contract of partnership does not affect the liability

PARTNERSHIP, AGENCY` & of the partnership and of the partners to third

TRUST persons. Neither does such failure to register
affect the partnerships juridical personality
(Angeles v. Sec. of Justice, 465 SCRA 106).
PARTNERSHIP
2) However, associations whose
articles are kept secret among the
IN GENERAL members, and wherein any one of
the members may contract in his
own name with third persons, shall
Definition: By the contract of partnership have no juridical personality and
two or more persons bind themselves to shall be governed by the provisions
contribute money, property, or industry to a relating to co-ownership (Art. 1775,
common fund, with the intention of dividing NCC).
the profits among themselves (Art. 1767, 1st
par., NCC). Two or more persons may also The secrecy is not
form a partnership for the exercise of a directed to third persons but to
profession (Art. 1767, 2nd par., NCC). some of the partners (Bautista,
Partnership, 1978 ed., 69).
Requisites: Effects:
1) 2 or more persons bind themselves a) As to the members inter se:
to contribute money, property or There is no partnership.
industry to a common fund; and They are governed by the
2) Intention on the part of the partners rules relating to co-
to divide the profits among ownership (Art. 1775, NCC)
themselves (Tocao v. CA, 342 SCRA 20; b) As to third persons: The
Art. 1767, NCC).
absence of personality
cannot be invoked against
Note: The contribution to such fund need not be
third persons for the
cash or fixed assets; it could be an intangible like
credit or industry (Lim v. Phil. Fishing Gear purpose of exempting
Industries, Inc., G.R. No. 136448, Nov. 3, 1999). themselves from complying
with their obligations
Separate Personality: contracted pursuant to the
stipulations kept secret
1) Partnership has a juridical among themselves. They
personality separate and distinct cannot profit from their own
from the partners (Art. 1768, NCC) wrongdoing.
EVEN IF:
a) It does not appear in a Form of Partnership Contract:
public instrument and its
capital is more than 1) General rule: It is valid and
P3,000.00 (Art. 1772; Art. 1768, enforceable in any form (Art. 1356,
NCC). NCC; Tocao v. CA, supra.).
2) Exception: Whenever immovable
b) It is not recorded in the SEC property is contributed to the
(Art. 1772; Art. 1768, NCC). partnership, an inventory of said
property to be signed by the parties
Note: The fact that there is no record in the SEC and attached to the public
of a public instrument embodying the partnership instrument is indispensable to the
did not cause the nullification of the partnership validity of the partnership. If this
(Tocao v. CA, supra.). Mere failure to register the
requirement is not complied with,
contract of partnership with the SEC does not
invalidate a contract that has the essential the partnership is void (Art. 1773,
requisites of a partnership. The purpose of NCC).
registration of the contract of partnership is to
give notice to third parties. Failure to register the

1

Purpose or Object Must Be Lawful:
1) If the purpose or object is unlawful,
contract of partnership is void (Art.
1409[1], NCC).
2) Effects upon partners inter se:
a) The partners have no right
to enforce claims which depend
upon the validity of contract
(Arbes v. Polistico, 53 Phil. 489) .
Hence, upon the dissolution of
the partnership as decreed by
the court, profits shall be
confiscated in favor of the State
(Art. 1770, NCC) and shall not
enrich the partners.
b) But partners may recover
their contributions from the
manager or administrator
because such claim does not
depend upon the validity of the
contract (Arbes v. Polistico, supra.).
3) Effects upon third persons:
a) If the third person acted in
good faith, he may recover
indemnity from the partner who
dealt with him.
b) If third person acted in bad
faith, he cannot recover.
Who Can Be A Partner:
1) General rule: Anyone who is capable
of entering into contractual relations.
2) Exceptions:
a) In universal partnership
(whether of all present property
or all profits), persons who are
prohibited from giving each
other any donation or advantage
cannot enter into such kind of
partnership (Art. 1782, NCC).
Hence, the following cannot
become partners in a universal
partnership:
i) The spouses during
their marriage (Art. 87, FC);
ii) Those cohabiting as
husband and wife (Art. 87,
FC); and
2
iii) Those who cannot
donate to each other under
Article 739 of the NCC.
b) A corporation cannot
become a member of a
partnership in the absence of
express authorization by statute
or charter (Mendiola v. CA, G.R. No.
159333, July 31, 2006; citing J.M.
Tuason v. Bolanos, 95 Phil. 106 (1954);
Esteban B. Bautista, Treatise on
Philippine Partnership Law, 1978 ed.,
citing 60 A.L.R.2d 917; 6 Fletcher,
Cyclopedia of Corporations, Sec. 2520).
Note: Under Philippine law, a joint venture is a
form of partnership and should thus be governed
by the law of partnerships. The Supreme Court
has recognized, however, a distinction between
these two business forms, and has held that
although a corporation cannot enter into a
partnership contract, it may however engage in a
joint venture with others (Aurbach, et. al. v. Sanitary
Wares Manufacturing Corp., 180 SCRA 130 (1989);
citing Tuazon v. Bolaos, 95 Phil. 906).
Particular Partnership vs. Joint Venture:
Usually, but not necessarily, a joint
adventure is limited to a single transaction,
although the business of pursuing it to a
successful termination may continue for a
number of years; a partnership generally
relates to a continuing business of various
transactions of a certain kind (Heirs of Tan Eng
Kee v. CA, G.R. No. 126881, Oct. 3, 2000).
RULES IN DETERMINING
EXISTENCE OF PARTNERSHIP
Requirement of Consent:
1) General rule: Persons who are not
partners as to each other are not
partners as to third persons (Art.
1769[1], NCC).
2) Exception: Partnership by estoppel
(Art. 1825, NCC).
Co-ownership or Co-possession:
1) Co-ownership or co-possession
does not of itself establish a
partnership, whether such co-
owners or co-possessors do or do
not share any profits made by the
use of the property (Art. 1769[2], NCC).
2) There must be a clear intent to form
a partnership.
 CLASSIFICATIONS OF PARTNERSHIP

Sharing of Gross Returns: 1) As to object:

a) universal partnership; or
1) The sharing of gross returns does b) particular partnership
not of itself establish a partnership,
whether or not the persons sharing 2) As to liability of partners:
them have a joint or common right a) general partnership; or
or interest in any property from b) limited partnership
which the returns are divided (Art.
1769[3], NCC). 3) As to duration:
a) Partnership at will; or
2) There must be a clear intent to form b) Partnership with a fixed
a partnership, the existence of a period
juridical personality different from
the individual partners, and the 4) As to legality of existence:
freedom of each party to transfer or a) De jure partnership
assign the whole property (Pascual v. b) De facto partnership
CIR, supra.).
5) As to representation to others:
Sharing of Profits: a) Ordinary or real partnership;
or
1) Receipt by a person of a share of b) Ostensible or partnership by
the profits of a business is prima estoppel
facie evidence that he is a partner in
the business (Art. 1769[4], NCC). 6) As to publicity:
a) Secret partnership
2) In partnership, profits are shared b) Notorious or open
because the partners are joint partnership
owners of them. If no profits, no
partner is entitled to any share. But 7) As to purpose:
with respect to gross returns, the a) Commercial or trading; or
share is independent of the b) Professional or non-trading
existence of profits, and may be
taken even when there is a loss. UNIVERSAL PARTNERSHIP

3) No such inference can be drawn if Object: It may refer either to --

profits were received in payment as:
a) Debt by installment 1) All present properties of partners; or
b) Wages of an employee 2) All profits.
c) Rent to a landlord
d) Annuity to a widow or Universal Partnership of All Present
representative of a deceased Property:
partner
e) Interest on a loan 1) Concept --- That in which the
f) Consideration for the sale of partners contribute all the property
a goodwill of a business or other which actually belongs to them to a
property by installment (Art. common fund, with the intention of
1769[4], NCC). dividing the same among
themselves, as well as all the profits
they may acquire therewith (Art. 1778,
CLASSIFICATIONS OF NCC).
PARTNERSHIP AND KINDS OF
2) What are included --- The property
PARTNERS which belonged to each of the

3
 partners at the time of the
constitution of the partnership
becomes the common property of all
the partners, as well as all the
profits which may be acquired from
said property (Art. 1779, NCC).
3) Not Included ---The inclusion of
property which might thereafter be
acquired by each of the partners by
way of donation, inheritance or
legacy cannot be stipulated.
However, the fruits thereof may be
included in the partnership by
agreement (Art. 1779, 2nd par., NCC).
Universal Partnership of All Profits:
1) What are included --- It comprises:
a) All that the partners may
acquire by their industry or work
during the existence of the
partnership ; and
b) The usufruct of their present
property (Art. 1780, NCC).
2) Not included ---
a) Property owned by each at
the time of perfection of
contract (but the usufruct of
said property is included);
b) Usufruct of future property
acquired thru means other
than their industry or work
(but they may agree to
include said usufruct).
Presumption in Favor of All Profits:
Articles of universal partnership entered
without specification of its nature (whether it
is universal partnership of all present
property or universal partnership of profits),
is presumed to be a universal partnership of
profits only (Art. 1781, NCC).
PARTICULAR PARTNERSHIP
Object: Either
1) Determinate things, their use or
fruits;
2) Specific undertaking; or
3) Exercise of a profession or vocation
(Art. 1783, NCC).
KINDS OF PARTNERS
4
1) As to nature of contribution:
a) Capitalist ---contributes
money or property;
b) Industrialist --- contributes
only his industry or service.
2) As to nature of liability:
a) General partner --- He has
control and management of the
business and is personally liable
for partnership obligations with
his separate properties.
b) Limited partner --- He is not
entitled to participate in the
management and control of the
business, but is exempt from
personal liability for the
partnership obligations because
his liability is limited only to his
capital contribution.
3) As to management:
a) Managing partner --- He is
entitled to manage the business
or affairs of the partnership.
b) Silent or secret partner ---
His connection to the
partnership is concealed and he
does not take any active part in
it (Art. 1834, NCC).
c) Liquidating partner --- He
takes charge of the winding of
the partnership affairs upon
dissolution.
4) As to exposure to public perception:
a) Ostensible partner --- One
whose name is made known
and who appears or is held to
the world as a partner, whether
or not in reality he is such. If in
fact he is not a partner, he is a
partner by estoppel.
b) Nominal partner --- He is
held out to the world as a
partner but he has no real
interest in the firm. He then
becomes a partner by estoppel.
c) Dormant or silent or secret
partner --- His connection to the
partnership is concealed and he
does not take any active part in
it (Art. 1834, NCC).
d) Partner by estoppel ---
Although not an actual partner,
he has made himself liable as
 such by holding himself out as a partners shall contribute equal
partner or allowing himself to be shares to the capital of
so held out (Art. 1825, NCC). partnership (Art. 1790, NCC);
c) An industrial
5) As to actual membership: partner cannot be required to
a) Actual or real partner --- He contribute capital without
is really a partner by agreement stipulation to that effect.
among the parties.
b) Partner by estoppel --- He is 2) Debtor of
not a real or actual partner but partnership: Every partner is a
he becomes liable as a partner debtor of the partnership for
because he holds himself out as whatever he may have promised to
a partner or allows himself to be contribute thereto (Art. 1786, 1st par.,
so held out. NCC).

