnership creditors
obligation of which amounted to 900,000. Would the
industrial partner have a share in that 1 Million asset?
A.: No. Since the amount of the obligation is Php900,000, the
remaining Php100,000 should be given back to the capitalist
partners for their capital contribution.
Q: Assuming that there was no agreement as their share
in the losses, also there was no agreement as to their
share in the profits, what if one of the partners became
insolvent, will the other partners liability be increased?
A: No, because their liability is JOINT.
Q: For instance A, a partner is insolvent, his assets
being 100,000. A is indebted X and Y. The partnership
also has its creditors. To whom shall this 100,000 be
given?
A.: It should be given to the separate creditors of the
individual partner.
For a limited partnership to be formed, there has to be at
least one limited partner and one general partner.
For the establishment of a limited partnership, the law
requires certain formalities. Concretely, under Art. 1844,
there has to be a certificate signed and sworn to by the
contracting parties which has to be filed with the SEC. So
long as there was substantial compliance with the formalities
required by law, a limited partnership will be valid and
binding.
Q: What if there was no substantial compliance as to
these formalities?
A: Even if there was no substantial compliance, the
agreement will be valid and binding among themselves. As to
third persons, all of them may be held liable as general
partners, as if all of them are general partners. Thus, even a
limited partner may be held liable even up to his personal
properties.
TRUST
2 KINDS:
1.) Express;
2.) Implied.
Implied Trust: 2 Kinds:
1.) Resulting trust;
2.) Constructive trust
The classification of trust into two kinds (express and
implied) and implied trust into two kinds (resulting and
constructive) would be relevant in two concepts:
1.) Applicability of the parole evidence rule; and
2.) Prescription, specifically, acquisitive
prescription.
Note: An express trust over an immovable may not be
proven by parole evidence. This means that implied trust
over an immovable may be proven by parole evidence or
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express trust over a movable, may be proved by parole
evidence.
EXPRESS TRUST
Q: May an express trust over an immovable be proven
by mere testimony of the witness?
A;Yes, if the lawyer of the other party did not object to the
presentation of the witness.
BE: In an agreement between A and B, a property of A
was to be registered in the name of B, with an agreement
the B will reconvey the property to As son upon the
graduation of the said son (As son). This agreement was
entered into in 1980. The property was in fact registered
in the name of B the following yea, 1981. In 1982, A died.
In 1983, As son graduated. Despite that fact, B did not
reconvey the property. He had no knowledge of this
agreement until 1993, when accidentally, the son of A
discovered such instrument pertaining to the agreement
of A and B. Thus, he demanded that the land be
conveyed to him. B refused raising the defense of
prescription. Is this claim tenable?
A: Definitely not. This pertains to an express trust. In an
express trust, trustee will be holding the property only in the
name of the beneficiary or the cestui que trust, therefore, he
cannot acquire the said property by acquisitive prescription
unless there would be adverse possession over the property.
Q: When would there be adverse possession?
A: It may only start with repudiation. Without repudiation, the
period for acquisitive prescription will not start to run. Such
act of repudiation should be made known to the beneficiary.
IMPLIED TRUST
Resulting Trust:
BE: A and B, brother and sister respectively, inherited
two identical parcels of land. For purposes of
convenience, B, sister of A, agreed to have the land
registered in the name of A. However, when the parcels
of land were registered in the name of A, A sold one of
the parcels of land to a buyer in good faith and for value.
Can B recover the land from the buyer? What would be
the remedy of B?
A: This question clearly pertains to a resulting trust. This is
specifically, Art. 1451 of the NCC.
B cannot recover the land from the buyer. As
discussed in Sales, a buyer who had bought the property
from a seller who has no right to sell, but he has apparent
authority to sell, who appears to be the owner and the buyer
bought the property in good faith, he will acquire ownership
over the thing even if the seller has no right to sell.
Bs remedy would be to go after her brother for breach
of trust in selling the property without her consent.
BE: A property was bought by a father and was
registered in the name of his illegitimate daughter. The
illegitimate daughter occupied the said parcel of land
and constructed a house where she and her husband
and their children lived. Several years thereafter, her
father died. The other heir of her father (his legitimate
children) demanded for the delivery of the said property
to the estate for distribution to the other heirs, claiming
that a trust relationship was established between the
father and the illegitimate child. Is this a valid claim?
A: Under the law, there is no presumption as to trust
relationship under 1448, because the donee in this situation
is a child, even if illegitimate, of the father. Therefore, it may
be a donation as provided under Art. 1448.

Q: Can the other heirs recover that property?
A: It depends, considering that it is a donation, if the donation
is inofficious. If the same be inofficious, the other heirs may
demand for the return of the property or at least the value of
the property.
Resulting trust includes Articles 1448, 1451, 1449,
1450,1452,1453,1454.
Constructive Trust:
BE: A applied for the registration of a parcel of land in
his name. However, he was called in New York to be a
chef in a hotel. So, he asked his cousin to follow up his
application for registration of land while he was in New
York. Instead of ensuring the registration of the property
in the name of A, he had the property registered in his
(cousin) name. After which, he sold the property to a
thi4rd person who bought the land relying on the TCT.
When A returned to the Phils., he learned of what his
cousin had done. May A recover the parcel of land from
the 3rd person who bought the property in good faith and
for value?
A: No.
Q: Lets assume that the remedy here is conveyance, the
cousin has not yet been able to sell the property to the
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3rd person, however the same in registered in the name
of the cousin. If the cousin would raise the defense that
the action was filed more than one year from the time of
registration of the property in his name, is that claim
tenable?
A: Untenable. The one year period provided by law is
relevant only if the action filed is for the re-opening of the
registration case because of fraud. Thus, if the action is for
reconveyance, it does not matter of the one year period has
already lapsed.
N.B.: Art. 1456, 1455.
Q: In constructive trust, may the trustee acquire the
property by prescription by mere lapse of time, without
repudiation?
A: Yes, because from the very start, he was already claiming
ownership over the thing. Iba don sa resulting trust or
express trust. When this trust was constituted, the trustee
was holding the property in the name of another person. Pero
sa constructive trust, itong pinsan at yung abogado in one
case, would be claiming ownership over the property, right
from the very start and therefore without need of repudiation,
yung prescriptive period will start to run in a constructive
trust.