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3. A partner has been guilty of such conduct as tends

WHAT ARE THE CAUSES WHICH VIOLATE THE to affect prejudicially the carrying on of the business.
AGREEMENT? Because a partner might claim the otherwise,
meaning he might claim that his conduct does
Art. 1830. Dissolution is caused: not affect prejudicially on the business of the
(2) In contravention of the agreement between the partners, partnership.
where the circumstances do not permit a dissolution under 4. When the business can only be carried on a loss.
any other provision of this article, by the express will of any No need for an actual. It is enough that there is
partner at any time; an imminent danger for loses.
The imminent danger for loses may be proven
Illustration. The agreement was ten years, one of the partners through financial statements which we would
wants to dissolve it on five years; it violates the agreement. The show an irreversible trend of profits, dwindling
down. We need not wait up to the point that we
partner who caused the dissolution and violated the agreement is
are already suffering loses because when we
liable for damages especially if it can be proven that he is in bad scan the market, the market does not show any
faith. favorable indication that the partnership will be
able to recover from this trend.
There are also causes which may not be in violation of the Illustration. When we are engaged in the
agreement. Meaning , it can be in accordance with the agreement. manufacture of noodles and nobody buys
noodles because everywhere there is instant
Illustration. When there is a termination in accordance with the noodles. Thats the trend.
term specified in the articles of the partnership. When the partners Nescafe 3 in 1 story. Look at the marker
indicators!
agree that the partnership will last for 15 years, after the lapse of
5. When there is abandonment of the business.
15 years, then the partnership is dissolved. If a partner would ask 6. Fraud in the management of the partnership
to dissolve the partnership after the lapse of the agreed person, business.
then that partner is NOT liable for damages. They can still 7. Refusal of the partner to render financial accounts as
continue the partnership after the 15-year period. The partnership required.
now becomes a partnership at will. The partners can now dissolve
the partnership anytime and the partners are NOT liable for Sir. These are instances when the partners cannot just decide on
their own. They should prove it because when you dissolve, you
damages. are not only involving the rights of the partners; you are also
affecting the third parties and therefore the rights of these parties
These things (Art. 1830) will not require will not require must be protected. In a partnership business cannot just close and
any judicial intervention because its clear, the agreement say goodbye to their customers, they have to prove that the
is there. Then if we violate that agreement, we can partnership is suffering from handicaps or suffering from problems,
dissolve, but the partner who violated the agreement, financial perhaps, which require courts intervention.
who is in bad faith will be for damages.
If we dissolve it in accordance with the agreement, there EFFECT OF DISSOLUTION.
is nothing wrong because we are complying with the
When dissolutions happen, winding up follows.
agreement. There is no need for a court intervention for
that. The effect of dissolution is that the partner ceases to be
authorized to act in behalf of the partnership, except for the
purposes of winding up or completing transactions entered by the
PARTNERSHIP DISSOLUTION WHERE JUDICIAL
partnership prior to the dissolution.
INTERVENTION IS REQUIRED.
While before the dissolution, when the partnership still existed, the
1. Incapacity other than Insanity. There is a need for a
partners have the right to the specific properties, the right to
judicial declaration because the facts are disputable.
manage the partnership and the right to their share of the interests
Situation. Industrial partner in charged with repairs in an auto of the partners. In management, each partner had the authority to
repair shop and in one accident, that industrial partner lost both of bind the partnership. However upon dissolution, the partners
his arms. Is a judicial declaration needed here? (Joke about authority to bind the partnership ceases or terminated except:
thieves and anti-thief robot stolen somewhere in Colon.)
The authority is for the purposes for the winding
(Transcribers opinion because Sir did not provide for the up of the partnership affairs.
answer) De Leon: Incapacity. Obviously, this refers to For the purposes of completion unfinished
incapacity other than insanity. Independent of any express business, incurred before dissolution.
stipulation, a partner impliedly undertakes to advance the success When the dissolution is caused by the act,
of the partnership of which he is a member by devoting to it, within insolvency and death of the partner, any
reasonable limits, his time, effort, and ability. His co-partners are transaction will still bind the partnership as if the
entitled to his contribution and if, for any reason, he fails to fulfill
partnership has not been dissolved.
his duties they are thereby deprived, in greater or less degree,
according to the extent of his failure, of the benefits of the contract
which they have made, and of the fruits thereof to which they are Sir. When the partnership still existed, each partner, in the
legitimately entitled. Hence, the rule that courts have the power to absence of any agreement in the management, each partner was
decree dissolution of a partnership because of incapacity of a authorized to enter into any transaction in behalf of the
partner which materially affects his ability to discharge the duties partnership. Once the dissolution is done, that authority ceases.
imposed by his partnership contract. (Barclay vs. Barrie, 102 N.E.
102.) GROUNDS OF DISSOLUTION: WHEN THE THING
CONTRIBUTED IS LOST OR PERISHES
2. Insanity. Illustration. When a Mitsubishi Pajero colored Green is
Sir. Insanity, not Incapacity. Because no one would contributed with plate number, 664; registration no. 0701; with
admit that a person is insane! Thats why it declares engine no. 335 is promised to be contributed to the partnership,
judicial declaration.

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while on its way, as the partner was about to turn over the vehicle, Generally: the partnership is not bound,
the vehicle was involved in accident. dissolution stops every transaction
Except:
1. Winding up of the partnership
The partnership will be dissolved. Because that specific 2. Complete unfinished business
rd
Mistubishi Pajero with plate number, 664; registration no. 3. Transactions entered into with 3 parties
0701; with engine no. 335, was lost and there is no yet who have extended credit to the partnership
prior to its dissolution who had no
transfer of ownership. According to the law, when a knowledge of the dissolution
rd
specific thing is lost, before the delivery to the 4. 3 parties have not extended credit but
partnership, the partner bears the loss and the effect is such party knows of the partnership before
that the partner cannot comply with his obligation to dissolution and such dissolution has not
been advertised in a newspaper of general
contribute that specific thing, Pajero, to the partnership, circulation. (extended credit after
rd
then dissolution of the partnership happens. dissolution) suki si 3 person sa partnership
It would also depend if how the Pajero was contributed. If
If suki partnership then upon dissolution there must be publication.
the ownership was really transferred to the partnership
or if it is only the use is being contributed. If all circumstances are present, there are still transactions where
o Loss Incurred Before Delivery: the partnership could never be bound
If the ownership is already 1. The dissolution was caused by the partnership
business being unlawful
transferred to the partnership but lost 2. Partner is insolvent
before delivery, and what was 3. Partner has no authority to wind up the partnership
contributed was the car itself, the business except when the parties involved are the
partnership shall be dissolved. same who has extended credit prior to the
dissolution as well as the person who has no
If only the use is being contributed knowledge but has known the partnership prior to its
before delivery. The partnership is dissolution.
also dissolved. In any of these circumstances the partnership cannot be bound.
rd
Where 3 parties are aware or not, the partnership could not be
o Loss Incurred After the delivery. We would bound. Ignorance of the law excuses no one.
also distinguish.
If the ownership of the specific things Novation:
was transferred to the partnership, then - Execution of a new contract to extinguish the old one
- Mode of extinguishing an obligation
the partnership would not be dissolved,
If only for the use of the thing. The MODES OF EXTINGUISHIN OBLIGATION:
partnership shall be dissolved. (not
sure with the last part kay to bePaLoReMeCoNo ARFP:
Payment
continued daw) Loss
Remission
WWW, August 28, 2014 Merger
Condonation
General Rule: Novation
Before dissolution, each partner is an agent and Annulment
therefore could bind the partnership Rescission
Unless: 1. No authority Fulfillment of resolutory condition
2. Not usual course of business Prescription
3. Lack of authority is known to 3rd
person Remission or Condonation
- Obligation ahh just forget about it so if the
Upon dissolution, all authority given to each partner moment I remember?
ceases, no longer authorized - Releasing the debtor from his obligation
Effects of dissolution of the partnership to the partners:
Upon dissolution, acts of a partner could no longer bind WWW August 28, 2014, Part 2
the partnership

Exception: Continuation on Modes of Extinguishing Obligation:

1. Winding up
2. Finish the uncompleted transactions Merger/Confusion personalities of both debtor and creditor
3. When the dissolution was caused by the acts, merged in one person
insolvency or death of the partner
a. Normally these things would have dissolved
the partnership and therefore his authority Novation a new contract is entered into to replace the old one.
should have ceased but if it involves acts,
insolvency or death by way of exception, 2 Types of Novation:
these do not normally affect the rights of
each partner unless:
1. REAL NOVATION - change in the thing itself or the subject
Exception to the Exception: matter. The Res changes.
1. Unless partner who entered into a
transaction had knowledge or notice of the 2. PERSONAL NOVATION - change in the parties involved; this
partners act, insolvency or death can be done by changing the creditor - Subrogation
a. It will not bind the partnership

Lets illustrate:
ABC, A died. B and C had knowledge of his
death. When B and C entered into another contract
involving the partnership, A would not be liable (of course
he is dead). The Estate of A would no longer be held
liable because B and C already had notice and
knowledge of As death.
Effects of dissolution of the partnership to 3rd persons:
New transactions after dissolution:
Illustration. Camasin owes me 10K but instead you pay me 10K. I
cannot collect from Camasin anymore. It is now you who collects.
You step into my shoes/rights. substitution of the new creditor.
Therefore you are the new creditor, and when there is a new
creditor there is novation and it is technically called Subrogation
Applying this in partnership, once we dissolve, the
creditor can still claim from the partnership since this is
really the purpose of winding up.

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Q: When there is the dissolution of the partnership, can the 1. One designated in the articles of partnership.
creditors still collect from the partnership? Yes, dissolution of 2. If none, any of the partners who is not guilty of the wrongful
the partnership does not mean that the obligations are dissolution.
extinguished, that is the purpose of winding up.
If you are the guilty party then you may still receive the surplus of
So if K has collectables from partnership ABC, and that the assets remaining but you are also equally liable for damages.
liability/obligation arose from contract, and the assets of the (less damages)
partnership are now void, can the creditor still collect? Yes,
the creditor can collect because General Partners are still liable What would constitute assets? (stated na an amounts ni
even up to their personal assets. Camasin)

In other words, if creditor K has collectibles from ABC 1. Partnership property 10M
partnership and that obligation arose from contract and 2. Contribution of partners 30M
the assets of partnership are already exhausted, creditor 3. Goodwill - good name and reputation of the partnership,
can still collect up to the personal assets of the partners. which is usually commercial in nature that has monetary
value. 50M
If an obligation arises from a tort, all are Solidarily liable, Principal 4. Others: Debts collectibles 5M
and direct. But among them, guilty partner must bear the burden.
The other parties can seek reimbursement from the guilty partner. The goodwill of the partnership is the good name of the
partnership, if you go to Jollibee and you bring cake from outside
Illustration. So C here is the guilty partner, but C happens to be a then somebody gets poisoned by the cake, then the good name of
very close friend of K, so K then released him from the obligation. Jollibee will be destroyed.
The effect is that it will not change the liability of the partnership. K
can still go after the partners, A and B. Liabilities with Order of Application of Assets Graph:

So there has been an new obligation, before there were three A,B 1. Debts
& C, now it is only A and B who were the new debtors. 2. Damages
3. Suppliers of services and goods
So now that A & B has paid the obligation, can A seek
reimbursement from C? 5. Loans advances made by the partner
Yes, because in partnership, when there is novation, there has to
be an agreement between the old debtor, old creditor and the new 6. Capital
debtor and new creditor. Everybody must agree, otherwise it will
not be binding between the parties.
7. Profits
Art. 1835. The dissolution of the partnership does not of itself
discharge the existing liability of any partner. Order of Application of Assets/Payment of Liabilities: (Please
see above list of assets and liabilities.)
A partner is discharged from any existing liability upon dissolution
1. Owing to partnership creditors 100k (1st Priority)
of the partnership by an agreement to that effect between himself,
the partnership creditor and the person or partnership continuing Debts and Damages
the business; and such agreement may be inferred from the 2. Owing to partners other than for capital and profits (ex. Loans
course of dealing between the creditor having knowledge of the from a partner) 5M
dissolution and the person or partnership continuing the business. Loans advances made by the partner
3. Owing for return of capital 30M
The individual property of a deceased partner shall be liable for all 4. If any partnership assets remain, distributed as profits to the
obligations of the partnership incurred while he was a partner, but partners in the proportion in which profits are to be shared.
subject to the prior payment of his separate debts. (n)
5. Suppliers ex. If you are involved in a funeral business then
you tell your customers that you have a package of flowers,
WINDING UP
plus coffin plus all others, all they have to do is cry. So those
flowers and others are from your suppliers. (incorporated in
Winding-up - where there is settlement of the partnership affairs.
#1)
Payment of obligations, etc.
Art. 1839. In settling accounts between the partners after
Assets are liquidated, determined; pay obligations;
dissolution, the following rules shall be observed, subject to any
surplus are divided among the partners depending on agreement to the contrary:
agreement and contribution. (1) The assets of the partnership are:
(a) The partnership property,
Winding up can be done, either: (b) The contributions of the partners necessary for the
payment of all the liabilities specified in No. 2.
Judicially thru the intervention of the courts; (2) The liabilities of the partnership shall rank in order of payment,
as follows:
Extrajudicially- agreement by the parties themselves or any (a) Those owing to creditors other than partners,
partner who is not guilty. (b) Those owing to partners other than for capital and
profits,
Who can wind-up? (c) Those owing to partners in respect of capital,
(d) Those owing to partners in respect of profits.
(3) The assets shall be applied in the order of their declaration in
JUDICIAL - any partner or legal representative may seek the
No. 1 of this article to the satisfaction of the liabilities.
authority of the court for dissolution. (4) The partners shall contribute, as provided by article 1797, the
amount necessary to satisfy the liabilities.
EXTRA-JUDICIAL:

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(5) An assignee for the benefit of creditors or any person We can take care of the retiring partner, and the old creditors.
appointed by the court shall have the right to enforce the How about the new creditors?
contributions specified in the preceding number.
(6) Any partner or his legal representative shall have the right to If we continue with the partnership which is a new
enforce the contributions specified in No. 4, to the extent of the partnership now, there can be a mixture of old creditors
amount which he has paid in excess of his share of the liability.
and new creditors. There is a confusion.
(7) The individual property of a deceased partner shall be liable for
the contributions specified in No. 4.
(8) When partnership property and the individual properties of the Art. 1840. In the following cases creditors of the dissolved
partners are in possession of a court for distribution, partnership partnership are also creditors of the person or partnership
creditors shall have priority on partnership property and separate continuing the business:
creditors on individual property, saving the rights of lien or secured (1) When any new partner is admitted into an existing partnership,
creditors. or when any partner retires and assigns (or the representative of
(9) Where a partner has become insolvent or his estate is the deceased partner assigns) his rights in partnership property to
insolvent, the claims against his separate property shall rank in the two or more of the partners, or to one or more of the partners and
following order: one or more third persons, if the business is continued without
(a) Those owing to separate creditors; liquidation of the partnership affairs;
(b) Those owing to partnership creditors;
(c) Those owing to partners by way of contribution. (n)
(2) When all but one partner retire and assign (or the
RESCISSION representative of a deceased partner assigns) their rights in
partnership property to the remaining partner, who continues the
Recission If one is induced by fraud or misrepresentation to business without liquidation of partnership affairs, either alone or
with others;
become a partner, the contract is voidable or annullable. If
contract is annulled, injured partner is entitled to restitution.
(3) When any partner retires or dies and the business of the
dissolved partnership is continued as set forth in Nos. 1 and 2 of
What are the rights of the partner?
this article, with the consent of the retired partners or the
representative of the deceased partner, but without any
Right of lien or retention of surplus of partnership assignment of his right in partnership property;
property after satisfying partnership liabilities
Right of subrogation in place of partnership creditors
(4) When all the partners or their representatives assign their
Right of indemnification by guilty partner due to rights in partnership property to one or more third persons who
damages caused by the guilty partner to the other promise to pay the debts and who continue the business of the
partners dissolved partnership;

Art. 1838. Where a partnership contract is rescinded on the (5) When any partner wrongfully causes a dissolution and the
ground of the fraud or misrepresentation of one of the parties remaining partners continue the business under the provisions of
thereto, the party entitled to rescind is, without prejudice to any article 1837, second paragraph, No. 2, either alone or with others,
other right, entitled: and without liquidation of the partnership affairs;
(1) To a lien on, or right of retention of, the surplus of the
partnership property after satisfying the partnership liabilities to (6) When a partner is expelled and the remaining partners
third persons for any sum of money paid by him for the purchase continue the business either alone or with others without
of an interest in the partnership and for any capital or advances liquidation of the partnership affairs.
contributed by him;
The liability of a third person becoming a partner in the partnership
(2) To stand, after all liabilities to third persons have been continuing the business, under this article, to the creditors of the
satisfied, in the place of the creditors of the partnership for any dissolved partnership shall be satisfied out of the partnership
payments made by him in respect of the partnership liabilities; and property only, unless there is a stipulation to the contrary.

(3) To be indemnified by the person guilty of the fraud or making When the business of a partnership after dissolution is continued
the representation against all debts and liabilities of the under any conditions set forth in this article the creditors of the
partnership. (n)
CONTINUATION OF THE BUSINESS OF THE PARTNERSHIP:
When all these things may happen, other partners may decide partnership continuing the business, on account of the retired or
to leave and others may stay. What could be done?
For those partners who wish to continue, they may still continue to
use the properties.
For those who wish to leave, those partners can ask for his share
of the partnership minus the obligations of the partner, and the
obligations of that partner shall be extinguished.
There can be reorganization of the partnerships finances,
although they may have the assets but they do not have the
liquidity to settle what may be due to the retiring partner. They
may be allowed to come out with an agreement where there could
be a process on how these accounts due to the retiring partner
could be paid, they may agree that the remaining partners can
continue using the properties of the business to continue the
business, and upon continuing the business, they may be able to
pay the obligations due to the retiring partner.
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dissolved partnership, as against the separate creditors of the
retiring or deceased partner or the representative of the deceased
partner, have a prior right to any claim of the retired partner or the
representative of the deceased partner against the person or
deceased partner's interest in the dissolved partnership or on
account of any consideration promised for such interest or for his
right in partnership property.
Nothing in this article shall be held to modify any right of creditors
to set aside any assignment on the ground of fraud.
The use by the person or partnership continuing the business of
the partnership name, or the name of a deceased partner as part
thereof, shall not of itself make the individual property of the
deceased partner liable for any debts contracted by such person
or partnership. (n)
Art. 1841. When any partner retires or dies, and the business is
continued under any of the conditions set forth in the preceding
article, or in Article 1837, second paragraph, No. 2, without any
settlement of accounts as between him or his estate and the
person or partnership continuing the business, unless otherwise
agreed, he or his legal representative as against such person or
partnership may have the value of his interest at the date of
dissolution ascertained, and shall receive as an ordinary creditor
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an amount equal to the value of his interest in the dissolved
partnership with interest, or, at his option or at the option of his
legal representative, in lieu of interest, the profits attributable to
the use of his right in the property of the dissolved partnership;
provided that the creditors of the dissolved partnership as against
the separate creditors, or the representative of the retired or
deceased partner, shall have priority on any claim arising under
this article, as provided Article 1840, third paragraph. (n)
certificate signed, sworn to, and recorded in the Office of the
Securities and Exchange Commission.
Why cannot be an industrial partner who is a general partner, why
he cannot be a limited partner? WHY??!!??
An industrial partner, being an industrial partner, may be at the
same time limited partner.

What is the solution to the confusion? De Leon. Generally, his rights and powers are those of a general
partner. Hence, he is liable with his separate property to third
Those creditors have the right to claim from the assets of the persons. (Art. 1816.) However, with respect to his contribution as
partnership. a limited partner, he would have the right of a limited partner
insofar as the other partners are concerned.
So there are: 1. New assets; 2. Old assets; 3. New creditors; 4.
In an articles or certificate of the limited partnership, there are lists
Old creditors. of general partners and limited partners. Here, a name of a partner
appears twice on the certificate, on the list of general partners and
Problem: If there are new creditors and old creditors but there are on the list of limited partners. Why is there a need for his name to
no new assets. be indicated twice or appear in order for him to be general partner
and a limited partner at the same time?
The old assets should be liquidated and winded up and there
should be payment of the old liabilities, and the surplus will be For the protection of the third parties and the law requires the
used for the new partnership where the payment of new liabilities same so that the public will know that your participation in the
partnership.
may be taken.
Art. 1853. A person may be a general partner and a limited partner
SIR: THE LAW SAYS, Old creditors should be given
in the same partnership at the same time, provided that this fact
preference to Old assets, New Creditors should be given
shall be stated in the certificate provided for in Article 1844.
preference to New Assets. If there are no new assets, new
creditors should wait; if there are extras from old assets, new A person who is a general, and also at the same time a limited
creditors can claim. But in no way can new creditors gain partner, shall have all the rights and powers and be subject to all
preference over old assets. the restrictions of a general partner; except that, in respect to his
contribution, he shall have the rights against the other members
FINAL EXAMS COVERAGE STARTS HERE: which he would have had if he were not also a general partner.

WWW August 30, 2014 If you are businessman, how will you acquire capital?