6) As to timing of membership: 3) Contribution of

a) Original partner --- One who
becomes a member of a
partnership at the time of its
organization.
b) Incoming partner ---- One
who became as such as a new
member of an existing
partnership. As to old
obligations (incurred prior to his
admission), his individual or
separate property is not liable.
His liability thereto is to be
satisfied only out of partnership
property unless he stipulates
otherwise (Arts. 1826 and 1840, 2nd
par., NCC).
7) As to continuation of business
affairs after dissolution:
a) Continuing partner --- One
who continues the partnership
business after the dissolution of
the partnership due to reasons
stated in Article 1840.
b) Discontinuing partner ---
One who does not participate in
the partnership business after
its dissolution.
RIGHTS AND OBLIGATIONS OF
PARTNERS INTER SE
Obligation to Contribute to Capital
1) Proportion of
capital due from partners:
a) That which is
stipulated in the contract;
b) In the
absence of contrary stipulation,
money:
a) A
partner who has undertaken to
contribute a sum of money and
fails to do so becomes a debtor
for the INTEREST AND
DAMAGES from the time he
should have complied with his
obligation (Art. 1788, NCC).
b) Note
that no demand is necessary.
The interest and damages
accrue ipso jure.
c) In case
of default by a partner, the non-
defaulting partner cannot resort
to rescission under Article 1191
of the NCC, for the law has
established a special rule for
partners (Sancho v. Lizarraga, 55
Phil. 601).
4) Contribution of
property:
a) The
partner shall also be liable for
the fruits of the specific and
determinate things which he
may have promised to
contribute from the time they
should have been delivered,
without the need of any demand
(Art. 1786, 2nd par., NCC).
b) He shall
also be bound for warranty in
case of eviction with regard to
specific and determinate things
which he may have contributed
to the partnership (Id.).

5
5) Contribution of
additional capital to save venture:
a) In case
of imminent loss of the business
of the partnership, the partners
can be compelled to contribute
an additional share to the capital
to save the venture, except an
industrial partner (Art. 1791, NCC).
b) Effect of
refusal to contribute: The
partner who refuses to
contribute shall be obliged to
sell his interest to the other
partners, except if there is an
agreement to the contrary (Art.
1791, NCC).
Obligation to Observe Good Faith
1) Private use of partnership money ---
If a partner uses partnership money
for his own use, he is liable to pay
interest and damages to the
partnership from the time he
converted said amount to his own
use (Art. 1788, 2nd par., NCC).
2) Individual transactions in connection
with partnership affairs or involving
use of firm property:
a) Every partner is required to
account to the partnership any
benefit derived by him without
the consent of the other
partners from any transaction
connected with the formation,
conduct or liquidation of the
partnership or from any use by
him of its property (Art. 1807,
NCC).
b) He is holding any such profit
only as a trustee for the
partnership (Art. 1807, NCC).
3) Payment collected from debtor of
both managing partner and the
partnership:
a)
Situation: The managing partner
collects a credit from a debtor
who owes him and the
partnership, and both debts
being demandable.
6
b)
Rules:
(i)
The sum collected shall be
applied to both credits, in
proportion to their amounts,
even though the managing
partner may have given a
receipt for his own credit
only (Art. 1792, 1st par., NCC). In
short, he may not apply all
of it to his own credit.
(ii)
But he may apply the whole of it
to the credit owed to the
partnership (Art. 1972, 1st par.,
NCC).
(iii)
If the credit is more onerous to
the debtor, the latter may,
however, exercise the right
to declare, at the time of
making the payment, that
the same be applied entirely
or in a greater part to the
individual credit of the
managing partner (Art.
1972, 2nd par., NCC).
4) Amounts collected as share in the
firm credit ahead of co-partners:
a) Situation: One of the
partners receives, wholly or
partly, his share of the credit
without the knowledge and
consent of the other, and
the firm fails to collect the
full balances of the credit
because the debtor
becomes insolvent.
b) Rule: The partner who
receives his share is obliged
to return to the firm what he
has received for division
among all, even though he
may have given receipt for
his share only (Art. 1793,
NCC).
5) Engagement in individual business:
a) By an industrial partner:
 1) Prohibition: Prohibited from
engaging in any kind of
business, unless expressly
permitted by all partners
(Art. 1789, NCC).
2) Effect of violation: The
capitalist partner may
either: (i) exclude the
industrial partner from the
firm OR (ii) avail
themselves of the benefits
which he may have
obtained in violation of the
prohibition, with a right to
damages in either case (Art.
1789, NCC).
b) By a capitalist partner:
1) Prohibition: Prohibited from
engaging in business of
same nature as that of
partnership, unless there is
a stipulation to the contrary
(Art. 1808, 1st par., NCC).
2) Effect of violation: He is
required to bring to the
common funds any profits
derived by him from his
transactions. But he shall
personally bear all the
losses (Art. 1808, 2nd par., NCC).
6) Equal knowledge of partnership
affairs:
a) Right to examine
partnership books: Every
partner shall at any
reasonable hour have
access to and may inspect
and copy the partnership
books (Art. 1805, NCC).
b) Matters affecting
partnership: Partners shall
render ON DEMAND true
and full information of all
things affecting the
partnership to any partner
or the legal representative
of any deceased partner or
of any partner under legal
disability (Art. 1806, NCC).
7
Obligation for Damages Suffered By
Partnership Thru His Fault
1) Rule: A partner is liable for damages
to the partnership for damages
suffered by it through his fault (Art.
1794, NCC).
2) No compensation: He cannot
compensate such damages with the
profits and benefits which he may
have earned for the partnership by
his industry (Art. 1794, NCC).
3) Mitigation of responsibility: However,
the court may lessen his
responsibility if thru the partners
EXTRAORDINARY efforts in other
activities of the partnership,
UNUSUAL PROFITS have been
realized (Id.).
Right to Recover Expenses Incurred For
Firm
1) Right to reimbursement: Each
member of a partnership is entitled
to reimbursement therefrom for all
expenditures made by him on behalf
of the partnership plus interest (Art.
1796, NCC).
2) Right to interest: The partnership
shall be responsible for the
corresponding interest from the time
the expenses are made (Art. 1796,
NCC).
3) Obligations contracted in good faith:
The partnership is also liable to a
partner for contractual obligations
incurred by the latter in good faith in
the interest of the partnership
business, and for risks in
consequence of its management
(Art. 1796, NCC).
Distribution of Profits and Losses
1) Determined by agreement:
a) The losses and profits shall
be distributed in conformity with
 the agreement (Art. 1797, 1st par.,
NCC).
b) However, none of them can
be excluded from participation in
the profits and losses. A
stipulation which excludes one
or more partners from any share
in the profits or losses is void
(Art. 1799, NCC).
2) In the absence of agreement:
a) As to profits:
i) The
profits shall be divided in
proportion to their
respective contribution,
except that in the case of
the industrial partner he
shall receive such share as
may be just and equitable
under the circumstances
(Art. 1797, NCC).
ii) If the
industrial partner has also
contributed capital aside
from his service, he shall
also receive a share in the
profits in proportion to his
capital (Id.).
b) As to losses:
i) If there
is no agreement as to the
share of each partner in the
losses, but there is an
agreement as to the share
in the profits, the loss shall
be borne in the same
proportion as that in which
they share in the profits (Art.
1797, 1st par., NCC).
ii) In the
absence of agreement in
respect of profits as well as
losses, then the share of the
partners in losses shall be
in proportion to their
respective contributions (Art.
1797, 2nd par., NCC). But the
industrial partner shall not
be liable for the losses, in
the absence of a contrary
stipulation (Id.).
No agreement
management:
8
3) If designation entrusted to third
persons:
a) The
partners may agree to entrust to
a third person the designation of
the share of each one in the
profits and losses (Art. 1798, 1st
par., NCC).
b) Suc
h designation may be impugned
only when it is manifestly
inequitable (Id.).
c) A
partner cannot complain of the
decision of a third person if: (i)
he has begun to execute said
decision; or (ii) he fails to
impugn the same within a period
of three (3) months from the
time he had knowledge thereof
(Id.).
4) Designation by one partner,
prohibited: The designation of
losses and profits cannot be
entrusted to one of the partners (Art.
1798, 2nd par., NCC).
Right to Enter Into Sub-partnership
1) Rig
ht to enter into sub-partnership: The
law authorizes each partner of a firm
to make a stranger a partner with
him in his share of the profits and
losses of that firm (Art. 1804, NCC).
The contract between them is called
a sub-partnership.
2) Rel
ation of sub-partner: The sub-
partners are partners inter se.
However, the sub-partner does not
become a member of the original
partnership in the absence of the
assent of all the other partners],
even if the partner having an
associate should be a manager (Art.
1804, NCC).
Management of Partnership
as to manner of

1) All the partners shall be considered
agents and whatever any one of
them may do alone shall bind the
partnership (Art. 1803[1], NCC).
2) But if any of them should oppose
the acts of the others, the decision
of the majority shall prevail, and in
case of a tie, the matter shall be
decided by the partners owning the
controlling interest (Art. 1803, in relation
to Art. 1801, NCC).
3) In case of alteration of immovable
property, unanimous consent is
required even if the same is useful
to partnership (Art. 1803[2], NCC).
When manner of management has been
agreed upon:
1) When a managing partner has been
appointed:
a) Appointment is made in the
articles of partnership (Art.
1800, NCC) ---
i) Power is irrevocable
without just or lawful
cause;
ii) To remove him for JUST
cause, vote of partners
having controlling
interest is necessary;
iii) To remove him without
just cause, unanimous
vote is necessary,
including his own vote.
iv) If he acts in good faith,
he may execute all acts
of administration
despite the opposition
of his partners.
b) Appointment was made
after the constitution of
partnership ---
i) Power of administration
may be revoked at any
time;
ii) If he acts in good faith,
he may execute all acts
of administration
despite the opposition
of his partners.
9
2) When 2 or more managing partners
have been entrusted with
management:
a) Without
specification of their respective
duties, or without stipulation that
one of them shall not act without
the consent of all the others ---
i) Each one may execute
all acts of administration;
ii) But if any of them
should oppose the acts of
the others: (1) Decision of
majority prevails; and (2) In
case of tie, matter shall be
decided by partners owning
the controlling interest (Art.
1801, NCC).
b) With stipulation
requiring unanimous consent ---
i) Unanimous
consent is required for the
validity of the acts
ii) Except: when
there is imminent danger of
grave or irreparable injury to
the partnership (Art. 1802,
NCC).
PROPERTY RIGHTS OF A
PARTNER
Property Rights of a Partner:
1) his rights in specific partnership
property;
2) his interest in the partnership; and
3) his right to participate in the
management (Art. 1810, NCC).
Rights in Specific Partnership Property
(Art. 1811, NCC):
1) Nature of right --- A partner is co-
owner with his partners of specific
partnership property.
2) Right to posses --- Has equal right
to possess specific partnership
property for partnership purposes
(without the consent of others); but
has no right to possess for any other
purpose without the consent of his
partners.
 are not so charged or sold
3) Cannot be assigned, except in (Art. 1814, 2nd par., NCC).
connection with the assignment of
rights of all the partners in the same c) Preferred rights of
property. partnership creditors: The
creditors of the partnership shall
4) Not subject to attachment or be preferred to those of each
execution, except on a claim against partner as regards the
the partnership. partnership property (Art. 1827,
NCC).
5) Not subject to legal support.
3) Effect of conveyance of his whole
Partners Interest in Partnership: interest in partnership (Art. 1813,
NCC):
1) Concept: A partners interest in the
partnership is his share of the profits a) Right to convey Since a
and surplus (Art. 1812, NCC). This is partners interest in the
personal property. partnership is his personal
property, he can convey the
2) A partners interest in the same.
partnership can be subjected to
attachment or execution by his b) Such conveyance does not
judgment creditor. necessarily effect a dissolution
of the partnership. However, the
purchaser of a partners interest
may secure from the court a
Procedure for enforcement: decree of dissolution in two
instances:
a) Charging Order: Any i) After the
judgment creditor of a partner termination of the specified
may apply in court for a term or particular
charging order. In said order, the undertaking; or
court may charge the interest of ii) In case of
the debtor partner with payment partnership at will, when the
of the unsatisfied amount of interest was assigned or
such judgment debt with interest when the charging order
thereon (Art. 1814, 1st par., NCC). was issued.

b) Redemption of interest c) The assignee does not become

charged: The interest charged a partner without the
may be redeemed at any time concurrence of the other
before foreclosure, or in case of partners. Hence, he does not
a sale being directed by the acquire, during the continuance
court, may be purchased of the partnership:
without thereby causing a i) the right to interfere in
dissolution: the management or
i) with administration of the
separate property, by any partnership business or
one or more of the partners; affairs;
or ii) the right to require any
ii) with information or account of
partnership property, by any partnership transactions; or
one or more of the partners iii) the right to inspect the
with the consent of all the partnership books (Art. 1813,
partners whose interests NCC).

10
 iv) However, in case of
fraud in the management of
the partnership, the
assignee may avail himself
of the usual remedies.
d) During the continuance of the
partnership, the assignee is
entitled to receive in accordance
with his contract the profits to
which the assigning partners
would otherwise be entitled.
e) In case of dissolution of
partnership, the assignee is
entitled to receive his assignors
interest and may require an
account from the date only of
the last account agreed to by all
the partners.
OBLIGATIONS OF PARTNERS
TO THIRD PERSONS
Use of Partnership Name:
1) Requirement of firm name: Every
partnership is required to operate
under a firm name (Art. 1815, NCC).
2) Name to be adopted:
a) It can adopt any
name, which may or may not
include the name of one or more
of the partners (Art. 1815, NCC).
b) In case of limited
partnership, it is required that
the word limited be included in
the name of the partnership (At.
1844[1][a], NCC).
3) Use of Name of Non-Partner: Article
1825 of the Civil Code prohibits a
third person from including his name
in the firm name under pain of
assuming the liability of a partner (In
re: Petition for Authority to Continue Use of
the Firm Name Sycip, July 30, 1979) .
Those who, not being members of
the partnership, include their names
in the firm name, shall be subject to
the liability of a partner (Art. 1815, 2nd
par., NCC).
Liability For Contractual Obligations:
11
1) Rule --- All partners, including
industrial ones, shall be liable pro
rata with their property and after all
the partnership assets have been
exhausted, for partnership
obligations arising from contract (Art.
1816, NCC).
2) Stipulation against liability --- Any
stipulation against the foregoing
liability is:
a) Void, in so far as
third persons are
concerned;
b) Valid, as among
the partners (Art. 1817, NCC).
3) Nature of liability --- Only secondary
or only after exhaustion of
partnership assets.
4) Extent of liability --- Only pro rata (or
in proportion to his interest in the
partnership). Hence, he is not
solidarily liable.
5) Separate obligation by a partner ---
If a partner undertakes in his
individual capacity and on his
individual credit to perform a
partnership contract, he becomes
primarily (not secondarily) liable for
the same (Art. 1816, NCC).
Right of Representation/To Bind
Partnership
General rule: Every partner is an agent of
the partnership and his act binds the
partnership if it is for apparently carrying on
in the usual way the business of the
partnership, unless:
1) the partner so acting has in fact no
authority to act for the partnership in
the particular matter; and
2) the person with whom he is dealing
has knowledge of the fact that he
has no such authority (Art. 1818, NCC).
Partnership is not bound by act of a
partner if:
1) Act is not apparently for the carrying
on of business of the partnership in
 the usual way, unless authorized by
other partners (Art. 1818, 2nd par., NCC).
2) Although the act is for apparently
carrying on in the usual way the
business of the partnership, the
partner so acting has no authority to
act in the particular matter and the
person with whom he dealt with had
knowledge of such fact (Art. 1818, 1st
par., NCC).
3) Act is in contravention of a
restriction on authority and the
person he dealt with had knowledge
of the restriction (Art. 1818, last par.,
NCC).
Acts Requiring Unanimous Consent of
All Partners (if business has not been
abandoned):
1) Assignment of partnership property
in trust for creditors or on the
assignees promise to pay the debts
of the partnership;
2) Disposition of goodwill of the
business;
3) Doing any other act which would
make it impossible to carry on the
ordinary business of partnership;
4) Confession of judgment;
5) Entering into a compromise
concerning partnership claim or
liability;
6) Submission of partnership claim or
liability to arbitration; and
7) Renunciation of a partnership claim
(Art. 1818, 3rd par., NCC).
Conveyance of Real Property
Where title is in partnerships name:
1) Rule: Can be conveyed only in the
partnership name (Art. 1774, NCC).
2) Effect of conveyance by a single
partner:
a) If conveyance is
in the usual course of business,
the same is within the scope of
the partners apparent authority,
therefore binding upon the
principal.
b) If conveyed in
partnership name but not
12
authorized, the partnership may
recover the property unless the
same has been conveyed by the
grantee to a holder for value
without knowledge that the
partner has exceed his authority
(Art. 1819, 1st par., NCC).
c) If conveyed in his
own name and the act is one
within the authority of the
partner pursuant to Article 1818,
it passes the equitable interest
of the partnership (Art. 1819, 2nd
par., NCC).
Where title is in name of one or more but
not all the partners and the record does
not disclose the right of the partnership:
1) The
partners in whose name the title
stands may convey title to such
property.
2) But the
partnership may recover such
property if the partners act does not
bind the partnership under the
provisions of Article 1818, unless
the purchaser or his assignee, is a
holder for value, without knowledge
(Art. 1819, 3rd par., NCC).
Where title is in name of one or more or
all partners, or in a third person in trust
for the partnership:
1) A conveyance executed by a partner
in the partnership name, or in his
own name, passes the equitable
interest of the partnership, provided
the act is one within the authority of
the partner under the provisions of
the first paragraph of Article 1818
(Art. 1819, 4th par., NCC).
Where title is in names of all partners: A
conveyance executed by all the partners
passes all their rights in such property (Art.
1819, 5th par., NCC).
Effect of Admission and Representation
By A Partner: It binds the partnership when
---
1) Concerns partnership affairs; and
2) It is within the scope of his authority
(Art. 1820, NCC).
When Notice To A Partner Binds
Partnership:
1) When
Binding: In the following cases ---
a) If notice is on any matter
relating to partnership affairs
acquired while transacting
business for the firm and
relating thereto;
b) Knowledge acquired by a
partner acting in that particular
matter;
c) Knowledge of any other
partner who reasonably could
and should have communicated
it to the acting partner (Art.
1821, NCC).
2) When Not
Binding: In case of fraud on the
partnership, committed by or with
the consent of that partner (Art. 1821,
NCC).
Liability Arising From Partners Tort or
Breach of Trust:
1) Instances giving rise to liability:
a) Where a partner,
by any wrongful act or omission
and acting in the ordinary
course of the business of the
partnership or with the authority
of his co-partners, causes loss
or injury to a non-partner (Art.
1822, NCC).
b) Where a partner
acting within the scope of his
apparent authority receives
money or property of a third
person and misapplies it (Art.
1823[1], NCC).
c) Where the
partnership in the course of its
business receives money or
property of a third person and
the money or property so
received is misapplied by any
partner while it is in the custody
of the partnership (Art. 1823[2],
NCC).
2) Who shall be liable:
a) The partnership is liable to the
same extent as the partner so
13
acting or omitting to act (Art. 1822,
1823, NCC).
b) But all the partners are liable
solidarily with the partnership for
everything chargeable to the
partnership in the above-
mentioned instances (Art. 1824,
NCC).
Partnership by Estoppel
When partnership by estoppel exist: It
exists when a non-partner, by words spoken
or written or by conduct, represents himself,
or consents to another representing him to
anyone, as a partner in an existing
partnership or with one or more persons not
actual partners (Art. 1825, NCC).
Requisites for liability: In order for
estoppel to apply, it is necessary that the
third person must have knowledge of the
representation and acted in reliance upon
the same.
Who shall be liable:
1) A partnership liability results when
all members of the existing
partnership consent to the
representation, in which case, the
partner by estoppel (or ostensible
partner) is liable as though he were
an actual member of the partnership
(Art. 1825, NCC).
2) When no partnership liability results
because not all the members of an
existing partnership consent to the
representation ---
a) The person acting and persons
consenting to the representation
shall all be liable as partners to
a third person who deal with
them upon the faith of such
representation, the transaction
being considered their joint act
or obligation.
b) The partner by estoppels is
liable pro rata with the other
persons so consenting to the
contract or representation, if any
(Art. 1825, NCC).
Liability of Incoming Partner for circumstances which do not permit
Obligations Arising Prior to His dissolution.
Admission: 3) Any event which makes it unlawful
for the partnership business to be
1) He is liable as though he had been carried on or for the members to
a partner when such obligations carry it on.
were incurred. 4) When specific thing, which a partner
2) But his obligations shall be satisfied had promised to contribute to the
only out of partnership property. partnership, perishes before the
3) His own property shall not be liable, delivery.
unless there is a stipulation to the 5) By the loss of the thing in any case,
contrary (Art. 1826, NCC). when the partner who contributed it
having reserved the ownership
thereof, has only transferred to the
DISSOLUTION AND WINDING UP partnership the use or enjoyment of
the same.
[Note: But the loss of the thing after
Dissolution: Change in the relation of the
the partnership has acquired
partners caused by any partner ceasing to
ownership shall not result in
be associated in the carrying on of the
dissolution].
business (Art. 1828, NCC).
6) By death of any partner.
7) By insolvency of any partner or of
Winding Up: Process of settling the
the partnership.
partnership business or affairs after
8) By civil interdiction of any partner.
dissolution.
9) By decree of the court:
Termination: Point in time when all
a) On application by any partner by
partnership affairs are wound up or
reason of ---
completed and is the end of the partnership
i) Insanity of any partner;
life.
ii) Incapability of any partner in
performing his part;
Causes of Dissolution (Art. 1830, NCC):
iii) Being guilty of any conduct
1) Without violation of agreement
tending to affect prejudicially
between partners:
the carrying on of business;
a) By termination of definite term
iv) Willful or persistent
or particular undertaking
commission of breach of
specified in the agreement;
partnership agreement
b) By express will of any partner in
v) Business of partnership can
partnership at will, acting in
only be carried on at a loss.
good faith; and
c) By express will of all partners
b) On application of purchaser of a
who have not assigned their
partners interest ---
interests or suffered them to be
i) After termination of
charged for their separate
specified term or particular
debts, either before or after
undertaking.
termination of any specified
ii) At any time in case of
term or particular undertaking.
partnership at will when
d) By expulsion of any partner from
interest was assigned or
the business bona fide in
when the charging order
accordance with such a power
was issued.
conferred by agreement
between the partners.
Reminders:
1) In dissolution by express will of any
2) In contravention of agreement, by
partner, without violation of the
express will of any partner under
agreement, the good faith
requirement is not a limitation upon

14
 the right to dissolve but upon the i) The general rule and
rule of non-liability for damages exceptions mentioned
caused by the dissolution. In other above will apply.
words, whether the right is ii) Thus, dissolution terminates
exercised in good faith or in bad the authority of any partner
faith, this will result in the dissolution to undertake new business
of the partnership except that if the for the partnership.
right is exercised in bad faith, the
partner exercising it is answerable b) Dissolution is by act, insolvency
for losses caused by the dissolution. or death of a partner:
i) Rule --- each partner is
2) In dissolution by express will of any liable to his co-partners for
partner but in contravention of the his share of any liability
agreement, the partner who caused created by any partner
the dissolution is liable to pay acting for the partnership as
damages caused to the partnership if the partnership had not
and his co-partners by reason of been dissolved.
such breach. ii) Exceptions: The foregoing
rule does not apply if ---
3) In case of expulsion: In the absence aa) Dissolution being by act
of agreement, a partner cannot be of any partner, the
expelled except an industrial partner partner acting for the
who engages in business for himself partnership had
without express permission from the knowledge of the
partnership (Art. 1789, NCC). However, dissolution.
even if a power of expulsion is bb) Dissolution being by the
conferred by agreement, such death or insolvency of a
power may not be exercised in bad partner, the partner
faith. Note, however, that acting for the
misconduct on the part of a partner partnership had
may furnish ground for dissolution knowledge or notice of
by the court on the application of the the death or insolvency
other partner (Art. 1831, par. 1(3), NCC). (Art. 1833, NCC).