LIMITED PARTNERSHIP By investing my funds, loan, seek investors. If the capital

contributions are not enough, they may get a loan from the bank,
Limited Partnership composed of one or more general partners but if interests are high, they can seek investors.
and one or more limited partners.
If you are an investor and be admitted as limited partners, would
Limited Partners are those partners who are only liable to the you agree?
extent of their contributions to the partnership. They are not liable
up to their separate or individual properties. No, because of the risk for liabilities that I will acquire if I become a
limited partner. On the other hand, if I have a lot (Sir. Idle) of
General Partnership the partnership where it is composed of funds, I can be a limited partner for the purpose of sharing profits.
general partners only.
Sir. Here an agreement of an investor becoming a limited partner
General Partners are those partners whose liabilities extends up is a scheme made by law. If an investor becoming a limited
to their separate or individual properties, it is not only limited to the partner wants to invest to acquire profits but does not want to
extent of their contribution. acquire liabilities on his individual or separate properties or incur
risks on his individual properties. This could have been similar to a
Art. 1843. A limited partnership is one formed by two or more
corporation because in a corporation, your liability is limited to
persons under the provisions of the following article, having as
your investments.
members one or more general partners and one or more limited
partners. The limited partners as such shall not be bound by the So why a limited partner is also named or also added as a general
obligations of the partnership. partner in the articles?
IS AN INDUSTRIAL PARTNER, A GENERAL PARTNER? WHY So that you can minimize or spread the risks and at the same
IS AN INDUSTRIAL PARTNER NOT A LIMITED PARTNER? time, increase my chances of getting profits.
Yes because a limited partner can only contribute money or/and Sir. Remember, the many liabilities among the partners where
property and not industry or services whilst a general partner can they should share. There are liabilities which are pro rata, hence
contribute money, property or/and industry or services. the partner can limit his exposure to such liabilities and the same
time, can get for additional profits.
Art. 1845. The contributions of a limited partner may be cash or
property, but not services. Now what is the good reason is there to invest 1 more million, why
not just loan it instead of an investor? For example, theres a
SO WHEN YOU SAY THAT AN INDUSTRIAL PARTNER IS A
creditor offering a lower interest, lets say, 5%.
GENERAL PARTNER, MAY AN INDUSTRIAL PARTNER BE AT
THE SAME TIME A LIMITED PARTNER? Because when you invest, if the business is good, you will get a
higher profit compared to extending a loan with interest in which
Yes. A person may be a general and a limited partner at the same
the profit is limited only to the stipulated interest rate.
time in the same partnership provided that this fact is stated in the
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Another reason is that you can, you can also watch your (2) Have on demand true and full information of all things
investments, you will know where your investments would go and affecting the partnership, and a formal account of
you will know what happens to the business; these are viable to a partnership affairs whenever circumstances render it just
and reasonable; and
limited partner because ?????????????? to be continued
(3) Have dissolution and winding up by decree of court.
WWW 09/04/2014 PART 1
Purpose of these rights: to protect your investment
PARTNERSHIP CONTRIBUTIONS
Sir: the intention of the law in giving you these rights is not for you
What could be the sources for funding for the business of the to actively participate in the management because if you will do
partnership? that, you will be liable as a general partner. But the purpose is for
you to protect your investment. As distinguished from a mere
- Contribution of the partners lender, you are given these rights.
- Loans from the partners or lending company
- Funds from investors Although in big businesses (special circumstances),
lenders or creditors are given certain rights to
So if the contributions of the partners are not enough to protect the amounts that they have extended to that
operate the business, they have some options: borrower. For example, 20M or 50M or 100M from the
- Put up additional contributions; or bank but still the bank cannot sleep at night even if
- Find some investors; or there is collateral because if you default in payment
- Borrow money from lending institutions or banks (lender) and there will be foreclosure of the collateral, the
bank might have difficulty in selling your property
So in the 3 options, where do you think a limited partner and might end up in selling it at a loss and thats not
belongs? Investor? or lender? prudent. So in addition to the collaterals, there are
provisions in a loan agreement for example wherein
LENDER VS INVESTOR the bank will require its representative to sit in the
Whats the difference between a lender and an investor? board meeting, so that the bank will be able to
A lender is a person who extends his credit to the partnership. And monitor the funds they extended are prudently spent
the lenders interest on the partnership is only the return of the otherwise the bank will just end up foreclosing such
credit he extended. On the other hand, an investor is a person collaterals. And that would not be healthy for the
who not only extends his credit but is also interested of the return bank because a bank is engage in money, not
of the capital as well as the profits. And because hes interested in properties. This can also be applied to a limited partner,
the profits, he also assumes the risk of loss if the business is not wherein he is given that special privilege. While although
good. we are not talking of a board (of directors) but as a
limited partner, you are entitled to be given regular
reports or to have access to the partnership activities. So
Sir: so both the lender and investor are the same in the sense he could be assured that the funds are being spent
that wisely or prudently. Thats the purpose of the law.
- Both puts in money to the partnership
- Both would realize returns wherein: INVESTOR AND A LENDER AT THE SAME TIME
o Lender interest (of the money extended) On the other hand, may an investor also be a lender at the
o Investor profit same time? How?
Example: LP may have invested 3M as a LP but if the partnership
How do they differ? still needs additional funds, that LP, who has other funds, and
- As to assumption of risk: instead of putting it in a bank which will just earn 5% a year, he
o the investor assumes the risk of loss wherein he could offer that money to the partnership for 12 or 15%. So I will
might not be paid when the business suffers a earn more. So in this situation, how many exposures would I
loss. now have as a LP? You are exposed to that partnership as a LP
o a lender does not assume the risk of loss, because you invested and at the same time as lender because
regardless the business has profit or suffers a you lend money.
loss. You, as a lender, is certain that you can
collect. There is no risk at all. Sir: So, therefore, we now have a situation where a person is both
- As to collateral: a limited partner and lender/creditor, which is not prohibited. And
o A lender may require the borrower to put up a as a matter of fact, he can also be a general partner. So there is
collateral or a security before lending money now 3 exposures. (3-in-1)
o An investor does not require such
However, if you are a LP and at the same time a lender as
ADVANTAGES OF AN INVESTOR distinguished from a third party creditor, whats the
Advantages of being an investor and not a lender: disadvantage?
A lender is entitled only to the payment of the debt and the - No right to demand preference of his credit. He is just a
interest. But if youre an investor, although you assume the risk of rd
junior creditor, as compared to 3 party creditor who
loss in case the business is not profitable, but you are entitled to enjoys a preferential right to the partnership properties.
the return of the capital as well as the profits. - No right to require collateral to the loan extended

Sir: In lieu of the risk of losing, there is the opportunity of LIMITED PARTNER NOT ALLOWED TO REQUIRE
getting higher returns. You are not limited to the agreed COLLATERAL
interest, as compared to a lender. Why is he not allowed to require collateral?
rd
Because the reason why a 3 party creditor requires collateral to
So, therefore, is a limited partner an investor or a lender? be secured that that the he will be paid. But as to the LP, the law
He is an investor because he assumes the risk of loss. already provides for his protection wherein he has access to the
books and he knows the partnership properties and transactions.

RIGHTS OF A LIMITED PARTNER Sir: In other words, the 3rd party creditor is blinded and does not
Rights of a limited partner: (Art. 1851, 1st paragraph) know the happenings of the business in the partnership. No
reports, no access to the books, no information on whats going
Art. 1851. A limited partner shall have the same rights as a on. So that when there is financial reverses, the 3 rd party creditor
general partner to: would not be able to determine. On the other hand, if you are a
(1) Have the partnership books kept at the principal place of LP-lender, you have the advantage of preparing for any
business of the partnership, and at a reasonable hour to eventuality. You have the opportunity to determine whether the
inspect and copy any of them;

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debt is still secured or not. So the law placed both creditors in the
same playing field.
INSTANCES WHERE A LIMITED PARTNER IS LIABLE AS A
GENERAL PARTNER
Generally, we said that a LP is liable only up to the extent of
his contribution. He is actually a mere investor. However,
there could be situations when he could be liable as a general
partner:
- His name appears in the partnership name, unless it is
also the name of a general partner
- When he participates in the management
- When there is an error when he thought he was a LP but
then he was listed as a general partner in the articles of
partnership; or when he thought that the partnership was
a limited partnership but it was in fact a general
partnership
o In the last situation, for him not to be liable as a
GP: he must renounce his interest in the profits
of the business or other compensation by way of
income
ACTS OF PARTICIPATING THE MANAGEMENT
What acts may be considered as participating the
management? (see de leon)
1. The business of the partnership is in fact carried on by a
board of directors chosen by limited partners
2. An appointee of the limited partners becomes the directing
manager of the firm
3. The limited partner purchases the entire property of the
partnership, taking title in himself and then carries on the
business in his own name and for his own exclusive benefit
4. He makes or is a party to a contract with creditors of an
insolvent firm with respect to the disposal of the firms assets
in payment of the firms debts
REASON: if the limited partner dies there is no difference in the
partnership, the creditors are still protected because the limited is
only liable up to the extent of his contributions, unlike a general
partner where his liability extends up to his separate personal
property.
If a general partner dies, his personal assets goes to his estate,
and since it is now with the estate.
To settle his estate, the personal creditors of the deceased
general partner is paid first, If there is an excess, then the
partnership creditors shall be paid. So partnership creditors have
secondary preference.
Q: Who will settle the estate? The administrator or an executor.
Administrator appointed by the court; shall settle the estate of
the deceased partner.
Executor appointed according to the will and shall execute the
will. When theres a will, theres a way (If nay tabay, nay agi-
anan)
LIABILITY OF A GENERAL PARTNER WHO IS ALSO A
LIMITED PARTNER
Q: When we talk of liabilities, if you are a General Partner and
at the same time a Limited Partner, what is your liability?
Generally, his rights and powers are those of a general partner.
Hence, he is liable with his separate property to third persons.
However, with respect to his contribution as a limited partner, he
would have the right of a limited partner insofar as the other
partners are concerned.

Compare the rights of a LP and the rights of a GP?
- As to management:
o LP not allowed to participate
o GP may manage the partnership
(wala ni natubag ug tarung and ni move-on dayun si sir)
Sir: we learned that GP is an agent to the partnership and his acts
can bind the partnership, unless if it is acts of strict dominion and
thus requires all consents of the partners to bind the partnership
(unanimity). In those instances where unanimity is required
and there are limited partners, what could happen?
To bind the partnership, the limited partners must also give their
consent
This means that while he is not relieved from personal liability to
third persons for partnership debts, he is entitled to recover from
the general partners the amount he has paid to such third
persons; and in settling accounts after dissolution, he shall have
priority over general partners in the return of their respective
contributions.
SIR: Insofar as the public is concerned, you are only a General
Partner, nothing else. If you invest some more as a limited partner,
that is no longer the concern of the public. A limited partner is only
an investor.

What are these acts of strict dominion? Additional Limited partners may be allowed, provided that the
Art. 1850. A general partner shall have all the rights and Certificate be amended.
powers and be subject to all the restrictions and liabilities of
a partner in a partnership without limited partners. However, Requirements for Amendment of Certificate:
without the written consent or ratification of the specific act
by all the limited partners, a general partner or all of the a. Must be in writing
general partners have no authority to:
(1) Do any act in contravention of the certificate; b. Signed and sworn to by all members, including new
(2) Do any act which would make it impossible to carry on members and assigning limited partners
the ordinary business of the partnership;
c. Filed for record in the Securities and Exchange
(3) Confess a judgment against the partnership;
(4) Possess partnership property, or assign their rights in Commission
specific partnership property, for other than a SIR: All parties must agree and there should be an amendment of
partnership purpose;
the certificate, indicating the new limited partner of the new
(5) Admit a person as a general partner;
(6) Admit a person as a limited partner, unless the right so to general partner.
do is given in the certificate; There could be several limited partners because these are
(7) Continue the business with partnership property on the
investment opportunities, the partnership may need more capital
death, retirement, insanity, civil interdiction or insolvency
of a general partner, unless the right so to do is given in so they might invite more investors as limited partners.
the certificate.

RIGHTS OF LIMITED PARTNERS

EFFECTS OF DEATH OF A GP AND A LP ON DISSOLUTION
Q: What are the rights of limited partners among themselves?
Death of a General Partner would result in the dissolution of the
A limited partner shall have the (1) right to receive a share of the
partnership.
profits or other (2) compensation by way of income, and to the
Death of a Limited Partner does not dissolve the partnership.

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(3) return of his contribution as provided in Articles 1856 and 1) To the partnership can be waived. However, the GPs cannot
1857. waive any liability of the limited partners to the prejudice of such
creditors.
1. For the difference between his contribution as actually
Q: How much are these limited partners entitled to by way of made and that stated in the certificate as having
return of capital/contributions?
been made
It would depend as to how much they contributed.
2. For any unpaid contribution which he agreed in the
certificate to make in the future at the time and on
Q: How much are limited partners entitled to by way of the conditions stated in the certificate
compensation?
2) To partnership creditors and other partners.
They can agree among themselves and stipulated in the
1. when he contributes services instead of only money or
certificate. property
NOTE: third party creditors have preference over limited partners 2. when he allows his surname to appear in the firm name
rights.
3. when he fails to have a false statement in the certificate
The law says there could be a list of partner, General and Limited corrected, knowing it to be false
Partners. 4. when he takes part in the control of the business
And limited partners can be further classified. 5. when he receives partnership property as collateral
security, payment, conveyance, or release in fraud of
Illustration: We classify coke as REGULAR LP, DIET LP and
partnership creditors
ZERO LP.
6. when there is failure to substantially comply with the legal
Limited partners among themselves may be further classified requirements governing the formation of limited
depending on their agreement or classification as agreed by
partnerships.
ALL THE PARTNERS. So that:
3) To separate creditors. As in a general partnership, the
REGULAR LP 10% return of investment; Partners: X, Y and
personal creditor of a limited partner may, in addition to other
Z; ->3rd preference
remedies allowed under existing laws, apply to the proper court for
DIET LP 15% return of investment; Partners: Q, R and S; -> a charging order subjecting the interest in the partnership of the
nd
2 preference debtor partner for the payment of his obligation.
ZERO LP 0% return of investment but entitled to (2) cases
st
of coke; Partners: T, U and V -> 1 preference.
SUBSTITUTED PARTNER
So this is how you can classify. As to what way they could have
What is a substituted partner?
preference, and what way they could enjoy separate privileges.
Here there can be several limited partners and classified as to Substituted limited partner is a person admitted to all the rights of
their agreement among the partners themselves. a limited partner who has died or has assigned his interest in a
partnership.

ORDER OF PREFERENCE DURING DISSOLUTION

Insofar as assignment is concerned, what is the difference
Q: Here they may enjoy certain preferences. So that if
between a limited partner and a general partner?
dissolution would have to be conducted, how would we
distribute the assets and settle the partnership itself? When you become an assignee of a General Partner,
you do not become a General Partner.
ORDER OF PREFERENCE:
Article 1863 In setting accounts after dissolution the liabilities of When you become an assignee of a Limited Partner, you
the partnership shall be entitled to payment in the following order: do not become a limited partner.