Effects of Dissolution 2) With respect to third persons:

I. As to partners authority to act for a) When partnership is bound to

partnership third persons by an act of a
partner after dissolution:
1) General rule: It terminates all i) Act appropriate for winding
authority of any partner to act for the up partnership affairs;
partnership. ii) Act for completing
2) Exceptions: transactions unfinished at
a) Acts necessary to wind up dissolution;
partnership affairs; and iii) Any NEW transaction which
b) Acts necessary to complete would bind the partnership if
transactions begun but not then dissolution had not taken
finished (Art. 1832, NCC). place, provided third party
acted in good faith ---
Qualifications to General Rule: aa) Other party to transaction
had extended credit to
1) With respect to partners (inter se): partnership prior to
dissolution and had no
a) Dissolution is not by act, knowledge or notice of
insolvency or death of a partner: dissolution; or

15
 bb) Although not prior creditor,
he has known of the
partnership and has no
knowledge or notice of
dissolution because the
fact of dissolution had not
been advertised in a
newspaper of general
circulation in the place at
which the partnership
business was regularly
carried on (Art. 1834,1st par.,
NCC).
Liability of Silent or Dormant Partner for New
Transactions: A partners liability for new
transactions shall be satisfied out of
partnership assets alone when he had been
prior to dissolution ---
1) Unknown as a partner to the person
with whom the contract is made;
and
2) So far unknown and inactive in
partnership affairs that the business
reputation of the partnership could
not be said to have been in any
degree due to his connection with it
(Art. 1834, 2nd par., NCC).
b) When partnership is NOT bound
to third persons by an act of a
partner after dissolution:
i) Partnership is dissolved
because it is unlawful to
carry on the business,
except when act is for
winding up
ii) Partner has become
insolvent.
iii) Partner has no authority to
wind up partnership affairs,
except by a transaction with
third party who acted in
good faith (mentioned
above).
iv) Act is not appropriate for
winding up or for completing
unfinished transactions; and
v) Completely new
transactions which would
bind the partnership if
dissolution had not taken
place and the other party to
the transaction did not act in
good faith.
16
II. As to partners existing
liability
General rule: Dissolution of the partnership
does not of itself discharge the existing
liability of any partner (Art. 1835, NCC).
Exception: A partner may be relieved from
any existing liability upon dissolution of the
partnership only by an agreement to that
effect between:
1) Himself (partner concerned)
2) Other partners
3) Partnership creditor
III. Rights of Partner Upon
Dissolution
In Case of Rightful Dissolution:
1) In general --- Unless otherwise
agreed, each partner, as against his
co-partners and all persons claiming
through them in respect of their
interest in the partnership, has the
right:
i) To have the partnership property
applied to the payment of firm
debts and liabilities; and
ii) To have the surplus assets
divided among the members of
the firm (Art. 1837, 1st par., NCC).
This is known as the partners
lien
2) In case of expulsion of a partner
bona fide, if he is discharged from
all partnership liabilities, he shall
receive in cash only the net amount
due him from the partnership (Art.
1837, 1st par., NCC).
In Case of Dissolution in Contravention
of Partnership Agreement:
1) Rights of partner who has not
caused dissolution wrongfully is
entitled:
a) Rights mentioned above.
b) In addition, right to recover
damages against the partner
who wrongfully caused the
dissolution.
c) Right to continue the business
under same name either by
themselves or jointly with
others.
 d) If they decide to continue the 2) He is entitled to
business, they have the right to be indemnified by the guilty partner
possess the partnership against all debts and liabilities of the
property, provided they secure firm (Art. 1838, NCC).
payment by bond approved by
court, or pay the partner who
wrongfully caused the RIGHTS OF CREDITORS
dissolution, the value of his
interest in the partnership at the I. Partnership Creditors
dissolution, less any damages
recoverable from him by reason 1) Over
of the wrongful dissolution (Art. partnership assets:
1837, 2nd par., NCC). a) Creditors of
the partnership shall be
2) Rights of a partner who has preferred to those of each
wrongfully caused the dissolution: partner as regards the
partnership property.
a) If the business is not continued: b) Hence,
i) He shall have the right to when a partnership becomes
what is known as partners insolvent, the partners become
lien, subject to his liability to trustees for the creditors of the
other partners for damages partnership, and it is their duty
due to breach of agreement. to manage the firms property
and assets with strict regard to
b) If business is not continued: the interests of the said creditor.

i) To have the value of his 2) Over assets

interest in the partnership
less any damage caused to
his co-partners by the
dissolution, ascertained and
paid to him in CASH OR
secured by a bond
approved by the court; and
ii) To be released from all
existing and future liabilities
of the partnership (Art. 1837,
2nd par., No. 3, NCC).
Note: In ascertaining the value of his interest in
the firm, the value of the goodwill of the business
shall not be considered (Id.).
Rights of Partners In Case of Rescission
of Partnership Contract Due to Fraud or
Misrepresentation:
1) He is entitled to a
lien on the surplus of the partnership
assets after discharge of firm
liabilities for moneys paid into the
firm by him for the purchase of an
interest in the partnership and for
any capital or advances contributed
by him.
of individual partners:
a) If there are
sufficient partnership assets to
satisfy firm debts, the separate
properties of the partners do not
become liable for the payment
of the firms obligations.
b) Where
there are no firm assets or after
exhaustion of firm assets, the
partners are liable PRO RATA
with their individual assets for
firm debts.
c) However, in
case of insolvency of a partner,
his individual or separate
creditors shall have preference
over his individual assets than
the creditors of the partnership
(Art. 1839, No. 9, NCC).
II. Individual Creditors
1) Over partnership assets:
a) The rights
of the creditor of an individual
partner in firm assets are
confined to the share or interest
of his debtor in such assets, and
since a partners share thereof

17
 can be ascertained only after
the firm debts have been paid,
an individual creditor is entitled
to be paid only out of the
debtors share in the surplus
which remains after the firm
debts have been paid, and the
equities between the partner
and his co-partners have been
adjusted, and the partners
share has been ascertained and
set apart.
b) Foregoing
rule applies although a partner
has assigned his interest as
security for his individual
creditors.
c) Under this
rule partnership property cannot
be subjected to the payment of
individual creditors, where it is
insufficient to pay partnership
creditors, especially where it
appears that the partner has
individual property.
2) Over assets of individual partners:
a) In
distributing the private estate of
an individual partner, his
individual creditors are entitled
to be first paid in preference to
general firm creditors (Art. 1839,
No. 9, NCC).
b) Hence,
where the individual debts
exceed the value of the
individual property, the
individual creditors take the
whole of such property.
Rules to be Followed in Accounting
(Subject to Contrary Agreement):
ACCOUNTING AND
SETTLEMENT BETWEEN OR
AMONG PARTNERS
Right to Accounting After Dissolution:
18
1) Who is entitled to demand
accounting:
a) Any partner;
b) The legal representative of
a deceased partner.
2) Persons liable; against whom the
demand is made: The winding up
partners or the surviving partners in
the absence of an agreement to the
contrary.
3) Date of accounting: The right to an
account accrues at the date of
dissolution.
4) Property and transactions to be
included in the accounting:
a) In general,
all property and transactions
belonging to the firm and
forming part of its assets.
b) A partner
should be credited in respect of
any advances properly made by
him.
c) He shall be
charged with overdrafts which
may be collected from his
personally if his share in the firm
assets is insufficient.
d) Goodwill of
the firm is ordinarily a part of the
firm assets.
e) Claims
between partners and the firm
should be included.
f) The same
rule applies to claims between
the parties, which are veritable
partnership transactions.
1) What are considered as assets of
the firm:
a) Partnership property; and
b) Contributions of the partners
necessary for the payment of all
the liabilities (Art. 1839, No. 1,
NCC).
 The partners shall 1.
contribute the amount Partnership creditors shall
necessary to satisfy the have priority on
liabilities, in the proportion partnership property.
mentioned in Article 1797 2.
(distribution of losses and Separate creditors shall
profits) (Art. 1839, No. 4, NCC). have priority on
The individual property of a individual property.
deceased partner shall be liable 3.
for the foregoing contributions Rule is without prejudice to
(Art. 1839, No. 7, NCC). the rights of lien or
Who may enforce the secured creditors (Art.
collection of said contributions? 1839, No. 8, NCC).
(i) an assignee for the benefit of
creditors or any person ii) Priority between claims
appointed by the court; or (ii) against partners individual
any partner or his legal assets in case of
representative, to the extent of insolvency: In case a
the amount which he has paid in partner has become
excess of his share of the insolvent, the claims against
liability (Art. 1839, Nos. 5 and 6, his separate property shall
NCC). rank in the following order:
2) Method of distribution: 1. Those owing to
a) Firm separate creditors.
Assets: 2. Those owing to
i) Order of payment of partnership creditors.
liabilities in winding up: 3. Those owing to partners
1.Those owing to creditors by way of contribution
other than partners; (Art. 1839, No. 9, NCC].
2.Those owing to partners
other than for capital and
profits; LIMITED PARTNERSHIP
3.Those owing to partners
in respect of capital;
4. Those owing to partners Definition: One formed by two or more
in respect of profits (Art. persons, having as members one or more
1839, No. 2, NCC). general partners and one or more limited
partners (Art. 1843, NCC). Otherwise defined, a
ii) Order of application of limited partnership is one in which the
assets: The assets shall be liability of one or more, but not all, of the
applied in the order of their partners is limited to the amount contributed
declaration in Article 1839, by him or them to the firm capital at the time
No. 1 to the satisfaction of of the formation of the partnership.
the liabilities. (Art. 1839, No. 4,
NCC). Characteristics of Limited Partnership:

b) Firm and 1) Organization in compliance

Individual Assets In Custody of
Court:
i) Doctrine of Marshalling of
Assets: When partnership
property and the individual
properties of the partners
are in possession of a court
for distribution ----
with the terms of the statute
governing the relation.
2) One or more general
partners who control the business
and personally liable to creditors.
3) One or more special or
limited partners, who contribute to
its capital and who share in its
profits, but who have no powers in

19
 the control of the business, and who (i) It is
are not personally liable for its also the surname of a
debts. general partner; or
4) Limitation of the rights of its (ii) Prior to
creditors to the partnership fund and the time when the limited
to the general partners. partnership became as
such, the business had
Distinguished from Ordinary Partnership: been carried on under a
The following are absent in a limited name in which his surname
partnership but present in a general appeared (Art. 1846, 1st par.,
partnership --- NCC).
1) Liability of all
partners for the debts of the firm. b) A limited partner
2) Agency of each whose surname appears in a
partner for the firm. partnership name contrary to
3) Dissolution of the the foregoing is liable as a
firm upon the death of any partner. general partner to partnership
creditors who extend credit to
Essential Requirements for Formation of the partnership without actual
LP: knowledge that he is not a
general partner (Art. 1846, NCC).
1) Necessary member: There
must be at least one general partner c) The addition of
and one limited, or special, partner the world limited to partnership
(Art. 1843, NCC). name is required by the Code
[Art. 1844(1)(a), NCC].
2) Contribution by limited
partner: 4) Certificate or articles of
incorporation:
a) Requirement: The Code
does not require that the a) The Code
general partner shall make requires a certificate to be
any contribution to the firm signed and sworn to by the
capital, but it so requires the partners, specifying therein the
special partner [Art. 1844 (1)(f); matters enumerated in Article
Art. 1845, NCC]. 1844.
b) Medium of contribution: The b) The Code
contributions of a limited likewise requires that such
partner may be cash or certificate be filed for record in
other property, but not the SEC.
services (Art. 1845, NCC).
c) Time for contribution: The 5) Compliance with foregoing
contribution must be paid requirements for formation:
prior to the filing of the
certificate required to be a) Requirement: A limited
filed before the SEC (Art. partnership is formed if there
1844, NCC). has been substantial
compliance in good faith with
3) Partnership name: the requirements of the Code
(Art. 1844, last par., NCC).
a) The surname of a
limited partner SHALL NOT b) Effect of failure to comply:
appear in the partnership name A limited partnership that has
UNLESS: not complied with the law of its
creation is not considered a
limited partnership at all, but a

20
 general in which all the (7) Continue the
members are solidarily liable (Jo business with partnership
Chung Cang v. Pacific Commercial Co., property on the death,
45 Phil. 142). retirement, insanity, civil
interdiction or insolvency of
c) Qualification: a general partner unless the
i. The partnership is right so to do is given in the
considered a general certificate (Art. 1850, NCC).
partnership only as to its
relation to third persons. II. Rights and Powers of Limited
ii. As between the Partners
partners, they are bound by
their agreement. 1) Management of the business: He
has no right to participate in the
RIGHTS AND POWERS OF PARTNERS management of the firms business.

I. Rights and Powers of General 2) Examination of firm books: He has

Partners the same rights as a general partner
to have the partnership books kept
a) General rule: He shall have at the principal place of business of
all the rights and powers and be the partnership, and at a reasonable
subject to all the restrictions and hour to inspect and copy any of
liabilities of a partner in a them (Art. 1851, 1st par., No. 1, NCC).
partnership without limited partners.
(Art. 1850, NCC). 3) Requiring information and formal
account: He has the same rights as
b) Particular limitations on his a general partner to have on
authority: Without the written demand true and full information of
consent or ratification of the specific all things affecting the partnership,
act by all the limited partners, a and a formal account of partnership
general partner or all of the general affairs whenever circumstances
partners HAVE NO authority to: render it just and reasonable (Art.
1851, 1st par., No. 2, NCC).
(1) Do any act in
contravention of the 4) Secure decree dissolution and
certificate. winding up: He has the same rights
(2) Do any act which as a general partner to have
would otherwise make it dissolution and winding up by
impossible to carry on the decree of court (Art. 1851, 1st par., No. 3,
ordinary business of the NCC).
partnership.
(3) Confess a 5) Right to share of profits or other
judgment against the compensation:
partnership.
(4) Possess a) In general: He
partnership property, or has the right to receive a share
assign their rights in specific of the profits or other
partnership property, for compensation by way of income
other than a partnership (Art. 1851, last par., NCC).
purpose.
(5) Admit a person as b) When entitled to
a general partner. receive: Only if, after such
(6) Admit a person as payment, the partnership assets
a limited partner, unless the will be in excess of all liabilities
right so to do is given in the of the partnership (except
certificate. liabilities to limited partners on

21
 account of their contributions
and to general partners) [Art.
1856, NCC].
6) Right of return to contribution: A
limited partner shall have the right to
the return of his contribution [Art.
1851, last par., NCC]
a) Wh
en may rightfully demanded: A
limited partner may rightfully
demand the return of his
contribution:
i. On the dissolution of a
partnership; or
ii. When the date specified
in the certificate for its
return has arrived; or
iii. After he has given six
months' notice in writing
to all other members, if
no time is specified in
the certificate, either for
the return of the
contribution or for the
dissolution of the
partnership (Art. 1857, 2nd
par., NCC).
b) Lim
itations: A limited partner shall
not receive from a general
partner or out of partnership
property any part of his
contributions until:
i. All liabilities of the
partnership, except
liabilities to general
partners and to limited
partners on account of
their contributions, have
been paid or there
remains property of the
partnership sufficient to
pay them;
ii. The consent of all
members is had, unless
the return of the
contribution may be
rightfully demanded
under the provisions of
the second paragraph;
and
iii. The certificate is
cancelled or so
22
amended as to set forth
the withdrawal or
reduction (Art. 1857, 3rd
par., NCC).
c) For
m in which contribution may be
returned: Only in the form of
cash, unless contrary is
provided in the certificate or
agreement of all members (Art.
1857, 3rd par., NCC).
7) Rights, powers and liabilities of a
limited partner who is also a general
partner:
a) Rul
e: A person can be a general
partner and a limited partner in
same partnership, provided that
this fact is stated in the
certificate (Art. 1853, NCC).
b) He
has the same rights, powers
and subject to all restrictions of
a general partner.
c) But
with respect to his contribution,
his rights shall be that of a
limited partner (as if he is not
also a general partner) [Art. 1853,
NCC).
LIABILITIES OF LIMITED PARTNER
I. In Relation To Firm
1) Liabilities in respect of contribution:
A limited partner is liable to the
partnership
a) For the difference between
his contribution as actually
made and that stated in the
certificate.
b) For any unpaid contribution
which he agreed in the
certificate to make in the future
at the time and on the
conditions stated in the
certificate.
c) A limited partner holds as
trustee for the partnership:
 (i) Specific property
stated in the certificate as
contributed by him, but
which was not contributed
or which has been
wrongfully returned, and
(ii) Money or other
property wrongfully paid or
conveyed to him on account
of his contribution (Art. 1858,
1st and 2nd pars., NCC).
2) Waiver or compromise:
a) The foregoing liabilities of a
limited partner can be waived or
compromised only by the
consent of all members.
b) But a waiver or compromise
shall not affect the right of a
creditor of a partnership who
extended credit or whose claim
arose after the filing and before
a cancellation or amendment of
the certificate, to enforce such
liabilities (Art. 1858, 3rd par., NCC).
3) Liabilities after rightful receipt of
return of contribution with regard to
firm debts: When a contributor has
rightfully received the return in
whole or in part of the capital of his
contribution, he is nevertheless
liable to the partnership for any sum,
not in excess of such return with
interest, necessary to discharge its
liabilities to all creditors who
extended credit or whose claims
arose before such return (Art. 1858,
last par., NCC).
4) Loans and other business
transactions:
a) In general: A limited partner
also may loan money to and
transact other business with the
partnership, and, unless he is
also a general partner, receive
on account of resulting claims
against the partnership, with
general creditors, a pro rata
share of the assets (Art. 1854,
NCC).
23
b) Restrictions: No limited
partner shall in respect to any
such claim:
i. Receive or hold as collateral
security and partnership
property, or
ii. Receive from a general
partner or the partnership
any payment, conveyance,
or release from liability if at
the time the assets of the
partnership are not sufficient
to discharge partnership
liabilities to persons not
claiming as general or
limited partners (Art. 1854,
NCC)
c) Effect of violation of
restrictions: The receiving of
collateral security, or payment,
conveyance, or release in
violation of the foregoing
provisions is a fraud on the
creditors of the partnership (Art.
1854, NCC).
II. In Relation To Third Persons
1) In general: The special partner has
none of the attributes of an agent,
and he cannot bind the firm by his
acts in any way.
2) Liability to third persons:
a) In general: A limited partner
does not become liable as a
general partner unless, in
addition to the exercise of his
rights and powers as a limited
partner, he takes part in the
control of the business (Art. 1848,
NCC).
b) Effect of taking part in
management of business: He
becomes liable as a general
partner for the firms obligations
(Art. 1848, NCC).
c) Effect of inclusion of
surname in partnership name: A
limited partner whose surname
appears in a partnership name
contrary to the provisions of the
 first paragraph of Article 1846 is
liable as a general partner to
partnership creditors who
extend credit to the partnership
without actual knowledge that
he is not a general partner (Art.
1846, NCC).
d) Effect of false statements in
certificate: If the certificate
contains a false statement, one
who suffers loss by reliance on
such statement may hold liable
any party to the certificate who
knew the statement to be false:
(i) At the
time he signed the
certificate, or
(ii) Subsequ
ently, but within a sufficient
time before the statement
was relied upon to enable
him to cancel or amend the
certificate, or to file a
petition for its cancellation
or amendment as provided
in Article 1865 (Art. 1847,
NCC).
Substituted Limited Partner
Concept: He is admitted to all the rights of a
limited partner who has either died or has
assigned his interest in a partnership (Art.
1859, 2nd par., NCC).
Requisites for Assignee to Become SLP:
1) Either all the members consented
thereto OR the assignor, being
empowered by the certificate, gives
the assignee that right.
2) The certificate is appropriately
amended in accordance with Article
1865.
3) The amended certificate is
registered in the SEC.
Effects of Substitution:
1) It does not release the assignor
from the following liabilities:
a) Those arising from a
certificate containing false
statement under Article
1847.
24
b) Then difference between his
contribution as actually
made and that stated in the
articles.
c) Any unpaid contribution
which he agreed in the
certificate to make in the
future (see Art. 1859, last par.,
NCC).
2) The substituted limited partner has
all the rights and powers of the
assignor (Art. 1859, 6th par., NCC).
3) The substituted limited partner is
subject to all the restrictions and
liabilities of the assignor, except
those liabilities of which he was
ignorant at the time he became a
limited partner and which could not
be ascertained from the certificate
(Art. 1859, 6th par., NCC).
If Assignee Does Not Become SLP:
1) He has no right to require any
information or account of the
partnership transactions.
2) He has no right to inspect the
partnership books.
3) He is only entitled to receive the
share of the profits or other
compensation by way of income, or
the return of his contribution, to
which his assignor would otherwise
be entitled (Art. 1859, 3rd par., NCC).
DISSOLUTION AND LIQUIDATION
Dissolution of Limited Partnership:
1) Retirement, death, insolvency,
insanity or civil interdiction of a
GENERAL PARTNER, unless
business is continued by remaining
general partners:
a) Under a right to do so
stated in the certificate; or
b) With the consent of all
members (Art. 1860, NCC).
2) When all limited partners ceased to
be as such (Art. 1864, par. 1, NCC).
3) Expiration of term or period of
existence of partnership.
4) By agreement of all the partners
before the lapse of period of
existence.
 5) Misconduct of a general partner or
fraud committed by a general
partner against the limited partner/s.
6) When the limited partner demanded
the return of his contribution but the
same was unjustifiably denied.
Liquidation of Limited Partnership: Order
of priority in the payment of liabilities of the
limited partnership ----
1) Those owing to creditors, in the
order of priority as provided by law,
except those to limited partners on
account of their contributions, and to
general partners.
2) Those owing to limited partners in
respect to their share of the profits
and other compensation by way of
income on their contributions.
3) Those owing to limited partners in
respect to the capital of their
contributions.
4) Those owing to general partners
other than for capital and profits.
5) Those owing to general partners in
respect to profits.
6) Those owing to general partners in
respect to capital (Art. 1863, NCC).
Cancellation of Certificate or Articles of
Partnership:
1) When partnership is dissolved; or
2) When all limited partners cease to
be as such (Art. 1864, NCC).
Amendment of Certificate or Articles of
Partnership:
1) Change in the name of partnership
or in the amount or character of the
contribution of any limited partner.
2) A person is substituted as a limited
partner.
3) An additional limited partner is
admitted.
4) A person is admitted as a general
partner.
5) A general partner retires, dies,
becomes insolvent or insane, or is
sentenced to civil interdiction and
the business is continued under
Article 1860.
6) Change in the character of the
business of the partnership.
7) False or erroneous statement in the
certificate.
25
8) Change in the time as stated in the
certificate for the dissolution of the
partnership or for the return of a
contribution.
9) A time is fixed for the dissolution of
the partnership, or the return of a
contribution, no time having been
specified in the certificate.
10) Members desire to make a change
in any other statement in the
certificate in order that it shall
accurately represent the agreement
among them.
AGENCY
NATURE AND DISTINCTION FROM
OTHER RELATIONS
Definition: Contract whereby a person
(agent) binds himself to render some service
or to do something in representation or on
behalf of another (principal), with the
consent or authority of the latter (Art. 1868,
NCC).
Elements of Agency: The essence of
agency is representation. For a contract of
agency to exist, it is essential that the
principal consents that the other party, the
agent, shall act on its behalf, and the agent
consents so as to act. In the case of Yu Eng
Cho v. Pan American World Airways, Inc.,
(328 SCRA 717) the Court had the occasion
to set forth the elements of agency:
(1) Co
nsent, express or implied, of the
parties to establish the relationship.
(2) Obj
ect is the execution of a juridical act
in relation to a third person.
(3) Age
nt acts as a representative and not
for himself.
(4) Age
nt acts within the scope of his
authority (Apex-Mining Co., Inc. v.
Southeast Mindanao Gold Mining Corp., 492
SCRA 355).
Characteristics of Agency Contract:
Preparatory
Fiduciary
Bilateral
Onerous (generally)
 Representative Relation
Nominate
Distinguished From Assignment: Agency
is distinct from assignment. In agency, the
agent acts not on his own but on behalf of
his principal. In assignment, however, there
is a total transfer or relinquishment of right
by the assignor to the assignee. The
assignee takes the place of the assignor and
is no longer bound to the latter (Apex-Mining
Co., Inc. v. Southeast Mindanao Gold Mining Corp.,
492 SCRA 355).
Exception: There are, however, instances
where, independently of the question
whether or not an actual agency has been
created, persons are, by reason of their acts
or conducts, deemed to sustain the relation
of principal and agent for the protection of
third parties. In apparent or ostensible
agency, a person, whether authorized or not,
appears to third persons, because of the
manifestations of another, to be authorized
to act as agent for such other.
II. Actual Agency