1. Those 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 to limited partners in respect to their share of the
profits and other compensation by way of income on their
contributions;
3. Those to limited partners in respect to the capital of their
contributions;
4. Those to general partners other than for capital and
profits;
5. Those to general partners in respect to profits;
6. Those to general partners in respect to capital.
LIABILITIES OF A LIMITED PARTNER
What could be the liabilities of the limited partners?
Liabilities of a limited partner:
Is there a way or what is the requirement for an assignee to
be a substituted limited partner?
When assignee may become substituted limited partner:
1. All the members must consent to the assignee becoming
a substituted limited partner OR
2. The limited partner is empowered by the certificate to
give the assignee the right to become a limited partner
and all the members consent;
3. The certificate must be amended in writing;
4. The certificate as amended must be registered in the
Securities and Exchange Commission.
EMPHASIZED BY SIR: And more importantly, the assignment of
the substituted limited partner is allowed only when the assignor
has the authority to appoint or designate a substituted limited
partner.

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This is important because of the continuing requirement of trust
and confidence among the partners.
So here now we have a limited partner authorized to assign a
substituted limited partner, and that substituted limited partner will
now assume the rights of a limited partner.
Q: If you are a mere assignee, are you already a substituted
limited partner?
As long as the requisites are complied with, otherwise he will only
be treated as a mere assignee who does not exercise the rights of
a limited partner.
Q: Who is this contributor?
Art. 1866. A contributor, unless he is a general partner, is not
a proper party to proceedings by or against a partnership,
except where the object is to enforce a limited partner's right
against or liability to the partnership.
A contributor is referring to a limited partner.
INSATNCE TO AMEND OR CANCEL THE CERTIFICATE
Q: What happens upon the death of the General Partner?
The partnership is dissolved and winding up and settlement will
follow.
However, in this partnership (limited partnership), all of these
limited partners might agree to stop the business, and they said
since the business is not doing well, we should no longer be
limited partners and withdraw all our investments.
Q: If all limited partners withdraw, would it dissolve the
partnership?
Yes, because it is no longer indicative of the kind of partnership
embodied in their certificate that they are a limited partnership. So
the certificate should be cancelled because all of the limited
partners are gone.
If they want to continue as general partners they can organize a secure the premises of the school. They can bind the school, in so
general partnership but can no longer continue with the limited far as not allowing someone to get inside. But some guards allow
partnership because there are no longer any limited partners left. some people who are prohibited to enter the school to enter.
Therefore the public should be guided that all of them are already
general parties.
Instances when amendment of the certificate can be done
when:
1. There is a change in the name of the 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. There is a change in the character of the business of the
partnership;
7. There is a false or erroneous statement in the certificate;
8. There is a change in the time as stated in the certificate
for the dissolution of the partnership or for the return of a Illustration. The boyfriend of Andrea Corominas, authorizes you
contribution;
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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, or
10. The members desire to make a change in any other
statement in the certificate in order that it shall accurately
represent the agreement among them.
WWW September 6, 2014
AGENCY and the SECURITY GUARD STORY
Illustration. Security guards in USC, complaining about their
salaries; maybe there are some parts that they are not receiving.
Can they sue USC for that?
No, because there is no ee-er relationship. SC guards
are not employees of USC.
But there were authorized by USC, is it not? They could stop you if
they want. If the USC admins told the SC guards, The moment
you see Ericson, stop him and bring him to the office. Can they
do that?
Yes. The guard will just say, Ericson, Im sorry. We are just
following instructions. Are they agents of USC?
They are not agents of USC. Agency in a strict sense,
requires a fiduciary relationship. They must not only be
following the directions of the principal, but they must
also be able to enter into relationships with other parties.
It is as if they are the ones deciding but in behalf of the
principal.
Yes. They are deciding, because the principal said, If Ericson
comes with his hair completely bald, do not allow him to enter but
if his hair is just two centimeters long, allow him to enter. The SC
guard here exercises a discretion of allowing you to enter or not
the university campus, is the SC guard an agent? Bungoton gani,
ayaw pasudla sa school. DISCRETION!
They are acting in behalf of the school. They are authorized to
The principal feature of an agent is not the freedom to
exercise your discretion but it is the performance of a
juridical act in relation to third persons. So in this
case, the SC guard while technically he represents the
school to enforce the rules and relations of the school he
does not have the power to enter into juridical relation
with any of the students. So while he may stop you to
check your id or prevent you to enter because of your
haircut, the SC guard cannot do any act such as
accepting enrolment or enter into sort of commercial
contract. Because his act is merely ministerial and does
not extend to the juridical acts as contemplated by law.
WHAT DO YOU MEAN BY PERFORMING A JURIDICAL ACT?
An act that creates relationship or affects the relations
between the parties.
Sir. He must perform something which is a juridical act,
something which would create or establish a relationship
between the parties.
KISSING ANDREA COROMINAS
(Nathan) and said, I hereby authorize you to kiss my girlfriend,
Andrea. Are you now the agent of her boyfriend, Nathan?
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 Nathan is not the agent of Andreas boyfriend because
the act of Nathan kissing Andrea does not create a
relationship.
Sir. DOES NOT CREATE A RELATIONSHIP! It might
even DESTROY a relationship! :D So do not follow. Do
not comply.
What is the nature of the act that he has allowed you to do?
CONTRACT OF AGENCY: MEANING
Art. 1868. By the contract of agency a person binds himself to
render some service or to do something in representation or on
behalf of another, with the consent or authority of the latter.
Agency to render something or perform an act in behalf of
another with the consent an authority of the latter.

Well if he tells you, Nathan, Nathan, can you please Sir. Here, the law is incomplete, it does not say in order to create
enter into a contract of agency because I need a security a juridical relationship between the principal and someone else.
guard. You are acting as an agent. You could sign that
contract in behalf of someone else. PARTIES OF AN AGENCY
But this time authorizing you to kiss Andrea is not an act
of an agent. You cannot be an agent to perform personal Principal
acts. Because when we say personal acts, is only that Agent
particular person who could perform that act.
GUARDIAN and the WARD
Illustration. If you are a painter and you are a good artist, and you
Is a guardian, an agent of the ward?
have a client asking you to paint his face, can do you delegate that
act to someone else? The guardian, although he is acting in behalf of the
ward and yet the authority given to the guardian came
This is a personal act. You cannot delegate this act to
from the Court, from someone else, NOT the ward.
your agent.
When we say the law defines an agency as having the
The act of performing which you have been paid is
right or authority to act in behalf of another with the
because of your ability and skill. It is a highly personal
consent of the latter.
act.
Because the guardian cannot give consent, it cannot
Here, the point here is, the act must be something that will create be said that the ward allowed his guardian to act in his
a relationship between the parties. And this is not the same with behalf.
the security agency. The security agency is not actually an agent.
HOW WILL AGENCY ARISE?
Is the security agency, an agent of the school?
There must be a contract. Expressed or Implied.
According to some authors, agencies could also refer to
other types of concepts which are not contemplated by
the civil law. Art. 1869. Agency may be express, or implied from the acts of the
principal, from his silence or lack of action, or his failure to
No, because the relationship between the school and the
repudiate the agency, knowing that another person is acting on his
agency is merely one to supply security services. The behalf without authority.
agency here is not given an authority to enter into acts of
contracts or to perform acts in behalf of the school. Its
FORM? Agency may be oral, unless the law requires a specific
only duty is to hire guards, post guards into proper form. (1710a)
stations and instruct guards what to do. He has no
authority to enter into agreements or relationships in Illustration. Do you have a girlfriend, Ericson? Have you ever
behalf of the school? thrown your arms around her? As a you were hesitant to throw
that right arm and it only went as far as her right arm. You wanted
But it hires guards, is it an act in behalf of the school?
to bring her hand lower. And you were hesitant. And so she said,
Bring it down! And when he said that, did she have to get that
Such act is not an act in behalf of the school but on
authority expressly?
behalf of the agency. The agency is an independent
contractor.
There is no need for an express agreement, Ericson.
Agency maybe created impliedly! No need for an express
HOW DO WE DISTINGUISH BETWEEN EE-ER RELATIONSHIP
FROM AGENCY agreement.
And so when she said to bring your arm lower, there was
Illustration. Is an employee not an agent? I am teaching in behalf an implied consent already.
of USC, am I not an agent of USC? So that when she does not complain, there is an implied
authority. Implied agency may be created through
No because the teacher is not empowered by the school silence. :D Silence means? YES! Hahahahahahaha!
to enter into juridical acts with third persons.
Sir. I cannot even bring the best lawyers from the US and September 20, 2014
hire them in behalf of USC because I have no authority; I
Trust vs. Agency
am not agent. I am only a mere employee. Agency holds the property in the name of the principal
So this will illustrate to us the distinctions between o Revocable any time
agency, ee-er, independent contractor and perhaps other o Appointed by the principal to act for or in his
relationships. While it may appear that one is authorized behalf
to act in behalf of another but not necessarily an agent. o Title of the property is still under the name of the
So here when we say agent, he is given the authority to principal
Beneficial owner
act in behalf of another in order to establish relationship
but it is not the definition of the law. Trust holds the property in his own name
o Revocable only upon fulfillment of the
agreement
o Holds in trust the property or funds of another