Distinguished From Lease of Service: 1) There must be consent: In the case

of the principal, consent consists in
1) In agency, the basis is the grant of mandate or authority by
representation; while in lease of him to the agent and, in the case of
service, it is employment. the agent, in his acceptance.
2) In agency, the agent exercises
discretionary powers; while in lease 2) How mandate is manifested:
of service, the lessor ordinarily a) Expressly; or
performs only ministerial functions b) Impliedly from the acts of the
(Nielson & Co., Inc. v. Lepanto Consolidated
principal, from his silence or
Mining Co., 26 SCRA 540).
lack of action, or his failure to
3) In agency, three persons are repudiate the agency, knowing
involved: the principal, the agent that another person is acting on
and the third persons with whom the his behalf without authority
agent has contracted; while in lease (Art.1869, NCC).
of service, only two persons are
involved: the lessor (master or 3) Express Mandate: Form Required---
employee) and the lessee (servant
or employee). a) Rule: Agency may be oral,
unless the law requires a
Acts Which May Be Delegated To An specific form (Art. 1869, 2nd
Agent (Subject Matter of Agency): par., NCC).
b) Exception: When a sale of a
General rule: What may do in person, he piece of land or any interest
may do thru another (Qui facit per alium therein is through an agent,
facit per se). the authority of the latter
shall be in writing;
Exceptions: otherwise, the sale shall be
1) Peculiarly personal acts; and void (Art. 1874, NCC).
2) Illegal acts
4) Implied Conferment of Mandate:
CREATION AND EXISTENCE OF AGENCY a) Implied from acts of the
principal:
I. In General i) By actively holding out
another as his agent or
General rule: Since agency is a contract, thereby investing him with
fundamentally, it comes into existence just apparent or ostensible
as any other contract; consent, subject authority as agent.
matter and cause must concur in order that ii) By habit and course of
it may arise. dealing, as where the
alleged principal has

26
 previously employed the
alleged agent as such in
transactions of similar
nature to the one in
question.
b) Implied from his silence,
inaction or failure to repudiate;
requisites: : (1) The principal
knew that another person is
acting on his behalf without
authority; and (2) he kept silent,
did not act or did not repudiate
the agency.
5) How acceptance is manifested:
a) Expressly; or
b) Impliedly from the agents acts
which carry out the agency, or
from his silence or inaction
according to the circumstances
(Art. 1870, NCC).
6) Implied acceptance by agent:
a) Implied from his acts which
carry out the agency.
b) Implied from his silence or
inaction:
i) Rule as between persons
who are present: The
acceptance of agency is
implied if the principal
delivers his power of
attorney to the agent and
the latter receives it without
any objection (Art. 1871, NCC).
ii) Rule as between persons
who are absent: The
acceptance of the agency
cannot be implied from the
silence of the agent, except:
(aa) When the principal
transmits his power of
attorney to the agent,
who receives it without
any objection.
(bb) When the principal
entrusts to him by letter
or telegram a power of
attorney with respect to
the business in which
he is habitually engaged
27
as an agent, and which
he did not reply to the
letter or telegram (Art.
1872, NCC).
III. Apparent or Ostensible
Agency
1) Nature: An agency is apparent, or
ostensible, where a person, whether
authorized or not, appears to third
persons, because of the
manifestations of another, to be
authorized to as agent for such
other.
2) How it arises:
a) By special information: If
a person specially informs
another that he has given a
power of attorney to a third
person, the latter becomes a
duly authorized agent with
respect to the person who
received the special
information (Art. 1873, NCC).
b) By public advertisement:
If a person states by public
advertisement that he has
given a power of attorney to a
third person, the latter
becomes a duly authorized
agent with regard to any
person (Art. 1873, NCC).
3) Termination of the agency: The
power shall continue to be in full
force until the notice is rescinded in
the same manner in which it was
given (Art. 1873, 2nd par., NCC).
IV. Agency By Estoppel
1) Definition: There is agency by
estoppel where a person, by words
or conduct, represents or permits it
to be represented that another
person is his agent. In such a case,
he is estopped to deny the agency
as against third persons who have
dealt, on the faith of such
representation, with the person so
held out as agent, even if no agency
existed in fact.
 by one, as a result of out an apparent
2) Elements: the representations authority.
a) Representation by the of fact by the other.
principal; The liability of a
b) Reliance upon such principal on the
representation by a third person; ground of estoppel
and therefore can be out
c) Change of position by only upon a showing
such third person in reliance that the third party
upon such representation. has relied upon the
principals
3) Implied Agency and Agency by representations to
Estoppel: the third partys
detriment.
This is limited to Apparent authority is
Implied Agency Agency by cases in which there not limited to cases
Estoppel is no real agency. in which there is no
This is an acted This is limited to real agency. It may
agency and is a fact cases in which there be actual as well as
to be proved by is no real agency. ostensible.
deductions or
inferences from
other facts. EXTENT OF AUTHORITY OF AGENT
As to third persons: The agency by
Although the estoppel can be
I. With
principal is equally invoked only when
reference to quantity of
liable in both, in here the third person
transactions comprised (Art.
the third person knew and relied on
1876, NCC):
need have no the conduct of the
knowledge of the principal.
General Agency --- Comprises all the
principals acts nor
business of the principal.
have relied on the
same. The agent by
Special Agency --- Comprises of one or
implied authority
more specific transactions.
being an actual
agent, the principal
is liable for his acts
II. With
the same as though
reference to nature of acts
the authority had
authorized:
been express.
As between the An agent by estoppel
Agency couched in general terms ---
principal and agent: is no agent at all
Comprises only acts of administration, even
An agent by implied and, as against the
if the principal should state that he withholds
appointment is a real principal, has none
no power or that the agent may execute
agent with all his of the rights of an
such acts as he may consider appropriate,
rights and liabilities. agent.
or even though the agency should authorize
a general and unlimited management (Art.
1877, NCC).
4) Agency by Estoppel and Apparent
Agency:
1) Distinguished from general agency:
Agency by Apparent Agency
General Agency Agency Couched in
Estoppel
General Terms
Estoppel The presence of
Classification Classification relates
comprehends a such reliance is
concerns the to the nature of the
detrimental reliance unnecessary to spell

28
number of the acts juridical act which he c) Comprom
or transactions can realize. ise, Submission of questions to
conferred on the arbitration, Renunciation of right
agent. to appeal from a judgment,
Hence, a general Waiver of objections to venue of
agency may be an action or Abandonment of
couched not in prescription already acquired.
general terms but in d) Waiver of
definite ones any obligation gratuitously.
authorizing particular e) Entering
juridical acts other into any contract by which
than mere ownership of immovable is
administration. transmitted or acquired either
gratuitously or for a valuable
2) Effect: The authority conferred in consideration.
general terms is confined to acts of f) Making
administration. They are those that gifts, except customary ones for
do not involve acts of dominion, charity or those made to
such as alienations, except where employees in the business
these are incidental to the authority managed by the agent.
to administer. g) Lending
or borrowing money, unless the
3) Not affected by other statements of latter act be urgent and
principal: If the mandate conferred indispensable for the
by the principal is couched in preservation of the things which
general terms, the fact that the are under administration.
principal made the following h) Leasing
statements will not extend the any real property to another
authority beyond the performance of person for more than one year.
mere acts of administration: (1) he i) Binding
withholds no power; (2) the agent the principal to render some
may execute such acts as he may service without compensation.
consider appropriate; (3) that the j) Binding
mandate authorizes a general and the principal in a contract of
unlimited management. partnership;.
k) Obligating
Agency couched in specific terms --- One the principal as a guarantor or
which explicitly indicates the particular surety.
function/s which the agent is authorized to l) Creation
exercise, be it performance of mere acts of or conveyance of real rights
administration or execution of definite acts of over immovable property.
dominion. m) Accepting
or repudiating an inheritance.
1) Cases where special power is n) Ratificatio
necessary (Art. 1878, NCC): n or recognition of obligations
contracted before the agency.
a) Making o) Any other
payments which are not usually act of strict dominion.
considered as acts of
administration. 2) Powers not included:
b) Effecting
novations putting an end to a) Spe
obligations already in existence cial power to sell excludes the
at the time the agency was power to mortgage; and a
constituted. special power to mortgage does

29
 not include the power to sell (Art. emergency, provided the following
1879, NCC). requisites exist:
b) Spe
cial power to compromise does a) Emergency really exist.
not authorize submission to b) Agent is unable to
arbitration (Art. 1880, NCC). communicate with the
principal.
3) Agency couched in specific terms c) Agents enlarged power is
and special agency: exercised for the principals
protection.
Agency couched in Special Agency d) Means adopted are
specific terms reasonable under the
Special power Has reference to the circumstances.
referred to in Article number of
1878 means transactions the
mandate which agency embraces. EXECUTION OF AGENCY
explicitly indicates
whether expressly or
Requisites In Order to Bind Principal By
impliedly, the
Agents Acts:
particular functions
1. Agent must act within the scope of
or transactions the
his authority (Art. 1881, NCC); and
agent is authorized
2. Agent must act in the name of the
to perform.
principal.

Acts Considered Still Within Scope of

III. Inciden
Agents Authority:
tal Authority:
1. Acts that may be conducive to the
accomplishment of purpose of the
Authority included ---- Unless contrary is
agency (Art. 1881, NCC).
expressed, a general or special power
2. Acts which are performed in a
carries with it, by implication, the incidental
manner more advantageous to the
authority to perform:
principal than that specified by him
a) whatever acts necessary
(Art. 1882, NCC).
and proper to effectuate main
authority;
Effect of Acting Beyond Scope of
b) acts that are made
Authority:
appropriate attributes of main
authority by some particular custom
General rule: Principal is not bound. A
or usage; and
contract entered into by an agent who has
c) acts that are rendered
acted beyond his powers is unenforceable,
essential by some special necessity
unless it is ratified by the principal (Art. 1317
or emergency.
and 1403{1], NCC).

IV. Agenc
Exceptions: Principal is liable in the following
y by Necessity:
situations even if the agent acted beyond
the scope of his authority ---
1) Important note: An agency can
1. When the principal ratifies the
never be created by necessity; what
agents act, either expressly or
is created is additional authority in
impliedly (Art. 1910, NCC).
an agent appointed and authorized
2. Principal is solidarily liable if he
before the emergency arose.
allowed the agent to act as though
the latter had full powers (Art. 1911,
2) Requisites: The existence of an
NCC).
emergency or other unusual
3. If the limitations to the agents
condition may operate to invest in
authority is known only between the
an agent authority to meet the

30
 agent and principal and not to third i. But principal did not
persons (Art. 1900, NCC). designate a particular
4. Where the principal placed in the person: Agent is responsible
hands of the agent instruments for the acts of the substitute
signed by him in blank. if the substitute appointed
was notoriously
Effect of Agent Acting In His Own Name: incompetent or insolvent
(Art. 1892[2], NCC).
1. Principal has no right of action ii. But principal
against the third person with whom designated a particular
the agent has contracted (Art. 1883, 1st person: Substitution is the
par., NCC). act of the principal himself
2. Third person has no right of action rather than of the agent.
against the principal (Id.). Consequently, the agent is
3. Agent is the one directly bound in totally and absolutely
favor of the third person with whom exempt from responsibility
he has contracted with as if the for the acts of the sub-
transaction were his own, except agent.
when the contract involves things
belonging to the principal (Art. 1883, c) If agent is prohibited from
2nd par., NCC). appointing substitute: The agent
acts beyond the scope of his
Delegation of Authority (Sub-Agent): authority and shall be held liable
for whatever damage that may
1) When permissible: Agent may result.
appoint a substitute if the principal
has not prohibited him from doing so 4) Effect as between principal and
(Art. 1892, NCC). substitute: Both substitute and agent
are directly and personally liable to
2) Effect as between principal and the principal for the acts of
third person: substitute if ---
a) Agent appoints a substitute
a) If substituted not prohibited: The although not empowered to do
acts of the substitute will so; or
produce the same effect b) Even if empowered, agent
between the principal and third selects a substitute notoriously
persons as if they were those of incompetent or insolvent (Art.
the agent himself. 1893, NCC).

b) If substitution prohibited: All acts OBLIGATIONS OF AGENT TO PRINCIPAL

of the substitute appointed
against the prohibition of the
If Agency Was Declined --- In case a
principal shall be void (Art. 1892,
person declines an agency:
last par., NCC).

1. Such
3) Effects as between principal and
person is bound to observe the
agent:
diligence of a good father of a family
in the custody and preservation of
a) If agent not empowered to
the goods forwarded to him by the
appoint a substitute but not
owner until the latter should appoint
prohibited: Agent shall be
an agent or take charge of the
responsible for the acts of the
goods (Art. 1885, NCC).
substitute (Art. 1892[1], NCC).
2. The
owner, as soon as practicable, must
b) If agent is empowered:

31
 either appoint an agent or take
charge of the goods (Art. 1885, NCC).
If Agency Was Accepted ---
I. Obligation to carry out agency
What constitutes carrying out --- it
means to perform whatever acts may be
necessary to bring the business to
conclusion.
Effect of principals death --- Death of the
principal extinguishes the agency (Art. 1919[3],
NCC). However, the agent is obligated to
finish the business already begun on the
death of the principal, should delay entail
any danger (Art. 1884, 2nd par., NCC).
Liability for damages in case of non-
performance ---- Agent is liable for
damages which, through his non-
performance, the principal may suffer (Art.
1884, 1st par., NCC). But if, after non-
performance, the principal confers a second
mandate for the same purpose, this will bar
an action for damages as it constitutes a
tacit assent to the conduct of the agent
under the first agency.
Cases when agent is not bound to carry
out the agency ---- If its execution would
manifestly result in loss or damage to the
principal (Art. 1888, NCC).
II. Obligation to advance funds
General rule: Agent is not bound to
advance the necessary funds to carry out
the agency.
Exception: Unless there is a stipulation to
that effect.
Exception to exception: Even if there is a
stipulation that agent should advance the
necessary funds, he is not obliged to do so if
the principal is insolvent (Art. 1886, NCC).
III. Obligation to obey instructions
Rule: In the execution of the agency, the
agent shall act in accordance with the
instructions of the principal (Art. 1887, NCC).
In default of instructions: Agent shall do
all that a good father of a family would do,
32
as required by the nature of the business
(Art. 1887, NCC).
IV. Obligation to observe good faith
and loyalty
In general: An agent is a fiduciary with
respect to the matters within the scope of his
agency.
Conflict of interest: If, there being a conflict
between his interests and those of the
principal, he should prefer his own, he shall
be liable for damages (Art. 1889, NCC).
If authorized to borrow money: If the
agent has been empowered to borrow
money, he may himself be the lender at the
current rate of interest (Art. 1890, NCC).
If authorized to lend money: If he has
been authorized to lend money at interest,
he cannot borrow it without the consent of
the principal (Art. 1890, NCC).
Prohibition against buying property of
principal: An agent cannot, without his
principals consent purchase, whether
directly or indirectly, and even at public or
judicial sale, property which he is authorized
to sell or administer (Art. 1491, NCC).
V. Duty to render account
In general: Every agent is bound:
1) To render an account of his
transactions; and
2) To deliver to the principal whatever
he may have received by virtue of
the agency, even though it may not
be owing to the principal (Art. 1891,
NCC).
Effect of stipulation exempting agent:
Every stipulation exempting the agent from
the obligation to render an account shall be
void (Art. 1891, 2nd par., NCC).
VI. Obligation to pay interest
The agent shall pay interest to the principal:
 1) On sums he has applied to his own
use from the day on which he did
so; and
2) On those which he still owes after
the extinguishment of the agency
(Art. 1896, NCC).
VII. Obligation to observe diligence
Observance of diligence:
1) Diligence required is bonus pater
familias.
2) The agent is responsible not only for
fraud, but also for negligence (Art.
1909, NCC).
3) The negligence of the agent shall be
judged with more or less rigor by the
courts, according to whether the
agency was or was not for a
compensation (Art. 1909, NCC).
Duty of Commission Agent (Factor):
Definition: One engaged in the purchase
and sale for a principal of personal property,
which for this purpose, has to
Care and custody of goods:
1) The commission agent shall
be responsible for the goods
received by him in the terms and
conditions and as described in the
consignment, unless upon receiving
them he should make a written
statement of the damage and
deterioration suffered by the same
(Art. 1903, NCC).
2) If the commission agent
handles goods of the same kind and
mark belonging to different owners,
he has the obligation to distinguish
them by countermarks, and to
designate the merchandise
respectively belonging to each
principal (Art. 1904, NCC).
Care of cash: He is not the insurer of the
safety of the money. But he must observe
diligence of a good father of a family.
As to authority to sell on credit:
1) Duty not to sell on credit: A
commission agent cannot, without
the express or implied consent of
33
the principal, sell on credit (Art. 1905,
NCC).
2) Effect of sale on credit:
a) If not authorized: The
principal may demand from him
payment in cash, but the
commission agent shall be
entitled to any interest or
benefit, which may result from
such sale (Art. 1905, NCC).
b) If authorized: Should the
commission agent, with
authority of the principal, sell on
credit, he shall so inform the
principal, with a statement of the
names of the buyers. Should he
fail to do so, the sale shall be
deemed to have been made for
cash insofar as the principal is
concerned (Art. 1906, NCC).
Obligation to collect credits:
1) Effect of failure to collect credits
when due and demandable:
a) Commission agent
becomes liable to principal
for damages.
b) Unless: he proves that he
exercised due diligence for
that purpose (Art. 1908, NCC).
2) Del Credre Agent:
a) Definition: He is a
commission agent who receives
on sale a guaranty commission,
in addition to the ordinary
commission. The guaranty
commission is given in return for
the risk of collecting the credit.
b) Effects:
i. He guarantees
the risk of collection and he
shall pay the principal the
proceeds of the sale on the
same terms agreed upon
with the purchaser, if the
latter is not able to pay (Art.
1907, NCC).
ii. Either the
principal or the del credere
agent may sue the
 purchaser and the suit of
one will bar the subsequent
suit of the other.
Doctrine of Procuring Cause --- If the
agent is the procuring cause of the sale
that the measures employed by him and the
efforts he exerted resulted in the sale he is
entitled to the payment of the commission
(Ramos v. CA, G.R. No. 25463, April 4,
1975).
In Case of Two or More Agents (Joint
Agents): The responsibility of two or more
agents, even though they have been
appointed simultaneously is merely joint and
not solidary, unless solidarity has been
expressly stipulated (Art. 1894, NCC).
OBLIGATIONS OF PRINCIPAL TO AGENT
I. Obligation to pay
compensation
General rule: Agency is presumed to be for
compensation (Art. 1875, NCC).
Exception: Unless there is proof to the
contrary (Art. 1875, NCC).
II. Obligation to advance funds
Rule: Principal is obliged to advance funds
necessary for the execution of the agency
upon the request of the agent (Art. 1912, NCC).
When agent is obliged to advance funds:
1. If there is a stipulation to that effect.
2. But notwithstanding such stipulation,
he cannot be obliged to do so if the
principal is insolvent (Art. 1886, NCC).
Right of agent who made such advances:
1. He is entitled to be reimbursed,
even if the business or undertaking
was not successful, provided the
agent was free from all fault (Art.
1912, 2nd par., NCC).
2. Such reimbursement shall include
interest on the sums advanced, from
the day on which the advance was
made (Art. 1912, 3rd par., NCC).
34
Instances where principal is not liable for
expenses incurred by agent:
1. If agent acted in contravention of
principals instructions, unless the
latter should wish himself to avail
himself of the benefits derived from
the contract.
2. When expenses were due to fault of
the agent.
3. When agent incurred them with
knowledge that an unfavorable
result would ensue, if the principal
was not aware thereof.
4. When it was stipulated that the
expenses would be borne by the
agent, or that the latter would be
allowed only a certain sum (Art. 1918,
NCC).
III. Obligation to indemnify agent
for damages
Requisites:
1. Agent suffers damage as a result of
the execution of agency.
2. The agent is free from fault or
negligence (Art. 1913, NCC).
Agents Lien:
1) Agent may retain in pledge the
things which are the object of the
agency until the principal effects the
reimbursement and pays:
a) the advances made by the
agent; and
b) the damages suffered by
the agent in executing the
agency (Art. 1914, NCC).
2) The enforcement of the lien is the
same as that required in foreclosing
a pledge.
If There Be Several Principals (Joint
Principals): If there be several principals
who have appointed the agent for a common
transaction or undertaking, they shall be
solidarily liable to the agent for all the
consequences of the agency (Art. 1915, NCC).
RIGHTS AND LIABILITIES AS BETWEEN
PRINCIPAL AND THIRD PERSON
 but the nature and extent of the
A. For Contracts Contracted By authority of the agent.
Agent As Such (In Behalf Of
Principal) (2) And contract is beyond
the scope of agents authority:
(1) And contract is within
scope of agents authority: a) Principal is not
bound except when he ratifies it
a) Principal is bound. He must comply expressly or tacitly (Art. 1910, 2nd
will the obligations which the agent par., NCC). The contract is
may have contracted (Art. 1910, NCC). unenforceable (Art. 1317 and
b) Agent is not personally liable to third 1403[1], NCC).
person with whom he contracts,,
unless he expressly binds himself b) Exceptions:
(Art. 1897, NCC). Principal is bound
c) The cause of action of third person notwithstanding the fact that
is against the principal, unless the agent exceeded his authority ---
agent expressly binds himself.
1. If the limits
When agent deemed to have acted within of the agents authority is
scope of his authority as to third known only to the principal
persons: and agent and the party
with whom the agent
a) If authority is in writing --- contacted is not aware of
the limits of the powers
1. Act is deemed to have been granted by the principal (Art.
performed within the scope of 1898 and 1900, NCC).
the agents authority if the same 2. If the
is within the terms of the power principal allowed the agent
of attorney as written, even if to act as though the latter
the agent has in fact exceeded had full powers, in which
the limits of his authority case, principal is solidarily
according to an understanding liable with the agent (Art.
between the principal and the 1911, NCC).
agent (Art. 1900, NCC).
2. Private or secret orders and c) Agent is
instructions of the principal do personally liable to the person
not prejudice third persons who he contracted with if ---
have relied upon the written
power of attorney or instructions 1. He exceeds
shown them (Art. 1902, NCC). his authority, without giving
3. For this purpose, a third person such party sufficient notice
with whom the agent wishes to of his powers (Art. 1897, NCC).
contract on behalf of the 2. He exceeds
principal may require the his authority and he
presentation of the power of undertook to secure the
attorney or the instructions as principals ratification (Art.
regards the agency (Art. 1902, 1898, NCC).
NCC).