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 o Title of the property is in the name of the trustee
legal owner for all intents and purposes
in so far as the law is concerned but
not the beneficial owner
Beneficial owner the person for whose benefit the
property is being held
Mango Plantation (in re: trust vs. agency)
If you are a trustee of a farm with mango bearing fruits,
who will be entitled to the fruits?
o The trustee hold in trust for the owner
If the fruits are sold?
o The fruits will still be owned by the owner
Custody is given to the trustee but beneficial ownership
still belongs to the owner
Guardianship vs. Agency
- Agency, authority of the agent comes from the principal
- Guardianship, authority of the guardian comes from the
court not from the ward
Administrator vs. Agency
- Both administer the property of someone else
Administrator - administrates the estate of the decedent
o Administrator is appointed by the court
Agent
o appointed by the principal himself
Independent Contractor vs. Agency
Independent Contractor renders service to the principal
but not subject to the control over the means and methods of the
work
o independent contractor performs his acts
independently without supervision from the
principal
o can perform acts may perform acts according to Notice of Agency
his own method
Agent renders acts subject to the control and supervision between the parties. (principal and agent) but because the
of the principal
o always under the supervision of the principal
o cannot perform acts in his own method
Creation of an Agency(Uyab Scenario)
How may agency be committed?
- Expressly or impliedly
Do you have a boyfriend Escabarte? (Continuation sa labor person.
discussion)
- If someone proposes and you do not answer the call yet The power shall continue to be in full force until the notice is
when the he invites you for dinner you respond, anytime rescinded in the same manner in which it was given.
call me up, text me but you havent said yes yet. You
never said yes. He keeps on asking, unsa man? Gisugot
na gyud ba ko nimo? Uyab na bah ta? You never
answered.
- Watch a movie? You watch a movie, but wa pa gyud ka that in so far as Rocha is concerned is she already an agent?
ni sugot. Are you already on a relationship? Even if you
went together watch a movie, even if he held your hand
and start putting your hands over the shoulder. Uyab na
bah ta? (with matching bira pa duul sa laki) Imu na gyud
bah ko gi sugot? ay sa, tan.aw sa ta , tan.aw imu gi
bitad iyang kamut, uyab na mo?
o Depends on the intention
- What was your intention when he placed his arm around
you, you did not say ana (wakli kamut) but ani (pa duul
sa lawas ang kamut). What was your intention pulling his
hand closer?
o There was already implied relationship
Murag nanguyab
Boy: tan.aw ta cine dai
Girl: cge, way kiss ha?
Boy: wa oi
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Girl: di gyud mag kupot ha?
Boy: dili gyud
Girl: nya, di gyud ka mang hilabut?
Boy: dili lagi
Girl:Oh! Ikaw nalang tan.aw oi!!!!, tan.aw tag cine di man
diay ko hilabtan
- How may agency be created?
o Expressly or impliedly
Acceptance of an agency
While agency may be created expressly or impliedly,
through silence, inaction or failure to repudiate,
acceptance of the proposal to be an agent may be also
implied and however, how is this indicated? Expressly
and impliedly
- Implied acceptance:
1. Persons Present
Article 1871. Between persons who are present, the acceptance of
the agency may also be implied if the principal delivers his power
of attorney to the agent and the latter receives it without any
objection.
2. Persons Absent
Article 1872. Between persons who are absent, the acceptance of
the agency cannot be implied from the silence of the agent,
except:
(1) When the principal transmits his power of attorney to
the agent, who receives it without any objection;
(2) 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 as an agent, and he did
not reply to the letter or telegram.
General Rule for parties absent:
o Cannot be (Lenard)
o Cannot be yah?
Except: Art. 1872
There can be notice of agency in so far as third persons
are concerned. The acceptance and creation of the agency is
transaction or authority involved may affect third parties there is
also a requirement that third parties should be notified.
Article 1873. If a person specially informs another or states by
public advertisement that he has given a power of attorney to a
third person, the latter thereby becomes a duly authorized agent,
in the former case with respect to the person who received the
special information, and in the latter case with regard to any
If Mr. Alo will inform Salcedo, you know Mr. Salcedo, Ms.
Rocha is my agent and I have authorized her to be my agent so
o In so far as Mr. Salcedo is concerned Rocha is
already an agent.
Would this agency bind someone else?
o No
If you want to bind third parties in general there has to be
notice to the whole world by advertisement. You seldom
see this, only big companies do this especially when a
foreign company appoints a local company. In the
newspaper you see this when a foreign insurance
company appoints a local general agent this is to
formally announce the appointment of ___ as our general
agents in the Philippines all transactions entered into in
our behalf will be honored. But what we usually see is
not the appointment, if your picture will appear in the
newspaper, notice Mr. Alo is no longer connected with
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 our company all transactions entered into in our behalf
will not be honored.
Appointment is terminated in the same manner the agent was
appointed. No similar publication, still an agent.
Compensation of an Agent
Is the agent entitled to compensation?
Article 1875. Agency is presumed to be for a compensation,
unless there is proof to the contrary.
- Presumption is compensation, you rendered service. Di
pwede kape ray i hatag.
General vs. Special
Differentiate general and special agency:
Article 1876. An agency is either general or special.
The former comprises all the business of the principal. The latter,
one or more specific transactions. (1712)
However there can be general agency couched in general terms
and specific agency couched in general terms, how do you
distinguish?
Article 1877. An agency couched in general terms comprises only
acts of administration, even if the principal should state that he
withholds no power or that the agent may execute such acts as he
may consider appropriate, or even though the agency should
authorize a general and unlimited management.
st
- 1 Classification is the extent of the business
nd
- 2 Classification is the extent of the authority, matters of
administration only
If I tell you Rocha that authorize you that you will administer all my
properties here on Earth, with power to do any and all acts as you What is the difference between Guaranty and Surety?
may find fair and reasoned. Can you now sell the property?
- Power is still limited to only administration, it does not
carry with it acts of strict dominion
Later on it was necessary to hire a security guard, you said I have
to sell some of your properties because I will use the funds to pay
the security guards or else how could I look after or oversee the
properties?
- This is very dangerous because mag consabo ang agent September 25, 2014
ug manga secu ani. Charging a higher rate than the
usual.
- Ask the principal for funds
- Authority by necessity must be looked unto strictly. It may scope of his authority. He must have:
look logical and fair but it cannot be done. It is subject for
abuse
- Unless there is extreme urgency. Like the daughter of the
principal is hospitalized. Emergency by extreme
necessity. For security guards you can still communicate
Do you want to be an atty. now Rocha?
- Yes
Now I will call you an atty. in fact.
What is an atty. in fact?
- An agent, exercising special power of atty. (SPA)
What are the acts covered by SPA?
Article 1878. Special powers of attorney are necessary in the
following cases:
(1) To make such payments as are not usually
considered as acts of administration;
(2) To effect novations which put an end to obligations
already in existence at the time the agency was
constituted;
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(3) To compromise, to submit questions to arbitration, to
renounce the right to appeal from a judgment, to
waive objections to the venue of an action or to
abandon a prescription already acquired;
(4) To waive any obligation gratuitously;
(5) To enter into any contract by which the ownership of
an immovable is transmitted or acquired either
gratuitously or for a valuable consideration;
(6) To make gifts, except customary ones for charity or
those made to employees in the business managed
by the agent;
(7) To loan or borrow money, unless the latter act be
urgent and indispensable for the preservation of the
things which are under administration;
(8) To lease any real property to another person for
more than one year;
(9) To bind the principal to render some service without
compensation;
(10) To bind the principal in a contract of partnership;
(11) To obligate the principal as a guarantor or surety;
(12) To create or convey real rights over immovable
property;
(13) To accept or repudiate an inheritance;
(14) To ratify or recognize obligations contracted before
the agency;
(15) Any other act of strict dominion.
- Guaranty
o If the debtor does not pay, I will pay
o Liability in Guaranty is subsidiary
- Surety
o If the debtor pays or not, I will pay
o Even if he refuses or not I will pay
o Liability in Surety is solidary
Requisites of Authority
Being a delegated authority the agent must strictly act within the
1. Authority
2. Act within the scope of the authority
3. Indicate his capacity as agent
4. Indicate the principal
Power to sell and Power to Mortgage
Here comes Ms. Bandoy, she approached you because she
needed cash. She told you Honc will you sell my car?
Immediately I need 250k. When you went to a potential buyer
instead of selling, you told your friend buyer I have a car and Im
selling the car for 275k, are you interested? the buyer said yes.
On second thought, if I will just mortgage that car for the same
amount, are you still interested? even better. In other words there
is a chance for him to get back the 275k. As for Bandoy, she will
have what she needs and in addition she does not part with the
car. She still owns the care. More advantageous is it not? And so
you got the 275k from your friend gave it to Bandoy. Bandoy was
confused. She asked did I authorize you to sell? yes, did it
authorize you to mortgage? no. Can Bandoy complain?
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 - Yes, it would be more disadvantageous to Bandoy
because in the long run in case she could not pay the
mortgage, the bank will have recourse on the car. In case
she could not pay the mortgage she will lose money and
the care.
- Mao bitaw gi baligya nako kay wa koy ka bayad.
On the other hand it is the reverse, you authorized Ron to
mortgage but he sold the car. You told Ron, Ron this time,
mortgage. However, this time Ron did not mortgage but sold the
car. What could happen?
- Ask for recession of the sale. What was given was an
authority to mortgage and not an authority to sell.
- Agent is supposed to act strictly in accordance with the
authority given.
Arbitration
What is arbitration?
- Both parties agree to submit themselves to an arbitrator
who would conciliate and mediate their dispute. Usually
done in labor cases where the voluntary arbitrator is the
quasi-judicial power to mediate the case, none litigious in
nature.
- 2 types of arbitration
o Voluntary
o Compulsory
What does the law say?
- If you have authority to compromise, you have no
authority to submit to arbitration.
- What type of arbitration is referred to here?
o Only voluntary
o The principals trust over the agent might not be
present or might not be able to trust the
arbitrator.
Authority of an Agent
While an offer for agency might be expressed or implied.
Generally an acceptance of an agent may be expressed or
implied. Authority Canoy? How much authority would you have if
you are an agent?
- Expressed and implied
1. Actual Authority:
Expressed what was expressly given by the principal
Implied incidental to the expressed authority
o An agent is authorized by the principal to
receive payment. The agent is authorized to There are occasions where the agent exceeds his authority but
collect payment from debtor A. What is stated in still the principal is still bounded.
the contract of agency is only to collect payment
from A. A paid but asked for a receipt. The
expressed authority is to only collect payment
but there is implied authority to issue a receipt
for the payment.
2. Authority by Necessity
- While he may not have actual authority whether
expressed or implied, he may perform something else
because it is necessary for the preservation of the
property.
- Because of the necessity, the agent still has authority.
- The issuance of a receipt is not an act of necessity but an Sarip Situation
implied authority
Long example ni Rem in short.
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o The building was not paying its electricity bill.
The agent in charge of managing the building
paid the electric company when it was about to
cut the power.
Authority by necessity? Obligation to
advance? Obligation to protect the
interest of the principal? Sometimes
changing your answer might not be
beneficial.
Is it both authority by necessity and
obligation to advance?
An agent is obliged to advance
necessary funds if it is stipulated, it
was not specified whether or not there
was an obligation to advance
necessary funds. If no stipulation then
it is by necessity.
Obligation to advance vs Authority by Necessity
What makes it different from obligation to advance? (authority by
necessity)
- Obligation to advance, there is a said stipulation to
advance.
- Doctrine by necessity, when there is no stipulation to
advance funds or when the principal is insolvent
Implied Authority vs Authority by Necessity
How do you distinguish from implied authority?
- Implied authority, authority that is in connection with the
express authority given by the principal, there is no sense
of urgency.
- Authority by necessity not connected with the express
authority given by the principal but because of
URGENCY there is a necessity to act.
In Canoys situation, if the agent does not issue a receipt, what will
the debtor do? Di lagi ko mo issue, walay recibo boss kay wala
koy authority mo issue.
- The principal will suffer a loss. Unable to collect.
Must act within the scope of his authority, he must not exceed the
authority. If he exceeds his authority what is the effect?
- Not binding to the principal
- Excess of authority is lack of authority, lack of authority
means not being obliged to represent.
Exceptions where agents acts without authority still bind
principal
1. Authority by Necessity
2. Ratification by the principal, even if the agent exceeded
his authority but the principal ratified the defect is cured,
principal is bound and the principal is not liable for
damages.
3. Customary to the business, part of the customs of the
business, even if the agent exceeded his authority but by
customs and practice of the business it may still bind the
principal.
If Takahashi Sarip issues to you a check, I will give Sarip a blank
check. Sarip will fill it up but she whispered to you one thousand
Page 13
lang tawn is butang ha. When Sarip fills it up, unsa maning 1k, 0 Exceptions, hence WILL BIND the principal:
ra bitaw ni ako I dugang. Instead of 1k it became 10k. Sarip went
to the bank, enchashed the check. Do you think the bank will give The acts of the principal herself caused the violation of
you 10k? the authority given.
When the principals acts have contributed to deceive a
- Yes, because a check is a negotiable instrument, like a third person in good faith.
prono (unsa mani!?!?) When the principal fails to repudiate the act of the agent
- A check is a bill of exchange drawn by a bank exceeding her authority.
- There are two kinds of bills of exchange: When there is a delivery of an instrument in blank
o Promissory note Ratification by the principal
o Bill of exchange There is a limitation imposed in the authority and this is
unknown to the principal.
What is a negotiable instrument? WUPOD Acts of the agent benefited the principal
- Must be in Writing Due to the negligence of the principal
- Unconditional promise or order to pay a sum certain in
money AUTHORITY BY NECESSITY
- Payable to order or bearer
I thought, Ms. Licup that when we discussed authority by
- Payable On demand or a determinable future time
necessity, this was not excess of authority? Or is it the same?
- If addressed to a drawee, then the name must be
indicated with reasonable certainty
Authority may be:
Sharo, unsa man mo oi. 2 years ago? (1 sem ago pa gani sir
Actual
haha) ako 40 years ago.
Express
Implied
WWW September 25, 2014 1:00:00-1:28:00 by Erks :D
Apparent
MS. TAKAHASHIS CHECK By Necessity

So when the bank sent a statement of account to Takahashi, she Sir. By necessity is a kind of authority, and here we are no longer
noticed the check was P 10,000. 1,000 raman to ako giingon trying to find out if there is an authority or not. We are trying to find
bank? Bank, 10,000 man ring check maam. Agent here wrote out, whether the excess of authority which should not bind the
10,000php instead of 1,000php. Will you authorized by principal by general rule could still bind the principal, and there
Takahashi? could be instances when the agent exceeds her authority but the
principal is still bound. Here, in by necessity, there is (was)
Takahashi did not tell Ms. Sarip she should fill up only authority, what happened is that the agent exceeded that
1,000php, Ms. Sarip can fill up any amount. But if Ms. authority. This is a different issue.
Takahashi told Ms. Sarip to write only 1,000php, Ms.
Sarip should only act within the authority given by Ms. AN AGENT TO BIND THE PRINCIPAL MUST COMPLY WITH
Takahashi by writing 1,000php on the check. CERTAIN THINGS:
Here, Ms. Sarip exceeded her authority.
Agent must have the authority. Without the authority, he
Why would the bank debit 10,000php when in fact the authority has no business of representing someone else.
was only 1,000. The agent act within the scope of that authority.
In entering into transactions, the agent must indicate
As a general rule, when an agent exceeds her authority therein that he acts as an agent.
given by the principal, that act of the agent does not bind The agent must disclose the name of the principal.
the principal.
APPLICATION (guys, wa jud nako nasuwat tong uban gibutang ni
But in this case, since it involves a particular instruction,
Sir sa blackboard! Sorry! - erks)
in so far as third person as concerned, here the bank, the
latter has no duty to inquire what are the specific Sarip will please sell the car.
instructions, secret instructions between the agent and
the principal. Licup

Why would be Takahashi be bound by the act of the agent who By Hubahib
exceeded her authority? Can Takahashi complain with the bank
because of the act of Ms. Sarip who exceeded her authority? The authority given to Hubahib is to sell the car. (Sayup
pagkasuwat ni sir ang sample sa taas.)
In this case, Takahashi could not complain with the bank
because of her negligence. I hereby sell my car to Sarip.
Although we said that generally, the principal would not
be bound by the acts of the agent exceeding her (agent) Licup
authority given by the principal but here, because of the
negligence of the principal, the latter then is bound by By Hubahib
such act.
Principal Licup
Sir. By the acts of the principal herself, she caused the
Agent Hubahib
violation of the authority given.
Authority To sell the car of Licup
General rule:
I hereby sell my car to Sarip.
The acts of the agent exceeding her authority given will not bind
the principal. By Hubahib

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 Here, this will not bind the principal because the agent
did not disclose the name of the principal.
ARTICLE 1883 AND NETTYS WATCH
Ms. Naldo, we said that agent must have the authority to bind the
principal. However when someone will act in behalf of another
even if he does not have the authority, it will not bind the principal.
He has authority and he sells it in his name. Will it bind the
principal? So Gaviola was looking for a watch, Nalds, daghan
man kag kaila sa online sale, pangita-i kog nindot na relo sa net.
09/25/2014
You saw one and you bought that watch. You gave it Gaviola and
Gaviola said, This is not the watch that I wanted. I am not Enumerate as many obligations as possible (page 457, de
accepting it. Can Gaviola complain? If the watch has not been leon. Only 10 are listed below)
paid yet, can the seller ask the payment or compel Gaviola to pay
for the watch?
No. Even if you had the authority but you did not indicate
to the seller the name of the principal, not binding on the
person.
You bought the watch from the seller in the name of the principal
and so the watch was given to you and you gave to Gaviola but
Gaviola refused to accept and pay it.
Gaviola is bound and can be compelled to pay for the
watch because Gaviola gave Naldo an authority and
Naldo bought the watch as an agent indicating the name
of Gaviola as her principal. Naldo indicated that she
acted in behalf of the principal.
This time, you have NO authority but you still, you went to the
seller bought the watch and brought it to Gaviola.
Gaviola cannot be compelled to pay. No authority. Agent
bought the watch under her name.
ICECREAM MELTDOWN
Here, you have NO authority but you bought the watch and told
the seller that you are buying the watch in behalf of Gaviola.
Gaviola cannot be compelled to pay. No authority.
However, if Gaviola will pay, then that amounts to
ratification. CURED!
You bought the watch, you had authority and you bought it in your
name.
You cannot compel the principal to pay.
You were authorized by Gaviola to SELL her watch. You (agent)
sold it under your name. And then Gaviola saw the watch in the
arms of the girl of his boyfriend. Gaviola wants to get back the
watch. Can Gaviola demand for the return? Remember, you sold it
in your name.
Gaviola can no longer recover the watch, it binds
Gaviola.
nd
Art. 1883, 2 paragraph. In such case the agent is the
one directly bound in favor of the person with whom he
has contracted, as if the transaction were his own,
except when the contract involves things belonging
to the principal.
Sir. Remember on the previous examples, it did not bind
the principal because we follow the general rule that we
must indicate the name of the principal but here, it will
now bind the principal because the thing owned by the
principal was involved in the transaction, it was
transmitted to a third party. This is the exception.
THEREFORE
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with authority
-agent's name ---- not bind the orincipal, exc if it involved
things belonging to the principal
- principal's name ---- perfect; will bind him
no authority
- agent's name --- not bind principal
- principal's name --- subject to ratification
1:30:00-2:00:04 CRT
1. To carry out the agency which he has accepted
2. To answer for damages which through his non-
performance the principal may suffer
3. To finish business already begun on the death of the
principal should delay entail any danger
4. Observe diligence of a good father of a family in custody
and preservation of the goods
5. Advance necessary funds should there be any stipulation
to do so
6. Act in accordance with instructions of the principal and in
default, do all that a good father of a family would do
7. Not to carry out the agency if it will manifestly result in
damage or loss to the principal
8. To answer for da mages if there being a conflict between
his interests and those of the principal, he should prefer
his own
9. Not to loan to himself if he has been authorized to lend
money at interest
10. To render an account of his transactions
Mr. Erojo instructed his driver to bring to the residence of Ms.
Fernandez 20 gallons of ice cream. The driver gave a note
which read, Fernandez please sell the ice cream on my
behalf. Need the proceeds very badly. Your good friend,
Erojo.
So with that proposal, would you accept? You were very busy
with the finals, you did not have time to sell. 20 gallons
without proper freezing facilities would just melt. This time,
you wanna tell Erojo Sorry but I have to decline. So you tried
st nd
to contact him. 1 cellphone, busy. 2 cellphone, out of
rd
reach. 3 cellphone, it rang, then there was an answer sorry
the number you are calling is not yet a cellphone.
You are now facing a problem because according to the law,
you have to observe the diligence of a good father of a family
in the custody and preservation of the goods in case you
declined the agency. You cant just say bahala nana
mangalata diha. Patilapi nas mga bata diha
SO what should you do? If I have the money in the meantime,
Ill take necessary steps like rent freezers. But this is very
prohibitive because its expensive.
SO if you can afford, go ahead. But if you cant afford? You
dont have time? What does the law actually require, the
extent of you obligation? Up to what extent are you obliged to
take good care in the preservation of the thing endorsed to
you, of which you are declining? Employ reasonable means.
The law does not require you to die for the principal, or do
something which you are not really capable of doing. What
the law requires is that you exert best efforts. So once you
prove that you exercised best effort, or due diligence, that is
sufficient.
Page 15
TARTANILLA
On the other hand, you were now very apologetic to Erojo.
Now Erojo has another proposal. He says he is buying a
resort in the south but the owner is leaving by 7 in the
morning. He says he wanted Fernandez to buy, as his agent,
to purchase that property. Here is the check and get the
property. But be there before 7 AM
So you accepted and asked even for a commission
Erojo instructed you to be there before 7 AM, so take the first
available means of transportation
Now 4 AM in the morning, you came out of the house and
waited for the first available means of transportation as
instructed. You something and as it came nearer, the first
available means turned out to be a TARTANILLA. You took it
according to his instruction. The resort was in Boljoon. You
were in Minglanilla at 5 AM, but the horse started to pee. You
arrived in Boljoon 3:45 PM. Seller no longer there, you missed
the deal, you reported to Erojo who said he could have
profited 10 M.
Because you complied with his instructions, instead there was
a loss
What is your liability? (wa mutubag si sir)
AUTHORITY VS INSTRUCTIONS
What is the difference between authority and instructions?
AUTHORITY: total of powers committed or permitted
to the agent by the principal
INSTRUCTIONS: private directions which the
principal may give the agent in regard with the
manner of performing his duties but of which a third
party is ignorant
In so far as third parties are concerned, they have
nothing to do. They are not bound
What should be followed by the agent? Authority or
instructions? Both should be followed.
In authority, the agent must act strictly
so that if he exceeds or deviates, the
principal is not bound unless there is
ratification, more advantageous to the
principal, or principal stopped from
denying it, or if it involves things
belonging to the principal, or principal
signs blank instruments
If instructions not complied with,
principal is still bound.
SO DISTINCTION: Authority is that
given by the principal to agent from
whom the latter derives his power; but
instructions can be given by principal to
an agent which is only a direction and
insofar as third parties are concerned,
they have nothing to do, the
instructions are private, 3rd parties are
not bound
If instructions are violated, agent is liable for damages
EXCEPTIONS, where agent not liable for damages:
1. Sudden emergency
2. Ambiguous instructions, susceptible to various The buyer learned about the secret instruction, so he called the
interpretations
3. Insubstantial departure
SUB-AGENT
In partnership, we learned there is a substituted partner. Here
in agency, there is also a sub-agent
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A sub-agent is a person employed or appointed by an agent
as his agent to assist him in the performance of an act for the
principal which the agent has been empowered to perform
If it was the sub-agent who performed, will that bind the
principal?
Requirements for sub-agent to bind the principal:
1. No authority
- Agent did not have authority to appoint a sub-agent,
principal will be bound
2. Although he was authorized to appoint, but the principal
did not specify who the sub-agent is, and the agent
appointed someone who is notoriously incompetent or
insolvent
A sub-agent once approved by the principal, the acts of the
sub-agent are binding on the principal. So if he performs an
act prejudicial to the principal?
The agreement is only between the sub-agent and the agent.
The principal has nothing to do. And yet, if sub-agent
performas something that will jeopardize the principal, the
principal can go after the agent, Yet, the agreement is
supposed to be binding only between the agent and sub-
agent. In contrast we learned the PRINCIPLE OF PRIVITY
OF CONTRACTS, which means only contracting parties are
bound, not someone else.
But here, the principal is allowed to interfere on the
agreement between the agent and sub-agent. This is an
exception to the principle of privity of contracts.
Incidentally, other principles are:
- Principle of consensuality: generally, contracts are
perfected by mere consent
- Principle of liberality of contracts: parties may
stipulate on anything/terms/conditions mutually
beneficial so long as not contrary to law, morals,
public order, public policy
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AUTHORITY VS INSTRUCTIONS APPLICATION
If you were authorized to sell a car of your principal, for any price
which you may find fair or reasonable. How much should you sell
the car?
Agent has the absolute discretion to sell the car
according to the price you think which is fair or
reasonable.
However before you left to find the buyer, the principal reminded
you Any price which you may find is fair or reasonable, but
between you and me, not lower than 100K. So if you sell it for
80k? Is the sale still valid?
The sale is valid. The authority here was to sell the car
for any amount which is fair or reasonable. As far as the
third persons as concerned, he (theyre) is not bound by
the secret instructions given by the principal to the agent;
however the principal can demand from the difference
from the price. Here he (agent) did not follow instructions.
owner of the car. Mr. Owner, I am returning the car. I am
cancelling the sale. Can he cancel? He discovered that the agent
did not follow the instructions.
The buyer cannot cancel the sale. The sale was already
affected. Here, the act of the agent is the act of the
principal.
Page 16
COMMISSION
Although you were authorized to sell the car, you were not able to
sell it. You were given 30 days to sell it. 60 days have elapsed but
you were not able to sell it. Can you (agent) demand for a
commission?
No. Commission contemplates that there is already a
sale. No sale. No commission. No performance. No
commission.
Once sold?
Can now ask for a commission.
Because you were not able to sell, the principal demanded
damages from you (agent). Can you be liable?
No. The agent does not guaranty success.
BAD INSTRUCTIONS and DEVIATION FROM INSTRUCTIONS.
You were authorized to sell the car, as you were driving to car, in
order to convince the car. But the buyer was about to leave. So
you hurried to the airport and the principal told you to drive fast
that if somebody blocks the way, to hit the pedestrian. So you
avoided hitting a pedestrian and the police detained you for a
while; and the sale did not push through. (Guys wa nako
kadungog ka klaro sa last line/question and sa answer sad, wa
sad nadungog) The law says, you did not follow instructions, you
will pay for damages. Will you be entitled to damages?
No. You are not obliged to commit a crime just because
you wanted to comply with the instructions.
Here, you could also deviate from the instructions given
by the principal. The following circumstances where you
can deviate from the instructions are: (answers from de
Leon)
When departure from principals instructions justified:
Sudden Emergency
Ambiguous Instructions The instruction is susceptible to
two or more interpretations in which case the ambiguity
should be charged against the principal for giving
ambiguous instructions. Principal should have given a
clear instruction. Although the agent have followed the
ambiguous instruction and was not able to pursue the
transaction.
An agent may not be said to have breached the agency
contract by reason of an insubstantial departure from the
principals instructions, which does not affect the result.
CONFLICT OF INTEREST and the ROLEX STORY
Article 1889. The agent shall be liable for damages if, there being
a conflict between his interests and those of the principal, he
should prefer his own. (n)
You were authorized to sell the principals watch. You were trying
to convince a buyer to buy the principals watch. As you were
trying to convince the buyer, you keep on scratching you nose just
to show your watch. The buyer think your watch is better and he
bought your watch instead. Are you liable?
The agent is liable to the principal for preferring his
(agents) interest.
ARTICLE 1890
You were authorized to borrow by the principal. The principal told
you that he is willing to pay not more than 12% interest. Do you
think you could be a lender?
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Article 1890. If the agent has been empowered to
borrow money, he may himself be the lender at the
current rate of interest.
Here there is no conflict of interest.
Here you were authorized to lend by the principal. He gave you
30m to lend 5-6.
Article 1890. If he has been authorized to lend money at
interest, he cannot borrow it without the consent of the
principal. (n)
THE ROLEX WATCH
You were authorized to sell the car of your principal and when you
brought the car to be delivered to the buyer. The buyer happened
to be someone who unfortunately happens to be a woman who
finds you, Entera a handsome man. And so as a token of
appreciation as the result of the sale, the woman buyer gave you a
rolex watch. You went to the principal, should you account the
watch?
Article 1891. Every agent is bound to render an account
of his transactions and 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.
De Leon. It has been held that an agent who takes a
secret profit in the nature of a bonus, gratuity or personal
benefit from the vendee, without revealing the same to
his principal, the vendor, is guilty of breach of his loyalty
to the principal and forfeits his right to collect the
commission from his principal, even if the principal does
not suffer any injury by reason of such breach of fidelity,
or that he obtained better results, or that the agency is a
gratuitous one, or that usage or custom allows it;
because the rule is to prevent the possibility of any
wrong, not to remedy or repair an actual damage.
Atty. The law says account everything that you have
received, even if it does not owing to the principal. Full
disclosure is required.
Not just inform. The law says, account.
SUBSTITUTE AGENT
Article 1892. The agent may appoint a substitute if the principal
has not prohibited him from doing so; but he shall be responsible
for the acts of the substitute:
(1) When he was not given the power to appoint one;
(2) When he was given such power, but without
designating the person, and the person appointed was notoriously
incompetent or insolvent.
All acts of the substitute appointed against the prohibition of the
principal shall be void. (1721)
Whats a substituted agent?
A substituted agent or a substitute is a person to
whom the agent delegates, as his agent, the
performance of an act for the principal which the
agent has been empowered to perform through
his representative.
There are instances where the act of the subagent will
not bind the principal:
When the agent is prohibited to appoint a
subagent.
When the agent has no authority to appoint a
subagent.
When the agent was authorized and no
designated agent but he appointed someone
who is notoriously incompetent or insolvent.
Principal bound by the acts of the sub-agent when
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 Principal specified the sub-agent to be
appointed.
Agent was authorized, he is given the discretion
and he appointed someone not notoriously
incompetent or insolvent.
Agent was authorized to appoint a subagent
who was specifically designated by the principal
as such but was notoriously incompetent or
insolvent.
Principal ratified the appointment. (This was not
mentioned by Sir)
When agent designates a subagent. There is a new
contract between the agent and the subagent. So that if
the agent now acts as a subagent. Is the principal
bound?
The principal is bound only if the agent was
authorized to appoint a subagent.
If the subagent does something without the
authority and against the interest of the
principal, the principal go against or sue the
subagent. This is an exception to the general
rule on the concept of privity of contracts (Only
parties to the contract are bound.); even if the
principal was not privy to the contract between
the agent and the subagent, he can go against
the subagent.
LIABILITY OF AGENTS:
Article 1894. The responsibility of two or more agents, even
though they have been appointed simultaneously, is not solidary, if
solidarity has not been expressly stipulated. (1723)
Solidary is the rule if agreed on the contract.
Instances when the agent is personally liable:
Agent acts in his own name.
Agent has no/lack/absence authority to designate a
subagent and for the acts of the subagent.
Acts beyond his authority.
Acts without authority.
Does acts that prevent the principal from performing the
contract.
RATIFICATION
Article 1897. The agent who acts as such is not personally liable
to the party with whom he contracts, unless he expressly binds
himself or exceeds the limits of his authority without giving such A commission agent assumes possession.
party sufficient notice of his powers.
However that excess of authority can be cured by the ratification the same kind and mark, which belong to different owners,
by the principal.
Requisites for Ratification:
Principal must:
1. Have full knowledge of all the material facts - he must principals what could happen?
know what he is trying to ratify, he must be aware and
understand the implication of his acts. Otherwise, if he
did not understand what he is doing, that he was trying to
cure a defect, then, there can be NO RATIFICATION.
2. Have the capacity to make the ratification.
3. Have done that ratification voluntarily.
The act of agent to be ratified must:
4. Be capable of being ratified (ei. must not be void).
5. Be done in the name of the principal.
Act of ratification must be done:
6. Before the third party repudiates or rescinded the
contract, otherwise if the contract is already rescinded or
ratify, there is nothing to ratify.
7. In its entirety or total ratification.
[8. In the same manner of the authority. if the authority should
be given in writing, then ratification must also be in writing.]?
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COMMISSION AGENT
Commission agent is one engaged in the purchase and sale of the
principals personal property, which for this purpose, such property
has to be placed in his possession at his disposal. He assumes
custody or possession of the property.
How do we distinguish a commission from an ordinary agent
(OA)?
1. CA may act in his own name, while OA acts in behalf of
the principal.
2. CA has possession of the goods, while the OA need not
have possession of the goods.
ARTICLE 1905 and ARTICLE 1906
If the principal owns jewelry, was under you custody, the moment
you sell it, you have consummated the transaction. You were
ordered to sell it on cash but you instead sold it on credit.
Article 1905. The commission agent cannot, without the express
or implied consent of the principal, sell on credit. Should he do so,
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.
Presumption is the sale must always be on cash, unless
otherwise stipulated.
And so you were authorized to sell the jewelry on credit, the buyer,
failed to pay the second installment. Can the principal complain?
Article 1906. 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. (n)
And so you were able to collect the second installment but you did
not remit it to the principal.
Answer, wa ko kadungog kay bell na and hinay ang
tingoooooog
One way of preventing this problem is Article 1906. To
able to check if payment was made.
COMMISSION AGENT WITH TWO OR MORE PRINCIPALS
Article 1904. The commission agent who handles goods of
shall distinguish them by countermarks, and designate the
merchandise respectively belonging to each principal. (n)
If the commission agent is an agent or represents several
The agent should account it and if there is a sale, the agent should
account and allocate the sale in proportion to the goods deposited
by the principal in the warehouse, if they involve the same kind of
goods.
Situation: One principal authorize agent to sell 1 truck of guavas;
and another principal authorize agent to sell 2 trucks of lansones;
and the third principal authorize the agent to sell 5 sacks of
mancenitas, what could happen?
If there is a sale, the agent should account for the fruits separately
for each specific goods.
RULE 1: If it involves the same kind of goods, account the sale in
proportion to what each principal deposited or authorized the
agent to sell.
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RULE 2: If it involves various kinds of goods of each principal, When the lender told the principal about it, he said I never
then you account each separately. authorized the agent to do such thing.