b) If authority is not in writing --- rule B. For Contracts Executed By Agent

is that every person dealing with an In His Own Name
assumed agent is put upon inquiry
and must discover upon his peril, if a) Principal has no
he would hold the principal liable, right of action against the
not only upon the fact of the agency person with whom the agent has

35
 contracted, except when the
contract involves things
belonging to principal (Art. 1883,
NCC).
b) Such third person
likewise has no cause of action
against the principal, except
when the contract involves
things belonging to principal (Art.
1883, NCC).
c) Agent is the one
directly bound to the person
whom he contracted with,
except when the contract
involves things belonging to
principal (Art. 1883, NCC).
d) The exception
does not apply when the agent
acted beyond the scope of his
authority.
e) If the principal
ratifies the contract or has
signified his willingness to ratify
the agents acts, the same
becomes enforceable between
the parties and the third person
with whom the agent contacted
with cannot set up the fact the
agent exceed his powers (Art.
1901, NCC).
DOUBLE SALE BY PRINCIPAL AND
AGENT
Situation: Two persons contract with regard
to the same thing, one of them with the
agent and the other with the principal, and
the two contracts are incompatible with each
other.
Whose contract is preferred: That of prior
date shall be preferred, without prejudice to
the provisions of Article 1544 on double sale
(Art. 1916, NCC).
Who is liable to the person whose
contracted is rejected:
1. If the has agent acted in good faith,
the principal is liable. The agent is
not liable.
2. If the agent has acted in bad faith,
only the agent is liable for damages.
The principal is not liable (Art. 1917,
NCC).
36
Liability of Principal for Delict/Quasi-
delict Committed by Agent: The principal
may be held liable if 2 conditions are present
---
1. Person sought to be held must
stand in the relation of principal to
the one committing the act; and
2. Act of the agent must have been
done within the scope of his
authority.
MODES OF EXTINGUISHMENT OF
AGENCY
.1 Revocation by principal
.2 Withdrawal of the agent
.3 Death, civil interdiction,
insanity or insolvency of the
principal or of the agent
.4 Dissolution of the firm or
corporation which entrusted or
accepted the agency
.5 Accomplishment of the
object or purpose of the agency
.6 Expiration of the period for
which the agency was constituted
(Art. 1919, NCC).
.I Revocation of
agency by principal
Revocable at will: The principal may
revoke the agency at will, and compel the
agent to return the document evidencing the
agency (Art. 1920, NCC). When two or more
principals have granted a power of attorney
for a common transaction, any one of them
may revoke the same without the consent of
the others (Art. 1925, NCC).
Exceptions: The agency is not revocable at
will if ---
1. If a bilateral contract depends upon
it.
2. If the agency is a means of fulfilling
an obligation already contracted.
3. if a partner is appointed manager of
partnership in the contract of
partnership and his removal from
the management is unjustifiable (Art.
1927, NCC).
Manner of revocation: Either express or
implied (Art. 1920, NCC). There is implied
revocation in the following ---
1. When a new agent is appointed for
the same business or transaction
(Art. 1923, NCC).
2. When the principal directly manages
the business entrusted to the agent,
dealing directly with third persons
(Art. 1924, NCC).
3. When a special power of attorney is
granted to another, it revokes the
general power of attorney as
regards the special matter involved
in the general power (Art. 1926, NCC).
Necessity and sufficiency of notice of
revocation:
a) Between principal and third
person ---
If Agent had general powers:
1. Notice of revocation in a newspaper
of general circulation is a sufficient
warning to third persons (Art. 1922,
NCC).
2. Without such notice, revocation
does not prejudice third persons
who acted in good faith and without
knowledge of the revocation (Art.
1922, NCC).
If Agency is for contracting with specified
persons: The specified persons are not
prejudiced by the revocation unless they
were given notice thereof (Art. 1921, NCC).
b) Between principal and agent ---
Agent must be notified.
.II Withdrawal by
agent
Manner: By giving due notice to the
principal (Art. 1928, NCC).
Liabilities of agent incident to
withdrawal:
1. If the principal suffers damage by
reason of withdrawal, agent is liable
for damages unless he based his
withdrawal upon the impossibility of
37
continuing the performance of the
agency without grave detriment to
himself (Art. 1928, NCC).
2. If the withdrawal is for valid reason,
agent must continue to act until
principal has had reasonable
opportunity to take necessary steps
to meet the situation (Art. 1929, NCC).
.III Death of principal
Rule: Death of principal results in the
extinguishment of agency (Art. 1919[3], NCC).
Exceptions:
1. It agency has been
constituted in the common
interest of both principal and
agent.
2. If agency has been
constituted in the interest of
a third person who has
accepted the stipulation in
his favor (Art. 1930, NCC).
Obligation of agent upon extinguishment
of agency b y reason of death of
principal: He must finish the business
already begun on the death of the principal,
should delay entail any danger (Art. 1884, 2nd
par., NCC).
Acts done by agent prior to notice of
death of principal or of any other cause
which extinguishes agency: Considered
valid and fully effective with respect to third
persons who may have contracted with the
agent in good faith (Art. 1931, NCC).
TRUST
Definition: Trust is the legal relationship
between one person having an equitable
ownership in property and another person
owning the legal title to such property, the
equitable ownership of the former entitling
him to the performance of certain duties and
the exercise of certain powers by the latter
(Heirs of Maximo Labanon v. Heirs of Constancio
Labanon, 530 SCRA 97; Vda. De Esconde v. CA, .R.
No. 103635, February 1, 1996, 253 SCRA 66).
Persons involved in a trust:
 Trustor --- the one who establishes a
trust.
Trustee --- the one in whom confidence
is repose as regards property for the
benefit of another.
Beneficiary --- the one for whose
benefit the trust has been created.
Kinds of Trusts: Trusts are either express
or implied (Art. 1441, NCC).
Elements of Express Trust:
1. A trustor or settlor who executes the
instrument creating the trust.
2. A trustee, who is the person
expressly designated to carry out
the trust.
3. The trust res, consisting of duly
identified and definite real
properties.
4. The cestui que trust, or beneficiaries
whose identity must be clear (Canezo
v. Rojas, 538 SCRA 242).

Express Trusts --- Those which are Rules on Express Trust:

created by the direct and positive acts of
the parties, by some writing or deed, or
will, or by words evincing an intention to
create a trust (O Lao v. Co Cho Chit, 220
SCRA 656).
No particular words are required for
the creation of an express trust, it
being sufficient that a trust is clearly
intended (Art. 1444, NCC).

Implied Trust --- Those which, without Express trust concerning an

being express, are deducible from the immovable or any interest therein
nature of the transaction as matters of cannot be proved by parol evidence
intent, or which are superinduced on the (Art. 1443, NCC).
transaction by operation of law as
matters of equity, independently of the No trust shall fail because the
particular intention of the parties (O Lao v. trustee appointed declines the
Co Cho Chit, 220 SCRA 656). designation, unless the contrary
should appear in the instrument
Distinctions: constituting the trust (Art. 1445, NCC).
Express Trust Implied Trust Acceptance by the beneficiary is
Created by the Come into being by necessary. Nevertheless, if the trust
intention of the operation of law. imposes no onerous condition upon
trustor or of the the beneficiary, his acceptance shall
parties. be presumed, if there is no proof to
Express trust Implied trust in real the contrary (Art. 1446, NCC).
involving immovable property may be
or any interest may proved by oral The rule that a trustee cannot
not be proved by evidence (O Lao v. Co acquire by prescription the
parol evidence (Art. Cho Chit, supra.).
ownership of property entrusted to
1443, NCC) However, the proof
him applies squarely to express
should be as fully
trusts. The basis of the rule is that
convincing as if the
the possession of a trustee is not
acts giving rise to the
adverse. Not being adverse, he
trust obligation were
does not acquire by prescription the
proven by an
property held in trust. (Ramos v.
authentic document.
Ramos, 61 SCRA 284).
It cannot be
established upon
Acquisitive prescription may bar the
vague and
inconclusive proof action of the beneficiary against the
(Id.). trustee in an express trust for the
recovery of the property held in trust
where (a) the trustee has performed
unequivocal acts of repudiation

38
 amounting to an ouster of the cestui
qui trust; (b) such positive acts of The action to The right to seek
repudiation have been made known recover property reconveyance based
to the cestui qui trust and (c) the held in trust is on constructive trust
evidence thereon is clear and imprescriptible as is subject to
conclusive (Ramos v. Ramos, supra.) long as the trustee extinctive
has not repudiated prescription (Ramos v.
the trust (Ramos v. Ramos, supra; Pilapil v.
2 Kinds of Implied Trusts: Ramos, supra.; O Lao v. Heirs of Maximino
Co Cho Chit, supra., Briones, supra., Sps.
Resulting trust --- It is a trust raised by Pilapil v. Heirs of Bejoc v. Cabreros, 464
implication of law and presumed always Maximino Briones, 514 SCRA 78).
to have been contemplated by the SCRA 699).
parties, the intention as to which is to be Examples are: Examples are:
found in the nature of their transaction, Art. 1448 Art. 1450
but not expressed in the deed or Art. 1449 Art. 1454
instrument of conveyance (Ramos v. Art. 1451 Art. 1455
Ramos, 61 SCRA 284). Art. 1452 Art, 1456
Art. 1453
Constructive trust --- It is a trust not
created by any words, either expressly or
impliedly evincing a direct intention to create
a trust, but by the construction of equity in Whether the trust is resulting or constructive,
order to satisfy the demands of justice. It its enforcement may be barred by laches
does not arise by agreement or intention but (Ramos v. Ramos, supra., cited in Pilapil v. Heirs of
by operation of law (Ramos v. Ramos, supra.). Maximino Briones, 514 SCRA 699).

Specific examples of constructive trust

under the Civil Code:
1. Art. 1450
2. Art. 1454
3. Art. 1455; and
4. Art. 1456, NCC.
Resulting Trust Constructive Trust
Presumed always to Created by the
have been construction of
contemplated by the equity in order to
parties, the intention satisfy the demands
as to which can be of justice and
found in the nature prevent unjust
of their transaction enrichment. They
although not arise contrary to
expressed in a deed intention against one
or instrument of who, by fraud,
conveyance (Canezo duress or abuse of
v. Rojas, supra.) confidence, obtains
or holds the legal
right to property
which he ought not,
in equity and good
conscience, to hold
(Lopez v. CA, 574 SCRA
26).
Prescription of action based on
constructive trust: In constructive implied
trusts, prescription may supervene even if
the trustee does not repudiate the
relationship. Necessarily, repudiation of the
said trust is not a condition precedent to the
running of the prescriptive period (Canezo v.
Roxas, supra.). An action for reconveyance
based on implied or constructive trust
prescribes in 10 years. This period is
reckoned from the date of issuance of the
transfer certificate of title which operates as
constructive notice to the whole world
(Rodrigo v. Ancilla, 492 SCRA 514).
Repudiation of resulting trust: As
differentiated from constructive trusts, where
the settled rule is that prescription may
supervene, in resulting trust, the rule of
imprescriptibility may apply for as long as
the trustee has not repudiated the trust (Heirs
of Candelaria v. Romero, 109 Phil. 500; cited in O Lao
v. Co Cho Chit, supra.) . Once the resulting trust
is repudiated, however, it is converted into a
constructive trust and is subject to
prescription (O Lao v. Co Cho Chit, supra.).

39
Requisites for repudiation of resulting
trust: A resulting trust is repudiated if the
following requisites concur:
1. The trustee has performed
unequivocal acts of repudiation
amounting to an ouster of the cestui
qui trust;
2. Such positive acts of repudiation
have been made known to the
cestui qui trust; and
3. The evidence thereon is clear and
convincing (Ramos v. Ramos, 61 SCRA
284).

40