If it involves various kinds of goods, the agent should segregate What would happen? What conduct could it have been? (wala pa
them, unless it involves the same kind of goods. na answer)

Situation: one principal from Bohol has 1 truck of Brown Rice and Situation 2: Your boyfriend said to you, kiss the aping and you
another principal from Bohol has 1 truck of ganador rice, what said ugma nlng the next day your boyfriend kissed you. You are
should the agent do? already estopped because of your promise.

Segregate the rice since they are of different kinds of goods
although each principal has brought rice, they are of different
variety.
PRINCIPAL IN ESTOPPEL
General rule: principal liable for acts of agent done within scope
of his authority
Situation 1 if the principal signs the promissory note after then it is
ratification.
For the principal in Situation 1 to be in estoppel, if he asks an
extension to pay then he is in estoppel. There is an indirect
assumption of the obligation/liability.

When agent is liable: GUARANTY COMMISSION AGENT

a. Expressly binds himself Article 1907. Should the commission agent receive on a sale,
b. Exceeds limits of his authority without giving in addition to the ordinary commission, another called a
sufficient notice of his powers guarantee commission, he shall bear the risk of collection
c. Prevents performance on the part of principal, and shall pay the principal the proceeds of the sale on the
liable to 3rd persons same terms agreed upon with the purchaser.
d. Acts as agent without authority or without a
principal Here, there is a presumption that it is sold in cash.
e. Purports to act as agent of incapacitated
principal Article 1905. The commission agent cannot, without the
express or implied consent of the principal, sell on credit.
Principal is not liable unless: Should he do so, the principal may demand from him
payment in cash, but the commission agent shall be entitled
1. The principal ratifies; to any interest or benefit, which may result from such sale.
2. The principal is guilty of estoppel

Estoppel - Bar which precludes person from denying or asserting

anything contrary to that which has been established as the truth
by his own deed or representation either express or implied
By estoppel originally the principal is not liable for certain
instances but by estoppel the principal may now become liable.
ESTOPPEL VS RATIFICATION
GUARANTEE AGENT VS COMMISSION AGENT
Guarantee agent is liable regardless of the reason for his failure to
collect the proceeds. (whether with due diligence or not)
A commission agent will only be liable when he is remiss in his
duties and failed to exercise due diligence in the collection of the
proceeds. (also when it is due and demandable)

Ratification
Rests on intention,
express or implied,
regardless of prejudice
Party intended to be
bound
Retroactive
Affects entire transaction
and from the beginning
Substance is confirmation
of unauthorized act or
contract after it has been
done or made
Similarity:
rd
Principal bound to 3
persons
PROMISSORY NOTE SITUATION
GIBALIK NI SIR:
Estoppel
Rests on prejudice rather General rule: principal liable for acts of agent done within scope
than intention of his authority
Bound notwithstanding
When agent is liable:
absence of intention
Operates upon something
1. Expressly binds himself
which has been done
Affects only relevant parts of 2. Exceeds limits of his authority without giving sufficient
transaction and from the notice of his powers
time only when estoppels 3. Prevents performance on the part of principal, liable to
may be said to be spelled 3rd persons
out 4. Acts as agent without authority or without a principal
Substance is principals 5. Purports to act as agent of incapacitated principal
inducement to another to act
to his prejudice Principal is not liable unless:
rd 1. The principal ratifies;
Principal bound to 3
persons 2. The principal is guilty of estoppel
3. MOST DEFINITELY IF BY NECESSITY TO INCUR
SUCH LIABLITY

Situation 1: If the principal authorize his agent to borrow from the
L the lender P50,000 and the agent executed and signed a
promissory note in behalf of his principal, whereby the agent said I
acknowledge to pay P50,000 to L the lender upon demand. And
so he signed as agent in behalf of principal.
DIABETES
The agent saw the potential buyer and saw his wounds, he had
diabetes and to induce him to buy he said lets fix it, afterwards he
went back and he was chewing something, (nag albolaryo)

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tomorrow you will be healed the buyer agreed and but the next Chattel Mort. -personal prop as security
day it got worse and it had to be amputated.

The buyer said you should pay for the damage you caused.
Pledge- - surrendered possession of prop
The agent went to the principal and complained, sir pa bayron ko
sa amputation sa buyer, can the boss/principal liable to pay? Mort. - possession not surrendered

No, because even though the agent had the desire to serve the Definitions:
principal, his action was in extreme deviation of the instruction of
the principal. Obligation - juridical necessity to give, to do, or not
to do
RULE: Tortious Acts must be done within the scope of the
agents employment. Follow Motivation Deviation test. - sources : law, contract, q.contract,
delict, q.delict
-
2 Factors in Motivation Deviation Test: (for the principal to
Contract - a meeting of minds between
be liable)
two persons whereby one binds himself, with respect to
a. Agent motivated by desire to serve employer the other, to give something or to
b. Not an extreme deviation from normal conduct
render some service
of employee (if in extreme deviation then the
principal is not liable)

PART 2 51:42 1: 23: 00 Pledge , - an accessory, real and

unilateral contract by virtue of which the debtor or a third person
SELF-DEFENSE
delivers to the creditor or to a
Prof: You are given jewelry, take care , sell it, I will guaranty you
third person movable property as
comm. You bring it along. And the driver saw it. Driver called
security for the performance of the principal obligation, upon the
someone informing him that you have jewelry. In the tricyle,
fulfillment of which
someone stopped you demanding the jewelry at gunpoint. You
killed the person with your own gun. Heir demanded settlement the thing pledged, with all its accession
P5MM. You settled then ask P for reimbursement. Is P liable? and accessories, shall be returned to the
debtor or to the third person.

Itao P is liable ; desire to protect ; under normal situation you

will do the same , not an extreme deviation. P is liable for the Real Estate Mort. - an accessory contract
expense. whereby the debtor guarantees the performance of the principal
obligation by subjecting real

property or real rights as security in

PLEDGE / CONTRACT / OBLIGATIONS / GUARANTY /
case of nonperformance of such obligation
SURETY
within the period agreed upon
Whats the difference? Contract vs Obligation

-contract is a source of obligation

Chattel Mort. - personal property is recorded in the
Chattel Mort. Register as a security for the performance of an
obligation.
What are the sources of obligation?

-Law, contracts, q.contract, delicts, q.delicts

Antichresis - contract by virtue of which the creditor
acquires the right to receive the fruits of an immovable of his
debtor, with the
Pledge is just an accessory obligation.
Obligation to apply them to the
Principal contract is the loan. payment of the interest, if owing, and thereafter, to the principal
of his credit
Example:

Prof : Asa man ka?

Suretyship - a contract by virtue of which a person
Me: Mamendra ko. binds himself solidarily with the principal debtor to fulfill the
obligation
Prof: dili! manghuwam ka! Nya para makahuwam moprenda
ka.

Mortgage : dependent on principal contract of loan Guaranty - a contract by virtue of which a person,
called the guarantor, binds himself to the
Real Estate Mort. -real prop as security creditor to fulfill the obligation of the

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 principal debtor in case the latter Prof: What happens to your buyer?
should fail to do so.
-damages

3 BROS, COMMON PROP, COMMON AGENT

Prof : who is liable?
3 brothers who own a common prop. Sell prop to someone
through common agent Garcia: P is liable act of A is act of P.

A- terminating the agency Prof: A in good faith

is the entire agency terminated?
Free from liability
Entera : yes solidary
P should be blamed, he revoked without informing A

Prof: What is nature of liability of Principal?

DOUBLE SALE IMMOVABLE (LAND)
-Solidary
Prof: If what I authorized to sell was my parcel of land? Same
Prof: Agent? answer?

-joint -No. diff. rule for immovable.

1.registration

3 BROS, SEPARATE PROP, COMMON AGENT 2.possession

3 brothers who own each an apartment 3.oldest title

Bro A: authorized Agent to rent out/ sell . (all 3 in good faith done)

Bro B: so with mine.

Then Rules in double sale:

Bro A:terminate agent. 1. movable - possession

Prof :what happens to other units? 2. immovable -registration

not affected ; separately owned -possession

Prof. When may that agency be pursued ?
-Subject of agency cannot be separated common transaction
-oldest title
Prof: RDO issues one title ; problem is Xerox machine ; several
agents selling same property. Advance payment received from
one buyer, agent disappears then goes to another buyer. Lesson:
be very cautious in dealing with agents.

DOUBLE SALE - MOVABLE (WATCH)

Article 1544. If the same thing should have been sold to different
Prof: here is my cheap watch cadorna, sell it for 30K. then after I vendees, the ownership shall be transferred to the person who
may have first taken possession thereof in good faith, if it should
authorized you, I saw a friend, I sold it immediately be movable property.

Should it be immovable property, the ownership shall belong to

Prof: What happens to your authority?
-considered revoked because authority is by nature revocable
Prof: However before you learned of what I did you finalized the
sale, with proceeds received.
P: Dugay ra nahalin!
the person acquiring it who in good faith first recorded it in the
Registry of Property.
Should there be no inscription, the ownership shall pertain to the
person who in good faith was first in the possession; and, in the
absence thereof, to the person who presents the oldest title,
provided there is good faith. (1473)
Rules in Double Sale
(when 2 persons contract with the same thing, one with the
principal, the other with the agent. Which transaction shall
prevail?)

1. Prior Date of Sale

-double sale ; same prop is sold to diff persons.
-Watch movable - 1st in possession
2. If transacted in the same date - determine what kind of
property, whether:
A. MOVABLE - the first possessor in good faith prevails. It stops
here since it is impossible for 2 persons to possess a movable
thing at the same time.

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b. IMMOVABLE - first to register it in the Registry of Property in
good faith prevails.
If both registered at the same time - first possessor in
good faith prevails.
If both possessed at the same time - the person who can
present oldest title in good faith shall prevail.
If same oldest title? IMPOSSIBLE!
AGENT ADVANCES ; PRINCIPAL REIMBURSEMENT
Prof. : A may make advances.
P obliged to reimburse expenses
DINE
Prof: Cadorna to sell prop. Because of his desire, says to
prospective buyer boss manihapon ta. Agent advances P5,000
dinner with client. Can he ask reimbursement?
-depends -ask for reimbursement if necessary and reasonable.
Prof:So aguilar, It is a necessary exp.
WINE, DINE & MORE
After dinner, sulod ta karaoke + girls.
Girl: gutom ko.
Agent: waiter ilisdi ug nakapanihapon. Dako ta ug gasto ani.
New girls, 10 girls, started to drink. Ladies drink. P250 / shot.
@ 2 am boss uli na ta
BILL: P25,000 {ROOM, CHICKS ,DRINKS, BODY SHOT}
1:23:01
While it is the obligation of the principal to reimburse and provide
for expenses, these are not obligations that cannot be unlimited.
No such thing as unli expense. Unli expenses pwede.
When can the principal refuse to reimburse?
Article 1918. The principal is not liable for the expenses
incurred by the agent in the following cases:
(1) If the agent acted in contravention of the
principal's instructions, unless the latter should wish
to avail himself of the benefits derived from the
contract;
(2) When the expenses were due to the fault of the
agent;
(3) When the 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. (n)
Modes of Extinguishment of Agency
Article 1919. Agency is extinguished: EDWARD
(1) By its revocation;
(2) By the withdrawal of the agent;
(3) By the death, civil interdiction, insanity or
insolvency of the principal or of the agent;
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(4) By the dissolution of the firm or corporation
which entrusted or accepted the agency;
(5) By the accomplishment of the object or purpose
of the agency;
(6) By the expiration of the period for which the
agency was constituted.
Who withdraws?
- The agent
When are there instances when the principal revoke the agency?
Article 1927. An agency cannot be revoked if a bilateral
contract depends upon it, or if it is the means of fulfilling an
obligation already contracted, or if a partner is appointed
manager of a partnership in the contract of partnership and
his removal from the management is unjustifiable.
1. Bilateral contract depends upon it
2. Means of fulfilling an obligation already contracted
3. Partner is appointed manager of a partnership in the
contract of partnership and his removal from the
management is unjustifiable
STIPULATION POUR AUTRIUI
One instance where the agency is irrevocable is when there is a
stipulation pour autriui. Stipulation pour autriui means?
- Stipulation in favor of a third person
- French term (very difficult to understand sometimes)
There was a dinner, and I happened to be following a French
guy. He was telling me bon apptit and I said Eugene
Espedido. We met again on the following day, bon appetite,
Eugene Espedido. I could not understand. Third time, it was
the last dinner, it was my turn to tell him bon appetite, then he
said Eugene Espedido. He thought the Cebuano of thank you
was Eugene Espedido. Tabla mi. kani manga ignoy lagi.
If there is an agreement for Escabarte to sell my property, with the
agreement that the proceeds of the sale shall be used to pay what
I borrowed from a third party. You cannot cancel that otherwise
that is one less security for the loan incurred.
DEATH OF PRINCIPAL
As a matter of fact even if the principal is already dead, normally if
the principal is dead what will happen?
GR the agency dies with the principal.
However, even if the principal is dead, there is a stipulation pour
atriui?
Article 1927. An agency cannot be revoked if a
bilateral contract depends upon it, or if it is the
means of fulfilling an obligation already contracted,
or if a partner is appointed manager of a partnership
in the contract of partnership and his removal from
the management is unjustifiable.
- The contract of agency will not be extinguished
- The authority to sell is for the benefit of third parties
- The heirs of the successors in interest shall be obliged to
honor that authority given
There is another instance where death will not extinguish.
Article 1931. Anything done by the agent, without
knowledge of the death of the principal or of any
other cause which extinguishes the agency, is valid
and shall be fully effective with respect to third
persons who may have contracted with him in good
faith
- The agent has no knowledge of the death, the contract of
agency will not be extinguished
- Conditions:
o Benefit of the agent and the principal
o Benefit of third parties (stipulation pour attriui)
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 withdraw, ahw di nako oi. The principal missed the opportunity for
INTEREST profit. There was no sale made. What is the effect of the
withdrawal? Is it effective?
There is a contract of agency and the agent will get a 20% of the - No, it is not effective because the sale was not
sale of the property in addition to compensation. If the principal will consummated because of the withdrawal
die, then just because the principal died it doesnt terminate the - The agent can be held liable for damages.
right of the agent to the sale. The property will be sold and the
agent will get 20% additional commission from the sale. But later
on, the principal said Ong, ako checke bah nag ongong naman ni,
Im cancelling your authority. Unsaun man nako pag paningil sa
20% commission plus 5% bonus? Can you still revoke?
- Principal can still revoke the agency
- In order for the contract to be irrevocable the interest of
the subject matter, not merely just because he derives
commission from the agency.

What interest does the law talk about that will jeopardize the
interest of the agent; the principal could no longer revoke the
agency.
- It is the means of fulfilling an obligation already
contracted
- it refers to an obligation separate and independent of the
subject matter of the agency
- It does not refer to the commission of the agent, the
commission of the agent it is not a separate transaction
but the result of the agency.

Prior to the constitution of the agency, the principal has already a

debt in favor of the agent, he already has a loan therefore he
constitutes the agency for the agent to sell his car so that the
proceeds of the sale shall be applied to his outstanding debt
towards the agent. The agent may refuse to have the authority
revoked.

DEATH OF THE PRINCIPAL AGAIN

Death of the principal cancels the authority of the agent, meaning

if the principal is already dead, can the agent still pursue the
agency?
GR no more
Exc
Article 1931. Anything done by the agent, without
knowledge of the death of the principal or of any
other cause which extinguishes the agency, is valid
and shall be fully effective with respect to third
persons who may have contracted with him in good
faith.

- Contract will still be binding on the principal as well as the

heirs who may question the authority later. The third
party could always say that he did not know that the
principal died, the agent could also say that he was not
informed about the death of the principal. The transaction
remains valid.

WITHDRAWAL OF THE AGENT

Article 1928. The agent may withdraw from the agency by

giving due notice to the principal. If the latter should suffer
any damage by reason of the withdrawal, the agent must
indemnify him therefor, unless the agent should base his
withdrawal upon the impossibility of continuing the
performance of the agency without grave detriment to
himself.

Who may cause the withdrawal?

- The agent

When an agent withdraws, what should he do?

- The agent will notify the principal of his intent to
withdraw, otherwise the withdrawal will not take effect.

If despite his withdrawal, the property which he was authorized to

sell was not sold, when in fact somebody else went to the owner
and wanted to buy the property. The principal was supposed to
entertain another buyer but because of your agency the principal
said, ako nalang I hatag ni san luis, deal with san luis. He
refused the offer to buy. It would have given him a profit of 50m.
When he went to you, you said, dugay nako ni withdraw. The
buyer said ni adto kos principal, ingun dinhi nimo karun ana ka ni
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